Brink's Company (BCO) Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.25.13 | About: The Brink's (BCO)

Brink's Company (NYSE:BCO)

Q2 2013 Earnings Call

July 25, 2013 11:00 am ET

Executives

Edward Cunningham

Thomas C. Schievelbein - Chairman of The Board, Chief Executive Officer, President and Member of Executive Committee

Joseph W. Dziedzic - Chief Financial Officer and Vice President

Analysts

Jeffrey T. Kessler - Imperial Capital, LLC

James Clement - Sidoti & Company, LLC

Robert Pierce

Christopher J. Marangi - Gabelli & Company, Inc., Brokerage Arm

Operator

Welcome to the Brink's Company Second Quarter 2013 Earnings Call. Brink's issued a press release on second 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, the release and slides are available on the company's website at brinks.com. [Operator Instructions] As a reminder, this conference is being recorded.

Now for the company's Safe Harbor statement. This call and the Q&A session contain forward-looking statements. Actual results could differ materially from projected or estimated results. Information regarding factors that could cause such differences is available in today's press release and in the company's most recent SEC filings. Information presented and discussed on this call is representative as of today only. Brink's assumes no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brink's.

It is now my pleasure to turn -- to introduce your host, Ed Cunningham, Director of Investor Relations and Corporate Communications. Mr. Cunningham, you may begin.

Edward Cunningham

Thank you, Denise. Good morning, everyone. Joining me today are CEO, Tom Schievelbein; and CFO, Joe Dziedzic.

This morning, we reported results on the GAAP and non-GAAP basis. Non-GAAP results exclude a number of items, including U.S. retirement expenses, acquisitions and dispositions and some currency-related items. The 2013 non-GAAP results use the expected full year tax rate of 37.5%. A summary reconciliation of non-GAAP to GAAP EPS is provided on Page 2 of this morning's release. More detailed reconciliations are provided in the release and in the appendix to the slides we're using today, which were included in this morning's 8-K filing and are available on our website. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments from this point forward will focus on non-GAAP results from continuing operations.

I'll start with a brief summary. Second quarter earnings from continuing operations came in at $0.44 per share versus $0.48 in 2012. The segment margin rate was 5.9%, down slightly from 6% in last year's second quarter. Organic revenue growth was 8%. Currency translation had a negative impact of $20 million on revenue, $2 million on profit and $0.02 at the EPS level. On a year-to-date basis, earnings stand at $0.79 versus $1.16 in 2012, with a segment margin of 5.6%. Excluding the $19 million charge from this year's first quarter robbery at the Brussels Airport, the year-to-date margin is 6.6% versus 7% the year-ago quarter. Organic revenue growth for the first half was 7%.

For those who model our results, please note that Page 7 of the press release provides a summary of selected results and outlook items that should be helpful in forecasting 2013 performance in more detail.

I'll now turn the call over to Tom.

Thomas C. Schievelbein

Thanks, Ed. Good morning, everyone. Second quarter earnings were generally in line with our expectations, and we remain on track to achieve the previously disclosed 2013 segment margin guidance in the 6% to 6.5% range as continued profit growth from international operations is expected to outpace reduced profits in North America. We are also on track to achieve organic revenue growth of 5% to 8%.

I'll begin by covering international operations, which account for about 75% of our revenue and deliver organic profit growth of 19% for the quarter.

Let's start with Latin America, which was the primary driver of this growth. The region provides about 40% of our revenue and is our fastest growing and most profitable market. We saw a good profit growth in the quarter that was driven primarily by year-over-year improvement in Venezuela, Mexico and Argentina. In the downside, we a saw significant slowdown in the Brazilian economy, resulting in a profit decline that Joe will cover in more detail. We expect improvement in Brazil to help drive continued profit growth in Latin America during the second half of the year even as we continue to invest in productivity improvements and as we expect additional currency devaluation in Venezuela later this year. While overall revenue growth in Latin America has moderated over the last several quarters, we remain optimistic about our long-term growth prospects in this region, and we will continue to invest there.

