NAOS CEO Insights

CEO INSIGHTS – Week Ending 3 September 2021 By NAOS Asset Management

September 2, 2021

August reporting season special. “It has been a very difficult time for our industry but after 18 months of being largely shut down, there is finally some light at the end of the tunnel” Andrew Burnes, CEO, Helloworld Travel Ltd

CEO INSIGHTS – Week Ending 3 September 2021 By NAOS Asset Management

“It has been a very difficult time for our industry but after 18 months of being largely shut down, there is finally some light at the end of the tunnel” Andrew Burnes, CEO, Helloworld Travel Ltd

August reporting season special 

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.  
 
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Financial Markets

“Corporate Actions volumes increased in all our major regions as a result of clients raising capital, improved IPO markets…and strong M&A activity” Stuart Irving, CEO, Computershare Ltd

“Equities trading is likely to remain robust, given the ongoing uncertainty due to COVID, both here and around the world...the Listings pipeline currently looks well supported as we continue to see interest from New Zealand companies considering listing on the ASX and a buoyant mining sector” Dominic Stevens, CEO, ASX Ltd

Banking & Lending

“Even though we face a historic low interest rate environment, which continues to place pressure on our margins, we will continue to take advantage of strong customer lending demand across our consumer, business, and agribusiness divisions” Marnie Baker, CEO, Bendigo and Adelaide Bank Ltd

“As the past 18 months have shown, Australia has a very strong, stable and secure financial system” Matt Comyn, CEO, Commonwealth Bank of Australia Ltd

Insurance

“We did benefit from the rate cycle. It has continued to keep hardening. You've only got to look at the results of the insurers to know and listen to what leading insurers are saying” Robert Kelly, CEO, Steadfast Group Ltd

Commercial Property

“Healthcare properties remain strongly sought after, with increased domestic and international interest in Australian healthcare property and increasing interest in social infrastructure property more generally” Market Statement, Arena REIT

“Retail leasing activity during the period was the strongest it has been for some time as retailers expanded their physical store networks and launched new brands. We also saw encouraging levels of office enquiry, particularly from technology and services companies” Bob Johnston, CEO, GPT Group Ltd

Housing

“Multi-residential activity is expected to remain weak, with a lift in activity not expected until immigration returns” Zlatko Todorcevski, CEO, Boral Ltd

“Our customers have never been busier in R&R [renovation & refurbishment] capacity” Peter Wilson, CEO, Reece Ltd

“The accessibility and imperative of remote working is accelerating the shift towards lower density and regional residential housing” Mark Vassella, CEO, BlueScope Steel Ltd

Construction

“As an international real estate group, we expect FY22 to be the cyclical low point for both development production and profitability” Tony Lombardo, CEO, Lendlease Corporation Ltd

Infrastructure

“State and federal governments around the country, particularly, focus on the investment in critical infrastructure to support a post COVID recovery and a strong economy into the future” Leigh Mackender, CEO, Service Stream Ltd

Energy

“Although wholesale electricity prices have rallied in recent months, our result reflected the impact over the past two years of increasing generation supply and lower demand arising from the COVID-19 pandemic and milder weather” Graeme Hunt, CEO, AGL Energy Ltd

Mining Services

“Strong commodity prices are leading to significant budget increases for exploration programs. Capital raisings have been strong throughout the last 12 months, and a large portion of that money is still to be deployed…We maintain that the industry is certainly keen to increase expenditure, but it may not be able to run as fast as it would like to in the short-term” Paul House, CEO, Imdex Ltd

“We continue to see project sanctioning delays in line with the targeted capital expenditure exhibited by our customers, which is expected to continue through FY22” Market Statement, Worley Ltd

“While market conditions are expected to be strong, COVID-19 impacts and the skills labour shortage will continue to be a major challenge for the industry” Rob Velletri, MD, Monadelphous Group Ltd

Commodities & Resources

“While in the medium term we see supportive industry and end use demand trends, it is uncertain how long the current robust conditions will be sustained” Market Statement, BlueScope Steel Ltd

“And when we look at our soft commodities through the months of the financial year because we've got long contracts, we don't actually see much of an increase although there is an expectation that there will be some increases in the second part of the calendar year '22 with what we're observing around the world” Don Meij, CEO, Domino’s Pizza Ltd

“Government stimulus in response to ongoing COVID-19 pressures has driven strong demand for our products at a time of constrained supply resulting in a significant spike in most [commodity] prices” Jakob Stausholm, CEO, Rio Tinto Ltd

Retail

“Consumers have pent up savings and economies are growing as they open, but consumers will begin spending on services [compared with products]” Market Statement, Breville Group Ltd

“FY22 has started strongly, YTD revenue is up 26% on PCP [previous corresponding period] with ongoing COVID-19 lockdowns boosting new customer growth and returning customer spend” Market Statement, Adore Beauty Group Ltd

