RB Global Inc (RBA) 2011 Q4 法說會逐字稿

Good morning. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers 2011 year-end earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to Mr. Peter Blake, CEO.

Good morning, everyone. Thanks for joining us today on our 2011 year-end investor call. I'm dialing in today from Dubai, where we just have finished off our first day of a two-day auction. There also number of people gathered in Vancouver, including Rob Mackay, our President; Rob McLeod, our CFO; Bob Armstrong, our Chief Strategic Development Officer; and Jeremy Black, our VP of Business Development. Steve Simpson, our newly appointed Chief Sales Officer, also joins us on the call today from our Phoenix, Arizona office.

Given my distant location, I will keep my comments to a minimum and let the rest of the team do most of the talking today. However, before I pass the call back to them, let me convey how pleased we are with our performance in 2011. We achieved record gross auction proceeds of $3.7 billion for the year, achieved our largest second and fourth fiscal quarters ever, earned more revenue than ever before, and delivered earnings before tax growth of over 17%, well in excess of our guidance for the year. On top of that notable financial performance, we also executed well on our strategic plan. Bob will talk about some of these highlights in a minute, and it's important for us to draw your attention to the significant enhancements that we made to our business in 2011 that sets us up well for the future. Jeremy, would you mind taking us through the usual regulatory disclaimers.

Good morning. Before we go on, we need to make a Safe Harbor statement. The following discussion will include forward-looking statements. 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. The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed from time to time in our securities filings, including our Management's Discussion and Analysis of financial condition and results of operations for the period ended December 31 2011, which 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.

Also, during today's call we will talk about gross auction proceeds, or GAP, 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. GAP is not a measure of financial performance and is not presented in our financial statements. The most directly-comparable measure in our statements is auction revenues, which represent the revenues we earn from our auctions. Rob McKay, do you want to talk about the recent pricing environment and introduce Steve?

Good morning, everyone. As many of you know we created a new Senior Executive Group effective January 1 of this year, which we call our Senior Leadership Team. This team is made up of our seven Senior Executives and includes some familiar names like Bob, Rob, Pete, and myself. There are several names on our Senior Leadership Team that you're probably not heard of before, including Andrew Muller, our new Chief People Officer, or head of HR; Kenton Low, our new Chief Marketing Officer; and Steve Simpson, our new Chief Sales Officer.

While Kenton and Andrew are fairly new additions to our team from outside the Ritchie Bros. family, Steve has been around the Company for a long time. Over the last 22 years, Steve has worked in various sales capacities, starting as a Territory Manager in Vancouver, then as our Manager in Australia, and most recently, Senior VP for the US West. Steve has now taken over responsibility from me for our Global Sales Organization. I've assumed Bob Armstrong's operational responsibilities, including our auction operations activities, Property Group, and our Valuation and Appraisal Group, while Bob is now primarily responsible for driving our strategic planning process and certain key strategic initiatives that he will talk more about in a minute.

Before I pass the call to Steve to say a few words about current market dynamics and expectations for 2012, let me comment briefly on the current pricing environment. On our last call at the end of Q3, we talked about how used pricing increases seemed to have leveled off somewhat during the third quarter, while prices for most categories of late model used equipment remained strong. As Q4 unfolded, prices became somewhat more robust as activity picked up in the quarter and we continue to see strength in values for near-new machines. With a handful of auctions under our belt in 2012, including the very successful Orlando auction which we sold over $203 million worth of equipment, it's apparent that late model equipment is still very much in demand and good quality gear, especially, low hour, continues to do well. We've seen a nice lift in pricing in 2012 so far, and expect this to continue in the near-term.

New equipment delivery still vary from weeks to many months depending on the manufacturer and model being sourced, and those long lead times continue to contribute to robustness in the used market. The supply of new and near-new equipment is slowly catching up with demand, and although we expect used values to remain strong, we do not expect increases to continue at the same trajectory that we have seen to date this year. It is early in the year and we need a few more auctions under our belt before we call it meaningful trend, but it does seem that we have at least had a step-up in prices in the early months of 2012. Steve, do you want to comment on the recent market dynamics?

Morning, everybody. We've seen a lot of strength in the market at our auctions to date in 2012. Our first sale of the year in Las Vegas in late January was very strong, and that has set the tone for the year for us so far. Orlando was an incredible success. We sold more than 10,000 items in six days and achieved GAP of over $203 million. We saw good results in Tipton, California at our largest sale ever in that market, and a number of other locations we are expecting that momentum to carry on at least through the first half of the year.

