Brinks Co (BCO) 2007 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to The Brink's Company Third Quarter Results 2007 Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (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 and Corporate Communications. Thank you, Mr. Cunningham, you may

Thank you, Diego, this is Ed Cunningham, good morning and thanks for joining today's call which will proceed as follows - - CEO, Michael Dan will review quarterly results and discuss corporate strategy, then Bob Ritter our CFO will make some follow-up comments before we open it up for questions. Press release on third quarter earnings was issued this morning and is available on our website at Brink's Company.com. If you wish to have the release faxed to you please call 877-275-7488.

Now 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 that could cause such differences is available in today's press release and in our SEC filings which include our most recent Form 10-Q and 10-K documents. Information on this call is representative as of today only. 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 written permission from the Company. I'll now turn the call over to Michael Dan.

Thank you, Ed. Good morning, everyone. And thank you for joining today's call. The Brink's Company reported earnings from continuing operations of $0.64 per share up from $0.54 in last year's third quarter. Both of our security businesses contributed to the improvement. While we continue to face challenges in both businesses we remain on-track to achieve most of our goals for 2007. We're confident the strategy we have in place calls for continued investment in the growth of our two core security businesses as we pursue opportunities to leverage the Brink's brand into security related markets will generate additional growth in revenue, profits, cash flow, and value creation in 2008 and beyond.

Total revenue in the quarter rose 15% to $817 million. Net income from continuing operations was $30 million, or or $0.64 per share, up from $25.7 million or $0.54 in last year's third quarter. Figures for both periods exclude results from our UK-based ground operations, which were divested in August and are now reported as discontinued operations. This quarter's $0.64 in per share earnings includes an after-tax gain of $0.01 from Katrina related insurance proceeds. This gain was more than offset by an after-tax loss of $0.03 related to a legal settlement in our home security business and another $0.04 related to an asset write-down in one of our European operations. In addition, you may have already noted that the tax rate for the quarter of approximately 45% is well above the rate recorded during the first half of this year in the full year expected rate of 39 to 41%. Bob Ritter will comment further on this in a few moments. Last year's third quarter earnings of $0.54 per share included an after-tax charge of of $0.03 related to restructuring in Australia.

From an operating perspective the improved earnings this year were driven by higher profits at each of our two industry leading security businesses and lower costs related to former operations.

Let me shift now to the year. Our full year outlook for both units remains intact. At Brink's incorporated the cash handling unit that we refer to as Brink's, we should exceed our 2007 goal to achieve annual percentage revenue growth in the high single-digit range and margins should stay above 7% for the year. We're already at 7.4% year-to-date. As we look ahead to 2008, our preliminary expectation at Brink's is for continued revenue growth in the high single-digit percentage range with operating margins exceeding 7.5%. At Brink's Home Security we're on track to achieve our full-year target for revenue and profit growth above 10%. However, given the ongoing weakness in the housing sector, annual subscriber growth will probably fall short of our triple-double and be about 9%.

Overall, this business is performing well in a difficult environment by maintaining strict control over resources and costs while investing in our commercial business. The outlook for Brink's Home Security in 2008 depends in part on your outlook for the housing market. Assuming little or no recovery in the housing market during 2008 we think we can still deliver solid growth in our subscriber base although we'll likely again be slightly less than 10%. Revenue and profit growth in 2008 should continue to be at or near the 10% range.

I'll now comment in more detail on each of our two security businesses. I'll start with Brink's where third quarter profits increased about 4% to $53 million. Revenues at Brink's rose about 16% to about 693 million. When you consider the impact of a weaker dollar, the total revenue at Brink's rose about 10%. The overall operating margin for the quarter was 7.7%, down from 8.5% in the year-ago quarter, mainly due to weakness in Europe.

Regarding North America, revenue rose 7.8% to $224 million, while operating profits rose 4% to 17.8, which include a $1 million gain from the insurance proceeds related to Hurricane Katrina. The operating margin for the quarter declined slightly from 8.2% last year to 7.9% this year, primarily due to higher sales and marketing costs aimed at accelerating the growth of our cash logistics business which provides higher margin services such as [vaulting] accounting, reconciliation and other batch office functions to banks and retail customers. Results from global services were also slightly down. Growing our cash logistics business in the U.S. is an important part of our growth strategy. Globally, year-to-date revenue from cash logistics is about $314 million, up 15% over the same period in 2006. Year-to-date in our North American cash logistics business grew at a very similar rate. Accelerating this growth in the double-digit margins that come with it is a top priority. Providing what we call virtual vaulting a related cash processing services to local and regional banks and their customers is an exciting growth opportunity. We are beginning to make inroads with some large regional banks in the United States. Most encouraging, some large National Banks, most of which have their open very expensive vaulting infrastructures, are considering outsourcing more of these services to Brink's.

