Good day and thank you for standing by. Welcome to the Service Stream FY 'twenty one Full Year Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Mr. Lee Mackinder. Thank you. Please go ahead.
Thank you, Monterey. Good morning, ladies and gentlemen, and welcome to Service Stream's full year results presentation for the 2021 financial year. My name is Lee Mackinder, the Managing Director of Service Stream and I'm joined today by our Chief Financial Officer, Linda Coe. We're recording this session today via webcast. It's open to all registered Service Stream shareholders and we have a number of institutional investors and analysts on the conference bridge, whom at the conclusion of the presentation are welcome to ask any questions.
Today, Linda and I will run through a brief presentation, which includes key messages. We'll touch on the group's performance highlights throughout the full year with regards to our financial, operational and strategic performance. We'll provide an update in relation to COVID-nineteen how and where the business has been impacted and our response. And we'll move into some greater detail with regards to the group's performance across each of our divisions. I do want to revisit the acquisition of Lendlease Services and provide an update relevant to the last month.
And finally, we'll close with an update on the group outlook for FY 2022. At the end of the presentation, again, we're happy to take questions from those joining us on the conference bridge and we expect the session to take approximately 30 to 45 minutes including time for questions. So if I could direct you on to slide 2 titled Key Messages. The business is very pleased to announce the acquisition of Lendlease Services from the Lendlease Group on 21 July marking what I believe is one of the most significant and exciting milestones in our company's history.
The acquisition is supported
by compelling strategic rationale and strongly aligns with Service Stream's strategy that we've previously communicated to the market over recent years. Our strategy has been focused on diversifying our group revenues, enhancing our capabilities and service offerings and expanding our addressable markets, all with the aim of delivering a stable and strong platform to support future growth. At the time of announcing the acquisition, we also provided preliminary and unaudited FY 2021 results for the full year, which we're providing further information on today. With regards to these results, we're very pleased that they're firstly in line with the business' guidance provided in the half year presentation. They're also aligned to broker consensus and they reflected alignment with the group's trading update which was provided on 15 June.
FY 2021 was characterized as a challenging year for the business. It was marked by an unpredictable and constantly evolving COVID landscape and the tradition of our telecommunications operations as construction works with NBN's initial rollout wound down from peaks in FY 2020 and activation volumes also reduced in line with NBN's corporate plan. But despite these challenges, the business maintained a strong focus on our delivery and execution and always supporting our value clients' operations. I'm very pleased that during this period, the business is able to achieve several key milestones, including successfully re securing all of our major telecommunication agreements, providing a strong core earnings base across the division into the future. We successfully managed the transition and mobilization of these major operations across the country.
As the business was foreshadowing a reduction in future earnings aligned to these renewed contract volumes, we proactively responded by reviewing and adjusting our fixed cost base and drove additional operational efficiencies. Importantly, our team continued to focus on the execution of our group strategy to support the diversification of revenue and expansion of our markets and also continuing to deliver very strong performance across workplace health and safety. Looking forward, I can say with confidence that the future of Service Stream is very bright. The business serves as a strong portfolio of blue chip industrial clients reflecting major asset owners, operators and government entities across the country. The acquisition of Lendly Services will support the continued diversification of revenues and enhance those capabilities and service offerings.
It will also transform ServiceStream into a true multi network service provider. The markets we operate across are very attractive utilities, telecommunications and soon transportation. And all of these are essential infrastructure assets utilized by millions of Australians each and every day. And these markets are further enhanced by significant private and public investment into the future. And this investment which has historically been driven by aging infrastructure and population expansion is further bolstered as state and federal governments around the country particularly focused on the investment in critical infrastructure to support a post COVID recovery and a strong economy into the future.
Now directed to slide 3, target FY 2021 group highlights. Firstly, with regards to financial performance, the business reported EBITDA from operations of $80,100,000 which as stated earlier was in line with our guidance. Strong cash flow generation was a particular standout during the last 12 months. The group generated operating cash flow before interest taxation of $74,400,000 and this equated to a very strong EBITDA to OCF bit conversion rate of 99%. Working capital continued to remain at low levels of around 2% against revenue.
