Ladies and gentlemen, thank you for standing by, and welcome to the Service Stream FY 'twenty one Half Year Results Conference Call. At this time, all participants are just in a listen only mode. Following the presentation, there will be a question and answer session today. And just please be advised that today's call is being recorded. I'll now hand the conference over to your first speaker for today, Managing Director and CEO, Lee Mackinder.
Thank you, and please go ahead.
Thank you, moderator. Good morning, ladies and gentlemen, and welcome to Service Stream's half year results presentation for the 2021 financial year. My name is 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 ServiceStream shareholders.
We have a number of institutional investors and analysts on the conference bridge, and you're welcome to ask questions at the conclusion of the presentation. Today, we'll run through a brief overview of our company profile, moving in to provide key messages and an outline of performance highlights throughout the half year. We'll update in relation to COVID-nineteen and how the business has been impacted. Moving to some greater detail with respect to the group's financial and operational performance, both at group and divisional level. And finally, we'll touch on the group strategy and outlook, including priorities for the second half of this year.
And at the end of the presentation, we're happy to take questions from those joining us on the bridge, expecting to take 30 to 45 minutes, including time for questions. Moving to Slide 2 and just briefly touching on the company profile. Service Stream is an essential network service provider. Our core markets are utility and telecommunications, where the business provides end to end services associated with the design and construction and operations and maintenance of the essential infrastructure networks. Business has a strong client base consisting of Australia's leading blue chip industrial asset owners and operators as well as government and government related organizations.
Business has 2 reporting segments reflecting Telecommunications and Utilities. Telecommunications provides integrated design, construction, engineering operations and maintenance services across both fixed and wireless infrastructure. Key clients include NBN, Telstra, Vodafone. The company's utility division provides a unique set of end to end services associated with design, construction, asset installation, inspection and operations and maintenance of utility infrastructure. And key clients in this sector are gas, water, electricity asset owners and operators, retail service providers and local government authorities.
Before we move to the group's results for the half year, I'd like to take a moment to provide some brief initial commentary on the last 6 months and in relation to the period ahead and refer to Slide 3 of the presentation materials. The FY 2021 financial year was characterized previously as a transitional year for the business, a year in which the business had a large number of significant contracts reaching their natural end date and needing to be resecured. The nature of these agreements, particularly those associated with MBN, were also changing in the future as programs move away from a construction focus to one of ongoing operations and maintenance and work volumes therefore declining from historical peaks. The group's first half financial performance was down on prior corresponding period was in line with expectations. The business had, however, forecasted a stronger second half in FY 2021, and that was led by an expected resumption of previously delayed maintenance works that were paused or restricted during COVID across both telecommunications and utilities.
The delivery of proactive upgrade or maintenance works, particularly across telecommunication operations that have historically been biased to the latter part of each financial year. And the mobilization of work programs aligned to those re secured contracts. And all while the COVID landscape continued to improve and allowing the business to recommence operations without restrictions on travel and movement. Unfortunately, the outlook has been progressively impacted in terms of lower than expected volumes by clients, and we continue to see restrictions on some work types commencing and longer than expected delays across tender cycles. With these uncertainties, we therefore expect the second half result to be approximately in line with the first.
Despite these challenges, the business has been successfully navigating through a period and re securing a number of key agreements, which provide a strong base. We manage service Stream for the long term and focus on continually driving and enhancing the business model's strong fundamentals with regards to profitability, maintaining a strong balance sheet, a high quality of earnings and working with our industrial client base to grow operations as opportunities present. As we look ahead, the core of Service Stream remains strong. Our diversification into utilities has been progressing well. And whilst it will take some time to progressively replace the declining revenues across telecommunications, which have been a major source of historical growth, it does provide several opportunities.
The business holds a solid order book, faces into positive markets and continues to work on securing those additional growth opportunities, both organically and through acquisition, which has served as a catalyst to delivering a step change in future growth. Moving on to performance highlights and directed to Slide 4, we have an overview in relation to the group's financial, operational and strategic performance over the most recent period. In relation to financial performance, the business reported EBITDA from operations of $40,200,000 and whilst down on PCP was in line with expectations with the period with the prior period holding construction related programs at MBN, which had concluded and the activations such connections profile reducing over time. Group EBITDA margins remained steady and healthy when compared to industry averages, with movement really reflective of scale benefits that we've seen when work volumes are higher. Strong cash flow generation with EBITDA to OCF conversion rate of 108%, particularly positive.
