Ski operators snug with sky-high prices

FANCY a nice carton of hot chips for $11.50? How about a $5 cappuccino, after you’ve forked out $110 for a ski pass for the day and queued for half an hour to get on a chairlift?
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Welcome to Thredbo, Australia’s most exclusive ski resort where the prices make Toorak and Double Bay look like a $2 shop. We stand to be corrected on this but the Australian ski fields are quite possibly the most expensive places in the world, and not just ski places, but places full stop.

You won’t pay $100 a day for a lift ticket in Aspen, Zermatt or Chamonix – or $17.70 for a second-rate chicken burger and Coke at Whistler. But that’s what you’ll pay at the cafeteria at Blue Cow in Perisher.

Victorians are slightly better served on prices, although day tickets at Falls Creek and mounts Hotham and Buller still hover around $100. But at Thredders, they take the cake. This is where the elite of Sydney come to play, and pay, pay for the pleasure of going up Crackenback on a 30-year-old chairlift verging on the rickety.

And they joke about it, happily whining about the old T-bar at Antons. Any self-respecting resort in Europe or the US boasts a capsule on their chairs these days, protection from the wind and, of course, cable cars for a nice warm trip up the mountain. None of that here.

Yet they come in their droves. Though this is no miracle of marketing – where second-rate facilities fetch super-premium prices – simply a captive market. Thredbo has the longest, steepest ski runs in the country. It’s a pretty village. And when the snow is good, as it was this week, and the wind dies down, it’s worth the while.

AMALGAMATED Holdings, the company that owns Thredbo, or the resort operator, Kosciuszko Thredbo, to be more precise, reported on Thursday. It showed a profit of $10.7 million, down from $15.17 million the year before.

Last year was not a great season for snow. And while it may not have upgraded the lift system, it does spend a bit on snow-making machines and groomers. The 29 per cent fall in profit before tax was due in part to a 7 per cent decline in the number of skiers, the results commentary said.

Apart from that, the commentary didn’t say much. It never does. And there is precious little financial detail. There have always been sensitivities between Thredbo’s patrician lodge community and the operator.

Besides, Amalgamated is a billion-dollar company that has done quite well in recent years, and the resort accounts for just 10 per cent of profits. Its hotel and cinema operations in Australia and Germany make up the bulk of the business.

One man, Alan Rydge, controls roughly 60 per cent of the stock. Rydge, who doesn’t court publicity, bought Thredbo from Lend Lease for $18 million in 1986 when he was 34. On a cursory poke around the internet we found his corporate headquarters listed simply as ”level 22, Sydney”. Love that.

He renegotiated the 50-year Kosciuszko Thredbo head lease with the state government in 2007. It seems that KT and Amalgamated Holdings had done rather well out of it before that, with leaks to this media outlet in 2004 indicating the resort had been paying National Parks and Wildlife annual rents as low as $8000.

Now that’s a bargain, but as the terms were always secret we can only surmise that it must have been based on a calculation of profits – and it may well have involved infrastructure spending on the part of the operator.

In any case, besides sunlight, the other great threat to Thredbo over the years has been its arch rival, Perisher. Although just up the road, they don’t share ski passes, or sympathies for that matter.

Perisher people tend to regard their nemesis as full of snobs, while the patricians of Thredders often deride Perisher as a bit flat, ugly and overrun with bogans who can’t ski properly. With 48 lifts compared with Thredbo’s 13, Perisher is far larger. It’s also higher, so the snow is often better. And it has really taken it up to its picturesque contender in the past few years, forcing Thredbo to finally counter with a restructuring and a marketing push.

Ironically, the prices are even a tad higher at Perisher, an adult day pass at $112 versus $110 for instance, and it boasts the same sort of extreme prices for very low-quality tucker.

But the move to bring four ski fields together – Perisher, Blue Cow, Smiggins and Guthega – all lift-linked and under one ski pass, has been a good one. Like the Victorian resorts, the lift systems are newer. Skiers have been streaming in. Still, you won’t find much financial detail here, either. It’s owned by the Packer family and housed in a private company. From time to time reports emerge that the resort is up for sale, with price tags ranging from $60 million to $200 million.

