RB Global Inc (RBA) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Ritchie Bros. Auctioneers 2008 Q1 Earning Results. 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 being recorded Tuesday, April 29, 2008.

I would like to turn this conference over to Peter Blake, Chief Executive Officer. Please go ahead, sir.

Thanks, Dominique. Good morning, everyone. Thanks for joining us on the Ritchie Bros. Auctioneers Incorporated investor conference call for the quarter ended March 31, 2008. I'm Peter Blake, CEO of Ritchie Bros. With me on the call today are Bob Armstrong, our Chief Operating Officer, Rob Mackay, our President, Rob McLeod, our newly appointed CFO and Jeremy Black, our Director of Business Development and Corporate Secretary.

Today, we will be talking about our financial results for the quarter ended March 31, 2008. The formal presentation will take about 20 or 25 minutes and then we'll open the call for questions.

Before we start, I'd like to make a Safe Harbor statement. The following discussion will include forward-looking statements as defined by SEC and Canadian rules and regulations. Comments that are not statements of fact are considered forward-looking and involve risks and uncertainties. These include statements about our projected future results of operations and financial performance, growth and other strategic initiatives, property development plans and other matters.

The risks and uncertainties include the numerous factors that influence the supply of and demand for used equipment; fluctuations in the market values of used equipment, seasonal and periodic variations in operating results, actions of competitors, conditions in local and regional markets and other risks and uncertainties as detailed from time to time in our SEC and Canadian securities filings, including our Management's Discussion and Analysis of Financial Condition and Results of Operations for the quarter ended March 31, 2008, which was filed this morning and is available on the SEC, SEDAR and Company websites.

Actual results may differ materially from those contemplated in the forward-looking statements. We do not undertake any obligation to update the information contained on this call which speaks only as of today's date.

I'd also like to note that during the call today, we'll be talking about gross auction proceeds, which represents the total proceeds from all items sold at our auctions. Our definition of gross auction proceeds may differ from those used by other participants in our industry. Gross auction proceeds is an important measure we use in comparing and accessing our operating performance. It is not a measure of financial performance, liquidity or revenue and is not presented in our Statement of Operations. The most directly comparable measure in our financial statements is auction revenues which represent the revenues we are in in the course of conducting our auctions.

With the first quarter of 2008 under our belt, I'm happy to report that we achieved gross auction proceeds growth of 12% and auction revenue growth of 19% and we believe we are on track to deliver our originally expected earnings growth for 2008. We posted strong auction results in the quarter, continue to build on the platform that we will support -- that will support our ambitious growth strategy and welcome thousands of new and existing customers to our unreserved public auctions.

Some people look at unreserved auctions in which there is no guaranteed minimum selling price and they see uncertainty, but what we've learned over the past 50 years is that our business model is not only proven, it's reliable. We have seen increases in the number of sellers, bidders and buyers at our auctions every year with similar increases in our gross auction proceeds and auction revenues and the first quarter of 2008 was no different.

In the first three months of this year, we conducted 37 unreserved auctions around the world -- industrial auctions, sorry. Industrial 32 -- industrial sales and 5 agricultural sales. We have more than 66,000 bidder registrations in the quarter which was 5,000 more than last year. About 28% of those customers registered the bid online using our real-time internet bidding service rbauctionBid-Live. We recorded more than 17,000 internet bidder registrations and sold about $140 million worth of equipment to internet bidders this past quarter, 15% more than during the same quarter last year.

Since we've launched rbauctionBid-Live in 2002, we've sold almost $1.9 billion worth of industrial and agricultural assets over the internet. With that, I'm often asked if we will ever migrate to an online only auction model and the short answer to that is not likely. Despite the ease, convenience and popularity of our internet bidding service, most of our customers still prefer to bid in person at our auction sites. They enjoy the atmosphere. They like seeing who they are bidding against and they like being able to test, inspect, and compare the equipment in the yard before they bid. They jump in the cab. They turn the key. They use the controls. Our customers tell us time and again that an inspection report, no matter how rigorous can not replace the sense of comfort they get from seeing the equipment for themselves.

Our auction sites enable us to have full care, custody and control of every piece of equipment from the time it arrives in the yard until the time the new owner pays for it and picks it up after the auction. Even our online bidders appreciate and benefit from the role of our full service auction sites. They can buy 5 pieces of equipment from 5 different owners at one of our auctions afterwards and they only have to deal with one site for all their post-sale logistics including payment, title transfer and other paperwork.

Our consigners also benefit from this concept of centralized care, custody and control because we take care of all of the selling details for them. They only -- they have only to drop off their equipment at one of our 38 auction sites and we take care of all the remaining details, including preparing the equipment for sale, collecting the proceeds from all the different buyers, remitting any sales tax and disbursing the net proceeds to them shortly after the auction. This allows our customers to focus on their business and not worry about the hassles that arise when selling their equipment privately or through other channels through a multiple of different buyers. That's why one of our top priorities continues to be the expansion and improvement of our global network of auction sites.

In March, we opened our 28th permanent auction site in Kansas City, Missouri and also conducted a record breaking $54 million auction at our newest regional auction unit in Las Vegas, Nevada. The addition of the Las Vegas site brought our total to 38 auction sites in 9 countries. In the first quarter of this year, an average Ritchie Bros. industrial auction attracted about 1,400 registered bidders and generated $17.2 million in gross auction proceeds.

