In 2013, auction house Sotheby’s reported record consolidated sales of $6.3 billion, a $930.5 million (17%) increase versus 2012 and net income of $130.0 million, a $21.7 million (20%) increase from the prior year.
This improvement was made possible by a $24.7 million increase in fourth quarter net income as fourth quarter net auction sales increased 28%, reflecting the continuing strength of the global art market as Sotheby’s autumn sales of Asian Art in Hong Kong and Impressionist Art in New York significantly exceeded prior year results.
“Our record results in 2013 and a remarkable start to this year, with auction sales up significantly to date in 2014, show Sotheby’s is in an extremely strong position today,” said chairman, president and chief executive officer Bill Ruprecht. “We pledge to provide unrivalled expertise and results for our clients and enduring value to our shareholders – and as these results demonstrate, Sotheby’s is delivering on those promises.”
The improvement in full year net income is primarily attributable to a $529.3 million (14%) increase in net auction sales and a $272.5 million (30%) increase in private sales to a record $1.2 billion. However, these increases generated a smaller 11% growth in agency revenues. The competitive environment for high value consignments remains robust and resulted in a decrease in auction commission margin from 16.3% in 2012 to 15.9% in 2013.
The improvement in revenues is partially offset by a higher level of operating expenses due to the cost of strategic investments, as well as inflationary pressures across most expense categories.
Management recently announced the results of its cost structure review, with an estimated $22 million in savings in professional fees, other general and administrative costs, agency direct costs and marketing expenses expected in 2014.
The comparison to the prior year is also favourably impacted by a bond redemption loss of $15 million ($8.3 million after taxes) incurred in the fourth quarter of 2012. 2013 diluted earnings per share is $1.88, a 20% increase from the prior year.
Management last month announced the results of its capital allocation and financial policies review, which was highlighted by the return of $300 million to shareholders in March 2014 through a special dividend, as well as the intended repurchase of approximately $25 million of shares by the end of 2014. Going forward, the company intends to return any excess capital to shareholders on an annual basis.
Also, Sotheby’s anticipates efforts in two other areas over the next 12 to 24 months to unlock significant value for shareholders: additional debt-financing of the Sotheby’s Financial Services loan portfolio, which could result in the return of an additional $150 million to $200 million to shareholders; and an evaluation of its real estate holdings which could also lead to a return of excess capital to shareholders in the future.
Chief Financial Officer Patrick McClymont said: “We believe the new capital allocation and financial policy plan, together with actions Sotheby’s has 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.”
Ruprecht said 2014 – for Sotheby’s and the art market – began where the previous year ended. “At a time when demand and prices continue to be strong across the market, Sotheby’s was the fastest-growing global art auctioneer last year. Thanks to the breadth and quality of our offerings, we were able to achieve remarkable results across the board, in our global salesrooms, private sales galleries, retail wine and diamond, and finance businesses,” he said.