In Europe, which accounts for about 30% of our revenue, profits were roughly in line with our expectations when you consider that last year's second quarter included a favorable commercial settlement that was not repeated in this year's results. We expect Europe's full year profits to come in slightly below the level we achieved in 2012.

Our relatively small in Asia Pacific operation has delivered strong revenue and profit growth due primarily to the benefits of the streamlined cost structure that we put in place earlier this year and higher global shipments on precious metals.

Second quarter results in North America, which account for about 25% of our revenue, were in line with our full year guidance. As we said in our last call, turning this business around is taking longer and costing more than we expected it to a year ago. We're changing the way we do business in North America. Over the last several years, the cash-in-transit market in the U.S. has become increasingly price-driven. Our brand and reputation for service quality are still important differentiators, but these attributes alone will not deliver acceptable returns. The progress we made in reducing costs, consolidating brand structure, optimizing routes and enhancing overall productivity have not been enough to offset the ongoing pressure on volume and price. We have to do more and we are.

Our efforts to improve customer service, cost and productivity will continue. We are now more highly focused than ever on aligning CIT cost structure with the market and maximizing asset utilization. We are also accelerating our efforts to shift our revenue mix towards those lines of business that offer higher-margin growth opportunities, such as money processing, ATM management and CompuSafe. The cash-in-transit business is the entry point for providing these and other services, so stabilizing volume and price in CIT is a key step in accelerating near-term profit growth across the business.

Our 7% margin goal in North America is still in place. The balance of 2013 will be challenging, but we expect to demonstrate year-over-year profit improvements beginning in 2014. We also expect margin improvement to accelerate in 2015, with a goal to reach 7% in 2016, which is a year longer than our previous target date. We will continue to take decisive action in North America and elsewhere to improve results and achieve long-term success. In North America, I expect 2013 to mark the bottom in terms of profitability.

In Europe, we've already achieved substantial margin improvement by exiting unprofitable operations in several countries, the most recent being our guarding business in Germany and our cash-in-transit business in Turkey. Restructuring of our Asia-Pacific operations has also led to greater profitability in that region. We remain very optimistic about Latin America's growth prospects, and we will continue to seek opportunities to invest in adjacent targets.

We've also instilled greater discipline in our capital allocation process, resulting in savings of about $30 million annually since 2011.

Finally, we've transformed our senior management team with new leaders in North America, the Asia Pacific region, human resources, information technology and commercial strategy. The team is energized, focused on improving performance and committed to creating value for our shareholders.

I'll now turn it over to Joe, who will provide the details regarding our results and our outlook. Joe?

Joseph W. Dziedzic

Thanks, Tom. I'll start with a summary of second quarter results and then cover the assumptions behind our full year outlook.

Total revenue grew 6% on a reported basis and 8% on an organic basis due mainly to organic growth in Venezuela, Argentina and Mexico. An unfavorable currency impact of 2% was driven by Venezuela, Argentina and Brazil. Segment operating profit increased $3 million due to a $7 million profit increase in international operations that was partially offset by a $4 million profit decline in North America. The improvement in international operations was driven by Latin America, primarily Venezuela, Mexico and Argentina. The $0.04 decline in earnings per share was due in part to higher interest expense and negative currency translation.

The earnings per share bridge highlights that noncontrolling interest, which reflects amounts owed to minority partners, offset the improvement in segment profit. This expense, which is essentially part of operations, combined with higher interest costs and negative currency to drive the $0.04 decline in earnings per share.

Now let's take a look little closer at total segment results. The organic revenue growth of 8% came from international operations, most of it from Latin America. But we also had organic growth in Europe and the Asia-Pacific region, reflecting growth in our global services business. North America revenue was flat, and profits there fell by $4 million due to continued price and volume pressures.

International profits improved by $7 million as profits in Latin America were driven by improved results in Venezuela, Mexico and Argentina. Profits in Brazil declined due to wage inflation and slowing volumes. A portion of the wage increase was caused by the passage of a new law last December that raises the wages of many workers in our industry by about 30%. We expect to recover a substantial amount of this wage inflation later this year.

