CEO INSIGHTS – Week Ending 25 August 2017 BY NAOS Asset Management

“It won't be until 2040 that electric cars even account for 50% of the cars on the road” Gregory Fox, CFO, Bapcor

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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Healthcare

“The Hospitals division had a disappointing year. This reflected softer private hospital market conditions and variability in patient case mix, as well as margin pressure, where costs in some areas of the business have grown faster than health fund price increases” Gordon Ballantyne, MD, Healthscope

“We continue to see subdued volume growth and variability in patient price mix that impacted revenue growth” Michael Sammells, CFO, Healthscope

“We still believe in [the] long-term thematic of people traveling across international borders for healthcare. The Chinese will eventually travel in their millions to places like Thailand and Australia for healthcare” Mark Fitzgibbon, CEO, nib

Health Insurance

“Our outlook assumes claims inflation is going to be slightly higher in 2018 than 2017, which will affect our margin, which is (also) why the market isn’t liking the result” Mark Fitzgibbon, MD, nib

“China, it’s a slippery slope ... we understand it’s a market where many are called, few are chosen” Mark Fitzgibbon, MD, nib

Media & Advertising

“The fundamentals of the radio industry are very strong. The industry is certainly not dying” Ciaran Davis, CEO, HT&E (Owner Aust Radio Network)

“Trading conditions in July and August have been soft” Grant Blackley, MD, Southern Cross Media

Commodities

“We continue to believe population growth, continued urbanization and better living standards [will lead to] increased demand for commodities over the long term. We remain especially positive on the outlook of oil and copper” Andrew Mackenzie, CEO, BHP

“Over the last year, we've seen China's growth continue to underpin strong demand for steel with imports of iron ore expected to exceed 1 billion tonnes again this year following a strong result last year. The emerging markets throughout Asia are also participating in regional growth through China's visionary Belt and Road Initiative” Neville Power, CEO, Fortescue Metals

"We look from a market perspective and see both from the metallurgical coal side and the thermal coal side that these are growing, along with the Asia Pacific market. Australia is uniquely placed to service both types of demand” Glenn Kellow, CEO, Peabody

“With cobalt prices being so high the quantity of nickel going into a battery could increase” Dan Lougher, MD, Western Areas

Supermarkets

“We gradually got better as the year went on in terms of the growth and the nice thing about the growth was on the back of more customers shopping more frequently in our stores… It was very frustrating in the early days of our turnaround that we were getting this transaction growth, but we were losing items per basket, but we saw that change, so a really good year in supermarkets in terms of getting back some momentum in Australia” Bradford Banducci, CEO, Woolworths

“Our fresh food business showed terrific growth in the year and that was both volume – materially volume growth. We had a little bit of deflation and inflation that sort of went and – came and went during the year” Bradford Banducci, CEO, Woolworths

Agriculture

“The key contributors for year on year earnings growth were domestic and international berry growth and excellent citrus performance and recovery in the tomato market. The mushrooms category has delivered another solid year outcome [and] industry demand remains positive, with value growth of 4.1% over the last 12 months” Harry Debney, MD, Costa Group

“The berry category achieved revenue growth of 25.5%, led by increase in planted area and the strong blueberry season, partially offset by disappointing raspberry season” Linda Kow, CFO, Costa Group

Insurance

“We're predicting GWP [Gross Written Premium] growth of low single-digit dimensions. But within that we're expecting some ongoing rating response to the short tail claims inflation that we're seeing, particularly in motor” Peter Harmer, MD, IAG

Diary

“We're still in a very competitive environment in terms of our consumer packaged goods business in cheese” Barry Irvin, Chairman, Bega Cheese

Aquaculture

“Salmon prices are at historical highs and we anticipate the pricing we received in FY17 to move forward and continue into FY18, and for the start of the year that's exactly what's happened” Mark Ryan, MD, Tassal Group

“We've certainly taken a much more active presence in the export market… this has been due to the attractive global supply constraints” Andrew Creswell, CFO, Tassal Group

Beverages

“The beverages market is a growing market, it is certainly a changing market, but it is growing both in terms of volumes and revenue terms. So where there is growth there is opportunity” Alison Watkins, CEO, Coca-Cola Amatil

“Market conditions remain challenging as structural adjustments occur” Alison Watkins, CEO, Coca-Cola Amatil

Retail

“The retail landscape remains very competitive and we do not see this changing” Peter Diplaris, CEO, Asaleo Care

Travel & Tourism

“We're very optimistic about the growth outlook for this [travel] sector” Kerri Mather, CEO, Sydney Airports

“We've continued to see a very strong performance from international traffic, particularly inbound growth. And to respond to that growth, we have the most significant investment program underway, since the 2002 privatization of the airport” Kerri Mather, CEO, Sydney Airports

Domestic Economy

“We believe in Australia because the best social program is a job. To some extent, it shines a light on investment and job creation in Australia in a ‘put your money where your mouth is sort of way.’ At a time when the car industry is exiting Australia, we are spending. We want to start a conversation” Anthony Pratt, Executive Chairman, Visy 

WA Construction

“Construction markets in Western Australia continue to remain weak” Patrick Gibson, CFO, GWA Group

Commercial Property

“The reasons we are so lowly levered and that we have repositioned the portfolio is because of all the uncertainties around geopolitics and financials and so we can be reactive to those opportunities if volatility gives us those opportunities. Growth is the biggest financial uncertainty – can the economies grow to expectation? Does inflation come to the markets or not? And these are things that everyone is pondering but no one has the answers for” Greg Goodman, CEO, Goodman Group

“I think a big challenge is going to come in the multi-residential [buildings], where I think we will probably see some potential softness” Tim Salt, CEO, GWA Group

Gaming

“Domestic gaming revenues was up 4.6% in the second half with Sydney and the Gold Coast both up high-single digits. Actual international VIP revenues were up 7.3% with a strong win rate of 1.59% compared to 1.2% in the pcp [prior corresponding period]” Chad Barton, CFO, Star Entertainment

“International VIP revenues declined 19% due to lower volumes, following the impact of the market uncertainty in North Asia” Chad Barton, CFO, Star Entertainment

Childcare

“Occupancy has been our key operating headwind for the half. We have got a 3.4% decline on a rolling 12-month basis compared to the prior corresponding period The factors that drove that have remained the same; in that, there has been oversupply in certain markets as we've called out in the past in the Sydney, ACT, et cetera. North Queensland and WA continue to be quite challenged from a macroeconomic point of view. [However]…we think that the supply has started to moderate, primarily driven by a contraction in the credit availability to the sector” Gary Carroll, CEO, G8 Education

“The overall market is reasonably challenging with affordability being hampered by sluggish wage growth and as many of you are aware, the childcare rebate which has been capped since 2012 with AUD 7,500 goes less and less distance as the years go on” Gary Carroll, CEO, G8 Education

Electric Vehicles

“It won't be until 2040 that electric cars even account for 50% of the cars on the road” Gregory Fox, CFO, Bapcor

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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.