Brinks Co (BCO) 2014 Q2 法說會逐字稿

Welcome to The Brink's Company's second-quarter 2014 earnings call. Brink's issued a press release on second-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 Q&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 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 assumes 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, Denise. Good morning, everyone. Joining me today are CEO Tom Schievelbein and CFO Joe Dziedzic.

This morning, we reported results on both a GAAP and non-GAAP basis. The non-GAAP results exclude several items, including US retirement expenses, certain compensation and employee benefit items, acquisitions, dispositions and some currency-related items, including the write-down of net monetary assets in Venezuela. The non-GAAP results for the quarter use a tax rate of 36.5%, which is the mid-point of our full-year range of 35% to 38%.

We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today will focus on non-GAAP results. A summary reconciliation of non-GAAP to GAAP results is provided on page 3 of the press release. More detailed reconciliations are also provided in the release, in the appendix to the slides we're using today, in this morning's 8-K filing, and on our website.

To help those who model our results, page 9 of the press release provides a summary of selected outlook items, including revenue and margin guidance for each of our four geographic segments. Page 10 presents the same information adjusted to reflect the impact of the Venezuela devaluation on our full-year outlook for 2014 versus 2013, using an exchange rate of 50 bolivars per US dollar in both periods. Finally, pages 13 through 17 provide hypothetical quarterly results for 2013 and the first two quarters of 2014, also with results adjusted to reflect the impact of the devaluation of Venezuela.

With that, I'll turn the call over to Tom.

Thanks, Ed. Good morning, everyone. Second quarter earnings of $0.27 per share came in below last year's $0.47. Negative currency translation had a substantial impact on year-over-year comparisons due mainly to the devaluation of the Venezuela bolivar at the end of March. On an organic basis, segment profit declined by about $9 million due primarily to lower operating results in Mexico and France.

The 2014 guidance we provided in April for each region and the Company as a whole has not changed. We are forecasting considerable profit growth in the second half, as we expect operational improvements will begin to have an impact on several fronts, especially in the US and Mexico.

We continue to expect our 2014 overall segment margin rate to be around 6.5% on revenue of about $3.7 billion. Our longer-term goal is to achieve a full-year segment margin rate of 8% by the end of 2016, which should result in $290 million to $330 million in segment operating profit and earnings of $2.50 to $3.00 per share. These are challenging but achievable goals.

After Joe gives a brief update of the quarter, the rest of today's call will focus on some of the details behind our execution plan. Joe?

Thanks, Tom, and good morning, everyone. Total reported revenue for the quarter declined 7%, due primarily to the devaluation in Venezuela. On an organic basis, which excludes currency impact, revenue was up 11% due to growth in Venezuela and, to a lesser extent, Brazil and Argentina.

On page 12 of our press release, we provide a breakdown of quarterly and year-to-date revenue in our six largest countries. It clearly demonstrates the impact of the currency translation on our reported revenue. The devaluation in Venezuela drove that country's reported revenue down by 77%. However, on an organic basis, Venezuela revenue was up 83%. If you exclude Venezuela completely, total reported revenue increased 1% and was up 3% on an organic basis.

Segment operating profits fell about $18 million, due mainly to the currency impact and organic profit declines in Mexico and France.

The earnings-per-share bridge highlights the variances from last year. The segment profit decrease of $0.23 per share was driven primarily by the devaluation in Venezuela and organic profit declines, most notably in Mexico and France. The improvement in nonsegment expense was driven by the timing of annual incentive grants. The grants were issued in the first quarter of this year and the second quarter of last year. The change in noncontrolling interest and tax rate was again driven by Venezuela.

The key takeaway from this chart is that Venezuela drove $0.11 of the earnings-per-share decline, and the rest of the decline was driven by unfavorable currency changes in Mexico and France. I'll cover Mexico in a moment. In France, the profit decline was due primarily to price and volume pressure and investments in developing new solutions for our customers.

