Education market ready for players to bulk up

EDUCATION is one of Australia’s largest industries, ranking in the top 10 for ”gross value added” in the national accounts, and appears to be one in which we have a competitive advantage. Global demand for education is continuing to grow as the developing world chases the developed world. And demand is likely to remain strong even when economic conditions waiver, as reduced employment prospects or more competitive labour markets can drive interest in reskilling or upskilling.
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Yet this is an industry that is significantly under-represented on the domestic sharemarket.

Navitas has acted as the industry beacon, rising from humble beginnings in Western Australia to operating on the global stage with a market capitalisation of $1.5 billion. That valuation positions it among the top 10 companies globally that are primarily in the education services sector, although there are also largish listed companies such as The Washington Post, which has acquired a number of businesses in Australia that include education among a broader portfolio.

A second listed entity, RedHill Education, tried to bolt together a number of educational businesses in the hope it could replicate the success of Navitas. But it languishes with a market capitalisation of $3.9 million, not far from the $3.2 million it held at June 30, after a disastrous listing in which it fell short of its prospectus revenue forecast for fiscal 2011 by a third and reported operating losses that have only just been stemmed in the September quarter.

RedHill appointed Glenn Elith as CEO in May, with a brief to salvage the business. Elith is a chartered accountant experienced in business turnarounds, including stints with Lion Nathan and George Weston Foods. He was CFO at organic retailer Macro Wholefoods Markets, which was sold to Woolworths in 2009. RedHill recently announced that under Elith it had achieved an EBITDA-positive and cash-flow result in the September quarter.

RedHill operates three Sydney-based colleges: the Academy of Information Technology, Greenwich College and the International School of Colour and Design. It also owns an independent student agency, Go Study Australia. But with the business historically generating about $14 million revenue (the original prospectus forecast $21.4 million in fiscal 2011), the second step for Elith is going to be to find a way to drive shareholder value through consolidation.

While universities dominate the higher education category (and even then there are 135 businesses competing), the broader educational industry is highly fragmented. There are 4910 registered training organisations (RTOs), according to training.gov.au. In addition, analyst IBIS World estimates there are more than 11,600 businesses offering language and other educational services (from business colleges to driving schools).

There is a third listed player that has kept a low profile and progressively acted on the consolidation theme, including the purchase of a 10 per cent stake in RedHill.

Academies Australasia Group is a tertiary education business that evolved out of a listed entity with more than 100 years of history. It operates nine colleges in Australia and one in Singapore, offering vocational, English and higher education. Its market capitalisation is $38 million and it is tightly held.

Last month it bought 40 per cent of the College of Sports and Fitness for $300,000 cash and shares, as well as 100 per cent of Melbourne-based language college Discover English for $190,000. It bought 51 per cent of Benchmark College for $5.5 million and paid $1.1 million for 75 per cent of Melbourne-based Academies Australasia Polytechnic, which offers tourism and hospitality qualifications, English courses and delivery of University of Ballarat programs, including MBAs.

Market conditions look ripe for continued consolidation, with weaker competitors placed under considerable pressure. The international market is still recovering from a post-2009 plunge that followed negative publicity regarding student safety in Australia, changes to Australia’s migration policies and shifts in exchange rates.

Industry feedback regarding domestic students is that tight purse strings in government are resulting in a shakeout within the sector. And a move among some states to contestability between private operators and TAFEs offers new opportunities for those operators with scale and efficiency.

Martin Pretty is head of research at Investorfirst Securities.

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Criminal charges loom for HSBC

BRITISH bank HSBC Holdings acknowledged this week that its exposure to an industry-wide money laundering investigation had swelled as it disclosed that it could face criminal charges in the US.
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With its legal liabilities rising, HSBC set aside an additional $US800 million to cover potential fines stemming from the case, bringing its total to $US1.5 billion. The bank, negotiating a settlement with US authorities, is expected to pay the largest fine on record for money laundering and related actions.

The trouble at HSBC comes amid a widespread crackdown by federal and state authorities into the illegal movement of money. Officials are moving to choke off the supply of US dollars to drug cartels and terrorist organisations.

