Good morning. Welcome to the Brink's Company's Conference Call. Brink's issued a press release this morning. The company also filed an eight ks 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.
All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. As a reminder, this conference call is being recorded. Now for the company's Safe Harbor statement. This call and the Q and A session will 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. The information presented and discussed on this call is representative as of today only. 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, Vice President of Investor Relations and Corporate Communications. Mr. Cunningham, you may begin.
Thanks, Drew. Good morning and good afternoon, everyone. Joining me from London today is our CEO, Doug Pertz and our CFO, Ron Domenico. As you know, this morning we issued a press release to announce that we have entered into an agreement to acquire the majority of the cash operations of G4S. Please note that during this call, we will refer to historical and projected non GAAP financial results.
Non GAAP financial results exclude certain retirement expenses, reorganization costs and other items related to acquisitions, dispositions and tax related adjustments. In addition to these items, our non GAAP results exclude Venezuela due to a variety of factors, including our inability to repatriate cash, Venezuela's fixed exchange rate policies, currency devaluations and the difficulties we face operating in a highly inflationary economy. We believe the non GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today, including those referring to our guidance, focus primarily on non GAAP results. Reconciliations are provided in the appendix to the slides we're using today, in this morning's eight ks filing and in our fourth quarter twenty nineteen earnings materials posted on the Investor Relations page of brinks.com.
With that, I'll now turn the call over to Doug. Thanks, Ed. Good morning and good afternoon, everyone, and thanks for joining us for what we think is a very exciting news. This morning, we announced that Brink's has agreed to acquire the majority of cash operations from G4S for approximately $860,000,000 The closing will occur, oh my goodness. The closing will occur over multiple phases.
Well, with about half the transaction expected to close within sixty days and the remainder closing by year end during multiple closing transactions. Let me begin by summarizing why we're excited about this transaction. First, immediately on closing, it will substantially increase our global market share and operating footprint. This will be our largest acquisition and is directly in our core business. Next, it gives us a new platform for revenue and profit growth with strong new positions in high cash markets in Eastern Europe and Asia.
We plan to move quickly to execute our already proven Strategy one point zero organic growth initiatives across this new platform, and we'll pursue additional Strategy 1.5 core acquisitions in these new markets as well. And third, we plan to accelerate revenue and profit growth with our new Strategy two point zero initiatives, which are aimed at expanding our presence throughout the global cash ecosystem. These two point zero initiatives will have an even broader expanded platform to grow on with now 53 countries. In short, we see this acquisition as an excellent strategic fit at an attractive purchase price. It's a great opportunity for us to add substantial growth in revenue, profits and shareholder value.
In 2019, the Jeets 4S operations that we're acquiring generated pro form a revenue of approximately $800,000,000 operating profit of 85,000,000 and adjusted EBITDA of about $115,000,000 This represents a purchase multiple of approximately 7.5 times 2019 pro form EBITDA. On a post synergy basis, we expect to achieve a purchase multiple of approximately 6.5 times with cost synergies achieved over the next two years. The purchase price and result multiples reflect our disciplined approach on capital allocation, consistent with the other 13 acquisitions we've completed since 2017. The acquisition includes 17 cash management markets, including 14 new markets, primarily in Benelux, Ireland, Eastern Europe and Asia. The markets in Eastern Europe and in Asia are especially fast growing and cash sensitive and cash intensive.
They represent strong platforms for our future growth. The acquisition excludes G4S cash operations in The U. S. In The UK, South Africa and several smaller countries. It also excludes the entire G4S retail cash solutions business, mostly of which is in The U.
S. While we expect this acquisition to be accretive to earnings in 2020, it is too early to update our full year guidance. The 10% operating profit growth and 13% EPS growth contained in our current guidance for 2020 includes $20,000,000 of operating expenses related to Strategy two point zero and only very little revenue from those two point zero services. Our guidance also includes another $15,000,000 of unfavorable FX translations in Argentina, which is expected to turn positive versus the prior year in the fourth quarter of this year. These items result in our current earnings guidance being heavily back end loaded for the year.
And given the phase in of the closings of this transaction, our results for 2020 are expected to be even more heavily loaded towards the second half. We'll update our guidance for 2020 and provide financial targets for the next three year period through 2022 that is at our June. Turning to Slide four, this slide summarizes again the pro form a 2019 financials for the deal, including $800,000,000 in revenue, 85,000,000 of operating profit and $115 of adjusted EBITDA. 17 countries are being added, 14 of which are new to Brink's and again, good platforms for growth in Eastern Europe and Asia. And together, other metrics include 8,600 smart safes and recyclers will be added to our existing global network, 3,300 additional vehicles and servicing of ATMs of approximately 31,000 ATMs.