And working capital continues to remain at a low 1.3% of revenue. On the back of these results, the Board announced an interim dividend of $0.025 a share, which was down on prior periods, retained a historical payout ratio of circa 60%. In terms of operational performance, the re signing of both the Unified Services and Networks agreements with NBN cement Service Stream's role as a major service provider and provide work over a potential 8 year term, expecting to generate in excess of $800,000,000 in revenue. The business secured the next contract iteration with Telstra for the design, construction, operations and maintenance of both wireless and fixed line infrastructure. And the Utility segment secured a number of opportunities over the last 6 months, most notably an agreement with SEQ Water in Queensland and several clients in New South Wales.
In total, the business has re secured in excess of $1,500,000,000 in works over this recent period. And finally, the most important aspect of the business operations is our safety performance. And we're very pleased to see the business continue to deliver positive improvements across key indicators. Finally, touching on strategic highlights. The business's diversification strategy in the utility is progressing well and supporting opportunities, which will assist in replacing those historical NBN construction and activation revenues across a more diversified base.
Comban infrastructure, which is a major step in the diversification program, has performed well. With work in hand, is on target to deliver 15% growth in revenue during the year. The business more broadly has a solid pipeline of organic growth opportunities across both markets, and we continue to assess a number of M and A opportunities, which should further support the expansion of the markets, diversification of group revenues and a platform for future organic growth. Moving to Slide 5, I'll provide an update in relation to the COVID-nineteen pandemic and how this has impacted the business over the recent period. As I mentioned in my opening comments, the group's balance sheet, cash flow, liquidity all remain strong, and the group's exposure to essential infrastructure markets has certainly limited the impact that COVID-nineteen has had across the business.
There are, however, been impacts and some of which we do expect to continue over the near term. And these are most notably across delays to client procurement programs, many being pushed back several months. Restrictions on the movement of people, both within state borders and across borders has really hampered the business' ability to effectively mobilize and support some programs and restricted the ability to move resource across borders to capitalize on opportunities as they present. We incurred client initiated delays to proactive maintenance programs across utilities and telecommunications networks, such as the continued moratorium on gas and electricity disconnections and reconnections as well as meter exchange operations, which still exist today across many states, but are starting to ease with each month that passes over the year. Victorian operations were also heavily impacted in the last period due to Stage 4 lockdowns, particularly across our inspection and quality assurance operations.
All of the above has previously been outlined and certainly top of mind in terms of key variables of the business needed to monitor over the course of the year. Moving on to Slide 6 on the group safety performance. Service Stream is incredibly proud of the safety culture and industry leading performance that's delivered by the organization. Our HSE performance remains one of the major priorities for the business and we're really committed to ensuring that our people, our customers and the community with whom we engage with while we deliver our services remain safe at all times. As you can see from the lag indicator performance graphs outlined at the bottom of the page, our total recordable injury rates decreased, reaching a new low of 1.57.
Medical treatment injury rates continued 1.12, a further reduction from the prior period. And finally, our lost time injury rates continue to be maintained at low levels. Safety is one of our core values and an area where despite our positive results, the business really needs to continue to place great emphasis and strive to deliver further improvements as we continue on our journey towards 0 harm. Ultimately, I'm very proud of the group performance, and the business continues to work on targeting high risk work activities and identifying further opportunities to improve the safety of our operations. I'll now hand across to Linda to run through the key financial performance in greater detail.
Thanks, Lee, and good morning, everyone. As Lee has outlined earlier, FY 'twenty one first half results reflects reduction in NBN telecommunications volume and continuing COVID effects restricting near term performance. Revenue for the half was $409,900,000 which is 17.7 percent lower than the first half of FY 'twenty and driven by the lower telco segment revenue. EBITDA from operations was $40,200,000 30.8% lower than PCT, but consistent with our expectations of a much lower first half due to the reduced telecommunications revenue and compounded by additional operational impost from COVID. EBITDA from operations excludes $1,100,000 of non operational expenditure associated with the segment of M and A opportunities during the period.
