Service Stream Limited (SSM) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Service Stream Full Year '26 Results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today, Leigh MacKender and Linda Kow. Please go ahead.

Good morning, ladies and gentlemen, and welcome to Service Stream's results presentation for financial year '26. As per the introduction, my name is Leigh MacKender, Managing Director of Service Stream, and I'm joined today by our Chief Financial Officer, Linda Kow. In terms of the agenda, I'll start by covering some of the group's highlights and provide an update on Service Stream's operational and financial performance. I'll then pass to Linda who will talk through the group's financial performance and capital management strategy in greater detail. We'll then provide an update with regards to trading conditions, group outlook for FY '27. And finally, we'll open up the call for questions. I personally wish to begin by acknowledging the traditional custodians of the land in which we meet today, and I pay our respects to the elders past, present and emerging. Okay. Turning to Slide 3. Service Stream's journey over the last 10 years has been one centered around growth and diversification, ideally looking to leverage the business's telecommunication heritage and create a multi-network business. At its core, Service Stream is an essential network service provider. Our growing team of 6,500 employees and more than 12,500 specialist contractors design, construct, operate and maintain the critical infrastructure that millions of Australians depend on each and every day. Our business undertakes more than 55 million property visits annually across what is now 16 market segments that we operate across under our 3 reporting segments. Creating sustainable and long-term shareholder value has and remains at the center of our focus and the outcomes we strive to deliver under the group's strategic plan. We're incredibly proud of the business's progression and the strong attributes, which we believe differentiate Service Stream from our broader market peers. The business has major exposure through more than 180 contracts to growing infrastructure markets, which continue to benefit from significant investment given the critical nature. Our contract base predominantly supports long-term annuity-style revenues across multiyear operation and maintenance agreements. The terms in which these commercial agreements are negotiated are favorable with circa 90% of the group's revenue secured under lower-risk schedule of rate or alliance-style cost-plus agreements. And that business has a strong and proud retention rate, holding many agreements well into their 30th plus consecutive year despite these generally tested in the market on average every 4 to 5 years. We have an enviable client base representing state and federal government and major industrial asset owners and operators. And the business generates exceptional cash flows from these operations, consistently exceeding 100% conversion rates year-on-year. We have a capital-light business model, but we're also proud of the owner's mentality, which exists right across the business and ultimately guides our long-term decision-making. So whilst we've demonstrated an ability to improve the group's financial performance, grow and diversify our revenues, it's exciting that there's still further work and opportunities ahead to drive improved results that we'll strive to deliver in the days ahead. Okay. With regards to the group's FY '26 results, I'll start by directing everyone to Slide 6, where I'll just touch on some of the key messages for the year. As I just mentioned, we're really pleased with the performance and the results achieved over FY '26, which reflect a culmination of years of hard work as the business seeks to drive a range of sustainable improvements. The results today are again headlined with improvements made across the group's financial performance and enhanced quality of earnings. And this is evidenced through a significant step change in profitability across our Utility operations with EBITDA margins up 130 basis points on pcp to reflect 5.8%. The group's EBITDA margin also improved by 60 basis points to reflect 6.6% EBITDA. And the business enjoyed another exceptional cash flow performance result, contributing to a further strengthening of the group's net cash balance sheet, which reflected $80.7 million at the close of the year. One of the major highlights in FY '26 was the award of the group's first Defence contracts, marking Service Stream's entry into what is a new attractive growing sector for our business. We're pleased to confirm that not only is the mobilization of the operations gone exceptionally well, but the full year results include a revenue contribution, which is in line with our expected full year run rate that we've signaled to the market, and there's been a positive earnings contribution after only the first initial 5 months. And this has assisted in the group exceeding the market consensus that we'll talk through today. More broadly, the group has continued to strengthen its order book. We now have 75% of our revenues secured under long-term operations and maintenance contracts. As I said before, 90% of those operating under a lower-risk schedule of rates or alliance-style model. And finally, on the back of this positive progress made throughout the year, we've seen a double-digit increase in EPS to $0.131 per share, and that reflects a 17% (sic) [ 18% ] increase on pcp. On the back of these results, the Board was pleased to declare an increase in the group's full year dividends for our valued shareholders. Moving to Slide 7 and the group's financial highlights, which Linda will expand on further later in the presentation. But firstly, starting with revenue over the year was $2.475 billion. This reflected a slight increase on pcp, most notably with growth across Utilities and the recently formed Asset & Facilities division. This division incorporates our new Defence operations with our legacy Transport operations. And the business continues to be selective as contracts regularly come up for renewal, actively choosing not to secure those where the many doing so could erode our focus on quality of earnings. We are absolutely confident of further revenue growth in FY '27, given the business has successfully secured and now mobilized a number of major contracts across Defence, Water and Industrial operations I'll talk to later in the presentation. But more importantly, EBITDA was $163.4 million, and that reflected an increase of $17.3 million or 11.8% on the prior year. The group generated OCFBIT of $186 million and achieved an exceptional EBITDA to OCFBIT conversion rate of 113%. This is again reflective of Service Stream's blue-chip industrial client base, positive terms in which our agreements are negotiated and the strong focus placed on works to cash right across the business. As I just mentioned, those high cash flows support a further strengthening of the group's balance sheet with a net cash position closing at $80.7 million, and that reflected an improvement of $7.1 million on the position reached as of June 2025. We're very pleased to see another strong result with this regards, particularly as the business had to cater to both increased dividends, a large tax payment and the mobilization of Defence and other contract operations throughout the year. As I mentioned before, finally, on the back of those results, given the positive position of the business, the Board were pleased to increase the fully