equip ISSUE 05/Autumn Winter 2016 Innovation Finance Analysis Energy efficient solutions invest now or later? Demystifying novated leasing.

Transcription

1 equip ISSUE 05/Autumn Winter 2016 Innovation Energy efficient solutions invest now or later? Finance Demystifying novated leasing. Analysis Trading considerations in the used equipment market.

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3 Contents Issue 05/Autumn Winter 2016 Welcome to this new edition of Equip; a publication based on results from the Asset Finance Australia Index Report. 4 Industry fast facts 6 Energy efficient solutions invest now or later? 8 Demystifying novated leasing 10 Trading considerations in the used equipment market Once again our research partners, East & Partners, surveyed 887 business decision makers and their feedback has helped shape this edition. We also engaged experts from within CommBank and from commercial partners to deliver insights into the equipment finance market and share potential opportunities for readers. We welcome the Federal Government s budget announcement around the expansion of their $20,000 instant asset write off. From July 1, 2016, businesses with turnover of less than $10 million (increased from $2 million) will now be able to participate, so it s good news for small business. The energy efficient or hybrid market is developing rapidly and we believe this is just the start of a bigger trend toward more sustainable and energy efficient equipment. The first article suggests five areas for consideration when deciding whether to invest in this new technology, and shares present take-up rates, as well as businesses plans for the future. Novated leasing can provide great benefits to businesses and yet it is a widely overlooked solution. If you have not considered novated leasing in the past, I encourage you to read the article to understand the benefits it can provide. Finally, we look at the equipment finance market from a different angle by talking with one of our partners that re-market used equipment. Slattery Asset Advisory speak to us about their view on equipment sales and valuations and give some tips on successfully re-marketing old equipment to potential buyers. Please enjoy this edition and let us know your feedback. David Farr Managing Director Asset Finance Commonwealth Bank About Equip and the Asset Financing Australia Index Report The Commonwealth Bank has commissioned East & Partners to conduct research and provide insights for this edition of Equip through the Asset Financing Australia Index Report. East & Partners established research methodology has resulted in findings which are statistically robust and reflective of actual market experiences. Data is based on direct interviews conducted in March 2016 with a structured national sample of 887 businesses with annual turnover in excess of A$25 million. The sample has been structured to directly mirror natural distribution of these businesses by turnover segment, geography and industry. In building the sample frame, the relevant enterprise population demographic distributions reported by the Australian Bureau of Statistics are used, with actual interviewee targets being randomly selected. The sole selection criteria used in addition to this natural framing was that the target business had to be actively engaging in asset or equipment financing. About East & Partners East & Partners Pty Ltd, a leading specialist market research firm in the business, corporate and investment banking markets of Asia Pacific, works across 11 countries in the region delivering both multi-client and proprietary market analysis services to financial services providers. More Information For more information on how CommBank can meet your Asset Financing requirements, contact your Relationship Manager or contact our Asset Finance Team on 1800 ASSETS ( ). This report is published solely for information purposes. As this report has been prepared without considering your objectives, financial situation or needs, you should before acting on the information in this report, consider its appropriateness to your circumstances and if necessary seek the appropriate professional advice. The information in this report and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its publication. No guarantee is provided as to the accuracy, reliability or completeness of any statement made in this report. Commonwealth Bank of Australia ABN AFSL and Australian credit license

4 F a s t F a c t s Industry fast facts key reasons businesses are purchasing energy efficient or hybrid equipment Source: Asset Finance Australia Index Report. Adds value to a brand Reduces cost Environmentally friendly Affordable Australian Energy Consumption by industry in petajoules. Source: Department of Industry and Science (2015), 2015 Australian energy update, Canberra, August. Other 1.1% Construction 0.7% Agriculture 2.5% Commercial 7.8% Residential 11.1% Mining 13.1% Transport 38.9% Manufacturing 25%

