CEO INSIGHTS – Week Ending 16 February 2018 By NAOS Asset Management

“The Melbourne, Sydney and Brisbane economies are performing very strongly, driven a lot on the back of the infrastructure spend and now the pickup in sentiment. The pipeline of infrastructure projects continues to build” Scott Charlton, CEO, Transurban

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.

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Domestic Economy

“One of the major hurdles to retail sales growth has been the steady decline in wage growth over the past five years, combined with rising living costs. Employment growth has been strong for some months now, boosting consumer sentiment and there is some indication that wage growth is also improving” Michael O’Brien, CIO, Vicinity Centres

Agriculture

“Beekeepers in Australia have been experiencing improved production conditions in many areas due to increased rain, favourable climatic conditions and aligned tree flowering patterns” Capilano Honey Market Announcement

“I think in China, they are becoming far more comfortable with oaten hay as a really good provider of nutrients for their dairy industry” John McKew, CEO, Australian Fodder Industry Association

Lending

“Business lending growth is down 2.2%” Michael Hirst, MD, Bendigo & Adelaide Bank

Commercial Property

“General cap rate compression has continued, but we have also seen improved rental growth” Greg Goodman, CEO, Goodman Group

“We're starting to see demand emerge in Brisbane, which is a positive for our development sites in Brisbane's southwest” Bob Johnston, MD, GPT

“We've had an active start to FY 2018. This includes strong leasing across all of our core office markets” Darren Steinberg, CEO, Dexus

Alcoholic Beverages

“The beverage business has continued to benefit from the growth in exports of bottled wine and these are certainly growing in excess of GDP. That's contrasted with beer volumes which are flat” Nigel Garrard, MD, Orora

Retail

“Online now represents 7.8% of total retail sales and we envisage further growth in online market share throughout 2018. Bricks-and-mortar in the medium term will continue to command over 90% of retail sales” Bob Johnston, MD, GPT

“The significant deterioration in trading reflects ongoing challenging retail conditions with widespread industry discounting, a subdued performance of Myer’s Stocktake Sale and a continued shift in consumer behaviour characterised by reduced foot traffic and an increase in online shopping” Myer Market Announcement

“The large-format retail or the household sector has been growing at cyclical highs for the last couple of years. We're still seeing positive sales growth, but it is moderating. Some of our strongest performing categories year-to-date have been food, furniture, electrical and kitchens, and on the lower end, floor coverings and outdoor furniture” Darren Holland, CEO, Aventus

“We had a reasonably good year. But the last quarter was tougher. Consumer sentiment and retail store traffic is quite volatile at the moment. Foot traffic in centres from week to week can be up and down 10%. Any hike in interest rates would have a significant impact on consumer sentiment” David Bortolussi, MD, Hanes Australasia

Gas

“Supply to the Southeast Australian gas market is expected to remain tight for the foreseeable future and the benchmark LNG price is increasing” David Maxwell, MD, Cooper Energy

Commodities

“We remain confident about the outlook for Australian coal export volumes. On the demand side, Australia's largest metallurgical coal trading partner, India, reached annual crude steel production of over 100 million tonnes for the first time in 2017. Investment in infrastructure and manufacturing in India will continue to drive demand for steel and, therefore, metallurgical coal” Andrew Harding, MD, Aurizon

“The quality of Australian coal and the cost-competitiveness, including access to reliable rail infrastructure, provides confidence that Australia will continue to be a significant contributor to seaborne supply. As a result, we expect to see Australian coal export volume CAGR (Compound Annual Growth Rate) of 1-2% over the next decade for both [metallurgical & thermal] coal types” Andrew Harding, MD, Aurizon

Chinese Manufacturing

“In China, we're seeing an increasing focus on environmental concerns and that means that some facilities doing lower grade gloves are being asked to shut down or move, and that's putting more pressure on the Malaysia-based nitrile glove manufacturers” Magnus Nicolin, MD, Ansell

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.