Brinks Co (BCO) 2013 Q4 法說會逐字稿

Welcome to the Brink's Company's fourth quarter 2013 earnings call. Brink's issued a press release on fourth quarter results this morning. The Company also filed an 8-K that includes the release and the slides that will be used in today's call. For those of you listening by phone, the release and slides are available on the Company's website at Brinks.com.

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.

Now for the Company's Safe Harbor statement. This call and the question and answer 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 press release and in the Company's most recent SEC filings. Information presented and discussed on this call is representative as of today only. Brink's assume no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brink's.

It is now my pleasure to introduce your host, Ed Cunningham, Director of Investor Relations and Corporate Communications. Mr. Cunningham, you may begin.

Thanks, Drew, and good morning, everyone. Joining me this morning are CEO Tom Schievelbein and CFO Joe Dziedzic.

This morning we reported results on both a GAAP an non-GAAP basis. The non-GAAP results exclude a number of items, including US retirement expenses, acquisitions and dispositions, as well as some currency-related items. The non-GAAP results for 2013 use a full-year tax rate of 33% versus 37% in 2012. A summary reconciliation of non-GAAP to GAAP earnings is provided on page two of the release. More detailed reconciliations are provided in the release and in the appendix to the slides we're using today. The slides are included in this morning's 8-K filing and are available on our website.

We believe the non-GAAP results makes it easier for investors to assess operating performance between periods. Accordingly, our comments from this point forward will focus on non-GAAP results from continuing operations. I'll start with a brief summary of results.

Fourth quarter earnings from continuing operations came in at $0.79 per share, versus $0.60 in 2013. The segment margin rate was 8.8%, up from 7.5% in last year's fourth quarter. Organic revenue growth was 11%. Currency translation had a negative impact of $45 million on revenue, $9 million on operating profit, and $0.13 at the EPS level. Full year 2013 earnings were $2.37 per share, versus $2.32 in 2012, with a segment margin of 7.2% in both periods.

Organic revenue growth for the year was 8% and currency translation had a negative impact of $122 million on revenue, $23 million on operating profits, and $0.31 at the EPS level. For those who model our results, please note that page eight of the press release provides a summary of selected results and outlook items that should be helpful in forecasting our 2014 performance. I'll now turn it over to Tom.

Thanks, Ed. Good morning, everyone. The improvement in fourth quarter results was driven primarily by strong performance from international operations, which accounted for 77% of our 2013 revenue. Profit growth in Latin America, led by Venezuela and Brazil, more than offset a decline in North America. As Ed noted earlier, we had a significant headwind from currency translation, primary in Latin America.

As we begin 2014, we expect our full year margin rate to remain about 7% and organic revenue growth in the 5% to 8% range. Our initial guidance reflects lower profits from international operations and improved results in North America. So let me focus initially on the 2013 results.

Fourth quarter results in each of our three international regions improved, with Latin America leading the way due to strong revenue and profit growth in Venezuela and Brazil. Profits also improved in Europe, led by France, and throughout most of our relatively small Asia Pacific operations. Our largest and most profitable market is Latin America, which accounts for 43% of our annual revenue.

In addition to this strong performance in Venezuela and Brazil, both Argentina and Mexico also delivered improved results. Given the recent economic weakness in Brazil, we were pleased to achieve profit growth there for the quarter and the full year.

Our near-term outlook for Mexico has been lowered based on recent expiration and subsequent negotiation of certain customer contracts at less favorable price and volume levels. As a result, we expect 2014 profits in Mexico to be flat versus 2013. However, we still believe we will achieve our 10% margin goal there, but probably not until 2016.

Our 2014 outlook for the entire international segment assumes a profit decline due to unfavorable currency changes, which more than offset expected operational improvements.

Now let's move on to North America, which accounts for 23% of our annual revenue. Fourth quarter profits were down versus last year, driving the full year segment margin rate in North America to slightly below 2%, which was the lower end of our guidance range.

As I have noted on our previous calls, our goal was to achieve the 7% segment margin in North America by the end of 2016. All things being equal, achieving a 500 basis point margin increase on a $900 million revenue base will have a substantial impact on profits and shareholder value.

