Brinks Co (BCO) 2007 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to The Brink's Company second quarter results 2007. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ed Cunningham, Director of Investor Relations. Thank you, Mr.Cunningham. You now may begin.

Thanks Jackie. Good morning, this is Ed Cunningham, Director of IR and Corporate Communications for The Brink's Company. Thanks for joining today's call. The call will proceed as follows. CEO Michael Dan will review quarterly results and make some additional comments regarding strategy. Bob Ritter, our CFO, will make some follow-up comments before we open it up for questions.

A press release on second quarter earnings was issued this morning and is available on our website at brinkscompany.com. If you wish to have the release faxed to you, please call 877-275-7488. And now for our Safe Harbor statement.

This call, including the question-and-answer session, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from projected results. Additional information regarding factors that could cause such differences is available in today's press release and in our SEC filings, which include our most recent form 10Q and 10K documents. The information discussed on this call is representative as of today only and the Brink's Company assumes no obligation to update any forward-looking statements made during the call.

This call is a copyrighted work of The Brink's Company and may not be used by a third party without the expressed written permission of the company. I will now turn the call over to Michael Dan.

Thanks, Ed. Good morning, everyone; thanks for joining our call. I'll start with a quick summary for our second quarter results and our full-year outlook followed by some brief comments on our corporate strategy. Then we'll cover the details of the quarter.

Our second quarter earnings showed solid improvement over the year-ago results. Despite a $7.5 million impairment charge related to our UK-based operations, profits for the quarter were up over last year at Brink's Incorporated, our cash-handling unit, that we refer to as Brink's. Our full-year outlook for Brink's Inc. has not changed. We continue to expect annual percentage revenue growth in the high single-digit range, with margins above 7%. This outlook includes the impact of the $7.5 impairment charge.

Profits also improved at Brink's Home Security, which we refer to as BHS. Our full-year outlook for sales and profit growth above 10% remains on track. However, annual subscriber growth will probably dip just below 10%. Over all, this business is performing well in a difficult environment by maintaining their strong controls over resources and costs.

As we noted earlier, in our press release, our corporate strategy has not changed. We will continue to invest in our two strong security businesses, each of which is performing well and has high potential growth opportunities. We will continue to exploit the cash flow, brand-building, and other benefits of operating these two premier businesses under the same flagship brand and aggressively explore the expansion of the Brink's brand into other security-related markets.

I am sure many of you are aware of the most recent filing by one of our major shareholders regarding strategic options. Before moving on, I want you to know that our Board of Directors has explored a number of strategic alternatives, including all of those recommended by shareholders. We have been assisted in these efforts by several external advisors. Our review included an evaluation of future operating performance and growth prospects of the businesses, the impact of the Brink's brand on the performance of these businesses and that prospect, issues affecting comparability and other companies in the security industry, capital needs and costs, taxes, and many, many other factors.

I can assure you that our strategic review process has and will continue to be a rigorous one. While we remain open to reevaluating our strategic alternatives in the future, particularly in response to significant changes in opportunities and markets, we believe that our current strategy is in the best interest of the company and all of its shareholders and we are excited about moving forward and are continuing efforts to build shareholder value.

I'll now cover second quarter results. Income from continuing operations was $27.1 million, or $0.57 per share, up from $21.2 million, or $0.42 per share, in last year's second quarter. Total revenue rose 13.4% to $790.8 million. Excluding the positive impact of a weaker dollar, revenue was up 9%.

This year's second quarter results included a pre-tax asset impairment charge of $7.5 million, or $0.13 per share after tax, related to loss of customers in the UK. On the plus side, this quarter's results included a gain of $1.9 million, or $0.03 per share, from the insurance proceeds related to Hurricane Katrina. Last year's results included a previously reported restructuring charge of $3.4 million, or $0.07 per share, after taxes.

Operating profit, including the impairment charge, was $50.9 million, up 21.5% from the $41.9 million in 2006. Profit growth was driven by improved results at both Brink's and BHS. Earnings were also boosted by a lower effective income tax rate.

