Brinks Co (BCO) 2018 Q1 法說會逐字稿

Welcome to The Brink's Company's First Quarter 2018 Earnings Call. Brink's issued a press release on first 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. (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 will 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, Vice President of Investor Relations and Corporate Communications. Mr. Cunningham, you may begin.

Thank you, Andrew. Good morning, everyone. Joining me today are CEO, Doug Pertz; and CFO, Ron Domanico. This morning, we reported results on both the GAAP and non-GAAP basis. Non-GAAP results exclude certain retirement expenses, reorganization and restructuring costs, and certain items related to acquisitions, dispositions and tax-related adjustments. In addition to these items, our non-GAAP results exclude Venezuela due to a variety of factors, including our inability to repatriate cash, Venezuela's fixed exchange rate policies and currency devaluations and the difficulties we face operating in a highly inflationary economy. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today, including those referring to our guidance will focus primarily on non-GAAP results.

Reconciliations of non-GAAP to GAAP results were provided in the press release, in the appendix to the slides we're using today and in this morning's 8-K filing, all of which can be found on our website. Finally, Page 2 of the press release provides the details behind our 2018 guidance, including revenue, operating profit, corporate expense, noncontrolling interest, income taxes, and adjusted EBITDA.

I'll now turn the call over to Doug.

Thanks, Ed. Good morning, everyone. Today, we reported strong first quarter results, including revenue growth of 15% and operating profit growth of 34%. These results meet or exceed our strategic plan targets and support our 2018 guidance. The fact that our operating income growth is more than double our revenue growth demonstrates our commitment to driving operating leverage throughout our global markets.

Based on first quarter results and our results over the last year, it's clear that our strategy to drive profitable growth, both organically and through acquisition, is working. And we continue to have great opportunities to build on the momentum we've already achieved.

I'll start this morning with a review of our first quarter results, summarize progress on our strategy and review our full year guidance. Both Ron and I will discuss how we expect to meet and potentially exceed our current 2019 target on EBITDA of $625 million.

Our first quarter results reflect both strong organic growth and growth from acquisitions that were completed in 2017. The 15% revenue increase includes $51 million of revenue from 6 acquisitions completed last year, with most of this coming from South America, our fastest-growing and highest-margin segment.

Organic revenue growth was 6%, slightly above our full year and strategic plan guidance of 5%, reflecting growth in each of our 3 geographic regions.

The 34% increase in operating profit reflects operating leverage of more than 2x. That was driven by strong organic improvement in North America as well as strong organic and acquisition-related growth in South America. Our margin rate increased 120 basis points to 8.4%, up from 7.2% in the last year's first quarter. This growth in operating profit was achieved despite a $9 million increase in corporate expenses due in part to higher security-related costs that we expect to decline in subsequent quarters. Ron will address this further in our call.

The $0.65 of earnings per share includes about $0.03 per share related to net interest expense on excess cash from our debt financing. This interest expense on the excess cash balance on our balance sheet negatively impacted the EPS by about 5%. We borrowed these funds, which we think, on very favorable terms in anticipation of future acquisitions, which we'll talk about more in a few minutes.

I'm highly confident that the excess interest expense we're incurring now about $20 million annually in gross interest cost will be more than offset by profit contributions from accretive acquisitions in the near future.

In addition, a highly -- excuse me, a higher year-over-year tax rate reduced EPS by another 5% or so or about $0.03 per share.

As we move through 2018, we expect profit margin growth to accelerate as organic operational improvement initiatives gain momentum and as we achieve further growth from planned synergies and growth from completed acquisitions. We also expect higher revenue and earnings growth in the second half as we benefit from normal seasonality and from the addition of the Rodoban acquisition in Brazil.

Now let's take a closer look at operating results for the quarter by segment. North America operating profit doubled over the last year on revenue growth of 5%, reflecting a margin rate that increased more than 300 basis points from 3.3% to 6.4%.

Organic revenue growth was 2%, but when you exclude the sale of recyclers in last year's fourth quarter, organic growth was 4% in the U.S. and 5% in North American segment. This was for the first quarter this year versus first quarter of the last year.

I'm especially pleased to report that profits in the U.S. were up about 40%. And again, excluding the recycler sale in 2017 first quarter, profits in the U.S. were up 70%.

Our full year 2018 target for U.S. margin remains at approximately 6%, and we continue to target a 2019 margin exit rate of approximately 10% in 2019. We expect the U.S. margin to continue to ramp up as our breakthrough initiatives and investments kick in and as our stronger second half seasonality also takes hold.

Continued growth in CompuSafe sales in the first quarter, which are on track to reach our 2018 target of 3,500 units or more will also support achievement of these margin goals.

We're pleased with the progress in the U.S., but the biggest driver of revenue and profit growth in North America was Mexico, which carried its strong performance in 2017 over into 2018, reflecting growing revenue from retailers, improved productivity and lower labor costs.

Similar to the U.S., we expect productivity initiatives to have an increasing impact throughout the year, especially again, with stronger seasonality in the second half.

Our team in Mexico has a 2019 margin target of 15%, and they're well on track of meeting or exceeding this target in a very -- and I'm very pleased with the strong results year-to-date.

