Second Quarter Report for 2018

Second Quarter Report for 2018

The second quarter for 2018 continued the positive momentum of the first quarter with solid results across road transport, mining equipment and commercial motor vehicles.

Planning is well underway for our upcoming Valuations conference to be held in the Hunter Valley on the 18^th and 19^th of October. Tickets can be pre-purchased now via the register of interest page. A highlight from the second quarter was the very successful onsite auction of a large construction company in the Hunter Valley, where a large quantity of Hilux’s and Isuzu tippers were sold.

The quarter in short:

• The positive conditions in the road transport sector have meant very positive sales figures for both new truck sales as well as used truck sales in the secondary market.
• There has been a noticeable shift in the economy in WA as investment and confidence returns to the mining sector. As a result, a sharp increase has been reported in the expenditure of drilling equipment for WA.
• The Commercial vehicle market continues to grow in Australia with the Toyota Hilux and Ford Ranger continuing to be the highest selling motor vehicles in the retail market, with strong confidence amongst dealers and end users alike.
• The current drought in NSW is affecting farmers across the board and hitting their bottom line creating demand to invest in new agricultural equipment.

Slattery Asset Advisory

Road Transport

New Truck Market

The overall transport sector has been performing very well over the past 18 months. Revenue is expected to grow at 1.8% annually over the 5 years through to 2023-24 with industry profitability also expected to marginally increase over the period. Fuel prices are not anticipated to limit this profitability notwithstanding recent ABS data showing an increase in fuel prices of 7% over the last quarter. The positive conditions in the road transport sector have meant very positive sales figures for both new truck sales as well as used truck sales in the secondary market.

From the beginning of the year, there has been a strong demand for new truck sales across the country, with record-breaking sale results in June.  There was a total number of 4,231 new units sold in June, setting a new monthly record.

The heavy-duty truck market is up 14.6% in June to also set a new monthly record of 1,433 units. The total market is up 33% year to date to June 2018 with a forecast to reach 14,000 units for the full year. This is an increase on last year’s record sales numbers.

Kenworth continues to be the leading brand in the second quarter for new heavy truck sales, selling a total of 1,333 YTD representing 19.5% market share closely followed by Volvo with 1,009 on almost 15% market share. The remaining numbers are Isuzu 12.8%, Mercedes 8.2% and Mack 8%. The highest sales across any of the states were Victoria with 417 units sold, followed by NSW 400 and QLD 369. From a growth perspective, all states and territories are above 30% growth YTD apart from QLD at 27.5%.

The Medium truck market is up 23% YTD to June 2018. This is helped by a significant number of MAN 4×4 units being delivered as part of a Dept. of Defence contract, which slightly skews the real numbers of growth in the commercial market. Isuzu remains the market leader for the small to medium truck sales across the country, increasing market share to 40% of the market for the second quarter.

The light truck market, for new trucks also saw a strong second quarter with record sales of 1,304 units sold across the country.

Used Heavy Trucks

The secondary market for heavy-duty trucks has also been a beneficiary of positive trading conditions for operators resulting in strong sales figures throughout the second quarter.

Our WA office has reported a slight increase in units being offered to market however it’s important to note that is from a very low base across the state. NSW, VIC and QLD all appear to be performing strongly.

The NSW, VIC and QLD offices of Slattery are all reporting strong results with heightened demand for quality prime movers servicing the general freight sector. WA’s results show that prime movers with low kilometres and in good condition are seeing higher returns, including a 2014 Freightliner Argosy that was sold in April for 107% of the retail figure.

Some anecdotal evidence from truck dealers in NSW has noted that there has been a big improvement in the volume of trade-in activity and sale of heavy duty prime movers over the past quarter. New and used prime movers are selling through dealerships better than they have for the last two years.

We continue to see ready to work trucks and tippers in high demand across the country. This is related to the continued civil works and upgrades to rail infrastructure and roads across NSW, VIC and QLD. As noted in previous reports, we expect this trend to continue for some time. Our Newcastle office is offering a package of multiple tippers in the next quarter, which will give some indication as to the continued strength of the market.

