CEO INSIGHTS – Week Ending 28 Apr 2017 BY NAOS Asset Management

“They [Amazon] have had a free ride in this country now for such a long time, because they pay no GST and all the local ­retailers have — now they come here and will try to send all the local retailers broke’’ Gerry Harvey, Founder, Harvey Norman

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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Telecommunications

“Given the spectrum they [TPG] have, and a plan to build 2500 sites, I think the type of product they will offer will be very niche. If they want to compete in the market and make an impact they will probably need quite a few more sites and will need to buy a lot more spectrum”
Inaki Berroeta, CEO, Vodafone Australia

“In markets like Australia, the story of the fourth [mobile] entrant has never been very good and to become a proper operator in this market you have to spend a lot more of the money than what TPG has allocated”
Inaki Berroeta, CEO, Vodafone Australia

“Telcos are buying exclusive rights for someone else’s content and that’s a good way to lose money, no telco is making money from their content business”
Inaki Berroeta, CEO, Vodafone Australia

Theme Parks & Leisure

“The Theme Parks division continued to be significantly impacted by the tragedy which occurred at Dreamworld in October 2016, and was further affected by cyclonic weather conditions in March/April 2017”
Village Roadshow Market Announcement

“During the peak summer period, the performance of the Gold Coast parks was cushioned by strength in international and interstate visitation. Attendance by the core local market has remained weak since the tragedy, with the impact more pronounced outside peak summer trading. For the nine months to 31 March 2017, total attendance for the Gold Coast parks is down 9.4%. Additionally, in the month of March, membership renewals also declined”
Village Roadshow Market Announcement

Infant Formula & Vitamins

“Demand for a2 Platinum infant formula has exceeded our expectations. Demand has been particularly strong in Australia, but also through the cross border e-commerce (CBEC) channel into China”
a2 Milk Market Announcement

“Blackmores Australia sales have steadily grown over each quarter of the year. This has still not been enough to make up for the decline in sales through Australian retailers to entrepreneurs selling to consumers in China”
Christine Holgate, CEO, Blackmores

“Chinese consumers are now purchasing through multiple channels and our China in-country and export sales increased to $92 million in the nine months, up 60% from the prior year”
Christine Holgate, CEO, Blackmores

Food & Beverage

“Trading in Australian Beverages for the year to date has been weaker than last year, with all channels experiencing volume and price pressure due to competition and category trends”
Coca-Cola Amatil Market Announcement

“On an Easter adjusted basis, our sales growth in food was broadly in line with the second quarter trend, while investment in the customer offer increased during the period”
John Durkan, MD, Coles

Housing

“Commonwealth Bank is increasing home loan fixed interest rates for investment home loans and interest-only customers to ensure we continue to meet our regulatory requirements”
Commonwealth Bank Market Statement

Commodities

“We do expect that, over time, prices will come back from the spike we’ve seen, but coking coal is a non-substitutable commodity”
Mike Henry, President of Operations for Minerals Aust, BHP

“As developing economies continue to grow they are going to need more steel and if they are going to produce steel, they are going to need coking coal and we are sitting on the best resources globally”
Mike Henry, President of Operations for Minerals Aust, BHP

“There’s a lot of work going on in the environmental side of alumina, so I think we’re cautiously optimistic. Supply-side reductions in China are still uncertain [but] a heightened focus on environmental issues in shifting competitiveness [away from China] can have an outsized impact on our ­market”
Roy Harvey, CEO, Alcoa

Retail

“In America and other parts of the world they [Amazon] have just demolished other retailers, no question about that, and they send a lot of retailers broke”
Gerry Harvey, Founder, Harvey Norman

“They [Amazon] have had a free ride in this country now for such a long time, because they pay no GST and all the local ­retailers have — now they come here and will try to send all the local retailers broke’’
Gerry Harvey, Founder, Harvey Norman

“Yes, Amazon will have an ­impact on the market place, but they are coming into an already very competitive market’’
Roger Corbett, Former CEO, Woolworths

“Amazon have this reputation overseas of having these big warehouses with very cheap labour, and in a lot of cases no union ­involvement, then they come to Australia and are going to find it a very different situation. They also can’t deliver overnight like they can in maybe some other places. That’s 100 per cent guaranteed where they will run into trouble”
Gerry Harvey, Founder, Harvey Norman

“The [athleisure] category is probably peaking, but that doesn’t mean it’s going to fall off a cliff”
Hilton Seskin, Former CEO, Rebel Sport

“During the quarter [we had] higher levels of full price sales and lower levels of clearance activity relative to the prior corresponding period. Trading momentum is expected to remain challenging in the fourth quarter, but reset merchandise disciplines are expected to support improvements in the quality of sales recorded”
Guy Russo, CEO, Department Stores (Wesfarmers)

“The [US] domestic retail environment remains challenging”
David Weinberg, CFO, Skechers

M&A Market

“Mergers and acquisitions will continue to be active and we expect deal volumes in Australia this year to be similar to 2016 ­levels. Conditions globally remain supportive for equity capital markets activity, which should create a positive domestic issuance environment”
Rob Priestley, CEO, JPMorgan ANZ

Gas Prices

“As widely reported, there has been a significant shift upwards in wholesale electricity prices in Australia. Newcrest has recently finalised an updated electricity supply contract for the full 2018 financial year, at a base price (excluding regulated charges) 90% higher than is currently being paid in 2017”
Newcrest Mining Market Announcement

Mining Services

“Very strong demand in Asia-Pacific was largely offset by lower sales volume in North America. The strong demand in China resulted in a reduction in Asia-Pacific dealer inventory, as demand outpaced our sales to dealers”
Bradley Halverson, CFO, Caterpillar 

“While March and April are traditionally the highest months for industry opportunity in China’s peak selling season, if policy remains supportive we expect strong market conditions in China to continue at least through mid-year”
Bradley Halverson, CFO, Caterpillar 

“The number of oil and gas rigs in service continues to increase and has more than doubled from the lows that were reached last May. This has resulted in an increase in aftermarket parts demand to support the overhaul and rebuild of well servicing fleets”
Bradley Halverson, CFO, Caterpillar 

 

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