RB Global Inc (RBA) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Ritchie Brothers Auctioneers 2003 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. (OPERATOR INSTRUCTIONS) As a reminder, this conference is been recorded Thursday, February 26, 2004. I would now like to turn the conference over to Mr. Randy Wall, President and Chief Operating Officer.

Thank you, Chris. Good morning and welcome to the Ritchie Brothers investor conference call. Today we will be talking about the results for the fourth quarter and for the full year of 2003. My name is Randy Wall, President and Chief Operating Officer of Ritchie Brothers With me on this call are Peter Blake, our Senior Vice President and CFO; Bob Armstrong, our Vice President of Finance: and Dave Ritchie, our Chairman and CEO.

Our presentation will take about 20 minutes and then we will accept your questions. At this time I would like to make a Safe Harbor statement. The following discussion will include forward-looking statements within the meaning set out by SEC rules and regulations. Comments that are not statements of fact are considered forward-looking statements. Forward-looking statements include comments about projected future results and performance, growth initiatives, development plans, and others. Our 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 and Canadian Securities Regulators.

2003 was another record year for Ritchie Brothers. Gross auction sales were $1.56 billion, being an increase of 13 percent. Auction revenues of $161.5 million, which is an increase of 21 percent, and net earnings were $36.6 million, being an increase of 29 percent.

We believe that our reputation, our commitment to the unreserved auction process, our worldwide presence, and a lot of hard work contributed to the momentum we have been enjoying and allowed us to achieve these records in 2003.

In addition to growing our auction sales and earnings, our other goals for 2003 were to increase our customer base, to improve our sales force productivity, to continue our expansion into related markets and regions, and to use the Internet another technology to enhance our business. Now I want to comment briefly on our performance in these areas.

Firstly our goal of expanding our customer base. Over 181,000 bidders registered to bid at our auctions in 2003. This represents a 16 percent increase over 2002. These bidders were competing for 166,000 lots which were consigned by more than 23,000 consignors. Increases of 10 percent and 12 percent respectively. We are enjoying momentum that we expect will drive further increases in these statistics in the year ahead.

Second, regarding sales force productivity, at the end of 2003 we had 188 sales representatives, virtually unchanged from the prior year. Because the large number of territory managers added to the team during the years 1998 through 2001, we have now evolved from rookies into seasoned veterans and because we have added relatively few new net territory managers in 2003, gross auction sales per sales representative increased from $7.2 million last year to $8.3 million in 2003. We will look to continue to grow our sales force again in 2004 and as we do so we will be looking to keep productivity over the $8 million range per person.

Third, with respect to geographic expansion, we held our first ever auctions in Greece, in South Africa during 2003. We also opened a sales office in Brazil. We are now operating out of over 90 locations in more than 20 countries.

Fourthly was our goal to use the Internet another technologies to enhance our business. Activity on our website continues to grow and our rbauctionBid-Live Internet bidding services has proven to be increasingly valuable for book buyers and consignors. Beyond the Internet, we began deploying a sophisticated CRM system during 2003 to assist our sales force to deliver better service to existing customers and to be efficient in their efforts to develop relationships with new customers.

I am very pleased with our success in all of these targeted areas. We achieved the goals that we set out for ourselves and in doing so were able to deliver record sales and earnings.

At this time last year we were forecasting earnings growth of approximately 12.5 percent for 2003. We significantly outstripped this target, largely due to a well above average auction revenue rate. And in doing so I have created a very difficult comparative number. As we said on our last conference call and as we have been reminding people during conference presentations and investor meetings ever since, we expect our 2004 earnings to be roughly flat with 2003. We are still expecting to achieve average sales growth of 10 percent and average earnings growth of 15 percent over the next several years, but given that we have just completed three years that saw our earnings growth in excess of 25 percent each year, a year of flat earnings will still keep us ahead of our targeted 15 percent average long-term growth rate.

Even though we have a very small share of an enormous and highly fragmented marketplace, we intend to continue following our proven strategy of steady controlled growth. To continue growing our business, we need to work with people who have not traditionally turned to the auction channel to buy or sell equipment, especially those who have relied on private sales such as contractors selling directly to other contractors, which remains one of the most popular ways of buying and selling in our marketplace.

Our unreserved auctions made be the proverbial better mousetrap, but they don't sell themselves. Our job is to build relationships with potential customers and show them the benefits of participating in our global marketplace. This is a key point to take away from this discussion. No matter what happens in the world economy, we are confident that we can achieve growth simply by increasing our market share. The ever-increasing number of bidders and consignors 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.

Thanks, Randy and good morning, everyone. I hope you have all seen the press release that we issued this morning, the numbers that form the basis of the discussion that follows are contained in that press release. Let me remind everyone that all dollar amounts referred to on this call and in our press release are U.S. dollars.

Gross auction sales for the year were 1.56 billion, as Randy mentioned, slightly ahead of the 1.55 billion estimate we provided at this time last year. This is surprisingly precise given the event driven nature of our business, which makes forecasting difficult.