Revenue in South America grew by $53 million or 26%, including acquisition-related revenue of $37 million or 18%. Organic revenue growth was also 18%, reflecting continued strong growth throughout most of the region. The strong 36% local currency growth was partially offset by the $20 million negative impact of currency translations, primarily in Argentina and Brazil.

Operating profit was up 42%, driven by strong organic growth and acquisitions in Argentina, Brazil and Chile. The margin rate improvement -- improved by 240 basis points to 21.8%, again demonstrating continued strong operating leverage. We expect continued growth in South America, which will be supplemented by continued acquisitions, such as Rodoban later this year.

In the Rest-of-the-World segment, revenue was up 19%, due primarily to favorable currency translation and the acquisition of Temis. Operating profit was up slightly, but down 11% on an organic basis due to continued price and volume pressure in France, which was partially offset by profit growth in other countries.

We continue to believe that the competitive market disruptions and abnormally high volume of tender rollovers last year in 2017 have had a significant impact on revenue and margins in France. We also believe that we'll overcome much of this impact of both of these factors later this year.

And fortunately, when we -- when the pricing pressure and volume decline began last year, we were in the process of developing and implementing our strategic plan, which includes significant cost reductions that will benefit results starting this year.

As a result, our team in France remains confident that we'll achieve our 2019 strategic plan margin target of 12%.

We're encouraged by our strong results in 2018 and remain on track to meet our full year guidance. We continue to expect revenue growth of approximately 8% to a little over $3.4 million. This assumes 5% organic growth and another 3% net growth from acquisitions and divestitures. It does not include any additional acquisitions.

2018 operating profit is expected to grow more than 30% to a range of between $365 million to $385 million, reflecting a margin rate improvement of 210 basis points to about 11%. This is at the midpoint of the range.

We expect 2018 adjusted EBITDA to increase by approximately $100 million to a range of between $515 million and $535 million. And we expect earnings per share growth of at least 20% to a range of $3.65 to $3.85 per share.

This guidance includes full year contributions from the 6 acquisitions completed to date and the estimated 6 months of contribution from our pending acquisition of Rodoban. It also assumes continued improvement in all 3 geographic segments led by the U.S., Brazil and Mexico. In addition, our EPS guidance assumes that we will not -- excuse me, it assumes that we will continue to pay interest on a growing balance of excess cash until that cash is deployed for new acquisitions that are expected to substantially improve earnings. While it is not our guidance -- excuse me, while it is not in our guidance, it is clearly part of our objective to deploy this cash through added acquisitions.

Our EPS guidance also assumes an increase in 2018 tax rate to 37%, up from 34% in 2017.

Our target for 2019 adjusted EBITDA is $625 million, which assumes full year contributions and partial operating synergies from 7 acquisitions, including Rodoban and continued organic margin improvement, especially from larger countries, as we stated before and which we've laid out in our Investor Day strategic plan. It does not include any contributions from additional acquisitions that we expect to make in 2018 and 2019.

Turning now to our strategic plan. With our organic initiatives continuing to gain traction, we're just beginning to layer in additional growth through acquisitions. And as we said in the past, we call this our Strategy 1.5. It focuses on acquisitions in our core business in core geographies, or what we call core-core and also, on core acquisitions in adjacent geographies or core-adjacent.

In 2017, we paid $365 million to complete 6 acquisitions that are expected to add about $60 million to $70 million in EBITDA in 2018. With the addition of Rodoban, the 7 completed and announced acquisitions are expected to add about $90 million in EBITDA in 2019, assuming that most, but not all, of the synergies will have been achieved by then. We continue to have a strong pipeline of acquisition targets that offer new opportunities to increase route density, add new customers and capture cost synergies with strong returns as we've seen so far.

Our plan is to spend an additional $800 million on new acquisitions over the next 18 to 20 months of the strategic plan period. All told, that's about $1.2 billion spent on acquisitions over the 3-year plan period.

Valuations will vary based on geography, growth potential and overlap on existing operations. But we will remain disciplined in our goal to achieve post-synergy multiples between 6 and 7x EBITDA. Similar to the multiples of about 6x, that our completed and announced acquisitions are expected to yield through 2019.

Our October 2017 capital raise of about $2.1 billion, with more favorable debt covenants positions us well to make additional core-core, core-adjacent acquisitions, while keeping our pro forma leverage of -- debt ratio below 1.4x -- excuse me, 1.5x. It also gives us flexibility should larger acquisitions become available that could add significant strategic value through synergy capture or by enabling us to enter into higher-growth markets that service what we call the total cash ecosystem.

I should add that during the quarter, we signed 2 relatively small transactions involving our core businesses in both France and Colombia. In France, we agreed to sell our aviation guarding business, which is a noncore operation, that had 2017 revenue of approximately $80 million and subpar returns. This divestiture, which is expected to close around midyear, will enable our team in France to focus solely on its core cash management operations, including the integration of Temis.

