Brinks Co (BCO) 2007 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Brink's Company fourth quarter results 2007. (OPERATOR INSTRUCTIONS) It is now my pleasure to introduce your host, Mr. Ed Cunningham, Director of Investor Relations and Corporate Communications for the Brink's Company. Thank you, Mr. Cunningham. You may now begin.

Thank you, Latonya. Good morning, and thanks for joining today's call, which will proceed as follows. CEO, Michael Dan will review and comment on financial results, outlook, and strategy. Then Bob Ritter, our CFO, will make some follow-up comments before we open it up for questions.

An earnings release was issued this morning and is available on our website at brinkscompany.com. If you wish to have it faxed, 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 or estimated results. 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. The Brink's Company assumes no obligation to update any forward-looking statements made during the call. The call is a copyrighted work of the Brink's Company and may not be used by a third party without permission from the company.

I now turn it over to Michael Dan.

Thanks, Ed. Good morning, and thank you for joining today's call. I'm very pleased to report that the Brink's Company set new all-time highs for both fourth-quarter and full-year earnings. More importantly, we believe that both of our operating units are positioned to deliver even better results in 2008.

Fourth quarter earnings came in at $54.4 million, or $1.16 per share, up 37% from the $39.6 million or $0.85 last year. Total revenue in the quarter rose 18.5% to $882 million. The improvement was primarily to outstanding results from Brink's international operations. Latin America posted another strong quarter, and we were particularly pleased with results in Europe where there's still room for improvement.

Our 2008 goal for Brink's, Incorporated, is to achieve organic revenue growth in the high single-digit percentage range, and we've increased our operating margin target from 7.5% to 8% or better. Looking beyond 2008, to the end of 2010, our goal for Brink's is to sustain a high single-digit revenue growth rate while boosting the annual operating margin to 10%.

At Brink's Home Security, the fourth quarter were up slightly despite a difficult operating environment. Nevertheless, our revenue and subscriber base continue to grow, and our 2008 outlook has not changed. We believe Brink's Home Security can deliver solid growth in its subscriber base, although it will likely again be less than 10%. However, we expect revenue and profit growth in 2008, to continue to be at or above the 10% mark.

Our positive 2008 outlook for the Brink's Company takes into account the current uncertainty regarding the U.S. economy, which should be buffered by the global diversity of our operations. We recognize that the domestic economy is slowing, and we do not expect housing markets to recover in 2008. However, it's important to remember that about 60% of the Brink's Company's total revenue is generated outside of North America.

Assuming that the current softness in the U.S. does not worsen materially and then spread to Latin America and Europe, we believe that the Brink's Company is well positioned for continued profit growth in 2008, and beyond. Bob Ritter will provide some additional perspective on our outlook in a few moments.

I'll now comment in more detail on each of our two security businesses. I'll start with Brink's, Incorporated where fourth quarter profits were up 40% to about $76 million on a 20% revenue increase. Profits rose almost $22 million, mostly due to higher revenue and operating improvements, but also because of lower safety and security costs at a benefit of about $5 million from exchange rate differences. The overall operating margin for the quarter was 10.1%, up from 8.7% in the year-ago quarter. Simply said, operating management delivered.

Profits were up in all regions and were especially strong in Latin America and Europe; the primary reason for this higher volume and operating improvements. However, lower safety and security costs were another important contributor to these outstanding results. This is a direct result of actions taken by management and employees to focus on our most important priorities, keeping our people safe and protecting our customers' assets.

In North America, revenue rose almost 8% to $232 million, while operating profit was up a little over 10%, at $19.6 million. The operating margin for the quarter improved slightly to 8.5%, as lower employee benefit costs in the U.S. and higher profits in Canada were more then offset slightly -- by slightly lower results in global services and our higher selling and marketing expenses in the U.S., which were focused on our cash logistics business model shift. Our U.S. units' improved safety performance was impressive.

A slowing U.S. economy may temporarily delay improvement in our U.S. Global Services Unit. However, we still expect 2008 results in North America to improve, as we continue to grow cash logistics, which includes the higher margin services such as vaulting, same-day credit of accounts, CompuSafe, and a variety of other back-office accounting and reconciliation functions. By outsourcing these functions to Brink's our customers are realizing significant cost savings. It is our belief that in a slower economic environment, our banking and retail customers have even greater incentive to increase efficiencies by accelerating their outsourcing efforts.

Growing our cash logistics business in the U.S. is an important part of our overall growth strategy and we're making tangible progress. In 2007, global revenue from cash logistics grew 16% to $434 million, with North America growing at a similar rate. Accelerating this growth and the double-digit margins that come with it, is a top priority.

In our international operations, fourth quarter revenue rose 26% to $525 million, reflecting increases in all regions. On the constant currency basis, revenue was up 14%, operating profit rose more than 50% to about $57 million. Higher profits in Europe and Latin America drove the profit margin for international operations up to 10.8% verse last year's 8.9%. The fourth quarter revenue for the European region rose 21% to about $329 million. Adjusting for currency fluctuations, revenue rose about 8%. Operating profit was up substantially verse the year-ago period.

As most of you know, the operating environment in Europe continues to be challenging, but it's also an opportunity that is gaining momentum. Sustaining this momentum is another top priority that our confidence and our ability to continue executing is reflected in the improved outlook in 2008. I assure you that we'll continue to be aggressive in our efforts to increase efficiency in those countries where performance remains below par.

In Latin America, revenue increased to $179 million, up 36%, or 27% on a constant currency basis. Operating profit was up significantly over last year, primarily due to improved performance in Brazil, Colombia, and Chile. In December, our people in Venezuela began the process of converting to a new currency there. They have been working very had and are doing a great job. This conversion should help boost revenue and profits in the first quarter, as it also contributed to the fourth quarter results in 2007.

