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Sotheby’s (NYSE:BID)

Q4 2013 Earnings Conference Call

February 27, 2014 04:45 pm ET

Executives

Bill Ruprecht – President & Chief Executive Officer

Patrick McClymont – Executive Vice President & Chief Financial Officer

Jennifer Park – Vice President, Investor Relations

Analysts

Nancy Hilliker – Citigroup

David Schick – Stifel Nicolaus

Rommel Dionisio – Wedbush Morgan Securities

Kristine Koerber – Discern Securities

Mark Riddick – Williams Capital

Operator

Good afternoon, ladies and gentlemen, and welcome to Sotheby’s Q4 2013 Earnings Conference Call. (Operator instructions.) As a reminder, ladies and gentlemen, this conference call is being recorded. At this time I would like to introduce you to Ms. Jennifer Park, Vice President of Investor Relations. Ms. Park, please go ahead.

Jennifer Park

Thank you, Sam. Good afternoon and thank you for joining us today. With me here is Bill Ruprecht, Sotheby’s Chairman, President and Chief Executive Officer; and Patrick McClymont, our Chief Financial Officer.

I should highlight that during the course of this call the company may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such projections and statements are only predictions and involve risks and uncertainties resulting in the possibility that the actual events or performance will differ materially from such predictions.

We refer you to the documents the company files periodically with the Securities and Exchange Commission, specifically the company’s most recently-filed Forms 10(q) and 10(k). These documents identify important factors that could cause the actual results to differ materially from those contained in the projections or forward-looking statements. Now I’ll turn the call over to Bill.

Bill Ruprecht

Thank you, Jenny, and good afternoon everybody, and thanks for your interest in Sotheby’s. Today we report to you record consolidated sales of $6.3 billion in 2013 which includes a record $1.2 billion in private sales.

Net income for 2013 is $130 million, a 20% increase from 2012 largely due to a 14% increase in auction sales and a 30% increase in private sales in 2013 – with private sales now approaching 20% of Sotheby’s overall consolidated sales. Competition is affecting our revenue margins especially for very high value works.

Last month we announced our capital allocation and financial policy review which has been well received and supported by our shareholder base. We’re proud of the outcome of that review and look forward to leveraging this new framework to further improve our business. We’re delivering a $300 million special dividend to shareholders in just a couple of weeks’ time.

We anticipate efforts in two other areas over the next 12 to 24 months to unlock additional significant value for shareholders. Debt financing of our financial services portfolio which could result in the return of an additional $150 million to $200 million to shareholders and an evaluation of our real estate holdings which we began just about a year ago which could lead to return of excess capital to shareholders in the future.

Going forward we’ve established some basic principles that will be applied annually in order to determine the amount of any excess capital available to return to shareholders.

2013 brought among our best Q4 results ever with auction sales up 28% and net income up 37% compared to Q4 2012. And we see some strong momentum continuing into ’14. This year is off to a remarkable start with record sales and London auction sales up significantly to date, and we’re in the midst of collecting for a promising spring auction season.

Sotheby’s is in an extremely strong position today. We pledge to provide unrivaled expertise and results to our clients, and enduring value to our shareholders – and as these results demonstrate, Sotheby’s is delivering on those promises.

Today’s art collectors have a remarkable understanding not only of quality but also of value. The keys to our success for almost 300 years have been matching our clients’ tastes with the right combination of fresh, unique, and exquisite artwork and responsible estimates.

In 2013 we saw a tremendous surge in interest, with half of our major clients transacting, representing more than a 20% increase in business from that client group. And the number of first time buyers represented 30% of all bidders during 2013 as new audiences engaged with exquisite works of art and with Sotheby’s brand.

I’ll turn it over to Patrick McClymont, our CFO, who will review the Q4 and year-end numbers in detail.

Patrick McClymont

Thank you, Bill. Good afternoon everybody and thank you for joining the call. If I can ask you to refer to the financial information at the end of the press release or in the 10(k) which was filed this afternoon.

