World Investor NZ

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$8.95Issue 222 October 2013

$8.95

THE WORLD ACCORDING TO

BOB JONES

SIX WAYS TO FRANCHISE A FORTUNE

HOW TO CASH IN

ON COMMERCIALPROPERTY

LUXURY &

ADVENTURECRUISES


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FEATURES

5 Cover Story- Sir Bob Jones

10 King Comm- making money from commercial property

20 Franchising- How to grab part of a $20b industry

30 Historic luxury property

40 Luxury and adventure cruises

56 Investing in Wine

REGULARS

3 Whats New

15 David McEwen

18 Michael Coote

26 Stock Market Report

27 Share Talk

38 Investing in Business- Derek Handley

46 Arts and Antiques- leasing art

52 Company Prole- Vaione Gin

54 Wine with Timothy Giles

62 KPMG

66 Watches and Jewellery

WORLD

INVESTOR

10

20

46

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WORLD

INVESTOR

Introduction

Teres nothing like a person with strong opinions- at least youknow where you stand with them.

Sir Bob Jones is such a gure, and love him or loathe him, you

cannot ignore what he says.Its not only a matter o what he says about New Zealand

needing to run itsel properly and generate wealth, but also howinvestors can also generate wealth.

Since the 2013 National Business Review Rich List estimatesSir Bob as being worth $550 million, wealth creation issomething he so obviously knows much about, so we shouldtake heed at what he says.

Sir Bob made his ortune in commercial property investment,so this months issue takes a look at how it is done and what arethe opportunities there. It appears New Zealand oers some othe best returns in the world rom investment in commercialproperty so this kind o investment certainly looks like

something to consider.Another thing in which New Zealand is a leader is ranchising,so to tie in with a major ranchising expo in Auckland thismonth, we look at the opportunities presented by ranchisingand how some well-known ranchises like BurgerFuel andRodney Wayne make their bucks.

echnology entrepreneur Derek Handley also shares a ewsecrets o his success, too.

And i you have plenty o bucks, why not enjoy the trip o alietime with an expensive cruise?

Tis months issue takes a look at the cruise market and its notjust a matter o nding luxury, but also adventure, with someincreasingly exciting and innovative destinations on oer- andmodern comorts can still be enjoyed.

Indeed, what can be better than sitting on a cruise liner witha drink at hand, so om Tomson has ound a ew top tipplesmade in New Zealand, or you to enjoy at home and overseas.

We have Pacic-style gin rom Auckland and a rum romWaiheke, made by a descendent o a real-lie pirate. Both arelovely drinks too, so dont orget to enter our competitions towin a bottle.

Tese proles add to our regular wine column rom theesteemed imothy Giles, plus a eature on investing in wine.

Tere will be some more top tipples rom om Tomsonnext month, who has scoured the land to discover more qualityKiwi-made creations or the drinks cabinet.

So as well as wishing our readers good ortune, I will also add,

bottoms up!

Darren Greenwood

Editor

Editor:Darren Greenwood

[email protected]

Subscriptions:Call: +64 9 375 6057

Publisher:Acorn Publishing Ltd

Art director:Danny Rawlins

Contributors:Tom Thomson, David McEwen, Michael Coote,Hone Churchill, Timothy Giles,Sophie McEwen.

Advertising:Chris McPhee

[email protected]: +64 9 375 6057

Printing: Blueprint Media Ltd (03) 348 0538

ISSN: 2324-2019

Registered Publication Information:For information and correspondence regardingthis publication contact:Acorn Publishing LtdLevel 1/56 Brown Street, Ponsonby, Auckland 1021PO Box 46 290, Herne Bay, Auckland, New ZealandCall: +64 9 375 6057Email: [email protected]

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Disclaimer: While Acorn has endeavoured to ensure that the materialin this publication is free from error, Acorn makes no representation orwarranty of any kind for the accuracy, reliability, suitability, currency orcompleteness of the information, and is under no obligation to update orcorrect any errors in the information after the date of publication. Past

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Intellectual property: Acorn, excepting external information supplierswho have expressly retained copyright, owns all copyright and otherintellectual property rights in the information contained in this magazine.All rights are reserved. No part of this magazine may be reproduced oradapted in whole or in part without the prior consent of Acorn.

Class Advice: All information provided by this publication and itsassociated website is deemed to be Class Advice under the terms of theFinancial Advisers Act 2008. It is not personalised for anyones financialsituation or goals. If you require such advice, you should contact anAuthorised Financial Adviser. A disclosure statement is available free of

charge upon request.


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Whats New

Online advisersdatabase

Auckland lawyer and ormer

inancial adviser Miles Hayward-

Ryan is calling or investors to help

him create a database to compare

the perormance o investmentadvisers.

Hayward-Ryan says the

perormance o such advisers and

their unds can vary dramatically

and the database would help better

inorm investors.

he Investment Advisers

Perormance Measures website

(www.iapm.co.nz) was created with

the help o Aon Hewitt Consulting

Actuaries, who would have a

monitoring role.

he service will be ree to begin

with and it is planned the website

will have data on an estimated

1400-1500 authorised inancial

advisers.

Food and drink fundlaunched

A new investment und has been

set up, ocussing solely on the ood

and beverage sector.

Marmont Capital Fund is the

irst o its kind and has secured 20

investors and is looking to invest inive companies.

Managing director Matt McKendy

is a co-owner o Abes Bagels, along

with und chairman ony Kerridge,

ormer general manager o Cae

Laare.

Average Aucklandhome costs

$652,129Average house prices increased

8.5 per cent in the year to August,

with Auckland and Christchurch

recording double digit growth,

according to Quotable Value.

Auckland prices rose on average

13.1 per cent to $652,129 and in

Christchurch by 11.4 per cent to

$436,251. Wellington saw average

values o $445,784 (up 2.9 per cent)and Hamilton up 3.9 per cent to

$350, 427.

QV said many areas bar Auckland

and Canterbury still have average

values below their 2007 peak.

Meridian bonanzatipped

Analysts say the soon-to-be-oated

Meridian Energy could deliver a

healthy net dividend yield o up to 6.8

per cent.

Deutche Bank/ Craigs Investment

Partners and Goldman Sachs have

released analysis ahead o a marketing

drive by their investment banking

arms.

Craigs Investment Partners values

Meridian at $4.03b-$4.65b with a

net dividend yield o 6.2-6.5 per cent

and Goldman Sachs values the powercompany at $3.8b-$4.7b, with a net

dividend yield o 5.55-6.83 per cent.

However, Craigs Investment

Partners warns a Labour-Greens

government would slash the value o

the company to $2.89b-$3.23b i it

regulated the energy sector as planned,

with earnings dropping 20-25 per

cent.

Meridian is due to list on the

sharemarket in early November.

Whatsnew?


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Whats New

Britain still global HQ

for entrepreneursLord Bilimoria, the ounder o

Cobra Beer, says Britain is still tops or

enterprise.

Te businessman said this at the

launch o the Sirius Programme to

develop young entrepreneurs, which

has attracted 170 young people rom

40 countries including New Zealand.

One o our great strengths as a

country is that we have one o the

most open economies ion the world.

London, even aer the crash, is still

the nancial centre o the world. Te

UK is the global headquarters oentrepreneurship, he said.

Dr Who Gold Coin

Te New Zealand Mint has issued a

gold coin to mark 50 years o Dr Who.

Te coin, issued as legal tender under

the authority o Nuie Island, has a

nominal value o $200 and comes in

a classic wooden box. Only 250 have

been minted and each one is expectedto sell or $2,500.

Te reverse depicts the iconic

ARDIS used by the Doctor to travel

through space and time and the border

eatures the nely engraved words Dr

Who 50th Anniversary 1963-2013.

Te gold coin, produced in

collaboration with BBC Worldwide

Australia and New Zealand Mint,

ollows the recent release o 10,000

similar silver coins.

Overall, the coin collectables market

has been estimated at US$1 billion.

Green energy kills

businessEuropean Union industry

commissioner Antonio ajani has

warned o systematic industrial

massacre as a push or uneconomic

renewable energy leaves European

businesses unable to compete with

those in the USA who are beneting

rom cheaper shale gas.

His warnings come as consultants

IHS say the US will double chemical

output by 2020, thanks to natural gasprices dropping 80 per cent, while

Europes chemicals output will drop

by a third. IHS also said US$250bn in

extra US manuacturing will be added

by shale in the next six years.

Green energy killspeople

Dumping biouel subsidies will

halve European ood costs by 2020 andlower world ood prices by 15 per cent,

according to the European Unions own

Joint Research Centre.

Current EU targets are or more than

hal o its vegetable oils production go

to make biouels by 2020.

Even greens recognise the olly o

biouels now, with them saying using

new land to grow uel increases carbon

emissions. Te higher ood prices

have also been blamed or increasing

starvation in poorer countries.