Fourth quarter revenue in the Asia Pacific rose to $17.2 million, up from $13.8 million, or 24% in 2006. Operating profit also improved over last year's results.

In summary, it was an excellent quarter for Brink's, Incorporated, and we look forward to continued growth in 2008. In North America, we should begin to see the benefits of our more focused selling and marketing efforts, especially in cash logistics, leveraging our footprint IT capabilities in new product offerings. We expect the solid performance in Latin America to continue, but at a more moderate growth rate, as we always remind you there's more risk and volatility to be considered there. In Europe, we will continue to be proactive in taking additional steps to boost profits and returns.

As I mentioned earlier, barring a severe downturn or slowdown in the U.S. that spills over into international markets, we are confident that we will achieve our 2008 goal, an annual percentage revenue growth in the high single digits and profit margin of 8% or better.

Now turning to Brink's Home Security. Fourth quarter increased almost 12% to $126 million. Operating profit rose slightly to about $30 million, yielding a profit margin of 23.6%, down from a very strong 25.7% margin in the year-ago quarter, as we tested higher marketing expenditures and continued to support the growth of our commercial alarm business. These expenditures largely offset our cost-control improvements and the reduction in up-front costs related to slower installation growth. In short, we are balancing current results and investments for future growth and success.

The revenue growth was driven by several factors, including an increase of about 9% in our customer base and an increase of about 3% in average monitoring rates. The annual disconnect rate for 2007, was 7% verse the 6.4% in 2006. The increase in the rate was due primarily to the expiration of monitoring contracts related to the multi-family housing units. Bob Ritter will talk about this in a few minutes. In 2008, we expect full-year disconnects to range between 6.5 and 7%.

The monthly recurring revenue rose a healthy 12% to $37.2 million, so future cash flow continues to grow. Brink's Home Security ended the quarter with a little over 1.2 million of our valued customers, up almost 9% over the year-ago quarter. Installation growth for the quarter was only about 1% due to the ongoing weakness in the housing market. Sustaining longer term subscriber growth at or near double-digit level ultimately depends on our ability to reverse the downward trend in installation growth. A recovery in the housing markets would certainly provide a tailwind for our marketing efforts. However, like most people, we're assuming that the current weakness in housing persists through the rest of 2008. Nevertheless, we can still deliver solid growth in a subscriber base, though it will again be less than 10% in 2008.

Our steady growth into the small commercial accounts continues on course, counting for about 9% of the 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.

Our optimism regarding Brink's Home Security is tempered by the realities of the U.S. housing market and its impact on installations, but we have a powerful brand, highly effective marketing, and excellent customer service. We will use these strengths to enhance our industry-leading performance in residential security as we build our technical and sales capabilities on the commercial side.

In summary, we believe that our outstanding fourth-quarter and full-year results clearly demonstrate the earnings potentials of our two businesses. With our very strong balance sheet and we have borrowing capacity to pursue additional growth in our two security businesses, as we seek opportunities to use our brand to penetrate new security-related markets, we are strongly positioned to pursue a variety of opportunities, while continuing to deliver consistent and substantial growth in earnings and cash flow in 2008 and beyond. As long as we execute and we have a proven record of doing so, I'm confident the market will recognize the earnings and its cash generation potential of the Brink's Company, and our shareholders will be rewarded accordingly.

At the same time, shareholders can be assured that we are reviewing, with the help from our advisors, alternative strategies that may further enhance value. During the last two quarterly conference calls, we provided what we believe to be meaningful insight into our review process and to some of the factors that underline our approach in considering strategic alternatives. Since then, on November 28th, we announced that the Monitor Group, an international consulting firm, was retained to assist in a re-evaluation of all strategic alternatives. This review is ongoing and we expect the board to consider analysis and recommendations from the Monitor Group and our other advisors during the first quarter of 2008.

The alternatives under review run the gamut, from the aggressive pursuit of our current strategy to the existing proposals from shareholders, including additional share repurchases. If our board determines that any of these options or some combination thereof is in the best interest of all of our shareholders, we will pursue it at the appropriate time.

In closing, I hope you come away from this call with two very clear messages. One, we are very excited about our current growth prospects and see substantial value creation opportunities. And, two, that we adhere to an ongoing, rigorous process of considering potential alternatives that may increase shareholder value. Ultimately, we will pursue those strategies that we believe best serve the goal of creating value for all of our shareholders.

As we have demonstrated by our actions over the past 10 years, management and the board will remain committed to continual consideration of alternatives, and the company's strategic direction may change in the future. If a change in strategy occurs, you can be certain that we will make the appropriate disclosures in a timely fashion. More importantly, our shareholders can be certain that any and all decisions regarding strategy are the result of a rigorous process being followed by well-informed people with objective open minds and will be made in accordance with our good-faith business judgment of the best interest of the corporation and all of its shareholders.

I will now turn it over to Bob Ritter, and afterwards we'll take your questions. Bob.

Thank you, Michael. And welcome to all of you who are listening in on this call. As Michael said, results for the fourth quarter and the full year 2007 were pretty impressive. And rather than take too much satisfaction from that, we've used the results and the momentum behind them to set the bar higher. In Brink's, Incorporated, we topped a strong 2006 with its 7.8% margins by achieving 8.2% for the full year 2007. The fourth quarter's margins of 10.1% run usually high, having been aided by continued strength in Latin America and very good safety and security performance. You shouldn't expect every quarter to be like this, or for this quarter to be the base for 2008. However, it's good to use this as a proof of our goal of increasing margins substantially by 2010.

As you set your sights on 2008, I want to remind you again that we manage by the year, not by the quarter. First quarter results typically reflect a lower margin than is achieved in the preceding fourth quarter. But as Michael noted, we have a little tailwind here from the currency conversion activities in Venezuela. As we look at the year 2008, on balance, there may be some concerns about economic activity, but our credibility and the strength of our offerings has put us into a good position to rapidly grow cash logistics here in the United States.

