RB Global Inc (RBA) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ritchie Bros. Auctioneers 2009 year end 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, Thursday, March 4th, 2010.

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

Thanks, Susie. Good morning, everyone, thanks for joining us today on the Ritchie Bros. Auctioneers investor conference call for the year ended December 31, 2009.

I'm Peter Blake, CEO of Ritchie Brothers. Joining me on the call today are Bob Armstrong, our Chief Operating Officer; Rob Mackay, our President; Rob McLeod, our Chief Financial Officer; and Jeremy Black, our Vice President of Business Development and Corporate Secretary.

Our plan for today is to give you some color on our financial results for the year ended December 31, 2009, and help set the stage for 2010. We're going to take a bit of a different approach on the call this time, in an effort to provide more open discussion about what's going on in our world. From recent conversations with many of you, it's clear that you have a good handle on our strategy and long-term prospects, and the importance to our long-term success of executing our strategy. But many of you are concerned about what happened in 2009, and what that means for our performance over the next six to 12 months. We are not deviating from our focus on the long term, and our business model is clearly as robust as it has always been. However, we hope to help you make sense of recent market dynamics and how they have impacted us, as well as understand how these dynamics may continue to influence our performance in the near term. Our comments will take about 25 minutes, and then we'll open the call for questions.

Before we start, I would 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, 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 in end 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 year ended December 31, 2009, which will be 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.

Okay, let's get into it. 2009 was an unpredictable year to say the least, but we view it as an overall solid success. While our gross auction proceeds were less than we had expected, we achieved strong adjusted earnings growth of 8% on top of revenue growth of 6%, and demonstrated successful efforts to control operating costs in the face of 12% more lots sold at our auctions, and record bidder registrations. We also grew our sales force by 14%, and opened seven new or replacement auction sites in 2009. We made significant steps forward in our efforts to implement efficient, consistent and scalable processes, including the rollout of our new sales force automation tool, the development of our robust new website that will go live later this year, and the piloting of our exciting new timed auction system that we'll discuss in more detail shortly.

To us, these are all signs of a tremendous year for Ritchie Bros., particularly in light of what was going on in our sector and in the broader equipment market in general. Many companies in the equipment space experienced precipitous drops in sales and earnings in 2009, and we are particularly proud of our performance considering the year that it was. Our consolidated gross auction proceeds did not grow in 2009. This is only the second time in the last 35 or so years that that this has happened. The economic situation in 2009 made predicting the used equipment market incredibly tough. We thought equipment would free up and come to market much more quickly than it did.

However, it was a unique environment, particularly in the United States. With the backdrop of the synchronized global downturn, we continued to see customers park their idle equipment rather than sell it at reduced market values, or for less than the value of the associated debt. There was lots of uncertainty around the impact of government stimulus spending, recovery timing, interest rates and other factors which further compounded the state of paralysis that we witnessed in the United States market, and started seeing in the European market.

We can only sell what is available for sale, and in 2009 many equipment owners chose not to sell. We don't believe the used equipment market is out of the woods just yet, though we have seen some promising signs of improvement at our recent auctions. In the wake of our miss on gross auction proceeds estimates in 2009, we understand that the investment community has a bit less faith in our forecasting ability; even though we did deliver the earnings growth to which we guided. We are aware that some observers believe our GAP, or Gross Auction Proceeds, estimates are less reliable, and that has made us somewhat gun-shy.

So for one more contextual comment before we move on, our ability to predict the market in the face of many uncertain variables at play is limited. A key message for today is that precise visibility is a challenge for many organizations right now, and we are no exception. With uncertainty over pricing, volume, mix and other variables, we are more challenged to give you specific or precise visibility into the year ahead. We'll do our best, but as we have always said our business is lumpy and unpredictable at the best of times. The current environment is intensifying this lumpiness and unpredictability, and making it difficult for us to forecast as accurately as we would like.

So that's the overview; now on to some specifics, and I would like to ask Jeremy to share with you some of the topics that are top of line for investors these days. Jeremy?

Thanks, Pete.

Our ability to grow our gross auction proceeds in 2010 is probably one of the main concerns. Our response to this question is not as straightforward as it used to be. Our 2010 plan reflects gross auction proceeds in the range of $4 billion for 2010. We realize some people may be skeptical of our ability to achieve this goal in 2010, but there are several factors that we believe will help us. One is the growth of our sales force in 2009. This is a key driver of our gross auction proceeds growth; although it can take two to three years for a salesperson to reach full productivity, they do start producing right away, so our 14% sales growth in 2009 will contribute to gross auction proceeds growth in 2010. Keep in mind also that we did not grow our sales team at all in 2008, and this likely contributed to our below-average GAAP growth in 2009.

Some people are looking at our 2010 auction results to date compared to last year, and are extrapolating the decreases over the entire year. We do not believe this to be a meaningful analysis. We are more focused on the annual results from a particular region, and our network in general, than on individual auction compared to the comparable auction in the previous year. As we always say, our business is event driven, and the timing of these events can have a meaningful impact on relative auction sizes.

Also, we don't plan for every auction to be bigger than the last one. A great example of this is Orlando. Our February auction in 2009 did not grow compared to our 2008 February auction. However, Orlando as a region did grow for the full year in 2009, which to us is a sign of maturity; spreading the full year of sales over more auctions provides better service to our customers, which is what motivates us.

For 2010, we are projecting Q1 gross auction proceeds to come in somewhere in the mid-$700 million range, which is less than Q1 last year. This estimate excludes the gross auction proceeds from the Apoise auction that we will discuss later. However, we do believe based on the strong prices at our recent auctions, and the resulting indications from our customers, that gross auction proceeds growth will accelerate through the course of the year. We won't be surprised if some of you are skeptical about this acceleration during the year as well; after all, we suggested the same would happen in 2009, and it didn't. However, upon reflection, the signs of increased strength are more promising now than they were a year ago. It is also interesting to note that a number of other public companies have already guided to lower proportionate sales in Q1 compared to prior years, with enhanced growth from Q2 to Q4.