Profits in Europe declined due to a 2012 commercial settlement in the Netherlands that did not repeat in 2013 and a customer loss in France, partially offset by improvement in our global services line of business and the benefit of a change in tax legislation in France.

The total segment margin rate declined slightly to 5.9% due mainly to the profit decline in North America.

Year-to-date cash flow from operating activities, excluding changes in customer obligations and discontinued operations, declined by $24 million versus last year due to the decline in operating profit, working capital and the timing of insurance -- sorry, due to the decline in operating profit, the timing of insurance recoveries and increased working capital.

Year-to-date capital expenditures and capital leases were relatively flat at $80 million as we continue to reduce maintenance capital spending through efficiency projects. The North America region decreased CapEx by $14 million, primarily due to lower purchases of armored vehicles and lower investment in IT. The international segment CapEx spend increased by $14 million due to investment in productivity initiatives in Latin America, especially Mexico.

Our plan in 2013 is to hold the capital spend to about the same level as 2012. We will continue to focus on efficiently deploying capital to maintain the level of safety and security that Brink's is known for, while reallocating capital to focus on growth and productivity efforts.

Net debt increased by $111 million since year end due to about $60 million in acquisitions, the timing of insurance recoveries and an increase in working capital.

Our overall guidance for the year is not changed. We still expect the full year margin rate to come in between 6% and 6.5% as continued improvement in international profits is expected to offset the impact of the profit decline in North America. We continue to expect organic revenue growth of 5% to 8%, driven primarily by Latin America at similar growth rates to 2012, with no significant growth in North America or Europe. We are expecting an unfavorable currency impact of between 2% and 4% due primarily to currency devaluation in Venezuela. In February of this year, Venezuela devalued its currency by about 16% versus the exchange rate we were using to report our results. Our guidance still assumes a total devaluation of about 40% for the year, the total impact of which is estimated to be a reduction of $100 million or about 2% of total revenue.

In North America, we expect the weak revenue trend of the last few years to continue, and we continue to expect the full year 2013 margin rate somewhere between 2% and 3%. The steps we've taken to improve results in North America, which include exiting unprofitable markets, consolidating branches, reducing headcount and investing in productivity, have clearly been insufficient in offsetting price and volume pressure. The rest of 2013 for North America will be devoted to developing the capability to stabilize price and volume, building more robust IT capabilities, strengthening senior management and positioning our U.S. operations for a resumption of year-over-year profit growth in 2014.

As Tom mentioned, the goal to recapture our historical margin rate of 7% is still very much in place. Achieving this milestone has been pushed out a year to 2016. To meet this target, we will focus our commercial efforts on getting closer to our customers so that we can better understand their challenges and deliver differentiated solutions.

In Europe, we are assuming a slight decline in full year profits due to a previously communicated contract loss in France and the absence of a commercial settlement that boosted 2012 results, partially offset by the benefit of a change in tax legislation in France. We don't believe there is enough growth in these mature markets in 2013 to offset these items.

In Latin America, we expect profit growth across most of the region, driven by strong organic revenue growth. We expect the Venezuela devaluations and an increase in our productivity investments to offset some of this growth. We expect the payback on our productivity investments to be realized in 2015 and beyond as the implementation, cost decline and the benefits accelerate.

In summary, we remain highly focused on executing the necessary steps to maximize margins in the mature U.S. and Europe cash-in-transit markets, invest in developing markets and build strong growth businesses in adjacent markets. Our new leadership team is highly focused on delivering solutions to our customers, protecting our employees and generating strong returns to our shareholders.

Denise, let's open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from Jeff Kessler of Imperial Capital.

Jeffrey T. Kessler - Imperial Capital, LLC

A couple of questions with regard to North America, particularly North America margins. You've talked about some of things that you are doing to try to, let's just say, rebalance yourself in the market competitively with regard to price, and you've talked about some of the things that you're doing with regard to productivity. What are you doing in terms of trying to measure the type of return on invested capital? Is there a goal that you have for capital allocation and the return on that capital that you want for North America going out, let's call it, 18 months? And what does it take to get there? What type of business mix shift do you need toward the higher-margin businesses to get some of these -- get a return that merits the continued investment of capital? And I'm certain that you've taken down that investment of capital over the past year.