To get into the overall results, 2013 net income is $130.0 million or $1.88 per diluted share. This compares to prior-year net income of $108.3 million or $1.57 per diluted share, so a 20% improvement. The comparison to the prior year is favorably impacted by a bond redemption loss of $15.0 million or $8.3 million after tax incurred in Q4 2012.

Turning to revenues, total revenues increased by 11% to $853 million in 2013. Agency revenues grew $76.4 million or 11% to $793.6 million in 2013, primarily due to a $65.5 million or 11% increase in auction commission revenues as well as a $13.5 million or 18% increase in private sale commission revenues.

As Bill noted earlier, the competitive environment for high-value consignments remains robust which caused auction commission margins to decline from 156.3% in 2012 to 15.9% in 2013. However, the change in buyer’s premium rate structure adopted last March helped to partially mitigate auction commission margin compression.

Finance revenues increased $3.6 million or 20% in 2013 due to $97.7 million or a 29% increase in the average loan portfolio balance. This is partially offset by a higher proportion of short-term non-interest bearing consigner advances outstanding during the period.

The loan portfolio expanded steadily through 2013 and ended the year at $474 million. Our newly established dedicated credit facility will support the funding of new loans and provide an efficient source of capital to fuel further growth in the loan portfolio.

Turning to the cost side of the business, agency direct costs include sale-related marketing expenses such as catalog production and distribution, advertising and promotion and travelling exhibitions as well as the cost of property shipping, sales [NU] costs and other direct costs such as credit card processing fees.

Last year, agency direct costs increased $18.9 million or 29% primarily due to the level and composition of our auction sales during the period and this includes the impact of promoting and conducting Sotheby Hong Kong’s 40th Anniversary Sale in October, 2013. In 2014 we’re [trying] to reduce the ratio of this cost as a percent of net auction sales by approximately 10 basis points.

Marketing expenses are costs related to the promotion of our brands – this is the same cost associated with corporate marketing activities and client service initiatives, including strategic sponsorship of cultural institutions. Marketing expenses increased by $4.6 million or 26% in 2013 primarily due to an increase in sponsorships of museums and other cultural institutions, client engagement programs and brand promotion activities. We expect to reduce marketing expenses by approximately $4 million or 17% in 2014.

Salaries and related costs increased $24.2 million or 9% in 2013 largely due to higher fulltime salaries expense which is up $9.3 million or 7% due in part to support the growth of Sotheby’s Hong Kong operations and the development of mainland China initiatives as well as increased employee benefit costs which were up $7.9 million or 32% due in part to increased employee severance costs.

Also incentive compensation increased $3.7 million or 7% in 2013 due to the increase in Sotheby’s profitability relative to prior years. In 2014 management expects that fulltime salaries will increase by approximately 7% to 8% due to the full-year impact of last year’s strategic headcount and salary increases as well as targeted salary increases expected to take effect in 2014.

General and administrative costs – in 2013, these expenses increased by $18.6 million or 12% largely due to increases in professional fees and other indirect expenses. The increase in professional fees of $7.1 million or 13% is primarily attributable to a higher level of technology and business consulting costs incurred in support of our multiyear client service and business growth initiatives.

The increase in other indirect expenses of $7.3 million or 54% is largely due to a higher level of client goodwill gestures and claims including a $1.7 million accommodation made [a year ago called Bid Counterparty] in Q1 2013. The comparison to prior year is also unfavorably impacted by a $1.4 million reversal recorded in 2012 of a portion of Sotheby’s liability for sales, use and other indirect tax contingencies.

We expect to reduce professional fees by approximately $9 million or 15% in 2014 principally as a result of negotiated reductions in rates and reduced (inaudible) services. We also expect reductions of approximately $4 million across other categories of general and administrative expenses.

As recently announced we’ve identified opportunities for savings in 2014 across a number of operating expense categories. We’re off to a good start in this regard and we are already seeing good progress in all areas targeted for savings. These include agency direct costs, marketing expenses, professional fees, and other areas of general and administrative expenses.

