CEO INSIGHTS – Week Ending 2 March 2018 By NAOS Asset Management

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“Climate change is going to present a range of challenges to the aquaculture industry. And without proactive adaptation, salmon farming may become more vulnerable to disease and/or changes in environmental conditions” Mark Ryan, MD, Tassal

As part of the NAOS investment process, we pay particular attention to the comments made by company CEOs 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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Aquaculture

“November was a challenging time for the industry, with unseasonably warm weather resulting in increased bathing and subsequently, a decrease in the fish performance to be harvested in the second half of 2018” Mark Ryan, MD, Tassal

Domestic Economy

“We're seeing a stronger East Coast [of Australia]. The infrastructure boom is having a positive impact on our sales into engineering projects. Outside of construction markets, we continue to see good demand in manufacturing, agriculture, mining and the transport markets” Mark Vassella, CEO, Bluescope

“We remain cautious as the macro conditions and consumer environment remains volatile” Matthew Durbin, CFO, Accent Group

Agriculture

“Raspberries recovered from the poor growing conditions of 2016, with December peak production supporting the high demand Christmas period. Blueberry and raspberry sector growth value was 22.1% and 20.3%, respectively” Harry Debney, CEO, Costa Group

“The 2017 citrus season was exceptional, with a total yield of 98,000 tonnes. Export market demand absorbed all incremental volume with strong sales growth across key markets including Japan, U.S.A. and China” Harry Debney, CEO, Costa Group

“The 2018 [orange growing] season is expected to be a lighter crop reflecting the normal biennial bearing cycle” Harry Debney, CEO, Costa Group

“In recent days, the short-term global supply [of almonds] has potentially been impacted by significant frost and unseasonal cold conditions in California. The early stages of the horticultural cycle is when almonds are most vulnerable to frost. The Californian growing regions experienced multiple frost events in the last week and then unseasonally cold weather” Paul Thompson, MD, Select Harvest

Television

“For three quarters in a row we had a gross increase [in advertising revenue] for the industry. This is the first time we've seen this type of increase since 2013” John Fellet, CEO, Sky Network TV

“Globally, I can't find any examples of traditional pay television platforms that are growing in first world nations” John Fellet, CEO, Sky Network TV

Radio

“Regional revenues were up 4.6%, yet this growth was hampered by a weaker performance in metro radio markets where revenues were back 3%...[This is] due to lower than expected market demand in Q1 and the underperformance of our 2DayFM breakfast show” Grant Blackley, CEO, Southern Cross Media

Out of Home Advertising

“Out of Home advertising continues to increase its share of advertising spend. Data from the Outdoor Media Association indicates overall Out of Home growth of 6.1% in 2017. This demonstrates that advertisers are increasingly using the medium” Brendon Cook, CEO, oOh!media

Childcare

“Occupancy has been stable in January [and] discounts were lower. Looking forward, our committed forward bookings for the first quarter are heading in the right direction” Gary Carroll, CEO, G8 Education

Automotive

“The Automotive industry continued to trade in a challenging environment due to the lower margins available from the sale of finance and insurance products” John McConnell, MD, Automotive Holdings

Housing

“We expect detached residential housing construction to remain broadly steady with continued momentum in New South Wales and Victoria, which may be partially offset by weaker conditions in Queensland and in Western Australia” Tim Salt, MD, GWA Group

“During the first half we continued to see a mixed environment for [residential house] listings nationally, with strength in Sydney and Canberra, and weakness in other markets” Tom Ainsworth, Chief Sales Officer, Domain Group

Commercial Property

“The commercial sector continued to look strong, and our forward order book remains solid with several major commercial projects secured, primarily across the eastern states” Tom Ainsworth, Chief Sales Officer, Domain Group

Telecommunication Consolidation

“There are a lot of NBN service providers out there that have subscriber bases of up to 20,000 people, which we think are going to be opportunities for consolidation” Julian Ogrin, MD, Amaysim

5G Network

“It is going to be hard to make the economics of 5G work, and we think there's an argument for some aspects of it to be open access so that new forms of competition can thrive” Kate McKenzie, CEO, Chorus

Internet Data

“We expect data demand to be fueled by the emerging growth in smart home devices connecting to the internet enabled by things like wi-fi mesh systems, smart speakers and personal assistants. The number of things and devices in people's homes connecting to the internet keeps on growing” Kate McKenzie, CEO, Chorus

Other

“I have never in my life seen anything like what we are experiencing right now. The opportunities right from the hyper-converged infrastructure, the growth in density, what we're seeing in both public and private cloud computing, the next wave of service providers coming and those deployments pushing into Australia at a level that we have never seen before” Craig Scroggie, CEO, NextDC

Global Economy

“Given the strength of the U.S. economy, we're seeing some upward pressure on costs, electrodes, refractories and alloys” Mark Vassella, CEO, Bluescope

Thank you for reading.

Important information: This material has been prepared by NAOS Asset Management Limited (ABN 23 107 624 126, AFSL 273529) (NAOS) for general information purposes only and must not be construed as investment advice. Certain economic, market or company information contained in this material may have been obtained from published sources prepared by third parties. Nothing contained herein should be construed as granting by implication or otherwise, any license or right to use such third party content without the written permission of the owner.

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