RB Global Inc (RBA) 2010 Q4 法說會逐字稿

Good morning, my name is Melissa and, I will be your conference operator today. At this time I would like to welcome everyone to the Ritchie Bros. Auctioneers Incorporated 2010 year-end earnings call. All lines have been placed on mute to prevent any background noise. (Operator Instructions). Mr. Peter Blake, CEO of Ritchie Brothers Auctioneers Incorporated, you may begin your conference.

Thanks, Melissa. I'm Peter Blake, CEO of Ritchie Brothers Auctioneers, and thanks for joining us today on our Q4 2010 investor conference call. I'm joined today by Bob Armstrong, our Chief Operating Officer, Rob Mackay, our President, Rob McLeod, our CFO and Jeremy Black our Vice President of Business Development and Corporate Secretary.

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, including projections of future earnings, revenue, gross auction proceeds, and other items are considered forward-looking and involve risks and uncertainties. These risks and uncertainties that may affect our performance significantly, or could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed from time to time in our SEC and Canadian securities filings, including our management's discussion and analysis of financial conditions and results of operations for the period ended December 31, 2010, and subsequent quarters which is available on the SEC, CCR, 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 would also like to note that during today's call, we will 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 assessing our operating performance. It is not a measure of financial performance, liquidity or revenue, and is not presented in our statement of operations. The most directly comparable measure in our financial statements is auction revenues which represent the revenues we earn in the course of conducting our auctions.

I hope you have all seen our press release this morning announcing our 2010 gross auction proceeds of $3.3 billion, and adjusted net earnings of $0.61 per diluted share. Our auction revenues were down 5%, compared to 2009, and our adjusted earnings were off 29% year over year. This decline in net earnings is in line with our most recent guidance. The main reason for the decline is that our auction revenues fell short of our expectations for 2010.

During 2010, we made the conscious decision to continue investing in our business for the future, albeit it a slower rate. Growing our sales force and building our auction site network and IT infrastructure are investments that will pay dividends over the long term, and we believe it would have been short-sighted to make major cuts to improve earnings performance in the short run at the expense of future growth. Today we have significant capacity in our network, an industry leading technology platform, and a motivated and well trained team. We are very well positioned to serve markets as economies shift into forward gear, and although that may not happen overnight, we do see fundamentals improving dramatically, even compared to three months ago.

We have talked a lot in the past about the challenging market conditions we faced in 2010, so I will not spend time dwelling on that in our call today. Needless to say, conditions did not improve meaningfully in Q4 2010, but already in 2011, we are seeing many positive signs. Rob Mackay will talk in a moment about what is different in our world as we start 2011.

We continue to believe that our business model is generally well-suited for all economic conditions. We also believe that over the long term, designing and executing an appropriate growth strategy will continue to be a strong determinant of our ability to grow our earnings in part because our share of the world market for used equipment and trucks is so small. This is part of the reason why we spent considerable time in 2010 revamping our strategic plan to help steer our activities in the years ahead. Bob will speak in a few minutes about our progress to date and upcoming activities in connection with our strategic initiatives, but let me give you an overview of our updated plan.

Over the last number of years we have articulated our strategy based on the people, places, and processes frame work, and this has guided our activities. We invested significantly in growing and developing our sales and support teams, building our auction site network, and expanding into new markets, and refining and enhancing our systems and processes. We achieved much of what we set out to accomplish and this strategic focus, and the time had come to complete a thorough review and update of our strategic plan.

As a result of that process, and based on extensive feedback from our customers, our people places and processes frame work has evolved and matured. Many of these same elements remain, however, the way we articulate our strategy has changed to focus on three strategic pillars -- grow, add, and perform.

The foundation of our updated strategic plan is our mission statement. We live to create compelling business solutions that enable the world's builders to easily and confidently exchange equipment. We offer compelling business solutions to all people who buy and sell equipment and trucks regardless of their industry or end market, including contractors, transportation companies, and farmers, as well as those who support these activities such as finance companies, rental companies, and equipment dealers among others.

Our goal is to provide solutions that make it easy for them to buy and sell equipment with confidence. We continue to focus on our core unreserved auction model with a view to adding solutions and streamlining processes to enhance the value we provide to our existing customers as well as make our auctions more appealing to new customers.

Let me give you a quick overview of our three strategic pillars then I will ask Bob so give you more detail on recent and planned initiatives in each one.

Our first strategic pillar is to grow our core auction business. We intend to focus on increasing our market share with our traditional customer groups while simultaneously doing more business with new customer groups and in new markets. The big part of this pillar will be deeper market research to understand better why equipment owners do or do not use our services and how to address the needs of the large number of equipment owners whose do not even know about Ritchie Bros.

We continue to expect that most of our near-term grown will come from our established regions, primarily in the United States and western Europe, and believe that emerging markets such as China, Brazil, and other developing countries offer considerable potential for long term growth. We also plan to add at least one new auction site to our network every year, and will continue conducting off site auctions to expand our presence in new regions.

In order to grow our core auction business, we intend to streamline and simplify our auctions to make them easy. Many of our new customers have little or no experience buying or selling at auctions, and we want to make the process as easy and stress-free as possible, so they feel confident on auction day.

