The Brink's Company (BCO) Q3 2012 Earnings Report, Transcript and Summary

Welcome to The Brink’s Company’s Third Quarter 2012 Earnings Call. Brink’s issued a press release on third 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. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions] As a reminder, this conference is being recorded. Now, for today’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 introduce your host, Ed Cunningham, Director of Investor Relations and Corporate Communications. Mr. Cunningham, you may begin.

Thank you, Denise. Good morning, everyone. Joining me today are CEO, Tom Schievelbein; and CFO, Joseph Dziedzic. Most of know, we report results on both the GAAP and non-GAAP basis. The non-GAAP results exclude certain items such as U.S. retirement expenses, income taxes, asset acquisitions and dispositions. The non-GAAP results also adjust the tax rate to the midpoint of our full-year non-GAAP estimated range, which is 37% to 40%. A summary reconciliation of non-GAAP to GAAP EPS is provided on page two of the release. More detailed reconciliations are also provided in the release and in the appendix to the slides we’re using today. The slides are included in this morning’s 8-K filing, and are available on our website. From this point on, our comments will focus on the non-GAAP results, which, we believe, make it easier for investors to assess operating performance between periods. Non-GAAP earnings were $0.50 per share versus $0.60 last year. The decline was due primarily to lower profits in Latin America, which more than offset profit gains in Europe and North America. The segment margin rate was 6.2%, down from 7.2% last year. Revenue fell 2%. Organic revenue growth, which excludes the currency impact was 6%. Currency translation had a negative impact of $76 million on revenue, $5 million on profit and $0.06 at the EPS level. Please note that page seven of the press release provides a summary of elective results and outlook items, which should help those who wish to forecast 2012 results in more detail. In addition to guidance on revenue and segment margin, it includes our outlook for non-segment expense, interest expense, tax rate, non-controlling interest, capital expenditures, capital leases and depreciation and amortization. I will turn the call over to Tom.