Net interest expense decreased $3 million or 7% in 2013 primarily due to the repayment of Sotheby’s [three- and eight- convertible notes on their maturity in June, 2013 partially offset by incremental interest expense resulting from the issuance of $300 million principal amount at 5.25 senior notes due in 2022. Also impacting the comparison of net interest expense to the prior period is $1 million of interest income recognized in Q2 2013 on collection of a previously delinquent client’s account.

As part of our recently completed capital allocation and financial policy review we’ve established separate capital structures and financial policies for our agency and finance segments, and we successfully closed our credit facilities at the $600 million level with strong support from our existing banks and two new banks.

The capital structure of the finance segment will provide for the debt funding of loans through a dedicated revolving credit facility to reduce the cost of capital and enhance returns. Accordingly, the level of interest charges that will be incurred in 2014 will be dependent in part on the level of debt funding of the finance segment loan portfolio.

We believe the new capital allocation policy together with actions we have taken to increase our competitiveness in the marketplace and bring complementary expertise to the Board and leadership team best position the company to build value for its clients and shareholders now and in the future.

Moving to income tax expense, the rate in 2013 was 30% compared to 32% in 2012. 2013’s income tax rate was affected by a $6.8 million income tax benefit recorded in Q2 2013 relating to a foreign subsidiary as well as an $8.7 million income tax expense recorded in Q4 2013 relating to the repatriation of the $250 million of accumulated foreign earnings to help fund the $300 million special dividend payable to shareholders in March.

Based on our current projections and planned uses of foreign cash balances we have determined that beginning in 2014 the current earnings of our foreign subsidiaries will not be permanently reinvested; therefore the recognition of deferred taxes on such earnings will increase Sotheby’s effective income tax rate in 2014.

Moving on to inventory, when you take a look at our 10(k) you’ll see a fairly significant increase in our inventory balance at year end. This is principally due to a fancy vivid pink diamond weighing just under 60 ct. that was acquired as a result of a buyer default following its sale at our November Geneva auction under an auction guarantee.

As a result of the buyer default we reversed the related commission revenue and recorded the pink diamond at inventory at a value of approximately $2 million which is the US dollar equivalent to the corresponding purchase price in Swiss Francs. We are currently in discussions with the buyer while also considering other alternatives. In the meantime we’re quite comfortable with our valuation and see real value in owning the diamond at this price.

At this time I’d like to hand the call back over to Bill for his concluding remarks.

Bill Ruprecht

Thank you, Patrick. As you know, Third Point filed a 13D amendment this morning in which it submitted its nomination for three candidates to stand for election to the Sotheby’s Board of Directors at the 2014 Annual Meeting. As we noted in our press release earlier today, Sotheby’s has engaged in extensive discussions with Third Point over the past months in an effort to reach a resolution that would avoid a proxy battle.

As part of those discussions Sotheby’s offered to appoint Mr. Loeb to Sotheby’s Board of Directors by where he would have had the opportunity to serve on three committees – Nominating & Governance, Audit Committee and Finance Committee. We are disappointed that Third Point’s chosen a path to nominate directors. It is particularly unfortunate given Sotheby’s efforts to reach an agreement with Mr. Loeb.

Those are quite significant events. We again offered to appoint Mr. Loeb to the Board of Directors, to key Committees; to proactively sharing of nonpublic information under a standard confidentiality agreement. We considered Third Point’s views in developing the company’s recently announced capital allocation and financial policy plan and other initiatives; six meetings with Third Point in the preceding months, three of which included our lead independent director, and a significant number of conference calls with members of Third Point and the company’s Board of Directors and Management Team.

As we’ve said many times previously the Board of Directors and management are committed to delivering value for all of Sotheby’s shareholders. We believe that the capital allocation and financial plan together with the actions Sotheby’s has taken to increase competitiveness and bring complimentary expertise to the Board and the leadership team best position Sotheby’s to continue to build value for its clients and shareholders now and in the future.

We also note the feedback we received from Mr. Loeb who in conversations with management characterized our capital allocation and financial policy plan as “The right approach…striking the balance between returning capital to shareholders and continuing to invest in the business.”

We believe our team and our strategy are delivering exceptional results to Sotheby’s clients and delivering value to shareholders. The strength of the company’s reflected in our equity price which remains near historic highs and has exceeded the S&P Midcap for one-, five- and ten-year periods.