5 F a s t F a c t s Car sales are increasing year on year. Sales in Jan/Feb 2015 were 172,540 and 180,816 for the same period in Source: Australian Bureau of Statistics. Sales of New Motor Vehicles, March Car sales peaked in June 2015, with a total of 125,850 vehicles sold. NSW accounted for 42,105 of these sales. 130, , ,000 90,000 75,000 60,000 45,000 30,000 15,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The average age of a truck on the road is... Source: Truck Industry Council Fleet Report United Kingdom 7.8 years North America 6.7 years Australia 13.8 years equip Autumn Winter

6 I n n o v a t i o n Innovation Energy efficient solutions invest now or wait and see? When thinking of energy efficient equipment; solar panels, wind farms and perhaps electric cars spring to mind. It s only recently that demand for greater efficiencies has fuelled development and growth in the energy efficient market. Hybrid cars, buses and trucks are now widely produced by a number of manufacturers. Solar panels and wind farms have led the field in harnessing renewable energy sources. And Tesla has recently launched wall-installed batteries, changing the way we think of simple things such as our power bills. 11.2% of businesses with an annual turnover of >$25 million currently utilise some kind of energy efficient equipment or vehicle in their enterprise. However 50.4% of businesses indicate that they have no current plans to use energy efficient or hybrid machinery or vehicles. The greatest reluctance being from companies with turnover of $150 - $500 million. Phil Waugh, Head of Asset Finance Business Development, Commonwealth Bank, believes it s vital for businesses to stay ahead of future changes. We talk to business owners on a regular basis about energy efficient alternatives. Industries that have high energy usage such as manufacturing are definitely considering options; although conversion to purchase is still low. Despite hybrid models being released into the construction and agriculture sectors, we are witnessing a wait and see attitude at the moment. David Farr, Managing Director of Asset Finance, Commonwealth Bank, believes there is a great opportunity for businesses to plan ahead and consider integrating newly developing technologies into their businesses. Whilst 47.6% of businesses have no plans to use energy efficient equipment this number has fallen from 58% in September We have also seen that the number of businesses planning to invest in energy efficient equipment in the next 12 months or more, grow from 32.7% to 40.8% from September to March 2016 Farr said. Of those businesses who are committed to purchasing energy efficient equipment; 28.5% are considering electric/hybrid vehicles and 22.8% are investing in waste management, pollution reduction plants or other kinds of equipment. What is the key driver behind this trend? 23.9% of businesses surveyed believe that investment in energy efficient equipment adds value to their brand and 21.5% link their decision to cost savings. We have been working hard on streamlining finance solutions for equipment that will reduce energy costs for businesses and increase productivity in their operations. Farr said. We now have a number of fast and paperless options for financing single hybrid and electric cars, buses and trucks right up to funding tri-generation and major solar installations. Our Asset Finance Specialists are increasingly having conversations with customers on potential productivity gains from energy efficient options as well as impacts to the effective life and value of current machinery. If business customers are looking to finance quality, energy efficient equipment, we re ready to help meet that need. There is a wide variety of equipment that can be financed with CommBank with an Energy Efficient Equipment Facility: - Hybrid and electric vehicles (cars, buses, trucks); - New hybrid models in yellow goods and construction equipment such as bulldozers and excavators; - Tri-generation energy plants; - Solar, wind and marine power generation; - Energy efficient lighting. Five important considerations when investing in energy efficient or hybrid equipment: 1. What developments are underway that will impact the equipment being used in your industry? 2. Are there specific savings that will add to the bottom line? 3. What are the environmental gains of upgrading to new models? Consider immediate benefits even in your own workplace for employees and customers. 4. How will new technology and energy efficient models impact the value and effective life of your current equipment? 5. Do you have a plan in place to take advantage of energy efficiency savings by upgrading to the latest innovations? Source: Asset Financing Australia Index report, March 2016, East & Partners.