There a lot of positive indicators that lead us to believe 2012 will be another good year. The OEMs, dealers and other distributors, rental companies, and finance companies have all been sending positive messages lately, and we are encouraged by the good news. Contractors also seem to be more optimistic, having some more work on the books, and the public companies have been reporting improved margins with some CapEx to spend, creating an appetite for new equipment. That being said, it remains a very competitive market, and until the supply of new equipment catches up with demand, we will be need to be on our toes and very focused on serving and delivering value to customers. That competition means we will continue to aggressively pursue underwritten business. In 2011, we ended the year with 36% of our business at risk, which is a higher level than we've seen in recent years, and as we look ahead to 2012, I expect our underwritten business will stay at and above trend level, reflecting our current strategy to get those deals that we view as the key ones to have to build our auctions. I don't think it will go higher than the 2011 level, but I also don't see it as going back to 25% in 2012.

Looking ahead to the remainder of the year, there is still some indicators that cause us to remain somewhat cautious about the used equipment market. Construction spending remains low in the US and Europe, and is acting as a bit of an offset to replacement of equipment demand, which was the key driver of the used equipment market in 2011. Europe is in a state of turmoil and it is uncertain of how it will play out. However, outside the European theater, provided economic activity moves forward in a positive direction and the OEMs continue growing new sales to fill the top of the equipment supply funnel, our activity levels should benefit. We continue to introduce our unreserved auctions to new customers around the world, and this sets us up for continued success in 2012. With new services adding the appeal to our auctions, we are well-positioned to harvest the rewards of our recent operating and investing decisions. Now, I will pass you over to Bob Armstrong.

Good morning, everyone. We talked on our Q3 call about the implementation of our strategic initiatives on July 1, 2011, including detailed equipment information program, which involves providing our bidders with an average of 50 high-resolution photos and detailed information about each of the major pieces of equipment in our auctions. We also launched our finance, insurance, and warranty programs, and because we've described those to you the past, I won't go into much detail today, other than to report that they been well-received by our customers. These programs are contributing to increased confidence and ease for our customers, and feedback has been very favorable. The introduction of our expanded administrative fee structure on July 1 also went off well. Our repeat and first-time bidder numbers have continued to grow, and there has not been any noticeable impact on bidder registrations or GAP as a result of these changes to our fee structure.

One interesting phenomenon that we've been seeing is healthy growth in our Internet traffic. We experienced more than 4 million unique visitors to our website in 2011, which was up 25% compared to 2010. And our non-English speaking business continued to grow as well, up 22% over 2010. Our website is, not surprisingly, a critical dimension to many of our customer relationships, as well as key vehicle for introducing new customers around the world to our offerings. As we look to the future, we see that trend continuing, and it's for that reason that we are looking to add complementary online services to keep that momentum going. This is one of my focus areas in my new role. As Chief Strategic Development Officer, I have responsibility for our IT and business development groups, as well as some other activities, but Pete has asked me to spend most of my time on new strategic opportunities. My main focus is to develop new solutions for equipment owners whose needs are not met by our unreserved auctions.

Our auctions create excellent value for our existing and many more potential customers, and we think that our core business has many years of growth before it comes close to reaching maturity. In fact, if we were to grow our US and European business to achieve the same level of market penetration we currently enjoy in Canada, we'd have annual GAP well over $10 billion, and that doesn't even consider the potential of markets like China, Japan, and Brazil. Our core unreserved auction business has lots of runway for growth, which is perhaps best illustrated by our 21% GAP growth in Canada last year in 2011, and that's our most mature and deepest-penetrated in the world. However, we know that many equipment owners' needs are not met by our unreserved auctions, and until recently, we have not spent time designing services for these people.

Coming out of the economic turmoil of 2009 and 2010, we committed ourselves to launching complementary services to help these under-served equipment owners. Our research has identified that as many as 50% of all equipment transactions take place without any intermediary. They are private treaty transactions, in many cases relying on an online classified listing or a for sale sign stuck to the windshield of the cab of a truck on the side of a highway as a way of attracting buyers. These are very fragmented and inefficient transactions and not very satisfying for the participants. Our research identified many pain points and unmet needs. We see this as a problem in need of a solution, and we see opportunity.

We believe that Ritchie Bros. is uniquely positioned to deliver and design valuable services because we have the experience, reputation, the data, and the transactional expertise that is needed. Our belief is that these equipment owners are looking for a way to transact that is easy and it gives them control over price. Certainty of sale is not as important to these owners, and our unreserved auction model is not necessarily a solution for them. A transparent marketplace that gives these equipment owners easy access to market values, a deep buyer and seller community, and confidence regarding both the equipment and the transaction does not exist. Meaning that the needs of many equipment owners are not being met by these existing channels.

Just as eBay created a way for you to sell all the stuff in your basement, a solution that simply didn't exist until eBay came along, we are looking to develop solutions for the equipment owners whose needs are not met by our unreserved auctions, and who have no easy and confident way to buy and sell equipment. This is squarely within the context of our mission, which is to create compelling business solutions to enable the world's builders to easily and confidently exchange their equipment. The concept of expanding our service offerings is designed not to cannibalize our core business, it is designed to extend our brand and broaden our menu, so that we can help more of the world's builders exchange equipment, and increase our share of wallet with existing customers.