Pound to go plastic

Te Bank o England is considering

using polymer notes by 2016. It has

spent three years studying the impact

o switching rom cotton paper, sayingpolymer notes will last 2.5 times longer

than traditional notes.

Te average ver only lasts a year,

the bank says.

Furthermore, plastic money is harder

to countereit, something noted in New

Zealand when it introduced polymer

money. Around 20 other countries have

polymer notes, including Australia,

Mexico and Singapore.

Britons will be consulted on the move

in the next ew months, with a decisiondue in December.

Top 1% get 19.3 %

Te gap between rich and poor in the

USA has reached record levels, with

the top one per cent pulling in 19.3 per

cent o household income.

Tis is higher than the 18.7 per cent

the group claimed in 1927, according

to economists at the University o

Caliornia, Berkeley and the ParisSchool o Economics at Oxord

University.

Te analysis is based on data rom

the Internal Revenue Service.


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Cover Story

Fighting TalkBob Jones, the property mogul who abhors leaders, preferring

knowledge and individualism, shares a few thoughts with WorldInvestor New Zealand about books, property, the economy and why

hed pay for a statue to honour Sir Roger Douglas!


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For someone always express-

ing the bluntest o opinions,

Fighting alk seems an apt title

or Sir Bob Jones new book.Sir Bob has been writing newspaper

columns since 1966, and has also publish-ing 22 books, including ve novels.

Reading seems central to his lie too,with a thirst or knowledge that sees himreading 120 books a year, and having twolibraries (one in his Sydney home) con-taining around 20,000 books in total.

His latest tome reects the property in-vestors interest in boxing and his passionor social history.

Indeed, Sir Bob earned a Blue in

boxing while at Victoria University Wel-lington, has commented on television onbig matches and in 1985, he inamouslypunched VNZ journalist Rod Vaughanon the nose, an event that was broadcaston television and can still be viewed onlinetoday.

In the book, Sir Bob looks at the impactboxing has had on language, noting howthe language o boxing dominates contem-porary journalism. He also identies 332common usage terms and phrases whichhave boxing roots.

Te 73-year-old, who grew up inNaenae, Lower Hutt, says there is muchkids can learn rom boxing today.

Boxing is a uniquely good sport orboys as it teaches them independenceand sel control, qualities which will servethem well in other walks o lie. eamsports, by contrast, teach dependence. Italso teaches intense concentration, ailingwhich they will receive an unwanted bopon the nose, unlike say one-on-one tennisin which a lapse simply means loss o anegatable point, he said.

Bob Jones on leadershipSuch belie in independence and the

individual, led Sir Bob to become his ownboss instead o working or someone elseand being told what to do. He has strongviews on leadership, believing there is toomuch wae about the subject.

In New Zealand, we constantly believethe point about the absence o Maorileadership. In act Maori woes can be at-tributed to too much leadership and a lacko independence.

Ill wager the highly successul amaki

brothers never bought into this blarney. othat a critic might say that Bishop Briansaccomplishment in building a large andgrowing church rom scratch is directlyattributable to his leadership. I would still

debate that and argue it was more passion,energy and purpose that lay at the heart ohis accomplishment, he said.

Churchill was always described as agreat war leader. Its nonsense as he himselargued aer the war, rightully pointingout that it mattered not who was thePM, the war was won on the battleeld.

Furthermore, he was drunk throughoutit as his minder Lord Haliax, who neverle his side, revealed in his autobiography.

Leadership implies ollowers, the antithesiso independent thinking, he said.

Aer slamming one o the giants o 20thcentury history, the property developer isnot araid to turn to a major gure o the

Cover Story

Sir Roger Douglas in parliment


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New Zealand political scene today.John Key is described as an outstanding

leader. I dont believe thats necessarily so,rather hes very popular thanks to a naturalcharm. Ive been described as a goodleader regarding my commercial operationwhich now has $1.5 billion o buildings. Iachieved that by thinking, nothing moreand (I) only employ thinkers (something)borne out by my New Zealand managerbeing a historian, Sir Bob continued.

He points out that his key sta do notbelong to any commercial organisations.

Tey are all readers and thinkers, Ivetaken a highly analytical approach abouteconomic trends and patterns which hasbeen at the root o our success. We knoweveryone in our activity and I have yet tomeet one ever, who has a proper compre-hension o the business, doubtless a actor

in why so many go belly up, he said.

Bob Jones on New Zealand todayLooking at New Zealand today, Sir Bob

sees a childish government antagonismtowards commercial property, reectedby the removal o depreciation, unique toNew Zealand, based on a, doubtless com-missioned, reasury report.

Government seeking to impose Loan toValue ratios in mortgage lending is a sillymove, particularly by a National govern-ment which supposedly believes in the reemarket.

High property prices have arisen rom abooming Auckland, he says, with its hugerecent years inow o people.

Labour see the problem better, namely

its an issue o supply, which o course, ulti-mately the market will sort out anyway, asit always has and i le alone, always will.

Tat said, most olk own theirown home and seeing prices rise is anenormous condence booster. As (ormerAustralian Prime Minister) John Howardsaid a decade back when under attack,regarding rising Australian house prices,Ive been hammered on every subjectunder the sun rom one end o thecountry to another these past 30 years butno-one has ever complained to me abouttheir home increasing in value, Sir Bobcontinued.

Such rising prices could well boostAuckland Mayor Len Brown and his plansor a compact supercity dominated byapartments, something Sir Bob sees as anecessary move which will work.

But the best move by the council is theplan to pedestrianise downtown, as withmost other cities in the world. It will leadto a abulous ambience and a splendidCBD. It would be terric in Wellington aswell but the council is too dreary to see it,he continued.

Yet, despite oreign investment beingtouted by some as a driver o house prices,Sir Bob believes such investment is greatand he opposes the Labour Party policyto restrict such investment, claimingthe current housing shortage will be atemporary phenomenon.

Its particularly bad as its aimed at theChinese. I I was a dictator, I would bringin ten million o them, especially the girlswho hugely enhance the city aesthetically,

thus warming the hearts o every male,he said.

But as well, we all know their virtues

o study and industry and as our politi-cians do nothing about the dead mass owelare-sated, disdainul-o-education andsel-help, parasatic lumpen underclass, adirect consequence o welare excess, wecertainly need the Chinese to build the taxbase.

Bob Jones on property investmentTough Sir Bob has built is own $550

million ortune, according to the 2013NBR Rich List, he admits residentialproperty is an excellent investment

or ordinary olk, particularly whencompared alternatives such as investmentunds.

History shows that worldwide andaveraged out, long term unds peror-mance is appalling and certainly insu-cient to provide a retirement income, hesaid.

Teres a reason or that. I anyone hasinvestment acumen, they will apply it orthemselves and not work or a und. Tereare always heaps o moneyed people whowill back them or a piece o the action.I believe providing a living retirement

is a justiable role or government as itprovides necessary certainty which theunds cannot do, he said.

Babble about it (government super) isunaordable is rubbish. Just stop wastingmoney on grossly excessive welare and orthat matter, the unnecessary armed orcesand many other absurdities. Meanwhilepeople are wise to take decisions into theirown hands and not leave it to others towaste their savings. Everyone understandshousing which is why it is a good vehicleor the lay investor, he said.

Nonetheless, Sir Bob has built a businessempire on commercial property.Te returns o course are lousy so

its essentially a capital exercise.Whatsextraordinary is everywhere else in theWestern world, governments encouragesuch mum and dad investment whereashere, theyre pariahs, he said.

Despite such criticism, Sir Bob says NewZealand is doing well, relative to othercountries, economically, as the country isusually well-governed.

We are prosperous. Lie is a breeze inNew Zealand or anyone who will make

the eort, he said.Its a good place to do business

compared with other countries as we donthave their appalling, costly and unneces-

Cover Story


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sary bureaucratic red tape. For example, bycomparison with New Zealand, Australiais a nightmare, he said.

Bob Jones on politicsYet, with New Zealand Labour possibly

lurching lewards under a new leader,

such a government appears not to rightenthis sel-styled libertarian who ormed hisown political party in the 1980s becausethe National Party was not ree-marketenough or him at the time.

Politicians aspire to power. Oncethey achieve it, they want to keep it,(something) best done by not institutingsilly measures and becoming unpopular.Our three-year term is oen criticised butit does have the virtue o keeping nuttinessat bay. I hesitate to criticise the prospect oa Labour government, mindul that since

1960, without exception, every Nationalgovernment has been a time o economicstodginess and every Labour government atime o economic vibrancy.

National MPs tend to be pleasantdullards xed in their ways. Conversely, itsbeen my experience that Labour politiciansare usually brighter and more open-minded. Te greatest politician in ourlast hundred years was Roger Douglas. Idhappily pay or a statue o him. He beganas a ley then saw the light and producedwonderul sweeping reorms, to a degreeunmatched anywhere in the Western

world. Every New Zealander is hugelyindebted to him, he said.