Thanks, Ed. Good morning, everyone. I'm going to start with brief comments about the quarter and our outlook and then I’ll cover some of the actions that were taken to improve both short and long-term results. Joe will provide a detailed review of the quarter and assumptions behind our guidance. The real story behind the third quarter earnings was profit decline in Latin America, most of which was caused by two items; a $4 million write-off related to a government receivable in Argentina, and a profit decline of $4 million in Venezuela due to inability to fully recover value-added tax receivables from the government. We expect continued volatility and profit pressure in Venezuela. The combined impact of these two items was $0.09 per share. Combining these two items with the $5 million currency impact, reduced our year-over-year earnings by $0.15 per share. As a result, we have adjusted our segment margin rate guidance for 2012. We had expected to finish the year at 7%. We now expect it to be closer to 6.7%. Our initial outlook for 2013 calls for a margin rate of about 7%, which includes solid operating margin expansion while factoring in significant uncertainty in Venezuela, continued investment in IT-based productivity and higher investment aimed at further profit growth in Mexico. We expect organic revenue growth remained in the 5% to 8% range for both 2012 and 2013. My first 100 days since becoming the permanent CEO were largely dedicated to meeting with employees, customers and shareholder. We’re redefining what it means to be customer-centric and what the benefits of doing so mean to our customers as well as to Brink’s. We’re also conducting a thorough review of which functions should be centralized versus decentralized at the global, regional, or country level. I expect these initiatives to yield positive results including lower costs or more effective decision-making and higher profits. Our challenge is to deliver better result in the near-term as we transform Brink’s to achieve sustainable growth over the long-term. As we look ahead to 2013, I believe we can deliver modest profit growth while investing in the necessary resources to position us for the longer term. So, my primary focus is to reposition the company for accelerated growth in 2014 and beyond. We’re making solid progress in North America and Europe. We’re assuming there will be no meaningful revenue growth in either region and we certainly can’t assume that market conditions will improve, at least in the near-term. Therefore, sustaining this progress in driving margins in both regions towards the 7% range over the next three years will require additional cost reductions and productivity improvements. In Latin America, we expect continued growth, despite the recent profit decline. With the exception of Venezuela, the outlook for the region as a whole remains positive, especially when you consider the upside impact of our goal to achieve a double-digit margin rate in Mexico. Successful execution in each of these regions is critical to profit growth over the next three years. So, we are not - as we’re not assuming a significant contribution from new higher value solutions until the end of 2015 or so. By then we expect to achieve substantial margin expansion in our core businesses that will be supplemented by an infusion of higher margin revenue from new services. This would include such things as full-service ATM support and other services that help our customers operate more efficiently. I’m now going to close with a summary of some of the actions we have taken aimed at both short and long-term results. In North America, the gains we've achieved thus far are the result of headcount reductions and other cost cutting initiatives. The benefits of these actions have been partially offset by continued price and volume pressures, but we are on track to achieve the lower end of the margin rate in guidance that we provided earlier in the year. We have, or are in the process of consolidating selected CIT and cash processing operations among several locations. We are closing seven branches and we expect to exit certain markets by year-end. During 2013, we should also begin to realize the benefits from some of our IT based investments that we are making in back office productivity and route optimization tools. Initial pilots have been promising. But we need to roll out these changes across the enterprise to get a true reflection of the savings. In Europe, our portfolio review is ongoing and beginning to yield opportunities. As I’ve said before, if we determine that we cannot achieve an acceptable return in a certain market, we will take steps to either reduce our presence there or completely exit that market. As noted in our earnings release, we recorded a $4 million impairment related to reshaping of our footprint in that region. Our review will continue until we are satisfied that we are achieving that acceptable return. We will provide more details when it is appropriate to do so. Instilling more discipline into our company wide capital allocation process is another priority. Despite spending more on IT based productivity initiatives, our full year expenditures should be more than 10% below last year. Finally, since none of this happens without effective leadership, we are also strengthening our leadership team in several key areas. The heads of North America, Europe, Latin America and the Asian Pacific regions now report directly to me. A search is underway for a new president of North American operations. Amit Zukerman, President of Brink’s Global Services has assumed additional responsibilities for the Asia-Pacific where we expect to reduce cost by consolidating that regions administrative functions with global services. At the corporate level, we have recently hired a new Chief Human Resources Officer, Holly Tyson. Holly comes to us from Bristol-Myers Squibb and is playing a key role in planning the leadership changes needed to achieve long-term growth. In addition to the North American position, we have searches underway for a new Chief Information Officer and new Chief Commercial Strategy Officer. Each of these positions will be instrumental in shifting our revenue mix into services that generate higher margins. In summary, we have taken action on several fronts in an effort to improve near term results as we transform the company to achieve sustainable long-term growth. We will continue to take the decisive actions necessary to improve performance. Joe is up next and then we’ll open it up for questions. Joe.