With the Packer casino interests humming in the past two years, the rumours seem to have died down.

Last year, Perisher went for the jugular, hitting its rival where it hurts – in the fat ski-pass profit margin – with a half-priced season pass. Thredbo countered with a half-priced deal of its own, and a management overhaul. Former ski champ and long-time general manager Kim Clifford has been replaced and new management is poised to go hard with a summer marketing campaign, perhaps trying to replicate the success the NSW wineries had with the George Benson tour.

Even if the summer marketing push fails, you get the feeling that Thredbo will still produce a good return, as it has all through the financial crisis. A tight rein on costs and the dedicated patronage of the seemingly price-immune, diehard skier should see to that.

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RBA says boom still blooming

The global price of iron ore has slipped below $US100 a tonne for the first time since late 2009, with experts predicting future falls.THE Reserve Bank has hosed down claims the resource boom is over, saying mining investment will keep rising for up to two years and the economy would even benefit if some projects were scrapped.
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As the price of Australia’s most lucrative export fell to a near three-year low, RBA governor Glenn Stevens said yesterday that miners had billions more to spend.

Despite BHP Billiton shelving its $20 billion Olympic Dam expansion this week, Mr Stevens stood by the Reserve’s forecasts for mining investment to keep climbing towards historic highs of about $145 billion a year, or 9 per cent of gross domestic product.

The prediction came as the global price of iron ore slipped below $US100 a tonne for the first time since late 2009, with experts predicting further falls.

”Looking ahead, the peak of the resource investment boom as share of GDP – the highest such peak in at least a century – will occur within the next year or two,” Mr Stevens said in Canberra.

He also said the economy would be better off if some potential projects did not go ahead. Mining companies already faced rising costs due to fierce competition for staff, he said, and these problems would intensify if too many projects proceeded.

”There are a vast number of [possible projects] which I think in truth really shouldn’t be done, because if they were all attempted, there’s already pressure on the cost side for resources companies,” he told a parliamentary committee. ”You probably just cannot do everything that people have postulated might be done.”

The comments came after Resources Minister Martin Ferguson said the resources boom had peaked. Other ministers sought to retract that claim, instead saying commodity prices had peaked.

This point was underlined by the recent plunge in iron ore. The mineral brought about $US135 a tonne for much of the year, but began slipping seven weeks ago on slowing construction in China and an oversupply of steel there.

On Thursday night it slumped by almost 5 per cent from $US104 to $US99 a tonne, sending chills through the Australian market.

Glyn Lawcock of UBS said he expected further falls. ”Now that it has broken through $US100 a tonne, traders I speak to think the price could get a 7 in front of it,” he said.

Despite this, Mr Stevens said the economy remained healthy and interest rates were unlikely to change barring a sharp deterioration.

He conceded that reports of job losses and the debt crisis in Europe were denting confidence. But he said: ”I begin to wonder whether we in Australia worry about the Greek economy more than the Greeks do.”

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You know what they say about assuming anything

Assumptions are the mother of all mistakes and here are five. Let’s start with the basics.
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Making money is about predicting share prices.

Not really. Making money is about entering an investment (a stock) with as high a probability of getting the direction right.

You can narrow the odds in a million ways but ultimately the best you can do is narrow the odds of getting it right rather than wrong. The game is about doing your best, not predicting the future and when, a split second after you invest, everything changes, you simply accept it.

There’s no ”mistake”, there is simply an outcome you have to deal with. If you narrow the odds you will win more than you lose and that’s about as good as it gets.

What goes up must come down.

Definitely wrong. What goes up is more likely to keep going up and what goes down is more likely to keep going down. They say the best technical analysts are kids. Show a five-year-old a chart and ask if the stock is going up or down and they will tell you the obvious truth, not concoct some miraculous pivot point out of nothing. The trend is more likely to be your friend which challenges the idea of catching the knife or averaging down. What is more likely – that a stock that falls 10 per cent is going to miraculously turn on a sixpence and go up for ever more, or that it’s more likely that something is wrong and it is going to trend down?

Diversification is good.

