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ViadRITCHIE BROS. AUCTIONEERS INCORPORATED
A n n ualReport
2013
Con ten ts
Letterto Sh areh old ers
Fin an cialIn form ation
M an agem en t’sD iscussion an d A n alysis
A ud ited Con solid ated Fin an cialStatem en ts
Supplem en talQ uarterly D ata
Selected Fin an cialan d O peratin g D ata
Sh areh old erIn form ation
3
6
107
108
109
Forw ard -lookin g statem en ts
The discussion in this Annual Report includes forward-looking statements, which involve risks and
uncertainties as to possible future outcomes. Readers should refer to the discussion concerning forward-
looking statements and risk factors included in our Management’s Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December 31, 2013, which is included in the
Financial Information section of this Annual Report.
Fellow shareholders,
2013 was a pivotal year for Ritchie Bros., as we positioned the business well for its next
stage of growth. Our board, executive, and global team are all in agreement that we have
the right strategies and business model in place to generate real value for our customers
and shareholders.
2013 yearin review
During 2013 we accomplished many important strategic initiatives to best position the
company for further growth. We successfully launched a secondary service offering to
equipment owners, through EquipmentOne – our new online marketplace. We focused on
growing our sales force to capture more market share and expanded our sales team by 5%
to the largest it’s ever been, ending the year with 272 Territory Managers. And we
launched and invested in many technology and training tools to enhance the productivity of
our sales team.
Within this all, we also managed the business to generate returns for our shareholders by
reducing operating costs wherever possible, increasing our already strong operating
leverage and being more disciplined on the underwritten transactions we pursue – which
resulted in a record revenue rate.
A n n ualperform an ce
During 2013 we generated record revenue of $467 million – an increase of 7% compared to
2012, despite Gross Auction Proceeds declining 2%. This increase in revenue was a result
of the record 12.2% revenue rate we achieved for the year, in large part through a more
disciplined approach to our guaranteed and inventory contracts. The performance of these
underwritten contracts was the primary reason we were able to achieve the revenue rate we
did.
On an adjusted basis, excluding the after-tax effects of excess property sales and other
non-recurring items, net earnings for 2013 were $90.0 million, or $0.84 per diluted share –
a 9% increase compared to 2012. This result exemplifies the operating leverage inherent to
our business model, and the flow-through rate incremental revenue has on generating
earnings. Revenue increased 7% compared to the previous year, while adjusted SG&A,
excluding depreciation and amortization, increased only 5%.
Ritch ie B ros.A uction eers
Providing unreserved auction services remains our core business and the driver of earnings
for shareholders. In 2013 we expanded our auction network into China, where we held our
first two auctions in Beijing. In addition, we held our first auction in Finland – where we
believe opportunity to hold more offsite auctions exists. While the number of lots we sold
through our auctions increased 5% from 2012, GAP declined slightly as the age and mix of
equipment available for sale continued to be impacted by the lower equipment production
after the financial crisis. As a result, equipment that came to market during the year was
often older and had accumulated more hours than the equipment mix we saw in past years.
We believe this headwind will soon dissipate as equipment production has since returned to
more familiar levels.
3 We saw particular growth in our transportation and agriculture volume, as our sales team
did an excellent job at growing our market share in these sectors.
Ritch ie B ros.Equipm en tO n e
We view EquipmentOne as an important new addition to our service offering, but as a very
new business, we don’t expect it will have a meaningful impact on our corporate
performance for a few years. During 2013, EquipmentOne contributed $100 million of
transaction sales to GAP, but had a negative contribution to earnings, as investments to
launch and enhance the platform also occurred in its first year of operation.
We believe there is significant opportunity to grow volume through EquipmentOne. Just as
importantly, our ability to offer dual sales options to equipment owners has generated
additional key account business for us. By providing the opportunity to split fleet
consignments amongst both EquipmentOne and our equipment auctions, we’re securing
contracts now that we wouldn’t have been able to secure before. By offering a full solutions
set, we’re better equipped to meet the more complex needs of our larger corporate
customers.
Lookin g forw ard
Our objectives for 2014 are largely unchanged from 2013, as we focus on executing our
strategy of: aggressively growing our core auction business, expanding EquipmentOne and
enhancing our high-performance team.
A ggressively grow in g ourcore auction busin ess
The investments we’ve made to build our global network of 44 auction sites and our
robust online bidding platform over the past 10 years have positioned our auction
business well to support significant growth in the amount of equipment we sell. Our
focus for 2014 and foreseeable future is on securing more equipment to go through
our auction sales channel and to capitalize on the existing capacity in our platform.
We are focused on delivering record GAP and revenues through our core auction
channel in 2014, and continuing to grow bidder registrations.
Sign ifican tly expan d in g Equipm en tO n e
In 2013 we launched our first non-auction sales offering, with EquipmentOne – our
online equipment marketplace. While still in its early stages, we believe this sales
solution will allow us to meet the needs of new customers that we were not able to
reach through our core auction services. Our aim for 2014 is to grow transaction
volume and revenue through EquipmentOne, grow web traffic on the website, and
achieve a sales yield (or percent of listings that end in a sale) of at least 85%.
En h an cin g ourh igh -perform an ce team
The performance of our business, and the operating leverage we benefit from, is
driven entirely by our sales volume and the revenue rate we achieve. To support
further top-line growth, we are committed to growing our sales team by another 5% to
10% during 2014, while also focusing on increasing the productivity of our Territory
Managers through additional sales training, technology improvements and other sales
support initiatives. Related to this, we’re also implementing new performance
4 management, development and succession planning tools, to ensure we’re continually
measuring the success and advancement of our sales and support team members.
W elcom in g ch an ge
Over the last 10 years we’ve significantly grown the platform, services and customer value
generated by Ritchie Bros., and we’re proud of all that we’ve accomplished and
implemented over that period. We are a radically different Company today than we once
were, as we adapted to changing customer preferences and technologies, while still
delivering outstanding customer service and the global market pricing our customers value
through our core auction business.
As we’ve already discussed in prior quarters, due to Peter’s planned departure, the Board is
in the process of searching for a new CEO with a strong background in leading a sales
driven organization and experience growing the top line. The selection process is
progressing well. We believe that this is an important change for the Company, as we drive
to grow revenue by expanding our market penetration and global reach. The management
team has spent a great deal of time and capital building a strong platform to efficiently cater
to growing auction and sales volumes. It’s now time to focus on driving more volume
through our sales channels, to capitalize on the operating leverage built into our model.
Ritchie Bros. will also welcome a new Chair of the Board in 2014, as Beverley Briscoe is
expected to take this position when Robert Murdoch retires – due to mandatory retirement
criteria as set forth in the Company’s Corporate Governance Guidelines. Beverley has a
wealth of experience the company will benefit from, including leadership and executive
positions at transport and heavy machinery companies. She has been an active Board
member for nearly a decade with Ritchie Bros., and is exceptionally qualified to lead the
Board as Chair.
As long-term shareholders, we both look forward to watching the future growth of Ritchie
Bros. in the years ahead. We have absolute confidence that the business is well positioned
for future opportunities, with a strong global platform, an exceptional sales force, a highly
experienced senior management team, and new leadership for our sales driven
organization.
Best regards,
Peter Blake
Chief Executive Officer
Robert Murdoch
Chairman of the Board
5 ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties. These statements
are based on current expectations and estimates about our business and markets, and
include, among others, statements relating to:
our future performance and our long-term financial objectives;
competition in the used equipment market;
growth of our operations, including replacement of existing auction sites;
growth potential in established and emerging markets;
our internet initiatives and the level of participation in our auctions by internet
bidders, and the success of our online marketplace, including increased online
participation in auctions as buyers become more comfortable with our bidding
technology and online tools and services;
increases in the number of consignors and bidders participating in our auctions;
our principal operating strengths, our competitive advantages, and the appeal of our
auctions to buyers and sellers of industrial assets;
our ability to draw consistently significant numbers of local and international end-
user bidders to our auctions;
our ability to continue to grow our share of the used equipment market and to meet
the needs of our customers;
our ability to partner with our customers and potential customers;
our ability to grow our core auction business, including our ability to increase our
market share among traditional customer groups and do more business with new
customer groups in new markets;
our ability to add new business and information solutions, including, among others,
our ability to use technology to enhance our auction services and support additional
value-added services;
our ability to grow our sales force and improve sales force productivity;
the effect of Original Equipment Manufacturer production on our Gross Auction
Proceeds;
the effect of an increased number of Territory Managers on our sales team
performance, Gross Auction Proceeds and revenues;
our ability to leverage our Ritchie Bros. brand;
the relative percentage of Gross Auction Proceeds represented by straight
commission or underwritten, or at risk (guarantee and inventory) contracts and its
impact on revenues and profitability;
our Revenue Rates, the sustainability of those rates, the impact of our commission
rate and fee changes, and the seasonality of Gross Auction Proceeds and revenues;
our direct expense and income tax rates and selling, general and administrative
expenses;
6
the supply trend of equipment in the market
the potential for growth of EquipmentOne and other online marketplaces
our future capital expenditures;
our future plans with regard to our strategic pillars;
the proportion of our revenues and operating costs denominated in currencies other
than the U.S. dollar or the effect of any currency exchange and interest rate
fluctuations on our results of operations;
the impact of our new initiatives and services on us and our customers;
financing available to us and the sufficiency of our working capital to meet our
financial needs;
our ability to satisfy our present operating requirements and fund future growth
through existing working capital and credit facilities;
our ability to successfully implement our cost realignment plan; and,
our ability to mitigate risks in connection with our Chief Executive Officer succession
planning and transition
Forward-looking statements are typically identified by such words as “anticipate”, “believe”,
“could”, “continue”, “estimate”, “expect”, “intend”, “may”, “ongoing”, “plan”, “potential”,
“predict”, “will”, “should”, “would”, “could”, “likely”, “generally”, “future”, “period to period”,
“long term”, or the negative of these terms, and similar expressions intended to identify
forward-looking statements. Our forward-looking statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that are difficult to predict.
While we have not described all potential risks related to our business and owning our
common shares, the important factors listed under “Risk Factors” below are among those
that we consider may affect our performance significantly or could cause our actual financial
and operational results to differ significantly from our expectations. Except as required by
applicable securities law and regulations of relevant securities exchanges, we do not intend
to update publicly any forward-looking statements, even if our expectations have been
affected by new information, future events or other developments. You should consider our
forward-looking statements in light of the factors listed under “Risk Factors” below and
other relevant factors.
7 Overview
The following discussion summarizes significant factors affecting the consolidated operating
results and financial condition of Ritchie Bros. Auctioneers Incorporated (“Ritchie Bros.”, the
“Company”, “we” or “us”) for the year ended December 31, 2013 compared to the year
ended December 31, 2012. This discussion should be read in conjunction with our audited
consolidated financial statements and notes thereto as at and for the years ended December
31, 2013 and 2012, and with the disclosures regarding forward-looking statements and risk
factors included within this discussion.
Additional information relating to our Company, including our most recent Annual
Information Form, is available on our website at www.rbauction.com, on SEDAR at
www.sedar.com or on EDGAR at www.sec.gov. None of the information on the SEDAR,
EDGAR, or our website is incorporated by reference into this document by this or any other
reference. The date of this discussion is as of February 28, 2014.
We prepare our consolidated financial statements in accordance with International Financial
Reporting Standards, or IFRS, as issued by the International Financial Reporting Standards
Board. Amounts discussed below are based on our audited consolidated financial statements
and are presented in U.S. dollars. Unless indicated otherwise, all tabular dollar amounts,
including related footnotes, presented below are expressed in thousands of dollars, except
per share amounts.
8 7%
5%
18%
19%
41%
73%
In the following discussion and tables, Net earnings, Adjusted Net Earnings, Diluted
Adjusted Earnings Per Share (“EPS”), and all related rates and margins for the years ended
December 31, 2013 and 2012 have been presented excluding non-controlling interest, and
represent only those amounts attributable to equity holders of the parent, to conform with
the presentation adopted in our audited consolidated financial statements.
Consolidated Highlights
Years ended December 31
(in U.S.$000's, except per share amounts)
2013
2012
% Change
Consolidated Income Statements
Revenues
Earnings from operations
Net earnings
Diluted EPS
Cash Flows
$
467,403
$
437,955
126,379
93,825
0.88
120,039
79,551
0.74
Net cash generated by operating activities
$
189,116
$
134,060
Net cash used in investing activities
Net cash generated by (used in) financing activities
(30,109)
(96,817)
(110,870)
43,414
-323%
Other highlights
Gross Auction Proceeds(1),(2)
Revenue Rate(1),(3)
EBITDA Margin(1),(4)
Adjusted Net Earnings(1),(5)
Adjusted Diluted EPS(1)
Dividends Paid
$
3,817,768
$
3,907,991
12.24%
36.3%
89,989
0.84
53,918
11.21%
36.8%
82,555
0.77
50,042
-2%
103 pts.
(50) pts.
9%
9%
8%
(1) These are non-GAAP measures that do not have a standardized meaning, and are therefore unlikely to be
comparable to similar measures presented by other companies. We believe that comparing Adjusted Net
Earnings, diluted Adjusted Net Earnings per Share, Gross Auction Proceeds (“GAP”) and EBITDA Margin for
different financial periods provides more useful information about the growth or decline of our net
earnings for the relevant financial period and eliminates the financial impact of items we does not consider
to be part of our normal operating results.
(2) GAP represents the total proceeds from all items sold at our auctions and online marketplaces. It is not a
measure of our financial performance, liquidity or revenue and is not presented in our consolidated
financial statements. We believe that revenues, which is the most directly comparable measure in our
Income Statements, and certain other line items, are best understood by considering their relationship to
GAP.
(3) Revenue Rate is our revenues divided by our GAP.
(4) Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated using the
information disclosed in our annual consolidated financial statements by adding back depreciation and
amortization expense to earnings from operations. EBITDA is a non-GAAP measure. The EBITDA Margin is
EBITDA as a proportion of revenues.
(5) We define Adjusted Net Earnings as financial statement net earnings excluding the after-tax effects of
excess property sales and certain other non-recurring items, and we have provided reconciliation below.
(6) Figures presented include the results attributable to our 51% interest in Ritchie Bros. Financial Services to
conform with the presentation adopted in our audited consolidated financial statements.
9 Revenues increased by 7% in 2013 and were a record for the Company. Revenues
increased primarily as a result of the increase in our Revenue Rate due to the performance
of our at risk business. Geographically we saw strong revenue growth in Canada of 9%, with
more moderate growth in Europe and the United States which grew by 7% and 6%
respectively. Revenues generated in the rest of the world were up slightly, increasing by
2%.
Earnings from operations grew by 5% over 2012 as selling, general and administrative
expenses (“SG&A”) grew by 7%, the same rate as overall revenue growth. SG&A includes a
one-time expense of $4.6 million payable under a separation agreement relating to the
planned departure of our CEO in 2014. This has been shown as an adjusting item as
presented below. Excluding this expense, earnings from operations were up 9%, a rate
higher than our revenue growth illustrating the operating leverage in our business model.
