Company searches leaving a paper trail to the gravy train

AUSTRALIA may not be leading the world in gold generation at the Olympics, but it is world champion in extracting gold for company searches and documents.

Even though the Australian Securities and Investments Commission recently reduced some of its charge rates, the cost of searching basic corporate information is more expensive here than from pretty much every other English-speaking, government-run, corporate database.

Bizarrely, in a country that prides itself on accountability and transparency, the cost of buying company documents in Australia is often more expensive than obtaining similar documents from places such as the British Virgin Islands and Guernsey, which generate huge amounts of income providing largely anonymous offshore incorporation services.

Insider is in the pulpit on this one after spending many hours in the past week chasing down local and international operators of investment ”mentoring” companies, such as Senen Pousa’s ProphetMax.

To be clear, this is not an attack on ASIC, which administers one of the speediest, easy-to-use and most reliable companies databases around. Its charges are there because it is owned by a federal government that long ago decided to adopt user-pays mechanisms as an alternative way of filling its coffers without actually calling them taxes.

ASIC’s charges for company searches are also far less heinous than those levied by the ”information brokers” to which it sublets its database. They double, treble and even quadruple their charge-outs for providing identical services – and Insider suspects that their profit margins might be even fatter because they are probably getting access at a wholesale rate rather than the retail price charged to punters.

This may go a long way to explaining why accounting and legal fees for commercial matters are often so high.

The regulator’s annual report last financial year revealed that a record 68.5 million searches were conducted via its database – or nearly 200,000 a day.

ASIC said that last financial year it raised $580 million for government coffers from fees and charges levied under the Corporations Act and National Credit Act. That includes mandatory filings, and registration fees, but it is a safe assumption that a goodly slice is from company searches by third parties.

Not all searches cost money, but obtaining any meaningful information does. For a simple company extract that will tell you when a company was incorporated, who is on the record as directors, who owns it and what documents have been filed – so long as the documents have been filed – ASIC will charge you $9.

That same search from information brokers can cost anywhere from $15.95 (the price charged by the Queensland Government’s CITEC arm) to an extraordinary $39.60 by NDC Business Information.

The eSearch Group charges only $13.20 for account holders, but casual users get hit with $18.70.

NDC’s audience is accounting and financial services companies, which makes Insider wonder how much of that cost gets passed on to the customers of its members’ firms.

ASIC levies an $18 charge for a copy of a document less than 10 pages (yes – $18 for a single page document!), which begins to look reasonable after you see that NDC’s schedule of charges starts at $48.95. Insider’s sibling publication The Australian Financial Review is an information broker too, and will charge you $30.80 for a sub-10 page document, which is about average.

Order a document larger than 10 pages, and we are only talking electronic delivery here – not snail mail hard copies – and you can be out of pocket up to $70.

Those charges, by the way, apply even if you are silly enough to search for documents of an ASX-listed company that are freely available through the sharemarket operator’s portal.

Use New Zealand’s company service, though, and you will not pay a cent to find out who owns and directs a company, or to see most of the documents filed.

The US Securities and Exchange Commission, which covers public companies, allows free access to its Edgar database, even though it can be cumbersome. Searching private company information can be a little trickier in the US because you have to know in which state they are registered, and different states have different attitudes to making the information available.

In Britain, each document search costs only £1, irrespective of size. In Hong Kong it is about $A3. Singapore is one of the more expensive places, not to mention clunkiest of online mechanisms, but still undercuts Australia in most instances.

Even the British Virgin Islands only wants $US25 for a company search or document – although it is manual, rather than automated.

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Australian KO blow flattens News revenue

WRITE-DOWNS at News Corporation’s Australian newspapers and a revenue slump forced the media company into a $US1.6 billion ($A1.5 billion) loss for the three months to June 30, although underlying earnings met analysts’ expectations.

Excluding the charges, annual net profit fell to $US1.2 billion, from $US2.7 billion a year earlier. Earnings before interest and tax climbed 13 per cent to $US5.6 billion but are expected to rise more slowly this financial year – in the ”high single- to low double-digit range”, the company said.