In a few minutes, Bob will provide more details on these and some other items and I'll comment more in detail on each of our two security businesses. I'll start with Brink's. Our second quarter profits increased 2.4%, to $34.6 million. Total revenue at Brink's rose 14.2.9%, to $671.4 million. When you consider the impact of a weaker dollar, the total revenue at Brink's Inc was up 9%.

The overall operating margin for the quarter was 5.2%, down from 5.8% in the year-ago quarter. If you adjust for the impairment and the restructuring charges in both of those periods, the operating margins were pretty similar.

North America revenue rose 6.6% to $219.1 million, while operating profit declined 11% to $14.7 million. The operating margin for the quarter was 6.7%, down from the 8.1% in last year's second quarter, due primarily to higher health care costs and higher sales and marketing costs. Increased sales and marketing expenses are aimed at accelerating the growth of our cash logistics business, which provides higher margins, such as accounting and reconciliation and other back-office functions to banks and retail customers.

In our international operations, revenues rose 18.3% to $452.3 million, reflecting increases in all regions except our relatively small Asia-Pacific operations. On a constant currency basis, revenue was up 11%.

Operating profit was $19.9 million, up 15.7%, due primarily to continuing strength in our Latin American area. The operating profit margin for international operations was 4.4%, slightly below last year's 4.5. I'll point out again there were impairment and restructuring charges that affected profit margins in both these periods.

Our second quarter revenue for the European, Middle East, and Africa region was up 16.9%, to $298.6 million. Again, adjusting for currency fluctuations, the revenue rose about 9%. Operating profit declined due to the impairment charge in the UK. Excluding the charge, operating profit improved over last year and the first quarter of this year.

As most of you know, the operating environment in Europe continues to be our greatest challenge. In particular, the recent performance of our UK-based ground operations has been very poor. Market conditions there are difficult and the outlook for near-term improvement frankly just was not encouraging.

As a result, we are taking actions to eliminate the losses associated with this unprofitable portion of the business, which in recent years generated annual operating losses of about $9 million on approximately $15 million in revenue. We have incurred an impairment charge of $7.5 million against these second quarter results. Depending on which actions are ultimately taken, additional cash costs may be incurred but there could also be no additional charges or expenditures.

I want to make it very clear that we are not exiting the UK, which remains an important growing and profitable market for our global services unit. I also want to make it clear that improving results in Europe is our No. 1 priority and we will continue to be aggressive in our efforts to increase efficiencies in other countries where performance remains unsatisfactory.

The biggest driver of the approved results as Brink's was Latin America, where revenues increased 28.9%, to $138.3 million. Operating profits improved in Venezuela and we are encouraged by additional profit growth in Brazil and Argentina.

Second quarter revenue in our Asia-Pacific region declined 21.4%, to $15.4 million. Operating profit was up over last year's results, which included a pre-tax charge of $3.5 million due to the previously reported loss of a major customer in Australia.

In summary, it was a solid quarter for Brink's Incorporated. In North America, it will be a challenge to improve upon the 2006 because it will take some time to see the benefit of our more focused selling and marketing efforts aimed at our cash logistics business. We expect the strong performance in Latin America to continue and, as we always remind you, there's more risk and volatility to be considered there.

In Europe, results are improving but not fast enough. We are being proactive and taking additional steps to boost profits and will continue to do what is necessary. Our cash logistics business continues to grow worldwide, with second quarter revenue reaching $104 million, up 8.5% over last year's second quarter and about 5% sequentially over the first quarter of this year.

In summary, there are many opportunities and challenges at Brink's Incorporated. Despite the challenges, we remain confident that we can achieve annual percentage revenue growth in the high single digits and deliver an annual operating profit margin above 7%.

Now turning to home security. Our second quarter revenue increased 8.8% to $119.4 million, due primarily to continued growth in our subscriber base and higher average monitoring rates. Operating profit rose 25.7% to $30.8 million. The strong profit growth was driven by several factors, including continued growth in our customer base, aggressive cost control efforts, and reduced activity in our home technology segment and the $1 million insurance gain related to Hurricane Katrina.

The lower cost helped push the quarterly operating margin up to 25.8% versus 22.3% in last year's second quarter.

