Good day. Thank you for standing by. Welcome to the Service Stream Full Year 2022 Results Conference Call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Leigh Mackender, Managing Director. Please go ahead.
Thank you. Good morning, ladies and gentlemen, and welcome to Service Stream's FY 2022 results presentation. As per the introduction, my name is Leigh Mackender, the Managing Director, and I'm joined today by our Chief Financial Officer, Linda Kow, and Head of Investor Relations, Chloe George. As per the introduction, we're recording the session today via webcast. It's open to all Service Stream shareholders, and we have a number of institutional investors and analysts on the conference bridge who are welcome to ask questions at the conclusion of the presentation. Before moving into the presentation, you'll note that today the business is releasing its preliminary final accounts. Unfortunately, due to some unforeseen disruptions associated with COVID, which has impacted a number of key personnel, the audit was not able to be finalized last week as originally scheduled. We thought we might get there.
We're very close, and the audit is substantially completed. We're just waiting on some final processes to be reviewed, and we envisage uploading a full set of the audited accounts along with the directors' report in three days time, being Friday the 26th of August. Okay, moving into the presentation, and I'll direct you to slide three, some of the key messages. I don't generally use the word transformational, but I do think it's appropriate when we consider the significant year the business has had, effectively doubling in size as a result of the successful acquisition and integration of Lendlease Services. The group's delivered solid financial performance. It's headlined by EBITDA from operations of AUD 91.1 million, impacted by a solitary issue within our utility division that I'll touch on further in the presentation.
Another year of strong cash flow generation, an exceptional EBITDA to OCFBIT conversion rate of 108%, well ahead of the group's 80% target. We've a robust balance sheet, and we're very pleased to announce the resumption of dividends. The acquisition of Lendlease is understandably a major focus this year, and I'm very pleased that over the initial eight months since reaching completion, the business has successfully exited all modules of the transitional services agreement by 30th of June, in line with our plan. That's both significant and exciting, as we now have all the systems and processes managed in-house, and we're now working on making changes to drive further efficiencies and optimize our expanded operations.
We've been able to continue supporting the fast-tracking of synergies ahead of our original 18-24 month program, and the proper contribution of Lendlease Services business was in line with diligent expectations. We're very pleased that Service Stream has demonstrated its resilience in navigating the headwinds of COVID-19, particularly the impact this has had on labor market, broader labor market availability challenges, cost pressures and adverse or extreme weather, particularly that during the second half of the year. However, our business is not totally immune, and the impacts were contained to delays and overruns with a major water project being undertaken in Queensland, which I will talk through in greater detail in the presentation. We have confirmed a non-cash goodwill impairment of our Energy and Water CGU of AUD 38.2 million. This is non-cash.
It's associated with legacy operations, which incorporate meter reading, disconnection and reconnection of electricity and gas services, and contact center operations, as well as a revision in the group's WACC rate. Turning to slide four, I'll briefly talk through some of the group's key financial headlines for the year, and then Linda will further expand on these later in the presentation. Total group revenue for the year was AUD 1.56 billion, reflecting an increase of AUD 760 million or 95% on the prior period. That was made up of AUD 727 million contribution from Lendlease Services over that initial eight-month period, coupled with better-than-expected work volumes across our telecommunications division and some small growth across utility operations. Business reported EBITDA of AUD 91.1 million, and that reflected a 13.7% increase on the prior year.
The group's EBITDA margin for the year was 5.8%. That was impacted by the expected margin dilution from Lendlease Services integration, as we previously outlined, with lower margin works and also some adverse weather impacts, most notably impacting utilities and transport operations. Adjusted NPAT was AUD 31.4 million, down 19% on the prior year, and that includes a AUD 2.1 million revaluation of Lendlease assets that were acquired through the transaction. I stated earlier in the highlights, I think one of the strengths of our business over many years has been the strong cash flow from operations. They're reflective of our tier one client base, the business's ability to ensure that we've got optimal processes to support the timely and accurate billing for works that have been complete. Our net debt finished at AUD 81.3 million as at thirtieth of June.
Again, Linda will provide an update on the group's balance sheet later in the presentation. Finally, with respect to dividends, after pausing the payment of dividends to assist with funding the acquisition, the board are very pleased to resume dividend payments to our shareholders with a AUD 0.01 dividend for the full year. The board reinforced their commitment to ongoing dividend payments, of course, subject to business performance. I'll bring you onto slide five and provide further insight into the group's revenue profile. The first point I'd like to note is Service Stream's improved revenue mix following the acquisition of Lendlease Services. Revenue diversification has been a major part of our group's strategy over recent years, as we look to expand the operations across new and growing industry sectors. About 80% of our work relates to favorable annuity style operations and maintenance or minor capital works.
With minor capital works often associated with small individual projects where Service Stream holds a position on our client's capital works balance. These are often short-term projects, generally completed over a few months in duration. Very pleased that we've got approximately 80% of work held with government or government-related entities, and the balance with major industrial tier one asset owners and operators across the country. Moving to slide 6 . I wanted to provide an update in terms of the group's work in hand. I think another strength of the business and a highlight of FY 2022 has been the strong work in hand held across the group. Not only has the group's work in hand forward order book grown, it's also increased the diversification and reduced our dependency on any single market or client program.