Adjusted NPAT for NPAT A for the half was $20,100,000 a 37.8% reduction compared to last year. In addition to the non operating M and A costs we exclude from operating EBITDA, this metric excludes the amortization of historical acquired customer contracts to provide a view of underlying business performance. Statutory NPAT inclusive of the non operational M and A and amortization expenses was $16,200,000 Net cash at December was $10,500,000 compared to a net debt position of $4,000,000 last year. The group had a very strong cash flow result for the half with EBITDA cash conversion or OCSB percentage as we define it of 108%. On dividends, the Board has declared an interim dividend of 0.2 $5 per share fully franked, which maintains the group's payout ratio in the range of 50% to 60%.
The record date of the interim dividend will be the 26th March with payment on the 14th April. Slide 9 sets out the group's key financial measures, both operational and the statutory reported equivalents. I refer you to Appendix 2 of the results presentation for a reconciliation of the adjusted profitability measures back to their statutory or IFRS equivalents shown here. I've already spoken to many of the financial metrics outlined in this page, but we'll touch on the group EBITDA margin, which was 9.8% for the half compared to 11.7% in the last half year. Again, this is mainly driven by the reduction in telecommunications and also noting the margin achieved by that segment during FY 'twenty leveraged the scale benefits from much higher volume of work.
We have previously indicated there is a 1% to 2% margin variability across telco depending on work mix and volume. Now moving on to Slide 10, which is the segment results. Across the group, the utility segment share of group revenue and earnings has continued to increase as the business shift from the Comdang integration program to growth. Utilities now account for 49% of group revenue, up from 40% last year and 34% of group EBITDA, which is up from 25% last year. Utilities revenue for the half was $199,600,000 just slightly up on last year.
However, within that segment, Comdane revenue increased by 5.1%, but was offset by reduction in metering and technical services revenue of $7,100,000 or 13.7 percent, primarily due to COVID restrictions. Utilities EBITDA was $14,700,000 5.2% lower than PCP due to margin mix between Comdane and metering revenues and COVID related impulse. Telecommunications revenue for the half was $209,900,000 which was $88,000,000 below PCP due to two main factors. Firstly, OMA activation and insurance revenues decreased by $42,500,000 following peak NBN activations in FY 'twenty. Secondly, the prior comparative period includes $40,600,000 of revenues from the MD and D and C Construction program, which was completed in FY 'twenty and therefore not repeated this year.
Telecommunications EBITDA was $28,700,000 a reduction of 36.6 percent driven by the reduced revenues as noted. The P and L items below EBITDA are relatively straightforward. Overall D and A including depreciation of leased assets has reduced slightly with savings in depreciation expense on owned assets, offset by an increase in depreciation on leased assets. Tax expense for the half was $8,600,000 tracking at an effective tax rate of approximately 30%. The group is not expecting to derive any significant tax benefit from government incentive for CapEx incurred after December 'twenty.
Adding all that up, adjusted NPAT was $20,100,000 which is $12,200,000 or 37.8 percent below last year. Now on to cash flow and capital management, which is on Slide 11. As touched on earlier, the group derived a strong cash flow result for the half, emphasizing the quality of earnings. In conjunction with the group's balance sheet position and the recently completed refinancing, this places the group in an excellent position to fund future growth. Cash flow EBITDA to OCF beat conversion was 108%, which is well in excess of the 80% target we have generally guided to.
Working capital as a percentage of LTM sales remained highly efficient at 1.3%. We do expect this to normalize over the full year with the mobilization of new project works and changing work mix between segments. Net interest and financing payments increased by $800,000 this half, reflective of the refinancing undertaken during the period. CapEx spend was $4,600,000 and in line with expectations and primarily relates to the Comdata and IFS implementation and customer related IT solutions. Free cash flow was $15,600,000 an improvement of $7,900,000 from the corresponding half, and the group closed the half year in a net cash position of $10,500,000 The group's existing debt facility, which was due to expire in September 2021, was recently refinanced and replaced with a new 3 year syndicated debt facility, which was increased to $275,000,000 to provide headroom to fund future growth opportunities.