Such support or Rogernomics ts inwell with Sir Bobs libertarianism.

It means certainly acknowledging manykey roles or the state- but thats all. Tegovernment needs less busy-bodyism.But with the all-important democracycomes the inevitable burden o constantpublicly-demanded government activism.For example, no electorate anywhere has

ever voted or a market economy with aminimum state, he said.

But such views led to charges o vestedinterests rom Cameron Slaters Whale Oilblog which noted Sir Bobs criticism o gov-ernment over the depreciation issue andclaimed he said government should pay tox up buildings to code standards.

As the largest private ofce buildingowner in New Zealand, who better tocomment on issues pertaining to it? As orthe socialist streak comment, not only isthat inantile based on my orm (the New

Zealand Party et al) but rich coming roma National party zealot (Slater), said SirBob.

I I concerned mysel with suchcomment, Id be suicidal. Over the years,Ive been branded a ascist, Soviet Spy, aguilt-ridden wie beater (this aer I helpedestablish the Womens Reuge movementhere), a possible homosexual notwith-standing my lie being awash with womenand having numerous children betweenthe ages o 5 and 47, punch drunk, analcoholic (Ive had two small sherries overthe past month), and so on ad nitum.

Sir Bob then calls or the blogger to gethis acts right.

I did not say the government shouldpay to x up buildings. Rather I pointed

out that given all the buildings are built to100 per cent o the code, then i govern-ments subsequently change that code, theyought to meet the cost. Tat is a logicalargument. I urther complained that thisgovernment doesnt even allow this expen-diture to be deductable, this ying in the

ace o a key principle o taxation, namelyconsistency.

I dont ask anything o the governmentas much as possible. Ive been entitled togovernment super or eight years but donttake it as obviously I dont need it, althoughhaving said that, Im appalled by wealthypeople and I know o some who do, headded.


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Property Investment

W

e all know that houses are, as it were, as sae as houses,typically generating a healthy capital growth as well assomewhere to live.

But investments in shops, ofces and actories candeliver more, though the returns are riskier.

While residential investment typically means investors letting theirown properties, and maybe getting someone to manage them orthem, investing in commercial property can be done in a variety oways. You can invest and manage them as you would a residentialhome, or there are syndicates, or bonds can be issued too promising acertain return, with the money invested in commercial property.

Te Oyster Group is a specialist commercial property investmentcompany that manages $600 million o property across all sectors,though it has a ocus on retail and it developed the Dressmart chain.

Te company oers commercial property management, leasing,

consulting, asset management, and it also syndicates commercialproperty investments.

From time to time, says CEO Mark Shiele, it will have an oer onthe market like 100 Harris Road in East amaki. Te property aimsto raise $11.4 million and is sold in 114 interests o $100,000 apiece.Te projected initial return is 8.5 per cent.

ypically, returns on commercial property are higher thanresidential and one o the benets o syndication, is helping investorsbenet rom large scale investments, Shiele explained.

Returns have varied due to location, but Oyster says they havebounced back ollowing the GFC.

Dierent properties have a dierent return structure andremember, the building you are investing in has a tenant, whichmeans risk. With income being reliant on that tenant, you need tolook at how likely you would get another i the tenant was no longerthere, he said.

Law rm ofers syndicatesWhile there are many similar commercial property businesses

like Oyster, a relatively unique one is the law rm Glaister Ennor.

In 1999, its partners created a property entity called GEKProperty oering syndicated properties as investments to its clients.More than 25 properties worth over $120 million are under itssyndicated management, with annualised returns oen exceeding20 per cent net, though current returns are 8.25-13 per cent pre-tax.

Glaister Ennor joint managing partner Jack Porus says the lawrm recognised its clients were seeking investments with higherlevels o return an it realised commercial property could oer this.

We identiy well-located and well-leased commercial proper-ties and we enter into a conditional agreement to buy them. Tenwe undertake due diligence and canvass our investor databaseoering our client investors the opportunity to acquire a part o that

property, he said.ypically, GEK Property will arrange 30-40 per cent o unding by

way o a bank loan, with the balance provided by investors. Te aimis to deliver an annual cash return o 8.5 per cent aer all manage-ment costs and that return is paid monthly.

Porus says he tries to minimise the risk in several ways.Firstly, we generally x the interest rate or at least three years

but i possible or the ull, likely term o the investment. Secondly,we do careul due diligence on the tenantsto ensure they will beable to perorm. Tirdly, we peruse the lease to ensure the return ismaintained at the level that we purchased at, he said.

We try and x all other costs including management ees so

there is little risk to our clients receiving the monthly payments.We particularly look or rental growth during the investment termand we generally recommend to our investors that the property besold when there is still a substantial term o lease remaining, Porus

King Comm!When it comes to property investment, the commercial sector can

offer monster returns, with New Zealand enjoying some of the worlds

highest. DARREN GREENWOOD looks at how to get them


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continued.We dont like to take the risk the property will be vacant. Temain risks that exist are tenant deault and the market weakening atthe time we choose to sell, so there could be a capital loss, he said.

At present, GEK Property is selling a BNZ property in akapunathat it has owned or 12 years. An auction takes place on October 6and six years o lease is remaining. Other properties GEK Propertyowns include the Glengarrys main ofce and its shop in AucklandsVictoria Park.

Syndicated property investment can be good or it can be bad.Te most important thing to consider is the track record o thesyndicator. Returns depend on the skill o the syndicator. In thehands o a good syndicator, syndication allows people with smaller

sums to invest directly in commercial property and to spread theirrisk over a number o properties, Porus explained.

People should take particular care to understand the likely termo their investment and the syndicators exit strategy. Tere are somesyndicators who enjoy getting the management ees and hold theproperties or too long, he added.

Capital and tenants top risks!A key concern or investors in commercial property is the

strength and quality o tenants, says real estate company CBRE,whose all-round property services last year were expanded toinclude a Project Management division delivering property projects

ranging rom $100,000 to $50 million.Te risk o a single tenant vacating can be reduced through

owning multi-tenanted buildings, or investing in properties that arenot over specialised in nature and appeal to a variety o occupants,said CBRE New Zealand managing director Brent McGregor.

Compared to residential property investment, commercialproperty investment lease terms are much longer, typically rangingbetween 6-9 years.

Larger tenants can typically lease or as much as 12 years. Smallertenants and those on a growth path may sometimes lease or onlythree years with multiple options to renew, he explained.

Another major dierence compared to residential propertyinvestment, McGregor continues, is the degree o nancial leveragethat lenders are willing to tolerate. It is much lower or commercialproperty investment than it is or residential property investment.

In general, commercial property investment involves much

greater commitment o capital compared to residential propertyinvestment and because o this the risks and rewards are magnied,he said.

Investors can mitigate some o these risks by conductingthorough due diligence on potential acquisitions and engaging theservices o a proessional management company. It is also worthnoting that investors can access the rewards o commercial propertyownership through property vehicles which are listed on the NZX.

As yet there are very ew listed investment vehicles in thiscountry giving real exposure to the residential markets, he added.

Dynamic market deliversCBRE says the investment sector o the market has become

the most dynamic part o the Auckland property market overthe past six months.A combination o actors; avourablereturns rom property relative to other asset classes, improvingoccupancy undamentals, low cost o, and easier access to, debt,and better capitalised purchasers, has led to a greater weighto capital chasing property rom both on and oshore parties,McGregor urther explained.

At the same time, good quality investment stock with longlease terms to tenants oering strong covenants is generallytightly held. When such properties have come on the market,some o the prices achieved have exceeded expectations andthis trend has started to ow onto secondary properties oering

better investment properties, he said.Te market is increasingly moving rom its earlier acknowl-

edgement o the recovery to greater ocus on developmentopportunities.

Te development sectors positive response to improvingmarket conditions is evident in the supply pipeline. Aucklandhas nearly 280,000 m2 o ofce land compared to less than200,000 m2 six months ago, he said.

Te rst hal o 2013 has shown a continuation o transactionvolume increases when compared with the rst halves o theprevious two years.

At the same time, transaction volumes have decreased withrespect to the second hal o 2012 with sales activity being at$1,018 million over 48 transactions. Over the next year, we seeincreasing emphasis on rent growth and we anticipate a ullrental recovery around 2015, McGregor added.

Property Investment


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KIWI STREETS PAVED WITH GOLD

I you are an investor in New Zealand commercial property, youcould well be earning the highest returns in the world.Commercial agents CBRE reported healthy yields in the country,

which it noted were better than places like Hong Kong and okyo.Te Property Council o New Zealand also reported returns o up

to 14.7 per cent or CBD ofce space and overall returns back abovethe long term rate o ten per cent.

Te Property Council New Zealand/ IPD New Zealand AllProperty Index Q2 Results released in September, showed a totalreturn o 12.4 per cent or the year ending June 2013. Tis was madeup o 8.0 per cent income return and 4.1 per cent capital growth.