The lead times in Victoria for some commercial assets are up to a 7-month wait for the manufacture of tipper bodies to be fitted onto truck chassis. End users continue to show a greater willingness to secure used trucks that are well maintained due to the lead times on tippers highlighted in our last report. This can be seen within the highly sought after and well maintained 2011 Mack Trident 6×4 Tipper and 2012 Hercules Quad Dog Tipper sold from our Melbourne office for $174,000 under the hammer combined representing close to 100% of the retail figure for both assets. Our NSW auction also offered a 2003 Mack CH 6×4 Tipper in April, which also sold for 100% of the retail value to an end user.

Another highlight out of our Melbourne office was a number of Hydro Vac Trucks that were sold at the June Truck and Machinery Auction in Dandenong, which saw a 2008 Mercedes Benz Axor 6×4 Hydroject Vac Truck achieve $235,000, representing approximately 100% of the retail value. The strength of this result and the other vac trucks is underpinned by the ongoing civil and construction works in that state. We saw similar results in NSW where three good quality trucks with vacuum and drain cleaning bodies on the back were offered through our Newcastle site. Two of these sold for 100% of retail value and the third sold for 89% of retail value.

Used Medium & Light Trucks

We continue to see good results in a strengthened market for small to medium-sized commercial trucks. With many of these achieving above average values at auction in comparison to the values these vehicles were achieving earlier in the year. In Stafford, we saw a 2016 Hino 300 Series with 10,639km sold for $35,000 at auction, this represents 87.5% of the retail price for this asset.

Our NSW team ran an onsite auction in June to liquidate a well-known civil construction and earthmoving company in the Hunter Valley. There was a great turnout of end users who bid strongly on a 2010 and 2 x 2009 Isuzu FXZ 1500 6×4 Tippers, which each made over 80% of retail value. At the same auction, a smaller 2004 Isuzu FVR900T 4×2 Tipper sold for an amazing 142% of retail value.

Trailers

We saw a steady second quarter for trailers in the used market, as low loaders, floats, flat top and drop deck trailers with ramps are still in demand across the country. This was seen in the sale of an Ex Demo 2015 CIMC 40Ft Roll Back Skel Trailer that achieved an auction result of $45,000 through aggressive in-room competitive bidding between a dealer and an end user, the results indicate it achieved 96% of the retail value.

Our QLD office saw the sale of a 2013 MTE 19/13 Low Loader Quad Axle 4X8 Trailer for $210,000 which sold for 105% of its retail value. A strong sales result was also achieved in VIC with a 2012 HERCULES Quad Dog Tipper Trailer achieving 100% of retail. This highlights the steady demand for the Hercules tippers throughout the year.

The PBS Scheme

What is it?

The PBS (Performance-Based Standards) Scheme provides industry additional opportunities to innovate, resulting in improved productivity for a given freight task, safer performance and the least possible effects on roads and bridges. The scheme focuses on how well the vehicle behaves on the road, rather than how big and heavy (length and mass) it is, through a set of safety and infrastructure protection standards.  PBS vehicles are designed to perform their tasks as productively, safely and sustainably as possible, and to operate on networks that are appropriate for their level of performance.

A recent joint report released by the Australian Road Transport Suppliers Association (ARTSA) and the National Heavy Vehicle Regulator confirmed a PBS fleet is younger, with a median age of 3.6 years compared to an average age of a heavy vehicle fleet, which is 12.2 years.

Recent news for the PBS Australia’s transport ministers have approved National Transport Commission (NTC) recommendations to improve the PBS scheme and encourage investment in a greater number of safer, efficient heavy vehicles on Australian roads.

“PBS scheme vehicles offer between 15 and 30 per cent more productive than conventional heavy vehicles, depending on the freight being carried. This means the same freight task can be delivered with fewer vehicles on our roads and the flow-on effects include reductions in fuel consumption, carbon emissions and road maintenance costs,” said NTC Chief Executive, Paul Retter.

How does the PBS affect values?