We will be talking more about our initiatives in this area over the coming months, but we thought that today would be a good time to let you know that we are looking into some new and complementary business opportunities. I should also add that we're open to aligning or partnering with or even acquiring other companies that can bring pieces of the puzzle to the table. We will definitely keep you posted as this exciting initiative takes shape. Now, over to Rob McLeod.

Good morning, everyone. I'd like to highlight some key items from our press release that we issued this morning and our MD&A that is being filed as we speak. Our 2011 auction revenues were $396 million, including approximately $22 million of incremental revenue from changes to our fee structure that took effect July 1. Our total auction revenue rate for 2011 was 10.66%. Excluding the incremental fee revenue, our auction revenue rate would have been 10.07% for 2011, which compares to 10.9% in 2010, and was below our expected range of 10.25% to 10.75%.

This decrease in our auction revenue rate was driven by the performance of our at-risk business, which, as we've discussed on prior calls, was impacted by strong competition from brokers, dealers, and other participants in the market. After the particularly strong performance of our at-risk business in 2010, the tough competitive environment of 2011 took the rate back to more historic levels. Our auction revenue rate in quarter four was 10.91%. Excluding the $12.9 million in incremental fee income in quarter 4, 2011, our auction revenue rate would have been 10.05% compared to 11.06% in the fourth quarter of 2010. The quarter 4, 2010 rate was one of our highest ever quarterly auction revenue rates. The main contributor to the above trend achievement in 2010 and this historic trend rate in 2011 was the performance of our at-risk business.

One of our competitive advantages is our ability to bring our financial resources to bear when pursuing packages of equipment in a competitive environment. We saw a much more competitive marketplace in 2011, and we responded to this competitive environment by working with our customers to strategically use at-risk proposals to win business and get significant packages of equipment into our yards. The 13% increasing in GAP that we achieved in 2011 was in part due to these efforts. Our GAP growth was also impacted by a combination of stronger pricing for used equipment, and a greater proportion of higher value lots being sold at our auctions, compared to 2010. We sold approximately 3% fewer lots in our industrial auctions in 2011 compared to 2010, with the majority of this decline attributed to lower-value lots.

Selling general and administrative expenses, or SG&A, for 2011 included roughly $9 million in incremental spending for our strategic initiatives. Some of these costs were one-time items, but the vast majority of them represent a step-up in SG&A. For 2012, we expect to have approximately $9 million in additional incremental SG&A to bring the 2012 total strategic spend to roughly $18 million. Foreign currency fluctuations resulting from the translation to US dollars for reporting purposes of our overhead cost incurred in other currencies increased our 2011 SG&A by approximately $5 million compared to 2010.

Excluding our incremental strategic spend and the impact of currency fluctuations, our SG&A increased 4% in 2011 compared to 2010, demonstrating that we had a good handle on our basic overheads in 2011. Part of this increase is attributable to higher incentive compensation expenses in 2011. Recall that in 2010, no executive bonuses were paid and many salespeople did not achieve their targets. Our adjusted earnings before taxes increased by 17% compared to 2010, in excess of our guidance range of at least 10% growth.

As we look ahead to 2012, there are some key things and metrics that I would like to share with you. We've taken steps as part of our 2012 planning process to position ourselves for sustained achievement of our 15% earnings growth and ROIC targets. In addition, we've set a 40% EBITDA margin target in our 2012 budget. Over the last few years, we have been very focused on building our infrastructure and growing our team to expand our capacity and lay the foundation for future growth. These are critical long-term investments and operating decisions to prepare the business for the future. However, it was contrary to our historic formula of growing the business first followed by increased infrastructure and capacity. In 2012, we will be getting back to our historic formula of revenue growth first with infrastructure to follow. For example, our 2012 cost plans are tied to our 2011 actual revenue rather than 2012 anticipated revenue. This should leave us well-positioned for improved margins and operating metrics going forward.

Our CapEx for 2011 was $77 million, within our previous guidance range of $70 million to $80 million. This is before proceeds of $10 million from the disposal of property during the year. Looking ahead to 2012, expect our CapEx will be in the range of $50 million to $60 million, given projects currently in the pipeline. As a result, we expect to achieve positive cash flow in 2012 after CapEx and current dividend levels. Before I pass the call to Jeremy to give you some guidance for 2012, I want to assure you that we continue to have a firm hand on SG&A, strategic initiative execution, and CapEx, and are confident that our targets will be achieved in 2012. Jeremy, over to you.

For 2012, we are guiding to GAP in the range of $3.7 billion to $4.1 billion. Our auction revenue rate guidance is in the range of 11% to 11.75%, including the impact of incremental administrative fee revenues, which are expected to add roughly $50 million in total to auction revenues in 2012, which is an incremental approximately $25 million to $30 million over the additional revenue in 2011. The performance of our at-risk business will continue to be the key variable impacting our actual auction revenue rate, and actual results could be above or below this range. We believe that our 2012 adjusted earnings before tax will grow by at least 15% compared to 2011. Actual results could be above or below this range. Our long-term targets remain annual adjusted EPS growth of at least 15%, while working towards and maintaining an average return on invested capital of at least 15% over the long term, and a minimum EBITDA margin of 40%.