The second strategic pillar is to add new business and information solutions. Technology and innovation have played significant roles at Ritchie Bros. in the past decade, enabling us to enhance our auctions and deliver added value to equipment owners around the world. We will continue to harness the latest technology to supplement and enhance our auction services and investigate new services to meet the needs of equipment owners that aren't being met by our unreserved auctions.

We intend to introduce a range of additional value added services in 2011. We already offer a higher level of service and innovation to our customers than any of our auction competitors, and we are now going to raise the bar even further. We are planning to invest in enhanced business intelligence to further bolster our understanding of the equipment market. We want to reinforce Ritchie Bros.' position as the knowledge and information authority in the equipment marketplace, so that when people are looking for equipment information, they will turn to Ritchie Bros., the experts.

The final strategic pillar is to perform by building on an inspired, high-performance, customer-focused Ritchie Bros. team. The cornerstone of our business is people and relationships. Our primary focus areas in the coming years will be ramping up salesforce productivity, increasing employee engagement, and building our [managing band] strength. We are also moving to allow our sales management to focus more directly on the foundation of our business, our customers, by assigning site operational responsibilities to different leaders.

Our grow, add, and perform strategy provides a clear road map for Ritchie Bros. for the future, and gives our people a renewed sense of energy and purpose. It will allow us to leverage our strengths and seize opportunities to add more value for existing customers and make our auctions more appealing to new customers. We believe our updated strategy is a major step forward in our evolution and provides a backdrop for continued earnings growth over the long term.

Now, over to Bob to talk about some of our recent strategic accomplishments.

Thanks, Pete, and good morning everyone.

One of the key elements of the grow pillar is to make our auctions easy for both existing customers and new customers. Starting on July 1, 2011, we will be rolling out an enhanced equipment information program which is just one example of the types of initiatives we intend to introduce to help accomplish our grow initiatives. We will be offering significantly enhanced information about the equipment to be sold in our auctions to all customers. This information will greatly contribute to the confidence of existing and new customers, and should make our auctions more appealing to a broader range of equipment owners.

In order to pay for our new enhanced equipment information and some other buyer focused initiatives that we have rolled out recently, and will be introducing in the coming months, we intend to simplify and expand our fee structure starting July 1, 2011. We will eliminate certain fees, including our internet and proxy purchase fees, and expand the scope of the administrative fee that we charge to buyers. We estimate that the net effect of these changes will be to increase our auction revenues by approximately $25 million for 2011, and by at least $50 million for 2012, and future years. Jeremy will talk in a few minutes about the impact of the incremental auction revenues and expenses on our guidance for 2011 and future years.

The current focus of our add pillar is a range of additional value added services that we intend to introduce in 2011. We are currently developing our new customer finance program that we plan to roll out in North America on July 1, 2011. It will be a brokerage-type model and we will not have capital at risk. This program will make it easier for our customers to source financing.

Another program we are developing is enhanced shipping services through our partner uShip, with whom we have an exclusive arrangement that we have recently locked in for the long term. We are working closely with them to further integrate their service into our website, and make it even easier for our customers to get shipping quotes. We are also working with them to expand their service outside of North America. Some other examples of ancillary services that we plan to introduce in 2011 include a customer insurance program, and powertrain warranty service. In each case, we are working with a partner and will not have our capital at risk. As you can see, the level of service and innovation that we offer our customers is about to take a meaningful step up.

Now Rob Mackay is going to give us some thoughts on the market.

Thanks, Bob. Good morning, everyone.

Rather than focus on the difficulties we faced in 2010, I would like to lay out how we see the market being different now at the start of 2011 with a few options that we now have under our belt.

First the tail winds, or the positive signs we are seeing in the marketplace. Pricing seems to have improved meaningful compared to the last year, both sequentially and year-over-year. We are seeing strong prices across most categories of equipment at our recent auctions and the scarcity of supply of new and near new is helping that. We are seeing more optimism at our auctions in the discussions with our customers. There is clearly a sense that the worst is over, and this is causing the buying and selling behavior of owners to become more typical.

There is a tremendous amount of cash parked in the sidelines waiting for the right time to be deployed. Some of that cash will be invested in equipment, as we have seen from recent reports from economists, analysts, and others. This should help free up the logjam we have seen in the market over the past few years.

On a related note, rental companies have announced significant capex plans for 2011 to the tune of over $1 billion combined for the major rental companies and the new equipment flowing into these channels will help stimulate used equipment transactions. According to the Association of Equipment Manufacturers, US rental company capex in aggregate in 2011 is expected to be more than the previous four years' spending combined.

OEM production has been on a steady increase over the last six months and this is another positive sign. This equipment will eventually flow into the market, and when delivered it will stimulate used equipment transactions. Owners that have aged their fleets over the last few years are now looking to replace these older machines to optimize their operations.

Construction spending remains depressed, and there are many contractors chasing small number of contracts. This intense competition and razor thin margins are forcing some equipment owners to throw in the towel, and now sell idle machines.

And now the head winds or challenges that we see in the market. Construction spending in the US is bumping along the bottom and currently does not show any meaningful signs of improving in the near term. This is a key driver of used equipment transactions, so it is important that it starts improving for there to be sustained activity in the used equipment market in the US. Fortunately, we created a global marketplace which combines domestic demand with overseas participation, resulting in steady demand at strong prices at our auctions. However, construction spending is an important metric.

Interest rates remain low, giving the equipment owners the continued luxury of not having to make a decision about selling idle equipment. Although many of the factors outlined above are resulting in more normal behavior, US equipment owners are not yet aggressively selling idle assets.

