RB Global Inc (RBA) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ritchie Bros. Auctioneers 2008 Second Quarter Earnings Conference Call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS.) As a reminder, this conference is being recorded Friday, August 8, 2008.

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

Thanks, Charlene. Good morning, everyone. Thanks for joining us on the Ritchie Bros. investor conference call for the quarter and six-months ended June 30, 2008.

I'm Peter Blake, CEO of Ritchie Bros. And with me on the call today are Bob Armstrong, our Chief Operating Officer, Rob Mackay, our President, and Rob McLeod, our CFO. Jeremy Black would normally participate in this call, but he and his wife have added a second child to their family this week, so he's taking off some well-deserved time.

Today, we will be talking about our financial results for the three and six-months ended June, 2008. Our presentation should 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 three and six-months ended June 30, 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 in 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 represent 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 statement is auction revenues which represents the revenues we earn in the course of conducting our auctions.

We're now about halfway through 2008. We've just completed our first $1 billion quarter, selling almost $1.2 billion worth of equipment at a record number of auctions, almost 170 auctions around the world this quarter.

I'm pleased to report that, in the first six months of 2008, we achieved gross auction proceeds growth of 18%, auction revenues growth of 21% and adjusted earnings growth of 25% over the first six months of 2007. We delivered record earnings per share in both the second quarter and for the first half of 2008.

In the second quarter, we also set many new Company records. We sold $258 million of trucks and equipment during one week in June, making this our biggest week ever. We were all flat out that week, and it was a great test to affirm our ability and capacity to manage our future growth.

In June, we conducted our largest Australian auction ever, our first ever two-day event there, which generated $52 million in gross auction proceeds. We set regional gross auction proceeds records at our auction sites in Atlanta, Georgia, Northeast Maryland, Corso, Italy, and Albuquerque, New Mexico.

We sold $231 million of equipment to online bidders, bringing our total Internet sales since introducing online bidding in 2002 to more than $2.1 billion.

Our business is growing in every way and becoming increasingly scalable. We're conducting more auctions. Our auctions are getting bigger. And we're serving more buyers and sellers.

Consider the following statistics. In the 12-months ended June 30, 2008, an average industrial auction generated $17.8 million in gross auction proceeds, up from $15.9 million in the 12-months ended June 30, 2007. An average agricultural auction in the same period generated $900,000 of proceeds compared to $700,000 in '07.

In the first half of 2008, we sold 15,000 fewer industrial lots, but generated $300 million more in auction proceeds than we did in the first half of 2007, which is extremely positive. The higher the value of the iron we sell, the better use we are making of our auction sites, our systems, and our people.

We had more than 140,000 bidder registrations during the first half of this year, an increase of 11,000 over the first half of 2007. Just over a quarter of our customers registered to bid online using our real-time Internet bidding service.

For the 12-month period ended June 30, 2008, we generated a total EPS of $0.82 a share versus $0.61 in the comparative 2007 period. That's 34% growth over 2007. And while we can't expect returns like this every year, it does demonstrate our well-established ability to grow when the market is relatively soft.

Our online bidding service is popular because it gives our customers the same sense of comfort and confidence they feel when they are bidding onsite at our auctions.

We have more than 450,000 active customers in our database, and three out of four of them still choose to bid in person at our auctions, and many will travel thousands of miles to do so. The vast majority of our customers prefer to test and inspect the equipment for themselves, see the other bidders, and meet up with friends and colleagues.

Our auctions are events. They have a social element that can't be duplicated online, which is why we are not seeing a complete migration of bidders to the Internet.

We're increasingly asked about the status of our online-only auction competitors, and our answer is in our numbers. By value, 20% of the trucks, equipment and other assets in our auctions sell online, and 80% sell to live onsite bidders. Offering the best of both worlds with onsite and online bidding really is proving to be a winning strategy to deliver compelling value to both buyers and consigners.

We believe that our global network of auction sites is one of our most significant competitive advantages. We're excited to celebrate the grand opening of our newest permanent auction site just outside of Paris, France, in June.

Bob Murdoch, our new Board Chair, was at this auction, and I'm going to use that fact as an excuse to tell you a little bit about him. Bob worked in France for many years, having spent most of his career with the Lafarge group of companies, including as President and CEO of Lafarge North America.

