WWA Group, Inc. (OTCBB: WWAG), together with its subsidiaries, engages in the trading and auctioning of transportation and industrial equipment worldwide. Its auctioned items include mobile and stationary earthmoving and construction equipment, such as crawler tractors, excavators, wheel loaders, cranes, trucks and trailers, generators, compressors, agricultural tractors, and forklifts. The company also sells light vehicles and other related items, such as boats and motorcycles.
WWA Group also owns and charters a shipping vessel known as the M/V Iron Butterfly, and participates in the Arabian Gulf project management and construction materials supply industry through a 32% holding in Intelspec International.
WWA Group’s primary competitor in the equipment auction industry is Ritchie Bros. WWA Group also competes with a large number of brokers and dealers of second hand and new construction equipment. The company trades on the OTCBB marketplace under the ticker symbol WWAG. The company was incorporated in Nevada in 1996 and is based in Tempe, AZ..
WWA Group, Inc is a U.S. registered industrial auction company with its primary operations in the United Arab Emirates. The Company was founded on heavy equipment auctions in Dubai, and has expanded into shipping, equipment rentals, construction and earthmoving, and other complimentary services. The heavy duty equipment auctions hosted by World Wide Auctioneers are located in the Jebel Ali Free Zone ("Jafza") in Dubai, UAE.. and through WWA Group's online bidding portal branded as WWA BidLive(TM).  WWA also conducts equipment auctions from a physical location in Perth, Australia in a joint venture with WWA Australia PTY Ltd., a company registered in Victoria, Australia. The company operates a 30,000 square meter Western Australian auction center at Kenwick, a 10 minute drive from the Perth City Centre. The site is rail served, and is 30 minutes by road from the major West Australia port of Fremantle.
WWA Group also derives steady revenue from the M/V Iron Butterfly, a shipping vessel owned by WWA Group, Inc. through its 100% owned subsidiary Crown Diamond Holdings, Ltd.. The Iron Butterfly is chartered by an independent party.
On October 27, 2008, WWA Group, Inc. sold its interest in Power Track FZE (“Power Track”) to Intelspec International, Inc. (“Intelspec”) in exchange for a minority interest in Intelspec.. Power Track is a United Arab Emirates free zone based licensed equipment and project management enterprise that operates a local government awarded limestone removal project in Ras Al Khaimah, U.A.E. Intelspec is focused on international project management, targeting an underserved niche market in specialized projects and subcontracts in the $1 million to $10 million range. Generally, these are projects that are too small to attract the attention of multinational firms, but which still require world class expertise. Intelspec intends to pursue project management opportunities in oil and gas infrastructure and support activities, permanent and temporary forward base camp installation and communications, construction endeavors, debris disposal and reclamation, and earthmoving and mining operations.
World Wide Auctioneers, Ltd., or ("WWA"), a British Virgin Islands registered company, was acquired by the WWA Group on August 8, 2003... The company holds fully unreserved auctions for heavy duty construction equipment, with no minimum bids, seller bids, or reserved items, assuring buyers and sellers that equipment is traded at fair market value. Auctions have been held in Dubai, Amsterdam, Qatar, Guangzhou, Jakarta and Perth..
WWA sells more second hand construction equipment to more people than any other organization in the GCC countries of the Arabian Gulf. WWA has sold at auction over 50,500 items construction equipment at its 59 auctions in Dubai from March 2001 through December 2008, for a total amount of over $739.5 Million in auction value. WWA controls a market share of over 65% of all industrial equipment auction sales concluded in Dubai in 2005, 2006, 2007 and 2008.
WWA has operated auctions for its franchise and joint venture partners in other dynamic markets around the world. Another $200 Million worth of equipment has been auctioned at these locations since 2001. The parent company and its franchises can do business together or individually, based on a combination of physical, video and Internet-based auctions for industrial, construction, and maritime equipment, materials, and products.