Slide five shows that we expect our global cash operations footprint will look like this at the closing. The areas in blue represent our current cash management footprint. The 14 new markets being acquired are highlighted in red. Upon closing, Brink's will have strengthened its already strong global leadership. And in many and like you know, in any route based business, market share and density are key to profitability.
And we have strong market positions that are even stronger in many of these countries. Now I'll turn it over Ron to cover more financials and financing on the transaction. Ron?
Thanks, Doug, good day, everyone. We've already shown a few of the key trailing twelve month metrics of the G4S cash businesses that we're acquiring. This slide shows the pro form a combination of those metrics with Brink's. On the top half of Slide six, you can see the revenue, adjusted EBITDA and adjusted EBITDA margin for Brink's 2020 guidance midpoint for the G4S 2019 pro form a acquisition perimeter for the estimated synergies and finally for the combination. The combined business on a fully synergized pro form a basis is expected to have $4,600,000,000 of revenue and $745,000,000 of adjusted EBITDA with a 16.3 EBITDA margin.
On the bottom of this slide, you can see the contribution of the G4S businesses, including synergies in red and the Brink's businesses in blue. We thought that it was important to illustrate that following the combination, Argentina will represent only 10% of total adjusted EBITDA. While our Argentine business has performed exceptionally in local currency, the timing and magnitude of peso devaluation has been a headwind to Brink's U. S. Dollar results.
While the first closing should occur within sixty days, the uncertain timing of the subsequent closings makes it premature to adjust our full year 2020 guidance. As Doug said, we'll have more information when we release our first quarter earnings and detailed projections will be presented at our Investor Day in New York City on June 1. Turning to Slide seven. You can see our net debt and leverage for 2017, 2018, 2019, our guidance for 2020 and 2020 on a pro form a basis, reflecting the acquisition of the G4S cash businesses. We plan to fund the $860,000,000 purchase price and transaction related expenses with cash and debt.
We have a very strong balance sheet and ample liquidity to consummate this deal. Initially, we'll draw on our revolving credit facility and plan to utilize the incremental term loan accordion provision under our credit agreement. Thereafter, we may explore accessing the credit markets in The U. S. And or Europe to reload debt capacity.
Upon closing the entire transaction, we expect our net debt to be approximately $2,150,000,000 And on a fully synergized pro form a basis, our leverage ratio to be approximately 2.9x adjusted EBITDA. We expect that cash flow from our existing business, combined with the completed and disclosed acquisitions, could reduce leverage back to twenty nineteen levels within three years. With that, I'll turn it back to Doug.
Thanks, Ron. This slide summarizes much of what we've already spoken about earlier in our slides and marks a good time for us to open up for questions. But before I do so, I'll close by saying that we firmly believe this transaction will prove to be yet another significant inflection point in the profit trajectory of this business. It will certainly be our largest acquisition in one hundred and sixty years. We closed on the Dunbar acquisition about a year and a half ago now.
And it represented not only the consolidated of The U. S. Consolidation of The U. S. Cash market, but also a strong value creation transaction with a post synergy multiple of under 6.5 times LTM EBITDA.
The acquisition we're announcing today is over twice the size of the Dunbar acquisition in revenue and LTM EBITDA and also has a post synergy multiple of about 6.5 times twenty nineteen adjusted EBITDA, representing yet another inflection point to drive shareholder value. It's important to note that only three short years ago, our financial results lagged well behind those of our best competitors. In March 2017, we began executing what we call Strategy one point zero growth initiatives and our Strategy 1.5 core acquisitions. Over the past three years, on a non GAAP basis, these initiatives rose 27% increase in revenue with a 7% compound annual growth rate for organic revenue growth, 81% improvement in operating profit, which equates to a 22% compound annual growth rate per year over the last three years, a 65% increase in adjusted EBITDA and a 71% increase in EPS or 19% compound annual growth rate for the last three years. We plan to extend this track record of success over our next three year strategic plan period.
At our June 1 Investor Day, we'll disclose more on our new strategic plan, which includes an expanded Strategy one point zero point wider and deeper into existing and into new markets that we've acquired today. And we'll continue to pursue additional 1.5 acquisitions in our core businesses and our new markets that we're adding through this acquisition give us the opportunity to do just that and to support our Strategy two point zero efforts through further penetration of our broader global platform. This acquisition significantly expands our growth platform for all of these executions of our strategies over the next three years. And I'm confident that Brink's has never been better positioned to create substantial shareholder value in the future. We very much look forward to our June 1 meeting with hopefully many of you, and we'll discuss more about this acquisition and our new strategies over the next three years.
With that, I'll now open it up for questions. Drew, if you'd like to open it up for questions to the phone lines.
We will now begin the question and answer session. The first question comes from George Tong of Goldman Sachs. Please go ahead.