In our international operations revenue rose 20% to $469 million reflecting increases in all regions. On a constant currency basis revenue was up about 12%. Operating profit was 35.2 million, up about 4% over the previous year. Once again, solid growth in Latin America was offset by relatively weak results and a small write-down in Europe. The disappointing performance in Europe drove the profit margin for international operations down to 7.5% compared to last year's 8.7. The third quarter revenue for the European region rose about 18% to 306 million. Adjusting for currency again revenue rose about 9%. Operating profit declined versus the year ago period but showed solid improvement on a sequential basis over the second quarter of this year. As most of you know, the operating environment in Europe continues to be our greatest challenge. In August we completed the sale of our UK-based cash handling operations, we continued to operate in the UK through our Global Services unit very successfully. Improving results in Europe continues to be our number one priority and we will continue to be aggressive in our efforts to increase efficiency in countries where performance remains unsatisfactory. The biggest driver of the improved results at Brink's was Latin America where revenue increased 28% to 147 million. Operating profit improved in Venezuela and we continue to be very encouraged by the profit growth in Brazil, Columbia and other countries there.

Third quarter revenue in Asia Pacific rose slightly to 15.3 million, operating profit was also up modestly over last year's results which included a $1.2 million restructuring charge. Overall, it was a solid quarter for Brink's, but there's still room for improvement.

In North America it will be a challenge to improve upon 2006 results this year. But as we move into 2008, we should begin to see the benefits of our more focused and ramped up selling and marketing efforts, especially in cash logistics, where quarterly and year-to-date revenue growth of more than 10% over 2006 levels is already occurring. We expect a solid performance in Latin America to continue, but a more moderate growth rates. And as we always remind you there's more risk and volatility to be considered there.

In Europe, results are not improving fast enough for us. We are continuing to be proactive and taking additional steps to boost profits and returns.

In summary, in our many opportunities and challenges at Brink's, but despite these challenges we remain confident we will achieve our 2007 goal of annual percentage revenue growth in the high single-digits with a margin exceeding 7% and we are -- expect similar revenue growth in 2008 and I hope to see margins improve to over 7.5%.

Turning now to Brink's Home Security, third quarter revenue increased about 11% to to $124 million. Operating profit rose almost 9% to 25.5 million, with an operating margin of about 21%. The revenue and profit growth was driven by several factors, including the 9% growth in our customer base, an increase of about 3% in average monitoring rates, aggressive cost control efforts, and lower up-front costs due to a decline in installations. Third quarter profits were also constrained by a $2.5 million charge related to legal settlement expenses. The annualized disconnect rate for the quarter was 6.9% versus the 7.1% last year. We expect full-year disconnects to be in the range between 6.5 and 7%. Monthly recurring revenue rose a healthy 14% to 36.3 million, so future cash flow continues to grow. Brink's Home Security ended the quarter with a little over 1.2 million active customers, up 9.3% over the year-ago quarter. Year-over-year installation growth was a disappointing 1.6% due to the ongoing weakness in the housing market. Nevertheless, annual subscriber growth is likely to be around 9%. And we're well on track to obtain our goal of double-digit annual growth in sales and profits. Sustaining long term subscriber growth at or near double-digit levels ultimately depends on our ability to reverse the disappointing trend in installation growth. Any recovery in the housing markets would provide a tail wind for our internal marketing efforts. However, even if the current weakness in the housing market persists through 2008 we can still deliver growth in a subscriber base although, again, it will be slightly less than 10%. Our steady growth in the small commercial accounts continues on course, accounting for about 8% of this past quarter's installations. We continue to see 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 another solid quarter from an operating performance for the Brink's Company. Brink's will continue to pursue market opportunities in it's traditional armor car operations while expanding further into cash logistics where the potential for revenue and margin growth is greater. Hopefully, continue momentum in cash logistics will give North America results a needed boost. Of course there are always concerns as we look ahead. Efforts to turn around results in Europe are showing mixed results, and we have lots of room for improvement. And there is no guarantee that economic activity in Latin America will continue at its current pace. At Brink's Home Security our optimism is tempered by the realities of the housing market and its impact on installations, but we have a powerful brand, highly effective marketing and excellent customer service and we'll use these strengths to enhance our industry leading performance in residential security as we build our technical and sales capabilities on the commercial side.

Now, before I turn this over to Bob Ritter, I'd like to make a few comments about our company's strategy. During and since our last conference call on August 2, some of you have asked us to give you more insight into the process that we have followed in some of the factors which underlie the company's determination this summer to continue to pursue our previously stated strategy of growing our existing strong security businesses, focusing on accelerating the growth of high-potential opportunities within those businesses, exploiting the cash flow, brand-building and other benefits of operating the two premier businesses under the same flagship brand name and exploring the expansion of the Brink's brand into suitable security related businesses. My comments today relate to the process and thinking that led up to our announcement in early August. Having said that, let me remind you of our ongoing commitment to conduct a dynamic review of strategy on a continuous basis, both with and without external assistance, management and the board conduct routine and frankly non-routine reviews of where we've been and where we're going. We remain vigilant to changes in opportunities in markets. And as we told you before, if the board decides that the changing strategic direction is the right thing to do, we would announce that as soon as it is appropriate.