And the group's balance sheet remained in a robust position and this greatly assisted our ability to support Lendlease Services acquisition. In terms of operational performance, I'll make a few remarks here and we've got more detail in the presentation. But again, strong performance across our workplace health and safety with improvements delivered across several key metrics. Our utility operations associated with the Condane Infrastructure business unit, which operates in the gas and water markets has experienced and continues to experience a strong period of growth associated with increased infrastructure projects across the country. As stated earlier, the business successfully resecured all major telecommunication agreements with key partners and those include NBN, Telstra and Vodafone.
And as we look forward to commence the FY 2022 financial year, the business has a strong foundation of contracted revenue, which exceeds $2,000,000,000 And this excludes extension options under each of our agreements and is reflective of their initial terms only. And as I said in my opening remarks, I'm very pleased that during FY 2021 despite some of these challenges the business maintained strong focus on executing our group strategy. Strategic highlights
included the acquisition of Lendlease Services,
which was significantly included the acquisition of Lendlease Services, which will significantly transform our business into the future. We kept our stakeholders and shareholders updated during the course of the last 12 months, advising that the business was assessing several opportunities and we continue to take a measured balanced approach to assessing the opportunities which we believe were best fit for Service Stream and AshiHealth into the future. I'll provide an update further in the presentation, but the initial stages of our separation and integration program are progressing well, albeit we're only in the 1st 1 month. But the business still remains on track for completion on or around November 2021. The group has also made significant advances in the areas of sustainability.
We're really proud to release our 2nd independent sustainability report today. This report provides additional information on our non financial performance and this year is bolstered with additional disclosures which include the linkage between our corporate strategy and ESG approach, a detailed materiality assessment across Service Stream's major stakeholders to gain feedback on the key ESG topics, which are most relevant to them in the context of their relationship with our business and includes additional targets to support our commitment of continued improvement across the areas of health and safety, people, community engagement, environment and governance. I'd encourage our investors to visit the Service Stream website later today where a copy of the report will be uploaded and can be reviewed. Moving to slide 4, and I'll briefly walk through the group's key financial headlines for FY 2021. So as you can see here, group revenue for FY 2021 was $804,200,000 representing a decrease of $124,900,000 or approximately 13.5% on FY 2020.
Again FY 2020 represented a peak year in terms of our telecommunication revenues, driven by that initial NBN construction project and one time work and peak activation and connection volumes. We of course know that NBN are commencing a major network refresh as announced last September and very pleased that moving forward services have secured a large component of this deployment, which will add contribution to our group's revenues over the latter part of FY 2022, 2023 and possibly into 2024. EBITDA from operations was 80.1% again in line with guidance, but reflecting a corresponding decline from FY 2020 equating to $28,000,000 Important to note that EBITDA from operations excludes M and A expenses and one time restructuring costs aligned to my prior comments. But again, this is in line with our announcement on 21 July and the pre order of financials which were released on the same day. Adjusted NPAT was $38,900,000 for the year.
That was down 33.8 percent in FY 2020 or equated to 19,800,000 dollars The group finished the year with a positive net cash position of $15,600,000 slightly down FY 2020 which was 19.5 percent in the prior period. And with respect to dividends as per the company's announcement on 21 July, the Board has not declared a final dividend for FY 2021. This is to assist with the funding of the Lendly Services acquisition. The Board does however expect that dividends will resume post the transaction reaching completion later this year and will be of course subject to business performance. Moving to slide 5, I want to touch briefly on COVID-nineteen.
I'm sure many are growing tired of hearing about COVID-nineteen in general. However, I believe it's important to provide appropriate context as to the areas we are seeing impact across our business. And many of these impacts are due to the nature of our operations being a field service provider with a significant field based workforce of thousands of people operating across every state and territory. In line with prior business updates, Service Stream's exposure to and the critical role we play in supporting essential infrastructure networks has supported the business well to continue operating throughout the pandemic and has limited the impact of COVID related lockdowns and restrictions. Throughout the past year, we've seen the business impacted most notably through restrictions of movement both within states and travels across state borders as state governments entered sporadic lockdowns.