Our auctions run the gamete from small offsite sales to the record breaking $190 million auction we conducted in Orlando, Florida in February which is not only the largest auction in our 50-year history, but also the largest industrial auction ever conducted in the world. That auction attracted more than 6,000 registered bidders from 71 countries helping us deliver strong returns for our consigners despite the soft housing construction market and slowing economy in the United States.

At the other end of the spectrum as an example, just last week we conducted a $10 million force through equipment auction in the small town of Chemainus on Vancouver Island in Canada. More than 1,700 people from 16 countries registered to bid, including several people who came from as far away as New Zealand and the Netherlands to bid in person at that auction site. The auction featured a complete dispersal and a major realignment of 2 local forestry companies and a lot of the equipment being sold was quite specialized. It could have been a fire sale given the depressed state of the local forest industry here in Vancouver Island, but it wasn't simply because we were able to attract a diverse international audience of interested buyers to the auction and once again deliver fair market value.

These two auctions demonstrates perfectly the strength of our business model. The large and more diverse your bidding audience and the efficient centralized display of auction items, the better your ability to deliver strong prices on auction day regardless of local market conditions. Strong pricing attracts more sellers and more consignments which brings in more bidders and so on. It's really that simple.

It was a pleasure to have our new Board Chairman, Bob Murdoch on site at the Chemainus auction. In the course of replacing the retiring Chuck Croft as chairman of the board, Bob has attended a number of our auctions including one of our most recent sales in our Paris, France auction site which was of particular interest to him having spent most of his career with LaFarge S.A. and affiliated entities in North America and overseas. Bob's interest in our business and his understanding of growth strategy and focusing on delivering shareholder value will serve us well. We expect him to keep us on our toes.

Russ Cmolik also announced his retirement at our recent annual meeting of the shareholders after a long and distinguished career with Ritchie Bros. Russ started with the Company as a bean counter in the early '70s and quickly started on the upper path, retiring from the position of president and COO of the Company in 2002. We will miss Russ and Chuck's steady guidance and unparalleled understanding of our business and offer them our sincere thanks and gratitude for their 10 years of service to the board.

I'm pleased to report that we now have 2 members of our Board -- new members of the Board including Chris Zimmerman, the current President and CEO of Canucks Sports and Entertainment who was elected to the Board at our recent Annual Meeting of Shareholders and Jim Micali who was appointed on Friday by our Board.

Chris has a broad experience in sales, marketing, research, design and development and operations gained from his experience as the President and Chief Executive Officer of Nike Bauer, Inc., a hockey equipment company and as the general manager of Nike Golf USA. Chris joined Nike Golf in 1998 after spending 16 years in a variety of senior advertising positions, including USA advertising director for the Nike Brand and Senior Vice President at Saatchi and Saatchi Advertising in New York. Chris earned his MBA at Babson College in Massachusetts.

Jim is currently Chairman and President of Michelin North America with responsibility for Michelin's operations in North America. He's been with Michelin since 1977 and brings a wealth of experience managing major business functions, including strategic planning, sales and marketing, customer service, mergers and acquisitions, finance, legal, information systems, human resources, and external relations. He's also director of NYSE listed Sunoco and NYSE listed SCANA Corporation. Jim obtained his legal education from Boston College Law School and was admitted to the Bars of Rhode Island and Massachusetts.

We're very proud to have both Chris and Jim on our Board and look forward to benefiting from their fresh input and perspective as we execute our growth strategy and deliver shareholder value.

Before I pass the call to Rob, I'd like to comment on a recent development that is catching people's attention. A number of people have asked us about how the proposed acquisition of City Capital's North American commercial lending and leasing business by GE Capital will affect us. At this stage, it's too soon to tell how this proposed transaction will impact our business. Frankly, they're in the midst of amalgamating two companies that will have a combined lending portfolio of more than $100 billion. So while we are on their to-do list, they understandably have some higher priorities right now.

It's interesting to point out though that both GE and City Cap are significant Ritchie Bros. Customers, so we look forward to developing a deeper relationship with GE as a result of this transaction.

Let me pass the call over to Rob Mackay now who will give you a brief market overview.

Thanks, Pete and good morning, everyone. We've often asked to comment on changing economic and market conditions and the impact of these changes on the pricing of used equipment at our auctions. Slowing markets are just one of the many factors that motivate people to sell surplus equipment or to buy used rather than investing in new machines. We have seen that in BC with the forest industry and in the U.S. with the residential construction market. People often think that these market changes lead to significant drops in pricing, but in reality at our auctions this is not the case. One of the keys to our success is our ability to attract large and diverse audiences of interested buyers from outside the local market to our auctions, representing many different industries and geographic locations.

Although it may seem like it's all doom and gloom in the local market, the reality is that the worldwide market for used equipment is massive and we have a very small share of it. This means that people are constantly buying and selling equipment and even though local market conditions may seem bleak, there are still a large number of people working and projects need to be done. What this means is that equipment values at our auctions tend to remain more buoyant than most people expect and this was no different in Q1 of this year.