Net earnings grew by 18% over 2012. This increase is higher than our increase in earnings
from operations primarily because of property dispositions. In 2013, we had significant
gains of $7.2 million after-tax related to dispositions of property during the year contrasted
with losses of $3.0 million related to property dispositions in 2012. We consider gains and
losses from property sales to be adjusting items for the calculation of Adjusted Net Earnings
as presented below.
Net cash generated by operating activities increased by 41% primarily due to changes in
working capital.
Net cash used in investing activities was down by 73% as result of a decrease in capital
expenditures and an increase in gains from property disposals. Additionally, in 2012 we
completed the acquisition of AssetNation LLC and its subsidiaries (collectively
“AssetNation”).
Net cash generated by (used in) financing activities was up by over 323% as we repaid
short and long-term debt during the year. In addition, we increased dividends paid to $54
million, an increase of 8% over the prior year. In 2012, we financed our acquisition of
AssetNation with $63 million in long-term debt.
Gross Auction Proceeds was down by 2% during the year compared to 2012. There was
growth in Canada with our GAP exceeding $1 billion for the second consecutive year, while
GAP was down in the rest of the world by approximately $114 million. Applying 2012 foreign
exchange rates, our GAP would have been nearly $42 million higher. This was due to the
decreased value of the Euro and Canadian dollar.
We achieved a record Revenue Rate of 12.24% in 2013, up 1.03% from 11.21% in 2012, as
a result of the strong performance of our at risk business.
Our EBIDTA Margin in 2013 decreased slightly to 36.3%, or 0.50%, when compared to 2012
as the increase in revenues was offset by an increase in direct expense and SG&A items.
Excluding the effect of the one-time expense of $4.6 million related to the Chief Executive
Officer (“CEO”) separation agreement, our EBITDA margin would have increased 1.0% to
37.3%.
Adjusted Net Earnings for the year ended December 31, 2013 were $90.0 million, or $0.84
per diluted share, compared to Adjusted Net Earnings of $82.6 million, or $0.77 per diluted
share for the year ended December 31, 2012, representing an increase of approximately
9%.
10 A reconciliation of our net earnings to Adjusted Net Earnings is as follows:
Net earnings attributable to equity holders of parent
After-tax loss (gain) on excess property (1,2)
After-tax impact of CEO separation agreement (3)
Years ended December 31,
2013
2012
$
93,825
(7,225)
3,389
$
79,551
3,004
-
Adjusted Net Earnings attributable to equity holders of parent
$
89,989
$
82,555
(1) Net earnings for the year ended December 31, 2013 included a gain of $9,880 ($7,225 after tax, or
$0.07 per diluted share) recorded on the sale of excess property in Fort Worth, Texas and Prince
Rupert, British Columbia.
(2) Net earnings for the year ended December 31, 2012 included a loss of $1,946 ($1,197 after tax, or
$0.01 per diluted share) recorded on the sale of our former Olympia, Washington permanent auction
site; and net impairment losses of $2,804 ($1,807 after tax, or $0.02 per diluted share) recorded
against our former permanent auction sites in Statesville, North Carolina and London, Ontario.
(3) Net earnings for the year ended December 31, 2013 included an expense of $4,580 ($3,389 after tax,
or $0.03 per diluted share) recorded to recognize liabilities incurred relating to the CEO separation
agreement.
Ritchie Bros.’ Businesses
Ritchie Bros. (NYSE & TSX: RBA) is the well-established world leader for the exchange of
used equipment, completing over $3.8 billion of equipment transactions during 2013. Our
expertise, global reach, market insight and trusted brand provide us with a unique and
leading position in the used equipment market. We primarily sell equipment for our
customers through unreserved auctions at 44 auction sites worldwide. In addition, during
2013 we launched EquipmentOne, an online used equipment marketplace to reach a
broader customer base. These two complementary exchange solutions provide different
value propositions to equipment owners and allow us to meet the needs and preferences of
a wide spectrum of equipment sellers.
Ritchie Bros. focuses on the sale of industrial machinery. Through our unreserved auctions
and online marketplaces, we sell a broad range of used and unused industrial assets,
including equipment and other assets used in the construction, agricultural, transportation,
energy, mining, forestry, material handling, marine, and real estate industries. The majority
of the assets sold through our sales channels would be classified as construction machinery.
We operate from over 110 locations in more than 25 countries worldwide. Our world
headquarters are located in Vancouver, Canada.
11 Value Proposition
Ritchie Bros. helps equipment sellers achieve their objectives by bringing the global
marketplace to the sale of their assets. We attract large and diverse buying audiences from
around the world, comprised primarily of end users, and allow them to compete in a
transparent and fair selling environment using a variety of on-site and online participation
options.
Some specific Ritchie Bros. strengths include:
1. Our strong, established brand, which is supported by our reputation for conducting fair
and transparent unreserved auctions and our widely recognized commitment to honesty,
integrity and fair dealing.
2. Our ability to market equipment to our extensive, global customer base of over 560,000
customers from roughly 190 countries.
3. Our industry-leading 21-language website (rbauction.com), on which all equipment is
marketed including related high-resolution photos and equipment specifications. During
2013, our website received over 6.2 million unique visits.
4. Our ability to attract end users in a global marketplace. Approximately 70-80% of sales
go to end users, such as contractors with the remaining being purchased by dealers and
brokers. Additionally, approximately 60% of our sales go to buyers from outside the
region of sale.
5. Our international network of auction sites that provide high value and consistent service
to our customers.
6. As the market leader in the exchange of used equipment, Ritchie Bros. has a unique
perspective and insight into the supply, demand, and pricing trends impacting the used
equipment market, which we leverage for our customers.
Our core auction business provides equipment sellers with certainty of sale and global
market pricing, as each item in the auction will be sold on the day of the auction to the
highest bidder from a global audience of interested buyers. This certainty appeals to
equipment owners who want to redeploy the sales proceeds. The global reach of our
auctions ensures equipment sellers receive the best possible price for their machine, as
dictated by global demand. This business segment was responsible for greater than 97% of
revenues in 2013.
Our online equipment marketplace, EquipmentOne, provides equipment sellers with control
over the selling price and the sales process. EquipmentOne appeals to equipment sellers
who would prefer to sell only under certain conditions and to those sellers who want to
manage the process, decide if and when to sell, and negotiate a selling price.
12 Complementary value propositions
The following table demonstrates how our business segments complement each other by
providing our customers with a variety of onsite and online participation options:
Ritchie Bros. Auctioneers
Unreserved industrial and agricultural
equipment auctions
Sellers have certainty of sale and receive
global market value for their equipment
Ritchie Bros. EquipmentOne
Secure, online marketplace where buyers and
sellers negotiate, complete and settle their
transactions
Sellers have control over the selling price
and the sales process
All lots will sell the day of the auction, for
Self-service
the highest price bid from a global
audience of bidders
Full service
Provides buyers with the ability to inspect,
test and compare the equipment (physical
site)
Central marshaling of equipment means
Ritchie Bros. Auctioneers has custody and
control of the equipment being sold
Onsite and online bidding
The used equipment market opportunity
eCommerce marketplace with listings
Online only
Competes with other online marketplaces,
but specializes in catering to equipment
owners and their unique preferences and
needs
Provides access to equipment listings
posted on third party websites
Ritchie Bros. is the well-established world leader for used equipment sales. Our market
position, in itself, is a competitive advantage. As we sell more used equipment than anyone
else, we attract the largest audience of interested used equipment buyers. This in turn
attracts more equipment sellers. This cycle continues to bolster our growth, which is
demonstrated by our long history of expansion.
Ritchie Bros. estimates that the annual global used equipment transaction market is valued
in excess of $200 billion. The market is highly fragmented, with Ritchie Bros. being the
largest player in this space. Our research indicates that approximately half of used
equipment sellers prefer to retain the services of an intermediary to sell their equipment.
Our auction business caters to this portion of the market. The other half of the market
prefers to manage the sales process on their own. This portion of the market is catered to
by our recently introduced complementary transaction solution, EquipmentOne.
The world market for used equipment and trucks is driven by the supply of used equipment
and trucks for sale. This is affected by the ongoing production of new equipment and
trucks, the demand for equipment, the rate of equipment utilization and the motivations of
equipment owners to realign and replace their fleets.
Ritchie Bros.’ businesses generate revenue based on a percent of the selling price of goods
sold through our sales channels. As such, influences on used equipment pricing can affect
corporate performance. Factors such as regional or global construction activity, the supply
of good quality used equipment, availability of low-cost financing and changes to regional
regulations can affect the demand for, and therefore price of, equipment sold through our
auctions and our online marketplace.
13 Ritchie Bros. Auctioneers – Our core unreserved auction business
Ritchie Bros. Auctioneers is the world’s largest industrial auctioneer, and our core business
is providing unreserved auction services to equipment buyers and sellers. Our adherence to
the unreserved auction process is one of our founding principles and we believe one of our
most significant competitive advantages. All Ritchie Bros. auctions are unreserved, meaning
that there are no minimum bids or reserve prices on any item sold at our auctions. Each
item is sold to the highest bidder, regardless of price. This process, combined with our
global market reach, ensures that each item sold at our auctions is sold for global market
value. In addition, consignors, or their agents, are not allowed to bid on or buy back or in
any way influence the selling price of their own equipment. This policy provides a
transparent environment for our auction bidders.
Our bidders participate in our auctions in person, by proxy, or through real-time online
bidding. Online participation in our auctions has increased steadily since the option was
offered in 2002. Most online bidders still visit our auction sites prior to the auction, in order
to test and inspect the equipment being sold.
Consignment volumes at our auctions are affected by a number of factors, including regular
fleet upgrades and reconfigurations, financial pressure, retirements, and inventory
reductions, as well as by the timing of the completion of major construction and other
projects. We generally cannot influence the decision of an equipment owner whether to sell,
but once they have made the decision to sell, our sales team’s opportunity is to
demonstrate the Ritchie Bros. Auctioneers value proposition and have the equipment
contributed to one of our unreserved auctions.
Approximately 60% of our sales go to buyers from outside the region of sale. Our ability to
consistently draw significant numbers of local and international bidders from many different
markets to our auctions, most of whom are end users rather than resellers, is appealing to
sellers of used equipment and trucks and helps us to attract consignments to our auctions.
Higher consignment volumes attract more bidders, which in turn attract more
consignments, and so on in a self-reinforcing process that has helped us to achieve a
history of significant growth and momentum in our business which is reflected in our GAP
growth.
Auction operations
The majority of our industrial auctions are held at our permanent auction sites where we
generally own the land and facilities or at regional auction sites, where we usually lease the
land and typically have more modest facilities. We also hold off-site auctions at temporary
locations, often on land owned by one of the main consignors to the particular auction. Most
of our agricultural auctions are off-site auctions that take place on the consignor’s farm. For
the year ended December 31, 2013, approximately 89% of our GAP was attributable to
auctions held at our permanent auction sites and regional auction sites (2012: 90%).
Our auction sites are enhanced by our online bidding service that allows bidders to
participate in our live auctions remotely over the internet. In 2013 approximately 55%
(2012: 50%) of our successful bidders and runner-up bids came from our customers
participating over the internet.
In addition, economies of scale are generally achieved as our operations in a region evolve
from conducting intermittent auctions, to establishing a regional auction site, and ultimately
to developing a permanent auction site. Economies of scale are also usually achieved when
our auctions increase in size.
14 For the year ended December 31, 2013 we had 39 permanent auction sites (2012: 39) and
we had five regional auction sites (2012: five). Further discussion of our auction site
definitions and a list of our auction sites is included in our Annual Information Form for the
year ended December 31, 2013; the auction site information is incorporated by reference
into this MD&A discussion.
Gross Auction Proceeds represent the total value of equipment sold at our auctions. Four
factors can affect GAP: the pricing environment for used equipment, the mix of categories of
assets sold, the mix of equipment age, and the number of lots sold. A percentage of GAP is
retained by the Company as auction commissions. The portion of GAP that we do not retain
is remitted to our customers who consign the items to our auctions as sales proceeds.
Revenue generated by our auction operations are comprised mostly of commissions, but
also include fees for value-added services and administrative fees from equipment buyers.
All auction revenues are recognized when the auction sale is complete and we have
determined that the auction proceeds are collectible.
Four main revenue streams support Ritchie Bros. unreserved auction business:
Straight commission contracts– straight commission contracts are the most common
type of contract for consignors placing equipment in our auctions. A pre-determined,
fixed percentage of the selling price is provided to Ritchie Bros. as commission.
Straight commission contracts drove 72% of our GAP in the year ended December 31,
2013 (2012: 68%).
Guaranteed contracts – guaranteed contracts typically include a pre-negotiated
commission percentage of the guaranteed gross proceeds plus a percentage of
proceeds in excess of the guaranteed amount. If actual proceeds are less than the
guaranteed amount, commission is reduced from the pre-negotiated percentage.
Revenues from guaranteed contracts are recognized in commission revenue.
Inventory –we also purchase packages of equipment outright, obtaining title of the
asset(s) to be sold at auction. During the short period that we retain ownership, the
cost of the equipment is recorded as inventory on our balance sheet. The gains (or
losses) attributable to the sale of inventory are recognized on a net basis as a part of
commission revenue. We also consider Inventory sales as a part of our underwritten,
or at risk, transactions as inventory and guaranteed commission contracts represent a
similar nature of risk for us.
Administrative fees and fees from Value-added Services – administrative fees are paid
by equipment buyers and contribute to the fee revenues generated at Ritchie Bros.
auctions. In addition, Ritchie Bros. provides services for our buyers to assist with the
purchase of equipment, including financing, inspection services, painting and other
value-added services.
15 Underwritten transactions
We refer to our guarantee and inventory transactions as our underwritten, or at risk,
business. We are generally indifferent when providing a consignor with a guarantee
contract or an inventory contract. As we do not control the sale price of items sold at our
auctions, both a guarantee contract and an inventory contract represent a similar nature of
risk and opportunity for us. Our customers’ circumstances, risk tolerance and sale objectives
will ultimately determine the final form of the contract.
The performance, not the volume, of our underwritten transactions is the largest contributor
to the variability of our commission rates. Underwritten transactions can often generate
higher commission rates for Ritchie Bros., as the commission rate on proceeds above the
guaranteed proceed amount is often higher than the rate we negotiate for the guaranteed
portion. However, as we guarantee minimum sales proceeds to consignors in underwritten
transactions, and earn a commission based on the actual results of the auction, if the actual
auction proceeds are less than the guaranteed amount, our commission is reduced. If the
proceeds are sufficiently less, we can incur a loss on the sale.
Our underwritten business represented approximately 28% of our GAP in 2013 (2012:
32%). This is a decrease over 2012 and in the range of our historical volume of at risk
business that has generally fluctuated between 20% to 30% of our annual GAP.