Second quarter cash flow from operating activities improved slightly versus last year, primarily due to working capital improvements. The first half of 2014 included higher pension payments that were offset by the timing of security loss payments and insurance recoveries.

Capital expenditures and capital leases decreased by $21 million in the first half, split fairly evenly among armored vehicles, information technology and other equipment, primarily money-processing equipment. The armored vehicle spend was delayed due to our recent global tender process, and the reduced IT spend was due primarily to lower spend related to our finance shared services center for Latin America. The lower spend on other equipment was due primarily to timing.

Net debt increased by $131 million since the end of 2013, due mainly to the write-down of cash and cash equivalents in Venezuela and increased borrowing related to the US pension plan. We expect to prepay our 2015 and 2016 required cash payments of $61 million to the primary US pension plan in 2014. These payments will be made with available cash and existing credit facilities. This continues our efforts to de-risk the pension plan investment allocation. It also will reduce our PBGC premiums, as our current borrowing costs are lower than the PBGC premiums. When payments resume in 2017, we plan to fund them with cash. With regard to UMWA liabilities, we do not expect to have any cash outflows until 2033.

That covers the second quarter. I'll turn it over to Tom to discuss our 2016 targets.

Thanks, Joe. In response to investor requests for more details regarding performance targets and milestones, we're now going to shift from a quarterly perspective to discuss our longer-term expectations and how we plan to achieve them.

We expect results to strengthen in the second half of the year. More importantly, we expect momentum to continue through 2015 and 2016. Our goal over this time period is to deliver substantial growth in segment profit, earnings and cash flow.

So how do we get there? We will have to execute on many fronts, but the short answer begins with fixing the US and Mexico. These two countries combined for about $1.2 billion of revenue in 2013 at a blended margin rate of about 3%, so they are clearly our biggest opportunities to create substantial value for our shareholders.

Bottom line, if we execute in the US and Mexico and achieve relatively modest revenue and margin growth in the rest of the world, we can grow earnings to a range between $2.50 and $3.00 per share by the end of 2016. Our teams around the world are highly focused on achieving these results.

This slide covers what I just said in a bit more detail. To achieve our segment margin goal of about 8%, we need to boost the US margin by about 400 basis points to 6%, Mexico by 500 basis points to 10%, and the rest of our operations by about 100 basis points. Achieving these margin goals, even with no revenue growth, will generate about $75 million of incremental profit and get us to the $290 million in total segment profit. It would also drive earnings up to about $2.50 per share, an increase of more than 50% over 2013 adjusted earnings of $1.64, and this represents the lower end of our targeted EPS range.

If we layer in relatively modest annual organic growth of 5%, segment profit could reach $330 million, which equates to about $3.00 per share in earnings. So we have a great opportunity to create substantial value for our shareholders, and it starts with the successful execution of our turnaround efforts in the US and Mexico.

This chart shows the progression of our margin expectations for North America, excluding the impact of our planned spending in our Global Payments business. We expect to expand our margins somewhere between 3% and 4% this year and to reach 7% by the end of 2016.

Now, let's focus on the US specifically. We expect relatively modest revenue growth in the US over the next couple of years, so the bulk of our targeted profit growth has to come from operational improvements at the branch level. We feel good about the progress we're making through most of our branch network and expect to add $20 million or more of profit by the end of 2016.

The percentage of what we call performing branches is one of the metrics we track to support the achievement of our profit goals in the US. We've revised the way we measure this metric to be more consistent with the industry, but our goal is the same, and that is to grow the number of performing branches by about 10% in each of the next three years.

We're also making structural to -- in the previous chart, we're also making structural changes to the SG&A level that we have that should add another $12 million or so in profits. So successful execution on these two fronts should get us to our 6% margin target in the US and add $30 million or more of operating profit in the US.

