Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Service Stream Ltd (ASX:SSM, Financial) reported significant double-digit increases in revenue, earnings, and profits for FY24.
- The company achieved a net cash position, exceeding expectations set at the half-year mark.
- The utilities segment saw successful renegotiation or exit of loss-making agreements, contributing to improved margins.
- The telecommunications segment surpassed $1 billion in annual revenue for the first time.
- The company declared a fully franked dividend of $0.045 per share, reflecting a 200% increase on the prior year.
Negative Points
- The company incurred approximately $7 million in additional costs for bidding on the defense-based services transformation tender.
- Despite improvements, the utilities segment still has further work to do to achieve target margins.
- The transport segment saw a reduction in revenue by $73 million due to demobilization of WA regional road operations.
- The Queensland project incurred additional costs and delays due to rectification of damage from adverse weather events.
- The company expects to incur further costs in the new financial year related to the defense bid.
Q & A Highlights
Q: Can you touch on the utilities margin and the journey back up to 5%? How are you internally thinking about that journey throughout FY25?
A: (Leigh Mackender, CEO) We are confident that our plan is working well and we will see improved margins in our utility performance. We expect to achieve a margin starting with a 4 in FY25, transitioning to a 5 the year after. While we always push hard to expedite benefits, it’s early to call for anything beyond this at the moment.
Q: Are all the legacy arrangements within utilities either exited or renegotiated to better terms?
A: (Leigh Mackender, CEO) Yes, that process is largely complete as of July. Now, it’s about driving internal optimization activities and securing new growth, without needing to navigate challenging commercial discussions.
Q: Regarding the telco segment, is the second half growth rate expected to continue into FY25?
A: (Leigh Mackender, CEO) Yes, we expect another solid year from Telco with potential for further growth. We aim to maintain the current high single-digit EBITDA margins and possibly see incremental growth.
Q: How should we think about the new transport contract win in terms of its impact on FY25 and beyond?
A: (Leigh Mackender, CEO) The new transport contract is mobilizing now and will contribute in the first half of FY25. This should support growth across the year.
Q: Have you seen any impact on productivity due to disruptions in the construction sector, particularly from the Electrical Trade Union?
A: (Leigh Mackender, CEO) No, we haven’t seen any impact on productivity. Our agreements cover that area, and we haven’t had to negotiate in that particular market segment.
Q: Regarding the nbn UniFi agreement, has it been extended yet?
A: (Leigh Mackender, CEO) The process for a longer-term agreement post-2025 is ongoing this financial year. We have it secured until 2025.
Q: What is the profile of the $5.5 billion work in hand? How much of it represents FY25 and beyond?
A: (Leigh Mackender, CEO) We have about 85% of work secured for FY25, which is better than our historical average. The total work in hand, including extension options, is about $8 billion, providing a couple of years of contract cover.
Q: How is the investment in defense proceeding?
A: (Leigh Mackender, CEO) We have submitted our bid and spent about $7 million last year, with a couple of million more expected this year. We hope to know the outcome by Christmas. If successful, it will be an exciting growth area; if not, we will focus on other opportunities.
Q: Are we expecting a reversal in cash conversion rates?
A: (Linda Kow, CFO) We guide to 80% annually but aim to do better. Given revenue growth, some working capital investment is needed. We will continue to strive for high conversion rates.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
