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(generated from captions) And in First Person - growing organically, its roll-out. a new food chain starts I guess. I'm a serial entrepreneur,

the next new thing I was looking for I think, is tragically low. and my boredom threshold, with the business news headlines. But first, here's Jayne Edwards on world equity markets, It was a surprisingly strong week

as oil prices eased effort finally made some headway. and the Hurricane Katrina rescue on Friday at $64.08, Crude oil closed in New York

its post-Katrina record. that's 10% below will be huge - But the damage from Katrina production by 55 million barrels, it's likely to cut world oil

cost at least $125 billion, shave 1% from US GDP

and cause the loss of 400,000 jobs. $62 billion in aid, Congress has already approved and US consumers are being warned

will jump by 70% - their winter heating bills at the petrol pump. that's on top of record prices But many analysts are bullish to bounce back from Katrina, about the US economy's capacity will add to GDP in the long run. saying the rebuilding effort That, and the falling oil price,

a strong rally on Friday. helped Wall Street stage The Dow jumped by 83 points,

each added 10 points. while the S&P 500 and the Nasdaq

generally had a good week. Markets around the world The US gained almost 2%. The UK rose by 0.5%. Germany surged by 3.5%. ahead of today's general election, Japan was up by 0.5%

just slightly in the red. but our local market finished Marcus Padley from Tolhurst Noall. To tell us more, here's quite a relaxed week really. Well, it's been all but finished, thank goodness, The results season is

Wall Street had a holiday on Monday, have been heading off early it seems a few people that are coming up ahead of the school holidays

market event in the last 10 years and the most anticipated stock at The Oval in England. started on Thursday with a profits warning on Monday, Otherwise Telstra kept us all awake that was closely followed by they gave the government the release of the document on August 11. This is the one a terrible state Telstra was in that told the government what

on regulation. and how they should go easy on them a lot of confusion It seems to have caused and almost every single stockbroker recommendation on Telstra, now has a hold or neutral except for one who had a sell. One broker sort of summed it up it's too late to sell Telstra with the comment that and it's probably too early to buy. had their results. Otherwise, Tattersall's When they first floated, to blow their prospectus forecasts the rumour was that they were going out of the water. didn't do that, Well, they certainly ahead of prospectus forecasts they were only a tiny bit and their outlook statement prospectus forecasts. was for a profit in line with Hardly the sort of excitement over the likes of Tabcorp. that justifies a 30% PE premium this week Otherwise, Patrick Corporation fell

were going to block on worries that the ACCC Toll Holdings bid for them. Toll Holdings bid for them. off Ramsay Healthcare - Healthscope bought 14 hospitals everyone seemed to like that deal, share price. particularly the Healthscope losses from Katrina well covered. QBE told us that they had their share buyback. Promina announced a $100 million And ANZ had a strategy briefing recommendations around after that. and there were quite a few buy for a few weeks with my kids, Otherwise, I'm on holiday now when I come back programming idea to the ABC - I'm going to be pitching my new it's called 'Inside Cricket'. was GRD - Winner of the week this week up 21% after the announcement project in the UK. of a $500 million waste recycling

was Emperor Mines - And loser of the week down 17% on a profits warning.

It was another epic week the Telstra sale, for the shambles that is "Who'd buy it anyway?" begging the question - during the week It started with a profit downgrade and moved on to the PM to talk up the company telling management the management. while simultaneously talking down Then an ASIC squad swept in, the legislation was tabled, the Senate held a quick inquiry and the vacillating National Party the whole thing down. threatened to bring a certain vaudeville value, While the politics has

within the business. there are genuine dramas Stephen Long reports. At East Brunswick in Melbourne,

called Divisible By Zero. there's an educational toy company that dividing by zero can't be done Now, maths boffins will tell you like this toy business and companies equal bad news for Telstra.

