The Brink's Company (BCO) Q4 2013 Earnings Report, Transcript and Summary

Welcome to The Brink's Company's Fourth Quarter 2013 Earnings Call. Brink's issued a press release on fourth 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 introduce your host, Ed Cunningham, Director of Investor Relations and Corporate Communications. Mr. Cunningham, you may begin.

Thanks, Drew, and good morning, everyone. Joining me this morning are CEO, Tom Schievelbein; and CFO, Joe Dziedzic. This morning, we reported results on both the GAAP and non-GAAP basis. The non-GAAP results exclude a number of items including U.S. retirement expenses, acquisitions and dispositions, as well as some currency-related items. The non-GAAP results for 2013 use a full year tax rate of 33% versus 37% in 2012. A summary reconciliation of non-GAAP to GAAP earnings is provided on Page 2 of the release. More detailed reconciliations are 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. 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 of results. Fourth quarter earnings from continuing operations came in at $0.79 per share versus $0.60 in 2013. The segment margin rate was 8.8%, up from 7.5% in last year's fourth quarter. Organic revenue growth was 11%. Currency translation had a negative impact of $45 million on revenue, $9 million on operating profit and $0.13 at the EPS level. Full year 2013 earnings were $2.37 per share versus $2.32 in 2012. With a segment margin of 7.2% in both periods. Organic revenue growth for the year was 8% and currency translation had a negative impact of $122 million on revenue, $23 million on operating profit and $0.31 at the EPS level. For those who model our results, please note that Page 8 of the press release provides a summary of selected results and outlook items that should be helpful in forecasting our 2014 performance. I'll now turn it over to Tom.

Thanks, Ed. Good morning, everyone. The improvement in fourth quarter results was driven primarily by strong performance from international operations, which accounted for 77% of our 2013 revenue. Profit growth in Latin America, led by Venezuela and Brazil, more than offset a decline in North America. As Ed noted earlier, we had a significant headwind from currency translation, primarily in Latin America. As we begin 2014, we expect our full year margin rate to remain about 7%, and organic revenue growth in the 5% to 8% range. Our initial guidance reflects lower profits from international operations and improved results in North America. So let me focus initially on the 2013 results. Fourth quarter results in each of our 3 international regions improved, with Latin America leading the way due to strong revenue and profit growth in Venezuela and Brazil. Profits also improved in Europe led by France, and throughout most of our relatively small Asia-Pacific operations. Our largest and most profitable market is Latin America, which accounts for 43% of our annual revenue. In addition to the strong performance in Venezuela and Brazil, both Argentina and Mexico also delivered improved results. Given the recent economic weakness in Brazil, we were pleased to achieve profit growth there for the quarter and the full year. Our narrative outlook for Mexico has been lowered based on recent expiration and subsequent renegotiation of certain customer contracts at less favorable price and volume levels. As a result, we expect 2014 profits in Mexico to be flat versus 2013. However, we still believe we will achieve our 10% margin goal there, but probably not until 2016. Our 2014 outlook for the entire international segment assumes a profit decline due to unfavorable currency changes, which more than offset expected operational improvements. Now let's move on to North America, which accounts for 23% of our annual revenue. Fourth quarter profits were down versus last year, driving the full year segment margin rate in North America to slightly below 2%, which is the lower end of our guidance range. As I noted on our previous calls, our goal is to achieve a 7% segment margin in North America by the end of 2016. All things being equal, achieving a 500 basis point margin increase on a $900 million revenue base will have a substantial impact on profits and shareholder value. This chart shows the progression of our margin expectations for North America, excluding the impact of planned spending in our global payments business, which I'll cover in a moment. We expect to expand our margin to somewhere between 3% and 4% in 2014, and to reach 7% by the end of 2016. The actual rate of change from year-to-year will probably vary, but 7% is the goal. We have a plan to get there and we're going to provide regular updates on the milestones we're using to track our progress. Last quarter, we introduced our goal to substantially improve branch profitability in the U.S. Based on internal profitability metrics, 45% of our branches were considered to be performers at the end of 2013. Our goal is to increase the number of performing branches by about 10% annually over the next 3 years, ultimately getting to 75% by the end of 2016. We are focused on shifting our revenue mix towards higher margin growth opportunities, such as money processing, global services and CompuSafe. These businesses currently comprise about 48% of our revenue mix in the U.S., so increasing this to 51% will take some time as new contracts roll on and off. But we should see meaningful progress over the next 3 years. Our North American management and sales teams have been completely revamped to focus primarily on selling these higher margin solutions, in addition to cash-in-transit. We've taken definitive actions in 2013 to reduce labor and administrative costs, and to stabilize our IT infrastructure and we expect to use to lower year-over-year cost in the U.S. by several million dollars in 2014. In addition to reducing cost by managing labor more effectively, we're investing in technology to improve the efficiency of branch operations. For example, we are currently pilot testing 2 initiatives. One is a new route planning system, which will help manage logistics, labor and other costs more efficiently. The other is the introduction of handheld tracking devices for our employees. We expect to begin full deployment of both initiatives