profit on $285 mill off work, page-7

I knew I'd get caught out! Thanks, mate, I understand your point. I should disclose I'm a tax lawyer who spends a large part of my life talking to accountants!

Appreciate the comments made re fixed costs. I have a few clients in the construction industry and the big issue for them is they price a job unfront (usually in a competitive environment) that's going to take one or two years to complete, in which time labour and material costs can fluctuate wildly - if their contracts dont give them a "ratchet-up" mechanism or "wriggle room" (which my colleagues the construction lawyers are paid to achieve), they get screwed!

Not sold on the link between the NZ explosion and labour costs for WDS as such - but I've said in other posts, the labour squeeze in the minerals sector is an certainty (Ken Henry thinks so) and with that will come wage pressures, which will impact already skinny margins.

That said, WDS and their ilk are gearing up to capitalise in an industry which doesn't exist yet (and for that reason, will require huge investment levels) and they will inevitably need to carry some fixed overhead to be in the running when competing for work. Its short term pain for long term gain.

In my game, we couldn't hypothetically compete for five $200K engagements and then go out and try to recruit nine lawyers to do the work if it comes in, taking the risk that (a) the right people won't be available; (b) if they are, they cost $50K each in recruitment costs, training and lost time while they fluff around figure out what they are doing.

We also need to carry highly paid, underutilised staff while we are chasing work; indeed, clients wouldn't seriously consider us unless we have the resources already in place and we can sell their capabilities (and often the reasons we would get the work is that we have the people there ready, willing and able. On the plus side, if you can get the leverage right (ie pushing the right work to the right cost level), you can earn super profits.

Perhaps the moral is don't invest in construction, mining or professional services firms that fix their price (which they generally take not make) before they fix their costs and are forced to run oppresively high overheads - I'd suggest Woolworths wouldn't have this problem!