They're part of the reason have become a problem. why Telstra's metrics phone capacity. We needed some extra

in Queensland, New South Wales, We have a lot of customers on STD calls. so we were spending a lot of money bought a new system, So managing director David Brennan

Voice-Over-Internet-Protocol, so-called or VOIP, interstate calls it lets the company make was charging for a fraction of what Telstra and it's saving big money. data now. We've got 12 months worth of around about $200 a month What we saw is a drop probably of in our overall phone bill the business has been growing. and at the same time, if we hadn't switched over, So consequently,

around an extra $300 a month more our phone bill would probably be up than it is now. AND ELECTRONIC MUSIC TELEPHONE CONVERSATIONS

The traditional fixed-line phones

via copper wires that come to your house for Telstra. have always been a big money-spinner it enjoyed a monopoly In the old days monopoly rents from its customers, and it still extracts on each domestic long-distance call, with an 88% profit margin

a 63% margin on international calls and a margin of nearly 55% on each local connection. But the days of those returns are numbered. The copper cable in itself is a redundant technology. Consumers have been deserting in droves from the fixed-line network and basically Telstra is now going to be forced

to take their prices down. In Telstra's own words, its traditional fixed-line network is in "meltdown". A claim contained in this report secretly presented to the Government last month and only released to the market this week after the Opposition gleefully unveiled its contents in Parliament.

And it's a document that said, "We are paying dividends out of reserves and borrowings."

This is unsustainable. The Telstra's board have said that it is unsustainable to keep propping up the share price in the way this Government has wanted it to do. Now ASIC is investigating to determine whether Telstra improperly withheld the report's information from the market.

The revelations have put the full privatisation of Telstra in doubt, with Queensland Nationals senator Barnaby Joyce rethinking his support. And the Prime Minister is accusing the new boss Sol Trujillo and his right-hand man, 'Big' Phil Burgess, of trash-talking Telstra. I do not believe for a moment - and I've made this public and I'm going to repeat it now - I do not believe that the remarks that were made by senior executives of Telstra were in any way helpful. I think it is the obligation of senior executives of Telstra to talk up the company's interest, not talk them down, and that is a view which I have communicated very directly to the chairman of the board on behalf of the Government. Prime Minister, isn't today's 'Financial Review' editorial correct when it says, "The Prime Minister showed

"a dismaying ignorance of securities law passed "during his parliamentary career. "He must know the executive's duty "is not to talk Telstra's interests up or down, "but to tell the truth about its prospects "and let the market decide." Whatever Sol Trujillo's motives, many experts say he is telling it like it is. No, I think he's being honest with shareholders, he's telling them what he sees on the radar screen,

that is two to three years of very tough times and declining earnings. They are real issues quite distinct from the gamesmanship and politics that also influences what's occurring. And if honest Sol is telling the awful truth, why didn't Ziggy Switkowski and his team? I mean, the question is whether perhaps they were talking it up too much before, rather than Sol talking it down too much now. Robin Simpson works with a global IT consultancy and he's seen the problems Sol Trujillo is facing before. Nobody should be surprised that he has been talking about reducing revenues from the fixed copper network and it's only natural that regulations designed to, you know, keep prices down are going to have an impact on Telstra's revenue. So, I'm just surprised that everybody is sort of - this is something new, the same thing is happening with telcos, with incumbent telcos, all around the world. But broking analyst Ivor Ries says Telstra's been slugging traditional phone users

and the problems it faces are partly of its own making. Well, the big problem was that they got greedy or the Government got greedy ahead of T2 and they cranked up the charge the company was allowed to make for local access. It went from $11.90, from memory, up to $29.95 so there was this huge increase in the local access fee

which, of course, pumped up Telstra's profits and enabled the Government to get that whopping $7.40 a share from T2.

Unfortunately, it was completely unsustainable. Telstra lost nearly 400,000 customers from its high-margin, fixed-line network over the year to June.

And they're not all shifting to mobile phones or the Net. Nearly 250,000 traditional phone customers have deserted Telstra and signed up with competitors, a trend that shows no sign of abating. Their competitors are getting better all the time and rolling out more of their network. Pretty soon you could see Telstra having less than 50% market share.

