NAOS CEO Insights

CEO INSIGHTS – Week Ending 01 March 2019 By NAOS Asset Management

March 1, 2019
"Our industry has been and is likely to remain challenged on several fronts; continued fragmentation of consumer demand, a general lack of affordability to reinvest in brands, retail competition where assortment is likely to grow in importance and, finally, in the short term, ongoing cost inflation"
Bernado Hees, CEO, Kraft Heinz Co
 
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.
 
 
Domestic Economy
 
"If we have another five years where workers don’t get their normal share of productivity growth [that is, if wages don’t return to growing a per cent or so faster than prices each year], we’ll have all sorts of economic, social and political problems"
Dr Phillip Lowe, Governor, RBA
 
"If it is taken to its full extent, you can look at airports, high-rise developments, any other industrial development, even agriculture…. ultimately it could have a much, much broader impact on the economy of NSW than just coal mining. That is our view" [commenting on the NSW Land and Environment Court rejecting an application by Gloucester Resources to build a three-pit coking coal mine in central NSW on the assumption it would hasten climate change]"
Reinhold Schmidt, CEO, Yancoal
 
Global Economy
 
"Recent declines in business sentiment have driven recessionary risk higher"
Marianne Lake, CFO, JP Morgan
 
"Right now, based on the monthly statements I get, it looks like overall things [in the US economy] are a little better than they have been. The rate of improvement has tapered but it certainly hasn't flattened"
Warren Buffett, Chairman, Berkshire Hathaway
 
"If I look certainly over the last six, nine months, the opportunities that we're seeing around the world, we're more opportunistic and excited about what we see in Asia than anywhere else in the world"
Bill Janetschek, CFO, KKR Group
 
Agriculture
 
"Since our last milk price update in December, global demand has strengthened…. this is driven predominantly by stronger demand from Asia, including Greater China. The European Union’s intervention stocks of skim milk powder (SMP) have also now cleared for the season and, as a result, we expect demand for SMP to be strong……we expect demand to remain stronger relative to supply for the rest of the season."
John Monaghan, Chair, Fonterra  
 
Lending
 
"[US] mortgage originations will likely remain "near cyclical lows" in the coming years…..the industry is struggling with excess capacity for making loans, even as the cost of new loans continues to rise"
Mike Weinbach, Head of Home Lending, JP Morgan
 
"It is a tough time to be in the mortgage business [US]"
Gordon Smith, CEO Consumer and Community Banking, JP Morgan
 
Airlines
 
"We go to 60 destinations and our biggest competitor is the motor car….people make a conscious decision to fly or drive, so we always price our product to be very competitive with private road transport"
John Sharp, Deputy Chair, Rex [Regional Airline]
  
Retail
 
"Our industry has been and is likely to remain challenged on several fronts, continued fragmentation of consumer demand, a general lack of affordability to reinvest in brands, retail competition where assortment is likely to grow in importance and, finally, in the short term, ongoing cost inflation"
Bernado Hees, CEO, Kraft Heinz Co
 
"Competition is always changing in consumer goods and increasingly that competition comes from smaller local players as you know. A really remarkable statistic is that in six of the top Beauty & Personal Care markets, there have been no fewer than 6,000 brand launches over the past two years alone"
Graeme Pitkethly, CFO, Unilever
 
"We need to grow our in-country business......and have less dependency on people buying our product in discount pharmacies in Australia and posting it to the platforms in China. We are going down that path. It's growing but it hasn't grown to compensate for the loss of business from the [daigous]"
Marcus Blackmore, Chairman, Blackmores
 
"Revenue was hit in the half by a number of factors including delays to registration needed to sell some of its products in China, an "observed slowdown in category performance" and a reduction in trade inventory prior to a rebranding undertaken by the company"
Bellamy’s 1H Result Announcement
 
"We’re concerned that many manufacturers and large retailers are not complying with consumer guarantee laws.....electrical and whitegoods products are the second most complained about industry after motor vehicles"
Rod Sims, Chairman, ACCC
 
Insurance
 
"I think the Australian market has become a bit more competitive"
Edouard Schmid, Global Chief Underwriting Officer, Swiss Re Ltd
 
Energy
 
"Governments must let go of the investment handbrake……after a decade of paralysis, Australians need stable energy policy. To make large, long-term investments – without subsidies – we need to know the rules of the game"
Catherine Tanna, CEO, EnergyAustralia
 
"The east coast faces a double whammy of insufficient gas in both the north and south"
Graeme Bethune, CEO, EnergyQuest
 
"Long-term demand for both thermal and metallurgical coal is expected to continue to grow in 2019, driven by increasing energy and infrastructure requirements associated with expected population growth and the urbanisation of south-east Asia"
Reinhold Schmidt, CEO, Yancoal
 

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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.

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