As we work with our customers to assist in their equipment transactions we will determine,
in a minority of cases, to strategically present proposals that include at risk contracts in
order to build our business and position ourselves in the marketplace. In making the
decision to strategically use an at risk proposal, we consider a multitude of factors,
including, the size and the mix of the equipment in the proposal, the condition of the
equipment, the timing of the contract in relation to a particular auction and its impact on
attracting additional consignments, the competitive environment, our ability to build our
market share and the relationship with the customer. We have a rigorous approach to
appraising and evaluating the items included in a potential at risk deal and have a well-
developed, strict internal approval process for entering into at risk contracts.
Further, the choice by equipment owners among straight commission, guarantee, or
inventory contracts, if presented by us, depends on the owner’s risk tolerance and sale
objectives. We work with our customers to provide them with the contract option that best
suits their needs at that point in time. As a result, the mix of contracts in a particular
quarter or year fluctuates and is not necessarily indicative of the mix in future periods. The
composition of our auction commissions and our Revenue Rate are affected by the mix and
performance of contracts entered into with consignors in the particular period and fluctuates
from period to period.
Auction Fees are earned from buyers at our auctions. Administrative fees are the most
significant component of auction fees and are charged to buyers as a fixed percentage of
the purchase price of each lot, to a maximum amount based on the value of the items
purchased. Also included in Auction Fees are documentation fees earned for services
provided to our buyers and consignors, as well as revenue generated through our value-
added services, which assist with the purchase or sale of equipment, such as financing,
insurance and warranty services.
16 Seasonality and other factors influencing variability of our earnings
Our GAP and revenues are influenced by the seasonal nature of the auction business, which
is determined mainly by the seasonal nature of the construction and natural resources
industries in which many of our customers participate. GAP and revenues tend to be higher
during the second and fourth calendar quarters, during which time we generally conduct
more business than in the first and third calendar quarters. This seasonality contributes to
quarterly variability in our net earnings because a significant portion of our operating costs
is relatively fixed. Because of these seasonal and period-to-period variations, we believe
that GAP, revenues and net earnings are best compared on an annual or 12-month trailing
basis.
GAP and revenues from our auction business are also affected on a period-to-period basis
by the timing of major auctions. Also, in newer markets where we are developing
operations, the number and size of auctions and, as a result, the level of GAP and revenues,
are likely to vary more dramatically from period to period than in our established markets,
where the number, size and frequency of our auctions are more consistent.
Ritchie Bros. EquipmentOne – Our online used equipment marketplace
EquipmentOne is a secure online marketplace designed for equipment owners who prefer to
buy and sell equipment privately — and need a fair, easy and safe place to do so.
Ritchie Bros. commercially launched EquipmentOne (an Online Negotiation Engine) in 2013
to reach the segment of the used equipment transaction market that prefers to retain
control over the sales process, which our core auction business does not enable. Through
EquipmentOne (www.equipmentone.com), equipment sellers are able to list their equipment
on the online marketplace, receive and accept offers, and complete and settle their sale.
EquipmentOne is an online marketplace that equipment sellers can navigate independently,
while still leveraging Ritchie Bros.’ trusted brand and back office expertise. EquipmentOne
facilitates the completion of sales through a settlement process that protects both the seller
and the buyer. Once a sale is agreed upon, buyers are instructed to send the purchase price
of the sale to Ritchie Bros. to hold in escrow. When the funds are received, the seller is
informed that they can release the sold equipment to the purchaser. When the purchaser
provides approval to Ritchie Bros. that the equipment is as advertised, we then release the
sales proceeds, less our commission and the buyer’s premium, to the seller.
We still consider EquipmentOne to be in a start-up phase, and as such, we do not anticipate
that the online marketplace will contribute materially to its operations for several years.
However, we believe that there is a substantial growth opportunity for this business line and
believe that this supports the investment opportunity presented by this business.
EquipmentOne Operations
The EquipmentOne platform was built on the infrastructure and e-commerce expertise
Ritchie Bros. acquired through its purchase of AssetNation in 2012. During 2012 and 2013,
Ritchie Bros. invested capital and staff resources into EquipmentOne to:
design and launch the EquipmentOne marketplace,
consolidate selected AssetNation marketplaces into the EquipmentOne offering, and
integrate services with Ritchie Bros. existing support teams.
During 2013, the EquipmentOne website had over 1.4 million visits, welcomed 580,000
unique visitors and sold over 8,200 items.
17 Several other online marketplaces, which were acquired through Ritchie Bros’. purchase of
AssetNation in 2012, continue to operate.
In addition to servicing individual equipment owners, we view EquipmentOne as a
complementary and important sales solution for our large customers. The combination of
our unreserved auctions and the EquipmentOne online marketplace represents a full
solution set that we believe has positioned us to better meet the needs of broader fleet
management demands.
Gross Transaction Value (“GTV”) is the total value of items sold through EquipmentOne,
including the buyer’s premium, and is equivalent to Gross Auction Proceeds in our auction
business.
Yield, or the percentage of equipment listings that end in a sale, through EquipmentOne
continued to improve throughout the year. On average, 85% of equipment listings on the
site ended in a completed transaction during 2013.
Revenues generated by EquipmentOne are comprised mostly of buyers premiums, which
are fees paid by purchasers of equipment on EquipmentOne.com when a sale transacts.
Commission revenue and listing fees are also generated when sellers post their equipment
for sale on the website.
Influences on EquipmentOne’s performance
EquipmentOne sales can be affected by many of the same factors influencing the used
equipment auction market. However, the EquipmentOne offering has broadened the market
for Ritchie Bros. by providing equipment sellers an option that we historically were
precluded from offering and thereby allows us to reach new customers who prefer to control
the selling price and the sales process.
The success of EquipmentOne hinges largely on establishing a strong audience of equipment
buyers, which will help drive further listings to the website. By leveraging the Ritchie Bros.
brand and market insight, and introducing one of the world’s most comprehensive online
used equipment marketplace, we have already formed a sizable audience of equipment
buyers on EquipmentOne.
The competitive market for EquipmentOne is fragmented and varies vastly in terms of
service offering and market focus. Our online marketplace competes with simple online
listing services (that do not provide transaction settlement functionality), wide-reaching
online retailers (that do not have an equipment focus) and other equipment marketplaces
that do not have the brand presence that Ritchie Bros. has developed over decades of
serving equipment owners.
18 Our Strategy
In 2010, Ritchie Bros. adopted a mission statement that transitioned us from strictly an
auction company to a company that provides solutions for the exchange of equipment. This
mission is supported by our three strategic pillars and our core values as outlined below:
Our three strategic pillars can be expanded upon as follows:
GROW
We believe that our core auction business has substantial growth potential because
unreserved public auctions offer significant benefits to equipment owners, including
certainty of sale, fairness and transparency. We continue to focus on increasing our market
share with our traditional customer groups, while simultaneously seeking to do more
business with new customer groups and in new markets.
We believe that most of our near-term growth will come from our established regions,
primarily the United States and Western Europe, and that emerging markets, such as China,
and other countries offer significant potential for growth in the long-term.
In addition, we intend to continue to invest in our network of auction sites by adding or
replacing existing auction sites as necessary to provide capacity for increased consignment
volumes. Our auction site network supports our long-term growth and is a critical
competitive advantage, which helps us to sustain efficient and scalable growth and give our
customers confidence. We also intend to continue to hold offsite auctions to expand the
scope of our relationships and operations.
Another key focus of this pillar is to streamline and simplify our auctions, to make them
easy for our customers. Many of our new customers have little or no experience buying or
selling at unreserved auctions; we want to make the process as easy and customer friendly
as possible, so they feel confident on auction day and throughout the whole process.
19 ADD
We intend to add new business and information solutions that will assist the world’s builders
to easily and confidently exchange equipment.
Technology and innovation have played key roles in our business in the past, allowing us to
enhance our auctions and broaden their appeal to more equipment owners. We will continue
to investigate new services to meet the needs of equipment owners, and harness the latest
technology to supplement and enhance our auction services.
We are investing in new enhanced business intelligence and data analysis tools to improve
our understanding of the equipment market, and position Ritchie Bros. as a knowledge and
information authority. We intend to continue to enhance our website at www.rbauction.com
by making it easier to use, more powerful and more valuable to equipment owners, with the
goal of making it the preferred global equipment website.
We have also invested in new solutions for equipment owners whose needs may not be met
by our unreserved auctions. Most significantly in 2013 we launched EquipmentOne which we
developed following our purchase of AssetNation, an online marketplace and solutions
provider for surplus and salvage assets, on May 15, 2012. We have leveraged AssetNation’s
technology and e-commerce expertise to develop new solutions that we believe double our
addressable market and help us meet the diverse and evolving preferences of a segment of
the equipment market that we have not traditionally reached with our unreserved auctions.
We believe that the opportunity is significant, but we also expect that it will take several
years to have a material impact on our overall business results. We believe that we will be
able to significantly leverage our Ritchie Bros. brand through this strategy and that this is a
unique opportunity for our business.
PERFORM
To maintain our high standards of customer service we employ people who we believe
embody our core values, especially the value of putting our customers first.
grow our business we believe that we must continue to build a high performance customer
focused team, particularly growing our sales team.
In order to
Our primary focus in this area in the coming years will be growing our sales team,
improving our sales force productivity and the efficiency of our auction operations, as well
as further enhancing employee engagement and management bench strength. We are
focused on developing future managers and we are taking steps to improve our ability to
attract, develop and retain key employees.
These strategic pillars help us focus our time, money and talent to ensure we are meeting
our mission. The table below outlines our recent and future priorities with regards to these
pillars:
20 Our Strategic Pillars
What we accomplished
in 2013
Our plans for 2014
Grow our core auction
business
Despite lower GAP, we achieved
record revenues due to significantly
improved at risk deal performance.
Grow our GAP to a record level and
achieve record revenues from our core
unreserved auction business.
Add new business and
information solutions
Perform by building a
high performance
customer focused Ritchie
Bros. team
We held two auctions in China, an
auction in Finland, a grand opening
at our new facility in Geelong,
Australia, and opened a new auction
facility in Manchester, NH, United
States.
Increase our new bidder registrations
to exceed our 2013 levels by 15%.
We attracted record online bidder
registrations and continued to grow
the number of consignments.
Increase our active bidder registrations
to exceed our 2013 levels by 15%.
Grow our Gross Transaction Volume
through EquipmentOne.
Increase visits to our EquipmentOne
website by over 40% of 2013 levels.
Achieve EquipmentOne yield in excess
of 85%.
We will continue to focus on expanding
our sales team, in particular TMs. We
will continue to target growth in our
TMs of 5%-10% in 2014.
In January 2013 we launched our
new, online marketplace
EquipmentOne, allowing us, we
believe, to double our addressable
market and to provide a
complementary solution to our core
unreserved auction business. We
are pleased with the performance of
this start-up operation.
Ritchie Bros. Financial Services
achieved $100 million in funding in
just its second full year of
operations.
We improved our Business
Intelligence through the
implementation of a data mart,
which enhanced and streamlined our
reporting capabilities to support our
sales force in targeting customers.
We continued our focus on the
hiring of TMs and ended the year
with 272, the highest ever, and an
increase of 5%, at the low end of
our 5%-10% objective for TM hiring.
At year-end we were on target with
20 Trainee TMs and 26 Territory
Sales Support staff who provide
assistance to our TMs.
Completed Regional Sales Manager
training for all Regional Sales
Managers.
Increase the productivity of our
revenue producers (TMs, Regional
Sales Managers and VPs of Sales) over
and above 2013 levels.
Further enhance our leadership
development programs and implement
a more robust performance
management process and system.
21 Our plans for 2014 reflect our continued focus on specific strategies to grow both GAP and
revenues while achieving the leverage inherent in our business model resulting in
significantly increased profitability and driving shareholder value.
Long-Term Financial Objectives
Our long-term financial objectives(1) are the targets that our strategic initiatives and
investments are designed to drive. These objectives reflect the growth, leverage and cash
flow generation we believe are inherent in our business model, and are presented below:
Adjusted EPS(2) growth of at least 15% on average
ROIC(3) of at least 15%
EBITDA Margin(4) of at least 40%
Prior to 2009 we had a history of achieving these targets. Since 2009 we have not achieved
these targets due to a number of factors including the global economic crisis which affected
all our markets but most significantly for our business, the United States. We believe this
reduced the volume of transactions in the used equipment marketplace and affected our
ability to grow our GAP. Additionally, we continued our long term capital investment
program during this period in order to build capacity for future growth, although in the short
term this raised our fixed costs and our invested capital, negatively impacting our ROIC.
Our focus continues to be on achieving these long term financial objectives by driving
growth in our GAP and leveraging our infrastructure that is in place.
We believe our investment and operating decisions over the last few years have positioned
us well, allowing us to grow our share of the used equipment market and to deliver
compelling solutions to meet the needs of our customers. Through these decisions we are
building a well developed sales team and an auction site network with considerable
capacity, both of which we anticipate will help sustain our growth. We also believe that,
over the long-term, designing and executing an appropriate growth strategy will continue to
be a significant determinant of our ability to grow our earnings and our margins, in part
because doing so will assist us in growing our share of the used equipment market.
(1)
(2)
(3)
(4)
These are our own objectives and whether we can achieve them will depend on a number of factors, some of
which may not be within our control. Please refer to the discussion under “Risk Factors” below. As these are
objectives, there is no assurance that we will be able to achieve these objectives as set out above.
Adjusted EPS is a non-GAAP measure that does not have a standardized meaning, and is therefore unlikely to
be comparable to similar measures presented by other companies.
We define adjusted net earnings per share (Adjusted EPS) as financial statement net earnings per share
excluding the after-tax effects of sales of excess properties and certain other non-recurring transactions..
Return on invested capital (ROIC) is calculated using the information disclosed in our consolidated financial
statements by dividing Adjusted Net Earnings into average invested capital, defined as average shareholders’
equity plus average non-current borrowings for the financial year.
ROIC is a non-GAAP measure that does not have a standardized meaning, and is therefore unlikely to be
comparable to similar measures presented by other companies.
EBITDA Margin is a non-GAAP measure that does not have a standardized meaning, and is therefore unlikely to
be comparable to similar measures presented by other companies. This measure has been defined above in the
“Consolidated Highlights” section.
22 Annual Review of the Used Equipment Market
During 2013 we saw the used equipment market, on the whole, become more balanced
providing a stable pricing environment during the entire year. Used equipment supplies are
still relatively tight and demand for good quality, low hour equipment continued to be strong
at our auctions across all geographies.
In 2013 Original Equipment Manufacturer (“OEM”) production of construction equipment,
particularly for the United States, continued to increase over 2012. We believe that this
continued increase in OEM production is generating more transactions in the used
equipment marketplace and creating larger pools of used equipment for future transactions.
