CEO INSIGHTS – Week Ending 16 March 2018 By NAOS Asset Management

Japanese rice terraces at sunset. Maruyama-senmaida, Kumano, Japan..jpeg

“The United Nations Food and Agriculture Organisation estimates the world’s demand for food by 2050 will need a 60 per cent increase in the amount of food currently available. Australia is well placed to become one of the world’s great food bowls. The opportunity is huge” Sam Sicilia, Chief Investment Officer, Hostplus 

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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Agriculture

“Asia remains a massive market opportunity, but international competition from traditional and new players is building rapidly” Doug Ferguson, Partner, KPMG Australia

“We must start focusing on what Asia wants – educating and encouraging farmers to be confident about growing products that may be different to what they do now. That may mean many more vegetable crops and probably aquaculture” Doug Ferguson, Partner, KPMG Australia

“The almond industry has seen significant demand for productive orchards, and greenfield sites continue to put upward pressure on land prices and drive capital returns. Demand also remains strong for cotton properties in the NSW Riverina as that crop expands further southwards” Frank Delahunty, MD, F&L Delahunty

“We anticipate continued uncertainty in the grain markets as high global supplies and unknown crop production potentially offset our ability to participate in the export markets” Robert M. Knight Jr, CFO, Union Pacific

Retail

“I believe online and traditional retailing will equalise eventually” Frank Lowy, Outgoing Chairman, Westfield

US Economy

“We operate in a robust environment. We believe that U.S. GDP is expected to grow, supported by an improving job market, and higher consumer spending. We believe that the drivers of home improvement-related spending, specifically those that are related to housing, are expected to continue to trend positively” Richard McPhail, Senior VP of Finance, Home Depot

Healthcare

“Healthcare costs are growing, and in fact, in most markets, faster than GDP” Giovanni Caforio, CEO, Bristol-Myers Squibb

Heavy Machinery

“The locomotive sector continues to be challenged, and we expect a year or two or so left of a challenging environment” Amy Campbell, Director of IR, Caterpillar

“Marine continues to be pretty challenged. A lot of that business supports offshore oil and gas, and that continues to be a pretty challenged market” Amy Campbell, Director of IR, Caterpillar

Commodities

“We expect continued strength in ethanol exports driven by demand from China, Brazil and India” Robert M. Knight Jr, CFO, Union Pacific

Retirement

“On a global scale, maybe 15%-20% of the population is prepared for retirement” Gregory Case, CEO, Aon

Telecommunications

“What's happening is instead of people replacing the handset every 23 or 24 months they are now saying, well, maybe I'll add a wearable or I'll add a connected device like a tablet. Where the first generation tended to be Wi-Fi only, now they're cellular and Wi-Fi” Ronan Dunne, Group President of Verion Wireless, Verizon

“The average household is significantly increasing the number of connected devices” Ronan Dunne, Group President of Verion Wireless, Verizon

Real Estate Listing Volumes

“The number of listings in Melbourne and Sydney has increased” Robert Thomson, CEO, News Corp

Beef

“We think over the next 5 to 10 years we'll go from 2% of the national herd being wagyu bulls up towards 5%. The exciting thing from a whole-of-industry profitability point of view is the value of the carcasses. The value of wagyu carcasses is very high and if we get to 5% of the national herd that might represent 10-12% of the profitability of the national herd” Matt McDonagh, CEO, Australian Wagyu Association

“We understand Japan has high production capacity compared to ours [Australia]. It will be interesting to see if they have long-term ambitions for export globally. They are exporting some product at the moment, but they also import a lot of product from Australia” Matt McDonagh, CEO, Australian Wagyu Association

“We are still a nation of steak eaters as opposed to thin-sliced eaters” Peter Gilmour, Australian Wagyu Producer 

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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