Brinks Co (BCO) 2010 Q4 法說會逐字稿

Greetings. Welcome to the Brinks Company fourth quarter 2010 earnings call. (Operator Instructions). It is now my pleasure to introduce your host Mr. Ed Cunningham, Director of Investor Relations. Thank you, Mr. Cunningham. You may begin.

Thank you, LaTanya. Good morning, everyone, and thanks for joining us. Today's call will proceed as follows. CEO, Michael Dan, who is joining us from Europe this morning will summarize financial results, segment operating performance, strategy and outlook for 2011. CFO, Joe Dziedzic, will provide additional commentary and more details on the results and then we will open it up for questions.

The earnings release was issued this morning and is available on our website at brinks.com. Earnings were reported on both the GAAP and non-GAAP basis. On a GAAP basis fourth quarter earnings were $.040 per share versus $2.53 in the year ago quarter. The full year GAAP comparison is $1.17 versus $4.11. Organic revenue growth which excludes acquisitions, dispositions and currency items was 10% for the quarter and 7% for the year.

On a non-GAAP basis earnings for the quarter were $0.73 up from $.035 in 2009. The full year non-GAAP comparison is $1.71 versus $1.16. Non-GAAP organic revenue growth was 8% for the quarter and 5% for the year. The non-GAAP results exclude certain items related to acquisitions and dispositions, Venezuela currency items and adjust the tax rate to a full year non-GAAP rate of 36% in 2010 and 37% 2009.

We believe that non-GAAP results make it easier for investors to compare operating performance between periods. Accordingly, our comments from this point on will focus primarily on non -GAAP results. A reconciliation is provided on pages 16 through 18 in the earnings release and Joe will offer additional details in his comments.

In addition, the summary of selected results and outlook items is provided on page 12 of the release. It includes our current 2011 forecast for organic revenue growth and segment margins which Michael and Joe will discuss. It also includes forecasts for nonsegment expense items including corporate G&A, US retirement plans for former operations and royalty income. Other forecasted items include our tax rate, interest expense, non controlling interest, capital expenditures and D&A.

Now for our Safe Harbor Statement. This call and the ensuing Q&A session contain forward-looking statements. Actual results could differ materially from projected or estimated results. Information regarding factors which could cause such differences is available in today's 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 and Brinks has no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brinks. I will now turn the call over to Michael Dan. Michael?

Thanks, Ed. Good morning, everyone, and thank you for joining our call. I am going to start with a brief update of recent events and then we will cover earnings and review our strategy for growing the business.

A lot has happened since our Investor Day meeting in October. In addition to delivering strong earnings, we have been very active from a strategic perspective. In November we completed the acquisition of SPP, the Mexican's largest CIT provider for $60 million. CPP (sic) generates about $400 million in revenue. It has grown at 5% to 8% percent annually in each of the last three years. We will invest the (rest of it) to improve it's profits which are close to break even now and will leverage their footprint to accelerate growth in global services and to introduce our high value solution products and services. In late December we acquired Threshold Financial Technologies for about $40 million. As a result, Brinks now offers a full service payment processing and network management solution to customers in Canada who currently manage in-house ATM platforms and point-of-sale terminals.

In an effort to improve results in Europe, we exited the CIT business in Belgium which had been operating at a loss for several years. This decision resulted in a noncash asset impairment charge of $13 million. These actions support our strategy of maximizing profits in developed markets as we invest in emerging markets, higher margin solutions and adjacent security related markets.

Now for our earnings review in 2011 outlook. From an earnings perspective we had a very strong quarter and finished 2010 on a positive note. Non-GAAP earnings for the quarter more than doubled to $0.73 per share on a 12 % revenue increase. Organic revenue growth was 8%. Segment profit rose 63% of which 48% was driven by organic growth and the remaining 15% by acquisitions.

These improvements were driven by significant profit growth in Europe, Latin America and Asia Pacific. Our global service business was an important contributor in each of these regions and in North America and we benefited from the very strong safety and security performance across the globe.

Full year non-GAAP earnings increased 47% year-over-year to $1.71 per share. Revenue for the year was up 8% including organic growth of 5%. Full year segment margin increased 120 basis points, 7.2%. Like the quarterly results, the improvement for the year was driven by international operations and strong safety and security performance.

Those of you who attended or listened to our Investor Day meeting will recall how we stressed the importance of investing in safety and training which in turn ensures the safe keeping of our people and our customers' assets. This goes to the very core of what Brinks does. We believe we do it better than anyone in the world. It's not only the right thing to do, it's an important driver of our financial performance. As we said at our Investor Day meeting, a dollar not lost is the same as a dollar earned.