franked interim dividend -- sorry, fully franked final dividend to $0.035 per share. That took full year dividend to $0.065, an increase of 18% on the prior year. Slide 8. Moving there, there are a number of significant operational and strategic highlights that have been achieved over the year. One of the business's priorities over the last 3 years has been to optimize our operations, creating a scalable platform from which the business will continue to not only grow but deliver an improved and sustainable quality of earnings. The major focus we've often discussed has been to drive improvements across our Utility operations to both its level of earnings and its EBITDA margins. And we're incredibly pleased to deliver significant increases across both of these during the year. EBITDA increased by 34% or $15.4 million on pcp and EBITDA margins over the full year moved 130 basis points on pcp to reflect 5.8%. The business has now consistently delivered incremental improvement over 8 half year periods. And most importantly, the division achieved a 6% EBITDA margin in the second half. So that exit rate is certainly strong and reflects a target or a result 18 months ahead of the target that we discussed only 6 months ago. And importantly, we still identified further opportunities, which will support incremental improvement, but these will take time to deliver. We continue to be excited about our Utility division. We've often reflected that it's one of the group's major growth engines facing a number of strong markets, and we do expect further incremental improvement in margins and growth in revenue over FY '27. Utility performance combined with other initiatives supported improved group EBITDA margin of 6.6%, reflecting another strong result equating to 60 basis points on pcp. We often talked about a major priority for all services businesses being the retention of existing contracts as they reach their full term and proceed to market as well as securing new growth. And we're really proud that the business had another successful period, securing $3.2 billion of multiyear contracted works throughout FY '26. This reflected a strong retention rate of 93% of the agreements reaching a renewal milestone or end of term and proceeding to market. And as I said earlier, importantly, the business continues to be selective about our contract renewal options and the associated terms to ensure that as these are secured, they are enhancing our quality of earnings, not undoing some of the positive work delivered in the prior periods. The group's level of work-in-hand remains robust at $8.2 billion. But importantly, that $8.2 billion only reflects initial terms with many of Service Stream's contracts having multiyear extension options, not referenced in the headline number. We account for those options and work-in-hand is just exceeding $14 billion. The award of a major contract with the Department of Defence supporting base infrastructure across Northern Territory and South Australia marked what I believe to be one of the most significant and exciting milestones in Service Stream's history. This is a culmination of a 5-year journey we sought to strategically expand the group's addressable market into an area we believe will benefit from a significant and increased level of investment into the future. We're incredibly pleased with the team's performance, and I am happy to report the mobilization program has progressed well, meeting or exceeding the targets that we set. Our enhanced net cash balance sheet also provides strategic optionality as the business continues to actively pursue both organic and M&A growth opportunities. We announced a small strategic bolt-on acquisition of RiE Group in May this year, which has added new capabilities and expanded the group's markets. We, of course, continue to assess other M&A opportunities they present in market. Continuing through to Slide 9, and we've again provided insight into the group's diversified revenue profile, representing another positive attribute of our focus, which has been driven over recent years and now reflects a higher quality, lower-risk revenue base. Over the past 12 months, we continue to see an improved mix of works delivered across the group with operations and maintenance revenues holding steady at 73%. Minor capital works reflecting 25%, we again feel is an appropriate balance. It provides our business with exposure to our clients' capital expenditure programs and work is most commonly delivered under multiyear panel arrangements. These panel arrangements offer the ability for our business to review and selectively bid on specific opportunities that fit our criteria. And most importantly, we are really pleased to report the financial performance driven across these minor capital works has continued to improve over the last 12 to 18 months and now is consistently representing a higher margin than the O&M works as it should. If we look into the commercial models that govern the group's work, this is a real strength, as you'll note that we see 90% delivered under either a lower risk schedule of rates or cost reimbursable lifestyle model. We continue to see improved diversification across the group in terms of the industry sectors and therefore, clients that we're supporting with the business certainly now reflecting a multi-network service provider aligned to those strategic priorities I spoke of earlier. And we note 70% of our work was on behalf of either local or federal government entities with the remaining 30% on behalf of Tier 1 industrial asset owners and operators. Moving on to major contract renewals and new business on Slide 10. And I've often spoke about the importance of the business retaining contracts as they proceed to market at the end of their respective terms. This has been an area our business has been incredibly strong. And that needs to be coupled with securing profitable incremental new growth. And on this slide, we'll provide insight into just a few of those major agreements that were secured across the group over the year. This is certainly not an exhaustive list, but a small selection of those secured. And whilst I won't go into the detail, we're happy to see strong retention rates, but also these agreements, particularly new contract wins being secured right across our broad markets. Moving to Slide 11, we can see how these contract awards have assisted in maintaining a very strong level of work-in-hand across the group. As I noted from the outset of the call, the work-in-hand balance now reflects $8.2 billion in future contracted works. And that only reflects the initial term if we include the multiyear extension options, which exist across almost all of our agreements, there's another $6 billion of work, taking work-in-hand to $14.2 billion. That reflects circa 5x revenue cover as we see here today. But importantly, that quality of the work-in-hand is much higher, again, 85% reflecting operations and maintenance contracts. And Slide 12 will provide some insight into our reporting segments. I'm starting with Telecommunications on the left-hand side. In early FY '26, the division successfully transitioned to a new field service agreement with NBN, reflecting one of the group's material contracts as well as mobilizing a major operation across Vic, SA, NT and WA. Positive and steady progress has been made, also ramping up and executing our fiber network upgrade program with NBN known as N2P with several major tranches being successfully designed and built across SA, ACT and WA. In addition to resigning several major