Thanks, Tom. I will start with a summary of third quarter results. Revenue fell 2% in total, but was up 6% on an organic basis, as solid organic growth in Latin America and Europe was offset by an unfavorable currency impact of 8%. Segment operating profit fell 16%, as unfavorable currency, and a profit decline in Latin America more than offset improved profits in Europe and North America. Earnings fell to $0.50 per share. I have added the year-to-date totals at the bottom of slide nine. To highlight that in spite of the unfavorable currency impact of $12 million we have still grown segment operating profits $7 million. And then earnings per share has grown 10% year-over-year to $1.47. The decrease in segment profit reduced earnings per share by $0.14. There were three significant items that drove this decline. Unfavorable currency reduced earnings per share by $0.06. The write-off of the government receivable in Argentina reduced earnings per share by $0.05. And our inability to fully recover value-added tax receivables from the Venezuelan government reduced earnings per share by another $0.04. The receivable write-off in Argentina related to a government program design to incentivize the transportation industry to hire and retain union employees. This program started in 2005 and was terminated by the government earlier this year as a government cost cutting measure. We have concluded that we’re unlikely to receive payment of this receivable that relates primarily to the year 2011. In Venezuela, the recovery of value-added tax receivables will be an ongoing cost to the business, but will only be about $0.01 per share per year. The third quarter impact of $0.04 included about four years worth of recovery cost. The total impact of these three items was $0.15 per share. The rest of the business was up slightly as the improvements in Europe and North America were partially offset by severance and the timing of price increases to recover wage inflation in Latin America. For the fourth quarter, we expect segment profit growth to drive improved earnings per share with no significant change in interest cost or the tax rate. North America and Europe profit should continue to improve, while Latin America is likely to be down compared to an extremely strong fourth quarter last year in Venezuela. As Ed mentioned we provided a full-year outlook for these and other items in the earnings release. It shows both non-segment expense and interest expense coming in flat for the year. We expect non-controlling interest expense to be below year ago levels due to a profit decline in Venezuela. And the tax rate should remain between 37% and 40%. On the year-to-date basis earnings per share is up $0.13 per share or 10% in spite of three significant headwinds totaling $0.24 per share. Unfavorable currency is negatively impacting earnings per share by $0.15. And the two items from third quarter in Venezuela and Argentina had a $0.09 per share impact. The rest of the business is generating $0.37 per share of growth, those in primarily by Europe and Latin America. Currency and geopolitical volatility is a fact of life for a global company operating in as many places as we do. We will continue to drive operational improvements in the business and clearly communicate the impact of these environmental factors. Now let’s look at total segment results. Organic revenue growth of 6% is in line with annual guidance of 5% to 8%. Segment margin rate declined by 100 basis points to 6.2%, reflecting profit growth in Europe and North America that was more than offset by currency and the previously mentioned items in Argentina and Venezuela. We now expect the full year margin rate to come in around 6.7% with organic revenue growth of about 6%. We also anticipate about 5% of downward pressure on revenues and currency due to stronger U.S. dollar. Through nine months, our segment margin rate stands at 6.2%. The assumptions behind are 6.7% annual rate guidance includes a fourth quarter of continued improvement in Europe and North America and a solid profit growth across most of Latin America, with the exception of Venezuela. Venezuela experienced a very strong fourth quarter last year driven by retroactive price increases and strong volumes which will be difficult to match in 2012. We continue to serve our customers in Venezuela in an increasingly difficult environment. Inflationary pressures have become more difficult to recover and this has impacted our margins in 2012. We will continue to make the necessary investments in Venezuela to protect our employees and serve customers, but we do not expect margins to expand in the near term. North America revenue was down 4% and the trend is expected to be flat to down slightly as it has been for the past three years. We continue to take the necessary steps to generate productivity in the business, including exiting on profitable markets and consolidating branches to fund the necessary investments to generate margin expansion in the next few years. We are aware that we cannot cut our way to sustainable growth in profits, which is why we continue to focus on improving service levels and cost competitiveness to win new business at profitable rates and developing new service offerings. Consistent with our message all year, we expect full year margins to be at the low end of the range of 4.5% to 5.5% and we have tightened the range to 4.5% to 5%. International segment revenues increased 9% organically, reflecting solid growth in Latin America and Europe, which was more than offset by negative currency translation. Operating profit decline due to the Argentina government receivable write-off, our inability to fully recover our value-added tax receivables from the government in Venezuela, increase severance and the timing of price increases to recover wage inflation in Latin America. Our Mexico operation continued to improve through the third quarter and we expect it to deliver sold margin expansion in 2012. Through the third quarter, margins are ahead of the full year 2011 margins of 2.6%. For the full year, we expect international operations to deliver organic revenue growth in the 7% to 10% range. However, we anticipate negative pressure of 5% to 7% from currency. The full year margin rate for international currently at 6.7% through 9 months should end the year between 7% and 8%. Year-to-date cash flow from operating activities, excluding changes in customer obligations and discontinued operations declined $48 million. The decline versus last year was driven by $14 million in pension payments to our former CEO and Chief Administrative Officer, higher tax payments of $14 million driven by the timing of tax refunds, and an increase in working capital from organic growth and receivable collection timing, partially offset by the recovery of value added tax payments in Venezuela. Year-to-date capital expenditures and capital leases declined by $27 million versus last year, as we continued efforts to reduce maintenance capital spending through efficiency projects and reallocated more of our spending to growth and productivity initiatives. The North America region decreased CapEx by $19 million as we continued to reduce U.S. spending on maintenance CapEx and CompuSafe by focusing the spend on productivity projects. The international segment CapEx spend decreased by $8 million year-to-date, primarily due to the timing of the delivery of armored vehicles, particularly in Mexico and Brazil. Total capital expenditures for the year are expected to be about $210 million versus $239 million in 2011. This is a reduction of another 25% versus our previous guidance of $235 million. We will continue to focus on efficiently deploying capital investments 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 232 million at the end of 2011 to 249 million at the end of the third quarter due to an acquisition in France and the impact of lower cash flow from operating activities. We discussed on our last earnings call that our near-term U.S. pension payment requirements would be reduced by recently passed legislation. The revised payment schedule will be included in our third quarter 10-Q, but I will summarize the changes. In 2012, our required payments declined by $9 million and we expect 2013 required payments to do decline by $28 million and 2014 payments to do decline by $19 million. So the total decline is $56 million through 2014. As we have said before, the near-term decreases will be offset by longer term increases which generally start in 2017 for us. It is important to reiterate that our plan is to fund these pension contributions utilizing cash from operations or debt. Our initial outlook for 2013 calls for organic revenue growth to remain in the 5 to 8% range with a segment margin rate of about 7%. This rate assumes solid overall margin expansion that will be tempered by lower results in Venezuela where we’re assuming no margin growth on an operational basis and a potential currency devaluation. We also plan to increase spending on critical productivity projects across the company to drive the centralization and standardization initiative that Tom talked about earlier. We will provide more details on our 2013 outlook when we report our fourth quarter results.

