CEO INSIGHTS – Week Ending 30 November 2018 By NAOS Asset Management

"It is now easier than it has been to conceive of a world in which banknotes are used for relatively few payments; that cash becomes a niche payment instrument."
Philip Lowe, Governor, RBA

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.

Economy

"For some decades, people have been speculating that we might one day go cashless – that we would no longer be using banknotes for regular payments and that almost all payments would be electronic. So far, this speculation has been exactly that – speculation. But it looks like a turning point has been reached. It is now easier than it has been to conceive of a world in which banknotes are used for relatively few payments; that cash becomes a niche payment instrument."
Philip Lowe, Governor, RBA

“Brickworks had been looking to invest offshore for a while, with Australia's tough business environment capping the company's growth. The US is an attractive country to invest and grow our business, with tax policies that are supportive of business, a proactive energy policy that is placing downward pressure on prices, and efficient transport infrastructure. The contrast with Australia could not be more stark, where we are faced with high taxes and wages, including taxes on wages, a shortage of energy for domestic use that is causing exorbitant prices, and costly approval processes for business investment."
Lindsay Partridge, CEO, Brickworks

"We think the Trump tax bill has made it easier to invest in America than it was before and his tax regime rewards people like us who reinvest their profits into their businesses. We would invest anyway, but now that investment is being rewarded in a more immediate way."
Anthony Pratt, Executive Chairman, Visy Industries

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth."
Jerome Powell, Chairman, US Federal Reserve

“We are very bullish on Australia, on the leadership in Australia and any future leadership...We plan to keep investing in Australia because it is a great country and the leadership of both parties is great. So, we look forward to continuing to invest here."
Anthony Pratt, Executive Chairman, Visy Industries

New Car Sales 

"Nearly five months in to FY2019 and the new car market has been challenging. In particular the luxury segment has performed below the broader new vehicle sales market."
Autosports Group Market Announcement

Australian Music Industry

"The opportunity is massive [Australian musicians]. We're moving from a potential market of 25 million people to a potential market of 2 billion who are connected to global streaming platforms."
Dan Rosen, Chief Executive, Australian Recording Industry Association

Agriculture

"The first half of FY19 includes our key agricultural selling period and the drought continues to impact sales volumes of grain bags and silage film. Whilst the season will not conclude until January, sales are tracking below our expectations as growers are either not planting or planting less. In addition, we have experienced on-going upward pressure from raw material cost increases, adverse FX and energy costs."
Grant Harrod, CEO, Pro-Pac Packaging

"Customer demand to-date supports our expectations of a continued gradual recovery for large ag equipment in North America, which is still closer to trough volumes than mid-cycle."
John Lagemann, Senior Vice President of Sales and Marketing Americas, Deere & Co

"We are often asked what is driving the ever-increasing demand for the better for you plant based foods. The answer is consumer behaviour. Consumer tastes and habits have changed. People are adopting diets, products and brands which are high in protein, low in saturated fats, sugar and salt."
Paul Thompson, Managing Director, Select Harvests

"There is no doubt the China Australia Free Trade Agreement and the US China trade dispute has created interest in Australian almond kernel and value-added almond products."
Paul Thompson, Managing Director, Select Harvests

Retail

"While the broader furniture & homewares category may be impacted by these market conditions, we remain confident that online penetration of the category will continue as the oldest millennials turn 35 this year and enter into Temple & Webster’s core customer demographic of 35-55 year-olds."
Mark Coulter, CEO, Temple & Webster

"Millennials have grown up with the internet and already make a significant number of their purchases online in other categories, such as fashion and home electronics, and we expect this behaviour to continue for our category, regardless of what happens in the broader housing market."
Mark Coulter, CEO, Temple and Webster

Spectrum

"In 2024, we project that 5G will reach 40 percent population coverage and 1.5 billion subscriptions, making it the fastest generation ever to be rolled out on a global scale."
Ericsson Mobility Report

Construction

“Australia should be a smart nation but it’s sliding backwards because the government’s been reducing incentives for R&D. We can’t keep using the so-called old methods of building these days — the homes and apartments become too expensive, the research needs to take place within our living cities and buildings, and outside the confines of a laboratory.”
Harry Triguboff, Founder, Meriton Group

Aged Care

"The Aged Care Financing Authority [ACFA] estimates that over 83,000 aged care places will be required over the next decade with nearly $53 billion of capital required to meet the residential care needs of our ageing population. In contrast to this estimate, as at 30 June 2018, there were close to 32,000 provisionally allocated licences allocated at Aged Care Approvals Round [ACAR] but not yet operational/built."
Gary Weiss, Chairman, Estia Health

"We are seeing less RAD [Refundable Accommodation Deposit] inflows than in previous periods, with a corresponding increase in DAP [Deferred Accommodation Payments] income."
Ian Thorley, CEO, Estia Health

Digital Platforms

“There is a real possibility that digital platforms in the future will be able to exploit their data and position to price as to extract all or most of the consumer surplus and transfer this to producers and take a large cut on the way through.”
Rod Sims, Chairman, ACCC

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.