RB Global Inc (RBA) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the 2004 Q3 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded Tuesday, November 2, 2004. I would like now to turn the conference over to Randy Wall, President and Chief Operating Officer for Ritchie Brothers Auctioneers. Please go ahead, sir.

Thank you, operator. Good morning, everyone. I'd like to welcome you to the Ritchie Brothers Auctioneers investor conference call for the quarter ended September 30, 2004. My name is Randy Wall, our President and Chief Operating Officer. And I'm joined here today by Peter Blake, our new CEO; Bob Armstrong, our Vice President of Finance and new CFO; Dave Ritchie, our Chairman; and Jeremy Black, our Finance Manager.

We'll be talking today about our results for the three and nine-month periods ended September 30, 2004. Our presentation will take about 20 minutes, and then we'll take your questions. At this time, I'd like to make the usual Safe Harbor statement. The following discussion will include forward-looking statements within the meaning set out by the 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, property 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, which are available on our website at rbauction.com and the SEC and Sedar websites. I would also like to remind listeners that we will be talking about gross auction sales during this call. Gross auction sales represent the total proceeds from all items sold at company auctions. It is not a measure of revenue and is not presented in our statement of operations.

Auction revenues represent the revenue earned by Ritchie Brothers, and are composed of, amongst other things, the commissions we earn and the net profit or loss on the sale of equipment purchased by Ritchie Brothers. Listeners are encouraged to read our periodic filings for our further discussion of the components of our revenue. I would like to make a few remarks about our growth before I pass the call over to Bob and Jeremy to give you the financial overview. Dave and Peter will then have a few comments before I conclude the call and open it up to questions. We're now 3/4 of the way through 2004, and we've so far achieved gross auction sales of $1.24 billion, which represents growth of 15% over the same period in 2003.

We have continued to deliver strong auction results in most of our markets, which has been a common theme throughout the year. We are continuing to enjoy momentum in most of our markets, with increasing numbers of buyers and sellers choosing our unreserved auctions. Looking forward to 2005 and the next several years, I believe that our growth strategies will continue to capitalize on this momentum, helping us to achieve our expected 10% average sales growth. In recent years, one of our core strategies has been to develop a foundation for future growth; and when I talk about this foundation, I'm talking about our network of auction sites, our technology and our people.

During the third quarter of 2004, we made further advances in these areas. We've been busy on the property acquisition front, and I'd like to share some our successes with you. We have committed to acquire a 75-acre property in Nashville, Tennessee, and we expect to complete the purchase of that property this month. Our board has approved the establishment of a permanent auction site in Nashville, which will enable us to better serve our customers in that part of the United States. We've been operating out of temporary facilities in the Nashville area for several years. Our decision to build proper auction and refurb facilities will be welcome news for our customers and our employees in that region.

I would expect us to hold our first auction on this new site sometime in 2006. We have also signed an auction agreement for over 100 acres of land in the Columbus, Ohio, area. Subject to satisfying ourselves with respect to the usual preclosing issues, we hope to close on this property within the next 90 days. If all goes well, this property would likely be developed along a time frame that is about six months behind the development of the Nashville site. We are continuing our search for a suitable site in the New England area, as well as several other regions in the United States.

I'm convinced that there are still untapped opportunities for Ritchie Brothers in the United States, and we intend to work towards capitalizing on them. Acquiring properties in the U.S. has been our primary focus over the last year or so, but we have also been looking for attractive opportunities overseas. We would like to add one or two sites in Europe, so that we can continue to expand our network in that very important market. We believe that the size of the European equipment population is roughly equivalent to the size of the North American population; yet our European sales are only about 15% of our North American sales.

We believe that our European volume has the potential to approach our North American volumes; and a key aspect of our strategy for achieving the growth is the expansion of our network of auction sites, exactly like we've done in North America. Our geographic expansion efforts are not limited to property acquisitions. We are also continuing to open new sales offices. In October, we opened an office in Beijing, China, and we now have three full-time employees there. We now have more than 110 offices in 25 different countries.

We are excited about the prospects in our new markets, but I want to assure you that we will take the same measured approach to expansion in these areas as we do in North America and in other parts of the world. We will start small with limited, if any, capital investment. Excuse me. We have said many times before that our people are our number one asset, and our ability to attract and train quality people is a critical part of our growth strategy. Our head count has been slowly increasing over the last few years, and our sales force has grown to 199 individuals, up by 11 since the end of 2003. Even though it can take three years or longer for a new territory manager to hit his stride, our sales force productivity has continued to improve.

Our trailing 12-months gross auction sales per sales representative has increased in each of the last eight quarters. Our current level is $8.9 million per sales rep, which is well above our targeted base level of $8 million. We continue to expect to continue adding salespeople to help us deliver growth. An important component of our personnel strategy is training. We have invested significantly over the last few years in expanding our training programs to help our employees meet their full potential. We believe that investing in training, even though it results in higher costs now, is an investment in the future success of the company, and is a critical part of our ability to grow.

An example of one of the new programs we've put in place is our territory manager trainee program, whereby we take young college graduates and put them through a two year indoctrination into what it takes to be a successful Ritchie Brothers sales rep. Let me now turn the call over to Bob Armstrong, our recently-appointed CFO. Bob joined Ritchie Brothers in 1997 to help stick handle our IPO process.

Following the IPO, he assumed responsibility for most of our new obligations by virtue of becoming a public company. He also took responsibility for our fledgling Internet services operations, and led the development and launch of the RB Auction Bid Live Internet bidding service. In addition to being our corporate secretary, Bob has been a Vice President of Ritchie Brothers for several years, and on November the 1st, he was appointed CFO.

Thanks, Randy. And good morning, everyone. I hope you've all seen the press release that we issued this morning. I will also draw your attention to our MBNA and financial statements which we filed this morning. The numbers that form the basis of the discussion as follows are contained in that press release and in our quarterly 6K filing, which is available on the SEC and Sedar websites.

All dollar amounts referred to on this call and in our press release and securities filings are stated in U.S. dollars, and all per share amounts reflect -- reflect on a retroactive basis the 2 for 1 split of our common shares that took place at the close of markets on May 4. During our last conference call in August, we told that you we were expecting gross auction sales for the third quarter of 2004 to come in around $350 million. Actual gross auction sales for the quarter were $307.2 million. There are several reasons for achieving less than expected gross auction sale,s and they point to the importance of looking at our results on an annual rather than quarterly basis.

As we have told you in the past, we manage our auction schedule based on the needs of our customers, and this can sometimes be at odds with our quarterly gross auction sales guidance. This was the case in Q3, because we rescheduled several sales into the fourth quarter that we had originally planned to conduct in the third quarter, the most significant being sales in Denver and St. Louis. So far this year, we have generated gross auction sales of 1.24 billion, which is 15% higher than the gross auction sales reported for the first nine months of 2003. Most of this growth has come from strong performances in our U.S. and Canadian markets, with the Canadian results being aided somewhat by the strengthening Canadian dollar.