This should affect the mix and volume of our business transactions, increasing the number
of younger machines that are made available for sale. We saw growth in our business
volume in 2013 compared to 2012, as measured by GAP, in both our Canadian and Latin
American operations. While our GAP in the United States and Europe was flat to slightly
down. Our at risk business and therefore our revenue rate performed well in 2013,
reflecting our disciplined deal execution and the stable pricing environment.
23 The following selected consolidated financial information as at December 31, 2013 and
2012, and for each of the years ended December 31, 2013 and 2012, has been derived
from our audited consolidated financial statements. This data should be read together with
those financial statements, including the notes thereto, and the risk factors described below.
In the following discussion and tables, Net earnings, Adjusted Net Earnings, Diluted
Adjusted EPS, and all related rates and margins for the years ended December 31, 2013
and 2012 have been presented excluding non-controlling interest, and represent only those
amounts attributable to equity holders of the parent, to conform with the presentation
adopted in our audited consolidated financial statements.
Overall Performance
Our net earnings for the year ended December 31, 2013 were $93.8 million, or $0.88 per
diluted share, compared to $79.6 million, or $0.74 per diluted share, for the year ended
December 31, 2012.
Financial Overview
Years ended December 31,
(in U.S.$000's, except EPS)
2013
2012
Change
% Change
$
467,403
$
437,955
$
29,448
Revenues
Direct expense
SG&A (1)
Earnings from operations
Other income (expenses)
Finance costs
Income tax expense
Net Earnings (7)
Adjusted Net Earnings (2),(3),(7)
54,008
287,016
126,379
13,102
(4,726)
40,129
93,825
89,989
Diluted Adjusted EPS (2),(7)
$
0.84
$
Effective tax rate
29.8%
Gross Auction Proceeds (2),(4)
$
3,817,768
$
3,907,991
Revenue Rate (2),(5)
Direct Expense Rate
EBITDA Margin (2),(6)
12.24%
1.41%
36.3%
11.21%
1.27%
36.8%
49,687
268,229
120,039
(3,584)
(4,440)
32,469
79,551
82,555
0.77
29.0%
4,321
18,787
6,340
16,686
(286)
7,660
14,274
7,434
0.07
80 pts.
(90,223)
103 pts.
14 pts.
(50) pts.
$
$
7%
9%
7%
5%
466%
6%
24%
18%
9%
9%
3%
(2%)
9%
11%
(1%)
(1) SG&A includes depreciation and amortization expense.
(2) These are non-GAAP measures that do not have a standardized meaning, and are therefore unlikely to be
comparable to similar measures presented by other companies. We believe that comparing Adjusted Net
Earnings, Diluted Adjusted Net EPS, GAP and EBITDA Margin for different financial periods provides more
useful information about the growth or decline of our net earnings for the relevant financial period and
eliminates the financial impact of items we do not consider to be part of our normal operating results.
(3) Adjusted Net Earnings represents financial statement net earnings excluding the after-tax effects of excess
property sales and certain other non-recurring items. We have provided a reconciliation to net earnings
below.
(4) GAP represents the total proceeds from all items sold at our auctions and online marketplaces. It is not a
measure of our financial performance, liquidity or revenue and is not presented in our annual consolidated
income statement. We believe that revenues, which is the most directly comparable measure in our
Income Statements, and certain other line items, are best understood by considering their relationship to
GAP.
(5) Revenue Rate is our revenues divided by our GAP.
24 (6) EBITDA is calculated using the information disclosed in our condensed consolidated interim financial
statements by adding back depreciation and amortization expense to earnings from operations. EBITDA is
a non-GAAP measure. The EBITDA Margin is EBITDA as a proportion of revenues.
(7) Figures presented include the results attributable to our 51% interest in Ritchie Bros. Financial Services to
conform with the presentation adopted in our audited consolidated financial statements.
EquipmentOne Update
The summary results above and the following discussion include the results of operations
from EquipmentOne. The total value of items sold through our online marketplace in the
year ended December 31, 2013 was $88.6 million compared to $64.9 million in the eight
months ended December 31, 2012.
(in U.S.$ millions)
Revenues
Operating expenses
EBITDA
12 months
ended
December 31,
8 months
ended
December 31,
2013
13.4
16.3
(2.9)
$
$
2012
Change
% Change
9.8
10.3
(0.5)
$
$
3.6
6.0
(2.4)
37%
58%
(480%)
$
$
During the year we completed the commercial launch of our EquipmentOne business.
Throughout the year we continued to focus on and refine our service offerings through
EquipmentOne. We were encouraged by the continued growth in the percentage of listings
resulting in sales, also known as yield, which we were able to achieve in the fourth quarter
of 2013.
Gross Auction Proceeds
Our GAP for the year ended December 31, 2013 were $3.8 billion, 2% lower compared to
the year ended December 31, 2012. Our GAP was negatively impacted by foreign exchange
by 1% or approximately $42 million (see discussion below).
Straight commission contracts generated the majority of our GAP with the remainder being
made up of our at risk business. In 2013, at risk business generated approximately 28% of
our GAP, a decrease from the 32% in 2012. This is consistent with our strategic focus on
managing the performance of our at risk business in 2013 by continuing to focus on at risk
contracts that are strategic in nature. Additionally, our customers gained increased
confidence in entering straight commission contracts as used equipment prices remained
stable during the year.
Revenues & Revenue Rate
Revenues: (1)
United States
Canada
Europe
Other
Total
Gross Auction Proceeds
Revenue Rate
Years ended December 31,
2013
2012
Change % Change
$
224,215
$
211,160
$
13,055
135,545
124,392
65,016
42,628
467,403
3,817,768
$
$
60,572
41,831
437,955
3,907,991
$
$
$
$
11,153
4,444
797
29,448
12.24%
11.21%
103 pts.
9%
(90,223)
(2%)
6%
9%
7%
2%
7%
(1) Information by geographic segment is determined by the location of revenues earned and location of
assets.
25 Revenues for the year ended December 31, 2013 increased to $467.4 million compared to
$438.0 million in the prior year, due primarily to an increase in our Revenue Rate. Overall,
foreign exchange rates had a negative impact on revenues in the amount of $4.8 million for
the year ended December 31, 2013.
The distribution of our revenues across the geographic segments in which we operate was
as follows:
Revenue distribution
United States
Canada
Europe
Other
Year ended December 31, 2013
Year ended December 31, 2012
48%
48%
29%
28%
14%
14%
9%
10%
Revenues include both commissions charged to equipment sellers and fee income earned
from equipment buyers. Our Revenue Rate for the year ended December 31, 2013
increased to 12.24% from 11.21% in 2012. This increase in Revenue Rate was due
primarily to the performance of our at risk business which performed well in all our
jurisdictions. Our strong Revenue Rate is consistent with our strategic focus on managing
the performance of our at risk business in 2013.
In 2013, our average commission rate for the year was 9.80% compared to 8.98% in 2012.
Over the past five years our quarterly commission rate has ranged between 8.47% and
10.82%. Our commission rate and overall Revenue Rate are presented in the graph below.
Quarterly Revenue Rate and
Quarterly Commission Rate
5 Year History (1)
13.50%
12.75%
12.00%
11.25%
10.50%
9.75%
9.00%
8.25%
Quarterly Commission Rate
Quarterly Revenue Rate
(1) The revised administrative fee that took effect on July 1, 2011 has contributed to an increase
in our Revenue Rate of approximately 125 basis points since its introduction.
Our fee income earned in 2013 was 2.46% of GAP, a slight increase compared to fees
earned of 2.22% in 2012. Contributing to this increase is the incremental fee percent
earned through EquipmentOne transactions as compared to auction transactions as we
earned a higher fee percentage in our online marketplaces compared to our unreserved
auction business. In addition, financing fees earned by Ritchie Bros. Financial Services in
2013 were higher than in 2012.
26 Direct Expense Rate
Our direct expenses are the costs we incur specifically to conduct an auction. Direct
expenses include the cost of hiring temporary personnel to work at the auction, advertising
costs directly related to the auction, travel costs for employees to attend and work at the
auction, security personnel hired to safeguard equipment at the auction site and rental
expenses for temporary auctions sites, among other costs.
Our direct expense rate, which represents direct expenses as a percentage of GAP,
fluctuates from period to period based in part on the size and location of the auctions we
hold during the particular period. The direct expense rate generally decreases as the
average size of our auctions increase. In addition, we usually experience lower direct
expense rates for auctions held at our permanent auction sites compared to auctions held at
offsite locations, mainly as a result of the economies of scale and other efficiencies that we
typically experience at permanent auction sites.
Our direct expense rate for the year ended December 31, 2013 increased slightly to 1.41%
compared to 1.27% in 2012. This increase in our direct expense rate is a result of a
decrease in the average size of our industrial auctions. In 2013, we held 24 more industrial
auctions while our industrial GAP decreased. Overall, our average industrial auction was
approximately 13% smaller in 2013 compared to 2012, which drove the 9% increase in our
direct expense rate.
For the year ended December 31, 2013, approximately 89% of our GAP was attributable to
auctions held at our permanent auction sites and regional auction sites with the remainder
at off-site auctions (2012: 90%). Off-site auctions generally have a higher related direct
expense rate and in 2013 our off-site auctions were smaller, on average, than in 2012,
contributing to the higher direct expense rate.
Selling, General & Administrative Expenses
Our SG&A increased to $287.0 million for the year ended December 31, 2013 compared to
$268.2 million in 2012, an increase of $18.8 million or 7%.
Our SG&A increase was the result of the focus on our investments in our core auction sales
team and EquipmentOne, which we made while focusing on cost control around our
Operating and Administrative teams.
The incremental SG&A in 2013, as compared to 2012, was attributable to costs incurred due
to: (i) EquipmentOne, as 2013 was the first full year of operations ($6.0 million); (ii)
continued investments in our core auction sales team ($5.9 million); (iii) costs related to the
CEO separation agreement, excluded from adjusted earnings ($4.6 million); and (iv) an
increase in our depreciation and amortization expense ($2.1 million).
SG&A includes such expenditures as employee compensation expense (salaries, wages,
bonuses and benefits), building and facilities expense (repairs and maintenance, leases,
rentals and utilities), non-auction related travel, promotion and other general and
administrative expenses as well as depreciation and amortization expense. Historically,
approximately 60% of our other SG&A, excluding depreciation and amortization, on an
annual basis have been personnel costs.
27 Years ended December 31,
2013
2012
$ Change % Change
Employee compensation expense
$ 158,448
$ 145,479
$
12,969
Buildings and facilities
Travel, advertising and promotion
Other general and administrative expenses
Depreciation and amortization
40,820
20,728
23,740
39,312
18,754
23,546
$ 243,736
$ 227,091
43,280
41,138
Selling, general and administrative expenses
$ 287,016
$ 268,229
1,508
1,974
194
16,645
2,142
18,787
$
$
9%
4%
11%
1%
7%
5%
7%
Employee compensation costs increased by $13.0 million in 2013, as compared to 2012,
primarily due to the costs incurred relating to the CEO separation agreement and our
investment in our sales teams. Employee compensation expense increased $5.9 million due
to additional employee compensation costs associated with realizing a full year of
EquipmentOne costs as compared to only eight months of costs in 2012; and, as a result of
our strategic investment in our sales team. The number of revenue producers1 has
increased by a net amount of 13 since December 31, 2012, and we have added, on a net
basis, 24 sales support staff over the prior.
Building and facilities costs increased by $1.5 million for the year ended December 31, 2013
over the same period in 2012, due to increased rents and maintenance costs for our auction
sites and other facilities around the world.
The increase of $2.0 million in travel, advertising and promotion expense was primarily due
to expenses related to our sales teams.
Other general and administrative expenses in 2013 remained consistent with 2012 as the
non-recurrence of $2.1 million in AssetNation acquisition costs realized in 2012 was offset
by incremental EquipmentOne expenses.
Depreciation and amortization expense is calculated on either a straight-line or declining-
balance basis on assets employed in our business, including buildings, computer hardware
and software, automobiles, office and yard equipment, and customer relationships. Our
depreciation and amortization increased $2.1 million or 5%, for the year ended December
31, 2013, over 2012, primarily as a result of the amortization of intangible assets related to
our acquisition of AssetNation in May 2012. We expect our depreciation and amortization
expense in future periods to increase or decrease in line with our ongoing capital
expenditures. As our capital expenditure program moderates, we would expect the growth
in our depreciation and amortization expense also to moderate.
Overall, foreign exchange rates had a positive impact on SG&A in the amount of $3.4 million
for the year ended December 31, 2013.
1
Revenue producers is a term used to describe our revenue producing sales staff. This definition is comprised of
Vice Presidents (“VPs”) of Sales, Regional Sales Managers, and Territory Managers (“TMs”). Comparative numbers
have been adjusted accordingly.
28 Other Income and Expense
Other income primarily includes the gains or losses from the disposition of property, plant
and equipment and other income or loss not earned in the normal course of operations.
Other income in 2013 included a gain of $9.9 million on the sale of excess land held in Fort
Worth, Texas, and Prince Rupert, British Columbia. In 2012, other income included a loss of
$4.9 million recorded on the impairments on and sale of former permanent auction sites, as
well as gains on the disposal of other assets (see “Net Earnings and Adjusted Net Earnings”
below).
Finance Costs
Finance costs include both the finance income earned on our excess cash and receivable
balances and the finance costs related to interest paid on long-term debt and revolving
credit facilities, offset by interest that has been capitalized as part of self-constructed
assets. Our finance income fluctuates from depending on the timing of receipt of auction
proceeds and on our cash position, which is affected by the timing, size and number of
auctions held during the period.
Finance costs increased in 2013 compared to 2012 due primarily to greater interest costs
relating to borrowings incurred to finance our acquisition of AssetNation, in 2012.
Effective Tax Rate
Our effective tax rate of 29.8% for the year ended December 31, 2013 is slightly higher
than the 29.0% effective tax rate realized in 2012 as a result of an increase in tax losses
that were not recognized. Our tax rate will fluctuate as a result of the proportion of income
earned in various jurisdictions and their relative tax rates.
U.S. Dollar Exchange Rate Comparison
Value of one U.S. dollar
Years ended December 31,
2013
2012
% Change
Year-end exchange rate:
Canadian dollar
Euro
Average exchange rate:
Canadian dollar
Euro
$
$
1.0622
$
0.7276
1.0301
$
0.7530
0.9928
0.7579
0.9994
0.7780
7%
(4%)
3%
(3%)
Effect of Exchange Rate Movement on Income Statement Components
2013 results presented using
Years ended December 31,
average annual foreign
2013 using
2013 using
exchange rates
2013 rates
2012 rates
Change % Change
Gross Auction Proceeds
$
3,817,768
$
3,859,309
$
(41,541)
Revenue
Direct expense
SG&A
467,403
54,008
287,016
472,242
54,506
290,401
(4,839)
(498)
(3,385)
(1%)
(1%)
(1%)
(1%)
29 We conduct operations around the world in a number of different currencies, but our
presentation currency is the U.S. dollar. In 2013, approximately 49% of our revenues and
approximately 57% of our operating costs were denominated in currencies other than the
U.S. dollar as compared to 49% and 56%, respectively, in 2012.