Before Pete offers some concluding remarks, I would like to comment briefly about the 10 years of auction data that is now presented on our website in the Investors section of the About Ritchie Bros. tab on the rbauction.com website. We made the decision in 2011 to present this data to further increase transparency and to highlight the lumpiness inherent in our business from one month to the next and year-over-year. This lumpiness is part of the reason why we don't focus too much attention on individual auction results, and also why we encourage the investment community to focus on periods longer than a quarter. 2011 was a great example of that, particularly after the temporary market dislocation in Q3. We hope this data is useful to you, and trust it gives you interesting insight into our business. And now, back to Peter.

As I said, I'm very pleased with our performance in 2011 and the fact that we are back on track for our goals. We made some great strides forward in 2011 with successful implementation of our new initiatives that we feel dramatically improve the auction experience for our current and future customers. Now that this transformation is embedded in our business, our focus is shifting to harvesting the rewards from the operating and investing decisions we've made over the last number of years. Although Bob is investigating some exciting new initiatives, the vast majority of our team is firmly planted in our core unreserved auction business and laser focused on growing it, which should generate improved productivity in margins in 2012. We thank you for your patience and loyalty over last few years as we got our business back on track, and we assure you that we have a long runway ahead of us. Sarah, could you please open the call for questions now?

(Operator Instructions) Cherilyn Radbourne, TD Securities.

I wonder if I can start by asking you to clarify the comments you made with respect to a pricing lift to-date in 2012? Was that year-over-year or quarter-over-quarter that you were referring to?

It's Rob here. Both quarter-over-quarter and year-over-year, vis-a-vis pricing that we saw a year ago in early sales that we've had a lift over that, and we've seen a nice lift in what we saw coming out of Q3 and Q4 as we go into early sales so far this year.

Okay. And could I ask you to give a bit more perspective on how the business might accommodate the needs of customers that are not served by unreserved auctions, while not cannibalizing the existing platform? How do you think about that?

Cherilyn, it's Bob. I'm not going to frustrate you, but we can't talk too much about it obviously until it's figured out. The purpose today really was to let you guys know that we are looking, we're open to ideas, and we have recognized opportunities, but it's clear to us that there a lot of people out there who are buying and selling equipment that are not going to use our auctions. The total addressable market for Ritchie Bros' core business is $10 billion or $20 billion -- it's huge, but it's not the whole $100 billion, and we're looking to develop ways to meet the needs of those other people. We're open-minded, we're flexible, it by definition won't be cannibalizing, because those people don't want to use our marketplace today.

Okay, that is helpful. Maybe if I could just ask one modeling question. Your quarterly run rate on G&A has been sort of in the $50 million range. So, if we multiply that by four, and add $9 million for incremental costs in 2012, plus some inflation, is that a reasonable way to be thinking about G&A for 2012?

Cherilyn, it's Rob McLeod. That wouldn't be too far off the mark. We're, as we have said in our comments, we are very focused on controlling our SG&A costs, and making sure that we are growing our revenue before we are increasing our capacity and our costs.

Just to be clear, Jeremy here, we actually don't provide guidance on SG&A. So, that isn't guidance.

Okay. Thank you for the commentary. That's all for me.

Nate Brochmann, William Blair.

I wanted to talk a little bit about the underlying environment. It definitely seems that the buying and selling of equipment is starting to unfreeze a little bit, as a lot of contractors don't feel that the market is getting necessarily worse, but starting to free up some CapEx dollars. Just wondering, it seems that we've seen that out of the first couple auctions, what you're hearing from your customers, and how you see that playing out as the year progresses?

It's Rob here, Nate. Predominantly in the US market, where we've had our early experiences here, the contractor community is speaking to some more confidence, or at least talking about work that they have on their books, actively looking for upgrading their equipment. The bigger contractors are looking to spend some CapEx, which has now been afforded them. All together, it is starting to generate some activity out there.

For sure, in the back of everybody's mind is the looming month of November, in the US market, and people are conscious of what is coming down the pipe. But in the same breath, from the sales that we've had early this year, we are hearing more confidence in the contractor market than we have for some time.

Great. And then for Bob, I was wondering with some of these maybe potential quote unquote new initiatives, whether that is going to stay in line with the focus on the ROIC improvement and on the general cost side, in terms of how you are balancing off those potential new investments versus the return expectations?

Excellent question, Nate, and I have to be honest and say it is a bit too soon. It really depends on how we decide to bite this off. It may well be that we identify a business model that is higher-margin or one that is lower margin, one that's higher return, lower return, and we will have to assess whether or not it's a good fit into the corporate profile. Excellent question, and it is one that we will be debating as we identify what opportunities we want to chase after.