Thomas C. Schievelbein

Joe, you want to address the capital question?

Joseph W. Dziedzic

Sure, let me just start with you saw from the results that we've taken the capital down in North America. North America is down $12 million on a year-over-year basis. Most of that is in armored vehicles and leasehold improvements and buildings. And we've did reduce some of the IT on a first half year-over-year basis. So you see the continued capital reallocation to our growth markets. In North America, we've got a global target of at least a minimum 12% hurdle rate that we used globally for our investments. Obviously, when we look at individual investments country by country, we look at a country-specific risk-adjusted rate. So you would argue that the North America rate would be lower than some of the emerging markets or growth markets that we're in. But what's clear is we've reduced the capital in the more mature markets. We're focusing it more on productivity initiatives that have very fast paybacks and where there is growth -- and where there are growth opportunities in those markets, we're making those investments. But generally speaking, the growth investments are happening mostly Latin America.

Jeffrey T. Kessler - Imperial Capital, LLC

Okay. Do you have to have CIT in place in North America to be able to have the entrée into the higher, if you want to call it, the logistics and other higher -- and the CompuSafe market? In other words, how can you try to tweak that mix a little bit so that the entry point into your higher-margin businesses doesn't have to always come through CIT?

Thomas C. Schievelbein

So Jeff, this is Tom. We do believe that the CIT is the -- has to be in place to accomplish many of these other markets, for instance, the ATM servicing, the money processing and CompuSafe, because it all becomes an offering. What we're doing is we're emphasizing those other services, CIT is still part of it but it will continue to be a small part of the mix going forward. And so that's what we're currently evaluating. That's also what we're currently tracking.

Joseph W. Dziedzic

Jeff, today we're about 3/4 CIT in North America and about 1/4 of high-value solutions. That includes our global service businesses. Clearly, we need to shift that mix to more of the higher-value service business, and that's a big focus of where we're allocating our time and attention and commercial resources within the business. But CIT is the infrastructure that allows you to capitalize on the higher-value services.

Jeffrey T. Kessler - Imperial Capital, LLC

Okay. The second question just quickly on insurance recoveries. Over the course of the first half of the year, obviously, the insurance recoveries were a factor in your earnings. Are you -- do you have a better handle on what the schedule for those recoveries are going to be over the second half of the year or into the first half of 2014?

Joseph W. Dziedzic

We would expect the recoveries to happen very timely. This is just working through the logistics of the documentation process. We have no concerns of recovery or the timing within the year, for sure.

Jeffrey T. Kessler - Imperial Capital, LLC

Okay. Finally, for about the last 10 years, we've heard about your small but growing Asian business. And I'm just wondering, is Asia Pac always going to be for whatever reason that you can discern, is it always going to be small? Because is it seems to be an area with potential, but for Brink's it has always remained somewhat small as a percentage of the total business?

Thomas C. Schievelbein

So if you look at that Asia Pacific, we obviously have a very robust global services business. The cash-in-transit or our traditional businesses are much more challenged in that particular market because of a loy of the laws there relative to carrying firearms and other things. So from a CIT perspective, I do believe that we don't anticipate a huge growth in the Asia Pacific market. Now what we can do and what we are going to start to focus on is the high-value solutions. Because in many cases, we can provide some of those solutions that we're developing for whether it's in Europe, Latin America or North America. We can translate some of those services into the Far East.

Operator

Our next question will come from Jamie Clement of Sidoti & Company.