The main currencies other than the U.S. dollar in which our revenues and operating costs
are denominated are the Canadian dollar and the Euro. Over the past several years there
have been significant fluctuations in the value of the Canadian dollar and the Euro relative
to the U.S. dollar. These fluctuations affect our reported revenues and operating expenses
when non-U.S. dollar amounts are converted into U.S. dollars for financial statement
reporting purposes. It is difficult, if not impossible, to quantify how foreign exchange rate
movements affect such variables as the supply of and demand for the assets we sell.
However, excluding these impacts, the effect of foreign exchange fluctuations on our
translated revenues and operating expenses in our consolidated financial statements largely
offset, making the impact of the currency fluctuation on our net earnings minimal,
historically.
Net Earnings and Adjusted Net Earnings
Net earnings and Adjusted Net Earnings for the year ended December 31, 2013 were $93.8
million and $90.0 million, or $0.88 and $0.84 per diluted share, respectively, compared to
net earnings and Adjusted Net Earnings of $79.6 million and $82.6 million, or $0.74 and
$0.77 per diluted share, respectively, for the year ended December 31, 2012.
Our Adjusted Net Earnings for the year ended December 31, 2013 increased by
approximately 9% compared to 2012, primarily as a result of higher revenues, offset
partially by the increases in direct expenses and SG&A.
Reconciliations of our net earnings to Adjusted Net Earnings are as follows:
Net earnings attributable to equity holders of parent
After-tax loss (gain) on excess property (1,2)
After-tax impact of CEO separation agreement (3)
Years ended December 31,
2013
2012
$
93,825
(7,225)
3,389
$
79,551
3,004
-
Adjusted Net Earnings attributable to equity holders of parent
$
89,989
$
82,555
(1) Net earnings for the year ended December 31, 2013 included a gain of $9,880 ($7,225 after tax, or
$0.07 per diluted share) recorded on the sale of excess property in Fort Worth, Texas and Prince
Rupert, British Columbia.
(2) Net earnings for the year ended December 31, 2012 included a loss of $1,946 ($1,197 after tax, or
$0.01 per diluted share) recorded on the sale of our former Olympia, Washington permanent auction
site; and net impairment losses of $2,804 ($1,807 after tax, or $0.02 per diluted share) recorded
against our former permanent auction sites in Statesville, North Carolina and London, Ontario.
(3) Net earnings for the year ended December 31, 2013 included an expense of $4,580 ($3,389 after tax,
or $0.03 per diluted share) recorded to recognize liabilities incurred relating to the CEO separation
agreement.
30 Revenue Flow-through Rate 2
We believe that the table below showing our Revenue Flow-through Rate demonstrates
operating leverage in our business, especially our core auction business, and illustrates our
ability to grow our margin.
(in U.S.$ millions)
Year ended December 31, 2013
Incremental
Revenues
2013 over 2012
Incremental
Operating Expenses3
2013 over 2012
Incremental
EBITDA
2013 over 2012
Revenue
Flow-through
Rate
Core auction business
EquipmentOne
Ritchie Bros. Consolidated
$
$
25.8
3.6
29.4
$
$
10.3
6.0
16.3
$
$
15.5
(2.4)
13.1
60%
(67%)
45%
Year ended December 31, 2012
Incremental
Revenues
2012 over 2011
Incremental
Operating Expenses
2012 over 2011
Incremental
EBITDA
2012 over 2011
Revenue
Flow-through
Rate
Core auction business
EquipmentOne
Ritchie Bros. Consolidated
$
$
32.1
9.8
41.9
$
$
16.6
10.3
26.8
$
$
15.5
(0.5)
15.0
48%
(5%)
36%
Our revenues for 2013 increased by $29.4 million as compared to 2012, and operating
expense, excluding depreciation and amortization and expense related to the CEO
separation agreement, increased $16.3 million year over year, resulting in a 45% Revenue
Flow-through Rate. In our core auction business, the Revenue Flow-through for the year
ended December 31, 2013 was $15.5 million or a Rate of 60% (2012: $15.5 million, 48%).
Incremental EBITDA, a non-GAAP measure, reconciles to to incremental earnings from
operations as follows:
(in U.S.$ millions)
Incremental EBITDA
Add: incremental depreciation and amortization expense
Add: CEO separation agreement expense
Incremental rarnings from operations
Earnings from operations, year ended December 31, 2013
Less: Earnings from operations, year ended December 31, 2012
Incremental earnings from operations, 2013 over 2012
Years ended December 31,
$
2013
13.1
(2.1)
(4.6)
2012
15.0
1.3
-
6.4
$
16.3
126.4
(120.0)
6.4
$
$
$
$
Earnings from Operations, year ended December 31, 2012
Less: Earnings from operations, year ended December 31, 2011
Incremental earnings from operations, 2012 over 2011
$
$
120.0
(103.7)
16.3
2
Revenue Flow-through is calculated as incremental revenues in the period less incremental operating expenses
(direct expenses and SG&A excluding depreciation and amortization), and demonstrates the impact of incremental
revenues on our EBITDA. Revenue Flow-through Rate presents Revenue Flow-through as a percentage of
incremental revenues. Revenue Flow-through and Revenue Flow-through Rate are non-GAAP measures that do not
a have standardized meaning, and are therefore unlikely to be comparable to similar measures presented by other
companies. We believe that comparing the influence of incremental revenues on EBITDA for different financial
periods provides additional useful information about our performance for the relevant financial period.
3
Incremental balances reflect the year over year increases for revenue, operating expenses, and EBITDA. Our
incremental operating expenses presented above for December 31, 2013 exclude $4.6 million of pre-tax expense
related to the CEO separation agreement.
31 Selected Annual Information
(in U.S.$000,000's, except per share amounts)
Years ended December 31,
2013
2012
2011
Income Statement data(1)
Net earnings
Net earnings per share, basic
Net earnings per share, diluted
Balance Sheet data (as at Dec 31):
$
93,825
$
79,551
$
76,633
0.88
0.88
0.75
0.74
0.72
0.72
Working capital (including cash)
$
110,048
$
96,053
$
63,296
Property, plant and equipment
Total assets
Non-current liabilities
Statement of Cash Flows data:
Dividends declared per share(2)
Property, Plant, and Equipment
and Intangible Asset additions
630,634
1,162,295
179,413
655,677
1,132,498
226,419
644,333
967,241
158,791
$
0.51
$
0.47
$
0.44
53,732
62,340
77,053
(1) Net earnings and earnings per share figures have been presented on the basis of amounts attributable
to equity of the parent company and therefore exclude results attributable to a non-controlling interest
in a subsidiary.
(2) Cash dividends declared per share includes cash payments made during the financial year; there are
timing differences for the fourth quarter dividend which is paid in the subsequent year. For the fourth
quarter of 2013, we declared cash dividends of $0.1300 per common share (2012: $0.1225) on January
20, 2014, which is not included in the 2013 amount.
32 In the following discussion and tables, Net earnings, Adjusted Net Earnings, Diluted
Adjusted EPS, and all related rates and margins for the three months ended December 31,
2013 and 2012 have been presented excluding non-controlling interest, and represent only
those amounts attributable to equity holders of the parent, to conform with the presentation
adopted in our audited consolidated financial statements.
Fourth Quarter Performance
Fourth quarter net earnings were $33.7 million, or $0.31 per diluted share, compared to net
earnings of $22.1 million, or $0.21 per diluted share, for the same period in 2012.
Financial Overview
Three months ended December 31,
(in U.S.$000's, except EPS)
2013
2012
Change
% Change
$
131,223
$
117,140
$
14,083
Revenues
Direct expense
SG&A(1)
Earnings from operations
Other income (expenses)
Finance costs
Income tax expense
Net Earnings (7)
Adjusted Net Earnings (2),(3),(7)
Diluted Adjusted EPS (2),(7)
Effective tax rate
Gross Auction Proceeds (2),(4)
Revenue Rate (2),(5)
Direct Expense Rate
EBITDA Margin (2),(6)
17,196
76,289
37,738
10,687
(1,012)
13,287
33,745
30,324
0.28
$
28.0%
12,771
71,238
33,131
(765)
(1,056)
9,207
22,067
22,363
0.21
29.4%
1,109,834
$
1,000,413
11.82%
1.55%
37.5%
11.71%
1.28%
37.4%
$
$
4,425
5,051
4,607
12%
35%
7%
14%
11,452
1497%
44
4,080
11,678
7,961
0.07
(140 pts.)
109,421
11 pts.
27 pts.
1 pt.
$
$
(4%)
44%
53%
36%
33%
(5%)
11%
1%
21%
0%
For note (1) to (7), see the corresponding notes to the similar table in “Overall Performance” section above for
more information by line item. For a reconciliation of net earnings to Adjusted Net Earnings, please see below.
EquipmentOne Update
The summary results above and the following discussion include the results of operations
from EquipmentOne, our online marketplace. The total value of items sold through this
online marketplace in the fourth quarter of 2013 was $23.0 million compared to $27.4
million in the same period in 2012.
(in U.S.$ millions)
Three months ended December 31,
Revenues
Operating expenses
EBITDA
2013
2012
Change
% Change
$
$
3.6
3.1
0.5
$
$
4.3
4.4
(0.1)
$
$
(0.7)
(1.3)
0.6
(16%)
(30%)
600%
EquipmentOne’s EBITDA increased over the prior year quarter, despite a decrease in
revenues, as a result of reduced operating expenses. In addition, we saw an improvement
in our yield over earlier quarters as we refined our EquipmentOne offering.
33 Gross Auction Proceeds
Our GAP was $1.1 billion for the quarter ended December 31, 2013, an increase of 11%
compared to the same quarter of 2012. GAP can vary from quarter to quarter depending on
the timing of our auctions.
Straight commission contracts generated the majority of our GAP during the fourth quarter
of 2013, with the remainder composed of guarantee and outright purchase contracts, which
we refer to as our underwritten or at risk business. Our at risk business represented
approximately 34% of our GAP in the fourth quarter of 2013, an increase when compared to
28% in the fourth quarter of 2012.
Revenues
We earned revenues of $131.2 million during the fourth quarter of 2013, an increase of
$14.1 million, or 12%, compared to revenues of $117.1 million in the same period of 2012.
This increase in revenue is due primarily to the 11% increase in GAP in the period. Our
Revenue Rate increased to 11.82% from 11.71% due to a slight increase in our fee income
in the fourth quarter of 2013 as compared to the same period in 2012.
Compared to the $14.1 million increase in revenues in the fourth quarter of 2013 over the
same period of 2012, our direct expense and SG&A increased by $9.5 million ($4.9 million
excluding the non-recurring CEO separation agreement amounts recorded in 2013).
Excluding those separation agreement expenses, we achieved a 65% Revenue Flow-through
Rate in the fourth quarter. We believe these results demonstrate the leverage inherent in
our business. Revenue flow-through is defined in the Overall Performance section above.
Direct Expense
Our direct expense rate increased to 1.55% for the fourth quarter of 2013 compared to
1.28% in the same period of 2012. This increase in the quarterly direct expense rate is due
to a reduction in the average GAP realized per auction as we held a larger number of
auctions, at both onsite and offsite locations, of a smaller average size in 2013 compared to
2012.
Selling, General & Administrative Expenses
Our SG&A increased to $76.3 million in the fourth quarter of 2013, compared to $71.2
million in the same period of 2012.
Three months ended December 31,
2013
2012
$ Change % Change
Employee compensation expense
$ 43,494
$
39,682
$
3,812
Buildings and facilities
Travel, advertising and promotion
Other general and administrative expenses
Depreciation and amortization
9,963
5,045
6,361
$ 64,863
11,426
Selling, general and administrative expenses
$ 76,289
10,464
4,701
5,753
60,600
10,638
71,238
$
$
(501)
344
608
4,263
788
5,051
$
$
10%
(5%)
7%
11%
7%
7%
7%
Employee compensation expense increased as a result of the non-recurring $4.6 million
expense related to the CEO separation agreement in the fourth quarter of 2013, partially
offset by cost savings from our cost realignment plan implemented in the third quarter of
2013.
Overall, foreign exchange rates reduced SG&A by $2.0 million in the fourth quarter of 2013
compared to the same period of last year.
34 Effective Tax Rate
Our effective tax rate of 28.0% for the three months ended December 31, 2013 was lower
than the 29.4% recorded in the comparative period in 2012 as a result of the recognition of
non-deductible expenses in the fourth quarter of 2012.
Net Earnings and Adjusted Net Earnings
Net earnings and Adjusted Net Earnings for the three months ended December 31, 2013
were $33.7 million and $30.3 million or $0.31 and $0.28 per diluted share, respectively,
compared to net earnings and Adjusted Net Earnings of $22.1 million and $22.4 million,
respectively, or $0.21 per basic and diluted share for the three months ended December 31,
2012.
Our Adjusted Net Earnings for the three months ended December 31, 2013 increased by
approximately 36% compared to the same period in 2012, primarily as a result of increases
in revenue offset partially by increases in direct expense and SG&A.
Reconciliations of our net earnings to Adjusted Net Earnings are as follows:
Net earnings attributable to equity holders of parent
After-tax loss (gain) on excess property (1,2)
After-tax impact of CEO separation agreement (3)
Adjusted Net Earnings attributable to equity holders of parent
Three months ended December 31,
2013
2012
$
$
33,745
(6,810)
3,389
30,324
$
22,067
296
-
$
22,363
(1) Net earnings for the three months ended December 31, 2013 included a gain of $9,203 ($6,810 after
tax, or $0.06 per diluted share) recorded on the sale of excess property near Prince Rupert, British
Columbia.
(2) Net earnings for the three months ended December 31, 2012 included an impairment loss of $632
($471 after tax, or $0.01 per diluted share) recorded against our former permanent auction site in
London, Ontario; and, an impairment reversal of $285 ($175 after tax, or $nil per diluted share)
recorded against our former permanent auction site in Statesville, North Carolina.
(3) Net earnings for the three months ended December 31, 2013 included an expense of $4,580 ($3,389
after tax, or $0.03 per diluted share) recorded to recognize liabilities incurred relating to the CEO
separation agreement.
Capital Expenditures
Property, plant and equipment (“PP&E”) and intangible asset additions were $12.8 million
for the fourth quarter of 2013, compared to $12.7 million in the fourth quarter of 2012. Our
capital expenditures in the fourth quarter of 2013 related primarily to our information
system enhancements, as well as some auction site improvements.
35 Summary of Quarterly Results
The following tables present our unaudited consolidated quarterly results of operations for
each of our last eight fiscal quarters. This data has been derived from our unaudited
consolidated financial statements, which were prepared on the same basis as our annual
audited consolidated financial statements, and in our opinion, include all normal recurring
adjustments necessary for the fair presentation of such information. These unaudited
quarterly results should be read in conjunction with our audited consolidated financial
statements for the years ended December 31, 2013 and 2012, and our discussion above
about the seasonality of our business.
