CEO INSIGHTS – Week Ending Friday 27/01/17 BY NAOS Asset Management

“[In relation to the Trump effect] We have  seen a very positive response from the market” Bob Shanks, CFO, Ford

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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Tourism & Travel

“The timing couldn't be better with the federal government announcing late last year the removal of restrictions on all air services between China and Australia. Chinese New Year is a hugely important holiday and a period that traditionally provides a boost to our arrivals figures”

John O'Sullivan, CEO, Tourism Australia

“The biggest shift we've seen over the past year has been more Chinese tourists seeking a higher quality experience. They are staying for longer and they're looking to book a higher star-rated hotel. Now the young ones want a more challenging experience – they want to go back to China with a bragging experience”

Kate Marshall, Director, AccorHotels

“The Chinese travelers are focused on spending their money shopping because in China it's so hard to tell now if many luxury goods are real or fake, whereas they can have confidence shopping here that the products are authentic”

Kate Marshall, Director, AccorHotels

“2016 was an outstanding year, with international passenger growth of 8.9%. This was the fastest growth rate we’ve experienced in 12 years and the strongest total passenger traffic growth for six years”

Kerrie Mather, MD, Sydney Airport

“In December, international passenger growth was 7.2% compared to the prior corresponding period (pcp). The inbound nationalities underpinning this result were Indonesia (+45.6%), Japan (+29.4%), India (+13.4%), USA (+10.0%) and China (+8.5%). Australian outbound passengers recorded 4.7% growth above the pcp”

Kerrie Mather, MD, Sydney Airport

Retail

“The Amazon shopping style will grow but there is still a thrill taking the wife and family shopping. It's entertainment, people still want that. People don't want to be locked up in the house all day, they want to get out and see what's going on in the world"

Bob Ell, Chairman, Leda Holdings

“With all the incoming international retailers, the field is getting pretty crowded but with good operators. At this moment, I don't see any major downturn”

John Gandel, Property Developer

“The way forward for us is not as a pure play online retailer or bricks-and-mortar business, but as a combination of both. You have to offer both”

Chris Murphy, Director, Kitchen Warehouse

“Today, we cannot just separate online and offline”

Daniel Zhang, CEO, Alibaba

Banking

“When you start a firm you almost have a ‘domination’ objective. We want to be the biggest, we want to be the most global, we want to be the most dominant. But I think between the large established boutiques and the smaller up-and-comers, they are not all going to go away. I think a whole bunch of us can thrive”

Scott Bok, CEO, Greenhill & Co

Housing

“[Apartment] prices will gradually go up, because rents are going up. Then the renter becomes the buyer”

Harry Triguboff, Founder, Meriton

"Sydney and Melbourne will both see solid, albeit much slower, growth in prices, while Brisbane and Adelaide are forecast to cool a little. Perth will remain very weak as house prices decline by another 2.7 per cent this year, as the market continues to feel headwinds from the mining sector, slower population growth and ample housing supply”

Report by Westpac

"Prices are generally expected to be fairly weak for apartments across the country in 2017. The record pipeline of apartment construction in Sydney naturally presents a significant downside risk to the forecast, but substantial pent-up demand for housing should support the market, while the relative affordability of apartments (in the country's most expensive market) could also trigger a shift in demand by some buyers”

Report by Westpac

Politics & Trade

“The bad option would be throwing up your hands and ­saying it’s not worth pursuing anything. Because I think the real danger is that through misguided ... beliefs Trump’s actions may well cause some sort of trade war in the coming years to the detriment of every country”

Michael Chaney, Chairman, Wesfarmers

"Trump says he wants to run the nation like he's running his business? God help us"

Michael Bloomberg, Founder, Bloomberg L.P.