The new facility incorporates improved commercial terms, covenants and operational flexibility with the ability to increase debt further over time to fund further growth. The refinance was well supported and with an expanded banking group and the offer was well subscribed. And finally, the refinance has enabled a net reduction of drawn borrowings of $20,000,000 which can be seen in the cash flow. And that's all from me. So I'll now hand you back to Lee to take you back through the rest of the presentation, Taki.
Thank you, Linda. I'll now move into the divisional highlights and work through both reporting segments starting with Utilities on slide 13. So much of the focus for the Utility division over the first half of the year has been on building momentum across our BD pipeline and securing growth opportunities, whilst we also continue to drive improved systems and processes. A key component has been the migration of Comban across to the group's system, which has gone well and is expected to go live in a matter of days. That will provide enhanced levels of control and visibility across operations, ensuring that as the business grows, it does so with a solid foundation.
Linda has touched on the headline numbers already, and we see revenue largely flat on PCP with EBITDA of $14,700,000 To pick this apart, the metering operations were down, largely associated with COVID impacts that I previously mentioned, particularly associated with Stage 4 restrictions and the moratorium on reconnectiondisconnection works. The decline in metering services revenue was however offset by increased revenue growth of 5% across combined operations. As the group was successful in securing a number of opportunities in the preceding period, which is starting to deliver benefit. The business has recently been successful in securing a number of work programs and maintenance contracts. One reference here with SEQ Water in Queensland for the provision of a 27 kilometer water pipeline, bulk water storage and pump station infrastructure, supporting the business' ability to grow our Queensland presence, which has only commenced over recent years.
In summary, a pleasing result for the Utility division, considering the impacts of COVID and the restrictions across our operations, with Comdata on track to deliver 15% growth ahead of the full year. Slide 14, Telecommunications. As for the headline numbers, the division generated $209,000,000 of revenue and $28,700,000 of EBITDA during the half, down on the prior corresponding period, which included those one time NBN construction programs that management have previously talked about not reoccurring and a higher proportion of activation volumes being completed. Revenue from the activation and assurance or maintenance operations in the period was actually higher than we expected, with a favorable work mix and additional ad hoc programs of work offsetting the reduction in the overall volume. Wireless revenue of $33,000,000 was down on PCP.
This continues to be an area which is difficult for the business to predict work volumes and we continue to see a slower ramp up of 5 gs expenditure. The last half has been a busy and productive period for the telecommunications division as many agreements came up to their natural expiry date. Pleasing that the business was able to achieve favorable outcomes and resecured all agreements. Of these, important to note is our agreements with NBN and the Unified Services and Networks, previously referred to as OMA and NIMRA. And they cover the provision of activation maintenance, both planned and reactive works across the NBM network and each being secured for up to an 8 year term.
The business announced in January that we're successful in securing a new agreement with Telstra for the scope of works, including fixed line and wireless infrastructure upgrades and deployments. Each of these agreements provide the business with the opportunity to expand our market share and grow work volumes on the back of positive performance, something which the business has done historically very well. So as we look ahead, the business is working to secure work under MBN's future upgrade program, which was announced last year. We're currently taking part in initial trials and responding to MBN's formal RFT process, which will determine the volume of works to be awarded as one major opportunity for growth. We've also referenced additional opportunities in terms of broader mobile infrastructure customer base that we believe will be an opportunity for the business over the coming 12 months.
Moving now into the Group strategy and outlook and direct you to Slide 16 and provide an update on some of the key focus areas. If you look at our current state, telecommunications works, which have been a large portion of the Group's historical growth have declined from their historical construction led peak in FY 2020. As a result, group will need to continue to work to replace these revenues across a more diversified base to support future growth. Our strategy over recent years has been focused primarily on diversifying group earnings away from what was a strong bias to telecommunications. That's certainly not to say that there's not immediate opportunities to secure additional growth programs across the telecommunications sector.
