The Brink's Company (BCO) Earnings Call Transcript

Hi. Good afternoon, everyone. Thank you for joining this webcast at short notice. This is Helen Parris. And I'm joined by Ashley Almanza, our Chief Executive Officer. Ashley will now make a short presentation using the slides that accompany this webcast and then we have some time for Q&A. So Ashley?

Thank you very much, Helen. Before we turn to the presentation, ladies and gentlemen, can I draw your attention to the customary disclaimer on Slide 2 of the pack and ask you to please read that carefully. Now turning to the transaction, which we announced this afternoon. We have, today, agreed to sell the majority of our conventional Cash businesses to The Brink's Company. The businesses that are being sold have revenues of around GBP 600 million and profits of GBP 67 million for the full year 2019. That's profit before interest, tax and amortization. These businesses have approximately 25,000 employees, G4S employees, who will transfer to The Brink's Company on completion. The deal has an enterprise value of GBP 727 million, representing a multiple of 10.8x full year 2019 PBITA. Net proceeds comprise cash of GBP 670 million and a further GBP 60 million of net liabilities, which are assigned to Brink's on completion. Pro forma net debt-to-EBITDA at the 31st of December accounting for this transaction would be 2.4x. Now the transaction follows a comprehensive review by the company and the Board, which we announced at the end of 2018, the Cash Separation review. And the Board has, after careful consideration, concluded that the company should, and it's in the best interest of the company, to retain and develop our high-growth, high-margin payment and cash technology businesses, which own market-leading brands and solutions such as retail cash solutions in North America, CASH360, Deposita and G4S Pay. Those will be retained by the group. The Board has also determined that it's in the best interest of the company and pension fund members to retain the U.K. cash business. The U.K. cash business has most of the group's current and deferred pensioners. And it also is ideally positioned, of course, to offer outsourcing services to both businesses and banks in the U.K., thereby helping to ensure that the U.K. continues to have a reliable and efficient cash infrastructure. Now turning to our next slide, which summarizes completion stages. 97% of the proceeds will be realized in 2020, 75% in the first half, a further 22% in the second half and then the residual 3% to be realized after the 31st of December 2020. As is typical with these deals, a completion is subject to customary consultation and approval processes. Turning to our next slide. The transaction that we announced today marks the successful conclusion of our Cash Separation review. It realizes fair value for our conventional Cash businesses, the majority of which are sold under this deal, realizing a multiple of 10.8x. The Board has concluded that this is superior to the demerger option, which was also carefully considered by the Board as part of our Cash Separation review. The transaction is an important milestone in the execution of our corporate strategy. It enables us to further focus on the growth of our core integrated security solutions business, and at the same time, to continue to develop our high-growth, high-margin cash and payment technology business. This deal also provides the group with the financial flexibility to continue to invest in our core businesses, and it facilitates a simplified group structure, which enables us to pursue efficiencies of GBP 15 million to GBP 20 million over the course of this year and next year. The Board believes that this enhanced focus and financial strength will deliver material benefits to our customers, shareholders and employees. Turning to our last slide. This, I think, illustrates the effect of this transaction on the group's composition. 92% of our revenues will come from our Secure Solutions business, 4% from conventional Cash and 4% from Cash Technology. At the PBITA level, 87% from our Secure Solutions business, 6% from conventional Cash businesses and 7% of our profits from Cash Technology, all of this data on a pro forma 2019 basis. That concludes our short presentation, ladies and gentlemen. And we would be happy to take any questions that you might have. [Operator Instructions] We're ready for the first question.

So I think the first question is going to come from Robert Plant, who's dialed in. So if -- operator, if you could open that line, that would be great.

Two questions, please. Will Technology be run completely separate to Brink's? Or is there going to be any kind of relationship because there's probably some country overlap? And secondly, was Brink's interested in buying the Cash Technology business and you couldn't agree a price or it was never really up for sale?

