RB Global Inc (RBA) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Ritchie Brothers Auctioneers 2002 year-end earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. And at that time, if you have a question, please press the one, followed by the four on your telephone.

As a reminder this conference is being recorded, Wednesday, February 26, 2003. I would now like to turn the conference over to Randy Wall, President and Chief Operating Officer, Ritchie Brothers Auctioneers. Please go ahead, sir.

Thank you very much. Good morning and welcome to Ritchie Brothers investor conference call. Today we will be talking about the results of the fourth quarter and also for the full year, 2002. I'm Randy Wall, President and Chief Operating Officer of Ritchie Brothers. I'm on the line from our Dubai auction site in the U.A.E. where we have just completed a large three-day auction.

Peter Blake our Senior Vice President and CFO, Bob Armstrong our Vice President of Finance and Dave Ritchie our Chairman and CEO are all in Vancouver. The presentation will take about 20 minutes and then we will accept questions. At this time I would like to make a Safe Harbor statement. The following discussion will include forward-looking statements within the meanings set out by SEC rules and regulations. The actual results may differ materially from those projected in this discussion.

Additional information concerning factors that could cause such a difference is included in our periodic filings with the SEC. 2002 was another record year for Ritchie Brothers. We achieved gross auction sales of just under 1.38 billion. Auction revenues of $133.6 million and net earnings, excluding a one-time gain of $27.6 million. And all of these are new records for the company.

We were able to take advantage of our recent investments in people, facilities and infrastructure to capitalize on opportunities in the truck and equipment markets. We are confident that we have sufficient capacity and operating leverage to continue to take advantage of opportunities as they emerge and to continue growing our business profitably for years to come. We believe that it is our reputation for honesty and fairness and our commitment to the unreserved auction process, together with our worldwide presence and a lot of hard work by our tremendous staff that have allowed us to could achieve these records in 2002.

In the year 2002, approximately 156,000 bidders registered to bid at our auctions. This represents a 12% increase over 2001. These bidders were competing for nearly 151,000 lots that were consigned by almost 21,000 consigners and these were increases of 10% and 9% respectively over 2001 levels. We're enjoying momentum that we will expect that will drive further increases in these statistics in the years ahead. As we attract more bidders and continue to grow our customer database, we are able to attract more consigners and more equipment, which in turn attracts more bidders and so on.

The momentum works in our favor but we are careful not to take our customers for granted. In fact, improving customer service was the primary focus of a meeting that we just had with our international management team in January of this year. With respect to geographic expansion, we held auctions in four European countries in 2002. And we expect to expand further in Europe this coming year in '03. In fact, we scheduled our first ever auction in Greece for the 29th of March.

Our regional managers in Europe also tell us to expect continued growth in the European market in 2003, and our people in the field in the U.S. are telling us the same thing about their market. The momentum that we have achieved in our global reach have allowed us to penetrate new markets and expand our presence in existing markets in recent years. For example, in 2002, we sold more industrial marine equipment than we ever have before, and 2003 is already looking to be another good year in this sector.

We've been contracted by the British Columbia government to sell by unreserved public auction, three state of the art high-speed catamaran ferries on the 24th of March in Vancouver, Canada. Another area in which our presence is growing is the sale of unused equipment. A growing number of manufacturers are selecting Ritchie Brothers as a cost effective distribution channel for their products. We believe that consignments of this type will continue to grow in the future.

As you can tell, I'm talking a lot about the continued growth for Ritchie Brothers in the years ahead. And the reason we are confident about our growth opportunities is that we are enjoying the benefits of the investments we have made in recent years in people, facilities, and infrastructure. At the end of 2002, we had 189 sales representatives that were calling on equipment owners around the world. We have added a large number of sales represents over the last few years and many of them are only now starting to reach the level of productivity that we expect.

And this process can take 24 months or longer to do. Gross auction sales per sales representative this year increased to 7.2 million compared to 6.7 million in 2001. We believe we can improve productivity again in 2003. And we are working towards our target gross auction sales per sales rep of $8 million. The new auction facility that we've added over the last five years are also helping us to improve productivity.

We now have 27 auction sites around the world allowing us to offer customers an unparalleled level of service. We have ample capacity at most of our facilities to hold more at larger auction sales. We estimate that our current infrastructure can handle approximately 50% more sales volume without additional capital investment. This operating leverage also means that we can be more efficient and have more profitable sales. We are forecasting sales growth of approximately 12.5% in 2003. Which is higher than what we have been able to achieve in recent years. We are confident that we can hit this number for the following reasons.

