Brinks Co (BCO) 2008 Q2 法說會逐字稿

Greetings ladies and gentleman and welcome to the Brinks Company second quarter results 2008. At this time, all participants are in a listen-only mode. A 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 Edward Cunningham, Director of Investor Relations and Corporate Communications. Thank you. You may begin.

Thanks. Good morning. Thanks for joining today's call, which will proceed as follows - CEO, Michael Dan will review our financial results and outlook. He will also comment on the planned spinoff of Brink's Home Security. Then Mike Cazer, our new CFO, will make some follow-up comments before we open it up for questions.

Our earnings release was issued this morning and is available on our website at BrinksCompany.com. If you wish to have it faxed to you, call 877-275-7488.

And now our Safe Harbour Statement - This call and the ensuing 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 10-Q and 10-K 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. This call is copyrighted 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.

Thanks, Edward. Good morning or good afternoon and thank you for joining today's call. This morning we reported second quarter earnings of $1.04 per share versus $0.70 per share last year. Revenue and profits were up at both Brink's Incorporated, which I will refer to as Brink's, and Brink's Home Security, or BHS. In addition to strong operating results, earnings were affected by some nonoperating factors including a lower tax rate, foreign exchange, costs from former operations, and costs related to our plan spinned off of Brink's Home Security. Mike will cover these items in a few moments.

Our full year outlook for both operating units has not changed. At Brink's we continue to target revenue growth in the high single digit percentage range. Given current market conditions and some operating issues that I'll cover in a few minutes, our 2008 margin goal of approximately 9% has become more challenging, but is still achievable. At Brink's Home Security we expect to deliver 10% year over year growth in revenue and profits while growing the subscriber base in the high single digit percentage range.

I'll now cover our second quarter results in more detail. Earnings came in a little under $49 million, or $1.04 per share, up from the $33 million, or 70% per share last year. Total revenue rose 20% to $932 million. Operating profit was $75 million, up 26%. As I mentioned earlier, results improved at both Brink's and BHS.

Let's start with Brink's. Our revenue rose 21% to $798 million. Operating profit was $53 million, up 23%, due to the continued strong performance of our international operations, which more than offset a profit decline in North America. During our last earnings call in late April, we said second quarter operating margins would be effected by inflationary pressures, wage costs, and the winding down of the currency conversion project in Latin America. The operating margin for the quarter came in at 6.6%, a little lower than we expected, but still about 10 basis points ahead of last year. Our year-to-date margin stands at 8.5%, so we are counting on a strong second half to help us reach our goal of 9%. To get there, we'll need continued improvement and strength from our international operations, improvement in North American results, and successful execution of our costs reduction efforts.

The global diversity of our operations continues to be an advantage for Brink's. Revenue from our international operations, which accounts for about 70% of total annual revenue, was $563 million for the quarter, up 23%. Operating profit was $42 million, up 48%, once again due to strong results in Latin America where revenue rose 40% to $194 million. About $12 million of that growth was related to currency conversion operations in Venezuela, which are winding down and should be completed in the third quarter. Profit growth in Venezuela was supplemented by solid improvements in Chile and Brazil.

In the EMEA region, revenue increased 23% to $352 million, and profits grew in line with the revenue. You may recall that last quarter we expressed some concern about a profit decline in France, which accounts for a significant portion of the region's annual revenue. While second quarter results in this country improved, on both a year over year and a sequential basis, we continued to experience pricing pressure and general softening of activity in the market. We are continuing to make good progress on our efforts to improve results in several other European countries.

Revenue in our relatively small Asia-Pacific operations improved verses last year, while profits were down slightly due to the lower results in one country.

Our North American operations continued to struggle in the second quarter. While revenue grew 7% to $235 million, operating profit declined 26% to about $11 million due to a variety of factors, including higher labor, fuel, and some legal settlement expenses. These rising costs are especially burdensome in a market environment that is putting enormous pressure on the financial services and retail sectors in the United States. As customers look to cut costs, we are experiencing lower than expected activity levels in some ground operations, global services and our Cash Logistics line of business.

All these factors combined to push the North American margins down below 5% from last year's 6.7%. All of these effects are in the United States business unit. Canada continues to improve and I am pleased with the management progress there.

