CEO Insights - Week Ending Friday 25/11/16

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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Interest Rates

“I don’t believe there will be another interest rate cut, the bond rate has gone up”

Harry Triguboff, Founder, Meriton

“I have a personal view that rates will be lower for longer and we will operate in a low yield environment for some time”

Raphael Geminder, Non-Executive Chairman, Pact Group 

Groceries

“Australian Food delivered its first positive comparable sales growth in the first quarter of 2017, since the second quarter of 2015”

Brad Banducci, CEO, Woolworths

Retail

“Online retail is still under-represented in Australia compared to other major developed economies”

Ruslan Kogan, Founder, Kogan

“At a high level, the potential arrival of Amazon means the biggest, hottest brands will have no choice but to put products and significant volume though online channels”

Ruslan Kogan , Founder, Kogan

Domestic Economy

“In infrastructure, a growing population requires new assets to be built. The existing infrastructure is getting older and requires more maintenance spend to maintain the current level of service”

Chris Sutherland, MD, Programmed Maintenance 

“I've always been amazed by the fact that Australia isn't a steel powerhouse. There's iron ore in abundance, there's coal, there's good ports and a very good financial system”

Sanjeev Gupta, Founder, Liberty House Group

“We expect strong growth to continue in the New South Wales and Victorian economies in the second half"

Chris Sutherland, MD, Programmed Maintenance 

"The improved outlook for commodity prices is not likely to lead to a noticeable pick-up in mining investment"

Christopher Kent, Assistant Governor, RBA

“Manufacturing and industrial companies continue to face ongoing costs and demand challenges. Demand for staff in the onshore mining sector has grown as customers increase production”

Chris Sutherland, MD, Programmed Maintenance 

Property

“There is no housing bubble, I promise you… Developers can’t get finance”

Harry Triguboff, Founder, Meriton

“We’re finding that the apartment market has shifted away from being a very strong investor market to an owner-occupier market and we are getting more enquiries from younger first home buyers”

Ashely Williams, Founder, Evolve Development 

“Our first-half performance was on budget. Then, it was as though every vendor woke up in the New Year and made a resolution not to sell [their house]. Listing volumes as a per cent of total property stock are currently at levels we have not seen since the data set began”

Cass O’Connor, Chairwoman, McGrath

“New [home] listings volumes to the end of October are down 18% in Sydney and 5% in Melbourne. The comparative period to October 2015 saw very strong new listings growth”

Greg Hywood, CEO, Fairfax Media

"We have had just a handful of foreign buyer apartment defaults to date, and pleasingly, all defaulted lots marketed for sale have been resold"

John Mulcahy, Chairman, Mirvac

“For much of calendar year 2016, we have been in an environment in which vendors are reticent to sell, fearing they will not get back into the market. In 2005, residents in Australian Capital Cities would move house on average every 6.7 years, and apartment every 5.9 years. Today that is 10.7 years and 9 years respectively. This contributes to the decline in volumes available for sale, eroding housing affordability in many capital cities of Australia, including Sydney”

Cass O’Connor, Chairwoman, McGrath

“Prices for pubs are as strong as they have been for many years, particularly for good performing assets”

Geoff Dixon, Former CEO, Qantas

Oil & Gas

“The resource and energy markets in Australia remain challenging, despite a recent improvement in commodity prices. Investment in new projects is weak with producers deferring or cancelling investment in additional capacity. Capital spend in the energy market in Australia is forecast to decline as large committed investments in new LNG capacity near completion”

Rob Velletri, Managing Director, Monadelphous 

“The outlook for the maintenance sector remains positive and industrial maintenance and sustaining capital work is expected to grow steadily over the next few years as demand for services on aging assets increases and new production facilities come on line”

Rob Velletri, Managing Director, Monadelphous

“In the offshore oil and gas price, we believe we are now at the bottom of the current cycle and expect growth in revenue in FY18”

Chris Sutherland, MD, Programmed Maintenance 

Global Economy

“There is no real change in the underlying macroeconomic or macro-indicators. U.S. housing is still  in this 1.2 million to 1.3 million new construction starts for the year. Our overall market index hasn't changed on that front. And there is no real underlying change in some of the valuation-based items like foreign exchange or our view on commodity prices"

Matthew Marsh, CFO, James Hardie

“I do believe we are in a five to seven-year peak of the [US] housing cycle so the timing of this investment [Headwaters Acquisition] was very important for us”

Mike Kane, CEO, Boral 

“I believe there’s a chronic ­underinvestment in infrastructure in the US that will be played out over the next 10-15 years”

Mike Kane, CEO, Boral 

“Gas prices continue to trend down, but we're starting to see those change in the marketplace, so we're not expecting that necessarily to continue for the rest of the year and into next year.

Matthew Marsh, CFO, James Hardie

Cloud Computing & Software

“We're seeing significant changes…Our customers are looking to embrace mobile devices and the cloud, they want to reduce their cost to streamline their businesses. Our customers are going to be impacted if they don't move forward. So, they do need to move forward. And that's why we see huge opportunities because they have no choice... a large portion of the IT industry is not going to exist in 10 years' time because they won't make this transition”

Adrian Di Marco, CEO, Technology One

“The enterprise software market continues to be resilient, particularly in our sectors; local government, state government, federal government, higher education. There continues to be significant demand for enterprise software”

Adrian Di Marco, CEO, Technology One

Banking

“The impression we are getting out of Basel is that there is not likely to be a lot of change from here. The European banks seem to be under a certain amount of pressure to support the European economy, and so the sense we are getting is that the Basel Committee is backing off a little bit on requiring further capital there. And since Australian banks are already, we would argue, unquestionably strong, the APRA standards are already higher than the minimum standards out of Basel, so... Australian banks are already in a strong position’’

Brian Hartzer, CEO, Westpac

Equity Markets

“It is possible that Asian markets might not be as risky as some might think. You don’t have to pay much for these companies and that is what attracts us”

Kerr Neilson, Co-founder, Platinum Asset Management

Other

“Over the past two years, the personal transport sector has undergone enormous change. Having said that, it remains a very large market that will continue to grow. Demand for motorised-trips has grown by 11% over the past ten years and that momentum is expected to continue. By 2021, Australians will be taking 27.6 billion motorised trips per year”

Andrew Skelton, CEO, Cabcharge 

“We expect the Australian taxi and ride-share market will continue its growth trajectory as population, mobility and tourism continue to grow”

Andrew Skelton, CEO, Cabcharge

Thank you for reading.

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