Firstly, all piece auctions which we acquired in the third quarter of 2002 should provide a meaningful lift to earnings in '03. And secondly, the sales force productivity improvements that we are expecting in 2003 will have a positive impact on top line growth as well. I'd like to now comment briefly on our gross auction sales growth targets and performance in recent years. Over the last few years, a number of factors have prevented us from achieving our targeted gross auction sales growth rate of 10%.

Specifically, we've had a large number of new sales representatives, which affected that productivity, interest rates have remained uncharacteristicly low during the economic downturn, making it more economically feasible for these equipment owners to hold on to underutilized equipment. We have also seen a somewhat deflationary environment in certain segments of the new epuipment market in recent years. Although it is difficult to measure, the price of new equipment in some categories has been discounted through manufacturer and dealer sales incentives, low interest rate offers, and/or deferred payments.

This effective price discounting impacts the market value of comparable late model used equipment. We believe all these factors have restrained our sales growth in recent years, holding us to rates below our historic growth performance. However, as we head into 2003, with the addition of the all piece operations and expected continued improvement in sales force productivity, we expect to be able to achieve our forecast sales growth. We intend to continue our proven strategy of steady, controlled growth. We have such a small share of the enormous and highly fragmented used equipment market, we have been steadily growing our sales and we continue to work towards further increases in the years ahead.

A key point to take away from this discussion, no matter what happens in the world economy, we are confident we can achieve growth simply by increasing our market share. The ever increasing number of bidders, consigners that are choosing to work with us is evidence that our strategy is working, and that we offer a compelling value proposition to our customers. Let me now turn the call over to Peter Blake our CFO.

Thank, Randy. Good morning, everybody. I hope you have all seen the press release we issued this morning. The numbers that form the basis of the discussion that follows are contained in that press release. Let me remind everybody that all dollar amounts refer to in this call and in the press release are stated in U.S. dollars. During the last conference call we indicate that we were expecting gross auction sales for 2002 to be about $1.385 billion. In the end, gross auction sales for the 141 auctions held during the year came at $1.376 billion. This is impressively close given the event driven nature of our business, which makes precise forecasting more challenging.

Gross auction sales for the fourth quarter of 2002 were $460.9 million. Making it the largest quarter in the company's history. Auction revenues at $133.6 million for 2002, represent a 14% increase over 2001 full-year revenues. Our auction revenue rate was 9.70%. Compared to 9.06% in 2001. The auction revenue rate improved in 2002, due to the strong performance of both our straight commission and underwritten business, as well as the handling fee introduced in 2002, applicable to lot selling for 2500 or less.

Paul will talk more about our expectations for 2003. However, I will say that the 2002 rate was very strong. And while a repeat or improvement may be possible, we are resisting a forecast that predicts this level of auction revenue rate in 2003. 2002, fourth quarter auction revenues were $44.4 million. Representing an auction revenue rate of 9.63%.

Direct expenses deemed the costs directly rated to specific auctions remained steady at 1.43% of gross auction sales for the fourth quarter of 2002, and also for the full year. Which compares favorably to a direct expense rate of 1.46% for the full year in 2001. General and administrative expenses came in at 63.8 million dollars for the year. And were higher than expected in the fourth quarter of 2002. G&A for the quarter ended December 31, 2002 was $17.5 million. A 13% increase over the average quarterly G&A in 2002. And a 27% increase over the 2001 comparative.

There were two main reasons for the increase. First, costs for the former all piece staff from related G&A commenced midway through the third quarter of 2002 and their full effects were not felt until the fourth quarter. Secondly, we made a conscious decision at the end of the year to increase the employee bonus pool beyond the level incorporated in our guidance at the end of Q3. In 2002, we had record earnings and we felt that higher employee bonuses were justified as a result.

I should note that the accrual of executive bonuses in the fourth quarter was not adjusted and remain in line with the level incorporated in our previous guidance. Depreciation was $9.2 million in 2002, an increase of $1.8 million, if you exclude the impact of goodwill amortization in 2001. We stopped amortizing goodwill effective January 1, 2002. As a result of new accounting pronouncements. Depreciation increased in 2002, primarily as a result of the depreciation of new auction facilities, constructed over the past few years, and increasing charges related to capitalized software development costs.

Our income tax rate for 2002 was 27.5%. Essentially in line with our guidance. Full year earnings for 2002 were $28.4 million. Excluding nonrecurring items, being a sale -- or getting on sale of redundant property in 2002 and one time withholding taxes paid in 2001, and also excluding goodwill amortization in 2001, adjusted earnings in 2002 of $27.6 million or $1.63 per diluted share or 19% over adjusted earnings in 2001 of $23.1million. Earnings in the fourth quarter of 2002 were $11.1 million. Or 66 cents per diluted share.