Some of the cost increases, such as fuel, have been or will be absorbed through surcharges in our new contractual provisions. A portion of the employee expenses are related to our efforts to sell more value-added services. We are also making investments in IT to support these efforts. These costs are squeezing profits now, but are critical to future growth. Longer term, our pipeline looks very positive.

Banks and retailers are working hard to reduce costs in any way they can. While this presents challenges, it's also an opportunity to help customers accelerate their outsourcing efforts. That's why it's more important than ever to continue investing in order to strengthen our capabilities in resources and we will do so. We remain firmly committed to our ongoing investments in IT and value-added solutions. But I assure you that we are equally committed to improving the near-term efficiency and profitability through targeted cost reductions where we are making good progress.

In summary, it was a solid quarter for Brink's, due mainly to results for our international operations and we feel positive about the rest of the year. There is clearly much work to be done to improve results in the United States and our turn-around efforts in Europe must stay on track. As I mentioned earlier, we'll need a strong second half to achieve our full year margin goal of approximately 9%. In addition to normal seasonality, we should get a boost from cost reductions and a pick up at our selling of value-added services.

Now let's turn to Brink's Home Security which turned in another solid performance under difficult market conditions. Second quarter revenue at BHS increased 12% to $134 million. Revenue growth was driven by the continuing expansion of our customer base which grew 8%, and now includes approximately 1.3 million valued customers. Operating profit rose about 15% to $36 million, yielding a profit margin of 26.5%, up from last year's rate of 25.8%. This year's operating profit includes a $2.5 million benefit relating to an accounting correction for deferred revenue and expenses. Last year's results included a $1.9 million addition to income, resulting from the settlement of insurance claims relating to hurricane Katrina.

The analyzed disconnect rate of 7.1% was down from last year's rate of 8%, which was unusually high due to some technical adjustments in 2007 subscriber count. We continue to expect the full year disconnect rate in 2008 to range between 6.5% and 7%. Monthly recurring revenue rose 12% to $39.3 million, so future cash flow continues to grow. Installations for new customers were down about 2% from a year ago level, due to the ongoing weakness in the housing market. By keeping the disconnect rate low, we still managed to grow the subscriber base by 8%.

Looking ahead, a recovery in the housing markets would certainly help. But like most people, we are assuming the current weakness persists through at least the balance of this year. Even so, we expect full year growth in the subscriber base to be in the high single digit range. And our outlook for full year revenue and profit growth of 10% or better remains unchanged.

At this point, the process to achieve the spinoff is on track and should be completed in the fourth quarter. For those of you that have read our form 10 filings, you know that some decisions have yet to be made, while many others have been finalized. One important decision we made, that I would like to address on today's call, is the plan to rebrand Brink's Home Security.

Our decision to rebrand BHS was driven by our desire to create two great, totally independent security companies that will maximize value for our existing shareholders. Our process of determining how the Brink's brand should be owned or deployed was very thorough and detailed. It involved analysis of many complex issues that have strategic, operational, tax, financial and capital market implications. I am completely satisfied that our Board, our Management team, and external advisers executed a highly professional and diligent review, and the Board unanimously voted to pursue what I firmly agree is the best path.

We concluded that two independent security companies should have independent brands. Sharing a common brand could confuse current and prospective customers of both companies. This concern is magnified when you consider the potential down the road for direct competition between the two companies in security related markets. In addition, given the inherent dangers that all security companies face every day, the potential for reputational risk would increase for both entities. Consideration of significant legal, tax and other financial factors clearly further supported the decision to rebrand Brink's Home Security.

As we disclosed in the form10, Brink's Home Security will begin life as an independent company, with no debt, and will see the cash injection of $50 million from The Brink's Company. They will also have use of the Brink's brand for up to 3 years after the spin. Given the Brink's Home Security team's highly successful track record in building their business from the ground up, I am confident they have the financial resources and the management talent to create another powerful brand in the security industry.

That completes my prepared remarks. I'll close by saying how very proud I am of the Brink's Home Security employees for the continued strong performance in a very difficult environment. Their ability to focus on results has always been impressive. But it's more impressive when you consider the current housing environment and the fact they are dealing with all the issues that come with their impending spinoff into a separate publicly-traded company. Customers and shareholders in the new company will be in excellent hands.

Now I'll turn it over to Mike Cazer. Mike?

Thanks, Michael, and good morning, everyone. As Michael said, second quarter results were driven by solid performance at both operating units. I'm going to provide a little more detail about some of the items that effected earnings. I will also touch on some balance sheet and spinoff related details.