And the second area is in relation to our proactive maintenance programs being pared back or works delayed across affected areas by our clients. I mentioned the proactive programs which indicative include activities such as network upgrades, asset exchange works, reconnection and disconnection of utility services, the installation and maintenance of energy efficiency equipment such as solar PV or battery storage infrastructure and some of our asset inspection programs. While some of these programs are being impacted, the reactive or fault based work, which is the backbone of our operations has continued, which is understandable when we consider the critical role Servicing plays in supporting these essential networks. I'm incredibly proud of how the business has responded during these challenging times and particularly how we've been able to continue supporting our clients' operations through our field workforce, which has continued to operate in a safe manner with additional protocols and safety measures in place. In terms of the current Delta strain, which was largely impacting New South Wales and Victoria, it does bear on other states as they too enter lockdowns and restrict movement in and out of state borders.
We continue to monitor the changing landscape and circumstances carefully. The business has been impacted and expects that we will continue to experience intermittent interruptions. We have thus far though not seen a material financial impact to the group, but we've also not forecast for major lockdowns to continue throughout the duration of this year. We expect lockdowns should diminish as vaccination rates increase across the country. And as they increase, the range of activities that have been pared back or paused should start to revert back to pre COVID levels.
Moving on to slide 6 now and just touching on the group's safety performance. As I mentioned many times, safety is one of Service Stream's core values and we are incredibly proud of the strong safety culture and leading performance delivered by the organization. Our HSE performance remains the number one priority for our business and we're truly committed to ensuring that our people, our customers and the community with whom we engage with whilst we deliver our services remain safe at all times. As you can see from the lag indicator performance graphs outlined at the bottom of the page, FY 2021 represented another year of very strong performance. Our total recordable injury rates decreased, reaching a new all time low of 1.53%.
Medical treatment injuries also reached an improved level of 0.85%. And finally, our lost time injury rates continue to be maintained at very low levels, and we're very proud that this represented the 6th year of maintaining performance at or below one times. The business maintains a steadfast focus on continuing improvement across our HSE performance and there are a range of activities and initiatives planned for the year ahead to support this. I'll now move into the section of divisional performance and provide an update on our Utilities and Telecommunications divisions and direct you to slide 8. Starting with Utilities.
Utilities division generated revenue of $411,500,000 during FY 2021, which was 27.5% or 7.1% above the prior corresponding period. And EBITDA was $29,000,000 which was slightly down on PCP as you can see from the graphs on the right hand side. Below the division's headline revenue number, the Combat Infrastructure business unit generated revenue of 319,000,000 dollars and that reflected growth of 11% on PCP as a positive sign as we look forward into FY 2022. Whilst this was a strong result in terms of growth over relatively short period of time, negatively impacted by severe weather across New South Wales and Southern Queensland in the latter months of the financial year. And that resulted in some project or construction works incurring production delays for a few weeks, thus reducing the revenue and associated profit.
The work is not lost, however, and we picked up in the course of FY 'twenty one as the programs recover pace. The metering and technical services operations generated $91,800,000 which was $4,200,000 or around 4.5% lower than PCP and that was purely due to those reduced proactive or non critical works such as meter exchange, asset inspections, reconnection, disconnection works being delayed by our clients in response to state government imposed lockdowns. The reduction in EBITDA margin from the utility operations was less than 1% and is reflective of 3 key factors. Firstly, growth across the Condane business unit in its design and construction operations, which whilst they're growing strongly and contributing to increased earnings is a lower margin business. The reduction of those meeting operations I spoke about earlier due to the COVID response and increased corporate cost allocations as a result of the utility division growing and understandably requiring additional support from the broader central group.
Services include things such as legal, IT, finance and facilities, which is expected. In terms of operational highlights, the pipeline for new works remains robust, particularly across gas and water projects driven again by urban expansion and aging infrastructure. I commented last year that our pipeline of new bid opportunities had never been stronger and I reiterate this again. We're seeing an increased volume of opportunities to support growth across the business in this space. These opportunities will of course be further enhanced with the addition of Lendly Services later this year, which has a comprehensive national utility operation expanded across the utility, water and industrial services markets.