Our outlook for 2011 calls for mid to high single digit organic revenue growth in a segment margin rate, the high end of a range between 6.5% and 7%. Margin outlook reflects our previously expected organic increase of about 50 basis points which will be diluted by the addition of $450 million of acquisition related revenue and roughly break even margins. We are assuming a modest improvement in the global economy with emerging markets outpacing Europe and North America and continued growth in global services as the demand for world wide movement of valuables continues to increase.

Now for a little bit of performance by region. I'll talk a little bit more about outlook and strategy in a few minutes, but first let's start with international operations. Our quarterly profits almost doubled, rising from $34 million to $67 million. The margin rate increased more than 400 basis points to 10.4%. Most of this profit increase, or about $21 billion of it, was attributable to Europe where organic revenue growth was 5%.

But I want to be very clear about our challenges in Europe. This profit growth was not driven by fundamental improvements in our core CIT business or significantly improved competitive or economic environments. The economic and market conditions in Europe remain extremely difficult. The higher profits reflect improved security performance and strong growth in global services. We also benefited from lower severance cost and the elimination of operating losses from businesses that we sold or exited in 2009 and 2010. Joe will provide details of these items.

We are making progress in Europe, but it remains slow. It was encouraging to see that the fourth quarter and full year profits improved in most countries, including France, our largest operation in the region. Our next largest, Germany, continues to operate at a loss, but did show modest improvement. Our margin in Europe remains in the low single digit range and our goal is to increase it by 50 to 75 basis points per year in a long term target of 7%.

While the global economy has improved, gross domestic product growth in Europe has been very modest there seems to be very little upward momentum. According to our strategy, we're going to maximize profits by accelerating productivity and cost control efforts in our core CIT operations and shift the revenue mix for more high value solutions in emerging markets. Our exit of the Belgium CIT business has generated a 2010 operating loss of about $6 million and our investments in Russia and Turkey are good examples of this strategy in action.

In Latin America profits grew 28% due to improved performance across most of the region. We expect continued growth in 2011 to be driven by Venezuela, Brazil, Columbia and Argentina.

The integration of SPP in Mexico will be a major focus of management in 2011.We expect to invest up to $100 million there over the next three years with the goal to achieve the double digit margins that we've come to expect from our other Latin American operations. In addition to improving the margins in SPP's core business, we will leverage its broad geographical footprint to expand global services in Mexico. There's much work to be done, but we're excited about this acquisition and the opportunity it presents.

Our Asia Pacific operations also delivered solid revenue and profit increases to mainly to commercial security via our ICD alarm business acquisition in 2009 and continued strong results in global service operations.

North America continued to struggle throughout 2010. Organic revenue growth was relatively flat for the quarter while profits slightly declined. Improved security performance was more than offset by volume and pricing pressures. Maximizing profits in North America is critical. The long-term goal is to double margins which ended the year at 4.8%. To achieve this we must accelerate productivity, cost control efforts and grow our high value solutions such as global services, money processing and CompuSafe services.

At the year end, CompuSafe had an installed base of more than 12,000 units and the pipeline for 2011 looks promising. We also expect North America to benefit in 2011 from profit growth global services. Longer term, our threshold acquisition in Canada should enable us to drive new higher margin revenue from our existing customer base in the US and around the world.

Now our strategy. I will conclude with some additional comments on how we intend to grow the business. Our strategy is to maximize profits and develop markets and invest in higher margin solutions and emerging markets and extend our brand by investing in adjacencies such as commercial security and payment processing. I have already covered our profit maximization strategy in Europe and North America. Investing in emerging markets is a critical component of our growth strategy and our path to 2015.

In Latin America, we've invested $50 million in 2009 in Brazil. Last year Brazil became one of our largest revenue drivers. And Columbia, Chile, Argentina each delivered solid revenue growth.

Our presence in the Asia Pacific region, while still relatively small, continues to grow. In fact, revenue in India has more than tripled since 2009 and we acquired majority position in our operation there. Global services continues to grow rapidly inChina and Hong Kong. And ICD, a small commercial security business that we acquired in 2009, had a very strong fourth quarter and is poised for additional growth in the Asia region.

Finally, we just begin to build our presence in Russia where we believe we can achieve significant growth over the next few years. Since 2009, investments we've made in the BRIC countries alone have added about $150 million in annual revenue. More importantly each has potential to deliver double digit growth in operating margins.