Great, thanks for that, and I will turn it over.

Hamzah Mazari, Credit Suisse.

The first question is on CapEx. How long do you expect to stay at this $60 million run rate of CapEx before you feel like you need to ramp that up or make more investments? How should we think about that?

Good morning, it is Rob. Probably the next couple, few years, we will probably be in that $50 million, $60 million, $70 million range. As I said, our plan is to take advantage of the investment in capacity infrastructure that we have built up over the last few years, and maximize its use in contribution to the bottom line. So, probably for the next few years, you will be hearing numbers like $50 million to $70 million.

Got you. And then on the Orlando auction, could you remind us how much of the product went overseas, and how that compared to your expectation in past auctions?

It's Rob again. As I recall, I believe it was in the low 30%s that left the United States.

And that was in line with what you guys were projecting?

Actually, we don't actually project it in advance of the auction, but from what I recall, I do believe that was similar to last year.

Got you. And then just the last question from me -- on your at-risk business, I realize that creates volatility in your auction revenue rate, but maybe if you could shed some light or commentary on what your past record has been in terms of at-risk business? And whether that generally has contributed to a higher auction revenue rate?

Yes, Rob here. Typically our at-risk business follows economic cycles, and over time, as we've chased the economy up and chased the economy down, our auction revenue rate fluctuates. Today, the market has got some activity in it. We've got a supply challenge in many instances, and we've got a lot more people in the market that are active and chasing the same supply of equipment, if you will. And we tend to get more aggressive when stuff like this happens, so that we can maintain market share or grow our business.

And so, each and every day, we are out there chasing deals that more people are on than we've previously experienced. When the market goes down, there are lots of people in the world that tend to run for cover, and get out of playing in the market or are less apt to take risk. And when the market returns, they come back out of hibernation and start to play again in the market. So, we are in that point in time right now, and there are lots of people out there chasing the equipment. And there's, as I said, a limited supply, albeit that the manufacturers are starting to react, and we are starting to see the supply be replenished.

Got you. Thank you.

Nick Coppola, Thompson Research.

I'm wondering if you have any comments on what you're seeing in 2012 as far as a competitive environment relative to what you saw at the end of 2011? I'm thinking about the outlook that you have for that 11.75% rate that you discussed. What gives you confidence that you can get that rate up to that range?

Rob here. I guess we provide a range because it's going to ebb and flow depending upon what we see as we go forward. The competitive nature of the market here in Q1 is really no different than it was in Q4. It's not that far apart, and the market activity continues to pick up, so the competitiveness of the market will. We envision as we go through 2012 that you're going to start to see some supply get into the marketplace. You are going to start to see CapEx being spent by companies, which, of course, affords them to release used equipment, which provides more supply to the market. So, all in all, as we work through the year, assuming that things remain as we anticipate, we should see a supply of equipment into the marketplace. That in itself will tend to provide more equipment for people to chase, and then may diminish somewhat the high level of competitiveness that we are experiencing right now.

Okay. And then I also wanted to ask you about the underwritten business. I think I also heard you say that you are not anticipating it being higher next year. But if the competitive environment continues to be difficult, what is your decision-making process look like when you are deciding whether to underwrite business or not? Could you see it potentially getting higher?

Rob here again. It's a deal-by-deal situation. As I mentioned, we are envisioning that the supply feed to the market is going to offset it somewhat. We still go look at each deal as they come along as which are the strategic ones, which are the ones we want to have. For it to get higher than its current levels is probably not something that we expect, but as Steve mentioned, for it to go back down to our traditional 25% is probably something we're not going to see either in 2012. So, best guess from us is going to be somewhere in between the two numbers. There is still economic things that could occur during the year that may change that.

Thanks for your help.

Neil Frohnapple, Northcoast Research.

As a follow-up to Nick's question, looking at the 2012 ARR guidance, if you back out the benefit from the revised fee structure of 140 basis points, it implies an ARR of 9.6% to come in, call it 0.35%, which is below the previous stated long-term range. Is the outlook solely based on the tightness in the used equipment market, or are you guys just being more conservative at this point?

Hi, Neil, it's Rob McLeod. And probably yes and yes. We are being conservative. We have gone through a few years here where our natural optimism was tested and challenged. But also it is a reflection of the particularly competitive environment that we have right now, which again is different from what it was in 2008, 2009, 2010. And so, that auction revenue rate that we are quoting there is really a reflection of 2012 in itself, and it may well change when we are giving you guidance for 2013 and 2014 going forward.

And also, just to clarify, that 1.4% incremental effect that you noted there, I'm not sure I would build 1.4% right off the bat into your model.

Okay. And then secondly, can you guys give us some more color on what drove the 18% increase in GAP at the Orlando auction? Was it something auction-specific, or is it really just underlying improvements in the auction market? And then, did you guys do anything different to secure more consignments for the Orlando auction this year versus 2011 auction?

