NAOS CEO Insights

CEO INSIGHTS – Week Ending 3 August 2018 By NAOS Asset Management

August 3, 2018

Urban population

“Every year between now and 2050 the global urban population will increase at twice the rate of the global population. This will mechanically result in an outdoor audience which will continue to grow” Jean-Francois Decaux, Co-CEO, JCDecaux

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.

Outdoor Media

“In the Australian media market, out of home still only accounts for 6% of advertising spend, of which 50% is digital. It means the Australian market today is below the global worldwide average and far below what’s happening in Asia and in most European countries, which shows the potential there” Jean-Charles Decaux, Chairman & Co-CEO, JCDecaux

Australian Economy

“Migration has contributed to a reasonable proportion of [Australia’s] growth over the long term. In addition, migration has provided access to new skills and capabilities, additional spending and it has also contributed to the multicultural and diverse society that we enjoy. This is one of the key factors that has led to Australia having sustained economic growth over the last 27 years.  If this trend was to decline, this would be very bad news for Australia's economic growth and ultimately mean fewer jobs, lower wages and being less competitive as a nation” Rob Scott, CEO, Wesfarmers

Medical Cannabis

“We see a lot of pent up demand in the patient base in Australia and we are seeing the government respond to that… Some would say that they would like to see it quicker but we are seeing an opening up of that access to medicinal cannabis” Rodney Cocks, CEO, Cronos Australia

Agriculture

“In 2006 we had drought conditions but we still had rising [land] prices. I have been through a couple of cycles and this is the strongest one I have been through” Scott Fuller, Director, Herron Todd White

“Lamb prices have been good in the last three to four years and like a lot of people, we have expanded our numbers on the back of that… 50% of Australia's lamb is consumed domestically in our supermarkets and 50 per cent thereabouts is consumers overseas… We don't have a position where the two supermarkets control the bulk of our commodity. That's certainly been advantageous to the industry” Scott Colvin, Lamb Farmer

Private Health Insurance

“The opposition has to be very careful with this — you can’t reduce health costs just by the minister saying they are only going to increase premiums by a certain amount” Rachel David, CEO, Private Healthcare Australia

Housing Finance

“If you go to borrow money in Australia, it's very, very difficult and part of it is all the APRA requirements and because of the royal commission, the banks are all really paranoid about it and because the banks are so paranoid, all those rules have become really restrictive” Christian Beck, Founder, Australian Technology Innovators

Streaming Video On Demand (SVOD)

“The figures show consumers are starting to collect subscriptions like they used to collect other forms of entertainment. They are diversifying their subscriptions to as wide as their interest, spanning TV, movies, children's content and sports, with trial periods, low entry price points and the ability to cancel being drivers" Foad Fadaghi, MD, Telsyte

Global Construction

“For Construction Industries, we are experiencing strong product demand in Asia Pacific, North America, and EAME while sales in Latin America are still depressed” Joe Creed, CFO, Caterpillar Inc

Mining Equipment Demand

“For Resource Industries, robust economic growth and infrastructure investments are driving strong demand in heavy construction applications. However, for global mining customers, we believe this recovery is still in the early stages. What started as strong demand for aftermarket parts and rebuild has recently progressed to increased demand for new equipment” Joe Creed, CFO, Caterpillar Inc

US Tariffs

“While Harley's preference is to manufacture all of its bikes from the U.S…. we’re only doing that [investing in overseas plants] because these are important growth markets for the company that without those investments we wouldn’t have access to those customers, at any kind of reasonable price” Matt Levatich, CEO Harley Davidson

Renewables

“To me we are at a pivotal point, and the structure without an emissions target that's going to really be meaningful is something I'm not sure will really move us forward, and I can see it's likely be a protracted period before anything further would occur” John Tichen, MD, Goldwind

Infrastructure

“This will be a facility for the folks of western Sydney, and if you think about the passengers that will fly, the reality is that once the airport is built there’ll be two million people in the catchment area. Over time we will see a greater percentage coming from other parts of Sydney, subject to the right infrastructure being available” Graham Millett, CEO, Western Sydney Airport

US Economy

“The labour market has continued to strengthen and economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance” FOMC Statement

“The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2% objective” FOMC Statement

Commodities

“Whilst not as material, the uplift in the commodity cycle is flowing through to our metallurgy, coal and inspection businesses which all performed exceptionally well in FY18 and are continuing to show positive signs during the first quarter of 2019” ALQ Ltd Market Announcement

Venture Capital

“The training wheels are going to have to come off [the Australian venture capital industry]. We have nearly $3 trillion of superannuation funds that could be deployed. A lot of people are standing on the sidelines taking a risk-averse approach but once we get a couple of exits, we could unlock those funds” Martin Duursma, CSIRO Main Sequence Ventures

“In New York we are desperate for the [venture capital] bubble to work because valuations are unsustainable” Angela Lee, Founder and CEO, 37 Angels (Venture Capital)

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.

NAOS Insights CEO Insights

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