Also included in the nine month figure is gross auction sales of 35 million from the 79 unreserved agricultural auctions that we held during the period. This compares to just over 20 million for the corresponding period in 2003. Auction revenues were 31.4 million for the third quarter of '04 and 125.1 million for the first nine months of '04. This represents year-to-date growth of 10% compared to the auction revenues reported in the first three quarters of 2003. Our auction revenue rate for the nine months ended September 30, '04 was 10.09%, which is lower than the unusually high rate of 10.52% we achieved in the same period of '03, and just above the top end of our expected range.

Both our straight commissioned and underwritten businesses are continuing to perform well. Direct expenses, which include the costs incurred specifically to hold an auction, such as wages for temporary staff, advertising and travel expenses for staff to attend and work at the auctions, were 0798% of gross auction sales for the third quarter, and 1.24% for the first nine months of '04. This compares favorably to the direct expense rate of 1.40% experienced during the first nine months of 2003. The direct expense rate for a particular period is influenced by a number of factors, including the size of auctions held, whether large auctions are held on one day or several days, and whether auctions are held at permanent auction sites, regional auction units or at off-site locations.

Larger sales and sales held at permanent auction sites generally result in a lower ratio of direct expenses to gross auction sales. Part of the reduction in direct expenses during 2004 can be explained by the fact that we have held several very large auctions this year. It is interesting to note that the average size of the industrial auctions we held in the first three quarters of '04 was approximately 12.4 million compared to 10.9 million for the first nine months of 2003, and 10.9 million for the full year of 2003. This increased average auction size should continue to be a positive trend for us.

Another factor influencing our third quarter direct expenses is the fact that we are required to make estimates of certain direct expenses incurred for auctions completed near each quarter end. In the subsequent quarter, once the actual costs are known, we process any necessary adjustments to our estimates. For the third quarter of 2004, adjustments to the Q2 estimates resulted in a reduction of direct expenses recorded in Q3. And because Q3 is a small quarter, the adjustment had a larger than usual effect. I mention this so that you don't read too much into the 0.98% rate recorded during the quarter. It's the year-to-date rate that is the one that you should look at.

General and admin expenses were 21 million for the third quarter of '04, and 60.8 million for the first nine months of 2004, an increase of 16% over G&A for the nine months ended September 30, '03. Our G&A was higher than the equivalent period in 2003 for several reasons, including the impact of the continued weakening of the U.S. dollar and the continued growth in our business. For example, our total employee count has increased creased almost 6% so far this year, from 589 at the end of 2003 to 623 at September 30, 2004.

This led to higher wages and benefits, as well as other costs associated with bringing new employees on board, including an expansion of our training and employee development programs. Other factors contributing to increased G&A include the increased cost of upkeep of our auction facilities, including costs related to hurricane damage in Florida and Texas; the cost of our new executive long-term incentive plan, and a change in our method of allocating costs to internal software development projects, which resulted in a lower level of costs being capitalized for such projects, and the corresponding increase in software development expenses.

In addition, the cost to satisfying public company regulatory obligations and the cost of insurance have increased prior to the year. Overall, the higher G&A primarily reflects the ongoing and substantial growth in our business. As management, we look at G&A as a percentage of our annual gross auction sales to monitor G&A levels. In recent years, G&A has been around 4.6% of gross auction sales.

,The growth in this number up from 3.6% in 1998, reflects a significant infrastructure expansion of recent years. The benefits of this expansion include our ability to hold larger auctions, which has led in part to the recent decrease in direct expenses, and the increased capacity that we now enjoy. Going forward, I would expect G&A to decline as a percentage of gross auction sales. Our income tax rate for the nine months ended September 30 was 37.6%, and for the quarter ended September 30 of '04 was 51.5%. The higher than expected tax rate in the quarter was a result of an $888,000 charge arising from the realization of foreign exchange gains recorded at the subsidiary level in connection with certain term debt that is coming due in the second half of 2004.

We expect a similar charge in the fourth quarter of 2004. But this is a one-off situation, so we are not expecting similar charges in subsequent periods. Excluding this nonrecurring charge, our tax rate would have been 35.3% for the nine months and 27.7% for the three months that ended September 30, '04. Jeremy will speak more about our income tax guidance for the remainder of 2004. Net earnings for the third quarter were 1.8 million, or five cents per diluted weighted average share, and for the nine months ended September 30, they were 23.6 million, or 68 cents per diluted share. Excluding the impact of the one-time income tax charge, net earnings for the third quarter would have been 2.7 million or 8 cents per diluted share. And for the year-to-date, would have been 24.5 million or 31 cent per diluted share. Excuse me -- or 71 cents per diluted share.

As we have mentioned in our last three conference calls, our expectation for 2004 is that our net earnings will essentially -- will be essentially flat compared to 2003, and that continues to be our expectation. Before I pass the call to Jeremy to update our guidance for the rest of the year, I want to talk a bit about our current Cap Ex projects and our future expectations. The development of our permanent auction site in Sacramento, California, continues to move forward. The opening has been delayed slightly, but we are planning on a grand opening in the first quarter of 2005. Overall, our Cap Ex for the first nine months of this year, including maintenance Cap Ex, was 15.2 million.

I still expect that we will incur growth Cap Ex for the full year in the range of 15 million and maintenance Cap Ex in the range of 5 million, for total expenditures in the range of 20 million for the full year. Our board of directors has declared another quarterly cash dividend of 11 cents per share, payable on December 17 to shareholders of record on November 26th. The total amount we expect to pay out for this dividend is around 3.8 million.

And now, I will turn the call over to Jeremy Black. Jeremy is a new speaker on these calls, but he has been with Ritchie Brothers for two years and is very well-known to many of you, as he has been working closely with me on the Investor Relations front. Jeremy is our Finance Manager, and in that role has responsibility for many areas, including treasury management and the financial reporting side. Like all of us at Ritchie Brothers, Jeremy has also -- also has his hand in other projects. Jeremy works very closely with Randy, Pete and others when it comes to establishing operations in new jurisdictions, and he has been heavily involved in our responses to Sarbanes-Oxley. I would encourage any of you with any questions, either today or in the future, to call either Jeremy or me. Jeremy?

Thanks, Bob. Good morning. I'm going to update our guidance for the remainder of 2004 and give you some preliminary insights into what we currently expect in 2005. We will give some more detail on our 2005 guidance during our next conference call in February. On our last call, we updated our guidance and told you that we were expecting full year gross auction sales in the range of about 1.77 billion for 2004.

As we do at the end of each quarter, we have gone back to our field managers and asked them to update their estimates for the next quarter. Based on this update, we are increasing our guidance for the fourth quarter. We now expect gross auction sales of about 520 million in Q4, which compares to our actual performance of 477 million in the fourth quarter of 2003. This would result in full year gross auction sales in the range of 1.76 billion for 2004. This represents growth of almost 13% compared to 2003 gross auction sales. I should note when our non-U.S. dollars sales were converted into U.S. dollars for financial statement purposes, they benefit from the weakening U.S. dollar; however, this win is offset by an equivalent impact on our expenses.

As we have noted before, while individual line items are affected by currency fluctuations, the impact on our bottom line continues to be essentially neutral. Looking ahead to 2005, we continue to expect an average gross auction sales growth rate of 10%, and our preliminary expectation is that we should be able to achieve gross auction sales in the range of 1.9 to $1.95 billion next year. Once we have surveyed our field managers regarding their thoughts on 2005, we will be able to provide more specific guidance. At this point in time, we're comfortable that our average auction revenue rate for the remainder of 2004 should be in the range of 9.5 to 10%.