Te June 2013 results beat the previous 11.0 per cent and lastyears June result o 9.2 per cent. Results were driven mostly by theofce sector which is up by 1.2 per cent. More specically, totalreturn or CBD ofces increased rom 11.1 per cent to 14.7 per cent,driven by a 2.3 per cent increase in capital return.

Over the past 12 months, New Zealand Listed Property vehicles(LPVs) outperormed other asset classes, achieving an annualisedreturn o 15.9 per cent; with the closest competing asset peror-mance being equities at 14.7 per cent. aking a longer view, overthe past ve years to June 2013, direct property returned 5.7 per

cent, New Zealand LPVs 8.0 per cent, NZ Bonds 9.5 per cent andEquities -0.2 per cent.Te Property Council New Zealand/ IPD New Zealand All

Property Index provides a broad measure o returns or commer-cial property investment in New Zealand. Te index database iscomprised o property assets rom 26 participating unds with acombined asset value o $12.1 billion representing 579 investments.

Market conditions, it says, have improved with total returnsmoving above the long-run averag annual return o 10.1 per cent.

IPD Australia and New Zealand executive director Dr AnthonyDe Francesco says these latest results demonstrate that the NewZealand commercial property market continues its recoverypost-GFC.

Te ongoing improvements in returns or New Zealandproperty investment is consistent with strengthening economicundamentals, such as employment demand and retail trade. Teindex suggests that property investment returns should continue to

rise above the long-run average return throughout the remainder o2013 and into 2014.

Property Council chie executive Connal ownsend says thelatest results shows evidence that the commercial property in NewZealand is perorming well.

Industrial, retail and ofce property are continuing to providereturns well worth highlighting. However, the real standout in thelatest set o results is the ofce sector. Tis time last year, total ofcereturns were sitting at 7.0 per cent. Tis has steadily increased eachquarter, to 12.0 per cent or the year ending June 2013.

Looking into total returns, the real perormer is in capitalgrowth. All capital returns have increased signicantly, recordinga combined total o 4.1 per cent- up rom 2.5 per cent in the yearending March 2013, he said.

New Zealand property investment perormance has increased

across all sectors since last quarter; with total returns o 13.1 per centor retail (up rom 12.7 per cent), 12.0 per cent or ofce (up rom9.8 per cent) and 11.5 per cent or industrial (up rom 10.6 per cent).Tis strong perormance continues the upward trend seen whencomparing June 2013 returns to June 2013, with an increase o 450bps or ofces, 150 bps or retail and 160 bps or industrial.

Relative to the Australian market, New Zealand property is out-perorming by 330bps with a 12.4 per cent total return, compared to9.1 per cent returns or Australian property.

New Zealands healthy returns rom commercial property areconrmed by ndings rom global agents CBRE, who says the


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country has yields among the highest in the world.

CBRE Research in New Zealand reported in August thatAuckland has ofce yields o 7.73 per cent and Wellington hasofce yields o 8.2 per cent, ar outshining the 3.5 per cent earned inokyo and 3 per cent in Hong Kong.

Rents have been stable in most sectors, unchanged in Wellingtonofce and CBD retail or the past year, with recently increases in

Christchurch industrial (+3.1 per cent) and Auckland ofce (+3.2

per cent). CBRE Head o Global Research Dr Nick Axord saysas government continue programs o quantitative easing, hedgesagainst ination look increasingly attractive.

As a result, prime property- a real asset, higher yielding thanbonds continues to look attractive to investors, and whilst yieldsare low the spread between bond yields remains quite high, whichshould oer some protection rom any uture rise in the risk reerate, he said.

CBRE Head o Research or New Zealand, Zoltan Moricz, saysthe weight o capital seeking commercial real estate is building inNew Zealand.

Vacancy has been trending downward in the past two years,

even in secondary markets, driving an increasing ocus on develop-ment opportunities across most sectors.We are seeing greater condence around short-term economic

prospects but the growth spurt is set to be short lived, even though itshould translate into occupier demand and absoption. Te resultantsupply demand balance will lead to vacancies trending below thelong term average, he said.

Moricz adds that property returns correlate to interest rates butthey have a stronger correlation to underlying property peror-mance, supported by rent and yield trends.

Property market trends are diverse, which result in a divergingcap rate trends and urther but moderate yield rming, althoughrent growth is likely to accelerate, he said.

Looking at Wellington, Moricz says current market conditionsare not as bad as many may think.

Tere has been some strong economic growth growth under-pinning property demand evident in the last year. In addition, theimpact o the siesmic issue is perhaps less than might have originallybeing orecast, with less than 5 per cent o the stock we monitoracing signicant adverse impact, based on our current knowledgeo NBS scores, he said.

We oresee Government reeing up approximately 100,000m2 leading up to 2019 as part o its rationalisation programme.However, the impact o this will not be evident to its ull extent inthe market until 2016, when a number o buildings being vacated

will return to the market aer reurbishment. As a result, we seestable vacancy over the next three years.

However, subsequent tranches o government reorganisationmay yet prove to be a demand base or reurbished buildingsuntil the reorganisation runs its course, Moricz added.


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Comercial Property

A top tourism trioThree of New Zealands most exclusive freehold, boutique hotels in the South

Island have been put on the market for sale, writes TOM THOMSON

Distinction Nugget Point Spa Resort Hotel in Queen-

stown, Peppers Awaroa Lodge in Abel asman

National Park and Portage Resort Hotel in Kenepuru,

Marlborough Sounds. Managed by Peppers and

Distinction on behal o the vendor, the three hotels are being

marketed or sale together or separately by leading property

experts, Jones Lang LaSalle.

Tese three top end resorts represent some o the nestproperties the New Zealand hospitality and tourism sector hasto oer. Each has their own uniqueness and individuality andthey oer potential investors many appealing opportunities,said local director sales John Binning, who is responsible or thesales.

Distinction Nugget Point Spa Resort, built in 1988, is locatedabove Queenstowns amous Shotover River, with Coronet Peakas its stunning backdrop. It oers 40 luxurious suites and acili-ties include a new health spa opened in 2010, a ull gymnasium,tennis courts, squash court, a wine tasting cellar, library andhome theatre. Te resort enjoys a distinguished clientele.

Sitting on 8,043 m2 o prime land, the property is ully unittitled or uture sale. Forty o these are the individual accommo-dation units and accessory units with the remaining unit titlesholding interest in the common acilities. Adjoining the resort,a urther 11,840 m2 o special tourism zoned land orms parto the hotels total estate oering development opportunities toenlarge the current hotel or possibly develop separately.

Peppers Awaroa Lodge is situated in New Zealands beautiulAbel asman National Park (Te number one walking parkin tourist popularity). In 1991, a group o locals built the rstbuildings on reehold armland and nowadays this 26 guest

roomed lodge is the only provider o luxury accommodationallowed in the park. With no roads in the national park, thelodge can only be accessed via aircra, by sea in water taxi or seakayak or on oot.

Tis our star lodge is well known or its advanced ecologicalprinciples and has recently been awarded Silver status by theworld renowned Earthcheck organisation. Te large organicgardens eed the lodge with resh herbs and vegetables. Set back250 metres rom the beach in Golden Bay and also oering aseparate pizzeria cae bar and budget accommodation, it is aprized luxury Lodge with wider appeal or hikers and kayakers.

Te site encompasses almost o 19,941 ha reehold NationalPark wildlie land and is the largest reehold land holding withinthe park. Peppers Awaroa Lodge sits on the north-easterlyportion o the land, with 85% natural orest remaining protectedor nature.

Peppers Portage Resort Hotel has a stunning setting directlyon the beach in Kenepuru in the clear, clean waters o theMarlborough Sounds. Originally built in 1886, today it oers41 boutique luxury suites all situated on the waterront withspectacular views and a great restaurant. A small walkers lodgeadjoins the hotel.

Te hotel is at the midway point o the amous QueenCharlotte walking and cycling tracks that ollow the QueenCharlotte Sound skyline and this creates the perect base orany adventurer. In quiet times, the hotel caters extensively ormeetings and incentive groups.

Te hotel has a separate locals pub, aptly named the SnapperBar and an adjoining adventure centre or the hire o kayaks,boats, mountain bikes and adventure shing gear. Tis resort isthe jewel o Kenepuru. A short tar sealed road connects the hotelto the Picton erry operators.

In 2012, $1.4million was invested into new inrastructureworks and the hotel itsel had a substantial upgrade. Teproperty is ully unit titled or uture sale and part o the land bythe sea edge is Queens chain conservation zoned and licensed

accordingly.

All three properties are situated in some o the best geograph-ical areas in the world. Tese sales oer a potential investor theopportunity to buy into some o New Zealands most beautiuland breathtaking areas, we are anticipating a serious amounto interest. And with so many unit titles on oer, there are somany options, concluded Chris Harding, who is working withJohn Binning on all three sales.

