NAOS CEO Insights

CEO INSIGHTS – Week Ending Friday 17 Feb 2017 BY NAOS Asset Management

February 17, 2017

“The housing market in Australia is the gift that keeps on giving”  Mike Kane, MD, Boral

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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“It’s no secret that retail conditions have been tough in recent months. The market has been aggressively discounting since November, probably since Black Friday”
Matt Jensen, CEO, MJ Bale

“You can make a profit [in retail] if you understand the balance of it. That is, you have got to keep offering value… and the big international retailers have arrived and are offering value”
Howard McDonald, Former Chairman, Myer

“Over the past few years, we’ve seen a lot of international brands — both online and offline — enter the market, all competing for what is essentially a finite amount of consumer spend”
Matt Jensen, CEO, MJ Bale

“Global [Retail] Brand entrants have had some impact on the domestic retail environment with retailers generally having to adapt their offers, points of difference and customer service levels to compete effectively”
Angus McNaughton, CEO, Vicinity Centres

“I am a firm believer that one needs to empty one's pockets of excuses and drop the blame game mentality. Retailers that are focused on their customer, know who they are and are delivering the products they want, will continue to succeed. The successful retailers are sticking to their knitting. They are not trying to do anything except be innovative in their product and ensuring their stores look good”
Gary Novis, CEO, Retail Apparel Group

“There was good growth in small appliances but the fitness category was flat. Games software was challenging as globally we are cycling strong releases from the prior period”
Richard Murrary, CEO, JB-Hi-Fi

“People feel wealthier, we shouldn't underestimate the wealth effect [from rising house prices], it's giving people confidence to go and spend”
Anthony Scali, CEO, Nick Scali

“Housing replacement [updating sofas etc..] has slowed but we haven't seen any impact yet. But there will be a point where it will slow down”
Anthony Scali, CEO, Nick Scali

“The market dynamics in food retailing have changed over the last year, where total market growth [is] below its long-term average and competitors have made price adjustments and expanded their footprint nationally”
John Durkan, MD, Coles 

“Sales momentum in the second half is expected to remain challenging”
Guy Russo, CEO, Department Stores of Wesfarmers

Energy Crisis

“People are racing towards big renewable targets without valuing security of supply. What we’re seeing is that issue is starting to bite us, and reality will kick in a bit”
Andrew Harding, CEO, Aurizon

“[We] need for individual states to stop having targets on renewable energy that may be incompatible with the energy supply”
Michael Chaney, Chairman, Wesfarmers

“If our business had been operating in South Australia with the recent blackouts, and I’m talking when the system went black, our business would be closed”
Matt Howell, CEO, NSW Tomago Aluminium Smelter

“Any material changes to long-term energy security and costs will inevitably have consequences for ongoing business ­viability and future investment”
Peter Freyberg, Head of Coal, Glencore

“We have current contracts in place that will end within the next 12 months. We do see that stability and the certainty around energy and a competitive price for energy, are all essential attributes for the industry at large, including our operations in Australia, which include Cadia”
Newcrest, CEO, Sandeep Biswas

"We cannot live with uncertainty of supply"
Nigel Garrard, CEO, Orora


“Metallurgical coal remains the key ingredient for steel, which is strongly linked to population growth and the increasingly high standard of living, a symptom of which is the rapid urbanization in Asian countries. While we've already seen a huge wave of growth in China, there is still a great deal to happen within that country and elsewhere in developing Asia”
Andrew Harding, MD, Aurizon 

“Thermal coal, due to the need for energy security, will remain in demand and have positive growth due to the energy needs of a vastly growing urban population for many decades to come, and there is still plenty of room for renewable. In the very long term, renewables will dominate but energy security will be the major supporting theme for coal in the decades to come”
Andrew Harding, MD, Aurizon 

“A key uncertainty around [coal] pricing relates to ongoing Chinese Government policy measures and also domestic supply response”
Rob Scott, MD, Wesfarmers Industrials

“Australian iron ore has a very bright future for many decades, certainly from a volume viewpoint. The very large investments in supply underpin volumes for a long time. In the short-term, we are seeing mines trying to increase production. Smaller producers or closed mines are responding quickly, albeit, the overall volumes are small"
Andrew Harding, MD, Aurizon

Media & Television

“The advertising market remained extremely short in terms of forward bookings"
Ten Market Announcement 

“As for print advertising, we are seeing signs of some moderation of declines in Q3, but the market is volatile and it would be improper to make a firm prediction at this stage”
Robert Thompson, CEO, Newscorp

“This industry is obviously under severe duress and yet commercial free-to-air television broadcasters continue to be penalised by the world’s most expensive broadcast licence fees”
Paul Anderson, CEO, Ten

“Without the investment of the commercial free-to-air broadcasters, local production will dry up, jobs will be lost and local news will be a thing of the past. As we have been saying for years now, the current regulatory framework is unsustainable”
Paul Anderson, CEO, Ten


“The housing market in Australia is the gift that keeps on giving”
Mike Kane, MD, Boral


“Pressure on net interest margin, following the May and August cash rate reductions, and holding additional liquidity for the Keystart portfolio acquisition, resulted in a six basis point contraction over the half. However, as the market repriced loans in August and December in response to increased funding costs, our margin recovered, resulting in an exit margin of 2.14 percent”
Bendigo Bank Market Announcement

Travel & Tourism

“The strong traffic growth throughout 2016 has continued in the new year. International passengers were 9.7% higher in January 2017 compared to the prior corresponding period (pcp), and 20% above January 2015”
Sydney Airport Market Announcement

Dairy & Infant Formula

“The Australian market remained subdued and the New Zealand business was negatively impacted by a weak dairy season”
Ron Delia, MD, Amcor

“Whilst the growth in demand was evident across the half-year, there was a marked increase in infant formula sales in the 2nd quarter, corresponding with the phasing of key sales events in China and an increase in market share in both Australia and China”
Geoffrey Babidge, MD, A2 Milk


“The fourth quarter of 2016 was the first quarter since 2010 where demand outgrew supply [in shipping containers], and actually by some margin"
Soren Skou, CEO, Maersk Line

“We have hardly seen any new capacity being ordered since the third quarter of 2015, the order book of new ships being built is at a record low"
Soren Skou, CEO, Maersk Line

“On the Fertilisers side, many of our segments are experiencing increasing competition from domestic and global suppliers"
Rob Scott, MD, Wesfarmers Industrials

“New investment activity in mining and manufacturing remains fairly subdued”
Rob Scott, MD, Wesfarmers Industrials


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