If I can now direct you to the following page slide 9, which provides an update on our telecommunications division. As per the headline numbers, the division generated $392,000,000 in revenue and $57,800,000 of EBITDA for the full year. Revenue and earnings were down on the prior corresponding period due to the conclusion of the NBN D and C program and reduction in activation and connection volumes. Revenue from activation insurance was also impacted with some equipment shortages, which resulted in a pause to HFC connections, although we note that this has recently resumed, which is a positive sign. Our wireless operations generated revenue of $63,100,000 for the full year, which was $10,000,000 lower than the prior period with the business still seeing expenditure associated with 5 gs subdued again in line with our prior comments.
Whilst the division's revenue was down on PCP, operationally it was very pleasing to see the division securing all of our major agreements in FY 2021 including those with NBN, Telstra and Vodafone. The re securing of those agreements provides a very strong foundation of annuity style maintenance works for the business over the next 12 months and beyond. And as we look to consolidate the telecommunication operations across Lendlease and Service Stream in the future, the division will expand as Lendlease were also successful in securing a large portion of works in association with NVM's network upgrade program. And that's the initial design and construction works. They also have a wireless contract with NVM which supports their wireless network infrastructure.
I'll now hand it across to Linda who will run through the group's financial performance in greater detail.
Great. Thanks Lee and good morning to everyone. As Lee has noted earlier, with the exception of some minor differences, our FY 'twenty one results are in line with the unaudited numbers we reported earlier in July. Revenue for the year was $804,200,000 which is $125,000,000 or 13.4 percent lower than last year. This reduction is primarily due to lower telco segment revenues, which was $151,800,000 lower than last year due to reduced NBN volumes.
Utility segment revenue increased by $27,500,000 led by Com Dane revenue growth of 11%, although overall segment growth was tempered by lower metering and technical services revenue, which Lee has touched on. EBITDA from operations was $80,100,000 25.9 percent lower than last year and is mainly due to the decrease in telecommunications revenue. Group EBITDA from operations margin reduced to 10% from 11.6% last year, reflective of the reduced scale in telecommunications and change in work mix across the segments. Statutory EBITDA was $75,200,000 and includes $5,000,000 of non operational costs, comprising $3,500,000 of M and A costs, the majority of which relates to the acquisition of Mack Lendly Services and $1,500,000 of restructuring costs. Dropping down to NPAT, the group's adjusted NPAT or NPAT A for the year was $38,900,000 This compares to the statutory reported NPAT of $29,300,000 with the difference due to non operational costs excluded from operating EBITDA and the amortization of historical customer contracts of $8,900,000 post tax.
Depreciation and amortization expense on owned assets was $2,000,000 lower than last year, but offset by increased depreciation on right of use leased assets of $1,800,000 Interest expense was also slightly higher, up $500,000 and reflective of the increase in debt facilities during the year and additional interest expense on the right of use assets. And finally, on this slide, our effective tax rate for the year was 30%, which is consistent with the prior year. Moving on to cash flow. Slide 12 sets out the cash flow for the year with key highlights including strong operating cash flow conversion rate or OCF pit of 99%, which is well ahead of expectations. This enabled working capital to remain highly efficient at less than 2% from LTM revenue and deliver closing net cash position at June of $15,600,000 Net interest and financing costs were $4,700,000 1 $100,000 higher than last year due to the refinancing undertaken during the year and increased debt facilities.
Cash paid of $24,200,000 may be high relative to profit and is due to the repayment of the $5,000,000 COVID-nineteen income tax deferral obtained last year. Net capital expenditure for the year was $8,800,000 and focused on the Comdata ERP implementation and supported client and efficiency IT initiatives. These payments increased by $2,200,000 with the increase due to refresh of the Comdata fleet and additional fleet required to support revenue growth. Now moving on to Slide 13, which touches on the group balance sheet. There's just a couple of key items to call out here.
Firstly, overall net assets of $323,000,000 remains in line with last year and whilst there has been some movement in the composition of net working capital, the net balance of $13,100,000 is also in line with last year. As touched on before, the group's debt facilities were refinanced in November for a 3 year term and increased to $275,000,000 Subsequent year end and to support the acquisition of Landmark Services, we have agreed with our lenders to further upsize facility to $395,000,000 at completion, aligned to the current SSA terms and conditions. Our debt facilities were largely unused at June with $42,000,000 drawn for client bonding requirements and in line with that, current compliance was comfortably met. Finally, with regards to dividends, we previously advised that a final FY 2021 full year dividend will not be declared to support funding of the Lendly Services acquisition and that resumption of dividends is expected in FY22 subject to business performance. And that's all for me.
