CEO INSIGHTS – Week Ending 5 May 2017 BY NAOS Asset Management

“I don’t know how TPG will roll out their network. I just know ­Telstra spends almost twice as much just maintaining the network we have. And to become a proper operator in this market you have to spend a lot more money than what TPG has allocated” Hakan Eriksson, Chief Technology Officer, Telstra

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

“The economy is performing reasonably, but for many in the community, it is a different story…There are pockets of stress, but overall, we are optimistic”
Shayne Elliott, CEO, ANZ

“What we are seeing is obviously the normal stresses from mining and the downturn in the mining sector across the book, we’ve seen housing arrears increase a little bit, but they're coming off a very low base”
Andrew Thorburn, CEO, NAB

“Improved soft and hard commodity prices are beginning to provide flow through benefits, however it is anticipated sluggish consumer spending off the back of flat real income growth could continue to see the economy perform below trend”
ANZ Market Announcement

“I talk to many business clients, some are struggling, particularly in retail. But population growth is positive ... it’s creating demand and that’s positive for the economy”
Andrew Thorburn, CEO, NAB

“Australian economic conditions have moderated recently as the economy continues to transition away from the mining investment boom. There is considerable variation in economic activity across the country with continued growth in New South Wales and Victoria offset by weaker activity in Queensland and, in particular, Western Australia”
Genworth Mortgage Insurance Market Announcement

Telecommunications

“I don’t know how TPG will roll out their network. I just know ­Telstra spends almost twice as much just maintaining the network we have. And to become a proper operator in this market you have to spend a lot more money than what TPG has allocated”
Hakan Eriksson, Chief Technology Officer, Telstra

“A year from now, we may look back on the return to unlimited plans as the moment when the battle for network reach and capacity began. In a world of unlimited plans and growing mobile video usage, you need a network and the capacity to handle the load and meet customer expectations for quality service"
John Stephens, CFO, AT&T

Housing & Commercial Property

“We remain focused on providing affordable housing solutions for our customers with first home buyers making up 54% of purchasers for the quarter and 77% of our residential properties sold to owner occupiers. On average, prices for our house and land packages are more than 15% below the established house prices in the surrounding trade area”
Mark Steinert, CEO, Stockland

“We do see some signs of apartments and commercial property where there is oversupply”
Andrew Thorburn, CEO, NAB

“Our residential business is benefiting from our well-located projects in high growth corridors, our more diverse and affordable product mix, strong market conditions on the east coast, and the stabilisation of the Perth market”
Mark Steinert, CEO, Stockland

“People are being more prudent themselves. On average, our home loan customers are 15 payments ahead, and when you add in offset accounts they’re 30 [months ahead]”
Andrew Thorburn, CEO, NAB

“House price growth is likely to moderate in 2017 following regulatory measures to slow the growth in investment lending and limit the flow of new interest-only lending. Recent mortgage interest rate increases, particularly for investor loans, may also impact price growth this year”
Genworth Market Announcement

Retail

“Frankly, I am less worried about Amazon in food…. The Amazon thing is being made too big a deal of …there are plenty of disrupters and plenty of competition around at the moment. Anyone coming to the Australian market is going to have to deal with logistics, distance, wage rates, the tax systems and all those sorts of things’’
Richard Goyder, CEO, Wesfarmers

“Retail had a relatively flat quarter, with our figures impacted by Easter and the Victorian and Queensland school holidays falling in April. We encountered the same headwinds that are affecting the sector with some retail price deflation, above average retailer administrations and a weak start to the calendar year for discount department stores”
Mark Steinert, CEO, Stockland

“The board believes that RCG has been caught up in the widespread sell down of retail stocks over the last few months due to a number of factors, including declining consumer confidence, subdued wage growth, concerns surrounding the housing market, increasing interest rates and the perceived impact that the market entry of Amazon may have on the Australian retail landscape”
RCG Market Announcement

“Pleasingly, same store sales for the four months to April 2017 have continued at double digit growth”
Nick Scali Market Announcement