Since joining our Board in 2001 and especially since being appointed Chair in April, Bob has made a point of getting out into the field so he can better understand our customers and our business. His experience and real understanding of who we are and what we do make him a great asset to our Company and our shareholders.

Every quarter, we get on these calls and we talk about increasing sales, new Company records, and the headway we've been making on our long-term growth strategy, our people, places and processes initiatives. I understand those updates on the continuing successful execution of our strategy may get a little repetitive but, to us, that's a good thing.

We're satisfied with our performance in the past two quarters but, as much as we'd like to talk about our recent successes, that is not the focus of our Company. We are executing a plan that will deliver long-term, sustainable growth. It's not sexy, and it may seem repetitive, but it's bearing fruit as we have seen with our record results so far this year.

Part of our planned execution is being patient and spending wisely. It was only a few short years ago, back in 1999, in fact, that many people were pushing us to go online during the dot com, e-commerce craze of the late '90s. But, we waited patiently until the Internet infrastructure was ready and we could deliver a first-class Internet bidding service for our customers.

It was about five years ago there was some discussion that we were not pursuing an aggressive China strategy, but we are confident that our measured approach to that opportunity is the right one. And in more recent times, we have patiently undertaken the rebuild of our infrastructure that will support our business towards our goal of $10 billion in gross option proceeds and beyond.

We continue to run the business with a longer-term view while being mindful of short-term impact and prudent use of capital. And when we invest, we invest for the future.

I'll pass the call over to Rob Mackay for a brief market update.

Thanks, Pete. Good morning, everyone.

We sold billions of dollars of used equipment at our auctions every year, and so we're often asked to comment on current market trends. And because our revenues are directly dependent on the amount of equipment we sale and the price it's sold for, we're often asked how we'll fair during an economic downturn. I'll address both those questions this morning.

High fuel cost and economic uncertainty have fairly had an impact on many industries in North America and Europe, and we've seen declining prices across many equipment categories in the first half of the year.

We're signing an increasing number, though not an overwhelming amount, of financial distress deals, particularly it the transportation and forestry sectors in North America. The weak housing and construction market in most of the US shows little signs of recovery soon, and that is flowing through to the Canadian lumber industry.

Governments in Europe and North America are reigning in their infrastructure spending, and contract tenders are becoming more competitive. This uncertainty and dynamic environment results in increased activity in the used equipment market which, of course, benefits us.

Slowing demand has resulted in growing used equipment inventories among dealers which is decreasing their willingness to accept trade-ins. We have been seeing a lot of that overstock in our auction as well as equipment that would have otherwise been traded in.

At the same time, equipment manufacturers are starting to increase prices in response to rising input costs, and that is expected to strengthen the demand for used equipment relative to new ones.

Worldwide demand for cranes and large equipment used in resource extractions support industry, remains high and pricing is still very strong. A construction boom in the Middle East and healthy mining sectors in Asia and Australia are driving demand for heavy equipment.

The energy sector is still fairly active, although Alberta has been experiencing slower growth recently, but many expect that to pick up later in the year. The agricultural industry remains very bullish with commodity prices at 30-year highs. The supply of farm equipment can't meet demand. And prices on used equipment in farm remain very strong.

For sure, there are some bright spots, but the reality is the times are tough in many sectors and regions, we serve. And we just finished our best quarter ever which is exactly what we expect.

Our business model enables us to do well and the market is strong, even better when it's not. Our strength lies in our diversity and global presence. When times are tough in certain regions or industry, more equipment comes through our auctions as people sell off their idle machines.

Oversupply in the local market tends to soften local pricing. But, we don't operate just in the local market. More than 60% of the equipment that we sell goes to buyers from outside the region of the sale. Come to one of our auctions and you'll see and hear people bidding from all over the world, either in person or online.

Demand for a certain type of equipment may be soft in one industry or part of the world, but there's someone somewhere who wants to put those machines to work. Because we attract a large diverse audience of interested buyers through our auctions including local, nationwide and international bidders. Our prices don't drop dramatically when the local market slows.

Our consigners are able to take advantage of a global competitive bidding environment and sell their equipment for global market value, and our buyers find the equipment they need at the price they're willing to pay. We deliver value to our customers and shareholders whether the market is strong or weak.

Given all the negative press in the US housing sector, we've been fielding an increasing number of questions from investors about our experimentation in the real estate auctions. While there is clearly an opportunity in the real estate market, we think there's more appropriate opportunity for us in our core markets of construction, transportation and agriculture equipment, and that is where we're going to focus our energy in the future.