Let's review our capital expenditure plans and our expectations for free cash flow in 2003. Full year cap ex for 2002 including maintenance cap ex and the all piece acquisition payments, was 28.6 million dollars. In 2003, I expect we will incur growth cap ex in the range of $10-15 million and maintenance cap ex in the range of $5 million for total expenditures in the range of $15-20 million for the year. Our actual growth cap ex in 2003 will depend on our ability to identify opportunities to develop new auction sites. We are looking at several opportunities in the U.S.

And we expect to complete the acquisition of one parcel of land shortly and commence construction on a new facility later in 2003. We are also actively looking for land in a couple of other regions in the U.S.. After estimated cap ex and schedule debt repayments, free cash flow in 2003 should be in the range of 15-20 million dollars. And it should grow in 2004 and future years. Our Board of Directors believes that excess cash should be returned to shareholders once appropriate reinvestment opportunities have been funded. At the most recent meeting, the Board indicated that it is more likely than not that this return of excess cash will take the form of a dividend.

The Board is now considering the appropriate yield for a possible dividend and the timing and frequency of payments among other factors. But no timing has yet been set for a decision. Now, I'll turn the call over to Bob Armstrong our VP of Finance.

Good morning. I'm going to walk you through our guidance for 2003. As indicated on previous conference calls, we are expecting gross auction sales in the range of 1.55 billion for 2003. This represents growth of 12.5% over 2002. Gross auction sales. Even though we have not achieved double-digit sales volume growth in recent years, we believe that with the addition of all piece for a full year in 2003, and based on the forecast provided by our regional managers we should be able to realize this level of growth in 2003.

First quarter gross auction sales should be in the range of 320 million or about 20% of the annual total. At this time, it is probably reasonable to assume that the second and fourth quarters will each represent 30% of our annual volume and the third quarter will be similar in size to the first. Representing about 20% of the business. We will offer more guidance on these numbers on future conference calls. Based on our experience, with the 10% handling fee in 2002, and considering the impact of the new 2% Internet purchase fee and proxy purchase fee, I think our average auction revenue rate for 2003 will be in the range of 9.3%. This is lower than the 9.7% rate experienced in 2002. But we believe it is in a more sustainable rate in the long term.

While it could occur, and we -- excuse me, while it could occur, we are not comfortable forecasting a repeat performance of the strong revenue rate in 2003. I've arrived at the 9.3% rate by taking our historic average rate of 8.8%, adding 40 basis points for the handling fee introduced in 2002, which is consistent with our actual experience in '02, and adding an additional 10 basis points to reflect the expected combined contribution of the new Internet purchase fee and proxy purchase fee. We expect direct expenses being the cost specifically related to particular auctions to remain in the range of 1.45% of gross auction sales in 2003.

General and admin expenses in '03 will likely be in the range of 64 million and at this point I have no reason to expect any material quarterly variation. 2003 depreciation expense should be in the range of 11 million for the year. Depreciation will be charged roughly equally throughout the quarters in '03 but increasing slightly through the year, as a result of depreciation on new buildings and improvements coming on line. Specifically, we expect our new Prince George auction facility to become operational in the second quarter of '03. Depreciation will also be higher than that of prior years as a result of continued growth and capitalized software.

Interest expense in '03 should be in the range of five to six million. Interest will increase over the 2002 levels, as we expect to be capitalizing less interest to properties under development in 2003. Other income is expected to increase in '03 to approximately 2 million. Other income comes mainly from the appraisal division, and all indications are that our appraisal division business will continue to grow in 2003. Our income tax rate for '03 is expected to be in the range of 28%, pretty close to our experience for 2002.

The impact of our March 24 auction of three catamaran fast ferries and auxillary equipment for the British Columbia government, is not included in these estimates. We regularly handle special project auctions, so this auction is not an unusual event for Ritchie Brothers, but for guidance purposes I think it's best to leave this one out of the numbers. It is difficult to estimate the selling price of the specialized assets, so we have resisted including this auction in our gross auction sales forecast. Before I hand the call over to Dave I want to give you an update on the rbauction Bid-Live Internet bidding service. So far, this has been an unqualified success and we are continuing to see increased usage.

In January 2003, we introduced a fee equal to 2% of the selling price for all items purchased using the service to a maximum fee of $500 per lot. This fee does not seem to be having any impact on users of the service. Both buyers and consigners of the service are seeing the significance of rbauctionBid-Live and this tool is becoming a significant competitive advantage for Ritchie Brothers. Internet buyers are already buyer or runner up on more than 20% of the lots being offered over the Internet and the popularity of the service continues to grow. And now I will pass the call over to Dave Ritchie.