agreements, the business also secured a number of small intercity fiber construction deployments on behalf of clients such as Telstra and Ausgrid, and they are underway. This is the first time our organization has taken part in these types of programs, and it's been positive to see the division able to secure, mobilize and execute this new work type, which will no doubt continue in support of data center deployments, renewable energy projects and network resilience operations happening right around the country. Moving to Utilities. And in line with my earlier comments, it's been another busy and productive period for our Utility division. Again, we are pleased to report the strategic optimization program has made further significant progress as evidenced by what is a sustainable step change in margins and our ability to reach an EBITDA exit rate with a 6 handle, well ahead of the 18-month time period we discussed only 6 months ago. This bodes well for the future of the division being one of the main growth engines of Service Stream. We're not only demonstrating the business can secure a new multiyear O&M contracts to support growth, but the earnings from these contracts and revenues are of a higher quality and providing a much more substantial contribution to the group. In terms of the division's improvement programs, we continue to identify a range of optimization initiatives to further uplift in margins, albeit future progress will be slower than it's been demonstrated in the last half. At the same time, we're confident the business will continue to expand and grow. As I mentioned earlier, in May, the business was delighted to announce the acquisition of a small bolt-on business with RiE Group, a leading provider of industrial maintenance and electrical capabilities and has expanded our operations to include now oil and the LPNG (sic) [ LNPG ] markets across Queensland. Whilst small, the business has enhanced our capabilities and expanded those addressable markets, and we're confident that when paired with what is a growing industrial division within our business, we'll see some positive progress in terms of new contracts being secured over the course of the next 12 to 18 months. As I said earlier, the Utility division reflects one of the major growth engines, and it's great to see strong organic growth in terms of new multiyear contract wins across water and industrial markets being secured and mobilized throughout this year. They will certainly provide a contribution in '27. And finally, Asset & Facilities. This division reflects the combination of the group's legacy Transport and new Defence operations. These 2 divisions each hold very similar capabilities aligned with strategic asset management. As Defence operations are growing and expanding since the mobilization which concluded last month, it's made sense to bring these 2 divisions together and leverage the back-of-house expertise that exists across our capable teams. Not only provides a great platform for our skilled staff to expand their focus and skills, but avoids duplication of back office indirect resource base and costs in a division that we're confident will continue to grow and expand in the future. In addition to Defence operations, Service Stream is well positioned to secure incremental new works across the Transport market with several long-term maintenance contracts opportunities presenting each year. Turning now to Slide 13, I wanted to provide a dedicated update on the status of our Defence mobilization following the contract award in September and the Go Live, which commenced only 5 months ago in February this year. Again, I say with great pleasure and pride that the business is able to confirm it was successful in securing that long-term asset management contract with the Department of Defence. Mobilization commenced in earnest in September, and we're pleased to confirm the operations successfully went live on 1 February. We've overseen successful engagement with more than 1,600 resources, deployed 350 vehicles and mobilized resource across 100 (sic) [ 110 ] sites, all within the perimeter of the agreed mobilization budget and the required time line. I'm very pleased to report that operations are performing well, and we received positive feedback from our valued client about the progress and the quality of the works that have been completed. Work volumes have consistently and incrementally increased over those initial 5 months in line with our expected forecast, and we hit a steady run rate that will support that circa $240 million in annual revenues being delivered across the business in FY '27. The margin contribution across those works has certainly exceeded our expectation with the division not only breaking even the first 5 months, but actually contributing a small profit, which is a very pleasing sign. And moving forward, our teams continue to focus on optimizing our field workforce and operations. We've also commenced forming a multidisciplinary team from right across Service Stream who are now charged of identifying, bidding and looking to secure some of the initial capital works and other projects that are on offer in this market with a target date of early in calendar year '27. Switching gears now, I wanted to just briefly touch on the business success in making a meaningful and positive contribution with regards to the sustainability of Service Stream's operations. Our business has a very clearly defined strategy aligned to our 5 sustainable pathways, with these being safety, people, community, environment and governance. These areas represent those that we can not only make a meaningful contribution, but align with the feedback of our stakeholder engagement over several years. Highlights of the full year include, but not limited to, 100% offset of the group's Scope 2 electricity usage. We deployed more than 130 hybrid vehicles where we work to reduce our emissions in a measured yet meaningful way. And in line with our commitments detailed in our Innovate Reconciliation Action Plan, we were very proud to report 179% increase in First Nations spend across local communities which we service and support. That spend now reflects more than $33 million per annum. And there's also been a 44% increase in indigenous participation right across our workforce. Again, we're very proud of the achievements across those 5 pathways, and we look forward to sharing more information in the group's sustainability report, which is due for release in early October. And finally, before I hand to Linda, I touch on our safety performance. As I stated many times, the health and safety of Service Stream's workforce, our clients and the community which we operate is our #1 priority. Financial year '26 reflected a challenging year with regards to performance across lag indicators, which shifted back slightly as new contract mobilizations and operations commenced. One of the challenges we often find is bringing on new resources into the group's safety ecosystem presents a challenge. And unfortunately, we had a slight increase in recordable incidents and lost time injuries. I think it's important to note the performance still reflects a very strong level when compared across our industry peers. The driving improvement is a major focus for our safety and operational teams right across the business. And as we move forward, the teams are focusing on high-risk work activities, uplifting the skills and capabilities of our frontline supervisory networks and holding a steadfast focus on those new contract mobilizations as they commence. Linda?