In line with increasing investment spend and investments made by our clients, the group's order book has increased to more than AUD 6 billion as at 30 June. This reflects on the initial term of what are multi-year agreements and equates to approximately 3.2 x our FY 2022 pro forma revenue. Again, each of those agreements generally include multi-year extension options, which we don't include when we reference current work in hand. I'm very pleased that over the year, the group's performance in retaining our existing agreements, but also securing new works, has resulted in approximately AUD 1.5 billion of revenue being secured. The graphs on the bottom of the page provide a further breakdown of the group's work in hand, and we've incorporated that both in terms of segment and work type.
Draw your attention to the breakdown of construction-centric work, and I'd just like to make the following points. Positively, the business has less than 1%, which relates to fixed price, lump sum, or major construction programs. Just over 16% is aligned to either alliance agreements or those which are formulated on a lower risk targeted cost model. That's where costs can be recovered, and it's only overhead or margin that may be at risk. There's a very small portion of construction works which utilize a schedule of rates. I think it's particularly important, given the focus on inflationary pressures, to understand the positive position that Service Stream finds itself in regard to the nature of our agreements and that strong forward-looking order book.
As I just mentioned, in light of the current economic climate, we've provided additional detail on slide seven to assist in understanding the nature of our contractual agreements and the business' ability to manage those inflationary pressures. First point I'd make is that over 87% of the group's revenue is subject to either an annual price review mechanism or in the case of shorter dated minor capital works, these are priced by the business on an ongoing basis. Therefore, we take into account rising labor and operating cost changes when putting forward our pricing submissions. We have limited exposure to fixed price lump sum D&C works over 12 months in duration, as per my prior slide. The majority of our revenue is in fact derived from lower risk schedule of rate arrangements.
The group has progressively sought, as we've discussed previously, to move the majority of our materials to be supplied by our clients. If we look at each of our reporting segments at the bottom of the page here, we've provided some detail as to how they do differ slightly. Telecommunications, we have more than 85% of future work in-hand subject to an annual review. The annual review typically involves a constructive review with our clients across all rates and overheads. Reviews don't understandably occur at a single point in the year, but are progressively occurring at set contract milestones. The work in telecommunications, as many will know, is generally undertaken on a schedule of rates basis, where we look to fix rates downstream for the works to be complete. Utilities, slightly different model there.
95% of our work in-hand is subject to automatic annual adjustments, or they're priced on application, as I stated, for the small minor capital works. The adjustment mechanisms include CPI and/or WPI, and that just depends on the nature of each agreement and how labor-intensive they are. Importantly, the group has, as I said earlier, 2-3 larger D&C projects equating to less than 1% of work in hand, which currently extend over a 12-month period. The third and final division, with respect to transport. 70% of the work in hand has either quarterly or annual adjustment mechanisms in our agreements. Those agreements which are associated with longer term maintenance activities has cost escalation priced in when we initially submit our pricing.
Again, any minor capital works which are undertaken, generally completed over a three to six-month duration, and our commercial teams base that pricing on current or expected market conditions. Turning now to slide eight, and we'll just touch on group safety. As many would have heard before, the health and safety of our workforce, our clients, and the communities in which we operate genuinely remains our highest priority. With more than 9,500 resources which may be undertaking field works at any point in time, we look at driving continual improvement across our operations and particularly focus on those high-risk tasks. During the last year, the inclusion of Lendlease Services was a factor in the decline of some group performance metrics. We expected this. We identified it during due diligence, so it didn't come as a surprise.
I think it's important to note, though, that the Lendlease business takes safety very seriously. The difference in performance is more associated with the nature of the field operations and the expanded markets that the business operates across. I've been really pleased with the positive aspects that the acquisition has brought to the wider group in terms of health and safety. That's included specialist industry experience, strong and proactive culture, and leading HSE management systems, one of which is now being expanded across the broader Service Stream Group and will go live in the coming months. Business continues to deliver strong safety performance. Very pleased to see industry-leading lost time injury frequency rate of 0.77.
Our focus for the year ahead is to continue to work on those high-risk work activities, as I stated, and looking to implement improved critical controls, which will drive continual improvement across our safety culture. Turning to slide nine, entitled Sustainability Initiatives. We continue to take a measured focus in driving improved ESG outcomes. We've provided some highlights here in terms of our sustainability pathways, covering the five major areas of focus. They incorporate health and safety, environment, people, governance, and community. I think it's really important to note that those five pathways reflect alignment with the sustainability materiality assessment that we conducted last year, and that was a broad engagement across all of Service Stream stakeholders, which really guided our priorities and areas of focus. The Group Sustainability Report is due to be released on 1 September, but some of the highlights have been included here.
They include that this year, we've aligned the group's sustainability strategy and reporting to the UN Sustainable Development Goals framework. We've adopted a science-based targets framework across our Scope 1 and Scope 2 emissions and targeting a 50%-60% reduction by 2025. Community is a major focus for us, and we continue to support Aboriginal and Torres Strait Islanders. We're the group only a few months away from releasing our inaugural Innovate Reconciliation Action Plan. Of course, given the important role that our people play in the business' success, there's a significant body of work been undertaken in terms of enhancing our employee value proposition. That's included a review and changes to non-financial and financial benefits, and I would fully expect that to continue to be an area of focus into the future.
