Q4 2020 Brinks Co Earnings Call
[music].
Welcome to the Brink's company's fourth quarter, 'twenty and 'twenty earnings call Brinks.
Brinks issued a press release on fourth quarter results. This morning. The company also filed an 8-K that includes the release and the slides that will be used in today's call for those of you listening by phone and the release and slides are available and the Investor Relations section of the company's website Brinks Dot com.
At this time all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
If you require operator assistance. Please press Star then zero now for the company's Safe Harbor statements. 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.
And is available in today's press release and in the company's most recent S. E. SEC filings information presented and discussed on this call is representative as of today only brinks assumes no obligation to update any forward looking statements. The call is copyrighted and may not be used without written permission from brinks.
It is now my pleasure to introduce your host Ed Cunningham, Vice President of Investor Relations and corporate Communications. Mr. Cunningham you may begin.
Thanks, Andrew Good morning, everyone.
Joining me today are CEO, Doug <unk> and CFO Ron Domanico.
This morning, we reported fourth quarter results on both a GAAP and a non-GAAP basis.
Non-GAAP results exclude a number of items, including our Venezuela operations the impact of Argentina's highly inflationary accounting.
Reward and restructuring costs items related to acquisitions, and dispositions and costs related to and internal loss and costs related to certain accounting compliance matters.
We're also providing our results on a constant currency basis, which which eliminates changes and foreign currency exchange rates from the prior year.
We believe and non-GAAP results make it easier for investors to assess operating performance between periods and accordingly, our comments today will focus primarily on non-GAAP results. Reconciliations are provided in the press release and 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.
I'll now turn the call over to Doug birds.
Thanks, Ed Good morning, everyone and thanks for joining us today.
Before we review our strong fourth quarter results and increased guidance I want to stress how proud I am of our employees around the world their dedication and focus on health and safety and outstanding execution under pandemic conditions has been nothing short of remarkable.
Despite unprecedented challenges they have continued to provide the essential high quality services that makes brinks, the clear leader and the cash management business globally.
And our response to the pandemic our more than 76000 global employees have been focused on our key priorities are providing essential services and ensuring the brinks emerges stronger on the other side of this pandemic.
Our leadership and global team.
We also remain focused on strategic execution, including the completion and integration of a large and very complex acquisition of G. Four S cash operations and 17 markets, our fourth quarter results, clearly demonstrate that and envision to proactively addressing the pandemic impact on our.
Our employees, our customers our families and our business, we've not lost sight of our strategic priorities.
By any means our fourth quarter results I think are outstanding.
Reported revenue was up 9% driven by sequential improving organic revenue growth since the onset and onset of the pandemic and the G. Four S acquisition.
Operating profit was up 26%, reflecting and margin rate of 14, 2% and increase of 140 basis excuse me 180 basis points with strong support from the U S business, which achieved a margin rate of 15%.
Adjusted EBITDA increased 25% to $194 million, which was 19% of revenue.
And EPS grew 39% to $8 64 per cent per share.
These results primarily reflect the impact of our 2020 cost reductions and business restructurings, which yielded significant margin improvements the sustainable cost reductions are expected to drive continued earnings leverage in 2021, driven by organic revenue growth, partially supported by the pandemic recovery and.
And the full year impact of the completed <unk> acquisition.
Our fourth quarter results underscore the continued strength of cash as well as a payment method.
Even during the pandemic cash is used and two thirds of global consumer transactions, and and 35% of U S and person transactions.
The strength and resiliency of cash is reflected and the independent data from the federal reserve showing that during the pandemic U S currency in circulation grew at a materially higher rate than the 6% compound annual growth rate that it has grown over the last 30 plus years.
And as and I'll share when Youre in a moment.
And our internal use money processing.
Metrics also show the cash usage increased during the pandemic.
Looking ahead.
We expect continued strong organic revenue and profit improvement and 2021.
At the midpoint of our guidance, we expect revenue growth of 17% operating growth of 30% and EPS growth of 26%.
Adjusted EBITDA is expected to be and a range of between $640 million and $730 million and increase of 21% at the midpoint.
Our confidence and the short and long term future Brinks is based on our team's proven track record of strategic and operational execution.
Retail recovery from the pandemic lows.
Realization of full year benefits of the G Force acquisition.
This is a substantially.
Excuse me.
And sustainability.
Of our cost reductions.
And the substantial organic growth expected in our core base business as well as the transformational potential.
Potential of our Brink's complete digital cash solutions.
Turning now to slide four.
We think demonstrates the resiliency of.
Of our revenue base compared to other companies represented here and various indices.
<unk>.
Yeah.
I think some of you may be surprised to learn that brinks is outperforming all of these industries during the global pandemic.
And clearly revenue for the hospitality and entertainment industries.
And where they're near total reliance on consumer spending has been hit very hard by the pandemic and government mandated closings and he had many cases the equity values of some of these companies and these indexes have shown sharp increases in anticipation of a post pandemic recovery.
