CEO INSIGHTS – Week Ending Friday 10/02/2017 BY NAOS Asset Management

“We have been here before, we know protection doesn't work. The US erected trade barriers in the 1920s such as through the Smoot-Hawley Act and the era of protectionism led in great part to the Great Depression" Malcolm Turnbull, Prime Minster, 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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Transport

"The Rail business has been very tough, particularly in the freight or locomotive space. Fleets of locomotvies have been parked up, and very few new locomotives have been purchased. Moreover, maintenance and overhaul has been deferred. Whilst there are some signs of improvement in the freight space, this market remains soft and challenging"

Grant Fenn, MD, Downer EDI

Retail

“Australian supermarket sales growth has remained subdued  primarily due to ongoing price deflation, volumes and foot traffic have continued to increase”

Anthony Mellowes, CEO, SCA Property Group

“Our specialty and mini-major tenants continue to perform strongly, again recording healthy annual sales growth”

Anthony Mellowes, CEO, SCA Property Group

Oil & Gas/Renewables

“In our electricity portfolio, the impact of rising wholesale prices is expected to continue. The forward curve points to sustained improvement, although the impact will continue to be phased over time due to competition, customer affordability considerations and the timing of rollover of our contracted positions”

AGL Energy Market Announcement

“We believe the green energy story is here to stay for the foreseeable future. It's now a mainstream industry. It's certainly where a lot of the activity is now going on in the infrastructure space”

Tim Bishop, Head of Macquarie Capital

Equity Markets

“Global stock markets appear to have priced in plenty of good news on pro-growth policies following the US election, which in our mind leaves room for some disappointment in the future”

Jason Beddow, MD, Argo Investments

Electric Vehicles

“Electric vehicle drivetrains are forecast to become competitive with combustion engines within five to 10 years”

Robert Friedland, Founder, Ivanhoe Mines

Commodities/Mining

“People have been focused on graphite and lithium, but cobalt and nickel are going to play a big part [in electric car manufacturing] and I think demand could come on a lot quicker than everybody thinks. There are forecasts the cobalt market will grow substantially, and electric cars could account for 200,000 tonnes of annual nickel market growth, or 10 per cent of the global market”

Peter Harold, MD, Panoramic Resources

“Titanium dioxide feedstock demand remained subdued throughout 2016 as the industry continued to absorb excess inventories, although there are signs of underlying demand improvement for both sulphate and chloride feedstock. The market for zircon has recently stabilised following an initial period of weak demand in China”

Rio Tinto Market Announcement

“Demand for borates has remained stable globally, with robust demand in the Americas and India partly offset by weaker growth in China and weather-related demand constraints in south-east Asia”

Rio Tinto Market Announcement

"We are starting to see several of our input costs trend up in the market, so the market price for pulp is up about 6% year-over-year. Cement prices have been pretty consistent now for several quarters but we see them up about 5% compared to a year ago. Utilities are also up, with gas and electricity both in the high single-digit range”

Matthew Marsh, CFO Jame Hardie

“Uranium prices fell through the latter half of 2016, due to lacklustre demand growth and oversupply. The demand outlook was muted as Japan made slow progress restarting its off-line reactors, additional reactor closures were announced in the US and no new Chinese reactors were approved in 2016. Strong uranium production and surplus secondary material have exacerbated the price weakness and it will likely take some time for the market to rebalance and prices to recover”

Rio Tinto Market Announcement

"We are foreseeing that the mining business is moving on and there are a lot of new things starting. The market is moving ahead. However, we don't foresee a tremendous increase in the next month but we believe that it's going to be a stable increase"

Marcelino Fernandez Verdes, Chairman, CIMIC

Domestic Economy

"Right across the board the major economies are looking more healthy than they did last year and if that continues then the days of further monetary easing are behind us and that's good"

Phillip Lowe, Governor, Reserve Bank of Australia

“In Australia, the economy is continuing its transition following the end of the mining investment boom. GDP was weaker than expected in the September quarter, largely reflecting temporary factors. A return to reasonable growth is expected in the December quarter”

Phillip Lowe, Governor, Reserve Bank of Australia

Housing

"While unemployment overall has been stable, the growing trend of underemployment is creating growing mortgage stress in areas where manufacturing and employment has declined. Given the growth in the investor space in the latter part of 2016 we're likely to see continued regulatory focus in the market"

Georgette Nicholas, CEO, Genworth

“Conditions in the housing market vary considerably around the country…In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for a couple of decades. Borrowing for housing has picked up a little, with stronger demand by investors. With leverage increasing, supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments”

Phillip Lowe, Governor, Reserve Bank of Australia

“I can appreciate the willingness of parents wanting to help their children get into housing where affordability is challenged, but I think the flip side of that is in a stress event if the child cannot pay the mortgage what happens to the parent's property? If they have other assets and cash available to make that loan hold then that's one thing, but if they have to sell their home to facilitate the support of the child's home if it's in stress, that means two homes are on the market at once"

Georgette Nicholas, CEO, Genworth

Banking

"While the Australian and New Zealand economies remain resilient and continue to deliver solid growth, the operating environment has some challenges with funding costs remaining elevated and competition still intense”

Andrew Thorburn, CEO, NAB

"There is a push from lenders to write lower LVR home loans, in the 75 to 85 per cent end. Some of that is based on regulatory changes that have come through around serviceability and also the limitations around investment properties, with lenders reacting to that"

Georgette Nicholas, CEO, Genworth

Insurance

“Consumer Insurance benefited from industry stabilisation with Home and Motor GWP increasing 2.4% and 1.6% respectively”

Suncorp Market Announcement

Protectionism

“We have been here before, we know protection doesn't work. The US erected trade barriers in the 1920s such as through the Smoot-Hawley Act and the era of protectionism led in great part to the Great Depression"

Malcolm Turnbull, Prime Minster, Australia

NBN

"We are overjoyed with where we stand on Average Revenue Per User (ARPU), it is coming in far better than what we had anticipated in our plans. As we see users demanding more and more product and new applications coming on, we see them becoming interested in taking up some of the higher speed tiers"

Bill Morrow, CEO, NBN

"We will have roughly 5 million homes served by Fibre- to the Node (FTTN), we see the predominant portion of our customers are happy with this service, they have speed plans that are meeting their needs today. As these needs grow we have an upgrade path and of course we will respond accordingly”

Bill Morrow, CEO, NBN

 

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