Competition for late model equipment is fierce right now, mainly because there's a shortage of new and near new equipment. OEM production in mid 2008 through mid 2010 was significantly below what most would consider normal levels, and this has resulted in a much smaller population of the late model used equipment in the market right now. As demand has increased there, there is not enough new and near new equipment to satisfy the demand, which has resulted in strong prices at our auctions. But also intense competition from other participants in the market, including owners themselves, who are able to sell equipment privately more easily than in recent years -- dealers, brokers and other auction companies.

As OEM production ramps up, and lead times for new equipment shrink, the market will being more balanced which should help alleviate this challenge.

Competition is forcing us to be much more aggressive on our underwritten business. We are pursuing every possible deal and will write a check for single piece of iron if required. This is causing an increase in our at-risk business, as a percentage of our total business, and if the market values do not hold there is risk to our auction revenue rate. It is too soon to tell how this will shake out for the year, but in Q1, we will see an increase in the percentage of our business that is at-risk.

Before I pass the call on to Rob McLeod for a financial update, I would like to comment briefly on recent auctions. We have seen very strong performances out of the gate at all of our recent actions. In Houston we had our earliest winter sale ever, and are very pleased with the results. This will be the first year we have had five sales at our Houston facility, which will better serve the needs of our customers in that market.

In Tipton, California we had the largest auction ever at that location, which is an important agricultural market. In that one sale we sold almost as much equipment as we sold the entire year last. So that team is heading into 2011 very motivated to build on that success. Our auction took place on the heels of the World Ag Expo, in nearby Tulare, and attracted over 2500 bidder registrations.

Finally we are very pleased with the results of our Orlando sale. Pricing was very strong across all categories of equipment, and we saw solid demand from both domestic and overseas customers. It was a tremendous success in all accounts and we are very pleased with the results. However, as we do each year at this time, we need to remind you this is just a single auction, and it would be a mistake to extrapolate the results for Orlando out to all of 2011.

Mr. McLeod?

Thanks, Rob, and good morning, everyone. I'm sure you have seen our press release this morning and our MD&A is being filed as I speak, so I won't rehash those details. Instead, I would like to talk briefly about our G&A for 2010, and our IFRS transition plans.

As anticipated, our G&A expenses increased in 2010, mainly because of our recent investments in our people, facilities, and IT infrastructure. In addition, we made the conscious decision to maintain our investments in our business, in the face of falling GAAP, rather than make cuts that we believe would have been damaging to our long term growth potential.

Our G&A increased primarily as a result of two factors -- first, foreign exchange resulted in a $6.5 million increase in our recorded G&A, mainly because of the Canadian dollar, which was much stronger relative to the US dollar in 2010 compared to 2009. Second, the investments we have made recently in new and replacement auction sites and administrative facilities resulted in an increase in G&A of approximately $4.8 million. These costs included things like leases, property taxes, and utilities. These are typical of our fixed costs and hide the leverage inherent in our model.

Before I pass the call to Jeremy, to give you our guidance for 2011, I would like to comment briefly on our conversion to International Financial Reporting Standards or IFRS in 2011. We currently prepare our financial statements in accordance with Canadian accounting principles. And Canada has adopted IFRS with effect for interim and annual financial statements commencing January 1st, 2011. This means our Quarter 1 2011 interim financial statements will be prepared in accordance with those new accounting standards. Our conversion to IFRS has many impacts including on our accounting policies and financial statement presentation and disclosure.

We have been working on this transition for several years and we are very much on track. We have prepared 2010 financial statements in accordance with IFRS and do not foresee any issues complying with the new standards. Our financial statements will look slightly different starting with our March 31, 2011, interim statements. However the main changes will be disclosure related. You are going to see more information in our financial statement notes.

The actual impact on the presentation of the results of operations and financial condition will be minor. There will be some reclassifications on our balance sheet, and some new lines. The impact on our 2010 net earnings if we had adopted IFRS at the start of the year, would have been a reduction to our net earnings of approximately $0.5 million for the year ended December 31, 2010, compared to our results under Canadian GAAP. This arises as a result of an adjustment to share-based compensation expenses to reflect a different treatment of option grants that vest over a period of longer than 12 months. We expect opening retained earnings at January 1, 2011, under IFRS will be roughly $16 million higher than under Canadian GAAP as a result of the reclassification of our cumulative translation differences accumulated at the date of transition, which is offset by the stock compensation item.

Presently, we do not see any other material effects on our net earnings or our retained earnings.

Now over to Jeremy.

Thanks, Rob, and good morning, everyone.

We have had considerable discussion recently, both at the senior management level and board levels about the appropriate level of guidance to provide given the challenges we faced in 2010 and lingering uncertainty in the market. With that in mind, we are guiding to gross auction proceeds for 2011, in the range of $3.4 billion to $3.8 billion. This reflects the best available information we have right now including recent sales results, discussions with our territory managers and their customers, and the external factors that we see developing in the market. As in prior years, there remains some uncertainties, which Rob Mackay discussed, but we believe this is a realistic range.

We are expecting auction revenues to be in the range of $385 million to $415 million for the year. This range includes estimated incremental fee revenue of $25 million in the second half of 2011, from our expanded administrative fee that will be charged to buyers starting July 1, 2011, and will be recorded in auction revenues.

