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Inside Business -

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(generated from captions) scamminess of AWB, what its

fund amountly about is the

Foreign competence of the Department of

Foreign affair s an Trade that

did not manage to discover a

$300 million kickback scam over

four years. This is an inquiry

into the competence of the

Department and the Minister.

Maybe there will be a

ministerial vacancy. Not so

much an observation as a wish.

I wish I could be a fly on the

wall to a parliamentary

delegation to China. I think

they could have met somewhere

here and just as fascinating.

But I think Barrie, due

deference to David and AWB but

I don't think it will sell five

extra newspapers. I think the

Cole report will be back but

Ziggy's report on to nuclear

energy will sell and it's going

to be fascinating to see where

our energy future is headed. A

lot of chatter within the Labor

Party about Greg Combet going

into the parliament at the next

election. I don't know whether

this comes as news to Harry Jen

kins in Sculli nirkz but that's

the target. That's it this week

but I'll be back in half an

hour with 'Offsiders'. G'day,

welcome to the program. In week

are the wheels falling off the

commodities cycle? As metal

prices continue their sixth month retreat we'll take a look

at the dynamics behind it to

see if the trend may become

something more permanent and

we'll also talk to the new boss

of Myer, Bernie Brookes about

his plans to get the recently

privatised retailer ready for

refloating. CC

And in first person the

bagman who's getting away with

it. We've got to keep one step

ahead of the copykateds. It's

getting traiz crazy out there

with all the rip offs and design infringements that we're

now fighting in court. Six

months ago this week BHP and

Rio hit all-time highs. BHP was

at $30 and Rio washooding

towards 90 thanks to the

exponential surge in prices on the London Metals Exchange.

Since then metals have lost a

fair bit of their lustre, in

coppers case about 20% of it.

That in turn dragged the big miners down by a similar

amount. So was May the peak of

the commodity cycle. Kathy Swan

reports.

In a 5-minute flurry of

mysterious gesticulations each

business day 11 traders in

central London get down to some

serious hagling and set prices

for some of the world's key

industrial metal an while the

quaint tra digs of the London

metal exchanges ring is

centuries old, it's doubtful

finger waving has been any more

vigorous than the protracted

period of buying leading up to

May this year.(Bell rings) As

the LME warehouse stocks

dwindled away prices soared and

in May, copper, one of the bell

weather stock, hit a record of

about $8,800 US a ton, a rise

of 400% in just three years.

Zinc and nickel followed a

similar trajectory as the world

pondered what would happen if

available supplies actually ran

out. In May we had a euphoric

rise in copper prices. Nick

Moore, ABN amrose London based

chief metal analyst says that's

about as good as it will get

for copper for some time. Well

the main issue has been a rise

in London metal exchange

stocks. Since 18 October

they've risen 42% and virtually

every day we've had an inventry

rise and this has begun to

spook investors who have headed

for the hills with that

haunted, hunted look on their

faces. As stockpiles grew, the

red metal price reached its

tipping point and began

seriously heading south. And

according to an International

Monetary Fund report released

in September, there won't be

any significant change in that

trend for at least the next

three years. In particular, it

forecasts the copper price was

likely to decline almost 60% by

2010. That's not a view shared

by the mining giants as BHP

Billiton chief Chip Goodyear

was anxious to assure his

shareholders last month. Our

prediction in commodity frooi

prices is no torable. We believe solid demand struggles

to keep up will continue to

characterise our industry in

the short to medium term. But

is it the end of the

commodities boom as recently

declared by Treasurer Peter

Costello? Analysts who have

been watching base metal

movements for years are divided

in opinion. We're still in the

relatively early stages of a

prolonged period of trend rise

in real commodity prices that

we've called the super

cycle. There is winds of change

sweeping through commodity

markets and that hot volcanic

blast that we saw earlier in

the year is now giving way to

much cooler times. These things

can't last but at some stage we will start to see things

ease. There's been easing

lately with interest rate rises

globally to turn the heat down

on growth and kerb inflation.