In addition to the 26% increase in operating profit that Michael described, our net income was boosted by a 12 point reduction in our effective tax rate. The decline in our tax rate to 24.6% was due mainly to the reversal of a tax valuation allowances in non-US jurisdictions, reflecting the continued improvement in our international operations. In addition, the global composition of our earnings helped to lower the overall tax rate. For the full year, we expect our tax rate to be between 31% and 34%.

Corporate expenses were up more than $2 million versus the second quarter of last year, driven by approximately $3 million of BHS related spinoff expenses this quarter. Year-to-date expenses related to our strategic review proxy matters and the spin total about $9 million. We'll probably spend another $8 to $11 million on this effort, so total expenses for these matters should be in the range of $17 to $20 million for the year.

As you think about our or corporate expenses for the remainder of the year, I want to note that due to the way our stock option program works and how stock option accounting works, these expenses are lumpy, and the majority of them will be incurred in the third quarter. The same thing happened last year.

The costs of our former coal operations were $200,000 in the second quarter, down more than $3 million from the second quarter of last year. The reduction was driven by lower pension and post-retirement expenses. The impact of minority interests rose nearly $4 million in the quarter, reflecting continued profit growth and consolidated, but not wholly-owned subsidiaries, primarily in Latin America.

I want to comment on a few items related to Brink's Incorporated, specifically foreign currency impact, operating margins, and fuel cost. As Michael noted, international operations account for 70% of revenue at Brink's. So results continue to benefit from the dollar's weakness. Second quarter revenue was up 22% and operating profit rose 22%. On a constant currency basis, revenues and profits were up 11% and 14% respectively.

As mentioned on last quarter's call, the sequential margin decline at Brink's was not unexpected. Margins went from 10.3% in the first quarter to 6.6% in the second quarter. Please recall that the first quarter results included about $35 million of higher margin revenue from the currency conversion project versus only $12 million in the second quarter. The conversion should be completed in the third quarter, where we expect conversion related expenses to be less than $2 million. Additionally, results were hurt by the timing of wage increases in Latin America. On the year over year basis, as Michael said, Brink's margin rate increased 10 basis points, due to profit increases from both Latin America and Europe, partially offset by the decline in North America.

Obviously, fuel costs are another topic of interest these days. So I want to put the issue in perspective. It's widely known that fuel prices, especially for diesel, have increased sharply from recent months. Fuel costs at Brink's varied by region, but in total account for a relatively small percentage of our expenses. Most, but not all, of the increases in fuel prices are passed on to customers through surcharges or other contractual arrangements. Though there is a lag effect when prices spike as quickly as they have in the second quarter. Due to the hard work of our branch teams, Brink's was able to offset a significant portion, but not all, of the increase. So the rise in fuel prices did hurt income, but less than one might expect. We are watching our fuel costs closely and taking steps to manage their impact on our business.

Turning toward BHS, I'd like to give a little more detail on the accounting correction that Michael mentioned. An error was found in the data used to make accounting adjustments when customers cancelled their service. The error caused BHS to under report revenue and operating profit slightly over the last six and a half years. The correction of the error caused a $2.5 million increase in operating profit in the second quarter of this year. On average, the impact of the error was approximately only $100,000 per quarter over the last six and a half years. Please note that the error had no impact on the reported disconnect rate. Remember, when evaluating the performance of BHS on a year over year basis, the income benefit from this correction is largely offset by the $1.9 million one-time gain in the second quarter of 2007 from the Katrina insurance settlement.

I want to make a few comments on cash flow and balance sheet items. At Brink's Incorporated, second quarter capital expenditures totaled $39 million and stood at about $70 million for the first half of the year. The run rate typically ramps up in the second half, so full year expenditures should be between $165 and $175 million for the year. Depreciation ran about $30 million per quarter in the first half and should end the year in a range between $125 and $130 million. CapEx at BHS is running at about $45 million per quarter so far this year and should finish the year somewhere between $185 and $190 million. Depreciation and amortization at BHS was a little over $20 million per quarter in the first half and is expected to come in between $85 and $95 million for the year. We ended the quarter with a $67 million net cash position. This is $39 million more than the balance at the end of March.

