That $6bn TenderBook..., page-70

Hi @Pioupiou, @sabine,

Some kind of obvious stuff, but just ruminating on what impacts the margins we are likely to see in FY18 and more importantly FY19, given the cycle:

Mike Henry in the APR: "... I would note is that there has been a real focus on ensuring that we've designed a lean project here. So it's not a project that we've gone into with any intent of gold plating."

To me that comment reaffirms my suspicion that the much-mentioned current 'discipline' is primarily about deferring unnecessary capex: e.g. build only the roads/processing needed for the mines/capacity we need for the next say 2 years. In contrast a few years back they might have 'gold plated' the roads to allow for the next 10 years' needs.

This is important because one might think 'discipline' means squeezing the contractors but in reality the thing that sets the margins for mining services is the level of work available/competition. In turn, their higher input costs are driven by supply and demand for labour etc. From NRW's point of view higher input costs are not a bad thing (leads to higher revenue/profit for a given margin) as long as when they go to quote they are not competing against highly motivated or irrational competitors.

I'll be very interested in subtle commentary from all the services companies in August about the competitive environment to confirm or question this idea!

The flip side of the discipline is that by not gold-plating the projects they are (to some extent) just deferring work, not avoiding it. This means we should see ongoing work after these projects in the coming years which is a better environment for us shareholders in mining services companies.

cheers,
pb


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