The argument for diversification is based on the mathematical truth that if you combine risky assets you reduce overall risk. But the reality is that you also reduce return. If you diversify you are committing yourself to the average return and accepting average market fortunes. Diversification negates the whole idea of the equity market, which is to take more risk to make better returns. You don’t do that by avoiding risk. You do it by embracing it, controlling it and winning at it.

History repeats.

This is one of the weakest tenets of financial research. If you add up the performance of the All Ordinaries index in every month of the year for the past 100 years you will find that there is one month that is statistically the best month of the year and one month that is the worst. But it is just a statistic, it is not a prediction. You were bound to come up with a good month and a bad month. It adds no value at all. It is voodoo. Unless you can explain the reason a statistical phenomenon will repeat, it is of no value. Who cares if the stockmarket goes up in an election year and down in October. What about this year? Some of the ”Sun Spot”-type predictions that lace the stockmarket are simply people with too much time and too much data on their hands. ”Statistically nine out of 10 statements that begin with the word ‘statistically’ are utter rubbish.”

Dividends are good.

Not necessarily. This is a bit complicated but basically return on equity, the amount of money a company makes on the money you give them, is far more important than how much money they give you back. Really good companies should have a yield of zero because it is far better for shareholders to have them keep the money and invest it in the business than return it to you. Why invest the money in the first place if they’re just going to give it back? A high yield also suggests a mature, low-growth company with few growth options to invest in, not the best investments. The dividend decision can also be driven by a lot of factors that do not reflect success. Like the CEO having a lot of shares. Yes, income stocks are in favour in this rather unique income-deprived moment in investment history, but they will not be forever. It is a purple patch. The bottom line is that you need to look at the total return from an investment (capital plus income) not yield. The yield is a distraction, it will distract you from the share price which is far more volatile, far more important and can do you far more damage than a dividend will do you good.

Five more next week.

Marcus Padley is a stockbroker with Patersons Securities and the author of stockmarket newsletter Marcus Today. For a free trial go to marcustoday南京夜网.au. His views do not necessarily reflect the views of Patersons.

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Today’s Chinese proverb: he who craves wealth joins the party

If the rich keep getting richer at the expense of the poor, China may actually need to go communist.MAYBE China’s Communist Party needs to consider a name change. Two news items this week remind us that there is nothing classless or egalitarian about the political machine ruling the most populous nation: the sentencing of Bo Xilai’s wife, and hints that China’s wealth gap is bigger than anyone thought. Both are more intertwined than meets the eye and show China has a 1 per cent problem that is holding back the other 99 per cent.
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The Bo scandal isn’t often viewed in economic terms. When his wife, Gu Kailai, received a suspended death sentence for killing British businessman Neil Heywood, attention turned to the political fortunes of the former Chongqing party boss. Instead, it should be on the institutional rot that has befallen the party and the precarious standing of the political system after 10 years under departing President Hu Jintao.

Bo’s tale is symptomatic of the official corruption and how it stymies much-needed economic and political reform. It cast an unsparing spotlight on the obscene wealth amassed by politicians. How did Bo, with his modest government salary and a wife he claims didn’t work, live so well and send his son to such pricey schools in Britain and the United States? How did his wife’s sisters come to control a web of businesses valued at more than $US126 million ($A120 million)

The problem is, politics is proving to be an extremely lucrative field. The Communist Party is the largest political party in the world, claiming some 80 million members. At its core is the 25-member Politburo that includes the all-powerful Politburo Standing Committee. Corruption may not taint every member of the inner circle. Yet the financial empires being amassed by some and the lack of transparency about wealth require attention and, even, legal action.

US politicians are paupers in comparison. Earlier this year, an eye-popping figure was revealed in the Hurun Report, which tracks China’s wealth. The wealthiest 70 members of China’s legislature added almost $US90 billion to their bank accounts in 2011. That increase is greater than the combined net worth of all 535 members of the US Congress, the President and his cabinet and the nine Supreme Court justices. Why start a technology company, study science or work in finance when the riches are to be found by rising within the party?

As more and more politicians get rich through questionable land grabs, insider trading and old-fashioned rent-seeking, there is less incentive to retool the economy. Political will shrinks as overseas bank accounts swell. All that money conspires to widen China’s rich-poor divide.