We also recently agreed to buy out the 42% minority interest in our partner in Colombia. This acquisition, which is scheduled to close by the end of this year is expected to be accretive to earnings, cash flow and EBITDA. It also enhances our U.S. tax position and enables us to better pursue regional acquisitions.

Turning to Slide 9. Our Strategy 1.0 and 1.5, which includes core growth and acquisitions combined to deliver the expected $625 million in 2019 and provides a platform for further growth. We're confident that over the 3-year period from 2019 -- excuse me, '17 to '19, we'll achieve an operating margin improvement of over 460 basis points. This is from 7.4% margin in 2016, our jumping off point year, to about 12% in 2019.

In 2017, last year, we added 140 basis points in margin to finish the year at 8.8% margin, and we expect to add, as we said before in our guidance, 200 basis points this year that will get us to about 11% around the midpoint of our 2018 guidance. So we're well on track to meet or exceed our 2019 margin goal of 12%.

This chart shows strategic plan target margin growth by region. And this is what we have presented in prior slides as well as in our Investor Day, and we continue to show a contingency in red roughly equal to about 2.5 percentage points, similar again to what we showed in our March 2017 Investor Day. This represents additional potential margin growth from our regions and provides a cushion, but also allows for potentially to beat our 2019 target.

It's important to note that a year ago, when we first released our strategic plan, our target operating margin was 10%, which we've now increased to 12%. And remember this does not include any contribution from additional acquisitions that we expect to make in 2018 and '19, which we will cover on the next slide.

As stated earlier, we spent -- we will have spent $510 million on '17 completed and announced acquisitions that are expected to contribute about $90 million of EBITDA in 2019. This equates to [buying] purchase multiple of about 6x EBITDA, with some additional synergies still expected to be achieved after 2019.

Our 1.5 acquisition strategy targets another $400 million in acquisitions per year in both 2018, this year, and 2019, and this includes $145 million already committed for Rodoban.

For illustrative purposes, let's assume we execute our strategy of another $655 million, that's the $800 million over 2 years minus the Rodoban $145 million. And this is for acquisitions this year and next year. This could potentially add another $110 million to $140 million in EBITDA after 2019, once we achieve full synergies on all acquisitions that were announced or completed by that point. We have a financial capacity to execute on these acquisitions and still remain -- and still maintain a pro forma net debt-to-EBITDA ratio below 1.5x.

Just as important, execution of these potential acquisitions will reduce our excess cash on our balance sheet, improve the EPS growth and yield strong returns on our invested debt, as we've already demonstrated through the acquisitions to date.

Now Ron will provide some additional detail on the results and our financials.

Thanks Doug, and good day, everyone. In the United States, today is Administrative Assistants Day and I want to take this opportunity to personally thank Kim Harsha and Tracy Wright, who provide Doug and me with outstanding support.

Now please direct your attention to Slide 11. As Doug noted, first quarter revenue increased by 15% or $113 million on strong organic growth and acquisitions. Revenue grew organically in each of our 3 segments, but was driven primarily by South America, which accounted for $36 million of the $45 million organic increase.

North America grew organically by 2%, but excluding the 2017 sale of recyclers in the U.S., was up 5%. The Rest-of-the-World segment grew organically by 2% as lower revenue in France was more than offset by increases in Greece, Israel and several other countries.

The 6 acquisitions we completed in 2017 delivered $51 million in revenue, with the largest contributions coming from Maco in Argentina, Temis in France and PagBrasil in Brazil.

The favorable ForEx impact of $17 million was primarily driven by the strength in the euro and the Mexican peso, partly offset by weakness in the Argentine peso and the Brazilian reais.

Turning to Slide 12. First quarter operating profit increased by 34% or $18 million on strong organic and acquisition-driven growth. The unfavorable ForEx impact of $4 million was due almost entirely to weakness in the Argentine peso. Organic profit growth of 24% or $13 million was driven primarily by increases throughout most of South America as well as Mexico and the U.S. Acquisitions added $9 million, with most coming from Argentina followed by France.

We are rapidly integrating our acquisitions to achieve synergy capture. As we integrate, the distinction blurs between our existing businesses and the acquired companies. As a result, we report the operating profit from acquisitions as the trailing 12-month performance of each company from the date of closing.

In total, our 3 segments had operating profit growth of 36%, that was partly offset by a $9 million increase in corporate expenses, related primarily to $5 million in higher security costs and a $3 million increase in stock-based compensation. Security costs are expected to decline in subsequent quarters.

Moving to Slide 13. The slide bridges operating profit, income from continuing operations and adjusted EBITDA. The variance from the prior year is shown at the bottom of the slide. First quarter operating profit of $72 million was reduced by $14 million of net interest expense, which was about $9 million higher than last year, due primarily to our debt refinancing and senior note issuance last October.

Taxes increased about $5 million to $21 million, and noncontrolling interest reduced profits another $2 million. The buyout of our Colombian partners, that Doug just mentioned, will eliminate about half of our noncontrolling interest going forward. I'll cover interest expense and taxes in more detail on the next 2 slides.

Income from continuing operations was $34 million or $0.65 per share, up from $0.58 per share in the first quarter 2017. Depreciation and amortization of $33 million was up slightly versus the year ago quarter. EBITDA for the quarter increased $22 million or 25% to $110 million.