Good morning, everybody. I would like to speak briefly about the used equipment market. As you know, we sell more used equipment and trucks than anybody else in the world. So we have a very good feel for prices and trend and as it happens, before the used equipment market is holding up very well, even though the demand for new equipment is under pressure. Some equipment distributors -- companies have reported seeing decreases in their returns from used equipment sales. In our view, prices against both categories of used equipment have remained stable.

We believe that the people talking about the eroding prices are most likely referring to the differences between their market values, and their accounting book values. From our perspective, supply and demand appear to be well balanced for most parts and the prices have been steady. I have commented in the past about the class A truck market. Nothing we saw in the increased demand for used trucks, thanks to the new engine emissions requirements that came into effect last fall. Truck buyers are continuing to purchase late model, grandfathered trucks, and the demand remains strong for these late model vehicles, so I expect the situation will continue for at least 12 months.

We have also seen deflation in the cost of certain categories of new equipment over the last two years. Resulting from manufacturers incentives and intense competition. The price of new equipment has a direct effect on the value of late model used equipment. And some categories have suffered most -- modest price decline. I don't see this becoming too much of a factor in 2003. The year end cap had recently announced model price increases, which should have a positive impact on the values across the board and at the very least add to the stability of pricing in the aftermarket.

There will always be pockets of weakness in the used equipment market, but we stand by our belief that the value of well-maintained, late model used equipment will remain strong in the years ahead. In some of our markets we have seen reluctance amongst owners to put used equipment on the market in the last few months. I suspect this has to do with the uncertainty about a possible war in Iraq and low interest rates. There is generally enough work available to cover interest costs on financed equipment pause these low costs are so low that owners are taking advantage and taking more time to wait and see attitude.

We are also seeing a good appraisal volume, and we have looked at a lot of equipment in recent months, but owners are hesitating to consign. That being said, our recent sales in Florida and our sales today in Dubai that ended today, just showed us that the prices in many categories of equipment are very strong. And we believe provide a higher degree of comfort for the equipment owners regarding resale values. Before Randy concludes the call, I would like to talk briefly about our grand opening of our new Orlando, Florida auction facility last week. We had the largest number of registered bidders we have ever had at a Florida sale.

The auction was a big success and we received a lot of positive comments from our customers about the high quality of our new facility. And I'm really proud of everyone who helped get the facility up and running and put the sale together. And now, I will pass the call back to Randy.

Thanks, Dave. Well, they've asked me to put a few comments in here about the sale in Dubai, as you know I'm calling on this call from the Emarets and I can tell you that the mood over is quite good. It's a prosperous marketplace. And we had a new record here in terms of the number of countries of people coming to the auction. There was 48 countries represented here bidding at the auction over the last three days.

We had a very good crowd, consistent in size with most others and a little bit to the large side. Prices were very good. In fact, the average was 5-8% more than what our expectations were. And virtually all categories experienced that market level or a little above, as I've just referred to. One or two categories were on the modest side, being hydraulic excavators, we see a little bit of weakness here. Pretty much everything else was very positive in the -- the most important thing to me is that the marketplace itself is strong, there's construction activity everywhere that you look.

Every time I come here, which is every four to six months, there is visible differences in the market. And the people are looking forward and beyond any possible conflict issues because there's lots of action going on and it's a positive and dynamic place to be and we've had a very successful sale here over these last three days and we will be issuing that press release as normal first thing tomorrow morning. Now, as I noted earlier, there are lots of opportunities for Ritchie Brothers in the used truck and equipment markets.

The challenge for us is to take advantage of these opportunities, and to expand into related markets when we can create value for our customers. Our plan is to grow the business by developing more and deeper relations with the equipment owners, by introducing more people and more industries to our unreserved auctions and by continually improving the service we provide, so that the value proposition we offer to both consigners and buyers remains compelling. Ours is very much a relationship business. We understand that our service does not sell itself and that our team of sales representatives and administrative personnel need to provide the very best customer service in order to support our growth objectives.

Fortunately, we have a strong and dedicated team and I feel real confident about our future. Before we open the call to questions, I would like to recap the main points we've covered on this call. Firstly, we ended 2002 with gross auction sales of almost 1.38 billion and net earnings, including the one time gain of $1.63 per diluted share. Which is a 19% improvement over our adjusted results for 2001. We are expecting further growth in gross auction sales in 2003. And have set a target of $1.55 billion for the year.