In addition, there is still room to improve performance in parts of Europe. On the other hand, Latin America's growth and performance has been very strong. At some point one would think it should moderate some.

At Brink's Home Security in the quarter just ended, we just beat out the very strong quarter of a year ago. However, the full-year's results demonstrate the cost discipline our people have. They took a tough housing market and managed our resources to what was available. The result was a solid improvement in margin and even some cash generation. I will point out that the disconnect rate of 7% was higher than we've become accustomed to, but there were two factors that drove the rate up by about 60 basis points, even though they had no earnings implications. The first was the 2,200-or-so technical reconciliation adjustments that we told you about in the second quarter of 2007. And during 2007, we also experienced the cancellation of about 4,500 multi-family housing units, as the contracts related to them came to an end. Since assets and deferrals related to these contracts are completely depreciated or amortized during the contract term, there was nothing left to hit P&L. Because we didn't like the economics of the multi-family line as well as our other channels, we de-emphasized it a couple of years ago. We're not particularly concerned about those disconnects. For your information, there were fewer than 300 multi-family disconnects in 2006.

Looking ahead, 2008 will be another year that requires the careful balancing of demand with resources, something we believe that Brink's Home Security is good at managing.

2007 was also a good year for our legacy liability situation. Investment performance in the pension trust for our primary U.S. pension plan and in the VEBA Trust, although not outstanding, was solid. This, combined with an increase in the discount rate used to value the associated liability balances, left us in pretty good shape at year end. We're still reviewing the year-end actuarial work and reconciling some figures, but I think we are likely to see sizeable improvements in the funded status of the U.S. pension plan and the company-sponsored retiree medical benefit plan.

This should help lead to another drop in cost of former operations in 2008. Such costs totaled about $14 million in 2007, and in last year's form 10K, we had projected 2008 expenses of about $8 million. From the information I've seen to date, we should do better than that.

As to corporate expenses, 2007 results reflect just under $50 million in spending. I'm currently expecting a heavier spend in 2008, as a result of higher professional, legal, and advisory fees. Keep in mind that much of this extra spending will occur in the first two quarters of the year.

Over the last two years, we have seen some favorable developments on the tax side. The rate for 2007 was 37.3%, while for 2006 it was 38.7%. Basically we're seeing a more favorable distribution earnings around the world than we've seen in the past. A higher percentage of earnings are being generated in countries with lower average tax rates. In addition, losses in countries where we have established valuation allowances on tax benefits have declined, and, in a few cases, changed over to earnings. Because of this, I'm hopeful that we won't have to use the word 40 any more when we discuss our effective tax rate. We're starting the year with a forecasted rate in the range of 37% to 39%.

Now for my normal comments on cash flow items. For the full year 2007, Brink's spent about $142 million, right about in the middle of our last forecast. I'd like to remind you that this spending is going into branches, trucks, IT systems, and CompuSafes. These investments permit us to keep growing as we've been doing, to provide the high quality service we are known for, and, mostly importantly, to protect our people and to provide the physical foundation for our safety and security performance.

Another key factor in 2007's increase in spending and one which will carry into 2008 and later years, is a need for IT and CompuSafe expenditures, to support the existing potential we see for cash logistics growth, particularly here in North America. With this being said, we expect spending in 2008, to range between $155 and $165 million.

Brink's Home Security's spending for the year 2007 hit $178 million, in the lower half of our previously forecast range. Frankly, I would have liked to have seen it higher, because that would have meant more subscribers and more future cash flow. But our people have to manage to what is available. I will point out that the spending on installations went up at a higher rate than the number of installs. This was due partially to mix and partially to the slower pace of installs, which keeps us from spreading unit costs as effectively as we would like.

Looking ahead to 2008, we currently anticipate spending from $185 to $195 million at Brink's Home Security. On the depreciation and amortization side, Brink's finished the year with just under $110 million of depreciation and amortization. The outlook for 2008 should run from $125 million to $140 million, depending on exchange rates.

Brink's Home Security generated about $78 million of depreciation and amortization in 2007. 2008, should be in the $85 to $95 million range. Now, remember there was other cash flow information related to Brink's Home Security on page 11 of today's release.

Now for some comments on the capital structure. We demonstrated once again in 2007, the impressive cash flow generation capabilities of the Brink's company. You'll notice on page 11 of today's release that we went from a net debt position of $33 million at year-end 2006, to a net cash position of $84 million a month ago. Although I'd rather not be overly avert in today's difficult credit environment, I can assure you that Michael, the rest of the board, and management are keenly aware of our current leverage position and cash flow capabilities. As Michael noted earlier, this is a key area of focus in our review of strategic options.

That's all I have for now. Latonya, we are ready for questions.

Thank you. Ladies and gentlemen, we will now conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) Our first question is from Jeffrey Kessler with Lehman Brothers. Please proceed with your question.

Thank you. Before I begin, I just want to say, Bob, I don't say this very often, maybe once every five or ten years to a departing CFO. But it's been a real pleasure working with you, and, despite the fact that you've been maddingly FD at times, the fact is, you're one of the best CFOs that I have worked with, and I do want to thank you for all the help that you've given me as an analyst working with this company for the last few years.

Jeff, I'd like to just cut in a second. I appreciate what you said, but I'm still here and still working away, and I still expect to be answering questions for several months. So --

Well --

-- I'm sure I'll talk to you again.

I'm just saying it now. In any event, getting on to the more mundane stuff. Can you -- can you guys give me some idea of what was it that drove a 25.7% margin in BHS last year? That was kind of historically high, made the comp really tough, and you weren't going to be able to beat that. And I just want to have an idea of what was in it last year that made it so good?

