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  1. Wealth
March 1, 2013

Sotheby’s profits down nearly 40%, sales down to $5.4bn, but private sales up 11%

By Spear's

This decrease is largely attributable to a $79.4 million (11%) drop in auction commission revenues resulting from a 10% reduction in net auction sales

February 28, 2013, New York – Sotheby’s (NYSE: BID) today reported financial results for the fourth quarter and full year ended December 31, 2012. For the full year 2012, Sotheby’s reported total revenues of $768.5 million, a $63.3 million (8%) decline from the prior year.

This decrease is largely attributable to a $79.4 million (11%) drop in auction commission revenues resulting from a 10% reduction in net auction sales, as 2011 included a record level of sales from single owner collections. The decline in auction commission revenues is partially offset by a $6.8 million (10%) improvement in private sale commission revenues and a $5.7 million (47%) increase in finance revenues.

Sotheby’s reported net income of $108.3 million, or $1.57 per diluted share, in 2012, a $63.1 million (37%) decrease from 2011 partially due to the aforementioned reduction in revenues.

In late 2012, Sotheby’s refinanced its long-term bonds by ten years, to 2022, and, as a result, incurred a $15.0 million pre-tax bond redemption loss ($8.3 million after taxes, or $0.12 per diluted share) that negatively impacted the comparison to the prior year. This long-term refinancing will reduce Sotheby’s financing costs by approximately $5 million per year, beginning in 2014.

Read more: Where the art market leads, the economy follows

In addition, in December, Sotheby’s extended and improved its credit facility, further improving its liquidity and lowering its cost of funds. The comparison of 2012 net income to the prior year is also unfavorably impacted by a non-recurring $13.6 million tax benefit recognized in 2011 due to the reversal of a valuation allowance against certain of Sotheby’s deferred tax assets.

“Consolidated sales in 2012 were a robust $5.4 billion as healthy bidding continued around the world for great works of art,” said Bill Ruprecht, Chairman, President and Chief Executive Officer. “Our operating results reflect some significant successes, a stiff comparison to one of the best years in Sotheby’s history a year ago, and a very competitive climate for high-end consignments. Overall, I remain confident in the marketplace.”

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Private sales, an increasingly important part of Sotheby’s business, totaled a record $906.5 million, an 11% increase. And as of the end of 2012, the Company’s finance segment loan portfolio balance was $425.1 million, almost double the prior year balance of $223.0 million, and near peak levels.

Read more: Auction houses turn to private sales for profits

Pictured left: Raphael’s Head of a Young Apostle, which made a record £30m at Sotheby’s in 2012

“Sotheby’s ended the year with a very strong balance sheet and we are continuing to invest in our business,” said Ruprecht. “As a result, 2012 was a year of meaningful progress in the development of our client-focused strategy. We have totally reengineered our post-sale client services in our key sales centers of London and New York and made an array of enhancements to facilitate and personalize the client experience. Sotheby’s is a global pioneer in broadening the art market and offering the highest levels of client service – and we dramatically demonstrated that across the business in 2012.

“The global reach of our team is central to our success and the value we add for our clients. We are the first Western auction house to hold an auction in mainland China through a ground-breaking joint venture which will allow us to take advantage of a planned Beijing free port project, providing a tax-advantaged platform for storage, selling, exhibition and educational activities. We’re the only auction house with a formal presence in Brazil and Argentina, among our 90 offices worldwide, we’re the only auction house to hold sales in Doha, Qatar, and we have received bids from over 120 countries in 2012,” he continued.

“We are pushing innovations on our web platform to make art more accessible and to reward our best clients. We offer our clients personalized account information in the language of their choice, we’re the only auction house to provide digital catalogues and a magazine in downloadable format, and the only auction house with a Catalogue App program that offers twirling 360 degree views, note taking, real-time sale results and video. We reward our best clients through Art Fair VIP opportunities and perquisites at more than 100 partner museums,” said Ruprecht.

Read more: Sotheby’s review of 2012 auction highlights

Sotheby’s is the first auctioneer to have a dedicated private sales exhibition gallery (S/2) within its headquarters in New York and office in Hong Kong and will open a third gallery at its London office this year. Last year, the Company held seven private sales exhibitions in partnership with renowned artists and tastemakers.

The Company remains sharply focused on developing its presence in China, deepening its relationships with Chinese art collectors in a number of tangible ways, including the expanded use of Chinese language on the website, Chinese e-catalogues, investing in Asian client-service staff, expansion of Sotheby’s Hong Kong premises and an increased number of auction and private selling events in Asia.

This year, Sotheby’s will celebrate the 40th anniversary of its Hong Kong office – the oldest Western auction house in Hong Kong. “These achievements should provide Sotheby’s with a solid platform for growth as well as a more diversified revenue stream in future years,” said Ruprecht.

Read more on Sotheby’s from Spear’s

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