Thanks, Leigh, and good morning to everyone on this call. As Leigh has touched on in his opening comments, we've had another great year, which is reflected positively across our financial metrics outlined on Page 17. Total revenue for the group was $2.48 billion, a slight increase of 2.3% on last year. This includes the strong start we've had across our Defence operations with the contract now operating at a level that supports the $240 million per annum contract value we announced back in September. Telco revenue, however, was slightly lower this year, largely due to the transition between different programs of work in that segment. EBITDA from operations was $163.4 million, an increase of 11.8% from last year. Group EBITDA margins have continued to improve and are up another 60 basis points to 6.6%. This uplift reflects the continuing improvement in quality of earnings through focus on delivery, risk appetite commercial models and operating leverage throughout the group. The group's adjusted NPAT for the year was $81.1 million, up 18.4% on last year, which equates to an adjusted earnings per share of $0.131 per share. This reflects the EBITDA uplift and is also aided by a lower effective tax rate this year due to increased JV dividend. We've had -- sorry. Statutory net profit after tax was $56.9 million after allowing for the amortization of customer intangibles and ERP transformation costs, of which the SaaS component has been written off. As per usual, we've included in the appendix a reconciliation of our headline metrics to the corresponding statutory metrics. We've had another year of exceptional operating cash flow performance, generating $186 million, which is an OCFBIT conversion rate of 114%. This is despite the additional working capital investment required to mobilize the new Defence contract. Consequently, we've been able to further strengthen our balance sheet with net cash increasing further to $81 million. And finally, capping off the headlines, the directors have declared a final dividend of $0.035 per share, fully franked, which takes the total FY '26 dividend to $0.065 per share, which is an increase of 18.2% on last year. Now on to segment performance. As Leigh has noted, we have combined our Transport and Defence operations to form a new Asset & Facility management reporting segment. This is underpinned by [ performance strategic ] asset management capabilities across both businesses and provides additional capacity to further scale our Defence operations. Revenue for the segment was $367 million, which includes $88 million from the new Defence contract, which has been progressively ramping up from the 1st of February. The Defence property and asset services contract is based on the blend of recurring program maintenance and corrective maintenance and other works, which can be variable, so it's been great to be able to reach a run rate that provides confidence in the $240 million per annum announced as we exit the year. Transport also had a good year, benefiting from additional New South Wales pavement repair work achieving revenue growth of 14%. EBITDA for the year was $24.8 million, up $7.6 million from the prior year. Pleasingly, the Defence contract made a positive contribution, not just in H2, but across FY '26 overall, noting we have continued to carry a team post tender to support the award of the contract in September and then prepare for mobilization. Albeit a small contribution, we had expected a small loss of breakeven outcomes this year given the size -- scale of mobilization and the ramp-up profile. This initial contribution also provides confidence on expected Defence earnings contribution into '27. Transport operations also performed well with strong outturn from additional minor capital works undertaken. I should note the results for those of you who analyze our half-on-half does include a one-off stipend from the NZPPP bid, which we recognized in H2. Slide 19, Utilities. FY '26 has been another positive year for the Utilities segment, which has achieved a step change in improvement in its quality of earnings over recent successive reporting periods. Looking back, EBITDA margin has now increased by about -- by around 3% over the past 3 years through portfolio repositioning, disciplined bidding controls and work execution. Revenue for the year was $1.05 billion, which was $42.2 million or 4.2% up on pcp. The water sector has again continued to provide strong organic growth with expansion of existing contracts and also new clients such as QUU. However, there were some revenue offsets due to our disciplined bidding controls, resulting in some expiring contracts not being renewed as we flagged in the half. EBITDA from operations was $60.7 million, up $15.4 million or 33.9% on last year. EBITDA margin was 5.8%, with the second half exit rate of 6%, well ahead of target. I should note that Utility margins are naturally biased to be higher in the second half due to the recognition of annual contract incentives. And the business continues to target further margin improvement but given recent gains, incremental gains are expected to be realized at a more gradual pace. Moving on to Telecommunications on Slide 20. The Telco segment result does reflect the cycling off from the strong '25. Following the significant contract renewals over the past 18 months, the business now operates across a very stable base of [ 4 ] O&M contracts and minor capital works across both fixed line and wireless programs. Revenue for the year was $1.06 billion, down 9% on last year. This does reflect the cycling off those programs in '25 and the transition to new contracts during the current year, including NBN field services. Revenue was also impacted by the slow ramp-up of the next tranche of the NBN fiber upgrade program through design phases. Consequently, EBITDA was down $91 million, 12.8% -- $12.8 million on -- EBITDA was $91 million -- sorry, down $12.8 million on pcp. This reflects the revenue reduction as well as a small margin reduction following the transition to the new NBN field services agreement in the first half. Pleasingly, following that reset, there's been a slight improvement in the second half margin to 8.7%. Slide 21 summarizes the group P&L presenting both the statutory and reporting metrics. We've already touched on group revenue drivers for the year. The only other call-out is there should be a full-year pull-through benefit of the Defence PAS contracts into FY '27 of around $150 million in line, which will be a meaningful contributor to the FY '27 growth aspirations. Group EBITDA from operations growth this year has been predominantly delivered through margin expansion, which increased by 60 basis points to 6.6%. Utilities underpinned a significant portion of this improvement, lifting their margin by 130 basis points to 5.8%. Defence also contributed positively, which is in contrast to the prior year where we were still incurring tendering costs. And finally, there has been additional corporate cost recovery across operating units, resulting in lower unallocated costs. NPAT has increased significantly again this year by another 18.4% to $81 million. D&A was lower than expected due to fully amortized items offsetting the increase in new assets and contract mobilizations. There will be a pull-through impact next year though, given -- particularly given the phasing of new contract mobilization. Tax, there has been some benefit from a lower effective tax rate due to franking credits received and higher JV dividends. This is expected to normalize in the next year. And as noted previously, NPAT excludes $21 million of SaaS systems investment costs, which were charged to statutory profit. These costs will be nonrecurring once the program is completed. Now moving on to group cash flow, which is on Slide 22. As noted in the headline, we have again delivered an exceptional cash flow outcome for the year, achieving an EBITDA to OCFBIT conversion rate of 114%. This is now the third consecutive year of greater than 100% EBITDA cash flow conversion, which has enabled the balance sheet to become leaner with working capital reduced to 9.8% (sic) [ 2.8% ] of LTM revenue. Despite increases to expected tax and investment cash flow this year, we've been able to further improve the net cash position by $7 million to $81 million. This is also net of opportunistic share purchases to fulfill our equity-based incentive requirements of $13 million. Cash tax for the year was $48.8 million, which includes $25 million (sic) [ $26 million ] in relation to the final FY '25 installment. Investment cash flows, including SaaS IT upgrade costs were $44 million, representing a modest 1.8% of revenue. Over $40 million of new fleet and equipment for new contracts were deployed this year, although about half of it was leased. IT upgrade costs, which includes SaaS component itemized, encompasses our people, people and power systems and finance systems as well as the new field solution we deployed for Defence. These projects are expected to be predominantly complete by the end of FY '27. Importantly, the vast majority of greater than 75% of spend -- investment spend this year was invested to support new contracts or business optimization. Finally, on this slide, lease liability payments did increase by 20% to $30 million, reflecting the additional fleet deployed across our new contracts. Now turning to the balance sheet and capital management on Slide 23. Consistent with prior periods, our balance sheet and capital management approach seeks to maintain a strong balance sheet position, enable reinvestment in the business and support growth, provide M&A optionality and provide sustainable dividends to our shareholders. The group's balance sheet is in a strong position, underpinned by our capital-light business model and strong cash conversion. The business currently has access to circa $400 million of liquidity, taking into account existing facilities and net cash. This has enabled the business to invest more confidently across organic and inorganic opportunities to support and optimization -- and optimization initiatives, noting the expansion into Defence is and will be highly accretive and there are no financial constraints in supporting our business to secure further organic growth. We not only upgrade of our finance and people systems during the year and also invested in a new field management system to support the Defence contract, which is currently being refined. These implementations are largely to be expected -- largely expected to be completed in FY '27 and will deliver scalable platforms that can support further growth and enable further productivity initiatives. Maintenance CapEx and IT upgrade costs next year are indicatively expected to be in line with the current year, running at around 1.5% of revenue. With regards to strategic acquisitions, the acquisition of RiE was completed in July, and we are continuing to assess other M&A opportunities that meet our strategic criteria. And finally, delivering sustainable dividends to our shareholders is important. This is reflected in the increase in our final dividend to $0.035 per share with full year dividend of $0.065 per share, up 18% on last year. And that's all for me. So I will now hand you back to Leigh to take you through the remainder of this presentation pack.