Jeff, it's Bob. The -- if you look at last year's results, the normal ongoing operating margin was pretty similar to what we would normally experience. The key factor last year was the, I guess the curse that comes from a slowing build. And that with the lower installation growth that we had in the fourth quarter last year, we were very good at managing our costs down, and, as a result, the upfront investment costs that we normally would record when -- for new subscribers was very low in that quarter.

Right. So last year's fourth quarter was the first indication of a slowdown, and you got the benefit of GAAP, effectively, by having lower installs?

But, actually, I think it was like the second or third quarter where we started to see slowing, but it was really the first quarter where we had a really big drop in terms of installations. But our people, as I said before, did a great job of managing that.

Jeff, I want to add to that, that we -- I mentioned in my prepared remarks that we really increased the advertising spent in the fourth quarter, trying to jump-start our installation growth this year, which pulled that margin down a little bit. And don't forget that we've been gearing up on the commercial side by hiring a substantial sales force, which affected that margin in this quarter.

I take it you're -- I take it you're willing to drop, effectively drop the multi-family business, replace that with small commercial -- small commercial and mid-size commercial business. Is there a -- is there a replacement factor in terms of the margin that we're going to be dealing with there.

The margins tended to be the lowest with the multi-family business, Jeff. And we made a decision, actually two years ago, to have zero advertising spend into that market, but to continue to service our installed base and our valued customers. And what happens is, is if, you know, a large building complex will decide to not renew, which is what's happening this year, which affected our disconnect rates, we might have 12, 13 hundred disconnects with one account. But once again, these people weren't paying us, our $30 range monthly monitoring. They were probably paying somewhere around $6 or $8 per installed unit. So it's just a business that we have chosen to basically wind down and exit.

Okay. Along with the higher spend in trying to get a new customer in a tough real estate environment, you're also getting a lower amount of people moving. One would expect that maybe your disconnect rate, which has been a little bit higher than normal, might come down a little bit because of less movers, unless there are enough people dropping out simply because they are dropping out of their homes. Is that one of the factors why the disconnect rate isn't in the 6 to 6.5 area?

That's one, Jeff. But that's also a double-edged sword, because when somebody does move, that creates an opportunity for us to follow that customer and re-sign the customer who moves into the house. That keeps our disconnect rate low. So it's kind of a double-edged sword. And I think the up tick in the disconnect rate, besides multi-family, the primary driver that we've already identified is that there's some financial stress in the -- our marketing space, and our financial disconnects have shown some increase.

Okay. Moving over to the Brink's side. Firstly, in the currency conversion going on in Venezuela, if you recall, back in the good, old days with the euro, you guys made a bundle in a short period of time a couple of quarters, but then you had to pay for it for another several quarters in terms of the -- in terms of severance and dealing with getting rid of employees who no longer worked.

Have you prepared yourself better this time, particularly since this is a smaller country that you're dealing with here, for, number one, the surge in business, but, more importantly, what happens after the surge in the use of those workers?

First of all, Jeff, it's a totally different situation than Europe. Obviously, one, the labor laws are much, much different, so it's very easy to bring on additional help when it was required. And remember, we have basically finished the outgoing distribution of the new currency, which was done before January 1st. We're now dealing with the returns of the old currency. But the labor flexibility available in Venezuela and most of Latin America is substantially different than Europe. And so we don't expect to have those difficulties at all in 2008.

All right. Finally, CompuSafe growth. It sounds -- you've talked more about CompuSafe in this conference call than you have in the last two or three combined; not that you haven't talked about them before -- talked about it before. But it sounds like you feel comfortable in saying that you're now -- you've found enough -- you've found enough formula that you can spend -- that you're going to spend a lot more -- spend more money on CompuSafe than you have before, and increase the growth rate of something that we've been expecting to be a growth driver for this company for a long time.

I would say that's very accurate, Jeff. And what's changed is there are IT capabilities with our I-Deposit and our i-VAULT, and our new product offerings on the cash logistics side. It is very attractive to the retailers and some of the large, regional banks, which has just changed the dynamics of our business. I mean, there are people today who don't even subscribe to CIT service, Cash-in-Transit services that are eyeing CompuSafe and being able to get same-day credit and pay for CIT, who were not CIT customers before. But that's all being driven by our increased IT capabilities, which have been a big investment spend for us the last three years in the United Stats.

Can you give some idea of how many CompuSafe installations there are out there at this point?

I don't have that figure on the top of my head. But I'm sure it will be in the 10K.

Yes, we'll put it in the 10K.

Okay. Because clearly this is -- this is a, let's say at least a body language change for you guys, relative to what you've been saying before about CompuSafe.

All driven by our cash logistics capabilities.

Okay. Finally, one question. Is there a due date, an official due date by which the Monitor Group has to have a report into the board?

Not an official date, Jeff, but it will happen sometime during the first quarter. And, once again, if there is a change in a strategic position, we will make a full, accurate, and thorough disclosure as appropriate.

Okay. With that, I'll turn it over. Again, congratulations on, obviously, on a great quarter. And congratulations, Bob, even though you're going to be around for a while.

Thanks again. I'll send you the check for that -- for the glowing words there.

Our next question from Jamie Clement with Sidoti and Company. Please proceed with your question.

Michael, Bob, Ed, good morning.

Good morning.

Morning.

Just a quick follow up on the home security segment. I just want to make sure I'm interpreting your comments correctly. I mean, it certainly seems that the business has been sufficiently battle tested by housing market conditions over the last couple of quarters. And you all seem happy with the way your -- the way your employees are managing costs and investment and growth and that sort of thing.