Gross auction sales for the fourth quarter of 2002 -- I'm sorry, fourth quarter of 2003 were $477.1 million, making it the largest quarter in the Company's history. Auction revenues for 2003 were $161.5 million, a 21 percent increase over 2002. Our auction revenue rate was 10.36 percent, compared to 9.7 percent in 2002. The auction revenue rates improved in 2003 in part as a result of the strong performance of our straight commission business, but more significantly due to the unusually strong performance of our underwritten business.

I'm going to let Bob talk more about our expectations for 2004, however I will say that 2003 was a tremendously strong year and while it may be possible, we're resisting a forecast that predicts a repeat of this unusually high auction revenue rate in 2004.

2003 fourth quarter auction revenues were $47.7 million, with the auction revenue rate of 10 percent even. Direct expenses being the cost directly related to specific auctions were 1.45 percent of gross auction sales for the fourth quarter of 2003 and 1.42 percent for the full year, which is essentially identical to the direct expense rate of 1.43 percent experienced last year.

General and administrative expenses came in at $71.3 million for the year. G&A for the fourth quarter was $19.5 million, which was quite a bit higher than the average quarterly G&A over the first three quarters of 2003. There were two main reasons for the increase. First, we have prospectively adopted the fair value base method of accounting for stock options and as a result in the fourth quarter we recorded a stock based compensation expense of just over $1 million. There was no comparable amount recorded in 2002.

Secondly we made a conscious decision at the end of the year to increase the employee bonus pool beyond the level incorporated in our most recent guidance. In 2003 we had record earnings and we felt that higher employee bonuses were justified as a result. I should note that the accrual of the executive bonuses in the fourth quarter was not adjusted and remains roughly in line with the level incorporated in our previous guidance.

Depreciation was $11.8 million in 2003, an increase of $2.6 million over 2002. Depreciation increased because of the new auction facilities constructed over the past few years and increasing charges related to capitalized software development costs.

Our income tax rate for '03 ended up at 30.6 percent, which was in line with our guidance. Full year earnings for 2003 were 36.6 million, as Randy mentioned, representing growth of over 29 percent over 2002. Excluding the impact of a gain on sale of redundant property in 2002, and the additional G&A expense recorded in 2003 to reflect the expensing of stock options, an apples-to-apples comparison would give us earnings growth of 36 percent over the prior year.

No matter how you slice it we have a phenomenal year. In fact 2003 was our third year in a row of earnings growth greater than 25 percent. This is a good time to remind you that we have been repeatedly saying to anyone who will listen to us that we believe our sustainable earnings growth rate in the long-term is 15 percent per year, which we think is very commendable and one that we would be proud to deliver. For our business we believe growth rates above this target level are not sustainable in the long-term and simply create prompts that are tough to beat. Bob will no doubt remind you of this when he reiterates our guidance for flat earnings in 2004.

But first I would like to give you an overview of our capital expenditure plans and our expectations for free cash flow in 2004. Full year CAPEX for 2003 including maintenance CAPEX was $16.3 million. In 2004 I expect that we will incur growth CAPEX in the range of 10 to $15 million and maintenance CAPEX in the range of 5 million for a total expenditures in the range of 15 to $20 million for the year. Our actual growth CAPEX in 2004 will depend on our ability to identify opportunities to develop new auction sites.

We are continuing to look at several opportunities in the U.S. and if we are successful in finding suitable properties, we may acquire land in 2004, but depending on the timing of land acquisitions, construction of buildings and improvements, we would not likely start building until late in the year or possibly 2005.

After this estimated CAPEX and planned debt repayments, free cash flow in 2004 will likely be in the range of $20 million. Our Board of Directors continues to believe that excess cash should be returned to shareholders once appropriate reinvestment opportunities have been funded. As evidence of their plan to return excess funds to shareholders, our Board has already declared three consecutive quarterly dividends of 15 cents per share.

Our CAPEX budget has been set at the level we think it is required to support our targeted sales growth rate of 10 percent per year. We are often asked if we could grow faster if we simply spent more and the answer it to that question is no. Our network of facilities is only one of the factors that impacts our growth rate. A more significant factor is the size and maturity and productivity of our salesforce. We now have 29 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 and larger auctions. We estimate that our current infrastructure could handle as much as 50 percent more sales volume.

This operating leverage also means that we can be more efficient and have more profitable sales. The real driver of our growth will be the ability to develop more and deeper relationships with equipment owners. Before I pass the call over to Bob, I will briefly comment on the impact of currency fluctuations.

Recall that approximately 30 percent our revenues and approximately 40 percent of our operating costs are denominated in currencies other than the U.S. dollar. As a result, material fluctuations in foreign exchange rates during the period can impact the presentation of our financial position and results of operations. The main currencies other than the U.S. dollar in which our revenues and operating costs are denominated are the Canadian dollar, the euro, and the Australian dollar. In 2003 there was a significant increase in the value of these currencies relative to the U.S. dollar.

The changes in currency impacts aspects of our business beyond simply the mathematical translation of financial results. They influence equipment flows between two different countries, the purchasing power of buyers, the motivation of consignors, the value of equipment, and more. As a result, it is impossible for us to precisely identify the effect of currency fluctuations on our business and financial results, however while individual line items on our financial statements are affected, we believe that the overall impact of currency fluctuations on our financial results for 2003 has been roughly neutral.

Now I will turn the call over to Bob Armstrong, our VP Finance.