The annualized disconnect rate for the quarter was 8% versus 6.9% last year, due in part to some technical adjustments to the subscriber count. We expect the full-year disconnects to return to a more normal rate of between 6.5 and 7%.

Monthly recurring revenue rose a healthy 12.5% to $35.1 million, so our future cash flow continues to grow.

BHS ended the quarter with approximately 1,175,000 active customers, up 9.6% over the year-ago quarter. Installation growth was 4.6%, due in part to ongoing weakness in the housing market, which makes it unlikely that we will be able to achieve our annual goal of 10% growth in subscribers. But we continue to expect double-digit growth in sales and profits. Obviously, sustaining longer-term growth at double-digit levels ultimately depends on our ability to improve the pace of installations. Hopefully, a gradual recovery in the housing markets during 2008 will provide a tailwind for our internal marketing efforts.

Our steady growth into small commercial accounts continues on course, accounting for over 8% of the quarter's installations. We continue to view expansion into commercial accounts as an attractive growth opportunity. As such, we will continue to support internal growth efforts as we seek potential acquisitions.

In summary, it was a good quarter for the Brink's Company. Brink's Incorporated will continue to pursue market opportunities in its traditional armored car operations, while expanding further into cash logistics where potential for revenue and margin growth are greater. Hopefully, continued momentum in cash logistics will give North American results a needed boost.

Of course, there are always concerns as we look ahead. Our efforts to turn around Europe are making progress but we have a lot of room for improvement. And there's no guarantee that the economic activity in Latin America will continue at its current pace.

At Brink's Home Security, our optimism is tempered by the reality that the pace of installations needs to increase in order to deliver double-digit growth over the long term. We have a very strong brand, effective marketing, and excellent customer service. We will use these strengths to enhance our industry-leading performance in the residential security market as we continue to build our technical and sales capabilities on the commercial side.

I'll close by saying that the Brink's Company is financially strong, sharply focused on growing two world-class security businesses. Our financial strength and ample borrowing capacity put us in an excellent position to support both organic growth and to pursue potential acquisition opportunities. Given the current volatility in the debt and equity markets, new and more reasonably priced opportunities may arise more frequently. I am confident that the overall performance, financial position, and growth prospects of The Brink's Company will continue to improve and build value for all our shareholders.

Now, for some additional comments on our results and financial positions, here's Bob Ritter.

Thank you, Michael. Good morning and welcome to everyone listening in on this call. As Michael noted, the second quarter was a solid one and we remain on track to achieve our previously stated goals for the year. However, as usual, you can expect some variability by quarter.

Looking at the second quarter for Brink's, please remember that, as we told you last time, the second quarter is often the weakest quarter from a margin standpoint. Having said that, we're tracking well on what we need to accomplish and we still expect margins for the full year to be above 7%. This is so even after taking into account any charges related to the elimination of the money-losing ground operations in the United Kingdom. Hitting the margin of 7%-plus for the year obviously translates into stronger margins in the third and fourth quarters.

Looking slightly further ahead, since we have been losing approximately $9 million a year in the UK ground operations, its elimination, although reducing revenue by $50 million annually, should help margins in 2008.

Now, before I move on from Brink's -- and I want to repeat this one more time, just to be clear -- we are happy with our global services operations in the United Kingdom. We will continue to provide our usual excellent service to our global services customers there.

As for Brink's Home Security, growth, as measured by new installations, continue to be lower than we had become accustomed to in recent years. But despite the circumstances we're facing, we're still moving forward on revenue and operating profit. We're pleased with our disciplined use of resources, which has helped Brink's Home Security hold down costs and continue to perform so well.

One note on the disconnect rate. The total disconnects for the quarter amounted to about 23,300, as you can see in today's release. Of these, about 2,200 are related to technical disconnects during our regular subscribers reconciliations. There were no costs allocated to these accounts so there was no financial impact.

Now, just a brief note on insurance proceeds. We received essentially all of the insurance related to Hurricane Katrina that we have expected for Brink's Home Security during the second quarter and recorded a $1.9 million gain during the quarter. We expect that one final gain of about $1 million will be recorded in Brink's North America in the third quarter.