Thank you, Linda. We're at the tail end of today's presentation, but I'll move to trading conditions and group outlook and direct everyone firstly to Slide 25, market dynamics. We'll provide an update here around the group's major markets and the level of annual expenditure over the short to medium term. We continue to see strong demand from infrastructure owners and operators that undertake expansion and upgrades across their critical assets. And that investment is generally driven by a range of factors, which includes population growth, aging infrastructure, the energy transition, digitalization and the impact of more common and extreme weather events. We now have a strong foothold into both Defence and Industrial sectors, which have expanded the group's total addressable market and now exceeds over $60 billion in annual maintenance expenditure. And this continues to grow year-on-year with outsourcing continuing to also incrementally increase. We continue to see a strong pipeline of opportunities ahead, both associated with O&M and minor capital works consistently coming to market through competitive tender processes. The business continues to diligently assess these and looks to take part in the competitive processes for those which we believe aligns to our group risk appetite and will provide the most attractive returns for our shareholders. Turning to Slide 25 on the growth -- sorry, 26 on the growth agenda. Growth and ongoing diversification is understandably a major focus for the business and a core component of our group strategic plan. Linda and I are often asked about management's growth targets, both year-on-year and over the longer term. So we thought it might be beneficial to provide some insight to what our approach is and the targets that we set to meet or exceed each year. At the outset, we ideally target for growth of between 5% to 10% year-on-year across all operations. Arguably, we push towards the top of the range. Most importantly, that range is not a ceiling, not a floor. And whilst it's more challenging to control revenue, as we have fluctuations in client volumes and a portion of operations are by virtue reactive, there are, however, levers we have greater control over with respect to labor and optimization costs right across the business. So whilst we target revenue growth, we have a steadfast focus on ensuring that the group's earnings are achieving that annual target. Organic growth is our primary focus, and we are fortunate that through much of the works to reshape and diversify our operations, we have several positive elements that support strong organic growth. 97% of the revenue falls under contracts which have mechanisms to adjust for inflationary pressures. So we generally see a 3% to 5% uplift year-on-year. In addition, we're often fortunate to secure an incremental portion of our client spend predominantly to our role as an O&M provider and having that strong and consistent point of presence right across the network. The third element is that we have a wonderful client base that we continue to invest in the upgrade and expansion of their assets, so the opportunities to secure specific minor capital works and project base. And we also, of course, have the opportunity to take market share as client programs proceed to market at the end of the natural contract terms, just as we have with several of the wins this year that we've referenced on the call. We have a strong position to secure incremental organic growth across those 4 areas. And in addition to this, we've also undertaken a number of strategic acquisitions over the last 10 years. And many will know, we're taking a very diligent approach to M&A given the inherent risks, but we believe Service Stream is well positioned in terms of our track record, the strength of our balance sheet and our general performance that should we find a target which aligns with strategy and meets our diligent criteria that we can proceed. And finally, in terms of group outlook on Slide 27. So as outlined today, Service Stream is in excellent health and great position. The business has a strong diversified work order book exceeding $14.2 billion in works. This is heavily biased to lower risk, long-term O&M agreements. The mobilization of several new agreements with already been secured in the prior year associated with Defence, Water and Industrial clients will support growth in revenue and earnings in '27. And there continues to be a strong pipeline of other works proceeding to the market through competitive tender. So the group expects and is confident delivering earnings growth in FY '27 and supported by the improved and sustainable financial performance that we've demonstrated and the mobilization of those recently secured agreements as well as leveraging our scalable and diversified platform. And that concludes our presentation today. On behalf of the Service Stream Board, I'd like to express our personal thanks to our fantastic staff working right across the country for their continued efforts and their dedication. I also thank all those on this call, and I'll now hand back to the moderator to open up for questions.