We get questioned regularly about the impact of rental company and dealer inventory reductions in 2009. We did benefit from this phenomenon last year, particularly in the first half of the year, but it is important to understand that all rental companies in aggregate represented a relatively small share of our total GAAP for the year. We are not going to predict what will happen with rental company inventory levels in 2010, but we do want to highlight the fact that our annual gross auction proceeds come from a very broad and diverse range of customers, from many different industries and geographies. This is one of the advantages of our model; we do not rely on any one individual customer, group of customers or end market to facilitate our growth. Our list of Top 20 customers is pretty fluid. It changes from year to year, depending on our customer needs.

Currency impact is another common question. The weak dollar -- the weak US dollar could assist our gross auction proceeds growth in 2010, particularly in the first half of the year. If the Canadian dollar and euro remain strong compared to the US dollar, our Canadian and European sales will be translated into US dollars for reporting purposes at a higher rate in the first half of 2010 compared to last year.

Good morning, everyone, Rob Mackay here.

I would add that equipment values at our recent auctions have been very promising. It seems like we are starting to see some early signs of a trend developing. Equipment values at our auctions are noticeably ahead of where they were at the end of 2009, and in many cases have been above our expectations. This started at our auctions early in the year in Phoenix, Las Vegas, and Tipton in February, and really picked up steam in Orlando, where auction values across most categories of equipment surprised us in a good way. This pattern continued last week in [Mordyck] and Fort Worth, and this week in Toronto and L.A.. We're cautious about calling it a trend, because we have had a limited number of auctions, but this is the kind of data for which many equipment owners have been waiting and hoping to see. People often ask us what happened in 2009; it was an unusual year in many ways, but the one factor that impacted us the most was the paralysis in the US market.

On the other hand, we achieved record GAAP in Canada, our most mature market, with local currency growth of 19%. As Pete mentioned, a lot of equipment in the US was simply parked, rather than being sold for amounts that likely would have fallen short of the value of the debt on the equipment. We have seen some of those equipment packages resurface already in 2010, and auction values seem to be moving in the right direction.

Another common question is what are we doing to ensure the gross auction proceeds shortfall in 2009 does not repeat itself in 2010? For 2010, we have implemented new targets for our sales team, and incent them to generate consignments from new customers, rather than simply calling on their traditional customers. In addition, they started working on many new relationships in 2009, which we expect to begin producing results this year.

Also, we have our new sales force automation tool that will generate productivity improvements once the team gets fully up to speed with the technology. It's a powerful tool that will help to manage their customer relationships more effectively, as well as track leads and close deals. It will also allow their managers to do a more effective job of coaching and mentoring them, which should also help improve productivity.

Our new website, which we are planning to roll out later this year, will also help us to develop a more meaningful relationship with our online customers. In 2009, we had more than 2.8 million purely unique visitors to the website, which represents growth of 23% compared to 2008. These visitors conducted nearly 30 million equipment searches, which was up almost 30% compared to 2008. These are staggering statistics that make our website a very powerful tool for generating leads. Sadly, our existing site has limited capabilities to do this, which is part of the motivation to get this new site up and running. It will allow us to extract much more information about, and development rich relationships with our customers, which we expect will contribute to our gross auction proceeds growth in 2010 and future years.

While on the topic of leads, we have just recently established a new sales group at our Lincoln, Nebraska administrative office. The purpose of this group is to reach out to all of our bidders to ensure their expectations at our auctions was a good one, and to connect them with their local sales representative. We have thousands of new bidders visiting us every week, yet we have not in the past made enough effort to ensure they become repeat customers. This group already -- is already in operation, and we expect they will contribute significantly to improve relationships with new customers and consignments.

Good morning, it's Rob McLeod.

Our auction revenue rate is a key metric we gets lots of questions about, and how we expect it to trend in 2010. There's a particular dynamic that became apparent in 2009 that I would like to talk about, particularly as it relates to our guidance for 2010. It seemed like the more challenging it became for us to achieve our gross auction proceeds targets in 2009, the more our auction revenue rate performance exceeded our expectations. We have had four quarters significantly above our expectations, and experienced an auction revenue rate of 10.8% for the full year in 2009. This coincides directly with the quarters in which we fell short of our gross auction proceeds expectations. The net result was that we were able to deliver revenue growth in 2009, which contributed to earnings growth consistent with our guidance of mid to high single-digit earnings for the year.

For 2010, it is too soon to say how our auction revenue rate and GAP [relationship] will play out. We're also mindful of our history. We have regularly had three or four sequential periods in the past in which our performance exceeded or fell short of our expectations, yet the average annual auction revenue rate in subsequent periods has always reverted to the mean. We believe the same will occur in the future, so we're not increasing our auction revenue rate expectations. We will continue to monitor this rate, looking for signs that we're achieving a permanent, sustainably higher commission rate, but so far we are not seeing them. The above trend rate is driven largely by the better than average performance of our underwritten business, and we have no fundamental reason to believe that this business will perform at a similar rate in 2010 or in future years.

It's important to acknowledge this inverse relationship between gross auction proceeds and our auction revenue rate. As a result, it's perhaps more important in 2010 than it has been in the past to give some color around our auction revenue expectations. We believe we can achieve auction revenue growth in the 10% to 15% range in 2010, but we can't be certain at this early stage in the year whether this will come all from GAAP growth, or some form -- from achieving an above-trend auction revenue rate.

Rob Mackay here again.

I might add that because we are starting to see improved equipment values at our auctions, and generally more optimism amongst our customers, we are starting to get a bit more aggressive on our risk deals. It's too soon to say what the implications of this approach will be on our performance in 2010, but it is likely it may result in a lower auction revenue rate than the above well trend rate we enjoyed in 2009; and this aggressiveness should help us bring more equipment to market.

2009 was a very uncertain year, and this environment forced us to take a conservative stance in much of our risk business. This approach resulted in higher commission rate on the business overall, which contributed to our above trend auction revenue rate performance. But it also may have discouraged some equipment owners from selling because of the cost of a guarantee. We were able to be more conservative to compensate for the added risks of these deals, because few other participants in the market were prepared to write a check, but we do know that some equipment owners chose to park their equipment rather than pay the premium. For 2009, our underwritten business is 21% of total gross auction proceeds for the year, which is below our historical rate of 25%.