Moving from the left to the right on the chart you can see that the cash management industry. The S&P 400, industrials, a route based peers and traditional payment companies all fared better than most consumer focused companies with 2024th quarter revenue at the at or above 90.
And percent of 2019 levels.
Our fourth quarter recovery is the strongest versus these industries I just want to make a note that all of the companies reported revenues in these industries use organic revenue as well as acquisitions and divestitures and similar to ours. This is especially the case if you take a look at the payments index sees that include <unk>.
Several companies with numerous acquisitions.
The far right.
Of the slide shows the strength of our recovery.
And on both a reported basis and a pro forma basis, which includes the <unk> results for both 2019 and 2020.
And we compare favorably on both counts with reported fourth quarter revenue up 9% versus prior year and pro forma revenue at 92% of 2019 up from 88% and a third quarter and 78% and the second quarter.
Brinks shares many characteristics with route based and industrial services companies, including high levels of recurring revenue strong customer retention, but we've not yet.
And I've been able to achieve similar valuation multiples or share price increases since the onset of the pandemic. Despite the fact that we had seven similar revenue growth since the bottom of the pandemic versus these indices.
Taking a step.
Taking a step further brinks, even outperformed the payments index.
And with fourth quarter revenue up 9% versus 2019 for brinks on a comparable basis, the payments index was down 6% versus the prior year.
While some of you may have been surprised.
And at our comparably strong revenue growth.
Most certainly worse warrant.
Slide five represents data that proves our long standing assertion the cash usage is strong and growing even during the pandemic.
To be clear, we fully acknowledge the increase and E commerce and the step change and the growth and ecommerce sales during the pandemic.
But if you consider the facts and there may be a different story.
Even during the height of the pandemic related shutdowns cash as a percent of all payments remains strong and the use of cash continues to grow further despite accelerated E commerce growth during the pandemic in person and retail sales where cash is the most popular method of payments payment.
Payment are expected to continue to grow and remain far greater than E commerce sales.
The growth on the left side of page five slide five I think is compelling and it shows the growth of ecommerce sales and continued growth and.
And in person and retail and.
And 2019, according to the U S Census Bureau.
And person retail spending accounted for about 89% of total retail sales. This was prior to the pandemic, suggesting that E commerce accounted for about a balance of 11%.
Obviously, the pandemic has accelerated E commerce sales growth to about 14% of total sales in 2020, suggesting full year ecommerce growth.
This year over last year excuse me of about 35%, but its growth rate is expected to level off and even decelerate.
<unk> now and the next five years through 2025 when E. Commerce is expected to reach about 23% of total retail sales and this means that in 2025 five years from now more than 75% of retail sales will be in store purchases.
It's also important to remember the total retail sales are expected to reach more than six five trillion in 2025. So the size of in person and retail sales in terms of total dollars will be larger and 2025 than it was before the pandemic or over five two trillion dollars.
Even with accelerated ecommerce sales growth.
The right side of the slide shows the cash is the most popular form of in person transactions in the U S at 35% of payments.
I had of debit and credit cards.
And that survey suggests that retailers have no intentions as well of stopping.
Acceptance of cash as a form of payment.
So even as ecommerce becomes a larger part of the payments landscape and person sales where cash is the preferred method of payment of payment are also expected to grow.
This data supports our belief that brinks is very much a growth business given our strategic focus on increasing organic revenue growth through acquisition and our development and digital cash management solutions targeted at a very large market of underserved or unserved customers and retailers today.
Turning to the next slide.
And <unk> with prior quarters.
This year fourth quarter internal and external cash usage levels remain elevated versus prior year. According to the federal reserve cash in circulation and the U S is up 16% year over year, a material increase as I mentioned earlier over the 30 year historic.
Compound annual growth rate of 6%.
Historically.
And as history has also shown that during periods of recession, and economic stimulus and the use of cash increases as a percent of payments, suggesting that we are in and possibly we will continue to be in a period of increased cash usage.
And our internal brinks metrics show that both the volume.
And value of notes flowing through our U S operations.
Have increased 6% over last year's fourth quarter, even with your locations still being served.
So despite the headlines we believe both the historical and current data support the resiliency and persistence of cash usage.
And on the right side of slide six the outer ring shows the between 85 and 90% of U S. Retail locations do not use any cash management industry services their unfunded or under rented.
Unlike the market for credit and debit services. It is almost fully vented shown by the inner ring. There is clearly a significant opportunity for brinks to penetrate the very large unfunded or unfunded cash payments market with our new services and the future.
Let's now take a look at our 2021 guidance on slide seven.
Despite the pandemic continued impact on near term revenue and many countries. We expect strong growth in our financial results as we move through 2021 with revenue and profit growth continuing to accelerate especially in the second half.
And for 2021, we're targeting revenue growth of 17% at the midpoint to $4 3 billion, driven primarily by organic growth and continued revenue.
And our retail market recoveries.
