CEO INSIGHTS – Week Ending 24 May 2019 By NAOS Asset Management

"This significant tax increase, in the form of tariffs, would impact every type of shoe and every single segment of our society."

Letter to US President from 173 global footwear companies inc Nike & Adidas 

As part of the NAOS investment process, we pay particular attention to the comments made by company CEOs and business leaders in order to gain a greater understanding of the current investment environment and key trends that may be emerging. Below are quotes from the week which in our view detail some of the most important and prominent industry trends and economic factors impacting their businesses.  

Media & Advertising

"Even in challenging economic environments, advertising spend across Sport remains robust."

Barclay Nettlefold, CEO, QMS Media

Agriculture

"April and May have been trading quite strongly, although follow-up rain is required through the wheat-belt. But our sense, all things being equal, given the significant drought in eastern Australia, is that things are moving along okay."

Mark Allison, CEO, Elders

Domestic Housing Market

“With interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7 per cent floor and actual rates paid on mortgages has become quite wide in some cases – possibly unnecessarily so."

Wayne Byres, Chairman, APRA [Australian Prudential Regulation Authority]

"Since the election, we have seen an increased level of inquiry for our residential projects, particularly in Sydney and Melbourne."

Stuart Penklis, Head of Residential, Mirvac

Trade & Economy

"This significant tax increase, in the form of tariffs, would impact every type of shoe and every single segment of our society."

Letter to US President from 173 global footwear companies inc Nike & Adidas

"Although the Chinese government has announced many economic policies to bolster the economy, given the current macro conditions, tighter government scrutiny on content, cut backs from the VC community and so forth, we are taking a cautious view that online marketing in the near term will face a more challenging environment."

Robin Li, CEO, Baidu [ Chinese Tech Conglomerate]

“We have contributed to China’s dairy industry by developing high-quality model farms and showing there is a valuable opportunity for fresh milk in China’s consumer market, and this continues to be an attractive prospect.”

Miles Hurrell, CEO, Fonterra

Resources

“While demand for batteries will drive lithium and, to a lesser extent, cobalt demand, we also believe that abundant supply of the former, and substitution of the latter, reduces the attractiveness of these commodities for us. We are interested in adding more nickel sulphide resource to our portfolio."

Peter Beaven, CFO, BHP Ltd

Domestic Economy

"Everyone wants everything now and they don't want to pay for it. Over the last 10 years, labour rates have gone up 30%, but a lot of charges to customers have gone down 25%. We have put $130-$160 million a year of costs out of our business just to stand still."

Michael Byrne, CEO, Toll Holdings

"The reduced earnings guidance reflects a tough trading environment in the retail sector which has continued to be impacted by low consumer confidence, flat wages, increases in the cost of living and a rapidly falling housing sector."

The Reject Shop Market Statement 

Asset Management

"Increasingly, from an asset diversification point of view, everyone wants all of their assets on the one platform and bank legacy platforms can't do that."

Will Davidson, CEO, Powerwrap Ltd

Retail

"We're in a very competitive environment and so we just can't go on arbitrarily raise prices."

Marvin Ellison, CEO, Lowe's Companies

"After many quarters of strong growth, business in Europe was difficult in Q1. This isn’t surprising given the current political and economic uncertainty. "

Richard Jayne, CEO, Urban Outfitters

"Beyond short term weather fluctuations, we continue to see a healthy economic backdrop for our business which is evident across multiple metrics, including employment, wage growth, consumer spending and overall sentiment."

Brian Cornell, CEO, Target Corporation

"We’ve seen to date landlords be more and more and more cooperative [of the retail slowdown] to the point that more recently we’re starting to see percentage [of sales] rent deals."

Richard Hayne, CEO, Urban Outfitters Inc

"9 out of 10 [millennials] are most likely to shop with a brand that presents an affiliation to a social issue that’s important to them...The circular economy, provenance and sustainability are on everyone's agendas."

Michelle Grujin, MD, Accenture Australia

Childcare

"The exuberance experienced in the market from 2014-2017 has abated."

Peter Fanous, Principal, Peritus Childcare Sales [For childcare centres]

The Election

"There is still a lot of uncertainty in the business environment, as we have seen from the prospect of Reserve Bank cuts and the proposed APRA changes, but the election has taken away one of the negative wildcard events and given people more confidence." 

Darren Steinberg, CEO, Dexus

“In the space of a week the environment has changed very dramatically, so there is still housing demand but these changes are going to help a lot of young people get a home. APRA had achieved their desired result and stopped the runaway price growth. They pulled it back and bought it back into the right sort of ratio and I think it’s now ready to go for a while again.”

Lindsay Partridge, CEO, Brickworks

Health

"Across the portfolio, occupancy has been impacted by continuing adverse publicity in the sector and influenza in South Australia."

Estia Health ASX Announcement 

Travel

"We saw strong [incoming passenger] growth in 2018 from emerging markets. Vietnam grew by 18%, India grew by close to 14%, and the Philippines grew by over 8%. These are all big markets with large populations and are easily reachable from Sydney in a single flight.”

Geoff Culbert, CEO, Sydney Airports

"It is likely that 2019 will see more subdued growth in passengers across the board - we have seen that in the first 4 months of this year - but to a certain extent this was to be expected when we have just come off a number of years of extraordinary growth."

Geoff Culbert, CEO, Sydney Airports

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Important information: This material has been prepared by NAOS Asset Management Limited (ABN 23 107 624 126, AFSL 273529) (NAOS) for general information purposes only and must not be construed as investment advice. Certain economic, market or company information contained in this material may have been obtained from published sources prepared by third parties. Nothing contained herein should be construed as granting by implication or otherwise, any license or right to use such third party content without the written permission of the owner.