So when we talk about the performing branches again, we have several initiatives underway at the branch level that we expect to drive costs lower and increase productivity. For example, we're investing in IT-based productivity tools to improve route logistics. We're rolling out handheld devices to enable our employees to capture premise time and other data that will help us price more effectively while billing our customers more quickly and accurately.

Both of these initiatives are expected to yield productivity-based savings. More importantly, they should enhance our ability to provide higher-quality services that are more targeted to the needs of our customers.

Through our new global procurement team, we're actively pursuing new approaches to reducing vehicle acquisition and maintenance costs. In addition, later this year, we expect to be piloting one-man vehicles in one or two selected markets where safety and service would not be compromised. During 2015, we will add additional markets with our one-man crews. The transition of our fleet and the crews will take some time, but we expect to begin generating significant savings in 2016.

In summary, North America has been underperforming for several years now, and it remains the single biggest challenge that we face as a company. But it's also our single biggest opportunity to create shareholder value. Many of the operating and structural initiatives I have just covered were adopted by our competitors several years ago, so we're admittedly playing catch-up. But catching up to and eventually surpassing our competition is the opportunity we have in front of us right now. We expect solid profit growth in the second half of this year to build momentum through 2015 and 2016.

Now, most of this optimism is based on the cost and productivity initiatives we discussed today, but we're also beginning to see progress in our efforts to win new cash in transit, ATM, money processing and CompuSafe business. The structural changes that we made last year within our IT operations to focus on compliance and customer support have helped us win additional business from some large financial institutions and retail customers.

In fact, we're currently working to finalize three new contracts that would add about $35 million of annualized revenue in 2015. I should point out that this new revenue is not entirely incremental, as we win and lose pieces of business every year. Nonetheless, it's encouraging to see that we can realize some organic growth in this mature market.

I'm now going to turn it over to Joe, who will update you on our progress in Mexico and then provide some additional color on our IT and our global procurement initiatives. Joe?

Thanks, Tom. We acquired our Mexico operations at the end of 2010. At that time, it was generating a little over $400 million in revenue but was not profitable. Our stated goal all along has been to achieve a margin rate of 10% or better. At the end of 2013, revenue had grown to $450 million and we were about halfway towards the 10% target.

Earlier this year, we disclosed our expectation of a decline in Mexico's profit growth in 2014 due to a combination of factors, including less favorable price and volume levels on certain customer contracts, a change in the tax deductibility of certain employee benefits and a one-time insurance payment. In fact, this pause in margin growth is what caused us to move our 10% goal from our original target date of 2015 to 2016.

Our estimates call for 3% annual revenue growth through 2016 and profit growth of about $25 million over the same period. The 3% revenue growth includes the volume and pricing headwinds we're facing in 2014, so we expect growth in 2015 and 2016 to exceed 3%. As in the US, most of the profit growth is expected to come from operational improvements at the branch level. Structural changes at the SG&A level are expected to drive additional profit growth.

Our plan is to reduce branch operating costs by about 4%, yielding $15 million in savings. The $4 million in SG&A savings reflects a 10% reduction in costs related to support functions. We have several initiatives under way aimed at capturing these cost reductions, including standardizing our branch structure, centralizing back office and procurement functions and improving the efficiency of our money processing operations.

Our money processing operations are a good example of the progress we're making in our efforts to improve productivity in our branch operations. We have invested in new equipment and Lean processing techniques to drive efficiencies, which has resulted in reduced headcount and overtime.

Our efficiency metric of bank notes processed per hour per person improved by 20% from 2011 to 2013. We are now able to process more notes per hour, and we expect to realize similar efficiency gains over the next three years.

In summary, we've made significant progress in Mexico. While 2014 profits are expected to be down, we're confident our team will deliver on the 10% margin goal by the end of 2016.

I'm going to close with a brief update on our global procurement and IT initiatives, both of which are important examples of the steps we're taking to reach our near-term goals and achieve long-term success.