in the third quarter, with a full rollout by the year end. Starting in 2015, these 2 projects are expected to have a significant impact on productivity. We're also implementing a centralized billing system throughout our branch network. This initiative, as well as our more streamlined CompuSafe service offering is an additional factor that we expect will begin to have a positive impact on cost and productivity in 2015. Finally, as we get the more detailed information from the technology improvements I talked about, we will have the data necessary to manage the use of overtime and limit it to the necessary cost for effective use. Our cost reduction efforts are by no means limited to North America. We recently hired a new global procurement executive, who is focused on capturing the untapped cost synergies that should be available to a $4 billion company with global operations. Historically, Brink's has been managed in a very decentralized fashion, which is the right way to manage certain functions that are unique to a country or a region. Security is an obvious example. On the other hand, we have a great opportunity to centralize management and reduce cost and many other functions. Examples of this include the purchase and maintenance of our fleet and other equipment, information technology resources, travel management, and back-office functions such as finance and HR. Centralized management of these costs is an important part of the cultural transformation we are making throughout our global business. We are also reviewing the structures of some of our larger business units to ensure that we have the appropriate spans of control, and layers of management. We want to ensure that we have an effective, non-bureaucratic structure that is as efficient as possible. Now let me switch gears from the more operationally-driven strategies to the broader topic of growth. It is vitally important for Brink's to pursue profitable growth opportunities. These include organic and inorganic growth in our traditional lines of business, growth in higher value of services, including our global services business, new solutions, our small but growing payments business, and finally, the investigation of adjacent businesses such as home security. Latin America is the primary driver of our current growth strategy and we will continue to invest there. With the exception of global services, we have not counted on significant revenue growth from our Europe and North American operations. We will also continue to invest in longer-term growth initiatives and adjacencies that provide opportunities to leverage the Brink's branded into new security-related markets. Examples include the end-to-end management of ATM networks and retail solutions. We've had some initial success in Europe, and expect to leverage this experience in other geographies. We are continuing to invest in our global payments businesses. Most recently, with the launch of Brink's Checkout, a payment processing service that enables customers to sell online to global markets. We now offer walk-in bill payment, mobile top-up, prepaid payroll cards and online card processing, and we have a reloadable prepaid card in the works for 2014. We currently operate in the U.S., Brazil, Mexico, Colombia and Panama, serving dozens of enterprises, and now more than 5 million consumers per month. Increased spending in global payments that I mentioned earlier is related primarily to the promotion of a Brink's branded reloadable card. This investment is expected to reduce profit in the U.S. by about $5 million in 2014 and slightly less in 2015. Our current expectation is that our payments business will be profitable in the U.S. in 2016. In summary, 2014 will be a year in which we strengthen our focus on controlling costs, execute on our productivity investments, and continue to reposition our portfolio of businesses for profit growth in 2015 and beyond. To recap some of the 2013 activities, Joe is going to point out, we've also made meaningful progress on being better stewards of our capital expenditures, in addition, our legacy liabilities and the related cash flows have been greatly reduced. We recently completed the sale of our Threshold subsidiary's ATM network and payment processing businesses for $50 million, which generated a pretax gain of $19 million. More importantly, we retained ownership of the Integrated Managed Services business. This is something we call Brink's IMS and it enables us to offer that end-to-end ATM management to our global customer base. This is a good example of how we intend to offer more sophisticated and higher-margin solutions to our customers. We also completed the sale of ICD, which is a China-based commercial security business for $33 million, which resulted in a pretax gain of $10 million. These are the latest of several transactions that have reshaped our business portfolio. Over the last 2 years, we've also exited CIT markets in Germany, Poland, Turkey and Hungary and guarding businesses in France, Germany and Morocco. Our commercial strategy is aimed at achieving longer-term growth by bringing new, value-based solutions to the market. In addition to our ongoing investments in Latin America, we're investing in adjacent security-related markets where we can offer solutions that leverage the power of the Brink's brand. Examples include the Brink's IMS and global payments. Finally, one area under consideration is a potential reentry of Brink's into the home security market, which we exited in late 2008 through the spin-off of our Brink's home security unit. Our non-compete agreement recently expired and we're getting inquiries about the prospect of reentering this market. Market research leads us to believe that Brink's is still recognized by consumers as the #2 brand in this market. In an attempt to address the numerous inquiries we've received, I want to let our current and prospective shareholders know that our review is ongoing, that we have not made a decision as to how or whether we will reenter the market. We will, of course, disclose any significant developments on this front. Until then, we trust you will understand that we will not comment further on this topic. I'm now going to turn it over to Joe, and when he's done, we'll open it up for questions. Joe?