So I'll now hand you back to Lee to take you through the remainder of the presentation, TAC.
Thank you, Linda. Moving into the next section of the presentation, we've included a subset of the presentation materials provided on 21 July relating to the acquisition of Lendlease Services. I won't go through each slide in great detail, but do wish to touch on a few key points for the benefit of shareholders who may not have had a chance to review the presentation previously provided. I direct you to slide 15. On 21 July Service Stream entered into a binding agreement to acquire 100 percent of Lendlease Services from the Lendlease Group for an enterprise value of $310,000,000 The transaction has an equity purchase price of $295,000,000 once debt and debt like items are considered.
The acquisition implies an attractive EBITDA multiple of 6.9 times pre synergies and 5 times post synergies on an FY 2021 pro form a basis. Transaction is highly accretive with EPSA on FY 2022 pro form a of approximately 30% including expected cost synergies, but these include one off integration and transaction costs. And in relation to transaction funding, we're very pleased that the business successfully completed the $185,000,000 equity raise in support of the transaction. The raise was well received and oversubscribed. The equity raise complemented $123,000,000 which is provided through our expanded debt facilities across our existing finances.
And as stated earlier, the business remains on track to reach completion on or around November 2021. Turning to slide 16, we provide an overview of lend lease services. There's considerable information outlined here and in the pack to complement our prior market presentation. But at a high level Lendly Services is a leading provider of operations and maintenance as well as specialist design and construction services. The business has national operations across 3 major market sectors being telecommunications, utilities and transportation.
One of the positive aspects that really attracted us to the business was a long standing client relationships over a diverse but complementary client base to Service Stream. These blue chip clients are similar to the Service Stream business being major asset owners and operators, government and government related entities responsible for essential infrastructure networks. When we consider the portfolio of contracts, the business has in excess of $3,000,000,000 of closing backlog revenues under current contract. And whilst they're always subject to volume commitments provided by clients provides a very strong forward looking visibility into FY 2022 and beyond. Turning to slide 17.
We provided high level information on the services offered across each of Lendly Services' 3 operating divisions. The telecommunications divisions provide specialist design, construction, operations and maintenance services across both fixed and wireless network infrastructure. One of those services will particularly bolster our existing telecommunications division with those specialist design and construction services as they've been a major construction partner to MBN. The utility division provides a range of specialist services associated with the electricity industry, supporting distribution businesses across the country to maintain their asset bases. This has been a market which Service Stream has historically operated across, but we're really limited to metering and connection works.
So Lendly's complements us well and provides increased skills and capabilities across a broader section of the market. And the Water division provides engineering, operations and maintenance support and again really complements our existing capabilities, which through the Condane business have primarily been associated with the design and construction of water and wastewater infrastructure. And the Industrial Services division provides major shutdown and maintenance support for large industrial customers and asset owners. And finally, the Transportation division on the right hand side. This division provides operational maintenance support for public and private road owners and operators.
It's a fantastic set of capabilities for our business, which provides servicing with exposure to the transportation sector allowing the business to benefit from increased investment in major road projects across the country, but without needing to take significant design and construction risk of the actual build itself. Slide 18 discusses the strategic rationale. And as stated earlier, the transaction is highly complementary to the Service Stream business. Burnley Services will support the diversification of our group revenues across what will now reflect a broad multi network service business. This will reduce the group's exposure to any one particular market segment or reliance on a particular client or individual program of work, which is a major benefit.
The uplift in capability and additional service offerings will support the group to continue to grow across each sector and the broader addressable markets into the future. And the business will serve as a strong portfolio of blue chip industrial clients reflecting major asset owners, operators, government and government entities as I just discussed. And we're very conscious of and confident of delivering what I believe is a measured yet meaningful amount of cost synergies across the combined groups. And our integration team is now well into the program of mobilization ahead of completion on or around November. Slide 19 includes business combination.
