CEO INSIGHTS – Week Ending 12 October 2018 By NAOS Asset Management

"Right now, every boardroom of every major restaurant brand is asking their management team, 'What are you going to do about online ordering? What are you going to do about third-party deliveries?... Everyone [third party delivery companies] is growing like gangbusters.” Matt Maloney, CEO, Grubhub Inc

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.

Food Ordering Platforms

"Right now, every boardroom of every major restaurant brand is asking their management team, 'What are you going to do about online ordering? What are you going to do about third-party deliveries?’... Everyone [third party delivery companies] is growing like gangbusters.” Matt Maloney, CEO, Grubhub Inc

Supermarkets

"Recent Australia grocery sales have grown at that sort of 3% to 4% level with the outlook expected to be supported by strong population growth, well ahead of the UK and U.S. markets, as well as robust economic conditions of around 3% GDP growth here in Australia and steady unemployment." Steven Cain, CEO, Coles

Domestic Economy

"The economic landscape is changing with slower housing credit growth, lower house prices and stagnant wage growth." Jon Sutton, CEO, Bank of Queensland

Domestic Property Market

“The way Australians have always made money is on property. But prices have come down and mortgage arrears are growing. The consequences of the royal commission will be greater than anyone expects — that is my big worry." Harry Triguboff, Managing Director, Meriton Group

Commercial Real Estate

“Melbourne and Sydney [office space rents] are both very strong today; they’re enjoying a bit of a boom in that sector. We’ve been in a low-interest-rate environment for a long time and asset values are fully priced, so in that sort of environment there’s a lot of capital interested in sustainable long-term office commitments with long leases." Steve McCann, CEO, Lend Lease

Renewables

"In terms of cents per kilowatt hour, we can supply electricity 30 to 40 per cent cheaper than new-build coal [using thermal solar]." Kevin Smith, CEO, SolarReserve

“Lower-cost renewables tend to push the higher-cost sources of dispatchable power - coal and gas - out of the market early.” Frank Calabria, CEO, Origin Energy

Coal

“China's reduction in coal imports is almost becoming an annual tradition, as the government works to try and support local producers." James Rickards, General Manager, Yancoal Ltd

Electricity

“The next 10 years will be dictated by the quality of planning and quality of policy that goes with it and there is increasing risk that we’re going to see choppiness [in the national electricity market] over the next 10 years, and choppiness or turbulence is a different way of saying higher cost.” Brett Redman, Interim CEO, AGL

Gas

"Sustained prices at the $15 level, more than four times their historic average, threaten the long-term viability of many high-employing and strategically critical Australian businesses."  Innes Willox, Chief Executive, Ai Group

Consumer Behaviour, Alcohol

“Lower carb and lower alcohol options continue to be very important trends in beer." Jack Mesley, Brand Director, Lion Pty Ltd

"Australians' drinking habits are changing as people embrace the message of moderation and healthier living." Adam Murphy, Director, Carlton & United Breweries

E-Commerce

“In Australia e-commerce is still only about 8% of retail sales. In the UK it’s 20%, and in Asia it’s 50%.” Christine Holgate, CEO, Australia Post

Funeral Homes 

"Trading during the winter period has seen the number of deaths decline in the order of up to 8% in key markets…A declining market hampers IVC's ability to achieve prior case average price increases. IVC is managing its cost base to mitigate the impact of those factors." Martin Earp, CEO, InvoCare

The Italian Crisis

"I don't buy the idea that you can muddle through indefinitely. We are at a very different stage of the global cycle, and at a different level of tolerance. When the [credit] spreads blow out, it creates a 'new fundamental'. What worked at spreads of 100 does not work at 300. I think Italy may be entering a vicious circle. It is hugely systemic and could be Lehman in reverse." Desmond Lachlan, Former Deputy Director, International Monetary Fund

Chinese Trade Regulation

“The Chinese authorities have some laws that are being enforced with some more strength at times, which is what we’re seeing now.” LVMH Chief Financial Officer Jean-Jacques Guiony

"[Chinese tariffs] are directly impacting the North American supply chain for our customers. Therefore, it has an impact on our business. Only time will tell what actually happens.” Daniel Florness, Chief Executive Officer, Fastenal

Thank you for reading.

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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.