It's quite the opposite and we've referenced 2 immediate opportunities over the next half associated with NBN's upgrade and other wireless infrastructure works, which are pleasing and positive. The nature of these works is the infrastructure is heavily impacted by advances in technology and will require regular upgrades to support into the future. Business is well positioned with the agreements that have now been resecured in this most recent period to capitalize on these opportunities as they present. A key component to the group's diversification strategy was the acquisition of Comdane 2 years ago, which provided the business with solid earnings and expanded capabilities. Business has access to a wider addressable market of infrastructure projects and the operations, as Dave earlier, are on track to deliver revenue growth of 15% over FY 2021 full year.
More broadly, the group's operating model is strong and fundamentals are robust. This will provide a platform which will support the next change in growth as we look to further diversify our revenue and serve as a catalyst to support the step change in future growth. As we look ahead, the group is focused on maintaining that strong focus on enhancing our core fundamentals. Continuing to execute works well and meeting or exceeding our clients' expectations, whilst working to secure organic growth opportunities across what is an expanding pipeline and a recently secured contract base, all while ensuring that we maintain a flexible and scalable model and a proportionate group cost base to protect margins as work volumes flex. And as I stated earlier, diversification is certainly a key focus.
The business will continue though to take a disciplined approach to assessing M and A opportunities, which will support that next step change in growth. And finally, we move to the group outlook on Slide 17. The group expects continued demand for services across core markets. However, the outlook for FY 2021 has been progressively impacted by the COVID landscape and client delays to work programs. This unfortunately occurred at a time when revenues across our telco construction related operations had concluded and activations were declining from historical peaks and the business entered a cycle that needed to re secure future agreements for their next contract cycle.
Taking these factors into account, the group now expects the current trading conditions, including the COVID impacts, to continue throughout half 2, with results approximately in line with half 1. Business fundamentals, as I said, are strong with regards to profitability, the strength of our balance sheet, quality of earnings and our favorable industrial client base and the markets which we face into and operate across. Our priorities for the second half are outlined on the page here on the right hand side, and they include the mobilization and transition of those recently secured agreements Securing additional organic opportunities, most notably associated with MBN's upgrade program, but more broadly across our entire client base with many opportunities across the utilities and a growing pipeline, whilst we continue to assess those external growth opportunities to support that step change in future growth. That concludes the presentation of the results, and I'll now hand back to the moderator and we'll be happy to take questions from those joining us today.
Thank you. And answer session. But your first question today comes from Pierce Flanagan from CLSA. Please ask your question,
Pierce. Good morning, Lee
and Linda. Thanks for your time. Just a couple for me, if I can. Firstly, just on the guidance, maybe a bit more color on the second half. So obviously, telco revenues rolling off and you've called out a growth rate for Comdane.
I mean, do you have full sort of visibility on that revenue for the balance of the year? Or is there any sort of ongoing sort of
COVID risks? Yes. Thanks, Piers. I mean, as you know, the nature of our operations, we don't have guaranteed volumes across our work program. So we work closely with clients to try and understand their future forecasts around all of our programs.
And we've taken that into account when we've reflected that statement and expectation around sort of a flattish second half year or in line with the first. In terms of COVID, we've had to unfortunately look at the current environment and expect that to continue. We do expect to see continued restrictions around movement across borders, and that will impact our ability to sort of mobilize and support some of those other opportunities. So we've certainly taken many of those factors into account.
Sure. And then just on telco margins and sort of COVID implications aside, I mean, how should we think about sort of the telco segment margins going forward as you roll on to these new NBN contracts?
We're pretty comfortable with the margins there. As I've always stated, Piyush, at every reporting period, we always do have that sort of 1% to 2% flex just driven by work volume and the work mix. So that's always something that we do caveat. But in terms of the rates and detail agreed, we're very comfortable. They're pretty much in line with where we've historically performed.
And we're now mobilizing for the Telstra piece. That's obviously a major focus for us moving forward. But again, pretty comfortable where that is expected to land.
Sure. And then just looking ahead and again in the telco division, I mean sort of aside from existing growth or growth opportunities sort of from existing contracts, can you maybe give us some color on sort of what other opportunities with new customers are out there or potentially some near term tenders that are out there at the moment?
Absolutely. Well, we've obviously talked to one many times before, which is NBN's upgrade program. We're currently partaking in trials there and working through that RFP process over the next few months, which will determine award scenarios and work volumes. That's one major opportunity there. There will, of course, be in the telecommunications sector other opportunities around mobile infrastructure.
