CEO INSIGHTS – Week Ending 21 July 2017 BY NAOS Asset Management

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“We didn't anticipate the amount of deterioration in the underlying market conditions and in many cases deflation in the categories we play in… We are not planning to go back to a discounting mentality. I don't think there's any rational judgement that that would be in the long-term interests of the business”

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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Travel & Tourism

“International traffic growth of 9.7% versus the prior corresponding period (pcp) is a fantastic result, and represents our strongest monthly result this year. Domestic traffic also grew strongly at 3.6% above the pcp, contributing to overall traffic growth of 5.8% for the month”

Sydney Airport Market Announcement

“You now see a trend in developing upscale hotels, investors are seeing the opportunities, and you are seeing a strong Queensland tourism industry with Chinese arrivals growing 20 per cent in the past 12 months” 

Simon McGrath, COO, Accor

 

Construction

“We have a positive outlook, and today reconfirm our full year NPAT guidance. We are achieving strong profit and cash flow contributions from our core operations in construction, mining and services”

 Adolfo Valderas, CEO, CIMIC Group

 

Agriculture

“[There has been] a reduction of demand from South East Asian markets due to sustained high cattle prices in Australia, resulting in extended favourable conditions for growers after the end of the Northern Australian wet season”

Wellard’s Market Announcement

“The price of cattle in Australia has remained un-economically high, with live exporters and abattoirs facing considerable competition for cattle from growers both holding stock and building their herd”

Wellard’s Market Announcement

 

Domestic Employment Market

“We have seen an explosion of people working for themselves ... consultants swear by their reputation in the market ... so it allows us to separate the good from the great”

Bridget Loudon, Co-founder, Expert360 

 

Residential Housing

“[First-home buyer numbers] are rising from their lowest ebb, and with state and federal support, economic conditions and increasing supply, you would absolutely expect first-home buyer numbers to rise. It may only be 2 or 3 per cent of demand, but that’s quite material in absolute numbers”

Mark Steinert, CEO, Stockland


“We are over four years into it [housing market cycle] now, and normal cycles would now be in the down trend. Since coming out of the global financial crisis there has been a period of low interest rates, employment growth rising from a low base, continued migration and natural population growth, along with the dearth in building after the GFC. The last time you saw those preconditions was in the 90s”

Mark Steinert, CEO, Stockland

 

Alcoholic Beverages

“The strongest growth [across all wine segments] was in more premium wines, with all price segments of $10 per litre and above experiencing growth, and the strongest rate of growth for wines [was within the] $30 to $49.99 per litre [range]’’

Andreas Clark, CEO, Wine Australia

“Today, there is a renewed demand for fine single malt whisky from the younger demographic. We’re seeing 25-year-olds buying fine whisky — not just elderly gentlemen as you might traditionally think”

Alex Chlebnikowski, Manager, Nicks Wine Merchants

 

Insurance

“I've sat with customers in the last three months who have said they simply can't afford it [insurance]. They are making choices about mortgage, food – and we have had people say to us they have cut back on their meat meals. Customers in recent weeks are telling us they are not heating their house because they can't afford all of the things currently in their budget”

Craig Drummond, CEO, Medibank

 

Retail

“We didn't anticipate the amount of deterioration in the underlying market conditions and in many cases deflation in the categories we play in… We are not planning to go back to a discounting mentality. I don't think there's any rational judgement that that would be in the long-term interests of the business”

Richard Umbers, CEO, Myer

“The retail market is not fantastic, it's very tough. All we are asking for is fairness. We can't be in malls just to break even while making the shopping centre owners rich…Retailers are being held for ransom by some shopping centres continuously hiking up rents, with annual increases of 5 per cent. That is almost 3 percentage points above inflation”

Stan Gordon, MD, Franchised Food Company

“Regrettably, landlords have opened the door to more and more food businesses in recent times, as well as opening whole new eating areas within the same precinct, which has essentially cannibalised existing tenants”

Luke Baylis, Co-founder, SumoSalad

“This year we're seeing a widening gap between customers' expectations, what they're willing to pay, and what retailers are doing. When Amazon comes, the bar gets consistently lifted”

Carl Hartmann, Founder, Temando

“The heart and soul of [Gumtree] is second hand and if you think about the second-hand economy, which is booming, and really taking shape, we are leading that”

Martin Herbst, GM, Gumtree

 

Financial Markets

“If a bank has any trouble, they're [Hybrid Securities] the first line of defence. If you wipe out all those retail and superannuation investors you are robbing Peter to pay Paul. You've seen already overseas that there were real issues in exercising against them when banks got into trouble”

Greg Medcraft, Chairman, ASIC

 

Commercial Property

“Business confidence is at healthy levels across Australia and we have started to see positive sentiment in leasing market activity across all CBD office markets”

Andrew Ballantyne, Head of Research, JLL

 

US Monetary Policy

“We’ve never had QE like this before, we’ve never had unwinding like this before. Obviously, that should say something to you about the risk that might mean, because we’ve never lived with it before….When that happens of size or substance, it could be a little more disruptive than people think. We act like we know exactly how it’s going to happen and we don’t”

 Jamie Dimon, CEO, J.P. Morgan

 

Global Economy

“If the U.S. hikes more than one or two times it is going to be very difficult for the ECB to stay on hold for too long. I think that you don’t want to create too much of an interest rate gap between the between the euro and the dollar”

Sergio Ermotti, CEO, UBS

“The optimism that characterized the first quarter was replaced with a more subdued tone amongst clients for the majority of the second quarter. Activity was more sporadic and market sensitive businesses, particularly within fixed income, were impacted”

Jonathan Pruzan, CFO, Morgan Stanley

“We are encouraged by the continued momentum in billings this quarter, which reflects broad-based growth across our diverse segments and geographies, with adjusted U.S. billings steady at  6% and international billings growing in the low-double digits”

Jeffrey Campbell, CFO, American Express

“We expect the large and global client segment to [maintain] slower growth rates as corporations look to manage their travel and entertainment expenses. In addition, we do not yet see any significant inflection point in macroeconomic trends that has caused a shift in spending patterns for these large and global customers”

Jeffrey Campbell, CFO, American Express

 

Global M&A

“Broadly, M&A volumes remained healthy [in Q2 FY17]. The fundamental drivers of activity, including challenging organic growth, remained in place encouraging client engagement. However, we have seen a decrease in larger transformational deals on a year-to-date basis compared to 2016 as the current market environment is impacting management's decision to act”

Jonathan Pruzan, CFO, Morgan Stanley

 

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