“Lovisa is pleased to advise that trading in the second Half Year has continued to be strong and above expectations. Same store sales growth for the March quarter was 6.7% with current year to date same store sales growth of 10.9%”
Lovisa Market Announcement

Banking

“Return on Equity increased materially for the first time since 2010”
Shayne Elliott, CEO, ANZ

“The environment for banking remains constrained with intense competition and pressure on margins, subdued lending growth, rapidly changing customer expectations and increasing regulation”
Shayne Elliott, CEO, ANZ

“The operating environment for banks remains challenging, including heightened regulatory change, digital disruption and increasing stakeholder expectations. But Australia’s economic fundamentals provide a favourable backdrop including strong population growth and improving business conditions”
Andrew Thorburn, CEO, NAB

“We've faced one material headwind, and that is lower domestic credit growth, and therefore, lower natural revenue growth. Credit growth of around 6% almost exclusively driven by housing, coupled with wage growth of around 2%, is not desirable or sustainable. Without clear indications of strong wage inflation, our own risk appetite plus regulatory action will likely curtail medium-term credit growth to 5% and probably lower"
Shayne Elliott, CEO, ANZ

“We haven’t really seen credit growth come down — more ­people are using unsecured debt for cross-collateralisation to access the housing market. We’re concerned about the pressure that puts on the system in a stressed environment”
Georgette Nicholas, CEO, Genworth

Airlines

“Internationally it’s still tough, with high levels of capacity growth pushing fares down, but we’ve seen those conditions ease slightly”
Alan Joyce, CEO, Qantas

Energy

“The new Gladstone coal-seam gas to the LNG industry is fed by booked proven and probable reserves, but substantial reserves are booked in areas that have not yet demonstrated any commercial production. In short, the east coast gas market is exposed to significantly elevated reserves risk”
Graeme Bethune, CEO, EnergyQuest 

Tax Policy

“The changes announced by President Trump make it all the more urgent for Australia to reduce its corporate tax rate if we are not to see investment dry up here over the next decade,”
Michael Chaney, Chairman, Wesfarmers

Groceries

“Transaction growth remained the biggest driver of growth with comparable Easter adjusted transaction growth of 4.1%. Comparable Items Per Basket growth remained positive, leading to comparable Easter adjusted item growth of 4.7%. [However] average prices declined by 2.5% during the quarter, similar to the rate of decline in Q217 of 2.6%”
Brad Banducci, CEO, Woolworths

Department Stores

“BIG W sales declined by 8.6% in the third quarter with comparable sales declining by 8.2%...Comparable sales were impacted by apparel clearance activities driving deflation as we cleared our summer inventory to make way for new season apparel. The Home category performed well on the back of our new design led product while Womenswear sales remained weak”
Brad Banducci, CEO, Woolworths

Leisure

“[In hotels] sales continued to be driven by strong growth in Bars and Accommodation”
Brad Banducci, CEO, Woolworths

Radio

“Radio remains an incredibly strong sector with the market growing 4% in 2016, thanks to the delivery and commercialisation of content across multiple platforms. Overall listenership continues to grow with over 10 million people tuning in to commercial radio in 2016”
APN News & Media Market Announcement

Global Business Investment

“In the business segment, we saw weaker demand than we expected. U.S. business investment as a percent of GDP continues to be low. Growth expectations in the economy have been rising, but we've yet to see that translate into economic gains or demand. We're still hopeful that growing consumer confidence and the possibly of tax reform will turn into increased business investment later this year, but the near-term view is cautious”
John Stephens, CFO, AT&T

Other

“Asia-Pacific led the company with organic growth of 10.1%. All business groups posted strong growth in the quarter, led by a double-digit increase in Electronics & Energy. We also had strong growth in Industrial, Health Care, and Consumer”
Inge Thulin, CEO, 3M

“Australia is a market where we've been very aggressive the last two or three years, with great results. The competition has woken up a little bit, they're competing a little more, so we're having to adjust a little to that. But we're still getting solid growth”
Stephen Easterbrook, CEO, McDonald’s

 

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