Now, a brief comment on corporate expenses. We reported total corporate expenses of $10.9 million in the second quarter, down from the $11.6 million expense in the first quarter. We expect to continue to show progress in reducing expenses.

However, I want to remind you that due to the way our stock option program is set up and the way accounting for stock options works, our expenses for stock options are lumpy, with the majority of the year's expenses being recorded in the third quarter. Options-related expenses in the third quarter will be up by about $5 million over the run rate for the first and second quarters before dropping back down again in Q4. The same thing happened last year.

Now for taxes. You probably noted that our effective tax rate for the second quarter was about 38%, bringing us to a year-to-date rate of about 40%, which is well within the range of the expected full-year rate. We still expect the full-year effective tax rate to be between 39 and 41%.

Now, let me turn to CapEx, depreciation and amortization, and some other information that will help you with cash flow projections. In the quarter just ended, Brink's invested about $27 million in branches, trucks, and IT systems. This is on top of the $26 million spent in the first quarter. Although we expect spending to pick up in the second half of this year, we're tweaking our estimate for the full year's spend down to the range of $125 to $135 million.

Brink's Home Security spending for the second quarter of $45 million, and the first half of $88 million, was right on track for our full-year projection of $175 to $185 million. I'd like to point out, again, that the ratio of installation spending to total CapEx at Brink's Home Security is running at the normal 95% plus or minus ratio we expect. As always, the bulk of spending for CapEx at Brink's Home Security goes to secure future recurring revenue.

As for depreciation and amortization, Brink's, with $27 million in the quarter and $53 million at the half, is on track for the projected $105 million or so we expect for the full year. Likewise, Brink's Home Security, with $19 million in depreciation and amortization for the quarter, is tracking toward the $75-plus million we've previously forecast.

I would also like to remind you that there is other cash flow information related to Brink's Home Security that we provide you on a quarterly basis. You can find it in the table on page 10 in today's release.

Continued solid operating performance and a relatively low level of capital expenditures for the quarter resulted in another improvement in liquidity. We ended the quarter with a net cash position of $4 million versus $5 million in net debt at the end of the first quarter and the $33 million worth of net debt that we had at the year end 2006. With the unsteady credit markets today, we believe it's an advantage for us to have the capacity to pursue our growth strategy and to continue to build value for our shareholders.

That's all I have for now. Jackie, we're ready for questions.

Thank you. (Operator Instructions) Our first question's coming from Jeff Kessler of Lehman Brothers Incorporated.

Hi, guys. Good quarter.

Hi, Jeff.

I will leave the obvious big elephant question in the room to others; I'll get on to operations. With regard to Brink's armored in Europe -- No. 1, general response about England. I've got other security companies complaining about pricing with maybe some of the same clients that you've been dealing with over in the UK. Is there a problem with general pricing pressure in the UK amongst physical security companies, whether they're insulation or guarding or armored car? I mean, is this endemic to that area?

And No. 2, how are you going to fulfill the global-- the Brink's global on the ground if you're going to get out of the land-based cash-and-transit business?

Well, first of all, Jeff, I will limit my remarks just to the cash-and-transit business and to the global services business in the UK; I'm really not in a position to talk about the other segments of the security industry in the UK.

We have always been, historically, a global service company there and we have had a strategy to try to grow the ground business there in the last five to six years. And we have just not been successful, and we've invested some money there to try to expand our footprint to do so, and it's just a very, very difficult market. And we've reached the conclusion that we're just not going to be successful, so we made the decision to take the steps that we've taken.

At the same time, we are rapidly growing and expanding our global services business, which has a small portion of local transportation involved. And we'll continue to operate that and run our local vehicles as it's connected to that type of business. That's a very rapidly growing business, expanding fast, and very profitable.

The UK is just a difficult market. It is also a very dangerous market to operate in and there are tremendous losses that take place in that country that are much higher than the rest of the world added together. And we just finally reached the conclusion, it's not an attractive market. We went to our major customers and we said, "Pay us for the risk or we're going to leave." A couple of them were willing to pay and a couple of them were not. And it didn't add up so we decided to exit.