I mean, can we sort of look at the third quarter's margin in that business as kind of being at the bottom and -- I mean, there's nothing that you necessarily foresee in 2008, that would cause a drop below kind of what you saw in the second half of '07; am I interpreting that right?

Yes, Jamie. And remember, the second and third quarters traditionally have the highest disconnect rate for us because of the moves that take place during that time period. So you will see a, you know, during the moving months, you're going to see a bit of a slump in the -- in our margins, but which is also made up in the winter months.

Yeah, certainly. I just wanted to clarify it, because this -- you know, 2007, your margin from the second to the third quarter was actually -- was quite different. So I just wanted to make sure that I was right on that.

And follow up, with respect to -- with respect to BHS, one of your competitors is starting to offer an additional service, video. I don't know how successful that's been for them. I guess that remains to be seen. Have you looked at additional service offerings to your residential customers?

Yes, we have, Jamie. We have those capabilities. As we've built up our commercial capabilities within our existing infrastructure, we have added those capabilities. But we're not targeting that. That tends to be a more higher level, higher residential homes. And from our perspective, we sit back and look at market opportunity, we think that rather than move in, which could be a choice, the high-end residential market, which would use more video, we think moving into the commercial side is much more attractive for us at the current time because it's a bigger market.

Sure.

There's more opportunity to play.

Sure, absolutely.

We made a choice. But we're building capabilities which will give us further options to re-look at that question on a year-by-year basis.

Okay. Fair enough. Thanks very much for your time.

Thank you.

Our next question from Steven Fisher with UBS. Please proceed with your question.

Hi. Good morning, and nice quarter. Just wondering how sustainable you think the improvement in security and safety cost is. I mean, it sounded like it was, to some extent, a function of the specific actions you took to improve the environment, but -- or your procedures. So I wonder how sustainable you think that is because it sounds like it's having a pretty big impact.

Well, it is having -- had a good impact in 2007, there's no question about that. If you look over the last three-year period, it had a solid impact. If you look over the last five-year period, we took out some of the lumps where we had some problems with safety or security. It wasn't that great a level of improvement.

Now, looking forward, it's very, very difficult to tell on the safety and security side. I feel more confident on the safety side because of the programs that are in place, which is basically a U.S. issue. The security side is, you know, that's our business is controlling risk. I think we do it better than anybody else in the business. But we're always at risk for attacks, violent attacks on our people and our facilities. Our job is to prepare the defenses for that, protect our people, and do the best we can. And we put some good results up this year because management was focused on that, as they always are. Will that continue next year or not; I don't know. But we have a pretty rigorous insurance program that can balance out any major downside risk.

Great. And it sounds like there is kind of a change to -- finally a better tone on Europe. What happened in the quarter that changed the operating environment there?

Nothing happened in the quarter. It's a couple years of hard work in management in Europe, taking the tough decision to exit the UK, which we did earlier today, starting to see some solid improvements in Belgium, small improvements in Ireland. Germany is still struggling, but the marketplace is starting to recognize that they want an experienced international operator there, and we're getting some price relief.

So it's blocking and tackling across the continent. And management's, obviously, number one focus for 2007, was Europe, and we're starting to get some traction. It's never enough. It's never soon enough. But I am pleased that if you sit back and look over a year-over-year basis, I'm proud of the management effort that occurred in Europe in 2007.

Sounds good. In terms of the cash logistics business, what do you think it might take to grow, to maybe double that business in the next year or two? I mean, is it a matter of kind of signing on a couple of sizeable customers or is it really going to require a major expansion of your customer base?

We are investing in it, have been investing in it. We made a huge step investment in 2007, on the sales and marketing side. I will tell you it was a year of learning and training for those individuals and polishing up some of the products in the marketplace. We are very pleased with what's in the pipeline and what happened in the fourth quarter. And there's a lot of excitement, especially in the U.S. business, as we go into 2008. With the capabilities that we have, there's no question we're a couple steps ahead of the competition. And there's a lot of strain, particularly in the U.S. market, on the competitive side, which will all play to our advantage in 2008, and going forward.

And so do you think we'll see kind of the same growth rate in '08, that we've seen in '07, or --

I'm actually --

-- you're looking for like a step function?

No. I'm actually disappointed with the growth rate in the U.S. business overall. But I think you'll start to see that change as we go forward and pick up momentum in 2008, because of our cash logistics business and capabilities.

Great. Lastly here, in terms of the home security business, the profit growth was only about 2% year-over-year in the fourth quarter. I know there's a lot of moving parts. But what do you think is going to drive that to your 10% target in 2008?

It's the going -- you know, the basic blocking and tackling that they've been doing. And I know we use that term a lot around here. But Brink's Home Security, the people down there are very good at managing their resources. They did a test of advertising in the fourth quarter. They learned quite a bit from that. And I think that will be something that they will use in 2008, and going forward, as to how much they should spend and how well balanced that they can come out of that. We anticipate that they are going to turn in the normal excellent performance that they have in balancing sales opportunities with installations.

Okay. So many a little bit less on the advertising spend and getting more bang for your buck?

I think that's something that they definitely are focused on.

Okay. Great. Thanks a lot.

Okay.

Our next question is from Clint Fendley with Davenport and Company. Please proceed with your question.

Thank you. Good morning. Obviously, Michael and Dan, a -- Michael and Bob, a great and outstanding quarter. How should we think about the balance here between this performance that's ongoing due to the cost controls in Europe and positive trends there versus maybe the surge of work that we've seen in Venezuela?

Well, we've always talked about this being a -- Brink's, Inc., business being a 7-8% margin business. And I think the changing mix of the business, the advent of cash logistics, higher margin business, more sticky business, longer term business, has given us the confidence to raise our estimates to 8% plus, which we have done during this call and with the performance we just turned in.

