CEO INSIGHTS – Week Ending 9 June 2017 BY NAOS Asset Management

“Courtesy of low interest rates and a shortage of property supply, it doesn’t feel to me as it has in other periods — that we are on the edge on a cliff’’ John McGrath, Founder, McGrath Real Estate

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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 Health Insurance

“We are concerned from an industry perspective that we are seeing a decline in younger people asking about private [health] cover and that will have huge ongoing ramifications for the industry as they offset the cost of older Australians”

Scott Wilson, CEO, iSelect

“We are working with others in the industry about reducing the price for people under the age of 30 to enter the system. Giving young people an incentive to get in, and stay in, the system would help everyone in terms of stabilising pricing”

Richard Bowden, CEO, Bupa

“We have now seen seven consecutive quarters of decline across the industry… the participation rate of the population with private hospital cover is now 46.5 percent”

Scott Wilson, CEO, iSelect

“[Consumers] are looking at their health insurance contribution going up at 4.5 per cent and their wages going up at 2.5 per cent. Whatever we do, and whatever the government does to influence policy, has to be around affordability”

Richard Bowden, CEO, Bupa

“I genuinely think the sector has to look within at costs and add-ons and the way in which we are competing, because stealing everyone’s market share until you hit the bottom is not really an answer. It’s time to do something now and it’s not just putting up premiums”

John Van der Wielen, CEO, HBF

  “Private hospitals are profit-making ventures, I have nothing against that, but our challenge across the industry is to be able to ethically and appropriately place pressure on those hospitals to get their profits down to a reasonable level”

John Van der Wielen, CEO, HBF

  

Agriculture/Viticulture

“The 2017 vintage has again been an outstanding vintage, with strong indications of very high quality. Whilst the cool weather conditions delayed the vintage, the quality has again been exceptional and the Australian industry harvest tonnage looks to be up from 2016"

Neil McGuigan, CEO, Australian Vintage

“We’re actually seeing fresh produce go into China in quite significant amounts”

Alan Joyce, CEO, Qantas

 

Tourism

“Every Chinese visitor that comes in takes between two and three trips domestically...What’s great about the Chinese market is it goes everywhere”

Alan Joyce, CEO, Qantas

“China is just about to overtake New Zealand as the biggest inbound market into Australia, there’s huge growth out of there. Not all of that is profitable growth, we’ve got to be careful about how we take that opportunity”

Gareth Evans, CEO of International, Qantas

 

Television

“About 50 per cent of our customers have been with us for 10 years or more, but we have been kind of stuck at this 30 per cent penetration level now for several years and we think it's probably time that we change that"

Peter Tonagh, CEO, Foxtel

 

Australian Economy

“I reckon over the last 10 years or so just about every sector of the economy has been through its own recession”

Richard Goyder, Outgoing CEO, Wesfarmers

“Fortunately we have had other parts of the economy with growth that kept the overall economy up. In Sydney and Melbourne there is still a degree of buoyancy around’’

Richard Goyder, Outgoing CEO, Wesfarmers

“Provided unemployment and the housing market remain where they are, it should not get any worse. And they both seem to be holding up right now”

John Mullen, Chairman, Telstra

“With the easing of overall performance and the patchiness across the services sector, there is some concern that recent momentum in the economy may be fading”

Innes Willox, CEO, Ai Group

"There's very strong sentiment across all states of Australia. We're certainly not seeing anything on the horizon that is likely to shift that"

Herbert Appleroth, CEO, Ferrari Australia

 

Electric Vehicles

“It is very difficult to make it [electric car sales] an attractive sale without government subsidies to the consumer. In Australia I don’t think there is anything to say that demand for electric cars is going to take off”

Carlos Ghosn, Chiarman, Renault Nissan Alliance

 

Australian Banks

“They [the banks] operate in a big paddock with lush grass, and in Australia the four of them go to the same corner to eat the grass. And they’re surrounded by a high fence, which is regulation, and that makes it hard for them to get out but also hard for others to get in”

Mike Smith, Former CEO, ANZ

 

Property

"Some of the more colourful claims about housing affordability in Australia relative to elsewhere are in my judgment exaggerated"

Glenn Stevens, Former Governor, RBA

“Could there be a bit of a correction for a short period? Yes, but I don’t see it as being significant. Property sellers will have to pay close attention to their local market to ensure that they don’t over-estimate their property’s value as the market calms down’’

John McGrath, Founder, McGrath Real Estate

 

Financial Markets

"Overall market conditions are quite strong, equity markets are trading at strong levels, multiples are high in the market and volatility is low"

John Knox, CEO, Credit Suisse Australia

"In general, M&A [activity] will be up. On the back of that we will see financing, whether it be equity financing or debt financing ... It's hard to tell whether, in aggregate, that will make up for the shortfall that will likely be there from ECM [equity capital markets]"

John Knox, CEO, Credit Suisse Australia

  

Retail

“A lot of people are worried about Amazon and the impact of Aldi. Since Aldi came into the Australian market more than 10 years ago it has built a national market share north of 10 per cent, Coles’ market share has increased over that time”

Richard Goyder, Outgoing CEO, Wesfarmers

“The Australian market is really strong for us. In terms of beauty, the Australian retail landscape is really healthy at the moment. Now, more than ever, more and more people are genuinely interested in, and investing in their beauty purchases”

Libby Amelia, Country Manager, Sephora

"The [retail] businesses that seem to be doing not as well seem to not have something unique about them, which sets them apart and allows them to flourish. In Australia, 2xu is achieving both double digit sales and earnings growth"

Clyde Davenport, Co-founder, 2xu

"We just want to ride the wave. We're quite happy to be number two or three to Amazon. We're not losing sleep because Amazon is coming. We are looking forward to the market growing"

Gabby Leibovich, Founder, Catch Group

 

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