The Brink’s Company: FY2020 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2020, including fourth-quarter results. Brink’s provides cash-in-transit, ATM, cash management, global valuables transportation, payment, guarding and commercial security services in more than 100 countries. During the fourth quarter, the Company reorganized its reporting structure into four segments: North America, Latin America, Europe and Rest of World. Prior-period segment information was revised accordingly.
The COVID-19 pandemic reduced customer volumes and increased operating costs during 2020. Brink’s completed substantially all of its planned acquisitions of G4S cash operations during the year, with aggregate 2020 purchase consideration of $709.7 million.
Financial performance and liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $3,690.9 million | $3,683.2 million | Flat |
| Operating profit | $213.5 million | $236.8 million | Down 10% |
| GAAP operating margin | 5.8% | 6.4% | Down approximately 60 bps |
| Income from continuing operations attributable to Brink’s | $16.8 million | $28.3 million | Down 41% |
| Diluted EPS from continuing operations | $0.33 | $0.55 | Down 40% |
| Non-GAAP operating profit | $381.3 million | $391.6 million | Down 3% |
| Non-GAAP diluted EPS from continuing operations | $3.76 | $3.89 | Down 3% |
| Net cash provided by operating activities | $317.7 million | $368.6 million | Down $50.9 million |
| Capital expenditures | $118.5 million | $164.8 million | Down $46.3 million |
| Cash used in acquisitions | $439.7 million | $183.9 million | Up $255.8 million |
GAAP results included significant restructuring, acquisition-related, Argentina inflation, internal-loss and other unusual items. Non-GAAP operating margin was 10.3% in 2020 versus 10.6% in 2019.
Fourth-quarter revenue was $1,021.6 million, operating profit was $111.9 million, income from continuing operations attributable to Brink’s was $25.1 million, and diluted EPS from continuing operations was $0.50. Fourth-quarter 2019 revenue was $935.8 million, operating profit was $73.3 million, and diluted continuing-operations EPS was a loss of $0.08.
At December 31, 2020, cash and cash equivalents were $620.9 million, compared with $311.0 million at year-end 2019. Cash available for general corporate purposes was $601.8 million after excluding cash held by cash-management operations. Total debt was $2,485.7 million, up from $1,643.6 million, and net debt was $1,883.9 million, up $535.3 million. Debt represented 92% of capitalization, compared with 89% in 2019. The Company had $1.0 billion available under its revolving credit facility and stated that current liquidity sources were expected to satisfy needs for more than the next twelve months.
Brink’s paid $30.1 million of common-stock dividends, or $0.60 per share, and repurchased $50.0 million of stock in 2020. The $250 million repurchase authorization had $200 million remaining at year-end.
Material changes versus the prior comparable period
- Organic revenue declined 8% on a GAAP basis and 7% on a non-GAAP basis, primarily because of COVID-19-related volume reductions. Acquisitions added approximately $520 million of revenue, while currency movements reduced revenue by approximately $233 million.
- North America revenue declined 8% and operating profit declined 12%; Latin America revenue declined 19% and operating profit declined 21%, largely because of currency depreciation and pandemic effects.
- Europe revenue increased 37% and Rest of World revenue increased 37%, primarily because of G4S acquisitions. Both regions experienced organic revenue declines, but Rest of World operating profit increased 55%.
- Operating profit included $66.6 million of restructuring charges in 2020 versus $28.8 million in 2019. Management expects an additional $4 million to $6 million of restructuring costs and anticipates workforce reductions of approximately 1,000 to 1,200 positions, producing annualized savings of $22 million to $27 million when completed.
- Interest expense increased to $96.5 million from $90.6 million because of higher acquisition-related borrowing.
- The effective tax rate on continuing operations increased to 71.4% from 65.2%, primarily because of geographic earnings mix, valuation allowances, cross-border taxes and other items.
- Goodwill increased to $1,219.2 million from $784.6 million and other intangible assets increased to $426.1 million from $272.5 million, largely due to G4S. No goodwill impairment was recorded, although the France reporting unit had relatively limited cushion over carrying value.
- The Company adopted the current expected credit loss standard in 2020, reducing opening retained earnings by $1.7 million.
Guidance, outlook, management commentary, risks and unusual items
The filing does not provide a clear quantitative 2021 earnings or revenue forecast. Management’s strategy remains focused on profitable growth, operational efficiency, acquisitions and technology-enabled cash-management services through Strategic Plan 2, which runs through 2022.
- COVID-19 effects remained uncertain at the filing date and could continue to affect volumes, employee availability, customer collections, costs, acquisitions and integration activities.
- The G4S transaction was substantially completed in 2020; remaining Macau, Luxembourg and Kuwait operations were acquired in February 2021. Integration, purchase-price allocation and realization of expected synergies remain important execution matters.
- The Company received a U.S. Department of Justice subpoena in August 2020 concerning cross-border shipments of cash and valuables and anti-money-laundering compliance. The investigation was ongoing, no claims had been filed, and no loss accrual was recorded.
- A Chilean antitrust investigation concerning potential anti-competitive practices in the cash-logistics industry remained unresolved. The Company could not estimate the probability or range of loss.
- Current restructuring actions generated $66.6 million of operating charges in 2020. Acquisition-related costs were $83.1 million, including $35.1 million of acquisition-related intangible amortization, $23.5 million of integration costs and $19.3 million of transaction costs.
- The Company recorded a $10.7 million charge for Argentina’s highly inflationary accounting and $10.4 million of losses on Argentine currency conversions. Argentina remained subject to currency controls and significant devaluation risk.
- Retirement and postemployment obligations were substantial. Pension liabilities were $324.9 million and other retirement-benefit liabilities were $390.0 million at year-end. The Company reported $714 million of actuarial losses in accumulated other comprehensive income.
- The Company was in compliance with debt covenants at year-end, but its financing agreements contain leverage, interest-coverage and other restrictions. A covenant breach could accelerate repayment and reduce liquidity.
- Management concluded internal controls were effective, and the auditor issued an unqualified opinion. However, management excluded G4S operations representing 23% of consolidated assets and 12% of revenue from its internal-control assessment.
Important facts for investors to verify
- Whether COVID-19 recovery and acquired G4S operations produce sustainable organic revenue and margin improvement.
- The pace and cost of G4S integration, final purchase-price allocations, contingent consideration and expected synergies.
- Net leverage, debt maturities, covenant headroom and refinancing needs, particularly the 2024 term-loan maturity and 2025 senior notes.
- The cash conversion profile after excluding restricted customer cash and the impact of acquisition-related working-capital requirements.
- The outcome and potential financial exposure from the DOJ investigation and Chilean antitrust matter.
- The effect of restructuring actions, workforce reductions and expected annualized savings.
- Exposure to Argentina, foreign-exchange movements, currency controls and other international operating risks.
- The sensitivity of goodwill, especially the France reporting unit, to weaker revenue growth, lower margins or higher discount rates.
- Funding requirements for pension, UMWA, black-lung and other legacy obligations, as well as the realization of deferred tax assets.