Moving into the second section of the presentation, and we provide a couple of slides here which update on the integration program. I direct you to slide 11. As outlined in my introductory comments, a lot's been achieved by the group over this year, and I'm really pleased and genuinely excited with the progress that's been made against our original timeline of 18-24 months. Some of the highlights and milestones that we've achieved through the year include successfully exiting from the TSA by 30th of June. That reflected a significant amount of work that has enabled all of the systems and processes to move in-house, and the business is now working to optimize and drive further efficiencies over the next 12 months as we conclude the integration program. We successfully completed the restructure of our telecommunications and corporate support functions.
Those corporate support functions incorporate HR, finance, payroll, safety, IT, et cetera. The utility division restructure is very well progressed. Several key appointments have been made, and we expect that to be finalized over the coming months. In relation to the synergy program, this continues to pleasingly track ahead of schedule. We've worked to fast-track the delivery against our targeted AUD 17 million of synergies, and so far delivered approximately AUD 10 million on a run rate basis as of June 30. It's both ahead of our initial estimates in terms of timing and quantum. The Group's achieved an enormous amount of work in this area over the last year, whilst importantly maintaining our focus on business as usual operations around the country. I thank all of our people working right across the business for their efforts involved in the program.
We have noted the integration program costs that we initially estimated back in July last year at approximately AUD 15 million will come in a little higher. That just really reflects the scale of the program and some of the challenges with constrained labor in the market during the year. Slide 12 talks to the timeline and updated synergy realization. In relation to those areas, I think the business, as I said, is running ahead of schedule and in a very positive position. The focus for 2022 was really on delving further into the business, engaging with and supporting key people as we brought the two organizations together. I really wanted to ensure that we gained a deeper understanding of the operations across the business, and then we were able to implement the majority of the organizational changes, but ensuring we retained our key people.
A major focus was also the exit of the TSA, as I just discussed, and that was successfully concluded. We really wanted to work to align the entire business under a consolidated brand, and they were just a few of the priorities we discussed throughout the year. The next phase of the program focuses on securing growth opportunities across the expanded market segments and client base. We'll continue to refine the organizational structure, and align many of the group's systems, and those alignments will support optimizing processes and simplifying the Group's support operations. Slide 13 talks to the group transformation and how the acquisition has really supported the growth and diversification of revenue and operations. The graphs at the bottom of the page talk to this progression over what is a relatively short period of time.
We can see in FY 2021 on the bottom left-hand side there that revenue was AUD 800 million, focused across two divisions and a small number of utility and telecommunication clients. That's significantly changed over FY 2022. Pro forma revenue, AUD 1.9 billion, spread across three market segments. Importantly, those market segments are all exposed to major infrastructure investment. If we look further and we consider the group's strong pipeline of work in hand, again, approximately AUD 6 billion in value, we see how well we're positioned for the future. Importantly, this growth is weighted towards annuity style or O&M works or minor capital works, as that was the majority of the works that we acquired through the Lendlease transaction and aligns with our focus in growing the annuity style revenues of the business.
It's reduced the group's dependency on any single client or market segment, as I stated earlier. We continue to hold, I think, an enviable client base. 80% of our work is held either directly with government or government-related entities across the country, and that remaining 20% is with major industrial asset owners and operators. Finally, before I hand across to Linda, who'll provide further context and insight into the group financials, I'll provide an update on our segment performance, and we refer you to Slide 15, which updates on our utility division. Utility division generated revenue of AUD 697 million. That represented an increase of AUD 284 million or approximately 68% on the prior corresponding year. Utilities EBITDA from operations was AUD 19.5 million, reflected a decrease of AUD 9.5 million against the prior year.
Unfortunately, as I stated earlier, the division did experience some challenges which reduced EBITDA over the year. Those challenges are associated with two aspects across our legacy utility operations not associated with the acquired Lendlease Services business. The first of those related to a large water project that I referenced earlier, and that's where we're constructing a major pipeline water transfer pumping station. The delays were initially due to resourcing constraints, both across our field operations and some of the specialist partners and contractors we've had to rely on. That was then further exacerbated by multiple and prolonged delays associated with some extreme wet weather across Queensland, particularly during the second half of the year. As a result of these challenges, the group recognized a AUD 5 million onerous contract provision for the project.
We wrote back a small profit that had been recognized, and we've had to make an update in terms of our expected forecast cost to complete. We're approximately 50% complete through the project and expect the entire program to conclude in this current financial year. It was a disappointing result, and, as our businesses have not historically incurred these types of challenges and outcomes. The vast majority of our revenue is based on operations and maintenance or minor capital works, and those small projects being completed over a short period of time. On the positive side, the group has less than 1% of future revenue associated with those larger major design and construction works under a fixed price or lump sum contract framework.
As I said before, that's where we're going to continue to focus, particularly given the expanded service offerings as a result of the acquisition. The second impact this year was in the utility division, and that was associated with some of our legacy operations, traditionally associated with the Energy and Water division of the utilities. That included work such as reconnection, disconnection of utility services, meter reading, and some minor meter replacement works. Linda and I have previously discussed the impacts to these areas throughout the COVID pandemic. Volumes have been improving, but they've not returned to those pre-COVID levels. Those continuing impacts across the Energy and Water operations and a revision of the group's weighted average cost of capital resulted in that AUD 38.2 million non-cash impairment of goodwill.