Chief operating officer Chase Carey said advertising growth would continue to stagnate, growing about 1 per cent in the US.

In preparation for the company’s split into separate publishing and entertainment divisions next year, the group announced write-offs of $US2.8 billion, ”most significantly” related to the Australian operations. It surprised the market with a fall in fourth-quarter revenue to $US8.37 billion, although one analyst attributed most of the fall to the rising US dollar. The decision to slash the value of its Australian assets followed a re-examination of its growth assumptions for newspaper publishing, the company said.

Operating income at its publishing division – which includes newspapers in Britain, Australia and the US, as well as the Dow Jones newswire – almost halved in the fourth quarter, dropping $US131 million to $US139 million.

Full-year operating income for the publishing division fell $US392 million, due to falls in advertising revenue at its Australian newspapers, the integrated marketing services business and its newspapers in Britain, as well as the absence of contributions from the closure of the News of the World in the UK, the company said.

Mr Carey told analysts that after a management overhaul at its Australian businesses, there would be more significant restructuring of the local arm, which would weigh on profits this financial year.

Chairman Rupert Murdoch said he was proud of the company’s growth, saying it had ”continued to innovate, grow and consistently adapt to the rapidly changing media industry landscape”.

Citi analyst Justin Diddams told clients that the earning ”miss” would be disappointing for investors. But he said it was worth noting that the company still hit its 2011-12 guidance and delivered a robust guidance outlook for next year. ”And management remains committed to the share repurchase program,” he said.

Cable networks remained the powerhouse of the group, contributing $US792 million in operating income for the quarter, up 26 per cent, supported by a 15 per cent increase in revenue. Television was the next largest contributor but its performance was dampened by poor ratings on key shows such as American Idol, and an advertising decline.

News Corp shares slipped 73¢, or 3.2 per cent, closing at $US21.88.

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World-beaters start with a winning state of mind

A Letter From London 2012

DEAR Readers,

In part this is a story about Gina Rinehart, but before that, the Olympics.

As the Olympic closing ceremony approaches, it’s plain that there will be ongoing media coverage about how Australia performed. It will be intense and there will be nowhere to hide as the questions are asked about how our athletes can better use their capacities to perform world-beating physical feats.

We are a complex species and it’s plainly not just about who has the biggest muscles.

It’s about body and mind. Having the will to win is not quite the same as having the body to win.

Plainly the Australian Olympic team needs a much better understanding of this complex mind-body relationship and the first nation to understand as much about preparing the mind as the body will have dramatic success – in all things.

All this was uppermost in my mind earlier this week as I shot back from the UK briefly to take up the chairmanship of the newly expanded Florey Institute – the second-biggest mental health research institute in the world.

One in five Australians suffer from mental health and brain problems. It is one of our greatest tragedies – yet at the same time one of our greatest opportunities, with the coming together of the world-leading mind and brain institutes of Melbourne and Monash universities to meet the most important challenge of the 21st century – how the brain really works. The opportunities are even greater because of the explosion in the middle class of Asia, already known for its rapidly growing consumer market but lesser known for the proliferation of some of the side effects of wealth – obesity, depression, addictions and degenerative brain disease that often accompanies longevity.

The world of the Florey is set to have worldwide influence and benefit. It deals with many issues, but at the top of the list are near breakthroughs in Alzheimer’s, epilepsy and addictions. Solutions to these problems will transform humankind.

The Florey is totally committed to being world’s best in this field and my trip home between the opening and closing ceremonies made me wonder if anyone in our Olympic organisation knows as much about tuning minds for success as they know about tuning the bodies.

About 2500 years ago, Buddha observed, ”What the mind thinks, we become.” It’s true for everything, including business. And the Florey is here to take it a whole lot further.

Gina Rinehart’s fortune was built as a result of a light plane trip by her father, Lang Hancock. Adele Ferguson brilliantly tells the story in her riveting unauthorised biography. In 1952, Lang Hancock was flying from their home in the Nunyerry to Perth when bad weather forced him to drop to 1000 feet.