On to Slide 14. This slide illustrates the increase in our 2018 first quarter interest expense, which was up $10 million. Last October, we closed new bank credit financing and a notes offering for a total of $2.1 billion, of which $1.1 billion was cash proceeds. Approximately 55% is fixed at an attractive rate of 4 5/8% with the balance at a current floating rate of 3.6%. Future rate hikes will have an impact on our weighted average interest rate accordingly.

The $35 million used in 2017 to fund 6 acquisitions increased interest expense by about $4 million in the first quarter 2018. As you just saw, these acquisitions added $9 million to the first quarter operating profit. So as expected, they were accretive in year 1.

On March 31, 2018, we had about $400 million in cash that will be used to fund Rodoban and future acquisitions. This excess cash increased interest expense in the first quarter by another $4 million, partly offset by $2 million of interest income. We're confident that our highly disciplined approach to acquisitions will generate solid returns that will more than offset the near-term interest cost of the yet-to-be-deployed cash on our balance sheet.

Turning to Slide 15. This slide reviews our effective and cash income tax rates. I'm not going to go through all the details, but we need to address some of the confusion about the absolute level of our tax rate and why we didn't benefit from U.S. tax reform. As you can see, we generate most of our profits in countries that have high statutory tax rates, and our global weighted average statutory tax rate is around 32%.

We also have adjustments, including valuation allowances, nondeductible items and withholding taxes that increased our 2017 effective tax rate, or ETR, by 200 bps to 34%.

Our completed acquisitions were in higher tax countries and have raised our 2018 ETR by 100 bps. Another 200 bp increase was primarily driven by the net impact of U.S. tax reform, specifically deductibility limitations and reduced credits, resulting in an estimated 2018 ETR of 37%.

Timing differences and other tax credits will reduce our 2018 cash tax rate to approximately 27%, down from 30% last year. So despite our projected increase in earnings, total cash taxes year-over-year are expected to remain relatively flat around $85 million.

In 2019, we'll begin to receive $32 million in U.S. tax reform AMT refunds, which are payable over 4 years. Brink's does not expect to pay any U.S. federal taxes for at least the next 5 years.

Looking ahead, we're pursuing several tax reduction initiatives with a goal to reduce our future effective income tax rate by 200 to 400 basis points.

Turning to Slide 16. This slide is an EPS walk that illustrates the drivers of the change in earnings per share versus first quarter last year. Foreign exchange had a net negative impact of $0.05 per share, primarily from Argentina.

Organic operating profit growth added $0.16 per share, while the 6 completed acquisitions generated another $0.12 of earnings. There was $0.05 per share in interest expense associated with the completed acquisitions, yielding positive M&A accretion of $0.07 per share. We expect accretion to improve over the balance of 2018, as we realize increased synergies from further integration of the acquisitions into our existing operations.

We incurred additional net interest expense of $0.03 per share on the yet-to-be-deployed excess cash from the October 2017 debt issuance and another $0.03 primarily from an increase in the weighted average interest rate from 3.8% to 4.8%. Higher effective tax rate discussed on the previous slide costs $0.03 per share, while an increase in the fully diluted number of shares outstanding and higher income attributable to noncontrolling interest explains the remaining variance.

We expect earnings to accelerate as we invest our excess cash in additional accretive acquisitions over the balance of 2018 into 2019.

Moving to Slide 17. Let's quickly review capital expenditures and cash flow. Excluding CompuSafe, we expect 2018 CapEx to be around $200 million versus the $185 million in 2017. These capital expenditures support our breakthrough initiatives and include new generation armored vehicles, high-speed money processing equipment, IT productivity improvement and other investments to drive operating profit growth.

Investments are targeted to exceed 15% IRR, and many are projected to return more than 20%. Every investment we make over $1 million is subjected to postcompletion audit to affirm actual returns.

As you can see in this chart, we increased our capital investment in 2017 to finance our breakthrough initiatives. This jump-started organic profitable growth. We expect to continue this increased investment through 2019. In 2020, we expect our capital requirements to decrease to around 4% of revenue, consistent with historical levels in 2015 and 2016.

Consistent with our debt covenants, CompuSafe investment is excluded from CapEx as it's considered the cost of services sold. In 2017, CompuSafe financing was $38 million, and we expect approximately $25 million this year. CompuSafe's sales and installations are expected to grow in 2018, but we anticipate a higher percentage to be financed through operating leases.

On to Slide 18. We have set cash flow targets for 2018 and 2019 that reflect significant improvement versus the $58 million generated in 2017.

Working capital continues to be a challenge as customers look to extend payment terms. In 2018, for the first time, working capital improvement is a component of the annual bonus, and we expect significant improvement across the globe.

In 2018, we expect higher EBITDA, improved working capital management and a similar level of cash taxes to significantly offset higher interest expense.

We expect capital expenditures, including CompuSafe to remain relatively consistent throughout 2018 and 2019 and the combination of all these factors should allow us to deliver free cash flow of approximately $200 million in 2018 and $300 million in 2019.

