CEO INSIGHTS – Week Ending Friday 03/02/17 BY NAOS Asset Management

“No matter what way you look at it in our industry there is a skills shortage, and trying to get the right people over the top of client engagements is increasingly important” Steven Worrall, MD, Microsoft Australia

As part of the NAOS investment process, we pay particular attention to the comments made by company CEO’s 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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Oil & Gas/Renewables

“Oil demand continues to increase, although the pace of growth is likely to slow as vehicles become more efficient and technological improvements, such as electric vehicles, autonomous driving and car sharing, potentially herald a mobility revolution”

Bob Dudley, CEO, BP

“Rapid improvements in the competitiveness of renewable energy mean that increases in renewables, together with nuclear and hydro energy, provide around half of the increase in global energy out to 2035”

Bob Dudley, CEO, BP

“Climate change is real [and] action is needed. We… have to participate [in renewables] in order to learn but we are not going to go in at a level that could be considered reckless”

Ben van Beurden, CEO, Shell

“The long-term trend for LNG demand is good because it’s ­competitive on price in many locations and it certainly has desirable environmental characteristics”

John Watson, CEO, Chevron

“The abundance of oil resources combined with the prospect of slowing oil demand may prompt a change in global oil supplies. In particular, low-cost producers (mainly located in large, onshore conventional oilfields in the Middle East and Russia, followed by US shale) may use their competitive advantage to increase market share”

Bob Dudley, CEO, BP

“We are seeing a lot of strength in the domestic gas market from a demand perspective, and we are seeing stress in the market from a supply and demand perspective that is being commentated as well”

Matt Kay, CEO, Beach Energy

“I think it (the tightness in gas supply) will be on an ongoing basis — the resolution will need to be around more drilling and more discoveries, and that is challenging when there are moratoriums in much of Australia”

Matt Kay, CEO, Beach Energy

“Just about every major oil company has been refocusing investment since the oil price drop [in 2014], and because of that basins like the North Sea are being neglected. We’re starting to see the emergence of a handful of new companies, well-financed by private equity, that see this as a good opportunity”

Linda Cook, Former Director, Shell

Commodities

“The coal industry in particular, and the resources industry generally, is in a much better position now than we were even just a year back. We’ve got record export volumes through the port of Newcastle and our metals miners are generally doing better too. We’re back to the boom”

Stephen Galilee, CEO, NSW Minerals Council

“There is increasing evidence that rebalancing of economic growth within China, together with tightening climate and environmental policies are likely to lead to a plateauing in China’s coal consumption over the outlook”

Bob Dudley, CEO, BP

Health

[In relation to consumer backlash against sugar] “There’s probably more change today than at any time in my history in the industry. We’re seeing consumers’ beliefs around food change rapidly”

John Bryant, CEO, Kellogg’s

US Housing

"The Company expects to see steady growth in the US housing market in fiscal year 2017, assuming new construction starts between approximately 1.2 and 1.3 million. We expect net volume growth for the North America Fiber Cement segment to likely outpace overall market growth by mid-to-high single digits"

James Hardie Market Announcement 

Aquaculture

"We've got people who are getting annoyed with us because we simply can't supply them with what they want. We don't have enough fish to supply domestic demand”

Ross Anderson, Chairman, Murray Cod

Markets

“The best kind of climate is one where there is free movement of capital flows because if you are looking to invest around the world — as we are — anything that hinders that type of investment doesn’t help your returns’’

Peter Costello, Chairman, Future Fund

Equity Markets

“While global equity markets have strengthened over recent months, uncertainty regarding global monetary policy and a range of geopolitical factors remains. We maintain our long held view that we see a challenging investment environment ahead with elevated risks and lower prospective returns than in previous years”

Peter Costello, Chairman, Future Fund

Advertising

“Historically, advertisers have given some leniency in terms of measurement of return on digital investments in the interests of test and learn. However, with the quantum of spend now allocated to these channels, advertisers like P&G are increasingly demanding and applying the same rigour to evaluating the return and effectiveness of digital spend as they do all their other media investments”

Sunita Gloster, CEO, Association of National Advertisers

“Advertising based online news ventures are very tough these days with Google and Facebook hoovering up such a large proportion of the available spend”

Stephen Mayne, CEO, Mayne Report

“We don’t want to waste time and money on a crappy media supply chain”

Marc Pritchard, Global Marketing Officer, Procter & Gamble

NBN

“Given the correlation between low usage and low income, we consider that NBN pricing will negatively impact on affordability”

Report By Telstra

Consumer

“Numerous challenges and disruptions in North America retail tempered our fourth quarter results”

Kevin Plank, CEO, Under Armour

“[In 2017] We expect our footwear and international businesses to continue to outpace the growth of our higher-margin apparel and North American businesses”

David Bergman, CFO, Under Armour

“We feel particularly strong on China. It's been one of our highest growth [markets] and becoming very, very profitable for us”

David Bergman, CFO, Under Armour

“We sold more iPhones than ever before and set all-time revenue records for iPhone, Services, Mac and Apple Watch. Revenue from services grew strongly over last year, led by record customer activity on the App Store, and we are very excited about the products in our pipeline”

Tim Cook, CEO, Apple

Other

“No matter what way you look at it in our industry there is a skills shortage, and trying to get the right people over the top of client engagements is increasingly important”

Steven Worrall, MD, Microsoft Australia

"Our customers have gradually reduced their de-stocking activities and begun to move toward replenishing their inventories of our products, in particular as a result of postponement of regulatory changes"

Luo Fei, CEO, Biostime [Owner of Swisse]

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