Q4 2019 Earnings Call

It is now.

My pleasure to introduce your host at Cunningham vice president of investor relations and corporate Communications Mister Cunningham. You may begin good morning. Everyone loves me today or CEO Doug Burns & Co Co Rhonda Monica this morning. We reported fourth-quarter results on both a gaap and non-gaap basis. The non-gaap results exclude a number of items including or Venezuela operations. The impact of Argentina's highly inflationary accounting reorganization and restructuring costs items related to Acquisitions and dispositions and costs money to an internal loss and certain accounting compliance Maps.

You're also providing our results on a constant currency basis, which eliminates changes in foreign currency exchange rates from the prior-year. We believe the non-gaap results make it easier for investors to assess operation for Miss between periods accordingly our comments today including those referring to our guidance will focus primarily on non-gaap results.

reconciliate

Nations of non-gaap to gaap results are provided in the press release in the appendix to the slides we're using today and in this morning 8K filing all of which can be found on our website. Finally home page 3 of the press releases provides the details behind our 2019 guidance including Revenue operating profit non-controlling interest income taxes and adjusted ebitda. I'll now turn off all over. First Bank said and good morning. Everyone 2019 was another strong year for pranks one in which we successfully completed our first three years strategic plan and began developing what we believe will be an even more successful plan for the next three years.

This morning, we reported fourth-quarter earnings of a dollar 18 per share and full-year earnings of $3.89 per share an increase of 12% in both periods. We achieved this month despite earnings in both. It's being reduced by $0.11 per share due to cash repatriation class from Argentina and a mark-to-market charge for an equity investment in MoneyGram International. Neither of these charges were included in our guidance, excluding these charges fourth-quarter earnings would have been up 23% and full-year earnings would have been a 16%

organic Revenue

For both the fourth quarter and full-year was 6% with reported Revenue growth of 7% and displayed the unfavorable FX impact of 8% off earnings growth for the quarter was driven by a 22% increase in segment operating profit which finished the year up 17% on an organic basis, which excludes the impact of a translation and Acquisitions segment profit Rose 31% in the quarter and were up 27% for the year.

Being a 2019 Mark the end and final year of our first strategic plan which we call SP one which we launched at our investor day in March of 2017 in that strategic plan. We set up very aggressive revenue and profit goals that we exceeded by a wide margin with a 3-year organic profit compound annual growth rate of over 20% I want to take a moment on the outside of this call. Do you recognize the incredible effort to put forth by everyone at Brinks their hard work with strong execution and customer focus drove a share price increase of 200% over the past 3 and 1/2 years and I'm confident that our goal our Global team of over sixty thousand employees will execute equally as well on SP to our next three year strategic plan, which is aimed squarely at accelerating the ongoing transformation. Yep.

Thanks and creating even.

more value to our shareholders

It's part of sb2. We're already we've already begun to Pilot strategy 2.0 related retail cash Management Solutions with customers and then we expect to start to ramp up these sales in the back half of this year and we're continuing to develop a full range of additional 2.0 related strategies and solutions to serve what we consider to be the total cash ecosystem. I want to remind everybody them then in addition to these new initiatives to core of our next three year strategic plan, especially in 2020 is our expanded strategy 1.0 initiatives which wage of additional organic growth and margin leverage the continuation of these 1.0 initiatives alone are expected to drive significant value creation over our next three year plan. Long before being supplemented by a new layer of growth with our 2.0 initiatives digital take hold in 2000 21 and 22 will close disclose more of the wage.

details at our June investor day

For 2020 guidance. We're targeting EPS growth of 13% and operating profit growth of 10% Our guidance takes into account continued FX related head with additional cash repatriation charges and continued operating expenses related to developing and commercializing strategy 2.0. Once again, this guidance is driven primarily by a couple of an expansion of our 1.00 organic growth initiatives that we began implementing in 2017. In fact, our guidance suggested the continuation expansion of our proven Thursday. One point O initiatives in 2020 are expected to offset these other significant impacts. I'll cover our 2020 guidance in more detail in our closing remarks Thursday. We also disclosed in equity investment in MoneyGram International in the fourth quarter. We invested nine million dollars in MoneyGram through open market purchases of stock equaling about 4 p.m.

9%

95% of its outstanding shares 20 gram is one of the largest money transfer companies in the world with 350,000 locations in more than twenty countries globally Thursday. We're in discussions with MoneyGram to explore a long-term strategic partnership agreement that we think will offer significant commercial benefits and long-term strategic alternatives for both parties develop. This partnership is just one component of our near-term strategic 2.0 and longer-term payments initiatives.

In the fourth quarter, we recorded a non-cash charge of three million dollars or five cents per share related to a decrease in the fair market value of this initial investment based on the value of the shares at the end of the quarter today. We also announced that our board authorized a new 250 million dollars a share repurchase program under the previous program, which expired on December 31st. We acquired 1.3 million shares at an average cost of $16.35 per share as we have stated in the past and based on our past Behavior intent is to use the share repurchase Authority only if we view our share price to be materially undervalued while share repurchases a certainly one Avenue that we had returned Capital to our shareholders. We continue to believe that we will have more attractive opportunities to increase returns and create shareholder value by investing Capital inorganic growth in New Jersey.