In 2008 WWAG auctioned over $124 million worth of equipment in major auctions at its primary Dubai location. The auctions in 2008 attracted 1,100 successful bidders to purchase over 7,200 total lots. The Company generated lower numbers across most categories in 2008 compared to 2007. The decrease was due primarily to festivities associated with the religious holiday of Ramadan that limited the size of the September auction. WWAG’s December 2008 auction generated record results in gross auction sales, bidder buyers, commissions and service revenue. This auction was larger due to the abrupt slowdown in speculative equipment buying activity and the increase in consignors desirous of converting equipment to cash prior to the year end. The February 2009 auction showed a continuation of this trend, with gross auction sales 30% higher than average February auction sales in 2005 through 2008.
WWA Group, Inc. owns approximately 36% of Intelspec International.  Intelspec, with it's UAE licensed arm Power Track Projects, focuses on projects in the Middle East, East Asia, and Oceania. and is led by Tom Morgan. Tom Morgan has over 20 years of experience in major project management in multicultural environments and previously worked as a field engineer for the US State Department’s Diplomatic Communications Service.  The company has acquired 100% of Power Track Projects FZE, a UAE registered Free Zone Enterprise that is licensed for project and equipment management in the UAE.
Intelspec's projects in progress and under negotiation include:
WWAG’s wholly owned subsidiary Crown Diamond Holdings, Ltd. owns the M.V. Iron Butterfly, a 100 meter long 3,500 dead-weight-ton roll-on/roll-off (RORO) ship with heavy lift cranes and a shallow draft that is ideal vessel for shipping heavy construction equipment within the Gulf region. The vessel charter generated gross revenue (adjusted for down time during dry docking) for WWA Group of approximately $1,530,000 in 2008. The vessel sails on the Dubai / Karachi / Mumbai route. The route is heavily used by WWAG customers and is located along generally calm waters, thereby reducing maintenance requirements and extending the effective life of the vessel.
While the general RORO shipping market has turned down in the last 12 months along with a general slowdown in international trade and trade finance, WWAG’s charter has not been disrupted. Crown Diamond Holdings has signed a new charter for 2009 through 2013 guaranteeing a net cash return equal to $600,000 per annum for the 5 year term. Under the new charter WWAG is no longer responsible for any operational or maintenance expenses which requires less in less management effort from us and provides a better net return that that generated in 2008.
The oil exporting nations of the Gulf Cooperation Council (GCC) have benefited from years of steadily rising oil prices, culmination in 2008 with a peak of $147/bbl and an annual average of roughly $120/bbl.
With oil prices for the first quarter of 2009 ranging from $40-50/bbl and most analysts projecting an average price below $60/bbl for the year, this pattern of explosive growth in oil revenues is clearly over. Forecasts vary, but it is generally expected that economic growth in the UAE, Kuwait, and Saudi Arabia will be minimal or slightly negative. One bright spot is Qatar, where the IMF predicts that a dramatic expansion in natural gas output is expected to fuel continued economic growth of up to 29%. Qatar has invested heavily in increasing gas output, and is now the leading exporter of natural gas, and with principal rivals Iran and Russia seeing investment constrained by high political risks, it is likely to continue in this position. Qatari gas exports are expected to increase from 39.9 million tons in 2008 to 77.4 million tons in 2010.
Regional analysts generally agree that GCC governments are able to balance expenditures and revenues with oil prices as low as $40/bbl. However, most regional budgets are expected to see deficits in 2009, as Governments ramp up spending to compensate for decreases in private sector investment and to provide economic stimulus. This trend is most visible in the UAE, where the federal budget for 2009 is expected to increase 20 percent and the Emirate of Dubai will increase spending by up to 42 percent. The UAE federal budget foresees an increase of over 20 per cent in government spending in 2009, over last year, and Dubai expects to see an increase in spending of 42 per cent over 2008.
The authoritative Middle East Economic Digest (MEED), in a recently released research report titled GCC Economic Outlook, 2009-10, reached the following conclusions:
Since the publication of the report, Abu Dhabi has purchased $10 billion worth of Dubai-issued bonds, and indicated willingness to purchase another equal tranche, providing Dubai with the means to support a substantial planned increase in government spending.
