CEO INSIGHTS – Week Ending 17 Mar 2017 BY NAOS Asset Management

"Consumer tastes are changing and concerns around health and not consuming too much sugar creates a lot of opportunities" Alison Watkins, MD, Coca-Cola Amatil

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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Retail & Consumers

"We've seen water grow dramatically, we've seen dairy grow very strongly, and we’ve seen good progress in tea and juice. Consumers are still drinking [and] we're still seeing the overall market grow”
Alison Watkins, MD, Coca-Cola Amatil

“Sales in January and February were below expectations with January being the low point”
Myer Market Announcement
"Many parties were discounting through December and Christmas, we believe there was significant discounting fatigue in January, and people spent their post-Christmas sales money pre-Christmas"
Richard Umbers, CEO, Myer

"Customers are making fewer trips to the store and the mall and more trips to the web. They want newness, exclusivity and the best price. Driven by these expectations, and thanks to the information available to them on the web, more and more we are seeing our customers shop at multiple stores or websites not just ours”
Karen Katz, CEO, Neiman Marcus

"The brand's continuing struggles also underscore how luxury retail has hit the wall”
Steven Dennis, Former Senior Vice President, Neiman Marcus

“The U.S. market is oversaturated with retail space and far too much of that space is occupied by stores selling apparel. That created a bubble, and like housing, that bubble has now burst. We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate”
Richard Hayne, Chief Executive Officer, Urban Outfitters

Tourism

“Instagram has been great for the tourism industry because everyone advertises their holidays to each other with their photos”
Simon McGrath, Managing Director, Accor Hotels Australia

“[Individual international travellers as opposed to travel groups]… spend more, they are more affluent, they are more independent and we don't have to change our operations to suit them”
Glenn Bourke, CEO, Hamilton Island

"We have made a conscious decision to go after the free and independent Chinese traveller rather than the group tour market. These are travellers who stay longer, disperse more widely and spend more, which is great for our tourism industry. On average, today's Chinese visitor spends more than $8,000 per trip compared to the average of $5,000 spent by international visitors overall"
John O'Sullivan, CEO, Tourism Australia

“Cruising is one of the most successful and fastest-growing parts of tourism”
Ann Sherry, Executive Chairman, Carnival Australia

Banking

“The difference between what we charge and how much it costs us to fund a mortgage remains under pressure, with intense competition, increasing regulation, and elevated funding costs”
Antony Cahill, COO, NAB

Oil & Gas

“Demand is likely to continue to grow for [oil] for some time”
John Watson, CEO, Chevron

“There’s an abundance of hydrocarbons in the world…more hydrocarbons than the world needs, possibly. I don’t know how those [factors shaping the future of energy] are going to play out…Nobody does. But I think it would be very unwise to ignore them”
Bernard Looney, Head of E&P, BP

"Despite the supply adjustment, stocks have continued to rise, not just in the US, but also in Europe. Nevertheless, prices have undoubtedly been provided a floor by the production accords”
OPEC

Commodities

"The fundamentals all point in the direction of a softening of the iron ore price. Supply continues to increase, particularly from Brazil and low cost sources. At the same time, we're seeing a moderation of the impacts of the stimuli that China put into its economy in 2016. Combine those things with quite high stocks at the ports, of admittedly lower grade, and the fundamentals all point that way"

Peter Beaven, CFO, BHP Billiton 

“In the iron ore industry, in the steel industry and in particular the developing countries like Indonesia, India and China, we mustn’t fear low iron ore prices. I would say the iron price is more likely to trim down”
Andrew Forrest, Chairman, Fortescue Metals

“There’s more growth in the US and more public spending that will have an impact on commodities. But the level of intensity in commodity consumption is still driven by what’s occurring in emerging markets”
Ivan Arriagada, CEO, Antofagasta

Energy Crisis
“12 months ago we weren’t even thinking about power costs being an issue. Everyone has been blind-sided by this”
Simon McGrath, Managing Director, Accor Hotels Australia

"Buyers are knocking on the door on a weekly basis asking when they can get hold of gas"
Margaret Hall, CEO, SGH Energy

“At worst, plants will close and jobs will be lost purely as a result of the current gas crisis. Australia often makes it hard to be involved in manufacturing; we are now making it extremely difficult, if not impossible, for some”
Rod Sims, Chairman, ACCC

“Applying reservation or similar market interventions to new projects will only discourage developers. And applying it to existing projects is even worse. Australia is not Venezuela. We are now on the verge of a crisis. And there is no quick fix. Even if we act now, the next few years will be difficult for gas customers and for Australian energy security. Policymakers must make some hard decisions. Above all, they must move to encourage gasfield development”
Martin Ferguson, Former Australian Resources Minister

“We never thought that after 108 years of making bricks in Australia, we would now need to investigate manufacturing overseas”
Robert Millner, Chairman, Brickworks

Property

“While the resilience of both borrowers and lenders has no doubt improved, the initial effects on credit and some other indicators we use to assess risk may fade over time ... [and] we are continuing to monitor their ongoing effects and are prepared to do more if needed”
Michele Bullock, Assistant Governor (Financial System), RBA

"Australia's increasing white-collar workforce and transition to a service-based economy have boosted demand for office property operators, as many businesses rent office space through property operators”
IBISWorld

"Online shopping has created strong demand for warehouses and other supply chain-related property, increasing demand for industrial property and boosting revenue for related operators”

IBISWorld

Other

"It is very clear that while the willingness [to innovate among businesses] is still there, the topic is not being embraced by nearly as many people because innovation has been portrayed as a taker of jobs, rather than as a purveyor of growth"
Karim Temsamani, Asia Pacific Head, Google

 

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