Before I walk you through our guidance for 2004, I need to correct a mistake that I made in some numbers that Peter gave you. It's not Peter’s fault. I gave him bad numbers. When Peter commented on G&A expenses for the fourth quarter, he indicated 19.5 million was the number. In fact the number was 18.8 million and the discrepancy relates to the way we are handling stock compensation expense in 2003. Peter's number implies that we booked a full $1 million stock compensation expense for options in Q4. In fact that was spread out over the four quarters of 2003, and you saw that in the press released this morning. The press release numbers are accurate. There was approximately $260,000 per quarter charged through '03. And in Peter's discussion I gave him numbers implying that everything was done in Q4, in fact, it was spread out. So take a look at the press release numbers. We gave a full reconciliation of those numbers there. And of course we would be happy to answer further questions on that.

Now I will speak to 2004. As indicated on previous conference calls, we are expecting gross auction sales in the range of 1.7 billion for 2004. This represents growth of nine percent over 2003, which is roughly in line with our targeted long-term average growth rate.

First quarter gross auction sales should be in the range of 350 million or about 20 percent the annual total. At this time it is probably reasonable to assume that the second and fourth quarters will each represent a little over 30 percent our annual volume and that the third quarter will be a little bit smaller than the first quarter. We will be able to offer more guidance on these numbers on future conference calls.

And now for the discussion you are all waiting for, let's talk about our auction revenue rate. We assess our auction revenue rate experience on a regular basis to determine if revenue rate expectations are reasonable in light of actual performance. Based on our assessment performed at the end the second quarter of 2003, we determined that we were achieving a sustainably higher auction revenue rate and we increased our guidance for expected auction rate averages to a 9.5 percent. Our actual rate in the fourth quarter was 10 percent and the rate for the full year was 10.36 percent.

We have recently performed further analysis on our auction revenue rate looking at the various components of our revenues and the performance of our underwritten business. We still believe the 9.5 percent is an appropriate assumption to make when estimating our long-term expected average auction revenue rate. However we can't deny that we have exceeded this rate in each of the last two years, even though we are not at all certain that we will be able to sustain these levels in the future.

In addition, we have never been very comfortable providing a precise rate because we know that we will never hit it exactly. As a result, rather than providing a specific targeted average rate, I'm going to give you a range. We estimate that our average auction revenue rate for 2004 will probably be in the range of 9.5 percent to 10 percent. Past experience has shown that our auction revenue rate is difficult to estimate precisely, and therefore the actual auction revenue rate in 2004 may well be below this range. Quarterly rates will almost certainly stray from this range.

A small change our auction revenue rate can have a material impact on our auction revenues and therefore our net earnings. For example a 10 basis point increase or decrease in our option revenue rate would have impacted 2003 auction revenues by approximately 1.6 million, of which approximately 1.1 million would have flown through to after tax earnings in our statement of operations, all else being equal. Said another way a 10 basis point swing in our auction revenue rate would have had an EPS impact between 6 cents and 7 cents per share.

We expect direct expenses being the costs specifically related to particular auctions to remain in the range of 1.45 percent of gross auction sales in '04.

General and admin expenses for 2004 will likely be in the range of 73 million. As of this point I have no reason to expect any material quarterly variations. This total includes an estimated 1.5 million in stock compensation expense relating to stock options. It also includes approximately one million relating to a new long-term incentive program that Dave will describe in a couple of minutes.

My expectations for 2004 G&A are only marginally higher than the actual levels in 2003, due largely to the fact that the 2003 number includes employee and executive bonus amounts that were driven up by the unexpectedly strong earnings performance achieved in 2003. As we head into 2004, budgeted bonus levels are much lower than the 2003 actual numbers, based on the assumption that we will meet 2004 targets. If in fact we outperform, then bonuses will be increased. If we underperform, they will be decreased.

2004 depreciation expense should be in the range of 12 million for the year and interest expense should be in the range of 4 million. Other income, which comes mainly from our appraisal division is expected to be between 1 and 2 million.

Our income tax rate for 2004 is expected to be in the range of 32 percent, pretty close to our experience in 2002. Before I hand the call -- excuse me pretty close to our experience in 2003. Before I hand the call over to Dave, I want to give you an update on our rbauctionBid-Live Internet Bidding Service. So far the service has been an unqualified success. Both buyers and consignors of equipment are enjoying the advantages of our brick (ph) and click quick strategy. Our ability to use the Internet to enhance our live unreserved auctions has become a significant competitive advantage.

Internet bidders now represent roughly 20 percent of the registered bidders at our auction. They have not displaced the live crowds but have simply joined them, creating larger bidding audiences. Since the launch of our Internet bidding service, average attendance at our industrial auction has grown by roughly 20 percent, equivalent to the number of Internet bidders. These bidders are the buyer or runner-up on between 15 and 20 percent of the lots being offered over the Internet. So they are clearly having a very positive impact on prices. However -- and this is the point that we are stressing with our customers -- the vast majority of our bidders still choose to attend our auctions in person.

The rbauctionBid-Live Service and the depth of information available on the RB Auction.com Web site have enabled us to expand our bidding audiences, creating an environment for Internet bidders and live bidders to compete against each other on a level playing field. This is the best of both worlds for both our bidders as well as consignors, and it sets us apart from our competitors.

