CEO INSIGHTS – Week Ending 29 September 2017 By NAOS Asset Management

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“The world health organisation reports ‘in 2012 around 7 million people died — one in eight of total global deaths — as a result of air pollution exposure. I wanted you to hear it directly from me: Dyson has begun work on a battery electric vehicle, due to be launched by 2020” James Dyson, Founder, Dyson

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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Skincare

“We have seen a slowing in Natural Skincare category growth in Australia and NZ at +2.8% and -9.8% respectively. These numbers compare to growth rates of 25% and 12.5% around the same time last year” Angela Buglass, CEO, Trilogy International

Dairy


"This has been the best season for dairy farmers in a long time in terms of farm gate prices, the danger now is that too much processing capacity gets built and there isn't the milk supply to furnish it in the future" Rene Dedoncker, CEO, Fonterra Australia

Agriculture

"It was a challenging year for the industry, with extremely competitive conditions driven by lower crop prices and lower demand for crop protection chemistry" Greg Hunt, CEO, Nufarm 

Gas

"Based on the most recent information from the industry, together with AEMO's [Australian Energy Market Operator] forecast demand, gas supply remains tight in eastern and south-eastern Australia in 2018 and 2019. There remains a risk of a supply shortfall" Audrey Zibelman, CEO, AEMO

Energy

“There is no doubt that coal is the cheapest and most reliable energy source. Renewables are heavily subsidized and provide intermittent power which cannot support a stable grid. For these reasons, Asia is choosing coal. That is the market for Australian coal” Todd J. Barlow, MD, Washington H. Soul

Construction

"It's [construction] the strongest I've seen it – and I've been in Australia for 23 years – since before the [Sydney 2000] Olympics. It's quite a good place to be in terms of market confidence” Mathew Harris, MD, RLB

"I would love to have shareholdings in demolition contractors now. The NSW government is demolishing all these sites for over-station developments. And what's going up? Commercial” Mathew Harris, MD, RLB

Retail

“The year in Australia and New Zealand was characterised by low consumer confidence caused by elevated household debt, out-of-cycle mortgage rate hikes, subdued wages growth and soaring energy prices. The Westpac Melbourne Consumer Sentiment Index for July 2017 recorded a further decline in confidence, the eighth consecutive month where pessimists have outnumbered optimists. This represents the longest succession of weak reading since the period around the Global Financial Crisis" Premier Investments Market Announcement

“The apparel category has been particularly tough, with a number of retailers going out of business and the sector generally discounting deeper and for longer” Premier Investments Market Announcement

"Landlords have been giving international chains cheaper rental, sometimes two thirds cheaper than specialty retailers" Solomon Lew, Chairman, Premier Investments 

“Over the past decade, online retailing and social media have led many ­commentators to suggest that physical retail would eventually decline or die. However, this is by no means the case. Humans are essentially descendants of hunters and gathers, and we still desire the ‘hunt of the kill’ which translates today to touching, feeling, and experiences of physical space” Sean Sands, MD, Australian Consumer, Retail, and Services

Electric Vehicles

“The reality is that a mid-sized electric vehicle still needs subsidies to compete ... so a lot will depend on batteries, on policy, on infrastructure” Arnoud Balhuizen, Chief Commercial Officer, BHP

Financial Markets

"If you look at the long history of periods of financial market volatility, typically the source of the last crisis is not the cause of the next. We have seen that in housing and the banking sector. It's really hard to get a home loan in the US, but it’s very easy to get an automobile loan [where excessive lending has taken place]” Dan Ivascyn, CIO, PIMCO

Daigous

“The demand from the China market is much stronger than two years ago, but the daigous are changing their business model. If a product is always discounted or if it is selling very cheap in China, they won’t feel like there is enough room for them to sell their products. If companies want to encourage daigous to promote their products to their friends in China they need to structure their wholesale pricing to make sure they allow enough margin for the daigou to survive” Livia Wang, Managing Director, Access CN (Diagou)

Residential Housing

“It is just time to sit and ride it out if you can [Brisbane apartment market]. If rents drop a bit the yields still aren’t too bad. If you do have to sell, it’s better to do it now. I don’t believe it will get better in the short term” Andrew Coronis, MD, Coronis

"My expectation is that supply, from what we have seen over the last six or seven years in Melbourne, is about to drop off the cliff. There may very well be cranes in the sky now, as well as new cranes appearing from projects that have been sold, that have taken longer-than-expected timeframes to get finance” Jonathan Hallinan, CEO, BPM

"We have not purchased a new apartment site and have no intention to in the foreseeable future" Jonathan Hallinan, CEO, BPM

 

Thank you for reading.

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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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