News as well as active.

Now turn to slide for this summarizes our full-year results for 2019. As you can see here. Our team delivered strong growth measures Revenue growth of 7% It was up 15% on a constant currency basis and an organic basis it Rose by 6% operating profit Rose 13% up 36% on a constant currency basis adjusted ebitda Rose 10% up 27% on a constant currency basis and EPS Rose 12% up 54% on a constant currency basis, even with a negative translational impact of currency. We converted 7% top-line growth to 12% EPS growth. And as I mentioned earlier these results include the late in the year charges equal to 11 cents per share that were not in our guidance if these charges were added back and reported the results would have been $4 a month.

adjust out of adjusted eps

Or 16% increase the cashier. Creates repatriation charge and are reduced operating profit by five million dollars and despite our 2019 page. Margin despite this our operating margin in the year increased sixty basis points to 10.6% capping off 320 basis points increase in margin Over The Five-Year Plan. Now turning the next slide. And before I turn it over on I'd like to quickly recap the results of our strap plan one when Ronald joined the company in mid-2016 the board charges with affecting change and driving shareholder value. We assess the challenges as a team and which at that time we're many but I also saw and we still see great opportunities at our investor Day in 2017. We laid bare our Brinks.

I have significantly underperformed disappears, excuse me, and we develop strategies with specific breakthrough initiatives to drive organic profit growth over a three-year time frame ending in 2019. We also recognize that our balance sheet was severely underutilized. So we launched our strategic plan for acquisition and acquisition strategy Thursday one include a specific three-year targets of for Revenue operating profit adjusted ebitda and earnings-per-share has shown in the middle of These Bars and all of these aggressive charges from a really succeeded in some early. We achieved 27% growth in revenue or on a compound annual growth rate basis 8% growth per year wage over the three-year period with Organic Revenue growth of 7% per year and 81% increase in operating profit or 22% on a compound annual growth rate basis 305.

basis points and margin

A 65% increase in adjusted ebitda or 18% compound annual growth rate and a 71% increase in EPS or 19% compound annual growth rate over three years most importantly our shareholders benefited from a share price increase of 200% since mid 2016 with that. I'll turn it over on or his financial review. Ron. Thanks, Doug and good day everyone turning to our fourth-quarter results on slide 6 Dunbar was acquired in the third quarter of 2018 was part of our business for the full fourth quarter of 2018 and 2019 consequently Dunbar is not included in Acquisitions on this chart. What is included in Acquisitions is rotobahn balance Innovations off the TV s acquisition in Columbia and a small bolt on in Brazil fourth quarter 2019 constant currency. Revenue growth was 8% the 2/3 wage.

invite organic growth and 1/3

From Acquisitions Revenue was reduced by forty eight million dollars or 5% by -4x reported. Revenue was 936 million dollars up 30% versus the fourth quarter last year fourth quarter constant currency operating profit grew 34% results included a $29 increase in segment operating off that was partly offset by Seventeen million and higher corporate charges. The corporate increase included seven million dollars in planned strategy 2.0 investment five months and unplanned Argentina cash rebates your creation and three million of increased insurance premiums.

Acquisitions added six million in operating profit the majority coming from Ro dabana -4x translation reduced operating profit by twenty-three million dollars or 22% which was in line with our guidance reported operating profit was $116. And the operating margin was 12.4% of a hundred bits from the fourth quarter of 2018 moving. It's like seven.

constant

To see Revenue growth for the full year 2019 was 15% with over 6% driven by organic growth and more than 8% from a physician's office mentioned earlier for Mid August 2019. The first anniversary of the acquisition Dunbar trailing-twelve-month results were included in acquisition operating changes and synergies recorded as organic room trailing 12 months results for Rhoda Bond balance Innovations TDS in the small CIT bolt on in Brazil were included in Acquisitions, since the time each deal was closed in 2019 of the 288 million in revenue from Acquisitions net of dispositions 7 and 1/2 months of Dunbar contributed $240,000. The other Acquisitions added $79 million and the June 2018 sale of our French Aviation Garden business decreased Revenue by 35 million dead.

constant current

T Revenue was reduced by $268 million dollars or 8% by -4x reported. Revenue was 3.68 billion up 7% versus 2018 an organic basis operating profit Rose $91 and Acquisitions added $35 million as full-year constant currency operating profit growth with 36% -4x reduced operating profit by $81 or 23% in line with guidance, including foreign exchange full-year segment operating wage increase $76 million dollars. It was partly offset by thirty two million in higher corporate charges, the corporate increase included twenty 1 million dollars in planned strategy, 2.5 million and unplanned Argentina cash repatriation 4X and 7 million dollars in higher non-cash stock compensation.

