Brinks Co (BCO) 2011 Q2 法說會逐字稿

Greetings, and welcome to the Brinks Company Second Quarter 2011 Earnings Call.

At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ed Cunningham, Director of Investor Relations for the Brinks Company. Thank you, Mr. Cunningham; you may begin.

Thank you, Christine. Good morning, everyone. Today's call will proceed as follows.

CEO Michael Dan will summarize second-quarter results and segment operating performance. He'll also comment on our outlook for the second half and full year.

CFO Joe Dziedzic will follow with some additional comments, and then we'll open it up for questions.

Our earnings release was issued this morning, and is available at our website, at Brinks.com.

Earnings were reported on both a GAAP and non-GAAP basis. On a GAAP basis, second-quarter earnings were $0.11 per share versus $0.42 last year. Non-GAAP earnings were $0.27 versus $0.30 last year.

Organic revenue growth, which excludes acquisitions, dispositions and currency items, was 9% for the quarter. Total revenue growth, which includes the benefit of our late-2010 acquisitions in Canada and Mexico, was 34%.

The non-GAAP results for the quarter exclude certain items related to income taxes, certain currency items, royalty income and employee-benefit settlement losses. The non-GAAP results also adjust the tax rate to our estimated full-year rate of 37.5%.

We believe the 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 the non-GAAP results.

A summary reconciliation of non-GAAP-to-GAAP earnings is provided on Page 2 of today's release, and a detailed reconciliation is provided on Pages 14 and 15 of the release.

In addition, a summary of selected results and outlook items is provided on Page 10. It includes our latest forecast for organic revenue growth, segment-margin rate, corporate G&A, retirement-plan expenses, royalty income, interest expense, tax rate, non-controlling interest, capital expenditures and D&A.

Now for our Safe Harbor Statement.

This call and the ensuing q-and-a session contain forward-looking statements. Actual results could differ materially from projected or estimated results. Information regarding factors that could cause such differences is available in today's release, and in our most-recent SEC filings.

Information discussed on this call is representative as of today only, and Brinks assumes no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brinks.

I'll now turn the call over to Michael Dan.

Thanks, Ed.

Good morning, everyone. And thank you for joining our call.

As Ed mentioned, my comments will focus on non-GAAP results.

Second-quarter results were lower than expected, but still on-track to achieve our full-year revenue and segment-margin goals. Reaching these goals is a little bit more of an uphill climb, but still very achievable, based on our second-half expectations, and our progress of acceleration of restructuring in Mexico and the US.

Revenue growth remained strong at 34% due to the acquisitions, currency and more importantly, organic growth of 9%. Year-to-date, organic revenue is up 8%, which supports the top end of our annual guidance, in the mid- to high-single-digit range.

Earnings came in at $0.27 per share; down from $0.30 last year. The $0.03 decline reflects the continuation of difficult market conditions in North America and Europe. $4 million in higher interest costs. A $2 million increase in non-segment expenses. A $6 million increase in restructuring expenses, and a $4 million increase in accounting corrections.

These items, which Joe will cover in more detail, drove the segment-margin rate to 4.9%; down from 5.8%.

Despite the margin-rate decline, the segment profit rose 13%, to $48 million, due to favorable currency and the exit of the unprofitable CIT business in Belgium.

Restructuring costs totaled $7 million for the quarter; $3 million of which were in Mexico. We expect a relatively quick payback of these expenses. That, when combined with the seasonally stronger second-half, and better-than-expected profits in global services, should enable us to achieve our segment-margin target at the high end of the range, between 6.5 and 7%.

The inclusion of our near break-even revenue from Mexico is obviously pressuring our margin rate. But the fact that this business had only a slight loss for the quarter, despite the $3 million in restructuring expenses, is very encouraging.

In fact, we now believe that Mexico will be slightly profitable in the 3rd and 4th quarters, which is one of the reasons for our strong optimism regarding the second half of 2011.