Finally, our investments in commercial security, in payment processing demonstrate our strategic commitment to enter adjacent security markets, leverage our global footprint, brand name and customer relationships. I have already mentioned our ICD commercial security division in Asia. We're also pursuing commercial opportunities in Latin America and Europe. Leverage our existing facilities and security expertise in those regions.

e-Pago, our Cayman processing business that operates in Brazil, Columbia and Panama delivered solid growth and turned profitable in 2010. The threshold acquisition adds new capabilities in the payment processing space. These adjacent businesses are still relatively small but they demonstrate our commitment to expand to new security related markets that will help us achieve our longer range revenue and margin goals. That covers my review of the quarter in year.

As we begin 2011, we will face difficult challenges in North America and Europe, but we expect improved results in each of these regions, as well as Latin America and the Asia Pacific region. The external environment is showing modest improvement and we're still seeing considerable pressure on price and volume in our core CIT business. On the other hand, we're encouraged by the outlook for emerging markets and we are excited about our recent acquisitions.

We will remain disciplined but aggressive in our approach to investing in emerging markets, high value solutions and adjacent businesses. I'm confident that doing so will lead to substantial growth in revenue, profits and more importantly shareholder value over the next few years. As I have said many times over the past two years, as economies around the world stabilize and improve our position as the global leader of secured logistics will only get stronger. I'll now turn it over to Joe and then we'll take questions.

Thank you, Mike. Good morning, everyone. Michael covered the main issues from an operating and strategic perspective so I'm going to provide some details behind the financial results.

As Michael noted, fourth quarter results provided a strong finish to a year in which we continued to face challenging economic and competitive environments particularly in North America and Europe. Latin America had another solid year. Our global services business rebounded from the slowdown of the last two years and the Brinks commitment to safety and security, to protecting our people and our customers' valuables continued to separate us from the competition and add a positive impact on financial results across all regions. Our 2010 results demonstrate the underlying strength of the business, especially when you consider the challenging external environment and its impact on our customer base. We remained focused on executing our strategic growth initiatives as evidenced by the organic revenue growth and the addition of nearly $50 million in annualized acquisition related revenue. We are well positioned to achieve our long-term goals.

Now for a quick summary of results and our 2011 outlook. In the fourth quarter, on a non-GAAP basis, we delivered organic revenue growth of 8%, expanded the segment margin rate from 6.6% to 9.7% and more than doubled earnings per share. Segment profit rose 63%, an increase of $33 million. Much of the $33 million increase was in Europe where profits increased to $21 million.

The good news is that we had better security performance and growth in global services. However, the results were also driven significantly by $6 million and lower severance, $3 million from the exit of money losing operations in France and Belgium and other nonoperational improvements. As Michael said, we are making some progress in this region but it continues to be very challenging.

Latin America profits were up $10 million on strong performance across the region and Asia Pacific profits rose $5 million on strong volumes in our commercial security and global services businesses. North America profits were down slightly from continued volume and pricing pressure. We expect full year organic revenue growth to be in the low to mid -- I'm sorry. In the high to mid single digit range. Sorry.

We expected full year organic revenue growth to be in the low to mid single digit range in 2010. We came in at 5%. We expected a segment margin rate between 6.5% and 7% in 2010. We delivered 7.2%, up 120 basis points over the 2009 rate of 6%. So we were at the high end of the revenue guidance and 20 basis points above the high end of the expected margin range. A strong finish to the year.

For 2011 we've increased the organic revenue growth outlook to the mid to high single digit range. The Mexico and Canada acquisitions should add about $400 million of revenue on top of the organic growth. The 2010 revenues already includes about $50 million for the Mexico acquisition which closed in mid November last year. Prior to factoring in the acquisitions, we expected the 2011 segment margin rate to increase by about 50 basis points over the 2010 rate of 7.2%. Adding $400 million of acquisition revenue at roughly break even margins dilutes our guidance to the high end of a range between 6.5% and 7%. The estimate of 6.5% to 7% applies to the total 2011 revenue, including the Mexico and Canada acquisitions.

Now for a quick update on GAAP and non-GAAP results. Some of the details behind the results. We provided both GAAP and non-GAAP results in the press release to make it easier for investors to assess our operating performance by excluding certain items that make it difficult to compare results with prior periods.