Since we first announced this fee in November, we have had the opportunity to discuss it with many of our customers. The majority of people we have talked to understand the reasons for the changes to our fee structure, and are accepting of the expanded fee, particularly because of the planned enhancement of our services and ongoing innovation at our auctions.

We would like to emphasize auction revenues going forward, because we are expecting an increase in fee revenue in the future. Nevertheless, our reasonable range for auction revenue rate for 2011, will be 10.25% to 10.75%, excluding the expected impact of the incremental administrative fee revenue in 2011. We have updated our long term, expected auction revenue rate range because we believe we are earning a substantially higher commission rate. As always, our actual performance in future periods could be above or below this range, depending on the performance primarily of our at risk business and other factors.

Incremental G&A costs in 2011, associated with our strategic initiatives, will be roughly $15 million for the year. Some of these are onetime costs but the bulk of them represent a step up in G&A for 2011 and future years. The G&A impact will start in Q1 with modest but increasing costs in the first half of the year, and the bulk of the costs occurring in the second half of 2011. This incremental G&A includes all of the costs of the strategic initiatives we will be rolling out in 2011, including enhanced equipment information, ancillary services and some headcount associated with the operations realignment that Peter mentioned, among others.

We will give more guidance in future calls, but it is important to recognize the step up in G&A, in addition to our normal G&A growth from ongoing investments in our business.

We are expecting adjusted earns before tax to be at least 10% higher than last year's earnings before tax. Actual results could be above or below this range, and in the near term, there remains considerable uncertainty. So it is difficult to forecast with any precision. We are somewhat gun shy after our performance in 2010, and many of the factors that may impact our actual results are difficult to predict. But we believe this to be a reasonable growth expectation for 2011. We are focusing on adjusted earnings before tax in 2011, because of the variability in our tax rate in recent years. Our long term objective remains annual adjusted EPS growth of 15% over the long term.

And finally, before I pass the call to Pete, we expect our capex for 2011 to be in the range of $70 million to $80 million for the year.

And now back to Peter.

Okay, thanks Jeremy, I would like to leave you with concluding remarks before we open the call to questions.

First let me be clear, 2010 was not a good year for Ritchie Bros. and none of us were satisfied with what we delivered to our shareholders in 2010. Our adjusted net earnings were down 29% compared to 2009, and we did not grow our gross auction proceeds. On the bright side, we kept our costs in check in the face of higher consignments and higher bidder registrations and are proud of other accomplishments in the year.

We are excited about brighter days ahead. Earnings before tax growth greater than 10% for 2011 will go a long way to proving we are back on track. We believe in the fundamentals in the global equipment market, and those fundamentals are improving, as demonstrated in part by a renewed sense of optimism among equipment owners and the results of our recent US auctions, and our discussions with our customers. We believe we are well positioned to capitalize on this strengthening of the used equipment market in the coming year, and to meet the needs of our customers the builders of the world, and help them easily and constantly exchange equipment.

Melissa, can you please open the call to questions?

(Operator Instructions). Your first question comes from the line of Bert Powell from BMO Capital Markets. Your line is now open.

Thanks. Rob, when you talk about being more aggressive on the underwritten, can you give us a sense -- typically it is 25% of your GAAP, where do you see that going? Is the expectation that this is now a step function up? That this is the new operating level? Does that start to come down over the year, is it just really reflective of a tight market in the current point?

Rob here. I would say it is reflective of as you say the tight market right now. I wouldn't anticipate that over the course of the year you are going to see a significant change in the percentage of it in our total business. However, early in the year, I think it would be fair to say that will go up. As the year levels out, and as -- I guess the world becomes accustomed to a new pricing level, customers will find comfort in that, and may revert back to writing straight commission business as opposed to wanting guarantee or risk deals done with them. So I would say it is too early to tell whether that effect is going to be overall for the whole year, but for sure, early on in the year we will see an increase in it.

How high do you think it goes?

Hard to say right now. Could get to 40, 35. I think it will vary site by site.

I think in some areas where traditionally the auction business is more mature, I don't see it going that high, but in some of the newer areas it could get pushed up and it will also be affected by different areas where we have more competition than other areas. Everybody is out there chasing the same pile of iron now, and the confidence level has come back into the broker dealer wheeler world. And they are as aggressiveness as anybody is right now. So it'll vary by region, and by competitive nature.

Okay. But assuming we continue to see the price momentum, this could actually being positive for your auction revenue rate in the near term?

Yes, it's -- it happens in every economic cycle, we chase the market down, as does everybody, and then you chase the market back up. As you are underwriting business on the way back up, it's the question of how high is the curve, and then where is the top of the curve? So we will be carefully watching it.

Okay, and lastly, just Rob McLeod, what's the good way to think about the tax rate for the next couple years?

You know, it's a -- it is tough to tell. Mainly because it has such an impact, the jurisdiction where we're earning money. And there's a significant disparity in tax rates in the jurisdictions where we operate. And in pretty much every jurisdiction we are profitable, so we are paying taxes. And so it's tough to tell -- and it's absolutely tied to what we were saying earlier in both the uncertainty in the marketplace. Where is that GAAP going to show up? And where is that revenue and profit going to show up? So I'm hesitant to give you even a really wide range.

Would you -- could you give us a cap where you think it wouldn't be any higher than?