This chart shows the progression of our margin expectations for North America, excluding the impact of planned spending and our [gold] payments business, which I'll cover in a moment. We expect to expand our margin to somewhere between 3% and 4% in 2014, and to reach 7% by the end of 2016. The actual rate of change from year-to-year will probably vary, but 7% is the goal. We have a plan to get there, and we're going provide regular updates on the milestones we're using to track our progress.

Last quarter we introduced our goal to substantially improve branch profitability in the US. Based on updated internal profitability metrics, 45% of the branches were performers at the end of 2013. Our goal is to increase the number of performing branches by about 10% annually over the next three years, ultimately getting to 75% by the end of 2016.

We are focused on shifting our revenue mix towards higher margin growth opportunities, such as [money] processing, global services and CompuSafe. These businesses currently compromise about 48% of our revenue mix in the US, so increasing this to 51% will take some time as contracts roll on and off, but we should see meaningful progress over the next three years. Our North American management and sales teams have been completely revamped to focus primarily on selling these higher margin solutions in addition to cash and transit.

We've taken definitive actions in 2013 to reduce labor and administrative costs and to stabilize our IT infrastructure, and we expect these to lower year-over-year costs in the US by several million dollars in 2014. In addition to reducing costs by managing labor more effectively, we're investing in technology to improve the efficiency of branch operations. For example, we are currently pilot testing two initiatives.

One is a new route planning system, which will help manage logistics, labor, and other costs more efficiently. The other is the introduction of hand-held tracking devices for our employees. We expect to begin full deployment with both initiatives in the third quarter, with a full rollout by the year end. Starting in 2015, these two projects are expected to have a significant impact on productivity.

We're also implementing a centralized billing system throughout our branch network. This initiative, as well as our more streamlined CompuSafe service offering, is an additional factor that we expect will begin to have a positive impact on cost and productivity in 2015. Finally, as we get the more detailed information from the technology improvements that I talked about, we will have the data necessary to manage the use of overtime and limit it to necessary costs for effective use.

Our cost reduction efforts are by no means limited to North America. We recently hired a new global procurement executive who is focused on capturing the untapped cost synergies that should be available to a $4 billion company with global operations. Historically, Brink's has been managed in a very decentralized fashion, which is the right way to manage functions that are unique to a country or region. Security is an obvious example.

On the other hand, we have a great opportunity to centralize management and reduce costs in many other functions. Examples of this include the purchase and maintenance of our fleet and other equipment, information technology resources, travel management, and back office functions such as finance and HR. Centralized management of these costs is an important part of the cultural transformation we are making throughout our global business.

We are also reviewing the structure of some of our larger business units to ensure that we have the appropriate [spans] of control and layers of management. We want to ensure that we have a effective, non-bureaucratic structure that is as efficient as possible.

Now let me switch gears from the more operationally driven strategies to the broader topic of growth. It is vitally important for Brink's to pursue profitable growth opportunities. These include organic and inorganic growth in our traditional lines of business, growth in higher value services including our global services business, new solutions, our small but growing payments business, and finally the investigation of adjacent businesses such as home security.

Latin America is the primary driver of our current growth strategy, and we will continue to invest there. With the exception of global services, we have not counted on significant revenue growth from our Europe and North American operations.

We will also continue to invest in longer term growth initiatives and adjacencies that provide opportunities to leverage the Brink's brand into new security-related markets. Examples include the end-to-end management of ATM networks and retail solutions. We've had some initial success in Europe and expect to leverage this experience in other geographies.

We're continuing to invest in our global payments businesses, most recently with the launch of Brink 's Checkout, a payment processing service that enables customers to sell online to global markets .We now offer walk-in bill payment, mobile pop up, prepaid payroll cards, and online card processing, and we have a reloadable prepaid card in the works for 2014. We currently operate in the US, Brazil, Mexico, Columbia, and Panama, serving dozens of enterprises and now more than 5 million consumers per month.