Bob Armstrong here, and I would like to jump in to address the big question that I am sure you are all waiting to ask; what does all of this mean for our earnings expectations for 2010? The truth is as we sit today, with the information we have, we are projecting flat earnings in 2010. We have looked long and hard at our operating and capital plans for 2010, and have deferred a number of initiatives and delayed a number of hires. We have trimmed costs, and maintained our commitment to other areas where we need to continue to support the investments we have made in recent years, so we can fully benefit from them, and lay the path for growth into the future.

One example of what I'm talking about is our recently implemented systems; our Oracle ERP system; the sales force automation system; FAIM, which is our field asset information management system; the new website that is under development; and our new timed auction system. Each of these initiatives has been an important foundational step for our future growth, but they do need to be supported and maintained from day one. They also require ongoing training to derive maximum benefit from them. Supporting these initiatives, coupled with our larger sales force, means that we are looking at a step-up in our G&A in 2010.

Another example is our auction site development efforts. We have added approximately 15 new and replacement auction sites over the last few years, and each new facility has an impact on G&A costs. When you look at the impact in aggregate in 2010, because we are adding so many new and replacement facilities over a relatively short period of time, we are expecting a $3 million to $4 million step-up in G&A in 2010. This is a one-time step, because our development efforts were above trend in 2009, and have now slowed to a more sustainable pace. Some of these new costs relate to leases on new regional auction units, and our new head office building in Vancouver; and others relate to general operating costs, such as increased property taxes and utility expenses. There is no one single material amount, but when you add them all up, it will have a meaningful impact on our G&A in 2010.

Now I don't want to sound defensive, but while we are still planning to deliver annual earnings per share growth of 15% on average over the long term, we are talking about flat earnings in 2010. Given there is still a relatively high degree of uncertainty in the market, and the economic environment is not back to normal, we feel that this is prudent guidance for 2010.

It's Pete, again, here. One related question you might have is why don't we curtail our hiring and look to limit eliminate some positions to help boost earnings growth in 2010? I'd like to address that matter, because I think really it gets to the heart of what we're all about at Ritchie Bros.

Ours is still a long-term growth story, and a relationship business. Our investment in physical assets and systems usually take a number of years to bear fruit, and our investments in people are just the same. We have the ability to trim costs by cutting our headcount, but we believe strongly this would be short-sighted and would jeopardize our long-term growth prospects. We are very pleased with our sales growth in 2009, and the balance of sales hires versus admin hires. In fact, we grew our sales force by 14%, while our administrative team increased by 4%. We expect these great additions to our sales team will kick in high gear over the next 18 to 24 months, with benefits being felt into 2010 and well beyond.

It's Rob McLeod again.

Pete and Bob, you raised the point about G&A, and the leverage question is something we should discuss. Previously, I have talked about our expectations for G&A leverage to begin to improve in 2009. It started out to improve in the first half of the year, but overall for 2009, we did not see the improvement that we expected. The main variable that influenced the lack of G&A leverage in 2009 was our flat gross auction proceeds, which we expected to be higher. However, the fact that we were able to sell 12% more lots in 2009, and handle an increased number of the customers without a corresponding increase in operating costs, is encouraging. We do expect G&A as a percentage of gross auction proceeds to start trending down in 2010, provided our gross auction proceeds growth is similar to what Jeremy has outlined above. Over the long term, we do believe that there is a lot of leverage inherent in our business, and we're committed to growing our revenues and earnings at a more rapid pace than our costs.

One of the G&A headwinds we also should address is currency. You may recall that a strong Canadian dollar and euro, relative to the US dollar, are good for our top line. Unfortunately, the situation has the opposite effect on our expenses line. Assuming exchange rates remain relatively consistent with the current rates, our G&A will increase by approximately $9 million dollars in 2010, purely as a result of foreign exchange. We still do not see a material impact on our net earnings from currency fluctuations, but the line item effects can be meaningful on a year-over-year basis.

Bob, again. There are a few other important changes in our cost structure for 2010 that we need to address today. These are going to have a meaningful impact on our ability to grow earnings in 2010, but they relate closely to the implementation of our strategy. We have already talked about the more significant elements of our earnings before interest, depreciation and taxes, but depreciation and income taxes are two potential material headwinds for 2010.

One of the consequences of our accelerated CapEx program over the last few years is obviously higher asset balances, which has resulted in a gradual increase in our depreciation expense in recent years. Some of the assets we have added are buildings that are depreciated over 30 years, but there are also a number of IT projects and leasehold improvements that are depreciated over a shorter period of time. For example, most of our significant IT investments are depreciated over five years or less. In addition, a large number of auction sites have come online in late 2009 and early 2010. As a result, we are looking at depreciation growth of roughly 40% in 2010 compared to last year. As our CapEx slows, we do not expect such significant increases in depreciation expense in future years. We view this as a structural step-up in 2010. These investments are all important for future growth, and are all expected to achieve a healthy return on invested capital. In future years, we expect annual depreciation growth to return to a more modest level, in line with our reduced CapEx levels.

Our income taxes in 2009 were somewhat below our expected range, as a result of a resolution of some of our uncertain tax positions during the year. We are always looking at ways to lower our tax rate, but the main driver is the relative tax rates in the jurisdictions in which we earn our income. The US is one of our highest tax rate jurisdictions, and we are expected to -- and we are expecting increased earnings growth in the US in 2010. We expect that this will contribute to our tax rate returning to a more sustainable rate in the low 30s, versus 29% for 2009.

And because I just shared some less-than-positive news, I want to talk a bit about our exciting new timed auction system that we are in the process of rolling out to many of our auction sites, and which has generated lots of questions lately. This new system allows bidders to place bids online, from kiosks at the auction site, or through their own computers or PDAs. We intend to sell most of the lower-value items, such as buckets, attachments, and more consumer-oriented items, using this system. We piloted the timed auction system in 2009 with tremendous success. Our bidders liked the system because it is much more convenient, allowing them to place bids on their own schedule, rather than having to wait around for lower-value items to be sold, which has typically happened at the end of our auctions. Consigners like the system because it results in higher proceeds. These lower-value items are receiving more bids because of the convenience factor, which results in higher proceeds. We like the timed auction system because it generates greater efficiencies and lower costs, and allows us to focus our efforts where our live auction model adds the most value, which is on the sale of high-value equipment items. We expect some of our auctions will be eliminating entire auction days as a result of this system once it is fully deployed, thereby reducing our cost structure. So this is a heads-up for those of you who are tracking the number of sale days, and get concerned about auction days potentially shrinking.