James Clement - Sidoti & Company, LLC

First question, on North America. And I -- just forgive me in advance for being blunt, but I feel like we've heard for the last 7 or 8 years the company's emphasis, given the pricing and volume trend in North America was going to be towards "value-added services." And I thought that when you took over the role of CEO, there was actually finally an acknowledgment that, in fact, at least Compusafe was, in fact, margin dilutive, not margin-enhancing. So I'm a little -- I'm confused what to make of margins being down this year, no sense of necessarily any recovery in the cash market in the U.S. from a volume perspective going forward, your competitors also wanting to get more into the money processing and ATM management business and some questions about the CompuSafe business and, obviously, there a lot of comparisons drawn to the old -- the home security model, where there's an upfront investment that's required by the company. And that you all acknowledged about a year ago that, that investment wasn't necessarily meeting your return thresholds.

Thomas C. Schievelbein

Well, so certainly on CompuSafe, we spent a lot of time on CompuSafe. We are very confident now that CompuSafe is earning the kind of margins that we would require of a product that's that capital-intensive. So those margins are back where they need to belong. Obviously, that's where the business going forward, so it takes a while to raise the entire margins for the rest of the installed base. And so that's what we are working on relative to CompuSafe. There is no doubt that the rest of the market remains very challenging in terms of the volume and pricing pressure.

James Clement - Sidoti & Company, LLC

I mean, I guess what I'm ultimately getting at is, if there is something that has changed or is changed over time in the marketplace where either banks aren't just willing to pay for a level of service or alternatively that there has been a change in the payments market in one way or the other. What we seem to be hearing is really the same words that we've been hearing for 6 or 7 years and the same kind of margin targets, but I don't see how we get the 7% from where we are now,with what really sounds like the same strategy that's been espoused over the last 4, 5 years, quite frankly.

Thomas C. Schievelbein

I can't speak for the last 4 or 5 years, Jamie. What I can tell you is we have a plan that is that the CIT business, which is -- has very low margins versus money processing, ATM servicing and CompuSafe, which are higher. And as we switch more of the business into those higher margin services, we should and will see the if the margin improved.

James Clement - Sidoti & Company, LLC

Okay. All right. Switching gears to Latin America. Joe, you are assuming, obviously, another deval in the bolivar. I don't think you commented on what's been reported as potentially 2 additional wage -- maybe wage increases in Venezuela. Are those included in our guidance? And we're hearing numbers somewhere between 15% and 20% in the fall. Do you believe that to be true? Is that consistent with what you're hearing?

Joseph W. Dziedzic

With the additional mandated wage increases for minimum wages, we're hearing the same thing. That's been out there for a little bit. Obviously, there's enormous amount of volatility and unpredictability in what's going to happen in Venezuela. But our wage negotiation cycle runs from May to May. So we negotiated with our unions, agreed on a wage increase that we believe will hold true for the next 12 months until the next wage negotiation cycle. So in spite of what the government may mandate for the minimum wage increase in the country, we're comfortable with what we've agreed to with our union and believe that, that will stick until next May. That's obviously been included into our guidance that we've provided for the year.

James Clement - Sidoti & Company, LLC

Okay. So put in other words, to get the wage increase that's already happened.

Joseph W. Dziedzic

Yes.

James Clement - Sidoti & Company, LLC

Right, right. Okay. Given that Brazil has precipitously fallen in the second quarter, why would you assume that it would improve in the second half? I believe it's in your prepared remarks.

Joseph W. Dziedzic

There was a law change back in December of last year. Actually, there was an announcement that the law would change, that the employees in the security industry, broadly speaking, would get a 30% wage increase and we can debate the politics of the announcement in December and the law not passing until late first quarter, early second quarter. The timing of when that actually took effect in our industry, it made its way into the various union negotiations and actual wage increases, and we started paying the employees more, and then turning that around and passing it through the market, there's been a lag effect not only for us, but for our competitors as well. And they've made reference to that in their earnings releases and discussions as well. So we're expecting in the second half of the year to be able to recover some of that wage increases that the entire industry has felt.

James Clement - Sidoti & Company, LLC

Okay. Joe, I was unclear on you whether you were just purely talking about the wage increase or you were talking about market dynamics as well. Because obviously, out of a lot of other industries, we've heard about a fairly significant slowdown in the Brazilian economy and, for example, deposit growth essentially going to 0 for the first time in 10 or 15 years. But your business is still doing fine, it's just a question of the wages is what you're saying. Is that right?