Reported operating profit was $392 and the full year operating margin was 10.6% up fifty Bishops versus 2018 moving to slide a full year 2019 operating profit of $392 was reduced by $95 million of net interest up Thirty 1 million versus the same period last year loan interest expense increased by $19 million primarily associated with higher debt from the Acquisitions the MoneyGram Equity investment marked-to-market charged for three million, in other non-operating wage income and expense items comprise. The balance tax expense of $93 was four million less than prior year as higher income was more than offset by the $280 off in the non-gaap effective tax rate the 2018 buyout of our minority partner in Columbia took full year 2019 non-controlling interest by 3 million bath.

bull

2019 income from continuing operations of $199 million dollars divided by 51.1 million weighted average diluted shares outstanding generated $3.59 in earnings per share a 12% increase from full year 2018 depreciation amortization was $152 million dollars up a million versus last year interest expense and taxes were $178 million and non-cash share-based compensation was $35 million in total 2019 Dodge City, but was $564 excluding the 5 million charge for the Argentine cash repatriation in the three million Equity investment mark-to-market. The Eva. For the life would have been up 12% in EPS would have been up 16% turning that to our segment results in slide 9.

For the year North America Revenue grew 5% organically was up 22% on a constant currency and a reported basis segment operating profit was up 30% organically fifty-three percent in constant currency and up 44% on a reported basis North America is operating profit margin increased 160 bits from 8.9% to 10.55% in the US the 29% year-over-year growth in Revenue in fifty-two percent growth and operating profit which room by the Dunbar acquisition in realization of $24,000 and synergies when the deal was announced May 2018. We targeted 45 million dollars of cost synergies and we're confident that will exceed that Target.

consolidating

Brinks operations resulted in some customer attrition in line with our expectations the net 2% organic Revenue growth in both the fourth quarter in the full year in the u.s. Demonstrated our ability to offset this attrition and grow business with new and existing customers. We expect higher organic growth and 2020 partially supported by the phasing of additional box from a large financial institution when Doug and I joined ranks in mid-2016 the cash us business operations were losing money at our 2017 March investor Thursday. We targeted that brings you would exit the three year strategic plan. In 2019 with a 10% operating margin. We did just that exiting the fourth quarter with over a 10% margin for the full year 2019 the US had an eight percent operating margin a 120 V Improvement versus 2018. Yep.

us employment levels created wage

Pressure and made it increasingly difficult to attract and retain employees system upgrades to improve security and Effectiveness have also added costs nevertheless. We expect to expand margins and 20 20 to 10% and exit 20 21 with a 13% operating margin ranks further penetrated the US retail Market in 2019 with 4100 new copy safe orders ahead of our internal Target compu-safe is a high-value service with better margins than our Core Business which generates recurring monthly revenue and typically about five years service contracts. Mexico continued its strong performance.

For the last three years, we grew revenue and operating profit organically by double-digits. We aggressively pursued retail accounts and had great success selling high-value services off for the 3 years and sp1 Mexico's compu-safe installed base group compounded over 50% rsp1 Target to double the operating margin in three years was hacked into and there's opportunity for further Improvement moving to our South America segment South America generated $917 of Revenue in 2019 bought organic Revenue growth was 16% and the road up on TS and Brazilian CIT bolt-on Acquisitions accounted for an additional 8% in constant currency revenues were up 23% but were more than offset by -4x of 24%

full-year operating

Traffic was up 39% organically up 47% in constant currency and up 9% on a reported basis South America operating profit margin increased 230 this from 21.4% to 23.7% the road of on acquisition of Brazil performed. Well in Synergy realization is on track TV off with the number for CIT company in Columbia, and it's providing a solid complement to Brinks Market leadership in that country are business in Argentina had a strong year in local currency inflation Georgia increases ad valorem and higher-volume more than offset cost inflation increasing margins.

For the year the peso devalued 42% versus the 2018 average and caused u.s. Dollar operating profit to be seven million dollars below 2018 bought a new government took power in late October and implemented stringent currency controls in response. We went to the blue chip swap Market to repatriate excess cash out of Argentina this resulted as we said before in a five million dollar charge that was not in our Guidance. The charge was recorded at corporate and reduced Consolidated operating profit and adjusted ebitda off with more closely at Argentina by moving the slide 11.

austerity

Instituted by the conservative government in 2019 or rejected by the people who elected a socialist government in October International spot response was immediate and as I just moved in the peso devalued 42% and 2019. We expect the Argentine peso in 2020 to devalue an average of 36% to 76 pesos to the dollar historically there have been two to four nationally negotiated wage increases each year the wage increases form the basis for negotiating price increases the business model a Tina includes an ad valorem component where the industry gets paid 2% of the value that's transported and or processed historically price increases plus the ad valorem have expected cost inflation and margins have expanded. There are always timing differences between cost inflation price increases and currency devaluation that timing affects the reporting of authors.

Seen a result in US dollars.

Historically, it's a three to six quarters for u.s. Dollar results to recover from a major devaluation the bars on the left of the slide show Brinks Argentina Revenue in US Dollars by quarter for the 2019 actual in our 2020 projection US dollar revenue is expected to recover to 2019 levels indicated by the green circle bio fourth quarter 2020. The late recovery would result in Argentina 2020 US dollar operating profit being ten million dollars lower than 2019 on top of that we expect to incur at corporate ten million dollars in cash repatriation costs and two thousand and twenty five million more than two thousand and nineteen months in total. We expect a $15 adjusted ebitda Edwin from Argentina in 2020.