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Gross Auction Proceeds(2),(4)
Revenues
Net earnings(5)
Adjusted Net Earnings(2),(3),(5)
$ 1,109,834
$
131,223
$
$
789,640
105,800
$
$
33,745
30,324
16,295
15,878
$
$
1,072,942
128,322
29,795
29,795
Net earnings per share, basic(5)
$
0.32
$
0.15
$
0.28
$
Net earnings per share, diluted(5)
Adjusted Net Earnings per share, diluted(2),(3),(5)
0.31
0.28
0.15
0.15
0.28
0.28
845,353
102,058
13,990
13,990
0.13
0.13
0.13
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Gross Auction Proceeds(2),(4)
Revenues
Net earnings(5)
Adjusted Net Earnings(2),(3),(5)
$ 1,000,413
$
117,140
$
$
848,536
92,326
$
$
22,067
22,363
8,199
9,710
$
$
1,194,536
127,213
31,259
32,456
Net earnings per share, basic(5)
$
0.21
$
0.08
$
0.29
$
Net earnings per share, diluted(5)
Adjusted Net Earnings per share, diluted(2),(3),(5)
0.21
0.21
0.08
0.09
0.29
0.30
864,506
101,276
18,026
18,026
0.17
0.17
0.17
(2) to (4) Refer to Overall Performance above for more information by line item.
(5) Net earnings and earnings per share figures have been presented on the basis of amounts attributable to
equity of the parent company and therefore exclude results attributable to a non-controlling interest in a
subsidiary.
GAP and revenues are affected on a period-to-period basis by the timing of major auctions.
Also, in newer markets where we are developing our business, the number and size of
auctions and, as a result, our GAP and revenues, are likely to vary more dramatically from
period to period compared to our established markets, where the number, size and
frequency of our auctions are more consistent.
Because of these seasonal and period-to-period variations, we believe that our GAP,
revenues and net earnings are best compared on an annual basis or a year-over-year basis.
36 Operations
During 2013 we conducted 245 unreserved industrial auctions at locations in North America,
Central America, Europe, the Middle East, Africa, Asia and Australia (2012: 221 auctions).
Although our auctions vary in size, our average industrial auction results were as follows for
2013 and 2012:
Average per industrial auction
Years ended December 31,
Gross Auction Proceeds
Bidder registrations
Consignors
Lots
Key industrial auction metrics
2013
2012
$
14.3 million
$
16.5 million
1,740
180
1,230
1,760
190
1,300
Our key industrial auction metrics for 2013 and 2012 are shown below:
Key industrial auction metrics
Years ended December 31,
Consignments
Bidder registrations
Buyers
Lots
2013
43,550
425,000
104,550
301,000
2012
42,100
389,500
99,250
287,000
For a breakdown of these key industrial auction metrics by month, please refer to our website www.rbauction.com.
None of the information in our website is incorporated by reference into this document by this or any other
reference.
Website metrics
We sold approximately $1.4 billion of equipment, trucks and other assets to online bidders
in 2013, representing an 8% increase compared to the same period in 2012 (2012: $1.3
billion) and approximately 37% of our total GAP, reconfirming our position as the world’s
largest auctioneer of used industrial equipment to online buyers.
The increase in our online presence was also demonstrated by an 11% increase in unique
visitors to our website during 2013 compared to 2012.
Total unique rbauction.com visitors
Years ended December 31,
Unique visitors
2013
6.2 million
2012
5.6 million
37 Headcount
Full-time personnel decreased over the comparative year primarily due to staffing measures
applied in our cost realignment plan, while sales and sales support staff increased over the
prior year due to our strategic initiatives.
People continue to be an important part of our growth strategy and we are focused on
growing our sales team, improving our sales force productivity, increasing employee
engagement and further developing our management bench strength.
Full-time employees
Revenue producers
Outstanding Share Data
As at December 31,
2013
1,385
340
2012
1,414
329
We are a public company and our common shares are listed under the symbol “RBA” on the
New York and Toronto Stock Exchanges. On February 28, 2014 we had 107,042,648
common shares issued and outstanding and stock options outstanding to purchase a total of
3,732,491 common shares.
Liquidity and Capital Resources
Working capital
$
110,048
$
2013
2012
96,053
% Change
15%
As at December 31,
Our cash position can fluctuate significantly from period to period, largely as a result of
differences in the timing, size and number of auctions, the timing of the receipt of auction
proceeds from buyers, and the timing of the payment of net amounts due to consignors. We
believe that working capital, including cash, is a more meaningful measure of our liquidity
than cash alone. Our working capital increased during 2013 primarily as a result of the cash
generated through our operating activities and reduced spending on capital assets partially
offset by debt repayments and dividends payments.
At December 31, 2013, we had $34.4 million of short-term debt, which consisted of
borrowings under our revolving credit facilities with a weighted-average annual interest rate
of 1.5%. The remaining available borrowings under our credit facilities totaled $434 million,
including a $107 million three-year uncommitted, non-revolving credit facility expiring in
November 2014, and a $161 million five-year committed credit facility expiring in May 2018.
In January 2014, repaid $30.0 million of short-term debt that had been borrowed under our
five-year committed facility, using available cash on hand from operations.
38 Contractual Obligations
Payments Due by Period
Total
In 2014
In 2015
and 2016
In 2017
and 2018
After 2018
Non-current debt obligations
$
147,234 $
- $
56,409 $
28,818 $
62,007
Interest on long-term debt obligations
Operating leases obligations
Other non-current obligations
31,668
119,304
355
6,684
9,903
355
11,003
16,062
-
5,775
8,206
13,899
79,440
-
-
Total contractual obligations
$
298,561 $
16,942 $
83,474 $
48,492 $
149,653
Our long-term debt included in the table above is comprised of a revolving loan drawn
under a credit facility that is available until May 2018; as well as a term loan put in place in
2009 with a term to maturity of seven years, and two term loans put in place in 2012 with a
term to maturity of ten years. Our operating leases relate primarily to land on which we
operate regional auction sites and administrative buildings. These properties are located in
Canada, the United States, the Netherlands, Spain, Germany, the United Kingdom, Portugal,
China, Dubai, Mexico and Panama.
In the normal course of our business, at time we will guarantee to a consignor a minimum
level of proceeds in connection with the sale at auction of that consignor’s equipment. Our
total exposure as at December 31, 2013 from these guarantee contracts was $35.1 million
(compared to $20.3 million at December 31, 2012), which we anticipate will be fully
covered by the proceeds that we will receive from the sale at auction of the related
equipment, plus our commission. We do not record any liability in our financial statements
in respect of these guarantee contracts, and they are not reflected in the contractual
obligations table above.
Cash Flows
Cash provided by (used in):
2013
2012
% Change
Years ended December 31, 2013
Operating activities
Investing activities
Financing activities
Effect of changes in foreign currency rates
$
189,116
$
134,060
(30,109)
(96,817)
(5,880)
(110,870)
43,414
2,124
68,728
41%
73%
(323%)
(377%)
(18%)
Net increase in cash and cash equivalents
$
56,310
$
Our cash provided by operations can fluctuate significantly from period to period, due to
factors such as differences in the timing, size and number of auctions during the period, the
timing of the receipt of auction proceeds from buyers, and the timing of the payment of net
amounts due to consignors.
Cash used in investing activities decreased in 2013 as compared to 2012. This was due to
our investment in AssetNation in 2012 with no comparable investment in 2013. Property,
plant and equipment and intangible asset additions were $53.7 million for the year ended
December 31, 2013 compared to $62.3 million for 2012. Additionally, we realized an
aggregate of $23.8 million in proceeds from the disposition of assets and the collection of
long-term receivables in 2013 compared to $6.9 million from property dispositions in 2012.
Our capital expenditures for the year ended December 31, 2013 related primarily to the
development of our auction site in Melbourne, Australia, maintenance capital expenditures
at our existing sites and our information system enhancements.
39 We expect our annual capital expenditures will be in the range of $45 to $50 million per
year for the next several years. We believe that our network of auction sites globally is
sufficient to meet our needs in the foreseeable future and we are not planning any regular
additions to our auction site network. We plan to continue to make improvements to and
replace older existing sites. We also expect to undertake system improvements, including
expenditures on hardware, the development, purchase and implementation of software, and
related systems, in connection with our strategic initiatives discussed above. We expect to
fund future capital expenditures from operating cash flows and borrowings under our credit
facilities.
Cash used in financing activities decreased in the year ended December 31, 2013 as
compared to 2012, primarily due to the repayment of short and long-term borrowings. In
addition, we borrowed $63 million in long-term debt in 2012 to finance the acquisition of
AssetNation with no comparable borrowings in 2013.
We declared and paid regular cash dividends of $0.1225 per share for each of the quarters
ended December 31, 2012 and March 31, 2013, and declared and paid dividends of $0.1300
for each of the quarters ended June 30, 2013 and September 30, 2013.
Total dividend payments made during 2013 were $53.9 million compared to total dividend
payments made during 2012 of $50.0 million. All dividends we pay are “eligible dividends”
for Canadian income tax purposes unless indicated otherwise.
Long-term Debt and Credit Facilities
Our long-term debt and available credit facilities at December 31, 2013 and December 31,
2012 were as follows:
Long-term debt
Committed
Revolving credit facilities
Revolving credit facilities available
Uncommitted
Revolving credit facilities
Revolving credit facilities available
Non-revolving credit facilities
Non-revolving credit facilities available
Total credit facilities
Total credit facilities available
Years ended December 31, 2013
2013
2012
% Change
$
147,234
$
200,746
(27%)
285,000
221,043
118,332
106,149
225,000
106,508
628,332
433,700
235,000
118,848
105,475
93,832
225,000
100,314
565,672
312,994
21%
86%
12%
13%
0%
6%
11%
39%
Our credit facilities are with financial institutions in the United States, Canada, the
Netherlands and the United Kingdom. Certain of the facilities include commitment fees
applicable to the unused credit amount. As at December 31, 2013, we had outstanding fixed
rate and floating rate long-term debt bearing annual interest rates ranging from 2.2% to
6.4% (with a weighted-average annual interest rate of 4.5%). We were in compliance with
all financial and other covenants applicable to our credit facilities at December 31, 2013.
40 Future scheduled interest payments over the next five years relating to our long term debt
outstanding as at December 31, 2013 were as follows:
In 2014
In 2015
In 2016
In 2017
In 2018
Thereafter
Scheduled interest payments
Interest payments
on long-term debt
$
6,684 $
6,684 $
4,319 $
3,077 $
2,698 $
8,206
Quantitative and Qualitative Disclosure about Market Risk
We conduct operations in local currencies in countries around the world, but we use the U.S.
dollar as our presentation currency. As a result we are exposed to currency fluctuations and
exchange rate risk. We cannot accurately predict the future effects of foreign currency
fluctuations on our financial condition or results of operations, or quantify their effects on
the macroeconomic environment. The proportion of revenues denominated in currencies
other than the U.S. dollar in a given period will differ from the annual proportion depending
on the size and location of auctions held during the period. However, on an annual basis, we
expect these amounts to largely offset and generally act as a natural hedge against
exposure to fluctuations in the value of the U.S. dollar. We have not adopted a long-term
hedging strategy to protect against foreign currency fluctuations associated with our
operations denominated in currencies other than the U.S. dollar, but we may consider
hedging specific transactions if we deem it appropriate in the future.
During 2013, we recorded a net reduction in our foreign currency translation adjustment
balance of $13.4 million, compared to a net increase of $2.1 million in 2012. Our foreign
currency translation adjustment arises from the translation of our net assets denominated in
currencies other than the U.S. dollar to the U.S. dollar for reporting purposes.
We have not experienced significant interest rate exposure historically, as our long-term
debt generally bears fixed rates of interest. However, borrowings under our global revolving
credit facility are available at both fixed and floating rates of interest. If we determine our
exposure to short-term interest rates is too high, we may consider fixing a larger portion of
our portfolio. As at December 31, 2013 we had a total of $28.8 million (December 31,
2012: $31.2 million) in revolving loans bearing floating rates of interest.
Although we cannot accurately anticipate the future effect of inflation on our financial
condition or results of operations, inflation historically has not had a material impact on our
operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a
current or future material effect on our financial condition, changes in financial condition,
revenues or expenses, financial performance, liquidity, capital expenditures or capital
resources.
Legal and Other Proceedings
From time to time we have been, and expect to continue to be, subject to legal proceedings
and claims in the ordinary course of our business. Such claims, even if lacking merit, could
result in the expenditure of significant financial and managerial resources. We are not aware
of any legal proceedings or claims that we believe will have, individually or in the aggregate,
a material adverse effect on us or on our financial condition or results of operations or that
involve a claim for damages, excluding interest and costs that could be material.
41 Related Party Transactions
During the year ended December 31, 2013, we incurred $8.2 million in aggregate
compensation relating to our directors and officers, as compared to $7.5 million in 2012.
Included in these amounts are wages and benefits, post-employment benefits, and share-
based compensation calculated on the basis of the expense we recognized in the year. In
addition to this compensation, in 2013, we recognized a liability of $4.6 million for short-
term benefits pursuant to the CEO separation agreement, to be paid out in 2014, and this
amount has been excluded from those key management personnel amounts.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in conformity with IFRS, we must make
decisions that impact the reported amounts and related disclosures. Such decisions include
the selection of the appropriate accounting principles to be applied and the assumptions on
which to base accounting estimates. In reaching such decisions, we apply judgments based
on our understanding and analysis of the relevant circumstances and historical experience.
On an ongoing basis, we evaluate these judgments and estimates, including valuation of
consignors’ equipment and other assets subject to guarantee contracts; the grant date fair
value of stock option awards; the identification of cash generating units (“CGUs”);
depreciation, amortization and recoverability of property, plant and equipment, intangible
assets, goodwill; and the recoverability of deferred income tax assets. Actual amounts could
differ materially from those estimated by us at the time our consolidated financial
statements are prepared.
The following discussion of critical accounting policies and estimates is intended to
supplement the significant accounting policies presented as note 2 to our consolidated
financial statements, which summarizes the accounting policies and methods used in the
preparation of those consolidated financial statements. The policies and the estimates
discussed below are included here because they require more significant judgments and
estimates in the preparation and presentation of our consolidated financial statements than
other policies and estimates.