Turning to Slide 19. My last slide illustrates our net debt and leverage position, both historically and assuming additional acquisitions. As of March 31, 2018, our net debt was $681 million, up $69 million from year-end 2017, an increase in line with historical seasonality, driven by factors such as insurance premiums, annual bonus payments and payroll taxes.

If we achieve our 2018 and 2019 cash flow targets and complete no additional acquisitions, our net debt balance will decline to around $480 million, resulting in a leverage ratio of 0.8x.

If we complete another $255 million of new acquisitions in 2018, that's the $400 million minus $145 million for Rodoban, and $400 million in 2019, the 2019 net debt target would be approximately $1.1 billion and the bank-defined leverage that includes TTM fully synergized EBITDA will be 1.5x.

I'll now turn it back over to Doug.

Thanks, Ron, and thanks to the entire global Brink's team for all of your dedication to implementing our strategic plan initiatives, while also assuring that your priority is on focusing on our customers and their needs. Thank you.

We are now 5 quarters through our 12-quarter strategic plan period. And we have clearly -- and we have now clearly not only accelerated execution of our plan, but we're also layering in additional strategies to increase shareholder value.

Our 34% increase in first quarter operating income supports our full year 2018 op income guidance of $375 million at midpoint with a margin improvement of over 200 basis points to 11%. Achieving this guidance represents a margin rate increase over 2 years of the strategic plan of 350 basis points, which puts us, again, well on our way to achieving or even exceeding our target for the 2019 strategic plan numbers.

We're confident that we'll continue to drive organic growth and leverage earnings through our core Strategy 1.0 initiatives and that we'll meet or exceed our close the gap strategic targets.

Now with a track record of 6 accretive acquisitions, we are primed to fully execute our Strategy 1.5 that's to achieve our target of an additional $800 million in acquisitions that will continue to drive even greater shareholder value.

Thanks again for joining us this morning. Andrew, now let's open it up to calls.

(Operator Instructions) The first question comes from Jamie Clement of Buckingham.

I know you guys don't guide quarterly, but considering we don't know the pace of synergy realization, the pace of productivity initiatives, those kinds of things. Would you expect the first quarter to be the weakest quarter from EBITDA and earnings perspective of 2018? And can you give us a little bit more clarity on some of your comments about looking for growth to accelerate as the year progresses?

That's a reasonable question. And you're correct, we don't give quarterly guidance. We give full year guidance, and that's why we've not only reconfirmed but are comfortable with what we provided with full year guidance. But I also think you're correct in suggesting, and as we've woven into our comments, that we expect to continue to see acceleration in our margin rates throughout the year and that sequentially to see continued improvement, like you said, versus the first quarter. And it varies by country, but in general, the second -- the latter part of our years are stronger seasonally, which will help drive a lot of that. But I think as important, if not maybe even more important, our Strategy 1.0, which is really the implementation of specific initiatives -- specific breakthrough initiatives in many countries, particularly the larger ones, such as the U.S. and Mexico, Brazil and France and the investments associated with those, will continue to ramp up over the plan period, which includes the quarters associated with this year. So that should continue to drive improvements in margins, improvements in, obviously, absolute margin dollars. So that is a key component to the acceleration to continued improvement that we should see year-over-year and by quarter as well as then the rolling in of the acquisition revenue, margins and then the synergy achievement in each of those as well. Again, that helps us ramp up not only throughout this year but in the subsequent years that we spoke about earlier, as we achieve a greater percent of those synergies. That generally takes us up to 2 years to achieve.

Jamie, in addition, if you look at the corporate expenses, which were approximately $30 million in the first quarter, those seasonally are very high in Q1. They will come down. We did mention security costs will decline going forward. We have a higher incidence of payroll taxes in the first quarter every year, some IT phasing and things like that. So we do expect a reduction in corporate expenses to add on top of what Doug said of the improvement in the operating results in the field.

That's all really helpful, and we all appreciate it. Doug, if I could ask just one more question. You talked a lot about the core-core acquisitions and what you look for and the benefits of route density and obviously, synergy capture is pretty easy, I think, for investors to understand. But if you look at core-adjacent and you evaluated those, what are your priorities?

Well, priorities core-adjacent, by definition, says it's in our core business. In this case, heavily cash, but it could be cash in BGS in particular and some payments, which are all we consider core businesses. But it's adjacent geographies. We still gain some synergies, not to the fullest extent that we would in those that were core-core. We're not going to see the route density improvements on that, but we still will see significant amount of potential synergies anywhere from SG&A expenses, other fixed costs expenses we can take out to just operation of the business and efficiency gains. So that's why we're saying those may be in the higher end of the post-synergy range versus the ones that we've already done. If you look at the numbers, historically, now we're looking back on the 6, are really at the lower end of the range.

The next question comes from Tobey Sommer of SunTrust Robinson Humphrey.

I was wondering if you could describe what sort of DSO reduction you're targeting in '18 and refresh us on how much each day might be worth in terms of cash.

