CEO INSIGHTS – Week Ending 26 May 2017 BY NAOS Asset Management

“The retail environment has made it difficult to deliver the planned sales and gross margin improvements as quickly as we would like” Mike Sonand, CEO, Surfstitch [Online retail]

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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Agriculture

"There are farmers out there who are making very good money – the smart money has moved in with Gina Rinehart, Andrew Forrest, Kerry Stokes and overseas pension funds but the people walking down Pitt Street and Collins Street are missing out"

Barnaby Joyce, Deputy Prime Minister

“[The Superfund Managers] turn up with their elastic-sided boots and the right belt but that's as far as they get when it comes to agriculture. They give excuses such as it's not liquid enough and it's not negotiable enough but really I think it's just a lack of expertise at the asset investment level."

Barnaby Joyce, Deputy Prime Minister

“We like the [agriculture] thematic but we also like the business – it has two great parts. It has a large breeding herd which is a rejuvenating asset and it has a large number of properties. These things enable the business to be self sustaining."

Phil Cummins, Chairman, NAPco [Large land holder]

Retail

“The retail environment has made it difficult to deliver the planned sales and gross margin improvements as quickly as we would like”

Mike Sonand, CEO, Surfstitch [Online retail]

“The trade numbers have been flat and slightly negative in the last two months but there are still plenty of our customers out there shopping. Consumers are being a bit more careful on what they spend.”

Peter Johnson, CEO, Cotton On [Apparel]

"It will be business as usual [for Top Shop] as the administrators work closely with Arcadia Group [the UK owners of the brand] on supporting and right-sizing the Australian business to a sustainable platform going forward"

Ferrier Hodgson on Topshop Australia voluntary administration

Advertising

“The market is tough at the moment ... spending is constrained”

WPPAUNZ Chief Executive Mike Connaghan [Advertising]

Real Estate

"We have this strange thing [In Australia] that you don't see anywhere else in the world with property investment. Two million people had investment properties in 2013 and I'm sure it's much higher today, 40,000 had six or more. Supposing we had some disaster and people will try to sell one of their investment properties. If it's a real disaster they will stick the other five on the market and see which one sells. Many of the others will do the same thing and we will have our moment of correction"

Mark Burgess, Managing Director, Future Fund

“We’re seeing a 17% drop in rents and it’s happening right now. Everybody is scrambling to lock in tenants”

Andrew Cronis, Managing Director, Coronis [Property Development]

“There's a large part of the population with strong commercial negotiation experience who believe they can sell their home themselves”

Paul Heath, Chief Executive, buyMyplace [Agent]

Financial Markets

“Long term annuities as a proportion of our book have grown from a quarter to a third in less than a year”

Chris Platt, Challenger Life [Wealth management]

“We understand why they chose the bank levy but we’re a little worried about the precedent that could create”

Craig Meller, CEO, AMP

Oil & Gas

“Markets are rebalancing and the marginal cost of supply will start to creep up”

Peter Coleman, Managing Director, Woodside Petroleum [Oil & Gas Producer]

Gaming

“We're seeing good performance across our customer base in Australia. A slight increase in terms of where we think the market will finish this year of close to 11% [growth]”

Antonia Korsanos, CFO, Aristocrat Leisure [Gaming] 

Mining Services

“I think at the end of the half year, we said we're really still waiting to see a positive switch back on in places like South America, and also Africa. Now we've seen both of those regions come back on. And when you look at it, all of the major exploration mining centers around the world have actually started to switch back on now”

Greg Kilmister, MD, ALS Ltd [Minerals testing] 

“We are seeing a re-emergence of juniors, and I think that by the time we get to the end of this calendar year, we'll see that percentage of work which is from greenfields start to increase, and be a little bit more significant”

Greg Kilmister, MD, ALS Ltd [Minerals testing] 

Food & Grocery

Lifestyles have changed, people do lead a more spontaneous lifestyle than they have done in the past”

Joanne Denney-Finch, CEO IGD [British Grocer]

Airlines

So, a very difficult year for Cathay Pacific, particularly on the yield front in terms of oboth passenger and the cargo business. Intense competition, overcapacity and a lot of direct flights from the mainland carriers to our key destinations. The strength of the Hong Kong dollar and the weakness of other currencies put severe pressure on yields and also the suspension of the fuel surcharge last year”

Martin James Curry, Finance Director, Cathay Pacific [Airline]

Energy

“In Australia we paid high wages because we had abundant energy. But gas and power prices are going up significantly and directors of manufacturers are saying ‘how do we invest under those circumstances’ because we are globally exposed?”

John Pizzey, Chairman, Alumina [Aluminium]

“Power prices at our Portland smelter are 50-100% higher than prices paid by similar operations in the Westerrn world”

John Pizzey, Chairman, Alumina [Aluminium]

Automotive

“Queensland state wide vehicle sales are off 5.9% from January to April 2017, which is the 2nd worse performing state behind Western Australia. National vehicle sales are off 2.8%. The industry expectations for the first four months of the year were for an equal or better market than last year’s, so the whole industry has been caught by this unexpected decline in private, business and government purchases, which are off 3.6%, 2.0% and 8.1% respectively”

Martin Ward, Chief Executive Officer, AP Eagers [Car dealerships]

“The new system plunges deeper, taking over the underlying software on the car. A driver doesn't need to plug in an Android phone to run it. It also adds some features, like 3-D mapping and satellite images, that Android Auto lacks. Where cars are going, everything is integrated into one display. We think the future is a much more seamless, integrated system"

Patrick Brady, Vice President Engineering, Android [Smart Phones]

NBN

“We keep tweaking the numbers because it’s an estimate but it literally is hundreds of thousands less than what we had thought [on the number of homes connected to the NBN]”

Bill Morrow, CEO, NBN

 

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