Okay. The obvious corollary to this question is, are you seeing some of the same trends, or same pricing pressures, in other areas of Europe? Are we going to be-- given that-- we've seen the same type of thing in Germany, but from a different angle, obviously. That was a different situation, but nevertheless there were ridiculous cost pressures in Germany. The question is, is there more that we have to worry out in the rest of Europe? Are there more types of write-offs that we have to worry about in the rest of Europe, either in 2007 or potentially in 2008?

Those risks are always there, Jeff, and will always be there in Europe. I mean, I will tell you, you mentioned Germany -- Germany is no better today than it was two years ago or three years ago and there are no international operators left and there are two companies on the verge of bankruptcy yet again. Yet the pricing environment there is as bad as it was two or three years ago. And at some point, the market's going to have to recognize that if they want to have professional operators operating there, they're going to have to pay for it. Those risks are still there and will continue.

But we're going to take our normal approach and deliver a value proposition that the marketplace values. And if it doesn't value it, then we're not going to be there; as simple as that.

Okay. Where is Europe in adopting ancillary services? The types of money-counting, money-collecting, ATM -- services that you offer in the US, which is obviously at least 50% of your business over here. Where are they in adopting that, because a higher valuated proposition?

Jeff, it's different by every country. For instance, in France, it's more outsourced than it is in the United States. And we have a huge portion of that business -- it's a bigger portion of our business in France than it is in the United States. On the other side, in Germany, it's a relatively small part of our business, mostly because the central bank provides a lot of free services because their cost and their social issues of reducing workforces tends to allow them to want to keep people busy, keep people working, and offering free services to some of the banks, which makes it a more difficult environment.

But once again, we're introducing those services there, we adding those value propositions, and they're being more successful on the retail side maybe than on the banking side. But the key to success in Germany is the banks recognizing the need to pay more money. We are getting cost increases there -- not to the degree that are necessary. And I can assure you that the entire focus of the management group is on improving performance in Europe.

By the way, we are making progress. Things are better year over year in Europe, quarter over quarter in Europe; just not fast enough.

Okay. Quickly, realizing that you don't have oil in the ground and you do have a joint venture over in South American, how is your relationship with the Chavez government at this point?

Our relationships there are very, very good at the current time. Again, it's a volatile place, a volatile situation that could change. But once again, it's a cash society. We have a large market share. We have bank partners. And the smooth flow of commerce is absolutely required and we're a big part of that.

And as you might be aware, there's a currency change that's going to occur at the first of the year that's quite public knowledge, and we are intimately involved in dealing with the government and the banks in preparing for that currency exchange. So the risks are there; they're not going to go away. But I would tell you that I'm pretty positive about it at the current time.

Okay. One question on the alarm side. What is the nature of the adjustment -- to this old alarm guy here, what's the nature of the adjustments that you made to your disconnects?

Jeff, excuse me -- this is Bob Ritter. Basically what happened, the 2,200, as we were going through our normal reconciliation process, we uncovered a pocket of accounts that were non-revenue-generating. Some of them, as an example, were test accounts that we had set up so that we could continually test the system. Some of the other ones covered the branches that we operate out of -- providing coverage there. Some of them for charities.

When we discovered that we had these in there, since they are non-revenue-generating, we thought the most appropriate thing was to pull them out. And we reflected it in the disconnect rate, which was 8% annualized for the quarter. If you were to pull that out, that's worth about 70 basis points of that. So a more normalized figure for the quarter would have been 7.3 versus 6.9 last year.

All right. And I promise, this is my last question. Over in Europe, the guys who've modeled themselves after you, Secure Cost Direct, as well as a number of smaller operators over here, are beginning to install-- let's call it ancillary verification equipment, whether it's video or even audio, because of the lack of response or the limited response that some communities are getting if the alarm is not verified. I realize this has not been the norm in the United States up to this point, but are you considering adding this type of functionality to these systems if the pressure for verification begins to increase in the United States?

The answer to that, Jeff, is yes. And it's all part of our strategy of building out our commercial capabilities, which requires those same types of auxiliary services. What we've been doing, as you know, is basically a greenfield approach and rolling out those capabilities within our existing installation technical base throughout the country. As that business continues to grow, we're well positioned to deal with that.

All right, great. That's it -- good quarter and good luck for the rest of the call.