Secondly, thanks to the infrastructure investments of prior years, we have significant operating leverage which is driving improvements in our margins, our earnings, and our cash flows. Over the next several years, we're looking for average top line growth in the range of 10%, which should translate into average earnings growth in the range of 15%.

Finally, used equipment market is facing changes, and uncertainties, but are creating market opportunities for Ritchie Brothers. The market opportunity in front of us is huge, and we have the capacity and the operating leverage to go after it. Now, we would be pleased to answer any questions that you have. Claudine, can you please begin the question period?

Thank you. Ladies and gentlemen, if you would like to register a question, please press the one followed by the four on your telephone. You will hear a three tone prompt to acknowledge your request. If your question has been answered, and you would like to withdraw your registration, please press the one followed by the three. If you are using a speaker phone, please lift your hand set before entering your request. One moment please for the first question. And our first question comes from the line of Ben Chemiavsky of Raymond James. Please proceed with your question.

Good morning.

Good morning.

I guess for Randy it's good evening. It must be around 8:00 in the evening there.

It sure is, Ben.

First of all, a couple housekeeping items here. Can you just clarify, you may have said this, I don't know if I missed it, but how many sales reps do you have at the end of the year.

189. 189.

So you did -- it looks like you rationalized that a little bit, did you not? Was it about 195 at the end of last year?

Give me a second.

My recollection, we've -- as always, there is a little bit of attrition and we want to make sure we're retaining the best and most productive people so there's been a little bit of attrition.

Okay, at least It reflects a good trend in productivity. On the SG&A, Bob you spoke about getting something 64 million SG&A this year which is roughly equal to '02, so are you implying even though you expect a record year for gross auction sales that your bonuses won't be any bigger or will we see bonuses bumping in?

The way that our executive bonus pool works, it's a direct link to our ability to meet earnings targets and in the current year we beat the expected earnings as laid out at the beginning of the year and as a result, the executive bonus pool component of G&A was larger than we originally planned. Going into next year we don't predict it to be that high, we're back to a base level bonus, assuming we meet our expectations. If we come in below our earnings predictions, then the executive bonus pool gets ground down. And and if we come in above our earnings predictions, then our executive bonus pool comes up.

So on a comparable basis your '02 G&A is higher than normal if you like, because performance was so strong and that bumped up the executive component. In addition, we bumped up the employee component, at the end of the year. To reflect the strong performance. So we're anticipating a grinding of the bonus pool next year. Just because we can't assume exceptional results, we assume target results.

So the bonus pool, even to the sales people, will be about the same even if they achieve 12%, 12 1/2% growth in gross auction sales?

The bonus pool to the sales people in all of our other, let's see, everybody except the executive pool, is in part dependent on financial performance as well, but we're looking at a number comparable to last year and the executive pool going into the year we anticipate will be quite a bit smaller than it was in '02.

I see. Okay. I'm glad that you guys spoke specifically to your gross auction sales growth in the last few years relative to what you are foreseeing. That eliminates the need for me to ask my routine question about that. But let me ask a related question on the gross auction sales margin that you say that should be about -- that should be down, and closer to historical averages and that you're not seeing any particular trend there.

Are you, however, evaluating the business that you're losing or turning away, in other words, is there some pricing leverage there? Are you perhaps being toot conservative on your underwritten business at the expense of turning away some equipment that would otherwise generate higher gross auction sales growth that perhaps a lower but closer to average gross auction sale margin?

Randy do you want to speak to that?

Sure, I would love to. Ben, that's my pet peeve, as I go around the traps, talking with the people, and the managers everywhere, and we're very conscience of not pricing ourselves out of the market and not losing business. And I think that we've just been managing our process very well. And it's good. We certainly have room to, if you want to call it, leverage, and chase lots of business, and we're doing that each and every day. Our job is to do our business profitably. And when it happens to turn out well, then we're happy about it.

But we believe that there is -- there is growth in the marketplace, Ben. We don't believe that we need to or want to target commission rates at the higher average rates than what we experienced this year. It's a very good question. And no, we're not leaving things on the table. But I go around and I just keep telling the guys, and making sure that that's not happening. So it's a good question.

I just think intuitively it must be leaving something on the table here, if your commission, your average commission rate, particularly in the underwritten business is so strong, and that may be if this year you don't hit 12 1/2% gross auction sales growth and maybe you might have another 9 1/2, 9.7% auction margin.

You have to ask, Peter, I understand what you're getting and when we do our analysis of the commission rate, and Randy is right, we're quite sensitive to making sure that because we're the dominant guy in the industry, we want to make sure we're not walking around trying to price ourselves out of the market so we're quite conscious of that. And we understand that we've overperformed in our targets over the last couple years but I think if you look pack in 2000, would were about 20 basis points below where we had targeted.