Joseph W. Dziedzic

Well, the biggest impact in the first half was the incurred wage increase without being the pass it through the customers. And we're expecting in the second half of the year to get some retroactive increases, which is, quite frankly, the normal cycle in the region. And so we have felt definitely the volume impact as our customers, the financial institutions, have seen spreads compress. They've seen pressures on their volumes and their cost. And of course, we're feeling that, as is the rest of our industry. Our profit improvement in Brazil in the second half is driven more by being able to pass through the wage inflation that we've incurred in the first half as opposed to expecting a volume increase.

James Clement - Sidoti & Company, LLC

Okay, okay. All right. That is helpful. And then the final question, and I know why -- we'll see the 10-Q in the next couple of weeks. But you provide some cash flow information. But just in looking at the net debt picture x Venezuela, your net debt is up roughly $130 million over the last 6 months. What are the working capital drivers there? I mean, obviously, there was the Brussels situation in the first quarter, which is some of it. But I would normally expect you to be a working capital collector after your strong second half and be a working capital user during your stronger second half.

Joseph W. Dziedzic

So if you look at our cycle, because of the timing of annual payments, so year-end bonuses go out in the first quarter. There's a number of additional annual things like insurance and other policies that get paid at the beginning of the year. So there's usually a big dip in the first quarter on cash flow. In the first half, we tend to consume cash. In the second half, we tend to grow cash. So when you look at our first half cash flow versus year end and the debt being up $130 million x Venezuela, what you see is about $60 million of acquisition spend that were mostly in the first quarter. That was the Mexico acquisition, and we bought out our partner in Chile and our partner in India. That's about $60 million of it. The insurance recoveries also had an impact. That makes up more than half of the increase. But with a $660 million receivables balance and 7% organic growth for the first half of the year, we actually even have working capital increase and our a receivable balance is 4x as big as our payables balance. So most of our expenses are wages. So there's really no payment terms on that. When you have organic growth, you get naturally an increase in working capital, the receivables driven. Now we did see some difficulty in a few Latin American countries with collecting on those receivables, which is normal. As the industry gets tougher and times get tougher, that becomes a more difficult collections cycle, and we're very focused on it and allocating resources to insure that we collect those timely.

James Clement - Sidoti & Company, LLC

Okay, that's perfect. It's just -- that's information that's not all in your slides or your press releases. So it's helpful to bridge the gap.

Operator

[Operator Instructions] The next question will come from Rob Pierce of UBS.

Robert Pierce

My question is really about the Irish cash-in-transit market. One of you competitors stated in a recent profit warning that there have been price pressure in that market. Could you confirm this? And have you changed your strategy at all there in the recent months as a result?

Thomas C. Schievelbein

We have not changed our strategy in Ireland. We're in the process of finalizing a couple of contracts there. So no, we have not changed our strategy in Ireland.

Operator

And our next question will come from Chris Marangi of Gabelli.

Christopher J. Marangi - Gabelli & Company, Inc., Brokerage Arm

I don't want to belabor North America, but I'm glad to hear that 7% margins are still in the cards albeit a year later. And we can all appreciate the concept of under-promised, over-delivered. But 3 questions: one, what kind of price volume assumptions are you making in that target? Two, Mel Parker, who's your new leader, has probably found the bathroom in North America by now. But have you come up with -- his own plan as he's looked at this market with a set of fresh eyes? And three, how much of the delay is related to a decision to invest further in the market versus other structural issues?

Thomas C. Schievelbein

Let me address the Mel Parker thing, and I'll probably ask for some clarification. So Mel's been there for 6 months. The plan that we're talking about has got Mel's fingerprints on it. The plan that I'm talking about is the one where we're going to continue to look at improvements from a cost perspective. We're getting much closer to customers. The whole discussion about reducing the percentage of the -- or income that comes from the cash-in-transit market and emphasizing money processing and ATM servicing and CompuSafe, and we are tracking that on a monthly basis. So Mel is absolutely deeply involved in it. The change of senior management at the North America is based on Mel's assessment of the management. So both those of the things are -- Mel's been intimately involved with the strategic directions in North America. So now give me your last question again?

