CEO INSIGHTS – Week Ending 30 June 2017 BY NAOS Asset Management

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“It’s a tough market actually, really tough… There is an oversupply, particularly in the apparel sector, from the foreign retail entrants entering the Australian marketplace” Richard Umbers, CEO, Myer

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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Supermarkets
 
“We have to plan on the fact that deflation will continue to be a big factor in our industry”
Ian Morrice, Outgoing CEO, Metcash  
 
Liquor

“Millennials are the second-largest wine drinkers and this is growing. Their importance to the wine category growth and future is crucial”
Angus McPherson, MD, Treasury Wine Estates  
 
“Our expectations in liquor are that the moderate rate of growth will continue [into FY18]”
Ian Morrice, CEO, Metcash
 
“We’ve seen extraordinary growth in the [craft beer] category. It’s been growing over 20 per cent year on year for the past three years. We’re dedicating more and more shelf space to it and configuring our stores specifically to take account of the sales growth and customer demand to experiment when it comes to beer”
Campbell Stott, Director, Dan Murphy’s

“The younger generation doesn’t want to drink what their dads drank. There have been two big shifts in beer in the past few years: a shift into craft beer and shift into mid-strength beer. Both of those shifts are hurting the sale of full-strength beers”
Campbell Stott, Director, Dan Murphy’s
 
Resources
 
“There has been a broad recovery in the resources sector, evidenced by a 13 per cent increase in exploration expenditure from $267m for the March 2016 quarter, to $305m for the March 2017 quarter”
Report by BDO Australia

“We’re seeing more [resources exploration] companies, more IPOs, more money being raised and expectations of increased cash flows in the next quarter” 
Sherif Andrews, National Chief of Natural Resources Group, BDO Australia

“There is definitely a focus on the battery minerals like lithium, cobalt and graphite, but most of the other commodities are performing better too [referring to IPO market]” 
Sherif Andrews, National Chief of Natural Resources Group, BDO Australia

Poultry

“Free range product growth has been particularly pleasing, increasing by 28% year on year”
Phil Hand, CEO, Tegal
 
“The domestic business continues to be supported by favourable macro-economic conditions including population growth and increased chicken consumption… Domestic volume and market growth is underpinned by increased poultry consumption of around 5% since 1990. We see those trends continuing and they will impact favourably on our business”
Peter McHugh, CFO, Tegal

Infrastructure
 
“The overall pick-up in major project work in the construction sector confirms we are leaving behind the extended period during which the industry, and indeed the national economy, was dominated by the wind-down of the historic boom in mining and energy-related projects”
Innes Willox, CEO, Ai Group
 
“In place of mining-related work and apartment building, over the rest of 2017 and into 2018 the construction sector is anticipating further expansion in infrastructure investment, particularly in road and rail works, and a lift in private sector commercial construction”
Innes Willox, CEO, Ai Group

“The Metro [in Sydney] is a game changer. It is a no brainer to take cars off the road and volumes of people into town. We want to make the most of this infrastructure boom - it is a huge opportunity to change the shape of cities”
Joe Barr, CEO, John Holland

Superannuation Industry

“With 4 to 10 default funds, you’ve got a very consolidated industry. A very consolidated model is not healthy. Having only 4 banks has not helped competition that greatly”
Angie Mastripolito, CEO, NESS Super
 
Mortgage Lending
 
“Changing product regulations – and the way lenders are pricing interest-only products – is creating opportunities for shadow banks to provide good customer outcomes”
John Flavell, CEO, Mortgage Choice

“The lending landscape continues to rapidly change with big banks curbing their appetite. To reflect market developments, we are updating the interest rates for particular interest-only loans”
Statement by Liberty Financial
 
Residential Property

“While apartment building continues to feature prominently, it is clearly set to scale back in the period ahead”
Innes Willox, CEO, Ai Group
 
“There is some danger with being so broad and sweeping but I think there has been some imprudent development. There is no doubt in southeast Queensland the cheap side (of the apartment market) is overdone”
Martin Monro, MD, Watpac
 
“I think in some areas there is massive oversupply [of apartments] and that is going to be problematic for values”
Joe Barr, CEO, John Holland

M&A Activity

“There are a few examples where people have gone hard, bought assets, they've overpaid, they didn't have management on the ground, they didn't understand the operating environment and they've been burnt”
Meredith Paynter, Partner, King & Wood Mallesons
 
Bank Regulation
 
“With a number of bank failures in recent weeks in Canada, Italy and Spain, at a time when economic conditions are not particularly volatile, I also don't think anyone could say the need to be vigilant about strengthening the financial system has diminished”
Wayne Byres, Chairman, APRA 
 
Employment
 
“The current wave of announcements of infrastructure projects on the country's eastern seaboard will increase pressure on the availability of key project personnel for both industry and clients. Accordingly, now is the time for action to attract a larger workforce and upskill existing workers to enable the industry to respond to the projected growth in activity over coming years”
Lindsay Le Compte, Executive Director, Australian Constructors
Association

 

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