Bo was ousted from his post in March. Yet here’s a twist: just weeks before, he warned that China’s wealth gap had reached the danger zone. He was right. On August 21, we learnt that the wealth gap in rural China approached a United Nations warning level for social unrest.

China’s rural Gini coefficient was 0.3949, slightly less than the UN’s 0.4 warning level last year, the Xinhua News Agency said, citing a survey by Central China Normal University. A reading of zero suggests equality of income distribution. The further you move towards one, the closer you are to complete inequality. As economic indicators go, this is a bad one for Hu as he steps down.

Hu’s decade in power has delivered rapid growth, but few of the reforms needed to elevate the masses from subsistence wages. China hasn’t figured out how to be more than a one-trick economy driven by exports, cheap labor and unsustainable levels of investment. It hasn’t loosened up on internet or media freedoms, raising questions about how a nation innovates while limiting access to Google. It hasn’t devised a strategy to cut pollution. It hasn’t made its leaders more accountable.

To China bulls, the Bo case suggests progress on this last front. Bo committed unspecified economic crimes for which he has been humiliated; his wife was punished, so all is well, they argue. The truth is more complicated, of course. Many believe Bo’s real crime was his ambition. Bo was the closest thing China had to a political rock star and a spoiler for plans to replace Hu with Xi Jinping. Purging Bo, it might be argued, was all about reinforcing discipline and loyalty and maintaining the status quo in a pivotal year.

That is part of the problem, especially as the world economy deteriorates. China is focused on sustaining growth at 8 per cent or more. That seems to mean giving short shrift to recalibrating a lopsided economy. The same could be said of making the political system more responsive to the needs of the 99 per cent.

If the rich keep getting richer at the expense of the poor, China may actually need to go communist.

BLOOMBERG

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Dick Smith drag on Woolworths profit

WOOLWORTHS has posted its first drop in annual profit since 1999 after triggering a $420 million write-down of its embattled Dick Smith chain, and will turn to a revitalisation of its flagship supermarkets group and the rollout of Masters hardware to drive future earnings growth.
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A final sale of Dick Smith is yet to be clinched but the electronics business is believed to have attracted a shortlist of possible buyers with a deal expected soon.

In the meantime, a decision to write down the asset value of Dick Smith to only $20 million sank the company’s bottom line, forcing Woolworths to post a 14.5 per cent dip in net profit to $1.82 billion and marking the first time it has witnessed a retreat in earnings in 13 years. Dick Smith had already cost Woolworths a $300 million provision for the first half.

However, buoyed by the dominance of its food and liquor offering, as well as its other retail businesses such as Big W, Woolworths recorded a net profit from continuing operations (excluding Dick Smith) of $2.182 billion, up 3.6 per cent. Sales rose 4.8 per cent to $55.5 billion. The profit was slightly below market expectations.

Chief executive Grant O’Brien, who is less than one year in the top job at the retailer, said yesterday a refocus on its earnings engine, supermarkets, would be heralded by $1.3 billion in capital expenditure this year of which the bulk, more than $813 million, would be harnessed to re-establish and extend its leadership in food, packaged groceries and liquor.

The increase in spending on a new supermarket store format for 100 existing sites and the construction of more than 30 new stores this year using the new model marks the biggest investment in its supermarkets in nearly three years, with Mr Grant confident investors will get bang for their buck.

Woolworths has trialled a handful of its new format stores around the country and was pleased with the results, he said.

Mr Grant said the investment wasn’t ”outlandish” and although up significantly on the $614 million spent on supermarkets in 2012, it was still slightly below the $847 million in supermarkets capital expenditure booked in 2010.

”Of the strategic priorities that I put up in November last year, [supermarkets] was No. 1 for a good reason and that is because I recognise the capacity that business has got for improvement, there is a lot of upside available.”

New stores and refurbishments, as well as improved marketing and better value to entice shoppers, would also help drive profits with Woolworths expecting the division to fuel group profit growth of 3 per cent to 6 per cent in 2012-13.