Regulators and prosecutors are looking into whether foreign banks failed to monitor cash transactions at American subsidiaries, allowing drug dealers and terrorists to move tainted money. As well as scrutinising money laundering activities, they are also investigating whether institutions skirted rules by transferring money for nations subject to sanctions.

Over the past few years, the bulk of cases have focused on those sanction violations. The US Treasury Department reached a $US619 million settlement with ING Group in June over such accusations. A couple months later, the British bank Standard Chartered agreed to pay $US340 million to New York’s top banking regulator, which claimed the bank laundered hundreds of billions of dollars for Iran for nearly a decade.

HSBC faces harsher scrutiny. Besides sanction violations, prosecutors are considering criminal charges related to money laundering, according to several law enforcement officials. It would be the first such case stemming from the broad investigation.

”A lot of banks will likely have to respond if US authorities impose criminal sanctions on HSBC,” said Jimmy Gurule, an anti-money laundering expert at the University of Notre Dame. ”It could send shock waves through the financial services industry.”

This year, HSBC was thrust into the spotlight when the US Senate permanent subcommittee on investigations accused the bank of exposing the US ”financial system to money laundering and terrorist financing risks”.

The subcommittee claimed some bank executives were complicit in the activity, ignoring warning signs and allowing illegal behaviour to continue unchecked from 2001 to 2010.

The Senate report found that HSBC’s US operations provided at least $US1 billion in financing to Al Rajhi. Senate investigators said HSBC also failed to effectively monitor the bulk-cash businesses in Mexico. NEW YORK TIMES

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Miners finding Indonesia a tougher ask

A STRING of mid-tier Australian mining companies have run into serious problems with local protests in Indonesia recently, prompting some executives to say the resource-rich nation is losing its lustre.
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As the Australian government’s Asian century white paper urges business to get familiar with Asia, companies are confronting sometimes wild protests and heavy-handed police action, with little hope of relief through the courts.

”The risk profile for Indonesia is starting to look very challenging [compared with other parts of Asia],” according to Jim Kerr, the general manager of goldminer Hillgrove Resources. ”If it was a Melbourne Cup, you’d say Indonesia has drifted to the back of the pack. The odds are looking a little longer.”

In the past 12 months, Arc Exploration, Hillgrove Resources, Sihayo Gold, G-Resources and gas company Triangle Pase have run into serious difficulties with local protests.

Last week, protests erupted against Hong Kong-listed and Australian-run G-Resources, which is attempting to build a ”clean-water pipeline” at its Martabe mine in northern Sumatra. Protests that began over fears of discharging water into the local river turned angry at police action during the protest, and two district offices and a police station were damaged, three government cars burned and a number of people injured.

Local spokesman Adi Sumurung told BusinessDay the company’s chief executive, Peter Albert, was ”good” and had been willing to negotiate, but that they were angry at police, who had forced two youngsters to eat gravel and a young woman to drink water laced with mercury. ”I think this is ridiculous,” Mr Sumurung said.

Arc Exploration also faced trouble last year over the actions of local police, who shot dead two environmental protesters at its Bima project on the island of Sumbawa. The government cancelled the company’s licence as a result.

Sihayo Gold has twice suspended work at its North Sumatra exploration site after attacks by protesters, who set the camp on fire last year. The company blamed illegal ”artisan” miners who face being locked out of goldfields.

Gold explorer Hillgrove Resources likewise suspended drilling for much of 2011 at its Sumba prospect because of environmental protests and what it claims was ”political misinformation” from people outside the community.

And Triangle Pase, a gas producer run by long-time industry figure John Towner, has been the subject of a protest about ownership, alleged problems with waste, and claims that it had not fulfilled its corporate social responsibility obligations.

Both Mr Towner and Mr Kerr suggested the protests were more about money than environmental issues.

”In reality, these people are paid by someone to cause a disturbance,” Mr Towner said. ”I’ve been there longer than most, I’ve seen it all … someone thinks we’re making an absolute fortune and they think they can come in and take it over until it runs out.”

Mr Kerr said some NGOs were legitimate, but others were little more than organisations designed to ”shake down” his operation.