The 10.09% rate experienced in the first nine months of this year was slightly above our expected range, but it's entirely possible that future rates could be higher or lower. We are also maintaining this auction revenue rate guidance for 2005. Our direct expense rate has fluctuated a bit this year, but has remained below our recent expected level of 1.45% of gross auction sales. Based on the performance we have achieved to date in 2004 and the increase in the average size of our auctions, we now believe that direct expenses will be in the range of 1.40% of gross auction sales in the fourth quarter. 2005, given that we expect to be able to maintain this higher average auction size and continue to benefit from the economies of scale, we were able to achieve at our permanent auction sites, we expect our direct expense rate to average about 1.35% of gross auction sales.

We are increasing our guidance for 2004 full-year general and administrative expenses, mainly because of the continuing weakness of the U.S. dollar and our expense experience to date. In August, we indicated that we thought G&A would likely be in the range of $79 million for the full year of 2004. Based on our experience to date and our current expectations for the remainder of the year, we would like to increase our G&A guidance to the range of 82 million for the full year of 2004. Most of this increase has to do with currency fluctuations and expenditures needed to support the ongoing growth in our business.

It's pretty early to be speaking with confidence about our outlook for 2005 G&A, but we do expect growth in the business, which will translate into higher G&A expenses. Right now, our expectation is that we will likely see G&A in the range of $86 million, which would represent absolute dollar growth over our G&A guidance for the full year of 2004. However, this would result in a decrease in G&A expenses as a percentage of gross auction sales, which is evidence of the operating leverage inherent in our business. Full year depreciation expense in 2004 should be in the range of 12.5 million; and in 2005, we expect it to be about 13 million. Interest expense for the full year of 2004 should be in the range of $3.2 million, consistent with our previous guidance -- and for 2005, we think we'll experience a reduction to about the $3 million range.

Other income is still expected to be about $1 million in 2004, and between $1 and $2 million in 2005. On our last conference call, we indicated that our income tax rate for 2004 would be in the range of 35%. We have experienced a higher rate than our guidance because of the one-time charge related to the realization of foreign exchange gains that Bob mentioned. Absent the impact of this tax charge, we still expect our full year tax rate to be around 35%. Our tax rate is sensitive to the jurisdictions in which our income is earned, which makes precise estimates difficult. The U.S. is a high tax rate jurisdiction, and our earnings growth in this market has caused our tax rate to move up in recent periods.

Looking ahead to 2005, we think that we will continue to see strength in our U.S. dollar market -- sorry, in our U.S. markets -- and this leads us to expect that our overall income tax rate will continue to be in the range of 35%. Since this time last year, we have been predicting essentially flat earnings for the full year of 2004. And absent the $1.8 million tax charge, we would still be predicting flat earnings. However, considering this tax charge, our 2004 full year earnings should end up slightly below 2003's earnings. This 13 -- the 13% growth in gross auction sales that we're anticipating for the year has, as expected, been offset by our return to a more sustainable auction revenue rate.

Increased G&A and a higher than expected tax rate are also holding out earnings down this year. We still expect to achieve average earnings growth in the range of 15% per year over the next several years. But as we've noted on previous conference calls, having achieved earnings growth at 25% to 30% per year for the last three years means that we're up against a pretty tough comp in 2004. And now, I'll pass the call over to Dave Ritchie.

Thanks, Jeremy. As most of you know, I stepped down as CEO of the company effective October 31st. I'm handing over the reigns to a very capable team. And the board has appointed Peter Blake to be our new CEO. I am very confident that Peter will be a solid leader for this company.

Peter, Randy and the other members of our committed and hard-working management team are very focused on the company's goals, and I know they will have great success. You will still see me around going to auctions and working with the customers. But my official role will be as Chairman of the company from now on. Peter has worked his way up the financial ranks of the company since joining us in 1991. He has been a key member of our senior management team; and for many years now, Peter has been CFO and a director of the company since the IPO in 1998. And more recently, he has also had executive responsibility for our Canadian agricultural operations.

Before I pass the call over to Peter, I would like to comment about some of our recent changes to our board. I would like to welcome Beverly Briscoe, who was appointed to our board on October 29th. Bev comes to us with a wealth of experience in an industry complementary to ours. In the past, she has held senior management positions at WAJAX Limited and Rip Toll Marine [BOTH PHONETIC] Most recently, Bev was the owner and president of her own transportation services company. Bev is also a member of the board of -- of boards including BC Rail and Westminster Savings Credit Union.

Significantly, our board now has seven members, and has a majority of independent directors. Our board has also established a nominating and corporate governance committee under the chairmanship of Eric Patel. This committee will be responsible for overseeing our corporate governance programs and the selection of new board members. And I am very proud of our corporate governance achievements to date.

And I look forward to working with our board of directors to ensure that the interest of our shareholders are always well-represented. Let me now pass the call to our new CEO.

Good morning, and thanks, Dave. I'm going to talk a bit more about the recent executive changes that took effect on November 1st, and then I'll address a few points before passing the call back to Randy to conclude. I'm sure most of you are aware of Dave's recent decision to concentrate more on what he calls the better part of his job, and that's going to auctions and shaking hands with customers and taking them to dinner.

On behalf of the people here and around the company, I did not want to let the opportunity pass to say thank you to him for not only what he has created, but more for the principles that he has ingrained in all of us at Ritchie Brothers by personifying work ethic, integrity and honesty. He has repeatedly reminded us that our business is very simple. Just treat your customers well, get the deals and do what is right. These are three fundamental principles that we all live by. And we have ended up carving out our careers here at Ritchie Brothers in large part because it's the culture and environment that we all gravitated to, and this culture and environment that Dave has embodied is the one that we breathe every day.

You may also wonder what's in store for the future here. Well, basically, it will be more of the same. We'll continue to focus on growing the business, intelligently investing our excess free cash flow or returning it to our shareholders, paying attention to the basics -- and even though I will carry my financial discipline into my new role, we are a sales organization and will remain a sales organization. We have lots of initiatives in the pipeline, including a re-examination of our key business processes so that we can enhance and create scalable and efficient systems that will be able to handle growth well into the future.

We're in the process of recruiting for a new Chief Information Officer to assist us in taking full advantage of the relevant technologies as we grow the business. We will be taking advantage of current and added expertise at the board level to challenge and guide management's strategic focus for future growth. There is a lot on our plates here, but we're an energetic and seasoned group of managers, steeped in the Ritchie Brothers culture, and committed to creating and adding value for all of our stakeholders. Before I pass the call back to Randy, I just want to comment on the potential impact on Ritchie Brothers of a slowdown in the global economy that may well occur in the coming years, since we're often asked about what will happen to Ritchie Brothers' earnings and financial performance if the economy slows.

Our usual answer is that we are not concerned. We do not believe that our business is impacted materially by cyclical, economic trends. With talk in the news these days about this and signals of the slowdown coming out the various sectors in the U.S., I just want to give you some more color on our thoughts here. Because we hold such a tiny share of this huge used equipment market, we do not believe that our growth potential is tied to macroeconomic factors. We believe strongly that the most important external factor impacting our success is change, whether good or bad. One of the challenges facing our sales force right now is the tight supply of used equipment.