As I said, that impairment is largely associated with historical goodwill across those legacy utility operations. Important to note, it also includes some non-core contact center operations which haven't been a focus for many years. Post-acquisition, the utilities division has expanded its capabilities for broad utility services market, as we denote by the revenue breakdown, electricity, gas, industrial, and water. We'll leverage those expanded capabilities across those markets to support continued growth. I think fortunately, the group's diversified portfolio has assisted us in offsetting or reducing the impact of these challenges. The telecommunications division is one which has had a very positive year, and I'll move on to next, directly to slide 16. Our telecommunications division generated AUD 640 million in revenue, representing an increase of AUD 247 million or approximately 63% the prior year.
That increase in revenue reflected the addition of Lendlease Services' telecommunication operations. They included revenue from NBN's network construction upgrade program, referenced as N to P, and Optus, where we provide a range of O&M field services as well as an expanded portfolio of wireless operations, now servicing all major telecommunication network owners and operators. EBITDA over the period was AUD 61.5 million. That was up 6.5% on the prior year. Telecommunications EBITDA margin of 9.6% reflected the reduction in scale across the legacy Service Stream operations, as we had previously flagged and advised was going to be expected. Margin remains robust, though. Includes some dilution impacts associated with the Lendlease Services acquisition, again, as we called out. Offset that is some benefit of cost synergies post-acquisition.
I think the telecommunications division has made really solid progress this year to integrate the operations, and I'm really pleased that we've got that expanded depth and breadth of services. I think we're really uniquely positioned to further capitalize on further investment in the telecommunications space. A major focus this year was on mobilizing and supporting the NBN network upgrade program, that's associated with deploying fiber across legacy networks. This program is approaching the expected peak run rate in production in line with our targets. Pleasingly, we note that there's an opportunity for that program to now be expanded with an additional 1 million homes to be upgraded with fiber over the coming years. Finally, directly to slide 17, which provides an update on the group's new transport division.
Transport delivered revenue of AUD 220 million with an EBITDA of AUD 9.9 million during FY 2022. EBITDA margin finished the year at 4.5% reflective of the eight months of ownership. I did call out during the first half that we expected the margin to come down after some of those one-off program benefits that were delayed pre-completion were successfully completed over November and December. Operations during the second half were impacted, unfortunately, by some wet weather events. They caused a delay to road maintenance and some of the improvement activities both across Western Australia and New South Wales, but they are delayed. Over the year, the business has made solid progress on improving or exiting those lower margin works that we called out. We note the decision recently by Main Roads WA to in-source some aspects of their maintenance programs.
That will reduce FY 2023 revenue, but it will actually support improved margin across this area. As we announced in March, the Regenerate Rail Consortium, that incorporates, obviously ourselves, Plenary Group, GS Engineering & Construction, Clough, and Webuild, were appointed as preferred supplier for the Gowrie to Kagaru section of Inland Rail. Our role in that project is to provide specialist operations and maintenance services as part of a 25-year maintenance period post-construction. I expect to be able to provide a further update on the status of that over the coming months. Outside of Inland Rail, there's a number of other road infrastructure programs which serve, I think, as exciting opportunities for the group.
They're generally associated with providing maintenance and operations across both existing and new road infrastructure projects, as well as the deployment of smart technology or ITS, integrated technology solutions, which are aimed at improving traffic flow. I'll now hand across to Linda, who will run through some of the group's financial performance in greater detail.
Thanks, Leigh, and good morning to everyone on this call. On slide 19 we have the profit and loss. Total Revenue for the year was AUD 1,563.8 million, which is AUD 760 million or 94.5% higher than last year. I would like to remind everyone on this call that we have moved to a Total Revenue metric as opposed to statutory revenue this year to recognize the group's share of revenue generated in our incorporated transport joint ventures of AUD 47 million during the year. Lendlease Services added AUD 727 million of Total Revenue to the group from the date of acquisition, and revenue from the legacy Service Stream operations was AUD 827 million, which was 2.8% higher than the prior year.
EBITDA from operations was AUD 91.1 million, which is an increase of 13.7% from last year. This result includes a better than expected performance from the rebased legacy telecommunications operation. On the downside, the utility and transport segments were impacted by the numerous and prolonged wet weather events, which Leigh has outlined, including significant impacts to a major Queensland utility project. The full year result also includes the benefit of synergy delivery, which is tracked ahead of plan. Group EBITDA from operations margin reduced from 10% last year to 5.8%, largely reflective of the rebased group operations, dilution from lower margin LLS operations, which we flagged, and the weather-related impacts to utility and transport businesses. It should be noted that the EBITDA from operations excludes AUD 25.5 million of transaction acquisition and integration costs, including TSA expenses.
The appendix includes a summary of these non-operational costs. Dropping down to NPAT, the group's adjusted NPAT or NPATA for the year was AUD 31.4 million. Depreciation expense for the year was AUD 39.3 million, an increase of 1 8.9 million, largely relating to the addition of Lendlease Services, which also includes additional depreciation from an upward revaluation of acquired plant and equipment of AUD 2.1 million or 3.2 million on an annualized basis. The increase in net financing cost is obviously due to the acquisition, amplified by the recent interest rate increases. Statutory net profit after tax was a loss of AUD 36.3 million. This reflects the non-cash goodwill impairment of AUD 38.2 million against Energy and Water operations.