Operating.
Operating profit growth of 30% at the midpoint.
$495 million.
Reflecting a margin of 11, 5% and increase of 120 basis points over last year.
Adjusted EBIT growth growth of 21% to $685 million at mid point and EPS growth of 26% at midpoint to $4, 75% per share. This includes.
This excludes the impact of Moneygram, and 2021, or let me restate that excluding the impact that was favorable in 2020 of moneygram, the midpoint equates to a 30% and 2% and incur.
Greece.
We expect strong revenue growth and 2021 as the pandemic subsides subsides and economies around the world continue to reopen especially again in the second half supported by the full year impact as well of the G Force acquisition.
Given the difficulty of predicting the timing and pace of the recovery. The low end of our guidance assumes a conservative revenue recovery rate that does not increase from our current fourth quarter rate of approximately 92% of pro forma 2019 the.
And the midpoint of our guidance assumes a recovery rate of about 96% and the high and a little over 100%, which would generate $730 million of EBITDA.
Our guidance also assumes improved margins and operating levels and leverage and only includes minimal potential benefits from our strategy to digital cash management solutions.
Before I turn it over to Ron I'd like to make a few comments about our ESG initiatives that Ron is driving.
We're pleased with our fourth quarter results and for our outlook for 2021 as we just discussed.
But we appreciate the way we achieve results is just as important to us and to our and investors.
As an industry leader, we recognize the importance of being stewards of the environment and pulling sound government and principles and having a positive social impact on the communities, where we live and where we do business all while continuing to drive shareholder value.
And 2020, we accelerated our efforts efforts and evaluation of best practices and sustainability programs and recently formalized and centralized a global sustainability program at Brinks.
Our priority in 2021 is to conduct E S and G assessments with internal and external stakeholders holders and to determine metrics and goals that will begin to report that we will begin to report to stakeholders.
Based on our work to date, we're encouraged by the many examples of ESG initiatives throughout our global organization and.
And we will seek to leverage best practices across our global footprint our.
Our commitment to ESG is underscored by the fact that Ron is leading the effort I'll now turn it over to him.
And for follow up comments on this plus our financial review Ron.
Thanks, Doug and good day, everyone I'm honored and excited to lead Brinks sustainability program reporting directly to the Brinks Board, which is determined to retain oversight responsibility for this important work, we havent publicly shared our many initiatives that positively impact the environment or society, that's beginning to change and youll begin to CE.
It's G information and our annual disclosures and on our website.
But beyond disclosure, we're committed to improve sustainability by investing and new initiatives at the bottom of this slide indicate some of the progress that we've made and.
I look forward to sharing more details about brinks sustainability program and the future.
Moving now to review of our financial results and guidance.
Before I go into details. Please remember that we disclosed acquisitions separately for the first 12 months of ownership at which time. They are mostly integrated and then they are included and organic results. Please refer to slide 29, and the appendix for the timing of specific acquisitions.
Slide <unk>.
<unk> is a snapshot of four metrics that I'll review in more detail on the following slides revenue operating profit adjusted EBITDA and EPS. This is a format that we've used repeatedly and is included here for reference turning to slide 10.
2024th quarter revenue and constant currency was up 13% as the pandemic related 7% organic decline was more than offset by a 19% contribution from acquisitions negative forex reduced revenue by $32 million or 3% driven primarily by a stronger.
U S dollar versus currencies in Latin America, partially offset by a stronger euro sequentially.
Sequentially on average exchange rates improved slightly during the fourth quarter.
Reported revenue was $1 $22 million up 9% versus the fourth quarter last year.
Fourth quarter operating profit was up 29% and constant currency with organic growth contributing 8% and acquisitions, adding 21%.
As I noted in the third quarter. The fact that we achieved organic operating profit growth. Despite an organic revenue decline is a testament to our proactive cost realignment.
Forex reduced <unk> by $4 million or minus 3%.
Reported operating profit for the quarter was $145 million and the operating margin was 14, 2% up 180 bps from the fourth quarter 2019.
At the highest level since Doug and I joined the company and 2016.
Corporate expense and the fourth quarter was relatively flat to 2019 with an increase in bad debt and stock compensation accruals offset by favorable Forex remember and the fourth quarter 2019, we incurred $5 million and Argentine peso conversion costs are.
Our fourth quarter reported results include approximately $3 million and incremental expense from personal protective equipment additional cleaning and other measures to keep our employees and our customers safe.
Full year and segment results are included in the appendix and and our press release moving to slide 11.
Fourth quarter interest expense was $26 million up $5 million versus the same period last year as higher debt associated with the <unk> acquisition was partly offset by lower variable interest rates tax expense and the quarter was $40 million $12 million higher than last year, primarily as a result of higher income.
Our full year effective tax rate was 31, 8% up 40 bps from last year, but down 230 bps from our estimate and the third quarter.