There has been strong, economic activity in many of our markets; and even though we have done a solid job of growing our top line sales, much of the equipment that we would like to be selling is presently in use. Any shock to the system that frees up equipment would, of course, make our jobs a little bit easier. As Dave has often said, we can grow in any economic environment. We do well in good times, and we do better in bad times. As long as things are changing, Ritchie Brothers can find equipment to sell. With the recent ripples from China, raising its interest rates for the first time in nine years, with housing starts in some parts of the U.S. showing signs of softening and with the U.S. economy staring down the barrel of both significant budget and trade deficits, we may well be in for a change.

As I said, particularly now with our expanded capacity and our ability to hold more and larger auctions, change is good for Ritchie Brothers. Now I'll pass the call back to Randy.

Thanks, Peter. Before we open the call for questions, I'd like to recap the main points that were covered on this call. Firstly, we ended the first nine months of this year with gross auction sales of $1.24 billion and net earnings of 68 cents per diluted share, or 71 cents per share excluding the effect of the nonrecurring tax charge, which is consistent with our earnings level for the equivalent period in 2003.

We are expecting continued strength in gross auction sales in the fourth quarter, and are forecasting 1.76 billion in sales for the whole year, which represents an almost 13% growth over '03 levels. The effect of the nonrecurring tax charge will result in earnings below our previous guidance for the year. But excluding this charge, we continue to expect flat earnings for the full year. Secondly, thanks to the infrastructure investments of prior years, we have significant capacity in operating leverage. Over the next several years, we will continue to work towards average top line growth in the range of 10%, which should translate into average earnings growth in the range of 15% over the long-term.

Thirdly, we have taken some solid steps forward relating to our worldwide expansion plans of the new property in Nashville, a property under auction in Ohio; and in addition to opening our new offices -- and in addition, adding to our new offices opened this year in Iran in February and Indonesia in April is our newest office in Beijing, China. Finally, the very capable Peter Blake has taken over as CEO of the company effective November the 1st and will lead Ritchie Brothers into the next phase of our evolution. I know I speak for all of the employees of Ritchie Brothers when I say that we're happy to have Pete in the corner office.

Now we'd be pleased to answer any questions that you have. Operator, this is the end of the presentation, and you can now open this up to questions.

Thank you. Ladies and gentlemen, if you would like to register a question, please press the one followed by the 4 on your telephone. You will hear a three tone prompt 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 speakerphone, please lift your handset before entering your request. Our first question comes from the line of Ben Chemiavsky from Raymond James. Please proceed with your question.

Good morning, gentlemen.

Hey, Ben.

Morning, Ben.

Let me just ask a little bit about gross auction sales. First of all, what are you guys seeing at some of your smaller auctions. You noted some pretty significant growth at the ag auctions you've been holding. Some of your biggest auctions in the last few months have been -- well, you're up against some pretty tough comps, as you yourselves say. So, they're starting to look a little smaller from last year. But presumably, to have the kind of confidence that you've got in hitting that target for the year in gross auction sales and growth for the fourth quarter, you must be seeing some significant growth in the smaller auctions that you don't disclose. Is that fair to say?

Hi, Ben. It's Peter. I'll comment on the ag side of life, because it's my area, and I'll let Randy carry on after that. But on the AG side, we've seen some very good penetration in the marketplace. We're still only operating in upwards Saskatchewan. We haven't taken our foray to the U.S. So that's something that's on the plate for us, too. But on the ag side, we've seen a couple of things happening. One is a solid penetration and momentum for us bringing our style of unreserved auctions and the ability to bid live at some of these events on the major pieces and on land being a very positively accepted by the marketplace. But more importantly, what we've been able to do is lever off of the momentum that we're gaining on the ag and the penetration into the ag industry so that we can mirror that up with some of our bigger sales. As an example, in Edmonton recently, we had some of our ag people that are working towards getting equipment not only signed for the farm sales, which are the small ones, but also supplementing our larger auctions with an ag section or even a full ag day, which is hugely efficient from our point of view to simply add another day and take an extra large chunk of sales and dedicate that to the interested buyers. Lots of crossover, too, in the industry from the ag perspective. You see a lot of tractors being used on -- you know, typically, you would think would be farm tractor being used in different applications like road building and what not. So we're seeing a lot of cross pollinization of the appeal of equipment not only to the ag sector of farmers in general, but also back and forth to the construction site. Randy, you want to comment?

Sure. On the nonAG side of the business, Ben, there's lots of, lots of factors that play here. And I've just jotted a few down that I'll mention to you. Average size auctions and same store sales is a really difficult concept that we don't believe is particularly relevant. For example, you track some of the larger sales. Moredite [PHONETIC], for example, they look like the average sales are down. But we moved to having five sales in that yard this year for the very first time rather than four. So that's a significant factor. Let's say Dubai -- that market is extremely strong. There's a very -- there's a shortage of equipment to be selling, so that everybody's work, work, work, work, working. Very, very busy. But despite that, that marketplace is about static in terms of its equipment values. And during that same time over the last eighteen months, other markets have risen relatively substantially. The U.S. market has been very strong. Europe has been strong, but that's also made more so by the strengthening of the Euro currency -- and the Australian market has been red hot, including strengthening currency. So a lot of the flow of the worldwide equipment that were going into Dubai to be sold have been diverted to other markets that because of currency and economic factors have actually been stronger. So Australia has seen a big push this year from some of that -- let's say Asian equipment, that would have otherwise gone to different store. But it speaks to the strength of Ritchie Brothers network that the equipment is still captured in our system, but it may be diverted one yard to a different region.

Yeah, if I can interject, Randy, I have no issue with that. I think that's exactly why I'm asking the question, though, because if your bigger auctions aren't generating the revenue, either you're not getting it somewhere else or you're getting it in your smaller auctions, which means your smaller auctions should be getting bigger. We just don't see that. [OVERLAPPING SPEAKERS] Based on the press releases -- besides, you can't on one the hand say that bigger auctions are irrelevant while at the same time saying that your -- that bigger auctions are driving your direct expenses as a percent of gross auction sales down. I think bigger auctions are important. Ideally, you guys would want to hold just one big auction -- sell $1.7 billion one place once a year -- and your margins would be enormous. So, there's some balance between your -- between the size of the auction and the number of them. Both are important. But that's not to say that bigger auctions are irrelevant. Unless you want to disagree with that, but --

Yeah, no, I take your point. And I think you're asking a question that we can't answer, because we don't look at the specifics of hey, we had a St. Louis sale -- last year, it was $4 million and this year it's going to be $6 million. We don't analyze St. Louis that way. We analyze the market in one big picture, and we continue to see the momentum and Dave throws at me a couple of brochures. And I should mention this to you. This is an example of the penetration in the ag side of life. This is something that we won't typically press release as a single or separate event. Except for the fact that, you know, we're starting to make inroads on the ag market into Germany and into Spain right now with some relationships with some people there having a very large -- for Germany, a very large sale in the ag market coming up in mid to late November. You won't see a separate financial press release on that. But this is another example of the way that we continue to penetrate the market and get that momentum going. So, I think, I guess in some respects, we're asking you to believe that we have the right mousetrap and people that have held the stock little while, I presume, are comfortable that that's the right answer. We're going to continue to grow the size of our auctions. Just because a $28 million auction one year is $25 or $30 or goes back to $25, that equipment is being able to be captured, like Randy said, in all aspects of the network. So we're continuing to focus on the big picture of growing globally.