The fourth quarter GAAP results include three items worth mentioning. A noncash impairment charge of $0.16 earnings per share related to the Belgium CIT exit and $0.18 earnings per share charged related to the Mexico acquisition, as there was a write down of the previously held ownership interest and a bargain purchase gain. There was also a $0.06 earnings per share gain on the exchange of marketable securities.

All three of these items have been removed from the non-GAAP results to provide a more clear view of our operating performance. All three of these items were also noncash.

There were no unusual Venezuela related charges in the fourth quarter. The business continues to perform well operationally generating positive net cash flows in a declining economy. We continue to report at the 5.3 exchange rate and continue to obtain government approval at this rate for the US dollar operating cash needs of the business.

A detailed reconciliation of the GAAP and non-GAAP results for both the quarter and full year is provided in our press release starting on page 16. However I want to highlight a change in the tax rates in the non-GAAP results.

We have adjusted the previously reported first, second and third quarter non-GAAP tax rate from the prior estimate of 37.5% to the full year 2010 actual non-GAAP tax rate of 36%. The 2009 non-GAAP tax rate was 37%. We feel that adjusting the quarters to the estimated full year rate throughout the year and to the actual rate at year end provides improved comparability for investors when analyzing our earnings per share results because the quarterly tax rate can be volatile for a variety of reasons. We expect the 2011 effective tax rate to be in a range of 36% to 39%.

Fourth quarter severance and restructuring costs were about $4 million and the full year costs were $19 million. The fourth quarter was about $5 million lower than last year and the full year was about $4 million lower, all driven by Europe. We expect severance and restructuring for 2011 to be in the historical range of $2 million to $5 million per quarter. The nonsegment, non-GAAP expense for the full year was up about $4 million versus 2009, primarily due to retirement cost and some G&A increase.

The 2011 forecast is up about $4 million again, due primarily to higher retirement costs. Capital expenditures in 2010 totalled $149 million, in line with the lower to prior guidance and down from $171 million in 2009. In 2010, we had $34 million in capital lease acquisitions of armored vehicles and CompuSafes in North America, up from $13 million in 2009. The combined 2010 capital expenditures and capital leases of $183 million was flat compared to the 2009 total of $184 million.

We are highlighting both capital expenditures and capital leases because we have begun to utilize capital leases in North America since they provide a slightly lower cost of capital versus alternative financing costs. In 2011 we estimate the combined capital expenditures and capital leases of $220 million to $240 million. This includes about $30 million of investment in Mexico, consistent with our business plan to improve profitability there. We will continue to manage spending carefully as we execute our strategy of investing in safety and security and pursuing growth and key markets throughout all economic cycles.

The 2010 GAAP cash flow from operating activities was approximately $235 million, an increase of $40 million. As 2009 included a cash contribution to the US pension plan of $60 million net of taxes that was partially off set by an unfavorable change in cash flows from discontinued operations of $33 million.

Looking at liquidity. Net debt increased from $53 million at year end 2009 to $245 million at year end 2010, up about $190 million. The increase was driven by acquisitions of approximately $115 million,stock repurchases of $34 million and continued investments in the business to support growth and maintain the safety and security of our business partners around the world.

We recently completed a $100 million private placement debt issuance at attractive coupon rates that mature in 2021 with $50 million starting to amortize in 2015. The proceeds were utilized to pay down the syndicated credit facility to approximately $100 million leaving us with approximately $300 million of available credit under this facility.

A quick look at legacy liabilities. The summary is, they have not changed materially from our last update. The US pension discount rate has declined significantly consistent with market trends from 5.9% to 5.3% causing the liability to increase, but asset returns were strong in 2010 leaving the pension plan at about 80% funded at year end.

The underfunding of the medical liabilities relating to our former coal business is about the same as last year. The key focus in my opinion is on the cash flow impact. The US pension plan does not require contribution in 2011 and at this time on requires a $25 million to $35 million per year from 2012 to 2015. The medical liabilities relating to our former coal business are still funded by the VIVA Trust until around 2029. So no cash flow impact on the Company is expected for nearly 20 years.

A quick look at summary of 2011 guidance. On page 12 of our press release we provide guidance on key financial metrics for 2011. We have expanded what we provide to include interest expense, non controlling interest and capital leases. Interest expense will increase in 2011 due to the 2010 acquisitions, the syndicated credit facility refinancing to 2010 market rates and the private placement debt issuance. We are including capital leases due to their increased use to deliver an overall lower cost of financing.