During the quarter we bought back $16 million of stock under the $100 million share repurchase authorization. The 10-Q will disclose more details of our purchases during the second quarter and you will see we did not purchase any shares in June. But remember, we had also just decided to fund BHS at the time of the spin with a $50 million cash injection. Program-to-date, we have purchased a total of 884,000 shares for $56 million. Brink's strong balance sheet, as illustrated through its net cash position, and substantial debt capacity, should enable the company to not only weather a difficult business cycle, but also pursue growth opportunities in existing and new security markets.

A quick update on a few BHS spinoff details. An amended form 10 was filed and we expect to complete the spinoff in the fourth quarter. We are excited about the future of what will be two industry-leading security companies and we plan to spend some time on the road this fall to meet both current and prospective share owners. We'll disclose more details about the spin as we get closer. Upon execution of the spin, BCO will inject $50 million of cash into BHS. In addition to cash, the company will have no debt and be in a strong position with financial flexibility to pursue its objectives.

Obviously, the spin will also affect the The Brink's Company's financial statements. In the quarter the spinoff is executed, BCO's income statement will reflect BHS's results and the expenses related to the spin and discontinued operations.

That's it for now. I would like to close by saying I'm very excited to be part of the Brink's team and I look forward to getting to know many of you in the near future. We're ready to open up the call for questions.

Ladies and gentleman, we will now be conducting a question and answer session. (OPERATOR INSTRUCTIONS) Our first question comes from Steven Fisher with UBS. Please state your question.

Good morning. Wonder if you could say what part of the business at Brink's Inc. in North America drove the 7% growth. Sounded like the US part was kind of weak. Was it entirely Canada?

No. Canada had some reasonable growth. We went through the bank bidding season, as they call it, during the last quarter where we were able to gain some share so Canada is on the up tick. But we did have further growth in the United States in some of our value-added services. And as you know, when we sign up, for instance a CompuSafe customer, it takes a little while for the efficiencies of the new customers to be integrated into our system and follow the bottom line. You are seeing the revenue growth from our success in value-added services and we just haven't seen the benefit, yet, of it fall to into the bottom line.

Ok. That is one of the things you mentioned that would drive potential improvement of the business for the back half of the year. Is that specifically CompuSafe or is it other parts of the value-added services as well?

It will be all three. We are looking for some strong improvements in our global services business, and on the domestic basis which we are starting to see already. The CompuSafe is key and, of course, our [I-Vault] and [I-Cash] high value services are starting to gain traction. Our pipeline is pretty full. We are pretty excited about where we are in the US. We are just not happy with the results.

Labor was you know a big factor in the shortfall, and I think it was really a Management focus issue. And a lot of things to do in running this business. But Management's on it in the US and the metrics there are tracking in a positive fashion.

The -- in terms of the cost that you mentioned and the way you have them in the press release, is that the relative order of magnitude in terms of labor, fuel and legal settlements?

I would say that it was 50% labor and 50% fuel and the legal settlements.

Okay. And then you mentioned that the -- that in order to hit the margin targets, you would need some cost reductions in the back half of the year. Where do you think those reductions are going to come from?

Labor. The US labor costs.

Okay. Can you just be a little more specific about what types of labor you are talking about?

Our business, when labor costs inch up, it's usually in an overtime basis. So it's very, very expensive when labor makes up our largest operating expense. And once again, Management, I think, lost a little bit of focus on controlling those costs. There is also a lot of pressures, as you can imagine in the marketplace, for our employees with the high gasoline prices. And we lost some focus. Management has set up a special cost reduction program, a focus program, and we are seeing strong positive results already in addressing that issue.

Okay so it sounds like just trying to run more efficiently?

Get back to running as efficiently as we were.

Right. In terms of -- you mentioned the I-Vault and the Cash Logistics. Given that the banks today are experiencing unabated pressures, what are you seeing in your discussions with them? You mentioned the pipeline is full. Are they more or less willing to spend more money in order to save money at this point than they were six months ago?

I think what we are seeing, Steven, is anywhere -- retailers at the financial sector can save costs, if it is a reduction in frequency of stops or pickups, they are all trying desperately to lower their costs with the pressures they face, which we are very cognizant of. On the other hand, there is an opportunity there for our Outsource solutions, and we are seeing that pipeline full. We are seeing that activity come to bear. So that is why we are seeing the revenue growth. It is just a matter of -- one hand we have an offsetting of growth or high value services, and we are facing this undue pressure on our standard stop prices and they are balancing out. So, it's a little difficult situation for us now. But Management's focused on it, and I think we'll see improvements -- I'm confident we'll see improvements in the third and fourth quarter in the US business unit.