ETR volatility is due to changes and assumptions about our ability to utilize tax attributes and varying projected income levels. The <unk> acquisition should be constructed and moderating the ETR.
Other improved by $10 million, mainly due to gains on marketable securities, including our equity investment and Moneygram, partly offset by increased non controlling interest from the <unk> cash acquisitions and Asia.
$145 million fourth quarter 2020, operating profit was reduced by $26 million of interest and $40 million of taxes and increased by $3 million and minority interest and other to generate $83 million of income from continuing operations.
Dividing this by $50 3 million weighted average diluted shares outstanding generated $1 64 of earnings per share up 46.
Plus 39% versus $1 18, and the fourth quarter 2019.
Our EPS comparison was positively impacted versus 2019 by about 18 cents.
And from gains on marketable securities and by <unk> from the $1 1 million share repurchase and the third quarter 2020, which reduced our outstanding shares by approximately 2%.
To calculate fourth quarter 2020, adjusted EBITDA, starting with $83 million of income from continuing operations, we added depreciation and amortization of $44 million interest expense and taxes of 66 million and noncash share based compensation of $10 million. We then remove the $8 million and gains and mark.
<unk> Securities, which resulted in $194 million of adjusted EBITDA up $39 million or plus 25% versus 2019.
Turning to slide 12.
There are three charts on this slide the chart on the left shows 2020 revenue levels versus 2019 pro forma revenue, including the G Force acquisitions The chart and the Middle shows 2019, and 2020 operating profit and margin rates by quarter and the chart on the right shows full year <unk> margin rates.
For 2019, 2020, and the midpoint of our 2021 guidance.
Looking at the revenue chart on the left you can see that the pandemic impact on revenue peaked in the second quarter as Doug mentioned earlier versus 2019 pro forma revenue and the second quarter 2020 was only 78% of the pre pandemic prior year revenue recovered, 88% and the third quarter and to <unk> 92 per.
<unk> and the fourth quarter. Despite lockdowns in many countries that have impacted the start of 2021. The rollout of vaccines provides optimism that recovery will continue throughout this year and <unk>.
Chart and the center shows that historically each year operating profit margins increased sequentially from the first quarter through the fourth quarter. The first quarter of each new year drops materially from the immediately preceding fourth quarter, but typically increases from the first quarter of the prior year.
The 500, plus bps drop from the fourth quarter 2019 to the first quarter 2020 and materially impacted by the start of the pandemic.
However, the proactive global cost realignment of our business structure to address reduced revenue levels enabled us to achieve operating profit margin growth and each quarter of 2020, peaking at 14, 2%.
To a lesser extent operating profit margins benefitted from several government relief programs, which have expired or will shortly.
Due to historic seasonality and the Lockdowns in many countries. We expect that first quarter 2021 margins will be materially lower than our fourth quarter 2020 margins and.
Nevertheless, the chart on the right illustrates that we expect our cost realignment leverage will drive margin expansion in 2021 and increased our full year operating profit margin approximately 120 bps to 11, 5%.
This margin is at the revenue guidance midpoint of $4 3 billion and.
And is in line with the midpoint of the margin range and the 2021 sensitivity model, we share during the third quarter call Advair.
Advancing to slide 13.
Our guidance for 2021 assumes a revenue range of $4 one to $4 5 billion.
That <unk> represents a 92% to 100% plus recovery of 2019 pro forma revenue, including the G Force cash acquisition.
And constant currency, the 37% targeted midpoint operating profit growth is 32% organic with an additional 5% from the G Force cash acquisitions, we expect this growth to be partially offset by Forex translation of approximately minus 7%. These.
And these assumptions are expected to result, and reported operating profit growth of 30% to $495 million at the guidance midpoint with a margin rate of approximately 11, 5%.
Also at the guidance midpoint adjusted EBITDA is expected to grow 21% to $685 million with a corresponding EBITDA margin rate expected around 15, 9%.
A portion of this growth is expected to result from the recovery of pandemic related revenue and the positive operating leverage from our cost realignment initiatives implemented last year. We also expect to see improvement from strategy, one <unk> wider and deeper and the continued rollout strategy two <unk> initiatives, which should begin generating operating.
And the second half of this year moving.
Moving to slide 14.
Total cash Capex for 2020 was $119 million, which included $101 million for operating Capex and $18 million to purchase cash devices, we acquired another $31 million of assets under financing leases 2020, cash capex exceeded our third quarter target.
And by about $19 million as we began to see favorable fourth quarter earnings and cash flow. We released some postpone capex that should improve 2021 earnings and accelerate implementation of strategic initiatives.
This year, we expect cash capex of about $170 million, which includes approximately $125 million for legacy brinks businesses $25 million for the acquired G force cash businesses and $20 million per cash devices.
We expect to acquire about $35 million of operating assets under financing leases.
Total operating capex, including assets acquired under cash and financing leases.
Expected to be around $185 million, which is approximately four 5% of revenue and.