A real live example of this shrinkage is our recent sale in Los Angeles on Tuesday of this week. We sold nearly 2,400 lots in a one-day sale. That number of lots would typically require two days to sell, but we used our timed auction system to sell over 1,100 of those lots.

Rob McLeod, again. Another important financial measure that garners lots of questions is our cash flow. We commented in 2009 that we expected to see positive cash flow starting in 2010. Based on our earnings expectations for 2010, we now believe we will be close this year, but we may not achieve free cash flow after CapEx and dividends until 2011. Our EBITDA growth expectations for 2010 point to healthy cash flow from operations, but we still expect to spend in the range of $100 million on CapEx for the year. We also expect our quarterly dividend to continue to increase at a rate that approximates our long-term earnings growth rate.

As a result, we expect to take on a small amount of additional debt in 2010, but that should be it for additional debt for the foreseeable future. We have ample debt capacity, and we expect to start paying down our long-term debt in 2011. Of course, we'll remain nimble, and we will pursue opportunities if they fit our long-term strategy.

It's Jeremy here again. I have a couple of housekeeping items that I would like to discuss before Peter wraps up the call.

One is we have recently made a change to our corporate disclosure policy. As most of you are no doubt aware, we have traditionally announced all of our auctions that achieve gross auction proceeds in excess of US$20 million. Starting today, we are increasing that threshold for announcement to US$40 million or equivalent. We established the $20 million level when we went public in 1998, when our gross auction proceeds were just above $1 billion. Our sales have grown significantly in the intervening period, yet we have left our disclosure policy the same. This change is important to bring our policy up-to-date, and establish a more reasonable benchmark for disclosure.

The other item I want to mention is the sale of Apoise on March 30th, which is Dave Ritchie's yacht. This is an unusual transaction for us, so we will be providing you with detail regarding the sale at some point following the auction, so you can determine the impact on our results for Q1. It's too soon to tell whether or not this auction will result in repeat business in the yacht space, but Dave always intended to sell Apoise through a Ritchie Bros. unreserved auction, and we are confident in our ability to help him achieve his objectives.

Okay. Thanks, Jeremy, and thanks to all of you for joining us today. We hope this format provided better transparency around our near-term expectations.

Before we open the call to questions, I just want to quickly recap the main points we covered. We're very pleased with our adjusted earnings growth of 8%, and our strategic execution in 2009. Growing our sales force by 14%, opening seven new or replacement auction sites, and implementing a number of exciting new systems, are major accomplishments for us this year. Although our GAP was challenged by the unusual economic environment in 2009, we are looking forward to GAP in the range of $4 billion in 2010, with an auction revenue rate at or slightly above the high end of our 9.75% to 10.25% range for the year. And as a result of our strategic decisions over the past few years related to systems and auction sites, we are expecting structural increases in our G&A and depreciation expense in 2010, which we estimate will result in flat earnings for 2010.

There is a lot of uncertainty in the world right now, and Ritchie Bros. is not immune. We are working hard to make the right investment decisions to set our Company up for success over the long term. Our strategy is sound, and our business model remains well positioned for continued growth into the future.

We'll be back with you with updated information in late April. In the meantime, we're going to get busy cultivating relationships with our customers to help drive the growth that we talked about on the call.

Operator, can you please open the call for questions?

Thank you.

(Operator Instructions)

Our first question coming from the line of Bert Powell from BMO Capital Markets. Please proceed with your question.

Great. The new format doesn't leave a lot of questions to be asked, you know. Pete, just wanted to -- you know, the rejig on the sales force, is that predominantly a US focus or is this being rolled out across all geographies?

It's more across all geographies, Bert. I think it's fairly representative of the existing sales force in each of the jurisdictions, proportionately.

Okay. So this got traction in Q4, and really is going to start to have impact as we roll through 2010? Was this started earlier in 2009? Just trying to get a sense of what kind of momentum this has, and maybe if you can share with us some of the other things you have done. Is there a comp rejig? You talked about focus on new accounts, is there performance measures around that? Can you just help us understand, you know, what the scope is, so we can figure out how long this is going to take to have an impact on the GAP numbers?

Yes, sure. We did outline some of the initiatives in the call itself. I'm happy to repeat them, if you want. But to get to the first part of your question, the -- I guess the pace of hiring really was proportionately throughout the year fairly even. In fact, probably more weighted to Q1, Q2, and Q3, and less so in Q4, if you drill in and look at the hard numbers. So the folks that we're talking about, that 14% increase, was probably more -- more weighted to early than late in 2009. But, yes, for sure some of the changes that we made -- you can't really change your compensation system halfway through the year.

Yes.

So some of the changes that we made for 2010 that helped these guys focus on new customers and new relationships, and incent them to go out and create those things. Other things like the new sales force automation tool, which is a great productivity tool. And prior to that, you know, our sales folks out in the field were really operating out of the binder system, literally a pad of paper with all of their customers, 3,000 customers on them. So you couldn't help but fault them for tracking to the existing people that they already were aware of. So now we have given them a tool that they can slice and dice, and we've had some nice early signs of wins on the way through with that. It's just a question of training, and getting them up to speed on that through the rest of the year.

That, with some of the other initiatives, like the [time box and lots] for efficiencies, and that allows our sales reps to spend more time in the field rather than spending two days at the L.A. sale, as an example. A lot of those guys on Wednesday morning, they were back into their regions rather than spending another day at the auction. So those are good days to spend for sure in shaking hands and saying hi to customers, but really the rubber hits the road when they are in the field and they are shaking hands at the equipment owner sites, and responding to requests for looking at values and signing deals that way. So there's lots of things underway, and I think I'm pleased to see where we've come through 2009, and I think we're going to start to see some fruit coming off of those trees in 2010 for sure.