[Operator Instructions] Our first question will come from Ian Zaffino of Oppenheimer.

Question on Venezuela, I guess, with increased uncertainty there and increased risk, does it make sense to eventually choose to exit that market.

Ian, Tom. We are looking at all of the issues surrounding all of our countries. I think Joe has got some more details to provide you on Venezuela. We are not currently looking to exit Venezuela. So Joe you want to talk a little bit more? And this is one about -- we are trying to provide as much visibility and transparency as we can.

Hi, Ian. Venezuela’s margins have been strong in recent -- in past years. We’ve shown you in our earnings per share rocks and bridges that the earnings in Venezuela are down on a year-over-year basis, which is down partially because of the value-added tax issue, but the pressure on Venezuela from wage inflation and our inability to fully recover that through price increases is causing margin contraction. We still like our business in Venezuela. We still have a strong management team down there. We have a strong market position. And we believe at some point we will be able to repatriate the earnings from Venezuela. And so we are going to keep on in the business as best we can and manage through the issues that we are dealing with. But clearly, it is having an impact on our profitability on a year-over-year basis. And we’re expecting to have further pressure on 2013’s earnings. Based upon the recent election results, we would expect the pressure to continue and we think there is a strong potential for devaluation which is what we’re assuming when we look forward to 2013. So we are trying to plan for the worst and hope for the best.

And then on Mexico, I know you have significant margin expansion potential there. What are you specifically doing there? And what’s the pace of the margin ramp we should expect?

In terms of the pace of the margin ramp it was 2.6%. Last year we have expansion issue and we said we get to double-digit margins by 2015. So a lot of what we’re doing is looking at productivity improvements, making sure that the operation is running as smoothly as possible. We continue to invest in Mexico and we are utilizing our global services organization to improve margins in Mexico. Joe, anything further?