Accounting for Income Taxes
We record income taxes relating to our business in each of the jurisdictions in which we
operate. We estimate our actual current tax exposure and the temporary differences
resulting from differing treatment of items for tax and book accounting purposes. These
differences result in deferred income tax assets and liabilities, which are included within our
consolidated balance sheet. We must then assess the likelihood that our deferred income
tax assets will be recovered from future taxable income. If recovery of these deferred tax
assets is considered unlikely, we must calculate our best estimate of the recovery. To the
extent we either establish or increase our best estimate in a period, we must include an
expense within the tax provision in the consolidated income statements. Significant
management judgment is required in determining our provision for income taxes, our
measurement of deferred tax assets and liabilities, and any change in best estimate
recorded against our net deferred tax assets. If actual results differ from these estimates or
we adjust these estimates in future periods, we may need to change our best estimate
which could materially impact the presentation of our financial position and results of
operations.
42 Valuation of Goodwill and Intangible Assets
We assess the possible impairment of goodwill and intangible assets in accordance with
IFRS on an annual basis. The standards stipulate that goodwill is allocated to CGUs, or
groups of CGUs, that are expected to benefit from the synergies of the business
combination from which it arose. The allocation is based on the level at which goodwill is
monitored internally. A CGU is the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other groups. An
impairment loss is recognized if the CGU’s carrying amount (including goodwill) exceeds the
recoverable value, which is the greater of fair value less costs to sell and value in use, which
is based on the net present value of future cash flows.
We perform the goodwill and intangible asset impairment test annually or more frequently if
events or changes in circumstances indicate that assets might be impaired. We performed
the latest test at December 31, 2013 and determined that no impairment had occurred.
Presentation of Inventory Contracts
We present the revenue from straight commission and guarantee contracts and the net
proceeds from inventory contracts as revenues. All of the equipment sold at our auctions is
sold to the highest bidder on an unreserved basis. Although we take title to the equipment
we sell under inventory contracts, the period of direct ownership is relatively short and the
equipment is processed in the same manner as other consigned equipment. As a result, we
present the results of all equipment sold at our auctions on a net basis as revenues because
it is more reflective of the substance of the transaction.
We value each inventory contract at the lower of cost and net realizable value. In addition,
we monitor the results from the sale of this inventory at auction after the balance sheet
date up to the release of our financial statements and record any losses realized on
inventory contracts.
Changes in Accounting Policies
On January 1, 2013, we adopted the following new and revised applicable International
Financial Reporting Standards, along with related amendments. These changes were made
in accordance with the applicable transitional provisions.
IFRS 10, Consolidated financial statements
IFRS 11, Joint arrangements
IFRS 12, Disclosure of interest in other entities
IFRS 13, Fair value measurement
Amendments to IFRS 7, Financial instruments: disclosures
Amendments to IAS 1, Presentation of financial statements
Amendments to IAS 27, Separate financial statements
Amendments to IAS 28, Investments in associates and joint ventures
Amendments to IAS 32, Tax effects of distributions to holders of equity instruments
Our adoption of these standards, excluding amendments to IAS 1 and IFRS 13, did not
result in any change to our accounting or disclosure.
IAS 1 was amended to revise the presentation of other comprehensive income, requiring
entities to group items presented in other comprehensive income based on whether they
are potentially re-classifiable to profit or loss subsequently. As a result of adopting this
standard, we recognized a presentation change in our Consolidated Statement of
Comprehensive Income. This change did not result in any adjustments to other
comprehensive income or comprehensive income.
43 IFRS 13 defines fair value, sets out a single IFRS framework for measuring fair value and
outlines disclosure requirements for fair value measurements. As a result of adopting this
standard, we have increased disclosure concerning fair value measurements and disclosures
in our financial statements. This change had no impact on our financial position or
performance.
In addition to those standards above, we have early adopted the amendments to IAS 36 in
the period and applied them retrospectively. The amendments affect disclosure only and
have no impact on our financial position or performance, and have not resulted in added
disclosure in the period.
Other than our adoption of the standards and amendments described above, there have
been no significant changes in our accounting policies during the year ended December 31,
2013.
Recent Accounting Pronouncements
There were no accounting pronouncements made during 2013 that impact our accounting
policies or the presentation of our consolidated financial position or financial performance.
Disclosure Controls and Procedures
We have established and maintained disclosure controls and procedures in order to provide
reasonable assurance that material information relating to our company is made known to
the appropriate level of management in a timely manner.
Based on current securities legislation in Canada and the United States, our CEO and Chief
Financial Officer (“CFO”) are required to certify that they have assessed the effectiveness of
our disclosure controls and procedures as at December 31, 2013.
We performed an evaluation under the supervision and with the participation of our CEO
and CFO, of the effectiveness of our disclosure controls and procedures as at December 31,
2013. Based on that evaluation, we concluded that our disclosure controls and procedures
were effective as of that date to provide reasonable assurance that information required to
be disclosed by us in the reports that we file or submit is accumulated and communicated to
our management, including our principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. Furthermore, we concluded that our disclosure controls and procedures
were effective to ensure that information required to be disclosed in the reports filed under
the Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the U.S. Securities and Exchange Commission’s rules
and forms.
Internal Control over Financial Reporting
Management is responsible for establishing and maintaining an adequate internal control
structure and procedures for financial reporting. Under the supervision and with the
participation of management, including our CEO and CFO, we conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the framework in
“Internal Control – Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 Framework). Based on our evaluation
under the framework in “Internal Control – Integrated Framework”, management concluded
that our internal control structure and procedures over financial reporting were effective as
of December 31, 2013.
44 The effectiveness of our internal controls over financial reporting as of December 31, 2013
has been audited by Ernst & Young LLP, the independent registered public accounting firm
that audited our December 31, 2013 consolidated annual financial statements, as stated in
their report, which is included in our consolidated financial statements.
Changes in Internal Controls Over Financial Reporting
There has been no change in our internal control over financial reporting during 2013 that
has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Risk Factors
Our business is subject to a number of risks and uncertainties, and our past performance is
no guarantee of our performance in future periods. Some of the more important risks that
we face are outlined below and holders of our common shares should consider these risks.
The risks and uncertainties described below are a summary of key risks we face.
Additional risks and uncertainties not currently known to us or that we currently deem
immaterial may also adversely affect our financial condition or impair our business or results
of operations. If any of these risks actually occur, our business, results of operations and
financial condition would suffer.
Damage to our reputation for fairness, integrity and for conducting live auctions
that are truly unreserved could harm our business.
One of our founding principles is that our auctions are strictly unreserved and we believe
this is one of our most significant competitive advantages. Closely related to this is our
reputation for fairness and honesty in our dealings with our customers. Our ability to attract
new customers and continue to do business with existing customers could be harmed if our
reputation for fairness, integrity and conducting auctions that are strictly unreserved was
damaged. If we are unable to maintain our reputation and enforce our unreserved policy we
could lose business and our results of operations and financial condition would suffer.
Competition in our core markets could result in reductions in our future revenues
and profitability.
The used truck and equipment sectors of the global industrial equipment market, and the
auction segment of those markets, are highly fragmented. We compete directly for potential
purchasers of industrial equipment with other auction companies. Our indirect competitors
include equipment manufacturers, other third party methods which utilize an intermediary,
and equipment rental companies. When sourcing equipment to sell at our auctions, we
compete with other auction companies, other third party methods, and equipment owners
that have traditionally disposed of equipment in private sales.
Our direct competitors are primarily regional auction companies. Some of our indirect
competitors have significantly greater financial and marketing resources and name
recognition than we do. New competitors with greater financial and other resources may
enter the industrial equipment auction market in the future. Additionally, existing or future
competitors may succeed in entering and establishing successful operations in new
geographic markets prior to our entry into those markets. They may also compete against
us through internet-based services. If existing or future competitors seek to gain or retain
market share by reducing commission rates, or our strategy to compete against them is not
effective, we may also be required to reduce commission rates, which may reduce our
revenues and harm our results of operations and financial condition, or we may lose market
share.
45 We currently generate the vast majority of our revenues through unreserved auctions. We
may be susceptible to loss of business as a result of our restrictive service offering if
competing models become more appealing to customers. If our selling model becomes
undesirable or we are not successful adding services complementary to our existing selling
model and business, we may not be successful increasing market penetration over the long
term, which could prevent us from achieving our long-term earnings growth targets.
Decreases in the supply of, demand for, or market values of industrial assets,
primarily used industrial equipment, could harm our business.
Our revenues could decrease if there was significant erosion in the supply of, demand for, or
market values of used industrial equipment, which could adversely affect our financial
condition and results of operations. We have no control over any of the factors that affect
the supply of, and demand for, used industrial equipment, and the circumstances that cause
market values for industrial equipment to fluctuate – including, among other things,
economic uncertainty, disruptions to credit and financial markets, lower commodity prices,
and our customers’ restricted access to capital – are beyond our control. Recent economic
conditions have caused fluctuations in the supply, mix and market values of used equipment
available for sale, which has a direct impact on our revenues. In addition, price competition
and the availability of industrial equipment directly affect the supply of, demand for, and
market value of used industrial equipment. Climate change initiatives, including significant
changes to engine emission standards applicable to industrial equipment, may also
adversely affect the supply of, demand for or market values of industrial equipment.
We may incur losses as a result of our guarantee and outright purchase contracts
and advances to consignors.
Straight commission contracts are our most common type of auction contract and are used
by us when we act as agent for consignors and earn a pre-negotiated, fixed commission
rate on the gross sales price of the consigned equipment at auction. In recent years,
approximately 60-80% of our annual business has been conducted on a straight commission
basis. In certain other situations we will either offer to:
guarantee a minimum level of sale proceeds to the consignor, regardless of the
ultimate selling price of the consignment at the auction; or
purchase the equipment outright from the consignor for sale in a particular auction.
The level of guaranteed proceeds or inventory purchase price is based on appraisals
performed on equipment by our internal personnel. Inaccurate appraisals could result in
guarantees or inventory values that exceed the realizable auction proceeds. In addition, a
change in market values could also result in guarantee or inventory values exceeding the
realizable auction proceeds. If auction proceeds are less than the guaranteed amount, our
commission will be reduced and, in certain circumstances, we could incur a loss. If auction
proceeds are less than the purchase price we paid for equipment that we take into inventory
temporarily, we will incur a loss. Because all of our auctions are unreserved, there is no way
for us to protect against these types of losses by bidding on or acquiring any of the items at
the auction. In addition, we do not hold inventory indefinitely waiting for market conditions
to improve. If our exposure to at risk contracts increases, this risk would be compounded.
Occasionally we advance to consignors a portion of the estimated auction proceeds prior to
the auction. We generally make these advances only after taking possession of the assets to
be auctioned and upon receipt of a security interest in the assets to secure the obligation. If
we were unable to auction the assets or if auction proceeds were less than amounts
advanced, we could incur a loss.
46 We may have difficulties sustaining and managing our growth.
One of the main elements of our strategy is to continue to grow our core auction business,
primarily by increasing our presence in markets in which we already operate and by
expanding into new geographic markets and market segments in which we have not had a
significant presence in the past. As part of this strategy, we may from time to time acquire
additional assets or businesses from third parties. We may not be successful in growing our
business or in managing this growth.
For us to grow our business successfully, we need to accomplish a number of objectives,
including:
recruiting and retaining suitable sales and managerial personnel;
developing and enhancing an appropriate sales strategy;
identifying and developing new geographic markets and market sectors;
expanding awareness of our brand, including value proposition and competitive
advantages, in existing and new markets;
successfully executing the realignment of our sales and operations teams;
identifying and acquiring, on terms favourable to us, suitable land on which to build
new auction facilities and, potentially, businesses that might be appropriate
acquisition targets;
obtaining necessary financing on terms favourable to us, and securing the availability
of our credit facilities to fund our growth initiatives;
receiving necessary authorizations and approvals from governments for proposed
development or expansion;
integrating successfully new facilities and any acquired businesses into our existing
operations;
achieving acceptance of the auction process in general by potential consignors,
bidders and buyers;
establishing and maintaining favourable relationships with and meeting the needs of
consignors, bidders and buyers in new markets and market sectors, and maintaining
these relationships in our existing markets;
capturing relevant market data and utilizing it to generate insight and understanding
of key company and industry drivers and market trends;
developing appropriate responses based on data collected to meet the needs of
existing and potential customers to achieve customer retention targets;
succeeding against local and regional competitors in existing and new geographic
markets;
capitalizing on changes in the supply of and demand for industrial assets, and
understanding and responding to changing market dynamics, in our existing and new
markets; and
designing and implementing business processes and operating systems that are able
to support profitable growth.
We will likely need to hire additional employees to manage our growth. In addition, our
growth may increase the geographic scope of our operations and increase demands on both
our operating and financial systems. These factors will increase our operating complexity
and the level of responsibility of existing and new management personnel. It may be
difficult for us to attract and retain qualified sales personnel, managers and employees, and
our existing operating and financial systems and controls may not be adequate to support
our growth. We may not be able to improve our systems and controls as a result of
47 increased costs, technological challenges, or lack of qualified employees. Our past results
and growth may not be indicative of our future prospects or our ability to expand into new
markets, many of which may have different competitive conditions and demographic
characteristics than our existing markets.
We are pursuing a long-term growth strategy that requires upfront investment,
with no guarantee of long-term returns.
In our auction business, we continue to pursue a long-term growth strategy that
contemplates investments, including investments in frontier markets that may not generate
profitable growth in the near term, adding new business and information solutions, and
developing our people. Planning for future growth requires investments to be made now in
anticipation of growth that may not materialize, and if our strategies do not successfully
address the needs of current and potential customers we may not be successful in
maintaining or growing our GAP and our earnings may be adversely impacted. A large
component of our SG&A is considered fixed costs that we will incur regardless of any GAP
growth. There can be no assurances that our GAP and revenues will be maintained or grow
at a more rapid rate than our fixed costs. If we proceed with an acquisition we may not be
able to appropriately integrate that business into our existing business.
We are investing in an ecommerce marketplace, EquipmentOne, with no guarantee
of long-term returns.
In 2012 we acquired an ecommerce marketplace through the acquisition of AssetNation LLC
and its subsidiaries. We utilized the expertise and technology of AssetNation to develop
Ritchie Bros. EquipmentOne, a new marketplace that involves technology and ecommerce.
Success in this marketplace is dependent on our ability to attract, retain and engage buyers
and sellers of used equipment; the volume of transactions; the volume and price of
equipment listed; customer service; and brand recognition. Because this is a new business
it may take us longer than expected to realize the anticipated benefits, and those benefits
may ultimately be lesser than anticipated or may not be realized at all, which could
adversely affect our business, operating results and our investments in this line of business.
Our internet-related initiatives are subject to technological obsolescence and
potential service interruptions and may not contribute to improved operating
results over the long-term; in addition, we may not be able to compete with
technologies implemented by our competitors.
We have invested significant resources in the development of our internet platform,
including our online bidding service and website. We use and rely on intellectual property
owned by third parties, which we license for use in providing our online bidding service. Our
internet technologies may not result in any material long-term improvement in our results
of operations or financial condition and may require further significant investment to avoid
obsolescence. We may not be able to continue to adapt our business to new technologies,
including but not limited to internet commerce and we may not be able to compete
effectively against internet auction services offered by our competitors.