We will continue to sell real estate, primarily agriculture and commercial properties, but we are not aggressively pursuing other types of real estate transactions.

I'll now pass the call over to Bob Armstrong for an update on our growth strategies.

Thanks, Rob, and good morning, everyone.

Our long-term growth strategy is familiar to many of you. To get to annual gross auction proceeds of $10 billion and above, we are investing simultaneously on three front-- our people, our places and our processes. We made significant headway in all three areas over the past six months.

Given the market opportunity in front of us, we are committed to investing to ensure that we have the platform in place to properly handle that growth. But, the same time, we have made a renewed push internally to minimize unnecessary expenses.

Our aim is to be lean and cost-conscious without sacrificing the level of service that we offer our customers. We remain focused on improving our operating leverage which we define as G&A as a percentage of gross auction proceeds.

And we believe that our most recent investments and initiatives-- excuse me. We believe that as our recent initiatives and investments bear fruit, our operating leverage will start to improve in 2009.

The largest component of our G&A is personnel cost, and we make no apology for that. We are a service-based company, and our people are the key to our success. Our HR department is working hard to recruit and train the right people to serve our growing international customer base.

Our total employee base is now over 1,000, including 259 sales representatives. We have not realized our targets this year for hiring new sales staff, but we are excited to now have 20 territory manager trainees on staff, compared to only seven at this time last year. These trainees are not included in our sales rep figure of 259.

We don't expect our investment in these people to pay off immediately in the same way that we don't expect our investments in frontier markets, like Eastern Europe and India, to pay off overnight. But, investing in the right people and places now is part of our approach to achieving sustainable growth in both sales and earnings over the long-term. As Pete said, we are a patient company.

On the places front, we sold our head office building in Richmond, B.C., and entered into a lease-back agreement with the buyer. Construction has started on a larger head office building in Burnaby which is about 20 minutes east of our current location, but still within Metro Vancouver. We will enter into a long-term lease on this new building and expect to move in, in late 2009.

Construction is also well underway at our replacement auction sites in Medford, Minnesota, Houston, Texas, and with the grand opening of our Paris site in June, which became our 30th permanent auction site, we now have 38 auction sites in nine countries.

We believe that this global network of sites is one of our most significant competitive advantages, and we intend to invest in the range of $100 million to $150 million in CapEx per year for the next several years to help maintain and grow this network.

Our capital expenditures for the first six months of this year came in at $52.7 million which is in line with the guidance. Part of our CapEx spending related to process improvement initiatives that are making our business more cost-effective and efficient and are designed to help us get to $10 billion in sales profitably.

We are working on a number of initiatives that will help us improve our operating leverage by increasing efficiency and reducing costs. Some of the initiatives we may not have told you about before include our system for electronic auction clerking which makes the process of recording and transferring sales data faster, more accurate and more efficient; a new customer database and suite of marketing tools that will give us a better understanding of our customers and their interactions with our Company, helping us to better meet their individual needs, and it is also used to improve the effectiveness and to reduce the cost of marketing campaigns; a system that enables our sales reps to perform equipment appraisals using PDA type mobile devices, time previously spent doing manual reports and uploads can now be spent meeting and building relationships with customers; and also the development of a new Website.

Our current Website at rbauction.com has become one of the top sites in the equipment world and is one of our primary points of contact with our customers. The current site receives about 10,000 unique visitors every day. The new site will help us to deepen the online aspects of our customer relationships.

Rob McLeod will now go over the highlights of our second quarter financial results and provide guidance for the rest of the year.

Thanks, Bob. I hope you've had a chance to read our earnings release and MD&A for the three and six-months ended June 30, 2008, which will form the basis of my comments today.

The release and MD&A were filed this morning along with our first half 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 US dollars.

In the first six-months of 2008, we generated gross auction proceeds of $1.95 billion, an 18% increase over the first half of 2007. Our auction revenues were $197 million, 21% higher that the first half of 2007. We conducted more than 200 auctions in 12 countries in those six months, but cannot attributed this year-over-year growth to the success of any one auction or geographic region.

Our auction revenue rate, which is auction revenues as a percentage of gross auction proceeds, increased from 9.88% in the first half of 2007 to 10.14% in the first half of 2008, which is within our expected range of 9.75% to 10.25%. This rise can be attributed primarily to the above average performance of our underwritten business.