If operators have equipment that meets PBS requirements, they get approval to carry heavier loads and are able to be more efficient in their operations whilst running at a lower cost. As the PBS approved assets are more effective in carrying out their tasks they are much more desirable than an equivalent asset without PBS approval pushing up their demand and therefore prices.

Mining and Earthmoving

Market Insights

There has been a noticeable shift in the economy in WA as investment and confidence returns to the mining sector. The impact of this is being noticed with announcements by BHP, Rio Tinto and Fortescue Metal Groups all investing at the same time. BHP’s new $4.7 billion mine has been approved for the Pilbara region (South Flank Project, replacing the Yandi mine). FMG has approved the development of 2 mine sites, 1 at $1.7 billion at Eliwana. Rio Tinto $2.2 billion Koodaideri later this year. It has been estimated that this will require an estimated 6,000 extra workers and create an expected labour shortage. Additionally, the Pilbara Ports Authority has announced another record year for mineral exports, up on average of 6% on June last year (Iron Ore up 10% on same month last year). All of these positive market forces bode well for the sale of both new and used equipment.

New Equipment Sales

The second quarter for Caterpillar Inc has been all good news for the company with sales and revenue up 24% for the quarter to US$14billion. The most notable increase in industry segments globally was a profit increase of 315% from resource-related industries. The Asia Pacific region saw an increase in sales of 47% on the second quarter of 2017 from $452 million to $664 million.

Caterpillar has noted that the increase was primarily due to higher demand for equipment across all regions. Commodity prices remained strong in the second quarter of 2018, and the company saw mining customers invest in current fleets and mine expansions, resulting in higher equipment sales. It is important to note however that Caterpillar believes mining customers have not yet commenced full-scale fleet replacements suggesting that there is still much more growth potential for sales activity.

Used Equipment Sale

Across the country, we have seen increased interest in earthmoving and mining equipment in the second quarter. The health of the mining and equipment sales continues to be driven by the infrastructure boom across the country. Recent auctions results have seen an increase in private vendors offering machines to auctions due to premium sales results being achieved. A strong audience gathered in Victoria for our May 2018 T&M auction with 142 registered in room buyers and a further 165 online to witness the sale of a large quantity of civil construction equipment following a change in direction for a local business in Victoria.

We are specifically seeing high interest and competition for the sale of large excavators, which is in stark contrast to the challenges we faced only 18 months ago, for example, our Melbourne office offered a 2017 Kobelco SK1325SR-3 excavator, which achieved $139,000 at auction representing 100% of the retail value.

Our NSW Auction had some very strong sales in April and May across a range of equipment segments including a 2015 Whacker Neuson 5-ton excavator with only 157 hours showing on the clock sell for 96% of retail value to an end user, a 2012 Komatsu WB975-5EO Front End Loader Backhoe sell for 86% of retail value and a 1997 Caterpillar 826GLF road compactor purchased by a contractor for 90% of retail value proving there continues to be strength in values across various segments in the plant and equipment market.

Our Western Australian office has observed increased demand for drilling rigs due to the ongoing shortage of late model equipment available for sale. A report from the Australian Bureau of Statistics released in June revealed $261 million in drilling expenditure was spent across WA in the year’s second quarter, a sharp $36 million increase from the $225 million spent at March’s end in 2017. Nearly $90 million had been spent on greenfields exploration, up from $62.5 million last year, while $172.1 million was tipped into exploration at established projects. The hive of activity highlights the overall positive signs of health in the mining sector.

Machinery rental companies in the last quarter have continued to maintain higher utilisation rates. We also noted in our last report an observation that owners of mining and civil assets have shown a reluctance to sell down their equipment as the value of yellow goods creep up and operators fear missing opportunities for work or leasing equipment if they don’t have it in the fleet. It appears this trend has continued over the last quarter resulting from the shortage of large civil and mining assets for sale in the WA market.

The potential upside for used equipment supply is the de-fleeting of ore loading and road transport assets pending in the Pilbara and the closure of a major iron ore mine in the Kalgoorlie region due to hit the market in July-Sept 2018.

Agriculture

Summary

The current drought in NSW is affecting farmers across the board and hitting their bottom line affecting their demand to invest in new agricultural equipment. Anecdotally, the Slattery team has been advised by farmers that they are generally holding on to their machinery where possible to ensure they can still be productive when conditions improve.