We maintain sales offices in 27 countries around the world with auction sites in 9 and this global footprint helps ensure that we deliver a truly global marketplace. We have customers in more than 200 countries. Some of the regions and industries we serve are enjoying boom times while others are facing significant challenges. Either way, people are buying and selling equipment and an increasing number are recognizing the advantages of buying and selling in a global marketplace through our auctions. There are many local market factors influencing the supply and demand of equipment around the world.

In Australia and Asia, a mining boom is driving demand for heavy equipment. The overall equipment market remains quite strong with better than anticipated pricing. We're seeing more consignments from Japan to our auction sites in the region and are looking forward to our next Australian auction in Brisbane which features a huge selection of late model cranes. The worldwide used crane market continues to be hot. Manufacturers cannot meet the demands of infrastructure boom -- booms in places like the Middle East, Eastern Europe and parts of Asia, including China and India. Many have sold out 2008 stock and are booking into 2009.

The weak U.S. dollar relative to many foreign currencies, including the Canadian and Australian dollars and the euro is bringing increasing numbers of international bidders to our U.S. auctions, helping to keep prices strong despite the slowing residential construction market and a weakening economy.

Environmental regulations in California are causing many people to accelerate the turnover of their equipment, replacing old with new to be in compliance. Selling their old equipment out of state is their best option for achieving a decent return on their investment and many people are turning to Ritchie Bros. to help them do just that. Accompanied by the fact that on average more than 60% of the buyers at our typical U.S. auctions come from out of the state of sale and that we attract large numbers of overseas bidders.

The big stories in Canada now, the recent slowdown in the oil paths and the collapsing forest industry which has been exasperated by the slowing U.S. housing market, Canada's largest lumber market. More used equipment is coming to market, but pricing remains relatively stable as we have seen at our recent auctions, including Chemainus sale that Pete mentioned earlier.

On the AG side, the worldwide grain industry is drawing higher commodity prices than it's seen in decades, which is increasing demand and pricing on both land and equipment. In our experience, changing market conditions both positive and negative are just one of the many factors that cause people to buy and sell equipment and because both buyers and sellers benefit from the excess -- benefit from accessing the global marketplace throughout our unreserved auctions, we don't worry when we see fluctuations in the marketplace. We see opportunities.

Bob Armstrong will now give you an update on our growth strategies.

Thanks, Rob and good morning, everyone. At Ritchie Bros., we often talk about our $10 billion plan. Growing our annual gross auction proceeds from $3 billion to $10 billion and beyond. To get there, we are investing simultaneously on three fronts, our people, places and processes.

Our G&A expenses for the first quarter of 2008 were 35% higher than during the comparable period in 2007. Although Rob McLeod is going to talk in more detail about our quarterly results, I wanted to comment from a strategy execution perspective. We understand that some of you may be surprised by our G&A growth in Q1 this year, but I want to assure you that we're very mindful of controlling costs and investing in a prudent and responsible manner and are confident that we are on track for our earnings growth guidance that we presented during our February conference call earlier this year.

Some of our operating expenses in the first quarter have been front loaded as we continue to respond to and prepare for growth, but we believe our full year EPS growth for 2008 is still on track. That said, we do not take this increase lightly. We remain focused on improving our operating leverage which we define as G&A as a percentage of gross auction proceeds, but as we described in our last conference call, we do not expect to see improved leverage in 2008. We're committed to running a lean, cost-conscious organization but it would not be prudent to cut corners in the short term where that would negatively impact our long-term growth prospects.

We are working to hire, train and develop an exceptional workforce to serve our growing international customer base and we added 60 full time employees in the first quarter of this year. We are building our presence in new sectors and geographic markets that offer excellent growth prospects, such as Eastern Europe, India and China even though the return may take years to materialize. We are expanding and improving our global network of auction sites as Pete explained, offer one of our most significant competitive advantages and we are investing in more cost effective and efficient business processes, including our improved IT and accounting infrastructure. We believe these efforts will pay dividends for many years to come helping us to deliver sales and earnings growth long after these initial investments have been made.

We expect our operating leverage to improve over time but maintaining a focus on growing our gross auction proceeds offers a more significant opportunity for delivering EPS growth in the short term. We have a strong history of earnings growth and we expect this growth to continue over the coming years. Individual quarters may fluctuate, but the overall trend is upwards and in line with our guidance of 15% average annual EPS growth.

Before I pass the call to Rob McLeod, let me give you a quick CapEx update.

Our capital expenditures for the first quarter were $26.6 million, which is in line with our CapEx guidance of $100 million to $150 million or more for the year. Most of our CapEx in Q1 related to the construction of our new permanent auction sites in Kansas City, Houston, Minneapolis and Paris, France. We have already opened our new site in Kansas City and we expect to conduct grand opening auctions in Houston, Minneapolis and Paris before the end of the year. We are still planning to open 2 to 3 new or replacement auction sites each year for the next several years.

And now, Rob McLeod who has officially taken over the CFO role, will run through the highlights of our first quarter financial results.

Thanks, Bob. I hope you've had a chance to read our earnings release and MD&A for the quarter ended March 31, 2008 which will form the basis of my comments today. The release and MD&A were filed this morning along with our first quarter financial statements. All three documents will be available shortly on the SEC, SEDAR and Ritchie Bros. websites. All dollar amounts in our filings and on this call are stated in U.S. dollars and all share and per share information reflect on a retroactive basis are 3 for 1 stock split that was approved by our shareholders in April and took effect on April the 25th.