Flying just above the ranges in heavy rain, he saw a glistening in the rock faces that can only be identified at a distance in a torrent. It was one of the greatest iron ore deposits on earth.

Hancock had the mind of a winner and that mind in turn trained his daughter brilliantly in persistence and refusal to be defeated. In Gina’s case, she wants gold. Lots of it.

Our Olympians and their trainers would do well to develop these qualities to a much higher level.

Our opportunity to achieve international success in everything we do depends, more than anything else, on having a winner’s mind.

Harold Mitchell is an executive director of Aegis.

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Thodey ahead in 4G race

‘The beefed-up 4G push could now entrench Telstra’s gains.’TELSTRA chief executive David Thodey unveiled an important tactical move when he announced the group’s 5.4 per cent rise in June-year profit to $3.4 billion yesterday. He is going to divert $400 million that would have fallen to this year’s profit line and invest it in growth.

Risk-shy investors who have piled into Telstra’s high-yielding shares and helped push them from $2.61 in March last year to a high of $4.07 on Monday sold yesterday as Thodey redeployed Telstra cash and held off on dividend increases and capital returns. The shares closed 9¢ or 2.3 per cent lower, at $3.88. This is the second time Thodey has forsaken short-term profits in pursuit of a big reward since he took over in 2009, however, and the latest move should succeed.

Telstra’s capital expenditure increased by 5.3 per cent to $3.6 million in the year to June, and included $800 million of mobile network spending. The rollout of Telstra’s high-speed 4G mobile service was a new ingredient in the mobile budget. Telstra was the first Australian

telco to launch 4G in September last year, and already has 40 per cent of Australia’s population covered. Earlier this week, Thodey won the board’s backing to put his foot on the 4G accelerator and, potentially, on his competitors’ necks.

The plan he successfully presented to the board calls for Telstra to boost mobile network spending this year by another $400 million to $1.2 billion and to use the funds to ramp up the 4G rollout.

Thodey said yesterday that he wanted to maintain Telstra’s ”network advantage” but that’s just a polite description of a much more brutal strategy.

Telstra has installed more than 1000 4G base stations and from a flat start last September has signed up 375,000 customers on 4G mobile and wireless broadband packages. The take-up is greater than Thodey and his executives predicted and it is accelerating: subscriber numbers have doubled since May.

Thodey’s pitch to the board was that the group had an opportunity to turn its first-mover advantage in a service that will become ubiquitous into something much more formidable.

The board agreed with the chief executive and it’s a very important tactical call, in two ways. Firstly, it could be the kind of game changer for Telstra that the construction of the NextG network by Thodey’s predecessor, Sol Trujillo was. Secondly, it underlines that while Telstra is a high-cash-flow, high-dividend-yield venue for investors, under Thodey it will also allocate funds to growth gopportunities: budgets can and are being significantly adjusted when opportunity knocks.

The NextG network that Trujillo built is the most efficient and ubiquitous 3G network in this market and after Thodey harvested $1 billion of potential gross earnings and used it to structurally lower Telstra’s mobile plan prices in the second half of 2010, its latent power was unleashed. The telco signed up 1.6 million new mobile customers in the year to June, and has secured more than 3 million customers in the past two years.

Mobile services revenue rose by 8.5 per cent or $679 million to $8.7 billion in the year to June just completed, and mobile profit margins actually widened, from 33¢ of earnings before interest, tax, depreciation and amortisation per dollar of sales to 36¢.

Mobile services are sold by several of Telstra’s business units, and mobile profits are not separately detailed. The margin and sales expansion points to an outstanding 21 per cent rise in mobile-related EBITDA in the June year, however, from $2.6 billion to $3.1 billion. That’s almost a third of Telstra’s earnings.

Vodafone’s well-documented coverage debacle and market share losses in this country helped, but Telstra’s mobiles momentum is mainly attributable to the strength of the network that Thodey inherited, and his decision to invest $1 billion in lower mobile prices.