It is impossible to predict with certainty when oil prices will recover. It is important to note, though, that OPEC and IEA project that demand in 2009 will decrease by up to 1 million barrels per day, 1.16% of the peak global demand of roughly 86mbpd, reached in early 2008. This illustrates the degree to which oil prices are sensitive to relatively small changes in the supply/demand equation: a projected decrease in demand of slightly over 1% produced a price plunge of over 70%.
Many oil-producing regions, notably Mexico, Venezuela, and the North Sea, have seen substantial declines in production over the last 5 years. In many others, the sharp decline in oil revenue and severe political risks are likely to curb investment in new production capacity. If demand should recover by even a small margin, substantial price increases are likely to result. The primary beneficiaries of such an increase would be the GCC nations, which are continuing to make substantial new investments in oil production.
The environment of high oil prices that prevailed from 2003-2008 drove a massive surge in construction in the GCC nations. MEED Projects, the project-tracking venture of the Middle East Economic Digest, announced on March 31, 2008 that projects being tracked in the GCC region were valued at over $2 trillion, a 40% increase in one year. Since the threshold for inclusion in the MEED Projects database is $50 million, thousands of smaller but still significant projects were not included in this figure: review of project announcements in regional publications suggest that the total value of these smaller projects reached a total between 30% and 50% of the value of the large projects tracked by MEED.
A dramatic decrease in oil revenue, the global credit crunch, and a substantial decrease in end-user demand for residential, commercial, and office real estate have dramatically impacted the regional project industry, and current estimates suggest that as much as $1 trillion worth of projects may be on hold or cancelled.
The GCC construction industry may be broken into the following rough project categories, which will see varying impacts from the global credit crunch and economic slowdown:
The impact of the slowdown has been felt most dramatically in the first two categories, where project financing was heavily reliant on debt and projects were often highly speculative in nature. Many high-end real estate projects relied on off-plan sales to highly leveraged short-term investors who planned on “flipping” the properties as projects neared completion, a strategy that was profitable in the boom period but could not survive a recession. As the impact of the slowdown was felt layoffs accelerated, and as expatriate workers departed demand for real estate dropped, creating a declining cycle. Rents in Dubai have fallen up to 30% in the last 6 months, and in some areas the decline may even reach 50% from 2008 peaks.
The GCC building industry has suffered a series of severe shocks. Sharply reduced oil prices have constrained regional liquidity. Cash-strapped overseas investors have pulled out of regional investment markets, and equity sales are no longer an effective means of raising capital. Foreign investment has been sharply reduced, both on the corporate level and among the high net worth individuals targeted by numerous luxury real estate projects. The decline in business has caused a sharp retrenchment in expatriate employment, with a corresponding decrease in demand for real estate.
These factors have had a dramatic impact on the real estate, tourism, retail and entertainment sectors, which have seen a large number of projects cancelled or put on hold, particularly in Dubai, where close to $600 billion in civil construction projects are now cancelled or on hold. The impact of these cancellations on the regional construction market has been substantial, largely because it was sudden and unexpected: Dubai’s construction business went from rapid expansion to contraction in less than 3 months, a dramatic dislocation. In the medium term, however, several factors suggest that this impact may be diffused to some extent and may ultimately have positive effects.
Examination of project figures suggests that the first half of 2008 was a boom period for builders and their suppliers. In reality, many builders and investors found this period to be one of crisis. The pace of building in the region, the UAE, and particularly Dubai had, by early 2008, overwhelmed the region’s supply chain capacity. Shortages and rapidly escalating prices of basic materials, notably steel and cement, stalled many projects, and new entries found it impossible to hire qualified contractors or workers in many skilled trades. A recent report by Nomura International on the Middle East real estate sector claimed that construction costs in the UAE rose at about twice the total rate of inflation in 2007 and were up “that much again in the first half of 2008”. Many projects initiated under fixed-cost contracts had to be frozen, as it was simply impossible to complete them for the specified amounts.
