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2023 ReportSERVICE STREAM LIMITED 2021 ANNUAL REPORT Annual General Meeting
The Annual General Meeting of Service Stream Limited
will be held as a virtual meeting which will be conducted online on
Wednesday 20 October 2021, 10.00am
Service Stream Limited
ABN 46 072 369 870
Annual report for the financial year ended
30 June 2021
Service Stream Limited ABN 46 072 369 870
Annual Report
for the year ended 30 June 2021
Contents
Directors’ report
Auditor’s independence declaration
Financial report
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 35
Page 36
Page 37
Page 38
Page 39
Page 40
Page 77
Page 78
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 26 August 2021. 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 2021, 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 Company 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 and,
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 organisations 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 & 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,
telecommunications
technology, health, safety & environment, risk management and human resources.
large scale infrastructure and construction,
Greg has served on numerous Boards throughout his executive career and has experience in governance and
compliance, corporate finance and mergers & acquisitions.
1
Greg is Chairman of the Sustainability, Safety, Health & Environment Committee and a member of the Audit and Risk
Committee.
During the last three years, Greg held a listed company directorship with OptiComm Limited (retired as entity was
acquired in November 2020).
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 & Environment Committee and a member of 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 2010.
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
these 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.
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,
technology, renewables and infrastructure. Deborah’s experience includes Board leadership, governance and
compliance,
relations and health, safety &
environment.
remuneration practices,
risk management,
technology,
investor
2
Service Stream Limited
Directors' report
Deborah is Chairman of the Audit and Risk Committee and is a member of the Remuneration and Nomination
Committee.
Deborah is currently a Non-Executive Director of Brickworks Limited, Pendal Group Limited and Growthpoint
Properties Australia Limited. During the last three years, Deborah held a listed company directorship with GBST
Holdings Limited (retired as entity was acquired in November 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
3,904,613
93,333
39,726,415
1,350,050
622,801
1,467,601
-
-
-
-
-
361,879
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 15 to 33. 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
L Kow
P McCann
K Smith
B Wakeford
361,879
193,076
132,791
162,254
87,575
937,575
361,879
193,076
132,791
162,254
87,575
937,575
Company secretaries
Chris Chapman
Qualifications: LLB BA (Politics), GAICD.
Chris Chapman was appointed General Counsel for the Group in August 2015. Chris has significant in-house
experience having held senior legal positions at large private and listed construction and infrastructure businesses.
Chris was appointed Company Secretary in February 2019.
3
Service Stream Limited
Directors' report
Jamie O’Brien
Qualifications: LLB (Hons), BA.
Jamie O’Brien joined Service Stream in April 2015 and is currently a Senior Legal Counsel in the Legal team. He has
extensive experience as an in-house lawyer and a senior lawyer in Australian and overseas law firms. Jamie O’Brien
was appointed as additional Company Secretary in April 2021.
Principal activities
installation and
Service Stream is a provider of essential network services,
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
1.000FY21
1.000FY20
1.000
Change
804,203
929,133
(124,930)
(13.4%) ▼
75,153
105,588
(30,435)
(28.8%) ▼
Depreciation & amort.
(20,439)
(20,673)
234
(1.1%) ▲
Amort. of customer contracts / relationships
(8,852)
(11,005)
2,153
(19.6%) ▲
EBIT
Net financing costs
Income tax expense
Net profit after tax
Statutory EPS (cents)
Dividends declared per share (cents)
1.000
Adjusted profitability 2:
EBITDA from Operations
EBITDA from Operations %
Adjusted EBIT (EBIT-A)
Adjusted NPAT (NPAT-A)
Adjusted EPS (cents)
45,862
73,910
(28,048)
(37.9%) ▼
(4,044)
(3,445)
(599)
17.4% ▼
(12,544)
(21,150)
8,606
(40.7%) ▲
29,274
49,315
(20,041)
(40.6%) ▼
7.15
2.50
12.13
9.00
(4.98)
(41.1%) ▼
(6.50)
(72.2%) ▼
80,111
10.0%
59,672
38,941
9.51
108,115
(28,004)
(25.9%) ▼
11.6%
(1.7%)
▼
87,442
(27,770)
(31.8%) ▼
58,787
(19,846)
(33.8%) ▼
14.46
(4.95)
(34.2%) ▼
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.
Group results
Group revenue reduced by 13.4% to $804.2 million from $929.1 million with Telecommunications reporting a net
reduction of 27.9%, partially offset by Utilities revenue increasing by 7.1%. The reduction in Telecommunications
revenue was driven by the conclusion of the nbn design and construction program in FY20, and related to that, a
reduction in activation volumes as per nbn’s strategic plan. The Utilities segment achieved solid revenue growth of
11.0% across Comdain Infrastructure operations, but this was partially offset by lower metering revenue primarily due
to continuing COVID-19 impacts.
4
Service Stream Limited
Directors' report
Group earnings before interest, tax, depreciation and amortisation (EBITDA) decreased to $75.2 million from $105.6
million, inclusive of $5.0 million non-operational expenditure. EBITDA from Operations excludes this non-operational
expenditure which is comprised of costs associated with the assessment of M&A opportunities of $3.5 million, the
majority of which relates to due diligence undertaken in relation to the Lendlease Services Acquisition announced on
21 July 2021; and restructuring costs of $1.5 million.
Depreciation & amortisation expense remained stable, decreasing by $0.2 million. Amortisation of customer contracts
& relationships expense relates to the Techsafe (2017) and Comdain Infrastructure (2019) acquisitions. This
non-operational expense is excluded from the calculation of Adjusted Profitability metrics.
Group earnings before interest and tax (EBIT) was $45.9 million, a decrease of $28.0 million on FY20. The decrease
is in line with the movement in EBITDA.
The Group’s net financing costs increased by $0.6 million to $4.0 million, predominantly due to the refinancing of the
Group’s banking facilities undertaken during the year, with total debt facilities increased to $275 million to provide
headroom for future growth.
Tax expense for the year was $12.5 million, which is an effective tax rate of 30.0%.
Group net profit after tax (NPAT) decreased from $49.3 million to $29.3 million, and earnings per share (EPS)
reduced from 12.13 cents to 7.15 cents per share primarily driven by the reduction in revenue drivers discussed
above.
The Directors have determined that a final FY21 dividend will not be declared to assist with funding the Lendlease
Services Acquisition.
Reconciliations between IFRS and non-IFRS financial information
$'000
Reported EBITDA
Add-back adjustments:
- Due diligence costs on potential acquisitions
- Restructuring costs
- 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
FY21
1.000FY20
75,153
105,588
3,470
1,488
1,312
-
-
1,215
80,111
108,115
29,274
49,315
4,958
2,527
8,852
11,005
(4,143)
(4,060)
38,941
58,787
Avg number of shares on issue (millions)
409.477
406.647
1.000
Statutory EPS (cents)
Adjusted EPS (cents)
1Adjusted net profit after tax.
7.15
9.51
12.13
14.46
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. Whilst these sectors have largely been able to continue operations throughout the
pandemic, there have been a number of continuing COVID-19 related impacts to the Group's operations during the
period.
The impacts to FY21 earnings are described below:
•
•
•
•
delays to mobilisation programs, caused by lockdowns, border restrictions and/or availability of client supplied
free issue materials;
continuing customer determined moratoriums on electricity and gas disconnections (and subsequent
reconnections) impacting metering operations. These restrictions have progressively improved over the latter part
of FY21, however, not all clients have resumed normal metering operations;
deferral of some discretionary maintenance activities by asset owners; and
increased costs to support specific safety-related protocols across business operations, such as protective
equipment, additional cleaning, and operating separate warehouse shifts.
Specifically, the Victorian Stage 4 COVID-19 restrictions resulted in significantly reduced services in the Group’s
Techsafe operations during the first half of FY21. As a result,
the Group received $1.1 million of JobKeeper
assistance from the government.
Segment Results
1.000
$'000
1.000FY21
1.000FY20
1.000
Change
Telecommunications
392,378
544,170 (151,792)
(27.9%) ▼
Utilities
411,541
384,083
27,458
7.1% ▲
Eliminations, interest & other revenue
284
880
(596)
Total Revenue
1.000
804,203
929,133 (124,930)
(13.4%) ▼
Telecommunications
57,783
83,125
(25,342)
(30.5%) ▼
Utilities
29,048
30,810
(1,762)
(5.7%) ▼
Unallocated corporate costs
(6,720)
(5,820)
(900)
EBITDA from Operations
80,111
108,115
(28,004)
(25.9%) ▼
Non-operational costs
(4,958)
(2,527)
(2,431)
EBITDA
1.000
75,153
105,588
(30,435)
(28.8%) ▼
Telecommunications
14.7%
15.3%
(0.6%)
Utilities
EBITDA margin
7.1%
8.0%
(0.9%)
9.3%
11.4%
(2.1%)
▼
▼
▼
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 following significant long-term agreements with core
delivery partners have been signed:
•
•
nbn Unified Field Operations (Unify Services), which replaces the Operations and Maintenance Master
Agreement (OMMA). The agreement is for an initial period of four years, with two x two-year extension options,
and Service Stream will be responsible for performing activation, operations and maintenance activities across
core network technologies;
nbn Unified Field Operations (Unify Networks) to perform operations and maintenance activities across core
network technologies. The agreement is for an initial period of four years and includes a provision of two x
two-year extension options. This agreement supersedes the Network Maintenance & Restoration Agreement
(NMRA) that was held by Service Stream and was extended by nbn on multiple occasions since its original
execution in September 2012; and
6
Service Stream Limited
Directors' report
•
a multi-year Telstra Field Optimisation Agreement (TFO) for the provision of design and construction services
across wireless and fixed-line infrastructure networks. The five-year agreement is for an initial period of three
years, with two x one-year extension options.
Telecommunications’ financial performance in FY21 declined since the prior year, delivering revenue of $392.4 million
and an EBITDA of $57.8 million (14.7% margin), compared with revenue of $544.2 million and EBITDA of $83.1
million (15.3% margin) in the prior year.
Revenue decreased by $151.8 million (27.9%) compared to FY20 due to:
•
•
activation and assurance revenue was $101.6 million lower, with overall activation volumes in line with nbn’s
corporate plan;
conclusion of nbn D&C activities following the successful completion of the program during H2 FY20 resulting in
revenue reduction of $38.5 million; and
• Wireless revenue of $63.1 million, down $10.0 million from prior period with work volumes continuing to track
below expectations due to subdued 5G expenditure.
Telecommunications' EBITDA was $57.8 million, a decrease of 30.5% against prior year due to the aforementioned
reasons.
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.
Utilities achieved further revenue growth in FY21, delivering revenue of $411.5 million and an EBITDA of $29.0 million
(7.1% margin) compared with revenue of $384.1 million and EBITDA of $30.8 million (8.0% margin) in the prior year.
Revenue increased by $27.5 million (7.1%) compared to FY20 due to:
•
strong performance across Comdain Infrastructure with the business unit achieving 11.0% revenue growth. This
includes the first full-year contribution from the Sydney Water D4C Joint Venture (JV);
• metering services revenue was impacted by COVID-19 related reduced activity due to client moratoriums on
electrical and gas disconnections and reduced residential land development activity; and
lower revenue from New Energy due to fluctuating volumes across a number of work programs.
•
Utilities' EBITDA was $29.0 million, a decrease of $1.8 million against prior year. The EBITDA margin reduction of
0.9% was due to work-mix, with increased weighting of revenue from Comdain Infrastructure which operates at a
lower margin than the Energy & Water business unit.
7
Cashflow and Financial Position
1.000
$'000
FY21
1.000
FY20
1.000
Change
Service Stream Limited
Directors' report
Reported EBITDA
75,153
105,588
(30,435)
(28.8%) ▼
+/- non-cash items & change in working capital
(728)
(19,142)
18,414
(96.2%) ▲
OCFBIT 1
74,425
86,446
(12,021)
(13.9%) ▼
EBITDA to OCFBIT 1 conversion %
99.0%
81.9%
Net interest and financing paid
(4,698)
(3,586)
(1,112)
31.0% ▼
Income taxes paid
Operating cashflow
(24,180)
(25,177)
997
(4.0%) ▲
45,547
57,683
(12,136)
(21.0%) ▼
Capital expenditure (net of proceeds from sales)
(8,839)
(6,485)
(2,354)
36.3% ▼
Free cashflow
Dividends paid
36,708
51,198
(14,490)
(28.3%) ▼
(28,719)
(36,303)
7,584
(20.9%) ▲
Principal elements of lease payments
(11,888)
(9,655)
(2,233)
23.1% ▼
Lease incentives received
Purchase of shares (net of costs)
Repayment of borrowings
Net increase / (decrease) in cash
Net cash 2
-
-
(25,000)
(28,899)
4,164
(4,164)
(100.0%) ▼
(741)
741
(100.0%) ▲
-
(25,000)
▼
8,663
(37,562)
(433.6%) ▼
15,573
19,472
(3,899)
(20.0%) ▼
1Operating cashflow before interest & tax.
2Net cash excludes lease liabilities arising from the application of AASB 16 Leases.
Cash Flow
Cash flow from operations for the year was $45.5 million compared to $57.7 million in FY20, with key components
being:
•
•
•
operating cash flow from operations before interest and tax (OCFBIT) was $74.4 million, representing a 99.0%
cash flow conversion rate which has improved on last year;
net interest and financing cash outflows were $4.7 million, $1.1 million higher than FY20 due to the refinancing of
debt facilities during the year; and
tax paid of $24.2 million was $1.0 million lower than FY20, reflective of lower earnings. The Group received a
$5.0 million tax payment deferral from the Australian Tax Office during FY20 as part of its initial response to
managing potential risks from the COVID-19 pandemic which was paid in Q1 FY21.
Net investing cash outflows were $8.8 million and comprised:
•
•
$9.9 million of capital expenditure investment in technology and plant & equipment. The IFS ERP implementation
across Comdain Infrastructure was implemented successfully in FY21; and
net of $1.1 million of proceeds from the sale of assets.