7 I n n o v a t i o n 23.9% of businesses surveyed believe that investment in energy efficient equipment adds value to their brand. equip Autumn Winter

8 Did you know? A novated leasing arrangement is not limited to brand new vehicles. Employees can place their existing car into this kind of finance arrangement or choose to finance a used vehicle. It depends on the arrangement the employer has in place. Case Study Salary Packaging Outright Purchase Charlotte is the Operations Manager at a national organisation and earns $195,000 per annum before tax. Charlotte requires a large car and will travel 40,000 kilometers per annum. She has selected a 4x4 valued at $56,000 on a 4-year lease term. In the example opposite, Charlotte is over $175 per week better off or $36,000 over the 4 year lease under a salary packaging arrangement rather than purchasing the vehicle outright with post-tax dollars. Gross Salary Less Salary Sacrifice Taxable Income Tax on Taxable Income After Tax Contribution Net Income Weekly Net Income $195,000 $15,530 $179,470 $57,940 $10,675 $110,855 $2, $195,000 $0 $195,000 $65,497 $27,758 $101,745 $1, Source: sgfleet.com.au

9 F i n a n c e Finance Demystifying novated leasing Novated leasing has been around since the 1980s, yet it is not widely understood or even recognised. So what is a novated lease? In a nutshell, it s a finance agreement between an individual and a finance provider but the payments are made by the employer out of their salary, pre-tax. According to East & Partners, 35.6% of businesses do not understand the potential benefits of novated leasing. David Farr, Managing Director of Asset Finance, Commonwealth Bank thinks that the low uptake of novated leases isn t because businesses aren t aware of its existence. It s more that the advantages have not been clearly explained. And interestingly the smaller the organisation, the less likely that the benefits are known or understood. 44.7% of companies surveyed with a turnover of $25- $150m indicated that they were not aware of the benefits of novated leasing compared to 23% of larger corporates. these benefits are and providing a simple path to access novated solutions is the current challenge for Commbank s Asset Finance team. We see a great opportunity for small to medium-sized companies to really look into the benefits of novated leasing. says Farr. CommBank operates a range of novated lease options including full company programs where staff can calculate their own quotes. The leases can include all costs of financing and running a car including fuel, servicing and tolls, or they can simply finance the car by itself. Whilst everyone should get their own individual tax advice, there is some helpful information available at commbank.com.au/assetfinance To find out more call the Asset Finance Centre on 1800 ASSETS. There are obvious tax benefits available for both individual employees as well as the employer, but explaining what Key benefits of novated leasing Employee Employer - Flexibility around the choice of car - Savings on GST, as costs are financed excluding GST - Fleet discounts - Potential income tax savings - Arrangement can be transferred from one employer to another - All associated costs can be bundled into the lease or the employee can simply finance the car - A great way to increase an employees salary with no or little cost to the business - A great salary package addition for attracting and retaining staff - No vehicle management, reporting or maintenance issues compared to a company fleet - No risk exposure to the car or the financing - Ability to claim the GST component of all costs - Technically, this supply method can be off balance sheet Considerations - The finance agreement is usually a fixed term with fixed repayments so think about matching the term for the period that you think you ll keep the car - Check out any additional fees and charges that may be charged by the finance provider. These may include monthly service fees or charges if you want to end the agreement early All figures quoted on this page have been sourced from the Asset Financing Australia Index report, March 2016, East & Partners. equip Autumn Winter