Those who follow Brinks know that the second quarter is usually our weakest, and that profits are typically much stronger in the second half. That was certainly true last year, when our mid-year segment-margin was 5.6%, and we finished the year at 7.2%.

At midyear 2011, our margin stands at 5.3%, despite the inclusion of Mexico. If we deliver results similar to last year's second-half, we'll get to our margin goal for the year. And we fully expect to meet or exceed those year-ago levels.

I'll now comment in more detail on the performance by region, and the steps we're taking to improve profitability. I'll start with North America.

Revenue was relatively flat, and profit was slightly down on an organic basis. The segment-margin rate was 4.2% versus 4.5% last year. It was up substantially from 2.8% in the first quarter, which we believe represents the bottoming out of the region's results.

There's no doubt the North America turnaround is taking a little longer than expected. Pricing and service frequency remained under pressure, due to both economic and competitive stresses. The lingering effects of the US recession and banking crisis, enhanced ATM technology, and the persistence of low interest rates and pricing pressure by competitors have each played a role in the slowdown of our CIT business.

But as always, maintaining the highest safety and security quality standards is our first priority. Doing so requires great discipline in an environment that encourages aggressive pricing and shortcuts on safety, quality and reinvestment.

As I've said many times, we will maintain the discipline that's expected of the market leader.

We also know we have to accelerate our near-term profit growth. Recent efforts to improve profitability in the US, including streamlining management, investing aggressively in IT to improve customer service, billing and other internal processes, optimizing our fleet operations, and reorganizing to focus on selling a full-service array of our integrated solutions.

Realizing the benefits of these actions is critical to achieving our profit goals. We are taking the right steps, and executing to ensure the long-term sustainable results. But more importantly, competitive advantage.

In addition to the internal improvements, there are external opportunities to improve revenue and margin. While cost-cutting by our banking customers has been a constant source of volume and margin pressure, it also presents some very strong, compelling opportunities.

For example, we're well-positioned to capture new vaulting and money-processing business, as banks strive to reduce costs through outsourcing. This trend is accelerating with the larger financial institutions.

Contract-lease services are typically long-term and are at higher margins.

We're also excited about our recent acquisition of Threshold Technologies in Canada. Thresholds is an end-to-end provider of ATM solutions. Including site selection, ATM purchasing, installation, branding, maintenance, and transaction processing through switching technology. And armored-car service.

We're currently exploring opportunities to expand into new markets outside of Canada. We expect Threshold to be slightly profitable this year, and to contribute to overall margin improvement in 2012 and beyond, in a meaningful way globally.

I'll now move on to international operations, which account for about 75% of our revenue. It had an organic revenue growth of 12% in the quarter. Profits were up due to currency, but were down $2 million on an organic basis; primarily due to restructuring expenses, accounting corrections, and a profit decline in Venezuela.

In Latin America, revenue grew 95%, due to the Mexican acquisition, favorable currency and 21% organic growth.

Operating profit was up 12% due to organic growth in Chile, Colombia and Argentina, and a $4 million currency benefit.

Profit declined 6% on an organic basis, due to a $2 million increase in restructuring expenses, lower profits in Venezuela, and $2 million in accounting corrections.

The profit decline in Venezuela was caused by the inability to raise selling prices at a rate that kept pace with rising labor costs, in a highly inflationary environment.

We believe this is a timing issue, and expect to close the gap in the third quarter.

The profit decline in Venezuela was more than offset by continued strong growth in Colombia, Argentina and Chile.

As I mentioned earlier, profits in Mexico were only slightly negative, despite the $3 million in restructuring expenses. We're off to a good start in Mexico, which is the 5th-largest CIT market in the world, and growing.

This business is now positioned to be a contributor to the profit upturn we are expecting in the second half of 2011; even more exciting about further improvement in 2012. So we're optimistic about our long-term goal of 10% or better margins in Mexico, like the rest of Latin America, by the end of 2015.