Thanks, Jeff.

Our next question is coming from Clint Friendly of Davenport and Company.

Thank you; good morning. Nice quarter. Michael, on the last call I believe that you mentioned the up side that you might potentially see from B of A's acquisition of LaSalle? How material could this be to you, given the large number of branches here?

Michael Dan; Actually, it's immaterial. It would probably be a couple of hundred thousand dollars a year in revenue. And then maybe another $100,000 a year revenue of [cluing]. Once again, B of A is a large customer of ours. We have great relationships with the account, improving relationships with the account all the time -- very important. But they still make up a small percentage of our overall business in the United States. Okay, thank you; that's helpful. And then obviously, on the ABM MRO situation, quite volatile. But how much exposure, given the situation there, could you potentially have to the change in ownership? Is that something that--?

Yeah, we commented on the last call, you might recall, that in Brazil there's a little bit of concern because ABM is a large customer of ours in Brazil. But that marketplace is growing very rapidly and very fast and our performance has improved quite a bit in Brazil in the last 12 months. But it could be a potential concern, but we provide great service for them down there. So-- there's always a risk with ownership changes.

Okay. And then, switching to BHS, on the ancillary services that you just talked about, is the greenfield approach something that you would probably continue to proceed with here or is maybe an acquisition something that could help you offer these services, maybe in a more timely manner?

Actually, we're pursuing both avenues. It's very important that we increase the capabilities -- both sales, marketing, and installation capabilities -- because we've been a commercial business to a degree. We 're just expanding it into larger operations into the national accounts. And we're going to continue to build that capability, also to address some of the threats that Jeff talked about in the previous call with verification issues. But we would be very excited about finding the right opportunity to jump-start the capabilities of the organization on the commercial side so we can go after the larger-type accounts or expand our footprint more rapidly in the United States.

And a final question -- as you look into maybe the Dallas-Fort Worth area and some of those cites that have been sort of on the cutting edge with some of the verification legislation that city councils have passed, what's your operating experience been within those cities?

We have not been materially affected at all, which we were very concerned about when this wave first started. But we work very, very closely with the authorities on dual verification. We just won the industry award as the best, lowest-- best response with the lowest false alarm calls or dispatched calls in the industry, which we're very, very proud of. And we're recognized as industry leaders. And we're usually consulted about what types of changes those should be.

And I would tell you that 70 or 80% of the time, we have a material impact on what those regulations read. Twenty or 30% of the time [chuckles] we don't and they're very, very strict. But we have an active program where we are engaging the communities when these issues come up and we're sharing experiences with other communities on what has been a positive effect to end up with the best result for our customers and for the communities and our company.

Thank you very much.

Your next question is coming from Jerome Landy of Millbrook Capital Management.

Good morning.

Hi, Jerome.

Hi. I need to ask you about your strategic alternatives decision. The stock is down 9% year to date. You remain 30% undervalued to your comps on 2007 and 2008 EBITDA. Most poignantly, I think, the stock is down 4% today despite good results, and I believe purely because of your decision to stick with a strategy which apparently has failed on valuation. Now, not just us, several shareholders have asked you this question. Several have come out in favor of what we have proposed. I think most importantly, we have provided you with, give or take, 100 pages of analysis on the issue.

And I think that we and other shareholders deserve a fulsome explanation of why the board has reached this decision. Not just how; not just what issues pertain to the discussion; but why you reached this conclusion in spite of the facts at hand.

Well, Jerome, I appreciate the question and I appreciate your sensitivity and some other shareholders' sensitivity to that question. But I can assure you that our review was a very, very in-depth review about the future operating performances and the risks and the potential benefits and the market conditions, taking some of the steps that you outlined in your most recent filing.

Not only did we engage our entire management group and our board extensively for the last six to eight months, we engaged some topnotch outside advisors to look at all those things. And when we were done -- and we live inside the house and we understand the comparables and we understand when the comparables make sense and they don't make sense -- when we were done with that very, very thorough analysis, we concluded at the current time that the risks versus potential benefits were not in the best interest of our shareholders.