This situation has now completely reversed. According to the Nomura report cited above, during the peak in August 2008, per square foot construction costs were being quoted at Dh1,200 in Dubai. By February 2009 quoted rates ranged from Dh475 per sq ft to Dh500 per sq ft, with some developments at Dh350 per sq ft, representing a fall of 60 per cent in just six months. Nomura International concluded:
We calculate that those developers that can pause and re-tender for developments not yet in construction can expect to save Dh100m in material costs on a standard tower development. Those that cannot will try to squeeze concessions out of contractors – with the alternative being to cancel the contract. The emerging trend is to shelve developments and then retender.
While close to $600 billion in projects have been cancelled or put on hold in the UAE, work on projects worth $698 billion continues to move ahead, according to an industry report from Proleads Global. “The UAE may no longer be the land of milk and honey but it is still in a far better position than most,” said Emil Rademeyer, director of Proleads. “To put it into perspective, the $698 billion of continuing work we are reporting is almost equivalent to the latest stimulus package proposed for the US.” The marked reduction in construction costs is a strong incentive for developers of projects with viable financing to push their projects ahead and achieve completion at the lowest possible cost. While additional cancellations will occur, it is also likely, as mentioned in the Nomura report cited above, that some cancellations are aimed primarily at cost reduction and will eventually be retendered in an effort to lock in lower costs.
While construction activity in the real estate, tourism, entertainment, and retail sectors will be muted for some time, it is likely that activity in other sectors will be accelerated. Governments across the region are ramping up infrastructure spending to provide economic stimulus and push liquidity into their economies. In most cases these represent not new projects, but an acceleration of existing road, bridge, port, airport, and other projects.
Regional governments are also accelerating investment in planned industrial projects, in order to provide economic stimulus, take advantage of lowered construction costs, and generate long-term diversification of their economies.
The GCC construction industry overall has seen a very abrupt and dramatic dislocation. Close to $600 billion in projects have been abruptly frozen or abandoned in Dubai alone and the total through the region as a whole may exceed $1 trillion. The consequences of this dislocation have been immediate: substantial unemployment, sharply reduced demand for materials and labor, and potential collapse for contractors and suppliers who were excessively dependent on a small number of projects.
A considerable reallocation of resources will be required and there will be substantial “churning” as the industry adapts to the abrupt shift in direction, but in the medium term the GCC construction industry is expected to remain at an active, though no longer frantic, level and to remain as one of the world’s stronger demand centers for construction services, materials, and equipment. This reallocation is illustrated by the following MEED figures contrasting new contract awards in the UAE and Saudi Arabia:
Given these figures, it is clear that idle equipment and other resources in the UAE is likely to be absorbed by the construction industry in neighboring Saudi Arabia, which is rapidly expanding due to aggressive government stimulus spending.
For the last 5 years the GCC has been one of the world’s fastest-growing markets for construction equipment. Shakil Merchant, Operations Manager of leading regional distributor Kanoo Machinery, reported in late 2007 that “Demand is so high that it's difficult to keep up”, and estimated market growth at 200%. Henrike Burmeister, lead organizer of the Bauma exhibition of German-made products commented:
The level and development of the export figures of construction equipment and building material machinery to countries of the Arabian Peninsula reflect the rapid development of the construction industry… The export volume of the German manufacturers to the partner region countries increased by a total of 40 per cent to more than 400 million euros from 2005 to 2006. The lion's share of this volume was machinery and equipment, worth nearly 154 million euros (about Dh762 million), exported to the UAE, and nearly 139 million euros (about Dh688 million) exported to Saudi Arabia.
During the free-spending boom period the region’s builders showed a marked preference for new equipment from premier manufacturers. In early 2008 the Abu Dhabi-based Al Jaber group placed a single order for 720 Caterpillar machines valued at approximately $220 million, one of the largest single equipment orders in history, and placed similarly sized orders with other manufacturers, including Japan’s Komatsu. Other regional construction firms were similarly aggressive in acquiring high priced new equipment assets, many of which are now idle.