Ok. Great. And then lastly, you mentioned that the tax rate was mainly due to the valuation allowance. Can you just give us the numbers there? How much that actually was on the valuation allowance versus the mix? Geographic mix?

The valuation allowance drove about an $8 to $9 million reduction in our tax expense for the quarter. And we expect that to have about a 2.5% impact on the rate versus what we previously forecasted for the year. And the remainder was due to the, basically, other items, and mainly the global mix of our earnings.

You might recall in the last couple of years, we have had a little bit higher tax rate than normal because we were forced to reverse our tax loss carry forwards in some of our European operations, which we appropriately did. And what's happened is -- the good news is our success in improving our operations in Europe requires us, now, to recapture that, which is having the effect that you see.

Great. That's very helpful. Thanks a lot.

Our next question comes from Brian Butler with FBR. Please state your question.

Good morning, guys.

Good morning.

Question first on Brink's North America. Can you give some color on pricing and just, kind of, thoughts on competitors out there. Are they chasing business with lower prices? And how competitive is it?

Yes, it's always a competitive marketplace and the more desperate they become, they think the solution is just to get more density and more volume. We are facing maybe a little more of that than normal because of the high fuel prices and the difficulties that they face. But when it's tough on Brink's, it's tougher on the competitor. So, in the long-term it doesn't keep me up at night.

How is Brink's -- are you holding up on price at this point?

Yes. We have volume issues. A number of stops we are making for customers, we feel some pressure there, but we've been holding steady on price.

And then, thinking about what's kind of under Brink's control in North America and what is the economy. If the second half looks like the first half from an economic point of view, how confident are you that we can see an improvement in the second half? Based on what processes you have in place?

I feel pretty good. Once again, about half the shortfall in the second quarter on a year over year basis was legal settlements and the other was labor. And I see the weekly statistics on how that is being managed by the Management team in the US, and they are making strong progress.

So I'm confident that when we get back to the normal run rate -- The question is what is the economy going to do? How much worse can it get? I just don't know. But I'm confident we are going to get back to the run rate that we were on last year. Because the two factors were the legal settlement expenses and overtime costs ,and they are tracking very positively.

Okay that's helpful. And the last question on the tax rate. Is that lower range the right range to be using when you start looking into the future? '09 and beyond?

We were in the process of regrounding '09. We suspect as the business continues to grow globally, that will obviously have a beneficial rate on the year. I think in the next quarter's call we'll probably have some more insights as to next year.

Okay. Thank you very much.

Our next question comes from Steve Velgot with SIG. Please state your question.

I just had a question on the decision to have two brands. And I wondered if part of that is giving Brink's the ability to go into the monitoring business? Maybe more on the commercial side? Or could you just give us a little more color on some of the factors there?

Well, it's a very, very complex decision process we went through, which included which company should have the brand. Whether the brand should be in a third company. We looked at every aspect that you could possibly imagine. We had the general guiding principles we were trying to accomplish, which I stated in my prepared remarks, and then all the financial and the tax and the capital market situations just fell right in line and supported the decision that we made. We filed the documents on the inter-company agreements with the last form 10, which clearly states that Brink's Home Security has the use of the name for three years and then there is a further two-year non-compete, which is inclusive of The Brink's Company not entering the commercial monitoring business or the home security business for five years. Which gives adequate time for Brink's Home Security to rebrand and have a strong growth story for the capital markets.

Okay. Thank you.

Next question comes from [Jeffrey Kessler] with Imperial Capital. Please state your question.

Thank you and welcome back to the call. A couple of questions here. First, with regard to the summer programs, and the rate of install that you had. Was part -- have part of the flow off in your installs in Brink's Home Security been due to competition from, I'll call it, cut rate or mass market summer programs? Have you felt any pressure from that? Or has the brand been able to take you beyond that competition, at this point?

It's not cut rate competition, Jeff. It is just the general economic situation in the United States, which we have been feeling for a period of time. It was also our conscious decision, as you recall, a year ago, a year and a half ago, to scale back dramatically our home technology business because we saw this housing slump coming, which turns out to make us look smarter and smarter in hindsight all the time -- which slowed the machine down a little bit. But we are still -- pricing is holding up well, and monitoring rates on a per subscriber basis continues to inch up as it always does a couple percentage points, 3 percentage points, per customer per year. It's just the economic conditions. Nothing else.

