Finance

Crazy John’s starts next phase… Online ASIC lodgement… Property values swell… Tax regulation changes rile accountants… Hedge disaster rethink

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Crazy John’s launches next phase

Entrepreneur John Ilhan has launched the next part of his aggressive business strategy, taking in equity partners in order to double the size of the business and take on Telstra.

The Crazy John’s founder and executive chairman has announced that the Smorgon Group and Selpam Group will take a combined 16.6% stake worth about $50 million in the business after recently ending a 15 year relationship with Telstra and joining forces with Vodafone.

The 42-year-old, who started Crazy John’s with $1000, one shop and no stock, and is now estimated to be worth $310 million on the BRW Rich List this year, plans to invest all the money back into the business.

Brendan Fleiter, managing director of Crazy John’s, says the company plans to expand its 120 retail outlets to 250-300 in the next few years. “We want to grow our distribution channels and enter new markets,” he says. “Our biggest market is Sydney and there are many opportunities there, particularly in western Sydney, as well as in shopping centres and strip centres of all the other capital cities.”

The company will also target countries overseas with monopolies and underdeveloped mobile phone industries.

He says Vodafone recently acquired Hutchinson’s in India. ‘So there is an opportunity for us there. We are also looking at China and other parts of Asia.”

Crazy Johns, already Vodafone’s biggest mobile reseller in Australia will also sell branded mobile phone plans and a range of handsets through the network.

Ilhan will also introduce other new products. He recently told SmartCompany: “The convergence underway means mobiles will be able to do everything a PC and a television can do is. Crazy John’s will be bringing to Australia some new innovations in mobile technology in the very near future never before seen in this country – so watch this space.” See the interview by clicking here.

Fleiter adds: ”We will add services such as giving the customer the ability to have multiple services on the one account and manage that account online.”

Fleiter says the equity partners will bring considerable retail knowledge to the partnership. “We looked for people who could share the vision and not put strict time lines on the capital. We talked to the private equity guys and they said ‘we want a 10 year vision, a seven year exit and a five year business plan’. They talked about getting out before getting in. Our investors talked about getting in and didn’t rate one mention about getting out.”

– Amanda Gome

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ASIC online lodgement a money saver

ASIC is now allowing online lodgement of charges – a form of security when borrowing against a business – and is looking at ways to move as many of its 700 plus forms online as possible, ASIC chairman Tony D’Aloisio told The Australian Financial Review.

Online filing Australian Securities and Investment forms at ASIC could help SMEs and accountants avoid hefty late lodgment penalties, says Institute of Chartered Accountants in Australia SME business issue spokeswoman, and MGI Boyd Accountants principal, Sue Prestney.

ASIC says medium to large proprietary and public companies, which are required to lodge annual financial accounts with ASIC, will soon be able to do so online, and forms for voluntary deregistration and name changes will also be online.

The move to take the forms online follows the announcement by the Federal Government of laws enabling more than a 1000 SMEs will be excluded from having to lodge financial accounts by lifting the size threshold above which reporting is required to companies that satisfy two of three criteria – $25 million in assets, $12.5 million in revenue, or 50 employees.

Prestney says many medium-sized businesses will benefit from not having to lodge bulky paper copies of financial accounts with ASIC. “It can be a quite a stressful exercise for businesses to get these accounts organised and it will give them and their accountants extra time to be able to do that, not to mention saving the planet a little bit as well, “ Prestney says.

Businesses will be better able to avoid late payment fees of $65 for up to one month late and $270 after that by taking advantage of instantaneous online lodgement facilities, she says.

“Many of these forms are prepared by accountants and charges are usually prepared by banks, but in the end the cost does filter down to clients, and I would imagine there would be some cost savings just because of the ease of online lodgement.”

– Mike Preston

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Melbourne property value moves

Average house price rises of 6.9% in Melbourne in 2006 were made to look shabby by increases of almost 100% in some coastal Victorian coastal towns, according to Victorian valuer-general figures reported in The Australian Financial Review.

Prices in the Mornington Peninsula town of Tyabb rose 99%, from a median $226,000 to $450,000 in 2006, while median apartment prices in the seaside resort of Lorne in rose 65% to $650,000.

In Melbourne, apartment prices in St Kilda West grew the fastest, at 49% to an average $1.1 million. The most expensive suburbs in Melbourne were Toorak, with a median house price of $2.077 million, and Canterbury and Brighton on $1.2 million.

– Mike Preston

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Accountants concern over tax industry changes

Accounting associations are coming under fire from their members as the Government’s proposed changes to regulation of the profession draw closer.

Some accounting professional associations have not listened to growing disquiet about proposed changes to the regulation of tax agents and accountants and need to “get back to the grassroots,” says Association of Taxation and Management Accountants president Bob Duncan.

Concern among accountants is most widespread about the proposal to require tax agents to make reasonable inquiries about the accuracy of financial information provided to them by clients, a change some have seen as requiring tax agents to constantly audit their clients.

Duncan says a perception is developing that accounting and bookkeeping associations, many of which have played an integral role in the development of the Tax Agents Services Bill, are not looking after their members and have “rolled over to the regulators”.

