Income Statement

2007

2008

2009

2010

2011

2012

2013

2014

Revenue

$2,735

$3,164

$3,136

$3,122

$3,886

 $      4,193

$4,494

$4,760

% chg

16%

-1%

0%

24%

8%

7%

6%

Gross Profit

$540

$658

$601

$585

$711

Gross Margin

20%

21%

19%

19%

18%

SG&A

$379

$430

$434

$439

$540

Foreign Pension

 $          (10)

 $          (10)

 $          (10)

Noncontrolling interest

 $          (25)

 $          (25)

 $          (25)

Adj EBIT

 $         178

 $         219

 $         158

 $         167

 $         189

 $         218

 $         275

 $         432

EBIT Margin

6.5%

6.9%

5.0%

5.3%

4.9%

5.2%

6.1%

9.1%

Interest expense

$11

$12

$11

$15

$24

$26

$28

$29

Interest and other income

$11

$8

$11

$8

$9

$10

$11

$11

Pre-tax profit

$161

$225

$166

$140

$156

 $         202

 $         258

 $         414

Taxes

$60

$53

($61)

$67

$59

$77

$98

$157

Income from continuing operations

$101

$172

$227

$73

$97

$125

$160

$257

Shares out

47

46.7

47.5

48.4

48.1

48.3

48.3

48.3

EPS

1.67

2.82

4.11

1.17

1.52

2.59

3.31

5.32

Free Cash Flow

NOPAT

 $         112

 $         167

 $         215

 $           87

 $         117

 $         126

 $         161

 $         259

D&A

 $         110

 $         122

 $         135

 $         137

 $         162

 $         172

 $         182

 $         184

Change in Working Capital

 $           33

 $          (11)

 $            (2)

 $            (6)

 $            (6)

 $            (1)

 $           45

 $           31

Capex

 $        (142)

 $        (165)

 $        (171)

 $        (149)

 $        (196)

 $        (206)

 $        (211)

 $        (186)

Capex (Maintenance)

 $        (110)

 $        (122)

 $        (135)

 $        (137)

 $        (162)

 $        (172)

 $        (182)

 $        (184)

Capital Leases

 $            -  

 $            -  

 $          (13)

 $          (34)

 $          (43)

 $            (5)

Capex / Sales

-5.2%

-5.9%

-5.9%

-6.2%

-5.0%

-4.7%

-3.9%

FCFF

 $         113

 $         113

 $         178

 $           69

 $           78

 $           90

 $         176

 $         287

FCFF (Maintenance)

 $         145

 $         156

 $         214

 $           81

 $         112

 $         125

 $         205

 $         289

FCFF Yield

5%

5%

8%

3%

3%

4%

8%

13%

FCFF Yield (Maintenance)

6%

7%

9%

4%

5%

5%

9%

13%

ROIC

Invested Capital

 $   1,258.0

 $ 1,544.50

 $ 1,662.10

 $      1,702

 $      1,686

 $      1,657

ROIC

17.1%

5.6%

7.1%

7.4%

9.5%

15.6%

• North American rationalization:  The CIT business in North America should have a dramatic rationalization in the next few years, a change decades in the making.  Brink’s and much of the industry has not earned an appropriate return on capital for North American assets.  The industry is plagued by as much as 30% excess capacity.  Competitor Garda in particular has priced aggressively to gain share.  Despite the long persistence of these corrosive industry dynamics, I believe change could be afoot.  Garda has been purchased by private equity which might be a portent of more rational pricing competition.  There is evidence Garda has significantly underinvested in its trucks both in its financials (capex has averaged ~2/3 of D&A for the last three years) and from industry sources.  Additionally, Brink’s ousted its CEO last year, who had been sanguine about cutting costs.  Since Brinks’ trucks are 40% more productive on a revenue basis than those of Garda, I believe that Brinks’ underperformance is a result of bloated costs, not a broken business. The Company acknowledged that Garda “is beating our butts” so Brink’s must more proactively address its cost structure.   The prior CEO, the Company now admits, may have been wrong about Brink’s depressed economics simply being cyclical rather than structural.  The current CEO has announced cost and capex cuts.  These have been a long time coming as Brink’s failed to rationalize its cost structure after spinning of its hugely profitable alarm business.
• Latin America hidden value:    Investors do not accord enough attention to this segment, as Brink’s does not directly disclose that it generates ~65% of EBIT (by my estimate).  Here are estimates of the Company's revenue and EBIT exposure by geograph

• Geographic Mix	2007	2008	2009	2010	2011	2012	2013	2014
  % of Revs
  North America	32.4%	29.5%	28.5%	29.4%	25.1%	23.5%	22.1%	21.1%
  Latin America	21.7%	25.3%	28.9%	28.1%	37.6%	40.8%	43.7%	46.3%
  EMEA	43.6%	42.9%	40.1%	38.4%	33.4%	31.5%	29.7%	28.1%
  Asia-Pac	2.3%	2.3%	2.5%	4.1%	4.0%	4.2%	4.4%	4.6%
  % of EBIT
  North America	11.6%	3.7%	11.7%	4.1%	-3.2%	9.0%	10.8%	16.3%
  Latin America	43.0%	57.3%	69.3%	57.6%	65.7%	70.6%	67.9%	66.2%
  EMEA	45.3%	39.0%	19.0%	34.1%	32.8%	30.3%	26.7%	20.1%
  Asia-Pac	0.0%	0.0%	0.0%	4.2%	4.8%	6.1%	7.2%	5.6%

  
  In late 2010, Brink’s purchased the remaining 80% of Serpaprosa, its’ Mexican operation, that it didn’t previously own.  This operation could contribute an incremental $55-70mln in EBIT assuming normalized operating margins of 12%.  Historically, underinvestment and related party transactions caused this business to barely breakeven.   The former underinvestment is reflected in the fact that the avg age of its’ trucks was 10.5 years old as of mid-2011 versus a 6-12 year life.  Brinks’ Mexican partners were banks who had little incentive to price appropriately or run the operation efficiently. Importantly, Brink’s is one of the few international competitors allowed to operate in Mexico and Brazil because its operations in both countries pre-dates laws banning foreign firms from owning companies that are allowed to carry deadly weapons. Brink’s was only allowed to consolidate its Mexican ownership, despite a 1973 law banning foreign ownership of security firms, because its original stake was purchased in 1965. Comparing forecasts for Brinks' Latin American operation to both its own history and Prosegur, one can see that forecasted improvements in Latin America are not particularly heroic.

• Overly hyped displacement by electronic wallets:  Despite the growth of credit cards and PayPal-type transactions, Brink’s has been less exposed to this headwind than many realize.  In the US, from 1990 through 2011, debit, electronic check, and check transactions have changed by +2,700%, +680%, and -50%, respectively.  During this time, cash volumes have grown 4%/year, well above the 2.4% real GDP growth rate and close to the 4.7% nominal GDP growth rate.  While statistics are imprecise (due to large quantities of US$s abroad), it appears that the stock of cash in circulation within the US has averaged ~3.6% of GDP from 2004-2009, up from ~3.2% of GDP in 1990s, a data point unknown to many because of previous less precise calculations. 
• Opacity of the business and financials: Brinks’ financials and business are opaque at best. Between spin-offs, foreign JVs and legacy pension and mine worker obligations, it takes some effort to get an accurate picture of the Company’s current financial condition and business performance.