[Operator Instructions] First question comes from the line of William Park from UBS.

Just -- first question, just around margins for both Utilities and Defence. So firstly, with Utilities, clearly, 6% margin in second half. You're saying that it's going to improve, but at a sort of a gradual rate. Is that sort of a ceiling margin that you're thinking about with this segment? So that's on Utilities. With Defence margin, $88 million of revenue contribution in FY '26. Could you give us a sense as to what sort of margin that you've delivered at the EBITDA level and whether if that's -- I mean, that's obviously exceeded your expectations around nil margin for this year. Has that sort of reshaped your thinking around where Defence margin could potentially go?

Will, thanks for the questions, and thanks for joining the call. Look, as it pertains to Utilities, we've gotten there pretty quickly. And obviously, we aspire to continue to improve as we mentioned on the call. I actually don't think we have a ceiling, and it really reflects the nature of our commercial model and the opportunities we take. As you know, our commercial models range from a blend of alliance-style which is cost plus, and so your margin is actually capped by that arrangement, subject to your ability to earn incentives. Our schedule or rates, which is quite low-risk, but there's better margin embedded within that. And then -- and what we've seen recently as well is our team have been able to execute on some [ minor ] couple of projects, which generally, because they are smaller project type work, deliver a better margin. So I think it's really going to be a question about that mix over time. I don't think there's a ceiling per se. But as you can see, this has been a journey. It's a journey that we're naturally conservative in terms of providing the guidance, but we haven't -- that hasn't stopped us from trying. So that's probably the best guidance I can give you, but certainly, you should see that continue to improve. For Defence guidance, typically for mid-single digits, we were just a tad below that for the last 5 months, which is a really great outcome given that lots of moving parts outside looking in the scale of mobilization, I can't even describe it to you. I think we are -- still there's always an opportunity to continue to bed down the operation. But we are seeing really good positive momentum around contract, contract structure, but also additional earnings opportunities. And some of that goes towards giving us the confidence to $240 million. Hopefully, we're having a conversation in a year's time that we see more than that. And as you know, additional volume always comes with that incremental margin as well because your overhead is fixed. So I think, yes, there is a bias upside, which is what the analysts have generally said. But at the moment, we've said mid-single digit, we're going to get there with a bias to upside.

I agree. Will, can I just add? I think Linda has really summarized that well. I think we've demonstrated with utilities, really that first principle basis of which we're looking and assessing margins contract by contract. We've done that over 8 halves now. We've got a plan which we've formulated for this year and the next 2 years following. It shows we should be able to deliver incremental improvement. So we're confident we'll be able to see that. And I agree with Linda's comments on Defence. I think we were pleased. We thought and we guided the market that it might break even for the first 5 months, and we only started literally 5 months ago. But to see that positive contribution not far from the margin that we expected to drive over the first year gives us real confidence that there's a bias for upside that Linda references.

That's very clear. And just on the Telco side, could you provide some color around how you're thinking about top line trajectory from here on and obviously delivering 8.8% margin for second half. It sounds like to me that's sustainable going forward. But just any steer on, I guess, the revenue trajectory for Telco and whether if there's sort of a half-on-half skew that we should be thinking about into '27?