Christopher J. Marangi - Gabelli & Company, Inc., Brokerage Arm

Sure. The delay or the 1-year delay in your 7% margin target, is that due to a decision on your part to invest in getting closer to the customer, IT, other things? Or is that more just related to price volume pressure not being at the...

Thomas C. Schievelbein

I would say it's both, Chris. I mean, clearly, if all of the other things we've done in terms of cutting costs would have worked together us on the correct path, it would have been different. But that has not been as successful as we'd hoped so. We are changing the strategy that we're looking at in terms of the percentage that goes to each of those lines of business, as well as all of the management.

Christopher J. Marangi - Gabelli & Company, Inc., Brokerage Arm

And to my first question, would you expect or implicit in your target, is there -- would you expect price volume growth in North America over the next 3 years, call it?

Thomas C. Schievelbein

We would certainly expect to get some growth once we have success with the more high-margin services. I'm not -- at the present time, we're not expecting significant volume growth. If we get it, that would be wonderful. But we're not expecting significant volume growth, so we're talking about at least changing the trajectory based on a flat market.

Christopher J. Marangi - Gabelli & Company, Inc., Brokerage Arm

Okay. And on a related point, any update on -- I presume most of the pressure -- price line pressure is coming from the financial part of the business. Any update on the retail market? Interest rates have begun to back up albeit in a small way. But has that spurred any more conversations on...

Thomas C. Schievelbein

We haven't seen a huge spurt in terms of the retail. With the interest rates going up, you would anticipate you'd start to see more volume as they would require more timely or more often in terms of the pickups. I don't think it's going up enough to make a difference yet in terms of changing the behavior of the retailers.

Christopher J. Marangi - Gabelli & Company, Inc., Brokerage Arm

Have you looked back -- is there some threshold at which interest rates reach that you might see a more robust return of stocks?

Thomas C. Schievelbein

Joe, do you -- to my knowledge, we don't have a particular threshold. It's more of sliding but...

Joseph W. Dziedzic

We've historically tended to lag the economic turns up and down. And so I think we would need to see a much stronger recovery and once the retailers start to have more cash sitting in their registers for an extended period is when they'll take that action. But they're going to need to see confidence in the recovery in the growth of their business before they take on additional cost.

Christopher J. Marangi - Gabelli & Company, Inc., Brokerage Arm

Okay. One question on Europe. Any update on the exit from Germany?

Thomas C. Schievelbein

So we are proceeding in accordance. We do have finally concurrence from the antitrust authority in Germany, so we're working through the details of that. But it's on track albeit a little bit slower than we had hoped because of their antitrust authority. But we're on track.

Christopher J. Marangi - Gabelli & Company, Inc., Brokerage Arm

Okay. And then this one is on one of your newer initiatives, the Brink's Money card and acquisition of Rede Trel, which are different obviously. But any early takes from those?

Thomas C. Schievelbein

So we've got a couple of our initial customers on the payroll card. That's a positive. We are -- the Rede Trel acquisition continues to perform, and we're going to be looking at the integration of that. So both of those are clearly small, but we're encouraged by where they are at the present time.

Operator

Our next question will come from a follow-up from Jeff Kessler of Imperial Capital.

Jeffrey T. Kessler - Imperial Capital, LLC

With regard to CompuSafe and following up on questions about the so-called alarm model, one of the things you can do to decrease the payback period is to offer more services than you are already offering on CompuSafe. CompuSafe has a base of services that you offer. There are some options that you've had in the past. And I'm wondering what you can do to drive down the payback period on CompuSafe to make it as it becomes, hopefully, a larger part of the business on the, we'll call it, cash logistics, if you will. As it becomes a higher margin, you got to get -- make it a higher margin first. To get at the higher margin, you've got to get a better return on it and a better cash-on-cash payback. And to do that, you probably have to order -- to get a value proposition that's a little bit better than you initially started out with -- that the company initially started out with 7, 8, whatever it is, 10 years ago with the product. I'm wondering, are there other services that you are considering tagging onto CompuSafe to improve the payback period and also improve the margin on it?