We've outlined here some of the key metrics of each individual business and the combined group with respect to FY 2021 and this includes revenue, EBITDA from operations and employee numbers. I won't go into detail here other than to point out how the group's revenue profile is positively enhanced and diversified under the combined group. And moving to slide 20 and we discuss the acquisition synergies. The acquisition synergies represents an important and compelling component of the transaction and is a critical focus area for myself and the group's executive team. Throughout the due diligence process, the business' subject matter experts have worked closely with our partner KPMG to identify and quantify what we believe is that measured yet meaningful amount of cost synergies leverage across the combined group.
I should make clear that these are across the combined entities and a key focus for the team during the integration program is to proactively engage with staff and adopt the best people, systems and processes into the future. We've identified 3 major areas of synergies as reflected in the table below and they are across business unit synergies, corporate support functions and other cost savings as we leverage the combined group scale. These synergies totaled $17,000,000 and we are very confident that 50% of the run rate will be realized within the 1st 12 months from completion. Understand this will be biased to the second half of this year following completion taking place on or around November and the balance in the year after. The business has also agreed to a transitional service agreement with Lendlease Group and this provides continuity over a number of key business functions during the separation and integration program.
It's really critical to both businesses that we maintain continuity during the program and we continue to support our valued people working across the country and our clients' operations. The TSA will support several activities across the group, including information technology, property, central support services such as payroll and group finance and people and culture activities, just to name a few. Our teams are currently working through preparations to support day 1 with the Lendly's group. As we stand here today, the program is progressing well with no major issues. We'll understandably look to progressively step down the transitional services as the business' separation and integration program reaches its milestones.
Moving now through the pack, we've got a slide entitled Service Stream Going Forward. Service Stream's future markets will obviously expand from what is currently focused on telecommunications and utilities to include the 3rd operating division servicing the transportation sector. These markets also reflect how the group structures its reporting segments into the future. The services provided by the business will still focus on the design, construction, operation and maintenance of a critical infrastructure with Lendly's particularly increasing the scale and depth of our operations and maintenance capabilities aligned to their core skill sets and service offerings. The business will leverage the combined skills and experience of a highly capable team and have an employee base of approximately 4,500 operating across the country as well as access to a broader pool of specialist subcontractors.
Lennox services will provide additional client contracts in a strong pipeline of secured revenues as I previously discussed. And with the combined group's current contract pipeline from FY 'twenty two forward at approximately $5,800,000,000 in future works. It's again, of course, subject to work volumes and mix, but is a particular position of strength and provides confidence over future years. We do expect the group to continue to deliver strong cash flow performance and conversion rates in line with our historical performance and maintain a relatively light working capital requirement into the future. And the final page is slide 23 titled Group Outlook.
As I've discussed, the business operates across attractive markets and they're supported by significant private and public investment, which will drive sustained growth into the future. The acquisition of Lendly Services provides a step change in terms of the group's future financial earnings profile and importantly expands our growth opportunities. Service Stream expects post acquisition pro form a FY 'twenty two EBITDA from operations of between $120,000,000 $125,000,000 and that's inclusive of full run rate of synergies being the $17,000,000 as we've outlined. The current outbreaks of the delta variant of COVID-nineteen, as I said earlier, is interrupting some of the group's operations. But importantly to note, financial impacts to date have not been material.
Whilst the business expects there will continue to be intermittent interruptions, it is not forecast for major lockdowns to continue throughout the year. We expect lockdown should diminish as vaccination rates increase across the country. But given the unpredictable nature of the pandemic and the associated response by government, any impacts to the full year outlook is currently difficult to accurately predict. I'd like to take this opportunity to thank our wonderful staff working across the country for their commitment over the last 12 months. And that concludes the formal aspects of our presentation today.
And I'll now hand back to the moderator to take any questions from those joining us on the conference bridge.
Your first question comes from Ian Munro from Ordinet. Your line is open.
Good morning, Lee. Good morning, Linda. Just a couple of questions for me please. Just firstly, with the telco business now that the NBN's awarded the design and construct contracts to Lendly Services, how should we be thinking about the next round of contracts in connection and some activations on the service stream side of the fence? Secondly, just with some of the, I guess, employee constraints that have been suggested by peers in more mining related areas.
Like how are you seeing, I guess, the ability to find adequate people and perhaps employee costs at the moment in your more sort of urban based markets? And then thirdly, any update on the WA business and expansion with Conde? Thank you.