The Board’s Nominating and Governance Committee will consider Third Point nominations in due course. We do not intend to make any further comments or statements during this call with regard to Third Point, and we thank you for your cooperation in that regard. For the remainder of the call today’s focus is about our year-end and Q4 numbers and the outlook on the business going forward.

With that in mind we are off to a terrific start in Q1 with sales up significantly versus prior year. The annual New York Old Masters Auctions in January brought a total of $72 million and were highlighted by a Honthorst which doubled its presale estimate and brought $7.6 million, a record for the artist at auction.

And earlier this month in the Impressionist, Modern and Contemporary Art in London we fetched almost $525 million, a record for us for the two weeks and with the impressionist and modern art sales bringing the highest total for any sales series at any auction house ever in the London marketplace. The Impressionist and Modern Art Sale was led by Camille Pissarro’s Le Boulevard Montmartre from 1897 which achieved $32.1 million and a record for the artist at auction. And highlighting our contemporary sales was a Gerhard Richter which sold for almost $29 million.

Upcoming we have beginning on April 4th a series of sales in our Hong Kong platform. Exceptional Objects will highlight that week of sales encompassing fine Chinese ceramics, works of art, paintings, contemporary literature, contemporary ink paintings, 20th Century art, contemporary Asian art, modern and contemporary Southeast Asian paintings, jewelry, watches, wine. The total sales series will enjoy a presale estimate in the mid-$300 million zone.

Demand and prices continue to be strong and this is an exciting time at Sotheby’s. Recent auctions certainly confirm the strength of the marketplace. At this time we are not pursuing everything which is offered to us or comes our way. Some things are just coming with extraordinarily low margins or would require guarantees beyond our comfort level.

But when given the opportunity to perform for our clients we have really delivered. Most recently we sold the Jan Krugier collection of drawings primarily in London for some 3x the presale low estimate – unprecedented for a collection of this magnitude and a testament to our commitment to deliver wonderful outcomes for our clients.

The breadth and quality of our offerings as well as the results of our global sales rooms, our private sales galleries, our retail wines and diamonds business and our financing segments are all pretty encouraging. We were the fastest growing global art auctioneer in 2013 and I continue to have great confidence in Sotheby’s in the art market this year and in the future. We have as Patrick indicated a strong focus on costs and are indeed optimistic about the future of our business prospects.

That concludes our formal remarks. We’ll be looking forward to any questions that you have. Sam, over to you.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions.) Our first question comes from Oliver Chen of Citigroup, your line is now open.

Nancy Hilliker – Citigroup

Hi everybody, thanks so much for taking my question. This is Nancy filling in for Oliver Chen. If you could please help us with a little bit more color on the auction commission margins – just give us an idea maybe if you expect them to stabilize at this level or improve and how are you planning to go about doing that? And also if you can comment about trends in Asia, what you’re seeing there and the progress in China. Thanks.

Bill Ruprecht

Well, I’ll try it in reverse order. I just gave you an indication of in general what’s going on in the Hong Kong platform which is today much the biggest venue that we have on a regular basis for significant revenue. The mainland Chinese market that is addressable for anybody besides 100% Chinese-owned auctioneers is constrained and continues to be constrained, but we are committed to that marketplace and will in the first half of the year have another robust sale – the first of which last December was the most successful sale in that marketplace ever by a global international auctioneer.

As it relates to the commission margins it is beyond me to be able to give you clarity around which deals we are going to secure at which margins. Many of those deals continue to have incentive shunts and layers to them and all I can say is the combination of mix and deals that we encounter and secure either with or without principal elements associated with these deals makes it impossible for me to give you any confident guidance on the quarter or the half or going forward. Suffice it to say we’re focused on what we believe are deals and opportunities that we think are rewarding both to our shareholders as well as to our clients.

Nancy Hilliker – Citigroup

Thank you, and congratulations on great year-to-date results.

Bill Ruprecht

Thank you.

Operator

Thank you. Our next question comes from David Schick of Stifel. Your line is now open.