Rob, here, I'll add to that Pete and Bert, if I could. In 2009, one of our areas in the U.S. adopted a challenge, and it was a scorecard target for their sales force to get out and find new people that we have never done business before, get them on our mail list, make them aware of the auctions, invite them to the auctions, and it was a successful event in one of the areas, so it has been adopted across-the-board for the rest of the group this year.

Okay.

And it -- you know, it's going to take a year for the guys to work through it and add people and find new customers, but as we do that, and they are brought on board, then subsequent or following years after that, they will have targets that are tied to the new customers that are bolted on. So this basically was started last year in one of the areas, and will be bolted on to everybody this year.

Okay. Just last question on the auction revenue rate, I understand you have had good success with the underwritten business, and been conservative on the pricing, as the market starts to turn and I guess the dealers start to get more active and your traditional competitors start to come back, you know, how soon does that start? Or how soon do you think that starts to impact, you know, how sharp you have to make your pencil on the underwritten business?

Rob here again. It's a -- I don't know if it's a phenomenon. After Orlando every year --

Yes.

Every -- a new pricing mark is set. It's kind of the -- like somebody turns the clock back and all of the dealers, all of the brokers, everybody runs home and reprices their inventory. And as that occurs, the whole market changes in its competitive nature and its view of life, including the owner themselves. They all go home and say, the market is stronger, my equipment is worth more, you guys have got to sharpen your pencil when you come to me with a deal. So the day after Orlando, I would say that it started. The belief in people's mind, they started talking about it after Phoenix and L.A., and they all waited around until Orlando cemented in their minds, I guess, that there was an uptick in pricing.

Okay.

And it's -- everybody is talking about it.

Okay. Perfect. Thank you very much.

Thank you. Our next question is coming from the line of Ben Cherniavsky from Raymond James. Please proceed with your question.

Good morning, guys.

Good morning, Ben.

Every time they come up with a new rendition for my last name.

We were quite impressed with that one, actually.

Can you -- you mentioned how your GAP was up in Canada year-over-year. Can you give me the actual dollar number of Canadian GAP last year? I think you'll have that in your annual, or some of the more detailed disclosure forms, but I haven't seen them yet.

The detailed disclosure forms show auction revenues, but not GAP.

Okay.

And so I don't have that number right here on it, but it was a 19% growth in Canadian dollar terms within -- for Canada. In GAP.

Any idea in rough numbers where you would be in Europe for your GAP right now? In dollars?

For 2009?

Yes.

It was pretty -- it was relatively -- relatively flat in euro terms.

Okay . The -- I know that in the past, you know, we have talked about this, but I'm going to raise the question again. I mean, I think I know what your answer is going to be, but IronPlanet, you know, they have -- I have been getting more questions from investors about them. They have been reporting some pretty solid growth in the US that is in stark contrast to what you guys are reporting. I recognize, of course, they are smaller, going off of a much smaller base of numbers. But do you still -- what is the competitive threat there? Is it changing at all? Do you think it's becoming a little more formidable than it would have been a few years ago? Or what can you say about that

Rob, you want to talk or you want me to speak it to?

Well, you can speak it to Pete. I can make some comments afterwards if you would like.

Sure, Ben, it's Pete here. Good question, and we get it from other people as well, to see, you know, they are reporting percentage increases of X and Y, in smaller dollars of course; I think they were probably in the $75 million range increases in sales in the United States. A lot of the attractiveness to the IP model during the down market was the fact that they were selling on a reserve basis as well. And they were -- their -- sort of their success rate and pass-through rate, if you want to call it that, and ours is 100%, and they were down at sometimes 60%, sometimes 70%. So it allowed owners of equipment to sort of test the market. They were selling the fact that it's easy, don't move it. We'll charge you an inspection fee, and you guys can set your number that you want to set, and we'll let you run it. Or the IP folks would set it for them, and set it at a level that they believe they were trying to transact. So it's a bit of an easy solution in a down-market to say, well, I might as well try it. Because I need to get X dollars out of this equipment to cover my debt, and if I don't get that, then, you know, I just lost the cost of inspection fees on these units. So the inspection fees, when you do the math, it adds up to be fairly significant. And overall revenue that I think in that model when you look at it, in fact is not as inexpensive as other people might think.

We're very mindful of them. They are interesting competitors. It's the online-only model, and will people embrace just an inspection report to buy a used product that they want to put to work? Again, you look at most of our customers in our theatres, and these gentlemen are the ones that basically are the economy out there. And they are the ones that sit on the machines all day long, and dig post holes, and repair roads, and build schools. And they know the value of equipment more so by sitting on it and trying it and running it than they would by reading a report and then getting into a conflict post-sale. A resolution issue because the description or the condition of an opinioned third-party inspector is somewhat different than their own. So there are lots of challenges around that model as well. Albeit it's easy to report, like I say, percentage increases that are -- that sound quite impressive in a press release.

Rob, you want to add some color?

Yes. You know, they are two different models, Ben. For us it's -- and for the customer, you have to ascertain what does the customer want? What is the outcome that he's seeking? And each model can and will produce a different outcome. So for our customers we have to ascertain, really, what are they after? And in 2009 there was the uncertainty, and gee, if I could just leave it to sit in my yard and have a minimum price that's not met, then I could try the model. But the outcome of it is I don't have it sold; if that's the case.

So we look at it, and we have to go out and show to our consigners who can generate the best net result for the owner, what the outcome is that you need. So it's there. Our guys are cognizant of it. And competition makes you sharper and smarter, and makes you go out and do different things. So we're chasing it. We still live and breathe that the live auction, the auction theater, is what creates and pushes and drives an auction sale.

The internet for Ritchie Bros. has always been a [bull fund] that works in conjunction or supports or competes with the people in the theater. But the auction buzz and the hype, and what drives an auction sale is the live crowd. And the internet plays in to that rather well, but one is the base and the other is the support. So we're cognizant of them, and we're out there competing with them.

Do you feel like they accounted for some of your missed targets last year in the States?

You know, it's no doubt that there's probably some business out there that they may have got that could have been ours. There is always -- there is also a lot of business out there that would never be ours, because we don't allow reserve pricing.

Right.