I would like to add a couple of more things that, to me, speak to the GAS side of life. And that is -- and again, Ben, you're quite right -- it's below the press release level. We're continuing to make inroads into new markets, like Peter said. In Europe, we've have sales this year. In Italy, the U.K., Spain and Germany coming up. It'll be more regional expansion in Europe than we've had before. The financial sector has been very strong for us this year so far. Despite the strong economy, there has been pressure on some larger organizations that due to our work with the major financial institutions has been a positive influence for us. We're making inroads into the marine sector, which is very -- relatively small in our business so far, but it is also a net plus. So there is lots of little things, Ben -- you're quite right -- that are adding up. And we're confident about Q4.

Great. That's what I was hoping to hear. Now just one other issue that I think -- Bob or whoever was running down the third quarter results, mentioned that there were a few reasons why gross auction sales were we below -- were significantly below your 350 million. Although I think the only thing that was specifically noted was the change in the two auctions or the several auctions that you rescheduled. Was there anything else? Did you just -- that's worth discussing? I mean, this is an environment that in some ways, it's impressive you guys are growing as much as you are, because I remember back four or five years ago when demand for equipment -- the last time demand for equipment was strong, you had a hard time getting it for sale. Are you seeing any of that? I mean how does that factor into the situation right now, as well?

Sure, Ben. Fair question. The only concrete thing that I can point you to for Q3, the difference between actual and our previous guidance really is the financial sales that were moved from one quarter to another. On top of that, there are all of the usual ebbs and flows that we see. It comes down to our ability to use the crystal ball to see into the future. Sometimes we are high. Sometimes we're low. In this particular quarter, there were a number of sales that just came in a little bit smaller than we expected. And there were a number that came in larger -- but on balance, the smalls beat the bigs. And then as I mentioned, there were a couple of sales that we consciously moved from one quarter to another. But I'm not -- I can't think offhand of anything else that I could point you to that I could sort of put a number on.

So it's not -- it's not that the end markets are almost -- are too strong to allow you to find equipment? That's not really an issue right now?

No, our guys in the field will tell you that it is always hard to find equipment. That's why we have to pay the money and they work hard. But I don't believe that it's causing us grief. If that was the case, then you wouldn't hear us talking positively about Q4. In fact, we're seeing great strength out there in the markets. And we're using that to our advantage. Our marketing department has kicked off a -- quite an aggressive program to let all of our customers know how very strong the pricing is right there -- right now -- and that they better take advantage of this and jump into our auctions in Q4. I'd like -- and we're expecting to see good volume in Q4. In large part, because of the strength of the marketplace.

Yeah, okay. Great. Well, that was a good quarter, I thought. Thanks a lot.

Thanks, Ben. Operator, next question?

Our next question comes from Yvonne Varano from Jeffries. Please proceed with your question.

Thanks. I was just looking for a little more color on Europe. You talked about Italy, U.K., Spain auctions coming up. But as you do more of a pioneering effort over there, what other areas could we expect to see auctions going forward?

Well, Yvonne, I -- this is Randy. You heard us mention that we're looking at property expansion in Europe. We're right now starting the search for sites in two of those markets. And that will lead to additional regional expansion in those -- what we believe to be very major regional markets within Europe, predominantly the Iberian Peninsula as well as the U.K. and Ireland. But beyond that, you're going to see additional growth coming out of eastern Europe. We're already getting a lot of customers coming our way from the likes of Croatia and from Poland and from Russia, that are coming to the auctions to buy. That's the first wave in our normal progression of organic growth that we attract buyers and interested parties. They go home and they spread the news. We've had a few sales in Greece. That's positive. The -- we've just secured a large package of equipment coming out of a major highway project in Croatia. And that's going back to Mordite for auction. So, there's real significant ebbs and flows. The momentum that we have is attracting us and lending us to be even more attractive to major scale companies of the world ghat do these infrastructure projects the world over. And I believe that we won't add too many more exotic countries that we hold auctions in, Yvonne, but we'll get deeper into many of these mainstream European countries, and then over the next year, two years, you'll probably see auctions heading east. France is also a very important one as well. That's a country that's had very unique auction legislation since the times of Napoleon that was essentially a closed country. And that -- those laws have changed somewhat. They're still very protectionist, let's say, towards the French local presence. And we're working our way through that. And we're optimistic that within the next 24 months we'll be holding auctions in France.

And when you talk about the property expansion, what would we say -- one or two properties in the next year or so?

Yes. Well, maybe not the next year.

But why don't we say -- say five years? Just knowing how long it takes us to get things organized and up and down and zoned. We've been looking for a while -- we're putting the heat on right now. And we're looking at a couple of specific locations -- but it's not the kind of thing you'll see grand openings within the next 12 months.

Right.

Okay. And then just, can you tell me about your total debt to capital was at the end of the quarter?

[OVERLAPPING SPEAKERS]. We're both looking at Jeremy. He's offering, you do it! [OVERLAPPING SPEAKERS]

Or give me the current portion of the bank term loan, either way.

That'd be about -- I'm not going to say about. We'll answer that question momentarily.

Talk amongst yourselves.

Any other questions to ask us, Yvonne, while the boys are looking that up?

Well, here -- I'll do it for you now. Right now, your term bank loans sitting on the balance sheet are only $13 million and your total equity is sitting at $273.

And the current portion of the bank term loan?

50.

Total debt, 50.

So about 19%.

That's why we don't look at it very closely.

Okay. That's it. Thanks.

Next question, operator?

Thank you. Our next question comes from Murray Gainer from Scotia Capital. Please proceed with your question.

Hi, I have two questions actually. First of all, was most of the difference between the guidance of the 350 and the 300 from the two auctions that you that mentioned?

Yes. I guess for some reason -- that's the only part that I can easily identify. Between those two, though, it's not majority of that difference. They weren't that big.

They were about -- I think there were four auctions that shifted. Only one was large, and that was our Denver sale.

Okay.

In the range of 20, 25 million of the difference was caused by the shift.

Okay, well, my real question is, what would induce you to change an auction like that?

Purely the dates on the calendar -- and as well as customer needs. It's not our -- we've never managed this business to force within any particular quarter one way or the other. We try to do the right piece of business to do the best service for the customer; and in some of these cases, the customer needs -- needed a little more time so it was shifted. And in other cases, the calendar is getting full, which is continuing a trend that we're going to have that we'll see a spread into the -- what would otherwise have been slower periods in our auction calendar, just because the dates are otherwise full. So it's both of those reasons, Murray.

Okay, thanks. Secondly, just with respect to the charge, can you -- I don't understand this charge. Like, why does it only affect taxes and it's nowhere in the income statement?

