CEO INSIGHTS – Week Ending 31 Mar 2017 BY NAOS Asset Management

“The retail space is going through changes, with emerging younger brands showing traditional outlets that it’s possible to open new stores if you do it smart” Robin McGowan, Co-founder, InStitchu

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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Food & Agriculture

"Back in 2013 food seemed to be a poor cousin to iron ore. Then, food’s $27 billion of exports were less than half the value of iron ore’s $60 billion, but today it’s a different story. Iron ore is still at $60 billion five years later but food has grown from $27 billion to $44 billion, and is rapidly closing the gap with iron ore”
Anthony Pratt, Executive Chairman, Visy

“In the [last] five years our horticulture exports to China have grown 20 times to $300 million and China is now our second largest export market for wine at half a billion dollars. Our cherry exports to Korea grew 50 times since 2014. Our fresh meat exports are up by 90% and we’re now exporting $2 billion of beef to Japan. Our fruit and vegetable exports are up by 200% to $3 billion. For example, fresh mango exports are said to exceed $30 million, a 50% increase. And here’s the good one, Australia is now the largest exporter of goat meat in the world at $250 million”
Anthony Pratt, Executive Chairman, Visy

“I don’t know if you can say we have turned a corner yet, but we are starting to see food and agriculture right up and down the supply chain becoming a bit of a darling sector”
Greg Quinn, Agribusiness CEO, PWC

“Australia is one of the major bread baskets of the world. I think with scrapping of the TPP and with consumption increasing in places like Indonesia, China, other nations in Southeast Asia, I think it’s a wonderful ­opportunity for Australia to step up and fill the gap’’
David MacLennan, CEO, Cargill

“We had a couple of years where demand was not reflected in the milk price. [It’s now] more reasonably reflected in the farm gate price”
Barry Irvin, Chairman, Bega

“The whole energy landscape is a headwind the industry doesn't need. We're in an export driven business and the buyer in the Middle East or the buyer in Japan or the buyer in China really, has no empathy with Victorian energy prices, and they are globally sourcing”
Grant Crothers, CEO, Burra Foods Australia

Millenials

“Interestingly, the front page of U.S.A Today reports today that 60% of millennials ages 18 to 35 are living with parents, relatives and roommates and that is a 115-year high”
Stuart Miller, CEO, Lennar

Lending

"If additional macroprudential policies were to further restrict investment loans and interest only loans, [this] could give rise to increasing loan applications in the non-bank sector"
Patrick Tuttle, co-CEO, Pepper Group

“The high level of household debt in Australia means borrowers are more sensitive to interest-rate movements. Lenders have announced rate increases out of cycle with cash rate increases, and we expect arrears to rise further”
Statement by Standard & Poors

Asian Trade

“I believe that eventually China will make a lot of what they buy from us today, either ­inside China or through Chinese-owned firms in Australia”
Anthony Pratt, Executive Chairman, Visy

“What really frightens me is that in 2015, we invested more money in New Zealand than we did in Indonesia (but) that’s just four and a half million people. Yet we’ve got this massive economy about to be the fourth biggest economy in the world, which loves Australia, just like China does, and we’re not investing”
Christine Holgate, CEO, Blackmores

Oil & Gas

“There is a general sentiment out there that says industry has not done a good job ensuring a secure supply and, from an investor point of view, that the industry has not been good stewards of investor capital. That’s a concern for me because it casts a shadow over the whole industry. We’re into this crisis and it is probably going to get worse before it gets better, because over the next couple of years supplies are going to get tighter”
Peter Coleman, CEO, Woodside Petroleum

“The gas price in Victoria can be lower. That means that we need pipeline reform and we need to be able to develop gas in Victoria. The gas will always be cheapest if it's available locally”
Andrew Smith, Outgoing Chairman, Shell Australia

“The first time since I’ve been with Woodside, I’m looking at a development concept for Browse that I am very excited about”
Peter Coleman, CEO, Woodside Petroleum

Telecommunication

“Fixed wireless performance and speed to deploy continues to be an attractive alternative in a market dominated by the vanilla NBN option”
James Spenceley, Founder, Vocus

Retail

“The fourth quarter, the last holiday season, was a really important inflection point. That was the end of retail as we know it. The restructuring of retail is going to happen much faster than many people expect. I'm not sure that many retailers will make it to the next holiday season”
Devin Wenig, CEO, eBay

“Positive trade in the second quarter up to Christmas Day was outweighed by sluggish sales in the first quarter and the much publicised, highly discounted and soft retail market from Boxing Day onwards, where foot traffic to all stores, across all channels and both brands, was lower than last year. This trend continued throughout January”
Oroton Market Announcement

“We remain cautious about the overall market”
Oroton Market Announcement

“If you close at 5.30pm on a Monday, Tuesday or Wednesday or even Friday like here in NSW, to me that is saying to all people who work fulltime don’t come to our mall and spend your money because we will be closed”
Hans Andersson, Head of H&M, Australia

“We remain bullish for 2017 despite a slow start we've seen early in Q1”
Stuart Haselden, CFO, Lululemon

“The retail space is going through changes, with emerging younger brands showing traditional outlets that it’s possible to open new stores if you do it smart”
Robin McGowan, Co-founder, InStitchu

“During the year under review, the economic situation in Australia was not too bad among the other developed countries. The retail markets there [Australia] were very lethargic. It was attributed to the recent changes of consumption mode in favour of lifestyle spending in non-apparel items such as electronic products, travelling and the likes. In the period, Australian disposable incomes were mainly used on household expenses’’
Statement by Glorious Sun Enterprises (Owner, Jeanswest)

Housing

“There is simply no point in tracking mooted projects because we know that virtually none of them will proceed, due to the constraints in current funding. The only certain fact is that the four buildings under construction in the Brisbane CBD will be the only additions to the existing market stock in the coming years and 1,812 apartments, by any measure, is a small number”
Don O’Rorke, Co-founder, Consolidated Properties

Domestic Tax Policy

“Without the [corporate tax] changes the government is proposing, Australia will remain uncompetitive and the economy will suffer — not just for a few years but for decades to come as a result of the absence of capital in the economy which is driving productivity, driving jobs [and] driving growth. If these measures are to be passed in their entirety I think very quickly — in a matter of months — we’d start to see the dividend”
Andrew Mackenzie, CEO, BHP

“Business in Australia has to compete with overseas tax rates for investment. If overseas tax rates were 40 per cent, we wouldn’t be seeking at 25 per cent tax rate today. But they are not”
Grant King, Former CEO, Origin

“My big concern is, if we don’t address corporate tax, more and more Australian companies will [put] their head offices overseas and that tax money will then actually go into an overseas government. So we need to be competitive’’
Christina Holgate, CEO, Blackmores

Banking

“The single biggest challenge regional banks like BOQ face in being a legitimate and profitable competitive alternative in mortgages is access to funding. We have to pay more for wholesale funding. Also, because we have a smaller branch footprint, you have lower transaction deposits”
Vimpi Juneja, Group Executive Product and Strategy, Bank of Queensland

“Although there are pockets of weakness across the economy, there are no signs of deterioration in BOQ’s loan portfolio”
Jon Sutton, MD, Bank of Queensland

“In general, it [tighter lending standards & macroprudential loan growth caps] will soften the impact on house price growth that we've seen over the past couple of years, while pockets of major cities are likely to continue with solid growth”
Meg Bonighton, General Manager of Home Lending, NAB

“Strong competition for loans and deposits in a low interest rate environment contributed to flat loan balances and a five basis point reduction in Net Interest Margin over the half”
Bank of Queensland Market Announcement

 

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