Net financing outflows for the year were $65.6 million and included:
•
•
•
payment of motor vehicles and property leases of $11.9 million;
$28.7 million paid in dividends, a reduction of $7.6 million from prior year; and
$25.0 million repayments of borrowings.
8
Service Stream Limited
Directors' report
Financial position
The financial position of the Group was steady, with Net Assets at 30 June 2021 of $323.3 million compared to $321.8
million at 30 June 2020. At 30 June 2021, Current Assets exceeded Current Liabilities by $55.4 million (30 June 2020:
$69.2 million).
Net cash and financing facilities
•
•
•
the Group ended the year with Net Cash (excluding lease liabilities and capitalised borrowing costs) of $15.6
million. Net Cash at 30 June 2021 comprised cash of $50.6 million less borrowings of $35 million;
the Group completed a refinance of its banking facilities and increased its revolving facilities to $275 million in Q2
FY21; 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.
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 2021 was a net asset position of $13.1 million, in line with the prior
year position;
plant and equipment at 30 June 2021 was $13.2 million compared to $15.2 million at 30 June 2020;
Intangibles at 30 June 2021 were $306.7 million compared to $313.2 million with the decrease primarily
attributable to amortisation of customer contracts & relationships; and
right-of-use assets and lease liabilities in respect of AASB 16 of $30.0 million and $33.7 million respectively at
balance date compared to prior year of $29.1 million and $33.4 million respectively.
Overall Group strategy, prospects and risks
Although the financial performance of the Group was below that of the prior year, due to the rebasing of the business
following the renewal of Telecommunications contracts in the year, the Group remains well positioned to continue to
deliver on its strategic objectives in line with the Board’s expectations. The balance sheet, cashflow and liquidity
position of the group remain very strong.
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.
Consistent with the Group’s strategy, Service Stream has entered into a binding agreement to acquire 100% of
Lendlease Services from Lendlease Group. This acquisition is expected to further diversify Group revenues, enhance
current capabilities and expand the Group’s addressable markets. This acquisition was announced to the ASX on 21
July 2021 and is expected to complete around November 2021.
In the Telecommunications segment, the securing of the Unify Services, Unify Networks and Telstra Field Operations
agreements on multi-year terms provides future earnings sustainability and a significant long-term foundation from
which the business can pursue and secure additional opportunities.
In the Utilities segment, the Board notes the positive momentum achieved during the year and the continued strong
future prospects it provides in the Utilities space.
The achievement of the Group’s business objectives may be impacted by the following material risks:
COVID-19
pandemic
The COVID-19 pandemic created an unprecedented level of uncertainty and continues to present
some risks to near-term performance. Although impact to the Group’s operations to date have not
been overly 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 reduction in demand from the Group’s customers may further negatively
impact the Group’s operations.
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.
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.
9
Customer
demand
Contract
management
Service Stream Limited
Directors' report
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 to date.
The acquisition of Lendlease Services, which was announced on 21 July 2021, and expected to
complete around November 2021 is expected to provide further sector and customer diversification
which may assist further in addressing this risk.
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.
A Group Commercial function is in place to mitigate this risk. 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
Whilst the Group has been successful
in renewing and extending the majority of all customer
contracts that have recently expired, the renewal of contracts remains a risk that Management and
the Board continues to actively monitor and manage.
Service Stream operates in a limited number of market segments in which there are relatively few
competitors. Management and the Board are therefore particularly conscious of the risks related to
the loss of business to competitors either through their ability to potentially leverage more
cost-effective business platforms or as a consequence of their potential adoption of loss-leading
strategies to maintain or increase market share.
During FY21, the Group was successful in securing long term contracts with nbn co and Telstra.
The Board is confident that the Group’s superior performance and consistency of service delivery
will ensure successful delivery on these contracts, but failure to do so would have a material
impact on the Group.
Retention of key
personnel and
sourcing of
subcontractors
The talents of a growing, yet relatively small number of key personnel contribute significantly to the
Group’s operational effectiveness. Management and the Board have implemented strategies to
including participation in appropriate incentive arrangements and
retain those personnel,
participation in the Group’s employee development, talent identification and succession programs.
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
investments in market leading
customers. The business continues to make appropriate capital
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
10
Service Stream Limited
Directors' report
During FY21,
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.
Integration risk
The acquisition of Lendlease Services, which is expected to complete in November 2021, is a
complementary acquisition that will create a leading multi-network essential services provider with
diverse operations.
.000
.000
.000
.000
.000
.000
There is a risk that the success and profitability of Service Stream following completion could be
adversely affected if Lendlease Services is not integrated effectively.
Integration could take longer, be more complex or cost more than expected, encounter unexpected
challenges or issues, divert management attention or that the anticipated benefits and synergies of
the integration may be less than estimated. Possible issues which may arise include:
•
•
•
•
•
•
•
differences in corporate culture between the businesses being integrated;
lack of capability and talent to deliver integration;
unanticipated or higher than expected costs, delays or failures relating to integration of
businesses, support operations, accounting, other systems or insurance arrangements;
unanticipated or higher than expected costs or extensive delays in the planned upgrades,
migration, integration and decommission of information technology systems and platforms;
loss of, or reduction in, key personnel, expert capability or employee productivity, or failure to
procure or retain employees;
failure to derive the expected benefits of the strategic growth initiatives; and
disruption of ongoing Service Stream operations.
This risk will be mitigated by the deployment of a dedicated and experienced integration team. In
addition, contractual arrangements will be in place with Lendlease Group to provide certain
transitional services in relation to employees, IT systems, infrastructure and data following the
completion of the acquisition to facilitate Lendlease Services’ integration into Service Stream.
Any failure to achieve the targeted synergies of
performance, operation and position of Service Stream.
integration may impact on the financial
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.
the Group refreshed the Company's network infrastructure providing greater
During FY21,
capacity, redundancy and security resilience, along with enhanced user and device security
management. Functional uplifts included a project management solution for the Comdain business
and enhanced field service solutions to support Unify contracts.
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
2021
Interim
2021
Final
2020
-
-
-
-
2.50
10,244
100%
5.00
20,435
100%
14 April 2021
1 October 2020
11
Service Stream Limited
Directors' report
Significant changes in the state of affairs
Except as stated in the review of operations and financial performance, there were no other significant changes in
state of affairs of the Group during the financial year.
Matters subsequent to the end of financial year
Subsequent to year end, the Group entered into a binding agreement to acquire 100% of Lendlease Services Pty Ltd
from Lendlease Group for an enterprise value of $310 million, and an expected purchase price of approximately $295
million once debt and debt like items are considered. To fund the acquisition, the Group completed a capital raise of
$185 million, issuing 205.6 million new ordinary shares. The balance of acquisition funds required will be funded from
draw down of debt facilities and available cash, with commitments to extend the Group’s syndicated debt facilities
increasing by $120 million to $395 million. Completion is expected to occur around November 2021, subject to a
condition precedent in respect of counterparty consents and market standard completion processes. Further details of
the acquisition and capital raise are detailed in the investor presentation lodged with the ASX on 21 July 2021.
Other than the above, there has not been any matter or circumstance occurring subsequent to the end of the financial
year that has significantly affected, or may significantly affect, the operations of the Group, the results of those
operations, or the state of affairs of the Group in future financial years.
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
FY19 LTI Tranche 1
FY20 LTI Tranche
FY21 LTI Tranche
Class of shares
Exercise
price of right
Ordinary
Ordinary
Ordinary
$0.00
$0.00
$0.00
Vesting date
September 2021
September 2022
September 2023
Number of shares
under rights
228,680
931,869
1,845,077
3,005,626
1 The number of shares under FY19 LTI Tranche has been calculated based on the performance outcome over the three year period ended 30
June 2021.
The holders of these rights do not have the right, by virtue of the performance right, to participate in any share 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 (LTI) Plan
will be issued to participants after release of the financial statements in the relevant financial year, to the extent that
the vesting criteria have been satisfied.
12
Directors' meetings
The following table sets out the number of Directors’ meetings (including meetings of Committees of Directors) held
during the financial year and the number of meetings attended by each Director (while they were a Director or
Committee member).
Service Stream Limited
Directors' report
No of meetings held
No of meetings attended by
B Gallagher
G Adcock
T Coen
P Dempsey
D Page
L Mackender
Meetings of Committees
Remuneration
and
Nomination
Sustainability,
Safety,
Health &
Environment
Audit and
Risk
Term of
Directorship
4
4*
4
4*
4
4
4*
4
4*
4*
4
4
4
4*
4
4
4
4
4*
4*
4
11 years
5 years
2 years
11 years
11 years
7 years
Board
meetings
251
25
25
25
25
25
25
1 The number of board meetings held during the year comprised of twelve regular monthly meetings and thirteen unscheduled meetings in
relation to large contract tender submissions and M&A growth opportunities.
* Attended 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.
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 32 to the financial statements.
The Directors are satisfied that the provision of non-audit services during the year by the auditor (or by another person
or firm on the auditor’s behalf) are compatible with the general standard of independence of auditors imposed by the
Corporations Act 2001.
PricewaterhouseCoopers has been the auditor of the company since FY 2013, and Trevor Johnson has been the
Partner responsible since FY 2018.
The Directors are of the opinion that the services disclosed in note 32 to the financial statements do not compromise
the external auditor’s independence, based on advice received from the Audit and Risk 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
13
Service Stream Limited
Directors' report
•
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 35 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 26 August 2021 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 Group 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 26 August 2021 and has been approved by the Board.
14
Remuneration report
Message from the Chairman of the Remuneration and Nomination Committee
Service Stream Limited
Directors' report
26 August 2021
Dear Shareholders,
On behalf of the Board, I am pleased to be writing to you as Chair of Service Stream’s Remuneration and Nomination
Committee (RNC) and to present Service Stream’s FY21 Remuneration Report.
Service Stream’s FY21 Remuneration Report provides information about the remuneration of its Key Management
Personnel and Non-Executive Directors, explaining how performance has been linked to reward outcomes at Service
Stream for the FY21 financial year.
2020 Annual General Meeting
At the 2020 Annual General Meeting, 83% of all votes cast by shareholders were in favour of the 2020 Remuneration
Report. While the resolution was carried, the Board was made aware of some concerns raised by proxy advisors and
shareholders in relation to the Company’s short-term incentive (STI) and long-term incentive (LTI) plans (together the
“Incentive Plans”) and in particular, the non-disclosure of annual short and long-term incentive targets, and the
re-testing regime under the LTI.
As advised in the Chairman’s Address to Shareholders at the 2020 Annual General Meeting, the Board is mindful of
the need to strike the right balance between addressing those concerns, whilst ensuring that we cater to the specific
industry dynamics within which Service Stream operates. The Board is of the view that an incentive scheme that
aligns with its objective of rewarding Management for taking a longer-term view of the Business and one that drives
behaviour and decisions over that longer period so as to deliver a more sustainable future, is in the best interests of
all shareholders.
Responding to Feedback
Over the past year, the Board has reviewed the Company’s Incentive Plans and proactively engaged with a selection
of proxy advisors and shareholders to obtain qualitative feedback on the Board’s proposed amendments to the
Incentive Plans to address the concerns previously raised and reach an appropriate balance.
At the conclusion of the consultation process and consistent with the Board’s philosophy of rewarding Management
for taking a longer-term view of the business, the Board has agreed and recommended the following Incentive Plan
scheme applicable to FY22 and beyond:
•
•
•
ensure the weighting of the EPS-related component of the LTI to 50% maximum;
EPS and TSR performance vesting requirements adjusted to reflect a new sliding growth scale award;
removed the vesting criteria on Managing Director LTI where 40% was payable with no annual EPS growth; and
• minimum of 90% or more achievement of annual target Group EBITDA from Operations will continue to apply
before the award of any STI to an employee.
The Board has also agreed to improve disclosure in the Remuneration Report with regard to the Incentive Plans.
Details such as minimum performance thresholds, individual performance quadrants, performance weightings and key
performance indicators are now disclosed in the Remuneration Report.
For further information on the changes to the remuneration policy and framework, together with the details of each
Incentive Plan, please refer to pages 17 to 33 of the Remuneration Report.
Remuneration Policy for Managing Director and Key Management Personnel
The Managing Director’s remuneration is reviewed annually and benchmarked against peer companies. For FY21, the
Board determined that the Managing Director’s and Key Management Personnel’s (KMP's) remuneration would
remain unchanged.
FY21 was a transitional year for the Company following revenue from nbn construction operations concluding and
customer activations reducing from peaks in the prior year. The business also had its historical telecommunications
agreements with nbn and Telstra conclude and their revised arrangements tendered and subsequently secured by
Management, while the Group’s Utility division continued to expand its operations across Western Australia and
Queensland. This transitional year was reflected in the Company’s results and share price, and taken into account
when considering the remuneration outcomes for the Managing Director and KMP.
15
Service Stream Limited
Directors' report
For FY21 there were no STI awards for the Managing Director and KMP.
The vesting outcome for the FY19 LTI Tranche, of which the Managing Director and KMP were not participants, was
partial vesting, with Year 1 EPS and TSR criteria being fully vested, and Year 2 EPS proportionately vested. Year 2
TSR and Year 3 EPS and TSR all failed.
Remuneration Policy for the Chairman and Non-Executive Directors
Fees for the Chairman and Non-Executive Directors are also reviewed annually and benchmarked against peer
companies.
In-line with the Board’s decision concerning the Managing Director’s and KMP’s remuneration, no
changes were made to the Chairman’s and Non-Executive Director’s fees for FY21.
Summary
The Board believes that the adjustments proposed to the Incentive Plans in FY22 address the concerns raised by
for taking a
proxy advisors and shareholders and maintain the Board’s objective of rewarding Management
longer-term view of the Business.
The Board is also of the view that the remuneration outcomes for FY21 are appropriate, present an appropriate
alignment between pay and performance, as well as recognise the challenges posed by the continuation of the
COVID-19 pandemic.