Te closing date or all expressions o interest is November 52013, unless sold prior.


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E

ver since the US Federal Reserve tur ned on

the money spigot in the late 1990s, there has

been a series o investment bubbles, in stocks,

property, bonds and commodities. Property isagain hot right now, thanks to record low interest rates

but there is a danger in buying assets that are expensive,

unless the best possible outcome occurs.I a nasty surprise comes along, expensive assets c an

revert to their normal valuation and give the investora substantial loss. Here are some ways to avoid gettingtrapped in buying assets during a bubble.

Focus on value, not priceSuccessul investment is all about getting the

maximum return on your investment. Some people areprepared to pay a high price or assets that deliver little

or no earnings now in the expectation that the asset wi llappreciate rapidly and produce an attractive return inthe uture.

During investment manias, people pay so much oran asset that there is no chance they will ever achieve aworthwhile return on their investment.

Compare returns against other optionshe key to successul investment is to ind t he most

attractive return while minimising the chances o sus-taining a large capital loss.

One way to do this is by using the price:ear ningsratio.

his is a measurement ound by dividing an assetsvalue by its earnings. For example, a $20 share in acompany generating $1 per year in e arnings has aprice:earnings ratio o 20. A house worth $1 millionthat generates $50,000 a year in rent has the same ratio.

However, it can be more instructive to turn that cal-culation around and divide earnings by the asset price.

For example, $1 divided by $20 or $50, 000 by $1million provide an annual return o ive per cent.

his igure can then be compared with other invest-ments, such as risk ree, government stock.

I that is yielding three per ce nt and an alternativeasset oers the same, then investors have to decidewhether it is worth taking the extra risk.

Ignore popular opinionIt can be very di icult or investors not to get caught

up in a mania when ever yone they know is participating- and generating substantial, rapid short term proits.

However, armed with the knowledge o how maniasdevelop - and eventually always pop smart investorstend to sell assets that have gone up in value and

buy those that have allen in price. his is the exactopposite o how the majority o investors act, t ime andtime again.

Dont inate thebubbleDAVID MCEWEN shows how to avoid paying too much for assets during

investment bubbles

McEwens VIEW


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Insurance

Homes on shaky groundRecent earthquakes have changed how insurers will base their payouts,

warns SIMON KEMBER

F

or most homeowners in New Zealand, their homeinsurance has always been an unspecied replacementcost based on the oor area o their home. However,

ollowing the Christchurch earthquakes, insurers are nowadopting a new home insurance policy whereby all home insurancepolicies will be based on a sum insured.

Te policy change is a result o major reinsurers (the insurancecompanies who insure our local insurance companies) requiringgreater clarity on risk and the maximum costs to rebuild thehomes they insure. Many insurers claim that the changes are aboutproviding certainty and managing aordability or homeowners,and that the cost o premiums or home owners will not change.

Te result is that the onus is now on homeowners to get theirhome valued correctly as the sum insured will be the maximumamount the insurers will cover in the event o a claim.

Te Insurance Council o New Zealand and the majority oinsurance companies have published inormation online, andprovided act sheets and valuation calculators, to inorm homeown-ers and assist them to calculate the insured sum or their home.

In order to determine the sum to be insured, homeowners mustdetermine the cost o completely rebuilding their home. Accord-ingly, it is paramount or homeowners to be aware o the uniqueeatures o their home. Tese include:

Structural eatures (oor area, number and types o roomsand levels, the style and standard o construction o thehome, the material used to build the home)

Exterior structures associated with the home (decking,

paving, driveway, garage) Recreational eatures (swimming pools, tennis courts)

Te slope o the land the home is built on and whether thereare retaining walls, and

Additional special eatures near the home (bridges, dams,private whars).

Homeowners should also include proessional ees and costse.g. ees or architects or engineers, demolition costs and removal odebris etc.

Te sum insured does not include the value o the land on whichthe home is situated, or what it would cost to buy your home.

Tereore the purchase price, rates valuation, or other similarestimate cannot be relied upon to determine the homes value orinsured sum.

In addition to calculating the value o the sum insured, each yearhomeowners must also determine the adequacy o the sum insured

and keep their insurers updated upon renewal o their insurancepolicy. It is crucial or homeowners who complete renovations orchanges to their home to ensure that those works (and the possible

increase in value) are covered by their insurance policy.Obviously, this is a signicant change to the duties o the insurer

and insured, and it shis the onus to the homeowner to correctlyvalue their home and the sum insured. Homeowners need to beproactive, as many insurers have already transitioned all new homeinsurance policies to the sum insured base, and all existing policiesare likely to change at the time o renewal. One o the main conse-quences or homeowners, i they ail to adhere to the new policy, isthat a deault sum or the home will be calculated by the insurerswhich may not reect its true value or the costs likely to be incurredin replacing the home.

For most people their home is their most valuable possession,consequently homeowners need to be aware o the changing termso their insurance policy, and be proactive in ensuring their home isadequately protected. I you have any queries regarding your homeinsurance policy you should contact your insurer immediately. Iyou have any issues regarding insurance claims, it is prudent toobtain legal advice.

Simon Kember is a partner for Glaister Ennor, and a commercialand industrial property, trust and real estate specialist.


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Chie nub master Grant Ovenden says it is hard working

in a dark market, where he cannot directly marketbrands and display the products on his website.Still, in the three years Te Humidor Company has

operated, the Christchurch business has grown to become NewZealands largest retailer o cigars, humidors, pipes, pipe tobaccoand accessories.

It sells their stock online, being one o the ew legally still ableto sell tobacco online. Te business has also developed a success-ul wholesale operation supplying bars, restaurants, resorts, golcourses, barber shops and liquor stores.

Grant created the business to open up New Zealand to thenest range o cigars possible, with him orging relationships withsuppliers throughout Central America.

We proudly represent the top Premium cigar manuacturers(also known as the new world o cigars) whom make up the top othe cigar world today rom the likes o long-standing and highlyrespected amilies such as Padron, Arturo Fuente, J.C Newmanthrough to newer makers who are considered the next generationo cigar producers such as Drew Estate (the hottest cigar maker inthe USA), La Flor Dominicana, My Father Cigars (currently thenumber one cigar brand in the world) through to smaller boutiquemakers such as La Jugada, Fratello, RoMa Cra obac and Viaje,who all produce small-batch, extremely high quality and verysought aer cigars, he said.

As its name implies, Te Humidor Company also stocks the

largest range o humidors - a specialist storage box made o Spanishcedar which store cigars at 70% humidity.

Te Humidor Company also stocks many Cuban (Habanos)cigars, plus a growing range o domestic (machine made) andavoured cigars. It is also the countrys only retailer or Xikar- thenumber one cigar and pipe accessory maker in the world.

Grant says his connections have helped him access some o therarest cigars in the world like the Alec Bradley Fine and Rare (only20,000 are produced each year) and the Liga Privada range romDrew Estate, almost impossible to nd in the USA, let alone in NewZealand.

Currently, the trend is or larger and atter cigars, but this isextremely prohibitive in New Zealand, which imposes excise dutyon the weight o tobacco rather than ace value or the number ocigars.

Currently, this is $612 per kilo o tobacco or $11-$19 per cigardepending on size.

Grant says there is also growing demand or dark-Maduro cigars

rom Nicaragua and Honduras and his recent visits to partners andsuppliers means he can get the latest hot brands rom the USAalmost straight away.

I am the most passionate and quite possibly craziest cigar acio-nado in the country, investing a signicant amount o money andeort in this old-world, artisan product in an endeavour to ensureacianados o New Zealand have the best possible choice o cigars,pipes, humidors and accessories possible, he added.

Boxes of delight

Company Prole

SmokeFree legislation makes it a tough job to sell tobacco, but TOM THOMSON reveals

how The Humidor Company overcomes such restrictions to become New Zealands top

supplier of cigars, pipes and related products.

Grant Ovenden at IPCPR 2013, Las Vegas(the worlds largest cigar tradeshow)


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So ar this year, the Fed has

been printing $85 billion permonth to buy US reasury

bonds and asset-backed

securities issued by mortgage lending

agencies such as Freddie Mac and

Fannie May.he Fed purchases these assets in

the open market and pays or themby crediting newly-minted electroniccash to the sellers bank accounts.

Where government bonds are beingbought, the programme is called

quantitative easing (QE).Where asset-backed securi-

ties issued by agencies are being

purchased, the programme is termedcredit easing (CE).

ogether, QE and CE are intendedto reduce long-term interest rates,particularly the rates at which corpo-rations and home buyers can borrowunds.

In theory, QE and CE shouldbeneit the real economy by in-creasing demand or cheap credit,although in practice credit has beentight in the US domestic economysince the global inancial crisis struck

regardless o the Feds interventions.he only reason the Fed resorted to

QE and CE was that the US economy

was so sickly, but with the economyapparently on the mend, the centralbank has signalled that it wants totaper or progressively diminish itsmoney printing.

alk o tapering has roiled inancialmarkets.

