CEO INSIGHTS – Week Ending 27 July 2018 By NAOS Asset Management

"We're facing a perfect storm here in the Australian [agricultural] market, with the dry conditions leading to a poor winter crop, an over-supply of products and increased competition across our sector. The whole agricultural supply chain is feeling the impact of this year's extremely dry conditions” Greg Hunt, CEO, Nufarm

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.

Agriculture

“It is now clear that continued dry conditions into July are contributing to one of the driest seasons on record in many crop regions…it was determined that the market had reached a turning point, and it was now considered unlikely that a viable crop season would occur in many parts of the country” Greg Hunt, CEO, Nufarm

"What a season like this demonstrates is that the impact of drought isn't just felt at the farm gate, but right through every rural community and right throughout supply chains. It impacts everything from the number of children at local schools to government funding decisions on health services once communities start to lose numbers" David McKeon, CEO, Grain Growers

"In Queensland and NSW planting is down significantly. In the absence of season breaking rains, many farmers made the decision either to change what they had planned on planting or to not plant at all” David McKeon, CEO, Grain Growers

"Farmers have sown winter crops that are not up out of ground or, if they are, are not taking off. Droughts are regular and people know they are coming, but you don't know how bad they are going to be. How bad is it at the moment? It is bad and we don't know how much worse it is going to get" Tony Mahar, CEO, National Farmers' Federation

Labour Costs

“If you are talking about vehicle automation, which is a large part of modern mining operations, you are going to be competing directly for the same skill set that they require in the eastern cities to deliver these major transport infrastructure projects so costs will go up, there is very little doubt about that” Brent Jackson, EGM, Engineers Australia

Sustainability

“The recent demand for paper straws since February has been crazy” Mick Krause, Founder, Austraw

Platforms

“If you want to compete in this [platform] space you need contemporary offers and contemporary pricing if you want to be a significant player going forward” Brad Cooper, CEO, Westpac

Home loans

“Mortgage brokers do not consistently get lower home loan interest rates for consumers than would be available to the consumer going directly to the provider” Peter Harris, Productivity Commissioner

Media

“What our competitors like the Googles and Facebooks of the world do not have is quality Australian news and content” Hugh Marks, CEO, Channel Nine

Retailing

“We’re a market leader in a very nascent industry. Only 5 percent of furniture and homewares are sold online today” Mark Coulter, CEO, Temple and Webster

Hotels

“An emerging trend in Sydney and Melbourne is developments converting from residential to hotels as the housing market cools. This should help the hotel market meet the burgeoning demand for accommodation” Michael Gu, CEO, iPG

“We are seeing a market in Australia with stable revenue growth; it’s a market to really take a long-term view … it’s a positive market” Kenneth Macpherson, Chief Executive Officer, Europe, Middle East, Asia and Africa, IHG

US Economy

“We don't see any evidence of a slowdown. We have 275 companies that Carlyle owns around the world. And we get, every quarter, their numbers, and we correlate them with what we see GDP trends to be. And we don't really see any slowdown right now. Now, it will happen at some point; but this year and next year, we don't see any signs of a slowdown” David Rubinstein, CEO, Carlyle Group

“While this cycle is older than typical cycles have been, growth over the last decade has been lower through the recovery. So, there is plenty of room to play. And as we look at all the economic data, not just here in the U.S. but also globally, there are no real signs of fragility” Marianne Lake, CFO, JP Morgan Chase

“The economic backdrop is quite healthy, despite the recent turbulence in markets” Steve Schwarzman, CEO, Blackstone Group

“Frankly, I think the United States economy is in a good place from a cyclical standpoint close to our maximum employment and stable prices [inflation] target“ Jerome Powell, Chairman, Federal Reserve

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.