Okay. If I could just stay on Brink's Home Security for one second. That is a post spin -- and I'm sure these are questions that are going to be asked of Bob and Steve. But I guess the key question will be is, how is that business going to define its growth strategy going forward? Up to now, they have grown totally organically, and I'm just wondering if there is any thought process on the corporate side that you guys have had with them with regard to any -- ? What acquisitions --? I realize there has been an EDA concern up to that point. Do you think that may change a little bit? And number two, do you think there may be some new quirks or instances in how they intend to grow ARPU as

That is a good question, Jeff. The answer is yes yes yes and yes. They're going to --

I'm just trying to pre-empt your road show. That's all.

That is exactly what you are doing. The road show is being prepared. And as we get through the process of the spin and all the required approvals that are necessary and the timing that's required to do it, we'll end up setting the spin date, announcing it, and there will be a road slow where Bob and his management team will go out and basically present that and answer those questions for the investors and the analysts. And at the same time, there will be a parallel road show with the The Brink's Company. And all that will be announced in due course.

Okay. Moving over to Brink's. Can you give a number of CompuSave sites that are out there at this point?

I think it is about 7000 units but I will make sure and confirm that. About 7000 units.

With regard to the growth drivers, particularly in North America, realizing all the headwinds that you are going through, are you doing things like increasing the amount of Brink's Global Services offered to clients? Or are you increasing the amount of other types of logistics, special logistics services offered to clients to offset the basic cash in transit hit that you have got to be taking because they just don't want as many pickups any more?

Yeah there is a variety of initiatives, Jeff. As you know, it is a very complex business unit with a lot of lines of business cutting through a single asset base. But we are continuing to see good, reasonable growth on the top line in a very tough economic environment. My concern isn't the revenue growth rate, because I know the pipeline's full. My concern is operating efficiently and getting those margin dollars to fall to the bottom line. That is my major focus. I'm not worried about the growth.

Okay. Very good. And I guess that's about it for me for now. Thank you. And good luck.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question from [Jerome Lands] with [Millberg Capital]. Please state your question.

Good morning. First of all, congratulations on the quarter, which was excellent. By my count, I think this makes 12 quarters in a row that you have beat the street. Understanding those aren't your numbers, it is an impressive record, nonetheless.

Can I ask you a question on the new --the investments in people and IT around the higher value-added offerings, particularly in North America? Can you quantify what impact that had on the quarter? And then maybe tell us a little bit about the timing of pay back that you expect? And how you have quantified the return on those investments?

Well there is, we have a long, strong internal process before we make any investments. When we do that, Jerome. But I would tell you that our expenditure -- capital expenditures are increasing year over year are reflective of the increased spend on IT, as we invest in these new products. But they are the products that are more value-added and differentiate ourselves from the competition, and that's where our future is, which is giving value-added solutions to not only the financial sector but the resale sector. They are gaining a lot of traction and we are pleased -- we are never happy with the efficiency of those investments. They always can be better. We have teams of very smart people working on them every day to make sure that we have a more than adequate return on our investment.

Can you quantify the SG&A impact in the quarter of the new people or marketing spend you did?

I don't have it broken out. Most of that expense is embedded in the US business unit. And I would say the only increases we have, other than inflationary increases around the world, would be US SG&A and the spin expenses having to do with Brink's Home Security.

Got it. A couple of questions on a more long-term strategic nature. There was a recent ruling, I think it was the Appellate Court, about US currency in sizes and shapes as opposed to the way the rest of the world does it and its fairness under the Disabilities Act to people who are blind. So obviously this is a long-term issue. But do you have any view on whether that actually yields any potential currency policy changes in the future and how that would affect the company?

Of course that is a geopolitical issue, and a very sensitive one and for people who are affected by it, a very personalized one. The reality is that the US currency is evolving continually to stay ahead of counterfeiting at the current time. If they decided to change the shape, color, size of currency to allow disabled people to more easily function in our society, that would be a tremendous expense for the industry and a tremendous opportunity for us to change out machines and to change out the currency. So it's a positive one way or the other for us.

