investment thesis, page-4

Rosy, your reference to improved Receivables management is a bit at odds with my understanding. In fact, one of my agenda items to raise with the new CFO is why there has NOT been sufficient Receivables liberation since the change in management.

While Receivables have indeed fallen in NOMINAL terms over the past few years (from high $200m's in 2007 and 2008 to low $200m's today), as a function of Revenues - which is the more appropriate way to judge Receivables management, I feel - the ratio been consistently high, at 25% of Revenue for the past 2 years, which is in line with historical norms for the company (although admittedly, it did hit 30% both leading into, as well as coming out of, the GFC...although these looked like abberations to me).

Admittedly, on the the Payables side is difficult to engender major working caital improvements, given that over 90% of the company's total cost base is comprised of payments to employees and subcontractors. However, the fact is that Payables as a % of Employee and Contractor Costs are currently 11%, which is lower than the long-term average of 14% and much lower than the high teens achieved in the mid-2000s. Clearly, SKE has had to - or for strategic reasons has elected to - shorten the payment cycle to it's contractor base. (I suspect its the latter, which has been necessitated in a tight labour market in the resources sector).

I reckon SKE is still playing too much a banker role to its clients than it should (and not inducing its contractors hard enough to be a banker to SKE, but that might just be a cost of doing business at this stage of the cycle).