CEO INSIGHTS – Week Ending 10 November 2017 By NAOS Asset Management

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“This [year] marks 24 consecutive years of growth in beer volumes for a compound annual growth rate of 8.9 per cent” Tim Cooper, MD, Coopers Brewery

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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Mining Services

"In 2017 the mining sector began to recover from the severe downturn that began in 2015. We expect this recovery and the normalisation of long term mining plans that it continues in 2018. However there will be a lag before this makes a material difference to the services sector” Alberto Calderon , CEO, Orica

Commodities

"[China’s new iron ore policy] Has led to a lowering of the dollar value of our value-in-use iron ore. It has led to a non-market driven increase in high grade iron ore, which Australia generally doesn't produce" Andrew Forrest, Chairman, Fortescue Metals Group

"What we have seen is because of [Chinese] government intervention, the steel price has gone very high and steel mills are paying enormous premiums for high grade iron ore to maximise production, but that doesn't apply to the rest of the steel world" Andrew Forrest, Chairman, Fortescue Metals Group

“Sales into the Australian coal market have strengthened, however conditions in North American and European coal markets have remained difficult” Alberto Calderon , CEO, Orica

“We expect the volume recovery in [Asia Pacific & Indonesia] to continue from higher customer activity, particularly across the eastern surface coal market in response to firm demand for high-quality thermal coal to support domestic power generation in Indonesia and India, and increasing strip ratios in iron ore” Alberto Calderon , CEO, Orica

Construction

“The story on the Asia-Pac business is pretty much good across the board. Everything is pointing up in ANZ” Louis Gries, CEO, James Hardie

Tourism & Travel

“Second half PBT increased 4.7% after being down 22.4% during the first half, and second half [Total Transaction Value] increased 6.4%, after being up just 1.8% during the first half. I'm pleased to report that this positive momentum has continued into 2018” Graham Turner, MD, Flight Centre

“On a positive note, international airfare prices appear to have stabilised, following the across-the-board discounting last year” Graham Turner, MD, Flight Centre

Domestic Economy

“The positive signs in resources, services and infrastructure will support growth, but as the construction cycle peaks, it's hard to see what will fully pick up the slack. Business confidence has lifted, but we need businesses to invest. Similarly with household incomes flat and rising energy costs, it's hard to see consumer spending rising strongly. As a result, we don't see the cash rate moving for some time” Brian Hartzer, CEO, Westpac

Global Economy

“We remain confident in the long-term fundamentals of the Chinese market; renewed infrastructure spend and public spending are expected to accelerate after the party congress which just concluded” David Liu, Director, Fortescue Metals Group

Retail & Real Estate

“Our retail portfolio has a unique urban focus, and an overweight presence to the strong Sydney market, which is delivering solid results, including industry-leading comparable speciality sales growth of 6 per cent” Susan MacDonald, Head of Retail, Mirvac

“Capable managers operating well located real estate are capable of reinvention. Australia’s biggest shopping centres, which are thriving, prove it. Trends come and go but good assets are adaptable” Michael Doble, CIO, APN Property Group 

Domestic Luxury Car Sales

“We’re 15 per cent down on the back of six record years of growth” Lenore Fletcher, Spokeswoman, BMW Australia

Banking

“The credit quality of our loan portfolio is in great shape with stressed assets reducing during the year” Brian Hartzer, CEO, Westpac

NBN

“Our investigation revealed many of Telstra’s FTTN and FTTB customers could not receive the maximum speed of their plan. Even worse, many of these customers could not receive the maximum speed of a lower-speed plan. In essence, people were paying more to get higher speeds that they just weren’t able to get” Rod Sims, Chairman, ACCC

Streaming

“It’s [launch of Foxtel Now] our next big step as we continue to advance our streaming offering” Peter Tonagh, CEO, Foxtel

Fast Food

“In Australia/New Zealand we are forecasting same store sales growth of 7-9% for the full year, and expect growth in the second half to be approximately twice that recorded in this first half” Don Meij, CEO, Domino’s Pizza Enterprises

Housing

“There's been a lot of noise about the housing market over the last 12 months, but all the signs are that there will be an orderly slowdown in growth rates. Growth has started to slow in New South Wales and Victoria and we expect that to continue, but we don't expect house prices to fall significantly” Brian Hartzer, CEO, Westpac

“What we see is a lot of opportunists come into the market when it’s a bull market, and yes, we will see jobs shed because we will see less turnover of property. This is really a market for experienced real estate agents and I would expect about 20-25 per cent of our residential agents will leave” Malcolm Gunning, President, Real Estate Institute of Australia

 

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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