Our direct expenses, the costs we incur specifically to conduct an auction, were $26.5 million in the first half of 2008. As a percentage of gross auction proceeds, they remain virtually unchanged from the prior year at 1.36%.

We recorded $82 million in general and administrative expenses during the first six months of 2008, a 27% increase over 2007, due to primarily to our ongoing hiring and training initiatives. Personnel costs, which would include wages, salaries, benefits and training, formed the largest component of our G&A as our full-time work force increased by 17% between June 30, 2007, and June 30, 2008.

In order to support our work force and our expanding network of auction sites, IT infrastructure and communication costs, as well as repair and maintenance costs, were higher in the first half of 2008 compared to the first half of 2007.

The weakening of the US dollar resulted in a net increase of $4.5 million in our G&A in the first half of 2008, relative to the same period in 2007. Overall, currency fluctuations have a negligible impact on our net earnings.

Our effective income tax rate dropped from 37.2% in the first half of 2007 to 27.9% in the first half of 2008. Our tax rate fluctuates from quarter to quarter depending on where we conduct our auctions and generate our earnings.

The low tax rate in this period was also due in part to adjustments reflecting the difference between actual and accrued tax expense for 2007, and the fact that the gain recorded on the sale of our head office property was subject to a low tax rate.

In the first half of 2008, we achieved net earnings of $62.3 million, or $0.59 per diluted common share. This represents net earnings growth of 41% year-over-year. This growth was primarily due to higher gross auction proceeds and a higher auction revenue rate which is partially offset by higher operating costs. The gain on the sale of that head office property is also included in this number.

The pretax gain on this sale was $8.3 million and is included in the other income section of the financial statements. The after-tax gain was $7.3 million. If we had excluded this after-tax gain of $7.3 million, net earnings for the first half of 2008 would have been $55 million or $0.52 per diluted share, a 25% increase over the first half of 2007.

We paid total dividends of $16.7 million in the first half of 2008. Our Board of Directors recently declared another quarterly cash dividend of $0.09 per common share payable on September 12, 2008, to shareholders of record on August 22, 2008. We expect to pay out approximately $9.4 million for this dividend. This is a 13% increase in our quarterly dividend.

Following our strong results in the second quarter, we are increasing the guidance we offered at the start of 2008 when we forecast gross auction proceeds of approximately $3.6 billion for the year. We are now forecasting gross auction proceeds of $3.65 billion in 2008 which would represent an increase of 14% over 2007 results.

We're also maintaining our auction revenue rate guidance to be in the range of 9.75% to 10.25%. As previously noted, in the first six months of 2008, we achieved an auction revenue rate of 10.14% which is within this range.

We remain focused on achieving average annual earnings per share growth of 15% over the long-term. Some years, we will exceed this target. Other years, we won't. Even though we've enjoyed growth above this target rate over the last few years, we still expect that we will achieve growth between 10% and 15% in 2008 and it now seems likely that we'll be closer to the top end of that range. We continue to believe that we'll be able to achieve EPS growth of 15% over the years to come.

Pete will now wrap up the call.

Thanks, Rob.

Before we open the call to questions, I'll quickly recap some of the highlights. The first half of '08 was the largest six months in the Company's history. In the second quarter, we sold almost $1.2 billion of equipment, our first $1 billion quarter ever, because an ever-increasing number of people are turning to our unreserved auctions as a way of accessing the global marketplace.

We delivered record adjusted net earnings of $55 million in the first six months of 2008, or $0.52 per diluted weighted average share. For the 12-months ended June 30, 2008, we delivered total earnings per share of $0.82, a 34% increase over the comparative period ended June 30, 2007.

We increased our gross auction proceeds guidance to $3.65 billion for the year, and increased our declared quarterly dividend by 13% over the previous quarter.

We're pleased with our performance in the first half of 2008, but it's not our goal to do well in one quarter or one half. We're focused on sustainable, long-term growth and we're executing a strategy that we believe will allow us to deliver annual average EPS growth of 15% over the coming years.

The investments we made yesterday are already paying off, and we're confident the investments we're making today will continue to deliver shareholder value as we grow $10 billion and above.

Thanks for joining us today. Charlene, could you please open the call to questions?

Sure, thank you. (OPERATOR INSTRUCTIONS.) Ben Cherniavsky, Raymond James. Please proceed with your question.