Now I will pass the call over to Dave Ritchie.

Thanks Bob. Good morning. Before I comment on the state of the used equipment market, I would like to describe a new long-term incentive program that we are introducing this year. As Bob noted, we are budgeting approximately $1 million in 2004 to cover the cost of this program. Since founding this company with my brothers over 40 years ago, I have always had skin in the game. In the early years we were mortgaged to the teeth and we had to sign personal guarantees to support the business. There could never be any question as to our level of commitment to the business, and the same could be said of all our managers and partners.

Today, as the Company's largest shareholder, I'm still motivated to act as an owner. Almost without exception, each member of our current management team also has an investment in Ritchie Brothers. It represents the single largest piece of its net worth. But as we grow, I want to ensure that the future managers also have skin in the game. I want to create the opportunity for our senior managers to retire comfortably in their efforts have in fact created good value for all of our stakeholders. Our customers, our employees, and our shareholders. In my opinion, the best way to achieve this is to encouraged share ownership.

Starting in 2004, subject to the approval of shareholders at our upcoming annual meeting, we will be introducing a long-term incentive program that will encourage our senior managers, roughly our top 25 people, to designate a significant portion of their annual bonus towards the purchase of RBA shares. A trustee will then hold the shares on the employee's behalf. Executives will be required to hold stock having a cost that exceeds a certain multiple of salary. For our most senior executives, the requirement will be three times their base salary. To encourage participation and assist with the tax implications as well as recognizing that we are asking our managers to forego a significant portion of their bonus and tie their personal financial well-being to the long-term appreciation of our common shares, the Company will also contribute to this program.

Our compensation committee settled on the final design of this program after consultation with our Executive Committee, several of our institutional shareholders, and with the assistance of our Human Resources Consultant Firm. I believe that this program will encourage ensure that all of our senior managers have an appropriate level of skin in the game and that their interests will remain closely aligned with the interests of our shareholders.

Now I will offer some comments on the used equipment market. As you know, we sell more used trucks and equipment than anybody else the world, so we feel very good for prices and the trends. During 2003, seeing that the auction is held over the last two weeks, prices across most categories of used equipment have been strong. There appears to be a continuing shortage of good quality used equipment. This has made it challenging for our sales force to build our auctions, but it has also created an environment of strong prices.

Several of the OEM manufacturers will tell you that they are unable to keep up with their demand for some models of equipment, now the economy seems to be heating up. However, this apparent supply/demand imbalance isn't the result of prices going through the roof, because the impact has been mitigated by the deflation in the cost of certain categories of new equipment over the last few years resulting from manufacturers' incentives and intense competition.

The net result has been strong but stable pricing. There will always be pockets of strength and weaknesses in the used equipment market, but we believe that the value of well maintained, late-model used equipment will remain strong in 2004.

Prices at our sale in Orlando last week were evidence of this. The Orlando sale also gave us evidence of the success and strength of our business model. That sale was the largest sale in the Company's history, breaking a record that has stood since 1998 when we held a $59 million sale in the Netherlands. Our ability to hold a four-day $64 million sale in Florida says volumes about the momentum we are enjoying and the value that our unreserved auctions create for our customers. It also lays the foundation for a great year.

If there are any equipment owners out there who are sitting on the fence waiting to see what the market is going to be like in 2004 before committing their equipment to the auction, they now know that the market is strong. The result of the auctions, all of which are posted on our Website, will be an incredibly powerful marketing tool for our territory managers.

And now I will take the call back to Randy.

Thank you, Dave. Our growth in 2004 will come from efforts on many fronts including expansion into new asset categories and geographies, further development of our Internet tools, and additions to our international network of auction sites. But at the end of the day the success of these initiatives is dependent on our ability to develop relationships with new customers. That's why in 2004 we will be working on several customer service initiatives including completion of the rollout of our CRM system, increased enrollment in our training program for new territory managers, and customer service training for all our staff.

Our plan is to grow the business by developing more and deeper relationships with 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 that we can offer to both consignors and buyers remains compelling. Ours is very much a relationship business. We understand that our service just doesn't sell itself and that we need to provide the very best in customer service in order to support our growth objectives.

Before we open the call up to questions, I would like to recap one of the main points -- the main points we covered on this call. We ended 2003 with record gross auction sales, record auction revenues, and record earnings. We continue to believe that our sustainable earnings growth rate will be on average 15 percent per year moving forward, however we have now delivered earnings growth in excess of 25 percent for three years in a row.

We are projecting gross auction sales growth of approximately 9 percent in 2003, but because we do not expect to see a repeat of the unusually high auction revenue rate that we enjoyed last year, we are reiterating our guidance of flat earnings growth in 2004.

Now we would be pleased answer any questions that you have. Chris, would you please begin the question period?

Yes, thank you. (OPERATOR INSTRUCTIONS) Ben Chemiavsky of Raymond James.

Good morning. A couple of questions, some of them pretty quick. First of all just on the Internet, can you say how much -- what percent of sales successfully went to Internet bidders as opposed to what percent of people signed on to your website to participate?

Sure. In terms of dollars last year it was just under 150 million in sales so a little shy of 10 percent of total sales.

And you think that will hold more or less steady?

