CEO INSIGHTS – Week Ending 27 October 2017 By NAOS Asset Management

“The average house price growth is moderating in Australia" Shayne Elliott, CEO, ANZ

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.

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Mining Services

“We continue to see strong rebuild activity in [oil] wells servicing for engines, transmissions, pumps and flow iron as well as demand for new equipment” Jim Umpleby, CEO, Caterpillar

Rail

“Transportation is now expected to be up, as higher rail traffic has driven higher demand for rail services. The power generation industry remains challenged, and we anticipate sales to be about flat to slightly up for the full year” Jim Umpleby, CEO, Caterpillar

Commodities

"I think we have observed enough to make the judgment that this round, the demand [for lithium] is genuine and is driven by an energy revolution… and energy storage sector supply will be slightly short" Jiang Weiping, Chairman, Tianqi  

Domestic Economy

"I don't want to over-egg it, but [wage growth] is starting to pick up" John Fraser, Treasury Secretary

"6 to 12 months ago we formed a view that if interest rates in the broad based variable mortgage market moved 150 basis points it would effectively trigger a recession in the economy. They have moved about half way" Rod Fehring, CEO, Frasers 

"Housing is the largest asset class in the country – it's $7.5 trillion in savings so if you destabilise it you will put this economy into a recession – it's absolutely guaranteed" Mark Steinert, CEO, Stockland

Global Economy

“While order activity has been strong for the first three quarters of 2017 and the backlog is up, geopolitical uncertainty, global and regional GDP growth and commodity volatility will be risks as we move into 2018. Potential tax reform and an infrastructure bill would be positives for the long term” Jim Umpleby, CEO, Caterpillar

“In most parts of the world, unemployment and inflation remains low and business conditions are strong, and here in Australia, mining jobs are growing again and there is strong job growth in tourism and health” Shayne Elliott, CEO, ANZ

Marketing

“We are seeing a two speed performance in our business. Our advertising, media and digital businesses continue to perform well, off the back of strong new business wins. However, in some operating businesses, most notably in research and production, we have suffered through client cutbacks as the tepid economic conditions for consumer brands weigh on their own ability to drive growth” Mike Connaghan, CEO, WPP AUNZ

Retail

“Kmart's total sales for the quarter increased by 9% on the prior corresponding period while comparable store sales increased to 4.9%...driven by strong unit and transaction growth as customers responded positively to the further price investments and improvements in the product offering, particularly in the core Home and Kids ranges” Richard Goyder, CEO, Wesfarmers

“[For] Bunnings Australia and New Zealand, total sales were AUD 3 billion, up 11.5% on the prior corresponding period. Total store sales for the quarter increased 11.7% as store-on-store growth was 10.8%” Richard Goyder, CEO, Wesfarmers

“The retail sales environment continues to be challenged by subdued consumer confidence, low wages growth and rising costs of living”Angus McNaughton, CEO, Vicinity

“We expect the market to remain competitive as retailers drive for market share in the lead up to the key Christmas trading period” JB-Hi-Fi Market Announcement

“We have made a positive start to the year with the businesses delivering profitable growth in line with our budget expectations. [However], like for like sales growth has been slightly dampened by the subdued consumer environment. Sales performance in Supercheap Auto has been pleasing, achieving growth in all categories, and in most Australian states and New Zealand” Peter Birtles, MD, Super Retail Group

Food & Beverages

“What we have actually seen is our strongest transaction growth for a long time in the quarter and we are seeing more customers coming back more often” John Durkan, CEO, Coles

“Now while we see various opportunities and challenges in each of our markets, one thing is consistent across all of our businesses: the consumer landscape is changing. We see an increasing number of small and fast competitors; consumers' desires are evolving, whether they're seeking low or no sugar options, drinks with functional benefits or simply more variety” James Quincey, CEO, Coca Cola

Banking

“Industry revenue growth is likely to remain in the low single digits” Shayne Elliott, CEO, ANZ

Other

“Just because Amazon can disrupt somebody else’s profit stream, it doesn’t mean that Amazon earns that profit stream. For the moment, the market doesn’t agree. Perhaps, simply being disruptive is enough” David Einhorn, Founder, Greenlight Capital

Vitamins

"When you strip out the impact of China we're about flat in Australia. It's not disastrous and there's certainly some uncertainty and retail is a tough place to be at the moment” Richard Henfrey, CEO, Blackmores

Automotive

“The market is more challenging than expected” Mary Barra, CEO, General Mortors

“We are committed to an all-electric future and we have announced plans for at least 20 new all-electric vehicles by 2023, including two in the next 18 months” Mary Barra, CEO, General Mortors

"In the coming years what we expect is with genuine demand rapidly growing from the EV sector and energy storage sector, that supply will be slightly short" Jiang Weiping, Chairman, Tianqi  

Car Dealerships

"I think there probably will be less [car] dealers. I think there will be a lot more rationalisation" Nick Politis, Businessman

Technology

"Laptops have replaced desktop computers, smart mobile phones have replaced fixed phones, and in the future electric vehicles (EVs) and even autopilot vehicles will be changing how we travel, communicate and connect … it is going to be the future and it is already happening” Jiang Weiping, Chairman, Tianqi  

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.