Good morning, guys.

Good morning, Ben.

Good morning.

Congratulations on continued growth.

I'm going to dwell on the SG&A again or, just generally speaking, the operating leverage. Bob, it sounds like you guys are now ready or comfortable committing to 2009 as the point where we'll see the operating leverage kick in.

Are we going to see-- how do you think that's going to look? Is SG&A just going to start flat-lining, or do you think it might even come down a bit as some of your infrastructure investments taper off? I just wondered if you can give us a little more color on that issue and generally your commitment to getting it going in 2009.

Sure, Ben. First of all, I don't think you'll see G&A go down in relative-- in total dollar terms, but as a percentage of gross auction proceeds, we expect it to start changing direction.

We don't have a specific pace that we're willing to talk about right now. But, our thought is that '09 G&A as a percentage of gross auction proceeds will likely be less than the percentage in 2008. So, not a drop in absolute G&A but, hopefully, a decrease in the percentage. So, it's more a flattening, but not flat.

And is your willingness to commit to 2009 based on the visibility around some of the projects and expenses you're incurring and seeing them wind down towards the end of this year? Or what gives you the confidence now to come out?

Because I think in the past, you had said you expected the operating leverage to kick in, but you've been reluctant to give a timeline to that.

Yes, a fair comment. You're absolutely right.

It's a combination of things. It's-- some of the projects that are underway are now completed or completing, and so benefits are either starting to be enjoyed or we anticipate will soon start to be enjoyed.

In addition, some of the costs involved in those projects are starting to tail off. We have lots of projects on the go, though, so our total spend, capital budget-wise, on improving projects will continue. But, we're past sort of foundational projects and now into projects that deliver pure benefits.

I commented on four or five of them in my section of the call. So, we're starting to see some of those hit the road, and there's others that will be hitting the road over the next six months. We're pretty excited about that. That's really the main driver.

The second reason, though, would be just looking at what we're going through right now and an increasing emphasis on our cost management and particularly on the headcount side, total payroll dollars, as well as on things like repairs and maintenance and our IT spend, I mean, we've been quite happily spending to create the capacity for future growth.

But, we also see that we're getting close to having a really solid level in many areas, such that we have room to grow. We have been in catch-up mode, getting ourselves in position mode, and we think we now have a pretty good platform for a lot of our growth.

So, we just don't see the growth having to continue in terms of personnel and in terms of other infrastructure type projects at quite the same pace that it has been. But, we feel more comfortable at this point this year than we did 12 months ago making a statement like that.

Great, sorry for hogging the mike, guys. Thanks a lot.

Yes, I think we have time for one more question.

Yes.

Bert Powell, BMO Capital Markets. Please proceed with your question.

Good. Rob, I'll ask you a question while you've still figured out where the mute button is.

In terms of pricing, you say you've seen things come down. Can you comment a little bit on the rate of change that you've seen and the magnitude? Is this something that's gone down fairly linearly, or have things fallen off more precipitously more recently?

Towards the-- within Q2, we saw a decrease during the start in the beginning of the year. But, within the Q2 period, we saw, I guess, sectors or types of equipment out there, a marked increase or decrease--.

--Right--.

--In the value of some of the stuff. We have a lot of assets that came to market, and we had a lot of participation from the foreign sector in that period of time which, without it, I think you would have seen even lower prices than some of our product lines that you see going through the auction.

But, everything that is tied closer to the industries that are suffering the worst, be it housing building, being forestry sector in Western Canada and part of the US, we've seen a softening there in the prices that was pretty recognizable in the second quarter.

So, have you changed your approach or your stance with respect to the underwritten business in response to that? Have you sort of pulled back a little bit on that, or is there more rigor being brought to it? I'm just trying to get a sense as to what kind of reaction that may have brought about inside Ritchie Bros.

Oh, for sure, there's more rigor. For sure, there's more eyes looking at the deals that the risk part of it is involved in.

And as we look at deals, whether it's on the East Coast or the Central or the West Coast, there's a lot more discussion, particularly amongst our senior VPs in the field, about what's going on in other areas.

And if a VP in Phoenix is into a package of equipment that's highly loaded with one particular product line, that VP would be on the phone with numerous other guys within the market here in North America and some overseas, checking with the guys to see what type of inventory sit out there in other dealers yards and market the band for them.