On the right of this slide, you can see that in 2020. We expect Argentina to generate 5% of total brings revenue and 12% of total brakes adjusted ebitda through Global organic growth and Acquisitions. Argentina's impact on total brakes results has diminished significantly over the years and quite frankly should be less of an issue for all stakeholders turning the slide time to review our third segment.

rest of the world

Full-year 2019 revenues up 1% organically down 2% in constant currency and negative 6% on a reported basis. The constant currency declined was driven by 8th June 2018 disposition of our $85 million dollar French Aviation guarding business organic Revenue growth was flat and France as the impact of the year and National Transportation Strike Zone offset modest, year-to-date increases similarly the civil unrest and Hong Kong contributed to a revenue decline in that country versus 2018 single digit Revenue increases were achieved in the rest of Asia Israel, Greece and other Amiya countries.

2019 full-year operating profit was up 3% organically 4% in constant currency in 1% on a reported basis segment operating profit increased $80 to 11.8% results in France the largest business in rest of the world improve Nicely versus prior year with operating profit of 12% through my successful a nation of strategic Plan cost reductions achievement of chemists energies and price increases we expect continued Improvement in France and 2020 the strategy to say, you know, btc-e ATM Outsourcing invitation is proceeding on schedule and should positively impact results in mid 2021 and Beyond we've all seen indications of negative impact in 2020 from the coronavirus epidemic and our Asian businesses, but it's too early to estimate the financial impact.

moving the cap

It's like Thirteen the increase in capital spending in 2017 correspondence with the launch of sp1 and our breakthrough initiatives Investments and Next Generation armoured trucks and high-speed money processing equipment for our base business and completed Acquisitions drove an increase in capex as a percent of revenue from 4.2% in 2016 to 5.4% in 2019 in 2020 and Beyond we expect that strategy 1.0 wider and deeper initiatives in our organic businesses will continue to Han Starfleet off processing and network optimization that a more moderated face targeted at a normalized rate of 4.5% of Revenue. And as we pre-release previously communicated expect to invest twenty million of incremental capex at the completed acquisition to support the full realization of synergies strategy 2.0 is expected to have higher margins and be much less wage.

Capital intensive than are based business

Going forward it should improve our return on invested Capital turning to slide 14.

2019 full year free cash flow was $169 million dollars in line with prior year and thirty 1 million dollars less than our Guidance the 564 million dollars adjusted ebitda the Six Million lower than the guidance midpoint eighty million dollars of cash interest was in line with guidance and do the timing cash taxes and cash capex for each took out $15 favorable. The guidance acquisition-related cash restructuring was $7 higher than estimate which should accelerate Synergy realization in 2028, but the biggest impact was related to missing rdso Targets in a number of operations including Global Services are free cash flow targets for 2020 is 250 million dollars up $61 for 36 36% from 2019 and quadruple the $58 million dollars generated in 2017.

moving a slide fifteen

This slide illustrates our actual net debt and financial leverage from 2017 through 2019 and our targets for 2020 Arnett's at at the end of 2019 was in line with guidance at one point three five billion dollars that was up about 150 million over a year end 2018 as Investments and Acquisitions partly offset by cash flow after dividends at the end of 2019. Our leverage was approximately 2.4 turns since 2017. We've completed approximately 1.1 billion an acquisition would have been a creative to earnings. The acquisition pipeline today is more robust than when we started both in the potential number of transactions and in total Enterprise Value, the gray bars on each half of illustrate the impact of another billion dollars in potential Acquisitions and an average post integration multiple of 6.5. The gray bar on the left shows the potential incremental investment could be dead.

entirely by debt the Great

We are on the right illustrates that pro forma adjusted ebitda, including all estimated synergies should increase by about $155 million dollars and pro forma leverage would be under three turns off. We expect that cash flow from our existing business combined with the additional Acquisitions could reduce leverage back to 2019 levels within three years with that. I'll now hand in hand it back to dead.

Thanks, Ron. Please turn to slide 16s discussed earlier in the call are strong 2019 results capped off our three year strategic plan sp1000 strategy 1.0 the organic portion of organic growth and margin Improvement. And we did just that over the three-year period of time are 1.03 through initiatives created strong operating leverage that drove 76 million dollars of profit growth in just three years from $216 in 2016 wage to $292 and $200 in 2019. This profit growth was supplemented by another hundred million dollars of profit from strategy 1.5 Acquisitions, most of these work or Acquisitions that is Coraline's of businesses and geographies where we already had operations and can quickly capture cost-based synergies.

Together are one point.

And 1.5 strategies added a hundred Seventy-Six million dollars of profit from 216 million to 392 million.

In total these strategies delivered adjusted ebitda growth of 65% over the plan. To 564 million dollars for three year compounded annual growth rate for ebitda off of 18% strategies, 1.11.5 clearly added lots of value over the last three years and we're confident. There's lots more in the next draft plan to come home. In fact these strategies from the form the foundation of with our next three years. We call the continuation of our strategy 1.0 initial and the organic component of this one point o w d or wider and deeper wider referring to more of our proven initiatives being implemented across our 46 countries and deeper referring to implementation into all branches in every country. So at one point o w d is a key foundational element of our plan to drive.

continued growth throughout the

3-year plan. The same is true of our 1.5 acquisition strategy. As Ron mentioned. We completed 13 Acquisitions and invested about one point 1 billion dollars in a m s p one result in approximately $160 in ebitda contribution after the full synergies or captured and this includes unfortunately, some of the negative impact of s of FX over this period of time we have the balance sheet capacity and now the proven track record of growing Vago through accretive Acquisitions while we don't forecast grow through acquisition before we complete Acquisitions and there are no impact and there is no impact shoes me from potential Acquisitions wage in our 2020 guidance. We're confident that are aggressive but disciplined approach to Acquisitions will continue to add value during the next three years during this 517 dead.