Sure. Murray, it's pretty complicated -- I apologize for that. And in fact, it' probably best described one on one. Give me a second here. So you can give me a call later if you like and I can sort of go back and forth with you on it. But let me take a crack at explaining it, because it is, you know, significant. One of our Canadian entities has U.S. dollar debt, and it's invested the money into our U.S. operations. When it repays the debt, the Canadian company is deemed for Canadian tax purposes to have enjoyed a gain, even though it has not actually enjoyed any economic benefit. The company has U.S. dollars that it uses to repay the U.S. dollar debt. But in Canadian terms, it's -- from the point of view of CRA from revenue Canada, it appears there has been a gain because of the strong Canadian dollar. It looks like the company has had to repay less dollars than it originally borrowed. There's no economic gain. The notional gain on the debt is of course offset by a notion of loss, if you like, on the investment. So that's the natural economic hedge. But revenue Canada doesn't sort of see past that. It's an anomaly of Canadian tax law that recognizes the notional tax gain, but not the notional loss that creates a tax liability in our Canadian company. Unfortunately, it's just a one off situation. We've looked at it, of course. We're not aware of any other similar tax issues with any of our other debt.

Okay. Thank you very much.

Thank you. Our next question comes from Bert Powell from BMO. Please proceed with your question.

Thanks. In terms of regional auction sites this quarter, are we still at the same care level we were last quarter?

Yeah, regional auction units, Bert, yes, we still have seven.

Okay. And so when Sacramento comes on line in the new year, is there any -- what -- have you guys looked at quantifying the impact of turning that live and migrating traffic into that location? And is there sort of a -- a period where there is some -- I guess maybe some market confusion until you get that ramped up?

Murray, this -- this will ramp up almost automatically. This is going to ramp up very quickly. [SPEAKERS OVERLAPPING].

Hi, Dave.

It'll ramp up very quickly. We're well established in the marketplace there. And we've needed this facility for a long time. And it's taken us a lot longer to get it up than we thought we would. But it's going to be a great yard. We were just down there a week or ten days ago and had a good walk through. And I know it's going to be the right location and a great yard where we'll enjoy instant benefit.

Having said that, Bert, it's tough to put a number on it. We don't even have a number internally. As you know, it's currently a regional auction unit. We're holding regular sales in Stockton, which is just around the corner. [INAUDIBLE] the Stockton sales. Starting the first quarter of next year, the plan is to have Sacramento sales on the nice big yard. I agree with Dave -- we should see good impact. We would expect a positive right away -- but how big is hard to say.

Just as we go from a temporary facility, if you want to call it that, to a -- which is you know, rather modest. And we're not a permanent fixture in the local community and in the region to go to one of these sites. You heard us -- as far as all of the benefits in the past, and it really, really is significant. We become legitimized. We become far more of a presence. We can attract better quality people to hire. We can attract better quality customers and we can handle in the business more efficiently. So it's all very positive.

Okay. Just getting back to -- not to beat this to death -- but the gross auction sales. Was there any slippage in the quarter? I know, you know, there's been some larger fleet dispersal-type sales that have been happening. Have those -- you know, did those slip or dry up relative to what you're sort of recent experience would kind of indicate to your sales guys you would see?

There has been no slippage. Actually, we've held our system very well; and compared to our competitive position, we're much stronger than we were even this time last year. And I see some major transactions that are going to come at us, and we're well-positioned to handle them.

Okay, and Bert, we -- at the beginning of the year, we were forecasting 1.70 billion and then we drifted up through the first part of the year, and have only come down 10 million on our guidance here, and are at 1.76 now. So we're more bullish than we were at the beginning of the year. And we think right now there's been some timing issues between Q3 and Q4. As Dave said, there's lots of positive things out there. We've made positive inroads in a lot of different sectors,and it's being spread across the network. We're quite happy.

Bert, we know you guys live in quarters and you have to suffer the vagaries of the way we live our life. And we live our life in the larger chunks and we're experiencing one of those unique moments when you have to try to explain your guidance of whatever it was and versus what we deliver. We're not stressed out about it at all. We think we're on the right track. We're delivering a very good solid top line and we're very bullish about going forward here.

Okay. One last question -- just kind of a more housekeeping. I think Jeremy mentioned in his discussion that there was some impact in G&A from hurricane damage in Florida and Texas. Was that material in any way?

Burt, it's Bob. No. Couple hundred thousand bucks.

Okay.

We had insurance.

It was more than that. $300,000 for both.

Okay.

[SPEAKERS OVERLAPPING] So maybe it will go up. Who knows? But $300,000 is the number.

We had insurance to cover it, but that was the deductible portion that we had to lay out. So it's was big in that it was a meaningful unexpected amount. But in terms of total G&A for the year, you know, we're not talking millions of dollars.

Okay, so bottom line, G&A is still being driven out of the head count increase, increased training costs, some FX. So it is kind of favorably split amongst that? There's nothing that kind of drops off next quarter that would -- or into 2005?

Bert, probably the single biggest item would be FX which is spread amongst every line item. The next biggest one is growth related to people, and benefits in training and all of those things. And the regulatory environment has also been pretty significant. When we start adding up the Sarbanes-Oxley, of the corporate governance dues and fees, and legal and accounting, all of that stuff wrapped up is becoming a very significant issue in a post-9/11 environment where costs are increasing on certain fronts, particularly insurance. We don't see those things changing and -- unfortunately.

Okay. All right, thanks a lot, guys.

Thank you.

Our next question comes from Charlie Brady from Segonia South Coast Capital [PHONETIC]. Please proceed with your question.

Hi, good morning, guys.

Charlie.

On the gross auction sales guidance number in -- for Q4, that's been changed, is it fair to say that pretty much all of that change in guidance is due to the shifting of the auctions from Q3 into Q4?

A small piece of it has, but we're also increase -- we have a piece of it as well that's a positive momentum in other markets.

Okay. So it's not just all a shifting of auctions? There is some underlying -- sort of business growth in there as well.

That is correct.

Okay. And could you talk about -- a minute about the tax rate guidance -- and maybe I'm just not understanding it or don't know how to math correctly -- if I -- you're saying 35% tax rate for the full year. Is that correct?

Absent the nonrecurring thing we described a minute ago, that's right.

Okay. So that 35% is without the charge?

That's correct.

That clears it up for me then. I misheard you then.

No, probably not. Probably just me mispeaking.

Okay. And then do you have the percentage that was underwritten in the third quarter?

That was right around 20%.

Our normal range that we tell you about is between 20% and 30%. Probably average 25. Q3 is a small quarter for us and it turned out to be 20 -- just over 20%.

Q3 was 20%. Yeah, 20% for the quarter. And 22% for the year-to-date.

And then my last question, I'll get back in the queue. On the direct expenses in your guidance -- in your [INAUDIBLE] of 1.4% in Q4, which is -- you know, a good bit higher than your 1.2% average for the nine months. Is there anything in particular that's driving that, given that you are going towards, you know, larger auctions? Is it just that you have no smaller auctions expected in Q4?

Actually, that's the case. Q4 is a large quarter in terms of number of auctions. They aren't all megaauctions. And if we just -- I know realistically looking at historical Q4 activity and what I'm expecting in the current Q4, that the average auction size of Q4 may be a little bit lower than it has been to date. Still, I'm expecting quite a high average for the year. But Q4 is likely to have a higher direct expense rate than the first three quarters.

