CEO INSIGHTS – Week Ending 3 November 2017 By NAOS Asset Management

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“YouTube now has over 1.5 billion users. On average, these users spend 60 minutes a day on mobile. But this growth isn't just happening on desktop and mobile. YouTube now gets over 100 million hours of watch time in the living room every day, and that's up 70% in the past year alone” Sundar Pichai, CEO, Google

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 Cycle

“As we have stated previously, the mining cycle has started to turn. The parked [mining equipment] fleet has come down from its peak and stabilized for several months” Caterpillar

Iron Ore

"We don't see the demand there to expand [iron ore production] right now ... over-developing projects just means poor returns to shareholders, we are very focused on making sure that our shareholders get strong returns through the cycle" Nev Power, CEO, Fortescue 

"I am not being cynical. I am just not seeing a lot of light at the end of the tunnel on low grade ore. We would like to see the market stabilise or improve slightly from where it is but I think we are getting into Christmas and Chinese New Year and traditionally at this time of year we are not going to see a lift in [the iron ore] price. My guess is by the time we get into January or February it [the discount for low grade ore] is probably going to increase even more" Chris Ellison, CEO, Mineral Resources

“[We see a] lower outlook for iron ore pricing, with China taking steps to reduce steel capacity, at the same time as supply of high quality iron ore from the major producers is expected to continue to increase in the near term” Report by Hancock Prospecting

NBN

“[For NBN] it’s all about getting to that magical $52 figure that lets them [the telco’s] recover the cost of building the network, so if they blend it then your average price goes up and you will see the cheap plans that appeal to the over 50-60 age group disappear” Phillip Britt, MD, Aussie Broadband

“The telcos are bleeding in a big way” Phillip Britt, MD, Aussie Broadband

Social Media

“Our community continues to grow, now with nearly 2.1 billion people using Facebook every month and nearly 1.4 billion people using it daily. Instagram also hit a big milestone this quarter, now with 500 million daily actives” Mark Zuckerberg, Founder, Facebook

Fintech

"We know, at some point, [credit] cards are going to go away, and it's just going to be a digital wallet [and] digital payments” Michael Corbat, CEO, Citigroup

Autonomous Vehicles

"We are firmly of the view that autonomous trucks are the way of the future, which is clearly a major industry trend. At this point in time we are looking at starting the phased implementation, probably in the second half of next year" Barry Fitzgerald, CEO, Roy Hill

Domestic Economy

“In terms of the Australian economy whilst Australia has challenges, there is no doubt that it remains one of the best places in the world to run a business. There are some fundamental positives and business conditions are at a 10-year high. We've got strong population growth, there's a large pipeline of infrastructure investments, lower unemployment and a solid economic outlook” Andrew Thorburn, CEO, NAB

“We continue to see good growth in our specialized businesses especially agriculture and health and our sense is that is growing at 3.2%. We are growing a bit above SMEs system growth rates, which we estimate to be around about 2 %” Gary Lennon, CFO, NAB

Infrastructure

“The growth in infrastructure construction activity and pricing outcomes on the east coast is expected to more than offset continued pressure in Western Australia, the general softening in the housing market, and higher energy costs” Boral Market Announcement

Global Economy

"By many measures we're close to full employment and inflation has gradually moved up toward our target" Jerome Powell, Chair, Federal Reserve

"Probably the biggest question out there today is the management of the amount of [China’s] debt that's outstanding" Michael Corbat, CEO, Citigroup 

Housing

“Housing growth has been a little more subdued at 2.7% over the year, and particularly in the second half with this book more impacted by the macro potential changes to invest and interest only lending” Gary Lennon, CFO, NAB

“In Building Products, our earnings will be supported by the solid demand we've seen on the east coast detached market. And pleasingly, we're seeing good sales into the multi-residential sector. State-wise, Western Australia was actually recovering and South Australia has held up particularly well” Robert Sindel, MD, CSR

"It's a buyers' market. Lenders are hungry for business" John Flavell, CEO, Mortgage Choice 

Private Health Insurance

"Until this [the private health reforms] are legislated and get in place … the current theme is the market is very tough and I don't think that is going to change in the short-term" Steve Crane , Chairman, Nib Holdings

"The reason premiums go up is because claims go up, and no matter how efficient the system is we're an ageing and wealthy society and we're going to spend 4 to 5 per cent on healthcare each year. We get bashed up for increasing premiums ... the Commonwealth last year spent $74.4 billion on health, which is up 7.4 per cent year on year" Mark Fitzgibbon, CEO, Nib Holdings

Food

“Bacon and dairy costs picked up during the quarter and pricing has yet to catch up” Bernardo Hees, CEO, Kraft Heinz

Retail

“Going forward, there is no doubt that the retail environment in most parts of the world will remain challenged” Bernardo Hees, CEO, Kraft Heinz

Tourism

“The tourism sector continues to perform well and we are working closely with both current and prospective clients to increase the tour offerings on offer for both domestic and international operators” Scott McMillan, MD, Alliance Airlines

 

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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