”They’ll put 20 people outside your gate and then someone comes up and says, for a bit of money, these people can go away,” Mr Kerr said.

Indonesia’s post-democracy decentralisation of power has left local administrations with enormous power over mining investment, but ill-equipped to administer complex environmental and mining legislation, he said.

Companies also do not expect the courts, which in Indonesia are often corrupt, to enforce their rights.

But G-Resources chairman Owen Hegarty said despite the trouble his company faced he had significant faith in the government and people of Indonesia. ”These issues are not fatal, they are not deal-breakers. They are issues we need to work with,” he said.

Australian National University economist Hal Hill said mining was a vexed political and legal issue in Indonesia with ”more than a hint of corruption”. But he also sensed mining companies might be in a rush to catch the once-in-a-generation profits on offer. ”I get a sense of nervousness, that they are getting pushy and aggressive. Maybe both sides are going harder,” he said.

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Prebble reflects on man he was many Moons ago

Melbourne CupAFTER a costume change that would have done a superhero proud, Brett Prebble emerged from the jockey’s room for the race after the Great Race, still beaming, and walked into David Hayes’ outstretched hand. ”Sorry, what’s your name again?” Hayes asked.
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He was joking, of course. Yet Prebble well remembers a time when his was a name trainers didn’t want to know. ”My old manager, Des O’Keefe, used to say to me, ‘For every ride I get you there’d be a hundred who don’t want you’,” Prebble said of his younger self, adding ”arrogant” and ”abrupt” to an uncomfortable glance in his life’s rear-view mirror. ”I was a bit of a ratbag as a kid.”

Prebble is 35 now, and happy with the reflection he sees each morning not only of the jockey, but of the man he has become. He credits ”a good wife” – Maree Payne, from a family well versed in being good people as well as good with horses – and being a father with rounding out his edges.

A decade in Hong Kong has been an adult finishing school for the kid who moved from Ballarat to Terry O’Sullivan’s stables in Stawell when barely in his teens, and already showing signs of an abundance of talent, and a level of self-confidence others would soon find grating.

”He always said he was going to be a top jockey,” O’Sullivan said, having watched the race from his couch at home, proud as punch. ”He probably was reasonably arrogant, there were a few thought he was a smart arse.”

O’Sullivan didn’t mind, because Prebble worked as hard and fast as he talked. ”We probably clashed a few times, but no one was more dedicated or tried harder than Brett, he was always gunna be successful,” he said, recalling sending him on a week’s holiday and Prebble returning to the stables three days later, bored and desperate to get back into it.

He’d just turned 15 when he rode his first winner for O’Sullivan at Edenhope. ”I had to ask the owners to give him a ride – they didn’t want him. I said, ‘He rides a bit better than most of the jockeys who’ve been riding for years’.” A week later he rode a double, and was soon doing so for fun; within 18 months he’d ridden out his claim and was headed for the big smoke.

”He was never gunna be riding in the bush for long,” O’Sullivan said.

Dick Prebble, who died six years ago this month, was adamant his boy would have this day. ”He was very enthusiastic for me to be a jockey,” his son said, with a laugh and a shake of the head.

His old man had first taken him to Arthur Clarke, who told him he’d get too big and should find another profession. ”So I left there crying at the age of 13.” He has long counted this rejection as a blessing, for it delivered him to O’Sullivan, and from there to John Meagher, where he first caught Lloyd Williams’ eye.

”Terry picked a good tutor for me in John Meagher, a good trainer, someone like Terry who gives you full opportunities when you’re an apprentice,” Prebble said, noting that there aren’t many who do nowadays. ”It’s hard – you’ve got to make them and train them and take them really as your own child. I was very fortunate to have two fantastic masters. I wouldn’t be sitting up here without them.”

His debt of gratitude to Lloyd Williams spilled out on the way back to the mounting yard. ”That’s for you boss,” Prebble panted; he’d later reel off the past winners he was offered the ride on – Brew, Shocking, Dunaden, plus last year’s runner-up Red Cadeaux – and remember the Melbourne Cup days he’s returned home from, fit to kick the cat.