Let me give you some insight in the process that we followed that resulted in the July reaffirmation of our strategy. First, I'll tell you a little bit about our world-class advisors. We first explored values with Morgan Stanley when the sale process for Back's Global was initiated in late 2004. Since the collusion of that successful process, we have retained them continuously. The people at Morgan Stanley have provided valuable insight and advice to the board on numerous occasions. To this mix, we added Green Hill and Company this last year to provide their solid experienced perspectives on capital markets and corporate strategy totally independent of Morgan Stanley to ensure a broad second view of the best approaches to enhancing long-term shareholder value. Our advisors made an initial presentation to the board on the company in the alternative strategic directions less than a month after the completion of our $0.5 billion [reduction] auction share purchase in August 2006. Our advisors have met frequently with the board since then, and I mean frequently. Among other things, we have covered valuation issues, the pros and cons of strategic alternatives, insights into the markets, valuations of alternatives whether suggested by investors, management, in the board or other parties. We have provided the board with in-depth information about our business, competitors, performance and prospects, balance sheets and tax issues amongst many other things. The board reviewed the information provided to it, considered correspondence from investors and questioned the management and advisors. After following this rigorous process we found ourselves in July with a general consensus, although not without one public dissenter, that continuing to follow our previously stated strategy was the best path at that time to increase shareholder value or, to put it in other words, that the risks to values inherent in spin-off outweighed any argued benefit.

Now I would like to spend time reviewing a few of the factors we considered in our review. First and foremost, we firmly believe that shareholder value is created by sustainable operating performance and growth prospects. In evaluating a spin-off we considered that there could be a risk that it would lead to separated units with reduced resources and prospects to drive growth in earnings and cash flow. There are those who argue that separating the businesses will allow management to better focus on their business and receive compensation incentives which are more tightly tied to you're unit's performance. In our case, Brink's and Brink's Home Security have been run on a decentralized basis for over a decade. Management is highly focused on their operations and with the exceptions of stock options all the compensation depends on the performance of their units and their units alone. But one of the better indicators of management capability is what others think and say about it.

When people, including competitors, talk about Brink's and Brink's Home Security one of the first things mentioned is the already high quality of management each of these businesses has. As we have said on numerous occasions, we believe that the Brink's brand has a huge implication for performance. Brink's is known the world over to financial institutions, bankers and retailers. While Brink's Home Security has built a strong position with consumers here in the U.S. and Canada over the past 25 years. But the keyword in Brink's Home Security is the name "Brink's," not" home" and not "security." Rarely, if ever, do companies split a brand with the iconic status of Brink's. The reasons and concerns over the control, and treatment and use of the brand in the future, concern over reputation and risk, concern over future expansion projects as an example, we are already alarm monitoring on a local basis in several European companies using the Brink's name.

In addition, there would be royalty issues over the use of the brand if the company and the brand were split. This would create a substantial financial burden on Brink's Home Security. For these reasons we view the Brink's brand as do other companies with strong brands and have to consider whether value creation would be impacted by a split of the brand. Further, we believe that Brink's Home Security's performance could be affected without the Brink's name. Sales opportunities may be reduced while being more costly in the cost of installation, servicing and monitoring may not get the same boost from volume and the fixed cost-sharing that we experience today.

Next, we questioned the complete comparability of the comparables used by some in the investment community who are proponents of a spin-off. Although we agree that there are some similarities, the three major European companies to which we are usually compared Group Force Secure CORE, Pro Secure and Secure Task are predominantly guarding companies with approximately 60%, 70% and 80% respectively of their revenues coming from guarding. Many of you know that the guarding business typically have lower margins than well-run cash logistics businesses but, on the other hand, they have much lower capital needs. Accordingly, much more of their earnings are converted into current free cash flow than in our case where we continue to invest in the good growth, high return alarm business and expansion of Brink's into new products and services and geographies. We suspect that at least a portion of the valuation premiums that the so-called comparables enjoy stems from their current free cash flow generation, about 50% or more for some. In contrast, we're building value over the long run. We also saw concerns about capital costs and valuations if the companies were to be split. Post spin, each company would be smaller, less diversified and subject to greater volatility of performance. The rating agencies may likely view these as negative factors in the comparison to how we are currently positioned. One is already publicly commented on it. It is likely that Brink's could retain an investment grade rating despite retaining legacy pension and retirement medical benefit obligations. Credit rating would be important to both capital availability and to fund growth and to the purchasing decisions of many of the sophisticated customers who prefer working with vendors with investment grade credit ratings.

On the other hand, based on its relatively small size and cash usage the alarm monitoring business with require a sizable injection of capital from BCO or would likely face a decline in credit rating to below investment grade. This could hurt future performance prospects in two ways, first and the most obvious in the nervous credit markets as we are currently experiencing large amounts of capital would be unavailable to fund growth opportunities. Second, as it pushes into the commercial business, its credit rating as a vendor may become a more decisive factor in a buy decision. Finally, credit ratings at Brink's Home Security in particular, trading liquidity and performance volatility at Brink's could negatively impact equity market valuations in a spin-off. To summarize, today, I've tried to give you a better understanding of the process and some of the considerations which support our comments about strategy on our last phone call. Having said that, we do see substantial value in the Brink's Company. We're excited about our growth prospects, and we're committed to ongoing, rigorous process of considering and setting strategy and executing upon the selected strategy to increase shareholder value. As I said before, and as demonstrated by our actions over the past 10 years, management and the board are committed to the continuous consideration of our alternatives and the company's strategic direction may change in the future. If the change occurs you can be certain it will come about to the use of a rigorous process followed by well-informed people with objective, open minds. Now over to Bob Ritter for some additional comments.