It is important to note that these targets do not include significant amounts related to our strategy two <unk> initiatives when economically feasible, we expect to source. The majority of 2.0 devices under operating lease arrangements if were unable to secure operating leases, our cash and our financing lease capex target could increase.
Turning to 2020 free cash flow on slide 15.
Free cash flow is comprised of adjusted EBITDA reduced by changes in working capital and cash paid for restructuring interest taxes and Capex, our 2020 free cash flow of $206 million exceeded the high end of our third quarter target by $71 million, primarily due to <unk>.
Higher fourth quarter, EBITDA of $31 million and better working capital performance of $48 million.
We expect the pandemic to materially impact our ability to collect receivables to the contrary, our amazing team and the field actually improved DSO by one day versus prior year Wow.
Government initiatives, primarily in the U S and France benefited 2020 free cash flow by about $45 million for payroll and other taxes that were deferred to 2021 and 2022.
Free cash flow, excluding this benefit would have been $161 million, resulting in an EBITDA to free cash flow conversion ratio of about 28%.
And as noted previously during the third quarter 2020, we used $50 million and cash on hand to repurchase and retire approximately one 1 million shares.
Let's move to slide 16.
Our 2021 free cash flow target range is $175 million to $265 million, which reflects our adjusted EBITDA guidance range of $640 to $730 million, we expect to use about $95 million of cash for working capital growth and restructuring.
This includes around 35.002 million 20 deferred payroll and other taxes payable that I mentioned on the previous slide.
Cash taxes should be approximately $95 million and cash interest about $105 million and increase of about $27 million due primarily to a full year of that relates to the <unk> acquisition and as I discussed a few moments ago, our cash capex target is around $170 million and increase of 57 million versus two.
And in 'twenty.
Our free cash flow target, excluding the payment of deferred taxes mentioned earlier would be $210 million to $300 million, resulting in an EBITDA to free cash conversion ratio of about 33% to 41% up from the 28% achieved in 2020 and.
Advancing to slide 17.
Bars on this chart represent the source of our liquidity the cash available and our business and the capacity and our revolving credit facility at the top of each bar you can see that our cash.
And you can see and below the cash as our credit facility both available and drawn.
So that our debt and financial leases.
The bars, each represent a point and time at year end 2019, and 2020 and.
And the start of 2020, we had approximately $1 2 billion and liquidity on April one we closed a $590 million expansion of our term loan a with our bank group and on June 22nd we issued $400 million and new five year senior unsecured notes and 2020, we used most of those proceeds and simple to.
Fleet.
Approximately 90% of the G Force acquisition and the balance combined with our free cash flow increased liquidity of $1 6 billion on December 31, and.
In February we used $115 million and cash to complete the G force cash acquisitions, and Kuwait, Macau, and Luxemburg and reduce liquidity correspondingly.
Other than the 5% annual amortization of our term loan a we have no significant debt maturities before 2024.
Our variable interest rate, including the expanded term loan a is L plus 200 and.
On June nine we amended our bank agreement through February 2024 to replace that total debt leverage covenant with a secured debt leverage covenant and the 2020 Max of the new Covenant was four to five times and our December 31, 2020 secured leverage ratio was one eight times.
We don't anticipate approaching our covenant limits at anytime in the foreseeable future.
We plan to maintain our quarterly dividend and our credit rating remains strong.
Let's look at our debt and.
And leverage on slide 18.
This slide illustrates our actual net debt and financial leverage at year end 2019 and 2020.
The third bar and <unk> side estimates, our net debt and financial leverage at December 31, 2021 based on our EBITDA guidance free.
And free cash flow target and the recent completion of the G Force acquisitions, our net debt at the end of 2020 was $1 9 billion that was up over $500 million versus year end 2019, due primarily to the debt incurred to complete the G Force acquisition.
At December 31, 2020, our total leverage ratio was three three times and as I. Just mentioned are fully synergize secured leverage ratio was one eight times at the end of 2021, given our free cash flow guidance and the completion of the G Force acquisitions, we're estimating our net debt range of 185.
To 194 billion.
Which combined with our EBITDA guidance of $640 million to $730 million is expected to reduce leverage by <unk> three to <unk> eight turns to a mid point total leverage ratio of about two seven turns with that I'll hand, it back to Doug.
Thanks, Ron.
Let me turn to slide 19, which summarizes our strategic plan to or we call <unk>, which builds on our proven and initiatives executed and SP one.
Its new <unk> with the addition of our strategy to.
The development and introduction of digital cash management solutions through an integrated platform of services technology and devices, leveraging our core CIP and money processing capabilities and assets.
And our original one point O initiatives.
Which are now called one point and wider and deeper WD.
<unk>, which stands for wider and deeper obviously.
Originally these initiatives were added and which added $100 million of operating profit during our SB. One timeframe 2017 to 2019, we're heavily focused on our U S and Mexico improvements, we're now expanding them to 30 plus.