It provides.

A more detailed look at how we achieved 81% profit growth of with through this bridge over the 3-year plan. Of 1 even with significant FX headwinds and some investment in the future the strong growth from our organic and acquisition-related initiatives were partially offset by higher corporate expenses, 65 million dollars an unfavorable FX translation and are off X investments in 2.1. Excuse me, 2.0 and it initiatives despite these offsets. We still exceeded our initial income Target a 325 Million by almost $70 and generated 20% compound annual growth in quarter. Cop income during this life during this SB to 3-year plan will ramp up strategy 2.0 as our third layer of growth this multiple layer cake.

multi-layered strategy works

Bandar presence in the cash ecosystem with high-margin cost-effective services for the larger for the largely underserved and even the totally unserved retail market and also former financial institution customers will share more details and financial targets behind 2.0 at our investor Conference in June, but we've already begun to execute on our overall sb2 objectives of accelerating organic Revenue growth and increasing margins all with limited with Excuse me with reduced Capital expenditures versus sp1 most importantly, we believe strategy 2.0 will help us to fundamentally change and dramatically increase the value proposition that we offer to our customers off supporting our 2.0 strategy. We now have initial Pilots underway for promising new tech enabled retail cash management service that we plan to roll out in the second half of two thousand dead.

other exam

Bulls of actions we've taken delay the base for other parts of our 2.00 strategy include our agreement with CBE in the second the second largest banking group in France do Outsource Thursday. We managed their entire network of approximately 11600 ATMs. We expect to begin generating Revenue in late 2021 from this agreement, which is a long-term wage would be b c e n our 2019 acquisition of balance Innovations a US base software company that provides cash management software for the retail Market wage and other services to a national footprint that includes more than 11,000 retail locations. And as I mentioned earlier the development of the long-term partnership with MoneyGram is also part of our team strategy. Our goal is to help MoneyGram and it's agent Partners realize substantial operating efficiencies by improving their cash management processes their needs align closely wage.

Our next Generation 2.0.

She'll Services offerings and our Collective long-term strategies offer both of us solutions for exclusions and strategies for payments in the future.

These are just a few examples of our efforts to date to position drinks into the adjacent areas in the cash total cash ecosystem driving growth and margin Improvement as we do that. We look forward to sharing more of our transformative 2.0 strategies in our upcoming investor days turning to slide 19 for 2020 guidance. We're targeting organic off of 5% And we expect to that we expect to be partially also by negative effects translation again, mostly in Argentina operating profit growth of 10% with a mid-point of 430 million dollars or growth of 24% on a constant currency basis adjusted ebitda growth of 8% or 18% on a constant currency basis and EPS growth of 13% which equates to a 32% growth in constant currency. Once again, this guidance is driven primarily by a continuation and expansion of our strategy one.

organic Frozen issues that

We began in our last strategic plan. We expect to deliver these results despite continued FX related headwinds as outlined earlier and displayed 2.0 development cost. We expect these 2.0 costs to be offset by both organic growth and initial 2.0 Revenue, which we should start to generate in the second half of this year off. This kinds does not include any revenue or earnings benefits from potential 1.5 acquisitions.

It's like twenty provides a little more detail through the bridge format on our 2020 guidance. We expect ninety million dollars organic profit growth an increase of 23% need to be driven by continued synergies from our Acquisitions and additional growth from the impact of more broadly executed 1.0 wider and deeper breakthrough initiatives. And is Ron noted we expect to see you see 45% excuse me, forty-five million dollars in Synergy, which is our Target or the Dunbar position as we continue to integrate that business. Our guidance includes phone number 31 2019 currency rates for all countries, except Argentina. And as Ron mentioned before Argentina, we're assuming a 36% year-over-year devaluation of 4018 in peso versus the US dollar which is roughly in line with a 42% devaluation in 2019. The impact of this devalues the evaluation is expected to participate

You all set be partially offset.

My stronger local currency and inflation driven pricing for my offset by stronger local currency inflation different pricing increases that will start to turn off profits as they are reported in u.s. Dollars to be profitable and positive versus prior Years starting in the fourth quarter of 2028. We were also assuming it ten million dollar impact of five million dollars versus last year to repatriate Argentinian Pesos to u.s. Dollars there for a guidance assumes a profit reduction versus last year related to Argentina of about fifteen million dollars from the combination of both evaluation and repatriation in total. We expect operating profit to go 10% to around 4:30 million at the midpoint with a margin increase of 80 basis points to 11.4% our operating profit without the impact of Argentine EFX wage.

issues

Would result in approximately a 14% growth and we expect EPS growth of 13% on a reported basis. And again without the FX wage impact of Argentina. EPS growth would be about 18%

And closing is worth repeating that our 2020 guidance is based primarily on our 1.0 wider and deeper organic initiatives with no additional new acquisitions month and initial results from strategy 2.0 are not expected until later in the year. We expect to accelerate organic growth and margin Improvement beginning in 2021 from our thoughts on issues as they begin to take off take hold excuse me with existing and new customers sp1 was a great success with our future looks even brighter. We look forward to providing more details and in a new three years with you of financial Targets on investor day Drew. Let's hook it up for questions.