Our cost reduction efforts reach well beyond the US and Mexico. Our new global procurement team is focused on capturing untapped cost synergies on a global basis. For example, our goal is to reduce the acquisition cost per vehicle by at least 20% by 2016. Early in the second quarter, we completed our first ever global tender on armored vehicle chassis. We also worked with our armored vehicle builders to value engineer our vehicles, resulting in more savings.

These efforts will deliver some savings in the second half of 2014, but the bigger opportunity is to better match the vehicle types to the environment we are operating in. This would allow for lower upfront acquisition cost. So the 20% targeted reduction in acquisition cost is expected to come from leveraging our global buy, redesigning our vehicles and improved alignment of the vehicle type with the environments we operate in.

In addition to centralizing our fleet purchasing to capture cost synergies, we recently completed the centralization of our global travel spend, which is substantial. Our goal is to reduce total travel costs by $5 million to $10 million, and we're targeting additional purchasing efficiencies in several other areas over the next few years.

Another great example of the benefits of centralization is in our IT operations. By 2016, we plan to reduce the number of data center locations from 48 to 19, while reducing our total IT spend by $15 million to $20 million. There are a number of important projects that enable these savings, but the key is we have to operate as one business making globally integrated decisions to provide more cost effective support of our operations at the regional, country and branch level. This is a clear path to a more profitable business.

In summary, we are continuing to change the way Brink's has been managed for many years. Centralized management of our cost 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 to reduce layers of management.

That concludes our prepared comments. We hope you find the additional information we provided today to be helpful. Denise, let's open it up for questions.

Thank you. (Operator Instructions). Saliq Khan, Imperial Capital.

As we're looking at Venezuela, this could potentially turn into a problem, [because] you're looking at inflation running at [80%] or so at the margin. So the one time or the one-off hit, that essentially raised the paper profits for the moment, but now the profits will continue to grow at double or even triple digits given the high inflation. With that being the case, you guys are guiding towards 4% to 6% organic revenue growth for 2014, but at the same time, many of the Latin American countries have been hit, not to mention previously, with the high inflation and constant devaluation as well. Does that 4% to 6% organic growth correspond with positive [nominal] growth, or will it be slightly offset by weaker currency?

So Saliq, let me answer a couple of the questions you asked. First, on Venezuela profitability, Venezuela's profitability is low single digits on a quarterly basis and well below $10 million on an annualized basis using an exchange rate of 50. We went through some of the details on the impact of the devaluation in the first quarter, and it played out as we expected in the second quarter. Even with the significant organic growth in Venezuela, considering the devaluation, the income -- the [op] profit from Venezuela was very, very low. It was close to zero, which is what we had conveyed as our expectation for the remainder of this year.

The organic growth rate that you see in Latin America was driven by Brazil and Argentina largely outside of the Venezuela organic growth. We do expect to continue to see the impact on the remainder of the year from the Venezuela devaluation, which is why we're really focusing on organic growth excluding Venezuela. And the 5% organic growth that we commented on looking at our 2016 target would be in our expectation with Venezuela being a much smaller piece of our total business. We're assuming we continue to translate Venezuela at 50 bolivars to the dollar, which makes it a very, very small piece of our total revenues and an even smaller piece of our total profit.

Got it. Now, as you guys are looking at the revenues in Latin America, will this grow in terms of US dollars between 2014 and 2016? And if so, at what rate could we expect that?

I can't predict what foreign currency's going to do, so I just assume it's going to be neutral from here forward. So that's why we focus on the organic revenue growth and that's why we put the 5% out there.

Okay. A lot of focus has also been placed on the North American margin expansion story. What's pretty interesting is that if you look at the year-over-year comparison for the current quarter, it does [essentially] seem to tell the whole story because you're seeing the margins come down. But as you look at the improvement quarter over quarter, margins saw a nice jump up from 1% to 3% in North America. Now, was this largely a result of headcount reductions, more route efficiencies or a combination of all these things?