So I'm pretty confident that we're as positioned as best we can in the marketplace and with our products. The challenges that we face is to continue to deliver on the IT solutions side and to make sure we continue to add the necessary resource on the cash logistics side, seize those opportunities that are coming down the pipeline.

Will most of the work in Latin America be done, the one-time work with -- by the end of the first quarter then?

Yes, in my -- my opinion, most of that money should have turned around during the first quarter in Venezuela. But remember that most of the improvement that we experienced in Latin America took place in Brazil, particularly, was very, very strong, Argentina and Chile did very, very well.

Okay. And switching to BHS then. Bob, did I hear you correctly, do we not have any existing installed base then within the multi-family area currently?

No, we still have some additional installed base there. And but the going forward, I've actually looked at what we have coming off this year in terms of contracts, and we could possibly have as much as, you know, 3,000 units or so disconnecting this year. But some of them will probably continue on, so we'll have to wait and see.

Okay. And then, Michael, in the press release we've seen a reference to other advisors apart from the Monitor Group. Has anyone else been hired since you've hired the Monitor Group, to look at the strategy here?

Just the multiple advisors we have historically used.

Okay. And then finally, obviously, we hate to see Bob go here. I wondered if you could update us, though, on the CFO search and how that's progressing and a possible timeline.

Even though Mr. Kessler tries to chase him out the door, I won't let him go. I can assure you, there's a rigorous process going on looking for a suitable replacement to Mr. Ritter. You know, I don't -- on a personal and a professional basis, I'm very disappointed that Bob's made this decision, but I support him 100%. He's been a great partner for 10 years. And I'm going to do my best to find somebody that can step right in and, with Bob's guidance, get them up to speed as fast as possible and not miss a beat here.

Thanks, Michael and Bob. Appreciate it.

Our next question is from Beth Lilly with Gabelli. Please proceed with your question.

Good morning, Michael and Bob.

Good morning.

Morning.

I wanted to just explore for a minute the commercial side of the business. You've talked about growing that business. And can you just talk a little bit more specifically about what percent of the revenue is the commercial side now and what are you seeing out in the marketplace in terms of potential acquisitions.

Okay. Well, the good news is we continue to invest heavily into the commercial side, which is a whole different line of business for us. Those expenses are reflected in some of the margin falloff that you saw here in the fourth quarter and sometime during the year. But at the end of the day, we get more cash up front. And with the limited experience we have today, the disconnect rate seems to be in the same range. So it could end up being even a more attractive model, it could end up being a more attractive model than our traditional residential business, especially if we continue to apply the discipline on the commercial side that we have historically done on the residential side. So I am very bullish.

Now, on the acquisition side, we're in the stream. It's been the most difficult market for the last two or three years with the private equity people. Obviously, that's been turned upside down on its head in the last three months. And so our business development team has a pipeline that we're looking at, different capabilities to augment that growth platform. But that's a space that we think is very attractive for the Brink's Company to grow in the future.

So is there a -- you know, how are you going about finding these acquisitions?

Well, when you have our balance sheet, we have a way of people finding their way to our own door.

Okay. The other thing I wanted to just explore a little bit more is, is that, you know, Michael, for years, you've talked about Brink's being a 7% operating model business -- operating margin model business. And now you're sticking your neck out and saying, "Okay, now we think it can go to eight, and then by 2010, we can go -- it can go to 10."

What, you know, can you just step back and talk about why -- I mean, I understand about the cash logistics side. But just, you know, fundamentally why you think you can drive those margins higher.

No problem. In the U.S., there's been a tremendous competitive pressure the last three or four years, and there's been a lot of consolidation on the competitive side, and that, one, that's benefiting us. Two, our IT capabilities and the investments we made the last two or three years to come up with our I-Deposit and our virtual vault process and new go-to-market products that our yearly bid, make the business very, very sticky for us. Three, we've started to get some positive traction in our European business, which, as you know, has been a real struggle for us over the last couple years.

And then fourth, our growth in Latin America, which was always pretty risky. We always used to talk about Venezuela and how important Venezuela is. But we've got a much better balance today with Brazil, Argentina, Colombia. And these are higher-margin areas, which we've talked about in the past. So you take that blend and that mix of business from around the world and its different characteristics that we've talked about through the years, you add those all together, and it's just a more positive picture that allows us to, quote, not stick my neck out -- that's your term, not my term -- feel more confident in doing what we say we do and continuing forward. And it's appropriate for us now to signal to the street that we think those earnings capabilities now are in the 8% plus range.

When you were running this business, did you believe it was capable of 10%?

Absolutely, all being driven on the cash logistics side of the business. And we were lacking capabilities, and those capabilities, we've been working very hard on the last couple years and they're starting to get some traction.

Okay. And then my last question has to do with Bob. And, Bob, best wishes in your retirement.

Thank you, Beth.

Are you -- have you hired a search firm? Or how are you -- Michael, how are you going about replacing him?

We, obviously, will be using outside and looking at inside, internal candidates at the same time.

Okay. And so do you have a date that you hope to have a replacement by?

The sooner the better because I respect Mr. Ritter and I want to make sure there's a good, smooth handoff with proper timing. And Bob has assured me that he'll make sure that that happens. And so I'm balancing all that. But getting the right candidate is the most important thing that's on my plate at the current time.

Okay.

And, Beth, I will tell you that Michael immediately ruled out cloning. We want something a little bit different.

Okay. Okay. All right. Thanks.

Our next question is from Steve Velgot with SIG. Please proceed with your question.

Yes. Just a quick question on capital expenditures. I know that you went through what's involved in some of the Brink's capital expenditures. I'm just wondering if you could talk about how much of that roughly $160 million you plan on spending in -- on the Brink's side you'd consider a maintenance capital versus more investment capital spending.

