With overall revenues down 11 per cent on the same period last year, chief executive Bill Ruprecht talked of prudence and a global cost-cutting initiative in the “unprecedented global economic turbulence” of today’s markets.
That is likely to mean cuts in the workforce, advertising and marketing budgets, as flagged up in an investor briefing in the Spring.
Then, the board said that in the event of a downturn, immediate cost savings would include bonuses ($65.8m in 2007), marketing ($19.8m), travel and entertainment expenses ($30.8m), professional fees ($53.4m) and direct costs chiefly relating to catalogue production ($80.4m).
On the downside, the company suffered from the knock-on effects of issuing guarantees in the summer for the autumn round of contemporary and modern sales, which have proved less than stellar. The full exposure from this is expected to be around $42m – representing almost the entire loss for the period – by the time the sales come to an end.
Increased direct costs, higher borrowing costs and less favourable tax rates have also not helped, while lower private sale commissions, as well depleted auction commission margins, have also hit results. Sotheby’s have also had to write down the value of art held by the Noortman dealership.
On the plus side, however, the delayed summer round of contemporary sales meant that they fell into the third quarter, boosting figures by $39.9m, and the firm have had to pay lower salaries and related costs, which has also helped.
Having issued $450m of guarantees in 2006 and $902m worth in 2007, back in the spring, Sotheby’s announced that “in the light of current economic realities”, the maximum level of guarantees at any one time had been reduced from $500m to $350m. The latest set of results revealed that overall exposure on guarantees had now been cut by more than half to $114m.
Results for the first nine months of the year show revenues of $525.4m, with profits of $36.7m – 67 per cent down on last year – on aggregate sales of $4.1bn.
The company recently announced that they had drawn down $250m from the $350m pot raised in their oversubscribed offer of senior unsecured convertible notes, making them more liquid, and therefore more competitive, in the current market.
As he announced the third quarter results, Mr Ruprecht set about reassuring shareholders: “At this period of worldwide economic turmoil, we are very pleased to note that our liquidity is very strong and that our auction commission margins held steady at 15 per cent in the quarter.”
He went on to say: “Our auctions this autumn were assembled over the summer when the world was a very different place and predictably we are now seeing a softening in a number of markets, particularly where there has been a big price appreciation. There is a new reality and consignors will need to adjust their expectations accordingly.”
Sotheby’s share price has been on a downward trend from a 52-week high of $52.40 towards the end of last year, hitting a low of $7.61 in late October, but it had recovered to close at $8.80 on the day the third quarter results were released, a rise of just over one per cent on the day.
By Ivan Macquisten