A side eect o QE and CE is thatinancial markets get pued up,especially markets or risky assetslike shares and lower grade corporatebonds.

he mechanism is called portolio

substitution.As the central bank be it the Fed,

Ending of funny money givesmarkets the shiversFears that the US Federal Reserve will reduce the rate at which it printsmoney to buy bonds has sent shivers through nancial markets.Reports MICHAEL COOTE

Business Advice


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the Bank o England, the Bank o Japan, or despite denials the European Central Bank prints money to buy bonds,its purchasing activity removes bonds rom the market andreplaces them with new cash.

Tis cash earns next-to-nothing because alongside QE andCE, the central banks are also running near-zero overnightcash interest rates.

Bond sellers le holding unremunerative cash then searchor yield by seeking better-paying assets to spend their sale

proceeds on.Teir choice typically settles on risky assets like sharesand lower-quality bonds that eature reasonable yields rominterest or dividends and prospects o capital gain.

Increased demand rom bond sellers undertaking portoliosubstitution pushes up prices o risky assets.

QE and CE are thus monetary conveyer belts or newcash to be applied to buying risky assets, regardless o theact that the underlying economy has to be in such very poorshape that the central bank has to print money in order tobail it out.

Tese risky assets can be bought rom the domesticeconomy within which QE and CE are applied, or abroadin other markets such as oreign developed economies and

emerging markets.Notably, the Feds QE and CE binge has triggered portolio

substitution pricing eects on risky assets worldwide.Under portolio substitution, markets or risky assets can

detach or decouple rom the circumstances o the realeconomy, wherein goods and services are produced or con-sumption.

Tis has in act happened in the US, where the realeconomy crawled along while shares and lower-quality bondsrocketed away in market value.

Sooner or later, however, there comes a day o reckoning,as at some stage prices or risky assets must reect the trueoutlook or the real economy.

Aer all, prices or shares and lower-quality bonds shouldreect the uture prospects or companies paying interestand dividends earned in normal times rom real economicactivities.

Ironically, QE and CE programmes are no longer neededwhen the real economys prospects are looking better, as hasnow occurred in the US economy.

But i QE and CE arent needed, and can be tapered by pro-gressive diminution, then the unding or portolio substitu-tion dries up.

Here a gap opens out between where market prices orrisky assets have been inated to by portolio substitution,and what lower prices should be paid or the same assetsbased on realistic assessment o economic prospects and the

likely dividends and interest payments to be expected.Te width o this gap determines how much prices or

risky assets must be adjusted.Te US economy is recovering, and so risky US assets

should are better than those rom weaker economic regionsonce tapering gets into ull swing.

Other economies, such as the recession-plagued Eurozoneand emerging markets struggling to maintain high growthrates are likely to suer a lot more rom the withdrawal o QEand CE because their economic prospects are gloomier.

Te market discounts everything, and so without taperingeven having started, the expectation that it will happenhas caused longer-term interest rates to rise, deeating the

purpose o QE and CE.Te unny money eects o QE and CE are starting towear o, meaning risky assets will undergo an oen volatileperiod o correction and readjustment in returning to normalpricing criteria.


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TWENTY BILLION

DOLLAR

INDUSTRY

HOW TO GRABA SLICE OF A

Franchising represents an opportunity to be your own boss, while beneting from thesuccess of an established enterprise, writes DARREN GREENWOOD

Franchise

McDonalds, BurgerFuel,

Subway, Cash Convert-

ers, Robert Harris and

more.All are well-known brands who

operate as ranchises- an increasingly

popular kind o business.Franchising is a method o marketing

and distribution where a company(called the ranchisor) expands nation-ally or internationally by grantinga person or a company (called theranchisee) the right to operate a copyo its business in another geographicarea. Te right will usually includethe ability to use the brand name, thebusiness system and the know-how othe ranchisor.

Te ranchisor gains its income rominitial and ongoing ees paid by theranchisee. In return, it must providea variety o services to encourage thecontinuing protability and growth o

the ranchisees business.Franchisees invest in setting up the

business in their own areas and areowners o their own businesses. Teyreceive their income rom successullymarketing their products and services

under the brand name o the ranchisor.Te Franchise Association o New

Zealand says ranchising has provento be one o the most dynamic businessmethods o the past 50 years.

It enables companies that have adesirable product or service to expandaster because they are using the capital,local knowledge and commitment oindividuals who are in business them-selves, said the associations website.

It gives those who wish to be sel-

employed the ability to go into businessproperly trained and equipped, with thesecurity o a well-proven product andsystem behind them.

Franchising is a major part o daily

lie in New Zealand. Many o our best-known brands are actually ranchises:NZ Post, Lotto, Bakers Delight, RobertHarris, Cash Converters, Paper Plus,the $2 Shop and, o course, McDonalds.Franchising should not be conused

with pyramid selling or networkmarketing.

How big is ranchising?Te Franchising New Zealand 2012

survey by Massey University estimatedthe ranchising sector contributes $20billion to the New Zealand economy,with 22,400 ranchisee businessesemploying 101,800 people.

Since the last survey in 2010, theranchise sector has seen turnover levels

increase but size and protability allslightly, due to the continued economictough times and the Canterbury earth-quakes, the survey said.

Franchise businesses make up 5


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per cent o New Zealands small andmedium-sized businesses but the

number o actual ranchisee units ellmarginally over the past two years, withretail ranchises suering. However, thenumber o ranchise brands has grownslightly to 446, o which 90 per cent arehome grown.

Its an extremely competitive envi-ronment at the moment, and 60 percent o ranchisors said they were orcedto spend more on marketing to attractdwindling levels o business. Although80 per cent said their ranchisees wereoperating protably, that still leaves asignicant number o strugglers, saidMassey Universitys Dr Susan Flint-Harte.

Dr Flint-Harte says there are ways thesector can improve itsel, such as howranchisees are selected.

Franchisors are always complainingthat their major issue is getting goodpeople as ranchisees, but they dontalways appoint suitable people withat least some proven business skillsand management experience. Tey

choose people or their passion, or theirintegrity, which is understandable but itdoesnt always translate into running abusiness successully, she said.

Franchisees are also all too oenchosen or their ability to conorm,when instead, ranchisees should be en-couraged to innovate in areas like onlinesales and social media marketing.

Nonetheless, the size o ranchising

in the New Zealand economy cannot beignored.

Franchising remains a very eectiveway o growing a business and oersmany people a chance or supportedsel-employment so we cannot underes-timate the role it plays, she added.

Turning a business into aranchise

Helping develop the ranchise sectorin New Zealand is Win Robinson oFranchize Consultants.

His business assesses existingranchise operations and sees how theycan be bettered. It also looks at whichexisting businesses might be suited to aranchise model.

Robinson says rms looking toranchise their business need proes-sional help in developing the structureand ormat o such ranchise operations,as even a hal a per cent on the royaltycan cause disaster.

Franchising is not taught in any oour universities, unlike Australia, andgenerally executives dont know much

about it, he continued.Franchising is used in just about every

kind o business nowadays, includingdoctors and lawyers.

Every business that has branchescan be ranchised. Te business also hasto be protable. It has to be taught toothers in a reasonable time. It has got tobe able to be systemized so you createefciencies and be transerable andmarketable, he said.

Te business also has to appeal

to people so they want to be in theranchise and can aord it. It also needslongevity. Its not a ashion or a ad.

When ranchising rst appeared inthe 1950s, it tended to be in ood, butnow covers about 90 dierent businesstypes, with the service sector increas-ingly popular. Fast causal restaurantslike Mexicalis is a recent arrival to NewZealand with our outlets, ollowingtrends in Australia and the USA.

But Franchize Consultants recentlyhelped debt collectors EC Credit

Control take its business concept to theUK and develop ranchisees there.

Its got a lot o potential and peopleare starting to wake up to that, he said.

1-Do your researchFind out a little bit about the

exhibitors on ranchisingexpo.co.nz.Check out their websites and articlesthat have been writtennd out whatthey oer and where they are lookingto expand. Have a list prepared owhat ranchises you want to visit andwhat specic questions you wantto ask. Although it may be too timeconsuming to research all exhibitors,itd still be a good idea to have a ew inmind beore attending the expo.

2-Ask questionsEvery individual is dierent, so

you want to ensure the ranchise youchoose best ts your specic liestyle.Important actors to inquire aboutinclude: investment and royalty costs,hours o operation, as well as trainingand support. I a certain ranchiseappeals to you, but you havent hadexperience in the specic industry youshould ask about training procedures.Also keep in mind that there arehome-based ranchisesthis may

be the best option or a amily withyoung children. I you eel as thoughyou still dont have a thorough grasp othe ranchise, ask to interview existingranchisees.