"America works. I've said this before. It'll work wonderfully under Hillary Clinton, and I think it'll work fine under Donald Trump"

Warren Buffett, Chairman, Berkshire Hathaway

“About 40 million Americans make their job in trade. About 27% the of entire economy is related to trade. 95% of the world’s consumers aren’t in the United States they’re elsewhere around the world. The United States being cut off from trade would be like trying to breathe without oxygen"

Fred Smith, CEO, FedEx

“I think the decision to pull out of TPP is unfortunate because the real beneficiary of that is China”

Fred Smith, CEO, FedEx

Dairy

“Beingmate’s recent performance reflects China’s market conditions, which remain challenging for all dairy players. The long-term outlook remains strong with disposable incomes in China growing by 11.5 per cent a year since 2006, the relaxation of the one child policy taking effect and tightening brand regulations leading to the exit of many smaller competitors from the marketplace”

Fonterra Market Announcement

Domestic Economy

“Part of the ‘Trump effect’ for Australia is likely to be rising interest rates. But interest rates won’t go up much, the economy is not strong enough”

Harry Triguboff, Founder, Meriton

Commodities

“Uranium spot prices increased in late-December 2016 and, following KazAtomProm’s announcement of a 10% cut in planned 2017 uranium production, improved further in early January 2017”

Paladin Energy Market Announcement

“Mixed signals continue to be seen in the US market. The election of Donald Trump to the US Presidency is anticipated to be positive for nuclear power and the approval of the Future Energy Jobs Bill in Illinois in December 2016 will allow Exelon’s Clinton and Quad Cities nuclear power plants to continue operating. On the other hand, the past 2 months have seen early closure announcements for Entergy’s Palisades and Indian Point facilities and speculation that First Energy Corp could try to sell or close the Davis-Besse plant”

Paladin Energy Market Announcement

“During 2016, we saw gradual improvements in nickel prices as the inventory levels started to respond to the nickel market transitioning to a supply deficit. Our understanding is that the overall supply deficit in 2016, was about 60,000 tonnes of nickel and the key drivers to this supply deficit were lower ore shipments from the Philippines and increased demand for nickel for stainless production”

Peter Bradford, MD, Independence Group

“We do not expect that the additional nickel supply will be sufficient to change the underlying supply demand dynamic with the nickel market still expected to be in supply deficit by about 50,000 tonnes in 2017”

Peter Bradford, MD, Independence Group

“What drives chemical demand is people moving into the middle income bracket [in emerging markets]”

John Abbott, Director, Shell Global

"I think the US onshore (Oil & Gas Companies) is certainly getting itself ready to drill more wells this year; a lot of those companies are forecasting growth"

Peter Coleman, CEO, Woodside  

Leisure

“Attendance by the local Queensland market which previously represented approximately 60% of attendances, has declined by more than 12% on the prior year since the Dreamworld incident. Wet’n’Wild Sydney appears to have been similarly affected by the incident”

Village Roadshow Market Announcement

“The decline in local attendance at both the Gold Coast and Sydney Parks has continued into January 2017. Notwithstanding a minimal impact on ticket sales revenue, the decline in attendance has resulted in deterioration in food and beverage, retail and other in-park revenue. The ongoing impact of the Dreamworld incident will become clearer over the coming weeks”

Village Roadshow Market Announcement

Global Economy

“While we see signs of positive activity in some of our key end markets, the overall economic environment remains challenging”

Jim Umpleby, CEO, Caterpillar

“[In relation to the Trump effect] We have  seen a very positive response from the market”

Bob Shanks, CFO, Ford

Consumer

"Our franchisees have had record profits this year ... and in spite of increased labour costs we expect our franchisees will have another record year"

Don Meij, CEO, Domino’s Australia

“We expect a slow start with growth improving as the year progresses”

Paul Polman, CEO, Unilever

Other

"Improved farmer confidence and cash flows have also led to increased demand for general rural merchandise”

Ruralco Market Announcement 

“We achieved solid double-digit global revenue growth this quarter, led by sales from Brightree and continued strong growth in our device platforms. We also saw the start of a steady ramp of our latest mask technologies”

Michael Farrell, CEO, ResMed US

“The HFG joint venture continues to operate in challenging market conditions”

Thomas Gorman, CEO, Brambles

“Since 2009, we have more than doubled the revenue, operating income and market cap of SAP… [and] growing in every region of the world with a pipeline that has never been stronger”

Bill McDermott, CEO, SAP SE

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