CEO INSIGHTS – Week Ending 24 Mar 2017 BY NAOS Asset Management

“We see the consumer shifts within digital commerce, with a larger share of our growth coming through our apps” Mark Parker, CEO, Nike

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

"From our perspective, customer confidence across Australia and New Zealand is okay. Recently, we have not seen any change in the way customers behave”
 Xavier Simonet, CEO, Kathmandu

“The retailers who are most vulnerable are retailers that don’t own their own brand or are in commodity categories’’
Mark McInnes, CEO, Premier Retail Group

“In Australia, the widely acknowledged cool start to Summer (in particular in October) led to both a negative impact on total and LFL sales that directly led to gross margin decline. As all clothing brands were forced to compete on price, with all retailers to clear inventory across the critical Christmas quarter”
Premier Investments Market Announcement

“We have a lot of knowledge on the stationary business and I will answer you – we don’t have any interest [in Officeworks]”
Solomon Lew, Chairman, Premier Retail

“Turning to Asia-Pacific, while total sales were roughly unchanged in the year, we were pleased to see a healthy rate of growth in the second half and fourth quarter that was generated by increases in jewellery units sold”
Mark Aaron, VP of Investor Relations, Tiffany & Co

“The demand for quality imported goods, in particular Australian goods, has gone through the roof in China in recent years and I absolutely expect that to grow”
Richard Liu, Founder, JD.com

“Even with the Chinese economy slowing slightly in recent years, the retail sector, especially online, has continued to see outstanding growth. I have no doubt that these huge tailwinds are more important than any potential external factors with respect to the growth of the consumer market for Australian goods”
Richard Liu, Founder, JD.com

“We see the consumer shifts within digital commerce, with a larger share of our growth coming through our apps”
Mark Parker, CEO, Nike

“The market continues to grow at a healthy pace. In footwear, we saw growth in running and sportswear, and in apparel, we saw broad-based growth, led by sportswear and global football”
Trevor Edwards, President, Nike Brand

Agriculture

“Climatic conditions in Australia contributed to a strong finish to last year's winter cropping season, resulting in excellent grain harvest for most growers. The summer season started well in the key cropping zones of northern New South Wales and southern Queensland, but then turned hot and dry in December and January. Promise of a much improved summer crop did not eventuate. In Western Australia, we received good rainfall over summer, providing an opportunistic outlook for the coming winter season”
Greg Hunt, CEO, Nufarm

“We expect the global crop protection market to remain very competitive, with low soft commodity pricing prevailing due to the strong crop harvests in most key cropping regions. Positive second half performances are expected from Australia, North America and Europe. This does, of course, depend on adequate rainfall in the winter crop season in Australia and the summer cropping season in the Northern Hemisphere”
Greg Hunt, CEO, Nufarm

“It is estimated that the current value of the global omega-3 oil market is $2.3 billion, with projections that will reach $3.2 billion by 2023”
Brent Zacharias, Group Executive, Nuseed

Commodities

"For high quality, export thermal coal I think the future is quite strong. The Chinese domestic industry policy is targeting a sustainable price level of around $US75 per tonne to $US85 per tonne, that appears to be what they are targeting. I think it is important to note that despite the better pricing since July last year, we still haven't seen any material new supply coming on stream into the market"
Shane Stephan, Managing Director, New Hope Coal

Tourism

“International passenger numbers remained robust in February with 4.2% growth. Domestic traffic declined -2.5% due to the leap year effect. Domestic and international load factors continued to remain stable compared to the pcp”
Sydney Airport Market Announcement

“International capacity growth remains strong with an extra 220,000 international seats on a year-to date basis. Airlines are continuing to upgauge aircraft”
Sydney Airport Market Announcement

Domestic M&A

“We are feeling pretty upbeat about [M&A activity in] 2017. It's not just a straight line interpretation from the first three months of the year but we also seem to consistently see a flurry [of deals] in the back end of the year”
Nirangjan Nagarajah, Partner, Gilbert + Tobin

"Transactions have been progressed reasonably quickly and they are of substance rather than kite flying. It is this focus on certainty and being as sure as you can on the outcome. People are trying to get in while the sun is still shining and volatility is still low”
Craig Semple, Partner, Gilbert + Tobin

"We expect the M&A market to continue to be active and we feel quite good about the pipeline. [However], regulatory uncertainty will remain, both in Australia and around the world, and it is undoubtedly a feature of the M&A market"
Paul Uren, Head of Investment Banking Australia, JP Morgan

Housing

"We think growth in NSW and Victoria can run for another two to three years, provided there are no knee-jerk reactions from the government"
Lindsay Partridge, Managing director, Brickworks

"I was talking to a bunch of young people more recently, and they said even though we are not sure we can afford our mortgage, what really excites us is when we get our mortgage approval - because it means the bank actually thinks we can repay it”
Greg Medcraft, Chairman, ASIC

“Despite home loan interest rates being at historically low levels, both deposits and wholesale funding of mortgages have increased over the last nine months”
George Frazis, CEO of Consumer Bank, Westpac

"There remain pressures [investor loans] that have built up again over the last few months"
Scott Morrison, Treasurer, Australia

"I have been saying for a while that I thought it was a bubble and other people are catching up now"
Greg Medcraft, Chairman, ASIC

"It is worrying because when you are in a market like this, people rush in and say I can't miss out, because it might keep going - and you can understand that, that's what happens in a booming market"
Greg Medcraft, Chairman, ASIC

Baby Formula / Dairy & E-commerce

"They've [entrepreneurs] still got a considerable amount of inventory to eat through"
Ryan D'Almeida, CEO, Vitaco

“We are seeing strong growth for imported baby formula thanks to a growing middle class and Chinese parents’ desire to provide the best and safest products to their children. JD and our partners operate bonded warehouses in seven free-trade zones all over China and we work closely with the authorities to ensure compliance and prepare for policy changes’’
Richard Liu, Founder, JD.com

“World dairy prices have continued to show signs of volatility, but we believe that the fundamentals are sound and expect pricing over the balance of the season to remain stable”
John Wilson, Chairman, Fonterra

Other

“It’s hard to launch a new brand. While consumers like to buy new things, they always go back to their favourites. [Consumers] have to try the product about 10 times before it gets into their repertoire. So you have to be in it for the long haul”
Tracey Massey, Head of US Chocolate, Mars

 

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