In three or four years' time, we might be talking Telstra just being the leading operator rather than the dominant operator. Instead of having 75% of the market, they might only have 50% of the market. At French's Forest in Sydney's north, ex-Telstra manager Ilkka Tales runs a small, listed company and it's using cutting-edge technology to undercut Telstra's prices. With this little box, customers connect to the Internet With this little box, customers connect to the Internet and then they can call anywhere in Australia for 10 cents any time, as well as making cheap international calls

and calls to mobiles. It's a technology that big telcos overseas are adopting. British Telecom announced about four or five months ago that they were going to switch their whole, plain, old telephone system - they are going to switch it off by the year 2010 and replace it by broadband telephone-type service which we sell here in Australia. And the same in New Zealand - New Zealand Telecom just recently announced last week that they are going to to do the same -

that they are moving their whole infrastructure to be completely IP-based. But Telstra is unwilling to do the same because the new technology cuts prices and it would cruel the big profits

Telstra still makes from traditional customers. It gets nowhere near the same margin from mobile phones or broadband

and more and more people are migrating to the low-margin technology. By 2009, we are predicting that about 75% of voice minutes are going to be on mobile networks, on cellular networks,

rather than fixed networks. So there's a fixed-to-mobile substitution process going on there which, you know, mobile-only operators like Vodafone

are only trying to encourage. Overall, Telstra makes about $2 billion a year from wholesale business. In other words, the money rivals pay to access the network. But the ACCC wants to cut the prices it charges competitors. But even under the new regime, Telstra should still enjoy lower charges than its rivals because of its scale. Well, if Telstra retail becomes

by far and away the largest customer of Telstra wholesale, there is a widespread expectation that it will continue to enjoy favourable terms and conditions in the prices that it pays at a unit level for any particular circuit or service. Similarly Optus, as the next largest customer, would get the next best terms and so on all the way down the totem pole. The threats facing Telstra raise questions about how much it will be worth if the float goes ahead and estimates vary widely. Well, our valuation of Telstra is $5.20 on a worst-case scenario. We think the shares could probably go as low as $3.80. And for Telstra's biggest shareholder, that adds up to $9 billion in value hanging in the balance.

In footy parlance, you might see the ACCC's decision to rule out Patrick Corporation's takeover of freight forwarder FCL as a preliminary final - giving a good insight into the outcome of the grand final - which is the $4.5 billion bid for Patrick by Toll Holdings. Clearly this is a game where the umpire is the most important player.

I spoke to Toll's boss Paul Little after the FCL decision. to see if his game plan has changed the ACCC's decision Paul Little, it seems like to knock back Patrick's bid for FCL, to you, which is a smaller competitor stone dead, kills your bid for Patrick that they'll knock yours back. Isn't that the case? That is not our view. process with the ACCC We are yet to commence the formal which will commence next week. pre-empt anything Clearly we don't want to as part of that process. that will happen and occur the Patrick acquisition of FCL But our view is that was more about acquiring a freight forwarding capability. Toll already has an extensive freight forwarding capability and our view was that we wouldn't have been continuing to hold that FCL business once we're successful with Patrick. Yes, but the ACCC has knocked back the combination of Patrick and a freight forwarding business which is what you are proposing. They have.

But our view again is that the commission, very clearly and they made three points the FCL acquisition, on their reasons for knocking back that we need to address the main one I believe we will approach the commission, and certainly this is part of how

integration is the question of vertical that is achieved and the so-called power by putting the line haul operation together. and the freight forwarding business keeping the FCL business We certainly had never anticipated question and the vertical integration we have a solution for is one that we believe the commission about that next week. and we will be talking to What is the solution?

Well, the solution is something that I will talk to Graeme Samuel about

and certainly we need to work through those issues with him, but we believe that it will remove a lot of the concerns that are there at the present time about vertical integration. You say you don't want to pre-empt the ACCC's decision but aren't you actually doing that by saying that you don't think - and you actually said this in an ASX announcement - that you don't think the FCL/Patrick decision will adversely affect your bid, second-guess him at that point, so you're actually trying to aren't you?

the FCL business, I think the size of to a large extent, the fact that it is, the Pacific National operation irrelevant to the conduct of between Patrick and Toll. which is a joint venture and remain of the opinion We were always of the opinion, will certainly not be that one owner of Pacific National

in the marketplace any more competitive than two owners. privatised by the governments, When the business was originally

they were very happy to sell it to one owner at that time. If the problem does come down to Pacific National and the combination of the dock business, the ports business and the road business that you've got and Pacific National's rail business, would you be prepared to divest the rail business? No, not at all. I think you need to understand that the way the rail operation works inside Pacific National we have a very large percentage of our income is achieved to our competitors from offering space on our trains and I'm of no doubt service level at the right price that if we didn't deliver the right against Toll in the marketplace that those competitors who compete Pacific National. simply wouldn't stay with

What about offering competitors terminals? greater access to Pacific National's

they want at the present time. Well, they can have whatever access It's interesting. I guess, to some extent. You would say anything right now, No, that's not true. I think if you look at the Freight Australia business when we acquired here in Victoria some 18 months ago, the commission required us to make available part of the North Dynon complex for anyone else that wished to run trains.