We understand clearly -- and remain open -- to reevaluating any strategic alternatives in the future should there be changes in the marketplace or significant movements in valuations. We're not closing the door. We never close the door. But at the current time, with the current facts, I can assure you we've reached a conclusion that we think is in the best interest of all our shareholders.

Was the vote by the board unanimous?

We wouldn't comment on that, ever.

Well, I appreciate your comments. I think that we have a stock and a valuation that appears to be sinking, and I feel that you're describing the water. So I thank you for that, but I think it also puts us in a position of having to evaluate if and how we elevate our opposition to what we believe is a stalled strategy.

Jerome, I appreciate your comments and your professionalism and I understand. Thank you.

Our next question is coming from Wayne Archambo of BlackRock Incorporated.

You just referred to some risks in the strategy of moving forward based on what the prior caller had just brought up. Could you please elaborate to me what the risks are?

We could get into a discussion that would probably take about three hours to cover all those things. That was the exhaustive study that we did with our external and our external experts and it really wouldn't be productive and in many cases it could be a tremendous competitive disadvantage for us to get into those particular details.

Well, could you summarize them? I've owned your stock for four years; we've been patient here, as many other shareholders have. I think you have an obligation to elaborate on why you're not pursuing these alternatives.

Well, once again, we could get into a detailed discussion about a variety of things -- whether we're looking at the right comparables, the right metrics, what those risks might be versus those potential benefits. That's what the study and the work that the board and our external advisors worked very, very hard on, deliberated on, debated, to reach the conclusion that at the current time, we're better off pursuing the strategy that we have.

At the same time, we'll remain open. And if something changes materially in valuations or markets, that strategy will be re-looked at again and we're going to do what's in the best interest of all our shareholders.

So the risks-- you're just not going to tell me what the risks are; is that what you're saying?

I would be here for hours to tell you--

Well, why don't you summarize in 30 seconds? Can you give us a few of the risks in 45 seconds?

We went through some of them, actually, in the press release -- we mentioned them very specifically having to do with tax issues, capital needs, costs, branding issues, etc. So we've already covered them. I think we've covered them sufficiently. Anything else we'd get into, I think putting us at a competitive disadvantage or disclosing information which would be harmful to the long-term value of our company.

Our next question is coming from Brian Butler of Friedman, Billings, and Ramsey.

Hi. Just a question, just kind of trying to get my head around when you talk about closing the UK operations and thinking additional cost around there. Is there any way you can help us think about what the size of those costs are? Are they going to be similar to the charge you took? I'm just trying to get a better understanding of that number.

Hi, Brian; it's Bob Ritter. We were actually looking at a couple of different options there and depending on what we ultimately would do -- and we haven't made a final decision yet, but it'll certainly be made relatively shortly. It could be anywhere from nothing to maybe of the order of magnitude of the write-off that we've already taken.

But anything that we're going to do is going to be resolved quickly. We will get everything done this year and we'll be able to move forward without similar charges in the UK next year but the benefit of not having the losses that we've had there.

Okay, that's usually helpful. And then, on the home security side, just with residential construction, the housing market in general being weak, what gives you confidence that you still are able to do the 10% revenue growth? I guess, more to the point, where do you think that growth comes from?

Brian, as we probably have noted in the past, but I'll just point it out again, the homebuilding, the home technologies, which is the one portion of our business that is most closely focused on it, is a relatively smaller piece of the total business. So having homebuilding slow down the way it has has hurt us some, but you can see we're still growing. Our growth in new customers, we're saying now -- or, in new installations -- is going to be somewhat below 10%; or, I guess, the year-over-year number of subscribers will be somewhat below 10 percent.

But at that rate, with the normal increases that we see in pricing as we move forward, that give us a lot of comfort that we're still going to be able to do double-digit revenue. And as you can see, our people are very good and very disciplined in managing their resources and costs so I think the profitability side is also going to come along as well.

I'm not worried on the profitability side. Just on the revenue growth, just to make sure I understand it, that means in the second half you are looking at revenue growth somewhere in the-- above 10.5, almost 11% range in order to hit your expectation?

Yes. There are-- besides our normal recurring revenues, the other piece that was very slow during the first half was we did not have a tremendous amount of other new installation revenues, and we expect to see that pick up a bit in the second half.