Well for sure wouldn't be any higher than the U.S. standard rate of 38%. [Laughter]

That's not the answer I was looking for.

It's Jeremy, I think if you look at the last five years that's -- we've probably been in a pretty narrow band there, and that's probably a reasonable expectation going forward.

Okay, thanks.

Your next question comes from the line of Scott Stember with Sidoti & Company. Your line is open.

Good morning.

Good morning.

Can you flush out the $15 million of related cost for incremental SG&A for 2011, just break that out a little bit better?

Hey, Scott, Pete here. Yes, you know it's a combination of investment in people that's probably the biggest clunk of that $15 million. The other is evolution of a process of systems around supporting the enhanced services. And investing in some of the -- some of these new systems that we are talking about rolling out, we have actually developed them already, and we used them in the field, we are just modifying them slightly to capture data, as an example, enhanced equipment information. Capture data at the gate when equipment arrives rather than in the field, which is what we currently use the system for in our appraisal process when we are on the front end of a deal.

So it is -- I'm hesitant to give you an exact break down of it, because we've got spreadsheets and plans around the whole thing, but in aggregate we think that $15 million number is good, I would say the proportionally larger piece of that would be people.

And Pete, just to follow up on that, just to reiterate Jeremy's comment, that the majority of those costs aren't necessarily just one time costs, so it's not a project cost, it is actually hiring people to do a function that they will continue to do in the years going forward.

Yes, so Scott, that related to revenue is $25 million for the year is half a year, and then guidance of at least $50 million for 2012, most -- some of the costs are back weighted but we are starting to incur costs in Q-1 and Q-2. We will give you further guidance on full year 2012 and the impact of that kind of stuff later in the year. But for now, we wanted to be as clear as we could around the impact for 2011.

And Scott, just to be clear, it's Jeremy here, that's all in G&A, so it will all be lumped into that one line item.

You were saying the bulk of it would be the back half of the year?

Proportionally larger in the latter half, but it doesn't -- the revenue cap turns on July 1, but the cost tap turns on in Q 1, so it'll be weighted. You will have a cost weighting more in the front of the year and then a revenue the back part of the year. So from an analyst's perspective, it will be a bit of a trick shot to try to guide through. And that's why we are trying to give you as broad commentary as we can, but on the full year basis so that's the best way to look at this program.

Okay, and can you talk about how you progress in 2010, with increasing your salesforce? What was the increase in 2010, and what's the expectation for 2011?

Well, I think in 2010, our sales force was increased was quite small, probably under 5% increase, and that was in part recognizing that we have over the last couple of years we have added about 50 sales guys into the mix, say the last 24 to 28 months and yet our GAAP was fairly flat or even down. So when our guys came to our planning meeting for 2001 we said the reality is we have a terrific sales team out there, we don't necessarily need to add to that right now. So for 2011, we are holding the line on any of these kind of cost increases until can start to get our revenue back in track. So we are hesitant to start hacking away at that structure that we built here, because to us, it's a compelling model, we are only 3.5% odd that market share that we believe can be significantly higher, so we just have to go and execute.

We have got these great people. We have spent some time and money training them and we want to go and execute. It's frustrating for them. They have spent the year knocking on doors and having people say I'm not ready to sell just yet. So we were ready to play, but nobody wanted to put their equipment in play. And we are seeing a different mood and a different movement early in 2011 that's encouraging for us. So if the equipment is in play, at least we can go and attack it.

So our sales guys have a new spring in their step. They're all getting out there. There are lots of deals underway, not to say that we will get them all, but at least we have a fighting chance of being there. And we have a very compelling model to deliver value to the people that own that equipment -- so we are moving forward in 2011 with some decent spring in our step.

All right, last question, Jeremy, just to confirm, you said pre-tax income up 10% for 2011.

At least 10%, that's correct.

That's all I have, thank you.

The next question comes from the line of Nate Brochmann, from William Blair & Company, your line is now open.

Good morning, everyone.

Good morning.

Glad to hear the outlook is improving. I want to talk a little bit, Jeremy, in terms of your guidance in terms of up at least 10%, obviously I know it's still an uncertain macro environment. Can you point to any specific real swing factors that can really move the needle there?

It's a good question, Nate, how about we let Rob Mackay answer that one? [Laughter]

Well, I think, Nate, one of the biggest factors that will move the needle for us is the increase in we are seeing in some of the pricing of the equipment. As we went through 2010, we saw equipment pricing come from the bottom out into the zone, and it increased slightly through the course of the year, and saw a fairly nice uplift in Q4. As we pointed out we have only had a couple of auctions so far this year, but Orlando, the grand daddy, saw significant price increases across most product lines. We saw similar activity in Houston, and we are just finishing day one up in Moerdijk in Europe today, and we have seen some similar price increases over there.

So the price increases one, the consumer confidence, people are talking now about it's time. They have gone through -- contractors have gone through a competitive ever environment here bidding on jobs -- many for cash flow only, and there are still 10 to 20 guys bidding on a job as opposed to three and four, and very thin margin lines, so we are starting to hear from more and more customers are saying. You know, the outlook is very slow, and it's time for me now. I'm not going to compete like this, anything that I had saved and put in the bask, I'm slowly eroding it because of the margins on the job, and some I'm losing money on. So there's more activity, and there's a lot more feeling of activity. Our activity and the quantum of appraisals we have done so far to date this year is up significantly, year over year. So there's pricing, there's confidence in the market, there's more activity, and right now it feels pretty good. We are very -- we are just a small step into the year.