Yes, Saliq, it's really a combination of all those things. So we're starting to get traction in some of the stuff, some of the actions that we've taken earlier, whether they are right-sizing the spans of control and the layers of management, whether it was the overtime issues, whether it was just improving the efficiency of the branches themselves. So we're starting to get traction on all of the activities that we've taken to date. So we are cautiously optimistic that we are making some significant headway.

And one more question for you guys, as well. It's more of a housecleaning question, which is -- it looks like this quarter, Management started to add back the share-based compensation for non-GAAP operating profit. Now, is this a change in accounting policies?

I'll let Joe talk about accounting.

On a GAAP basis, we had an adjustment to our share-based compensation, which we have removed for non-GAAP because it was a cumulative adjustment for the previous four years. The short answer is on an accounting basis, we were accounting for share-based comp as equity -- on an equity basis, saying we should have been accounting for it on a variable basis, marking it to market effectively.

We evaluated what the prior periods would have looked like on the variable basis and concluded it was immaterial in total. But we did have a cumulative adjustment in the quarter that really is a cumulative four-year impact. So we removed that from our non-GAAP results. It's in the GAAP results. We did adjust some of our compensation policies to get us back to equity accounting for those grants starting in July.

Perfect. Great. Thank you.

Jamie Clement, Sidoti.

I was wondering if I could just -- I know you included some of this in the prepared remarks, but just a little bit more clarity on what exactly transpired in Mexico here. Because it wasn't clear to me based on what you said why the third and the fourth quarter would necessarily be a lot better.

Sure. The impact in the first half in Mexico was driven by last November, when we had a significant number of our contracts renewed that were part of our original acquisition.

Yes.

The previous owners of the business signed up for three-year commercial agreements that expired last November. We lost more volume and price in those renegotiations than what we had anticipated, and that caused us to lower our 2014 outlook. That significantly impacted the first half. The insurance payments that we've previously talked about impacted the first half. We also had a couple of other adjustments that impacted the first half more than the second half.

We've taken some actions in the business structurally to improve the profitability. Those actions started in the second quarter. There will be more of them in the second half, a continuation of those actions, that will significantly improve the second-half results in Mexico versus first half.

So there are some specific actions -- the insurance payments had a larger impact in the first half than second half, and we've got some volume in the pipeline that we're confident will come through to also give us a better volume lift.

We provided for the first time our quarterly revenues by our largest six countries --

Yes, noticed.

-- (multiple speakers) --organic and a reported basis. And you see in there that Mexico's organic volume was down in the first half. We expect that to improve in the second half of the year based on some of the volume in the pipeline.

Okay, that is good.

So Jamie, let me just add because -- from my earlier comments, the US and Mexico are obviously key to us getting to that 8% target. And so both the US and Mexico are getting additional scrutiny, so to speak, so that we are -- we can be confident that we're going to get to those numbers.

Okay. Okay, very good. It was just -- based on the prepared remarks, it was -- the longer-term aspect obviously made a lot of sense. I just was curious about the third and the fourth, and Joe, thanks very much for that.

Moving across the ocean, France -- I mean, this sounds like it's just there are competitive cycles in a lot of these countries, that sort of thing. I mean, that's sort of what it sounded like in your prepared remarks. How should we be thinking about France right now?

So France is an interesting case, because we did see a couple of renegotiations of contracts where we lost price and a little bit of volume. The other thing that's interesting in France is the investment that we're making to change the way we do business, which was a big part of it as well. And this is so that we can capture a lot of the complete cash supply chain for our customers.

And earlier last month, I guess, the France operation was granted payment institution designation in France. I think we're the first security company, cash in transit company to get that. And why that's a big deal -- over there, you can't mix funds from the various banks unless you're a financial institution. And this will allow us to do that, which provides at least an opportunity for significant savings for our customers. So we're excited about that.

We've talked a little bit about this in the past. It's a long sales cycle, but we think it's going to provide significant uplift for us by the end of that 2016 period as we bring on more of the financial institutions from a cash supply chain solutions basis.