He said Woolworths could once again return to its historic growth record of double-digit profit expansion as it faced a tough economic climate and a resurgent competitor in Coles.”That’s our ambition. That’s how we are attacking this business … we believe we can control our own destiny and be clever enough as retailers to provide reasons for customers to buy.”

Elsewhere in the group, a further $124 million in capex would be devoted to its hardware business Masters this year. Mr O’Brien said that division should emerge profitable in 2013-14 after swallowing about $100 million in costs the year before last and $80 million in costs last financial year. Woolworths declared a final dividend of 67¢ a share payable on October 12.

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Cards turn on Tinkler the gambler

HE HAS built an unparalleled reputation as the man who could pull off the most unlikely of business deals. And with it came a fortune.
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But yesterday morning Nathan Tinkler was forced to announce his latest venture – to privatise Whitehaven Coal – was dead in the water.

The market took the news badly. Within minutes of the shares coming off a trading hold at 11am, the stock had slumped more than 18 per cent. By the close, the shares were still down 11 per cent.

For Tinkler – the former electrician who in five years turned a $500,000 loan for a coalmine into a position as the wealthiest Australian under 40 – the numbers were stark.

His Whitehaven shares – worth $1.18 billion in April – are now valued at $657 million. That equates to a losing $4 million a day.

But the situation may be worse for the former billionaire than those numbers indicate. One analyst told BusinessDay that potential equity partners were put off investing in the Whitehaven privatisation for fear they could be caught up in a corporate collapse or bankruptcy.

A spokesman for Tinkler described such suggestions as ”rubbish”, but declined to reveal why he withdrew his bid.

The questions many are raising are how much debt Tinkler is carrying and whether his financiers will call in their loans if the value of his Whitehaven holding – constituting the bulk of his wealth – continues to fall?

BusinessDay believes the combined liabilities in Mr Tinkler’s various private entities could be up to $638 million – owed mainly to Singapore-based Noonday Capital Management, an arm of long-term backers Farallon Capital, but also to GE Capital and Westpac. It is not known how far these loans have been drawn down. Mr Tinkler’s spokesman said his maximum liability was ”a mere fraction” of $638 million.

Tinkler has no fear of debt. In 2007, at the age of 30, he mortgaged everything to scrape together the deposit on the Middlemount coal deposit in Queensland, on-selling within 18 months for $442 million. In 2009 he doubled up and won, buying another coal tenement, Maules Creek, for $480 million from Rio Tinto and on-selling it within six months for $1.2 billion in the float of his private

company Aston Resources. In April, he pulled off his third major deal, engineering a three-way merger between Aston, Whitehaven and his private Boardwalk Resources – at a hefty valuation that stunned investors. In yesterday’s deal, Tinkler was the buyer not the seller but could not come up with the cash.

Tinkler – who recently moved to Singapore – has not just borrowed against his Whitehaven shares. He has also taken loans out against his private jet and land in Hawaii. Even machines on his lavish horseracing and breeding properties are leveraged.

And the recent bad news has not been quarantined to his Whitehaven interest. On Monday it emerged that Tinkler’s racing and breeding empire, Patinack Farm, was in financial straits, having failed to pay workers’ superannuation since last November.

Tinkler had tried and failed to sell the whole operation, including more than a thousand horses for $200 million – a $100 million loss on what he pumped in since 2008.

That failure to offload Patinack is costing Tinkler about $500,000 a week to run Australia’s biggest racing operation..

And on Tuesday, a string of businesses came forward to claim that Patinack and other companies linked to Tinkler owed them money.

On Wednesday, one business analyst likened him to entrepreneurs who built a fortune on the back of a boom, only for it all to end in disaster. According to John Singleton, a friend and former investor in Tinkler’s companies, the comparison to Alan Bond and Christopher Skase is bound to hurt.

”If he has one weakness, it’s that he doesn’t like criticism,” says Singleton. ”Not that any of us do, but I’ve certainly had longer to get used to it than Nathan. That’s why he moved to Singapore.”

But Singleton played down Tinkler’s debt situation. ”He’s had a tough run of it. but he’s astute. He’s a gambler … I’m sure he’ll come through this.”

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