Yes, no, it's a great question. We really appreciate it, Will, because we know that everyone does sort of really have an eye towards that Telco heritage. And like we've said before, it is a very strong pillar and important pillar of this business. So really pleased to see in line with our expectations, we said that we thought Telco would have a 20 basis point improvement over the course of first half to second half, and that's exactly what we delivered. We could see the forecast. The team are really diligent about how to drive that. In terms of revenue, firstly, before I go to earnings for '27, the team are absolutely targeting some revenue growth into '27. Now it is more challenging in Telco compared to Utilities because the market is just so much smaller. But as I said before, we've been able to secure some incremental build work within Intercity Fibre. And we've got that great position now that our operations are bedded in after a year of mobilizing that we can hopefully get some additional programs at work. So we are absolutely budgeting and targeting top line growth for Telco. It will certainly not be to the level of Utilities and Defence, et cetera, but we're still targeting growth. I think we'll also continue to see a slight improvement on our EBITDA margin across Telco. I think sort of in the order of what we saw this year will probably be reflective of what we target again. The team are really quite diligent. They've got a clear plan around how they can grow and improve that quality of earnings. So I think we'll be able to replicate that similar sort of margin trajectory or uplift in '27.

And then my next question is just around M&A opportunities. I mean, there's been an article out there recently talking about certain targets and so forth in your space. And obviously, you've got a slide in there, which kind of sets out how you're thinking about M&A more extensively than what you have sort of outlined in the past. Can you just step through to the extent that you could, just step through sort of the target markets that you're looking at? Or are you looking at sort of bolt-on like you've done recently? Or is transformative acquisitions of a great scale? Is that something that's open to -- is that something that you guys are open to?

Yes. No, it's a great question, Will. And certainly, we've noted with interest all of the commentary around Street talk and others about the processes we're apparently in. Look, I think we've been sharing over the course of the last 12 months. Linda and I think the business -- if I look at the last 14 months, we've undertaken at least 12 different reviews across targets, so varying shapes and sizes. So I think that's what we continue to do. But we are very open in what is a very diligent approach to looking at those, and they need to meet a set of criteria and arguably high criteria at that. So we're certainly looking at a range of opportunities. Whilst I can't comment on that specific one, which is referenced in the press, we are looking -- if I think about our current portfolio, I think we are underweight in power in terms of our Utility operations. We've got a great operation in power across Vic SA, but we're looking to certainly any new opportunities that can help expand that. In a similar vein for Utilities, we see lots of opportunities across industrial. Just like we acquired RiE Group, the industrial market is significant in size and scale. We think there's a lot of opportunities not only across generation assets, gas and coal, but also oil and LPNG (sic) [ LNPG ]. So those industrial markets represents, I think, a great opportunity. But we are also very active and confident in looking at targets now around Defence. We had a number of opportunities come up throughout the course of the year, 2 years ago. But prior to securing that strong O&M base, we just didn't want to start to go into, I suppose, the minor capital works or sort of construction arm within Defence before we had that annuity base. So now that we got those PAS contracts, I think Defence would represent a third area. And fourth, I think asset management, facility management. Hard assets is certainly an area that we are demonstrating confidence on. And we think anything around that social infrastructure or broader asset categories around government portfolio would certainly be of interest to us.

And then just my last question, just around some of the cost items and below-the-line items. So corporate cost, I appreciate your comment, Linda, on this, but is that sort of a sustainable level going forward, number one? And number two, on SaaS investment, the ERP modernization costs, $21 billion below-the-line. Is that the level that you would expect to sort of generate in FY '27? Or does it sort of taper off?

Yes. So -- sorry. So the first question was -- oh my God, I'm getting old, I can't think. Sorry, what was the first question, Will?

Sorry, corporate costs, whether you've got new corporate costs that you...

Corporate costs.

Yes.

Yes, look, when we typically guided corporate costs, we unallocate around $15 million to $20 million. This year, a little bit lower because we actually allocated some of our corporate resources into the Defence -- into the Defence, as you can imagine, because we obviously have some corporate activity around that. There probably will be a return to that similar level next year depending on the corporate activity that we do, and we are quite active as we've just discussed. In terms of the SaaS costs, look, the guidance I gave -- and look, personally, I'm frustrated by the accounting policy because to me, that is CapEx. And so the guidance that I give is that maintenance CapEx, whether you call it SaaS or whatever you want to call it, is 1.5% of revenue next year. You can pick whether you want to cut the line. But it will be probably slightly higher than next year because we are now in the intense part of the deployment. Last year, we only started the journey. But hence I provide that guidance of that 1.5%, so that investors can ring-fence. The quantum we're expecting to invest in what I call BAU/maintenance. Does that make sense?

Next, we have Amanda Kelly from Barrenjoey Capital Partners.

I just have a question, I guess, you guys sound like you're getting increasingly disciplined with how you're tendering on contracts. I'm just wondering what you're seeing in the broader market on pricing and tendering terms, I guess, particularly in the current environment where inflation is a bit higher.