<unk> countries, and we're targeting another $70 million of cost reductions from our one and wider and deeper initiatives over the 2021 and 2022 timeframe. We plan to achieve these savings through the implementation.
More than 18 initiatives, such as route optimization fleet savings investment and high speed money processing equipment and many other proven initiatives globally. These.
These initiatives supported by that are supported by dedicated regional one and wider and deeper and lean experts and.
And they will also help to drive additional operating leverage and profitability.
As our revenues.
Continuing to grow.
Our $1 five initiatives include the recent addition of the chief risk cash operations, and 17 markets, including very desirable current cash intensive markets and eastern Europe and in Asia.
And we're confident that these new markets will support continued acceleration of organic growth and provide and expanded platform of over 50 countries to drive our new strategies will continue to identify and evaluate additional acquisitions that drive top and bottom line growth, while enhancing free cash flow generation.
And I want to point out, though even if we did nothing more than continued to execute on strategy, one point O and synergies from our existing $1 five acquisitions, we would expect to achieve close to $70 million of incremental cost savings or about one 5% of revenue by the end of 2022.
Again substantially creating value for shareholders.
<unk> represents a new strategy layer that we call Brinks strategy 2.1 is designed to expand our presence and the global cash ecosystem by offering digital cash management and payment.
Solutions.
Internally, we see strategy viewpoint, as having the potential to transform our industry and drive enormous future value.
Turning to the next page.
While strategy and one WD is about continuing to optimize and grow our core business with internal improvement and initiatives strategy. Two point, though is about combining our strength to create new digital cash managers from solutions for retailers and financial institutions.
With 2.0, we're taking our tech enabled solutions and strength, including such things as cloud based apps systemwide track and trace customer portables.
And low cost safe devices, and combining them with brinks core assets and capabilities and cash logistics and money processing to deliver complete digital cash management solutions that provide faster access to working capital and are easier to use.
As our other digital cash options.
By integrating these new services with our core cash operations, we're creating a platform of truly differentiated digital cash management solutions that include four distinct strategic pillars.
$2, one solutions offer hassle free tech enabled deposits.
Management for retailers that are easy to use with one integrated provider and is less expensive than processing credit and other types of digital purchases.
Our $2 two solution extends digital cash management to large big box and enterprise retailers and enabling them to automate and optimize their internal and external flow of cash from the register and to the back office to the bank using brinks is a single service provider.
With our two three solutions, we provide cost effective management of consumer facing ATM.
Devices consumer facing devices, such as Atms and other service kiosk. These are critical consumer touch points and expensive operational components for many retailers and financial institutions by outsourcing these devices and all the related services to brinks customers can reduce cost improve their experience with their cup.
And most importantly focused on their needs of their customer or.
And <unk> relationship and France is a great example of a fully outsourced financial institution managed service for a complete ATM station state of approximately 11000, Atms, which will be coming online later this year.
We believe the market for ATM managed services will be another important growth for brink's and the future.
And finally, our two for digital payment solution integrates our cash management offerings with retailers and others. Other payment methods to provide a unified solution for small and medium sized retailers for example companies like square and many other digital payment processes are solely focused on processing noncash payments with a solution.
Without a solution for cash wishes and squares case.
And it's estimated that about a third of their customers.
Use cash as a form of payment and and there a retailer's stores or to force solution is designed to fill this void.
Slide 21 is focused on our $2, one and our two for solutions and the strategy. We just discussed with $2. One customers can use our mobile cloud based app and portal portal to register your deposits and make change orders. They then deposit cash directly into one.
Our tech enabled in store devices, reducing the time cost and risk related to walk in deposits and bank or interacting with and armored car employed.
<unk> provides advanced credit on cash deposits.
With the next day and the next day, regardless of who the retailers banking partner is and allowing customers to access cash quickly just like debit and credit cards because.
Because brinks monitors the retailers.
And the retail customers devices and real time, we can plan fewer trips to the store to empty that device without disrupting the store or the employees and their customers. All of these services are included and a single monthly subscription.
To date, we've launched two one solutions and four countries and sold about 3200 subscriptions, while rollout has been slower slowed by the pandemic. The initial feedback feedback from customers has been very positive and the U S. Over 550 customers are using our $2 one service, including seven target.
Retailers that have large store networks and are currently either under vendor or completely invented.
These are strategic accounts targets that have been historically underserved by the industry walking through deposits to the bank at great risk. These accounts also typically deposits their cash at several.
Several different banks around their network.
And source of labor cost.
And potentially bank fees with $2. One we can ensure that all deposits are settled and the customers bank of choice.
On the lower portion of the slide we show strategy to four which will take our $2. One digital cash management installation solution to the next level by integrating our cash management services with Asics and with existing debit and credit solutions to provide a seamless experience for retailers from receipt.
And to settlement to reconciliation and billing.
Two.
And for will offer a single solution that handles all forms of payments with full visibility and transport and apparently of cash movement from a single provider with two four and $2. One retailers can finally make cash as easy and convenient as credit cards and debit cards.