Okay. And another one. Some of your competitors have gone to a more asset light model. Particularly from densely populated urban areas, and here in New York we obviously see it quite a bit , but apparently it is happening elsewhere in the country. People running two-man teams instead of three-man teams, running armored vans instead of armored trucks in areas where one could differ on the risks involved. But the notion being the busy streets and less imminent risk of assault. Do you have any comment on that? Is there any change in your analysis about the size of trucks you are running in urban areas? Particularly with fuel where it

We are always looking for ways to have the most efficient long-term capital investment in our vehicle fleet. We are very cognizant of the life cycle costs. I can assure you that soft sided vehicles, armored or unarmored, life cycle costs are a negative compared to the model we have. You can imagine the amount of damage that takes place to a soft skinned vehicles versus a hard skinned vehicle, et cetera, et cetera. As far as security goes, the fact of the matter is, the lower the security standards become, the higher the risk of robbery and injury to our people. And I think you know, Jerome, that that's something that's just not going to happen at Brink's.

Great. Congratulations again on the quarter.

Next question from from David Hancock with Morgan Stanley. Please state your question.

Yes, I have three questions on the Brink's division, please. First on France, can you say what drove the improved performance in the quarter compared to the first quarter? How much of that was the market environment getting better? And how much of it was driven by Brink's own initiatives.

Second question is on Canada. You said you think you have taken some share there. Is there any pricing softness in that market or is pricing holding up in what I think has been quite a tough market?

And thirdly on the currency conversion. It looks like the margins on that business were well into double digits. Can you be a bit more specific about that and say what happened on underlying margins in Latin America please? Thank you.

First of all in France. We have some adjustments on some employee costs, which helped the quarter. And Management has had some very, very strong initiatives in place to deal with the marketplace issues that we highlighted last quarter, which we are very please to say were totally offset in the second quarter. We expect those pressures to continue in France. The fact of the matter is it is a competitive environment and it is heating up. We have also had a spike in tax and robberies in France, which we have to be very cognizant of to make sure we protect our people, employees, and raise our security barriers. But our Management team in France is first class, and we'll find a balance to that.

I don't expect France to have an improved year over year. But fortunately the other initiatives in Europe and improvements in European countries, such as the UK and Holland and Poland and on and on and on, is more than offsetting the shortfall in Europe and in France.

As far as Canada goes, we have taken share. It's been a six year battle here with low cost people under-bidding us on contracts and service quality has suffered. And in the recent round, I would describe it as we have improved our share, but more importantly we have improved our pricing levels. And I can assure you in the last road, the competition, as usual, decided to cut the prices to take share, but the banking community decided that quality service was more important. And we are very, very pleased, not only with the rate of increases we had on a contract over contract basis, but in the percentage of share we gained. So I'm very pleased. We still have a ways to go in Canada, but their returns are now finally approaching the average of the company. And I think we have great areas for further improvement.

And as far as the margins on the currency conversion project, yes they were very, very strong. We don't quantify them. But they were very, very strong. We were able to put a substantial amount of additional revenue through our fixed asset base. It was a credit to the Management team down there they were able to seize those opportunities.

Great. Thank you very much indeed.

Final question comes from Jeffrey Kessler with Imperial Capital. Please state your question.

Thank you. Just a comment. Thank you, Michael, on the asset light common. Because as you know, twice before, the industry has tried to go to cut costs for its so-called asset light models, and they have been disastrous with freight loss every single time. And actually the brand reduction of whoever did that.

The question I have for you is on the timing of all the investments that you are making in the US to improve the margins beyond just cost reductions in overtime and things like that. Can you give some idea of when you think the timing of those, of that -- those efficiencies and that investment that you are putting in is going to be able to hit the P&L? Are we talking about a process that we are looking forward to sometime in the first half of 2009?

Well, hopefully you'll start to see some of it at the end of this year. But no question about 2009. And remember the US is the largest operating unit in the Brink's world. So we also leverage those investments over time around the world. So we are really excited about the progress we are making and the differentiation we are creating. And that's why I'm so confident these are the right investments. Sometimes they all end up in one bucket in the beginning on the developmental side and that is what you are seeing a little bit, Jeff.

You are going to export the US models, or the US model of efficiencies to international about when?

The reality is, we export great ideas from Latin America to the US and Europe to the US and vice versa. We share best practices everywhere for the strengths of the Brink's organization. We learn from each other every day.

Right. Great. Thank you very much.

Thank you.

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