3-Dont get distractedWith many exhibitors vying or your

attention, make sure you dont getdiverted by a delicious slice o pizza oran awesome give-a-way. In addition topress materials, ranchisors will oen

distribute gimmicky-type items to drawyou towards their boothdont let itkeep you rom staying ocused on thetask at hand. Remember why youreattending the show. I you are serious

Brett Rodgers six ways or success.

Continued pg 24


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Franchise

How to be a ranchisee?People looking or ranchises or

sale, business and ranchising oppor-tunities in New Zealand, could lookat the options available at this monthsBusiness Opportunities & FranchiseExpo in Auckland, which expectsto attract 80 dierent ranchisedcompanies.

It allows people to meet experts andtalk to business owners ace to ace inone place and on neutral ground abouthow to start, how to grow or how toranchise.

Tis is inormation that could take

days to collect, interview appoint-ments, meetings and discussions canbe researched in a matter o hours,said Brett Rodger, managing directoro the Franchise Expo company, whois staging the Auckland event and asimilar expo in Christchurch.

alk to the experts and learn tominimise any risk. Tere are new ran-chising opportunities launching or therst time plus mature business systemswith ranchising opportunities available

nationwide. Look or business ideas tosuit your liestyle and budget. Tere is awide range o price points rom under$50,000 to over $500,000, he said.

BurgerFuel res up across NewZealand and the Middle East

From its origins on AucklandsPonsonby Road, where the rst outletopened in 1995, BurgerFuel hasexpanded across Australasia and nowhas outlets in the Middle East.

In 2003, the company launched an

aggressive growth strategy and quicklyexpanded throughout the North Islandand into Australia. Following a stockmarket oat in 2007, BurgerFuel beganopening stores in the Middle East andtoday there are 50 BurgerFuel restau-rants globally with more opening everymonth.

In June, BurgerFuel announcedannual prots o $1 million, up 55 percent on last year, with such growthreected in the share price also rising

70 per cent over the past year.Last year, BurgerFuel won Franchise

Exporter o the Year in the WestpacNew Zealand Franchise Awards andwhile the gourmet burger ranchise is

prospering in international markets,the company says there remains muchopportunity locally or growth in New

Zealand.Te company operates out o two

separate headquarters in New Zealand,BurgerFuel Worldwide and Burger-Fuel New Zealand. Tey sit across theroad rom each other, with BurgerFuelNew Zealand running their own localoperations team to support ranchisees.Additional ofces also operate in theMiddle East.

BurgerFuel CEO Jose Roberts saysa key actor in building BurgerFuel

as a global New Zealand brand is theopening o new stores and expansioninto new markets in New Zealand andacross the globe.

Tis is being achieved through abusiness model o Master Franchiseesinternationally and local ranchisees onthe ground in New Zealand. Tis modelallows BurgerFuel to use the knowledgeo key partners in New Zealand andoverseas to run stores, while BurgerFuelWorldwide concentrates on the broaderstrategic goals and objectives o thebusiness as well as supporting ranchi-sees.

For BurgerFuel, being able toreduce intense capital expenditurerequirements in territories under

Master License Agreement, allowsus to support our expansion strategywith more resources both locally and

globally. Tis in turn creates a sus-tainable and scalable business model,allowing us to licence our intellectualproperty in systems, marketing andproducts rather than in soaking up keynancial resources to open stores saidRoberts.

Te costs o taking on a Burger-Fuel Franchise depends on the typeo store required or a given areaand the expected store volume. ForNew Zealand, the average store costs

between $250,000 and $450,000 tobuild (including the constructionmanagement ee) along with a ranchiseterritory ee o $35,000 and a trainingee o $15,000.

BurgerFuel is a ull turn-keyoperation, and the upront costs willprovide ranchisees with everythingthey need to run a successul and prot-able ranchise, Roberts continued.

Roberts said he believes having theright people is the most importantactor when it comes to success, soBurgerFuel reviews all applications on acase-by-case basis. Franchisees do needto come in with a certain amount ounencumbered capital.

We place considerable importance


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on providing the very best in support,systems, marketing and innovation toour ranchise operators, at a level that isunparalleled by other brands. Franchi-sees gain the benets o the systems andrevenue models that BurgerFuel hasdeveloped to promote growth, sustain-ability and success in each new territoryand market that the brand enters, hesaid.

At present, BurgerFuel is looking toll territories all over New Zealand,with a particular ocus on the SouthIsland, where the BurgerFuel teamclaims to be constantly blown awaythe by the volume o requests it receivesabout opening a store in the South. Tesame is true globally, where it seeks theright Master Franchise partners to helpthe brand take over the world.

Our Master Franchise Partners inthe Middle East have strong contacts,as well as access to the best sites andthis makes a huge dierence - welook or more than just a nancialpartner. Weve learnt that providing ourranchisees with the right support andresources is the biggest contributor tosuccess, and success and protability orranchisees is at the oreront o every-thing we do at the local level, Robertscontinued.

Repeat custom a sign o success inany good business, he adds, noting 44per cent o ranchisees own multiplestores, with some, like Mark Walsdorhaving up to six in their stable.

People ask me what its like being aBurgerFuel ranchisee. My answer isalways the same...its the best decision

I ever made. Sure, theres been a lot ohard work, but nobody gets anywherewithout putting in the hard yards andwhen they ask me i its been worthit nancially I tell them I wouldntbe building more stores i it wasnt,Walsdor said.

BurgerFuel has been a great invest-ment. Ive been in this game a whilenow with three stores and yet I stillleap out o bed excited to be involved.Te model and systems have proven

to be successul and the nancial gainis worth the hard work, added JamesStevenson, owner o three BurgerFuelstores.

Rodney Wayne cuts a dashRodney Wayne has been in the

hairdressing business or more than40 years and has been a ranchisingpioneer in New Zealand.

Wayne started out in Melbourne,Australia, since he went to hairdressingschool there and built up a chain oour salons by taking city chic to thecountry.

Some 30 years ago, he moved back to

about investing in a ranchise, then getserious at the event. And dont spendtoo much time with one brand. Tereare more ranchisors to speak withsoask the crucial questions and move on.

4- Stay organizedOnly accept press materials rom

the companies that truly interestyouotherwise youll walk away romthe event rustrated and conused. Itsalso a good idea to bring along a penand small notepad. By the end o theshow, youll have talked to so manypeople; youll orget who is who! And

remember hang on to your expo guideit has a little inormation on all theexhibitors and also gains you entry tothe expo or all three days.

5- Schedule meetingsDont eel pressured to get all the

necessary inormation and ace time inon Expo oor. I youre really interestedin a concept, ask to meet with oneo the sales managers or a meeting.Tis way you can talk to them one-on-one without all the commotion.Additionally, you wont eel rushed andyou can ask more in-depth questions.

6- Get professional advicePrior to signing anything it is

imperative to get the advice oproessionals both an accountant andlawyer.


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Franchise

New Zealand and saw a big opportu-nity, using a similar philosophy, notingthe major chains were all in the city,giving him the opening to take well-trained hairdressers and beautiul toutinto the suburbs.

oday, there are over 50 Rodney

Wayne salons and specialist retailoutlets around New Zealand.Te idea or ranchising came rom

a Frenchman called Jean Louis David,who now has ranchised salons acrossthe USA, Europe, the Middle East andAsia, Wayne recalls.

He had about 800 ranchised hairsalons which specically targeted themid-upmarket customer. Looking at hisbusiness model, I got very excited anddecided to go down the same path, hesaid.

At the time, Wayne already owned10-12 stores, so the brand was suc-cessul and he had already written anoperators manual to maintain servicestandards.

When I launched the ranchise 20years ago, we had success straight away,with outlets taken up by very goodinvestor operators. We built up a closerelationship with the shopping centres,Westeld and AMP. Te rest is history,he recalls.

Rodney Wayne gives ranchiseesmuch support, including helping trainmanagers and junior sta. It means 80per cent o ranchisees are non-hair-dressers but they must be good withpeople and work in teams.

o open a new salon is expensive,such as $300,000 in a mall but striplocations will be cheaper. A brand newsite may cost $250,000, while existingRodney Wayne businesses may cost $1million.

We have ranchisees that have been

with us or 20 years. We dont have a loticking them on. Prospective buyersshould come and talk to us. Teresalways people wanting to move on orhave bigger store, he said.

Rodney Wayne is looking to opensalons on the South Island, especiallyQueenstown, though the company hasno set targets.

Further growth is expected inAuckland, in its malls and on striplocations.

Tough hairdressing is a service thatcannot be replaced by the internet,Rodney Waynbe has evolved over theyears, with new looks and new hair-styles. Te company also operates itsown straining school.

Te biggest job we have is nding,training and keeping the best people.

Tere are 450 sta in the group. Tebiggest part o what my ofce does isoering support . We do two seasonhair ashion collections or summerand winter.

We build the ashion around ourcreativity and showing our sta andcustomers we have the ability to dothat, Wayne added.