Demand for new equipment has now been dramatically reduced. Sales of new equipment have virtually dried up, with financing scarce and an abundant stock of late-model equipment available second hand. The drastic reduction in real estate projects and the shift toward infrastructure and industrial spending has led to a substantial reallocation of existing equipment resources, an ideal situation for equipment auctioneers.
The following trends are expected to dominate the heavy equipment market in the GCC during 2009:
These patterns suggest that a substantial reallocation of equipment assets will be occurring over the next year. Contractors working on projects that have been cancelled or put on hold, including megaprojects such as the Arabian Canal and the Dubai Waterfront, both of which are likely to be postponed, will be eager to dispose of idle equipment, and there will be substantial buying interest from infrastructure, energy, and industrial projects funded by the oil exporting nations, which have the reserve wealth to initiate large scale stimulus projects. This continuing reallocation process is driving the high level of activity seen at recent auction sales in Dubai, and that this increased level of activity can be sustained through 2009.
The industrial equipment auction business is relatively insulated from cyclical economic trends. Many of the factors that prompt owners to sell equipment also creates an environment in which equipment buyers opt for high quality used equipment rather than more expensive new equipment. Auctioneers can therefore take advantage of economic downturns as well as upturns, the revenue and profit margins of equipment manufacturers and dealers tend to be negatively influenced by regional market downturns.
In recent years, WWAG has been operating at a profit in a very active, high demand growth environment where it has been difficult to locate good quality equipment to auction. However, this environment also generates fleet re-alignments, mergers and acquisitions, lease returns, project completions, and even financial pressure from over-commitments. All of these conditions favor the auction model.
In the current period of economic contraction, auctioneers are seeing a dramatic increase in supply of used equipment for sale at auction. Numerous project cancellations and cutbacks have left contractors eager to dispose of stocks of heavy equipment. Auctions are well known for their cash transactions, as opposed to private dealers that often rely on buyer financing for many of their sales transactions. Availability of buyer financing is extremely uncertain in the current economic environment. Further, industrial equipment auctioneers are not restricted to selling lines of equipment provided by a particular manufacturer or manufactured for a particular industry, or to holding auctions in any particular geographic location.
The chart above illustrates the sharp decrease in September auction sales, a one-time result of the Ramadan holiday, and the sharp increase in auction volume since the economic slowdown began in late 2008.
The relationship between economic stress and auction sales is clear. Companies that have lost business due to project closures need to liquidate fleets of equipment quickly, and traditional sales methods like consignment to a broker or dealer can take months or years to produce results. Auctions provide a fast sale with immediate cash settlement.
The large regional supply of used equipment, rapid closure of many projects, and the transition from a market driven by real estate projects to a market driven by infrastructure and industrial projects has created a “churning” environment that is ideal for increased auction sales. WWA Group expects strong activity at 2009 auctions, with gross auction proceeds and commission revenue at levels exceeding those of 2008.
World Wide Auctioneers has held 43 large un-reserved equipment auctions and 23 video and internet auctions from Dubai, UAE and Doha, Qatar between March of 2001 and March 27, 2009. Gross auction sales from the primary locations have reached over $725 million during this period, in addition to over $200 million in gross auction sales realized from other auction locations where The Company operates through joint ventures or franchise relationships. Equipment auctioned in Dubai and Doha included more than 42,000 items from 4,700 consignors that were sold to over 7,100 bidders.
WWA Group controls a market share of over 65% of all industrial equipment auction sales concluded in Dubai in 2005, 2006, 2007 and 2008 and surpassed Ritchie Bros. among Dubai-based auctioneers during 2004. The combined gross sales by all equipment auctioneers in Dubai grew from $33 million in 2000, prior to WWA Group’s entry, to over $210 million in 2007, suggesting that the equipment auction industry has substantial room to grow.
