As the price balances precariously just under the 85c tightrope [see @Saragian chart], I thought to share some revision of the HI results presentation transcript, including the Q & A, in case it is useful to anyone else .
Because it’s long I will break it up via ‘spoilers’ and across a few different posts
Half Year 2021 Service Stream Ltd Earnings Call Victoria Feb 25, 2021(Thomson StreetEvents)
-- Edited Transcript of Service Stream Ltd earnings conference call or presentation Wednesday, February 24, 2021 at 10:00:00pm GMT TEXT version of Transcript
Corporate Participants;
Leigh MacKender Service Stream Limited - MD & Director
Linda Kow Service Stream Limited - CFO
Conference Call Participants
Ian Munro Ord Minnett Limited, Research Division - Senior Research Analyst
Marni Lysaght Macquarie Research - Analyst
Piers Flanagan CLSA Limited, Research Division - Research Analyst *
Steven Anastasiou Bell Potter Securities Limited, Research Division - Analyst
PRESENTATION
Operator;
.......I'll now hand the conference over to your first speaker today, Managing Director and CEO, Leigh MacKender. Thank you, and please go ahead.
Leigh MacKender, Service Stream Limited - MD & Director [2]
Thank you, moderator.
Good morning, ladies and gentlemen, and welcome to Service Stream's Half Year Results Presentation for the 2021 Financial Year.
My name is Leigh MacKender, the Managing Director of Service stream, and I'm joined today by our Chief Financial Officer, Linda Kow. We're recording this session today via webcast.
It's open to all registered Service Stream shareholders, and we have a number of institutional investors and analysts on the conference bridge, and they're welcome to ask questions at the conclusion of the presentation.
Today, we'll run through a brief overview of the company profile, moving in to provide key messages and an outline of performance highlights throughout the half year.
We'll update in relation to COVID-19 and how the business has been impacted, move into some greater detail with respect to the group's financial and operational performance, both the group and divisional level.
And finally, we'll touch on the group strategy and outlook, including priorities for the second half of this year.
And at the end of the presentation, we're happy to take questions from those joining us on the bridge, expecting to take 30 to 45 minutes, including time for questions.
.. “Moving to Slide 2 and just briefly touching on the company profile;”
Service Stream is essentially a network service provider, and our core markets are utility and telecommunications, where the business provides end-to-end services associated with the design and construction and operations and maintenance of the essential infrastructure networks.
Business has a strong client base, consisting of Australia's leading blue-chip industrial asset owners and operators as well as government and government-related organizations.
Business has two reporting segments, reflecting telecommunications and utilities: Telecommunications provides integrated design, construction, engineering, operations and maintenance services across both fixed and wireless infrastructure.
Key clients include nbn, Telstra, Vodafone.
The company's utility division provides a unique set of end-to-end services associated with design, construction, asset installation, inspection and operations and maintenance of utility infrastructure.
The key clients in this sector are gas, water, electricity, asset owners and operators, retail service providers and local government authorities.
Before we move to the group results for the half year, I might take a moment to provide some brief initial commentary on the last 6 months and in relation to the period ahead, and refer to Slide 3 of the presentation materials;
The FY '21 financial year was characterized previously as a transitional year for the business, a year in which the business had a large number of significant contracts reaching their natural end date and mean to be resecured.
The nature of these agreements, particularly those associated with NBN, were also changing the future as programs move away from a construction focus to one of ongoing operations and maintenance, and work volumes, therefore, declining from historical piece.
The group's first half financial performance, whilst down on prior corresponding period, was in line with expectations.
The business had, however, forecasted a stronger second half in FY '21, and that was led by an expected resumption of previously delayed maintenance works that were paused or restricted during COVID across both telecommunications and utilities.
The delivery of productive upgrade or maintenance works, particularly across telecommunication operations that have historically been biased to the latter part of each financial year, and the mobilization of work programs aligned to those resecured contracts.
And all while the COVID landscape continued to improve and allow the business to recommence operations without restrictions on travel and movement.
Unfortunately, the outlook has been progressively impacted in terms of lower-than-expected volumes by clients, and we continue to see restrictions on some work types commencing and longer-than-expected delays across tender cycles.
With these uncertainties, we therefore, expect the second half results to be approximately in line with the first.
Despite these challenges, the business has been successful in navigating through a period and resecuring a number of key agreements, which provide a strong base.
We manage Service Stream for the long term and focus on continually driving and enhancing the business model's strong fundamentals with regards to profitability, maintaining a strong balance sheet, a high-quality of earnings and working with our industrial client base to grow operations as opportunities present.