Thank you, Michael. Good morning. And welcome to everyone listening in on this call. As Michael noted, the third quarter was a solid one from an operating perspective. And we remain on-track to achieve almost all of our previously stated financial goals for the year. But before I get started on the businesses, I would like to remind you that the revenues, expenses and operating performance for our UK ground operations have been reclassified to discontinued operations, both prospectively and for all historical information presented. To help you with your models, we have provided historical quarter-by-quarter, full-year 2006 and first half 2007 data as it would have been presented with the performance of UK ground operations reported within discontinued operations at Pages 13 to 18 of today's release.

Looking at the third quarter for Brink's, we reported third quarter margins of 7.7%. A good performance, although not as high as the 8.5% earned in the very strong quarter last year. With the solid performance of the quarter, and the reclassification of the UK, margins for Brink's year-to-date stand at 7.4%. Through the fourth quarter we should be able to move forward from this base towards a target for 2008 in excess of 7.5%. As for Brink's Home Security, growth as measured by new installations continued to be lower than we would like to see. But we're still generating solid growth in revenues and operating profits. Year-to-date we are up 9.9% for revenues and 18.5% for operating profits. Once again, we're pleased with the disciplined use of resources which has helped Brink's Home Security hold down costs and continue to perform so well. The one thing which marred the quarter was the need to record $2.5 millions in legal settlement costs and expenses. We believe the underlying issues have been addressed so we don't expect there to be an ongoing problem here. Now a brief comment on corporate expenses. We reported total corporate expenses of $14.3 million in the third quarter, up from the the $13.9 million expense in the year-ago quarter. As we told you in the second quarter teleconference, our option related expenses are heavily waited towards the third quarter each year. We expect total costs for the fourth quarter to decline somewhat as they did last year.

Now for taxes. You probably noted that our effective tax rate for the third quarter was about 45%. As we recorded adjustments to tax assets and liabilities resulting from revisions to tax laws, results of ongoing audits and adjustments to uncertain tax positions. We also had a bump from the positioning of earnings by tax jurisdiction. Even with these factors affecting the quarter, 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 $36 million in branches, trucks and IT systems, this is on top of the the $57 million spent in the first half. We expect spending to pick up somewhat in the fourth quarter, so we're tweaking our estimate for the full-year spend up to the range of $135 million to to $145 million. Brink's Home Security spending for the third quarter of $47 million and the first nine months of $135 million continues 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 just below the 95% plus or minus ratio we expect. As always the bulk of CapEx spending at Brink's Home Security goes to secure future recurring revenue.

As for depreciation and amortization, Brink's with $29 million in the quarter and $79 million for the first nine months is on track for the projected $105 million plus we expect for the full year 2007. Likewise, Brink's Home Security with $20 million in depreciation and amortization for the quarter is tracking towards the $75 million plus we previously forecast. I would like to remind you once again 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 for the quarter resulted in another improvement in liquidity. We ended the quarter with a net cash position of $40 million versus the 33 million net debt position we had at year-end 2006. Since the credit markets haven't shaken off their recent problems, we believe our balance sheet is an advantage for us since we have the capacity to pursue our growth strategy and take other actions to continue to build value for our shareholders. That's all I have for now. Diego, we are ready for questions.

Thank you. Ladies and gentlemen we will now be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS) . Our first question comes from Jeffrey Kessler with Lehman Brothers. Please state your

Thank you and thank you very much. I first want to say, Bob, it has been, oh, I do not know how many years, but it has been a long time and great working with you. You've been a straight shooter and I think you've been a great CFO. With that -- with that said I have some questions about, number one, your attrition rate in the third quarter and normally, seasonally it does go up in the third quarter. We would have expected that. But you did have a spike from an audit in the second quarter. Wondering if the -- just 20 basis point decline in attrition is indicative of -- of anything going on or should we have been seeing something a little bit more than that, given that there's less people moving?

Jeff, it is Bob. First of all, thank you for the very kind words. It is probably been a little over nine years since you and I met for the first time. But to deal with the question you have about the attrition, we think we were pretty much within the range of what we would expect to see in the third quarter. There were still some moves, but one of the things you'll also notice is that we've had -- there is a little bit more financial stress out in the community these days so we're actually seeing a slight pickup in the number of disconnects that we've had because of the financial stress that's out there. And we -- we believe it is well within the range of what we would anticipate. And so we actually considered the third quarter to be a pretty decent one from the disconnect standpoint.

And these disconnects are generally -- are -- are a range of items, of people not paying for a certain amount of time ranging to people completely walking away from homes?

Very few I think of the latter. It has primarily been people who are -- who will stop paying for a period of time. As you know, one of the things we also mentioned about the second quarter is that we have become more aggressive in the way that we are following our policies for disconnections if people are not living up to the terms of their contract. And so we're -- we're continuing that very tight control over what's going on out there, and that's leading to a slightly higher disconnect rate.

Okay. Second question, Venezuela is changing over its currency. What are the opportunities? I know that you've -- you've called for a moderation in growth over there in the last -- in the next year. The question is does that moderation growth include the business prospects for what might be an one or two quarter bump up in Venezuela business?