It also includes an additional AUD 5.4 million for the amortization of customer intangibles acquired through the transaction, taking full year amortization expense to AUD 14 million. We have also provided an updated customer contract amortization schedule, which you can reference in the appendix. Moving on to slide 20, which is the cash flow. The key highlights here include the strong operating cash flow inflow of AUD 98.7 million, which equates to an OCF conversion rate of 108%, which is well ahead of expectations. This reflects continuing focus on the release of working capital balances acquired through Lendlease Services and from recent contract mobilization. The net acquisition payment made for Lendlease Services was AUD 313.5 million, noting that the final completion adjustment payment remains pending and is expected to be finalized this half ahead of December reporting.
You will note that CapEx for FY 2022 was well below expectations. This is largely due to our focus this year being on TSA exit, which was conducted on a lift and shift basis, which did not require significant capital investment. The majority of new fleet requirements, including those from Lendlease Services, being undertaken via a leasing model. We would expect to see an uplift in CapEx, particularly IT spend in FY 2023, as we transition to systems integration and improvement initiatives. Closing net debt for the year was AUD 81.3 million. This equates to a 1.5 x EBITDA leverage inclusive of lease liabilities, slightly ahead of where we expect it to be post-acquisition due to the strong cash flow and lower net debt position for the year.
Our debt facilities at June remain unchanged at AUD 395 million, and allowing for bank guarantees drawn of AUD 113 million, the group has access to ample liquidity of approximately AUD 200 million to support operations and future growth. All of the group's bank covenants were also comfortably met at June. Now moving on to slide 21, which touches on the group's balance sheet. You will see here that we have continued to provision the account for the Lendlease Services acquisition at 30th June. This is largely due to the final completion adjustment still outstanding and expected to be finalized this half. We have, however, updated the provisional accounting since December with the updated values presented on this slide. Firstly, of the AUD 202 million of acquisition intangibles, we have allocated AUD 102 million to the value of customer contracts and relationships.
This will be amortized over a period of 15 years and as mentioned previously, an updated amortization schedule is provided in the appendix. We have recognized property, plant, and equipment of just under AUD 60 million. This includes an uplift in book valuation of AUD 16.4 million, which has meant an increase to depreciation expense of AUD 3.2 million on an annualized basis. The inclusion of Lendlease Services certainly changed the composition of the group's balance sheet, with an uplift in working capital requirements reflective of the increase of working capital requirements of their contracts. The group's net working capital of AUD 66 million has increased to just under 4% of LTM sales, but still remains well below our 5% targeted range.
The other major movement to this year's group balance sheet is an AUD 38.2 million impairment that we've made against the carrying value of Energy and Water goodwill that Lee's touched on. This is again reflective of the continuing earnings impact to the business since the onset of COVID and has led to a reassessment of the future cash flows of the business. These impacts have included a reduction in high-margin discretionary works, program disruptions, and higher turnover of the itinerant field workforce, leading to higher costs and operating inefficiencies. We've also revised the group's WACC this year, which has also contributed to the impairment. All of Energy and Water goodwill dates back to acquisitions undertaken over 15 years ago, and some even relate to legacy operations such as the call center operations, which are no longer being operated.
Given Energy and Water has been our smallest operating unit historically, the reassessment of this CG earnings is immaterial to the overall group outlook going forward. That's all from me. I'll now hand you back to Leigh to take you through the remainder of this presentation pack.
Thanks, Linda. Before moving to Q&A, we'll conclude with the group's key messages and outlook for 2023. I direct you to slide 23, titled Key Messages. I think, as for my introductory comments, I think FY 2022, the group's delivered, solid financial result, demonstrated, resilience through some challenging times, although had, some one-off issues that we've had to, attempt to mitigate, particularly in the utilities area. Delivered another exceptional cash flow result. The company's balance sheet remains in a strong position, as Linda's just given an update on, and we have significant headroom to support future growth. I've outlined a strong pipeline of work in hand, approximately AUD 6 billion, which has increased during the year, and we start the year with 85% of our forecast revenue secured.
Of course, knowing we don't have guaranteed volume commitments in all agreements, but we do work proactively with our clients to update forecasts across each program throughout the year. The input challenges that have thus far been proactively and effectively managed across the group's broad contract base, I think is a benefit of those favorable commercial structures and adjustment mechanisms, and they've supported that cost containment thus far. As I discussed during the utility segment, with the expanded maintenance capabilities acquired through Lendlease, we'll focus on securing more of that annuity style work and wind back what was an initial focus on some large scale D&C projects unless they operate under that balanced risk-sharing models. Priority, of course, remains on finalizing the integration and delivering further shareholder value this year. Finally, on the outlook slide on page 24, we look to the future.
I think Service Stream's got a strong and exciting pipeline of growth opportunities ahead across each of our sectors. Significant opportunities across each market, and will benefit from continued investment by our clients and the business is strengthened with those additional capabilities in that diversified portfolio. That'll include the continued deployment, renewal, upgrade of utility infrastructure, gas, water, electricity, and industrial client base. Continued investment in the upgrade and further deployment of wireless and fixed line technology networks, and increasing investment in public and private road infrastructure networks. Group expects continued revenue and profit growth during FY 2023 on the back of the full year's contribution from Lendlease Services. That's subject to successfully navigating any extreme adverse weather events and effectively managing those continuing labor or resource challenges, supply chain impacts or any other market disruptions that may present ahead.