I will now close with slide 22.
Even during a global pandemic, we managed in 2020 to essentially preserve our pre pandemic levels of operating profit EBITDA and margin rates, while also accelerating our profitability as demonstrated in the fourth quarter for stronger post pandemic results.
And we expect substantial improvement in 2021 with strong increases in revenue operating profit margins EBITDA and EPS.
And remember our guidance only includes minimal benefits related to our strategy two <unk> initiatives, while including the cost of development and rollout.
In summary.
Now more confident than ever that brinks will emerge from the current crisis as a stronger company with substantial core.
Cash business and profit growth opportunities plus new strategic opportunities as well.
This confidence is supported by a proven global management team a strong balance sheet ample liquidity.
Our expected global our expanded global footprint, our realigned cost structure and a compelling strategic plan to expand our presence in the cash ecosystem with digital solutions.
With that I'll now turn it back to drew and open up for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two and.
Again it is star then one to ask a question.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Tobey Sommer of Truest Securities. Please go ahead.
Thank you I was wondering if you could give us some color on progress and brink's complete and maybe as part of your answer could you delineate between new.
Customers and potential migrations from.
And the comp you safe towards that brings complete thank you.
Thanks, Toby and good morning. Thanks for your question as we laid out you can see that there's a substantial number of customers over 500 550, I think we said on the chart and that.
And that as well as a target number of.
Pilot customers or customers that are these large opportunity customers.
Our strategy is to is to.
Go after both existing CIP customers and convert to what we think is better value for them and frankly for us down the road as well as we've suggested with the benefits and.
And Thats why you see such a high number of customers.
In other words, we think 500 plus customers 550 customers as a as a fair number of customers, which means it's converting existing customers over.
So one of our targets is to convert sit and the second big focus is too.
Be able to prove too and with pilots.
And customers that either are relatively and vented and in other words only have a small portion of their total cash management needs service to day by us or the industry or totally unvested and walk everything to the bank of your cash to the bank and that's represented by those seven plus large strategic accounts.
And in general have more than a thousand plus locations each.
And are now in the process of just starting to rollout test cases with them. So that's our real focus and as I said, it's been it's been slowed a little bit by the pandemic, which is unfortunate, but we're now starting to see see the focus on both of those things that we think will give us a base going forward.
And then as a follow up could I ask how the.
Development is internally.
The appropriate sales channels that you feel you will need to to.
So the product into.
New and existing customers. Thanks.
Part of the differences between two one and two for $2. One is primarily selling it through existing sales channels.
And in other words, the way that we go to market today is our two one brink's complete strategy, we will be looking at expanding those as part of the two for the strategy of expanding those go to market strategies and therefore, the channels as part of our next level of rolling that out our biggest and our first focus and it's.
<unk>.
Again go to existing CIP customers existing customers that we service are or are serviced by our competition today as well as these underserved targets.
We are focusing on.
So I think youll see more of that Adobe as we go throughout the latter part of this year and we've given a glimpse of that with a two four.
I appreciate it.
Thanks Tobey.
The next question comes from Sam England Bahrenburg. Please go ahead.
Hi, guys. Thanks for taking the questions and the first one you're guiding towards another 100 basis points I'll start and treatment and the operating margin in 2021 I'm. Just wondering how much of that is expected to be driven by operating leverage on a revenue recovery of assets.
So and further restructuring and cost savings.
Well, if you take a look Sam and our our guidance and the range of the revenue you can see that our margin percentage.
The various revenue levels goes up.
Alright, and Thats really the leverage so at the lower end of the range.
Talking about 10, 6% or so at the midpoint.
We are talking.
I'm sorry.
At 11% excuse me and.
And at the midpoint 11 five.
You can see the leverage as it goes back up when you get to.
Approximately just a little over 100% of 2019.
We're talking about a 12 plus percent margin.
And Thats, what the 150 basis points 140, plus basis points higher.
2019.
Base, so it's a combination of both.
Both.
Improved margin step change improvement in the margin percentage, along the curve plus the L or the leverage on top of that so we expect both.
Not all revenue recovery is the same FX will not present, if it's if there's a recovery just because of FX rate changes and which is a constant currency.
Guidance.
Not at the same as organic organic flow through gives us the best improvement in and.
And leverage and margins. So we expect both and that's where we are showing it in our numbers be glad to talk a bit more about them and detail.
Okay, great. Thanks, and then and then one.
Longer term question as well can you talk a bit about the opportunity to rollout strategy initiatives across the acquired GE Force business day, now you've had a bit of a chance to take a closer look at those acquisitions and.
Are there any surprises.
Arriving from and I know, you've completed day sales and how they look at the businesses.
Yes, I think Dolby Theres been excuse me, Sam we've been pleasantly surprised about the.
The strength of the management teams.
The desire to be focused primarily on the cash business, which we clearly are and the.