I look forward to engaging with you in FY22 and thank you for your ongoing support of Service Stream.
Peter Dempsey
Chairman of the Remuneration and Nomination Committee
16
Introduction and scope
The Service Stream Limited remuneration report sets out information about the remuneration of Service Stream
Limited's KMP for the year ended 30 June 2021 (FY21). 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.
Service Stream Limited
Directors' report
The remuneration report covers the following matters:
.0001 Year in Review
.000.000
.0002 Details of Key Management Personnel (KMP)
.000
.0003 Role of the Remuneration and Nomination Committee (RNC)
.000
.0004 Remuneration policy and framework
.000
.0005 Overview of remuneration components
.000 5.1
STI & LTI Participation rates
.000 5.2
Fixed Remuneration
.000 5.3
Short Term Incentive (STI)
.000 5.4
Long Term Incentive (LTI)
.000
.0006 Managing Director and Senior Executive Remuneration
.000
.0007 Non-Executive Remuneration
.000
.0008 Voting and comments made at the Company's 2020 Annual General Meeting
17
1 Year in review
Over the course of the past year, Service Stream has continued to refine its remuneration policies and frameworks,
based on business drivers, industry and competitor analysis and stakeholder feedback. Changes to the remuneration
policy and frameworks have been summarised in the table below and outlined in detail throughout the report.
Service Stream Limited
Directors' report
Summary of remuneration policy and framework changes
Policy
Enhancements
Expanded disclosure in the Remuneration Report to include detail of the Short-Term
Incentive (STI) plan including; Plan overview, Performance Requirements,
Individual
Performance Quadrants, Performance Weightings and Key Performance Indicators (KPIs)
for the Managing Director.
Expanded disclosure to include the assessment criteria and actual performance achieved,
including commentary against each STI component for the Managing Director.
Disclosed detail of the maximum STI award for KMP as a % of total fixed remuneration.
EPS performance vesting requirements from the FY22 Tranche will be adjusted to reflect
a sliding scale award on those which qualify for vesting in any period as per the table
below:
EPS Growth Scorecard
% of performance rights that qualify for vesting
< 5%
5%
5% to <10%
10% or above
0%
40%
Pro-rata so that 12% of the performance rights in the tranche will vest
for every 1% between 5% and 10%
100%
TSR performance vesting requirements from the FY22 Tranche will be adjusted to reflect
a sliding scale award on those which qualify for vesting in any period as per the table
below:
TSR ranking
< 50th percentile
50th percentile
Above 50th and below 75th
percentile
75th percentile and above
% of performance rights which qualify for vesting
0%
40%
Pro-rata so that 2.4% of the performance rights in the tranche will vest
for every 1 percentile increase between the 50th and 75th percentile
100%
The EPS and TSR requirements each have a 50% weighting in relation to the FY22
Tranche.
Plan adjusted to preclude performance rights being issued to an associate of a KMP.
Disclosed detail of the maximum LTI award for KMP as a % of total fixed remuneration.
Short-term
incentive
plan detail
(STI)
Short-term
incentive
performance
requirements
(STI)
Short-term
incentive
maximum
award
(STI)
FY22 Long-term
incentive
(LTI)
tranche vesting
criteria
Long-term
(LTI)
incentive
plan conditions
Long-term
incentive
maximum
award
(LTI)
18
Service Stream Limited
Directors' report
Group performance
The graphs below outline the Group’s performance against key financial and non-financial performance indicators
over the past 5 years.
Key Indicators
Revenue ($'000)
EBITDA ($'000)
EBITDA from Operations ($'000)
Net profit after tax ($'000)
Earnings per share (cents)
Dividends per share (cents)
Share price 30 June ($)
2017
501,810
48,352
48,900
28,370
7.78
4.50
1.32
2018
632,946
67,296
66,300
41,107
11.29
7.50
1.51
2019
852,178
89,543
93,266
49,859
13.09
9.00
2.81
2020
929,133
105,588
108,115
49,315
12.13
9.00
1.91
2021
804,203
75,153
80,111
29,274
7.15
2.50
0.87
19
2 Details of Key Management Personnel (KMP)
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.
Service Stream Limited
Directors' report
Non-Executive Directors
Brett Gallagher
Greg Adcock
Tom Coen
Peter Dempsey
Deborah Page AM
Executive Director
Leigh Mackender
Key Management Personnel
Linda Kow
Paul McCann 1
Kevin Smith 2
Shannon Laffey 3
John Ash 4
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Managing Director
Chief Financial Officer
Executive General Manager, Utilities
Executive General Manager, Telecommunications
Acting Executive General Manager, Energy & Water
Executive General Manager, Network Construction
1 P McCann was the Executive General Manager of Comdain Infrastructure until 9 November 2020, before becoming the Executive General
Manager of Utilities on 10 November 2020.
2 K Smith was the Executive General Manager of Fixed Communications until 6 July 2020, before becoming the Executive General Manager of
Telecommunications on 7 July 2020.
3 S Laffey was the Acting Executive General Manager of Energy & Water until 9 November 2020. The position ceased being a KMP role following
the consolidation of the Utilities' operations.
4 J Ash ceased employment as the Executive General Manager, Network Construction effective 6 July 2020.
3 Role of the Remuneration and Nomination Committee (RNC)
The Board’s RNC is responsible for 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.
4 Remuneration policy and framework
The Board, through the RNC, implements Service Stream’s remuneration policies and frameworks. The objectives of
the Group's remuneration policy are to ensure that it:
-
-
-
-
supports Service Stream’s strategy and reinforces our culture and values;
provides consistent and market competitive rewards which attract, motivate and retain highly skilled employees;
aligns employee activities to the achievement of business objectives;
supports alignment between executive remuneration and shareholder outcomes;
- maintains fair and equitable 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 in alignment with shareholder
returns;
operates a remuneration system that is transparent, accountable, scalable, flexible and consistent, enabling
comparison with the external market; and
reflects market practice by benchmarking remuneration outcomes against relevant peer companies.
20
Service Stream Limited
Directors' report
Linking performance to executive remuneration
The executive remuneration framework is linked to the Group’s performance by:
-
-
-
-
-
requiring a significant portion of executive remuneration to vary with short-term and long-term performance;
applying equal weighting to Group and Individual Performance measures across the annual STI plan;
a ‘Minimum Group Performance Threshold’ is required to be met before any STI can be paid, linked to achieving
the Group’s EBITDA Target;
individual performance goals are tied to the annual objectives of the Group, linked directly to the overall Group
strategy across four quadrant measures of Financial Performance, Market & Customer, Safety & People and Risk
& Governance; and
delivering a significant portion of remuneration in equity, to align with shareholder interests.
Service Stream measures performance across the following key corporate measures:
-
-
-
-
-
-
Group EBITDA from Operations;
Divisional EBITDA;
Health & Safety Performance (TRIFR, HPIFR and LTIFR);
Earnings Per Share (EPS);
Adjusted EPS; and
Total Shareholder Returns (TSR) relative to the ASX 200 Industrials index.
Remuneration reviews
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.
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. During FY21, the RNC engaged Korn Ferry
Hay to review position gradings and remuneration benchmarking data for salaried roles across the organisation,
taking into account expected wage inflation pressures for the following year. This remuneration data will be utilised by
the RNC to assess any changes in salaried employee wages across the Company for the FY22 period.
Employment conditions
The table below sets out the main terms and conditions of the employment contracts of the Managing Director and
Senior Executives.
Position
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 Senior Executives
• 3 months either party (or payment in lieu)
• Immediate for serious misconduct or breach of contract
• Statutory requirements only for termination with cause
21
Service Stream Limited
Directors' report
5 Overview of remuneration components
The table below depicts the potential remuneration components that apply to the Managing Director and KMP
employed for the entire financial period.
Fixed remuneration
Incentive remuneration
• Fixed salary set by reference to appropriate benchmark
information and individual performance
• Includes superannuation and salary-sacrificed
non-monetary benefits
• Cash incentive paid under the annual short-term incentive (STI)
plan, with hurdles linked to both Group and Individual performance
targets
• Performance rights issued under the annual long-term incentive
(LTI) plan, with hurdles linked to annual EPS targets and Relative
TSR
Details of each remuneration component payable to KMP are set out below, including details of STI and LTI as a % of
fixed remuneration and the maximum % incentive opportunities which can be payable under each ‘at risk’ component:
1 Maximum STI % for Senior Executives reflects an ability to overachieve against their Divisional budget target.
The graphs below depict the maximum potential remuneration components that apply to the Managing Director and
KMP as a percentage of total remuneration.
22
Service Stream Limited
Directors' report
5.1 STI & LTI Participation rates
Details of the STI and LTI participation rates for KMP, including the maximum incentive % under both the STI and LTI
programs is outlined in the table below:
Executive Position
Managing Director
Chief Financial Officer
Senior Executives
Incentive Participation Rates
Target STI %
of fixed
remuneration
Maximum STI
% of fixed
remuneration
Target LTI %
of fixed
remuneration
Maximum LTI
% of fixed
remuneration
Maximum total
performance-based
pay as a % of fixed
remuneration
50
40
35
50
40
401
75
60
55
75
60
55
125
100
95
1 Maximum STI % for Senior Executives reflects an ability to overachieve against their Divisional budget target.
Details of individual performance indicators for the Managing Director are outlined in section 6.
5.2 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.
In recognition of the likely impact of COVID-19 on Service Stream’s operations, the Managing Director and all KMP
held their fixed remuneration with no increases being made for the period 1 July 2020 to 30 June 2021. Adjustments
to executive salaries were made only in instances where executive roles and responsibilities changed.
5.3 Short Term Incentive (STI)
5.3.1 STI Overview
The STI plan provides for an annual payment which varies depending on the performance achieved over the
assessment period. The incentive plan is designed to reward participants for the delivery of financial and operational
performance which is key to the success of Service Stream.
The STI consists of two components, Group and Individual Performance with each contributing to 50% of the
annual STI program which may be awarded.
5.3.2 STI Performance Requirements
The award of any STI related incentives are first subject to performance meeting or exceeding the ‘Minimum Group
Performance Threshold’, this being the achievement of at least 90% of the Group’s EBITDA from Operations target for
the financial year. The minimum Group Performance Threshold exists as a gate and is applicable to all STI
participants, regardless of their individual performance.
23
Where 90% or more of the Group’s EBITDA from Operations target is achieved, the STI payment is payable to
employees based on Board discretion and individual performances against target.
If the minimum Group Performance Threshold is not achieved, no incentives will be paid with respect to either Group
or Individual Performance.
Once the Minimum Group Performance Threshold is satisfied, STI award is then assessed on Group and Individual
performance goals.
Service Stream Limited
Directors' report
Group Performance
Group Performance is set annually and is reflected as the Group’s EBITDA from Operations target for the financial
year. Each year the Board assesses the proposed budgets put forward by Management, aligned to the Group’s
strategic plan. Following detailed analysis and discussion a target is agreed which reflects the Group’s annual
EBITDA budget.
Group Performance - 50% Weighting
Measure
Weighting
Target
Group Financial
Performance
Individual Performance
100%
To meet or exceed annual Group EBITDA budget
Individual performance goals are tied to the annual objectives of the Group, linked directly to the overall Group
strategy and categorised into the four quadrant measures of Financial Performance, Market & Customer, Safety &
People and Risk & Governance.
The % weighting allocated to each quadrant is set across all KMP scorecards. These weightings can be altered to
cater to the individual’s role, responsibilities and strategic business initiatives, with the permission of the Managing
Director and endorsement of the RNC.
An example of individual performance targets under each Performance Quadrant is outlined below:
Individual Performance - 50% Weighting
Measure
Weighting
Target
Divisional Financial
Performance
50%
To meet or exceed Divisional EBITDA budget
To meet or exceed EBITDA to OCFBIT cashflow generation targets
Market & Customer
30%
To deliver against set performance milestones which are configured each year to
reflect business strategy and key priorities e.g. major contract renewal or new
contract award
Safety & People
10%
To meet or exceed annual targets for Group HSE performance
Risk & Governance
10%
To deliver set milestones which are configured each year to reflect business risks or
governance related matters
24
Individual performance targets under each Performance Quadrant for the Managing Director for the FY21 STI is
outlined in section 6.
Service Stream Limited
Directors' report
5.3.3 STI summary table
Feature
Program Detail
Purpose of short-
term incentive plan
Reward participants for the delivery of financial and operational performance that are key to the
success of Service Stream
Minimum
performance
threshold
Performance
requirements
Achievement of 90% or more against annual Group EBITDA Target before the award of incentives
under the Group or Individual Performance will be considered
All STIs have performance criteria set across two separate areas:
1. Group Financial Performance is set at 50% of the potential award value
2. Individual Performance is set across the remaining 50% of the potential award value across the
following areas:
◾ Financial Performance
◾ Market & Customer
◾ Safety & People
◾ Risk & Governance
STI participation
rates
50% of total fixed remuneration for Managing Director
40% of total fixed remuneration for Chief Financial Officer
35% of total fixed remuneration for Executives of Strategic Business Units
Maximum
STI
earning potential
50% of total fixed remuneration for Managing Director
40% of total fixed remuneration for Chief Financial Officer
40% of total fixed remuneration for Executives of Strategic Business Units
Performance period
1 July 2020 to 30 June 2021
Assessment period
August 2021, following the audit of the Group's financial statements
Payment form
Cash based payment
Payment timing
September 2021
Board Discretion
The Board, in its discretion, may vary
◾ STI payments by up to + / - 100% from the payment applicable to the level of
performance achieved
◾ Reduce partly or fully the value of any awarded components that are due to vest in
certain circumstances, including where an executive has acted inappropriately
Eligibility
New KMP are eligible to participate in the STI program in the year in which they commence their
position with the Company.
A pro-rata entitlement will be applied for up to and including start date if the start date is pre-31 March.
