CEO Insights - ASX reporting season special

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. Our regular ‘CEO Insights’ publication includes quotes from the week which in our view detail some of the most important and prominent industry trends and economic factors impacting their businesses.

With reporting season now behind us, our most recent publication of ‘CEO Insights’ is a reporting season special with quotes across the entire month of August taken from company results, presentations and earnings calls. This version includes more quotes than usual and attempts to provide a snapshot of the current operating environment or the current outlook across a wide range of sectors and industries.

Food & Beverage

“We’re starting to see instances of customers trading down. For example, from beef to more affordable sources of protein, and trading across categories for example, from fresh vegetables into more affordable frozen or canned offerings” Brad Banducci, CEO, Woolworths Group Ltd

“Australian liquid milk sales are expected to remain broadly in line with FY22, with reduced in-home consumption following the easing of COVID-19 related lockdowns offset by growth through innovation” Market Statement, The a2 Milk Company Ltd

Residential Property

“Listings in June highest since 2017, listings in July highest since 2015” Owen Wilson, CEO, REA Group Ltd

“In the outer 'burbs, you might have seen prices come back maybe 1% or 2%. It's nothing like the inner 'burbs where maybe, if you read the press, they're saying it's come back 10% to 15%. So it's not been as nearly as significantly” James Kelly, CEO, Lifestyle Communities Ltd

“The demand for home, lifestyle and technology products has continued with strong sales in whitegoods, televisions and small appliances throughout the year” Market Statement, Harvey Norman Holdings

Industrial & Commercial Property

“Construction costs have continued to increase globally. However, [our] margins remain strong as accelerating rental growth is outpacing the impact of these increases” Greg Goodman, CEO, Goodman Group Ltd

“While the recovery is slower than the rest of the portfolio, the outlook for CBD retail is improving” Market Statement, Vicinity Centres

Building & Construction

“Whilst rising rates have seen some curtailment of demand, ongoing labour and supply chain constraints may provide a buffer as they elongate the pipeline of work. In addition, we see a continued trend towards regional areas and lower density living” Tania Archibald, CFO, BlueScope Steel Ltd

“We definitely are seeing cost escalation probably in Sydney running at about 4% overall in the high-rise construction, slightly higher probably in housing construction and higher, again, in Queensland, running 7% to 9% at the moment” Susan Lloyd-Hurwitz, CEO, Mirvac Group

Agriculture

“We expect another well above average ECA [East Coast Australia] crop in 2022-23 based on crop development we have seen to date, and a favourable three-month rainfall outlook” Robert Spurway, CEO, Graincorp Ltd

“Global events and supply chain disruptions are expected to continue to place upward pressure on the price of key inputs. Feed prices are expected to remain elevated due to tight global supply as a result of continued uncertainty surrounding production in Ukraine and related trade flows, poor growing conditions in North and South America and elevated transport costs” Anthony Reeves, CEO, Inghams Group Ltd

Insurance

“Look at the natural hazard experience we’re seeing. Look at the cost of reinsurance that has gone up. Look at the adjustments we’ve had to make to the attachments points of our reinsurance cover” Steve Johnston, CEO, Suncorp Group Ltd

“I think it's quite clear that a number of insurers are attempting to offset natural hazard claims or building-related claims with cost suppression in their motor claims business” Carl Bizon, CEO, AMA Group Ltd

Commodities & Resources

“Despite record thermal and coking coal prices, Australian coal export volumes were lower in FY2022. Record grain export volume expected for 2021-22 season and elevated export volumes for 2022-23” Market Statement, Aurizon Holdings Ltd

What we see is really positive from all the indicators we have access to as a business, starting with our customers, strong demand remains a foot from all corners. If we could produce more, they would take more. As it relates to new customers, inquiry continues thick and fast from all corners” Dale Henderson, CEO, Pilbara Minerals Ltd

“And while inflation remains elevated, in recent months, we have seen prices for some imports such as cotton, timber and plastic resins start to moderate” Rob Scott, CEO, Wesfarmers Ltd

Mining Services

“The volatility in commodity prices is creating some uncertainty in the capital markets, however, it is not as yet impacting exploration activity. The underlying fundamental around diminishing reserves and long-term demand, particularly for battery metals, suggests that this uncertainty is likely to be short-term” Paul House, CEO, Imdex Ltd

“Looking forward, the demand for wet lease services is strong with both wet lease and contracted clients requesting additional capacity as soon as it becomes available” Scott McMillan, CEO, Alliance Aviation Services Ltd

Financial Services

“I think it's well understood that we operate in one of the most competitive industries globally. The payments landscape today is as competitive as it was 5 years ago” Robbie Cooke, CEO, Tyro Payments Ltd

“What we are expecting, and would hope to see, is a short, sharp contraction in the Australian economy” Matt Comyn, CEO, Commonwealth Bank of Australia Ltd