So we haven't disclosed those targets. And I'll tell you that in 2017, the increase in DSO was primarily driven by a lack of focus. In some of our countries, interest rates were actually negative for a part of the year. And so, it was just not a priority with the rollout of our breakthrough initiatives. We expect to recover a portion of that back. The math on DSO for an average for Brink's in total, I think we report 57 days and you can see we have a wide range country by country. Some of that is systematic, countries such as India, for example, have very long DSOs. Canada is our top performer with very short, where they have a portfolio of customers that are primarily large financial institutions who pay on time. So we haven't disclosed that. Each business has specific targets that they'll be shooting for. They will be an improvement not only in days versus 2017, but actually in absolute reduction in receivables dollars despite increased growth in revenue. So it looks aggressive on the outside, but just getting back to where we were in 2016 will have a material impact on our cash flow.

And Tobey, if you look at our cash flow projections, we continue to show, which I'm not sure we really want, we continue to show some additional use or negative working capital there. Obviously, that's a DSO. If we just kept them flat and then funded some of our new businesses with -- or some of our new growth, if you will, that's that type of number. But if we can improve on that number, hopefully we can at least do that and maybe better.

Excellent. I was wondering if you could comment on pricing across the globe and please touch on the price increase that you instituted at the end of last year and what the realization is like?

You're primarily speaking to the price increase at the end of the year in the U.S., which I think was the topic at that time because in the third quarter, we had increased cost, but not price. In the fourth quarter, we did increase pricing. We did increase pricing around the October time frame, starting to see the impact in late November time frame last year. We increased pricing that was at a level that was higher than normal, heavily driven by some of the cost increases in the labor. We're seeing very good traction and acceptance in the marketplace with that pricing. So that's good. That's positive. So the U.S. is doing reasonably well with that. We also have a push for higher pricing in other markets, particularly in South America, which has been generally accepted reasonably well. Brazil is one -- is an example of that, driven partially by higher cost for us in the industry with security and other things that we're helping to help support that. And so those are doing reasonably well. That price increases -- those price increases are doing reasonably well as well. I think we are fairly straightforward and transparent about not seeing the benefits yet in France, and we would certainly like to see that in -- I think we'll be looking to take a lead with that as well.

A follow-up on that. What would you -- how do you diagnose what happened in France at this point? Kind of a little bit of benefit of being in the rearview mirror. And could you refresh us on the top couple levers that you have in France to improve margin and achieve your 2019 margin goals?

Yes. I think I'll try to, again, be very blunt and transparent in my comments. I'll elaborate a little bit more on them. We saw some disruption in the marketplace, which unfortunately some of that continues a little bit, but the disruption in the marketplace was heavily driven by the Temis sale process last year as well as other competitors vying for additional market share and gains as an abnormally high number of tenders came out last year, bank tenders, FIs and even retailers came out last year and vying for that as they came out for additional share and position is what disrupted the market and has continued to into the first part of this year. The industry needs to see some improvement in pricing, and that's only reasonable based on the margins and the pricing that has resulted as a result of these tenders. Certainly, with the acquisition of Temis, they don't need to be a price leader or -- well, they don't need to be a price leader as they were last year, when they were looking to position themselves for a sale process. So a lot of that has changed. I think as important, as I said earlier, the plans are being implemented in France for the fairly significant cost reductions to help support our margin improvements as well, which is consistent with our strategic plan, and those are real reductions that are not related to specifically the business changes or the account changes in France. These are changes in where we can reduce cost in our branch structure, in our operational structure, in our management SG&A structure, consolidation of headquarter locations, consolidation of regional locations, and so forth. These have been discussed with the works council in France and will continue to be implemented over the course of this year and next year and make meaningful improvements in our cost structure that will help margins going forward in addition to what we think will be more favorable market positions and terms going forward in France as well.

With respect to taxes, you outlined a longer-term potential to improve your effective tax rate by, I guess, 2 to 4 percentage points. Would the cash tax rate see a comparable improvement? Or what would the impacts of that lower ETR be on cash taxes, if any?

Yes. Tobey, it would be a percent-to-percent improvement over time. There's always timing differences in taxes. So over the long term, the effective tax rate and the cash tax rate will tend to equal out. So any improvement in our effective tax rate will also impact the cash tax rate over time. So it will be a percent-for-percent improvement.

Great. Just a couple more from me. How would you describe, since you've been onboard, until now kind of customer relations in the U.S.? And how do you characterize your ability to kind of not only approach again customers that perhaps were lost in the past, but the state of those relations to try to reengage and win business back?

Yes, Tobey, actually -- I'll take that. Tobey, I think that's actually a great opportunity for us. While I do agree that as a company and as Ron and I and other new members of the management team have seen issues, relationships that were not done necessarily as we'd like them to be, we didn't see the customer focus as we necessarily would like to in the culture. We think those are materially changing and turning around the other way. We're materially improving our service levels to our customers and I think they're seeing the difference associated with that. And on top of that, we're looking about -- we're talking about the future and strategies with our customers, including things such as our customer-facing technologies and new systems and processes and services we're looking to implement, which is part of our third strategic objective. So I think all of that is very important to improving our relationships with our customers and gaining back some of the businesses that we've lost over the last several years. I think we're well down that path, but we have still a long way to go, which again is both an opportunity as well as a challenge that we need to do. So I think what we'll see that we'll continue to improve and gain account share, which, I think, is, one of the objectives that we laid out in our first objective and that is gaining account share, specifically in the U.S. with specific FIs as well as retail customers as well. So in summary, it's improving. We have a ways to go, that's good news and hopefully, we should see that supporting continued ramping up of organic growth in the U.S.