Post-31 March no employee will be entitled to a pro-rata payment for the year in which they commence
with the Company.
Termination of
employment
Where an Executive ceases employment with the Group prior to the end of the assessment period,
there is no STI payable.
Treatment of
significant
items
From time to time the Group’s performance may be impacted by significant items. When this occurs,
the Board has the discretion to adjust for the impact (positively or negatively) on a case-by-case basis.
25
Service Stream Limited
Directors' report
5.4 Long-Term Incentive (LTI)
5.4.1 LTI Overview
The LTI is an equity-based plan that provides for an incentive award that varies with company performance over a
three-year performance period. A three-year measure of performance is considered to be the most appropriate and
reasonable time period which is consistent with market practice and Service Stream’s specific industry dynamics.
The LTI 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.
The LTI payment is in the form of performance rights which are issued to participating employees, with each
performance right converting into one ordinary share of Service Stream Limited on meeting the vesting performance
requirements. 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, 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.
5.4.2 LTI Performance Requirements
FY21 Tranche
Performance rights for each of the LTI tranches relevant to FY21 Tranche are subject to service and performance
criteria being:
1. Adjusted Earnings Per Share (Adjusted EPS) growth over the performance period. The Board considers
Adjusted EPS growth to be an appropriate performance measure for KMP reward as it represents an
accurate measure of short-term and long-term sustainable profit, and
2. Relative Total Shareholder Returns (TSR) being calculated as the difference in share price plus the value of
dividends paid on those shares over the performance period, expressed as a percentage of the share price at
the beginning of the performance period. The Board considers relative TSR to be an appropriate performance
measure for KMP reward as it focusses on the extent to which shareholder returns (being income and capital
gain) are generated relative to the performance of an appropriate comparator group.
Adjusted Earnings Per Share (Adjusted EPS) - 50% Weighting
The Adjusted EPS growth performance condition is based on the Company’s adjusted EPS growth over the three
years to 30 June 2023. The tranche of performance rights will vest on a pro-rata basis upon achieving the annual
Adjusted EPS target as set by the Board.
The performance vesting scale that will apply to the performance rights which are subject to the Adjusted EPS growth
test is outlined in the table below:
% of performance rights that
vest
FY21 EPS target
0%
40%
Proportional vesting
Below Target and below PY
Adjusted EPS
Below Target but equal to PY
Adjusted EPS
Below Target but greater than PY
Adjusted EPS
100%
100% of Target and above
Relative Total Shareholder Return (TSR) - 50% Weighting
The relative TSR performance condition is based on the company’s TSR performance relative to the TSR of
comparative companies, comprising the ASX 200 Industrials, at the start of the performance period and measured
over the 3 years to 30 June 2023. If the TSR in the comparison group is ranked from highest to lowest, the median
TSR is the percentage return to shareholders that exceeds the TSR for half of the comparison companies. The 75th
percentile TSR is the percentage return required to exceed the TSR for 75% of the comparison companies.
The performance vesting scale that will apply to the performance right which are subject to the TSR test is outlined in
the table below:
26
Service Stream Limited
Directors' report
TSR ranking
% of performance rights that vests
< 50th percentile
50th percentile
0%
50%
Above 50th and below 75th
percentile
Pro-rata so that 2% of the performance rights in the
tranche will vest
for every 1 percentile increase
between the 50th and below 75th percentile
75th
above
percentile
and
100%
All LTI participants must be an employee at the conclusion of the performance period. If employment ceases with the
Group prior to the vesting date, all performance rights will be forfeited.
The Board does retain discretion to retain individuals in the LTI plan for factors such as death, total and permanent
disability or retirement. The Board also retains discretion to vest awards in the form of cash.
FY19 & FY20 Tranches
With regards to FY19 and FY20 tranches, 80% of the performance rights granted with respect to the FY20 tranche will
vest where the Group’s Adjusted EPS achieves the target as set by the Board of Directors. For the FY19 tranche,
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:
% of performance rights that
vest
FY20 EPS target
FY19 EPS target
0%
40%
Below Target and below PY
Adjusted EPS
Below Target but equal to PY
Adjusted EPS
Below 75%
At 75%
Proportional vesting
Below Target but greater than PY
Adjusted EPS
Greater than 75% and less than
100%
100%
100% of Target and above
100% and above
20% of the performance rights granted in FY20 and 50% for FY19 tranches will vest where the Group’s 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:
% of performance rights
that vest
TSR ranking
0%
50%
Below the 50th percentile
At the 50th percentile
Proportional vesting
Above the 50th percentile but below the 75th
percentile
100%
75th percentile or above (top quartile)
Performance rights will vest to the extent that the participant remains employed by the Group on the vesting date and
to the extent that the Group’s performance over the relevant period satisfies the vesting conditions.
5.4.3 Performance re-testing
The Board is strongly of the view that the structure, conditions, and operation of the LTI scheme is the most
appropriate for the Group because:
•
the retesting regime at the end of the three-year period (based on average results for that period) allows the
Board to take a longer-term outlook;
27
Service Stream Limited
Directors' report
•
the Board is conscious that contracting businesses like Service Stream can be subject to market volatility and
encounter issues that adversely impact individual years and therefore a retesting regime at the end of the
three-year period is appropriate;
• management should be rewarded to the extent that the Group's performance over the entire period of review
meets the set targets for that period;
•
•
the review period accords with the average length of the Group’s annuity and panel client contracts, being 3 to
4-year terms, thereby enabling performance under the full term of each contract to be recognised; and
the service criteria (i.e. the requirement that the participant remain employed by the Group at the end of the
three-year period) and the retesting arrangement provide significant focus on a longer time horizon.
5.4.4 LTI summary table
Feature
Program Detail
Purpose of
long-term incentive
plan
Reward participants for the delivery of performance which is linked to enhancing long-term shareholder
value over a three-year period.
Manage risks associated with a tendency to focus on short-term performance against longer-term
performance
Linking remuneration costs which vary with the company’s long-term performance
Performance
requirements
All LTIs have performance criteria set across two areas:
1. Annual Earning Per Share (EPS) growth
2. Relative Total Shareholder Returns (TSR), measured against a relevant per group being the ASX
200 Industrials index.
LTI participation
rates
Maximum
LTI
earning potential
75% of total fixed remuneration for Managing Director
60% of total fixed remuneration for Executives of Strategic Business Units
55% of total fixed remuneration for Executives of Support / Enabling Business Units
75% of total fixed remuneration for Managing Director
60% of total fixed remuneration for Executives of Strategic Business Units
55% of total fixed remuneration for Executives of Support / Enabling Business Units
Performance period
1 July 2020 to 30 June 2023
Assessment period
August 2023, following the audit of the Group's financial statements
Payment form
Performance rights
Payment timing
September 2023
Board Discretion
The Board, in its discretion, may vary
◾ LTI payments by up to + / - 100% from the payment applicable to the level of performance
achieved
◾ Reduce partly or fully the value of any awarded components that are due to vest in
certain circumstances, including where an executive has acted inappropriately
Eligibility
Selected Executives and Senior Management may be invited to participate in the LTI program in the
year in which they commence their position with the Group.
A pro-rata entitlement will be applied for up to and including start date if the start date is pre-31 March.
Post 31 March no employee will be entitled to a pro-rata payment for the year in which they commence
with the Group.
Termination of
employment
Where a participant ceases employment with the Group prior to the end of the assessment period, any
unvested performance rights will be forfeited.
Treatment of
significant
items
From time to time, the Group’s performance may be impacted by significant items. When this occurs, the
Board has the discretion to adjust for the impact (positively or negatively) on a case-by-case basis.
28
Service Stream Limited
Directors' report
6 Managing Director and Senior Executive Remuneration
Executive remuneration table
In line with the Group’s policy to periodically review its remuneration framework, Service Stream’s Board of Directors
engaged external remuneration consultants, Korn Ferry Hay, during FY21 to perform a broad review of the Group's
executive arrangements encompassing appropriate levels of fixed and at risk remuneration.
In recognition of the likely impact of COVID-19 on Service Stream’s operations, the Managing Director and all
Executive Managers held their fixed remuneration with no increases being made for the period 1 July 2020 to 30 June
2021. Adjustments to executive salaries were made only in instances where executive roles and responsibilities
changed.
Short-term employee benefits
Post-
employment
benefits
Long-term
employee
benefits
Share-
based
payments
Salary and
fees
Termination
benefits
Short-term
incentive
Non-
monetary
Year
Super
Performance
rights
LSL
Total
Fixed
At
Risk
L Mackender 2021
878,997
2020
878,997
L Kow 1
2021
578,997
2020
94,202
P McCann 2 2021
458,164
2020
393,815
K Smith
2021
528,997
2020
528,997
S Laffey 3
2021
110,077
2020
111,882
R Grant 4
2020
888,826
-
-
-
-
-
-
-
-
-
-
-
J Ash 5
2021
5,296
232,947
2020
365,445
P Coen 6
2020
513,648
-
-
Total
2021 2,560,528
232,947
-
427,500
-
-
-
-
-
-
-
21,694
16,758
148,045 1,065,494 86% 14%
21,003
104,857
174,946 1,607,303 63% 37%
21,694
3,417
513
81
95,264
696,468 86% 14%
-
97,700 100% 0%
24,384
21,694
23,221
55,896
583,359 90% 10%
47,250
24,384
21,003
35,301
55,153
576,906 82% 18%
-
179,506
-
11,258
-
-
22,655
-
-
-
-
-
-
-
-
-
-
21,694
10,575
66,657
627,923 89% 11%
21,003
68,939
76,795
875,240 71% 29%
9,039
-
5,342
124,458 96% 4%
8,895
11,808
9,764
153,607 86% 14%
17,732
29,651
1,750
-
-
-
936,209 100% 0%
239,993 100% 0%
21,003
12,008
55,541
476,652 84% 16%
17,502
-
-
531,150 100% 0%
24,384
97,565
51,067
371,204 3,337,695 89% 11%
2020 3,775,812
-
688,169
24,384
131,558
262,645
372,199 5,254,767 80% 20%
1 L Kow was appointed as Chief Financial Officer with effect from 4 May 2020, and was not eligible to participate in FY20 LTI and FY20 STI.
2 P McCann was the Executive General Manager of Comdain Infrastructure until 9 November 2020, before becoming the Executive General
Manager of Utilities on 10 November 2020.
3 S Laffey was the Acting Executive General Manager of Energy & Water until 9 November 2020. The position ceased being a KMP role following
the consolidation of the Utilities operations.
4 R Grant retired from the role of Chief Financial Officer with effect from 4 May 2020. Included in his FY20 salary and fees was a retention bonus
amounting to $400,000.
5 J Ash resigned from his position as the Executive General Manager, Network Construction effective 6 July 2020.
6 P Coen resigned from his position as the Executive General Manager, Comdain Infrastructure effective 28 January 2020.
29
Service Stream Limited
Directors' report
FY21 STI performance outcomes
2021 STI
Name
L Mackender
L Kow
P McCann
K Smith
S Laffey
Paid %
0%
0%
0%
0%
0%
Group Performance - 50% Weighting
Measure
Weighting Target
Outcome
Group
Financial
Performance
100%
To meet or exceed Group EBITDA target
Below
threshold
Partially
achieved
Fully
achieved
Above
target
No STI awards were made in relation to the 2021 financial year for the Managing Director or KMP. In order for a STI
to be paid, a minimum of 90% of the Group's budgeted profit must be achieved.
Specific financial, commercial and operational targets remain commercially sensitive and as such, have not been
disclosed.
The table below summarises the performance of the Managing Director against the individual elements of his
scorecard.
L Mackender
Individual Performance - 50% Weighting
Measure
Weighting Target
Outcome
50%
To meet or exceed Group EBITDA budget
Below
threshold
Partially
achieved
Fully
achieved
Above
target
Group
Financial
Performance
Market
Customer
&
25%
To deliver against set performance milestones
which are configured each year to reflect business
strategy and key priorities e.g. major contract
renewal or new contract reward
Below
threshold
Partially
achieved
Fully
achieved
Above
target
Safety
People
&
15%
To meet or exceed annual targets for Group HSE
performance
Below
threshold
Partially
achieved
Fully
achieved
Above
target
Risk
&
Governance
10%
To deliver set milestones which are configured
each year to reflect business risks or governance
related matters
Below
threshold
Partially
achieved
Fully
achieved
Above
target
30
FY21 LTI 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.
Service Stream Limited
Directors' report
Plan
Relevant
KMP
Performance
period
Performance
hurdle
Performance outcome
FY18
LTI 1
J Ash
1 July 2017 –
30 June 2020
FY19
LTI 1
J Ash
1 July 2018 –
30 June 2020
EPS growth
Relative total
shareholder
returns (TSR)
Adjusted EPS
Relative total
shareholder
returns (TSR)
Group’s earnings per share achieved
annual growth of 10% or more over the
performance period
Performance
hurdle
achieved
Rights
vested
100%
100%
Above 75th percentile ranking achieved
compared to ASX 200 Industrials index
100%
100%
Year 1 100% of target achieved. Year 2
between 75% and 100% of
target
achieved.
54%
54%
Year 1 top quartile achieved. Year 2
below the 50th percentile achieved.