Jeff, we have been appointed by the government to lead the process of the distribution of the new currency and some of that expense could be front loaded in the fourth quarter and some of that benefit could come in the first quarter and obviously we're trying to -- we're going to benefit from it. How much that benefit is going to be is just unclear to us at the current time. But if there is an uptick in Venezuela, could be more than offset by some of the other he economic stresses that are you starting to feel from that country's policies.

Okay. And with regard to Brink's over in Europe, I realize you wrote a white paper years ago about Germany. You -- you and maybe a -- maybe a couple of your come patriots have, kind of fought for value added service being paid for to mixed success. The question is - - What is it going to take for company -- for countries, specifically places like the UK and perhaps places like the Netherlands, to pay for value or is Europe going to be a mixed bag for the next 25 years?

Well, Jeff, I don't have a crystal ball that goes out that far but we already made our decision on the UK. We've got the -- the stresses net market and a very, very strong market player just made it untenable for us on the domestic business and we're going on the domestic business. I will tell you that the reaction of the banking community over there turned out to be a little shocking that we took those steps, and they were more interested in when our non-compete expires more than anything else, which is -- which is interesting. Our mistake there was we tried to be a national player which was an inappropriate strategic move. I can assure you that that mistake will not be made again and we'll grow off the base of our successful global services that are currently continuing to operate there. As far as Germany goes it is the largest market in Europe, as you said it has been a long story in Europe. The market is beginning to recognize those differences.

We are beginning, finally, to get some reasonable relief on rates. I see improvement coming in Germany, although slowly. And when you are as deep in the hole as we are on the domestic side in Germany I'm not looking to to have the problem solved next year, unless there's a more major direction that takes place in that market, which I'm not counting on. It is still going to be a difficult [hoe]. The rest of the European entities have their challenges, but they are being addressed and we're seeing improvement year-over-year. But it is still going to be the major focus as we go -- continue this year and go into 2008.

Can you speak a little bit to Greece and to perhaps Eastern Europe?

Eastern Europe has been difficult for us. Greece is doing fine for us. Let me remind you that Greece is more of a guarding company than a cash and transit company. Let's not forget that. And we continue to grow there. And I am satisfied that it has been a good country to be in with a strong management team and our prospects are good there.

Okay. One final question, and that is on Brink's Home Security you are moving into the commercial area. Some companies, and I'm -- I'm unfortunately not allowed to mention the name, are moving into mid-to heavy institutional commercial areas which they think are more profitable and are less prone to having turnover in those accounts. Are you -- are your taking the care and the steps if you move into this light security, light commercial area, to maintain a vigilance on attrition? Because that seems to be the biggest problem in -- historically, in dealing with those types of accounts.

Yes. And as you know, Jeff, we have a lot of experience with those small, light accounts throughout our history and I will tell you that as we move into the mid-market I would call it commercial side we're seeing those attrition rates to be surprisingly similar to our residential rates to date. And once again it is a -- a new line of business for us. But I -- again, we get more cash up front and we tend to get higher monitoring rates, monthly recurring revenue and so we're really pouring the resources into that business. And I -- I think we're doubled -- by the end of this year we will have doubled our sales resources on the commercial side by year-end to give us a good start for 2008 because it is a very attractive, economic business for us to be in and a great growth opportunity for Brink's Home Security.

Okay. And finally is there any EVA difference in this -- in this market relative to what you've seen in the residential market?

Not at all. In fact, to date the EVA is a little bit behind residential but once again we're kind of front loaded on some of the expense side and I would tell you that I think that it is going to be a better EVA equation than the residential side as we stabilize. But we won't see that probably in 2009, 2010 as we built more depth and breadth there.

Okay. Thank you very much.

Thank you.

Our next question comes from Brian Butler with Friedman Billings Ramsey. Please state your question.

Good morning.

Morning.

Yes, first question, just when you talked about the virtual vaulting.

Yes.

Kind of opportunity, do you have any numbers as to what you think that total market might be?

It is -- it can be substantial. It can be substantial. We started with a smaller and regional banks, and have now grown with some very good strategic relationships with some of the larger banks who are able to expand their foot print through the use of our assets. We had trouble getting the attention of the major banks, and -- and what has been interesting is that the effect that the regional banks and the smaller banks have had on the customer base of the larger banks has gotten their attention. And they have now come to us and are trying to understand what are we doing and why on the sales and marketing side of the banks rather than the operating side and so we think there is a real paradigm shift going on here to our advantage with the more sophisticated virtual vault offering that we have.

Is there -- is there any other real competitors in that space, do the other cash and transit kind of players offer that service?

It is -- they are all trying to offer it. They are years behind our efforts. And they don't have the hone-in sophisticated compusave product that we have, which you know we've been marketing for years and the growth rate of that business is taking off as a result of this virtual vault and so I will tell you that the two product offerings that are out there, one is trying to be offered by one of the larger banks and the capital costs of that are five times the capital costs of our product. So I'm very bullish on how we're positioned and we have a -- first, a market and a time lead but more importantly we have a management group that understands it, gets it and is executing and executing siding up these strategic relationships with customers and there is a lot more stickiness with these cash logistics than with our normal CIT business.

Okay. And just when talking about opportunities, when you look at the commercial alarm business, I know that you are looking for an acquisition, what -- at what point in time, I guess, do you reach where the acquisition opportunities just are not there and you decide to really kind of go in by yourself and make a major investment in expanding that business?