Thanks for your question. In terms of, will this be run separately? Yes, our Cash Technology businesses will be run and increasingly already are run in a coordinated way. Our development program, software development program, is already highly coordinated. And eventually, we will have common platforms for all of our brands. So it will be run as a single business and a separate business. We will continue to provide support to the Brink's corporation. It's clearly in our interest for them to be an important customer, so we will continue to provide them with support services in those countries where there is an installed base and where they want to, for example, continue to sell smart safes, such as Deposita. We'll be only too happy to continue to supply Brink's with Deposita or CASH360, but we will continue to own the technology and the IP. On the second part of your question -- I'm not going to comment specifically on Brink's. I think -- I hope that we're on public record having said that, over recent years, we've had numerous expressions of interest from strategic and sometimes financial buyers in our Cash Technology business. We continue to believe that it's in the best interest of the company to develop and grow that business. It's still growing very rapidly. It's a high-margin business. We think we can add a lot of value. We've got a strong team, very strong proposition, market-leading products. And it's at a fairly early stage of development. I mean, I think it's -- we have to remind ourselves that the biggest of our technology businesses didn't exist really 5 or 6 years ago, didn't have any revenue, let alone profit. So it's an early-stage business. We're still, I think, adding a lot of value. We launched, in 2019, our first small-box solution in the United States and it's done phenomenally well, I think easily competing and winning some of the biggest opportunities during 2019 in that marketplace. So I'm sure that it will be something that people continue to look at. But for now, we're focused on developing and growing it.

Okay. So I'm going to ask a couple of sort of similar questions that have come through e-mail through to me. So one is from Nick Kissack at Schroders saying, "Are the GBP 15 million to GBP 20 million reduced overheads incremental or just to offset any stranded costs left?" And similarly, we had a question from Steve Goulden at Deutsche Bank, saying, "Please, can you give some more color on the GBP 15 million to GBP 20 million?"

Yes. So the GBP 15 million to GBP 20 million will eliminate some costs, which are no longer needed. I wouldn't describe them necessarily as stranded costs. We're going to be a simple organization. It's probably GBP 6 million or GBP 7 million of costs that we will no longer need directly. And then in addition to that, we will, over time, reduce our overhead structure so these businesses that we're selling do require overhead support, not only what you might normally consider overhead support such as finance, HR support functions, but also operational support. Cash handling is a business -- conventional Cash Handling is a business that does require additional assurance and additional operational support, and we'll be able to run the business with leaner resources for the businesses that we have retained. Most of what we have retained apart from the U.K. cash business is Cash Technology with a different overhead structure. And -- so that's some, what you might call stranded cost, GBP 6 million or GBP 7 million and the balance are incremental. Thank you.

Thank you. And we're now going back -- to go back to some of the questions that we've got on the call. So operator, please, if you could open those.

Next question comes from Paul Checketts from Barclays Capital.

Can I just run through a few questions? The first, just following up on the cost base post-disposal. Will there be upfront cash cost of achieving that GBP 15 million to GBP 20 million reduction? And then, Ashley, it sounded there like you're saying maybe GBP 7 million -- GBP 6 million, GBP 7 million straight away and the rest over a slightly longer period? Maybe just give us a bit more color on that. And then after that, I'm looking at the announcement from Brink's that they're saying, U.K., South Africa and some other smaller countries remaining. Can you just flesh out what will be left, please? And I can hazard a guess, but why they weren't part of the transaction? And lastly, the GBP 60 million of liabilities that transfer over to Brink's, maybe just give us a sense of what actually is included in that, and what will remain from the liabilities side. I suppose I'm asking what are the pension assets and liabilities of the U.K. business?