I'll mention one other thing, Charlie. The migration from temporary or regional auction units to permanent auction units also has an effect of driving a certain amount of -- element of cost that would otherwise be in the direct expense line, is how some of the costs relate to a more temporary facility. And when you get into a permanent one, some of those costs migrate down into the G&A line.

Okay. Great, thanks, guys.

Our next question comes from Ross Turnbull from Odlum Brown. Please proceed with your question.

Good morning.

Good morning, Ross.

I just want to talk a little bit about equipment prices -- and what I want to try to understand is how much of the gross auction sales improvement is due to volume, and how much is due to price?

We were just pointing at each other trying to figure out who's going to answer this question. Pricing has been strong. There's no question about that. Good quality, late model used equipment is in very short supply. It's very difficult to find. Prices are up substantially. The quantity of equipment in general out there -- I think Bob mentioned it earlier that our guys will tell you if you talk to an individual sales rep, that yeah, it is difficult to find equipment -- but then some of our momentum factors that are getting increased penetration by ourselves into the markets are offsetting that. You know, it's difficult for us to analyze, Ross. I don't know I'd venture a number. Dave, do you have any sort of a gut feel that you'd want to talk about, or?

It's different in different categories, too, though. I mean, the pit -- it gets so dangerous, Ross, if we throw a number around, because it could be this in trucks and that in construction, and something different in forestry and [INAUDIBLE].

I mean, you could be selling more units, and they might be forklifts. But you've got [SPEAKERS OVERLAPPING], then you've got a few big ticket items. Changes the whole picture. It's very hard to --

But it's fair to say we do look at number of lots we sell, Ross. And I think if you look at our numbers -- and I'm just quickly scanning a chart here. We sold more lots this year than we sold last year, nine months to date. So I don't think the --- I don't think the answer is fewer items being sold for more money -- it's more items being sold for more money.

I mean, is it fair to say that the average piece of equipment you're selling is 5% -- worth 5% more this year than last?

We really can't say that because it is the whole mix whether it is parts and pieces and forklifts or generators, or whether it's big bulldozers or cranes.

Or ferries.

Or ferries last year, you're right. The industry information I get points towards that.

And also, the data you provide in terms of the number of buyers you have in your gross auction sales, it looks like the average buyer is spending about 5% more. Does that make sense?

Well, your sales are up 13%. 15%. And our buyers continues to go up. So, they probably are spending about 5% more. But I don't think you can necessarily say that the prices on some items are up more than 5%, Ross.

Okay. And then another question, different topic, is Dave and Ross were big travelers. And as the company grew, they spent a lot of time away from home at the various auction sites, and I want to know if Peter and Randy, if you guys are going to do the same thing.

We have been already. Talk to our wives. We've been traveling for 15 years. There's no change, Ross.

Okay. That's it for me. Thank you.

Well, just before we say no change, I think, you know, we're fairly mindful, Ross, that we have to make sure that we're minding the store here as well. So you know, it's going to be a delicate balance in combination of making sure that items are being addressed from the corporate level at the same time that we're continuing to focus on the basics of the business, and we talked about that earlier. And hey, the basics for us are shaking hands with people at the auction sites, seeing our employees in the work environment, giving a chance for them to chat to us and us to them. So, that's a fundamental culture of Ritchie Brothers that won't change; but at the same time, we're going to have to manage our P's and Q's going forward to make sure that there are people minding the store.

I'll still be here to have lunch with you, Ross.

Much more mature group of managers throughout the world who are very capable of running these operations. And that's a significant change than what it was in the early days.

You know, I'll add to that. That's one of the focuses that Dave and Ross both had in the last five years. Was to strengthen the depth of the management group out in the field at those regional auction sites and divisional management -- divisional V.P. levels. They're stronger out in the field than they've ever been, with greater amount of experience. And those people are effectively the entrepreneurs that the company had in Richmond ten years ago, or some those people are now out in the field mining $200 million regions. So they're running huge business units of their own accord; but Peter and Rob and myself will be continuing to do a healthy amount of travel.

Ok, thanks, guys.

On commercial airlines. [ LAUGHTER ]

Next question, operator?

Our next question comes from James Gentile from Ritchie Brothers Auctioneers. Please proceed with your question.

All of my questions have been answered. Thank you.

Thank you, James. Welcome to the company.

Yeah, welcome to the payroll. We need more guys.

Our next question comes from Bruce Simpson from William Blair. Please proceed with your question.

Good morning, gents.

Good morning.

One housekeeping thing. I couldn't understand what you said about the current agricultural gross auction sales. Can you repeat that number please?

I believe we said that number was 35 million year-to-date in the ag sales versus 20 million last year. [INAUDIBLE SPEAKER] 79 ag sales, and we've conducted smaller sales that we don't normally include in our numbers for industrial. And the total gross sales year-to-date were $5 million versus 20 million in the equivalent period.

Okay, thanks. On currency fluctuation and impact of currency, as a general statement, you maintain that top and -- that the bottom line impact is pretty negligible, that the costs in revenue sides offset one another. And yet, you did you mention currency as the primary driver in a higher G&A in this particular quarter than you anticipated. Do you think in this particular quarter that that rule of thumb held, that there was really a balanced impact on the bottom line? There was no change to currency? Or did currency impact the EPS number in this particular quarter?

For sure, we'd like to look at things on a full year, or really twelve months. Or at best, year-to-date basis, because then you don't have the vagaries of small quarters and big quarters because -- you're on to something there, Bruce, for sure. In a small quarter, saleswise, you don't necessarily have a small quarter G&A-wise, and so it's entirely possible in a short three month period that you might have an outsized impact on the G&A. If I can speak to a full 12-month period -- we run these numbers pretty regularly to make sure we're comfortable with this comment -- about 30% of our revenues are denominated in non-USD, and about 40% of our expenses are in non-USD, and those tend to be roughly the same dollar amounts. And so you have an essentially neutral bottom line. In a small quarter, you're absolutely right, that you'll -- could probably have slightly more G&A dollars than revenue dollars in non-USD, but it all takes care of itself on the full year basis.

So, could you make an estimate for the impact in this particular quarter?

Um, well, we figured it wasn't very material. So I can't -- I don't have a real number; but I'm comfortable in saying that our revenues are roughly 30% non-USD and operating expenses are roughly 40% non-USD. So you could kind of back into it that way, probably.

But not in the Q3?

Well -- It's not a -- we don't view it as material. It's not a big deal.

Okay. And there was some benefit in this quarter to gross auction sales from a weakening USD, is that right?

Sure.

Yeah, that's normal. We had some Canadian sales, we had some overseas sales.

But it's not -- you gotta remember, Bruce -- and I don't know if we talked about it with you in the past -- that the currency affects the buying pattern of people as well as just simply raw dollars. We have a Canadian now who has more spending power into the U.S. He may well meander down into a U.S. sale and buy something down there where he otherwise might not normally, and compete. So, there are lots of different factors at work here -- simply looking at the raw dollar conversion would be sort of looking at only a part of the big picture that we look at.