We're actually doing that and, like I said, we've just doubled -- by the end of this year we'll have doubled our sales force, we're actually pursuing that strategy at the current time. We're not waiting. If we get something that can add value or benefit or resources or capabilities, we'll jump on it, I can assure, but were not waiting. Were not grow faster though, than we can manage to make sure we keep the economics of the program and the high quality standards that the market place expects from Brink's Home Security.

That suggests than potentially, that you might have some opportunity to leverage the balance sheet a little bit more for --

(inaudible).

For other opportunities, I mean is it still a sense that you are keep in that space for acquisitions or are you -- is there any other markets that you guys are looking at beyond commercial alarm kind of space for the security, leveraging the brand name?

Brian, this is Bob, I'll -- I'm take this one, we're -- besides the commercial side, we're also looking very aggressively within Brink's for ways to grow Brink's Inc's- type of businesses as fast at we can which, as we mentioned before, could lead us into different products and services and Michael spoke about virtual vault there as well as new geographies which will help expand our foot print and make us an even stronger global competitor but as we mentioned before we are also very interested in looking at other opportunities in the security -- in other security markets where the Brink's brand and the way we approach business can be a big plus. Having said that, we also have capacity, as we evidenced recently when we announced that we have 100 million share repurchase program that we can do other things besides just growing through acquisitions and growing organically to increase shareholder value.

Okay. And then just last question, kind of thinking about when you talked about the comps and not necessarily the -- the best matching, I guess it would be a two-part. One, while I understand kind of the disconnect there, when you think about it and you look at it on a return basis, I mean, Brink's has just done a tremendous job on a return on invested capital base on having mid-teens kind of returns versus some of these competitors that I would argue are well beyond that. Some inline with that, but others well below. And, you still have, I guess, a valuation discrepancy despite having better or at least vary inline kind of returns which I feel like evens out the -- the -- the differences between the free cash flow investing for the long term versus seeing that money on a lower capital base. I do not know if that was really a question, more of a comment but --

Brian, it is Bob, I will give you a comment back to a question, comment, whatever you want to phrase it. Don't take our words as saying that we're giving up. We -- we want to build value in this company, just like anybody else who has an interest in the company wants to do so. We want to use our balance sheet. We want to use the growth prospects that we have to do that. And what we are trying to point out today is that the -- there is a risk, we're constantly scratching our heads trying to understand how we fit in in the world of valuation and that is one of the things that we see as a potential risk out there and we just wanted to clarify with you what our feeling was.

All right. Well, thank you very much. I'll congratulate you on a good quarter.

All right. Thank you.

Our next question comes from Clint Fendley with Davenport. Please state your question.

Thank you, , guys, Michael you commented that the Global Services business was down slightly for the quarter. I wondered if you could give us some color as to why, and what your expectations are there going

I think it totally has to do with the global economic conditions, first of all the price of gold, as you know, is at record levels and when gold prices, commodity prices tend to speak, movement tends to slow down. People want to wait to see where it settles. That is one issue. The second issue was there was an extensive amount of Jewish holidays that fell in the quarter this year, more than normal, just by the timing of the calendar there, which affected that business because diamonds and jewelry is a good portion of it. And then there was some cash flows where we moved currency around the world, which were very, very strong last year, particularly pertaining to the Middle East which have slowed down year-over-year.

Okay. So as we look forward to -- to '08, obviously you've increased your margin outlook from what you've had over '07. Is most of that being -- is most of that attributable to the cash logistics side of the business then? And could you talk a little bit about maybe the growth that you -- you're expecting there.

And also Global Services business is especially in the UK is taking a very, very dominant position and expanding very, very rapidly. So I think that those are the two factors that give us the confidence, higher margin business, which Global Services and cash logistics and the growth rates and the momentum that we're seeing build as we go through this year. Remember, we front loaded cash logistics, sales and marketing this year. We increased our marketing expenses by millions of dollars in the United States and reorganized that group, and we're starting to get the traction from it but we'll see much more of it in '08 than we saw in '07.

On a -- on an overall basis what percentage of Brink's Inc. should we expect Global Services and the cash logistics to comprise?

It is probably currently somewhere in the 40% range, 45% range somewhere off the top of my head.

Okay. And a question quickly on BHS. You mentioned with the previous caller that you had doubled the sales force on the commercial side. About how many people do you have in that area now?

I think -- I -- I -- don't hold me to this, but I think we'll be approaching over 60 by the end of this year. That's our goal. Now, remember our normal residential sales force is selling the small commercial, we've been doing that for years, I'm talking specifically about those people going after what I call the mid-market range.

Okay. That's helpful. And then a final question on Cob, obviously we had the share repurchase announcement during the quarter but not much activity. Were there any blackouts or reasons as to why? And talk about maybe even the time line for how the purchases might play out here.

Well, Clint, as you know, the boards authorized the share repurchase program on September 14, which is getting very close to the end of our third quarter, and going forward we're intending to consider repurchases opportunistically in the best interests of all of our shareholders.

Okay. Thank you, thanks, guys, nice quarter.

Our next question comes from Steven Fischer with UBS. Please state your question.

Hi, good morning. Just a clarification here, your forecast for Brink's revenues in 2008 is that on a constant currency basis?