That complex is sitting there today and there's not one tonne of freight has passed over it, so we are quite happy to talk about terminal access. We are quite happy to talk about open access on the track itself. And at this point in time, if anyone in Australia wishes to run trains in any direction, they can do that. the ACCC won't knock you back, I know you're saying that or you don't think they will, that you'll end up with no bid but isn't the possibility because it's been knocked back,

in Pacific National, and a dysfunctional partnership are now at war. because clearly Toll and Patrick aren't at war at all. have had a disagreement The directors of Toll and Patrick through the Pacific National board as we speak. and those issues are being resolved that the bid will fail. But, no, I don't believe will get up. I'm very confident that the bid

that the public squabbling But we do need to be very careful that is going on between Patrick and Toll in relation to this bid doesn't impact on our business, and in particular Pacific National. So we're taking steps to make sure that that's the case. But it is hard now to see how, if this all blows over and you end up as separate companies still, it's hard to see how you can just sit down with Chris Corrigan and go on as if nothing's happened. No, I don't believe that we'll be able to sit down and go on as if nothing's happened

but our strong belief is with our acquisition. that we'll be successful a bit difficult It does seem to me for the bid, to understand the reasons you know, putting the road together, quite different businesses. just on the surface they seem to be behind the bid? Could you explain the thinking Patrick are the stevedoring assets. I think for us the key asset inside a huge demand in Australia We believe that there is

and also in Asia, in particular, between Asia and Australia. to move goods very efficiently

chain you have, of course, Right in the middle of that supply that are key assets stevedoring assets in that we are unable to move, obviously, containers in and out of Australia without them being stevedored. From our point of view, we believe customers want a seamless, integrated capability

to move goods into and out of Australia

and up until now, whilst Toll's been very ambitious to put that capability in place, we've been unable to do that without a stevedoring capability. Is there a clear indication from customers that they want that? quite happily using Patrick's I mean, the customers are or other stevedores at the moment. shipping companies In fact, they deal with as opposed to your company. customers, don't you? I mean, you have different Look, I think at the end of the day, the one that we interface with. the real customer is when the goods are moved, That's the one that decides who they are moved with to move them. and how much they are paid between stevedores And whilst there may be cosy deals in the middle of the supply chain, and shipping companies is the end customer, the real customer the one that pays the freight bill and that's the one that we have the relationship with.

Some have suggested that the synergies that are really available don't come from putting the sort of two businesses together but the application of some sort of monopoly rent by the ownership by you of the whole chain of logistics from end to end. Is there something in that? No. I'd have to say that the synergies and the benefits will clearly come from three major areas. Revenue growth, which is more embracing of the services in and out of Asia, that we'll be offering an operational growth certainly from overlap in our current operations where there is some, albeit small, of some of the corporate structure and certainly the removal large corporations today that's built around the technology side of it, and most importantly, where, at the present time, we've got three technology systems -

one across Pacific National one across Patrick, and one across Toll. So those synergies are real, and swiftly, they will be achieved quickly but as time goes on revenue growth into and out of Asia. the big upside will come from If you don't get Patrick, takeover offers in Asia itself? will you have to start making in three countries in Asia, We've already got operations for some time now and our view has been grow them aggressively. we need to grow them and we need to to be a major player in Asia, We remain very ambitious as well as into and out of Asia. would you make in Asia? So what sort of acquisitions Well, we are more interested in trying to acquire operations

warehousing operations that are rich with and probably light in assets. opportunities And there are two or three that Toll has in front of it.

no priority to those Unfortunately, we will be giving

in the short-term, our total focus is with Patrick. able to look more closely But later in the year we hope to be at some of those opportunities. We'll leave it there. Thanks very much, Paul Little. Thank you. about Telstra, Standing in a blizzard of opinion I'm a bit reluctant to add to the snowstorm. But one conclusion is crystal clear -

it has been a disaster for John Howard. The polls show that a majority of Australians oppose full privatisation of Telstra, but at least when he was promoting the sale this year and preparing to bulldoze it through the Senate when he got control of it, John Howard could count on the support of the rest - the 1.6 million Australians and their families who own shares in the company. About half of them had lost money but all of them were persuaded

that the complete exit of the Government as a shareholder

was a good way to get the value of their shares up. Now they're angry too. The price has dropped from $5.01 a share

when Sol Trujillo took over as managing director on 1 July, to $4.30 now - a loss of $8.5 billion in value. The whole country is now in a temper about Telstra and blames John Howard and Sol Trujillo. Those two, meanwhile, blame each other.