But there's still demand for

base metals and it's still

mainly from China. The real

change has been that there's

now more of some metals

available. We're seeing a rise

in the stockpiles held on the

London Metal Exchange and some

of the other terminal markets

like comex in the United States

and the Shanghai futures

exchange. Citigroup's global

commodities analyst Alan Hooep

says markets are seeing those

increases as a slow down in

demand but it may be more

slight of demand. In Asia

stocks are increasing because

of sales by the Chinese state

reserve bureau. The Chinese are

in effect pulling copper out of

their own stockpiles an moving

them to LME . So the idea that

demand is coming off is in fact

probably a false view. Day war

securities head of research

Mark Pervan says China is

trying to cool conditions

eshlly. I suspect they are

trying to massage prices down because they know going forward

they are still going to be a

larges consumer of these

commodities. From China's point

of view buying at top spries a

fool's game to a steady release

of State Reserve Bureau

supplies has helped keep Asian

warehouses stocked up but

staying out of the market can

only last for so long. There's

nothing wrong with underlying

demand in China. We do have

some worries about substitution impacts, demand destruction

because of these very high

prices but apart from that,

there's nothing really wrong

with underlying demand. It's

just a question of when the

consumer has the confidence to

come back and start to rebuild

his inventries. A slow down in

housing construction in the

United States is also adding to

the copper stockpiles. The

slowdown in the housing sector

has sway yet to go, probably

the fourth quarter of this year

will be the worst period and

therefore we should see a

resumption of reacceleration in

demand probably by the middle

of next year. In the meantime,

metals prices remain quite

elty, even for copper, despite

increased supplies. There was

about 2.2 dais of copper

sitting on the London metal

exchange only about a month

oock. Today it sits at about

3.3 days. Historically it

trades at 11 days so still a

very tight market. Percentage

rise we've seen a large rise, a

30 to 40% increase there the

last month but it's off a low

base. It's prices are off a

high base so we are seeing that

coming off. A key issue now is

where do the big mining

companies go for their metals?

The current shortages are

pushing changes in attitude to

locations long held to be too

difficult. We need to continue

to look and acquire and develop

projects in emerging parts of

the globe, to find the next

generation of opportunities

requires that we go beyond

Australia, North America, South

South Africa and Latin America

and we have an excellent track

record of doing sow with

outstanding projects in

Mozambique, Pakistan, Algeria

and Columbia. The The big

mining companies are now talking about moving into

Africa in a strong way, the

Middle East and rush yasmt

previously these areas were

areas seen as way down the list

for development. So they're now

right at the top. Other

unpredictable variables like

labour strikes holding up

production this year or

projects not coming on line as

expected will also continue expected will also continue to affect supply. And there's

another factor pushing up

prices. The speculative investor. The biggest change

for them apart from those

economic issues of China and of

consolidation has been the

arrival of the pinstripe

consumer and the financial

consumer moving vast amounts of

money into relatively illiquid markets has creating this

dripping rose scenario. These

very high prices have been in

part due to an unprecedented

level of speculative and

investment flows into the

commodity markets themselves

and those flows are likely to

prove unsustainable, eventually

we'll see investors quit these

markets and prices will come

down again. All the key LME

metals lost ground again this

week but miners won't necessarily follow prices

down. The big mining companies

like BHP Billiton and Rio Tinto actually disconnected from some

of the metal prices like copper

and nickle three to four months ago. That actually might

protect the mining stocks the

fact that they never priced in

the up side in the first

place. And just where commodity

prices are expected to settle

is still about 30% above where

they've been in the past. After

five glorious years it's now

coming to an end and that's

what we've got to prepare for

in the new year is

fragmentation, picking the

right commodities an enjoying

for the companies what I still think will be another four

glorious years to the end of

this decade. Lower prices but

very profitable prices. This

year's price highs came as a

surprise. To come back down a

little isn't going to end the

party but maybe just turn the

music down a little.