As we look ahead, the core of Service Stream remains strong, and diversification into utilities has been progressing well.
And whilst it would take some time to progressively replace the declining revenues across telecommunications, which have been a major source of historical growth, that does provide several opportunities.
The business holds a solid order book, faces into positive markets and continues to work on securing those additional growth opportunities, both organically and through acquisition, which has served as a catalyst to delivering a step change in future growth.
.
.. “Moving on to performance highlights, I direct you to Slide 4....
We have an overview in relation to the group's financial, operational and strategic performance over the most recent period.
In relation to financial performance, the business reported EBITDA from operations of $40.2 million, and whilst down on pcp, was in line with expectations with a period -- with the prior period holding construction-related programs at nbn, which have concluded, and the activations of such connections profile reducing over time.
Group EBITDA margins remain steady and healthy when compared to industry averages, with movement really reflective of scale benefits that we've seen when work volumes are higher.
Strong cash flow generation with EBITDA to OCFBIT conversion rate of 108%, particularly positive, and working capital continues to remain at a low 1.3% of revenue.
On the back of these results, the Board announced an interim dividend of $0.025 a share, which was down on prior periods, maintaining a historical payout ratio of circa 60%.
In terms of operational performance, the re-signing of both the unified services and networks agreements with NBN, cement Service Stream's role as a major service provider and provide work over a potential 8-year term, expecting to generate in excess of $800 million in revenue.
The business secured the next contract iteration with Telstra for the design, construction, operations and maintenance of both wireless and fixed line infrastructure.
And the utility segment secured a number of opportunities over the last 6 months, most notably an agreement with SEQ Water in Queensland and several clients in New South Wales.
In total, the business has resecured an excess of $1.5 billion in works over this recent period.
And finally, the most important aspect of the business operations is our safety performance.
And we're very pleased to see the business continue to deliver positive improvements across key indicators.
Finally, touching on strategic highlights;
Diversification strategy in utility is progressing well and supporting opportunities which will assist in replacing those historical nbn construction and activation revenues across a more diversified base.
Comdain infrastructure, which is a major step in the diversification program, has performed well, with work in hand that's on target to deliver 15% growth in revenue during the year.
The business, more broadly, has a solid pipeline of organic growth opportunities across both markets.
And we continue to assess a number of M&A opportunities, which should further support the expansion of addressable markets, diversification of group revenues and a platform for future organic growth.
Moving to Slide 5.
I'll provide an update in relation to the COVID-19 pandemic and how this has impacted the business over the recent period.
As I mentioned in my opening comments, the group's balance sheet, cash flow, liquidity all remain strong, and the group's exposure to essential infrastructure markets has certainly limited the impact that COVID-19 has had across the business.
There have, however, been impacts, and some of which we do expect to continue over the near term.
And these are most notably across delays to client procurement programs, many being pushed back several months.
Restriction on the movement of people, both within state borders and across borders, has really handed the business's ability to effectively mobilize and support some programs and restricted the ability to move resource across borders to capitalize on opportunities as they present.
We incurred client schedule delays to proactive maintenance programs across utilities and telecommunications networks, such as the continued moratorium on gas and electricity disconnections and reconnections as well as meter exchange operations, which still exists today across many states, but are starting to ease with each month the passes over the year.
Victorian operations were also heavily impacted in the last period due to Stage 4 lockdowns, particularly across our inspection and quality assurance operations.
All of the above have previously been outlined and certainly top of mind in terms of the key variables that the business needed to monitor over the course of the year.
Moving on to Slide 6 and the group's safety performance.
Service Stream is incredibly proud of the safety culture and industry-leading performance that's delivered by the organization.
Our HSE performance remains one of the major priorities for the business.
I'm really committed to ensuring that our people, our customers and the community with whom we engage with while we deliver our services remain safe at all times.
As you can see from the lag indicator performance graphs outlined at the bottom of the page, our total recordable injury rates decreased, reaching a new low of 1.57.
Medically treated injury rates continued 1.12, a further reduction from the prior period.
And finally, our lost time injury rates continue to be maintained at low levels.
Safety is one of our core values and an area where despite our positive results, the business really needs to continue to place great emphasis and strive to deliver further improvements as we continue on our journey towards n0 harm. Also, I'm very proud of the group's performance, and the business continues to work on targeting high-risk work activities and identifying further opportunities to improve the safety of our operations.
......I'll now hand across to Linda to run through the key financial performance in greater detail....
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