Yes, no, look, thank you very much. Appreciate your support. Appreciate the question. Yes, you're absolutely correct. There certainly are -- and we've had this probably approach over the last 12 or even 24 months now around we really revised our risk appetite. We thought the pendulum swung too far in terms of some of the terms, conditions and risks that our business and probably the broader market is taking. So we've certainly been quite adamant for example, that we need -- sorry, quite need to set or secure a kind of improved set of terms. And for example, we still undertake construction-based activities. We see lots of operations coming through in those minor capital works or even larger scale construction works, but we'll only do the latter under a cost reimbursable or alliance-style model. So those are some sorts of examples. We are seeing a very strong pipeline. We're not bidding on more than we are bidding on, which is a great opportunity for us and a great position to be in. In terms of the competitive position, though, that hasn't changed. It is still incredibly competitive. We have -- I think our 2 major listed peers, which are much larger and more diversified than us coming right down to the wire on every sort of significant O&M contract. And you have a sort of smattering of Tier 2s, 3s and other areas that may have a geographical presence or capability. So certainly still very competitive. We did reference though in the pack. One of the things that I have certainly seen in my -- I've in business 22 years now. I am starting to certainly see increased barriers to entry coming up right across our market. So things such as ESG requirements, cybersecurity, supply chain, these sorts of areas, our clients, given the Tier 1 sort of asset owners, operators are increasingly pushing more and more into what is higher levels of requirements and therefore, increasing barriers to entry. So whilst we're required to invest in those, I think ultimately, that is a strength as we move forward because we're able to meet or exceed a lot of those, and that can be a challenging sort of aspect for Tier 2 and Tier 3s, which just don't have those significant systems and frameworks in place.

And just one more on the Transport business, like the second half there looks pretty solid. I'm just wondering if you can talk about some of the pockets of strength that you've seen there and also any change in the way that you're tendering for work there?

Yes. Look, our Transport business is naturally second half biased because really the additional work that they do around capital projects has to do -- it's reliant on weather. And so you are generally doing a lot of that upgrade work in the second half of each year. And that generally attracts a better margin. And so a lot of that work that we referenced in the pavement repair works and uplift in Sydney was done then and the team was able to extract really good outcomes from that. So that's just a natural part of our business cycle. I think the comment around the tendering alignment applies equally to Transport. So there's no differentiator.

No, I agree. We've got a number of opportunities, and Transport is a much smaller market for us as we said before. But we certainly have each of the state authorities where we've got current contracts within New South Wales, we've got a couple in Victoria, 1 in South Australia, 1 in WA. And we continue to see those authorities splitting up their regions into 4 or 5 areas and those are routinely coming out to market. So we've currently got 3 or 4 of those, I think, out in the market at the moment going through a tender process within just the Transport sector. So there's opportunities to secure those. Now those opportunities like the VicRoads one we secured last year might be $30 million or $40 million a year. It's not substantial for Service Stream, but certainly substantial to the Transport operations turning over that sort of $300-odd million level. So there could be a good uplift there over the course of the next 12 months.

Next, we have Lindsay Bettiol from GS.

A couple of questions from me. First, just on the Water business. It looks like -- I mean it was obviously a strong year. It looks like it was an even stronger second half. And my understanding is like the Yarra Valley Water contract you announced a few months ago doesn't commence until October. So just trying to understand the Water business. I mean, my math might not be perfect here, but it looks like it's kind of run-rating mid-$300 million in the second half, which when you add Yarra Valley on top, get you like $700 million-ish for next year. Like does any of that sound plausible, realistic? Have I miscalculated anything? Just high-level thoughts on water would be great.

No, look, you are correct. Certainly been a great year. I mean we've talked before about what's taken us a decade to get to this position in terms of water, and we're certainly very excited about what that bodes for the future. And water is one of those areas like before that was just benefiting from continual investment in aging infrastructure, but also population growth, and that's supporting significant investment. Given our O&M base, we're seeing just that consistent outcome. You are correct with regard to Yarra Valley Water. That was a multiyear, sort of 10-year contract that we secured this year that is new incremental revenue, and that has not started yet. So that is going to add to the business. So it's a pro rata application. I don't yet know exactly the number, but I don't think you're outside of the estimates you referred to earlier, and that will commence on or around sort of middle of October. So there's that contract there. We also have Millmerran and others like the industrial shutdown maintenance agreement that we have secured. So there's some industrial and water revenues that are already secured last year that have not yet contributed to Utilities. And that's why those who know me know I'm quite cautious, but we know we do have enough there to see good top line growth coming through in Utilities in the year ahead.

Brilliant. And then just on Telco margins. Again, I think your earlier commentary was it looks like you've exited the year doing high kind of 8s. You talked to improvement again to be expected in FY '27. I'm just trying to like -- I think in the past, you've said it would be difficult or like it shouldn't be my base expectation that the Telco business gets back to a 9 handle. Like has your view changed there at all? Or are we getting kind of toppy on Telco margins?

No, look, I think our view is still very much similar to the commentary we provided over the last 18 months. I mean we strategically offered some sharper pricing to one of our major clients to secure effectively a 10-year maintenance arrangement. And that is something I do every day of the week and twice on Sundays again. That we guided the market that, that would drop our margin from 9% to 8.5%. That's exactly what happened in the prior year. And we then guided in first half '26 that there would be potentially up to sort of a 20 basis point improvement from 8.5% to 8.7%. So exactly the forecast. As we sit here now, I think there's still bias for upside. It's going to be, I think, probably 10 basis points, maybe 20 basis points, but that's about it. I think we're not striving for and don't expect them to get back to a 9 handle this year. I think that's probably a bit stretched too far. I think they will see, again, bias for upside on growth. Growth really has to come from our clients spending more in their programs. There's a number of opportunities to see that happen. And as we know, I mean, everyone is increasingly relying today on telecommunication services. So we think there is a bias for that to continue to grow, but they are absolutely confident they should see a small margin improvement over the course of '27.