Australian markets have staged something of a comeback after yesterday’s huge falls. By 12.50pm the S&P ASX 200 was at 6048.6 points, up 1.8% on yesterday’s close.
Yesterday’s 3.3% drop in the S&P ASX 200, to a close of 5941.1, was the biggest one-day fall since the panic selling induced by the September 11, 2001, terrorist attacks.
The Australian dollar has followed the stockmarket back up to US86.35¢ at 12.50pm, after closing at US84.80¢ yesterday.
Revelations of the indirect exposure of two-high yield funds controlled by Macquarie Bank to the US sub-prime market were one factor in yesterday’s selling, although selling in US markets on Tuesday night had primed Australian markets for a fall.
The underlying issue in the US remains concern that growing mortgage default rates are going to impact on large investment funds exposed to the sub-prime mortgage market there. This has created instability in financial markets in both the US and across the world, with a key measure of market volatility in the US, the Chicago Board Options Exchange’s Volatility Index, reaching four year highs over the last week.
– Mike Preston
Australia’s most internationally successful franchise, Cartridge World, has been sold for more than $60 million to senior management and Wolseley Private Equity. Adelaide entrepreneur Byran Stokes and partner Paul Wheeler will each keep a 10% stake in the business.
The business is believed to have sold at a multiple of about seven or eight times earnings of just $8 million. Any multiple of over three of four for a franchise chain is an exceptional result, meaning that the pair will be laughing all the way to the bank.
Stokes and Wheeler opened the first franchised store in Adelaide in 1997. They say their expertise was in choosing a business that was easy to operate and simple to understand: recycling and refilling computer ink cartridges is not rocket science. They also chose a business with minimal paperwork and had a huge market with a business that could be exported globally: printer cartridges are standardised around the world
They also made sure they were seen as a high-quality provider not a low-cost alternative.
The strategy worked: Cartridge World has grown to more than 1500 company owned and franchised stores in 46 countries, with retail sales of $400 million and franchise sales of $8 million.
Michael Fuller, managing director for Asia Pacific, Middle East and South Africa, says he plans to double the business within three years by selling master franchises in Asia, Europe and South America while opening more franchises in existing markets. “This is a really exciting time for us,” he says.
– Amanda Gome
SME owners remain significantly more confident about the business conditions than their big business counterparts, according to the NAB SME survey for the June 2007 quarter.
Current profit levels for SMEs are at high levels, with 40% of SMEs surveyed reporting good or very good profits compared to just 19% reporting poor or very poor profits.
SMEs in the finance and insurance, health, property and business services sectors are the most positive about current business conditions, while manufacturing, construction and retail sector SMEs were the least positive.
The biggest constraints on future profitability reported by SMEs are lack of demand and labour market pressures. “SMEs place a greater degree of importance on labour and other factors, and less on demand, as the main constraint on the profit outlook compared to larger business,” NAB executive general manager of business and private, George Frazis, says.
– Mike Preston
Independent petrol retailers are struggling to compete against the majors, which can often sell fuel to consumers for less that the wholesale price independents pay, an Australian Competition and Consumer Commission inquiry into petrol pricing has been told.
The Service Station Association has told the inquiry that 80% of its members surveyed in May said that the current wholesale purchase price for their fuel was higher than the retail price for unleaded petrol of their nearest Shell/Coles or Caltex/Woolworths site.
In one instance, big retail competitors to a Nowra independent retailer were selling petrol at 119.9¢ a litre for a period of six weeks when the wholesale price of petrol for independents was about 130¢, according to the submission.
The SSA says the purchasing power of Coles and Woolworths, who now control almost 50% of the retail petrol market, enables them to negotiate cheaper wholesale petrol than independents.
The use of shopper-dockets also gives the major retailers a market advantage that is open to abuse, the submission argues.
The SSA says that the major retailers clearly have the capacity to engage in predatory pricing and, while there is no evidence that they have done so, the current impact of their cut-throat pricing strategies have had an equivalent effect on independent retailers.
The ACCC inquiry will soon begin public hearings in the major capital cities, and is due to hand down its report on October 15.
– Mike Preston
Proposed laws designed to strengthen protection from predatory pricing for SMEs, proposed by Family First Senator Steve Fielding, look set to fail after they were rejected by a Government-dominated Senate committee yesterday.
Debate has raged about the value of the Fielding bill, which was strongly supported by some business groups but criticised by some experts in the area as toothless.
Yesterday a Senate committee put paid to all that with its recommendation that the bill not be supported on the ground that it is overly “complex and uncertain” and “is highly unlikely to protect small business”. The unanimous recommendation from coalition and Labor committee members means it is highly unlikely the bill will be passed.
Proposed Government changes to the Trade Practices Act did receive a tick of approval from the majority of committee members, although serious reservations about its effectiveness were expressed by the Labor members and National Party Senator Barnaby Joyce.
“I support the bill, but it is a bit like supporting underpants when you would prefer the whole suit,” Joyce says. “It’s a very minimalist position and we need to go much further, but this is better than nothing.”
An additional amendment proposed by Joyce that he says would have toughened the predatory pricing prohibitions in the act was also rejected.
However, Joyce himself declined to support Senator Fielding’s bill, a move that leaves him open to accusations of political inconsistency on the issue. “The spirit of the Fielding bill was right, but technically it was wanting,” Joyce says.
Fielding says although he still believes SMEs and consumers would be better off with his predatory pricing bill, they will be thankful for any help they can get.
The committee’s support for the Government’s proposed changes to the Trade Practices Act, and particularly that of the sometime maverick Joyce, means they are likely to become law.
– Mike Preston
Melbourne entrepreneur Roger May, whose company was awarded an $11.4 million research and development grant from AusIndustry in 2000, has pleaded guilty to ASIC charges yesterday.
May, 61, and his son Jason May, 35, pleased guilty to dishonesty using their positions as directors of Australon Enterprises. The charges relate to both men creating a false document which enabled them to transfer 60 million shares in a listed company Intermoco to another company, Global Investment Funds. The shares were held by Australon Enterprises. At the time of the share transfer Global Investments was a company controlled by Roger May.
In 2002 May was listed in the BRW Rich 200 with an estimated net worth of $185 million, after he claimed IP held by his company, Advance Communications Technologies Australia, was worth $200 million. ACT’s main asset was SpectruCell, a technology for building a mobile-phone base station unit. May was quickly removed the next year after BRW realised the valuation was wildly inaccurate.
– Amanda Gome
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