Due to the drought many farmers running cattle are needing to buy in feed that has meant feed is needed to be transported from interstate and machinery is needed to unload and spread the feed.

Quality agricultural equipment, particularly tractors, have been relatively scarce within the auction market for some time. Our Hexham office, however, did offer two council tractors in May that achieved outstanding sales results. A 2010 John Deere 6130 Tractor with a Front End Loader made 87% of retail value and a 2012 John Deere 5090R Premium Tractor made 83% of the retail value. Both tractors were purchased by primary producers.

Motor Vehicles

New Vehicle Sales

The overall market for new cars sales in the second quarter for 2018 is down by 2.9% from the same time last year, and particularly in Western Australia where we saw a decrease of 0.8% for total new cars sales. Despite a slight downturn for the quarter the year to date numbers are 1% higher than the same time last year, which was a record-setting year for new car sales.

Still leading the way for new car sales in Australia is the Toyota Hilux, followed closely by the Ford Ranger and the Mitsubishi Triton. SUVs overall continue to be the best-selling market segment with approximately 44% of the market, followed by passenger vehicles and light commercials.

Used Vehicle Sales

Throughout the second quarter, the appetite for luxury cars has flown through from the new car market to the secondary market. The last quarter has seen incredible results for luxury and prestige cars with our first nationwide online prestige car auction a huge success. The auction which saw a number of high valued motor vehicles go under the hammer, was anchored by a beautiful 2016 Porsche 911 GT3 RS that achieved $372,000, a 2016 Porsche 911 Turbo S that achieved $344,000 and a 1960 Rolls Royce which achieved $76,000 each ranging between 90% and 100% of the retail value.

In the passenger vehicle sector, we continue to see strong competition for used cars in the market with dealers and end users battling it out to purchase vehicles. The used market is following the same appetite as the new car market with interest being high especially for late model passenger vehicles. This is supported by a 2016 BMW X4 and 2017 HSV Clubsport both making 90% of retail at auction.

As we progressed into the second quarter, we continue to see mixed results for European brands in the marketplace. Where a European make (Mercedes, BMW, Audi) is relatively new, with low kilometres and in warranty, they are very popular among buyers and easy to sell achieving strong results however as soon as a vehicle is outside of warranty demand rapidly drops away and there is a struggle to achieve full retail price due to the higher servicing costs which steer dealers and end users away from purchasing them. A key example that highlights the lack of confidence has been observed in the WA with some BMW X6 models having a buying ban placed on them due to multiple reports of fuel issues. The reliability and cost of repairs are scaring both end users and dealers for purchasing European makes that have over 3 years of age.

There is not much change in the utility and commercial car market with demand remaining strong, particularly for dual cab automatic 4×4 diesel vehicles. A recent sale of a 2016 Ford Ranger with 72,194kms that sold for $38,200 (91% of the retail price) and a 2016 Toyota Hiace Van with 19,575kms achieving $40,000 (93% of the retail price) confirms these observations.

In Queensland, we saw an increased volume of used motor vehicles coming through due to government and corporate vendors finalising their 2017/2018 replacement schedules in the lead up to the end of the financial year. This resulted in strong sales of a 2016 Ford Ranger and 2016 Toyota Hiace that both made over 90% of their retail price.

Marine

Summary

The sale of a Whale Watching Cruise Terminal and its assets in Port Macquarie saw strong results for the main Class IE Catamaran “MV River Princess” selling for $83,250. Support vessels such as a floating office and a Chinese Junk also sold to separate buyers. This sale was supported by the record whale watching season on the east coast this year.

The recreation and luxury boat market is showing signs of future prosperity especially the PWC sector. The Sydney International boat show drew 63,000 visitors, the highest number seen since 2012 with sales in the industry reflecting this peaked interest.

We are seeing a heavy interest in a commercial touring vessel that has been secured in Broome. This trend matches the interest in the whale watching cruise terminal with tourist vessels having a peaked interest the first half of 2018.