I will close with providing additional color on guidance of mid to high single digit percentage of organic growth and a segment margin rate at the high end of a 6.5% to 7% range. Our assumptions include modest global economic improvement with North America and Europe lagging growth in Latin America and Asia Pacific. Organic revenue growth and profit improvement in all regions. Continued focus on fixing our underperforming businesses and continued strength in our global services business across all regions.

We're excited about our businesses and our growth strategy. We've demonstrated our commitment to pursuing growth for acquisitions and the driving margin expansion. We have invested aggressively throughout the downturn of the last two years and our balance sheet remains strong should new opportunities arise.

As Michael said, we will remain highly disciplined in our focus on growth in what is still a challenging environment. We have the right strategy in place and will continue to take the necessary steps to create value for our customers, employees and shareholders.

LaTanya, let's open it up for questions.

Thank you. We will now be conducting a question and answer session. (Operator Instructions). Our first question comes from Clint Fendley with Davenport. Please proceed with your question.

Thank you. Good morning, guys.

Good morning.

First question on SPP, the Mexican acquisition. How confident are you guys that business can perform in line with other parts of Latin America during the next few years?

It's going to take some time and some investment. Probably three to four years to get it to the performance level of Latin America. The major challenges are to make sure that we intelligently partner with the union members who are down there, the union leadership that is down there.

This was a company, as you recall, was basically controlled by the banking institutions in Mexico, who it's important that they didn't have any labor disruptions. Basically ran it as a service organization. We're going to go in there, partner with the unions and our employees and get it back on a normal profit and loss business status. It's going to take a couple years.

From your perspective, given some of the crime we've seen in the news in Mexico today, is it a more dangerous environment? Does that make it better for your business than other parts of Latin America?

Actually, Mexico is one of the safer places for our business in Latin America.

Okay.

We had one robbery last year.

Okay. Switching over to Europe and Belgium. Should we expect more impairment charges out of Belgium going forward?

I don't think so. We did everything possible to avoid the situation in Belgium. Seeking all sorts of help from the government, from the labor ministry and from the unions. We were basically caught in a system that was impossible for us to compete, and we were just going to continue to bleed to death.

It was the last resort after years of funding these losses and trying to get some laws changed to make it a balanced playing field. It's really a sad time for our people in Belgium, our employees, our management and our local customers in the CIT business. We actually got some pretty good help from some government ministries during the process, but at the end of the day it was -- we had no choice but to take the drastic steps that we did.

I don't see any other situation like that in Europe. There will always be restructuring charges like Joe mentioned. We expect those to be in the more normal range per quarter as they have been in the previous years.

I take it you haven't sold the business there yet, then.

The business is in bankruptcy.

Okay. Then last question on the safety and security performance during the quarter, clearly benefiting your numbers. How much of your upside and margins for the quarter for both North America and international were due to any accrual adjustments related to the safety and security?

Safety and security reflects the performance throughout the year. That's just in the fourth quarter. And sometimes we get little more benefit in the fourth quarter than the first three quarters just by the formula that we use with our self retentions around the world. So there's a little pickup in the fourth quarter more than the other quarters but not that material. It's spread throughout the year.

Okay. Thank you guys.

Our next question comes from Ian Zaffino with Oppenheimer. Please proceed with your question.

Hi, guys. This is Brian Bittner in for Ian. Congratulations on a terrific quarter.

Thank you.

As far as the $30 million for CapEx that's going towards Mexico, is that going to be the type of CapEx that's going to be spent on that business sustainability over the next four years or is this kind of a spiked number?

No. What we said before, we expect to spend up to $100 million over the next three years. Then at that point in time we think that the business will be in better shape and that will probably fall down to more normal maintenance level of around $15 million to $20 million. Depending on the growth of the business.

Okay. And can you just go into a little bit deeper the CapEx over the next year or two exactly what that's going to be used for there? Obviously to help turn around the business. What specifically are you going to be doing?

Most of our CapEx is facilities, trucks, CompuSafes and investing in our higher margin businesses. I would say that the vast majority of it is called maintenance capital. Except for the high margin growth businesses which require more. Do you have anything to add to that?

I think that's a good summary.

So you're going to kind of just be investing in more higher value products in Mexico and that's the large portion of the turn around CapEx there?

Yeah. And the fleet. The fleet is old. Hasn't been invested in. Some of the IT.

The banks have managed the business since about 1992, I believe, or 1993. The business is solid. Facilities are in good shape, but the rest of the infrastructure was almost frozen in time, if that's a term to use. And so we obviously will modernize it and bring it up to our local standards that we have today.