No problem, Ian. Thank you for the questions, mate. Appreciate it. In terms of the other work, so yes, Lendlease have pleasingly secured a contract with NBN for the design and construction of those upgrade services that NBN announced in September last year. That's one component of that program.
As you point out, there is also some components associated with connections and lead ins to support customers as they choose to migrate across. As per our update earlier this year, we expect that process to continue. We don't have any further updates in terms of timing, but had guided the market to expect that we'll take part in that commercial process. And if we were successful, we'd expect it to probably provide a contribution towards the latter half of this year and certainly into following years. But at this stage, we're still waiting on an update in terms of the time frame that NBN are operating to.
But the D and C operations is mobilizing currently and is on track, which is pleasing. Employee benefit employee constraints, sorry, and the labor market. We certainly have seen particular challenges across some states. WA has been one that's particularly challenging as is Queensland. I think a lot of that's been driven through the lockdown and the inability of companies to move resource and fly them in and out of states.
Whilst it's been challenging, we've seen those demands really around construction based resource. So project managers, construction managers, site supervisors, etcetera. It's been challenging, but it hasn't impacted us to date in terms of an inability to attract and retain staff. The business has expected to see minor increases in labor rates. And I think we're budgeting for around 2% increase over the course of the next 12 months across our labor costs in total.
And in terms of the WA business, so the initial works that we secured there with our gas client are performing well. We expect that to conclude in a couple of months' time. And I understand the team have also got a number of other tenders in for additional works and positions on some of their panel arrangements to support capital works with those clients. So that's certainly going to be an area for us to continue to focus on. I think we've done well in expanding into Queensland and over to WA.
And I think we'll certainly continue to focus on those areas and update the market should we secure any of those particular agreements that we're currently tendering on.
Thanks, Lee.
Thank you.
Your next question comes from Stephen Anastasia from Bell Potter. Your line is open.
Good morning, Lee and Linda. Just one quick one, firstly on the Delta variant. It's obviously very positive that you guys haven't seen any material financial impact to date. But just also touching on that sort of little caveat that you're not forecasting major lockdowns to continue throughout the year. Does that sort of imply that if they were to be prolonged, eventually the impact of delays and deferrals would have a material impact on the group if they did continue for much longer than forecast?
Thank you, Stephen. Look it is it's not meant to be sort of a misguided statement there. We are seeing impacts. But as I said, we are able to sort of offset those or not being material to the group. In terms of our comment there around not forecasting to continue that's probably more an expansive comment in relation to the entire year.
We're certainly expecting that as we approach Christmas and the New Year we will start to see vaccination rates reach that sort of 70% to 80% and lockdown should dissipate. So that's
basically our assumption there. We wouldn't expect to see the
current state of New Year basically our assumption there. We wouldn't expect to see the current state of New South Wales and Victoria completely locked down for the entirety of this financial year and that's been our base assumption.
And I
think also just as a clarifying point, I mean, our Victorian operations were able to operate largely throughout the COVID-nineteen restrictions last year. And that's like our assumption that we find a way to work with our clients to safely continue operations. Now who knows what this brings, this death delta variant, which is change each and every day brings, but we're not assuming, for example, a change to that assumption.
Yes. Okay. So Victoria is fine. And in regards to New South Wales, you're assuming things get back to normal November December which sounds reasonable. And if that happens things will be well and good in terms of your forecast?
That's exactly correct, Stephen. Yes. And we see with some enthusiasm, I said the vaccination rates particularly across New South Wales and other states certainly ramping up. So I think it's a reasonable expectation for us to still see some of those lockdowns continuing up until around Christmas New Year and then really dissipating after that.
Yes, perfect. Are sort of any of the current lockdowns impacting any of the activities involved in finalizing the Lendlease deal? Are you still confident that that November target will be
hit? We're not seeing any impact in terms of the ability for us to reach completion. The major focus for us at the moment is obviously client consents and we are engaging with clients through lend lease services across the country to migrate those agreements across to Service Stream and support a day 1 operation on or around November. So fortunately, I think everyone's been used to team meetings and Zoom. So we've not seen that impacting our engagement with clients at all, Stephen.