Yes, we're basically what we're trying to do for you is give you a look at the organic revenue growth that we -- that we expect, that way if you want to layer on a different forecast of your own from a currency standpoint or acquisitions as they come on later, that would be additive, or currencies go the other way it could be a negative to it.

Okay. So on an organic basis, probably similar to the third quarter that you just reported?

Right. Because -- yes, that is one of the things that we think is helpful for you, the table that we put that breaks out organic versus exchange related growth.

Okay, great. And then on the cash logistics, now that you have the attention of some of these larger banks, just wondering if you could talk about what some of the push back is that you get from these potential customers, are they struggling with services conceptually or is it more costs, the actual logistics of doing it or really no concerns at all?

Well, the smaller banks, the regional banks, it is a big plus for them because they are able to offer their services to customers on a national basis where they are unable to do that before, so it is a real big plus for them. The larger players who already had a huge investment in foot print, they did not see it as necessary because they had the foot print. But what is happening is that they are getting a more competitive environment as a result of the regional banks, and it's kind of an interesting dynamic change and obviously the larger banks are our larger customers and so we're very pleased that we're able to open a discourse with a broader level of bank management and different levels of the bank management than we had before.

And -- and do you think you will can convert some of these major banks in 2008?

Whether we can do it on the basis of some of the regional where we take it over 100% of their vaulting, I would doubt it. We are already dealing some of this for the major -- the top three banks in areas where their foot print is not as strong with their physical assets. Were already doing work for them, now can we expand faster will be the key question for 2008. I have not built that into our forecast.

Okay. That's helpful and then lastly on the corporate expenses, I think, Bob, I mentioned last quarter that the comp expense piece of it would be about 5 million for the third quarter. Was that about the casse and that does that mean that you are running at about 9 million a quarter on the rest of the corporate?

That is about accurate except we're always subject to situations we're in with our active shareholders where we're continuing to engage outside advisers to make sure we're doing the right thing and those could impact those expenses.

Got it. Great, thanks a lot.

Thank you.

Our next question comes from James Clement with Sidoti & Company. Please state your question.

Good morning, gentlemen.

Hi.

Michael, with -- with respect to Brink's Inc. in Latin-America how much visibility do you have down there? And, looking out to 2008, I don't think anybody would be -- would be upset if the current rate of growth down there was not sustainable and moderated a little bit. But ask you talk a little bit about, where you see that market long-term and just give a little bit more color on on sort of a two to three year outlook of the opportunities you still see down there to grow.

Well, first of all, every country is different. Venezuela has its own risks, as we're all aware of. Columbia had a huge influx of economic activity starting last fall that really spiked up and came through the first half of this year. And I -- we're seeing that tail off a little bit. Argentina, there's some concerns with inflation pressures down there which really -- can be a positive for us in the long-term. There's upside opportunity for us in Chile and Brazil continues to steer a good course with a good turn around, creating strong opportunities for us. We've went through a bad period in Brazil for a couple of years, we had to shrink the business and that business is expanding and growing again and we're pleased with that.

Okay. Thanks -- thanks very much for your time.

One other point I'd like to clarify, somebody had asked me and I told you not to hold me about our commercial sales force, it was 60. And it will -- we'll double it by the end of this year to 120 commercial sales professionals.

Okay. Next question.

Our next question comes from Jerome Lande with Millbrook Capital. Please state your question.

Good morning.

Good morning, Jerome.

I was confused by what you said, Michael, in the discussion of the reasons not to split the company with regard to synergy of earnings and cash flow between the two businesses. You mentioned their decentralized operationally. I understand that both businesses are cash flow positive.

At the end time, both businesses are cash flow positive only because of the slowdown, Jerome, at Brink's Home Security because of the current housing market which has made it cash flow positive because our installation rate has slowed down and as you know by our business model, the faster we grow, the more investment that we have. But if we return to the normal growth rates on new subscribers it would probably be neutral or negative. And with our growth and our push into the commercial area, it would definitely be negative, which would require, when we did our analysis for a capital injection to make sure it had stability or that the growth prospects could be impacted as I discussed previously.

So -- so then the 1% difference in growth in BHS has switched you from negative cash flow to positive cash flow?

Yes. It is -- it is actually that powerful, because if we manage it right, which is what we've done this year. Our people have done a very good job in -- in maintaining good controls over the up-front costs, both of selling and marketing and then installation side. And if you -- if you do that right, as you slow down growth, obviously you can generate some cash.

Okay. And the -- the advisors from Morgan Stanley and Green Hill, were they retained by the company or the board?

The same. I do not see the distinction or the difference.

Well, I disagree. I think if you asked the bankers, they would see a difference. What does the agreement.

The company retained them. The company is run by the board of directors. And the management. So I do not see the difference, Jerome, I'm sorry.

Okay. Well a lot of times you'll see advisors retained by the board to be independent of the company and management, but that is not for today. Thank you very much.

Thank you, sir.

Okay. Our next question comes from Karin [Budyeah] with Fox Hill Capital. Please state your question.

Hey, guys, congratulations on the quarter. I have one question. Could you quantify a little bit the opportunity on the commercial side, both on the top line as well as the investment required and also if you could go further and could you elaborate where the company has any metrics with regard to return on invested capital, with regard to any new opportunity that the company may actually focus on?

