The Brink’s Company: Q1 2013 Form 10-Q Summary
Business context and reporting period
The Brink’s Company provides cash and valuables transportation, ATM services, global logistics, cash-management, payment-processing, and security services in more than 100 countries. Reportable segments are International and North America. This unaudited Form 10-Q covers the three months ended March 31, 2013, compared with the three months ended March 31, 2012.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $977.4 million | $940.7 million | +4% |
| Operating profit | $16.2 million | $46.7 million | -65% |
| Operating margin | 1.7% | 5.0% | -3.3 percentage points |
| Income from continuing operations attributable to Brink’s | $2.1 million | $20.9 million | -90% |
| Diluted EPS from continuing operations | $0.04 | $0.43 | -91% |
| Net income attributable to Brink’s | $(16.6) million | $17.0 million | Loss in Q1 2013 |
| Diluted net EPS | $(0.34) | $0.35 | Declined |
| Cash flow from operating activities | $3.3 million | $(16.4) million | +$19.7 million |
| Capital expenditures | $34.1 million | $33.5 million | +$0.6 million |
International revenue rose to $741.8 million from $704.3 million, while North America revenue was approximately flat at $235.6 million. International segment operating profit fell to $35.6 million from $65.2 million, and North America shifted to a $2.4 million loss from $5.8 million of profit. Segment operating margin declined to 3.4% from 7.5%.
At March 31, 2013, cash and cash equivalents were $234.8 million, compared with $201.7 million at December 31, 2012. Total debt was $509.7 million, up from $389.3 million, and reported net debt was $335.5 million, up from $231.6 million. Cash available for general corporate purposes was $174.2 million after excluding cash held for customers. Total equity was $545.4 million, compared with $576.8 million at year-end 2012.
The company had $292 million available under its $480 million unsecured revolving credit facility and was in compliance with its financial covenants. Management stated that current cash, credit availability, and projected operating cash flows should meet liquidity needs for more than the next twelve months.
Material changes versus the prior comparable period
- Revenue increased 4%, primarily from 8% organic growth in International, partly offset by unfavorable currency effects.
- Operating profit declined sharply because of an $18.7 million loss related to the February 2013 Brussels robbery, including $15.2 million charged to International and $3.5 million charged to North America.
- A $13.4 million loss resulted from the February 2013 Venezuelan currency devaluation and remeasurement of Venezuelan monetary assets.
- Discontinued European operations generated an $18.7 million after-tax loss versus a $3.9 million loss in the prior-year quarter. The loss included $15.3 million of accrued German severance costs.
- Operating cash flow improved from an outflow of $16.4 million to an inflow of $3.3 million, largely because customer obligations increased $16.8 million in 2013 versus a decrease of $18.8 million in 2012. Management’s non-GAAP operating cash flow declined to $(6.4) million from $9.0 million.
- The company acquired Rede Transacoes Eletronicas Ltda. in Brazil for approximately $26 million, or approximately $16 million net of acquired cash, and acquired the remaining 26% interest in its Chilean cash-logistics business for approximately $18 million.
- Net debt increased primarily because of acquisitions, lower operating profit, and working-capital changes.
Guidance, outlook, risks, and unusual items
Management’s 2013 GAAP outlook calls for organic revenue growth of 5% to 8%, total currency-related revenue pressure of 2% to 4%, segment margin of 5.0% to 5.5%, interest expense of $27 million to $29 million, and a 49% to 52% effective tax rate. The non-GAAP outlook calls for segment margin of 6.0% to 6.5% and a 36% to 39% effective tax rate. The outlook assumes approximately 40% total Venezuelan devaluation for the year, estimated to reduce revenue by approximately $130 million.
Venezuela generated $95.6 million, or 9.8%, of Q1 revenue. The company held $58.5 million of Venezuelan cash denominated in bolivars and stated that it may not be able to obtain sufficient U.S. dollars for imported supplies and fixed assets. Potential consequences include business interruptions, higher operating costs, restricted cash repatriation, and further currency losses.
Other significant obligations and contingencies include an underfunded U.S. pension plan, expected additional 2013 contributions of $11.8 million to the primary U.S. pension plan, projected future contributions based on year-end assumptions of $237.8 million, retirement and former-coal-operation liabilities, $15.5 million of operating-lease residual-value guarantees, and a $43 million guaranteed bond obligation related to Dominion Terminal Associates. The company also faces ordinary-course litigation and claims; management does not expect them to materially affect liquidity, financial position, or results, although some potential losses cannot be estimated.
Management identified foreign-exchange restrictions, political and economic instability, security incidents, labor and regulatory matters, pricing pressure, customer demand, pension assumptions, access to credit markets, litigation, and the ability to execute acquisitions and cost improvements as key risks. Disclosure controls and procedures were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Facts investors should verify
- Whether Venezuelan currency restrictions and further devaluation produce additional losses, operating disruptions, or limitations on cash repatriation.
- The final financial impact and insurance recovery, if any, related to the Brussels robbery.
- Progress and final costs of the German, Polish, French, and other European divestitures, including severance obligations.
- Whether International and North America margins recover toward management’s 2013 guidance ranges.
- Actual operating cash flow excluding customer-held cash and the effect of working-capital movements.
- Debt reduction, credit-facility availability, covenant compliance, and the increase in net debt.
- Required pension contributions and changes in retirement-benefit assumptions or liabilities.
- Integration, purchase accounting, and operating performance of the Brazil and Chile acquisitions.