Sure. At the beginning of the year we gave guidance on Mexico that said we didn’t expect significant margin expansion or contraction in 2012 versus 2011. Because we were working to reinvest the productivity and efficiencies we were gaining to accelerate the margin expansion. And what we have found this year is the investments we’ve made have mostly been CapEx. We haven’t had to spend as much that hits the P&L in terms of expenses to drive the efficiencies and productivity. So we have realized margin expansion on a year-to-date basis. We are ahead of where we were last year from the 2.6% margin we’re above that year-to-date. And we would expect to be above that when we get to year end this year. So I think we are very much on track to get to our 10% by 2015. The margin expansion depending upon what it costs us to make the changes need to make, it may be a bit lumpy and it maybe more linear towards 2015. We have to wait to see what it cost us to take the actions necessary.

And our next question will come from Clint Fendley of Davenport.

First question, I know the guidance has changed here just slightly for North America. I am wondering -- obviously not a big difference, but were there any additional contract losses in the quarter or since that time in the region?

Clint, no. This is Tom, no there really aren’t. The reason we tightened up the guidance is for the last two or three quarters we have been talking about the 4.5% to 5.5%. We said we could get to the lower end of that range through actions that we would take, but that to get to the higher end of that range we need some tailwinds from the market. Obviously we have got no tailwinds from the market. We haven’t seen in general an improvement in the economic situation in the U.S. or North America in general. But in the U.S. particular and that’s the reason that that we have tightened up the range. We’ve seen the improvements that we knew we could get through our own actions.

And what about as far as and I know you’ve talked about the investments that you’ve made in some of your back office and you had anticipated that may be that could help you in the second half but it’s probably more of 2013 event, is that still your thinking on that?

It is. We’ve done as I’ve said in my comments we’ve had a couple of pilots that are underway at a number of branches. They are returning, promising results but until we roll it out across the enterprise it’s really pretty hard to give a definitive position.

And then the other aspect on your guidance I guess the CapEx is also down by about $25 million and I know that you explained in your commentary that a part of that at least is due to CompuSafe. I know you’ve spoken in previous calls about sort of tweaking the CompuSafe offering, is that something you are still attempting to do or is that off the table, maybe just a general update CompuSafe and where you stand with that?

Okay. I am going to give a general comment on CompuSafe, then Joe can give you any details. The issue on CompuSafe is we were not seeing the kind of margins that we thought we should for that solutions product. So we constrained the capital and that is driving up the margin on that particular opportunity and which is exactly what we had anticipated, so with that, Joe any other comments.

So we’ve streamlined the offering and standardized some of our processes and re-tiered our pricing in the U.S. to ensure that the customers are getting what they are willing to pay for. And that we are not incurring costs for things that our customers don’t see value in. And we are continuing to grow CompuSafe outside of the U.S. The margins outside the U.S. have proven to be much better than what we’ve experienced in the U.S. And so our focus in the past year, year and a half has been to get the profitability and the returns on CompuSafe in the U.S. up to levels that are acceptable. And that’s part of why you've seen slower growth in the CompuSafe service offering in the last year, year and a half. We still like the product very much. We think it’s a differentiator for us. We just got to make sure it serves us the returns that we expect for the investments we are making.

And the last question here on Venezuela. You mentioned just a minute ago in the prior question that you are assuming the devaluation in 2013. Is that in your guidance then?

Absolutely yes. For 2013 we have assumed that Venezuela’s local currency margin does not improve, we’ve assumed effectively flat profitability from operations year-over-year and then we put devaluation on top of that. So year-over-year we would expect Venezuela to be a negative impact on our earnings similar to what’s happened in 2012. Again we are planning for the worst and hoping for the best. We like our business in Venezuela. We like our management team. We like our position. We just got to manage through what is becoming an increasingly more difficult environment.

Our next question will come from Jamie Clement of Sidoti.

Joe, could you just repeat for me just because I couldn’t quite get it all. Your ‘13 guidance with respect to Latin America, I am not sure if you guided to Venezuela, specifically, obviously I heard your answer to Clint’s question, but with the devaluation, were you implying that margins in Latin America should be roughly flat in ‘13 versus ‘12? I can’t remember the word you used.