Shipment around that and helping develop strategies that will be helping to rollout our new strategies and provide a better solution for customers going forward. So I think we've got a great platform. The addition of 14, new locations and new markets 17, and total, but we had some overlap and those.
On top of those that we already had businesses 50, plus new markets that we can roll this out.
As we start gaining steam in terms of that rollout process. So.
I think it's very good and I think what you you saw during this year even during the pandemic.
The G Force management teams similar to the if you will legacy brinks teams.
Very focused on our key priorities. The primary one of those was obviously.
And making sure that our employees are safe and healthy, but our third priority was to assure that we were stronger and the other side through the restructurings the sustainable fixed cost reductions, which gave us a very strong third and fourth quarter fourth quarter results are a good example of that.
And.
It was very encouraging to see the G force teams really jumped onboard that is well willing.
Willing to do restructurings willing to assure that we're focused for that in the future and that bodes well for a combined business, it's not going to be a <unk> and the future is going to be combined very strong.
Okay, great. Thanks, very much guys.
Yes.
Again, if you have a question. Please press Star then one on a touchtone phone.
The next question comes from Jeff Kessler of Imperial Capital. Please go ahead.
Thank you Ed.
And the quarter and also the.
The guidance looks good.
Yes.
The increase the recently, increasing prices and diamonds and silver.
I'm wondering if that has had any effect yet.
And your Oh, you were high and Honda.
Hi, and worldwide global business.
Well, Jeff I don't really know precisely about whether we can tie it to that but I think what we will see this year.
And Oh.
And does it depressed business or the lower business that we saw particularly and the diamond and jewelry business on a global basis. During the pandemic has started to come back and I think will come back pretty nicely in 2021, and especially in the second half of next year.
And we saw a very strong business in certain key.
Key precious metals, particularly gold last year.
That will continue we think at least for the first part of this year, depending on where the ups and downs of the business are.
And so that should be good.
We think that actually the shipment of cash.
Cash and slowed down some last year externally outside of the U S. As we reported there are significant increase in cash and circulation and the U S, but actually shipments.
Externally outside of the U S internationally were down from we think that will start to pick up yet again as well. So I think theres going to be a combination of things and I think what youre seeing and suggesting that's one indication that our diamond and jewelry and part of the other precious metals business other than just gold will continue to pick up this year and we will see.
I think strong improvement in demand in those portions of our of our Bgs business and our combined net business.
It is a very strong global business okay.
Okay.
Secondly, it's interesting that you're looking at your competition.
<unk>.
Who did not have as good a fourth quarter performance as you nor have talked about 2021 and as bright of terms as you.
And looking looking out at.
And what they what they are.
Might want to get their hands on.
They announced they've announced this morning.
Good afternoon, and basically the closer to closing of the election, so to speak of.
The <unk> acquisition.
By Allied Universal and.
And Allied Universal is primarily.
It's a garden and somewhat items and with.
And some electronic security attached to it but it has no real DNA and cash management that cash management business and cash recycling business is still there.
And I'm, not saying that youre going to go out and get it but obviously you may have some competition, who would want that business or have you thought about strategically.
Strategically what you would want to do we would not would not want to do.
As they begin to integrate.
And they begin to allied begins to integrate.
Net debt for the G force business into their into their own business.
Well I think Jeff a couple of things on that we'd actually didn't say anything in our prepared remarks are and in our script or in our slides about competition. So.
I'm not sure we were comparing.
Those are year comparisons.
And that's that.
It's me Okay. So I just wanted to be clear on that we're not we're not comparing what we're doing or how we're going and we're very comfortable and excited about the future based on the cost reductions, we've made and and we do think we had a great third quarter fourth quarter and that fourth quarter gives us the basis for a step change in our cost structure that we think is sustainable going forward.
And we think on top of that we will continue to improve like we said and our wider and deeper with additional cost reductions going forward on top of that and we'll continue to get the leverage as we talked about earlier.
With.
With salmon and the other question with leverage as revenue recovers to the 2019 levels and beyond and now with that said.
Part of our two point strategy layering on top of this hedge.
Heavily is not in our numbers.
<unk> is around <unk>.
Some of the things that you are now talking about.
We have a plan part of what we call two two is related to recyclers and the larger how do we manage the complete managed services solution for enterprise wide customers that have a lot of cash going through big box stores, and so forth and so that is part of our strategy and we're going to be looking at both org.
<unk> and external ways to do that as we always do.
There are several pieces that are left and the <unk> group.
Group that are cash related including the U K cash business, South African cash business as well as the retail cash solutions business and.
And the U S and we'll be taking a look at that and seeing what the what might be appropriate.
And if something becomes available.
But we certainly have a strategy on that which is part of our <unk> and we're going to continue to drive that just as we're doing with our our two three strategy as well.
Great. Thank you very much.
Thanks, Jeff.
This concludes our question and answer session and the Brinks Companys fourth quarter 2020 earnings call. Thank you for attending today's presentation. You may now disconnect.
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