Hi, thanks. Good morning. Good morning. You outlined potential synergies of $20,000,000 from the acquisition. Can you elaborate on the sources of these cost synergies and discuss a bit what kind of revenue synergies you look for in the deal?
Yes, George, first of all, we don't have any revenue synergies that we've laid out. The 20,000,000 are only cost synergies, which is the normal approach to these types of core and core acquisitions. Owner also will say the numbers that we provided of the approximate $100,000,000 in revenue is 2019 trailing. And certainly as we do and we've consistently done with our other core business, our core Brink's business, we anticipate that we will grow that number into the future with some potential issues and overlap of some of the business and revenue as we go forward. We'll get more information out to you related to the synergies.
The synergies are related to overlaps of our businesses and the markets, as well as other cost synergies related to the combining of our businesses that are generally very nice, even though there aren't huge overlaps in the market like Dunbar was. In this case, though, there are still significant overlaps because of the operations of our business. And this is a core, core acquisition, core, core, core adjacent acquisition.
Got it. That's helpful. And then as a follow-up, you're assuming $800,000,000 revenue from G4S on an annualized basis, that's 2019. What kind of divestitures are you assuming would need to happen for the deal to get cleared from an antitrust perspective?
Relatively insignificant, we don't anticipate much antitrust issues at all.
Got it. Thank you.
The next question comes from Tobey Sommer of SunTrust. Please go ahead.
Thank you. Could you comment on potential revenue synergies in your different lines of business? Thanks.
Yes. Thanks, Tobey. As I said, we don't have baked into any of this. First of all, we don't have baked in any growth in the revenue. What you're looking at is the revenue and the numbers that Ron presented, our revenue based on LTM.
What we view this as a lot of the things that we have been able to do with our core Brink's business over the last three years, which has translated into as we recap some of the numbers, a 7% compound annual growth rate in on an organic basis with more on top of that through acquisitions. We think that we have the I don't know if the formula is the right way, but certainly the approach to hopefully grow and continue to accelerate organic revenue. And this gives us a platform both in the new markets as well as some of the overlap markets continue to drive that as we've done in our core businesses over the next number of years. So that's why we're pretty excited about this, especially as we look at a much deeper, denser platform in Asia, as well as a new or greater platform in Eastern Europe as well.
Thank you for the answer. In terms of the different businesses that you're acquiring, Could you delineate kind of what's included and what isn't since there have been reports of a potential divestiture spin off for some time? Just kind of want to bracket what's included and what might not be?
Yes. So again, it's 17 different businesses and countries. What's specifically excluded in the bigger, more meaningful pieces that are excluded are The UK cash business, which is effectively their largest single country, South Africa cash business, a number of others very small or smaller cash businesses, mostly throughout Africa, and often because they're heavily integrated into their other businesses. And then the retail cash solutions business, primarily in The U. S, which is their business that pursues the larger retail solutions that are the automated recyclers and other types of retail cash solution businesses.
Okay. And does it include a BGS like service? Or is that an opportunity for you to expand the network with new routes there?
We are in discussions and have agreement in principle to acquire a similar sort of business that they also have as well.
Okay, perfect. Was the business growing in 2019, whenever we have kind of printed financials?
Yes, the business did grow. It varied by country, but it did grow in 2019 versus 2018. And again, there's FX in all these countries that makes a difference. But yes, the business did grow. And again, we expect to not only continue to see that growth, but hopefully to see increased growth on top of that going forward as we have done in the rest of our core business.
Okay. Just two other questions for me. Which are the largest countries of the new markets that acquiring?
The Netherlands is the largest market that we're acquiring, which is a very strong, good market, advanced market in terms of solutions with a high population of recyclers and smart safes. So it's a very attractive market as well. And Belgium would kind of be fitting into that in that market as well. And then if you look out throughout Asia, as we look at the markets and the numbers there, we have significant opportunities in places like Malaysia, Philippines, Indonesia, which are great additions to our existing businesses out there, plus Hong Kong as well.
Thank you. And last question for me is how do you think about the balance sheet from here once you close make the two closings? Do you delever for a period of time? Or are you still comfortable pursuing acquisitions? And if so, up to what leverage?
Tobey, this is Ron. A lot of these transactions are opportunistic. They happen when a family is ready to sell or when we're able transactions with public companies. And those are very lumpy on a timing basis. We want to make sure that we have the capacity to continue to pursue accretive acquisitions.
In my prepared remarks, I talked about the pro form a leverage immediately following this deal at the end of the year on a fully synergized basis of about 2.9 turns. We feel very comfortable at that level. We can flex at least a full turn higher than that for a very short period. But the cash flow that we're generating from our businesses will delever the business over time. In fact, right now, we see that within three years with no additional acquisitions, the leverage will be back to the 2.4 turns that we had in 2019.