We will now begin the quest.

And answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two began to the star than one to ask a question at this time. We will pause momentarily took all our roster. The first question comes from George tongue of Goldman Sachs, please go ahead.

Hi. Thanks. Good morning. This is Blake on for George regarding the 5 million cash repatriation expense in Argentina and the $10 impact expected in in 2012. When do you expect these expenses to begin tapering? It sounds like you know, you might be might be a Target, but just curious about timing there. Well, I think you're correct that we were looking for the FX translational impact based on our our Target of a 36% inflation a excuse me a devaluation for the full year to start seeing that term positive. In other words in the fourth quarter of 2020 will start seeing the inflation and wage even price increases in domestic pricing will want to start off setting the deflation for the year and we'll start seeing profits on a report wage.

as dollar basis in our

Tina to be favorable and positive but the other three quarters will not be so that's when it'll start coming back as we saw in 2019 actual wage. And that's the translational part of this based on the assumptions that we have in place. Now what we've seen so far since the election which I think is pretty interesting fact is is that the in uh, the the FX has been much more muted I guess is the way to put it than many might have expected. So we'll see we're we're that goes over the course of the year, but at 36% FX translation issue. So to speak is a way that will be off-set and start turning positive in the fourth quarter based on our projections. The difference in the repatriation is is more of an issue that is not across the board on an fx wage.

That it's only applied obvious.

View with the cash that is repatriated. So a portion of a current operating of our operating income for the year is spent internally. In fact, the majority I would expand internally on taxes capex and other expenses in Argentina, then it becomes the free cash flow that is generated that we would then look up to repatriate and at the current as a result of what happened in the late part of of the Year currently, that's a premium for that repatriation is included in the assumptions for the year in additional five million dollars versus the prior-year.

Is that yes. Yes. That's very helpful. Thank you. I think it's pretty important. I know this gets confusing but I think it's pretty important that we don't know when and if that will be taken that repatriation portion will be going away but they are two totally separate pieces. You can't not do the FX rate because the FX we don't repatriate a hundred percent. I wish we could I wish we had 100% free cash flow on our operating income, but but but in fact it's only on the portion that is really really true free cash flow that we repatriated.

Great, that's helped.

And then regarding the the MoneyGram investment. I know it's pretty early but just curious how you see this partnership taking shape going forward and and what the potential commercial opportunity for Brinks longer-term. Well, certainly what we've suggested is we're looking for technique technology-enabled total Solutions jobs that make it much easier much more effective for any retail customers and which would include specific areas such as MoneyGram agents to better do business and for MoneyGram to do business with their agents and we think that our solutions that we were rolling out and we'll provide more detail around are are a great example of that than a great solution for that month. It provides a method to make sure the funding is there to give almost instant information about that funding because the tech enablement around that in a fully into a job.

an easy-to-use solution of the

We think provides significant value and so there's a near-term and hopefully in your German and it turns into a longer-term opportunity for both as in other words for us to sell and provide these services and for hopefully MoneyGram to gain some benefits and their agents to gain benefits related to those services. So that's the first part of this in the commercial benefits side of this for both sides. And then we think there's a longer-term joint development of strategies around cash payments and cash to digital and bring the cash payments in the long term that we can work on together. We're both very Global businesses. The fit is very nice. And we think there's some great strategies that can be developed together.

Great, very helpful. Thank you Doug.

The next question comes from Sam England of berenberg, please. Go ahead just a couple because the first one just around the effects and the 20 million investment for 2.5. Is that going to be second half waited this year? And then how do we think about that growing going forward to that something you'll guide to on the strategy day? Yeah. So, you know, I think what we've said in past conference calls is consisted where we have a place today. It will be fairly smooth throughout the year. And this is very similar to the if you will op-ex investment and welcome to call in Investments Outback spend that we will continue to have to continue to develop drive and support the the 2.0 initiatives the dog is this year versus last year is we are starting to roll out Pilots those Pilots will then start hopefully to yield additional sales as wage.

Through the year and that additional sales will start translating into Revenue as we go.

Forward into the second half of this year. So if you think about it, we're going to be heavier weighted in the first half of this year to seeing the expenses, which what we said in our guidance those expenses will be absorbed if you will and are in the guidance by organic growth and our Core Business and there may be some benefit of birth. It's only limited in the current plan and the guidance for the second half to start seeing some benefits Associated, but most of that is not in the plan. Most of it is not in our guidance office alone start seeing it in the second half and as we do we'll get both the benefits to offset those expenses and potentially some upside depending on where the uh with the ramp up and how the ramp up.