All right. On the commercial side, we see that as a great opportunity to expand the Brink's brand name into a sector that is -- has this -- the same economics or better economics than our current residential business, hence our ability to do it. Now that market is as large a market or larger than the residential market and continuing to grow and concern about security and access control and digital monitoring in today's world is -- shows a stronger growth rate than we see on the residential side, so it is an attractive market. What we're trying to do is to maintain our disciplined approach to make sure we grow as fast as we can, or look for acquisitions in that space to maximize shareholder value without losing the economic discipline that we're after. We believe, I strongly believe that the EVA, the economic value added on the commercial business will be better than the residential business with our approach and the strength of the Brink's brand name.

Could you elaborate why the EVA should be better than the one on the -- the residential?

Yes. Because there will be less up front investment in a commercial account than there is in a residential account.

Okay. Could you quantify the opportunity though? Like, how big? I know you guys don't provide any guidance with regard to the new venture, but can we assume that the three years, that the revenue would be, like, split?

The revenues -- well, hopefully it will be over 25% of our revenue in -- in Brink's Home Security, but that is -- without acquisition.

Just organic. Okay. Thank you very much.

Okay. Thank you.

Our next question comes from Wayne Archambo with BlackRock. Please state your question.

My question has been answered. Thank you.

Thank you.

Our next question comes from Tassos Recashinas with Pira Capital. Please state your questions.

Good morning.

Good morning.

This question is for Michael. I guess, Michael, you spent a considerable amount of time on this call describing your analysis of the split and Morgan Stanley, your advisor, presumably incorporated all of the risk that you described when they formulated their valuation of the post split company, their estimated post split valuation should therefore serve as a objective and quantitative measure of both the risks and benefits of a split, with that said, can you please disclose to us what Morgan Stanley estimated the post split value of the company would be?

I've already addressed the argued benefits of a spin and commented on some of the mitigating factors and risks. There are those who would argue that there would be a bump in value using different assumed multiples and market valuations, there are those who argue that better management focus would discount and on and on and on as I've already said and I want to repeat what I've already said. Of course I'm not going to comment on any confidential board process or disclose any confidential advice that was given through that process.

Okay. I think that while your results were generally strong today, the reality is no matter how well the company does operationally, Wall Street will always attribute a significant discount to your stock due to the conglomerate structure. In given that you won't disclose what Morgan Stanley values the split company at, other publicly available estimates suggest that a split would unlock substantial value, despite this you continue to oppose a split and since you first disclosed your opposition to a split last quarter your CFO unexpectedly announced his retirement and your second largest shareholder MMI announces it intends to nominate four directors at your upcoming annual meeting. So my question now is if MMI is successful in electing it's four nominees' to the board and effectively removes you as a Director and Chairman of the Company, will you resign as CEO of the company?

First of all, the purpose of this call is to talk about our earnings, and not to provide a stage for a distant shareholder to comment or draw me into a discussion that is inappropriate for this call. If someone decides to nominate a slate of directors and wage a proxy fight, which one shareholder has already announced, we will deal with that in due course and see how things unfold at that time.

Thank you.

Thank you.

Our next question comes from John [Reardon] with Crowell Weedon.

That is Crowell Weeden in Los Angeles, California. Congratulations on a solid quarter.

Thank you.

Getting back to your announcement on the $100 million stock repurchase. From your comments I gather, because it came at the end of the quarter that there have been no purchases, repurchases made yet. Is that correct?

We disclosed today that there were no repurchases made through the end of the quarter.

Okay. So this $1million, this is something that you are going to use on an opportunistic basis going forward. Is that correct?

Yes it is.

Okay. Thanks a lot.

Our next question comes from Jason [Fortson] with [Cohes] Capital. Please state your question.

Hi, you pointed out the analysis that Morgan Stanley and Green Hill did in valuing the security alarm business. Is one of the metrics that they used is steady state operating cash flow in valuing it. I do understand your point about being able to look at this and comparing companies on an EBITDA basis, given the different businesses but that seems to be the best metric in the security alarm space. I'm wondering if they gave thought to that?

They took everything into consideration. One of the things I would like you will to do, okay, is, Jeff Kessler is kind of the Dean on coming up with that forward on valuation and published a piece recently having to do with the sum of the parts value of our company, one of the things that you might want to doodle with there is to take Jeff's formula and apply it to the comps that he used in that publication. And come up with-- any term that you want to come up with but let's call it an undervaluation ratio or something, because we've done that. And I respect Jeff's work. But those comps that are closest to Brink's Home Security will show that they are more, quote, undervalued than we are. As an example, Tyco, which was used in Jeff's report, if you use his same formula, exact formula, right? Was 67% undervalued. That same formula that Jeff used put us at 50. Put Secure Cost Direct at 50. And so it is a metric. It is a way to look at it. We believe it is a great metric. But from a valuation perspective, I think you will be surprised if you take that formula and extend it yourself to see a similar disconnect to a degree that -- as Mr. Ritter said before, sometimes we scratch our head about, but we think the markets are efficient and over time will recognize the value we're building for our shareholders.

Thank you.

Thank you very much.

Ladies and gentlemen, this concludes today's conference. Thank you all for your participation. All parties may disconnect now.