We do expect continued inflationary pressure despite favorable contract structures and that cost containment thus far, but we will provide a further update on the business' performance at the company's AGM in October after we've got a first quarter under our belt. In closing, I'd like to take the opportunity on behalf of our board of directors to thank our staff working right across the country. They've supported the business through a significant year of change and positioning the business well for the future. That concludes the presentation, and I'll now hand back to the moderator to ask any questions from those joining us on the bridge.
Thank you. To ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Marni Lysaght with Macquarie. Your line is open. Please go ahead.
Hi, Leigh. Hi, Linda. You can hear me?
We can. Thank you, Marni. Good morning.
Perfect. Morning. Morning. Just a few quick ones from me. I'm just looking at the balance sheet. I remember back at the time of the acquisition being announced in July 2022, you targeted, I think, leverage of less than 1x at 24 months post-settlement. Is that still. Are you still retaining that? Just remind me, is that a pre or post AASB target?
Yeah. That was a post AASB target, Marni. I think at this stage, yeah, I think we're still on track for that.
Okay. Another one for me is just around the operating cash flow, the cash flow conversion. Obviously, I remember back at the first half, you had some timing benefit there, which really boosted it. But kind of how do we think about this moving forward, given that we know that Lendlease wasn't as focused as the existing Service Stream business on the monetization of cash?
Yeah, there's a couple things going there. I mean, we've always maintained that, you know, we target an 80% plus each and every year, and that doesn't change. I think there's definitely opportunities. You can see they carry a heavier working capital load than we have. Part of the benefit we had this year was the monetizing of what we got. We'll continue to do that, but as I said before, some of that will be dependent on contract cycles and ability to reposition ourselves each and every time these things come up. Yeah, it's certainly an opportunity for us.
Okay, another question I have is just around kind of where you're at with the integration. Are you able to quantify that? Because I think back at the interim result, you said about 60% would have been done by the second half of 2022.
Yeah, I think that we're really well progressed. I think Lee's given a pretty good outline. I know it's kind of hard to understand. We live and breathe it every day. We did the telecommunications business unit and corporate pretty early on in second half. We've started the utilities part now. That's in progress. As Lee mentioned, we've got the key roles appointed, and we're going down to the next level. What's really ahead of us is trying to consolidate some of the systems. It's quite clunky at the moment, obviously, working across multiple systems. That's gonna be continuing for quite a period, but we wanna get at least the material items done over the next year. We're also starting to look at things like property rationalization.
Between the businesses, we've got quite a lot of sites and some of them within stone's throw of each other. Obviously, that's dependent on when these leases come up for renewal, and what we're trying to do there is consolidate, you know, five sites into two or, you know, scenarios like that. That's part of our synergy plan. That is a little bit more dated, and we'll probably, you know, get that towards the back end of this new year. I mean, it's just one of the elements. You know, we remain confident that we'll deliver the synergies that we've stated within the timeframe, if not a little sooner.
Just to follow on from that, and then I'll jump back in the queue. Just with the, I guess, the impact the utilities being impacted by weather, would you say the fact that telco had received the integration and, you know, utilities is yet to be addressed, would that have also contributed to, I guess, the different results those respective divisions generated?
It's a good question, Marni. I think certainly telecommunications going first was the right thing. We certainly identified, given our pedigree there, we were confident in making those changes. Utilities is a much broader division, and it was more complex, hence why we sought telecommunications and corporate first. I don't think the lack of integrating was a result of that or contributed to the challenges associated with that one Queensland project. I think that was something completely separate.
I think I would say that the integration synergies was largely telco, the broadcast.
Yeah.
-corporate. There's not much in the kitty at all at June for utilities. That's ahead of us. Yeah, you could say there's some of it, but not in the operational sense.
Okay. That's all clear. I'll jump back in the queue. Thanks for answering my questions.
You're welcome, Marni.
Our next question comes from the line of Piers Flanagan with Barrenjoey. Your line is open. Please go ahead.
Morning, Leigh Mackender and Linda Kow. Thanks for your time. Just a couple from me, if I could. Maybe just firstly on the utilities project. Thanks for the additional comments. Have you seen any improvement sort of more recently within that project? I guess, how should we think about sort of the utilities segment margin sort of into 2023? Will it be sort of along a similar sort of EBIT or EBITDA margin run rate heading into 2023 as what it was doing, sorry, over sort of 2H?
Yeah. Lee, just to talk through it, Pierce. What we've effectively done by taking the onerous lease is we've basically dealt with, you know, the cost to complete this project at no profit. We've dealt with that in the June accounts, and hence it's a bit of a double whammy. We are only about 50% through the project, so there will be a dilutive effect in terms of just seeing it out because we'll have some revenue but call it 0 profit, although we've quarantined that. Look, we would expect to see that what we had this year is a floor, but there is just that timing difference that we had to navigate through.
Yeah, I'd expect to see. I think that's right, Piers. I'd expect to see obviously margin come back and the division improve this year, because of that one issue being somewhat isolated. The rest of the utility operations have performed well. Would expect that to go back up. It's more of a one-off hit given that significant project.
Sure. Just on the AUD 91 million, are you able to give us a bit of, I guess, color of how that compares to the underlying EBITDA? How that compares to sort of the pro forma guidance of the AUD 120 million- 125 million, just for a bit of context?
Yeah. I mean, the elements of the AUD 120-125 was going back to.
Compares this to the underlying EBITDA, how that compares to sort of the pro forma guidance of the AUD 120-1 25, just for a bit of context.