Lastly, quickly, could you describe how you view your competitive positioning in the CompuSafe recycler market, both from a sales perspective now that you have an organization stood up as well as from a technology and product perspective?

Yes, thanks very much, and that's a very good question. I think we have a much better, probably not the optimal yet, sales organization, but much better and very competitive with the other competitors in the marketplace. We offer a product that is very similar, if not the best out there. On the other hand, that product is also very similar to our largest competitor, Loomis. So it's -- the rest of the support and the services and the quality of services that we provide around that and the full package that we provide around that is very significant. We now have a monitoring center that monitors on a central basis all of our CompuSafes, both in terms of they're up and running and ensuring that we have availability of the CompuSafe, but also monitors the cash that's in there and that's put into the machines and allows us to provide the same or next day credit for those machines. Again, that's all up and running now in Dallas, which we didn't have before. And then the interface of the systems and the processes, along with it that then allow us also to coordinate the cash forecasting and other services that optimize the returns and the benefits to the customers around that. And integrating that altogether, both with the FIs that have the customers -- the retail customers as their customers as well as integrating the rest of our systems, we think is and can be a competitive advantage, and that's a material change from where we were even 6 to 9 months ago as a company in an offering. So I think we're very competitive. I think that will continue to improve our offerings to our customers and continue to improve our sales and solutions offerings to our customers. And one of the things we'll be talking about in the next couple of quarters is continuing to roll out not just CompuSafe and other retail solutions but other services, such as our track-and-trace, such as our 24-hour -- 24/7 app, Brink's app and other unique and differentiated services to our customers.

The next question comes from Ashish Sinha of Gabelli.

I just wanted to dwell just a little bit on France. So in terms of the volumes you're seeing, the volume focus, is there some macro issue as well? Or is it everything is competitor-led. And then when you talk about restructuring and improving France margins, is it just a matter of resizing the cost base for the lost volumes. And I wanted to understand how you think about if some of these contracts were to come back and Brink's were to bid for them again. How easy is it to build up your organization to deal with those volumes? And then secondly, within France as well, with regards to the Temis acquisition and your expectation of synergies, does the pricing environment today in France change any of your assumptions in terms of synergies? Then my second question is on corporate costs, and you pointed out about $5 million higher security costs, what exactly is this? Is this the cost of insurance or cost of risk? And then lastly, a very mathematical but housekeeping question. I'm not surprised -- I'm surprised, in fact, you did not raise guidance by the MONI Smart Security deal, I mean, it's $5 million this year, but you talk about it doubling next year or so. So why not?

Let me take the first one, and I'll take it actually backwards. From the way that you asked, the 3 or 4 parts associated with that. First, the Temis synergies and implementation of those, we are on track to achieve the Temis synergies, as we laid out and the change in the market competitiveness will and should not impact the achievement of the Temis synergies, which are heavily based on cost synergies. Most of our synergies are based on cost synergies, but in many cases, we also have a contingency in there about loss of customers. So far, in the Temis acquisition, we have not seen a change in the revenue side of that, which is positive and actually helps our integration overall target. In terms of the cost reduction, as I've tried to lay out, prior to much of the change -- the sea change in terms of the competitiveness and the significant number of tenders that we saw in 2017, which drove some volume changes for us. Prior to that, we were looking at ways we could structurally reduce the costs, we being the team, and that was integral and is integral to our 3-year strategic plan. So I would suggest there are 2 levels of cost savings and the primary one, the biggest one, is the implementation of that strategic plan and the structural cost changes associated with that, which are not necessarily related to volumes and the like that are related to the market changes. So that is not something that is driven by or a part of the market revenue changes. But they are significant and they're being driven so that we can see improvement in margins and support achieving our strategic plan targets. We're also looking as needed to deal with variable cost on top of that, but that is not the bulk of the cost changes that help drive our margin improvements. And that suggest as well with all that structure in place, we will be able to ramp up, especially as we look at the integration of Temis, which is on top of these additional cost savings, we will be able to manage additional revenue if we see growth coming back in the marketplace. I think those were the key pieces.

Do you want me to talk about corporate costs?

Yes.

Right. So Ashish, you mentioned the corporate costs, we did have security losses in the quarter that were unseasonally high. We typically don't comment on those because every single one of them is under active investigation. We also did increase our insurance premiums this year to reduce future volatility of losses impacting the P&L. So both of those combined were about $5.2 million higher in Q1 2018 versus Q1 2017. Again, 2017, the Q1 was a relatively safe and benign quarter and the Q1 this year was the opposite. But we don't comment on specific incidents for those reasons. As I did mention, the other costs that were higher in the quarter are expected to moderate the payroll taxes, IT phasing, et cetera. So it was a perfect storm for corporate [in that] method. And the other thing you mentioned was guidance in MONI. In our guidance, we had about a half year of Rodoban. That timing is still uncertain because as you can imagine, it's in the hand of the Brazilian regulators as far as approval of that deal. And so until we have a further grasp on the timing of the Rodoban closure, we really didn't want to put MONI in there as well. So -- and then typically, our pattern has been in the second quarter, where we have 6 months under our belt and higher degree of confidence to review guidance at that time.