So, as we ebb and flow through these economic cycles, and particularly in the downside, I'd prefer to say that our attention goes up and we're more attentive and there's a lot more dialogue, particularly on the bigger deals.

I mentioned that we're seeing more receivers coming at us within the transportation industry. There's a lot of that product on the market out there today.

So, as we go into those type of deals and we're faced with situations where we have to do some underwriting, there's lots of dialogue and scrutiny going on.

Okay.

And Bert, this is Pete here. Just one comment on the pricing, and Rob is banging on with this commentary during Q2, but just to throw you a bit of tailspin.

The last two or three auctions that we've seen in the third quarter here so far, we've been surprised that the firming and the even over-expectations of some of the pricing we're receiving in the marketplace.

Okay.

So, don't get the message that it's Armageddon out there. I mean, in fact, I think some of the used equipment pricing is pretty firm and even exceeding some of the expectations of even our guys.

Okay.

So--.

--Okay, perfect--.

--We'll keep that on spin for you.

Okay, perfect. All right, thank you very much.

Thanks, Bert.

Thanks, Bert.

Craig Kennison, Robert W. Baird & Company. Please proceed with your question.

Thanks, and congratulations as well.

I'll start with a shorter-term question. Your gross auction proceeds were up 18% in the first half of the year. And based on your revised guidance, that implies that it would slow at maybe 10% or 11%.

I know you don't like to be that short-term in focus, but are you seeing something that would indicate a slowdown in that rate of growth, or is that your strategy just to be conservative?

It's probably more the latter, Craig. It's Pete here.

We take great care in doing our best to forecast the forward-looking sales through discussion with our field and we do it at each quarter. And we ask our guys, right down to the granular level, about where they think they're going to be on a particular sale.

And it's a process that we've always engaged in every quarter, so nothing has really changed. What we do, we try to apply what rigor we can at our level to poke back and make sure that we're good with the numbers.

And this really is a reflection of data that we've accumulated through the field, and it is what it is. Our history, I guess, speaks for itself there.

Okay, that's helpful.

And then, understanding that you want to build infrastructure capable of supporting $10 billion in sales, what do you think you can support today?

Oh, I love that question.

My guess is we could probably do 50% to 100% more than we do today because capacity is such a funny measure for our company. If I just look at the auction site network we have, we clearly have the capacity to do at least 50% more business just by having more sales, bigger sales.

And then, if you're willing to think about changing the types of assets you sell, if you could somehow sell all cranes, obviously your sales could go through the roof just in terms of sales per square foot.

So, capacity for Ritchie Bros. is tough to measure, but we clearly have lots. What we don't have is lots of capacity in every single market, and so we're looking to add capacity in the markets where we don't have enough.

We also, Craig, as you know, have the ability to have what we call offsite sales, so we can jump into a market where we don't theoretically have any capacity and rent a field on a temporary basis and have an auction. So, that's another way to look at capacity.

The biggest constraint in my mind-- and Rob Mackay might speak to this, too, the biggest constraint in my mind is our sales force and the size of it and the ability to grow it. We've spoken about that many times.

As we sit here today, we have a limit in our ability to sign business that probably exceeds our ability to handle it. Over the next 10 years, I think that will switch.

My guess is that the sales force will have no difficulty signing $10 billion and more, and the challenge for us over the next five years, plus or minus, will be to identify ways of handling that even more efficiently and effectively than we do today.

Okay, that's very helpful.

With respect to capacity, we've noticed that some auctions seem to be running maybe five auctions per year rather than four. Is that an experiment you're trying, and how's that going?

Not so much an experiment, Craig. It's in part due to increased opportunities, so we'll take that. Some of the more mature sites you'll see running five a year. Edmonton is an example. Fort Worth is an example. And it's just really the ability for us to turn more equipment in a shorter period of time.

So, that's-- I mean, you had sites like Edmonton running six a year at one point, and we thought that it would more effective and efficient to scale it back to five.

In part, it's also due to the buying or selling trends or habits within a particular market area. So, we have to be mindful of that as well.

But, based on moving 2,000, 3,000, 4,000 lots of equipment in and out of a site in a period of time, and these are big machines that are moving in, five is probably a reasonable capacity to plan for in terms of the future opportunities that we look at when we see the sites.

Great. Well, thank you very much.

Gary Prestopino, Barrington Research. Please proceed with your question.

Hi, good morning, everyone.

Hey, Gary.