In 2008 WWAG auctioned over $124 million worth of equipment in major auctions at their primary Dubai location. The auctions in 2008 attracted 1,100 successful bidders to purchase over 7,200 total lots. The Company generated lower numbers across most categories in 2008 compared to 2007, primarily because of festivities associated with the religious holiday of Ramadan, which limited the size of its September auction. However, WWAG’s December 2008 auction generated record results in gross auction sales, bidder buyers, commissions and service revenue. This auction was larger due to the abrupt slowdown in speculative equipment buying activity and the increase in consignors desirous of converting equipment to cash prior to the year end. WWAG’s February 2009 auction showed a continuation of this trend, with gross auction sales 30% higher than average February auction sales from 2005 through 2008.
WWA Group realized a decrease in net income for the year ended December 31, 2008 over the comparative period in 2007 due to lower gross profit margins on the sale of owned equipment, reduced net income from the ship charter business, and a loss from the Intelspec subsidiary.
WWAG’s revenue for the year ended December 31, 2008 increased to $29,375,917 from $26,841,630 for the year ended December 31, 2007, an increase of 9%. The increase in revenue was primarily the result of the increased sales of owned equipment at auction and in private sales, which grew to $20,124,710 for the year ended December 31, 2008 compared to $17,505,466 for the year ended December 31, 2007. This increase was augmented by an increase in commission and service revenue to $7,721,878 for the year ended December 31, 2008 from $7,652,622 for the year ended December 31, 2007. Ship chartering revenue was reduced to $1,529,329 for the year ended December 31, 2008 from $1,683,542 for the year ended December 31, 2007 due to down time for a five year special maintenance in November 2008
WWAG’s gross profit for the year ended December 31, 2008 decreased to $6,766,741 from $7,595,338 for the year ended December 31, 2007, a decrease of 11%. This decrease is primarily due to slightly lower ship charter revenue of in 2008 compared to 2007, from which The Company deducts no direct costs of sales or operations. Gross margins from commissions and services decreased slightly to $4,297,323 for the year ended December 31, 2008 from $4,357,128 for the year ended December 31, 2007. The primary factor for reduced gross margins in 2008 over 2007 was the lower gross profit on equipment trading, which decreased to $550,154 for the year ended December 31, 2008 from $1,554,668 for the year ended December 31, 2007. As a percentage of revenues, gross profit declined to 23% for the year ended December 31, 2008 from 28.3% for the year ended December 31, 2007.
WWA Group expects gross profit margins to remain around 25% to 30% in the future, but this percentage figure will decline with any significant increase in owned equipment trading volume. The gross profit percentage may vary greatly from period to period depending on the equipment WWA Group determines to purchase.
Net income for the year ended December 31, 2008 decreased to $301,275 from $1,329,973 for the year ended December 31, 2007, a decrease of 77%. The decrease over the comparable periods can be attributable to:
Operating expenses decreased by about 6% over the comparable periods. However, an increase in total other expenses more than eliminated this decrease. Total other expense was $938,583 for the year ended December 31, 2008 from $363,835 for the year ending December 31, 2007. This increase over the comparable periods is attributable to an increase in interest expense and the net loss from WWAG’s equity investment in Intelspec.
WWA Group projects an increase in net income for 2009 based on expectations of:
Some of the above expectations are being experienced already in 2009, and are controllable by management. Others are more speculative and subject to market conditions. There can be no assurance that The Company will be successful in achieving any of the additional sources of revenues or achieve higher profits in 2009.
WWAG expects continued growth in the marketplace and increased gross auction revenue in 2009 over 2008. The last two auctions in December 2008 and February 2009 are indicative of an ongoing trend towards larger auctions.
WWAG has also been able to increase lines of credit and other facilities needed to increase the volume of trading for The Company’s own account. The market prices for equipment have now stabilized at lower levels than 2008 and The Company expects better gross margins on increased volume of new trading activity.
Gross revenue from ship charter will be reduced to about $600,000 for 2009, due to new charter that requires the charter party to pay all expenses associated with the vessel operations and maintenance, in addition to the charter fee. The Company expects the lower expenses for maintenance and management to compensate for the lower revenues and yield higher net yields from this source.