Okay. Great. Then just on North America. As we enter 2011, how tough does the competitive pricing environment continue to be there? Has it abated at all or is this something that's probably going to continue to be a theme for 2011?

It has abated somewhat. More importantly, we've got better cost alignment than we've had before. I'm confident that the management group that we have in North America that has been realigned, through two different realignments that took place in 2010, is in very strong shape. I'm more confident about the level of improvement attainable in North America than I am in Europe for 2011.

Okay. Hey, great. Thanks, guys.

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

Good morning gentlemen.

Morning.

Morning.

Michael, as you look back to where you guys were let's say over the summer, looking to the rest of this year, obviously you came in ahead of your guidance. What were, let's say, the top two factors in your ability to do that? How much of it was a little bit of relief in the macro economy versus things where you just made progress on your own a little bit faster than you thought?

I'd love to tell you there was just one or two things, but it was a lot of grinding out and a lot of hard work by a lot of people around the globe. Really, everybody contributed some what. If I was going to highlight two areas though, I would highlight the economy coming back and our positions with global services to be able to seize those opportunities in the diamond, jewelry and the movement of precious metals and currency around the world was probably number one.

And number two, it's just a terrific, terrific safety and security performance across the globe in a difficult economic environment with rising crime that our management did a wonderful job. I would say 70%, 80% is great management and execution and 20% of that or 30% of that is luck. But we'll take it.

Okay. In your organic top line growth forecast which was increased with this press release, same kind of situation. Can you talk about the factors that increased that? You're not factoring in, you're not getting the benefit of Mexico in your organic growth calculation, even though I assume that will be a pretty quick growing market. What were the factors in that guidance increase?

Again, strong performance in Latin America and growing top line growth in our global services business. An economy that is doing well around most places around the world.

Okay. Fair enough. And Joe, if I could ask you a -- What's that? Hello?

Right here.

Oh, hey, Joe. Sorry about that. Did you guys leave the asset return assumptions the same in your pensions legacy liability plans? You mention the discount rate. I don't think you mentioned the return assumptions.

Yes. We continuously review that and at this point we've left them the same, yes.

Okay great. Thanks very much.

Our next question comes from Michael Kim with Imperial Capital. Please proceed with your question.

Hi. Good morning, guys. First on CompuSafe can you talk a little about the order pipelines, especially as we look through the balance of the year and your expectations in terms of installation rates and where you might think you might end the year in terms of the install dates.

In the North American market place, I would expect we would have probably a 25% to 30% growth rate, a little bit higher in 2011 than it was in 2010 because of where we are in the pipeline and sales and installations that are taking place already in the first quarter. The international installation rate I don't think will be a material factor until 2012.

Just on international, I think on previous calls you talk about some testing activity in Brazil and Australia. Can you provide an update on how those tests are progressing and the opportunity for international employment?

Once again, I think it will become meaningful in 2012. Our tests are going well in all countries. Actually, we're in seven different countries now, we have tests going. So -- (inaudible) (gap in audio)we're optimistic that we will be able to bring that quality product, that expertise out to help with the cash recycling initiatives that are happening around the world.

Okay. And then just switching gears to global services in the diamond and jewelry market, are you seeing that strength on a sustainable basis or was there a little bit of a back fill in the last quarter given how weak the market's been for quite a while and your thoughts for the balance of the year?

I would tell you that the peak year would have been 2008 when the market crashed. We still had a pretty good finish to that year with diamond and jewelry. Then, of course, it went into the troughs in 2009 and 2010.

I would say that we finished been strong in the year, but I would say we're probably back on the diamond jewelry side to about 75% to 80% of the 2008 peak. So there's still room to go if the economy continues to recover. You have a high end luxury goods that are doing very well. Diamond prices have risen. It's still slow in North America, but it's strong in Europe. It's strong in Asia, Middle East and Latin America.

And then, Joe, one quick question for you. Can you give maybe a high level sense on free cash flow for 2011 relative to 2010? It looks like the higher cash interest and higher CapEx with the improvement in the segment operating margin. Is it your sense that it should be roughly even with 2010 pre cash flow?

I would expect it to continue to grow with the operations. Obviously the extra CapEx in Mexico will consume some of that free cash flow. I'd expect free cash flow to grow with the business.

Okay, great. Thank you very much.

Our next question comes from Chris Marangi with Gabelli and Company. Please proceed with your question.

Hi. Good morning. Could you talk about what skill set you were looking for in the threshold acquisition? Is this a service that you're going to be able to package with CIT or is it a stand alone platform for other things?