We're seeing historically low spends from our clients in that space in terms of the work that we've received. I think there's opportunity there for us to grow that into the future. And there's a couple of additional opportunities where we don't provide mobile or wireless infrastructure services for clients, and they're indicating their interest to go out to the market and look at securing service providers for the period ahead. So there are a couple of major opportunities there. You also continue to have organic driven opportunities across our contract base.
And we've referenced some of those here, which assisted the Telco division in the most recent half. Ad hoc work programs, etcetera, naturally given the contract base, I think the business is positioned well to secure some of those as we move ahead. But very conscious that we need to continue to focus on that as those revenues, particularly around activations, will continue to decline over the next period.
Your next question comes from Marni Liefeid from Macquarie. Please ask your question, Marni.
Good morning, Lee. Good morning, Linda. My peers have beat me to it and asked about the bridge with the revenue growth given you flagged the growth of 15% in Com Dane. Just another question I have. Is this more around I understand what your exposures are.
You're not exposed to guaranteed volumes, but is there any opportunity in the utility space to obtain work that does have some guarantee on volumes? My understanding is that telco traditionally like you have no guarantee on volumes, but there may be the potential for guaranteeing volumes in utilities?
Yes. No problems at all, Marty. Certainly, in relation to utility work, if you look at the nature of those operations, when it's design and construction work, that's obviously probably one of the better opportunities to sort of have a firm view on the expected value of revenue associated with individual opportunities. You then obviously got questions around the ability to deliver over what period of time, but that's one area. Some of our operations and operations across the state are moving to different models.
So total operating costs or outturn costs, and we've seen that in the water space in particularly. So some of those opportunities as we move forward, I think, will provide an ability for the group to sort of understand what will be a stable base as we move forward.
And how soon can we work those opportunities? Because you've given commentary on the diversification into utilities being quite robust. Is COVID impacting your ability to pursue business development
in utilities?
No, the business development pipeline has been really strong, Marty. We're actually tendering on a large number of works, and we have been obviously over the last 12 months as we've reflected. And we see that now in what Comban is delivering in terms of growth. So the pipeline is strong. COVID has impacted, as I said, some of the BAU operations, but also impacted our ability to mobilize some of those operations across state borders.
We talked previously about an example such as Western Australia where we've secured some work there. And that's been a real challenge for us to mobilize resources from Victoria, New South Wales, Queensland into assist with various aspects of that. So that's been a challenging period as well as movements up into Queensland. So the COVID restrictions certainly impacted our BAU Metering Operations and Inspection Services and did inhibit, I think,
some way of the business realizing potential growth around
design and construction operations in WA and potentially a little bit in Queensland. That's been the main areas that COVID's impacted the group.
That's understood. And I can tell from MDM disclosure that it was discovered at the trial late last calendar year for the new for the $4,500,000,000 spend and another trial recently. But do you have any visibility just in wireless in terms of that 5 gs spend potentially gaining momentum and because that there's I'm sure that there is a focus in the industry on 5 gs, but could that ever recover or would the ramp up or the spending improve?
I think there's certainly absolutely there's a bias for upside there. We've seen historically low levels of work across our mobile space from what we have received to complete. I think the re signing of our Telstra agreement now provides that stable base for us to engage with Telstra around their future volumes of work. We've got defined areas where we'll be mobilizing into. That unfortunately has been a delay from where we had intended that to mobilize and we're now looking at that transition occurring around July in terms of the new contract model.
So that will provide an opportunity then to work on how we forecast forward and what visibility the group receives. Certainly, opportunities around the broader client base with Vodafone, Optus and others where we're seeing low volumes of work. We understand they're trialing and moving to their new technology platforms. And they work close with the equipment vendors during that initial period. So certainly that will be a major focus for us to just ensure that we are closely engaging with those wireless providers to seek opportunities to grow.
Your next question comes from Stephen from Bell Potter. Please ask your question, Stephen.
Good morning. Just a quick one. Firstly, the dividend was obviously cut and you've got the big new debt facility. So there's a clear indication of a larger M and A focus. If you're just able to talk to your thinking or strategy behind a potential acquisition, are you thinking something big like another Comdane or maybe 2 or 3 smaller acquisitions just to get your foothold in a new service or market, which you can then build internally?