And now with a wrap up of the

week's market and business news

here's Kate Tozer. A bleak

report on US housing wasn't

enough to depress Wall Street

spirits as the Dow Jones

climbed to another new high on

Friday and the S and P 500

followed above 1,400 points for

the first time since 2000. New

home construction tumbled 15%

in October to its lowest level

in six years. In other economic

news out this week, October retail sales were down,

producer prices fell, and there

was a smaller than expected

rise in industrial output all

increasing the likelihood of an

interest rate cut in the new

year. Shares in altreeia and

the other tobacco companies

soared after they won the right

to appeal a $200 billion US

class action. US air-Lyons lost

an $8 billion bid for the

bankrupt airline Delta. Airline

stocks have been trading at

highs not seen since before the

September 11 attacks the,

helped along by a 6% drop in

the price of crude oil.

The Australian share market

softened slightly as broker

Marcus Padley explains. And

finally a down week in the

stock marmt. This was the week

of the big switch out of

resources into more defensive

stocks. It seem aslot of people

are now worrying that some

commodity prices have now peaked and it certainly showed

up in some of the share price performances from the big

resource stocks. The industrial

performance was also helped by

the Reserve Bank's statement on

monetary policy out on Monday.

That statement told us that

they at least think that

interest rate settings are

about right and that's been

interpreted as meaning we are

not about to see an interest

rate rise. Plenty of results

this week, most of them caused

share price rises including

results from:

since they withdraw

their bid. It looks like the

take over premium is now

drifting out of the Coles Myer

share price. Also on the

takeover front the big news was

that Macquarie media took a 15%

stake in Southern Cross Broadcasting. They described

the stake as friendly. We'll

see how friendly it is next

February when the cross-media ownership rules actually

change. We saw a bid from alint

a for alint a infrastruck

schur. They're bieg it back at

almost exactly the same price.

There was also rumour for a bid

for Commander communications

from Optus and they had a good

share price rise. Telstra, this

was the week of the

institutional book billed on

Telstra. Telstra had shabby

performance this week. I seemed

like the institutions didn't

have to hold their stock to get

the entitlements so they sold

it.

Since getting the keys to

Myer's stores back in June, the

private equiteers from the

Newbridge offshoot tech yas

Pacific have been busily

renovating their $1.4 billion

investment but saying very

little. The key decision so far

has been recruiting the

experienced retailer Bernie

Brookes from wool worths to run

the business and manage the

renovation project. Here's

Bernie Brookes first interview

since take over Myers. Can you

give us a sense of what Myer

was like when you took it

over? I think firstly the Myer

business was a good business

although the profitability

wasn't particularly good it was

a business that's got a great

brand icon and with that we

kind of think there was a good

opportunity to go forward. It

was a business that had a lot

of recalcitrant stock that

needed to be clear and waitedz

a business that had a culture

that was slow and slvenly and a

business not focused on

financial returns. I was a

business that had lots of

upside but at the same time

there was some good part, great

brand, and at the same time some fantastic people. We know

that you cleared the stock

through a $150 million

clearance sale. What did you do

about the bureaucracy? Well I

think firstly our primary

objective was to stream line

and do away with as many thing

ass we possibly could so we

took our management paperwork

down by 60%. We did reduce the

numbers of staff in the office.

Zbli By how many. We took about

15% of our staff out so we're running on about 150 people

less but we've zone that in a

slow many thod Cal way instead

of suddenly making people

redundant. At this stage we've

made nobody redundant but by

natural attrition. Reducing the numbers of people was an important part of lowering the

cost base in the business. As

the clearance sale and the way

you dealt with your stock left

you understocked at all? It did

initially. In fact we probably

cut a bit too deep so it took a

Australia a while to recrover.

But we've taken our stocks

levels down to about 14 weeks

where previous it was running

to 22 to 24 weeks stock. It's

about $150 million cost out of

the system which is nearly

$300, $400 million of retail.

It did leave us short but we've

recovered well. And did you

have to rebuild your supply chain to China because I know

that Coles Myer was putting

something in place at the time?

Did you have to restart that

from the beginning? We're in

the midst of doing that now.