So you know us, and we're quite conservative in our views and we don't want to start throwing around big numbers. You know, If we can achieve a margin, we will do that, we're not going to walk by it but we're conscious of trying to maintain our presence in the market being a high quality service provider to these folks that are out there. And providing them good quality service for a fair value. Making sure that stays in the forefront of all of our reps' mind.

What does that translate into what your reps are encouraged or incented to do when they go and put forward a bid on what they'll pay for a piece of equipment? Are you going back to them and saying maybe you guys are being too conservative and that you should -- maybe you shouldn't have turned away that last piece of equipment because we still could have made an average 9.1% gross auction sales margin or 9.3, instead of 9.7?

Are you doing anything to change the behavior or do you see their current behavior as normal for lack of a better word, and something that -- because if that's the case, it would tell me that you're probably going to have a higher gross auction sales margin this year again.

I think it's hard to generalize overall the deals, because every deal is different and the reps are not the ones who decide how much they will risk on a deal. It's all controlled and very tightly controlled by primarily the crew in Vancouver and select folks in the field. So, everyone is aware that we want to make sure that we're properly aggressive. But the market, we want to make sure as well, that we're in the market at the right number and if the market goes up or down we don't want to hang our underwear in the wind here and be out on the line for something that we just -- just to get the business.

We're not going to go and write a deal that doesn't make any money. So, everyone is in business to make a profit as are we. And all I can say is we're quite conscious of making sure that we're getting all the business that we can, and getting the good business and not pricing ourselves out of the market.

It would seem to be, I don't mean to be a pest, but it would seem that you are perhaps turning away business where you would have made good money at least an average margin rate. But anyway, I don't want to belabor the point.

Yeah, I appreciate that and we don't like to lose business, believe me. And every deal that comes through our pipe, we get very emotional about, and when we get it, we're all happy and when we don't, we're not very happy, and we don't like to be unhappy, so.

Ben, this is Dave Ritchie. We look at every deal and we're aggressive on every deal. Sometimes we get a little lucky. And it works out better. But we are not miracle workers. But we have applied systems and the systems are working very good. And I think that if you talk to people at our last sale in Orlando, I've never had so many comments and compliments about how everything was conducted, from the repairs and the work that we've done, to the preparation and the presentation. We have spent this money in the past and we're now enjoying a little of the benefits of it, but we're certainly aggressive on every deal.

Okay. Thank, Dave. Now that I have you on the line can I quickly ask you to clarify, again this might have been something that I misinterpreted, but your comments on the availability of equipment? Did you say there's some reluctance in people bringing equipment to the market to sell with the current political situation in the Middle East and other considerations? Is that what I -- did I read that right?

That's right. There's people hesitant about the threat of war. And we monitor that every day. What is it going to do to everybody and their travel plans. And the fact we have the Internet working so well, that certainly relieves a little of that pressure. But the biggest thing is that a lot of people don't know exactly where their book values are and where their real market values. And we are in this market every day, and we know where the market is, and people are hesitant thinking that some of this pricing that they have on their inventories are higher.

But we think we live in a real realistic world. We're one of the very few companies that sell everything on reserve. And there are a lot of other auctions taking place that have reserves, and they're not true market values. Ours is a true market value. And we feel so connected to it, that the people that are hesitant about bringing their equipment to the market just don't understand the real market value.

The other thing that happens, Ben, typically in the spring, is people are usually waiting to see where the market is, there's usually a bit of a void since Christmas, of market activity particularly at our auctions which are on reserve and people use them as sort of a bellwether for the market. So just passing through a couple of strong sales we've had here, tremendous results in Orlando and with Randy over in Dubai, commenting on the impressively strong results of pricing over in Dubai, that will give folks a lot more comfort out there that are maybe on the fence as to which way they should go, that the value of good quality used equipment in the market today is being supported and is very strong.

There's lots of stuff going on out there irrespective of what you hear in the news and what you see on Wall Street. There's an awful lot of construction activity going on out there.

So in spite of that reluctance, you still see -- you've taken that reluctance into consideration in targeting your 12, 12 1/2% gross auction sales. Because the last time I heard you guys talk about a reluctance of sellers in the market was like 2000 when the economy was really strong, people weren't getting off their equipment and as a result, you had, you know, single low, single-digit growth in the very top line.

We had the same economic environment through all of 2002 with the economy downturning, the interest rates were low, and the only difference, characteristically now is this Iraqi thing and Randy comments quite rightly that the people over there have discounted the whole thing and there may be an action there may not be, but these people are presuming whatever happens is going to be quick and if it doesn't happen they will just carry on with life as normal.