David Schick – Stifel Nicolaus

You talked a little bit about professional fees and I just wanted to go through… We’ve sort of quickly gone through the (k) and looked at the breakdown of the salaries line. So some of these lines grew a lot slower than your revenue or your operating income growth, like fulltime and some of the things around that, stock comp; but some things like benefits and incentives were up multiples of that.

And I know you’ve talked about controlling costs and I think you early in the call said good progress there – could you help us square that circle or frame is this something that we won’t see in the future, those line items that way? Or how should we think about the construct of cost controls and which lines should grow then faster than say a revenue or an operating income growth line? And then I have a housekeeping question as a follow-up.

Patrick McClymont

Sure. So when we think through those lines, some of them have a sort of specific event that happened in 2013 – and I think severance and there was a couple of clear cases where there were very senior people that left the firm, and that resulted in meaningful severance costs. And so those things happen over time; they happened in a kind of lumpy and large fashion in 2013.

You talked about incentive which from our perspective, that went up consistent with the performance of the business so we don’t view that as being an outlier. And then some of the other items, we’ve been pretty clear – on the salary front we’ve invested in making sure that we have talented feet on the street chasing after attractive opportunities.

We’ve made a sizable investment in 2013 in Asia. Some of that happens over the course of 2013 so in ’14 we’re going to have a full-year annualization of that. And there’ll be some other areas we will decide to invest in talent and so that’s how we got to that high-single digit increase in salaries and related. I think we’ve tried to be pretty clear in terms of where we think these lines are headed.

David Schick – Stifel Nicolaus

That’s helpful. So now you’ve just added a housekeeping: so can you break out a sense of how much severance moved in Q4? And then the second would be was that pink diamond you mentioned the delta between, or the math is roughly right where it’s the delta between the monthly numbers we look at versus the revenue or the option totals you’ve talked about today.

Patrick McClymont

So no on the severance, we’re not breaking that out.

Jennifer Park

The monthly total on that Excel sheet doesn’t include, with the (k) it does include post-option private sales and cancelled sales. And also charity sales aren’t included in the (k) numbers where they are included in the Excel sheet. So the health warning at the top of that Excel sheet lays it out for you that they’re going to be different. They’re always going to be different.

David Schick – Stifel Nicolaus

We see they’re different – this is at the wider range of them being different. You mentioned the pink diamond; I was just trying to see if that was…

Bill Ruprecht

So you had a car sale that brought $70 million which is not on there because it wasn’t done exclusively under Sotheby’s brand. You had a pink diamond coming out of those numbers. You have sales that are cancelled and so there’s always some wobbling from the faster feed that you get versus what in the end is recognized in terms of revenue and sales in the couple of months after year-end close.

Jennifer Park

You should always use the SEC filing numbers, always get the 10(k) and the 10(q) numbers.

David Schick – Stifel Nicolaus

Right. So two thing: first, it was just really, just to get to ask a question about a pink diamond on a conference call was pretty cool. And second, Patrick, to go back on the severance thing, I know you won’t give detail but was it meaningful to Q4?

Patrick McClymont

Yes.

David Schick – Stifel Nicolaus

Yes. Thank you.

Operator

Thank you. Our next question comes from Rommel Dionisio from Wedbush. Your line is now open.

Rommel Dionisio – Wedbush Morgan Securities

Yes, good afternoon. Thank you. I have a question on the contemporary art division. We’re focused on newly installed [readers] in that area. Bill, I wondered if you could just characterize strategically going forward how your go-to-market strategy in that area might change whether it’s from a geographic perspective or a category perspective. I wonder if you can just give us some color on that?

Bill Ruprecht

I think what I can say, Rommel, is we look at all of the businesses that we’re in as businesses where we look at top line and we look at bottom line. And we’re the only one who offers any color on bottom line. You’ve seen a variety of articles which have indicated through the years and most recently in January of this year that what you see in some auctions and some firms is not necessarily what you get.