You know it's too soon to call. I wouldn't be surprised if it held steady but I wouldn't be surprised if it went up. We are only two years into this. It's been growing every year so it is tough to predict where it is going to go.

Yes, and I was just looking at your farm auctions. I haven’t counted them, but there seemed to be a lot of them. I know they are smaller, but does this add up to be something material? Like how much on average does each one of these generate?

This is Pete. I will pick that up. I think there are about 54 farm auctions that are listed on the Internet right now wit a whole bunch more in the hopper that are in varying stages of negotiation. And on a farm sale, there is really no fair way to say there's an average. You're going to range anywhere from a few hundred thousand dollars to multiple million dollars. I would say it is rare that you would get it and on the farm -- and these are on the farm sales we're talking about with us taking our equipment out to the farmers auction site and selling a one owner auction basically on his premises, including his home and whatnot.

I would say it would be relatively rare to see on the farm sale that would exceed 5 million, although we have had them. But that kind of range is what you see, so it's very hard to say here is the average. I think in terms of materiality we've never given guidance to the community that we expect a material movement in the bottom line earnings early on in the process here, but we're looking to grow this business. We think it is a great opportunity. There is a lot of the market that is yet uncovered and it's even more fragmented than the industry that we are in in the industrial side, so we are looking to pour the horses to it -- we have got some good people aboard and we are looking to grow that and complement of staff as well. I think it's for sure a long-term growth area for us.

Just doing some back of the envelope math with that, I don't put numbers in your mouth, but it sounds like it could add and to the extent this is relatively new business for you -- it could add $100 million of gross auction sales this year?

I think I would say that would be unrealistic expectations, but --

Well you've got 54 auctions just in the spring here.

Sure, but an average farm sale, like I say some of those auctions may be 2, 3, $400,000.

Ben, one thing you want to be careful about -- the spring season is the farm season and the vast majority of the business is done in that mid-March to the end of April, and there is a smaller following late in the year, kind of in that October range, November, but it is quite a bit smaller. It is a very, very cyclical season.

It really is almost three seasons. Probably the largest season in the farm sale from our perspective in Canada right now is April, and you will have another flux through in June, which won't be as large, and probably another series of sales later in the fall that also won't be as large as you will see in the April timeframe.

One other quick item. Yesterday the United Rentals was talking about how they had downsized their fleet and they commented that that was something that they believed was consistent with the industry, that in other words their competitors were doing the same thing. At least they had last year, they planned to slow that a little bit this year by the sounds of it. But did that defleeting in the rental business just in aggregate -- I know you don't want to say how much you've done with United or any particular customer, but has that trend impacted your numbers at all?

Ben, it's Randy. We do do a lot of business with the rental companies and 2003 was no exception to that. We saw a little bit of an increase in the business that they did, which was consistent with the general activity that the rental industry has started to replenish their fleet, but United was in the top 50 of our customers, let's say. Even so if you add the top 50 guys together, there's none of them in there that impact our business even more than two percent for any single customer, so a swing either way is not hugely significant to the overall results for us.

Great, thanks a lot. Congratulations on a good year, too.

James Gentile with Sidoti & Co.

Good morning, gentlemen. Just building on Ben's question about the farm auctions, are they a little bit more profitable than maybe the average equipment auction?

James, it's Peter here. I would say probably not. I would say they are probably within the range of consistent profitability we see in the industrial side. Generally the costs are little bit lower because your level of service, you don't have a permanent auction site that you're conducting these sales from. It's a little bit more nimble, but at the same time, the pricing on these things is as competitive as you would see in anything. Because the cost structure is lower, the competitors that you're running into are also pricing their services lower than you might see in the industrial side. So I think the net differences, you are probably in the same ballpark.

Okay, could you comment on the Sacramento location and then also looking out 2004 give us I guess insight into where you are going to be building new regional auction events overseas and maybe even the United States?

This is Dave speaking. I have this conversation with all of you all the time. We have about three or four areas packed up right at this present time. It's the first time in my life we've ever had the money and we haven't been able to spend it. We want to have a good area lined out in Ohio, in Tennessee, in the Northeast up in the Albany, New York area and over in the Boston area, and we are in motion on all of them. Our Sacramento yard is coming along nicely. It is going to be a very good yard. It's got the right location and it's on a high five and it has tremendous exposure and we hope to have that -- have our first sale in there this September. But it will be a great yard.

As far as around the world, we are constantly looking at sites all the time and are in a mode to go do it in lots of places.

You mentioned in the press release that you had your first auction in Greece and South Africa. Are there any areas where you'll be interested in having your first auctions in 2004?

Well, if you are just talking to me, I would tell you that the other boys, they kind of hang onto my shirt and hold me back a little bit here. They just don't me running off everywhere. The potential for our business, it works everywhere. And it's just a matter of getting the people and organizing it and developing it. The model works and we're very confident that it will work almost anywhere, so there's no country as long as -- we look at China all the time, but until China comes into the World Trade Organization and has proper importation and documentation for everything that we would want to move in and out, this isn't going to work there. Until they get to that point, we are still looking at that. We have looked at it now for 24 years.