Sure, we didn’t reference Latin America margins specifically to 2013. What’s happening with our 2013 guidance is, globally the businesses margin is expanding very nicely within our targeted range, but when we assume that Venezuela has a devaluation and the margin dollars when you translate to U.S. dollars is a negative year-over-year, that has a diluted effect on the margin rate for 2013. We would expect Latin America to continue to grow in 2013 on a year-over-year basis; the margin dollars in rate, but Venezuela will be a drag within that.

So let me just put it this way, Jamie, the 7% that we provided to you includes the drag that we anticipate from Venezuela. Other than that, it would have been higher.

But the 7% is for ‘13, right?

That is correct.

Now let me just - I think we all know that your Latin American businesses are typically, all things being equal, more profitable than some of your businesses in your mature countries. I mean I don’t know what exactly you all are assuming in terms of a range of potential devaluation scenarios, but looking back to 2009, the last time this happened, I mean it’s not hard to make some assumptions and that’s a pretty big chunk if they were to devalue it to the parallel rate, right now, right? I am curious are you assuming full devaluation of the parallel rate or are you assuming some place in between?

We are assuming somewhere in the neighborhood of 30% to 50% devaluation. If there are such things as experts on Venezuela, everyone is predicting a 30% to 50% devaluation. We are no smarter than anyone else, so we are assuming somewhere in that range. Just to reiterate on Venezuela. The revenues are about 8% of -- Venezuela is about 8% of the total company revenues. We disclose those in the Q. The margin rates in Venezuela have historically been very strong and been much higher than the Company average. With the contraction in margins that we’ve seen in Venezuela this year, it is still above the Company average, but nowhere near as significant as it has been in prior years.

Switching gears if I may, this is a rare earnings season where we see organic revenue growth out of Europe, out of any company. And considering this has been a challenging geography for you for several years now, I am curious, Tom, for your thoughts about what is going right for Brink’s from a revenue perspective in that region?

Okay. It is in general obviously Europe is not the best from a macroeconomic perspective, but when you look at each of the particular countries, what you see it’s kind of a -- you have to look at each particular country. So France has been up year-over-year. The Netherlands has done a great job of increasing their revenues. Russia has done a very good job and a lot of that’s driven by our BGS operation, but Russia has done a good job of increasing their revenues. So when you add those together with the flatness of the rest of it, that’s pretty much where we see the growth that we’ve had in Europe.

And our next question will come from Michael Kim of Imperial Capital.

Just turning back to North America, can you talk a little more about competitive pricing and the volume environment how much is secular driven versus competitive?

I think that most of the pricing we’ve seen is a follow-on to the pricing that we’ve seen over the last two or three years. And so as we look at that we see some of the large Tier 1 banks continuing to have pressure, and as a result we’ve seen, so it’s -- you can call that secular or not, I am not sure. So if you really look at most of our reduction so far in 2012, most of that comes from contracts that we probably lost a year or so ago, and that we’re starting to lose and they’re starting to transfer out now as we speak. And there remains some pricing pressure within North America.

And has the level of contract, I guess, drop-outs similar this year as they were in last year?

Yes. There is no difference. We are winning contracts as well as having some impact from where we have to transfer out.

In terms of just new service offerings, can you talk about a little about the progress there, especially ATM services and any quantitative data you can provide on total contract value?

What I can give you at this point is probably anecdotal. But we are looking at two or three pilots around the world in some of those in the U.S. in terms of our new solutions in terms of ATM and other things. So that’s a work-in-progress right now. We are seeing some positive movement on that, but it would be premature to talk about particular customers.

And then one for Joe. Just looking longer-term on CapEx, is it your sense that this level here with a little less emphasis on maintenance and more on productivity, is this the right level to be thinking about or do you expect maybe further room on rationalizing the maintenance CapEx?

Michael, we’re working through our 2013 detailed budget right now. We’re going to continue to exercise prudence and judgment. We’re going to invest in the regions where we have growth and we’re going to be pretty tough on reinvesting in maintenance. We’re always going to invest to protect our employees. That is something we will always do. We will never compromise that. I hope we can continue to grow CapEx because we have the growth opportunities and investments that generate the acceptable returns. So when we get through our budgeting process after the fourth quarter earnings release, then we’ll provide more guidance on that.