He has benefited from good support in Hong Kong, too. David Hall, who trained Makybe Diva to the first of her hat-trick of Cups, and the South African-born trainer Caspar Fownes have legged him up on many of the 500-plus winners he’s ridden on racing’s most exacting world stage. Two seasons ago he went within a single win of adding a Hong Kong Jockey’s Club championship to his two Victorian titles.

”Hong Kong has made me appreciate life, appreciate what you get, and appreciate the people that help you get there,” he said, holding Craig Williams up as the model of all a jockey must be today – dotting every ‘i’, crossing every ‘t’. ”Riding nowadays is probably 50 per cent of it. Look at Craig, he’s the complete package, he’s 100 per cent.”

He didn’t want to sound cocky, but admitted he’d felt confident a mile from home. Straightening up, he remembered an old mentor saying count to 10, Hall stretching it to 15. ”I counted to five!”

After crossing the line, he shared a hands-held salute with James McDonald, who was closing on Fiorente but never going to get there. O’Sullivan smiled, remembering taking Prebble to the New Zealander’s father’s farm when McDonald was 10, the kid posing for a photo with the grown-up he dreamed of becoming.

Prebble is happy with who he is. His only concern last night was whether he’d have to jet it back to Hong Kong to take up a full book of rides at Happy Valley on Wednesday; he remembered the HK Jockey Club taking pity on Gerald Mosse two years ago, and was planning to make a phone call.

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Brown closes in on peak powers

JETS coach Gary van Egmond does not expect to see the best of James Brown for at least another two weeks, maybe longer.
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Brown made his much-anticipated return from successful ankle surgery in the 3-2 loss to Perth Glory at nib Stadium on Saturday night.

The 23-year-old was solid if not spectacular during his 77-minute shift, which doubled as his A-League debut for the Jets and first start since a 3-1 win over Wellington Phoenix in a pre-season hit out at Weston on August 20.

“We got 75 minutes out of him and probably didn’t expect to extend him that much,” van Egmond said.

“He was a little off the pace of the game.

“He did some good things on an individual note, but again we extended him because we felt he would be a lot better for the following week.

“I reckon another two to four weeks and we will start to see him at his best. Just getting the rhythm of training and the rhythm of games, and again with the team.”

Before the arrival of former England striker Emile Heskey, Brown was the Jets’ highest-profile signing.

He can play in a central role or on either flank and provides a goal-scoring threat, evidenced by his six goals in 17 appearances last season for the now defunct Gold Coast.

Brown’s comeback and the expected return of Dominik Ritter from a strained quadriceps gives van Egmond a number of attacking options for the battle with Western Sydney Wanderers at Parramatta Stadium on Saturday.

Ritter’s presence will allow Craig Goodwin to push forward into his preferred role on the left flank.

Brown started on the left wing against Perth. Ryan Griffiths played as a 10 in behind striker Heskey. James Virgili was on the right, where he terrorised the Wanderers in a pre-season friendly.

“We have a real good headache in selection of positions,” van Egmond said.

“Do we play Ryan where he is? Do you play him out wide? Do you bring James [Brown] inside?”

Van Egmond stressed that competition for places was essential if the Jets were to be a force this season.

“We have discussed what we need this year, as far as the squad being really strong, to achieve anything,” he said.

“[With that] you also get good impact off the bench.

“It can be Craig off the bench one week, it can be James, it can be Ryan.

“Going back to when we did well when I was here last time, we had Milton Rodriguez, Joel Griffiths, Mark Bridge and Vaughan Coveny.

“There was always one who missed out and there was always good competition in that front third.”

Meanwhile, former Jet Jason Culina made a successful return from a long-term injury in a Sydney FC training game against Wanderers yesterday.

Culina played the first half in the 1-0 win, but his recovery from the match will determine when he can resume playing in the A-League.

CORRECTION: A quote from Jets player Craig Goodwin in yesterday’s Herald should have read: “I don’t really see it as an ‘X’ on my back.”

COMEBACK: James Brown, right, with Michael Bridges at training. Picture: Peter Stoop