CEO INSIGHTS – Week Ending 7 July 2017 BY NAOS Asset Management

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“We are not calling the economy dead. Things are recovering nicely. But it’s a case of steady as she goes” Ian Harper, Board Member, RBA

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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Tourism & Travel

“Since opening our Australia Pacific headquarters in Sydney in 2015, we’ve more than doubled the region’s contribution to our parent company. APAC is now the fastest-growing market, as well as our highest yielding international region”

Steve Odell, MD Asia Pacific, Norwegian Cruise Line Holdings

“I don’t know if Australians are using their super, but you see events-based cruising becoming very popular, such as special cruises for the Melbourne Cup and V8 Supercars in Townsville”

John O’Sullivan, MD, Tourism Australia

“I think airfares have got to the stage where they can't get any cheaper”

Graham Turner, CEO, Flight Centre

Commodities

“Coal will play a part in places like India’s development, but to be honest, it’s very hard for a public company to continue to own thermal coal. We still believe in metallurgical coal. It has a role to play and it certainly doesn’t get the same backlash from our investors as we see in energy coal” 

Graham Kerr, CEO, South32

“You’ve had the world’s biggest boom in mining driven by the urbanisation of China, yet the majority of mining companies have traded negative TSR [total shareholder return]. The reason for that is they are terrible allocators of capital”

Graham Kerr, CEO, South32

“What you are looking at here is not the lithium industry per se. What you are looking at is the biggest change in energy management since the Industrial Revolution. There is insatiable demand because people want portable power and they want renewable energy 24 hours a day. If you want renewables 24 hours a day you have got to have storage” 

Adrian Griffin, CEO, Lithium Australia

Agriculture

“It’s imperative that we continue to welcome overseas capital to ensure that the industry remains competitive in a global market place, and the agricultural sector can create wealth for the Australian economy, as well as provide important jobs in rural and regional Australia’’

Troy Setter, CEO, Consolidated Pastoral Company

“Supply [of beef] remains tight in Australia and demand remains reasonably firm domestically and internationally’’

Troy Setter, CEO, Consolidated Pastoral Company

Domestic Economy

“We’re on target, but to be blunt there is also plenty of evidence that you wouldn’t want to rush this [raising rates]. There is still plenty of underemployment and it is not clear that inflation is rising” 

Ian Harper, Board Member, RBA

Chinese Consumer 

“Now that Chinese consumers have money, they want different things - higher quality products and unique services. Particularly with young Chinese born in the 1990s and the 2000s, they are consumers of experiences unlike the older generation of Chinese consumers”

Zac Xiao, CEO, Celestial Group

Food & Groceries

“There's not a lot in the way of investment happening in our sector [food retailing] in fact we've had a 14% decline in capital investment in the last 12 months and it still hasn't returned to levels before the GFC”

Tanya Barden, CEO, Australian Food and Grocery Council 

“We've seen price deflation for the last six years and that's continuing – the industry has managed to stay fairly resilient through that time. At the same time we're seeing rapidly rising input costs, particularly around energy, where businesses are seeing a doubling and tripling of their energy bills”

Tanya Barden, CEO, Australian Food and Grocery Council 

Australian Tech

“For somebody like me, it’s attractive to come back to Australia because we have great universities, we turn out great computer science students and they don’t have the job opportunities necessarily that they would have if they were at a Stanford or a Berkeley”

Anthony Goldbloom, Founder, Kaggle

“There is a massive shortage of data scientists and machine learners”

Anthony Goldbloom, Founder, Kaggle

NBN

“Australia’s Fibre to the Premise [FTTP] rollout is likely to be one of the most expensive, if not the most expensive, in the world”

Rob Tucker, Director, Institute for a Broadband-Enabled Society

Disruption

“We're [law firms] in a heavily disrupted market in which clients are rethinking the way they are engaging their service providers, including lawyers”

Andrew Cunningham, Partner, Minter Ellison

Manufacturing

“In some situations companies are having to think about whether or not they'll be viable in the next 18 months. So there's a risk of potentially losing some Australian manufacturing to offshore”

Tanya Barden, CEO, Australian Food and Grocery Council 

Mortgage Lending

“We've experienced more change in residential mortgage products in Australia in terms of pricing, complexity and availability than at any point in the last 10 years”

James Boyle, CEO, Liberty

“We are in a very complex home lending market. What the market needs is more stability, not change, as lenders seek to settle in pricing and policies in a tough regulatory and borrower market”

John Flavell, CEO, Mortgage Choice

“While many of the major banks are cracking down on investment lending, we're standing behind our customers”

Statement by Heritage Bank

“More people taking on debt which they're going to repay – not just the interest – that's what we want to see more of in the economy”

Scott Morrison, Treasurer

Insurance

“There is more foreign investment capital looking to invest here [in life insurance]. It is possible we will see a consolidation in the industry with fewer numbers of life insurance companies on the market. Life insurance is a specialised business. The specialist will always do a better job than a company which is running another financial services model”

David Hackett, CEO, MLC Life

Infrastructure Assets

“We are not chasing them [infrastructure assets] now. If a great asset comes up we would obviously be in the market for it. But given how strong the prices have been and the interest rate outlook, we think most infrastructure assets are already fully valued”

Mark Delaney, Chief Investment Officer, AustralianSuper

 

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