CEO INSIGHTS – Week Ending 13 October 2017 By NAOS Asset Management

"Delivery by drone will soon be commonplace" Don Meij, CEO, Domino’s Pizza Enterprises

As part of the NAOS investment process, we pay particular attention to the comments made by company CEO’s 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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Domestic Economy

“Our leasing business provides valuable insights into the SME market, and we're seeing growing momentum” Jon Sutton, MD, Bank of Queensland

Tourism & Leisure

“Chinese tourists benefit Australia in ways that go far beyond their direct economic impact. They are more likely to buy Australian products upon their return, to study and even to invest in Australia” John Brumby, President, Australia China Business Council

"Young people are a critical market for Australia, representing a quarter of arrivals and almost half of all international visitor spend. Young travellers and working holiday makers go further, spend more per trip and stay longer than other travellers. In addition, just over half of all youth are repeat visitors to Australia” Steven Ciobo, Australian Minister for Trade, Tourism and Investment

Gas

“[China is] a very dynamic market, getting nearly half its LNG from Australia. Australia is by far the largest supplier of LNG to China, with a market share of 48 per cent in the first half of 2017” Tony Regan, MD, DataFusion Associates

Commodities

“Thermal coal prices during the September quarter were stronger than many analysts forecast and current spot and forward prices also remain well above consensus forecasts…The higher quality end of the thermal coal market is experiencing stronger demand as a number of key seaborne end users are changing their quality requirements due to a greater focus on environmental and generation efficiency” Whitehaven Coal Market Announcement

“Hard coking coal prices have also traded above expectations in recent months however this situation may change in the short term if steel production in China is cut during the winter months, as some commentators have suggested” Whitehaven Coal Market Announcement

Agriculture

“Wheat is a commodity and the starting point for a commodity is to have quality and cost. We have a bunch of issues because our cost base is too high and that is the problem with competing out of Australia. Our infrastructure needs renovation, particularly on the east coast and we need to do a lot of work around research and development priorities” Mark Allison, CEO, Elders

Banking/Lending

“One of the most pleasing aspects of the result is the improved momentum in the second half…Lending growth improved significantly in both housing and commercial loan portfolios” Jon Sutton, MD, Bank of Queensland

“There is no doubt the macro-prudential regulation is having an impact on the mortgage market. We are seeing intense competition for principal and interest loans” Jon Sutton, MD, Bank of Queensland

Retail

“Competitor distress and closures are impacting stock positions and market pricing creating short term margin pressure. [Moreover, there are] key supplier stock availability issues [and thus] delay in getting some lines of stock into stores” Baby Bunting Market Announcement

“U.S. customers that shop online spend nearly twice as much as customers that only shop with us in stores. And when customers that only shop in our stores become Walmart.com customers, they spend more in stores” Douglas McMillon, CEO, Walmart

Wage Inflation

"I'm not pushing this point as Labor leader, seeking some kind of political product differentiation; I'm here as the alternative prime minister of this nation, saying Australians need a pay rise"  Bill Shorten, Australian Politician

Asset &  Wealth Management

"There are a lot of funds which are colloquially called 'closet trackers' which are benchmark-aware funds charging active [management] fees, which after fees, are not delivering great outcomes for clients. That is what we are moving away from" David Allen, Global CIO of Equities, AMP Capital

“In the US, there are two major shifts converging in wealth management. First, and one of the largest asset movements, fee-based advisory assets are expected to double by 2020 and the shift from brokerage to fee-based accounts; the second, digital technologies are disrupting traditional wealth advisory practices, which create competition for client assets and provide leverage for fast-growing advisor practices” Laurence Fink, CEO, Blackrock

Advertising

"The ad proposition for a television broadcaster in 2018 will be very different to the ad proposition in 2016" Hugh Marks, CEO, Nine

“In 2017, we can see that [the food and alcohol] category is already the fastest-growing in [advertising] dollar terms, but the level of overall investment is less with the sector increasing ad spend by $29.7 million over the whole eight months of this year” Jane Schulze, MD, Standard Media Index 

Global Economy

“We've seen greater political stability in Europe. China is continuing to show economic strength and after a long period of stagnation, we're seeing consistent growth in Japan. Overall, the world has become much more resilient. However, large cash balances remain on the sidelines and many global institutions are invested in assets with return profiles that are not expected to meet their liabilities over time, which is creating significant demand for asset allocation and investment strategies across multiple asset classes” Laurence Fink, CEO, Blackrock

Airlines

“A key aspect in the return to positive unit revenue has been the improvement we've seen in the international business” Edward Bastian, CEO, Delta Airlines

“Passenger demand remains strong and our commercial initiatives are delivering results… Leisure demand and yields continue to show the positive momentum that we've seen all year long… While July business yields were slightly softer than expected, we saw continuous improvement throughout August, September, and now into October” Glen Hauenstein, President, Delta 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.