Hey, Nate, it is Bob. Rob was talking about some of the macro factors we are watching and he is absolutely right. Those are ones that could have probably the most significant impact on our business. In terms of looking at Ritchie Bros., and our financial statements I think the line items you want to watch that will be the ones that have the biggest impact on earnings are GAAP, and auction revenue rate. That's where we are focused as well. If you see GAAP coming in stronger than expected, or strong, whatever term you like, that has a meaningful impact, and that's one of the major factors on our ability to grow income.

And the other is the auction revenue rate, we are hoping for a strong year, if it comes in like last year, it makes it a lot easier for us to exceed our earnings targets. I think those are the two financial statement items you want to keep an eye on.

Fair enough. Thank you for that.

And then also, obviously you have a global marketplace, but has there be any impact -- I know it is also a relatively slow quarter, but has there been any impact from all the adverse weather conditions that we have seen kind of across the top part of the US in the first half of the year? Or also, kind of where we stand with the amount of revenue that's generated within the Middle East region?

Rob here. Again. I don't think that the weather has, I guess if we can to point to one place in the world to see where we have had weather effects would be Australia. And out of the gate we have seen strong participation by the Australian marketplace in the sales that we have had, and that's a combination of -- they have a need for more equipment down there, given what happened to them in the infrastructure work that is going to go on, and they have a very strong dollar vis-a-vis the US.

With regards to the Middle East, and what is going on over there, we have a very large auction coming up in Dubai. It's not our anticipation that it is going to have an effect on it positively or negatively, what is going on in the world over there. There's lots of interest in it, there's lots of good equipment in there that scatters itself all around the Middle East, and the African continent. So the pockets of unrest that are going on over there right now, I don't believe is going to have an effect on the auction results.

Great, thank you for that, I'll turn it over.

The next question comes from the line of Cherilyn Radbourne from TD Newcrest. Your line is now open.

Thank you very much and good morning.

Good morning, Cherilyn.

I wonder if we can talk about the low end of your GAAP guidance range. That surprises me, and I wonder if it is you being gun shy, as you indicated? Or is there really something in the list of concerns that you articulated that thinks that kind of modest growth over 2010 is a realistic possibility?

Cherilyn, thank you for giving us the answer in your question? We are -- to be dead honest with you, we are extremely gun shy. For years we had done a good job of forecasting our GAAP.

Not yet. Usually on the low side.

Where we managed to get ourselves a reputation for being pretty conservative, and then over the last two years we lost our credibility on our ability to forecast GAAP, and it does not appeal to us to put out pinpoint accuracy type targets that we can't hit. It doesn't help you, and it doesn't help us. So as Jeremy mentioned in his remarks, we actually spent quite a bit of time discussing that at the board level, and at the management level about what was appropriate to say and what is realistic. Our goal is to put out a range that we don't have to move, no matter what happens. We obviously aren't looking for 3.4, that is

not a number we plan to hit, that's not what our budget shows, but we wouldn't be doing ourselves or you any favor if we just said here is the number we are shooting for. We don't have the credibility to do that. I think we as Pete has coined here, we got a mulligan last year, and we don't intend to ask for a second one. So our intention is to put out a wide range that we're comfortable with, and then we will let the actual numbers do the talking as we work our way through the year.

That makes sense. Could you clarify what you did say in terms of the auction revenue rate. Is 10.25 to 10.75, is that the new normal range, and that excludes the additional fees you are introducing this year?

Yes, that's correct.

Yes, that's correct.

And the numeric range --

Good summary Jeremy.

And the numeric range you gave for auction revenue?

That dollar range includes the impact of the administrative fee, the $25 million. I think it was 385 to 415.

Perfect. And just lastly, the G&A in Q4 was actually somewhat higher than I expected, were you starting to incur some of these buyer service related costs in Q4? Or is that a function of year end accruals or something?

Hi, Cherilyn. Rob McLeod. No, we really hadn't incurred much in terms of the spend in terms of the strategic initiatives in Q4. Probably the biggest effect in Q4 compared to Q3 was foreign exchange. There was about $1 million in foreign exchange in Q4, compared to Q3. And also Q4 is a busy quarter, so it is more comparable to Q2 volume of G&A activity.

One thing that wasn't in there for sure was bonuses. Because our bonus for management this year was zero, so no surprise with an earnings drop with that, but just to be clear about that, that lift in Q4 was as Rob looked at it, a big chunk of it was FX.

Thank you very much, that's all my questions.

Your next question comes from the line of David Wells from Thompson Research Group. Your line is now open.

Hey, this is Nick Coppola filling in on behalf of David Wells. About half of your auction sites I see have the time to auction lot system now. How does the rest of that roll out look? What percentage of sites will have that system by the end of the year, and can you quantify any of the impact you are seeing from it?

Sure, the timed auction lot system has been rolled out to all of the sites that we believe or have been and will be rolled out to all of the sites that we believe can shave a day off their auction, or shave a ring off their auction. In other words, where there's sufficient volume of the lower value lots the ones we are targeting for the timed auction lots, where there is sufficient volume of those lots to have 400 or 500 at least of them, carved off and handled by timed auction lots, otherwise we aren't really creating any particular efficiencies. So some of the smaller sites are the ones that traditionally have smaller auctions are not destined to receive this system, because it really won't provide much in the way of cost savings or major benefit to the auction customers.