“Professional associations still should be working for their members, and the comments in the industry suggest people think they’re not doing that, so it’s important they get back to grass roots and look after their members,” Duncan says.

Duncan, who himself has been involved in the steering committee behind the bill, says it was never intended that the potential liability of tax agents should be significantly increased and the current proposed legislation in many respects does reflect what was originally intended.

ATMA will push for clarification on tax agents’ liability for unintentionally providing incorrect information on behalf of clients in a submission on the draft legislation under preparation with the other two major accounting bodies, the Institute of Chartered Accountants in Australia and CPA Australia.

“We will withdraw our support for the bill if that’s necessary, but most of the changes are good and I would expect with changes that better reflect the concerns of members it will go ahead,” Duncan says.

CPA Australian director of policy and research and research Paul Drum believes much of the angst being felt in the profession is coming from accountants outside of the key professional bodies.

“The requirement that tax agents make reasonable inquiries has been our standard for years, but some tax agents and bookkeepers aren’t members of these bodies and so they are outside the standard, so really we are just talking about one set of rules for everybody,” Drum says.

– Mike Preston

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Careful how you hedge your bets

As Australian hedge fund managers stare down the barrel at their first major league disaster, the crisis last week at the $1 billion hedge fund group, Basis Capital, is set to spark a fresh examination of hedge fund exposure.

Hedge fund investments are increasingly important across the managed funds sector, especially in superannuation, education and hospital funds. An investigation by Eureka Report has revealed that some of the country’s top-performing funds are using hedge funds, including CDO funds (the category that has sparked the crisis at Basis Capital) to propel their returns.

Moreover, leading Australian superannuation funds – including two funds that came in the top five balanced funds in the year to June – are defining their hedge fund holdings as defensive, a move that allows the funds to top up risk in “aggressive equity” holdings with further risk assets in hedge funds.

For instance, Catholic Super, the best-performing fund manager last year, splits its flagship Catholic Super Balanced Fund into 70% growth assets and 30% self-described “income assets”. On closer inspection the income assets are held two-thirds in alternative assets, including hedge funds and property. In effect, the group only has 10% of its assets in traditional defensive allocations of cash (5%) and fixed income (5%).

On Thursday, the Sydney hedge fund group Basis Capital announced that its Basis Yield Fund was in default, and investors were looking at getting back less than 50c in the dollar.

Private investors with money in managed funds – or DIY funds with interests in managed funds – are asking hard questions, including what is the specific role of assets consultants and rating agencies who mediate between the global hedge fund market and institutional investors.

What’s happening to traditional “defensive” assets? Traditional defensive assets in portfolios include cash and high-quality, fixed-interest investments such as government bonds, bank bonds and highly rated corporate bonds. The returns from these asset classes are not exciting – say 6% to 7.5% at the moment. However, they are safe and reliable investments, the sort or investments that let you sleep easily at night.

But, increasingly, fund managers are putting investments into hedge funds or absolute return funds. The ASIC consumer affairs site FIDO (www.fido.gov.au) puts hedge funds in its “complex investments” category.

ASIC on its own website says: “Hedge funds aim to make money for investors in both rising and falling markets by relying heavily on the skill of the investment managers to buy and sell the right investments at the right time.

Hedge funds may invest in all sorts of securities and non-mainstream asset classes, may use a wider variety of complex investment techniques than traditional funds and may borrow money to pay for the fund’s investments. The skill of the investment managers and the reliability of their systems for managing risk can be critical.”

This is a working definition of a hedge fund – a trading fund with a wide scope of potential investments, access to leverage, and reliant of the skill of the manager for investment results.

Eureka Report is not arguing against the use of hedge funds in portfolios – just that it is stretching them to include them in the low-risk, defensive part of a portfolio next to cash and high-quality, fixed-interest investments.

This story first appeared in the Eureka Report, by James Kirby and Scott Francis.

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Economy round up

The Australian economy will continue growing fast in 2007/2008 due to a “magic mix” of increased workforce participation, strong business investment, the improving agricultural sector and surging demand from China, according to Access Economics’ June quarter 2007 Business Outlook.

The ongoing growth of China will underpin the strength of the Australian economy for some time to come, Access says, with those sectors hooked to the Chinese economy – commodities, construction, transport and some business services to benefit as a consequence.

On the down side, however exchange and interest rate troubles will continue to be a thorn in the side of manufacturers and tourism businesses, although cheap imports will mean retailers will enjoy a “champagne year.”

The Australian Bureau of Statistics producer price index, a measure of input prices across much of the economy, rose 1% in the June 2007 quarter, taking the annual rate to 2.3% from 2.8% previously, the lowest since 2004

According to ANZ Economics, the result will mean a slightly higher CPI result on Wednesday, although not enough to put significant increased pressure on interest rates.

At 1pm the S&P/ASX 200 is down 0.8% on yesterday’s close to 6369.8 and the Australian dollar is trading at Us88.13c, up on the most recent US87.96 Sydney close.

– Mike Preston

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