This was only 160 days into the

business and there's been some

things we've done really quickly. One of those has been

able to reestablish a new

supply base out of Asia, a new

console dater so we're in fact

up there later this week

finalising the agreements with

all of those to take over that

supply. Coles Myer though have

been tremendous as a service

provider for us as we've wound

ourselves out of Coles Myer and

into our own business. And how

have you dealt with your

suppliers? Have you changed the

terms of supply contracts? I

think the three adjectives I'd

use to talk about our dealings

with suppliers now is that it's

tougher. At the same time

- You're tougher? Yes, my word.

Our business is about buying

product at a better price and

adding more value for our

customers. So we have been

tougher in the way in which we've dealt with our supplies.

At the same time I'd like to

think we provided a better

return and the third thing I'd

say is there's a lot less of

them. So wooe worked our way through reducing our supply

base and working with better

suppliers that provide us with

a better quality product at a

better price. Does tougher mean

changing your payment

terms? We've changed some

payment terms an changed the cost at which we purchase

product from. I say that

unashamedly. From our

perspective it's about buying

at the best price for our

customers. What's the situation

with your landlords. Has anything changed with the way

you deal with them? Twooef

spent the first 160 days

meeting with them and talking

about opportunities. We have

plans to make the Myer brand bigger an better therefore

we're looking for more sites.

We're negotiating on a number

of extensions of stors. We're

in negotiation of quite a few

new stories. Have you closed

many stores or any stores? We

plan to exit one store early

next year which is our Burwood

store and that came about

during the sale period for

Coles Myer and Westfield there

was a deal for us to exit that. That's expected. It's

unfortunate, none of those

staff will be made redundant,

we're going to relocate them

into other stores an lit have a

bit of an impact on our revenue

line but the good news is we've

got plans to make up for it in other areas. What about the Melbourne store which St

Regarded usually as the

flagship of Myer, what's the

plan there? It's a beaut store.

It's Curranly part of the

purchase we made from Coles

Myer and when we paid $1.4

billion part of that was a purchase price for this building. Part of the building

is heritage listsed so we're working through with the council an heritage Victoria

now to see exactly what's

possible in regard to

revitalising this olt old beaut

store. Do you expect Myer's

presence within the store to be

smaller than sit now? It's a

bit early to call what we do

with this store. It's the

largest department store in the Southern Hemisphere which means

it's a bit too big and got lots

of lilt areas that are unuse

ed. We do plan to use the space

a bit smarter. So we'll

probably be a slightly smaller

Myer store going forward but no

finite plans as yet as to what

we plan to do with the

development of it. Not just

this store but all the stores

but possibly even mostly the

Melbourne store, does mieor in

general have too many

departments? Not necessarily. I

think from our perspective

we've probably got a few too

many brands in categories so we

have gone about reducing some

of those brands. If you think

about ra department store in

its heyday it was about

providing a wide range of

products of good quality

products and I think to some

extent you've got to be careful

not to reduce the range too

much because in many cases

you're going to disenfranchise

the customers. So we don't plan

to exit any categories an if anything we plan to look at

some new cat grrks. Things have changed since the hey day changed since the hey day of department stores when

department stores did

everything. They didn't have

category killers they didn't

have Harvey Norman in those

days so surely there must be some departments that don't

make any money? There's no department that we currently

have that does not make money F

there was we're a private

equity company we would have

exited that pretty quick. All

the category we keep are

profital, they're nost nothing

we're going to walk away

from. With the fashion which St

Clearly the most important part

of the business, is there an

element of you using more of

your own brands there now than

before in order to keep tp

prices and costs down? Yeah,

it's really important to get a

balance between the private

label or designers by Myer and

what we keep from a branded

manufacturer perspective.

You've got to keep a You've got to keep a really good balance because otherwise

geb the customer will get

upset. Our so our focus is slowliy introducing more

designer exclusive to Myer. At

the same time keying the Cues

an Country cap roads and our

major brands. Looking at the comparison say between David

Jones and Myer. Mie ser private equity owned, David Jones is

not. Does that mean do you

think, that Myer will tend

towards having more of its own

brands than David Jones? I

think what our smaller

competitor does is entirely up

to them from our - Smaller

competitor. We are about moving

at the rate of knots to be able

to increase the presence of

private label. Why? Because

firstly we think we can provide

a better offer to the customer

at a gleater value and secondly

when we own that brand we can

control what we do with it,

where we take it out and how

stretch it so we will have more

private labour. What% ibling

Our sister company in the UK

has over 50% private label F we

get to 20% we'll be doing well.