Right. Thanks. And then the second one's around the 1.0 plan. I just wondered what's left to do to bridge the rest of the Gap up to 13% You know, what are there any particularly large parts of the plan? You still able to deliver on this year? Well, so when you say 13% that is the number for the there are very specific targeted plans as we laid out before them to achieve the 13 and frankly more Beyond The Run Race of 2021 and that's a combination of continued down break through an issues that were laid out as part of our 1.0 strategy for the us as well as 1.5 Dunbar synergies and benefits associated with with that. So that's really the US look on it. That hasn't been a change from what we laid out before going from the 8% that we talked about that we hit this year to a 10 plus percent full-year opt income for next year and wage.

Going out a 2021 time.

Sorry, next you're being this year 2020 apologize and then the 2021 exit rate of of 13% So that's the us but what we're talking about is a global basis for the South America. In other countries. France is a key piece of this as well continue to see improvements in our Core Business there by taking initiatives that those countries started out with as part of their one plain old plan and expanding a Whiting those having more initiatives to implement in each of those countries more that other countries have implemented new strategies that we've helped them together and then making and taking those more that wider initiatives and then driving them deeper into the operations. In other words. If we have Rod optimization, there was implemented in a strap plan period of time goes round optimization strategies may have been preliminary may have been ones that we've test marketed may have been ones that we only put in, you know, ten brass.

And now they'll be deep.

Or they'll go deeper and going to every Branch they'll be implemented throughout the organizations and you can take those and and say whether it be new trucks or other strategies around that money processing room efficiency, that's putting them deeper into the organization. It's taking the multiple initiatives that we've laid out and our wider and putting more of those in each country. So we don't view that it that there's there's a package amount of initiatives or amount of cost reduction that can be out there and we're just taking what's left. We're continuing to build and grow and Implement and expand on them across all of our operations.

Right. Thanks very much.

Thank you. Thanks. Once again, if you have a question, please press * then 1 on a touch-tone phone. The next question comes from Jeff Kessler of Imperial capital, please go ahead thank you. I know you're going to be talking a lot about this uh on June 1st, but I'm just wondering you've alluded several times perhaps many times today to number one a decline the amount of capital investment, uh in towards as we move on in 2020 as well as the the first inklings of being able to recapture some of the uh, some some of the inflationary pressure that you've got from Argentina. Can you talk about in terms of uh of free cash flow free cash flow was slightly below our expectation. But what you're the way you're talking is that free cash flow will begin to action.

they begin or if

I would say become become a metric that you're going to start talking about in focusing on more towards the fourth quarter and particularly the 2021 Jeep. Can you can you elaborate on that a bit given that I think a number of analysts are going to start looking at free cash flow because of what's going that possibly happen if you thousand twenty one month as it as evaluation indicator. Yeah. So I very good question. Let me separate those and and and and then I'll pass the last piece specifically around the free cash flow projections. J20. And now we're going to impact on at least on a a more Global basis rather than specifics beyond that for the rest of the best be too. But let me buy for Kate and separate some of those the Argentinean piece on this is, you know, a different issue versus free cash flow, but it clearly is one that is related to continue to improve our free casual. It's more of one of the projections based on the recovery page.

2 time for the local

Increases in Argentina offsetting of the already seen and projected FX issues. That's what we're projecting. I think it's a reasonable action based on assumptions that we have seen to date for the year and we've laid it out pretty straight forward with great. I think transparency and suggesting that in Argentina. We will start seeing that turned to be a positive in in the fourth quarter and suggesting as well that this is at least a 15 million dollar negative impact going into the year and head if you take a look at our business without the Argentine appease the rest of the business and the projections and the guidance of providing are are pretty darn healthy. So that's one piece of it and obviously as off that turns the other way, we'll get more free cash flow generation as we go forward, but the 2.0 strategies is I think that we've laid out is suggesting that a great portion.

Of that strategy is related to X investment versus Quebec.

Investment it's related to a combination of a total offering of services that are unique differentiated higher value to the customer, but they don't require as much capex and investment to do that what we've talked about in the last well last year and this year is this twenty-plus million dollar affects investment wage. If you consider that and you you compare that versus our capex investments in the past is relatively low the fact though is it's op X and it comes into current year earnings versus being long-term capital expenditures and the benefits we think we'll get from the 2.0 initiatives will be higher organic growth p e p e is one example of it what we think will be better total solutions for customers Even in our our two point one or our our Solutions such as we're talking about birth.

others that will be higher organic Revenue

Growth and higher margins that are generated from that with less Capital input so over the course of sb2 we anticipate and I'd I'd suggest looking at this metric wage as a new metric as we start looking forward to this. How does our Capital come down which obviously drives if everything else grows such as our organic growth and our our margins that that should drive our margins higher profitability as well as the entire cash flow and it should also with lower Investments. It should also Drive significantly improve return on Capital Investments. So I would suggest that a good metric and probably the best metric over the course of three years is to see where our return on invested Capital goes over this period of time. So you'll see a combination of both sexes Improvement in margins Improvement in inorganic growth and Improvement in invested capital.

So with that, more specifics to Ron if he wants to talk sure address the the free cash flow.