And without a reserve, that customer may never be a customer for you, so --.

If I -- could I just make -- ask one more question or at least make a comment. I don't understand why you would increase your threshold of disclosing auction results at this point in time. You know that I'm one of the guys who likes to follow that stuff closely. I find it quite helpful, and in a period where you yourselves admit that visibility is deteriorating, and it's more difficult than ever to predict how your business is faring, I don't understand why you would become more opaque?

This is Jeremy. It's not really a question of becoming more opaque. It's more a question of, you know, what's material and, you know, what do the lawyers recommend as far as disclosure levels are concerned. And the reality is that putting out press releases after every $20 million auction was just -- it was kind of -- there were just too many press releases, and the market was becoming numb to them. They lose their effect.

I disagree. I think by reducing disclosure you invariably become more opaque, so maybe the lawyers have a different view, but I think that -- I find -- I think that's going to be less helpful, not more helpful.

Well, we appreciate your comments, Ben.

Anyway, thanks a lot, guys.

Thank you. Our next question coming from the line of Jamie Sullivan from RBC Capital. Please proceed with your question.

Morning, Jamie.

Jamie Sullivan, your line is open.

Can you hear me?

Thank you.

We can now.

Thanks, guys. So I'm trying to get an understanding on the earnings guidance you mentioned. I think you said that the -- the yacht is not part of the GAAP guidance in 1Q, so I was just -- by my math, it seems that that item could contribute somewhere in the $0.04 to $0.08 in earnings, depending on what it sells for, which could be up to 9% of the earnings for the year. Do you plan to break out the earnings impact of the yacht sale? And if you could comment on kind of -- help us understand kind of the expectations for earnings trends in the underlying business?

Jamie, it's Jeremy here. I'm not sure where you are coming up with those numbers from. We haven't given any detail at all on it. That's purely your interpretation. As it sits right now, we don't have the results of the Apoise sale included in our guidance. We also don't give quarterly earnings guidance. So I think that's really all we can say about it at this point in time, other than to say we will discuss the impact of it after the sale.

Okay. I guess could you talk about what your expectations for the earnings -- you know, the underlying operating earnings you expect for the rest of the business for the year?

I think that's what Bob talked about there, is in terms of flat earnings growth for the year.

Okay. I guess -- I guess just a question about the market, too, and the -- you know, in the second half there was some kind of freezing of the market, largely in the US. It seems like price volatility was a contributor to that, and some of the uncertainty, and banks reluctant to move; with the pricing environment seemingly moving favorable, would you expect to see kind of that pent-up volume of equipment start to hit in the next three to four months? Or is there something else that could, you know, delay those things from coming to market, you know, now that we have had that pop?

Rob, here, Jamie. We have seen -- as a result of the pricing that has occurred earlier in the year, we have seen a marked -- a marked increase in -- in activity of the appraisals that our guys are doing. Numerous files that we looked at last year that were -- we -- if we win them we mark down signed, if we lose them we marked down lost, if they don't go away we mark down future. And there's numerous ones that are coming back that the owners are coming back to us and saying okay, guys, you know, let's look at the pricing. Everybody has seen that it has increased across-the-board in a number of your sales. I would like you to go back, revisit my equipment, what's it worth now, what type of deal can we put together? So there's a lot of activity with our guys out there based upon the current pricing things, and we're putting deals together every day. The question is how many will come at you, and how soon?

Overall, I think the economic activity and the increase in pricing is something we're seeing here in Q1. We have a comfort feeling with that economic activity in the market here for Q1 and Q2, and then our crystal ball gets somewhat fuzzy.

Just to add to that, Jamie, it's Pete here. One of the complaints that we had from consigners at the Orlando auction was that they were disappointed that they didn't put enough in the auction. And they were -- some of them were sitting back and just kind of waiting with the uncertainty of the environment. Now that the market has somewhat firmed, and pricing has certainly upticked in the first quarter, as we commented on, we're seeing those people moving with a little more confidence into the market. And a lot of that confidence will not be reflected in product coming to market probably until auctions the next quarter. So that's how we see our Q1 being where it is, and I think our Q2 will pick up. And -- it's interesting too, as we mentioned on the call, and I'll just reiterate, that we see a lot of -- some of the other public companies in their comments say they've come out with -- are quite consistent with that view of the economy in general of the United States.

Now not to say that -- you know, there's still some structural things in the US, particularly, that are overhanging there. The housing market is still an issue, unemployment is still an issue. So there are lots of structural things that have to come to bear, but I think we're seeing more of a return to normal behavioral market -- market aspect than we saw in 2009, with that sort of freeze due to the uncertainty of where the values were.

Okay. Thanks a lot.

Thank you. Our next question is coming from the line of David Wells from Thompson Research. Please proceed with your question.

Good morning, everyone.

Good morning, David.

Just to press more on the outlook for 2010. I hear what you are saying about pricing firming up, but if you look at the kind of broader buckets of the construction market, specifically in the US market. Residential may be bumping along the bottom, non-res still seeing declines, maybe some public construction work from stimulus; I guess my question is on the buy side, you know, why is someone stepping up to buy equipment in this market if they don't have work or backlog that would warrant purchasing equipment?

Rob here again, David. It's -- you know, everybody I think tends to forget that the -- it's a massive market out there, and although we don't open the newspaper every day and read about all of these tenders and construction markets that are coming into the marketplace, there are still people out there digging holes and building stuff each and every day. The economy hasn't stopped. There's not a massive pile of new jobs being, -- or new tenders or contracts being added, but there's still in existence -- there's work out there. And, you know, we have got clients coming to our sale that, amazingly, are as busy as they have ever been in many years. And they have got a niche where they are in working in different types of projects, whether it's power plants, or this or that, and those people are coming to the sale.

And we see it through every economic downturn and rise again, where their vision for work is somewhat shorter term than four or five years out, you know, backlog that they have on their books. It may be two years out or a year and-a-half, and those are the folks that are saying instead of going down to the store and ordering a brand new one, I'm going to go find a machine with low hours, relatively new, and we start to see an uptick in the demand for late-model [OR] equipment, which is exactly what we're experiencing in the first part of the year so far.