Yeah. I mean, the elements of the AUD 120- 125 was going back to, you know, a year ago now was core base business AUD 50-ish, Lendlease Services AUD 45-ish, and synergies was AUD 17-ish, but that would be delivered over a 24% period timeframe. I think the elements are intact. However, I think the elements are intact. However, it's a bit challenging to pick that just from looking at the accounts. The reason for it, you'll see disclosures in the accounts that Lendlease Services contributed AUD 46.4, which doesn't take into account things like the synergy delivery that's embedded predominantly within Lendlease Services. But also as we have stood up, well, let's say replacement costs within the business, that's been borne under effectively the legacy SSM side.
You can't just take that disclosure at face value. If you put aside the impact from the utilities business, I would say that all elements are running pretty much in line with that at the moment, bar this issue we've had to deal with.
Sure. Just on those Lendlease Services comments, so AUD 46.5 million, so sort of a AUD 6.2 sort of implied monthly run rate. Does that not include synergies, or is that a pretty strong, I guess, monthly run rate versus-
That includes synergies.
It does include synergies, yeah.
If you divide that by it x 12, you're gonna do a much bigger number than 45, clearly. That does include synergies, and it does include the bit of one side, but all the, call it head office sub cost that we've had to re-stand up, that doesn't, it's not sitting in that Lendlease number. It's just the way that, you know, that's their legal entity, and that's what we had to call out and record.
Sure. Maybe just on the outlook, I guess, how you're seeing sort of the tender environment at the moment and sort of the competitive backdrop?
Yeah. No, look, thanks, Piers. Tendering environment has been really strong. It's been strong throughout the year as we've previously talked about. Just about all of our sectors are seeing strong opportunities, particularly utilities. We're seeing a lot of opportunities there continuing around the sort of upgrade of infrastructure. A lot in the maintenance or industrial area as well, which is part of the Lendlease acquisition. Certainly seeing the highest level of activity that we've seen to date. Have no concern about the strength of our pipeline.
I think the challenge is to make sure that we're selective as to which opportunities we focus on, just given those broader resourcing constraints in the market, and just making sure, as we always do, that if we're going to commit to a client that we can deliver their project, that we're comfortable that we'll be able to do so successfully. No, really strong.
Great. Maybe just one final one just on the Lendlease Services, provisional balance sheet and the balance sheet. Do you have any expectations that you can provide just on what that potential completion payment is likely to be? Should we wait till the December update?
Yeah, look, I mean, it'll be anywhere between a high single digits or maybe a low double, but there's so many factors at play at the moment.
Yeah.
It's sort of that range.
We're probably a couple of weeks away from understanding that final outcome, Piers. Yeah, we'll certainly provide update at the first half.
Great. That's it from me. Thanks, Lee. Thanks, Linda.
Thank you.
Our next question comes from the line of Ian Munro with Ord. Your line is open. Please go ahead.
Good morning, Leigh. Good morning, Linda. Thanks for taking my call. Can we just start on the owner's contract, please, just with respect to the provision of AUD 5 million. What exactly have you provisioned against there? Just conscious that there's, you know, sort of 50% of the contract is still to go on FY 2023. Can you give us a sense of, you know, how-
The way that the revenue recognition standard works is where you know that you have a loss-making contract and basically what's transpired is with the onset of, you know, the delays and the weather and the additional costs, we've taken stock of the project and recognized that we have a loss-making project. What that requires us to do is to book it all now. Hence, that's my early reference to a double whammy. Not only have we reversed the profit to date, and we basically had to book all the future losses now.
Including the increased costs or forecast costs to complete. We've taken up and done a detailed review of what those costs will be to complete the program. That's been taken up as well.
As best as we can, we've quarantined, call it the earnings impact from that project for the future period. What we have on quarantine is obviously the margin dilution because we've got to see it through, but the earnings impact has been quarantined.
Just with respect to performance bonds associated with that project, is there any funding facilities in place?
Yeah, there's a small amount with the client on that one, but it's not, I wouldn't say it's material.
No. Nothing's been called upon. We're engaging with the client. There's still a lot to work through as we go through the second half of the project. Importantly, we've taken what we think is a reasonable estimate on the cost to complete that, increasing those based on what we're seeing across the market. I think importantly, like I said before, we don't have a lot of these large scale projects at D&C. It's one of probably three projects that the business is sort of dipping its toe into. We'll just be really cautious about moving further into those works, given the current environment.
Just with respect to D&C, I mean, it's historically been a strong point for Comdain in the small to mid-size projects. Are you saying that that'll be a segment that'll be more of a focus going forward than the larger scale?
Yeah, absolutely.
On the balance of larger scales, just reaffirming that you're comfortable with the performance there and, yeah, just trying to understand a little bit of the risk exposures and whether that's perhaps heightened over the next six or 12 months because of these weather events.
Yeah, that's exactly right. Comdain's pedigree was in those sort of minor capital works, small projects. We've typically said that they're several million AUD in revenue, generally completed over a three to six month period of time. That's the pedigree. They do that really well. That's where we see a huge volume of work. We'll continue to support those areas. I think just given what we see around some of these pressures now, we will not be looking at any more sort of larger scale projects, unless they have some of those favorable mechanisms, like we said, cost plus type arrangements, et cetera, where you can limit your exposure to any lump sum or fixed price cost models.