33%
33%
1 Rights have fully or partially vested, and shares have been delivered to plan participants.
Summary of grants under LTI
Name
Plan
Balance at
1 July 2020
Granted as
compensation
Vested
Forfeited
Balance at
30 June 2021
Number
Number
Number
Number
Number
Fair value
when
granted 1
$
Fair value
at
vesting
$
L Mackender
FY20 LTI
238,544
FY21 LTI
FY21 LTI
Total
L Kow
Total
-
238,544
-
-
P McCann
FY20 LTI
76,776
FY21 LTI
FY20 LTI
FY21 LTI
FY20 LTI
FY21 LTI
FY18 LTI 3
FY19 LTI 4
FY20 LTI
Total
K Smith
Total
S Laffey 2
Total
J Ash
Total
-
76,776
106,903
-
106,903
13,262
-
13,262
90,299
81,140
75,114
246,553
-
361,879
361,879
193,076
193,076
-
132,791
132,791
-
162,254
162,254
-
20,160
20,160
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
238,544
524,838
361,879
652,558
600,423
193,076
348,164
193,076
76,776
165,458
132,791
239,455
209,567
106,903
230,384
162,254
292,585
269,157
13,262
28,581
20,160
33,422
36,354
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-
-
-
-
(90,299)
-
(35,456)
(45,684)
-
(75,114)
(125,755)
(120,798)
98,530
171,117
89,618
67,189
161,876
n/a
-
-
-
-
31
Service Stream Limited
Directors' report
Tranche
Number
Grant date
Grant date fair value
Vesting date
Performance period
FY19
228,680
21 September 2018
Relative TSR hurdle - 81.8 cps
September 2021 1 July 2018 - 30 June 2021
EPS hurdle - 139.1 cps
FY20
693,325
18 September 2019
Relative TSR hurdle - 128.4 cps September 2022 1 July 2019 - 30 June 2022
EPS hurdle - 237.3 cps
FY20 - CEO
238,544
23 October 2019
Relative TSR hurdle - 131.1 cps September 2022 1 July 2019 - 30 June 2022
EPS hurdle - 242.2 cps
FY21
1,845,077
21 October 2020
Relative TSR hurdle - 166.8 cps September 2023 1 July 2020 - 30 June 2023
EPS hurdle - 193.8 cps
1 The grant date fair value of all rights on issue to KMP has been expensed as at 30 June 2021 in line with each of the tranche's performance
periods.
2 S Laffey was Acting Executive General Manager, Energy & Water from 28 January 2020 until 9 November 2020. As such only the FY20 & FY21
LTI Tranches have been included.
3 The grant date on the FY18 LTI was 14 September 2017. The FY18 LTI vested on 14 September 2020.
4 J Ash ceased employment as the Executive General Manager, Network Construction effective 6 July 2020, and therefore his performance rights
under the FY19 LTI Tranche were partially vested as per the conditions of his contract.
Shareholding of key management personnel
The table below sets out the equity in Service Stream held by key management personnel for the 2021 and 2020
financial years:
Name
2021
L Mackender
L Kow
P McCann
K Smith
J Ash
2020
L Mackender
L Kow
R Grant
J Ash
P McCann
K Smith
Received on
vesting of
performance
rights
(Disposed) /
Acquired
during the
year
Balance at
date of
appointment
Balance at
date of
resignation
Balance at
30 June
Balance at
1 July
1,100,700
70,000
538,522
2,481,930
-
-
-
-
-
-
495
495
-
123,411
125,755
1,050,000
1,000,000
(949,300)
-
-
-
70,000
1,000,000
700,000
(1,200,000)
-
123,411
-
1,138,522
650,000
(1,250,000)
2,036,998
650,000
(205,068)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,100,700
70,000
539,017
2,482,425
249,166
-
-
-
1,100,700
70,000
500,000
-
-
-
-
123,411
538,522
2,481,930
7 Non-Executive Remuneration
The Board’s RNC is responsible for reviewing and making recommendations to the Board on the remuneration for the
fixed fees (inclusive of
Non-Executive Directors. Non-Executive Directors are remunerated only by way of
superannuation where applicable). To preserve independence and impartiality, Non-Executive Directors do not
receive any performance related compensation.
The current maximum aggregate fee pool
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.
for
32
Fees are reviewed annually taking into account comparable roles and market data provided by the Board’s
independent remuneration advisor.
Non-Executive Directors' remuneration
Service Stream Limited
Directors' report
B Gallagher
G Adcock 1
T Coen
P Dempsey
D Page
R Murphy 2
Total
Year
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2020
2021
2020
Board and
Committee fees
Super
Total
182,648
17,352
200,000
182,648
17,352
200,000
130,000
125,000
-
-
130,000
125,000
107,763
10,237
118,000
107,763
10,237
118,000
118,721
11,279
130,000
118,721
11,279
130,000
124,361
124,361
39,333
5,639
5,639
130,000
130,000
-
39,333
663,493
44,507
708,000
697,826
44,507
742,333
1 G Adcock's remuneration was paid to Ausadcock Pty Ltd, a company in which Mr Adcock has a beneficial interest.
2 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 on 23 October 2019.
Non-Executive Director Shareholding
Name
2021
B Gallagher
G Adcock
T Coen
P Dempsey
D Page
2020
B Gallagher
G Adcock
T Coen
P Dempsey
R Murphy
D Page
Balance at
1 July
3,299,673
50,000
38,444,918
1,050,000
443,293
3,150,986
50,000
38,444,918
1,000,000
20,000
409,268
Received on
vesting of
performance
rights
(Disposed) /
Acquired
during the
year
Balance at
date of
appointment
Balance at
date of
resignation
Balance at
30 June
-
-
-
-
-
-
-
-
-
-
-
-
20,000
-
-
66,507
148,687
-
-
50,000
-
34,025
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,299,673
70,000
38,444,918
1,050,000
509,800
3,299,673
50,000
38,444,918
1,050,000
20,000
-
-
443,293
8 Voting and comments made at the Group's 2020 Annual General Meeting
The Group received 83% of “yes” votes on its Remuneration Report for the 2020 financial year.
33
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
26 August 2021
Leigh Mackender
Managing Director
26 August 2021
34
Auditor’s Independence Declaration
As lead auditor for the audit of Service Stream Limited for the year ended 30 June 2021, I declare
that to the best of my knowledge and belief, there have been:
(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Service Stream Limited and the entities it controlled during the period.
Trevor Johnston
Partner
PricewaterhouseCoopers
Melbourne
26 August 2021
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
2021
$'000
2020
$'000
3
4
6
5
7
803,006
1,197
804,203
(218,722)
(409,284)
(51,499)
(7,999)
(6,591)
(3,495)
(15,553)
(11,884)
(29,291)
(4,084)
(3,983)
41,818
(12,544)
29,274
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
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
29,274
49,315
29,274
29,274
49,315
49,315
Earnings per share
Basic (cents per share)
Diluted (cents per share)
8
8
7.15
7.15
12.13
12.09
Notes to the financial statements are included on pages 40 to 76
36
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
2021
$'000
2020
$'000
20
9
10
11
12
13
15
14
16
17
20
15
7
7
17
20
15
18
50,573
46,821
6,837
88,418
4,898
197,547
13,170
29,963
306,746
349,879
79,472
39,204
6,259
101,801
4,520
231,256
15,156
29,090
313,179
357,425
547,426
588,681
103,520
23,710
-
11,197
3,732
142,159
18,964
6,672
33,783
22,516
81,935
103,055
29,458
9,000
9,900
10,670
162,083
23,807
6,531
51,000
23,464
104,802
224,094
266,885
323,332
321,796
318,721
(12,151)
16,762
314,741
(11,109)
18,164
323,332
321,796
Notes to the financial statements are included on pages 40 to 76
37
Consolidated statement of changes in equity
for the financial year ended 30 June
Service Stream Limited
Contributed
equity
$'000
Employee equity-
settled benefits
reserve
$'000
Retained
earnings
Total
$'000
$'000
Balance at 1 July 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
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
297,757
2,475
-
-
1,761
-
-
(15,345)
7,532
49,315
49,315
-
-
-
-
-
-
-
14,604
(15,345)
15,345
2,380
-
(38,683)
314,741
(11,109)
18,164
-
-
-
2,023
(2,023)
2,023
1,957
-
-
981
-
-
(2,023)
29,274
29,274
-
-
-
-
-
(30,676)
Balance at 30 June 2021
318,721
(12,151)
16,762
307,764
49,315
49,315
1,761
14,604
(15,345)
-
(36,303)
321,796
29,274
29,274
981
2,023
(2,023)
-
(28,719)
323,332
Notes to the financial statements are included on pages 40 to 76
38
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 from the sale of plant and equipment
Payments for intangible assets
Net cash used in investing activities
Cash flows from financing activities
Purchase of shares (net of transaction costs)
Lease incentives received
Principal elements of lease payments
Dividends paid
Repayment of borrowings
Net cash used in financing activities
Net (decrease)/increase in cash held
Cash at the beginning of the period
Cash at the end of the period
20
Service Stream Limited
Notes
2021
$'000
2020
$'000
887,100
1,028,079
(812,675)
(941,633)
74,425
86,446
40
(4,738)
(24,180)
45,547
(3,184)
1,055
(6,710)
(8,839)
-
-
(11,888)
(28,719)
(25,000)
103
(3,689)
(25,177)
57,683
(2,185)
1,336
(5,636)
(6,485)
(741)
4,164
(9,655)
(36,303)
-
(65,607)
(42,535)
(28,899)
8,663
79,472
50,573
70,809
79,472
Notes to the financial statements are included on pages 40 to 76
39
Service Stream Limited
Notes to the consolidated financial statements
for the year ended 30 June 2021
Notes to the consolidated financial statements
1 General information
Section A: Business performance
Section B: Operating assets & liabilities
2 Segment information
Page 41
9 Trade and other receivables
3 Revenue from contracts with customers
Page 43
10
Inventories
4 Other income
5 Finance costs
Page 44
11 Accrued revenue
Page 44
12 Other assets
6 Other expense items
Page 44
13 Plant and equipment
7
Income tax expense
Page 45
14
Intangible assets
8 Earnings per share
Page 47
15 Leases
16 Trade and other payables
17 Provisions
Section C: Capital and financing
Section D: Group structure
18 Contributed equity
Page 55
24 Subsidiaries
19 Dividends
Page 55
25 Joint operations
20 Notes to the statement of cash flow
Page 56
26 Deed of cross guarantee
21 Financial instruments
Page 57
27 Related party transactions
Page 41
Page 48
Page 48
Page 48
Page 49
Page 49
Page 50
Page 52
Page 53
Page 54
Page 63
Page 63
Page 64
Page 64
22 Capital risk management
23 Share-based payments
Page 59
Page 60
28 Parent entity information
Page 64
Section E: Unrecognised items
Section F: Other
29 COVID-19 impact
Page 65
32 Remuneration of auditors
Page 66
30 Contingent assets and liabilities
Page 66
33 Significant accounting policies
Page 66
31 Events after the reporting period
Page 66
34 Critical accounting judgements
Page 76
40
Service Stream Limited
Notes to the financial statements
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 Managing Director, who provides the strategic direction and management oversight of the
Group in terms of monitoring results and approving strategic planning for the business.
During the period, the Group undertook a review of the organisation structure applicable to its Telecommunications
and Utilities operations to better deliver alignment of functional competencies and services delivered under key
customer contracts, supporting future growth and to reduce operational complexities. This review established two
separate service groups, each with an Executive General Manager reporting directly to the Managing Director.
The principal services of the Group's two new operating segments are as follows:
Telecommunications1.000
Utilities
Telecommunications provides a wide range of operations, maintenance, installation,
design and construction services to the owners of
fixed-line and wireless
telecommunication networks in Australia. Service capability includes customer
connections, service and network assurance, site acquisition, engineering, design,
construction and installation of broadband, wireless and fixed-line project services, as
well as minor projects for asset remediation, augmentation and relocation. Principal
customers include nbn co, Telstra and other wireless carriers.
Utilities provides operations, maintenance, design and construction services, as well
as 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 asset upgrades and replacement, engineering, design and
construction of network assets and energy-related products, meter reading and
network assurance, as well as specialist inspection, auditing and compliance services.
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.
There has been no change to the Group’s reportable segments.
41
2 Segment information (continued)
(b) Segment revenues and results
Telecommunications
Utilities
Total of all segments
Other income
Eliminations
Unallocated
EBITDA 1
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
1 Earnings before interest, tax, depreciation and amortisation.
(c) Segment assets and liabilities
Telecommunications
Utilities
Total of all segments
Unallocated
Consolidated
(d) Other segment information
Telecommunications
Utilities
Total of all segments
Unallocated
Consolidated
Service Stream Limited
Notes to the financial statements
Segment revenue
Segment EBITDA
2021
$'000
392,378
411,541
803,919
1,157
(913)
2020
$'000
544,170
384,083
928,253
1,079
(302)
40
103
804,203
929,133
2021
$'000
57,783
29,048
86,831
2020
$'000
83,125
30,810
113,935
(11,678)
(8,347)
75,153
105,588
(4,892)
(11,256)
(4,291)
(8,852)
(6,204)
(9,467)
(5,002)
(11,005)
45,862
73,910
(4,044)
(3,445)
41,818
70,465
(12,544)
(21,150)
29,274
49,315
Segment assets
Segment liabilities
2021
$'000
141,156
335,269
476,425
71,001
547,426
2020
$'000
162,062
345,944
508,006
80,675
588,681
2021
$'000
47,092
95,459
142,551
81,543
224,094
2020
$'000
70,867
81,037
151,904
114,981
266,885
Depreciation and
amortisation
Additions to non-current
assets
2021
$'000
4,037
17,113
21,150
8,141
29,291
2020
$'000
5,175
19,707
24,882
6,796
31,678
2021
$'000
2,866
11,515
14,381
7,642
22,023
2020
$'000
2,035
5,027
7,062
8,349
15,411
42
Service Stream Limited
Notes to the financial statements
2 Segment information (continued)
(e)
Information about major customers
In the current reporting period, there was one major customer (2020: one customer) which contributed more than 10%
of the Group’s revenue. The relevant revenue by segment is shown below:
Largest customer
1.0002021: Telecommunications $307 million (2020: Telecommunications $443 million).
No other customer contributed 10% or more of the Group’s total revenue.