Increased spending in global payments that I mentioned earlier is related primarily to the promotion of a Brink's branded reloadable card. This investment is expected to reduce profit in the US by about $5 million in 2014, and slightly less in 2015. Our current expectation is that our payments business will be profitable in the US in 2016.

In summary, 2014 will be a year in which we strengthen our focus on controlling costs, execute our on productivity investments, and continue to reposition our portfolio of businesses for profit growth in 2015 and beyond. To recap some of the 2013 activities, Joe is going to point out we've also made meaningful progress on being better stewards of our capital expenditures. In addition, our legacy liabilities and related cash flows have been greatly reduced.

We recently completed the sale of our Threshold subsidiary's ATM network and payment processing businesses for $50 million, which generated a pre-tax payment of $19 million. More importantly, we retained ownership of the integrated managed services business. This is something we call Brink's IMS, and it enables us to offer the end-to-end ATM management to our global customer base. This is a good example on how we intended to offer more sophisticated and higher end margins to our customers.

We also completed the sale of ICD, which is a China-based security business, for $33 million, which resulted in a pre-tax gain of $10 million. These are the latest of several transactions that have reshaped our business portfolio. Over the last two years we've also exited CIT markets in Germany, Poland, Turkey, and Hungary, and guarding businesses in France, Germany, and Morocco.

Our commercial strategy is aimed at achieving longer term growth by bringing new, value-based solutions to the market. In addition to our ongoing investments in Latin America, we're invest inn adjacent security-related markets where we can offer solutions that leverage the power of the Brink's brand. Examples include the Brink's IMS and global payments.

Finally, one area under consideration is a potential reentry of Brink's into the home security market, which we exited in late 2008 throughout the spinoff of our Brink's Home Security unit. Our non-compete agreement recently expired, and we're getting inquiries about the prospect of reentering this market. Market research leads us to believe that Brink's is still recognized by consumers as the number two brand in this market.

In an attempt to address the numerous inquiries we've received, I want to let our current and prospective shareholders know that our review is ongoing, that we have not made a decision as to how or whether we will reenter the market. We will, of course, disclose any significant developments on this front. Until then, we trust you will understand that we will not comment further on this topic.

I'm now going turn it over to Joe, and when he's done, we'll open it up for questions. Joe?

Thanks, Tom. My comments today will focus primarily on fourth quarter and full year results, our 2014 outlook, and our changing approach to capital spending. I'll also provide an update on our legacy liabilities.

Fourth quarter organic revenue growth of 11% fueled segment profit growth of $18 million, which included $9 million of unfavorable currency. The profit increase excluding currency was $27 million and was driven primarily by strong revenue growth in Venezuela and higher revenue and cost actions in Brazil. At $0.79 per share, the fourth quarter was the strongest quarter of 2013 and consistent with our typically higher earnings in the second half of the year.

For the full year, organic revenue growth of 8% led to an increase in segment profit of $15 million, which included unfavorable currency of $23 million. The profit increase excluding currency was $38 million and was driven primarily by strong revenue growth in Venezuela, Argentina, and much of the Asia Pacific region, and offset by the decline in the US business from price and volume pressures in addition to higher security costs in 2013 versus 2012.

The fourth quarter earnings per share bridge highlights that segment operating profit drove the higher EPS, while overcoming $0.13 of EPS drag from unfavorable currency movements, primarily in Venezuela, Brazil, and Argentina. The full year earnings per share bridge highlights that segment operating profit included $0.52 of improvement before currency, but the unfavorable currency impact of $0.31 was a significant drag on earnings, as Venezuela, Argentina, and Brazil suffered from devaluations in 2013.

The non-controlling interest increase was driven by Venezuela, in spite of the currency decline, and the tax improvement was also driven primarily by Venezuela. As Tom noted, we expect organic revenue growth in 2014 to remain in our historical range of 5% to 8%, with continued growth in Latin America more than offsetting relatively slow growth in North America and Europe.

We also expect our 2014 segment profit will be heavily weighed towards the second half of the year. This follows our historical pattern of second quarter wage increases in Latin America, which are typically recovered later in the year through price increases, and increased economic activity in the second half that generates stronger margins.