The question remains for us, as we continue through Q1 and Q2, is how much is that demand for the late-model old stuff start to trickle down to the three, four, five, six, seven-year-old stuff, and will that pricing -- it's firmed itself, but will it increase? That will all be determined by how much more work starts to trickle out, particularly into the U.S. economy as we go through Q1 into Q2? And do they get their highway budget in place, does any more of the stimulus money reach the market? But there's still people out there working every day, and the stuff keeps trading. People are trading up, trading out of older stuff, getting newer stuff, because they still have something going on out there.

Okay. That's helpful. Secondly, I -- as you look at the Company's returns on capital, you know, on a quarterly basis, you know, they -- we see kind of a steady downward trend over the last, say, you know, four to five quarters. Based on the expectations for 2010, it doesn't sound like that's going to change in a material way. So when do you see the business model able to reach a leverage point where you can start, you know, realizing some tangible returns on the investments that you have put in place? And, you know, what does that look like longer term? I mean, do you need 20% GAP growth to actually see some leverage on that, or is it a more modest recovery before we can start seeing some of those returns flow through?

David, it's a great question, and we just had Board meetings this week, and surprise, we talked about that quite a bit. Our capital expenditure, in a perfect word, would be a relatively stable amount each year, perhaps growing slightly with the growth in the Company. But that's not the way it plays out. We have to be opportunistic and jump on the chances when we get them. And the result has been the last couple of years spending on CapEx in excess of what in a perfect world we would have planned; but we have got some great facilities in place, and we are really, really pleased we did. CapEx this year will be meaningfully below what it was last year, because we got so much done in the last few years. That means that what had been pressure on ROIC becomes the opposite of that.

So you're absolutely right, the ROIC has been under pressure the last few years, not helped at all by difficulty in achieving our GAP numbers. We are now probably closing in on a turning point, because our GAP, of course we are expecting, will return to good growth, and our CapEx is now returning to more modest levels. So what had been two factors working together to put pressure on ROIC now become two factors working together to enhance ROIC.

When is specifically the inflection point? I don't know, it's going to depend on exactly when those two factors kick in in the right way. But it is right around the corner. Clearly we're watching our CapEx come down now, and we're calling for GAP to go up; both of those are positive factors.

Okay. And then lastly, if I could, I guess your thoughts on increasing the dividend, you know, given a flat outlook for earnings and cash flow. I would assume by increasing with the long-term growth rate of the Company, that implies something in the mid-teens range, and maybe could you walk us through that use of cash right now?

Sure, David, this is Pete here. That really is an issue for the Board to determine. We look at it typically annually, when we go through it. When we plan our cash flows, we plan for traditional long-term growth in that number. Because, you know, we're planning on a yearly or going-forward basis, but that determination will be made by the Board at the time; and we're just anticipating that they'll continue to look at the dividend in the same way they have in the past. Which is really traditionally on a long-term earnings growth basis.

All right. Great. Thank you.

Thank you. Our next question coming from the line of Craig Kennison from Robert W. Baird. Please proceed with your question.

Good morning.

Good morning.

I love the call format, by the way.

I think I know the answer to this, but if GAP were to fall meaningfully short of the $4 billion range that you have set, how would you address your cost structure, if at all? I think I know you are focused on the long term, but I want to hear your response.

Good morning, Craig, it's Rob. Yes, we really are focused on the long term. The cost structure is agile, but probably not that agile on a quarterly basis, like in a three-month time period. And so the -- the trick is obviously figuring out at what point is it expected that the GAAP targets for the year won't be achieved, and so therefore what opportunity do we have, or what timeframe do we have, to make any adjustments? And as I say, it's -- making a meaningful effect on overhead costs in a three-month period is -- would be challenging. Medium and long-term, for sure, that's how we would look at it.

But just to add to that, Craig, it's Bob. One thing we have asked our managers to do is to stay nimble through the year, boys. Don't front load your spending, don't commit to too much. As we said on the call, this is a tough year to predict. So as we gain more confident going through the year, then we'll be more comfortable, feel like releasing funds for various initiatives and hirings, and so on.

One thing we are not putting any pressure on is the hiring of the sales force. That is a priority number one, that goes ahead. But a lot of the other initiatives and hirings and so on, we're watching extremely closely, and we're saying just wait, wait a month, wait a quarter, and delay it as long as you can.

Thanks. And secondly, I understand that the unreserved auction is really part of your DNA, but if you are conceding some market opportunities because of that, would you consider an additional strategy, or a non-Ritchie strategy, or some other way of tapping into that reserved market, which your clients seem to need as well?

Hey, Craig, it's Pete. The answer is no. No. We are -- you are right, it's our DNA that we believe that if somebody wants to sell something, we will sell it for fair value in the unreserved channel with the global presence in the market is what it is. We'll deliver that market, and we'll create value for customers by doing that.

If somebody chooses to want to sell on a reserve basis, effectively they are talking about a very, very different way of trying to bring something to market. Our belief is, and I think we have shown it in our -- in our history and our growth, and the fact that we're the largest in the world by a long stretch at what we do, is that this is the most effective way to create value for your customer. Ultimately, that's our job. We have to add value to the people who are the owners of the equipment, and the people who are buyers, and the bidders on the way through, and if you don't do that, then you don't succeed. I think we have the right model.

You saw some unusual things happen in '09, particularly in the United States with the freeze. But if you want to test the model, look at Canada. Where Canada and the economy in Canada wasn't really affected as much by the United States and sort of the credit bubble, and the overextended housing market, and various things. Canada operated much more like a normal market did, and here we're up 19% local currency in Canada by doing exactly what we do best, which is simply conducting our business and executing our strategy.

So a long-winded answer to the final conclusion of, no. But thank you. Thank you for asking.

And last, is the boat sale at risk or on consignment?

We will give you the data of that after the boat sale. We're not going to disclose any individual transaction stuff, but we will certainly be providing you guidance or results of Q1 ex-the sale of the yacht.

Some of us got on the call late, I think there was delay. Did you provide first quarter GAP guidance?

Yeah, hey, Craig, it's Jeremy. We gave first quarter GAP guidance in the mid-700s range, $700 million range.

Excluding the boat?

That's correct.