3 Revenue from contracts with customers
(a) Revenue from contracts with customers
Revenue
2021
$'000
803,006
803,006
2020
$'000
927,951
927,951
(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 2021
Segment revenue
Intra / Inter-segment revenue
Telecommunications
$'000
392,378
-
Utilities
$'000
411,541
-
Revenue from contracts with customers
392,378
411,541
Timing of revenue recognition
At point in time
Over time
30 June 2020
Segment revenue
Intra / Inter-segment revenue
Revenue from contracts with customers
Timing of revenue recognition
At point in time
Over time
284,584
107,794
392,378
Telecommunications
$'000
544,170
-
544,170
380,164
164,006
544,170
141,400
270,141
411,541
Utilities
$'000
384,227
(144)
384,083
144,850
239,233
384,083
(c) Assets and liabilities related to contracts with customers
Revenue recognised that was included in contract liability balance at the beginning of the period
Revenue (reversed) / recognised from performance obligations satisfied in previous periods
Other
$'000
-
(913)
(913)
-
(913)
(913)
Other
$'000
-
(302)
(302)
483
(785)
(302)
Total
$'000
803,919
(913)
803,006
425,984
377,022
803,006
Total
$'000
928,397
(446)
927,951
525,497
402,454
927,951
2021
$'000
2020
$'000
10,435
37,703
(536)
(596)
43
Service Stream Limited
Notes to the financial statements
3 Revenue from contracts with customers (continued)
(d) Significant estimates
The Group’s revenue is recognised when and as the control of the goods and services are transferred to its
customers.
Ticket of work services and cost reimbursable contract
Revenue is recognised based on the transaction price as specified in the contract, net of the estimated achievements
of the variable considerations. Judgement is required in determining the Group’s total transaction price. Accumulated
experience is used to estimate and provide for the variable considerations applicable, and revenue is only recognised
to the extent that it is highly probable that a significant reversal will not occur.
Project delivery
Revenue is recognised based on the proportion of contract costs incurred for work performed to date relative to the
estimated total contract costs (percentage of completion method). Judgement is required in determining the Group’s
total progress and total contract costs, net of variable considerations on each project delivery. Accumulated
experience is used to estimate this progress and total contract costs. Revenue is only recognised to the extent that it
is highly probable that a significant reversal will not occur.
No element of financing is deemed present as sales are generally made with credit terms of 30 days, which is
consistent with market practice. The Group’s obligation to warranty claims under the standard warranty terms is
recognised as a provision, see note 17.
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
Syndicated facilities fees
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
2021
$'000
843
-
40
314
2020
$'000
411
136
103
532
1,197
1,182
2021
$'000
957
1,285
-
1,182
3,424
660
4,084
Notes
13
15
14
14
2021
$'000
4,892
11,256
4,291
8,852
29,291
2020
$'000
939
1,029
35
1,257
3,260
288
3,548
2020
$'000
6,204
9,467
5,002
11,005
31,678
44
6 Other expense items (continued)
(b) Employee benefit expense
Post-employment benefits plans
Equity-settled share-based payments
7 Income tax expense
(a)
Income tax recognised in profit or loss
Tax expense comprises:
Current tax expense in respect of the current year
Deferred tax
Income tax expense
(b) Reconciliation of income tax expense to tax payable
1.000
Profit from continuing operations
Tax at the Australian tax rate of 30%
1.000
Tax effect of amounts which are not deductible (taxable) in calculating taxable
income
R&D tax incentives
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
Service Stream Limited
Notes to the financial statements
16,654
1,288
17,942
16,359
2,004
18,363
2021
$'000
17,347
(4,803)
12,544
2021
$'000
41,818
12,545
2020
$'000
24,852
(3,702)
21,150
2020
$'000
70,465
21,140
-
(1)
(41)
51
12,544
21,150
4,803
17,347
(13,615)
3,732
3,702
24,852
(14,182)
10,670
30.00%
30.01%
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.
45
Service Stream Limited
Notes to the 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
2021
$'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 / relationships
Right of use assets
Lease liabilities
Other
290
(21,664)
5,207
70
9,939
177
(19,787)
(8,727)
10,009
679
(23,807)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
303
-
46
-
-
-
-
349
(115)
6,514
(3,271)
708
(896)
(569)
2,656
(262)
105
(67)
4,803
-
-
-
-
(309)
-
-
-
-
-
175
(15,150)
1,936
1,081
8,734
(346)
(17,131)
(8,989)
10,114
612
(309)
(18,964)
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.
Deferred tax assets and liabilities have been offset by the Group and are presented in the balance sheet as a net
deferred tax liability.
46
Service Stream Limited
Notes to the 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.
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
2021
Cents per
share
7.15
7.15
2020
Cents per
share
12.13
12.13
7.15
7.15
12.09
12.09
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
2021
$'000
29,274
29,274
1
2021
No.'000
2020
$'000
49,315
49,315
2020
No.'000
409,477
406,647
229
1,134
409,706
407,781
47
Service Stream Limited
Notes to the 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
2021
$'000
38,933
5,007
282
63
1,336
45,621
2021
$'000
(70)
(74)
(19)
(16)
(404)
(583)
2021
$'000
38,863
4,933
263
47
932
45,038
1,783
46,821
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
Trade receivables are amounts due from customers for goods 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(c).
10 Inventories
Inventories
2021
$'000
6,837
6,837
2020
$'000
6,259
6,259
Inventories recognised as an expense during the year ended 30 June 2021 amounted to $51,499 thousand (2020:
$54,513 thousand). 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 and prior period.
11 Accrued revenue
Accrued revenue
2021
$'000
88,418
88,418
2020
$'000
101,801
101,801
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 33(f) revenue recognition. Details about the Group's impairment policy and assessment of the loss allowance
are provided in note 21(c).
Accrued revenue has decreased at balance date in line with the reduction in Telecommunications 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.
48
12 Other assets
Prepayments
Other
13 Plant and equipment
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
1.000
Year Ended 30 June 2021
Opening net book value
Additions
Disposals 1
Depreciation charge
Closing net book value
1.000
At 30 June 2021
Cost
Accumulated depreciation
Net book value
1 Disposals are net of accumulated depreciation.
Service Stream Limited
Notes to the financial statements
2021
$'000
3,748
1,150
4,898
2020
$'000
3,947
573
4,520
Leasehold
improvements
$'000
1,725
6
-
(599)
1,132
9,892
(8,760)
1,132
1,132
-
(34)
(478)
620
9,657
(9,037)
620
Plant and
equipment
$'000
Motor
vehicles
$'000
11,464
2,179
(839)
(3,345)
9,459
30,129
(20,670)
9,459
9,459
3,180
(145)
(3,168)
9,326
29,642
(20,316)
9,326
6,930
-
(105)
(2,260)
4,565
8,110
(3,545)
4,565
4,565
4
(99)
(1,246)
3,224
5,934
(2,710)
3,224
Total
$'000
20,119
2,185
(944)
(6,204)
15,156
48,131
(32,975)
15,156
15,156
3,184
(278)
(4,892)
13,170
45,233
(32,063)
13,170
49
14 Intangible assets
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
1.000
Year Ended 30 June 2021
Opening net book value
Additions
Amortisation charge
Closing net book value
1.000
At 30 June 2021
Cost 1
Accumulated amortisation
Net book value
Service Stream Limited
Notes to the financial statements
Software
$'000
Customer
contracts
$'000
Customer
relationships
$'000
Goodwill
$'000
16,608
5,636
(5,002)
17,242
48,541
(31,299)
17,242
17,242
6,710
(4,291)
19,661
55,251
(35,590)
19,661
24,877
52,082
229,983
-
(6,045)
18,832
32,209
(13,377)
18,832
18,832
-
(3,892)
14,940
32,209
(17,269)
14,940
-
(4,960)
47,122
54,562
(7,440)
47,122
-
-
229,983
229,983
-
229,983
47,122
229,983
-
(4,960)
42,162
54,562
(12,400)
42,162
-
-
229,983
229,983
-
229,983
Total
$'000
323,550
5,636
(16,007)
313,179
365,295
(52,116)
313,179
313,179
6,710
(13,143)
306,746
372,005
(65,259)
306,746
1 The cost of goodwill represents the net carrying value at balance date.
(a)
Impairment tests for goodwill
During the period, an assessment of evolving market dynamics, business operations, operational reassignments and
synergies has led the Group to reassess its cash generating units (CGUs). This assessment has resulted in changes
to the CGU construct whereby the former Fixed Communications and Network Construction CGUs are now
determined to be a single Telecommunications CGU.
An impairment trigger assessment of the original CGUs was carried out for the half-year period ended 31 December
2020. Based on the assessment performed, no indicators of impairment were identified.
As a result of this change, a revised CGU level summary of the Group's goodwill carrying amount is presented below.
Telecommunications
Energy & Water
Comdain Infrastructure
2021
$'000
71,450
58,248
100,285
229,983
50
Service Stream Limited
Notes to the financial statements
14 Intangible assets (continued)
(b) Significant estimates
its lowest
The Group tests whether goodwill is subject to any impairment on an annual basis. It is Management's judgement that
level of aggregation and no further distinctions can be made. The judgements and
the CGU is at
assumptions used in such determination are Management's best estimates based on the current market dynamics,
business operations, service offerings, interactions with its customers and operational synergies achieved. Changes
impacting these assumptions could result in changes in the determination of CGUs and recognition of impairment
charges in future periods.
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.
The Group has adopted a nominal discount rate in its impairment calculation in line with the underlying financial
forecast assumptions.
Cash flows beyond the next four-year period have been extrapolated using a 2.5% per annum nominal growth rate
(2020: 2.5%). A pre-tax discount rate of 11.9% nominal for each CGU (2020: 11.9%) 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) Telecommunications
The critical cash flow assumption in Telecommunications is that Service Stream continues to undertake
significant work with its major customers. The assumption demonstrates an initial decline from a base of
-23.4% in FY21 to a forecast compound average annual nominal revenue growth over the forecast period
from a base of 4.6% from FY22. This assumes existing contracts are extended, new contracts are awarded
and margins remain stable as telecommunications networks are connected and maintained.
(ii) Energy & Water
The recoverable amount of the CGU is estimated to exceed the carrying amount at 30 June 2021 by
approximately $6 million.
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 FY21 is 10.2%. Management note that the FY21 revenue is
lower than where this CGUs has performed in the past. This is predominately due to COVID-19 related
impacts including customer determined moratoriums on electricity and gas disconnections (and subsequent
reconnections) impacting metering operations, various state based lockdowns impacting service delivery and
deferral of some discretionary and non-critical programs of work activities by asset owners.
The underlying assumption on revenue assumes a return to pre-COVID-19 volumes, with further revenue
growth driven by customers continuing to pursue improved demand-side management creating opportunities
in smart metering, new energy products and services including battery storage, asset maintenance and
achieving growth in the electrical inspections / audit sector.
If the pre-tax discount rate applied to the cash flow projections of this CGU had been 12.9%, the CGU’s
recoverable amount will be reduced to its carrying amount.
If the revenue used in the value-in-use calculation for the CGU had been 7.9% lower than Management’s
estimates (average nominal revenue growth of 8.2% instead of 10.2%), the CGU’s recoverable amount will
be reduced to its carrying amount.
In the prior year, there were no reasonably possible changes in any of the key assumptions that would have
resulted in an impairment write-down in the Energy & Water CGU.
51
Service Stream Limited
Notes to the financial statements
14 Intangible assets (continued)
(c) Key assumptions used for value-in-use calculations (continued)
(iii) 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,
including a terminal year adjustment, from a base of FY21 is 9.1%. 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.
Management continues to monitor and assess the new and ongoing impacts of COVID-19, and any sustained impacts
could potentially impact the carrying value of goodwill in the future.
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
2021
$'000
20,602
8,365
996
29,963
11,197
22,516
33,713
2020
$'000
23,066
4,486
1,538
29,090
9,900
23,464
33,364
The Group's weighted average incremental borrowing rate applied to the lease liabilities as at 30 June 2021 was
2.86%.
Additions to the right-of-use assets during the 2021 financial year were $12,129 thousand.
(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)
Income from sub-leasing of right-of-use assets
The total cash outflow for leases in 2021 was $14,472 thousand.
2021
$'000
7,676
2,819
761
11,256
957
1,627
124
2020
$'000
7,488
1,889
90
9,467
939
1,458
353
52
Service Stream Limited
Notes to the financial statements
15 Leases (continued)
(c) The Group's leasing activities and how these are accounted for
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. The lease agreements do not impose
any covenants, but leased assets may not be used as security for borrowing purposes.
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 so as 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.
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) Critical judgements
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 $41,724 thousand (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
2021
$'000
42,361
49,065
3,041
9,053
2020
$'000
45,092
41,186
3,103
13,674
103,520
103,055
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.
53
Service Stream Limited
Notes to the financial statements
16 Trade and other payables (continued)
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.
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
2021
$'000
2020
$'000
19,585
3,782
343
-
23,710
6,672
6,672
19,210
9,490
65
693
29,458
6,531
6,531
30,382
35,989
1 The provision for employee benefits represents annual leave, rostered day-off 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 2020
Provisions reclassified to sundry creditors and accruals
Charged / (credited) to profit or loss
Additional provisions recognised
Unused amounts reversed
Amounts used during the year
Balance at 30 June 2021
(b) Significant estimates
Contractual
obligations
$'000
Onerous
contracts
$'000
Contractual
disputes
$'000
9,490
-
953
(4,606)
(2,055)
3,782
65
-
1,458
(367)
(813)
343
693
(146)
-
(547)
-
-
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.