[Operator Instructions] The next question will come from Doug Greiner of Compass Point.

Just one for Joe, SG&A was up $7 million from last quarter and there’s further leadership hiring coming. Will you update us with the outlook for SG&A going forward?

There is a lot of unusual items and different charges and expenses that we incur that hit SG&A, so sometimes it has some lumpiness, but in general it should be growing at about the rate of the revenues and costs in the businesses.

And then, can you just review the headcount reductions that you took? And is there more room there or are you done? And that’s it.

The headcount reductions in the U.S. have transpired other the last 1.5 year to 2 years. And they were in the neighborhood of probably 1,000 people or so. As we continue to look at solutions, and closing branches, obviously that could have an impact on headcount reductions. So there is nothing -- that’s region-wide in terms of the headcount reductions.

And Doug, to give you specifics for third quarter on SG&A, the two items in Venezuela and Argentina those charges hit SG&A this quarter. So that was about $8 million of incremental cost.

Our next questions will come from William Von Messler from Kinkillian, [ph] sorry.

I had a quick question on the Argentine contract. Can you give some more color in terms of this, the more business with the government, what happened that the extent of it?

Sure. This was actually a government incentive that was offered to the entire transportation industry to hire and retain union employees. It was enacted in 2005 during a difficult economic environment in Argentina. And the Argentina government decided earlier this year to terminate that benefit to the transportation industry. And we have determined that it’s unlikely we’re going to be able to collect that receivable from the government. It has been written off 100%. So there’s no other government receivables related to this item.

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

Could you give us some more color on global services during the quarter, specifically maybe some color on what happened with diamond, gold, and jewelry flows? And related to that you mentioned I think in the commentary that Amit Zuckerman [ph] was taking on additional responsibility. Are you reorganizing global services?

Well, let me talk about the last one first. We are not reorganizing gobble services as much as we are taking advantage of the fact that most of the Far East is global services. And so we are consolidating the Far East region with global services so that Amit takes on more responsibility and it’s an opportunity for us to reduce some of the overhead expenses throughout the company. So it’s not a reorganization of global services as much as it is just a cost reduction. That’s an opportunity for us. So, if you look at diamond and jewelry markets, it’s, they are kind of weak right now. This has got a lot to do with the economic situation throughout the world. We have had -- we continue to support a lot of the diamond and jewelry shows and there was just one in Hong Kong which would indicate that there will be some continued weak demand in that particular line of business. If you look at precious metals that is on the uptick, but it does vary a little bit about the particular market you look at whether it’s the Far East or London. So there is some -- if you have been reading the papers, there is some major instability in a lot of the mines in Africa, primarily South Africa but in general Africa. So that could have an impact. It’s unclear yet what that impact could be. So overall, Global Services is growing. But you do see some -- various of their particular markets have some pluses and minuses.

And just related to that. There was a lot of, I think, press about Brink’s opening a new gold vault in London. I don’t know if that’s open or if there were startup expenses related to that in the quarter that were meaningful?

There are no startup expenses that related to that in the quarter that were meaningful. It is started up, it is open.

And then just lastly, again in the commentary you mentioned value added services becoming a meaningful margin contributor at the end of 2015. Is that a reflection of the sale cycle the lead time that you need to get those services in place or is there something else going on there?

It’s mostly the lead time. It’s a much different sales cycle than our traditional businesses of CIT or money processing. So it takes a lot longer because you have to get much more involved with the overhead and finances of the bank itself, and you also have to then show them the savings that you can provide. So it goes from being a short-term sale to a much, much longer term strategic sale. And that’s really the reason for the extended sale cycle.

2015 is not that far away.

No, but we have people working on it hard, like I said we have pilots that are beginning.

[Operator Instructions] And showing no additional questions in the Q2, this will conclude our question-and-answer session. Ladies and gentlemen, we thank you for attending today’s Brink’s company conference call. The conference has now concluded. You may disconnect your lines.