CEO Insights - Week Ending Friday 9/12/16 By NAOS Asset Management

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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Domestic Economy

“Going into Christmas, people should be relatively optimistic…House prices are up, people are employed, the politicians have rested for the year, and that should be positive going into Christmas”

Mark McInnes, Retail Boss, Premier Investments

“It [the Australian quarterly GDP figure] highlights the need to make sure our corporate tax system is competitive and to avoid any new taxes like (West Australian ­Nationals leader Brendon) Grylls’ iron ore royalty proposal which would deter investment and ­destroy jobs. We live in a competitive world and investment and jobs will go elsewhere”

Michael Chaney, Chairman, Wesfarmers

“The GDP figures are an end-of-year wake-up call for parliament about what lies ahead for the Australian community if they fail to face up to Australia’s very real and growing economic challenges. Parliament must support the government in taking urgent ­action to drive new investment and create better jobs with higher wages. This includes embracing more flexible workplaces, lowering business taxes, getting the budget under control, bringing energy costs down and fixing the planning system to spur investment through major projects”

Jennifer Westacott, CEO, Business Council of Australia

“There is a clear need for more reform that the government appears to be trying to achieve if it can get support, and in general there needs to be a more supportive environment if business is to perform its role of driving positive employment and prosperity outcomes”

Andrew Bassat, Founder, Seek

“These numbers should be a wake-up call for Australia frankly. We have known business confidence has been soft for some time. I recognise that one quarter of numbers you need to be careful with. But the fact the number does reflect this lack of confidence and this slowdown in non-resources investment at the same time as ­resources investment is slowing I think is a concern”

Tony Shepherd, Former President, Business Council of Australia

Retail

“Those companies who have differentiated product and pricing and staffing propositions can do very well. Those companies that are at the margins – Pumpkin Patch, Payless Shoes, Valleygirl and Temt – are going out of business”

Mark McInnes, Retail Boss, Premier Investments

Infant Formula & Dairy

“We are all about selling infant formula (to China) and are targeting 10 million tins; but we are not there yet and we can’t justify that investment”

Gavin Evans, MD, Camperdown Dairy

“We were going to supply nutritional powder to (Mead Johnson’s factory in) Singapore, but we got to the point where we agreed the level of uncertainty around regulations and the market in China made this arrangement too difficult”

David Mallinson, Interim CEO, Murrary Goulburn

Oil & Gas

“Fewer [Oil & Gas] projects are now getting cancelled and postponed”

Gregory Kilmister, MD, ALS Global

“In particular, Victorian businesses will pay more for gas, and jobs will be lost, because the government has banned gas exploration without any scientific basis”

Andrew Smith, MD, Shell Australia 

“One of the things that needs to be resolved quite urgently is what is going to support the system while we transition away from coal and introduce more renewables. Right now, gas is the answer… Even if there is a political imperative to take certain positions on unconventional gas (which often needs fracking to produce it) in some states, there is no need to take that position on conventional gas; we need to get more gas into the system”

Catherine Tanna, MD, Energy Australia

“There is a huge amount of renewables in development, being prepared, ready to be built”

Catherine Tanna, MD, Energy Australia

“The only tool they [OPEC] have is to constrain production. Unfortunately, we tend to cheat. There’s still more supply than demand. If OPEC countries make a concentrated effort to reduce supply, there will be a balance. But that remains to be seen.”

Ali Al-Naimi, Former Saudi Oil Minister

ceo chart

Financial & Equity Markets

“Interest rates are to asset valuation as gravity is to matter.  It will take a lot of movement in interest rates (similar to Paul Volcker in 1981-2) before stocks are too high… Stocks are cheap if long term rates are at 4%, four to five years from now. We are buying more shares than selling everyday unless interest rates move appreciably higher”

Warren Buffett, Chairman, Berkshire Hathaway

Housing & Real Estate

“It's now taking us three or four months to do the same sales volume [for Australia], which took us a month previously”

David Wang, Vice-General Manager for International Sales, 5I5J

“I can’t predict the exchange rate, I can’t predict many markets, but real estate, because you can count the office buildings, you can count the shopping centres, you can count the population, you can predict what people do. For me, when you apply all the facts, real estate is one of the more predictable sectors of the economy”

Mark Steinert, MD, Stockland

Commodities

“The fundamentals for nickel have improved a lot in that demand is improving and there’s not a big sway of production coming on stream”

Peter Harold, MD, Panoramic Resources

“In the boom years it’s easy to look like a genius, it’s easy to think you’re a genius… but you’re just lucky”

Jan Du Plessis, Chairman, Rio Tinto

Print Media & Advertising

“The growth at Times in recent quarters, in print, has been up as much as 12-13%. The circulation revenues at the Journal were up 6% last quarter. So you’re seeing growth in circulation revenue but you’re also seeing a significant decline in advertising revenue”

Robert Thomson, CEO, Newscorp

US Dollar

“They [financial impact from the rising $US] aren’t things that we’ll likely to be able to cover in the quarter. We do not plan to cut investments as a way to manage through these events, so we’ll have to see as things settle down where we net out for the year”

Jon Moeller, CFO, Procter & Gamble

Other

“Our tax dispute resolution and controversy and M&A practices, in particular, are experiencing material growth, we have recently added new partners to our employment and real estate practices and are anticipating strong demand for their services”

David Morris, Law Partner, KPMG

“In the Life Sciences area, from an environmental perspective, we actually had extremely good growth in Asia and reasonable growth in Australia and Europe, although Europe was impacted by a weakening Great British pound, and we've got quite some significant water revenues and activities in the UK”

Gregory Kilmister, MD, ALS Global

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