James, I won't hold on to Dave's coat tails. There's no question that we have lots of room to grow. I wouldn't be surprised if we able to add a new country to the list this year but we don’t have anything specifically in the works to be able to point to. We are just going to carry on, do the same things we always have, grow our customers and do good business where it makes sense each and every month of the year.

Fantastic.

Bert Powell of BMO Nesbitt Burns.

I just want to follow-on Dave's question of too much cash. Is there an opportunity here for the dividend to go up? Have you guys been looking at that?

Dave's question about too much cash, I must have missed that one. It's a delicate balancing act when you're generating volumes of cash that we are and we are wanting to make sure that we are mindful of the guidance given to us by the Board, and it has been very specific. It is reinvest in the business where you can make a decent return so your auctioneers will want to stay auctioneers and not develop golf courses or do whatever else. And if you can't the proper and adequate investment opportunity within the Company, then the return to shareholders is the next on the list. And I think they evidence their statement this year in '03 with the institution of a dividend and something that we look at very, very regularly. We can't give you any guidance beyond that, but it's sort of the same old. Keep growing the business and keep returning money to shareholders.

Next question I just want look at the sales reps, you ended the year with 188, that's correct?

Yes.

So the growth for gross auction sales for next year if we just assume that everybody keeps the same level of productivity means you should be adding 17 new reps going forward?

We don't manage the business to that -- I believe that our number, our TMs can handle much more business than they do today on average. As you get a real seasoned, capable guy in a territory that is not all of Asia or some Third World countries, they can handle more than $8 million as they get seasoned and capable. So I think that we can see that $8 million number growing but counteracting that is the reality that we do intend to grow our salesforce this year. There has been a lot of mix within the static total. We've been trading up, if you will. And there's some people that don't upgrade, so we've been upgrading the TM quality that doesn't show just in that one number of 188 reps. There has been improvement within the troops. There has been maturing. I think that we can get more volume out of these guys as they continue to mature, but we will look to add to the number of salespeople also. So it's going to be a mixture.

Maybe I could go back a little bit then. If I think about your training program in terms of the ads that you're going to do this year, have you got all the guys identified and ready to ramp, or are we going to see an entry rate of not to stick to much on the headcount, but 188 with an average of 205 but your exit rate is going to be a lot higher? What is the linearity of the ramp in ad and the experience of the guys? Do you have them there? Are they trained? Are they ready to go?

We are always opportunistic in the market to find a good people. There is no ready pool like investment backers to go and take from that know the business and can just jump from one shop to the next. It's not like that in our business, so we do have to find new blood and grow them. This TM trainee process is a process where we take relatively lesser experienced people in life and put a year or two years into them to train them. There's people in that pipeline. There is people that have started to come out of that group already. We have a focused effort on bringing more of those guys on board and some have been identified, but certainly the need in every market that we operate in has been identified to say we should attempt to find maybe two people here or one body there, so the needs have been identified and now we have to match the right people and I think it would be a mistake to just hire bodies and we have to look for quality.

One last question, Bob, long-term debt, total long-term debt at the end of the quarter 27.4? On the balance sheet, can we read it to be that number?

I have it in front of me here.

Versus last quarter where it was 70 so in effect you took it down a fair chunk?

We didn't take it down. What you got is a 40 million in current portion of long-term debt (multiple speakers) matures in '04.

That is what I was asking. What is the total debt on the balance sheet at the end of this quarter?

Total debt on the balance sheet bank term loans of 27 plus current portion of 43 so approximately 70 million and there is also 13 million and 5 million funds committed for debt repayment. 13 million current and 5 million of long-term, so there is $18 million sitting in cash that has been earmarked in sinking fund accounts for repayment of that debt. So y our net debt using all those numbers, Burt, would be a total of 70 minus 18 of cash specifically targeted for debt.

Okay, thanks a lot.

Sarah Hughes with Sprott Securities.

I have one question relating to Europe. How would you decide to make the next step and start to look for new permanent auction site in Europe? What are the timeline for those plans?

Sarah, we have this middle step in Spain already where we have a site. We will likely be moving that location this year, and another country that we have our eyes on is England, the UK. We have been holding auctions there regularly now for several years and I think the time is right to start looking for a home there. But it will be this intermediate step where we look for a property that we take on as a lease. Those would be the two areas that I would see being upgraded within 12 to 24 months.

So in both Spain and England you first look to lease land?

Yes, Europe is an even higher cost environment than what we experience here in North America. The cost of land and density of people is generally different than it is here, and you have to be more careful. And we will follow the same model that we always have in trying to maintain profitability along the way, and it only makes good sense.

In terms of the architectural business you talked previously about taking that model into the U.S. Is that still a plan and what kind of timeline do you have on that?

Yes, it's still a plan and the timeline would be sooner than later, but there is nothing imminent right now. So logically it is kind of the same process that we apply to growing the business and we want make sure that we've got it well in hand and a good quality, solid team in place in Canada and then start growing also by reputation through into the U.S., so we've got some very high-quality people in the states today that are farm experts but not designated directly in our Ag business. They hop from here and there. Some of them have different duties within the organization, but we are looking to obviously to expand into that market. It's nothing I would say imminent. I would say nothing in '04 would be on the table today, but it would be sooner than later.

In terms of your salesforce can you leverage them and are the same people doing the industrial as the farm, or do you need a different salesforce for that market?