10 A n a l y s i s Analysis Trading considerations in the used equipment market An interview with industry expert Tim Slattery, Director of Slattery Asset Advisory. What will future values look like and what can you do to maximise return when its time to sell and upgrade? We talk with Tim Slattery for his views. How would you summarise what s happening in the current used equipment and machinery market? We are seeing a mixed market. Prices for used machinery and vehicles depend on a variety of things including potential industries, location and demand in the state of purchase. Demand has dropped away for mining and resources equipment, whereas we are seeing an increased demand for mid-sized trucks. Are there specific assets that are re-marketing well? Mid-sized equipment and vehicles are selling well. Flat bed trucks and tautliners used for road freight are achieving good values and have good clearance rates. Top-tier branded, mid-sized yellow goods with good service histories are also selling well in areas where there is strong construction activity such as NSW and QLD. When it comes to brand perception; CAT, Komatsu, Hitachi and John Deere are viewed as premium offerings, with Kubota s small machinery also selling well. And the not so well? Bulk haulage equipment such as side tippers, large dump trucks, bulldozers and wheel loaders for the resource sector are fetching lower market values compared to months ago. There is an increasing amount of equipment being re-marketed as a result of insolvency and lack of growth. What is currently driving equipment sales? Mid-sized yellow goods, machines and equipment that can be used in construction are highly valued. Government projects, particularly in NSW are driving heavy demand for mid-sized machinery. The bulk of our buyers in Perth are coming from NSW and are shipping equipment back. What are the potential drivers for truck sales in the future? Transportation of freight will continue to grow over the next decade. Technologies will change and trucks will definitely become safer and more efficient. We believe that a combination of advancements and demand for goods transport will drive sales. Another thing to consider is that the average age of trucks in Australia is higher than we see in Europe and the USA. 1 Australia s attention on this due to possible future Government requirements to minimise age and achieve minimal pollution outputs could see demand for newer trucks increase. What s your view around future values of new emerging technologies like hybrids and electric? The challenge with technology is the speed in which it evolves. By the time this equipment hits the secondary market, it s no longer the latest technology. It s too early to form a view on future values of hybrid models versus standard at present. If hybrid models are built correctly and save measurably on operating costs then it may well be worth considering. Customers should pay attention to maintenance requirements. This is where manufacturers need to be wise and ensure the market demand is sufficient to keep maintenance costs the same if not lower, than standard models. What is your experience regarding more recent brand entrants from China and India versus other well established brands? Caterpillar is the favoured brand in the machinery industry; as they facilitate a user s ability to rebuild these machines, extending their effective life. We are simply not seeing the same quality from equipment brands that sell on an up-front price point rather than whole of life performance. Many of these are newer entrants from India or China. The up-front price may be attractive but we don t see a demand for them in the secondary market. 1 What five things should businesses consider to effectively remarket equipment? 1. The quality of the equipment you purchase will determine future resale value and market demand. 2. Service your equipment well and retain all records to resell quickly and attract a higher price. 3. Know your target market you may need to re-locate your equipment to a different area to achieve top value. 4. Offload equipment when the secondary market is strong. If the equipment is under finance and depending on potential break costs, it may be worth considering upgrading early whilst there is demand. 5. Get advice from a reputable re-marketing agent who can value your equipment and assist with achieving the market value. 1 Truck Industry Council Fleet Report 2015 All other views expressed in this article are sourced from Slattery Asset Advisory 2nd Quarter Report for FY15/16

11 5 things to consider when remarketing equipment 1. Quality of equipment 2. Service history and records for equipment 3. Know your market 4. Sell when the secondary market is strong 5. Get advice from an expert A n a l y s i s equip Autumn Winter

12 Who can put equipment within easy reach? CommBank Can. We re in the Can Business, which means when you re ready to buy, our equipment finance process is fast and simple. CommBank s SmartSign technology lets you review and sign your finance agreements anywhere, anytime. With the ease of online access, there s no need to print contracts, obtain a witness signature or even pick up a pen. Keep your business moving and go online to get a quote in 60 seconds. Visit commbank.com.au/assetfinance or call 1800 ASSETS Things you should know: Finance applications are subject to the Bank s normal credit approval and suitability of the financed asset. Full terms and conditions provided in the loan offer. Fees and charges are payable. The access of funds through SmartSign capability will be available up to four business hours after electronic acceptance of loan has been completed. Commonwealth Bank of Australia ABN AFSL and Australian credit licence CBA