In Europe, revenue was up 16% on currency, and 6% on organic growth, despite the $9 million revenue loss from our exit of the Belgium CIT business. This organic revenue growth reflects higher volumes in France, Germany and Greece, along with growth in emerging markets and global services -- which benefited from uptick in jewelry and diamond demand.

Operating profit was up $2 billion, due to the improved results in global services, lower losses in our emerging markets, and the benefit of exiting the Belgium CIT business, which lost $2 million in last year's second quarter.

These improvements were partially offset by a $2 million increase in severance charges.

In general, our results in Europe demonstrate slow and steady progress, despite the negative impact of our initial investments in developing markets, such as Russia and Turkey. We're on track to achieve our annual goal of 50 to 75 base-point margin improvement, and our longer-term margin goal of 7%.

In a relatively small Asia-Pacific operation, both revenue and operating profit were up significantly. Mainly due to increased demand for shipments of bank notes, precious metals, and an ongoing recovery in diamond and jewelry markets.

Our global services business is a primary driver of results in the Asia-Pacific region, and also a key part of our strategic growth in profits worldwide, and to their high value of services.

Global-service operation in all regions leveraging our global infrastructure to move high-value shipments over long distances. We expect continued growth in this business to be an important driver of profit growth in the second half of this year, and a significant contributor to our 2012 revenue and margin goals.

That concludes my review of operations. To summarize, we're on-track to achieve our annual revenue and margin-rate goals. Our optimism is based on our expectation of year-over-year profit growth during the second half, as we benefit from the payoff on restructuring activities in Mexico and North America, continued upward momentum of global services, and slow-but-steady improvement in Europe.

Longer-term, our goal to achieve the 10% segment margin. Doing so requires continued strong growth in Latin America, other emerging markets, as well as global services and other high-value services such as money-processing, vaulting and adjacent markets such as commercial security and mobile payments.

Maximizing profits in North America and Europe is also critical to achieving this goal. I'm as confident as I've ever been that we're taking the right steps and exercising strong discipline to achieve our short- and long-term goals, that our shareholders realize meaningful value from these efforts.

I'll now turn the call over to Joe for additional comments on the financials, before we open the q-and-a session. Joe?

Thank you Michael, and good morning, everyone.

Michael covered the operational and strategic issues. I'm going to provide some details behind the financial results.

As Michael noted, second-quarter earnings did not meet our internal expectations, and were lower than the year-ago quarter. But we remain on-course to meet our annual revenue and profit goals.

Our confidence is based on a continuation of strong organic revenue growth, normal seasonal strength that should lift second-half margins in all regions, continued strength in global services, and our expectation that Mexico will turn profitable sooner than originally anticipated.

Organic revenue growth in the second quarter was 9%. Driven mainly by Latin America. Total revenue growth was 34%, including the addition of our Mexico and Canada acquisitions.

On a non-GAAP basis, earnings came in at $0.27 per share versus $0.30 last year. As a quick overview, the $0.03 decline was driven primarily by increases in expense items that totaled $0.07 per share. $0.05 from higher interest expense, and $0.02 from higher non-segment expenses.

These items more than offset an improvement of $0.05 from segment operations.

Segment profit increased versus last year by $6 million, as favorable currency of $6 million, a $2 million improvement from the elimination of losses from our former Belgium CIT business, and improvement from operations were partially offset by a $6 million increase in restructuring costs, and a $4 million increase in accounting adjustments within the quarter.

On a regional basis, North America's profit was down slightly versus last year, but improved versus the first quarter. And we are optimistic that the actions they've taken will improve their second-half results.

Europe continues to make slow-and-steady improvement in a difficult environment, with growth in France and Greece being partially offset by several smaller countries.

Latin America continued to deliver solid profit growth across the region, with the exception of Venezuela, where the timing of wage increases caused a decline in profit. We expect the recent commercial actions to improve second-half results in Venezuela.

The region also absorbed higher restructuring and accounting adjustments within the quarter.

The Asia-Pacific region continues to deliver strong growth, led by the global services line of business.

