CEO INSIGHTS – Week Ending 22 September 2017 By NAOS Asset Management

"Technology is the greatest wealth and productivity multiplier there is” Matt Barrie, CEO, Freelancer.com

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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Transport

“We are seeing the best year for global trade in years” Rajesh Subramaniam, Executive VP, Marketing & Communications, Fedex

Video

“The video category is exploding” Shantanu Narayen, CEO, Adobe

Equity Markets

"At the moment, the psychological preconditions for a spiralling downturn don’t appear to be in place" Robert J Shiller, Professor of Economics, Yale University (Creator of Shiller CAPE ratio)

Technology

"When the chief scientist of Australia sat [at the Summit earlier today] and said an iron ore mine is every bit as innovative as a semiconductor fabrication plant, my mind was seriously blown. Throw as much AI and robotics at an iron ore mine as you like, it doesn't change the fact that mines are and always will be wasting assets, their output is a commodity for which we are a price taker - and once their finite resource is gone, their robots will be dormant" Matt Barrie, CEO, Freelancer.com

"We know SMEs are the backbone of our economy, and if we can strengthen our backbone by injecting a little more innovation, the rest of the body will follow" CSIRO, CEO, Larry Marshall

Retail

“We’re entering a period where the competitive dynamic of the market is increased price competition. It is a very dangerous place for a premium full service department store to try and compete on price across the spectrum as its sole selling metric” Richard Umbers, CEO, Myer

"The discount segment has been growing strongly in the US despite Amazon being such a strong player in retail" Ross Sudano, MD, The Reject Shop

"Any good fashion business needs a good merchandising strategy, and all our trend forecasting tells us athleisure is a growing category that is here to stay" Jodie Fox, Founder, Shoes of Prey 

"Previously, convenience stores used to be about desperation rather than destination. With so many changes happening around things like driverless vehicles and electric vehicles, the bastion of selling petrol and hoping people will buy something else is a thing of the past” Jeff Rogut, CEO, Australian Association of Convenience Stores

"The industry is very optimistic and positive about the future. As [low-margin] tobacco sales decline and food and beverages ramp up we do see profitability and margins improving for operators as well” Jeff Rogut, CEO, Australian Association of Convenience Stores

"Emerging brands are seeking retail spaces to test product and experiences directly with shoppers [referring to pop up shops]" Ben Hughes, National Marketing Manager, Dexus Retail

"We are seeing a lot vacancies, so retailers must be open to change and to the idea of different income streams. We are in a changing world and most people do their shopping online. It's daunting for an [online] retailer to lock in three years, they are looking for flexibility. The leasing industry is quite dated, but we are trying to bring on more efficiencies” Daniel Rainone, Director, Popupshopup

"It is understood 'pop up' retail demand, particularly for fashion, has equated to approximately 50 per cent of all inquiries thus far" John Skufris, Sales & Leasing Executive, Ray White Commercial

Commodities

“There are a number of private equity investors and trading ­houses that are looking to ­increase their exposure to both metallurgical and thermal coal” Shane Stephan, MD, New Hope Coal

“Demand continues to grow very positively for magnetic materials” Amanda Lacaze, MD, Lynas        

“Across the industry many rare earths firms, whether they're in mining, separation, or through the downstream operations, have become weary of not making any money over the last couple of years. And so, the industry is behaving very rationally at present in terms of looking to ensure that there is sufficient prosperity in the industry to be able to support further development” Amanda Lacaze, MD, Lynas

Renewables

“It’s dispatchable power that’s important. Renewables will form part of it but there is a limit to how much intermittent renewables you can put in and still have ­reliability and affordability. People that think 50 per cent of a modern power supply base can be from intermittent renewables need to get real” Shane Stephan, MD, New Hope Coal

“We know from our experience here in California that [Commercial & Industrial] customers are actively pursuing a variety of energy choices due to declining technology costs, new energy products and services that are available to them, and a strong commitment by many large businesses to sustainability” Andrew Murphy, Senior VP, Edison International

Domestic Economy

"Australia is basically a property bubble floating inside a mining bubble inside a commodities bubble inside a China bubble, and that lucky free ride is about to go pop" Matt Barrie, CEO, Freelancer.com

Housing

“Where we’ve been most concerned is Brisbane. A lot of that new supply is coming on this year, so this year is crunch time” Luci Ellis, Assistant Governor, RBA

“[In Brisbane] tenants will be moving from the five-year-old apartment to a nice new apartment because rents are staying low. It will be that five-year old, second-hand apartment market where you might see some people make losses” Luci Ellis, Assistant Governor, RBA

Global Economy

“We continue to see moderate growth in the global economy. Our CY 2017 U.S. forecast is mostly unchanged and reflects solid consumer spending and a rebound in industrial activity. Internationally, recovery in capital spending is supporting higher global GDP growth and driving the best trade volume growth since 2011” Rajesh Subramaniam, Executive VP, Marketing & Communications, Fedex

Health Insurance

"The immediate impacts I see are around price setting and given the recent utterances of [Health] Minister [Greg] Hunt we're growing in confidence that we will see some further price reductions. But just how much of that benefit we need to give back to consumers as part of the next pricing round time will tell" Mark Fitzgibbon, CEO, Nib

"On discounts for younger people. I think we will see lifetime health cover in reverse. I think we will see the government will be able to allow us to offer a discount to people under 30, rather than just a loading for people over 30" Mark Fitzgibbon, CEO, Nib

General Insurance

"Any sustained increases in the premium rate environment in Australia and New Zealand in full year 2018 are dependent on actions by insurers and indications are that insurers will be executing premium rate increase strategies that will have a positive effect on income" Mark Searles, CEO, AUB Group

Telecommunications

“We expect FY 2018 to be another year of solid growth for the group. But due to the acceleration of the NBN rollout, we expect that growth to be more than offset this year by margin headwinds from DSL subscribers migrating to less profitable NBN services” Stephen Banfield, CFO, TPG

Thank you for reading.

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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.