We are committed to what we believe is the most ethical, straightforward and transparent behavior in the marketplace where we really value our clients and we look to really deliver for them. I’m really confident in the people who we’ve got working on our team and they’re getting a very positive reception in the marketplace. How that converts this month, next month in terms of total sales dollars – I can’t begin to do that conjugation for you.

What I think it’s fair to say is we believe that the team of people we have are highly experienced, committed to working as a team and over time I think we’ll deliver great results for our clients and for us.

Rommel Dionisio – Wedbush Morgan Securities

Okay, that’s all I had. Thanks very much, Bill.

Operator

Thank you. Our next question comes from Kristine Koerber of Discern Securities. Your line is now open.

Kristine Koerber – Discern Securities

Good afternoon, a couple of questions: first, you indicated that the commission rates increased and obviously helped by Q4 margin. Can you quantify how much of a benefit that was for Q4 or what it helped offset or mitigate some of the decline?

Patrick McClymont

I don’t think I’m following the question. Which rate are you suggesting?

Kristine Koerber – Discern Securities

I’m sorry, the commission rate – the increase in the commission margin earlier in the year.

Patrick McClymont

We changed our premium in Q1 at the bottom end of the scale.

Kristine Koerber – Discern Securities

Right. You indicated that the increase in the rates helped mitigate some of the downside in the commission margins.

Patrick McClymont

No, we have not broken it out and with the passage of time it’s almost impossible to do so because you’re negotiating your deals. But we haven’t split out what the commission compression would have been had we not changed the buyer’s premium rate.

Kristine Koerber – Discern Securities

Okay, and then as far as tax rate for 2014 how should we think about that? Is it going to be higher, can you give us some idea?

Patrick McClymont

We’re not giving any sense yet. That’s work that’s still ongoing but it’ll certainly be higher because we’ll be accruing for those foreign taxes at the US rate.

Kristine Koerber – Discern Securities

Okay. And then I guess looking at international investments is it safe to say that we’ll start to see a slowdown in spend in China? And then looking outside of China where’s most of the investment spend focused at this point?

Bill Ruprecht

Well, I think we’ve been on record, Kristine, for effectively having doubled the size of our organization in greater China over the last two years or so. I don’t think that while we continue to believe very strongly in that marketplace that that trajectory of stepped growth is going to be anything like duplicated in the next relevant period.

I think Patrick went through on the costs of the business where we saw increases in investment spending, whether it was related to technology, whether it was related to some of the partnerships we’ve had with cultural institutions or indeed in some of the directs to support a transformed level of sales in the second half of last year.

I think we’re as always in this business looking to find the right balance between making sure that we’re capturing opportunity and doing so in a thoughtful, prudent way. Our private sales business and gallery business is now 20% of the total sales volume of the organization so we have a very clear, proven record of building adjacent businesses that are very rewarding to us as an enterprise. And I think we are pretty good stewards of where it makes sense to invest.

As Patrick said we’re really focused and committed to challenging our costs in 2014 and in giving some pretty clear guidance on where we think we’re going to get some of those savings.

Kristine Koerber – Discern Securities

Okay, fair enough. One last question: of this $18.9 million of agency direct expenses, would it be fair to say that most of that is one-time expense and that it’s related to the Hong Kong 40th Anniversary Sale?

Patrick McClymont

The increase year-over-year you’re talking about?

Kristine Koerber – Discern Securities

Yes, uh-huh.

Bill Ruprecht

We saw sales go up what, 50%, 60%? So a bunch of that, Kristine, is volume related and event related. So while there was without question some uptick in terms of spending in order to celebrate and highlight this once-every-40-year event I think it would be fair to say that that uptick is principally related to a huge increase in sales and revenue in that marketplace.

Kristine Koerber – Discern Securities

Thank you.

Operator

Thank you. And our next question comes from Mark Riddick of Williams Capital. Your line is now open.

Mark Riddick – Williams Capital

Hi, good evening everyone. I wanted to touch on the Hong Kong spring sales which were highlighted for this year. It looks as though your presale estimate range is off to a fairly good start and already is exceeding where you were last year. I was wondering if there were any particular standouts which is leading the year-over-year growth on the spring sales, and then I have a follow-up.