As Michael mentioned, we expect a strong second half to help us achieve our full-year outlook. So I want to comment briefly on where we stand at the midpoint of the year compared to 2010.

Through the first six months of 2011, revenue and segment profit are well ahead of the year-ago levels. Year-to-date, organic revenue growth is 8%. Year-to-date segment profit, at $100 million, is up $18 million. 21% ahead of last year.

The profit increase reflects favorable currency, but is also up 8% on an organic basis. The year-to-date segment-margin rate at 5.3%, is 30 basis points below last year's rate; due mainly to the inclusion of the Mexico acquisition revenue.

Excluding Mexico, the segment margin is 6%; 40 basis points ahead of last year's midyear rate.

In last year's second half, we generated $143 million of segment profit, at an 8.6% margin rate. While we don't expect this year's second-half rate to be quite that high, given the inclusion of Mexico, we do expect a strong improvement versus the first half of 2011.

Now let's cover some of the specific financial metrics.

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 second-quarter GAAP results include a previously-announced charge of $0.13 per share, related to the 2010 exit of CIT operations in Belgium, and a $0.01 loss related to an employee-benefit settlement-loss in Mexico. These items were removed from the non-GAAP results, to provide clarity on our operating performance.

The non-GAAP results also adjust our quarterly tax rate to 37.5%. The middle of our full-year estimate of 36 to 39%. Last year's non-GAAP tax rate was 36%.

We make this adjustment for the first three quarters, and then recast all the quarters to the actual rate at year-end. This improves comparability for investors, as our quarter-to-quarter tax rates can be volatile for a variety of reasons.

There are no unusual foreign-exchange-related charges in Venezuela in this year's results. We continue to report Venezuela's results at the 5.3 exchange rate, and continue to obtain government approval at this rate for US-dollar operating cash needs.

A detailed reconciliation of the GAAP and non-GAAP results is provided in our press release on Pages 14 and 15.

Second-quarter severance and restructuring costs were about $7 million versus $1 million last year, on a non-GAAP basis. Year-to-date severance and restructuring costs were $11 million versus $10 million in the first half of 2010.

For the remainder of the year, we expect these costs to be within our historical range of $2 million to $5 million per quarter. Last year's total was $19 million.

We made several accounting adjustments in the quarter that affected our international segment results negatively, by $5 million, which is $4 million higher than last year's second quarter. These include the write-off of a disputed operating tax receivable, increasing employee-benefits' expense, and increasing the expense for a globally outsourced service.

On a non-GAAP basis, non-segment expense for the quarter was up $2 million, due to higher G&A expense, and slightly higher retirement costs. For the full year, we expect total non-segment expenses to come in at about $63 million on a non-GAAP basis.

Second-quarter interest expense increased by about $4 million, due to higher rates on the private-placement of $100 million of debt in January, and an increase in borrowings related to acquisitions.

Capital expenditures for the quarter were $42 million compared to $34 million last year. During the quarter, we entered into capital-lease agreements totaling $16 million versus $13 million last year, as we financed vehicles and CompuSafes in North America, to obtain a slightly lower financing cost.

Year-to-date capital expenditures and capital leases were $101 million versus $75 million in 2010. For the full year, we estimate combined capital expenditures and capital leases of $220 million to $240 million. This includes about $30 million of spending in Mexico, consistent with our plan to upgrade the fleet and overall infrastructure, in order to improve profitability.

We will continue to manage our spending carefully, as we execute our strategy of investing in safety and security, while pursuing growth in key markets throughout all economic cycles.

Year-to-date, cash flow from operating activities was $69 million versus positive cash flow of $49 million last year. The $20 million increase was driven by improved operating performance in the first half of 2011, partially offset by the payment into escrow of $10 million for the proposed Belgium settlement.

Looking at liquidity, net debt increased from $245 million at year-end 2010 to $273 million at the end of the second quarter. The increase was driven by higher capital spend in the first half versus the cash flow generation.