We are in 23 sites right now, and there's probably a couple more that will come on through the year. We might be at 25 to 30 by the end of the year and we assess them on a site by site basis. As each site matures, at some point it passes the point, where we will say, yes that one now warrants getting the timed auction lot system. It is really something we are rolling out, where we see the growth and volumes sufficient to justify it.

Okay, that makes sense. And I guess just one more question, there's a line item in income statement, $841 million dollars loss in disposition of capital assets. I wonder if you can provide any color on that or what exactly that comes from?

Sorry, $840,000.

Oh, sorry.

My heart skipped a beat there.

That -- sorry it is 841 on your capital asset dispositions?

Yes.

Sorry, inside the MD&A yeah, that's -- we are working on a software project, and part way through the project determined that some of the functionality that we had been trying to build into the project wasn't appropriate. So that the dollar spent on that functionality was written off because we discontinued having that functionality.

Okay.

So typical software development project.

Okay. Yeah, that's helpful, thank you.

The next question comes from the line of Jamie Sullivan, from RBC Capital Markets. Your line is now open.

Good morning.

Good morning.

The 10% pretax income growth you mentioned, the base on that for 2010 I think it is 89.7, is that right?

In -- in earnings -- earnings before tax? Yes, 90 million?

Yes, okay. Great, and then is that -- you mentioned at least 10% so should we assume 10% at the low end and if you hit the high end of GAAP it would be above that?

[Laughter] Jamie, I think you are thinking perhaps asking for more precision than we are willing to give you, we are happily guiding to at least 10% pretax earnings growth for the year, and we actually did not make any comment on an upper end of that.

Okay. And then the G&A for some of the new services, the $15 million -- is that a $15 million in permanent G&A, or is some of that one-timish?

Hey, Jamie, it is Rob McLeod. Yes, it's tough to measure what the amount is going to be in 2012, or 2013. But there isn't very much of that $15 million that is one time project costs.

Okay. And that -- that seems high, is that really all head count and labor?

Most of it -- for example, when we are introducing this enhanced equipment information, we will be required and we will be spending more time inspecting all of the major pieces of equipment that arrive in our yards. And so you will need more man power, people power, to literally do that. So there is -- and with 43 sites around the world, we want to provide the same level of service to all of our customers in every site around the world, that's a fair number of people.

Right. Okay.

But it is well worth the effort, we believe.

Okay. That's helpful.

And then on the ARR discussion, the disclosure is helpful there in how you are breaking it out, just wondering what -- how you factor what, and where you are factoring in some of the new services like the warranties, insurance, and financing? Where would that fall?

Jamie, it's Bob, we didn't really speak to that. We aren't factoring much of that in for the current year. If it comes in right now for 2011 it's something we aren't really anticipating we will call it a bonus. Once we have a better idea of the take up of our customers we will have a better way of talking to you for 2012, for example about what we expect. So 2011 is our launch year, and we will be learning through that year what the take up is. So we aren't bold enough to predict the specific impact on our auction revenue rates right now.

Okay. Thanks then just one last quick one -- you mentioned emerging markets as a focus area. Where are you today kind of in the process of penetrating those and what should we expect this year as we watch those?

Jamie, Rob Mackay here. Our emerging market focus right now is further development of Latin America, the Chinese market, and the Brazilian market is next on our radar. We have allocated one of our senior executives solely to focus on emerging markets and to ascertain where to go first. Obviously we are in Latin America right now, and it is an expansion for us down there. China, we have been there for a number of years and have touched and felt and ascertained how things work over there and we are pushing forward with getting ourselves as a functioning for an entity register there in order to allow us to be auction company. That in itself has its challenges, which we are working our way through. So don't envision any impact on anything in 2011. But perhaps into 2012 we will see some activity in the latter part into China, that's probably about the time we are going to move a little bit faster into the Brazilian market. But nothing in 2011.

Okay, all right, thanks a lot.

Thank you.

Your next question comes from the line of Neil Forster, from Scotia Capital. Your line is now open.

Good morning guys. I'm wondering if you can highlight your expectations for GAAP growth in 2011 by region? Which ones you expect to outperform versus the others?

Hey, Neil, Jeremy here, no, we typically don't provide that level of detail. It's really the network will grow to that point.

Okay, given that the US was held back in 2010, do you expect higher rates of growth out of the US vs. others or?

Yes, really, Neil, we just expect growth throughout the network overall for the year. We aren't going to provide any further breakdown.

Okay. And how do you see the cadence of GAAP growth unfolding between the quarters? Do you expect more in the latter quarters or split pretty evenly?

You know, it is tough to say. At this point in time, tough to say at this point in time.

Neil, it is Bob. One of the things we kind of backed off of doing for the same reason we backed off of specific GAAP pinpointing was the more quarterly specificity. It is the other thing we proved we weren't very good at. We are happy to schedule auctions on March 31 or April 1 and then change our minds a month before the auction. So we got ourselves into a bit of hot water with people by being specific about quarterly expectations in the past, so we are just trying to back off that. We will continue talking annually, and in three months time on our next conference call we will be able to update on an annual basis. Obviously by then Q1 will be clear and the remainder of the next three we won't even tell you then what is happening in Q2. That's definitely a change in our guidance approach, and as I answered the question earlier -- it is really just us not wanting us to be wrong, it is more fun just to be neither wrong nor right.