As Pete mentioned, Quarter 1 was our largest first quarter ever, generating gross auction proceeds of $782 million, a 12% increase over the first quarter of 2007. Our auction revenues for the quarter were $81.4 million, a 19% increase over the first quarter of 2007. We experienced strong results at auctions around the world and cannot attribute our first quarter growth to the success of any one auction or geographic region. Our auction revenue rate which is the auction revenues as a percentage of gross auction proceeds increased from 9.8% in the first quarter of 2007 to 10.41% in the first quarter of 2008, above our expected range of 9.75% to 10.25%. This increase was largely due to the better than expected performance of our underwritten business which accounted for 22% of our gross auction proceeds in the quarter as well as certain reclassifications and fee increases that came into effect on January 1st, 2008 which are described more fully in our MD&A.

The impact of the reclassifications on our auction revenue was a reduction of approximately 3 basis points for the first quarter of 2008. Our direct expense rate which is direct expenses as a percentage of gross auction proceeds, was 1.29% in the first quarter of 2008. Direct expenses are costs we incurred specifically to conduct an auction such as wages for temporary staff, auction advertising, site security rental costs, and travel expenses for out-of-town staff. Our direct expense rate fluctuates from quarter to quarter and is largely dependent on the size and location of our auctions. The impact of the reclassifications described above on our direct expenses rate was an increase of approximately 13 basis points for the first quarter of 2008.

Our general and administrative expenses for the first quarter of 2008 were $41 million, a 35% increase over the comparable period in 2007. Personnel costs account for over 60% of our G&A expenses and growth of our workforce had by far the largest impact on the increase in our G&A. Personnel-related costs such as benefits, training and other employee-related expenses all contributed to the increase.

Other categories of costs in which we experience increases in quarter one this year compared to first quarter of last year included advertising and promotion costs and building in facility expenses, such as repairs and maintenance and utilities. One of the larger items that was unique to quarter one this year was our attendance at the CONEXPO Trade Show which is one of the largest construction industry trade shows in the world and occurs every three years. This resulted in costs of more than $1 million during the quarter.

Another factor that played out in G&A in the first quarter this year were the front loading of costs that Bob referred to briefly. Part of this front loading results from the approval of our action plans at the start of the year, which gives our senior managers the authority they need to proceed with their planned expenditures for the year. In 2008, the greater proportion of those planned expenditures were incurred in first quarter and this had a material impact on G&A in the quarter when compared to quarter one of 2007. The costs were included in the plans but they were incurred earlier in the year than expected.

Foreign exchange continued to impact our general and admin expenses in the first quarter of 2008 and the effect on our G&A was an increase of $2 million in quarter one compared to first quarter of 2007. This is a result of the strengthening of the Canadian dollar and the euro relative to the U.S. dollar. The overall impact of currency fluctuations on our net earnings was insignificant in the first quarter of 2008.

Our effective income tax rate for the first quarter of 2008 was 35.2% which was roughly consistent with our 2007 quarter one rate. Our tax rate fluctuates from quarter to quarter depending on the jurisdictions where we conduct our auctions and generate our earnings.

In summary, our increased gross auction proceeds and auction revenues were offset by higher operating costs in the first quarter of this year which resulted in net earnings of $16.4 million in quarter one. Diluted earnings per share were $0.16 per share this year compared to $0.17 per share in quarter one of 2007. We paid dividends of $8.4 million in the first quarter of 2008 and our Board of Directors recently declared another quarterly cash dividend of $0.08 per common share payable on June 13th, 2008 to shareholders of record on May 23rd, 2008. We expect to payout approximately $8.5 million for this dividend.

And now, over to Jeremy to outline our guidance for the remainder of 2008.

Thanks, Rob and good morning. At the start of 2008, we forecast total gross auction proceeds of approximately $3.6 billion for the year, representing an increase of 13% over 2007 results. Our expectations have not changed during the first quarter. Looking to the second quarter of 2008, we are expecting total gross auction proceeds of over $1 billion which would make this the largest quarter in Company history. It wasn't that long ago that we cracked the $1 billion mark for the full year, so we are excited to see this happen in one quarter. We will offer guidance for the third and fourth quarters on future calls.

As we talked about previously, on January 1st, 2008, we increased some of our existing fees and commissions including the minimum commission rate for low value loss and the document administration fee paid by consignments. We also reclassified certain line items in our Statement of Operations. Most significantly, interest income which is now reported as other income instead of auction revenues. As a result of these changes, we increased our auction revenue rate guidance by 25 basis points to 9.75% to 10.25%. Although our auction revenue rate for Q1 of 2008 was 10.41%, primarily as a result of the above trend performance of our underwritten business, our option revenue '08 guidance remains in the range of 9.75% to 10.25% for the full year.

We remain focused on achieving average annual earnings per share growth of 15% over the long term. We expect there will be years when we exceed this target and years when we don't. The last few years have been exceptional years with earnings growth coming in well above trend. In 2007 alone, we delivered year-over-year normalized EPS growth of 35% which makes it pretty challenging to achieve 15% growth in 2008.

As discussed on our last conference call, the tough comparables make us believe we may not achieve this mark in 2008. However, we remain committed to delivering annual EPS growth of 15% on average over the years to come. And expect that 2008 will come in at more than 10% but less than 15%.