Okay; thank you very much.

Thanks. [Silence] Jackie, I think we have another question?

Our next question is coming from Jerome Landy of Millbrook Capital Management.

I have a follow-up. Regarding the notion of undervaluation to your comps -- and I understand you have some questions about comparability, which I consider moot -- but you have them; I understand. What is it about your strategy, that you've endorsed again today, that is going to close that gap? Whatever the gap is. I say it's 30%, but you say it's less, you say it's nothing; I don't know. Let's say this gap -- what about your strategy implies that Brink's valuation, over time, will improve?

I think Brink's has a strategy, I think Brink's needs to execute a strategy. We need to improve our operations in Europe and continue to grow our business in a profitable way, invest our money wisely, make sure that our EBIT discipline that we've had in this company for 15 years continues to be followed. The market will recognize that value. And I'm not getting into debating what the comps are, Jerome, back and forth because it's not going to be productive, as you know. But doing the right thing, the market will recognize who and what we are. They have in the past and I'm confident they will in the future.

Well, I don't know when they have in the past. A previous caller was a shareholder for four years; we're a shareholder for four-plus years -- we haven't seen it. I don't think anybody on this call's seen it. But the question remains, because your answer was all things you will continue to do -- continue to improve in Europe; continue to focus on EBIT, continue to grow profitably, etc. They're all things you've been doing. So I reiterate -- what is going to change?

Jerome, I've stated my strategy and what we're going to do, and I think that the market will reward that appropriately.

Our next question is coming from Jeff Kessler of Lehman Brothers Incorporated.

Yes. Mike, as you know, Bell South, which was acquired, had a program going on with Protection One, a co-branding program. The acquirer, ultimately being AT&T Cingular, is trying to expand that program, almost half of the nation, and opening that program up for bid. It's my understanding that all of the leading-- and the leading is not the companies, maybe the top five, maybe the top three companies in this country, are bidding on that program.

Do you have any comment? Can you make any comment on are you-- is Brink's interested in co-branding with AT&T as a new means of distribution or do you think others are more-- let's just say being more aggressive about it? What is your take on what this co-branding opportunity is or whether, to you, it is an opportunity at all?

I can't comment specifically on that one, but we have many what we call affinity programs now with a variety of organizations, I think it numbers about 20, where we do things like that. I will tell you, they tend to be-- when they go out to bid, they tend to be very, very competitive and, at the end of the day, we're not competitive with those. We end up with the people who want the quality service, understand the Brink's difference, and want to partner with The Brink's Company, not somebody who wants to fight over how big the pie is.

Okay. One other question -- that is on the acquisition front. There are some companies out there with fairly large scope in terms of RMR that may or may not be underpriced at this point in time. Or there's also, including some companies that do have, let's say, commercial-industrial capability, whether it's light or whether it's heavy. Can you talk to us about something that you've been-- the company's been talking about for a while but hasn't really found the proper partner yet, moving into the commercial-industrial area? And what area of that sector are you most attracted to?

Well, we're definitely interested, Jeff, in getting in the commercial sector. Valuations have been very, very difficult. And we are very disciplined, as you're aware. But we are fully prepared, if we find the right company with the right management and right capabilities, to enter that space in a much more aggressive way than our greenfield approach. Some expectations of some of the identified targets we have hopefully will become a little more realistic with the changes in the markets. And we're hopeful that'll happen.

I can assure you that we're in the deal stream. Our business development group has grown here, we're investing in it, and if the right opportunity comes along, we'll seize it.

How big is your greenfield-- how big is your industrial business right now? I mean, you said-- you talked about greenfielding several sites. Are we talking about it being 1% of the business, 2%?

As of year end, it was 50,000 subscribers and I'm assuming that's grown by probably in the neighborhood of 10,000 to 15,000 since then.

All right; thank you very much.

You're welcome.

There are no further questions at this time. I'd like to thank everyone for joining in today's teleconference. You may access a replay of today's call by dialing 877-660-6853 using account number 286 and conference ID number 249073. Again, account number 286 and conference ID number 249073. The replay will be available within two hours. Thank you for your participation.