CEO INSIGHTS – Week Ending 6 July 2018 By NAOS Asset Management

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“There are several drivers of the extraordinary long-term growth potential we see in Greater China, from favourable macroeconomics to the rise of sport and fitness, to the scale and impact of digital, to the strength of the NIKE Brand. Accordingly, we will continue to invest to extend our leadership in this strategically-important and fast-growing market” Andrew Campion, CFO, Nike

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.

Sportswear & Leisure

“In Sportswear, the consumer demand for all-day comfort is making Air Max [shoes] one of the fastest-growing platforms in our industry” Mark Parker, CEO, Nike

Housing

“There is no boom coming, I promise, but it is settling down” Harry Triguboff, Founder, Meriton

“The main issue is getting approvals [for the building of new apartments]” Harry Triguboff, Founder, Meriton

“The market fully expected there would be a rebound shortly after the stamp duty changes took effect, but in reality this was minor. Declining investor demand has marked a real paradigm shift after the boom times of the past few years” Jon Ellis, CEO, Investorist

“There has been a further and noticeable ‘flight to quality’ in apartment offerings, regardless of scale. It’s become more difficult to move inferior stock of any type as buyers, whether from Shanghai, Sydney, Hanoi or Melbourne are significantly more educated and quick to reject product which does not meet their quality and location criteria” Jon Ellis, Founder, Investorist

Commodities

“Chinese pricing has been softer… But that is not an unusual account to have when there's a period of uncertainty caused by changes in rules on subsidies, and also taking into account that the majority of battery production happens in the second half” Richard Seville, MD, Orocobre

“The last 12 months continue to show the market fundamentals for Australian coal are positive, and the high productivity of our coal companies, proximity to major markets and strong regional economic and population growth will continue to underpin coal exports over the long term” Statement by Minerals Council of Australia

“This push to divest from coal, whether it is Australian institutions or Australian banks, is just about ownership. It doesn't have any impact on coal production or much less coal consumption” Tony Haggarty, Director, Whitehaven Coal

Energy

“Energy prices are set to remain well above their historic average, sapping the competitiveness of many industries and putting households under pressure” Innes Wilcox, CEO, Ai Group (Australian Industry Group)

Pharmacies

“The [pharmacy] industry across the board is feeling the pinch” Darren Dye, CEO, Pharmacy Alliance

“It's been a pretty weak market over May and June. And I guess, because it's a more competitive market generally at the moment, the ability to pass on PBS [Pharmaceutical Benefits Scheme] price performance has been compromised” Mark Hooper, CEO, Sigma Healthcare

Consumer Debt

“Only a handful of credit providers take proactive steps to address persistent debt, low repayments or poorly suited products” Peter Kell, Deputy Chair, ASIC

Domestic Economy

“China is a huge opportunity for tourism in Australia and it leads to jobs and infrastructure” John Borghetti, CEO, Virgin Australia

Alcoholic Beverages

“[There was] unfavourable weather-related impacts early in the quarter in some of our largest markets” Robert Sands, CEO, Constellation Brands

“Currently, Constellation's wine business at the greater than $11 [US dollar] retail price point is growing 12% versus market growth of 10%” Robert Sands, CEO, Constellation Brands

Agriculture

“There is a trend of decreasing profitability and sustainability in Australia [in the dairy industry]” David Beca, COO Harmony Agriculture and Food Company

Corporate Governance

“If you look at what has happened in the financial services sector, what is happening at the royal commission and with the APRA report into the Commonwealth Bank, the corporate governance guidelines haven’t worked” David Murray, Chairman, AMP

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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