We don't plan to We don't plan to throw brands

out wholesale in our store. To

what extent will be you be

looking at David Jones in terms

of how you rebuild Myers? We're

in slightly different markets.

Our smaller competitor is in a

different market. I'm more

focused on the speciality

stores and some of the discount

department stores as well as

our other department store

competitor. It's about

everybody that's outside our

door that our customer goes to.

We want to get as much of that

business as we can and we do

that by building a better

customer franchise. Zbli notice

you keep calling David Jones

your smaller competitor is that

because being from Woolworths

yourself you done want it to be

a Woolworths Coles situation

between Myer and David Jones? I

think the media and to some

extent our previous owners

focused far too much on what

was called story wars. When you

think about it it's gread for

the media but does very little

from the business point of

view. I think the first thing

is there's no reason why both

our smaller competitor and ourselves can't be successful

in the market place. We're

actually fighting two different

fights. From our sper specktive

it's about making sure we've

got a good positioning in the

market which above St Discount

department store, it's a big

enough gap for us to fit in and

I think there's plenty of

growth left. When do you expect

to refloat the company on the

stock exchange? We've got a plan to float over the next

three to five year. It's drifb

not as much by time line as by

EBITDA. If we hit certain

levels of ebit da we can look

at taking it to the market.

There are two drivering

factors. The first is satisfactory levels of return

for our existing shareholders

an the second is to provide upside for new shareholders

going forward. We won't move

into the market unless we

satisfy both those criteria. It

could be as quick a time as

three years? I think probably

closer to five than three. Lit depend on economic conditions

it's going to depend on how

well we perform. And how good

Christmas is. It will be more

likely closer to five years.

Ace going to be drichbt by the profit performance. Thanks for

joining us. Thank you. Sphns

minister Nick Minchin is due to

hold a press conference? Just

over an hour to announce the result of the government's

third sale of Telstra shares

T3. Ki reveal he will announce

a sale of about $4 billion

shares at exactly $3.70 for a

total of around $15 billion,

nearly twice the amount

originally proposed. So T3 has

been a resounding, rather surprising success. Well,

perhaps not that surprising,

given the subsidy from the

Government inherent in paying

the full dividend on d

downpayment of $2. The closing

of the sale today launches two

things - a free Telstra and the

future fund. Nick Minchin

doesn't get the money he

announcings today, the cash and

the remaining 2 billion shares

both go into the fur fund. T3

merely determined the

proportion of each. So the

future fund now has $18 billion

in cash on deposit with the

Reserve Bank and it will now

get $15 billion cash from T3

blus a 17% shareholding in

Telstra that it must hold for

two years. Then it gets this

year's budget surplus, which is

at least $14 billion making a

total of about $47 billion to

go into the markets. Adding to the superannuation flows that

are already pushing market

values higher. Also, we'll now

find out what Telstra really thinks of the government and vice verse a. The Government

has said the main reason for

selling the rest of Telstra is

to remove the conflict of

interest between owning and

regulating the company. Now if

that statement means anything, and it's always possible it

doesn't mean anything at all,

it suggests the Government has

been going soft on Telstra as

half owner so we might now

expect the gloves to come off.