Okay. And last question, if I may. I mean, it sounds like growth in both -- I can see the numbers for growth in Brazil, obviously strong. Argentina, I think you mentioned, is also being pretty strong. Argentina's inflation level is obviously monumentally higher than Brazil's is at this point. But you also see -- I mean, I think Brazil has had three interest rate increases to kind of keep the currency in check. It seems like they're starting to kind of feel a little bit of the impact of inflation.

When you look at your organic revenue growth, you're moving cash around, so clearly, over short periods of time, inflation can be helpful. But obviously there can be a currency impact at some point in time. So as you look at, for example, Brazil, do you have any way, in terms of the way you manage this company, of being able to evaluate how much of this is in fact like real, true volume versus something that's fueled perhaps by a bump up in inflation?

So let me -- I'll address Brazil first. So Brazil we did have very strong organic revenue growth in the first half, both quarters. First, let me address the World Cup. We did pick up some incremental business from the World Cup, but in our assessment, that was largely offset by the country being shut down while they were attending and celebrating the different rounds. So we didn't net-net see much of a --

I'm not sure it was that country celebrating. It may have been visitors there celebrating.

Up until a point.

We're big fans of Brazil, though.

Last year, we had, in the first half, some significant wage increases in Brazil that were government mandated, and we were not able to pass through those wage increases to our customers until starting, really, in the second half of last year.

Okay.

So we have price increases compensating for more than double-digit wage increases that gives us easier comps on a revenue basis the first half versus -- first half year over year. And so about half of our growth was driven by price increases, and I'd characterize it as easier comps.

Got it.

The other half was real organic volume growth. We've got about 2,100 CompuSafes in Brazil right now. That's up about 700 units on a year-over-year basis, so CompuSafe was a big piece of it. And we had other volume growth in our other lines of business as well.

Okay. And a final question, Tom. I know we won't hear about it until we hear about it, but I'm going to ask it anyway. No mention to home security in this earnings press release. Any additional color you can give us here?

Well, the short answer is no. But the longer answer is we are looking at it, as we said earlier, and to figure out how exactly we would like to enter it, if we do decide to enter it. But honestly, the senior Management has been laser-focused on Mexico and the US in the last quarter, quarter and a half. So that has taken more of our attention, and we'll be getting back to the home security thing momentarily.

Okay. Very fair. Thank you so much for your time.

Jeff Omohundro, Davenport.

Thank you for providing the granularity around the longer-term 2016 objectives. I do have a question, though, around the linearity of your ability to achieve these targets. Particularly, some of these items -- I'm thinking, for example, the data center reduction, the 29 anticipated by 2016. It would seem like there could be potential disruption, for example, in 2015. Do you see the benefits being lumpy, being achieved more in 2016? And also, with a reduction of this magnitude, again, on the data center, would there be charges associated with some of these efforts perhaps that we'd see in 2015, so ex charges, we would see more linearity in the benefits?

We've looked at the details behind those. We have specific plans on each of the data centers we talked about. And the savings are pretty much net. But Joe, do you want to add any color to that?

As you can imagine, there are some significant efforts required to consolidate the data centers. We put our 2016 target out there, and we're obviously not going to stop at 19. Given the structure of our business, we think there's even more opportunity in the years beyond 2016. So we have a detailed project plan that we're executing. Some of the countries will close faster than the others. With anything of this nature, it will be lumpy, but I don't think it'll be so lumpy that you'll see it reflected in the consolidated results of the Company.

Yes, if you really look at those data centers, I mean, I fully expect we'll be into a single digit not too shortly after 2016.

Okay. Thank you.

(Operator Instructions). Blaine Marder, Loeb King Capital Management.

Following up on Mexico, the previous caller mentioned sort of this step function. You're showing a step function increase in the segment margin in Mexico for 2015. Is that just sort of following on the second half of 2014 and maintaining that margin level? Is that revenue? Is that price? I mean, how do you get that step function in 2015?