Just your thinking there. Absolutely.
No, absolutely, David. It's a great question. As many would know, I've talked previously about that focus on diversification and the business is very conscious of taking a measured approach to looking at potential opportunities. In terms of size, we've cast a net wide. We've got a number of opportunities both to bolt on or expand the group's capabilities through smaller acquisitions, particularly in the utility space.
But they have presented they have been presented with a number of opportunities of larger size. And I think that that's certainly been a major focus for us over this recent period to look at what would be the catalyst for a step change in growth. Obviously, the large organization, we expect that we'll have open to or access to a larger addressable market, increased service offerings. So that's certainly been a focus over the recent period. And looking at whether or not we go for something a little larger.
If you were to do something larger, is there a particular area or 2 that you would be more interested in than others?
Absolutely. I think we're still very much focused on the utility market. If we look at our current opportunities there, telco is a great market for us but has really 5 customers across the business. And they're large customers, but customers, but therefore you've got a small customer base. Utilities due to the nature of the sort of geographic sort of patches or areas they're responsible for provides significant opportunity.
There's probably 60 to 70 odd utility customers in terms of electricity, gas and water. So we've certainly seen that as a favorable market for us to further expand into. The expenditure in that area is much, much greater than utilities just given the size and the nature of their operations in terms of or their assets rather in terms of the cycle of needing to replace and upgrade them is favorable. So looking at other opportunities to expand our water and gas operations also electricity is something that we're probably underweighting in terms of our current capabilities. We've got a number of metering operations in electricity, but that probably is a very small section of what is a large market spend of I think about $2,500,000,000 a year in distribution maintenance costs.
So looking at those areas, particularly in the utility sector and assessing opportunities.
Okay. That's fantastic. The NBN investment program, you've noted you've got some tenders and a few things out at the market at the moment. Are you able to provide any idea on the potential size of work that you're targeting that you might hope to achieve under that program?
Yes. It's certainly challenging for us to comment on the size of that. That will be dependent on the number of providers that MDN choose to engage with. The pace of that program over the next few years, I think it's sort of scheduled to be an FY 'twenty two, 'twenty three program. We are working for that tender cycle.
We expect to know an outcome of that commercial process and market process they're running through at around April or May this year. So hopefully before the next cycle, we'll be able to provide firm visibility on what we believe we've secured at least in that initial phase of the program. The trial now is going well, but we've got to continue to work through that commercial process to be able to then provide that clear visibility in the future.
Sure. And just the last one, the wireless. So by the sound of it, no real expectation for any pickup this half, but FY 2022 with the new Telstra agreement might be a little bit more positive.
Yes. Certainly, Hope. I mean, we've talked previously about what has been a larger historical spend in mobile. And that's somewhat reflective of the change in infrastructure as they move through 3 gs, 4 gs, etcetera. There's certainly a lot of hype around 5 gs and as many would know I'm always quite cautious to talk into the potential growth there.
But I do think the Telstra agreement that's been a long process for us to work through that refined and revised model that's been proposed by Telstra. We've now got that in place. It's secured for up to a 5 year term and we've got clear areas where we will be working in the future. And that will provide I think opportunity for the business to try and grow into those areas and secure additional market share.
Sure. And just again, I know you mentioned it earlier, but we definitely don't think there's any additional margin pressure on the telco side given these new contracts and the drop off in activation volumes?
Well, there's certainly always pressure on margins. It's one of the comments I said earlier in our priorities is maintaining that proportionate group cost base to ensure that as work volumes flex, the business flexes with that. We try and drive a flexible resourcing model, so that we don't see significant impacts. But as Linda and I have outlined, the major impacts we've seen this period is just around that scale benefit that's been missing as work volumes come off. You move to the future in your question.
I think there's always pressure there, but I'm pretty comfortable where the businesses landed in terms of our contracts that have been resecured into the future. You can't comment or have visibility on an absolute work volume, but the margins associated with the delivery of those works, I think, are positive for us.
Okay, great. That's all for me. Cheers.