It is Rob here. Unless you've been to Orlando, or seen one of the auctions down there, it well and truly is an event. The Florida auction market in February has been in existence for 30 or 40 years, and we continue to push the envelope to provide the best show in town, the best draw for a global audience. It's probably one of the biggest auctions we hold anywhere for foreign attendees. And the consigners take comfort in the fact that it well and truly will be an in-person event where people actually travel and come there because of the sheer quantum of equipment.

So, we get consignments to that auction sale from many, many states, some of them very far away, as far as up in the Northeast. And people are willing to take their equipment down there knowing that we're going to attract a global audience, knowing that we're going to have a large quantum of people there in person that are going to touch and feel it. And this was just another year where our sales force went out there and sold it, and we've got a lot of participation from a lot more people this year. We've had a nice lift in pricing. So, collectively, we did a really good job to make it a bigger event than it was last year, and a new bar for us to jump over next year.

Great, thanks very much, guys.

Ben Cherniavsky, Raymond James.

I don't want to belabor this auction revenue rate issue, but I'm going to anyway, I guess. I'm just wondering how what we are seeing is different from previous periods of strong pricing, because as I recall in those times, say like 2005, 2006, 2007, when you were in a similar kind of situation with tight supply of equipment, and prices were going up. Those trends actually benefited your underwritten business. You were going in with bids, and prices would go up and you would do better than you expected, and the margin was very strong. So, what has changed now? Is this really a function of more competition in the market, or is it a more transparent market today where consigners have better visibility on real-time pricing? Just wonder if you can elaborate on that. And with that in mind, whether or not there are any permanent changes that impair your ability to keep that margin up at the range where you would like it to be?

Rob here, Ben. I will start this one. First of all, I don't think there's any long-term change to what we are seeing. For sure, the transparency in the information pool in the market each and every day benefits people. If you look back at our business 10 or 15 years ago, the information flow and the knowledge out there was probably a big asset to us in so much that we had the information and many other people didn't. So, when we had the ability to initially see trends turn, perhaps others had a lag before they saw. Today, with everything so readily available to people, there's not much stuff that's secret anymore to anybody, and people can foresee trends in pricing changes as well as most now.

As far as in the past, I don't know that when the market picked up before that our auction revenue rate wasn't challenged. For sure, every time the market picks up, there is more competition. And in this instance today, I just think that the competition is more aggressive, and you've got to be more aggressive to go and get the business.

Ben, it's Jeremy here. I might add, too, that one of the key things that's different this time versus 2005, 2006 is the precipitous drop in new production that occurred in mid-2008 until about mid-2010. We didn't see that last time. Last time it was a gradual ramping up of production, and that production level couldn't keep up with demand. This time, we had two years where the production was basically turned off. And that has a big impact now when you're looking at selling late-model equipment. There's just a lot less of it out there. That has a big impact when you've got a lot of competitors chasing that late-model low-hour gear.

I think there's one other aspect of that, too, Ben. In past economic downturns, there was a more free-flow of equipment around the world. Today there isn't. With EPA engines and other restraints of equipment flow, there doesn't tend to be the inflow and outflow so much of equipment from some countries to others because of restrictions. So, that's having an effect, also.

Okay, thanks. That is helpful. Maybe one for Bob, if I could. Just on the strategy of building out your services for people who don't use the auction business, hasn't your strategy always been in the past that you wanted to convert the people who weren't using your auction business into Ritchie Bros.? Show them the light, so to speak, on what you had to offer, and convince them that even though they were reluctant to use an unreserved auction, that it had its merits? So, how do you reconcile your strategy of maybe accepting that there are some people out there who will never use your auction process, and differentiating them from the ones who may use your auction process that you would want to convert?

Fair question, Ben. And you're absolutely right, in the past, when we've talked about our strategy, it's always been about how to introduce the unreserved auctions to other people. But we would have to be honest with you and tell you -- we weren't marketing it to everybody. There were people out there who weren't going to use it. So, they weren't getting a lot of our phone calls and meetings.

Luckily there were and still are billions of transactions that are well-suited to our model that we are penetrating into. That's where all of our new customers come from every year. That continues to be the number one source of growth for the business, and will be for as long as I'm with this Company, I'm sure. The core businesses, there's a huge runway ahead of it, but it doesn't have a $100 billion runway, and I doubt you would think there was and a lot of analysts reports have written the same thing. Ritchie Bros. always talks about this massive marketplace, but one day they'll be honest and say it is not all addressable by the under-served auction. And that's a fair comment.

So, our view is -- continue pushing forward with the unreserved model into the people that are likely users of that, of which there are billions of transactions. However, recognize, admit, whatever, that there's another group out there. And given the market position that Ritchie Bros. has built, we are sitting here with a unique opportunity to enter that uncharted market and create a valuable service for people that don't have a valuable service today. Wouldn't it be smart, wouldn't it create good shareholder value, for us to go and provide a valuable service to those people as well? Is not a change of strategy, it's in addition, if you like, to the strategy. The core business remains the focus. As Pete said in his comments, 99% of our Company is focused on growing our core auction business because we see such a large runway there.