Okay. Thanks, and congrats on your hockey Gold Medal.

Finally, yes.

Thank you. Thanks for coming second.

Thank you. Our next question is coming from the line of Scott Stember from Sidoti. Please proceed with your question.

Good morning.

Morning.

Did you guys talk about for 2010, what the rate of expansion for the sales force will be?

It's Bob. No, we didn't actually, Scott. But as the standing order, if you like, 5% to 10%, and that's kind of been the program for a while. Last year was much higher, and the year before was much lower, so we have proven that we are not always within that range; but the standing order going forward is we should be growing that sales force each year somewhere in the range of 5% to 10%.

Okay. And as far as the increase in G&A for the year, I understand obviously with the sales force increasing and the G&A going up the way that it is, is there any other item that is of note? Or is it just a bunch of little things that will bring that number up to the point that it's going to make a flat year on the bottom line?

Hey, Scott, it's Rob McLeod. Just following-up on some of the points that Bob brought in, was one of the line items, if you would, would be rent expense, for example, for the new regional auction units that we brought on late in 2009 and early here in 2010, which will have a decent impact. And also the rental of our new head office here in Vancouver, which previously our buildings, we had owned them. So that -- in Bob's comments he had said it was about a $3 million to $4 million impact on that.

And then as I had said before as well, the foreign currency effect, just that alone is expected to be about $9 million, obviously depending on where the Canadian dollar and euro end up for the year.

Just to conclude that, if I think the biggest impacts, Rob, would be foreign exchange, the impact on buildings, the depreciation and the sales force.

Yes.

Okay. And did you disclose what free cash flow was for 2009?

Free cash flow? We didn't. We -- after CapEx and dividends, we'll probably be taking on a little bit of debt to cover that up. So the definition of free -- our free cash flow, we wouldn't be in free cash flow until 2010, if I take out dividends. Free cash flows before dividends, we expect to be free cash flow in 2010 without taking into account dividends.

Right. Yes.

Oh, okay. If you take out the dividends -- okay. All right. As far as facility expansion, are we looking at half of what we did in 2009 or a third?

Sorry, what was the question, again, Scott?

The facility expansion, you added some facilities?

Oh, facility expansion, probably about two-thirds of the spend in terms of the facility component. Total CapEx we guided to approximately $100 million for the year, and the vast majority of that is land and buildings. Whereas last year -- in 2009 -- Rob, CapEx in 2009 was --

$157 million.

So $157 million down to $100 million, so it's a meaningful change, and for sure the largest chunk of that change comes from land and buildings. The other components within there are computer software, IT-type projects, and then our maintenance CapEx, which is cars and computers, and small maintenance issues on the sites.

I think Scott asked, that the quantum of sites, Scott, that you were -- we said seven replacement or new sites in 2009, and your question was how many in 2010?

Yes, that was the question.

Yes. Thanks, Rob. Excellent translation. It's probably less than that. I think it's five or six grand openings expected through this year.

(inaudible) CapEx was -- hit in 2009, because we are opening them relatively early in 2010.

Okay. Just a last question, can you just touch on these timed auctions, some of the mechanics; what makes them work faster than, you know, a typical auction?

The timed auction lot system mechanically is completely different than our traditional live auction. The way it works is the items are listed available for bidding currently usually two to three days prior to the auction itself. It's run in conjunction with the live auction.

So using Los Angeles as an example, on Tuesday, the auction lots that were in the timed auction system were open for bidding three or four days prior, and then starting at a certain point in time mid-morning on auction day they started closing one at a time every 15 seconds. And at different auctions we've had different intervals, it's usually in 15 or 30 seconds. So the auction lots close during the day of the live auction, meaning that the crowd that is there at the live auction is easily able to participate. We have a series of kiosks at the auction site that they can place their bids on. In addition, anybody with any internet connection anywhere in the world, including on their iPhone, can place a bid. So it's easy bidding at any time. You can bid from your home in your pajamas, or you can bid live at the auction site while you're there participating in the live auction.

By the end of the day the live auction is completed, and all of the lots in the timed auction have closed, so it's all still one auction. But by taking 1,100 lots and selling them in this manner, we didn't have to staff a second day of an auction in this particular case. But the auction items are still sold completely unreserved. But with -- and in conjunction with -- excuse me -- the live auction itself, just using a technology solution that allows more people to participate, and leaves those particular items open for bidding for a longer period of time.

Great. That's all I have. Thank you.

Okay. Thanks, Operator, we probably have time for one more question, if there is one.

Thank you. Our next question is coming from the line of Cherilyn Radbourne from Scotia Capital. Please proceed with your question.

Thanks, very much, good morning. I guess I'm bringing up the rear. I will just ask one. I think at some point, either on your Q3 conference call or perhaps at the December analyst day, you had made mention that this sort of paralysis that has been largely a US phenomenon was beginning to emerge to a degree in Europe. And so I just wondered if you could provide us an update as to whether that has remained largely confined to the US, or whether you've seen it elsewhere?

Yes, it's Rob here. We did see the paralysis creep into Europe, probably lagging behind the US in a five to eight-month period. What went on in the US in May, June, July, started to expose itself in Europe in Q4. It has been interesting. We just had our first sale in Europe this past week, and the pricing has regained some strength over there. And I think it's a bit too early to tell whether the paralysis will linger there for a while longer or whether we'll start to see some more activity because of the increase in pricing. But we have got some sales coming up here relatively soon in France, Spain, and Italy.

So I think it's too early to tell, but it still may lag behind the US somewhat. But the results that we saw in Mordyck last week, the numbers showed some strength, and that may relieve some of the paralysis, but I don't think we can answer it wholeheartedly yet.

Okay. Thank you. I'll cut it off there.

Thank you.

Thanks, Susie. Thanks, everybody for joining us. Interesting question on timed auction lots; if you actually want to see it working, it's on right now. We have a live auction in Olympia, Washington, where Rob Mackay is at today, and the timed auction system is being utilized today. So if you want to jump on RBAuction.com and have a look at it, you can observe it firsthand.

But I appreciate your time, and thanks for dialing in. We'll look forward to talking to you in late April, okay? Thanks.

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. Have a great day.