And now, back to Pete for the wrap up.

Thanks, Jeremy. Before we open the call to questions, I'll quickly recap the main points we covered today. The first quarter of 2008 was the largest first quarter ever at Ritchie Bros. We generated gross auction proceeds of $782 million and achieved an auction revenue rate of 10.41%. We are maintaining our gross auction proceeds guidance of around $3.6 billion for the 2008 year. We delivered net earnings of $16.4 million, or $0.16 per diluted weighted average share. We conducted the largest auction in the Company history, $190 million 5-day auction in February at our permanent auction site in Orlando, Florida.

We invested more than $26.6 million in capital expenditures in Q1 and opened a new permanent auction site in Kansas City, Missouri as well as a new regional auction unit in Las Vegas, Nevada and we welcomed a new Board Chairman, Bob Murdoch and two new directors; Chris Zimmerman and Jim Micali.

And finally, we recognize the G&A for the first quarter of this year may have been ahead of some of your expectations, but I want to assure you that we are confident in our ability to deliver our targeted earnings growth for 2008 and to deliver annualized EPS growth of 15% on average per year over the long term. We are committed to growing our sales at a faster rate than our expenses and we remain focused on investing for the future while spending in a prudent matter and controlling our costs to ensure we meet this goal over the long term.

We're very pleased with the strong gross auction proceeds and auction revenue growth we achieved in the first quarter of 2008 and we are confident that we are on track to meet our goals for the remainder of the year and our ultimate goal of becoming the world's largest marketplace for industrial commercial assets.

Thanks for dialing in today. Dominique, would you please open the call to questions?

Thank you. (OPERATOR INSTRUCTIONS).

And our first question comes from the line of Bert Powell, BMO Capital Markets. Please proceed with your question.

Hi. Pete, just if I look at G&A, for the most part, if I go back last year you know the [clinic] quarterly year-over-year increases you matched, what's happened in headcount. In this quarter, if we adjust for the CONEXPO and the FX, it's significantly ahead of what the headcount would have predicted. Can you just give us a sense of what planned expenditures are in terms of timing? Maybe give us a breakdown between what would be systems kinds of investments versus forging new territory and investing in some more developing markets?

This is Bob. Fair question. Rest assured, we've been looking at it in quite a bit of detail here over the last few weeks because it's a big item on our balance -- on our income statement. We have avoided in the past giving specific breakdowns of G&A components and we're going to stick to that. The important message I believe is our confidence that we'll come in as we expected to for the full year. We're not expecting increases in -- or improvements, excuse me, in operating leverage this year and same as we talked about last call. Long term, we still are -- the model still holds in our opinion but we're heavily investing in all the areas that you mentioned exactly as we have been for the last several quarters. Probably more than a -- probably a good couple of years of investment here and we're starting to enjoy some of the benefits and see some of the improvements, but we're also still laying foundations in a lot of areas.

So I'm hesitant to try and give you a breakdown. A lot of these projects overlap and I think we'd get ourselves into a nasty circle of conversation if we tried to piece out little bits of it. Headcount continues to be -- excuse me. I don't like saying headcount. The personnel costs continue to be one of the largest components, roughly 60% of G&A. We haven't seen any big change there. It still is that way so the model's very much the way it has been for many years. I'm not sure if anybody else would want to add to that.

No. Bert, as you were asking your question, we were looking around the room and say well who wants to take this one because we knew G&A is a key interest to all of you guys as well as to us for sure. The slicing and dicing of G&A we've done sideways and up and down and I think the message we want the market to understand is that we're hypersensitive to making sure that every dollar we spend is a dollar towards the growth and the foundation for what we're trying to build on and we've talked about putting this platform together and we've gone through quite a bit of change in the last two or three years here with the increase in costs around a new oracle, financials and HR system and our new IT systems and some of the stuff that's going to be rolling out in the next year or so in terms of changes. The way that we interface with our customers or the way that we interface even with our own employee group and the tools that these guys are going to be given to become more productive.

So we've been working on this $10 billion beyond -- and beyond goal and trying to ensure that what we're building today more importantly is right rather than fast or rather than the shortcut, so we've taken a lot of time and probably if we had to do it again, we'd probably could do it a little more efficiently I would think because first time through, but at the same time, we're making the right decisions about the long-term investment to support a $10 billion plus business and that's why you're seeing some of this G&A growth that you guys rightly point out as being hey guys. And we want to make sure you're spending prudently here and we're all accountants, so we can't by our DNA we can't do anything other than spend prudently I think so we just want to make sure that that message is communicated and we're on this like white on rice if you want to say.

Yes, I'm not fussed about whether you guys are actually being intelligent about how you're deploying it. Just in terms of quarterly numbers when you get big swings and you don't give any details, it's kind of hard to do kind of factor in on a quarterly basis some of the timing I guess of these things.

Well, I think -- what we're trying to communicate is that we're still on track for our EPS guidance for the year. We think that we're moving in the right direction in many respects. I think that there's lots of room for us to carry on beyond that and the leverage that Bob talked about not occurring in '08, we recognize that probably won't happen in '08 but in the long run, that's really where we're headed. We can't give you a specific date, it's going to happen on July the 15th of 2009 or '10 or whatever.