Thanks, Tim. Your next question comes from Ian Munro from Ordman Net. Please ask your question, Ian.
Hi, Lee. Hi, Linda. Apologies, I've just been juggling other calls. This may have been asked already. Just on the Utilities segment and the contract wins that have come through, how much of this is incremental in the second half?
And how should we think about the growth rate into FY 2022 within Utilities? And then perhaps just how should we be thinking about margins in Utilities, whether that's maintainable versus the first half now that there's less productivity constraints? And perhaps just a third follow-up on the maintenance piece in the telco segment. Perhaps how is that tracking versus PCP? And should is it reasonable that we think about that growing into the second half?
Thank you.
No problems at all, Ian. I'll try and go through that. If I miss anything, Linda will update me. But your first point around utilities, that growth, as we said, what we've seen in is the metering services area that has been sort of the core of our utilities focus prior to the acquisition of Condane. That suffered some impacts around the Condane that suffered some impacts around the moratoriums on disconnection, reconnection and meter exchange works, but was offset by growth in Condane.
Condane has grown revenue by about 5% in this period. And that's incremental growth that's reflecting securing more design and construction and operations and maintenance agreements. So we referenced a couple of those major ones there in the presentation, most notably, SAQ Water, a D and C contract for a new pipeline and pumping infrastructure. But there have been number of other contracts that have been secured over that period. And you often see that they'll be secured in a period of time and it will take sort of 3, 6, 12 months for us to deliver that work depending on the nature of the operations.
So that's really what's happened in the utility sector. In terms of margins, we've always guided that our margins historically have been a little higher in our metering services space. They came down as we consolidated and integrated Comban into the business, which was a lower margin business. We're pretty comfortable with those margins there. They're always under pressure as all of those are across the business.
But generally, we see that as pretty consistent in terms of where we've delivered to this half. There's always swing factors. And hopefully, with the COVID moratorium sort of coming off and it's recommencing some of those metering services, which have historically been higher margins, that will provide some opportunity. But we're not calling out this stage. We expect them to grow over the next period.
And then just in terms of the 3rd piece around the maintenance component of the telco segment, please?
Certainly, sorry. So maintenance in terms of telco, obviously, 2 of our major agreements there are those with MDM, Unified Services and Networks. So pleasingly now we've gone through that period of having to re sign those. What we expect to see is a core base around both reactive and planned maintenance across those. Obviously, activations, which is under the Unified Services agreement, has been a major part of our growth over the prior years.
And that will continue to sort of decline as we continue to activate customers and they complete their process over to the migration of NBN. So we're conscious of that starting to come off, but there is a strong maintenance base there and that will grow over time as more customers are connected across to the network. What we haven't seen in the second half, I should mention is those proactive maintenance upgrades. That's something that if we look back over the last 2 years and we've talked about this at the AGM and over our briefings, we'd always had the second half bias around proactive upgrades of infrastructure. That was initially delayed during the COVID pandemic and we've not seen that come back on.
And normally it's around this February time period where we start to see those volumes kick in. And you would have seen that through those appendices that we have in the pack where you see MBN minor projects and other works sort of having that second half bias. And that's one of the factors in the outlook for the rest of the year.
So just on that shorter term outlook, if we looked at the second half and split it between things that are subject to contract timing and things that are subject to contract winsBlueSky, like how are we sort of thinking about the buckets in order to get to that second half guidance?
There's little Blue Sky. We don't often forecast for Blue Sky. We have to look at current programs and engage with clients. So certainly, we've had to take, I suppose, a reasonable view of where we are in February and the ability of the business to secure extra work. I think the second half really reflects the work in hand.
We still got to ensure that we deliver well and volumes are delivered in line with our expectations and that's always an area where we continue to see challenges in terms of gaining that visibility. But I think at this stage we're very comfortable with the guidance we provided in the second half reflecting the first.
Thanks, Lee. Appreciate it. Thank
you.
Okay. We appear to have no further questions on the queue. So I'll hand back to you for now, Lee.
Thank you very much. Appreciate everyone joining us today and no doubt we'll speak soon. Thank you.
Ladies and gentlemen, that does conclude today's conference call. Once again, thank you all for participating today. But you may now all disconnect.