Just, I guess on the AUD 5 million provision. If we're adding that back into the EBITDA, then we're at sort of, you know, AUD 96 million and, you know, some of those parts of the pro forma of AUD 120 million-1 25 million are really coming together nicely. I'm sort of a little bit surprised that maybe you didn't take this opportunity to reaffirm that as a target into FY 2023. Can you maybe just give us a sense of, you know, the pluses and minuses of moving towards that number?
Yeah, no, absolutely, Piers. I mean, we certainly, as you pointed out and Linda talked through, we're conscious of the AUD 120- 125. That pro forma guidance that incorporated realized synergies over a 24-month period. I suppose where we stand here now, we've looked at that. We think those parts all still absolutely make sense. We're just cautious, obviously, with relation to the broader environment, but also looking at these water type projects, these larger projects, making sure that we are pulling back in that area. We don't wanna go further there. We'd rather pivot and make sure we're continuing to support those sort of operations and maintenance work. At this stage, we didn't want to come out with a sort of a hard dollar EBITDA range.
We thought what's more appropriate is to call out what we have, and be able to give an update in a couple of months' time at the AGM when we've got a few months of trading under our belt, and we can talk about how the business is responding to those those broader pressures. We hope that we've been able to respond to them the same way we have this year, which has been able to mitigate the majority of those.
Then just with respect to the margins in second half sort of explain why it look as though they've stabilized across certainly across telco and some other parts of the business. Maybe give us a sense of perhaps how you're seeing the you know utilization across the business as we head into FY 2023. I note your comments around N2P and that scaling up perhaps you know what would be an appropriate level of organic growth you think into FY 2023 across the business assuming that there's no more you know onerous contracts and/or any other one-offs? Thank you.
Yeah. No problem. I think what we'll feature this year is an improvement in group margin. We won't have these one-off impacts that we've called out, particularly in utilities. I do think there's a number of other opportunities that we're working through as we've talked about shutting down some of these lower margin or loss-making contracts or turning them around. I certainly think margin improvement across the group is what will feature through 2023. As we talk about those segments, telecommunications, I think is rebased. That's a healthy margin, particularly compared to industry. Utilities will improve. Transport, I think is probably thereabouts. We may see a slight improvement there. I think at the group level, looking at the diversified portfolio, we will see an improvement in margin.
As we said, there's a lot of opportunities to your second point there around, sort of expanding, some of those programs. Telecommunications certainly well-positioned there, to take on some of the additional work. Increasingly across the other divisions as well, really good pipeline as we stated earlier. I think that will assist in us, building on the back of that and being able to recover that margin and improve it moving forward.
Thanks a lot. I'll mark my there. Thank you.
You're welcome. Thank you.
Thank you. Again, if you have a question at this time, please press star then one one. We do have a follow-up question from the line of Marni Lysaght with Macquarie. Your line is open. Please go ahead.
Hi. Can you hear me?
Yes, Marni.
I'm just comparing, I guess, just from the documents detailing Lendlease Services pre-acquisition and what it's contributed to you guys for this past, you know, for the portion of the financial year. Can you talk about the delta between what it did in FY21 in those comparable months, compared to what it did this year?
Lendlease Services, what it delivered in 2021?
Correct. On a comparable basis.
It was thereabout flattish on 21.
Yeah.
because it was starting out the old construction program from NBN It basically, I would say, Lendlease Services is tracking in line. We've called the 45-ish that we shared as a, as a pro forma. The sum of parts to that, as I outlined before, is, you'll take the disclosures that are in the Appendix 4E, but you've got to pare them back because the synergies are largely embedded in their number, as well as c orporate costs that stood up to replace the corporate services are sitting outside that reported entity because we basically costed all those expenses into the historical Service Stream entities. They've had a bit of a free ride from a standalone legal entity. Basically, from what I can see, it's pretty much in line.
Okay. Okay, that's all clear. Thank you.
Thank you. We do have a question from the line of Warren Jeffries with Canaccord Genuity. Your line is open. Please go ahead.
G'day, Leigh and Linda. How are you going?
Good, thank you, Warren. Yourself?
Quick one. All right. I'm not sure if it's been touched on, but just on the synergy run rate, are you able to quantify what was actually delivered in the period?
Yeah.
AUD 10 million to run rate and then.
Absolutely, Warren. AUD 10 million run rate. It's probably about AUD 6 million, I'd say is what will actually hit the accounts throughout the year. Yeah, that's probably what we saw as of 30 June.
Righto. You're gonna get 10 next year, and then we're getting pretty close to the 17 probably by the end of 2023.
Yeah.
Actually being-
Always our expectation. That's exactly right. Yeah, absolutely. That's correct.
There's been some phasing, but by and large.
Yeah.
Most of it.
Yeah, deal done.
Implemented and received?
Well, there's a phasing. I mean, as I outlined, we're going through the utilities fee structure now.
Yeah.
Property consolidation.
Yeah.
Will be a couple of months' time. You've just got to phase that.
Right. Fully banked by 2024?
Yeah.
Okay.
Majority will be in the first.
Perfect. All right. That, that's all, guys. Thanks for that.
Thank you.
Thank you. I'm showing no further questions at this time, and I would like to turn the conference back over to Leigh Mackender for any further remarks.
Thank you, everyone, for joining us. We appreciate you dialing in and look forward to chatting with you actually.
This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.