Thomas C. Schievelbein

So we are looking at a number of services -- I mean, the traditional services in addition to obviously the safe and to the pickup and to the cash management. But we're looking at some full treasury management services for retailers as well. So we are looking at all of those particular, so to speak, lines of businesses, Jeff, and we're trying to ascertain which of those -- each of the particular retailers would value.

Jeffrey T. Kessler - Imperial Capital, LLC

Okay. And I'm assuming that this is -- what you're looking at this, and anything that might occur will occur hopefully over the next couple of years.

Thomas C. Schievelbein

Well, I mean, it's already started to occur. And clearly, it will take -- everything that's going out in terms of CompuSafe is very profitable. Now the issue is we have 14,000 CompuSafes that are installed, so it takes a while for us. And we've talked about in the past that those were at very low margins, so it takes awhile to change that entire inventory to a positive.

Jeffrey T. Kessler - Imperial Capital, LLC

And you are marketing these -- you're marketing services not just to CompuSafe going in, but to the existing base of 14,000.

Thomas C. Schievelbein

Clearly. Joe, any -- no? I think that's probably it, Jeff. I mean, we agree, and we're in the process of doing.

Operator

Our next question will be a follow-up from Jamie Clement of Sidoti & Company.

James Clement - Sidoti & Company, LLC

Joe, just a follow-up. I was curious if you all were willing to disclose the amount of cash you all currently had in the U.S. versus abroad?

Joseph W. Dziedzic

Little to none by design, very little. At year end last year, because of our tax position in the U.S., where it makes to the tax inefficient to repatriate capital in the U.S., we relocated all of our debt to outside the U.S. And we've been managing the cash very tightly to ensure that we have minimal to no cash or debt in the U.S. to minimize the interest expense and the cash flow needs of the U.S. operation.

James Clement - Sidoti & Company, LLC

Okay. Just out of curiosity in a -- not to bring this topic up again, but I guess I'm going to have to. As required contributions ramp up over the next couple of years, even at, let's say, improved margins 150 basis points a year, would you be in a position where you would be able to use a credit facility to be able to make those contributions versus having to go the equity route?

Joseph W. Dziedzic

Well, so let's start. There's absolutely no issue with us using our credit facility in many different currencies around the world. We can borrow in the U.S. to make the pension contributions or meet the cash flow demands of the business in the U.S., if necessary. We don't need to do that, because over the past 1.5 years, we put some tax planning structures in place that allows us to repatriate capital from a handful of countries very tax efficiently. That allows us to meet the cash flow demands in the U.S., and that's what we've done to address the near-term pension contributions. The long-term pension contributions, there is tax structure being implemented that will allow us to compliantly tax-efficiently repatriate earnings from around the world.

James Clement - Sidoti & Company, LLC

Very good.

Thomas C. Schievelbein

Jamie, let me just be clear. We do not plan on using equity to fund the pension.

James Clement - Sidoti & Company, LLC

Okay, okay. And I guess last question is -- I mean, it seems as if the trend in payment technology has been more towards mobile. Does the company have -- are there acquisitions that you take a look at that would get you a little bit more into the payment space on the mobile side? Or is that just completely out of the realm of really what your business is all about? Because it sounds like with the CompuSafe strategy, there is a little bit more of kind of wanting to kind of get a little bit closer to the customer in the payments market.

Thomas C. Schievelbein

Yes, and we're looking at the full gamut of payments, and that would be whether it's the payroll card, the prepaid card, whether it's digital forms, mobile payments. So all of that still remains of interest to us. Your comment about that mobile appears to be more promising is a lot dependent on the particular market that you're in. And so we think that all of those payment options are viable, and we're looking at which ones do we play in and to what extent we play in those markets.

James Clement - Sidoti & Company, LLC

Yes, absolutely. And I was specifically talking about the U.S.. But yes, absolutely agree.

Operator

Ladies and gentlemen, this will conclude the question-and-answer session. Today's conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

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