Our legacy liabilities have not changed materially from our last update. The key focus, in my opinion, is on the cash flow impact. The US pension plan does not require a contribution in 2011, and at this time only requires about $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.

On Page 10 of our press release, we provide guidance on key financial metrics for 2011. We've already covered our revenue and segment-margin guidance. As a reminder, we recently had a forecast for interest expense, non-controlling interest and capital leases, to help investors better understand these items.

As we noted, interest expense is higher in 2011, due to the 2010 acquisitions, the refinancing of our syndicated credit facility to 2010 market rates, and the private-placement in January of 2011 of $100 million of unsecured notes.

Second-quarter interest expense was up about $4 million over last year. We expect full-year interest expense to be in a range of $20 million to $24 million; up from $15 million in 2010. The forecast includes capital leases due to their increased use.

I'll close by summarizing the assumptions behind our guidance of mid- to high-single-digit percentage organic revenue growth, and a segment-margin rate at the high end, of 6.5 to 7%.

Our assumptions, which have not changed since we reported in early February, 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 line across all regions.

While we are not satisfied with our second-quarter results, we are confident in our businesses and our growth strategy, and expect strong improvement in the second half. We've clearly demonstrated our commitment to achieving growth through acquisitions.

We invested in the business throughout the economic downturn, and will continue to do so. Our balance sheet remains strong to pursue new opportunities as they arise.

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

Christine, let's open it up for questions.

Thank you.

We will now be conducting a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * key. One money, please, while we poll for questions.

Thank you.

Our first question is from Clint Fendley with Davenport. Please proceed with your question.

Thank you. Good morning, guys.

I wondered if you looked at the global services business alone, just where you were tracking in terms of a recovery for that business? And I'm thinking more sort of post-downturn, relative to 2009 revenue levels.

I think the benchmark should be 2008; not 2009. And it really fell off in 2009. But 2008 was the strongest year 'til that point in time.

I would tell you that we're tracking ahead of that period, but it's a different mix. The gold and currency -- movements in gold, silver storage contracts are up substantially for that period of time.

Diamond prices are up substantially from that time. But the volumes of diamond shipments has not returned to that level, although it's improved.

Now it's returned to that level in places like Asia-Pacific. It's returned to that level in places like the Middle East, which you would assume. And it's almost back to that level in Europe.

But it's still lagging in North America, which is the strongest market for diamond jewelry sales in the world.

That's helpful.

And if we had a big change in the price of gold, would you anticipate maybe? How would that affect your activity levels here?

It's interesting. The change in the demand of gold. When the price moves, gold tends to not move. When gold settles, people are concerned about a big move and it tends to accelerate the velocity of gold shipments.

I mean gold is pouring into India; pouring into China. I expect that to continue. And that's even at the price levels that we're at today.

So I don't think it will impact us. And our storage contracts are all long-term contracts, and tying in our vault facilities and our lease commitments to guaranteed revenue levels. And we obviously benefit when the value of gold goes up to some degree.

That's helpful. Thank you.

And then the last question, here. I wondered if you'd seen any notable change just in the competitive environment within Brazil. Is it getting more competitive down there?

I mean how is the pricing in that country?

Well, I think in Brazil, it's pretty steady, overall. We made a major acquisition a couple years ago. We finished the integration of that.

There are other acquisition opportunities that we're always looking at. We're always in the deal pipeline in every country, and Brazil continues to perform well, economically. We're able to enjoy that rise in tide.

Right. Thank you, guys.

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

Hi, Mike.

Hi, Jeff.

Quick question for you.

Threshold Technologies. Can you talk about what it brings to you? I know you've talked about it before, but I want to know specifically what does it bring to you that you haven't had before in your ATM services business?

And ultimately, where do you think that Threshold will have the most impact for you?

Well, first of all, I think the most valuable part of Threshold is just that part of our strategy of moving up the technology curve, and having more sophisticated solutions for our existing customer base. And that's the back-office switching operations.

They run one of the largest switching operations in Canada, tying together the Savings-&-Loan and small-banking institutions that exist in Canada. Basically across Canada.