So let me see if I can remember all of those. So Paul, there will be some cash costs upfront during 2020 and there will be some cash costs next year as well. We'll be giving more color on that when we announce our prelims on the 11th of March, but I think you can assume that the sort of cash outlays that we've talked about in previous restructuring programs will apply here. But we'll look forward to giving you more color on that when -- on the 11th of March with our full year results. Phasing, yes, we would -- I think you suggested the GBP 6 million to GBP 7 million would be the first to go. I think that's right. That's the sort of approach that we take this year. We'd go after the most obvious, i.e., the so-called stranded costs. In terms of remaining businesses and the rationale, I think the Cash Technology businesses, I think the rationale is clear that they are quite different businesses, early stage of development, high growth, high margin. And as I said earlier, we continue to believe we can add substantial value there. The other businesses, at the U.K., obviously -- well, the U.K. has most of the group's current and deferred pension fund members, and so we had to look at that carefully as a Board, and in the end, concluded that it was in the best interest of both the company and pension fund members that, that remained with the group. We obviously have had an ongoing dialogue with the trustees since we announced the Cash Separation review, and that was the conclusion that we came to in relation to the U.K. Other businesses. South Africa is a bit unusual. It's probably now one of the most integrated in terms of our technology business, Cash Technology business, Deposita and the conventional Cash business. Most of what we have been selling in recent years has been sold on integrated contracts. So the customer buys a service that includes both the conventional and the technology business. And until fairly recently, we also had minority shareholders in those businesses. And we were going through a process of buying out our minority shareholders. So principally because of the degree to which Deposita was integrated into that business, it made sense to keep it with our other technology businesses. Those are the -- I mean, obviously, Retail Cash Solutions, CASH360, G4s Pay, they all remain for the same reason. On a slightly smaller scale, Greece and Morocco, and I think the simple rationale here is at a certain scale, it just is uneconomic to separate these businesses, and they're performing reasonably well. It didn't make sense below certain scale to separate. So that was the, in round terms, the way we thought about the parameter. In terms of liabilities, the U.K. pension liability remains at the U.K. Cash business. The other businesses that have pension liabilities, those go with the businesses. They're not anything like the sort of scale that we have in the group, so fairly modest. And then I suppose, the single biggest item I'd call out in terms of liabilities would be financial leases that are going across. I think I covered all of your questions, Paul.

Our next question comes from Chirag Vadhia from HSBC.

Just to -- could I just get a bit more color behind the decision on the phasing of the cash proceeds? And secondly, just I guess, what your plans would be for the U.K. Cash business as you've just mentioned that you will retain?

So thank you for your question. The phasing is frankly just a practical matter. We've agreed a transition plan. I think it's important to remember that in many cases, this is a carve-out. We're carving the business out where it shares common services overheads with our security business. And so some of this is a practical matter of getting the transition plan implemented. There are also consultations that we have to go through. These are fairly standard. So for example, employee consultation, works council consultations, these are -- this is not new territory for either us or Brink's. As you will know, we've sold cash businesses over the years in North America and Latin America and other parts of the group. And these are fairly routine processes but they do take time. And so they're not all on the site -- the same timetable for those reasons. Those are the main reasons. And then your question regarding the U.K. cash business, I think it's just safe to assume that will remain in the group for the foreseeable future.

The next question comes from Sylvia Barker from JPMorgan.

A couple of questions, please. Firstly, on the net debt, could I just check what net debt-to-EBITDA base is that? If it's consensus, is it pre-IFRS 16, after IFRS 16? And that doesn't assume any kind of cash going out? Can I just check that? And then, secondly, just we've touched on the pension a few times, but do you plan to pay that down at all in the U.K.? And then, finally, you obviously have -- you've obviously used a variety of CIT providers for your Retail Cash Solutions contracts in North America. Do you foresee changing the split there and maybe using Brink's to a greater extent, following today's announcement?

Thanks, Sylvia. Net debt is the definition we have consistently used for a while and it's post-IFRS 16. Pension, we're in discussions with the trustees. I think it's fair to say that with the employees remaining within the group, that is a very different sort of discussion. That is to say there isn't, in our view, a Section 75 event. But obviously, we need to conclude those discussions with the trustees. And we look forward to giving you an update again with the prelims on the 11th of March. CIT providers, this transaction has no direct bearing. There's no undertaking in this transaction to change our mix of CIT provision in North America. So no, I don't think it would be reasonable to expect a change in that supply chain as a result of this transaction in North America. Thank you.

The next question comes from Kean Marden from Jefferies.

Apologies. I've also -- I've got quite a few. First of all, I guess, most people in financial markets would've been valuing the assets on EV/EBITDA basis. And I can see you've provided EV/EBIT, but I'm wondering if you can share the multiple. I presume it should be something in the region of 9x, is that correct?