Service Stream (ASX:SSM) management said the company delivered a strong first-half performance for FY 2026, highlighting margin expansion, robust cash conversion, and record contract wins as it continues to execute its strategy focused on growth, diversification, and improving the quality of earnings.
First-half highlights: margin lift, strong cash flow, higher dividend
Managing Director Leigh Mackender said the group achieved a “significant step change” in profitability, pointing to improved performance across utilities and transport operations and a lift in group margins. Group revenue for the half was AUD 1.194 billion, which the company said was slightly higher than the immediately prior period but lower than the prior corresponding period (PCP) due to the completion of a major telco upgrade and a one-off mobile program in the prior year.
On capital returns, the board declared a fully franked interim dividend of AUD 0.03 per share, a 20% increase on PCP, citing the group’s balance sheet strength and outlook.
Segment performance: utilities margin step-up, telco transition, transport improvement
Chief Financial Officer Linda Kow said the first-half result showed “positive momentum” with improved earnings quality while continuing to reinvest in the business. Total revenue decreased 5.8% year over year to about AUD 1.2 billion, which she attributed to an “abnormal first-half skew” last year. The company expects FY 2026 to revert to a more traditional second-half skew.
On profitability, the group’s EBITDA margin improved 50 basis points to 6.3%, with management citing operating leverage and productivity initiatives. Adjusted NPAT was AUD 36.6 million, which Kow said represented 4.6% underlying growth when excluding a one-off legacy tax refund benefit in the prior year. Statutory NPAT was AUD 26.8 million, with the company noting that SaaS cloud-based system transformation costs were written off as operating expense under accounting guidelines.
- Utilities: Revenue was AUD 531 million, and EBITDA increased 31% (AUD 6.9 million) to AUD 29.3 million. EBITDA margin improved 130 basis points to 5.5%, which management said was ahead of targets and marked the seventh consecutive half-year of margin improvement. Kow said further improvements are targeted but are expected to be more gradual. Mackender emphasized the division’s ongoing efforts to renegotiate or exit lower-margin contracts, optimize operations, and secure more profitable long-term maintenance work. The company also highlighted the mobilization of a 10-year electrical and mechanical maintenance contract with Urban Utilities (field operations commencing in July).
- Telecommunications: Revenue was AUD 538 million, down AUD 88 million from PCP, reflecting the completion of prior-year programs and a slower ramp-up of the next tranche of an NBN fiber upgrade program. EBITDA was AUD 45.6 million, with an 8.5% margin, which management said was in line with expectations as it transitions to a new long-term NBN field services agreement from July. During Q&A, Mackender said the softness was primarily volume-driven rather than pricing, and that the Optus HFC decommissioning agreement had not contributed in the first half and was being mobilized for delivery in the second half.
- Transport: Revenue rose 12.4% to AUD 124 million, driven by additional funding for pavement repairs in the ConnectSydney JV and benefits from the VicRoads maintenance contract mobilized last July. EBITDA increased 53% to AUD 9.2 million, with a 7.4% margin (up 190 basis points), which management attributed to improved VicRoads performance and phasing of ITS program work.
Record work wins and growing work-in-hand
Mackender said the first half was among the most successful in the company’s history for contract awards, with a record AUD 2.2 billion of contracted works secured. He cited a 93% retention rate on agreements reaching renewal milestones, while stressing the company’s increasing selectivity on renewals to avoid diluting margins.
Service Stream’s work in hand increased 55% to AUD 9.2 billion, which management said reflected initial contract terms only. The company also disclosed AUD 6.2 billion of extension options, taking “total work in hand potential” to AUD 15.5 billion. Mackender said the order book is “higher quality than it’s ever been before,” noting that 80% of work in hand is annuity-style operations and maintenance activity.
Defence contract mobilization and outlook for FY 2026
A key strategic development discussed on the call was the company’s expansion into defence. Management referenced a multi-year contract awarded by the Department of Defence in September 2025 supporting base infrastructure across the Northern Territory and South Australia. Mackender said the contract went live on 1 February following mobilization activities that began in September, including the deployment of more than 600 resources and about AUD 25 million in plant and equipment. The company said mobilization costs have been deferred to the second half and are “largely recoverable,” with any residual impact not expected to be material.
Service Stream expects defence operations to ramp between February and July, reaching a steady run rate that management said should support approximately AUD 240 million of revenue in FY 2027. For FY 2026, management reiterated that it expects some revenue contribution but no earnings contribution due to ramp-up and mobilization.
Looking ahead, management reiterated confidence in earnings growth in FY 2026, supported by first-half performance, sustained utility margin improvements, and larger contributions from recently mobilized contracts across telecommunications and utilities, alongside continued operational optimization. Kow added that strong cash conversion in the first half included typical December timing benefits expected to unwind in the second half, while the company continues investing in fleet, equipment, and systems to support new contracts and transformation programs.
About Service Stream (ASX:SSM)
Service Stream Limited designs, constructs, operates and maintains infrastructure networks in Australia. It operates through Telecommunications, Utilities, and Transport segments. The Telecommunications segment provides various operations, maintenance, installation, design, and construction services to owners of fixed-line and wireless telecommunication networks, including customer connections; service and network assurance; site acquisition; and design, construction, engineering, and installation of broadband, wireless, and fixed-line project services, as well as projects for asset remediation, augmentation, and relocation.