This pattern has been fairly consistent over the years, but unusual events has impacted the quarter splits, such as the Belgium theft loss in the first quarter of 2013, and the unusually strong performance across the Latin American region in the first quarter of 2012. As of today, we expect the 2014 quarter splits to be follow our historical pattern of being much stronger in the second half.

Full year cash flow from operating activities, excluding changes in customer obligations and discontinued operations, declined by $34 million due to higher working capital to support growth in Latin America and the timing of insurance recoveries. Full year capital expenditures and capital leases declined by $13 million as we continue to reduced maintenances capital spending and allocated more of the spend to productivity projects.

The North America region decreased CapEx by $7 million, primarily due to lowered armored vehicle spend. The international segment CapEx spend declined $6 million, as lower spending on facilities and equipment more than offset an increase in information technology spending. Net debt decreased by $20 million since the end of 2012, due mainly to our disposition and acquisition activity during the year.

We're continuing to make good progress in our efforts to reduce and refocus our capital expenditures. The decline in our reinvestment ratio demonstrates how our focus on maximizing asset utilization and maintenance CapEx has enabled us to reduce our spend to a level that is more in line with depreciation. Our 2014 plan calls for a capital spend between $200 million and $210 million as we continue to manage CapEx to a reinvestment ratio of about 1.1.

In addition to reducing or CapEx, we have reallocated our spend to focus on driving productivity in our operational processes. We have reduced our spending on vehicles and facilities, and focused more of it on information technology to enabled process efficiency.

Some of this reallocation was through old fashion hard work and brute force, but we're starting to make progress on more effective implementation and management of projects, and negotiating better value from our suppliers, both in the form of lower prices and expanded services at the same price. We will continue to maintain the level of safety and security that Brink's is known for to protect our employees and our customers valuables.

The higher interest rates in 2013 and the strong equity markets had a significant positive impact on our legacy liabilities, which were remeasured as of year end. The underfunding of our primary US pension liabilities improved by $150 million, and our UMWA health care funding improved by another $115 million. Together this represents a 50% improvement in total underfunding.

The underfunding improvement is a welcomed trend reversal, but an even more positive outcome is the lower expected cash payments to the US pension and the UMWA. We expect that the next five years requires only $110 million of payments to the primary US pension, which is down from $226 million. And the UMWA liability is not expected to require a cash payment from the Company until 2033, because the existing trust is projected to cover payments until then.

In addition to this positive news, in 2013 we executed actions that will allow us to tax-efficiently fund our primary US pension payments. The great news is that the US pension payments are only $110 million over the next five years, well below the amount we can tax-efficiently repatriate. We have worked very hard over the past few years to avoid using Company stock to fund the pension, and we believe we have accomplished this objective with our 2013 actions. So to restate, we plan to use cash to make the US pension payments over the next five years.

As Tom stated, our outlook for the 2014 segment margin rate is about 7%, which assumes profit growth in North America, slightly higher profit in Europe from cost actions, and lower profits in Latin America from unfavorable currency in Argentina and Brazil, a slight decline in Venezuela profits, and productivity investments. We are assuming there will not be a devaluation in Venezuela, which is difficult to predict. We will continue to make investments in adjacent businesses while explore reentering the US home security market.

Drew, let's open it up for questions.

(Operator Instructions).The first question comes from Jeff Kessler of Imperial Capital. Please go ahead.

Thank you. I noticed that while you don't break out -- well, you don't break out your growth in Latin America country by country, you do refer to it. One of the largest components of Latin America that [you -- where] you made a very large acquisition of what you did not own several years ago. The remaining 80% was Mexico. I'm wondering if you could give us an update on where Mexico is in terms of its relative margins compared to where you bought it --where we kind of knew where it was that the point? What the integration of that is with regard to any other services that may be added in Mexico? And what the competitive situation is in Mexico, since it seems to be a big -- it's a big portion of that Latin America chunk?