Bill Ruprecht

Well I think there’s one object which we’ve particularly highlighted, which is the single most important jade necklace known to exist in the world – which is a work that has an illustrious history. There’s a release out on it a couple of days ago but I think our expectation is that it will bring something on the order of $13 million to $20 million.

There are some significant works yet to be announced which will be detailed in the coming days. There are among other things a very significant 20th Century Chinese painting which is coming forward in one of the sales series there.

I think it is fair to characterize those sales as robust, full of wonderful works of art and very consistent with the kinds of things you would have seen had you been an observer of what we did last autumn in Hong Kong.

Mark Riddick – Williams Capital

Okay, and so the announcements that are upcoming that you’re mentioning are already included as part of the estimate range that’s in the press release, correct?

Bill Ruprecht

Well, to some extent. You know, if you’d like to consign this evening a $40 million painting I would be thrilled to take it and we could negotiate a fee and add it to those totals. So not all of those books are printed and the numbers we’ve given you are an on-the-fly guesstimate of where we are.

Mark Riddick – Williams Capital

Okay, thank you. It seems a little earlier than normal so the idea that you had that crystal of a range at this point already is fairly encouraging.

Bill Ruprecht

Yeah, those sales are in a month or just over a month. So we’re getting pretty close to putting ink on a press.

Mark Riddick – Williams Capital

Okay, excellent. And I wanted to move over to the private sales side for a moment. As far as highlighting the growth of the exhibits I was wondering if you could touch a little bit more as far as the, from a strategic standpoint or maybe what we would be able to see from the outside looking in if you will as to some of those commitments? And what would be sort of the best way to gauge your strategy going forward on the private sales?

Bill Ruprecht

Two things: number one, it’s real tough to look into the house and observe what’s going on there because, and I’m not trying to be cheeky – the title is “private sales.,” and so thereby by definition not public events or scrutinizable in process.

You know, there’s a different risk/reward matrix for a seller under some circumstances and when great works of art are brought to Sotheby’s we are committed to creating the best outcomes for our clients – not creating the biggest auctions, not creating anything other than the best result for our clients. And sometimes that means we work with those clients to suggest a private transaction where we think there may be a unique source of demand that suggests a private negotiated sale; and in other cases where multiple sources of demand are likely to result in a higher outcome.

As in anything in life you don’t get do-overs so you can’t do both and assure yourself every time of the outcome. But suffice it to say our focus in this exercise is what is in the best interests of the client and that’s what we look to do, and our clients really appreciate it. We’ve done extremely well and our relevance to both the public marketplace and the private marketplace continues to gain momentum.

We have a remarkable level of information about who owns things as well as who wants things and those skills and reach and our access to wealth all over the world… Once again where I indicated that 30% of all bidders in 2013 were new to the firm, we have a remarkable access to old and new wealth and very sophisticated understandings of where demand sits. As a result we try to marry those things and create sales revenue and happy clients.

Mark Riddick – Williams Capital

Okay. And one last question: the pricing increase, the structure increase that took place in March of last year – it had been a few years I guess between price increases for yourselves and your competitor. I was wondering if you could sort of give a point of view as to any opportunities for having any other price increases maybe this year or next year; or if you think that’s sort of kind of going to be the structure that we see over the next couple of years. Thank you.

Bill Ruprecht

Well I have never, and I would be hugely surprised if I ever in this kind of context was able to offer any color or guidance on some future pricing structure in this business. Suffice it to say we look to create value for customers and how we get paid or rewarded for that is something or other that’s negotiated every day of the week. I can’t offer any comment on any structural shifts in our pricing grids. Those have been episodic and reflections where we thought it made sense, and as and if that becomes relevant I’m sure you’ll hear about it.

Mark Riddick – Williams Capital

Thank you very much.

Operator

Thank you. And at this time I’m not showing any further questions. I’d like to turn the call back to management for any closing comments.

Bill Ruprecht

Thank you, Sam. Thanks everybody for being on the call. We’ll look forward to speaking to you in the coming days about Q1 and that concludes today’s remarks.

Operator

Thank you, sir. Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone, have a wonderful day.

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