Yeah, do you have simple math? And you know, we had cat facts in 2019 and 5.4% of Revenue of our targets 4.5 minutes at 2.9% times. Our revenues is about thirty-five million in Approved Cash Flow just from returning to a normalized spending. But on top of that inequity with Doug said we're moving more towards a global lease Arrangements on devices associated with not only with our 2.0 strategy, but also looking at some of our 1.0 wider and deeper Investments and our object there is to have the cost of any Capital included in the monthly service fees and also increasing the percent of our recurring Revenue to make sure that you know, we we've got a model as Doug mentioned that month higher margins lower capex and is more recurring it's a it's a trifecta. I think that got a lot of

Okay, great one follow-up question and that is on top you say it's number one. Could you relate the domestic copy safe number that you that you said $5,100 units? Okay, and and as a and and with that, can you talk a little bit about the copy safe strategy internationally wage given that you're now you've now expanded internationally. Where is it taking faster than other places and number two will compu-safe the integrated different thoughts into some of the international strategies as well. As I guess domestic strategies of the integrated differently into South America rest of the world into into Asia Europe, then you're seeing it here.

I'll tell you.

That we've had tremendous success in Mexico with compu-safe. I mentioned 50% compounded annual growth rate of copies saved units installed over the last three years that I will cross. Yeah. Yeah, you know, it's it's it's working in other countries. I will tell you on June one, you will learn more about a strategy to further penetrate Global retail the markets with a solution that is less expensive and more profitable for the retailer and for Brinks home and we're looking forward to that because even though compu-safe has been a tremendous asset to retailers certainly larger ones. We believe there's an entire segment of the market wage type for penetration with a a better solution.

Great. Thank you very much. I appreciate it. Thanks Jeff.

And the last question today will come from Jamie Clements of ERG, please go ahead. Hey gentleman. Come on now. Come on. Now. It's just talk. I don't know why I don't know, you know if you comment on this, but you know, obviously, you know, looking over the Atlantic to Europe. Am I Global competitor of yours lots of stories out there about you know, whether they're going to you know, spin off a business or whether they're going to sell it at all that kind of thing with Eddie any comments on kind of how the brakes company looks at that situation from a competitive perspective and you know that sort of stuff. We think Loomis is a great competitor and they did a great job of improving margins in the US and we think that will translate into new good targets for us to hate going forward. Okay, overall m a r i e

Sort of size of the pipeline versus where it's being.

Sellers expectations all that kind of stuff. Can you kind of give us a sense of where that's at?

Bowser I said my comments Jamie the pipeline has more potential deals at the greater Enterprise Value and they said in the past all these deals are lumpy. Okay. Well, we've also said that we look at everything but Doug mentioned in his comments were extremely disciplined which means we won't over pay in fact in 2019. We walked away from several deals that got above the point where I believe they would achieve are required rates of return. So we really don't want to say more than that. I think we've been consistent all and we continue to exercise discipline and everything we look at and you know, it also is Jamie, you know, certainly all all we know is the public information that's out there regarding G4S. I think they publicly stated that needs to be done with it by the middle of this year. And their primary path is is a d merger. Oh, okay Ron apologies if if I missed this, but I in terms

serve organic

Both the us obviously, this is the first quarter of Q4 where you you know, fully analyze it Dunbar acquisition certainly didn't expect to maintain all that business office how much of an impact in terms of like planned customer attrition, you know impacted maybe the the organic growth rate Europe here. Yeah. I mean I would say was at least 3% very easy to to to quantify. It does is looking at me too. I think it was that big but how we if we we had you know several customers that had to vendors one was done bar where you know, they they they had to invite one of our competitors to take a portion of that business. And so it it's difficult to quantify. We haven't spent a lot of time on it. We've been looking more towards the future and how we we present, you know, a compelling opportunity for growth the penetration of a large financial institution a

Can is just beginning of that we've all?

So had some other wins and we're really focused on that but quite frankly. We were pleased with the 2% based on the plan nutrition. Okay, thank you and Doug lasting, you know something about you know, these the the Outsourcing Trend whether it's money processing or whether it's ATMs globally just I'm not asking for a global number cuz I don't want to buy it but in terms of the US and obviously some countries are ahead of us in this sort of thing is you think about your big customers or potential customers longer-term Outsource. What do you think the market opportunity is there for brakes? Well, I think for for us in the whole industry, we think it's it's it's fairly significant. We saw obviously Banks to start Outsourcing dead bolts money processing, you know, a number of years ago. There's still a substantial amount of that to continue to be done whether it be in the US or or other countries in other locations, and we're just starting off.

to see with the BBC e being the first

One globally of the major financial institutions to look at and move forward with the Outsourcing of ATMs. We think that's going to be another major place for outsourcing there as well and Thursday and we take this the next step. We are looking at as our 2.0 strategy for significant. Look of where the the market is going to handle including apis off the total cash ecosystem management. And so as you take a harder look at rather than just the components associated with that cuz everything within the cash legal system, we think there's a lot more to do there. It's a combination of Outsourcing as well as assuming much more of the total requirements at a lower cost and better value for customers before that that follows

Okay gents. Thanks very much for the time. Thank you. This concludes both the question and answer session and the Brinks company's fourth-quarter 29th earnings call. Thank you for attending today's presentation. You may now disconnect.

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