Such support has helped some ran-chisees make six-gure prots, withsome o the bigger ones now exceeding

$250,000.Stuart McMillan, who has theranchise or Rodney Wayne salonsin Albany and Gleneld, Auckland,said he chose Rodney Wayne in 1998because hairdressing was internetproo, and as a cash business, did notinvolve chasing aer bad debts.

McMillan had been running a com-mercial laundry and ound the switcheasy as it was another service business.He has sta to do the hairdressing buthe is comortable selling product which

he now knows about.Its about people management,

people skills. Rodney Wayne grouphave antastic systems. I you ollow thesystem its almost oolproo, he said.

McMillan describes hairdressing as aun industry as its about making peoplehappy, though there can be challenges indealing with sta shortages.

Having said that, hairdressing ispretty much recession-proo. Whentimes are good, people have money to

spend, when times are bad, they need tolook good or interviews.

Te only regret I have is that I did notdo it sooner. I have never looked back,he added.


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28/72

Teres nothing like an election to clear the air.

A secure win by the Coalition in Australia was greeted by

strong gains on Australian markets as new prime minister

ony Abbott declared Australia was open or business

again.

Te bull run lasted several days, also buoyed by positive

news rom China, with mining stocks, who suered much

rom Labors mining tax, rebounding strongly.

Among them, within a day or two o the decisive election

result, mining giant BHP Billiton gained 48 cents to A$35.64

and Rio into gained 86 cents to $61.95.

Te major banks also moved higher, the National

Australia Bank adding 41 cents to A$33.18, ANZ rose 25

cents to A29.94, Commonwealth Bank rising 47 cents to

$73.63 and Westpac gaining 29 cents to A$31.93.

Airline stocks also ared well, with the Coalition

promising to repeal the carbon and mining taxes. Qantas

shares rose 5 cents to A$1.37 on the result.

Aer a pause, the ASX then jumped to new heights, to

around 5,250, ollowing news that Larry Summers had

pulled out o the race to succeed Ben Bernanke at the US

reasury.

Bernanke has been blamed by many or helping cause the

08-09 nancial crisis due to his inuence on deregulating

the nancial services industry, though others also blame the

US government pushing banks to lend to ethnic minorities

who were least able to repay their home loans.

Te Summers withdrawal was also welcomed on

Asian markets who also gained mid-month, who believe

Bernankes likely successor Janet Yellen will continue his

pro-growth policies.

New Zealands share market also reported gains mid-

month, with it topping the record high o 4,680.11 reached

on May 14.

Te strong gains were credited on a successul reporting

season, plus hopes that the situation in Syria may be sorted

out somehow. Condence in New Zealand ollowing our

successes in the Americas Cup was also touted, with Kiwi

race wins uelling a eelgood actor among investors.

Among the risers mid-month was Auckland International

Airport, which gained 2.37 per cent in one day to close at

$3.245 ollowing it eaturing in various industry awards.

Clothing chain operator Hallenstein Glasson hasd a

strong run, mid-month, closing up a urther 2.1 per cent to

$4.90 in one day.

Te Port o auranga also clawed back losses, ollowing

news it had lost a major contract, to rise 1.4 per cent to

$14.20.

Big shed retailer Te Warehouse ell however, down

1.3 per cent to $3.71 on news o its higher prots, but

considering the shares have risen 26 per cent this year, there

may well have been some prot taking.

Overall, though, investor condence remained high,

with news rom the Reserve Bank that the New Zealand

economy is strong enough to bear an increase in interest

rates next year, making it the rst cab o the rank in the

developed world to experience such a thing post GFC.

But back to elections. Following the election o David

Cunlie as leader o the New Zealand Labour Party, the

NZX reached a new high, topping 4,690. Now, whether this

was due to the market actoring Cunlies talents as a uture

PM, or whether his election helps secure the return o John

Key and National, or whether other actors were behind the

rise, remains to be seen!

Market Reportby David McEwen

Market Report

NZX50 ASX ALL ORDS


29/72

Sharetalkby David McEwen

SEEKAWHS RAKON

Sharetalk

STATUS: GROWTH BUYPRICE: $3.78

STATUS: SELLPRICE: $0.22

STATUS: HOLDPRICE: $2.00

Red sheds rise

Te Warehouse Group (NZ: WHS)

reported a 61 per cent increase in net

prots to $145.3m on sales that were up

29 per cent to $2.2 billion. Aer adjusting

or one-o items, countrys biggest listed

retailers was up 13 per cent to $65.2m.

Same store sales or the Red Sheds were up

2 per cent, giving a $1.6 billion total or the

ull year.

WHS seems to be getting a new lease

o lie under new CEO Mark Powell

with all divisions showing improvement.

Warehouse Stationery had sales growth o

12 per cent, with same store sales o 2.8 per

cent while Noel Leemings same store sales

grew 7 per cent.

Tis latter gure is a pleasant surprise as

many observers had questioned whether

Noel Leeming was a quality purchase

given erce competition in the electronic

hardware and consumer durables sectors.

wo actors are working in the retailers

avour. One is the introduction o well

known, quality brands (courtesy o Noel

Leeming) and the other is an increase in

the wage levels paid to sta.

Having products that are cheap but all

apart no longer appeals to customers, nor

does the lack o service within the Red

Sheds, where sta seemed occupied on

restocking rather than service.

WHS is also moving more into oering

online products and services and is makingacquisitions that will help in this strategy.

Aer a long period o underperor-

mance, WHS is on the mend and oering

a gross orecast dividend yield o 8 per cent

is a bonus.

Rakon on the rack

Former stock market darling Rakon

(NZ: RAK), a maker o very small, very

clear crystal chips used in equipment with

GSP unctions, has warned its losses will

almost double this year, thanks in part to a

disastrous investment in China.

Just beore it conrmed it would partial-

ly-sell its Chinese joint venture company,

the company orecast a $54m net loss or

the year to March 2014, compared with a

loss o $32.8m this year.

In the year to March 2015, Rakon hopes

to make a gross prot o $10m - $15m and

said that, once it was making a prot, it

would pay hal out as dividends.

A lot can happen beore March 2015

and investors wait or some evidence that

is in a position to deliver a prot or pay a

dividend beore getting too excited.

Te company has consistently under-

perormed and recent barbed comments

aimed at its management and directors,

not least by the Shareholders Association,

appear valid.

RAK has been hurt by a strong $NZ but

its prot margins also have been eroded

over the years.

Once a price war starts it is hard to stop

it and get margins back up.

Investors should always avoid any

company that is involved in a discounting

war.=I moved to a SELL on this share at

$1.15 back in May 2011 and nothing in therecent announcement makes me want to

change my mind.

Seeka goes soft

Seeka Kiwiruit Industries (NZ: SEK),

the ruit grower and cool store and pack

house operator, has reported a 92 per cent

dive in rst-hal prot as the outbreak

o Psa-V virus aected some varieties o

kiwiruit.

Its post harvest services to the kiwiruit

and avocado sectors include ruit harvest-

ing and packing, cool storage, and logistics

activities.

Te company also oers orchard man-

agement, leasing, and associated services.

Net prot sank to $672,000 or 5c a share,

in the six months ended June 30, rom $8.5

million, or 59 cents, a year earlier.

Revenue dropped 16 per cent to $67

million on declining kiwiruit volumes.

Kiwiruit growers have been struggling

or three years ollowing the outbreak o

the virus, which has inected about 40 per

cent o the nations orchards and devastated

the gold ruit varieties.

Despite the poor result, SEK announced

an interim dividend o 6 cents a share and

plans to invest in a coolstore in Malaysia.

Chance are only orchardists are inter-

ested in this share, which is thinly traded

and thereore needs to be held or a decent

period o time.

Many investors tend to shy away rom

any company that makes a living rom

growing things, given the vulnerability o

earnings to weather and other actors.Tose who own the shares no doubt are

doing it or their own reasons and may as

well hang on to them.

Others should keep their distance.


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Sharetalk

Lynas still hoping

Australian rare earths metals miner

Lynas Corp (AU: LYC) has widened its

ull year loss but says it hopes one day to

take on China as a leading supplier.

Its major interest is the Mount Weld

project, which includes rare earths

oxide deposits located to the south o

Laverton, Western Australia.

Te companys ull year loss grew to

A$107.4 million or the year to June 30,

rom A$102.6 million.

Te loss was partly associated with

the extra costs surrounding the opening

o its Malaysian processing plant, and

nally gaining licensing, ollowing

protracted legal battles with opponents.

However, the company, which also

operates the Western Australia-based Mt

Weld mine, says it will be a sustainable

supplier o rare earth metals.

It hopes its Malaysian plan will end

Chinas monopoly on such materials.

Rare earth metals which are used in

all manner o technological devices are

in huge demand and China controls

most o the worlds supplies.

However, demand ebbs and ows

signicantly and LYCs share price has

done the same, rocketing at some times

Documents

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