No. It's part of moving into higher margin solution based capabilities for our customer base. So think of it today. We basically go to the ATM machines and fill them with cash or do first line maintenance. What this does is buy capability where we can manage the whole back office network. Currently threshold services, basically the large portion of the savings and loan associations across Canada, and half their business is running "white-label" ATMs in supermarkets, petrol stations, things like that. I'm not particularly excited about bringing that around the world, the "white-label" ATM business. I am in the back office switching. Which is very attractive to the smaller Brinks Companies that we operate in and to any savings and loan institutions. We're keeping up with regulatory requirements, something those institutions look to outsource. We want to have that capability to differentiate ourselves from our competition.

That's technology that you can bring around the world for the most part?

Absolutely. Absolutely.

And then on e-Pago which you mentioned was break even for the year. How much potential do you think there is to move that into other markets or free countries now? What makes Brazil special versus say Mexico or other countries where you're not?

Well, we plan to bring it into Mexico this year. e-Pago is a little bit different in every company. It's a payment management company. The margins in that business, in Brazil market where it's in its most developed state, are north of 20%. North of 20%. So we are really excited about e-Pago's opportunity capability on a global basis.

We're making money in every country that we operate in. We are carrying a lot of overhead as we look for acquisitions and/or expansion of that business around the globe. We were very happy that even with that extra overhead to be able to break into the profit in 2010. And we have an aggressive business plan to grow and expand that business and have a pipeline including acquisitions around the world that we're taking a look at.

Great. One last one. I think you did this in the UK, butany issues with exiting the CIT business in Belgium and staying in the global services business?

I don't see any difficulty whatsoever.

Great. Thank you.

Our next question comes from Jeff Kessler with Imperial Capital. Please proceed with your question.

Thank, you. First, Mike, how big do you think you can grow the global services business? It obviously has higher margins. The key is where you had to cut back on the low margin business because CIT you've been able to maintain global services. Can that business become two or three times the size of what it is now?

Global services other than the time we shrank during 2009, 2010 which was mostly in the diamond jewelry business somewhat offset by larger movements of precious metals and currency because of the financial dislocations we experienced. There's just different margins on that business. I would expect full services to grow in the mid 10% to 15% rate year-over-year without some financial dislocation like we experienced in 2009 and 2010. We continue to add end points. We're growing very, very fast. I think we're up to 15 cities in China now where we have a domestic network of global services and we're just -- when you're in those markets, when the tide is rising, we're going to rise with those markets. It's part of our emerging market strategy. Global services is always the point of the spear. Has been historically at Brinks and will continue to be in the future.

One of the reasons I asked the question. In the Far East, you seem to be growing global services quite rapidly.

Yes, we are.

Okay. Maybe I am oversimplifying but I want to --this is obviously a capital allocation question. But it seems that in the more mature countries, Europe and United States, where CIT is under pricing pressure or maybe the bank, either because of the economy, the bank's not realizing the value proposition. You are going to have to depend increasingly on cash statistics and new products to get the margin, to keep the margin where it is or to get it up. And then in developing countries, CIT and just the initial initiation of these new services becomes more important. In other words, the more mature countries you have to depend more and more on cash statistics. In the less developed countries you can try to move forward with pure growth in CIT. That's where the investment will go?

I think that's a pretty accurate description, Jeff.

All right. Finally, one final question. That is a little bit of talk on price. You said you didn't see that much price pressure despite the fact that there wasn't that much volume that you liked in the US this past year. You were sounding a little bit more optimistic about the US relative to Europe. Are you seeing a lessening of price pressure from competitors or a more rational approach by your end users towards those companies who are providing lower quality services and the realization that you're going to be able to get volume at a higher price than your competition? Is that what gives you the optimism in the United States and Canada?

I think it's a combination of both those things, Jeff. I think the capacity that was available for people who are pricing at the levels that I call unsustainable has been utilized, and obviously, I think it will be affecting their results. So there is a capacity issue there that's going to play into our favor. There's also some people who realize now that low cost option which looked real attractive it doesn't have the service quality they're used to, they are -- slowly we're eliminating the move away from Brinks and once again maintaining our pricing discipline, taking the pain, knowing that long-term giving up price by 20 or 30 percentage points just is not the right thing to do.

You were hoping for this in a couple countries in Europe. Obviously, you pulled out of a couple countries in Europe. You're here in the United States. Probably a little bit closer to the situation here. Even though I know you spend a lot of time in Europe. You remain confident that in the United States, things are different than some of the individual countries in Europe?

That's correct.