In addition, we recognize there is a large opportunity, nobody is serving it. We are uniquely positioned to jump in and serve it, and so we are going to expend some energy to go after it. So, your comment is correct, it's certainly different than the way we have spoken of in the past. That's why we are bringing it forward today. But our view is it's very complementary, not a change.

And one second, because Rob Mackay is making funny hand gestures. (laughter) One of the things that comes out of this, of course, if you bring more people to the Ritchie Bros. menu, if you like, we're expanding our menu to a few more items, we have a few more people eating from the Ritchie Bros. menu, then you have an opportunity to introduce them to our existing model as well. It's a trickle-down opportunity. There's an opportunity to meet new people by providing a different service, and expose them. It's quite possible we will uncover some new customers for our unreserved model at the same time.

So, people who never thought they'd use the unreserved auction, may convert.

I think we have to admit to ourselves that there are a lot of people out there that when they hear the word auction, they run away because they've had a bad experience when they bought a rug once. Or they get ripped off online. So they have a bad vision of auctions. And a lot of our time, we are having a hard time getting past that. Well, if we can maybe develop some relationships in another dimension, that gives you an opening to introduce perhaps your most powerful tool.

Okay. And I suppose when you talk about acquisitions, those would include potential online as well as bricks-and-mortar kind of businesses?

Very open-minded.

Okay. Can I squeeze one in for Rob McLeod, just on housekeeping? I think you mentioned the impact of FX on G&A. I may have missed it though for the quarter. What was the positive or negative impact of FX on G&A for fourth quarter?

We didn't mention it, and in the fourth quarter of 2011 versus the fourth quarter of 2010, on G&A, was pretty minimal. Pretty minimal effect. The average rates in the mix of our expenditures caused that.

So, what we saw with G&A as a percent of auction proceeds was really just your operating leverage there?

Yes.

That's good to see, thanks very much, guys.

Scott Schneeberger, Oppenheimer.

Just following up on the question previously with regard to maybe moving beyond unreserved. Are you biased more towards acquisition versus organic growth into other areas? What is the thought process there?

Scott, it's Bob. I wouldn't say we have a bias. What we don't have today is the internal capacity capability to all of a sudden do this. And so, we will have to -- our view is, we either spend a lot of time, effort and risk, building something, or we partner with somebody, merge, joint venture, association, acquisition, whatever, somehow get together with somebody who is doing something. Until we have a more fulsome definition, it would be negligent of me to say we've got a bias or a (inaudible).

Okay. And one I hope you answer, but I'm not so sure you will -- the fact that you're announcing it today, does that mean that something is imminent in the near-term?

Scott, the fact we're announcing it today is because we have changed my job to make me focus on it, and people are saying -- what is Bob's job? My mother is listening to this call right now, and she needs to know.

Hi to mom. Two more, I will ask them upfront. We can look, but just a timing thing -- looking at your auctions year-over-year in the first quarter, anything worth pointing out to us on just a timing basis as we get ready for first quarter? And then separately I'll sneak another one in.

You showed the nice leverage on G&A in the fourth quarter, it was the first quarter in a while, and you have given this 40% EBITDA margin growth. And based on backwards looking on the revenue of the prior year, assuming that revenue goes up and you are managing that, that should be easy to control. Just curious, comments on what if there is an issue with revenue, is it going to be cut, cut, cut to make sure you maintain the 40%? Thanks for taking both of those, and all of them.

Hello, Scott, it's Rob McLeod, and I will try to tackle that. Our focus for sure is on that margin, but one of Jeremy's earlier comments was the lumpiness of our business month-to-month and quarter-to-quarter. And so, just as you saw in quarter three last year, where there was a shift in some of the business from quarter three into quarter four, we don't want to overreact to one-month blip or one-quarter blip in terms of the business. It is our job to understand what is underlying that, and what is truly happening, and what is going to happen in the next subsequent three months, for example. And so, if that, as you say, if there is that revenue challenge in quarter one, we are not going to turn around and have a wholesale 10% layoff of employees or something like that, because it is not in the best interest of the long-term interest of the business, for sure.

Thanks, that's helpful. I was actually asking it more on an annual basis. So, it's good to hear, but I appreciate that color. And then curious on the first question, which I probably should have asked separately. Anything weird in the first quarter timing year-over-year? We can look, but just curious if you have any comments?

No, there isn't anything weird so far in the first quarter, or anticipated in the first quarter.

Thanks.

Jamie Sullivan, RBC Capital Markets.

Question about the pretax income growth. You mentioned 15%. I'm getting -- if we just add the incremental benefit from the annualizing the buyer fee, I'm getting 17% growth from that alone. I am just wondering what we should take away from that, and how you're thinking about the rest of the business and potential growth there?