In the past, we probably said it was a 75/25% breakdown; 75% being maintenance and then the rest being growth. But I would tell, with the IT and the CompuSafes and the other things that we've been doing, because of the strong growth that Brink's had over the last couple of years, we've probably shifted it down into the 60/40 range.

Okay. That was all I had. Thank you.

Thank you.

Our next question is from Richard Rosen with Seligman. Please proceed with your question.

Yes. Hi. Thanks a lot. The most amazing part of the call was the increase in guidance in the -- in the Brink's, Inc., business. And, you know, historically, if someone has been around the company for a while, this is the time and the story is, the economy's getting weaker, that you start to lose business, at least for a period of time by people coming in and under pricing you on projects, or where you'd have currency write downs in other countries or you'd have unexpected strikes in France.

Maybe it's a rhetorical question. But I just want to make sure that I understand it, 'cause I know you don't set these objectives lightly. But these are issues that you just don't think are going to become a real thorn in your side in the next year or two?

All those things are possibilities that could occur. But once again, the breadth and scope of the Brink's Company businesses has as many upsides to cover some of the downsides that you talked about, that we feel confident in our statements today.

Okay. I mean, that's absolutely phenomenal. So just if I can just run the math by you for a second, so if we're talking about high single digit revenue growth in the Brink's, Inc., business and getting to 10% operating margins, that's a bump to EPS just from that business alone, of about $1.60 by 2010, if my math is right. And if you assume double-digit earnings growth and nothing else in the home security business, that should take you to earnings in excess of $5 a share. And that presumes that none of the free cash flow gets reinvested in buying back shares or creative acquisitions or anything like that. Is that about -- is that math about right?

I'm -- Bob's struggling here with his calculator trying to get close.

Got it. Yes. The way you did it, I just -- you know, I did the math the same way that you did it, where you basically took our revenue up and then put a 10% margin in there in 2010.

Yes.

If you back that off of the $223 million we made this year, you're in that ballpark.

Yes. I think that getting to the 10% margin will be at year-end 2010.

Okay. All right.

(inaudible) for 2010.

Okay. That's helpful as well. Okay. Well, congratulations. That's great. It's real encouraging.

Thank you.

Thank you, Rich.

Our next question is from Jerome Lande with Milllbrook Capital. Please proceed with your question.

Good morning, and congratulations on a fine quarter.

Thank you, Jerome.

So this has been asked in different ways, but just to clarify. The components of your 10% target for margin on an operating basis in Brink's, Inc., cash logistics clearly, I'm wondering, you know, what are the other components and how would we order them in terms of magnitude. Are there other territories you're going to get out of? You know, is it a question of operating leverage, which I assume is higher in cash logistics than it is in cash and transit. You know, can you lay it out in that -- in that framework?

Jerome, we've always had higher margins in Latin America where we have a more dangerous environment and the customer base appreciates that and our operating expertise. And, therefore, we're willing -- we get a higher margin there. That business is growing very, very strongly and rapidly year-over-year as we've reported publicly. So I would say that's key.

Cash logistics would be the number two, especially in the U.S. business, as far as opportunity. And then three would be improving Europe, where Europe was pulling down the overall international margins. And then I would say fourth is we're continuing to position ourselves in finding ways to get into the rapidly growing Asian market, which has been very typical for us and is still a very small part of our business. But we think we're coming up with some strategies to get in there and further expand our business.

Our global services business continues to grow very rapidly in that part of the world and in the Middle East, and Dubai in particularly, which is also a higher margin business. So as that business mix improves with the higher margin businesses, you're going to have the reflecting margin improvement.

So my assumption, and please correct me if I'm wrong, is that the biggest risk in those factors -- among those factors, would be the situation in Latin America, particularly Venezuela. And when I think about the risks in that particular market, it's the price of oil, which reasonable men will differ, but probably isn't going to collapse any time soon, the political circumstance and stability thereof, and then the prospect of nationalization. And I -- you know, there's only one of those that you would have, I think great insight on, might be rumblings from the government. Do you have any insight as to the stability of that market for you?

I don't think it's changed at all. Our relationship with the government is excellent. We're considered part of the banking and financial community, which is key down there. And our partners down there are some of the largest banks that operate. As you know, we're a 61% owner, I think, in Venezuela. And we've just done a magnificent job in this currency distribution, in which the government has been very appreciative of. And, obviously, we're still involved in that process.

So that risk is there. That risk will not go away. But we've managed it through the last four years. And I can never say never, but I think we're positioned as best and as smart as we can in that particular country.

Okay. One of the things that I've thought has been holding back the stock, which remains undervalued, even with today's performance, is the perception, you know, in spite of the strong performance you've had over the last eight or so quarters of housing recession in Brink's Home Security and installation and revenue growth, but that nonetheless, you're exposed to housing meltdown. And particularly with the prospect of this summer's resets and potential more foreclosures, I'm wondering if you can explain any insight you have right now in terms of sub-prime exposure of your customer base. Obviously, we all know that they're higher credit quality customers. Are you able to check credit scores of customers on an ongoing basis, beyond simply when they sign up? If that's the case, is there any deterioration that you've seen or anything else that you can do to continue to monitor the creditworthiness of the subscriber base?

I think at the current time -- remember, Brink's Home Security customers come in one at a time and we look at each customer's demographics and credit scores and make a decision at the time of installation. And that's not going to change.

The flip side of that is the sub-prime mortgage crisis which is affecting really the banking industry, which has more to do with the Brink's, Inc., business than it does the Brink's Home Security business. And I happen to think that, although I don't want to see my customers go through that pain, that's a positive for us, because they're going to look for ways to operate smarter, more efficiently, and that's going to increase the opportunities as they look for outsourcing.

