Inflation is the talk of the town and Media are hyping this up and making people panic.
The following are Craig Scroggie's comments from this year's 24 Feb 2022 Earnings Call transcript on how Inflation will not impact on NextDC's due to in built measures to pass on and CPI and power costs increases to customers. Share price has held up very well and this will help explain is why. NextDC revenues are known out to 2023 and anything else between now and then such as S3 and M3 contracts when they both open in 2-3 weeks will only add significant revenue. Anyway, back to Craig's comments below:
"As it relates to the first priority, which is managing our cost base and the delivery of the programs on time and on budget. There is no change to our current cost forecast for M2, M3, S3, Sunshine Coast 1. Those programs have worked. The key mechanical electrical infrastructure and the fixed price building contracts are locked in. We don't see any immediate inflationary impact to the current program.The long lead time supply items, the significant investments that we have made with key supplier relationships, those orders go 12, 18 or 24 months in advance, Obviously, the depth of the relationships with those key suppliers means that we have locked in pricing for those key supply chain items.So there are, again, no cost impacts in that regard. I was on site in Sydney with the builder at Multiplex last week. On site with our builder also last week in Melbourne Capital Group meeting with the managing directors of both organizations talking about what the future impact of inflation may mean for [ enterprise marketing agreements ] and how they'll manage salaries and other deliverables. But at this point in time, there's no direct impact to the company.
If I turn across to the other side of the balance sheet to talk about the impact to customers. The first component is the majority of our contracts have CPI or greater. So any movement in inflation will be something that is passed on to customers as they will naturally pass on inflationary movement to their customers.We do expect that, obviously, for key clients, a large portion of our power, electricity costs, are power pass-through. So in that regard, again, it's something that largely will wash through our numbers. An increase in inflation will drive an increase in revenue, that will drive an increase in revenue per megawatt, because that cost inflation will come through at the top line. But as it relates to gross margin and other matters, that will obviously have little to no impact at all on our financial position.There's a lot of key issues, certainly, a number of things top of mind in relation to inflation and supply chain. But the company is very, very well insulated from inflationary movements given its contracting position. And the contracting position not only with customers but the relationship and the agreements that we have in place with suppliers."
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- Inflation - No impact to NextDC's bottom line!
Inflation - No impact to NextDC's bottom line!
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