Yes, Jeff, Tom. What we've done in the past is we bought Mexico -- the 80% we didn't own in 2010, and we've gone from 0% margin in 2010 to about 2.6% in 2011 to 4% in 2012, and this year it's like 5.1%. So we're making progress as we continue to revamp the operations in Mexico.

Okay.

I don't have anything specifically else to add. I mean, we're working very hard in Mexico to make sure that we invest in productivity. I think we've told you in the past that we bought it for less than book value, and we've been investing in terms of the capital for both branches as well as armored vehicles. And so Mexico remains a very positive part of our business. It has slowed over the last year or so, but ultimately we'll see that turn it around.

All right. Are you expecting any increase in business in Brazil over the next -- when I say increase in business in Brazil, are you expecting any type of growth above and beyond what you've been seeing Brazil because of the two major events that are going to be occurring a couple of years part in the sports world there?

Yes, I assume you're talking about the Olympics and the World Cup?

Yes.

Most of that -- we'll probably see a little bit of increase, but most of that will impact the companies that do guarding as opposed to cash and transit, so I wouldn't expect a large change from either of those two sporting events to our business. We clearly have -- are going get growth in Brazil, and we're working hard on that, but I think assigning too much of it to the Olympics or the World Cup would not be appropriate.

Okay. Also, I realize what currency translation giveth, what currency translation can bring back -- taketh. I can bring back at some point in time. Nevertheless, you've seen very, very volatile currency markets in the last year or two, larger than we've seen before. Does this have any impact on your past reluctance -- I don't want to say reluctance to totally hedge, but again, does it have any change? Are you expect anything change in either hedging plans or whatever you want to do to kind of lessen the impact of these currency fluctuations on your P&L?

Jeff, we're naturally hedged in every country, because our -- almost entirely across the board our local revenues and costs are in the same currency, so the exposure becomes the income that you would repatriate out of those countries. So once we make the determination of how much we're going to repatriate from a particular country -- and repatriate doesn't mean always to the US. It means to other parts of the world or to the entity --

Right.

(Inaudible -- multiple speakers) structure. So we hedge the dividends and the income that we plan to repatriate, but hedging the reported income would not be a good economic decision in our view. It certainly could reduce some of the current year volatility, but it wouldn't necessarily match up with the cash flows from an economic standpoint, so we live with the ups and downs of currency movements and hope that over time it ends up balancing out.

Okay. One last question --

[But it would be nice if it would] go the other way for a while.

Yes, well, that's what I said, what taketh can giveth back at some point. Are you satisfied with your portfolio at this point in Europe? Obviously, you bought a lot of minority stakes into full blown stakes. You've upped them. You've got out of some countries. And now in the last year or so you've gotten out of some more countries. Are you at a point at which you feel that Europe -- what you have in the portfolio can be managed correctly so that at least you maintain a pretty stable margin there?

Yes, mostly, Jeff. I mean, we'll continue to look at every operation and make sure that it's continuing to perform up to our expectations, so there could be other smaller movements, but I think most of the portfolio analysis and changes that have taken place in Europe have pretty much completed that.

All right. And one final question. With regard to the -- your change in capital allocation and capital -- let's say capital expenditures on trucks, things like that, without minimizing or let's say diminishing your ability to protect both your brand name as well as the people inside the trucks and provide good service. Are you both bringing in -- in terms of capital expenditures and in terms of pricing, the Company more into line with the competitive -- where the competitive bid and ask is in large cities, particularly in the East where you have lost share?

I think the answer to that is yes.

I mean, I look out my window everyday and I see who is --

Fundamentally what we are doing is becoming much more disciplined in the use of capital, and it's become a much more rigorous action for the various operations to get the capital from us. So, Joe and I spend a lot of time going over capital projects and what the returns are, whether it's the US or any of the other countries. Joe, you want to?

Sure. I would add that Tom made reference to the hiring of a global procurement leader, and what I'll tell you is we have not been anywhere near as effective at leveraging the scale of being a global $4 billion company as we should have or could. And so we're in process of value engineering -- reengineering our vehicles. We have had a team of security procurement and fleet management together for a full week back at the end of last year to reevaluate how we manage our fleet, how we acquire our fleet, and what fleet application we need, given all of the different markets we operate in.