“[Post lockdown] we expect spending to recover quickly as we saw when lockdown restrictions were eased in our overseas markets due to pent-up demand” Gerry Harvey, Executive Chairman, Harvey Norman Holdings Ltd

E-Commerce

“The strength of e-commerce – up 31.8 per cent as Australians took to online shopping in record numbers – has supported the [FY21] result, as did the temporary regulatory changes which allowed us to meet the significant parcel demand and ongoing mail delivery” Rodney Boys, CEO, Australia Post

B.N.P.L

“Buy now, pay later is still in the early stages. If we look at the global opportunity, what we are seeing is a shift from the credit economy to the debit economy, and that is being stimulated by the next generation of Millennials and Gen Z, who want trust-based relationships reflected in everything they do, including payments and spending” Anthony Eisen, Co-CEO, Afterpay Ltd

Media & Advertising

“Forward [ad] bookings for the remainder of the year are currently tracking well ahead of the same time last year” Market Statement, Here There & Everywhere Ltd

“As conditions have become more fluid during the pandemic, we are seeing advertisers capitalising on the flexibility of digital out of home [advertising]” Cathy O’Connor, CEO, oOh!Media Ltd

Automotive

“We continue to experience strong demand for new vehicles, with an increasing order book due to supply constraints” Keith Thornton, CEO, Eagers Automotive Ltd

“The customers still want to visit our showrooms. They still want to test drive the cars and they still want to trade-in cars at the dealership” Nicholas Pagent, CEO, Autosports Group

Travel & Aviation

“It has been a very difficult time for our industry but after 18 months of being largely shut down, there is finally some light at the end of the tunnel” Andrew Burnes, CEO, Helloworld Travel Ltd

“We have seen strong demand as travel restrictions ease in North America and Europe, suggesting significant upside as more international markets reopen” John Gusci, CEO, Webjet Ltd

“I wish to put on record our vote of gratitude to the Federal Government without which all passenger airlines in Australia would certainly have entered administration” Lim Kim Hai, Executive Chairman, Regional Express Group Ltd

Entertainment

“In Entertainment, with cinemas reopening globally, studios began to release blockbuster films and the immediate demand for the cinema experience was evident” Market Statement, Event Hospitality & Entertainment Ltd

“It is also encouraging to see our Theme Parks business continue to receive strong support from the local drive market” Gary Weiss, Chairman, Ardent Leisure Group Ltd

Health & Wellness

“In ANZ we expect challenging conditions to persist in the vitamins and supplements market as international borders remain closed and state-based lockdowns continue to impact retail spend and foot traffic…Furthermore, we expect e-commerce and Pet to be a source of growth in the ANZ business” Alastair Symington, CEO, Blackmores Group Ltd

Healthcare

“I'm especially happy with the Surgical [division], where in spite of a lot of postponed surgical procedures and lines getting longer and longer, we're seeing good growth in Surgical” Magnus Nicolin, CEO, Ansell Ltd

Employment

“The recovery in ANZ job ad volumes began in the second quarter of FY21, and then increased rapidly. By March of this year, job ad volumes exceeded pre COVID-19 levels and were at all-time highs. The centrality of SMEs in the recovery meant that yield also grew, supported by greater depth usage due to high competition for people” Ian Narev, CEO, Seek Ltd

Agriculture

“Strong demand for agricultural, off-the-road and 4WD tyres as farm output and regional economic activity reached levels not seen for many years” Market Announcement, National Tyre & Wheel Ltd

“We’re seeing excellent demand for high quality Australian grain, particularly with recent weather-related crop production challenges in the northern hemisphere, and July delivered our biggest month of contracted sales on record” Robert Spurway, CEO, GrainCorp Ltd

Food & Beverage

“Sales slowed as expected in H2 [FY21] as customers shopped more frequently with smaller basket sizes” Brad Banducci, CEO, Woolworths Group Ltd

“Deflation in the fourth quarter was driven by the grocery, dairy, frozen and convenience categories due to the cycling of lower promotional activity following unprecedented demand and uncertainty of supply in the prior corresponding period. This was partially offset by inflation in fresh, particularly in red meat from elevated livestock prices” Market Statement, Coles Group Ltd

Technology & Telecommunications

“The pandemic has been a catalyst to bring the laggards and the late adopters to the cloud and the new way of doing business” Craig Scroggie, CEO, NextDC Ltd

“We continued to see strong customer growth in mobiles albeit there is no doubt the market has slowed considerably due to COVID. This has included the sharp reversal of net immigration and population growth in Australia as well as hardware supply shortages” Andy Penn, CEO, Telstra Corporation Ltd

Industrials

“Continued strength in the Cans business is expected to offset the impact of subdued Glass volumes as the impacts of China wine tariffs are cycled in 1H22” Market Statement, Orora Ltd

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.