So I don't see there is much -- you know, we seem a little -- we've seen a little bit of hesitance in early January when people were wondering what was going on and a lot more reterick in the market about what was going to happen and expectation about what was going to happen too. So, I think, you're right, we do look at that and coming in at 1.55 and we're comfortable that that's the right number.

Ben, the low interest rate, the single-digit factor that I've ever seen. I've never seen it like this before.

Yeah.

Any of the normal situations, we would be so busy we couldn't sit down.

We have had the low interest rate environment now for several years so I heard your comment now maybe we haven't used the word reluctance for a couple years. It certainly isn't a new theme to us. Reluctance to the extent there is any, isn't particularly heightened right now. We're commenting ton because it is a factor. It's been there for some time because interest rates have been low for some time.

Okay. Well thanks, I didn't meet to hog the puck on this one but good quarter and thanks very much.

Our next question comes from the line of Murray Gainer, Scotia Capital Markets, please proceed with your question.

Hay, guys. Peter I just wanted to ask you for a little bit of elaboration on your comments with particular reference to the SG&A expense up so much year over year. Can you talk about the contribution of all piece and what it accounted for and what it contributed in terms of revenue and then what you expect to see from all piece next year.

Peter's pointing at me, Murray. So I get to answer that I guess. In 2002, the year we just completed, the all piece guys joined on midway through the third quarter, but the real impact of the expenses and the like, did not hit in full until the fourth quarter. And so there really wasn't much of a G&A impact through the year until the fourth quarter. That's one of the reasons you saw a spike in fourth quarter G&A. On the sales side, the vast majority of revenue generated and sales generated by the all piece team is in the April period time frame when there is a lot of agricultural auctions, and so there wasn't much expected or achieved during 2002. The acquisition having taken place after their busy time.

Heading into 2003, we are expecting very nice volumes from that group and so far I must admit it all looks excellent, it appears to be on track from where we sit now. We're expecting more of a benefit now. '03 was all cost and no revenue. And '04 should be a bit of each. I got it backwards, '02 was cost without much revenue and '03 should be both cost and revenue. And that's exactly as expected.

Thanks, that makes sense. And just a second question then. Without specific reference to the auction coming up on the 24th, can you give us an indication of what auction revenue rates on some of the special items might be and how they're set?

They're all individually taylored to the client. And each one will vary. There is not going to be two of the same any time.

If you're asking about the revenue rate for the deal, Murray, we're saying we can't tell you because it's part of the deal --

I knew that but I thought I would try to get around it (laugh, laugh). Are you trying to book it as a one time item?

It will be -- GAAP won't let us call it special. It will be part of our mainstream program, but on our next conference call, if not sooner, we will certainly be talking about it in some detail so people understand the impact of it.

You will break it out though, right.

Yeah, whether we can break it out on the financials I don't know, but on a conference call we will break it out on some degree.

Okay, great. Thanks very much.

Our next question comes from the line of Yvonne Varano of CIBC World Markets, please proceed with your question.

Thank you. I just wanted to get back to a little bit on the market information and you talked about deflation in certain new equipment in certain categories suffering, is there any more detail you can give on what categories, and the magnitude of, you know, the softness and the pricing.

Yvonne, even though they have announced increases, both cap and deer, there are a number of ways of discounting and the biggest way I see today is the very low interest rate, and the very generous terms. And it's hard to put numbers on that. But there is tremendous competition for the new sales. And I think it's as competitive today as I've ever seen it. But the dominant players are going to start to gain a little more ground and the lesser players are having a very touch competitive time.

Dave, would you say there are any particular categories of equipment, or broad category, where we've seen more of this than other places?

I think it's more factory specific, the manufacturers. You know, the dominant one, historically, gain in this time, market share. And I think that it's going to be very hard for the fourth, fifth and sixth tier players to maintain real profitability.

Okay. In terms of magnitude, though, we talked about for '02 some of the pricing being a little softer I think than you had originally anticipated on the late model equipment. Is that in the 5% range, in the 10% range? Is there anything, you know, quantifiable there?

The good brands and the good quality equipment is held up very well. There has not been a softness in that. It's when you get down into the older equipment and less popular equipment, I see a deterioration there.

Okay, because I was under the impression that Randy's comments indicated a little bit more softness in the late model equipment due to the downward pressure on new pricing.

That, plus the accelerated terms in the generosity of the -- putting it out for nothing down and four years to pay, and I'll pay your first five payments or something. It's -- you know, it's very competitive in that financing end. And that's just another form of discounting.