And to your point, there's some markets where there are various levels of security appropriate. And we will be more flexible about that going forward and match the security with the threat, and we believe there's opportunity for us there be more efficient and cost-effective across the board. That is inclusive of getting better value from our suppliers in the form of lower prices or better services for the same price, and that also means global tenders, which is something we've never done that we plan to do here very shortly here this year.

Right. You've announced global tenders, okay. Excellent. Okay, thank you very much.

Thanks, Jeff.

(Operator Instructions). The next question comes from [Victoria Constantino] of [Thomson Bryant]. Please go ahead.

Good morning. How are you?

Good morning.

I have a quick question on the US operations. I was wondering if you can give more color on the high value services in the US? And what is the competitive environment? I mean, I've heard that Diebold and the other ATM manufacturers are trying to get into that market. Do you see them as a direct competitor?

High-value services are -- encompass what we currently do with Brink' s global services business, so we have a lot of high-value services there. You're speaking specifically to the integrated managed service or the end-to-end ATM management?

Yes, for the ATMs.

Right, so there will be times when we're competitors with the OEMs. We do have some advantages in that you still need armored vehicles to service them, to carry the cash. So I think in some cases we'll be competitors, in other cases we'll be partners, and it depends on the specific opportunity.

Do you see the potential of getting -- servicing those bigger banks? Like [Gazefo] had this recent announcement for the TD Bank, servicing there. I mean, did you bid for that project for them, or did you work with them with it?

I can't comment on the specifics of TD Bank. We clearly do work with them, but -- so in general, we work with Diebold and the other manufacturers on some opportunities, and we compete on others.

I see. Thank you.

The next question comes from Rich Glass of Deutsche Bank. Please go ahead. Mr. Glass, your line is open. Please go ahead with your question.

Hi, guys. Sorry, I had the mute button cleverly push.

How are you, Rich?

Hanging in there. How are you guys doing?

Okay.

Expanding on the tail end of Jeff's questioning, I was a little surprised to see the percentage increase in your 2014 CapEx spending estimate, I guess. Can you talk more about where that's going? And I [see] that the order of magnitude, in a sense that the organic growth you cited is a lower number for pretty much everywhere than the increase in CapEx, and I would think in North America, maybe it is flat or even down on the CapEx front. So Can you kind of give us a little more understanding of where that's going or why that's the right number?

Yes, I'm going to let Joe comment on the specifics. One of the things that you have to take into account, because we do look at it versus depreciation and with there escalating currencies as well, it does cost more on some the capital expenditures than you would normally think. But, Joe, you want to talk about the details?

Sure. Rich, we -- as we look at our business, we think between a 1.1 and 1.0 reinvestment ratio is appropriate for our geographic footprint. Particularly when you look at Latin America being over 40% of our business and the inflation in some of the key markets that we're in, the cost of replacing maintenance CapEx starts to get significantly above the depreciation and amortization from previous years' purchases.

So we did have a significant decline in CapEx. We're managing it very tightly, and we've tried to convey the mixed shift in our CapEx. We're spending more to drive productivity projects, but the reality is, there is a certain level of maintenance CapEx in our business. We believe the work we're doing on our fleet management and our fleet procurement is going to help us to get to a 1.1 or lower reinvestment ratio going forward.

But when the maintenance spend has to replace the existing infrastructure, and particularly in places like Latin America where the inflation is significant, particularly in places like Venezuela and Argentina, where you're dealing with 30% to 50% inflation rates, there's going to be an impact from that that you can't mitigate in the short-term.

Right, so there's a number of factors I guess, but one of the things I'm wondering is, is there a one-time spend on some of the IT infrastructure, productivity related spending, that if you're spending $10 million or $15 million this year, once those are deployed, that spend goes down? There's a maintenance spend maybe, but is there some one-time spending on catching up on some of these initiatives?

I wouldn't characterize it as one-time on a global scale, but certainly on a regional basis there have been some one-time concentrated investments. The US in particular has gotten a significant amount of our information technology spend to drive some of the process efficiencies that we're targeting, and we're counting on the payoff of those investments later this year and going into 2015 to deliver the higher margins in the US.