54
18 Contributed equity
Fully paid ordinary shares
Treasury shares
1.000
(a) Fully paid ordinary shares
Balance at 1 July 2019
Issue of shares
Dividend reinvestment plan
Balance at 30 June 2020
Issue of shares
Dividend reinvestment plan
Balance at 30 June 2021
Service Stream Limited
Notes to the financial statements
Number of shares
Share capital
2021
No.'000
410,393
-
410,393
2020
No.'000
408,026
-
408,026
2021
$'000
318,721
-
318,721
2020
$'000
314,741
-
314,741
Number of
shares
'000
401,620
5,353
1,053
Share
capital
$'000
297,757
14,604
2,380
408,026
314,741
1,044
1,323
2,023
1,957
410,393
318,721
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 2019
Acquisition of treasury shares (average price: $2.73 per share)
Shares issued under employee share schemes
Balance at 30 June 2020
Acquisition of treasury shares (average price: $1.94 per share)
Shares issued under employee share schemes
Balance at 30 June 2021
Number of
shares
'000
Share
capital
$'000
-
(5,629)
5,629
-
(1,044)
1,044
-
-
(15,345)
15,345
-
(2,023)
2,023
-
19 Dividends
Recognised amounts
Fully paid ordinary shares
Interim dividend
2021
Cents per
share
2020
Cents per
share
2021
$'000
2020
$'000
2.50
2.50
4.00
4.00
10,244
10,244
16,299
16,299
55
19 Dividends (continued)
Unrecognised amounts
Fully paid ordinary shares
Final dividend 1
Service Stream Limited
Notes to the financial statements
2021
Cents per
share
2020
Cents per
share
2021
$'000
2020
$'000
-
-
5.00
5.00
-
-
20,435
20,435
1 The FY20 final fully-franked dividend was paid on 1 October 2020.
In respect of current year's earnings, an interim dividend of 2.50 cent per share franked to 100% at 30% corporate
income tax rate was paid to the holders of fully paid ordinary shares on 14 April 2021.
No final dividend has been declared by the Board for the year ended 30 June 2021.
Franking credits available for subsequent reporting periods based on a tax rate of 30%
(2020: 30%)
Company
2021
$'000
.000 42,858
2020
$'000
38,763
The above amounts are calculated from the balance of the franking account as at the end of the reporting period,
adjusted for franking credits and debits that will arise from the settlement of liabilities or receivables for income tax
after the end of the year.
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 in tax balances & other tax adjustments
1
Movement in working capital:
(Increase) / decrease in trade and other receivables
Decrease in accrued income
(Increase) / decrease in other assets
(Increase) / decrease in inventories
Increase / (decrease) in trade and other payables
Decrease in provisions
Increase in borrowing costs
Net cash provided by operating activities
(c) Liabilities from financing activities
2021
$'000
50,573
50,573
2021
$'000
29,274
(843)
-
29,291
1,288
(11,914)
(7,617)
13,383
(378)
(578)
465
(5,607)
(1,217)
45,547
$'000
Borrowings
Lease liabilities
Debt at 30 June
Additions /
2020 Remeasurement
(1,217)1
12,237
60,000
33,364
93,364
11,020
Financing
cash flow
(25,000)
(11,888)
(36,888)
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
2021
33,783
33,713
67,496
1 Additions to borrowings during the year relate to the facility establishment fees from the Group’s refinancing process. This is presented as an
offset against total borrowings.
56
Service Stream Limited
Notes to the financial statements
21 Financial instruments
(a) Overview
The Group’s activities expose it to a variety of financial risks including interest rate, credit and liquidity risk exposures.
The Group’s risk management program looks to identify and quantify these exposures and where relevant reduce the
sensitivity to potential adverse impacts on its financial performance. The Group operates a centralised treasury
function which manages all financing facilities and external payments on behalf of the Group. Compliance with
financial risk management policies, financial exposures and compliance with risk management strategy are reviewed
by senior management and reported to the Group’s Audit and Risk Committee and Board on a regular basis.
(b) Market risk - Interest rate risk management
Based upon a 100 basis point decrease in prevailing market interest rates as applied to the Group’s net cash balance
at 30 June 2021 the Group’s sensitivity to interest rate risk would be equivalent
to a $155,730 per annum
unfavourable impact to profit before tax (2020: $194,720 unfavourable).
(c) 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
has 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 accrued revenue
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 accrued revenue.
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. The Group has 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 credit loss allowance
pertaining to COVID-19 have been included.
When applying the impairment requirements of AASB 9 to accrued revenue, 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
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.
in order to invoice. Under the expected credit
loss principle adopted,
On that basis, the loss allowance as at 30 June was determined as follows.
57
Service Stream Limited
Notes to the financial statements
21 Financial instruments (continued)
(c) Credit risk management (continued)
Current
$'000
0-30 days
$'000
31-60 days
$'000
61-90 days
$'000
91 days +
$'000
Total
$'000
2021
Expected loss rate
Gross carrying amount - trade receivables
Loss allowance
0.18%
38,933
70
1.50%
5,007
74
6.91%
282
19
25.81%
63
16
30.24%
1,336
404
45,621
583
Current
$'000
0-30 days
$'000
31-60 days
$'000
61-90 days
$'000
91 days +
$'000
Total
$'000
2020
Expected loss rate
Gross carrying amount - trade receivables
Loss allowance
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
The loss allowances for trade receivables at 30 June 2021 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
(d) Liquidity risk management
2021
$'000
969
226
-
(612)
583
2020
$'000
214
783
(28)
-
969
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(d)(ii) are details of the financing facilities available to the Group at 30 June 2021.
(i) Liquidity and interest rate risk tables
The following table detail the Group’s maturity profile for financial liabilities.
The amounts disclosed in the table represent the undiscounted cash flows of financial liabilities based on the earliest
date on which the Group is contracted to repay principal. Where applicable, these amounts represent both interest
and principal cash flows.
Weighted
average
interest
rate
Carrying
amount
Contractual
cash flow
6 months
or less
6-12
months
1-2 years 2-5 years
5+ years
$'000
$'000
$'000
$'000
$'000
$'000
$'000
2021
Financial liabilities
Lease liabilities
Borrowings
Trade and other payables
2.86% (33,713)
1.78% (33,783)
(103,520)
-
(35,535)
(36,506)
(103,520)
(6,172)
(312)
(103,520)
(5,796)
(312)
-
(9,790)
(623)
-
(11,492)
(35,260)
-
(2,285)
-
-
(171,016)
(175,561)
(110,004)
(6,108)
(10,413)
(46,752)
(2,285)
58
21 Financial instruments (continued)
(d) Liquidity risk management (continued)
(ii) Financing facilities
Bank guarantee
Borrowings
Amount used
Service Stream Limited
Notes to the financial statements
2021
$'000
42,428
35,000
77,428
2020
$'000
36,660
60,000
96,660
During the period, the Group completed a refinancing of its banking facilities, and increased its revolving facilities to
$275,000 thousand which are due to expire in November 2023 and have a variable rate of interest. The refinancing
during the period was treated as an extinguishment, and the transaction costs attributable to the refinancing have
been offset against the loan.
For the year ended 30 June 2021, the Group had unused facilities of $197,572 thousand across bank guarantees,
borrowings and bank overdrafts, of which the overdraft has a maximum drawdown of $30 million. In the prior year, the
Group had unused facilities of $93,340 thousand, of which $45 million attributable to cash advances, $8.3 million to
bank guarantees and $40 million to bank overdraft.
(e) 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
2021
$'000
2020
$'000
50,573
88,418
46,821
185,812
33,713
33,783
103,520
171,016
79,472
101,801
39,204
220,477
33,364
60,000
103,055
196,419
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.
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.
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 2021
and 2020 financial reporting periods.
59
Service Stream Limited
Notes to the financial statements
23 Share-based payments
(a) Long-Term Incentive (LTI) Plan
From time to time employees in senior management roles may be invited, with approval from the Board, to participate
in the LTI plan. The LTI 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 LTI which entitles them to receive a number of performance rights in respect of the year ending 30
June 2021 (FY21). 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.
Performance rights for each of the LTI tranches are subject to service and performance criteria being:
A
B
The participant must be an employee at the conclusion of the performance period;
50% of the performance rights granted with respect to the FY21 tranche (80% for 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 FY19 tranche, 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:
LTI tranches
Performance period
Vesting date
FY19 1
3 years
FY20 2
3 years
FY21 3
3 years
September 2021
September 2022
September 2023
1 The FY19 LTI targets, from base of 11.29 cps are: Year 1: 12.42 cps, Year 2: 14.40 cps, Year 3: 13.34 cps.
2 The FY20 LTI targets, Year 1: 15.02 cps, Year 2: 13.87 cps, Year 3: 5.98 cps.
3 The FY21 LTI targets, Year 1: 13.87 cps, Year 2: 5.98 cps, Year 3: not yet determined.
Subject to the following proportional vesting:
Percentage of
performance rights that
vest
FY20 - FY21 EPS target
FY19 EPS target
0%
40%
Below Target and below PY
Adjusted EPS
Below Target but equal to PY
Adjusted EPS
Below 75%
At 75%
Proportional vesting
Below Target but greater than PY
Adjusted EPS
Greater than 75% and less than
100%
100%
100% of Target and above
100% and above
C
50% of the performance rights granted (20% for FY20 and 50% for 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:
60
23 Share-based payments (continued)
(a) Long-Term Incentive (LTI) Plan (continued)
Service Stream Limited
Notes to the financial statements
Percentage of performance
rights that vest
0%
50%
TSR ranking
Below the 50th percentile
At the 50th percentile
Proportional vesting
Above the 50th percentile but below the 75th percentile
100%
75th percentile or above (top quartile)
0
0
0
0
0
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 Group’s performance over the relevant period satisfies the vesting conditions.
The following LTI performance rights arrangements were in existence at the end of the current period:
Tranche
Number
Grant date
Grant date fair value
Vesting date
Performance period
FY19
228,680
21 September 2018
Relative TSR hurdle - 81.8 cps
September 2021 1 July 2018 - 30 June 2021
EPS hurdle - 139.1 cps
FY20
693,325
18 September 2019
Relative TSR hurdle - 128.4 cps September 2022 1 July 2019 - 30 June 2022
EPS hurdle - 237.3 cps
FY20 - CEO
238,544
23 October 2019
Relative TSR hurdle - 131.1 cps September 2022 1 July 2019 - 30 June 2022
EPS hurdle - 242.2 cps
FY21
1,845,077
21 October 2020
Relative TSR hurdle - 166.8 cps September 2023 1 July 2020 - 30 June 2023
EPS hurdle - 193.8 cps
Fair value of performance rights
The FY21 LTI performance rights with the relative TSR hurdle vesting condition have been valued by an independent
expert using a Monte-Carlo simulation. The FY21 LTI 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
FY19
FY20
FY20 - CEO
FY21
Share price at
grant date
Expected
life
Volatility 1
Risk-free
interest rate
Dividend yield
Vesting date
$1.77
$2.60
$2.65
$2.19
2.87 years
2.78 years
2.69 years
2.90 years
35%
30%
30%
40%
2.06%
0.82%
0.72%
0.11%
5.90%
4.04%
3.96%
4.63%
September 2021
September 2022
September 2022
September 2023
1 The expected volatility is based on is based on historic volatility (based on the remaining life of the options), adjusted for any expected changes
in future volatility due to publicly available information.
61
23 Share-based payments (continued)
(a) Long-Term Incentive (LTI) Plan (continued)
Movements in the LTI performance rights during the year
The following table reconciles the outstanding performance rights granted under the LTI at the beginning and end of
the financial year:
Service Stream Limited
Notes to the financial statements
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
2021
2020
Number of
rights
Grant date
weighted avg FV
$
Number of
rights
Grant date
weighted avg FV
$
2,424,047
1,996,737
(675,541)
(739,617)
3,005,626
1.573
1.804
1.093
1.456
1.863
2,331,855
1,315,056
(853,073)
(369,791)
2,424,047
0.924
2.163
0.622
1.776
1.573
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 ESOP the shares relating to the FY19 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 FY21 financial
statements.
As at 30 June 2021, 228,680 performance rights granted under the FY19 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
(FY21 Tranche) and one year (FY20 Tranche).
62
24 Subsidiaries
Details of the Company’s subsidiaries at 30 June 2021 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 financial statements
Country of
incorporation
Ownership interest
2021
%
2020
%
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 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 33(c).
63
Service Stream Limited
Notes to the financial statements
26 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. 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 has not been disclosed
separately as it is not different to those of the Group.
27 Related party transactions
The immediate parent and ultimate controlling party of the Group is Service Stream Limited.
Balances and transactions between the Group and its controlled entities, which are related parties of the Group, 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
2021
$
3,481,352
142,072
51,067
371,204
2020
$
5,186,191
176,065
262,645
372,199
4,045,695
5,997,100
1 The fair value of performance rights issued under the LTI plan 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.
(b) Other transaction with key management personnel of the Group
During the period, Tom Coen had a beneficial interest in two of the commercial properties that the Group occupied.
Total rental income paid to the landlord is approximately $927 thousand across these two properties (2020: $580
thousand). 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 the deferred amounts paid during FY21. The terms of the leases have been
reviewed and are at arm’s length with the duration of leases for these properties expiring in December 2024 and
August 2025 respectively.
28 Parent entity information
The accounting policies of the parent entity, which have been applied in determining the financial information of the
parent entity shown below, are the same as those applied in the consolidated financial statements. Refer to note 33
for a summary of the significant accounting policies relating to the Group.
64
28 Parent entity information (continued)
(a) Financial position
Current assets
Non-current assets
Total assets
1.000
Current liabilities
Non-current liabilities
Total liabilities
1.000
Net assets
1.000
Issued capital
Reserves – equity-settled employee benefits
Accumulated losses
Equity
(b) Financial performance
Profit for the year
Total comprehensive income
Service Stream Limited
Notes to the financial statements
2021
$'000
196
258,802
258,998
3,654
-
3,654
2020
$'000
134
273,794
273,928
10,668
-
10,668
255,344
263,260
297,186
(29,690)
(12,152)
255,344
293,205
(11,108)
(18,837)
263,260
2021
$'000
19,753
19,753
2020
$'000
43,546
43,546
(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 26, and the
parent entity guarantees to certain clients in relation to subsidiary contract performance obligations.
(iii) Share-based payments
The grant by the Group 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.
29 COVID-19 impact
Service Stream provides essential infrastructure services to gas, electricity, water and telecommunications network
owners and operators nationally. Whilst these sectors have largely been able to continue operations throughout the
pandemic, there have been a number of continuing COVID-19 related impacts to the Group's operations during the
period.