Peter here. And I'm reading or I think I'm hearing anyway what you're trying to ask is what magnitude of price discounting have we seen in the marketplace. Dave is right when he says it is very hard to say and give you an exact percent, whether it's five or ten. Intuitively I think ten would be enormously high but it's something less than that.

I think we have seen a real competitive market, with a lot of the OEMs in terms of trying to hang on to market share or even some guys in survival mode, where they're providing some more discounting than we maybe have seen in the past several years and that discounting is taking the form of not directly manufacture retail price knock-offs but, you know, the terms or the deferred payments or skipped payments or whatever it may be, to entice buyers into their product line and to maintain or expand their market share. So every manufacturer is at a different evolution of that price discounting, effectively price discounting world. And it's hard to lay a blanket over it and say it will be X or Y or Zed.

But I think Dave is right when he says the strong will survive and the strong are surviving out there. But it is a pretty dog-eat-dog world and there's lot of competition to maintain the share and the share is not only in the United States, it is also price realization that these guys are trying to achieve in different markets around the world, so we will see certain categories of equipment strongly priced or lesser priced in different markets to try to compete with local vagaries and manufacturers in the marketplace.

But looking at some of the broad categories, worldwide, there is no one category that you can point to that has had more price weakness than another?

[INAUDIBLE] excavators probably would be an example of very fierce competition globely.

Excavators? I'm sorry?

Yes.

And the other one you might think about is wheel loaders. Excavators probably is the highest numbers, in terms of quantity around the world. And then that's so intensely competitive. And the other one is -- would be wheel loaders. But, Yvonne, this is something that has been happening not just in '02, it's been a bit of a trend over the last couple, three years, and that's -- if we -- if you were trying to nail us down and to pick one or two categories, that's probably what we would say.

Okay and just on truck, you said demand for the light models has picked up, has pricing picked up along with that?

In good used?

Yes.

Good used is -- has been strong.

Pricing is -- I know demand is. Has pricing improved as well?

I would say it has. It's maintained at least. Good used is still in very good demand.

It's relative to what we're selling in other brands or other product lines. We see strong pricing in that good used quality equipment and one of the pricing guys at the table says it is maintained and he's right, it's been maintained, the pricing of that stuff has been maintained while we've seen some erosion in other lesser preferred brands and equipment.

Specifically in trucks?

How do you mean trucks?

Trucks are fine.

Class A trucks you're talking about?

Yeah. Class A trucks. I know that demand has been pretty strong for the late model used, and I was wondering if pricing had sort of spiked along with that demand.

I don't think we've seen any dramatic changes in the pricing of class A trucks.

No.

I would say that the good late model trucks have risen in value here. In the last year.

We talked about that six months ago with the advent of the engine emission and the grandfather trucks, so there is more of a demand of the grandfathered vehicles not subject to the new emission standards and see affirming and pricing and even some increases. They're harder to come by, as well, I think.

That was my next question. Are they now becoming harder to come by.

Sure they are. There are only so many of them out there so it's a defined supply. Diminishing supply. So it's evident the answer is yes.

Okay. Terrific. Just one last question, because I noticed that E-Bay put out a pretty significant ad that highlighted used equipment as one of the products that they do sell. And, of course, I know all the reasons why you choose RBA over E-Bay but I didn't know if you had any insights into why you would choose E-Bay over you to sell their equipment and I did look and there are pieces of equipment up there.

I wish had their marketing budget too and I could do those full page ads in the Wall Street journal. We have not seen them as a -- a competitor on deals. I saw the ad, but I haven't seen their name across our desks, as someone who is trying to get packages away from us. As you know you can list on E-Bay, essentially as you might list a classified ad. It's not an unreserved action. The stuff doesn't necessarily sell.

My understanding it is essentially a lead generation process. People are listing stuff there, but I'm not aware of any meaningful number of transactions. So E-Bay is huge, has -- they have interest in any category of assets known to man or nonassets, everything that can be sold, so you will see everything listed there, including what we sell, but if your question is, has it emerged as a competitive threat, the answer is no.

Okay. Thanks very much.

Ladies and gentlemen, as a reminder, to register for a question, please press the one followed by the four. Mr. Wall, there are no fourth he questions, please continue with your presentation or closing remarks.

Okay, Bob? Is there anything else that we should be going over here?

Nope. Just to say thank you, Randy.

All right. I will say thank you, Randy. Thanks, everybody for joining us for the call. Claudine, thanks for your assistance. We're very happy and pleased about the results that we are able to deliver this year with substantial performance improvements in our bottom line. And we are going to endeavor to do our best next year but we will just get on with business.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation. And ask that you please disconnect your line.