Ann: Half Year Financial Report , page-6

Camden

Thanks for your in depth response.

I agree with your thoughts and comments and also share your concern with the operating cashflow, even after adjusting for the Jan collections.

Interesting analysis on the Employee Expense to Revenue ratio and its seasonality between 1HY and 2HY. But I think it has more to do with accounting than underlying operational seasonality.

Unfortunately there is not a breakout between the head office employee costs compared to the labour hire employee costs but I suggest the difference is driven more by:

* a conservative position taken on their Workers Comp in SA, NSW (self insured states) and WA (47% ish of their business) (i would wager they operate a burning cost WC policy that acts like self insurance just with floors and ceilings) at half year compared to the year end based on an actuarial report; and

* the wage increase in July each year (so 2HY) on outstanding Annual Leave and LSL balances, which don't flow to all of their casual staff but there would be a fair portion of staff covered by awards enjoying this even under casual employment;


The only seasonal example I can think of is lower gross margins (so higher EE%) in 2HY due to the Xmas build up in unskilled pick and pack roles which are low margin revenues.

So what does that all mean.

Well I guess like your analysis suggest we should see a better 2HY because of their gross margin as long as they can:
* keep the revenue up;
* maintain margins (meaning no discounting and no injuries to employees, hence their focus on safety and their decreasing LTIFR); and
* maintain the discipline on costs.

One to watch for sure.