Yes, Jamie, it is Jeremy here. As we did last year, we gave what we felt was a reasonable estimate of our growth expectation for the year. So, we said at least 15%. We are trying to be realistic here and somewhat conservative, given there still is a degree of uncertainty in the marketplace.

Okay. And the next question then would be -- what is your confidence then in the 40% EBITDA margin target that you laid out? And what you can do, whether it's from a top line perspective or from a cost perspective to hit that target.

Hi, Jamie, it is Rob. To achieve that 4% margin, well, obviously driving revenue, and structuring our at-risk deals so that you are maximizing the contribution from those, is obviously the biggest lever we have. Secondary lever is obviously the expenditures, and a very natural one that we don't even need to turn on, if you will, is our bonus structures that are tied to revenue and tied to contribution throughout the organization now. So, that's a pressure valve, if you would like, on that. And then also just the cost structure of the business that is geared to the capacity that we have had and are expecting to have. And if there is a fundamental change in that, then there will be a fundamental change in that cost structure as well.

Okay. That is helpful. And lastly, just on the incremental cost from the new initiatives, you came in $9 million this year. That was about $6 million below what you originally thought. Just wondering what specifically did you find to gain efficiencies? Did you only need 60% of the hedge, or is it a timing issue? I was wondering what helped that number?

Hi, Jamie, it is Rob again. Yes, it really is more of a timing issue. Part of the costs in 2012 surrounds our realignment of sales and operations, and the build-out of our operations management throughout the whole organization. And we had anticipated having to hire a number of new people at the end of 2011 to facilitate that. And what ended up happening is we sourced those people internally, so they got replaced later on in the year, and are being replaced right now in early 2012. And so, from that point of view, it was a timing issue, and also the ramp-up of our new employees for our detailed equipment information program, again, probably was pushed out a little bit further into 2011, but you get obviously 12 months of that in 2012.

Thanks. And then any FX impact assumptions for GAP for this year that you are baking in?

Minimal, to be frank. One, because of the expectations of Canadian dollar versus the euro.

Okay. Thanks very much, guys. I appreciate it.

We have time for one more question.

Neil Forster, Scotiabank.

Just a quick question on GAP, and a similar question was asked on auction revenue rate. We are seeing positive pricing, the view is loosening supply constraints on new equipment as the year unfolds. Strong results so far in Q1, particularly with Orlando and some other auctions. On the full-year guidance, are we being a little bit conservative here, or just if you could describe how you're thinking about that?

Neil, it is Jeremy here. I guess nobody else is talking, so I have to. (laughter) When we develop our guidance, we are talking to our guys in the field and getting a sense for what's going on in the marketplace in which we play. And we build our guidance up from there, and we deliberately put a range on it, and it's a pretty wide range. And that does reflect, as I said earlier, a degree of uncertainty in the marketplace. So, although there are a lot of positive signs, both macro and otherwise, in the US and actually in North America in general, there is still uncertainty out there, and Europe is just one example of that.

So, when we put together our guidance, we reflect that uncertainty. And we are sitting here at the start of a year, and it's difficult for us to have clear visibility into the second half of the year. And that's always the case, so we have started with a pretty wide range, and as the year goes on and there is better clarity into the second half of the year, we will refine our guidance as appropriate.

That is helpful. Just wondering if you guys are seeing smaller rental companies coming back into the market, just given improving credit conditions?

Rob here, Neil. I wouldn't say we are seeing any significant leap in small companies. The ones that are out there are getting more active. Obviously, we have seen some acquisitions going on, but no trend to see any rapid growth of small rental companies.

Okay, thanks. Just on competition, if you could clarify -- are we seeing an increase in the number of competitors? Or is it just the usual suspects becoming more aggressive, just given the supply issues?

In various places around the world where we operate, we are seeing some increased competition from some new players in the field. But I think for the most part, it is the dormant ones becoming more active.

Perfect. And just a quick one, and this might be an obvious question, I think I know the answer. But on the proposed new initiatives, can we safely assume that this will not in any way involve auctions with reserve prices?

I can tell you what it won't involve. It won't involve auctions with unreserved [prices], because we have that. That's about the only thing we've actually said.

So, you're not ruling out deviating from the model of strictly unreserved?

You've got a core business that is strictly unreserved, and it serves a valuable need and large and growing customer base, and there's a whole bunch of other people that don't want to use that model, and they're not using any of the existing channels right now. So, I would say we are open-minded. It would be hard for Ritchie Bros. to go and have a poster that says we now offer reserved auctions, so I would not be expecting that, but we are not going to draw a line through anything at this stage. It really depends on what it takes to meet the needs of the people that we are not able to currently meet. In fact, that no channels are able to currently meet.

Thanks, guys.

Okay, Sarah, we should wrap the call up now. Thanks everybody for participating. I appreciate the questions, and we will stay hard at it, and look forward to talking to you at the end of Q1. Thanks, everyone.

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