It's a little bit of a different salesforce although we do cross pollinate the guys and help some of the Ag specialists come and help with the industrial sales and vice versa because of their availability and because they are quality auction people, they understand the auction business and our auction business. But in terms of expertise, it is a more difficult thing to take someone who has got the expertise in grain and cattle and take them and put them into it a rock crushing fleet and have him go and appraise the value of a spread of freshing gears (ph) .

Okay, great. Thanks a lot.

(OPERATOR INSTRUCTIONS) Bruce Simpson with William Blair.

Good morning. A couple of questions here. First I would like to talk a little bit about the auction revenue rate and I realize you are a pretty conservative bunch but as I look back over '03 and really even into '02, it looks to me like you got seven quarters out of the last eight in excess of 9.5. I'm wondering if you truly think that you're going back to 9.5 why is it that the performance you've delivered is not sustainable? I realize that a lot of the volatility comes from the at risk business, but why is it that whatever performance you've been able to chunk out here so many times in a row would not be sustainable and what might happen to actually push that number back to 9.5 or below? Would you have to have several underperformances in your ability to value equipment consecutively or what would it take?

Great question, Bruce. Unfortunately we've only had to answer it a couple of hundred times so we have a good answer for it I think. I would like to rephrase the question slightly. It's not so much why can't you continue it? The best question is why has it been so high? And we don't have a really crisp answer for that question. If we could identify clearly why we have been overachieving, then we could structurally change the way we do things to do more of that. If he could identify why we managed to get 10.36 percent on average last year and we can say ah, it's because of those four things and we hired more guys do those four things. The truth is and trust me; we look at this because we'd love to find those four things. We have not been able to identify the magic formula. We have been doing the same thing last year for the last two years that we've been doing for 40 years. Last year and the year before it worked really, really well and we will continue to try to do that, but we haven't seen anything in particular that would attribute that great success to. That is the problem.

If we could identify the reason, then we can count on them or work on them, but we can't. So to your second question, what could cause it to come back down, the answer is exactly the same things that have taken it back down in prior years. You are looking at the last two years. If you go back and look at the last four or five there are many, many quarters where we have been below what we have always called our expected long-term rate, and you are correct. The main reason that the rate in a particular quarter has been taken down below our expected rate is the performance of the underwritten business. If we have a few sales that are heavy on underwritten business and those deals don't go well for us, and particularly smaller quarter, whereas those particular deals can have an outsized effect on the total can drag the rates down in a hurry.

Just as it can drive the rate up, and for sure the underwritten business performance has been the main contributor to above average or below average rates, so I think the answer to your two questions is we really can't pinpoint why we have had such great success and that is why we don't have great confidence in our ability to continue it, but it is the underwritten business and the performance of that business that is the main contributor to the change. Do any of you guys want to add?

I will jump in. Bruce, it's Randy. One thing that I think we can say is that I believe the variability or the standard deviation of our type of swing in our rates is less than it has been, and I believe in the at risk business, and I believe that all of the things in our infrastructure that we've been doing over the last several years are contributing to that narrowing of the variability in our performance at the auction site, and it can be a growing customer base. The growing amount of people that are using our live bidding service. The fact that I just ran a report. The top 50 customers of ours last year on the buying side, a third of them are from overseas, outside of North America. We are everywhere that we go we get deeper into new customers. Those new customers like this transparent system, and we end up with growing numbers of bidders, better facilities, more facilities. All of these things added together are creating a more stable environment for us as well as for our sellers, so I think that the variability has narrowed a little bit and standard deviation of rates is a little bit less, so I think we're getting better performances as a result of that.

We have increased our guidance a few quarters ago, and now you're seeing us give you a range. I think that there's lots of good things that we're doing that I guess I don't like to accept 100 percent that Bob says we don't know and I know that's the right answer from a point of view is that we can't predict precisely where we will be in the future, but we know we are doing a whole bunch of good things right and we're going to continue to do those, but we've also known from long experience that we can -- we do take risks. We are entrepreneurs. We are risk takers. We are aggressive when it comes to equipment. And we try to manage that in the best way that we can. We have an excellent valuation and risk mitigation process in the valuation of our deals, but sometimes it can go the other way. And we know that from experience so we're just trying to be cautious.

Is a percentage of guaranteed or at risk business rising over that period or is it pretty flat?

It is all within the tight range. Right around 25 percent. One quarter it is 23, the next one, 26. 25 percent is a good average, not changing.

I notice that there seems to become a consistent seasonality in the auction run rate. Perhaps you would say this is coincidence, but for example it feels to me like the fourth quarter typically over the last two or three years seems to drop about 50 basis points in the auction run rate from the third quarter. Is there a reason for that or do you think that is just coincidence?

I don't have a good reason for it. You're right. I've never actually tried to put a number on it, but the first and third quarters have over the last many years tended to have a slightly higher auction revenue rate than the second and fourth. I think the only thing I can identify that distinguishes those two sets of quarters is the first and the third are the smaller quarters, and the second and fourth are the larger quarters. Therefore, if you have a homerun deal or a real stinker of a deal or a homerun auction or a stinker of an auction, it can have more of an effect on your first and third quarters that it can your second and fourth. That's what I've attributed it to. I've always assumed the second and fourth are just closer to the average because of their size, but that's the only thing I can point to.