Okay. Very good. Thank you.

Our next question comes from Brad Safalow with PAA Research. Please proceed with your question.

Hi. Good morning. Thanks for taking my question. First question just on a comment you made related to Belgium. I know there's been some controversy surrounding your decision to exit that (inaudible) (technical difficulty) division more so related to the diamond side and your global services contract there. Can you comment on any issues you had during the fourth quarter with either delays in shipment or whether or not you resolved those issues going forward really more for your diamond transportation?

Sure. I'd be happy to. First of all, there are two separate companies in Belgium and always have been. One was the CIT ATM business that did some transport for the other totally separate company which was the global services company. In our efforts to find a way to fix the business, we tried to, and successfully, transferred some of the business, the global service business, which became controversial in the Belgium market. We experienced a slight disruption for a couple days in the global services business. But we came up with work around in cooperation with the Belgium government and the diamond consul in Belgium to make sure that very important industry continued to function. We received very good cooperation from the Belgium government in doing that. There wasn't a fact -- some of the competitors tried to take advantage of it and blow it out of proportion, but at the end of the day the service is running smoothly global basis in Belgium.

All right. So going forward, you don't expect any more issues on the global services side in Belgium?

No. I do not.

Okay. Then just shifting gears. So for the threshold deal in e-Pago I've seen some great growth. What is the total in other different service offerings? Cayman processing,how large a business is that for you now?

I don't think that -- Joe, we don't disclose that, do we?

No, we don't. Okay, well it's still -- as Michael mentioned, it's still relatively small. Growing in a very fast rate. It's profitable. We continue to invest in it because there's tremendous growth opportunities around the world.

Okay. Just within Asia. Obviously, you have 47% organic growth. This is a very high number. I think you talked about global services. Can you at least comment on what is really your view on the structural growth rate for Asia for the next few years, including, I know there aren't as many acquisition opportunities in that region, so based on what you can control, how quickly can that division grow?

Not fast enough. We're putting special resources in to find ways to accelerate that growth rate in Asia. We don't expect to be able to be building armor car branches or running armor cars around China, for instance. We just can't get the license.

But we do think we can do -- we know we can do global services. We know we can do some cash processing. We know we can do some consulting work. It might be a great model to go in there and not have the investments in armored trucks and vaults and bring our high-valued services to that community or where we think we can get licensed and have an impact and drive our growth rate.

Of course, India is growing very, very rapidly. We continue, as I said, we've tripled the business since the 2009 acquisition and we see that growth rate continuing to be very, very strong. Once again, rising boat with the rising tide.

Understood. Just last question. From a capital allocation perspective you had a very busy fourth quarter in terms of acquisition activity. You obviously, increased your debt burden a little bit. You should generate good free cash flow, as you pointed out, in 2011. What are your priorities between debt repayment, additional acquisition, share repurchase? Can you talk about that?

The pipeline's full. We look at every acquisition to see what's the best use of our excess cash or debt capacity. You always are mindful to want to maintain a triple B credit rating. The Board of Directors will take a look at what that pipeline looks like, what those opportunities are, how much capital should go towards the growth of the Company, or whether we should reauthorize share repurchase. We'll look at that. Which we continually do at every board meeting.

Okay. Fair enough. I'll turn it over.

Thank you.

Our next question comes from Robert Kirkpatrick with Cardinal Capital. Please proceed with your question.

Good morning. Congratulations. Could you talk a little bit about what you see the effect from mobile phones in terms of as a use (inaudible) (audio gap) of a device to exchange payment in the particular emerging markets over the next five years and how that might affect your business and where you choose to invest?

It will be very helpful for us in our e-Pago business. I'm all for it. High margin business, part of the e-Pago product offering, we think it will be a -- I would say game changer. The younger generation will use it. I think there's lots of security concerns around mobile payments which haven't been resolved yet. Currently we're on both sides of that play. Banks think that cash is going to dissipate, the more banks want to outsource all their cash processing to us, which drives our business on one side. The more it goes to electronic payment type options such as phones, pre-paid cards, etcetera it will help our e-Pago business.

Great. One for Joe. What was the stock comp expensein the fourth quarter?

Stock comp expense was less than $1 million in the quarter.

Great. Thank you so much. Congratulations, again.

Our last question comes from [Daniel Valdez with Surveya Capital]. Please proceed with your question.

Hi, guys. Congratulations in the quarter. My questions have actually been answered. Thanks.

Thank you.

Great. Thanks.

There are no further questions at this time. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.