We know that what we're doing is building this accelerated platform growth to sustain the business that's going to be 10 billion or beyond in multiple countries and multiple languages. So, we're thinking 10 years down the road and when we put -- example. When we put a website together and we have to communicate with 16 or 20 different languages and we want to make sure that that's done properly, so you could roll out something half the cost and a whole lot quicker, but five years from now you're going to wish you did it differently, so.

Okay. But just to be clear, when you talked about leverage, you're still thinking about gross auction -- G&A expense as a percentage of gross auction proceeds, correct?

Yes.

...with '08 being kind of similar to '07?

Obviously, we don't with precision but we're saying no better than '07. It could be a little bit worse. Somewhere in the range of -- but you're right, that's exactly what we've been talking about.

Bob, I wouldn't want to lead you down the path of guidance.

Trust me, I won't go there.

Thanks.

And our next question comes from the line of Craig Kennison, Robert W. Baird. Please proceed with your question.

Good morning, guys. A couple of questions for you. To what extent do you think you're benefiting from the weak dollar and how would your business react if the dollar were to strengthen in the U.S.?

Well, for sure there's some benefit of the weaker U.S. dollars from the point of view of where our customers are coming from. We have seen a significant number of buyers attending the U.S. sales from Canada, from Europe, from the Middle East, from Australia, from Asia and they've all enjoyed the benefit of their currency appreciating against the U.S. dollar. So, in addition to that, their countries are -- economies are more buoyant than here so there's a demand for equipment and a need to buy it so it's over here that they come.

To the extent that the U.S. dollar had strengthened and gone in the other direction in a declining [X amount of time] I'm not sure how that could happen, but for sure if it did we would not see the participation as great as it is today from the foreign economies coming in here and buying at the auction. Not sure to what degree, but having a strengthening U.S. dollar in a declining economy, I don't think it would happen, so.

Craig, one point to keep in mind on the dollar. The impact to us on our costs is immediate. We have a bunch of staff -- non-U.S. dollar compensated staff that was centralized here at Vancouver and many of our costs are in Canadian dollars, so as the U.S. dollar weakens and we report in U.S. dollars, we have an immediate smack on our G&A. I don't think there's quite the perfect arbitraging of currency with respect to the buying population. Most people that we see at the auctions that are coming further afoot are the ones that are more the frontier explorers who will leave New Zealand and come to Chemianus to buy a [madill yarder] and these guys are probably more sophisticated in their international view of business.

So we get some positive impact on that, but I don't think it's directly entirely tied on the benefit side so it's something to keep in mind that we do experience some differing participation levels in the markets that -- on the sales side but the impact on the dollar weakening for us has been an escalation of G&A that we try to highlight in our comments but at the same time it gets exacerbated as the dollar weakens.

That's helpful and then switching gears. Would you address your real estate business and what success you're having there and particularly would you address your success in the Minneapolis auction?

Rob here again. The success -- we believe we had some good success in our recent Minneapolis auction. We had enormous number of interested bidders at the auction. We had a satisfied consigner when the auction was finished and we're in dialogue to have some more of the similar product in a similar market down there. We remain somewhat toe in the water if you will in the real estate division and we're being quite selective of the type of activity that we're pursuing. We're staying away from anything that is bank repossessions or that type of housing real estate and we're focusing more on opportunities that are in the industrial or the new products that are out there. But as I said earlier, we're taking cautionary approach to it.

Could I just follow-up on that with respect to the Minneapolis auction if I read the website well, we're talking about residential homes from a developer. How is that not sort of the type of non-commercial real estate you're trying to avoid?

Well, we're not trying to avoid non-commercial. We're not interested in used repossessed housing. This was new inventory from a house builder that had never been sold. Never been transacted before, so that type of activity and surplus product to a house builder the same that surplus product may appear from an equipment dealer. We're interested in that type of asset in the real estate business but not the REO business that's going on out there today. It's not something we're pursuing.

A lot of it Craig is reputational. We just don't see ourselves being -- wanting to be associated with the repossessed home and the sad family that's being kicked out and having the Ritchie Bros. guy standing on the front porch selling it off. There's a lot of business for us to chase and we just don't think that's a good fit with our brand, so we have consciously chosen not to pursue it but I like the way Rob Mackay just described it. New inventory -- new builder inventory. That's a wonderful product for us to sell.

Okay, thank you. And then lastly, could you just describe the nature of the investments that you would make in a frontier market like India or China? Thanks again.

Yes, that's mostly around people. So Craig, it's people, infrastructure. We're not putting up -- we're not buying land and putting up buildings there. We're investing in marketing, advertising, educating the better population. Educating the consigner population so a lot of it is really marketing and front-related stuff that you would do in advance of an auction and primarily around people. I'd say to be fair, if our G&A costs are 60% overall for people versus the total, you'd probably have a heavier rating in the frontier markets on the percentage of people costs.

That's helpful. Thanks again.

And our next question comes from the line of Sarah Hughes from Cormark Securities. Please proceed with your question.

Hi. One thing I missed. What was the impact on FX on the [ST&A] in the quarter?

It was -- G&A in the quarter was $2 million. So it compared to Q1 last year.

Right, okay. And then one question. I monitor or kind of watch your stats on the growth in your bidders and buyers and actually just noticed this quarter that the number of lots you sold in Q1 of '08 was down from Q1 last year and usually we see some pretty good growth. I didn't know if that was just an anomaly quarter or there was any kind of things different at the auction this year.