The beefed-up 4G push could now entrench Telstra’s gains. Smartphone and mobile broadband users are going to progressively convert to the faster 4G service, and the share of smartphones in the mobile market will also inexorably rise, from the current level of about 50 per cent.

Thodey is being cautious because early adopters of new technology also tend to be the heaviest users, but he is moving to recreate leadership in a market that is inherently more profitable than the 3G one it is overtaking: 4G’s forte is download speed, and it drives revenue per user higher.

The move makes Telstra a slightly riskier conveyance: Telstra will, for example, temporarily go about 1 percentage point above its capex-to-sales target of 14 per cent while the extra money is spent.

It is still a strong yield play with its 28¢ a share annual payout, however, and the odds are good that Thodey’s accelerated spending will open up a 4G lead that is unassailable.

Telstra’s competitors will get a healthy 4G market share too, but Telstra’s lead in the 3G market is on course to be successfully transferred and, perhaps, expanded.

The Maiden family owns Telstra shares.

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Telstra has future profit down to a T

TELSTRA chief David Thodey is betting billions of dollars on high-tech mobile and broadband infrastructure to fast-track earnings and cement Telstra’s dominance in the telco sector.

Mr Thodey has earmarked $1.2 billion to build more high-speed and high-capacity 4G technology around Australia, and is speeding construction of an inter-city fibre-optic network that will be leased to NBN Co.

And that new profit stream appeared in yesterday’s full-year results: Telstra received $67 million in leasing payments from NBN Co during 2011-12. The payments will increase to hundreds of millions of dollars as soon as Telstra finishes building the inter-city network. It will spend an extra $100 million to get the transit network built within two years rather than three. Stage one is completed.

Yesterday Mr Thodey revealed that another gamble was already paying off – a decision made in 2010 to spend $1 billion increasing productivity, improving Telstra’s woeful customer service, and to steal market share from other telcos, particularly in mobile.

Telstra has since added 3 million mobile services to its network, and gained productivity benefits of $1.1 billion. It own metrics showed customer satisfaction was improving, Mr Thodey said.

Post-tax profit increased by 5.4 per cent to $3.4 billion in 2011-12, from $3.2 billion the previous year, despite a modest 1.1 per cent increase in revenue to $25.4 billion.

Management expects low single-digit growth in revenue and earnings in 2012-13. Shareholders will receive a final dividend of 14¢, fully franked, on September 21 for a total of 28¢. Next year’s dividend will also be 28¢ fully franked.

There are no plans for a share buyback or special dividends. Mr Thodey said it was prudent to keep dividends stable because global economic conditions were uncertain and money was needed for infrastructure investment.

Telstra’s results met analysts’ expectations, but the share price tumbled 11¢ during trading before closing at a two-week low of $3.88, down 9¢ from Wednesday’s close.

Morningstar’s head of research, Peter Warnes, said foreign investors probably sold a lot of shares to lock in currency gains, with the Australian dollar trading close to $US1.06. About 30 per cent of Telstra’s shares are held by foreign investors.

”Look at the currency. These guys were probably buying at $3.50, substantially lower than where it is now at a 52-week high of $4.09. That is a 14 per cent gain on the share, and add in the currency – they probably have a 20 to 25 per cent gain,” he said, adding that overseas investors got no benefit from franking credits.

The results also revealed that the number of active telephone lines had dropped below 7 million for the first time, to 6.8 million, and average monthly revenue from each account dropped below $50 for the first time, to $48.88.

But somehow Telstra managed to increase the profit margin on its fixed telephone network to 60 per cent. Mr Thodey put this down to ”running a more efficient business”.

Households without a telephone line increased from 12 to 14 per cent, but this figure does not include households with a fixed broadband connection.

Deutsche Bank analyst Andrew Anagnostellis said: ”The earnings divergence between ‘good Telstra’ (mobiles were up 8.5 per cent and network applications and services were up 10.5 per cent) and ‘bad Telstra’ (copper network was down 10 per cent and Sensis and advertising down 16.1 per cent) was more extreme this year.”

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