The next question comes from Jeff Kessler of Imperial Capital.

I had about 5 questions to ask. I think they have all been asked. But I will come up, I've got a question regarding -- a follow-up on one of the earlier questions asked about your ancillary services, what are you doing to bring your value proposition as you talked a lot about Cash-in-Transit and then we have one question about CompuSafe about cash recycling. You sold off a part of your cash recycling business, but I'm sure the service that you're offering is still there. So the question I have is, with regard to these businesses that are, let's call them, ancillary in nature, but important to bringing a value proposition to Brink's customers so that they will -- that there's a deeper penetration into their cash businesses. What is your strategy toward building those businesses up? And do those businesses ultimately have a higher -- can have a higher margin than the Cash-in-Transit business?

That's a very good and insightful strategic question. Let me answer a couple of things around it and then emphasize where we are going. First of all, we didn't sell-off a cash recycler business. If anything, we are continuing to expand on our retail offering -- solution offerings. CompuSafe is one of those examples of our continuing to expand on the significant investment in the -- obviously the sales network to sell that. But as important, as I mentioned earlier, is the monitoring center, the support teams, the implementation teams, et cetera to provide added services in a total package to that. As an example, I think what you're alluding to is that CompuSafe is the full package of solution that includes CIT, vaulting, money processing and obviously monitoring of the equipment and all the things around that to really give a solution to the customer that all he needs to worry about is, somebody is taking care of his cash and he has something to put it into every day that is secure. So that's really what we're looking for and that is a good example of what we're looking to do in the future. The cash recyclers that we talked about last year was a significant one customer sale and the residual associated with the actual sale of the equipment is what we're really alluding to that because it was sold as a separate equipment sale versus what we do with CompuSafe. In most of our CompuSafe sales, they're made as an integral ongoing 5-year sale of services that's paid for every month that includes as part of that package, the equipment. In the case of the recyclers, last year, in the fourth quarter of '16 and the first quarter of '17, the actual recyclers were sold by us to the end customer and then we -- those are separated out from the rest of the ongoing recurring revenue and the package of services that we provide over a 6-year period of time to this customer. And that's why we are pointing that out because it was reasonably significant in terms of the onetime sale at a relatively low margin. So we're not getting out of the recycler business, that was just to give a true year-on-year so that you know that our organic sales adjusted for that in U.S. was up 4% and not down or not flat. And that our margin was actually improved more than that if you adjust for that. That's all we're trying to do there. We're actually very strong in the recycler business, probably stronger than any of our competitors in the business -- our direct competitors anyway. And we're going to continue to grow that as one of our basket, our stable of solutions. I alluded to we're looking as our strategy is to expand the services that we offer to retail and FI customers to help them in their total cash ecosystem, basically suggesting what we can do to help better service them in anything dealing with their cash ecosystem. And we want to be the ones that they talk to, that they relate to, that they partner with to help service their customers, whether it would be CompuSafes, whether it would be how we figure out to better service our retail customers and expand that customer base, but expand it in a way that it's a total basket of services and they generally are at, like CompuSafe, at higher margins because they're a total solution. So our strategy that we're talking with very aggressively with FIs and hopefully to expand beyond that as we launch our what we think will be the new industry standard as we start rolling this out, improving on it, support the customer-facing IT as part of this. So our track-and-trace, our ability for our customers through a portal or through a Brink's app to be able to track what's going on with their business, to provide orders and change orders through that portal and that interface and to be able to know exactly in real time what's going on with their businesses and how we are providing those services.

Okay. I realize that you have a competitor, who has a group of these services as well. But looking at -- looking down the line and looking at other companies, including other companies that we cover that are more on the ATM side that have tried to get into this business, it appears that you folks have a complement of services that, except for one competitor, you're basically ahead of the game. It's up to you folks to put that into a package that your customers want to take.

I can't argue with you. I think we need to as an add-on to an earlier question, we need to make sure that our base services, our customer-facing relations, our customer focus, our performance against SLAs and customer expectations as metrics are equal to or better. We're ramping that up. We're investing to make sure that happens. We're putting the right systems and people in place to do that. And then adding to that, like you're suggesting, there's layering in of customer-facing technologies and support and system solutions. And we think that as we do that, we will have a better offering and a differentiated offering for customers, and we think they'll be offerings that will allow us to reach more customers as well as ended up being a higher-margin and stickier offering for these packages. More coming on that as we look to this year, as we said before, to be the year of IT internally as we roll out these services and hopefully provide that competitive strategic advantage.

The question-and-answer session and the conference have now concluded. Thank you for attending today's presentation. You may now disconnect.