Like wise Telstra has been

biting its collective tongue

lately for sure and laying off

the whinging about regulation,

trying to help T3 by reducing

the noise of conflict. So I'm

just wondering how soon before

they're in the High Court. And

the man left in the middle is

Geoff Cousins an unwanted

government plant on a board

left behind by John Howard to

stir up trouble, or maybe to

patch things up. In the cut

throat world of marketing the

Australian bag maker Crumper

stand out for building a successful international

business using a bargain

basement blend of edgy home made ads and politically

incorrect promotions. In fact

they shun a lot of accepted

business practices and it's

drawn its fair share of

unwelcome imitators. We're very

much enjoy having fun and we

put that first, really, before

anything else and I mean if you

don't enjoy what you're doing,

then your staff aren't happy

then why bother really. Go and

do something else. Dave cap

roper along with Will Miller

and Stuart Crumper are the

founders an owners 06 Crumper

will. The being manufacturer

designs an sell asrange of

camera bag, sachels, lap top

bags an backpacks retailing up

to $400. It has 17 stores in

Australia, North America and

Asia. We usually get to work

between 9:30 and 10:30. Will,

Stuart and I will try and have

lunch together most days, get

out of the office and have a

good chat about things and

often that can extend to a

fairly lengthy lunch. The

business started in 1995 after

Stuart Crumper will designed

some bags for the other

partner's successful bike

courier business. The bags were

so popular that they sold the

courier company and began

selling bags. Crumper will

employs 30 people designing and

running the business from its Melbourne headquarters. Most of

the manufacturing is done in

China with the main material, a

thick nylon, sourced

offshore. We were buying that

when we first set up for about

$20 a metre. We then started

buying from an importer and we

were sourcing the same material

for about $16 a metre. Now we

can actually buy that material

direct from a manufacturer in

Korea for about $7 a

metre. Last year crumper will

sold about 500,000 bags an

supplemented the business with

a boutique customed designed

bag service in Melbourne and

New York. Next year Crumper

will is aiming to crack $10

million in sales but it's marketing budget is a slim

$100,000 and the business is

credited with pione, ring today

what's known as viral Margareting. Very early on when

he had no money for advertising

andmying we thought why don't

we just paint logos all over

the streets so we made a big

stencil, drove around in

stewy's van just painted it on

walls without any reference to bags or to our company

name. But David Roper rejects

the viral marketing label. We

find all that stuff a little

bit of a wank. You think that

phrase was a coin, you know, in

the mid'90s and it became quite

a popular thing to do so we

don't do it anymore. These days

the partners use their own

rather ex sent rick website and

others like YouTube to spread

their message. We just enjoy

doing these little flicks an

obviously with technology these

days around YouTube and flicker

it's very, very easy and quick

to be able to put up photos and

flicks that you're making.

Crumper wills major and on

occasions controversial annual

sale is its beer for bags

promotion where only beer is

accepted as payment for

products. People talk about it

and a lot of PR comes through

that but it wasn't planned adds

such. We didn't sit around our

boardroom table and say we need a Newmarketing campaign for the

fourth quarter, December

quarter. Crump ler's major business challenge comes from

its imitators. We've got to

keep one step ahead of the

copycats. It's getting crizy

out there with all the rip offs

an design infringements we're

now fighting in court a very

strong way. With design

registrations on a lot of our

new products we're able to win

all those cases very all those cases very

easily. It's also drawn the

attention of venture

capitalists and Dave Roper says

they're likely to be involved

in Crumpler's plan to ex-pan their retail stores in the US

and Asia. We don't want to

change the dynamic of the

business. Money's easy to fine. It's expertise and experience

that we're much more interested

in. So a combination of someone

that really understands our

bags or you know, distribution

or retail in foreign markets

with lots of money would be

great. Hope you noticed the

inside business bag there.

That's it for the program, I'm

afraid. Trits of all today's

stories and interviews will be

available at: Thanks for your

company again, see you next

week and now it's back to

Barrie and the 'Offsiders'

team. This morning golf,

cricket and the Tri-Nations and

Australia last night sent Great

Britain packing with a decisive

victory perhaps best summed up

in the very last seconds of the match.

COMMENTATOR: Out for wellands

out for Senior. He comes centre

field. Garrett reigner with the

ball, points, now he kicks,

knocked down by Thursday ston,

picked up by hand marsh. He

doesn't want game over. Smith

away to Lockyer. What about

this. Lockyer back for hud. He

will kick downfield. Tate's

getting flu. Tate will pick it

up. He's inside the 20. Brent

Tate for the corner. Oh my