Ann: Half Year Results Commentary , page-10

eternalgrowth,

Given cash flow is everything for this company, I can appreciate your concerns about the working capital lemon being now squeezed dry with little wiggle room for further improvement.

However, you might have missed the $5m reduction in short-term provisions on the balance sheet.

This would in large part reflect the redundancy and restructuring charges that were booked to the P&L during FY12, but which only had the cash-related outflows occur in DH12.

So one could reasonably conclude, if one was so inclined (and I am), that OCF for DH12 is understated by some $5m.

As for contractor costs as a percentage of revenue, I wouldn't stress too much about this, as it is well within the historical range of natural ebbs and flows:

Materials/Contractor Costs as a % of Revenue:
DH06: 30.2
JH07: 34.3
DH07: 37.1
JH08: 41.1
DH08: 37.2
JH09: 40.2
DH09: 37.4
JH10: 39.0
DH10: 36.2
JH11: 33.6
DH11: 34.5
JH12: 36.1
DH12: 37.3

Just as this operating cost metric has risen in recent financial reporting periods, its "counter-balance", Direct Employee Expenses as a % of Revenue, has fallen commensurately:
DH06: 49.8
JH07: 55.6
DH07: 43.7
JH08: 43.0
DH08: 43.1
JH09: 45.1
DH09: 42.9
JH10: 45.7
DH10: 46.9
JH11: 51.5
DH11: 48.4
JH12: 48.0
DH12: 47.4

As you can see, these two cost metrics are almost perfectly out of phase (when the one is high, the other is low, and vice versa).

I think this is part of the normal corprorate pendulum of bringing resources in-house when they are scarce (during the boom period) and out-sourcing them when they are in abundance (the current situation).


At least, that's my interpretation of the well-established pattern.

Cam