Well, where will it end? If they're lucky, in a grumpy truce. More likely it will be a long, debilitating battle between Telstra and the Government and the ACCC over regulation, complicated by the Government remaining imprisoned as a shareholder because the price is too low to sell. The 2007 election might be too soon.

This is a new type of food store. It's organic but on a large-scale format, a bit like a supermarket. What it may become is a category killer. Not that there's much of one yet - less than 20 cents out of every $100 spent in an Australian supermarket goes on organic food, but signs are that that could be about to change. I like to watch trends.

I'm a serial entrepreneur, I guess. I was looking for the next new thing and this came along.

I was travelling quite a lot overseas, saw a company over there called Fresh And Wild. If you just walk in, the engagement with the shopping experience was much higher than you would see people like drones running around a supermarket. Before he turned to retail, Piers Cody was in media, having built up Cody Outdoor Signs into a big money-spinner.

SONG: # Signs, signs everywhere is signs... # I would drive around with a dictaphone in my hand.

As I would see the side of a building or a roof, I'd dictate, you know, corner of, you know, whatever, get back and do a title search and away we go. We grew to approximately 600-odd signs turning over about $60 million and it was a very nice business.

Then Cody sold out to O'Reilly's APN. Handsomely rewarded, he bought an organics shop in Bondi. But there was one operator in Sydney that, in fact, was up for sale

because the two partners had, believe it or not, apprehended violence orders against each other, which is really bizarre, which allowed me to sail through and buy them. (Laughs) Not a very Zen moment.

The offering has been refined with a second Sydney store and days ago, a third in Melbourne. So this is it, here we go, the stage is ready. The only mistakes that can be made now are our own. We've got great friends here. Friends that I've had for many years... Businessman, Steve Vizard, was briefly among them in his first public engagement for a while, nipping out the back suddenly. We are food retailing but we are not a supermarket.

We don't ever want to feel like a supermarket. Our people are not supermarket employees and we're taking it forward to a greater marketplace.

We could see 30, 40, 50 stores, pretty good, large-size format. The cafe is the soft opener,

it's the first point of contact with what we do and then you go into the supermarket within the store, as well as then another key part of our offering is the naturopathy area. We have yoga and massage, Pilates, et cetera. It's quite an unusual offering. And expensive to set up. So far, Cody and his partner, Sydneysider Brett Blundy, have sunk $20 million into the Macro concept. Staff costs are also three times the percentage of turnover as a normal supermarket. But the returns on investment are also much higher -

the two Sydney stores turnover a combined $20 million a year, on the back of profit margins higher than the few percent managed by the supermarkets. You have to spend it to get the infrastructure set and the return on it is very good. Turnover per metre, if that's some guide, we do very nicely, but we have to work it hard. And people pay much more for organics.

What we have in terms of the price differential, it varies between produce. Fruit and veg, it can vary 15% to 30% thereabouts. Because you don't use pesticides, for example, to ward off pests, the only way if you're not using pesticides is to put man-hours in, so that costs more.

People tend to buy it because it puts the colour on the shelf. These Granny Smiths, for example, retail for $6.99 a kilo. The grower gets 60%, the wholesaler 10% and Macro 30% - for now. Macro wants to squeeze out wholesalers altogether, going direct to growers. They know that if they can have a reliable retailer who will take excess stock that they may have,

yes, at a lesser price, which they still maintain a margin, but on a lesser output, then we can say to customers, "You can buy cheaply, organically." But I'm intrigued by what can you grow with something, what's the potential if it's grown threefold, sixfold, can it be 12-fold? I don't know, and it's fun trying to find out.

Luisa Saccotelli reporting. And that's it for this week. Coming up next, '7 Days' with Joe O'Brien. Thanks for your company. I'll see you next week. Captions by Captioning and Subtitling International.