Good morning.

Rob mentioned something about 60% of the proceeds are now sold out of the region. Has how that increased over the last couple of years for you?

Well, we can--.

--I know we're kind of jumping in. He's probably still fumbling for quarters. How has it changed? It's-- oh, go ahead, Rob.

Sorry. Find this on the button again.

The measure of it over the last periods of time is not something per se that we've got at our fingertips.

But, as we do our post-sale analysis of auction sales, as we go into a broader range of-- a broader global presence and a broader footprint within the national market and domestic market, we get more and more people traveling to our auction sales from in and around regions that we have them.

So, added to that with the Internet, a sale in Boise, Idaho, five, six, seven, eight, 10 years ago would be typically have attracted customers from within the Idaho, Washington, Montana area.

As we've expanded our footprint in the US, Canada and globally, people are more apt to come and bid on the stuff based upon the quality or type of equipment that it is and the market that we're in.

And the overseas people have become more and more comfortable to buy stuff anywhere that we operate vis-a-vis in the past, they would only look to maybe go along the borders of the ocean and buy in Seattle or California or Texas or the West Coast.

So, now, with the services that we provide them at our auctions, they'll-- further from the field, people are coming and buying stuff and, hence, more and more equipment that we have in each sale leaves the actual domain that we're having it.

So, as an example, again in Boise, most of it in the past, 60%, 70%, 80% of it may have stayed within a three-State or one-State area and, today, it gets smattered all over the North American market or even, to some extent, overseas if it's the right product.

Well, let me ask the question differently. I mean, do you anticipate this to continue to increase over time?

I don't know. Beyond 60% is getting pretty high, I guess, with the ebbs and flows with the economic cycles that's going on. So, for sure, anything significantly higher than that, in my mind, might be a stretch.

Okay.

And we're also we're waiting to see what the impact of higher fuel prices will be. I mean, at some point, that becomes a more relevant factor.

Different exchange rates in different countries, transportation costs, they're all relevant. But, probably the biggest one-- and Rob got to this-- is the economic strength in the areas. That seems to trump all else.

Okay.

And then, it looks like, just from what I calculated, your gross auction proceeds per lot were up about 33% which just shows you pumping more product through your sites.

I mean, is that really a function of what's going on? Is it market dynamics, some of the things, in terms of slowing and distress, or is it just that you guys are getting better at what you're doing?

Well, maybe it's a little bit of all of it, Gary. One thing we did see for sure is a decrease in the number of what we turn in terms of low value lots or items that sell for $1,000 or $2,000, and an increase in the number of larger lots we're selling.

So, we're uniquely positioned to be able to handle both, but the fact of the matter is that it's much more fun for us to sell $1 million crane than it is to sell a $2,000 pound-per-container or palette of stuff.

It's important that we sell all and we still appeal to that broad-- the owners of equipment need to sell everything, not just the big crane, but also the palette of chains. So, we'll handle all that stuff, but we're just seeing a proportionally increasing number of bigger items at the sale.

Thank you.

Scott Stember, Sidoti & Company. Please proceed with your question.

Also, Scott's on a payphone and fumbling for a quarter, it sounds like.

Jamie Sullivan, RBC Capital Markets. Please proceed with your question.

Wow, everyone's on quarters.

Can they hear us?

I don't know.

David Russell, Citigroup. Please proceed with your question.

Hello, I'm here.

Okay.

A question--.

--You won the lottery--.

--On Europe. Can you give us a little more detail of what you're seeing in Europe? Especially the last year, the dealers had a tough time selling their used equipment out of the region given the currency, but obviously the markets there have now softened further. Their used equipment inventories are even higher.

I just want to see if you're seeing any change in their behavior?

Rob here, David.

Going into Q2, for sure, there was a marked decrease in the European market, more supply coming out of-- particularly up in the UK and parts of Northern Europe and down in Spain as the finance crisis or credit hit those two markets within the housing industry.

A lot of equipment coming at us in the Spanish market, as the work in the building down there seem to have come to a pretty quickened slowdown in Q2. So, more equipment coming at us in that market.

Obviously, the strength of the euro over the last while has made much of the used equipment in Europe trade within the European market and lessened the number of North Americans that would consider buying there or the Middle East buyers that would buy there because of the sheer cost of it in euros versus dollars.