Okay. That's fair. Thanks for all my questions.

Your next question comes from the line of Larry De Maria from Sterne Agee. Your line is now open.

Thank you, good morning. Question, you guys have historically downplayed the rental channel, and now you are talking it up again for the next cycle a little bit. What's different now for you guys? And what's different in the cycle that the rental could become more important? It looks like obviously now the auctions are losing market share in the rental channel, but that could change?

Hi, it's Bob. We mentioned the rentals for sure in the conference call because it's one of the data points that's out there. We aren't expecting rentals to be any more or less business for us going forward. They are one of the groups that does speak publicly. So they have talked about capex. That may or may not be indicative of other people's capex plans. As you know full well, the rentals are important, but not a huge customer body for us. They're good guys. We like to do business with them. I'm not sure we are expecting any meaningful change in volumes over the future.

Bob, I think that was kind of an example of the volume of transactions that we anticipated and we see, and that's really the volume we see. It is the volume of transaction that will drive our growth.

Okay, so might not change all that much, got it. As far as your salesforce targets goes I think you said up 5% in 2010, given the declining productivity we have seen I guess this year, obviously a tough year in 2010, how you guys are thinking about growing your salesforce going forward?

As Pete mentioned earlier, we have got capacity in our sales force. We didn't really cut back on them last year, in the declining GAAP activity. We went out and tried to upgrade the team, and changed some C players for some A players, and right now, our sales force in most regions in the Company is suffice to take us after the targets that we're going after this year. As we work through the year and if see comfort in the big end of the numbers that we are chasing, then we will start to see some more activity.

Okay, so basically on pause for now pending the increase in activity I guess?

Yes. It's one of the ways we are trying to keep a handle on our cost, until we actually see what type of activity is going on out there this year.

Got you. And then finally, can you take us through the Florida auction and your at-risk business, we weren't expecting it to be growing up to 40% this year. Are you guys now -- are you buying more equipment, and selling it to customers or are you just guaranteeing more? Is it the same old mix? And how different would Florida have been if you didn't get aggressive, in other words did you have to go out and go guarantee tons of stuff to basically have a very successful auction, which you guys did have?

Ironically, the mixture of risk in our Florida auction wasn't out of whack from norms. The Florida auction is an event in itself that people want to participate in it, they know each year that it will be the height of activity, excitement, pricing, that we see in the marketplace, relevant to what is going on in the marketplace.

Having said that, the activity that comes out of it is increased price levels. So everybody has to go home and the dealer has to go home and when a contractor comes in and wants to buy new equipment and trade in machines that might have been worth $100,000 in Q3 or Q4, the customer comes in and says well, the pricing achieved at Ritchie's sale was $125,000 now, now I want $125,000 on a trade-in. The dealer gives some push-back, the customer then goes to other avenues to try to get competing bids and that's what starts to create the competition, in grabbing hold of that surplus equipment. So customers are walking around and seeing an enhanced price level, and they are pushing anybody that wants to play with them on the sale of those assets to put their money on the table.

And in addition to that, entering the market place is the whole smaller broker dealer network that is sort have been quiet for the last 12 to 24 months and they have seen increasing prices through 2010, quite a jump of prices in 2011, and now they are more active going in there and risking some of their money. Not necessarily that there was any significant change in the risk levels in Orlando, but it will push the competitive side of it and the requirement for risk in deals all across our marketplace predominately in the US, but some overseas too.

Right, so then therefore, I guess did your at risk business get a little bit riskier, because the sales are a little higher, your guarantees are a little higher and we are hoping those prices hold? In other words, is it still coming then, right, because we haven't had tons of auctions yet?

You are correct.

Got you, thanks guys.

Great, thanks. Probably have time for one more, than we will wrap it up.

The last question comes from the line of Scott Schneeberger from Oppenheimer. Your line is open.

Thanks, good morning. I just have one. Please compare and contrast late model vs. older model with regard to your comments in saying hey pricing is competitive, even just three months ago? Is that all in the late model and the scarcity of value there, just a little bit more color on those two categories? Thanks.

Rob here again -- in any -- evolving out of a downturn that we have been through in past economies, obviously as you come out first, people gravitate towards late model equipment. Competition for it becomes stronger and it pushes the price level up. That occurs coming out of every session. And then there's a lag period, whereby shortly after that you see the older equipment's prices starting to move up, because what generates it is activity in the marketplace. People are either quiet or have done nothing, and then they are starting to move because they have got a little bit of work here and there, and you are starting to see the older stuff price pushed up also, because there's no supply coming or less supply coming into the top end.

So as we went through 2010, we saw quite a spike in late model equipment. Towards the end of 2010, we started to see the value of the older stuff pick up a bit, and through our brief experience in 2011, so far, we have seen a very nice increase in the older stuff. We would -- it's our envision that we are going to see that stay stable, or may in fact increase some more as we go through Q1 and into Q2.

Okay, thanks. I appreciate that.

Okay, everyone. Thank you very much for attending the call. We'll get at it. We've got sales on today in Phoenix and in Moerdijk just wrapped up day 1 and they are into their next day tomorrow. So we're keeping busy and we'll look forward to chatting to you again at the end of Q1. Thanks, Melissa.

This concludes today's conference call. You may now disconnect.