The impacts to FY21 earnings are described as below:
•
delays to mobilisation programs, caused by lockdowns, border restrictions and/or availability of client supplied
free issue materials;
65
Service Stream Limited
Notes to the financial statements
29 COVID-19 impact (continued)
•
•
•
continuing customer determined moratoriums on electricity and gas disconnections (and subsequent
reconnections) impacting metering operations. These restrictions has progressively improved over the latter part
of FY21 however not all clients have resumed normal metering operations;
deferral of some discretionary maintenance activities by asset owners; and
increased costs to support specific safety-related protocols across business operations, such as protective
equipment, additional cleaning, and operating separate warehouse shifts.
Specifically, the Victorian Stage 4 COVID-19 restrictions resulted in significantly reduced services in the Group’s
Techsafe operations during the first half of FY21. As a result,
the Group received $1.1 million of JobKeeper
assistance from the government.
30 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 (2020: nil).
31 Events after the reporting period
Subsequent to year end, the Group entered into a binding agreement to acquire 100% of Lendlease Services Pty Ltd
from Lendlease Group for an enterprise value of $310 million, and an expected purchase price of approximately $295
million once debt and debt like items are considered. To fund the acquisition, the Group completed a capital raise of
$185 million, issuing 205.55 million new ordinary shares. The balance of acquisition funds required will be funded
from draw down of debt facilities and available cash, with commitments to extend the Group’s syndicated debt
facilities increasing by $120 million to $395 million. Completion is expected to occur around November 2021, subject
to a condition precedent in respect of counterparty consents and market standard completion processes. Further
details of the acquisition and capital raise are detailed in the investor presentation lodged with the ASX on 21 July
2021.
Other than the above, there has not been any other matters or circumstance occurring subsequent to the end of the
financial year that has significantly affected, or may significantly effect, the operations of the Group, the results of
those operations, or the state of affairs of the Group in future financial years.
32 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
Tax advice and other services
2021
$
746,400
30,000
31,000
-
71,740
-
879,140
2020
$
693,000
60,000
33,000
12,250
142,837
48,000
989,087
The auditor of Service Stream Limited is PricewaterhouseCoopers.
33 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. 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 26 August 2021.
66
Service Stream Limited
Notes to the financial statements
33 Significant accounting policies (continued)
(a) Basis of preparation (continued)
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
•
•
•
AASB 2018-6 Amendments to Australian Accounting Standards - Definition of a Business [AASB 3]
AASB 2018-7 Amendments to Australian Accounting Standards - Definition of Material [AASB 101]
AASB 2019-3 Amendments to Australian Accounting Standards - Interest Rate Benchmark Reform [AASB 9,
AASB 139 and AASB 7]
Changes in accounting policy
The Group has considered the IFRIC Agenda Decision published in April 2021 regarding the configuration or
customisation costs in a Cloud Computing Arrangement (IAS 38 Intangible Assets). The Group has undertaken an
analysis required to assess the impact of this IFRIC agenda decision and have concluded that there is no required
change in accounting policy regarding the topic, nor is there a material impact to 30 June 2021 reporting.
There were no other changes in accounting policies during the period.
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 34.
(b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Group and entities controlled by the
Group (its subsidiaries).
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is
exposed to, or has right to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are deconsolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset
transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the
policies adopted by the Group.
When the Group ceases to consolidate an entity, any retained interest in the entity is remeasured to its fair value with
the change in carrying amount recognised in profit or loss. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related
assets or liabilities. This means that amounts previously recognised in other comprehensive income are reclassified to
profit or loss.
(c) 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.
67
Service Stream Limited
Notes to the financial statements
33 Significant accounting policies (continued)
(c) Joint arrangements (continued)
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 are set out in note 25.
(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
is
recognised immediately in the profit or loss and is not reversed in a subsequent accounting period.
loss recognised for goodwill
On disposal of the relevant cash generating unit, the attributable amount of goodwill is included in the determination of
the profit or loss on disposal.
(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.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker.
(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 contracts 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).
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Service Stream Limited
Notes to the financial statements
33 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 telecommunications, 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 of completion. The Group’s
performance obligation is fulfilled over time and as such revenue is recognised over time (Over time).
Percentage of completion 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
judgement 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 receivables represent receivables in respect of which the Group's
right to consideration is unconditional subject only to the passage of time. Accrued revenue 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.
Income in advance arise where payment is received prior to the work being
performed. Accrued revenue and income in advance are recognised and measured in accordance with this
accounting policy.
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Service Stream Limited
Notes to the financial statements
33 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
The Group recognises leases in line with AASB 16 Leases, measuring lease liabilities measured at the present value
of the remaining lease payments, discounted using the Group’s incremental borrowing rate. The Group’s leasing
policy is described in note 15(c).
Right-of-use assets
Right-of-use assets are initially recognised at cost, comprising the amount of the initial measurement of the lease
liability, any lease payments made at or before the commencement date of the lease, less any lease incentives
received, any initial direct costs incurred by the Group, and an estimate of costs to be incurred by the Group in
dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying
asset to the condition required by the terms and conditions of the lease.
Subsequent to initial recognition, right-of-use assets are measured at cost (adjusted for any remeasurement of the
associated lease liability), less accumulated depreciation and any accumulated impairment loss. Right-of-use assets
are depreciated over the shorter of the lease term and the estimated useful life of the underlying asset, consistent with
the estimated consumption of the economic benefits embodied in the underlying asset.
Lease liabilities
Lease liabilities are initially recognised at the present value of the future lease payments (i.e., the lease payments that
are unpaid at the commencement date of the lease). These lease payments are discounted using the interest rate
implicit in the lease, if that rate can be readily determined, or otherwise using the Group’s incremental borrowing rate.
Subsequent to initial recognition, lease liabilities are measured at the present value of the remaining lease payments
(i.e., the lease payments that are unpaid at the reporting date). Interest expense on lease liabilities is recognised in
profit or loss (presented as a component of finance costs). Lease liabilities are remeasured to reflect changes to lease
terms, changes to lease payments and any lease modifications not accounted for as separate leases.
Variable lease payments not included in the measurement of lease liabilities are recognised as an expense when
incurred.
Leases of 12-months or less and leases of low value assets
Lease payments made in relation to leases of 12-months or less and leases of low value assets (for which a lease
asset and a lease liability has not been recognised) are recognised as an expense on a straight-line basis over the
lease term.
(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.
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Service Stream Limited
Notes to the financial statements
33 Significant accounting policies (continued)
(h) Employee benefits (continued)
Liabilities recognised in respect of long-term employee benefits are measured as the present value of the estimated
future cash outflows in respect of services provided by employees up to reporting date. Expected future payments
falling due more than 12 months after the end of the reporting period are discounted using corporate bonds market
yields. Remeasurements as a result of employment status and changes in actuarial assumptions are recognised in
profit or loss.
Termination benefits are payable when employment is terminated before the normal retirement date, or when an
employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits
when it is demonstrably committed to either terminating the employment of current employees according to a detailed
formal plan without possibility of withdrawal or to providing termination benefits as a result of an offer made to
encourage voluntary redundancy where applicable.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional
right to defer settlement for at least 12 months after the reporting period, regardless of when the actual settlement is
expected to occur.
(i) Share-based payments
Equity-settled share-based payments to Senior Executives are measured at the fair value of the equity instrument at
the grant date. Details regarding the determination of the fair value of the equity instruments are set out in note 23.
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 the recognition of leases) 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.
71
Service Stream Limited
Notes to the financial statements
33 Significant accounting policies (continued)
(j) Taxation (continued)
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
items, the incremental 8.5% incentive is
R&D activities is classified as revenue. Where R&D relates to capital
recognised as revenue over the period that the asset is amortised.
(k) 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: 3 - 13 years
Plant and equipment: 1 - 10 years
•
•
• Motor vehicles: 5 - 10 years
(l)
Intangible assets
Costs incurred in developing products or systems and costs incurred in acquiring software and licences that the
Group controls and that will contribute to future period financial benefits through revenue generation or cost reduction
are capitalised as software. A software is assessed as being controlled by the Group if it has the power to obtain the
future economic benefits flowing from the software itself and to restrict others’ access to those benefits. 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.
72
Service Stream Limited
Notes to the financial statements
33 Significant accounting policies (continued)
(m) Impairment of tangible and intangible assets excluding goodwill
At the end of each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have incurred an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if
any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the
recoverable amount of the cash generating unit to which the asset belongs. Where a reasonable and consistent basis
of allocation can be identified, corporate assets are also allocated to individual cash generating units, or otherwise
they are allocated to the smallest group of cash generating units for which a reasonable and consistent allocation
basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment
annually, and whenever there is an indication that the asset may be impaired.
The recoverable amount
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.
(n) 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.
(o) 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.
(p) 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 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.
73
Service Stream Limited
Notes to the financial statements
33 Significant accounting policies (continued)
(p) Financial instruments (continued)
(ii) Recognition and derecognition
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.
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(c) 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 amount of the obligation under the contract, as determined in accordance with AASB 137 Provisions,
Contingent Liabilities and Contingent Assets; and
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Service Stream Limited
Notes to the financial statements
33 Significant accounting policies (continued)
(p) Financial instruments (continued)
(vi) Financial liabilities and equity instruments (continued)
•
the amount initially recognised, less where appropriate, cumulative amortisation recognised in accordance with
the revenue recognition policies.
Financial liabilities
Financial
financial liabilities.
liabilities are classified as either financial
liabilities at fair value through profit or loss (FVTPL) or other
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial
interest expense recognised on an effective yield basis.
liabilities are subsequently measured at amortised cost using the effective interest method, with
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
(q) 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(c) for an assessment of
methodology.
(r) 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.
(s) 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.
(t) 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.
(u) 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.
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Service Stream Limited
Notes to the financial statements
33 Significant accounting policies (continued)
(u) Contributed equity (continued)
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.
(v) 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.
(w) Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing:
•
•
the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary
shares;
by the weighted average number of ordinary shares outstanding during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account:
•
•
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares;
and
the weighted average number of additional ordinary shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares.
(x) 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.
34 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 33.
The areas involving a higher degree of judgement or estimates are:
•
•
•
•
Recognition of revenue from contracts with customers - note 3(d);
Testing of goodwill for impairment - notes 14(b) and 14(c);
Estimation uncertainties and judgements made in relation to lease accounting - note 15(d); and
Estimation of provision for contractual obligations, contractual disputes and onerous contracts - note 17(b).
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.
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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 2021 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 26
Note 33 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
26 August 2021
Leigh Mackender
Managing Director
26 August 2021
77
Independent auditor’s report
To the members of Service Stream Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Service Stream Limited (the Company) and its controlled
entities (together the Group) is in accordance with the Corporations Act 2001, including:
(a) giving a true and fair view of the Group's financial position as at 30 June 2021 and of its
financial performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
•
the consolidated balance sheet as at 30 June 2021
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 significant accounting
policies and other explanatory information
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 & 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
•
For the purpose of our audit we used overall Group materiality of $3.2 million, which represents
approximately 0.4% of the Group’s revenue from continuing operations. 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 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 revenue from continuing operations because, in our view, it is an appropriate benchmark
against which to measure the performance of the Group.
• We utilised a 0.4% threshold based on our professional judgement, noting it is within the range of
commonly acceptable thresholds.
Audit Scope
•
Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context. We communicated the key audit matters to the
Audit and Risk Committee.
Key audit matter
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:
Telecommunications ($71.5 million), Energy & Water
($58.2 million) and Comdain Infrastructure ($100.3
million). The CGUs are tested for impairment using a
discounted cash flow model.
How our audit addressed the key audit
matter
We assessed whether the Group’s identification of
CGUs was consistent with our knowledge of the
operations of the business.
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.
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.
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 appropriateness of the Group’s
discount rate assumptions for each CGU 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
evaluated the appropriateness 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 disclosures
relating to the Group’s goodwill impairment
assessment in light of the requirements of
Australian Accounting Standards.
Key audit matter
How our audit addressed the key audit
matter
Revenue recognition
(Refer to notes 3, 11 and 33(f)) $803.0 million
We evaluated the design and implementation of
relevant key internal controls over the recognition of
revenue.
For the year ended 30 June 2021, the Group
recognised $803.0 million of revenue from contracts
with customers, of which $88.4 million was accrued
at 30 June 2021.
Revenue from provision of ticket of work services
involves a high volume of transactions and is
recognised at a point in time once services or activities
have been completed. Additionally, several 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.
Judgement was required to determine if accrued
revenue will be recoverable. Only revenue that is
highly probable of not reversing can be recorded.
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.
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
contracted rate with the customer for the type of
service. In addition, for revenue that was accrued at
30 June 2021 we performed the following procedures,
amongst others:
•
assessed the long-term average claim rejection
rate which we compared to actual experience,
including recent trends
obtained evidence for claims that reached an
outcome subsequent to 30 June 2021.
•
•
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 2021 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 2021.
•
•
•
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 if the journals were
reasonable.
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 2021, 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 15 to 33 of the directors’ report for the
year ended 30 June 2021.
In our opinion, the remuneration report of Service Stream Limited for the year ended 30 June
2021 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
26 August 2021
Service Stream Limited
ASX Additional Information
ASX Additional Information
for the financial year ended 30 June 2021
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 18 August 2021
Category (size of holding)
1-1,000
1,001- 5,000
5,001-10,000
10,001-100,000
100,001+
Holders
2,753
4,337
2,337
3,727
304
13,458
B. There are 13,458 holders of fully paid ordinary shares.
The Company has no other class of shares issued.
C. The number of shareholdings held in less than marketable parcels is 1,454.
D. The names of the substantial shareholders listed in the holding company’s
register, and their shareholdings (including shareholdings of their
associates), as at 18 August 2021 are:
Shareholder
Comdain Nominees Pty Ltd
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