So the business does generate quite a bit of cash and will continue to delever naturally. I think the excitement that you'll hear about on June 1 with our Strategy two point zero initiatives, which have higher margins and lower capital requirements should generate higher ROIC that will delever us even faster in the out years. As
we also said on this, this gives another 14 additional new markets in which we can look for true core, core bolt on acquisitions that are in our business that are nicely accretive as well. And those don't necessarily have to be large bites necessarily like this or a Dunbar. But certainly, we want to be well positioned and it's probably a pretty good time to take a look at how we can get some good long term financing to help support that as well.
Thank you,
The next question comes from Jamie Clement of Buckingham. Please go ahead.
Hey, good morning, gentlemen, and congratulations. Thanks, Jamie. Thanks for
your I was
a little unclear about something. So as you go through the regulatory process in all of these countries, do you need to are you going to be closing this on a piecemeal basis? Or are you going to wait for to get approval everywhere and then close the whole thing? I just wasn't clear about how this is going work. Yes, Jamie, no, as we said within the next six weeks or so, we anticipate that we'll do the first set of closings.
That first closings will represent more than half of the enterprise value and maybe more than that and countries associated with that. And then as we go through the other regulatory and other jurisdictional things that we need to meet, we'll continue to do the other closings, which we anticipate that we'll do well before the end of the year. And I want to also stress that we think that there is very little issue or reason to be concerned about antitrust.
Okay. Okay, great. And I apologize if you said this and I didn't catch it, but should we just for the
purposes of modeling, should we assume that their CapEx requirements are roughly equal to their DNA? I think that's correct. As we get into a little bit deeper, similar to what we did with Dunbar, we may allocate over the next year and a half or so some additional CapEx that may be needed. But in general, the 4.5% to 5%, I think, a very reasonable look at it. Okay, great.
Thanks very much for your time.
The next question comes from Sam England of Berenberg. Please go ahead.
Hi, Sam. Hi, Sam. Just a couple of questions for me. So the first one, you talked about rolling out the one point zero initiatives in some of the new markets. I just wondered what the margin profile is like across the markets and how varied it is.
Do we think about this like your developed to emerging markets split currently or the margins broadly the same in all of the businesses you're acquiring?
They're not broadly the same. They vary fairly significantly and that's a great opportunity, just as they do in a number of our businesses. And hopefully, over the last three years, we've been able to without necessarily all the specifics been shown to all of the investors, how we've been able to improve those margins heavily through our launching and our use of the initiatives in part of our one point zero strategy. And we can probably name a couple of key countries and businesses where we've seen significant margin improvement and growth, again, organic growth related to that as well. So we think that we'll be able to continue to leverage that.
There are a number of countries that we think that margins could and should be improved based on it being below the average that we presented, if you just take a look at what the $85,000,000 in top income versus the $800,000,000 in revenue is.
Okay, great. And then the next one is just around Strategy two point zero. I just wondered whether this acquisition means there's going be any big changes to how that plan would have looked if you'd not done the acquisition or whether the plan will be the same for the core business and then you've just added an extra leg with the G4S acquisition?
Yes, I would say, yes, it will be different because we'll have we have now added a significant number of new countries that we can leverage of the two point zero strategies on. Now, you take a look at the rolling out of it, it may be not has not changed that dramatically. And that we have core countries in our core business Brink's that will be starting the rollout of the two point zero. But this gives us the ability to leverage on 14 more new countries, which we think should be very good.
Okay, great. And then the last one is just around, I suppose, you're acquiring quite significant Asia operations. I just wondered whether there's any considerations around the coronavirus and the impacts that might have on the business in the sort of latter stages of doing the deal?
There is consideration, but we don't we're not buying a business for the next couple of months. Hopefully, this isn't something in the longer term that's going to be a major issue. And there's really no business that we're buying in China. Certainly, Hong Kong will be impacted. Hopefully, it's not long term, though.
Okay, great. Thanks very much, guys.
And we have a follow-up from Tobey Sommer of SunTrust. Please go ahead.
Thank you. With respect to the new markets that you're entering, does this transaction give you room for further consolidation within those markets? Because I'm
Yes. Not really
sure what the structure
Tobey, I think so you're asking that maybe in a couple of ways. I think it does from the couple of ways standpoint. So this is additional opportunities for us to do true core on core acquisitions in those markets. And I think it does give us the opportunity from that standpoint in new markets that we haven't been in today. And secondly, we have we will have the balance sheet to do those types of acquisitions going forward.
Yes, Great.
Thank you.
The question and answer session and the Brink's Company's conference call have ended. You for attending today's presentation.