So it brings us a whole new capability which we can take and use not only in the United States, but we can use across the globe. So it just gives us a new service offering.

So instead of just doing first-line maintenance or second-line maintenance or cash-replenishment like with ATMs, we now have site-selection. Site-installation. Back-office operations.

So it can be a turnkey package for our customer bases; especially in our developing market area. So we're really excited about it.

The challenge, Jeff, is it's a Canadian company. And the Brinks world -- countries around the world -- are really excited about its capabilities. But we have to be disciplined in our expansion of that organization. We have to build up capabilities on a global basis, to be able to leverage the new technology and expertise we acquired in that acquisition.

Okay. Great. Thank you very much.

As a reminder, ladies and gentlemen, if you would like to ask a question, press *1 on your telephone keypad. If you are using a speakerphone, you may need to pick up the handset before pressing the *key.

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

Hi! Thanks for taking my question.

Hi, Brad.

Just the first question, on a very high level. When you guys look at what impacts your business, how does the -- let's call it -- increased doubt in the value of FIAT currencies impact you? I guess while higher gold, silver, platinum, diamond prices are good for you, on the flip side, it does have some drag, economically speaking.

So when you look at those cross-currents, is it a good or a bad thing for Brinks?

I think maybe this is going to be even higher-level than you're asking, Brad. But global uncertainty I think contributes dramatically to the price rise in precious metals. And anytime you have global insecurity and there tends to be a rise in prices and a rise in the velocity of movement, that helps our global services business.

On the other hand, the cross-current would be the economic slowdown hurts our basic domestic businesses, in some countries. So you have to look at it from both angles.

And I think that's why you see our global services business performing very, very strongly at the current time. And we're still dragging where the banking crisis took effect, which is basically limited to the United States and Western Europe.

Okay. And then on the global-services side, we've seen at least domestically a sharp uptick in polished-diamond prices. Really in the last 2 or 3 months.

Can you provide us a little more detail on how often do your -- ?

I know the contracts are based on the value of goods that are transported. How quickly do you see that in acute price-increase like we saw in diamonds? Or maybe what we're seeing more recently in gold.

How quickly does that show up in your

I made the point about the huge increases in rough and larger-diamond prices. Like you said, in recent history.

But we still don't have the volumes going through. So the liability helps us. But even helping us more than the liability are the number of shipments.

And I think part of the reason that diamond prices have shot up so dramatically is they're an alternative storage of value, similar to the reason gold prices have gone up. And, by the way, it's easier to store a small diamond worth x-amount of money than a bar of gold!

For sure; okay.

So you're seeing the price impacts, but still obviously the volumes are not where you'd like them to be.

In the US. We've seen the volumes almost back to normal in Europe, and they're ahead of pace in Asia-Pacific and the Middle East, because of what's happened economically.

But the US is the biggest market for diamond jewelry. And we don't see those volumes back to those 2008 levels, yet.

But just to I guess put a finer point on it, as far as pricing goes, your global services contracts are already reflecting the move higher we've seen in diamond prices and gold in the last 2 or 3 months?

That's correct.

Okay.

And then just shifting gears to Mexico, I guess two questions.

Can you comment at all on the organic growth rate there? Whether it's higher or lower than your overall Latin American operations?

And then the second question.

It sounds like obviously you've made a lot of progress on getting to profitability sooner than you had expected. I would assume it changes the timeline at which you'd expect that operation to kind of match the profitability in your Latin American operations overall.

Can you comment on that at all?

Mexico is on course. Mexico is on course.

The Company was in limbo for 20 years, when it was controlled by the financial institutions down there, who didn't invest in the business. So our integration team is highly focused on restructuring, which we've taken some charges in the second quarter, actually faster and farther than we could.

I think our relationships with our union partners down there are right on course or right on track, in a proper, respectful way, which I'm very, very pleased with.