“From our perspective, we are starting to see some activity return in the NPL [non-performing loans] market…the market environment and the economic environment is actually conducive for that to happen” Vivek Bhatia, CEO, Link Administration Holdings Ltd

Retail

“Look, it's certainly very difficult to understand why the consumer confidence is at such low levels...So there is a disconnect [between our sales and consumer confidence]” Anthony Scali, CEO, Nick Scali Ltd

“We think it’s going to be a slow downward trajectory. We’re not seeing any negative movement yet, and you can sort of see that in that first six weeks of our like-for-like performance” Anthony Heraghty, CEO, Super Retail Group Ltd

“Trading for the first 7 weeks of FY23 has seen a continuation of the strong performance of FY22” Market Statement, Lovisa Holdings Ltd

Healthcare

“[We] see an even increasing role for private health insurance, particularly as government fiscal stress starts to become even more difficult in society” Mark Fitzgibbon, CEO, nib Holdings Ltd

“Period of catch-up expected with known underdiagnosis and backlog in routine services” Market Statement, Healius Ltd

Childcare

“Like most industries across Australia, the current [childcare sector] labour pool is simply too low…It is our expectation, and more importantly, that of our tenant partners that labour costs will continue to increase in the short term, which added with increases across consumables and accommodation costs will lead to increased daily fees” Rob de Vos, MD, Arena REIT

Media & Advertisement

“Visibility into the second quarter [ad bookings] is actually improving, which we believe may be due to tight inventory market last year and advertisers now looking to seek and secure a placement” James Warburton, CEO, Seven West Media Ltd

“The new [financial] year has started on a positive note in terms of audiences, across all platforms, and while broader economic conditions have become more uncertain, the advertising market to date, has remained resilient” Market Statement, Nine Entertainment Group Ltd

Leisure & Entertainment

“[When] you're looking at cinema, you're comparing that to going out for dinner. You're comparing it to other often more expensive entertainment options and so what we're seeing is actually, at this point, no impact on the cinema experience” Jane Hastings, CEO, Event Hospitality Entertainment Ltd

Automotive

“I mentioned before, the timing of supply normalisation and the corresponding used vehicle values [downward] adjustment has slipped again by at least 12 months in our view” Robert Blau, CEO, SG Fleet Group Ltd

“Australia’s underlying motorcycle market conditions remain positive at present, and we still have a large order book of presold motorcycles” David Ahmet, CEO, MotorCycle Holdings Ltd

Technology & Telecommunications

“We expect technology, and specifically digital transformation, to play a leading role in Australia’s economic future, irrespective of any ongoing impacts of the pandemic. We continue to experience a steady increase in the pipeline of large integration project opportunities across our corporate and public sector customers” Laurence Baynham, CEO, Data#3 Ltd

“We are experiencing a welcome return of momentum in customer growth” Iñaki Berroeta, CEO, TPG Telecom Ltd

Supply Chain & Logistics

“First and foremost [a macro headwind] is the supply chain. We are not done with this one, it's just morphing, though as a general rule, improving” Jim Clayton, CEO, Breville Group Ltd

“Global freight forwarders and logistics organisations continue to accelerate their adoption of technology in the pursuit of improved productivity” Richard White, CEO, WiseTech Global Ltd

Industrials

“Electricity prices have moderated due to an increase in renewable energy generation and government flagging potential intervention to ensure sufficient domestic gas supply" Market Statement, Adbri Ltd

“We saw the impact of reduced demand through the second half as inflationary pressures impacted on consumer confidence. This impact was more severe in parts of our business that are subject to discretionary spending, such as retail as well as health and beauty” Sanjay Dayal, CEO, Pact Group Holdings Ltd

Tourism & Travel

“Based on booking levels across the first six months of CY22 we expect strong incoming tourism to both Australia and New Zealand over the southern hemisphere summer” Market Statement, Helloworld Travel Ltd

“I think the rest of the world airline capacity is about 87%, Australia and New Zealand is around 50% outbound. That was the end of July. And obviously, this lack of capacity because of the extended shutdown has led to higher-than-normal airfares, particularly in premium” Graham Turner, CEO, Flight Centre Travel Group Ltd

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Important Information: This material has been prepared by NAOS Asset Management Limited (ABN 23 107 624 126, AFSL 273529 and is provided for general information purposes only and must not be construed as investment advice. It does not take into account the investment objectives, financial situation or needs of any particular investor. Before making an investment decision, investors should consider obtaining professional investment advice that is tailored to their specific circumstances.

Robert Miller
Portfolio Manager
NAOS

Robert Miller is a Portfolio Manager and has been with NAOS since September 2009. Robert has completed his Bachelor’s Degree in Business from the University of Technology Sydney, as well as completing his Masters of Applied Finance from the FSIA.

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