But what we've done is we have a global project management organization that is now taking control of these major expenditures and major projects to drive the right kind of rigor and project management, to drive the benefits that we derive from these investments. And what we're going to do is take the efforts that we've been implementing the US and spread them around the globe to some of our larger countries to allow us to get the synergies and scale of the investment we made in the US.

So in a perfect world, we'll be taking successfully implemented projects in the US and translating that capability into other larger countries. Once we have the larger countries covered, then we can roll in the smaller countries and get the benefits there as well. So it's one off in the sense of an individual country, but it should have a ripple affect across the globe.

I get it.

[Certainly] that's what we would like to have happen.

Right. What's the time frame for that kind of rollout for some of those things? Theoretically, I mean. There's no --

The US projects will -- many of them will be rolled out and be fully implement by the second half of 2014, and as soon as those resources have been successfully been implemented in the US, we can redeploy them it other parts of the world.

One of the major changes we've made in the Company is organizationally we have a global IT organization, which gives us the able to develop the skills and capabilities we need, but then to transfer them more easily around the world, which in our historically very decentralized organization has been difficult. This organizational change facilitates more effective transfer of capability from country to country.

I think the other thing, Rich, that's clear is that when we do demonstrate that we're getting those -- the savings and the productivity gains, we'll then have to prioritize which of the countries it goes into, how quickly we can put it in. Because as we've talked, we are limiting the CapEx, we are focusing the discipline on CapEx. And so it won't be a shotgun sort of approach but a very targeted approach once we demonstrate that we get the productivity savings, then we figure out which countries it will be most effective in.

Okay.

And, Rich, to your comment about the increase in CapEx, which is the $17 million to $27 million, we're projecting an increase in depreciation of $11 million to $16 million, so it's only a slightly higher increase than the depreciation.

Okay. Well, that might be a different discussion, whether those numbers should go up at the same rate or not. I had another question on some of the 2014 investments, but I'll take that offline. It might be an essay question so -- all right, thanks, guys.

Next question comes from Chris Marangi of GAMCO. Please go ahead.

Hi, good morning. Just [referring] to one of the earlier questions, can you give us an update on how global services ended up the year, especially given all of the activity in gold?

Global services ended up the year above our expectations. A lot of that was driven by additional precious metal movements, a lot of it in the Far East. But in general they were positive across the globe. Joe, do you have any of the -- we're looking at some of the details right now, Chris, but in general they were above. They were up. They were clearly up in the Far East. They were up in Europe.

Commodities were the big driver, which fundamentally is gold. Now, we did have weak, because India tried to limit the gold shipments into India, so they made it -- we lost most of that market. Hopefully we'll see that come back, but that's a governmental sort of thing. But in general -- China kind of overtook India for shipments on the precious metal side, but in general most of the global services businesses were up for the year.

[All right], thanks. And then, Tom, just to clarify your comment about home security. You mentioned getting inquiries. Were you talking about investor inquiries, or were you talking about inquiries from potential partners, because I assume that's one of the elements you would consider?

No, it's both, Chris. I mean, everybody was clearly aware of when our prohibition or non-compete expired, and so we were getting inquiries from people that wanted to talk with us, from investors, from all sorts of different areas. And the real reason for coming out now and saying everything is that there just were a whole lot of rumors out there in the marketplace, and we just figured we would -- rather than wait for the questions, I would just try to put some of those rumors to bed.

All right, well, we'll wait to hear more. One last big picture question. The balance sheet, the pension, the tax structure, the business itself, all in much better shape now than a year ago. Congratulations on that. Is there -- when is it appropriate to reconsider your capital allocation policies, given you may have more flexibility now? Seems like you're tilting towards growth -- investments in areas of new growth.

We're tilting toward growth. I mean, clearly each time when we have our meetings with the Board, we do go into that, but I'm not -- we don't have a change to announce at this point. Very good. Good quarter. Thank you.

(Operator Instructions). Seeing that there are no questions, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.