Okay. I wanted to ask a little bit about trying to disaggregate gross auction sales into units and pricing, given your comments about how strong pricing has been. And I wonder if you could either look back to '03 or tell us about implicit within your '04 guidance how do you split 13 percent for '03 and 9 percent for '04 into price impact and unit impact?

I'll let Dave speak to pricing because that's a really interesting topic. He's the expert on that. But as for units, I guess I would like to discourage you from trying to do the math of number of lots sold by an average sticker price. I mean, our average price what we sell is around $10,000, but it would be the statement. If you saw a press release and it said, hey, they sold 2600 lots to multiply by 10,000, because you would really get it wrong in Orlando where the average is more like 30,000. And if you go to a farm sale, the average is going to be less than $1000 perhaps. It's a bit dangerous and we don't really manage the business that way.

So I think that the simple math of number of lots and average value is a mistake. The average value of what we sell is so dependent on the mix of business. Last year we had one sale that we had three lots with big ferries (ph) that sold for 20 million bucks. That's going to take the numbers way up. And if we do a small sale or 1000 lots that sell for 100 bucks each, that can bring the numbers down. So it is a bit dangerous. But I'll let Dave speak to equipment prices in general.

I just believe that we're in a market where there's good demand globally, and that this is what has really helped us in a lot of these sales, is our offshore clients that have arrived on the shores of America and discovered that we have large auctions to come to, and we picked them up over the years from the Middle East and the Far East, and they now show up in our sales here, and they are really starting to make our day at these sales. It's because we have this offshore business.

And I would encourage you to watch even today the Internet being offered in Phoenix, Arizona. You'll see the participation from around the world at that sale. Most of the sales that are closer to the seaports attract more outside the country buyers historically. But there will be bidders there from all around the world watching that sale today, and it's a great event and it is something that will educate you as to the pricing and the strength of the market.

I have a follow-up question and it has to do with the territory managers. In posting about a similar number, can you tell us any idea of how many of those hooks turned over during the year and are you happy with that? Was that really the game plan or are you a little bit disappointed you couldn't add more people? That's all.

Bruce, it's Randy. Our turnover has been dropping in the last three years. It is somewhere around 9, 9.5 percent range in our sales force today. We are happy with it. We believe that that is good. We want to stay below 10 percent if we can, so we're happy. No worries.

Actually I meant happy with the total number. If you could have known at the outset of '03 that you would end with the same number of folks that you started, would you have been satisfied with that as long as the productivity was rising, or were you trying to attract more people in not living up to your efforts to try get more people in the door?

We're very pleased. We went through a phase where we had greater emphasis on hiring a number of bodies and we're focusing more on quality today, and you give me two good guys over eight average guys any day.

Okay, thanks. My last go away question here is a little housekeeping about '03 -- can you run me through what cash flow from operations were and I think you said CAPEX was 16 million in '03 and total cash for dividend?

The good news is that all of our filings in DNA will all be filed today so that will all get out there. The cash flow from operations number, which is a number I don't like, that's why you don't see it in our press release anywhere, the actual technical number which can read off our cash statement -- excuse me on our cash flow statement -- cash flow from operations will be 77.5 million. But please don't expect that to mean anything. If anybody wants to talk about it further give me a call afterwards. As you know, all the working capital numbers for Ritchie Brothers are a bit wacky.

So when you say you're looking for -- I'm sorry, can you repeat what you thought free cash flow for 2004 would be?

It's Peter here. We're looking at about the range of $20 million free cash flow after debt and CAPEX maintenance and growth CAPEX.

Is that also after dividend payout?

No.

Just high-level. If we have 35 to 40 million in earnings for the year and 12 million depreciation there's your total cash generated for the year. In our opinion that is the right cash flow from operations number to use. Take off 5 million in maintenance CAPEX, that's probably our free cash flow number. From that we would recommend taking 10 to 15 million off for growth CAPEX, another 5 to 10 for debt repayment, and 10 for the dividend.

Okay, thanks so much. Congratulations on a great year.

There are no further questions. I will now turn the call back to you.

Thanks very much, Chris. Well, we are excited about the prospects for 2004. We have come through a year that we had a lot of fun. We made some money for our investors and shareholders. We plan to continue doing the same. The market is interesting. It is a dynamic time for us. We see lots of growth ahead, and we're going to carry this momentum that we're working with today and use it to our advantage, and we look forward for good things.

We had a tremendous sale last week in Orlando, set a company record, 4800 bidders I believe were registered, some 800 of those were on the Internet. I mean the numbers are just fantastic and we're really pleased with that and we believe that we are better armed today than we have ever been going through the door of a potential equipment owner and seller. What we bring to the table and the value proposition to that potential seller or buyer, and I believe our future is going to be to continue to grow those buyers, expand that overseas and international marketplace, because it truly is a global business.

The world has ever been smaller than it is today. The exchange of information has never been faster. There's challenges out on the horizon for certain types of traders in our marketplace because the consumer has better information faster than he ever had before and the transparency of our system fits right squarely within what buyers and customers want these days and we are excited about it. We thank you for your support and we will talk to again in a few months. Thank you.

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