Sarah, I'll send you $20 for asking the softball question. I really appreciate that. We look at that stat in our press release. We said this is really interesting, this one went down, somebody is going to ask about this one. Let's leave it in. What that's telling you is that during the first quarter, you had a skewing towards higher value lots so your total sales went up but your total lots went down.

I'm not going to say that's a strategy but it is very positive. It's less expensive for us as a company to deal with a fewer number of high value lots but I want to be clear. That's not a strategy. You may not see that repeat but that's what you saw during this quarter. You simply saw a higher percentage of high value lots and the best example of that is the Orlando sale. Every Q1, we seem to have an Orlando effect and Orlando has -- it's so different in so many of our sales. It's 10 times the size of our average sale. The average value of plot in Orlando is often two or three times the average value in other sales. So, you're absolutely right. The number of lots went down which simply means that we sold a higher percentage of high value.

Okay. I didn't know if it was pricing or anything like that.

No.

No. Okay. And then just on the -- Rob, I guess question for you. On the U.S. market, I know last year talking about the slowdown in the housing market you talked about that type of equipment being taken up by the non-residential construction market which was still strong and I know we've seen some signs of weakness in that market in the U.S. and I didn't know if you've seen that in -- on the supply side and supplies then easier to get for you guys in the recent months.

Well, for sure there's the transition from the residential to non-residential, where the construction [equipment] in Q1 occurred early on in this economic cycle. Some machinery types that we're seeing out there today as both not -- or residential continues to decline and now non-residential is -- has peaked I guess if you will and it's starting to decline somewhat. Certain equipment types we're starting to see a softening of the price. The transition from one to the other has occurred and now in certain types of the supply that is still around, it's still significant in some product lines. We're seeing a decline in some of it, not all.

Okay, great. Thank you.

(OPERATOR INSTRUCTIONS).

And we have a following up question from Bert Powell from BMO Capital Markets. Please proceed with your question.

Yes, thanks. Rob McLeod, just a quick question. Last year, Q2 was down by how much was that?

About $400,000.

Okay, that's great. Thank you.

Sorry, Bert. By the way, just for your information Ben's not on the call because his wife is giving birth to a child this morning, so don't feel special that you got first in line. And good for Ben. Congratulations for not dialing in on the live call. You'll probably listen to the recording.

And our next question comes from the line of Jamie Sullivan, RBC Capital Markets. Please proceed with your question.

Hi, guys. Good morning.

Good morning.

Good morning.

Quick question. On the G&A again, just wondering what -- you kind of mentioned that some happened earlier in the year. I was just wondering what types of expenses we get pulled forward if they won't repeat and are those in sort of the frontier markets that you're talking about.

Hi, Jamie. It's Rob McLeod. The other Rob.

Young Rob.

Young Rob, sorry. The -- a good example of that would be repairs and maintenance where we have an annual plan to spend or region would have an annual plan to spend so much on repairs and maintenance. They will undertake that in early part of the year because it's a slower time of the year, so we can actually get it coordinated and happening while there isn't a lot of activity on the auction site and then -- so you have an annual plan for it but you're spending a big chunk of it in the early part of the year.

Okay. And is that where you saw the numbers kind of surprise versus your expectations?

Yes. R&M would be an example of that where you can see that it's got a bit of a lift in quarter one for sure.

Right, okay. All right. And then, just wondering what the -- kind of talk about the international gross auction proceeds, how much was shipped to outside the U.S.?

I think anecdotally, we are looking at around between 25% and 30% of by value of items being purchased by offshore. Now, it gets a bit skewed. The reality is it's a lot higher than that because you have a lot of people that have Miami addresses that they buy then they take it down and they retrofit it and it ends up heading down to South America or into Central America or even further offshore, so I think that's a pretty conservative number which is from a trend perspective is much higher than it was in prior years. Not surprising, but higher.

Right. And then, I guess the last one would be on agriculture. It looked like five auctions in the quarter. How much were gross auction proceeds there and if you can just talk about what the market and the outlook is on the AG side.

As far as sales that we had in the AG world were quite small. They were all on the farm sales. Very typically very small in nature, so insignificant amount of gap but Q2 is our big AG sale quarter. Pricing in the AG world is extremely strong. As mentioned in the text of the speech here today, commodity pricing in the farm industry is being as strong as we've probably seen it in 20 years. The farmers have money and when they have money they're out buying new equipment and there's lots of trading activity going on there in conjunction with that, the land. Sales of the farm land that we've seen in recent times here has been very strong and as we go through the year, there's anticipation of very good prices for all our commodities again so lots of activity out there in that market and strong pricing.

Okay. Thanks, guys.

And our next question comes from the line of Gary Prestopino from Barrington Research. Please proceed with your question.

Good morning, everyone. Most of my questions have been answered except just want to drill down on the direct expenses. That obviously was up substantially relative to auction revenue. Is that more or less a function of the size of the auction that you're running or could you just maybe drill down a little bit on that?

Yes, exactly right. The direct expense rate will fluctuate from quarter to quarter basically depending on the size of the auction and the location of the auction. In some locations, it's just literally more expensive to hold an auction and also remember in quarter one, you had the effect of the new presentation of direct expenses.

Right. But it's still up 33% year-over-year right?