Okay. Moving to strategic issues for a second. You mentioned earlier, when asked about how you run your M&A process, that more or less people find you because of your balance sheet. But that seems somehow hard to believe to me. The entire M&A process is not driven by people approaching you, is it? Or are you out there fielding interest from potential targets, particularly given there's a lot of small accretive deals that could get done that, you know, you would have to initiate?

Jerome, we do both. We have all the above going. Our business development department, which was basically non-existent three or four years ago is fully staffed. And I can assure you that since the credit market's changed, we're busier than ever looking at adding more resources to it. We have targets that we're interested in in both areas that are built out of existing businesses and new areas to enter that we are pursuing with the same disciplined approach that we've always had. And, obviously, it's a major focus of the review that the Monitor Group is doing to make sure that that is as crisp and as focused as appropriate and will be part of their report to the board of directors.

And also on strategy, you've discussed several times that you're looking into all alternatives, but you referenced a buyback specifically twice. And I know that we personally here at MMI feel that there are far more dramatic actions that the company should be taking and that, particularly given the performance of the stock since the last buyback when you bought stock above where it is today on an earning's adjusted basis, while buybacks can be accretive, that is not the sum and substance of what needs to happen here. Is there a reason that you led with that alternative twice on this call?

All alternatives and all options are being opened and will be considered by the board of directors. Nothing is being eliminated.

Okay. And lastly, James Barker was appointed lead independent director several months ago, I think it was September. Can you tell me, what has he done since he's become lead independent director and his expanded job description? How many non-executive sessions of the board has he led? How many shareholders has he met with? What corporate governance reforms has he suggested? That kind of stuff.

We don't publicly comment on what goes on in the board room or board deliberations. But I can give you my personal assurances that Mr. Barker has been very, very active with me directly and with other board members in pursuing his duties as lead director, and it has not interfered with the process of running this business and has probably been able to lead -- add more focus to the business. And I appreciate him stepping up to that challenge.

Yes. And I understand that. And I'm certain it hasn't interfered with your running the business. What I am wondering is, that job, as part of its description, has the responsibility of outreach and representation of shareholders specifically on an independent basis. And I'm wondering if you can tell us whether that's being fulfilled and in any of the ways I listed.

Well, Jerome, as you know, the board has engaged a Monitor Group, and the Monitor Group has made inquiries and been responsive to shareholders who have reached out and contacted them, including yourselves. So you know the answer to that question without me having to answer it.

That's true, we have met with the Monitor Group. I was asking about Mr. Barker. But I understand that you want to keep that confidential. So thank you very much. And, again, congratulations on a fine performance in the fourth quarter.

Thank you, Jerome.

Our next question is from [Gayro Norion] with Blackrock. Please proceed with your question.

Hi. I just wanted to see if you could help me understand on the Brink's, Incorporated side, the -- you have strong improvement. You guys highlight, effectively, Europe, Latin America, and then the significantly lower (inaudible) security. Can you kind of ballpark how much, if I look at kind of the -- I think it's roughly $22 million of profit year-over-year, I mean how much is kind of from each of those three categories?

We don't break out the individual information about the exact profit by region. But as we pointed out in our earnings release and in Michael's comments before, the key factor in the quarter and improvement, or the first factor, is improvement in operations, and the higher level of revenues. That was the biggest factor. And then safety and security, obviously, was also a very good factor for us.

And then on the safety and security side, can you just help me understand, I guess more specifically what exactly that means and what costs are -- have been reduced? I'm trying to get a sense of how much of that is kind of variable based on management's judgment versus other things that may influence it.

I can tell you that none of it is based on judgment. It is all related to losses and risks and insurance that we have. And basically it all is -- it stays within the year. So this is not something where we sit down and try to guess what a liability should be or what an asset should be, it's all just basically -- it runs through.

Okay. So if for whatever reason 2008 saw a more difficult year on the security side, that's not necessarily kind of an ongoing benefit?

Right.

Thank you very much.

All right.

Our last question is from Jeffrey Kessler with Lehman Brothers. Please proceed with your question.

Thank you. As a last follow-on question to the whole cash logistics and margin improvement area in Brink's, traditionally there's been a much, much lower level of use of cash logistics, at least outsourcing of cash logistics and particularly the type that you're developing over in Europe. I guess you're talking about over 50% of your revenues in the United States being from cash logistics, whereas, in Europe, it may be whatever, 20, 25% or maybe even less.

What do you have to do to get the banks over there realizing that right now you're dealing with cost and pricing issues, but, nevertheless, the potential for getting your margins even higher can partially rest on dramatically improving the cash logistics use over in Europe? What do you have to do to get them to get from whatever, 20%, 15%, on up to the level that the U.S. is using?

Jeff, just to clarify. My comments, prepared comments before when I talked about the 400-and-some-odd-60 million cash logistics, that was the global number.

Okay.

That was not a U.S. number.

All right.

Okay. And that the growth rate last year worldwide was 16%, both globally and in the U.S., all right. The U.S. is way behind some countries in outsourcing. As an example, in France, it's all outsourced already. In Venezuela, it's all outsourced already. In Germany, it's -- hardly any of it's outsourced. So it's a county-by-country specific, where that banking system has evolved over a 20-year period of time. So the biggest growth opportunities for cash logistics would probably be the U.S. business both on the banking and the retail side, followed by Germany, and then our increasing IT capabilities to entice more people to outsource.

Now, that will be tempered in some countries, which there's been some bad experience with outsourcing with some of our competitors. But overall, our capabilities, our IT systems, and the margins and the stickiness of that business when it's outsourced, makes it a very attractive area for us to pursue.

Okay. Thank you very much.

Thank you.

Thank you.

There are no further questions in queue at this time. I would like to turn the floor back over to Mr. Cunningham for closing comments.

Okay. Thanks again for joining the call. And we'll look forward to talking to you next quarter.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.