Have you seen it-- back, obviously, seven, eight years ago, there was that issue of some of the equipment fell so quickly in value, people were a little bit reticent to sell their used because they were under water. And then, obviously, when it got weak enough, they just had to blow it out for financial purposes, and it caused a bit of a rush of used to the market.

Where do you think we are right now in the European dealer fleets, even contractor fleets? Where do you think they are market value versus what they're carrying on their books?

And we've had a lot more inflation this cycle, so I'm not sure if it's exactly similar to a static inflation environment seven years ago. But, do you think the dealers are already at a point where used prices are down, whether kind of borderline underwater at equal value book versus market?

Boy, that's a hard one. The--.

--It depends on what (inaudible)--.

--Uh-huh.

The market in Europe was bumping along there quite well with a lot of support in Western Europe coming from the Eastern block countries. And many of the dealers that we've been dealing with are talking over there were not carrying large inventories of used equipment.

I'm not sure what their volumes were sitting there at new. But, as the whole world was struggling with supply and demand for supply of new over the past, not a lot of them were sitting with a lot of inventory that they may have had at previous times.

So, what they have it on their books for and what market is, if we can look at the North American side and suggest it would be similar. There are contractors out there today that we're running into and, of course, some dealers where the just of getting the deal done more hinges on payouts than it has in the past.

And some of them have very tight payouts that, based on our estimation of market price, wouldn't make them whole, and they've had to look at other opportunities or ways and means of finding a way to make market equate to book.

Okay, that's encouraging.

And the last quickie. On cranes, have you seen anything at all-- I mean, the boom trucks are obviously a little weaker, but let's say any RT above 50, 60 ton or-- how would you characterize the market right now? It's been strong. I mean, there was a period there where used cranes were almost going as much as new cranes. How would you characterize the market right now, supply versus demand?

Well, I think demand is still pushing a little bit ahead of the supply side of it, although I would tend towards the thought that it is leveling off and the extreme high values that we were seeing within the past year or so are starting to flatten.

But, it's still unique to some different markets out there. We had a sale in Australia, as we mentioned, toward the ends of June. The crane prices that we got down there were astronomically high. But, it's a market that's a long ways away from everywhere.

There's a lot of construction going on, and it's a long lead time for them if they ever want to order a new one, just from the supply side plus the transportation side. So, it wasn't that surprising that they were strong, but the prices were very strong.

There's been--.

--And--.

--A lot of interest in cranes that we sell from Middle East buyers.

And the same question, part of this last question, about particular products. Scrapers has a little bit of a proxy for housing developments. Obviously, they've got really pummeled the last couple of years.

Have you seen any bottoming in your scraper prices to suggest that all that, from an equipment perspective-- I'm not saying starts will be picking up anytime soon-- but, from an equipment perspective, have we seen some of the worst and some of the most notorious housing-oriented products that are down significantly in value?

I can answer that in a couple of weeks better.

We've seen the decrease in the (inaudible - multiple speakers)--.

--Can I ask why would you know in a couple of weeks better?

We're going to sell a whole bunch of them here in the next 30 days. But, we did sell a fair stock of them in Sacramento the other day. We've got quite a batch coming up in Vegas and Phoenix, all of course coming out of the West Coast, all primarily used in or around that housing industry.

We saw a little bit of comfort this past week at Sacramento with scraper prices. If it holds through the balance of August with the other scrapers that we've got coming at us, I would say that we've reached our low water mark. And there's some stability there with people jumping in and buying at that number.

Yes. It's fair to say, too, Rob--.

(--Inaudible - multiple speakers--.)

--That some of the pricing we saw in the Sacramento sale was even stronger than what we experienced in June on the scraper side.

Would I be a little too courageous to think that if scrapers begin to find a bottom, from strictly a housing-oriented product collapse, would you say that's a reasonable product to think about as-- not that I'm trying to call it bottom of housing starts, but maybe a bottom on housing-related equipment in the US? Or is there a whole way--.

--That'd be a fairly ballsy thing to do there.

Yes.

But, you go for it. You go.

I just wanted to get your opinion on it.

Hey, Charlene, we probably have time for one more question here, and then we have to wrap up. So--.

--All right. Thank you very much.

Are we clear, Charlene, or--?

--Yes, we are.

Okay. Well, then, we'll wrap the call.

And thank you very much everyone for your participation. And we'll get back to work here, and we'll look forward to talking to you in Q3. Thanks, everyone.

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.