The success of our online bidding service and other services that we offer over the internet,
including equipment-searching capabilities and historical price information, will continue to
depend largely on the performance and reliability of the hardware and software we utilize,
our ability to use suitable intellectual property licensed from third parties, further
development and maintenance of our information technology infrastructure and the internet
in general. Our ability to offer online services depends on the performance of the internet,
as well as our internal hardware and software systems.
“Viruses”, “worms”, denial of service attacks and other similar cyber threats, which have in
the past caused periodic outages and other internet access delays, may in the future
48 interfere with the performance of the internet and some of our internal systems. These
outages and delays could reduce the level of service we are able to offer over the internet.
We could lose customers and our reputation could be harmed if we were unable to provide
services over the internet at an acceptable level of performance or reliability.
The availability and performance of our technology infrastructure is critical to our
business.
The satisfactory performance, reliability and availability of our website, enterprise resource
planning system, processing systems and network infrastructure are important to our
reputation and our business. We will need to continue to expand and upgrade our
technology, transaction processing systems and network infrastructure both to meet
increased usage of our online bidding service and other services offered on our website and
to implement new features and functions. Our business and results of operations could be
harmed if we were unable to expand and upgrade in a timely manner our systems and
infrastructure to accommodate any increases in the use of our internet services, or if we
were to lose access to or the functionality of our internet systems for any reason.
We use both internally developed and licensed systems for transaction processing and
accounting, including billings and collections processing. We continually upgrade and
improve these systems to accommodate growth in our business. If we are unsuccessful in
continuing to upgrade our technology, transaction processing systems or network
infrastructure to accommodate increased transaction volumes, it could harm our operations
and interfere with our ability to expand our business.
Our future expenses may increase significantly and our operations and ability to
expand may be limited as a result of environmental and other regulations.
A variety of federal, provincial, state and local laws, rules and regulations throughout the
world, including local tax and accounting rules, apply to our business. These relate to,
among other things, the auction business, imports and exports of equipment, worker safety,
privacy of customer information, and the use, storage, discharge and disposal of
environmentally sensitive materials. Complying with revisions to laws, rules and regulations
could result in an increase in expenses and a deterioration of our financial performance.
Failure to comply with applicable laws, rules and regulations could result in substantial
liability to us, suspension or cessation of some or all of our operations, restrictions on our
ability to expand at present locations or into new locations, requirements for the acquisition
of additional equipment or other significant expenses or restrictions.
The development or expansion of auction sites depends upon receipt of required licenses,
permits and other governmental authorizations. Our inability to obtain these required items
could harm our business. Additionally, changes or concessions required by regulatory
authorities could result in significant delays in, or prevent completion of, such development
or expansion.
Under some environmental laws, an owner or lessee of, or other person involved in, real
estate may be liable for the costs of removal or remediation of hazardous or toxic
substances located on or in, or emanating from, the real estate, and related costs of
investigation and property damage. These laws often impose liability without regard to
whether the owner, lessee or other person knew of, or was responsible for, the presence of
the hazardous or toxic substances. Environmental contamination may exist at our owned or
leased auction sites, or at other sites on which we may conduct auctions, or properties that
we may be selling by auction, from prior activities at these locations or from neighbouring
properties. In addition, auction sites that we acquire or lease in the future may be
contaminated, and future use of or conditions on any of our properties or sites could result
in contamination. The costs related to claims arising from environmental contamination of
any of these properties could harm our financial condition and results of operations.
49 Climate change may not affect us directly, but government regulation in response to this
area of global concern may affect the ability of equipment owners to transport certain
equipment between specified jurisdictions or the saleability of older equipment. One
example of these restrictions is environmental certification requirements in the United
States, which prevent non-certified equipment from entering into commerce in the United
States. These restrictions, or changes to environmental laws, could inhibit materially the
ability of customers to ship equipment to or from our auction sites, reducing our GAP and
harming our business, financial condition and results of operations.
International bidders and consignors could be deterred from participating in our auctions if
governmental bodies impose additional export or import regulations or additional duties,
taxes or other charges on exports or imports. Reduced participation by international bidders
and consignors could reduce GAP and harm our business, financial condition and results of
operations.
Our substantial international operations expose us to foreign exchange rate
fluctuations and political and economic instability that could harm our results of
operations.
We conduct business in many countries around the world and intend to continue to expand
our presence in international markets, including emerging markets. Fluctuating currency
exchange rates, acts of terrorism or war, and changing social, economic and political
conditions and regulations, including income tax and accounting regulations, and political
interference, may negatively affect our business in international markets and our related
results of operations. Currency exchange rate fluctuations between the different countries in
which we conduct our operations impact the purchasing power of buyers, the motivation of
consignors, asset values and asset flows between various countries, including those in which
we do not have operations. These factors and other global economic conditions may harm
our business and our results of operations.
Although we report our financial results in U.S. dollars, a significant portion of our revenues
are generated at auctions held outside the United States, mostly in currencies other than
the U.S. dollar. Currency exchange rate changes against the U.S. dollar, particularly for the
Canadian dollar and the Euro, could affect the presentation of our results in our financial
statements and cause our earnings to fluctuate.
Our business has significant operations in foreign jurisdictions.
We are exposed to risks related to operating in foreign jurisdictions. These risks and
uncertainties vary from country to country and our operations may be affected in varying
degrees by government regulations. Failure to comply strictly with applicable laws,
regulations and local practices relating to auction regulations and other business regulations
could impact our ability to operate in these jurisdictions. The occurrence of these various
factors and uncertainties cannot be accurately predicted and could have a material adverse
effect on our operations or profitability.
50 Income and commodity tax amounts, including tax expense, may be materially
different than expected
Our global operations are subject to tax interpretations, regulations, and legislation in the
numerous jurisdictions in which operate, all of which are subject to continual change. We
accrue and pay income taxes and have significant income tax assets, liabilities, and expense
that are estimates based primarily on the application of those interpretations, regulations
and legislation and the amount of timing of future taxable income. The timing concerning
the monetization of deferred income tax amounts is uncertain, as they are dependent on
our future earnings and other events, and based upon substantively enacted income tax
rates in effect at the time, which can be changed by governments.
The audit and review activities of tax authorities affect the ultimate determination of the
actual amounts of commodity taxes payable or receivable, income taxes payable or
receivable, deferred income tax assets and liabilities, and income tax expense. There is no
assurance that taxes will be payable as anticipated or that the amount or timing of receipt
or use of the tax-related assets will be as currently expected. Our experience indicates that
taxation authorities are increasing the frequency and depth of audits and reviews and, while
our approach to accounting for tax positions has generally been deemed appropriate
through recent audits by taxation authorities, future tax authority determinations could
have a material impact to our financial position.
Our business could be harmed if we lost the services of one or more key
personnel.
The growth and performance of our business depends to a significant extent on the efforts
and abilities of our executive officers and senior managers. Our business could be harmed if
we lost the services of any of these individuals. We do not maintain key person insurance on
the lives of any of our executive officers. As a result, we would have no way to cover the
financial loss if we were to lose the services of members of our senior management team.
Our future success largely depends on our ability to attract, develop and retain skilled
employees in all areas of our business, as well as to design an appropriate organization
structure and plan effectively for succession. Although we actively manage our human
resource risks, there can be no assurance that we will be successful in our efforts.
Specifically, our current CEO will step down in 2014. Our business could suffer if we do not
successfully recruit and on-board a suitable successor.
Our business is subject to risks relating to our ability to safeguard the security and
privacy of our customers' confidential information.
We maintain proprietary databases containing confidential personal information about our
customers and the results of our auctions, and we must safeguard the security and privacy
of this information. Despite our efforts to protect this information, we face the risk of
inadvertent disclosure of this sensitive information or an intentional breach of our security
measures.
Security breaches could damage our reputation and expose us to a risk of loss or litigation
and possible liability for damages. We may be required to make significant expenditures to
protect against security breaches or to alleviate problems caused by any breaches. Our
insurance policies may not be adequate to reimburse us for losses caused by security
breaches.
51 We may incur losses as a result of legal and other claims.
We are subject to legal and other claims that arise in the ordinary course of our business.
While the results of these claims have not historically had a material effect on our business,
financial condition or results of operations, we may not be able to defend ourselves
adequately against these claims in the future and we may incur losses. Aggregate losses
from and the legal fees associated with these claims could be material.
Our business continuity plan may not operate effectively in the event of a
significant interruption of our business.
We depend on our information and other systems and processes for the continuity and
effective operation of our business. We have implemented a formal business continuity plan
covering most significant aspects of our business that would take effect in the event of a
significant interruption to our business, or the loss of key systems as a result of a natural or
other disaster. Although we have tested our business continuity plan as part of the
implementation, there can be no assurance that it will operate effectively or that our
business, results of operations and financial condition will not be materially affected in the
event of a significant interruption of our business.
We are in the process of implementing a formal disaster recovery plan, however, it is not
yet complete. If we were subject to a disaster or serious security breach, it could materially
damage our business, results of operations and financial condition.
Our insurance may be insufficient to cover losses that may occur as a result of our
operations.
We maintain property and general liability insurance. This insurance may not remain
available to us at commercially reasonable rates, and the amount of our coverage may not
be adequate to cover all liabilities that we may incur. Our auctions generally involve the
operation of large equipment close to a large number of people, and despite our focus on
safe work practices, an accident could damage our facilities or injure auction attendees. Any
major accident could harm our reputation and our business. In addition, if we were held
liable for amounts exceeding the limits of our insurance coverage or for claims outside the
scope of our coverage, the resulting costs could harm our results of operations and financial
condition.
Certain global conditions may affect our ability to conduct successful auctions.
Like most businesses with global operations, we are subject to the risk of certain global
conditions, such as pandemics or other disease outbreaks or natural disasters that could
hinder our ability to conduct our scheduled auctions, or restrict our customers’ travel
patterns or their desire to attend auctions. If this situation were to occur, we may not be
able to generate sufficient equipment consignments to sustain our business or to attract
enough bidders to our auctions to achieve world fair market values for the items we sell.
This could harm our results of operations and financial condition.
52 Our operating results are subject to quarterly variations.
Historically, our revenues and operating results have fluctuated from quarter to quarter. We
expect to continue to experience these fluctuations as a result of the following factors,
among others:
the size, timing and frequency of our auctions;
the seasonal nature of the auction business in general, with peak activity typically
occurring in the second and fourth calendar quarters, mainly as a result of the
seasonal nature of the construction and natural resources industries;
the performance of our underwritten business (guarantee and outright purchase
contracts);
general economic conditions in our markets; and
the timing of acquisitions and development of auction facilities and related costs.
In addition, we usually incur substantial costs when entering new markets, and the
profitability of operations at new locations is uncertain as a result of the increased variability
in the number and size of auctions at new sites. These and other factors may cause our
future results to fall short of investor expectations or not to compare favourably to our past
results.
We may not continue to pay regular cash dividends.
We declared and paid total quarterly cash dividends of $0.505 per outstanding common
share during the four quarters ended December 31, 2013. Any decision to declare and pay
dividends in the future will be made at the discretion of our Board of Directors, after taking
into account our operating results, financial condition, cash requirements, financing
agreement restrictions and other factors our Board may deem relevant. We may be unable
or may elect not to continue to declare and pay dividends, even if necessary financial
conditions are met and sufficient cash is available for distribution.
53 Consolidated Financial Statements of
RITCHIE BROS. AUCTIONEERS
INCORPORATED
Years ended December 31, 2013 and 2012
54 Ernst & Young LLP
Pacific Centre
700 West Georgia Street
PO Box 10101
Vancouver, BC V7Y 1C7
Tel: +1 604 891 8200
Fax: +1 604 643 5422
ey.com
INDEPENDENT AUDITORS’ REPORT OF REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Ritchie Bros. Auctioneers Incorporated
We have audited the accompanying consolidated financial statements of Ritchie Bros.
Auctioneers Incorporated, which comprise the consolidated balance sheet as at
December 31, 2013, the consolidated income statement, and the consolidated statements
of comprehensive income, changes in equity and cash flows for the year then ended, and
a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements
based on our audit. We conducted our audit in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on
the auditors’ judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditors consider internal control relevant to the entity’s preparation and
fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements, evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
55 We believe that the audit evidence we have obtained in our audit is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material
respects,
the financial position of Ritchie Bros. Auctioneers Incorporated as at
December 31, 2013, and its financial performance and its cash flows for the year then
ended in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
Other matter
We have also audited,
in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Ritchie Bros. Auctioneers Incorporated’s
internal control over financial reporting as of December 31, 2013, based on the criteria
established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (1992 framework) and our report
dated February 28, 2014 expressed an unqualified opinion on Ritchie Bros. Auctioneers
Incorporated’s internal control over financial reporting.
Vancouver, Canada,
February 28, 2014.
Chartered Accountants
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Independent Auditors’ Report of Registered Public Accounting
Firm
To the Shareholders and Board of Directors of Ritchie Bros. Auctioneers Incorporated
We have audited the accompanying consolidated financial statements of Ritchie Bros.
Auctioneers Incorporated and its subsidiaries (the “Company”), which comprise the
consolidated balance sheet as at December 31, 2012, the consolidated income statement,
statement of comprehensive income, changes in equity and cash flows for the year then
ended, and notes, comprising a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements
based on our audit. We conducted our audit in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on
our judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, we consider internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
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57 We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects,
the consolidated financial position of Ritchie Bros. Auctioneers Incorporated as at
December 31, 2012, and of its consolidated financial performance and its consolidated
cash flows for the year then ended in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
KPMG LLP
Chartered Accountants
Vancouver, Canada
February 22, 2013
58 Ernst & Young LLP
Pacific Centre
700 West Georgia Street
PO Box 10101
Vancouver, BC V7Y 1C7
Tel: +1 604 891 8200
Fax: +1 604 643 5422
ey.com
INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL
UNDER STANDARDS OF THE PUBLIC COMPANY
ACCOUNTING OVERSIGHT BOARD (UNITED STATES)
The Board of Directors and Shareholders of
Ritchie Bros. Auctioneers Incorporated
We have audited Ritchie Bros. Auctioneers Incorporated’s internal control over
financial reporting as of December 31, 2013, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (1992 framework), [the “COSO criteria”]. The Company’s
management
is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists,
testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
financial
A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board. A
company’s internal control over
reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect
the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial
statements.
59 Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
In our opinion, Ritchie Bros. Auctioneers Incorporated maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2013,
based on the COSO criteria.
We also have audited, in accordance with Canadian generally accepted auditing standards
and the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet of Ritchie Bros. Auctioneers Incorporated as at
December 31, 2013, the consolidated income statement, and the consolidated statements
of comprehensive income, changes in equity and cash flows for the year then ended of
the Company and our report dated February 28, 2014 expressed an unqualified opinion
thereon.
Vancouver, Canada,
February 28, 2014.
Chartered Accountants
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/-.0
/-./
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