Yes. That's great. And then just one final one. The wireless volumes, is there any indication that perhaps we might finally see an impact in an improvement in volumes in FY 'twenty two or still a little bit downtrodden?
Yes. Look it's always been that area as we know, but I've been cautious about there's a lot of hype around 5 gs. Look I still believe we've got the bias for upside there Stephen and that's driven by probably 2 points. One is we've just restarted our engagement largely with Vodafone more recently. So that's been a key client of ours over the journey.
And the team are seeing increased work there, which is positive. And also my earlier comments with the acquisition of Lendly's they've actually secured an agreement with NBN to support their wireless infrastructure as well. So whilst we might not see significant increases from Telstra or Optus or others, we're actually now servicing every single telecommunications client in terms of their wireless network. So our overall wireless revenues will grow and we are very well positioned with that contracted sort of position across all major providers. So we're in the best possible position if we start to see increased expenditure from each of those providers.
And the potential for that increased expenditure, do you think that's something that will probably be weighted towards the second half once the lockdowns and conditions normalize?
I don't know to be honest Stephen, I don't know what the drivers are between all of the individual telcos around their investment in wireless. I think they're all taking quite a measured approach to the deployment. Certainly know that the deployment has been impacted in New South Wales and Victoria with the current COVID situation. But whether or not they're going to see an increase after that, I'm not 100% certain at this stage. But I think we're well positioned.
If you've got contracts with Vodafone, TPG, Optus, Telstra and NBN now, that's a position of strength for us. I think to be well sort of across each of those providers and we may see some of them increase their expenditure and therefore see benefit.
Yeah, definitely. Got the full gamut of providers there. Thanks for answering those questions.
You're welcome. Thanks,
Your next question comes from Pierce Vanagon from Berenjorie. Thanks. Please ask your question.
Good morning, Lee and Linda. Just a question on the telco margins. It looked like there was a step up in the second half for the telco margins. So just some of the drivers behind that. And then looking ahead, how we could think about the telco margins, I guess, versus prior periods as we roll on to the new NBN and Telstra contracts?
Yes. I think the Telstra I think the telco margins in the second half is just a wholly mixed issue. I mean, we share every year that there's depending on the work that's been undertaken, it's probably a 1% to 2% margin variability relative to comparative periods. Next question was the
And then just looking at the margins going forward just as you roll onto the new NBN and Telstra contracts?
Yes. Look, we've probably foreshadowed given the change from the historical peak volumes we had in 'twenty that we're foreshadowing a continuation of the reduction in margin. We obviously need to blend in Ford Lend Leases their own margin that we shared at a group level there. Their overall margins are sitting around that sort of 6 ish percentage, 5 to 6 percentage. So that will be dilutive to the group overall and compared to where we have been.
So I think our margins peers will be in line with or better than our industry peers and that's what we certainly will focus on. And of course, once we get through the initial stages of the Lendly Services acquisition like it did with Comdane, the focus then moves to how can we enhance those margins over time. But reiterating at this point, I mean, what we're seeing from Service Stream in FY 2022 is a standalone business was a reduction in our margin just driven by the loss of scale that we've seen previously in some of those NBN operations as they sort of pay it back. So I think the business is coming together. It will be a positive over the next 12 to 18 months and we can then look at how we might try and target improvements thereafter through our own efficiencies.
And synergies.
Sure. And then just on the unwind of provisions, did that just relate to the NBN contracts finalizing or the 1st iteration of NBN contracts finalizing?
Yes. There are a number of things going on there. That was one of them. So just that generation of particularly around that OMA piece on winding back sorry, completing and us being able to agree positions with NBN and then I want us to release some of those provisions.
As you know, Piyush, we take quite a conservative approach. We've always said this with providing provisions as we mobilize contracts for things such as quality, DLP periods, stock obsolescence, etcetera. And as we go through these cycles when contracts demobil or transition, we review those provisions. Not just NBM, but that happens across the utilities area as well. So there's always ups and downs across the group.
Sure. That's it for me. Thank you.
Thanks,
There are no further questions at this time. Please continue presenters.
Well, that's it from us. I really appreciate everyone joining us and look forward to discussions over the next few months. Thank you very much. Appreciate your support.
This concludes today's conference call. Thank you for participating. You may now disconnect.