Some of the costs that we're incurring in 2014 are one-time costs that we're incurring that don't repeat in 2015 and weren't there, quite frankly, in 2013. Almost a full percentage point of margin on a revenue basis was one-time insurance cost. So that, obviously, self-corrects in 2015. We took a hit at the end of last year unexpectedly in the volume that we lost with some of our largest customers that -- you've seen it reflected in the first half organic revenues that we feel our pipeline of new volume will offset in the second half, and by 2015, we're back on a much stronger growth trajectory.

And we've taken some significant structural actions and branch standardization actions in the first half of 2014 that will continue through the second half of the year that will generate annualized savings -- fairly significant annualized savings in 2015.

Okay, good. And then moving on to free cash flow, with your plans to sort of pre-fund the pension this year and CapEx coming down, would you expect sort of an acceleration next year in free cash flow, such that it'll get up around net income or even higher than the level of net income?

We'll continue to strive and drive towards a reinvestment ratio on our CapEx of 1.0 or lower if we can get there. We're on target to be there this year. The acceleration of the pension contribution is really about risk mitigation. It allows us to de-risk the plan. They were required contributions in 2015 and 2016 that, based upon the funding rules, largely wouldn't change, so I -- clearly, making those payments in 2014 obviously improves 2015 and 2016 cash flows. But the improvement in 2015 and 2016 is really going to come from the profitability improvement that's going to improve the cash flows.

Okay. Finally, Tom, is your board cognizant of the fact that your stock trades at such a huge discount to sort of its peers or comparable companies around the globe, particularly in Europe? And I guess what is the Board prepared to do about it? I mean, might you consider an organized share repurchase? I mean, it's even -- like even last night, there was a story on Bloomberg that your company would be considered an LBO target because of where it's selling in the market. And so take us into the boardroom. What are your thoughts about sort of shareholder returns here?

So at the Board meetings, we discuss that at each particular Board meeting. We also talk about the operational performance of the Company. So the Board continues to look at how they increase shareholder value. And when a decision is made, we'll be announcing it.

I'll look forward to it. Thank you so much.

Saliq Khan, Imperial Capital.

I know that you guys are on notice right now for a downgrade when it comes to the debt side, but there's been no issues with the creditors. There's been no impact because of the Venezuela issue as well. I know that someone previously asked about the home automation or the home security business. Essentially, what is your attitude towards bringing on more debt?

We're very comfortable where we are. Venezuela did not impact our credit rating -- or our creditor ratios and metrics, because we had addressed that proactively in our credit agreements when they were initiated. We feel our liquidity is well positioned and have ample liquidity to continue investing in the business for growth.

Perfect. The only other question I had was regarding the increase in efficiency of the various routes as you're going from stop A to stop B. You guys have previously mentioned that you wanted to be able to get essentially more incremental revenue on each one of those routes. As you're picking up some of these off-the-shelf software and being able to integrate that into your larger platform, how is that process working out right now rather than utilizing the homegrown software that you have right now? I guess where exactly are you within that cycle?

I mean, in terms of the cycle, we have a number of pilots underway so that we can make sure that we are getting the efficiencies that we need and want. It's not just the standalone route optimization, because we've had that for a while. But the important part is making sure that all of the business solutions, all the IT systems, are linked and coordinated so that as you take the handhelds, you link that with the billing, you link that with the route optimization so that you can change routes dynamically -- in other words, every day if we so chose -- to increase the density of those routes.

So it's ongoing. I would anticipate most of this will get rolled out in 2014. And we're in the process of making sure that everything is ready to go.

So we should be able to see -- hopefully be able to see a lot more of the positive impact of this as we go into 2015 and the beginning of 2016.

Well, clearly, from the goals that we have out there, that's exactly what we're counting on.

Great. Thank you.

And ladies and gentlemen, this will conclude our question-and-answer session. The Brink's Company second quarter earnings conference call has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.