And as we update our technology and update our fleet, and finalize the buyout contracts we had with our customer base, which was our former majority partners, I think we'll be just fine in Mexico.

Mexico has had economic problems. There are economic difficulties. It's [the Darko] problems. That hasn't affected us yet. In fact, that causes the need for even more security. That could be a benefit to us, over time.

Revenue growth is in the high-single-digit rates, and could hit low-double-digits, just because Mexico is such a fast-growing economy. And remember, with our problems in the United States, there's been a mass reverse-immigration of people going back to Mexico. Right? Which is going to, I think, further accelerate economic growth in Mexico.

And I would also add that the global-supply-chains are being rethought around the world, with the problems that happened in Japan, and a few years ago with the Swine Flu in Asia.

So I see more and more manufacturing activity from US-based companies and European-based companies looking at Mexico, again. Which I think will benefit that economy.

Okay. And then my final question is related to Venezuela. It sounds like from your comments, you kind of had a timing issue in the quarter, in terms of your ability to pass along pricing to your clients, and what you had to pay in terms of input costs.

Will you see something more normal in the third quarter? Or are you actually going to see a larger recapture in the third quarter, based on what you're saying about pricing?

I think it's a timing issue. I don't think we'll get any great benefit. I think we'll just get back on track.

Retroactivity is always an issue when we do this. But as you know, it's a very, very difficult environment in Venezuela. Things changing all the time.

In the past, when I would be pretty confident on retroactivity, I'm not so sure that will be the case, now with the situation as it exists there today.

Okay. Thanks for taking my questions.

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

Hi. Good morning.

Michael, you sounded more sanguine than you had in a long time about the cash-processing business. Could you drill down into that a little bit and maybe give us an update as to where the US is versus Europe? How big that potential market is for you. What it does to your margin profile and your capital expenditures?

Yes. Chris, for years, we've been having the cash vaults operations for smaller banks and regional banks and mid-sized banks. That's been a growing part of our business every year; our cash-logistics business in the US.

We've also had, with the larger financial institutions, their smaller, their outlying. When they needed an acquisition, they didn't want to invest in vault, we were given that work.

What we're seeing now is, we're seeing the larger financial institutions come to us and say, "Hey. How about taking over our large vaults? Major vaults?"

And there's a lot of pressure, because they're feeling the pressure with all their challenges that they're facing. And with Dodd-Frank regs being written and how it's going to affect them, the banks.

So we've suffered from those types of pressures, as a vendor. Right? I see now the flip side of that's starting to happen, where we can benefit from that.

And quite frankly, that business is part of the higher-margin business. It's part of the solutions business. It's a longer-term business.

And it's more service-sensitive to the banks, which is a very, very important point. Because it touches their customer. It's not just picking up and delivering cash.

And so Brinks, I think, is particularly well-positioned with our footprint, our technology and our service quality, to get our share and more of that cash-outsource of the large institutions.

Revenue-wise, we're bidding on contracts anywhere in the $8 million to $10 million range at the current time in the pipeline. And I think we will get, once again, our share or more because of who we are.

Just to be clear, this is you taking on their assets? Or you putting this into your facilities?

It could depend. In some cases, these are large enough that we would be taking on their assets, or building new facilities ourselves.

Okay.

And I'll ask the CompuSafe question. Could you give us an update on net adds?

And I presume some of the year-on-year increase in CapEx and depreciation was due to that business?

That's correct. CompuSafe globally, we're around 14,000 units, plus or minus a little width. About a thousand of those being outside of the US.

And we continue to be on-track for our roughly 20% annual growth, on a year-over-year basis.

And could you give us roughly how much of CapEx was [saved] with CompuSafe?

We haven't disclosed the exact amount of CapEx, but a significant amount of the North American CapEx and the increase on a year-over-year basis is driven by CompuSafe.

All right. Thanks, guys.

Once again, ladies and gentlemen, if you would like to ask a question, press *1 on your telephone keypad.

Ladies and gentlemen, this brings us to the end of the question-and-answer session. And with that, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.