CEO INSIGHTS – Week Ending 22 June 2018 By NAOS Asset Management

“So much of investing these days considers only the short run that I think there’s great scope for superior active investors to make value-additive decisions concerning the long run” Howard Marks, Co-founder/Co-Chairman, Oaktree Asset Management

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.

Financial Markets & Regulation

“In the current up-cycle, over-weighted, liquid, large-cap stocks have benefited from forced buying on the part of passive vehicles, which don’t have the option to refrain from buying a stock just because its overpriced. Like the tech stocks in 2000, this seeming perpetual-motion machine is unlikely to work forever” Howard Marks, Co-founder/Co-Chairman, Oaktree Asset Management

“This was an organisation [ASIC] not focused on its main job which was to be the cop on the beat in the financial sector” David Murray, Chairman, AMP

“Every listed company in Australia is now seeing a dramatic increase in D&O [directors and officers] liability cover” Andrew Porter, President, Group 100

Domestic Economy

“Australia’s median-age and old-age dependency ratios were projected to increase by less than those of other advanced economies – despite the relatively high life expectancy. This would make Australia one of the youngest populations within this group of countries” Reserve Bank of Australia

“If you want a job, NSW is certainly the place to be” Dominic Perrottet, Treasurer of NSW

“I can appreciate that the ABC [Australian Broadcasting Corporation] would fetch a high price in a commercial market but does the public want a new media organisation that compromises quality and innovation for profit?” Michelle Guthrie, Managing Director, ABC

Telecommunications & Technology

“The Australian telco market is entering an extremely challenging period driven by a number of factors including the NBN transition and increased mobile competition” Andy Penn, CEO, Telstra

“Australia investors are pretty cynical about [supporting the listing of] an Australian company that’s doing well in Australia and is going overseas, because so often that doesn’t work out. So, it’s a lot better for us once we’ve proven our offshore expansion works to do an IPO” Christian Beck, Founder, LEAP Software & InfoTrack Software

Energy & Resources

“Without additional gas supply capacity, gas supply restrictions and curtailment would be necessary in 2022” AEMO (Australia Energy Market Operator)

“Demand growth [for coal] in Asia is expected to exceed declining demand from the developed economies in Europe and the Unites States” Whitehaven Market Announcement

[Referring to bulk resource exports] “Last year was a better year than 2016. This year, which we are just about to finish, will be a lot stronger than last year and next year will be stronger again” Mike Hughes, VP, Darwin Port (Landbridge China)

China Relations

“The trade issue has certainly quietened down, and product is starting to get through whereas before it was getting held up” Tony Battaglene, CEO, Winemakers Federation of Australia

“The deterioration in the government to government relationship [Australia & China] has the potential to undermine our business opportunities and future success” John Brumby, Former Victorian Premier

“Two points on [Australia and China] relations. The first is that there are always, from time to time irritants in any trade relationship so when I say that we’ve dealt with that, that’s not to say there will never be an issue again in the future” Steve Ciobo, Federal Trade Minister

Childcare

“I think the next 12 months will be pretty tough. A tightening of credit by the banks and other lenders to childcare developers has started to stem the oversupply, although projects already with planning approval or under construction are determined to plough on” Garry Carrol, CEO, G8 Education

Domestic Office & Housing Market

“In Sydney there is no new [office] supply on the horizon until at least 2023. Short any black swan global event, with reasonable demand due to lack of supply we can foresee another one to two years of reasonable rental growth coming through the markets” Darren Steinberg, CEO, Dexus

“The worst is over, as less housing supply and Australia’s strengthening economy will support income and rental growth and thus dwelling values, beginning next year” Alistair Chan, Housing Economist, Moodys Rating Agency

Retail & Supermarkets

“This is just the beginning for [Amazon] Prime in Australia, as we will keep making Prime better, adding even more selection and benefits” Jamil Ghani, Vice President, Amazon Prime International

“We make customer driven ranging decisions – if [branded] products are strong, fine… we’re paying rent on this real estate and you have to be compelling to stay on our shelves” John Durkan, Managing Director, Coles

Agriculture

“If we are talking more high end and niche products that can be air freighted, there is no reason why consumers in Europe can’t enjoy our Australian product in a way that is non-threatening to European farmers” Fiona Simson, President, National Farmers Federation

Infrastructure

“The pressure in realising these large programs of infrastructure [projects] means there will be a competing atmosphere between companies, which means a very high volatility [staff turnover] inside the companies – which is not a good thing” Pietro Salini, Global CEO, Salini Impreglio (Italian multinational construction/civil business)

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.