Right, yes.

So does it cost you more to run a smaller auction than a larger auction?

Correct. Yes. It will cost you more to run a smaller auction. It will cost you more to run an outside auction and it will also in some jurisdictions outside the United States or Canada, it will cost you -- it will be a little bit higher cost in those areas as well.

Thank you.

And our next question comes from the line of Yvonne Varano from Jefferies & Co. Please proceed with your questions.

Thanks. I was just wondering if any of your customers were talking about trouble getting credit.

We had some discussions with the guys at City Cap on that as the credit sort of tightening and we're not seeing any of that, Yvonne. The guys that we're dealing with that are at the auctions are -- they run their business a bit differently than some of the big players do in terms of how they lever. But right now, the pricing of the credit that City's offering to the guys and even anecdotally to the other finance providers at the auctions, there's no trouble at anybody accessing funds to get their equipment purchased.

And Yvonne, I would add to that. I was just talking with our legal [press] guys yesterday, curious about our experience with NSF checks and problems with customers and apparently, we're not really seeing any change. Our customers don't appear to be acting any differently or having any different issues than they did a year or two years ago. I'm not sure I want to read too much into that. It could be good fortune. It could just be the nature of our customers or the nature of the assets we sell. But I'm very interested in the same question you've just asked and we just haven't seen any real impact on our customers behaviors as a result of the credit crunch which is good for us of course.

Of course, great. And you mentioned non-res, Rob is peaking and I just was wondering if you could give any more color on what you're seeing in non-res.

There's some -- I don't have the statistics in front of me, but we had a discussion recently at a [catalyst] equipment meeting and some of the statistics that we were discussing and showing what the guides are, you know the peaking of the non-res business that's out there and typically as we see in the economic cycles as the housing industry slows, it gets passed by by non-res constructions and shopping malls and schools and hospitals and office buildings. In and around the areas where all the housing development went on and as the housing has slowed that has reached its peak or plateau and we're starting to see a slowdown in that side of the business, albeit it's sort of just started and the extent of it or how long it will last is hard to predict right now.

Are you hearing anyone talk about projects just being delayed because of some of the costs right now?

Yes, for sure you hear that. You mentioned earlier about the credit crunch and you're starting to hear noise in the industry predominately outside of North America with regards to projects being delayed or being put on hold due to financing. Rates have gone up on credit on some of these projects in foreign countries because they tend to be riskier ventures and hence, people are avoiding more risky ventures and hence the cost of capital to those is going up so you're starting to hear some of that out there, predominately Mexico and Central America initially and there's a bit of discussion going on in the European market about it but it's chatter.

We've seen a bit of that in northern Canada as well, Yvonne with the cost escalation. Rob mentioned that in his prepared comments that we've seen a bit of a pull back on the -- some of the work that's being done up there. Primarily cost related. Not so much credit availability related. But people are reeling a bit and there was a couple of big mine projects in northern British Columbia that got sort of delayed I think more than cancelled but just delayed because of the cost escalation. So, that's a good example of what's been happening over there. People are just -- you know they're trying to deploy their capital as prudently as they can and they budget for something at 2 billion and it comes in at 5 billion, then that's pause for rewiring.

Sure, great. Thanks very much.

And then, we have a follow-up question from Jamie Sullivan, RBC Capital Markets. Please proceed with your question.

Hi. Just interested in follow-up on the non-res comments and if you think that that will impact your growth rate negatively or shall we continue to see kind of that as an opportunity as equipment churns through the cycle?

For sure it's an opportunity for us. There's a slow down in that market. There's surplus equipment coming out of it and it provides an opportunity for us to get in there and the natural things that you start to see coming at you are concrete dump trucks, stuff used in vertical concrete constructions, that type of activity and as that industry slows or that market slows, there's more opportunity for us to be selling that equipment.

Well, the good news while as Rob says the supply side for us improved. It becomes easier to find the gear if you like. The demand side tends to remain fairly strong because the slowing of the economy doesn't mean the stopping of the economy and there's still hundreds, thousands, whatever number of people up there trying to buy those concrete dump trucks. They're switching from buying new to buying in the after markets because they have less confidence. At exactly the same time as we're finding more of those units coming to our auctions, so it's a remarkable way to watch the cycles play out at our auctions. Supply and demand both go up at around the same time which works to our favor on both sides.

Okay, great. Just wanted to clarify that. And then just one quick one on the interest income line with the new -- with the reclassification. I'm wondering -- it looked like that was down year-over-year even with the re-class. Just wondering if we should expect that over the long term to grow more in line with gross auction proceeds or just some clarity there would be helpful.

Morning, Jamie. Yes, it will grow in line with gross auction proceeds because the interest income, a lot of that is earned on the or carrying of the consignment proceeds where we collect it from the buyer and then we hold on to it for -- if it's 10 days, two weeks before we pay it out to the consigner and so there's a direct correlation between the gross auction proceeds and your interest income for sure. Also, that obviously it's usually affected by the rate of interest that we can earn on a very conservative investment.

Okay, great. Thanks.

And then, we have no further questions and at this time, I will turn the call back to you, sir.

Great, Dominique. Thank you, everyone for dialing in. We appreciate your interest and we'll carry on working and we'll talk to you again at the end of Q2. Take care.

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 in queue and have a great day.