Sure. Okay. Makes sense.

It's easy -- on the G&A side, it's much easier. We have people that work in, say Canada or in Europe or in Australia. They get paid a certain wage or we incur certain costs there. That just gets converted as currency -- it's very simple. But the currency -- like I say, the currency fluctuation on the buyer side is much more dynamic.

Okay. Can I just get you to comment, to give me a little bit more color on the progress of your territory managers -- the number sounds like it is nicely gradually increasing sort of in line with your overall goal of 5% to 10% growth. Are there any changes under the surface that we don't see in terms of turnover, for example, or the average tenure of those sales people or the average age when we see it just go up, you know, five or ten people year-to-date. Is it generally no change to the base and you've just added five or ten young people, or is there accelerated turnover that's consistent with the changes to the training programs, for example?

Bruce, it's Randy. I would say that the territory manager base has been pretty stable. Our turnover rates are drifting down. In the last two, three years, those turnover rates have dropped fairly substantially. And so most of the increase is adding new recruits on to the existing base. There's no real noise underneath that's relevant for me to talk about. The only other thing I would like to point out is in addition to those 199 territory managers, this territory manager trainee program is in full swing, and I think we have about eight of those individuals in the pipeline now. And they will be graduating, you know, on average within six months, and you'll get new ones coming in. We're quite pleased with that program. But they don't -- we don't include those yet in that 199 number, because they're not productive. They don't have the territory. They're just another G&A item.

Is the new TM training program, Randy, then, about a six month hitch?

Actually, it's quite a bit more. It's a minimum of 12 months. It's 12 to 18 months. But -- depending on the experience level of these individuals. They have to have a college degree -- we don't care what it is. We just want them with the ability to learn, and then we look for people that have the right attitude, work ethic and the right stuff and personality and people skills that we believe can be salespeople. And then we massage them a little bit. Some need 24 months. Some need 12, and a few need less.

Okay, very good. And the last question is just on your Sacramento yard. Is that delay just sort of tied to local politics and zoning variances? Or why is that a bit less -- a bit later than you had earlier anticipated?

I think you hit the nail on the head. A lot of it is local permitting issues. Very, very difficult in California. There's also been world supply issues -- you know, the supply of steel to get the building construction up in the air. That's had an impact. And we'll still be moving into that building in late December. So it's -- but we can't tell you that there's a grand opening until the first one in '06 -- or '05, sorry.

Okay. Last question has to do with China. So, you have three dedicated folks there and there's been lots of news over the last quarter or so about the liberalization of trade policies moving in and encouraging eruption. Can you give us some update sort of on what barriers still remain between today, and your ability to conduct auctions in that country?

Hey Bruce, it is Rob MacKay here. We've got our three people in place here. And as China works toward their obligations under the world trade thing by December 11th of this year, there's many background facets that they still don't have worked out yet. The economy will be open to foreign-owned auction companies and other service companies at that point in time, but they have not yet written the laws about how you can perform and operate there, even though the country will be open to you doing business there. So, as of December 11th, we can be a foreign-owned auction company; but the government is in current discussions right now to rewrite the auction law, which we are -- jumped in head first and are a significant participant in it. And we've managed to make some changes that originally we couldn't have lived with. But they don't know -- they don't know what the auction world is like out there. So they're looking at their own closed market, past auction laws to do with antiques and artifacts. And we're broadening their scope a little bit. But it's a fairly long process for them; and as you can imagine, they're trying to change laws to multiple disciplines and organizations, and the auction industry is just one of them. So the employees that we brought on there -- one is an American fella that's lived in Asia for most of -- oh, I guess the last 15 years. He's very attuned to the Chinese culture in the marketplace. The other two employees -- one of them was the head of the U.S. AEM Associated Equipment Manufacturers -- knows his way around China very well. Different ministries, that sort of thing. And the other employee is a lady who was the government relations manager at the AEM. Has very good contacts in the the Chinese government and has a unique ability to get us meetings with people in the ministry of finance and other entities that we need to get to that push our case. So what's the crystal ball say? It's fuzzy.

Yeah.

But there is going to be opportunity there and it's just a question of how fast can we wish our desires through the Chinese regulations and get it up and running so that it's suitable to our business model.

Rob, from today's perspective, do you think that Ritchie Brothers will realize revenue coming out of China in 2005?

No.

Okay.

No revenue from the point of view of having auction sales there. But I would anticipate that we're going to see equipment coming from China to our other auction sites, whether it's locally manufactured buckets, attachments, that sort of thing. The other part of the business that will come to us quite quickly, I believe, will be Chinese national construction companies that are working abroad in Saudi Arabia, Iran, Pakistan, around the world, that they complete their projects and they have excess equipment to get rid of because they won't take it back to China. So, that's one of our immediate targets right now is to -- to -- we've identified them. We have to get in and meet them and get to know them and peddle our market to them so that when they've done their job somewhere in the world that we can sell their equipment for them.

And that's a -- that would be a change that they have been prohibited from doing prior to today?

Not prohibited from doing. We have done some business in the past with a few of them.

Yep.

There's a lot more of them out there. As you look around the world today, there's a lot more Chinese national construction companies that are going abroad and doing projects. So some of the larger projects around the world today, you see more and more Chinese companies bidding on them and doing them. So there will be more opportunity down the road for us with those companies.

And Bruce, it's Randy. This follows a very similar pattern as other international expansion -- it may be that China could take a little bit longer until we achieve local auctions. But there will still be positive business spin-off related from the presence being there, whether it's Chinese buyers coming outside to buy equipment, or whether Chinese contractors and so on. So we're -- we believe that'll be a positive spin.

Thanks a lot, guys.

Operator, perhaps we could take the last question to close the conference call?

Thank you. Our last question comes from [INAUDIBLE] from first associates. Please proceed with your question.

You've mentioned the fact that the tightness and the availability of new equipment has made it harder to get old equipment to resale. Are you see this disproportionately in any specific segments of your operation, such as certain geographies, and where is this having the biggest impact?

This is Randy. The tightness in supply of equipment is pretty consistent in most markets. Pretty much everywhere has been quite strong. I wouldn't say that there's worse areas than others. There may be some that are impacted because of the -- probably the Middle East is one that jumps to mind, because of the inflow of imported equipment has been diverted elsewhere this year. Dave is leaning forward. I think he wants to mention something.

There's been a definite demand for large equipment, and there's a very limited production capacity in the world and I'd say that the larger equipment has been stretched out longer. I don't think you can buy a big piece of machinery -- if you ordered it today, you wouldn't get anything within six months and probably more like a year.

Okay. Obviously, this trend is getting still a bit worse?

Well, I don't know. I think it's probably loosened up a little bit here now. There seems to be a little bit less pressure. I think that -- there is a little bit of softening in some of these markets.

Thank you.

Thank you.

Operator, I think we should close out the call and certainly all of you that are still listening that may have questions, please I'd encourage you to contact either Jeremy or Bob directly. We thank you for listening to our Q3 conference call. We're going to continue to pull ahead of the reigns here. Peter is the man in charge. We're looking forward to the Q4 challenge ahead of us, and we believe there's a lot of positive things out there. So thanks for listening. And operator, that'll be the end of the call.

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 line.