Thanks, Tom. My comments today will focus primarily on fourth quarter and full year results, our 2014 outlook and our changing approach to capital spending. I'll also provide an update on our legacy liabilities. Fourth quarter organic revenue growth of 11% fueled segment profit growth of $18 million, which included $9 million of unfavorable currency. The profit increase, excluding currency, was $27 million and was driven primarily by strong revenue growth in Venezuela and higher revenue and cost actions in Brazil. At $0.79 per share, the fourth quarter was the strongest quarter of 2013 and consistent with our typically higher earnings in the second half of the year. For the full year, organic revenue growth of 8% led to an increase in segment profit of $15 million, which included unfavorable currency of $23 million. The profit increase excluding currency was $38 million and was driven primarily by strong revenue growth in Venezuela, Argentina and much of the Asia-Pacific region, and offset by the decline in the U.S. business from price and volume pressures in addition to higher security costs in 2013 versus 2012. The fourth quarter earnings per share bridge highlights that segment operating profit drove the higher EPS while overcoming $0.13 of EPS drag from unfavorable currency movements, primarily in Venezuela, Brazil and Argentina. The full year earnings per share bridge highlights that segment operating profit included $0.52 of improvement before currency. But the unfavorable currency impact of $0.31 was a significant drag on earnings, as Venezuela, Argentina and Brazil suffered from devaluations in 2013. The noncontrolling interest increase was driven by Venezuela, in spite of the currency decline and the tax improvement was also driven primarily by Venezuela. As Tom noted, we expect organic revenue growth in 2014 to remain in our historical range of 5% to 8%, with continued growth in Latin America more than offsetting relatively slow growth in North America and Europe. We also expect our 2014 segment profit will be heavily weighted towards the second half of the year. This follows our historical pattern of second quarter wage increases in Latin America, which are typically recovered later in the year through price increases and increased economic activity in the second half that generate stronger margins. This pattern has been fairly consistent over the years, but unusually [indiscernible] to have impacted the quarter splits, such as the Belgium theft loss in the first quarter of 2013, and the unusually strong performance across the Latin American region in the first quarter of 2012. As of today, we expect the 2014 quarter splits to follow our historical pattern of being much stronger in the second half. Full year cash flow from operating activities, excluding changes in customer obligations and discontinued operations, declined by $34 million due to higher working capital to support growth in Latin America and the timing of insurance recoveries. Full year capital expenditures and capital leases declined by $13 million as we continued to reduce maintenance capital spending and allocated more of the spend to product productivity projects. The North America region decreased CapEx by $7 million, primarily due to lowered armored vehicle spend. International segment CapEx spend declined $6 million, as lower spending on facilities and equipment more than offset an increase in information technology spending. Net debt decreased by $20 million since the end of 2012, due mainly to our disposition in acquisition activity during the year. We're continuing to make good progress in our efforts to reduce and refocus our capital expenditures. The decline in our reinvestment ratio demonstrates how our focus on maximizing asset utilization and maintenance CapEx has enabled us to reduce our annual spend to a level that is more in line with depreciation. Our 2014 plan calls for a capital spend between $200 million and $210 million, as we continue to manage CapEx to a reinvestment ratio of about 1.1. In addition to reducing our CapEx, we have reallocated our spend to focus more on driving productivity in our operational processes. We have reduced our spending on vehicles and facilities and focus more of it on information technology to enable process efficiency. Some of this reallocation was through old-fashioned hard work and brute force, but we're starting to make progress on more effective implementation and management of projects and negotiating better value from our suppliers, both in the form of lower prices and expanded services at the same price. We will continue to maintain the level of safety and security that Brink's is known for to protect our employees and our customers' valuables. The higher interest rates in 2013 and a strong Equity Market had a significant positive impact on our legacy liabilities, which were remeasured as of year end. The underfunding of our primary U.S. pension liabilities improved by $150 million, and our UMWA healthcare funding improved by another $115 million. Together, this represents a 50% improvement in total underfunding. The underfunding improvement is a welcome trend reversal, but an even more positive outcome is the lower expected cash payments to the U.S. pension and the UMWA. We expect that the next 5 years requires only $110 million of payments to the primary U.S. pension, which is down from $226 million; and the UMWA liability is not expected to require a cash payment from the company until 2033 because the existing trust is projected to cover payments until then. In addition to this positive news, in 2013, we executed actions that will allow us to tax-efficiently fund our primary U.S. pension payments. The great news is that the U.S. pension payments are only $110 million over the next 5 years, well below the amount we can tax efficiently repatriate. We have worked very hard over the past few years to avoid using company stock to fund the pension, and we believe we have accomplished this objective with our 2013 actions. So to restate, we plan to use cash to make the U.S. pension payments over the next 5 years. As Tom stated, our outlook for the 2014 segment margin rate is about 7%, which assumes profit growth in North America, slightly higher profit in Europe from cost actions, and lower profits in Latin America from unfavorable currency in Argentina and Brazil, a slight decline in Venezuela profits and productivity investments. We are assuming there will not be a devaluation in Venezuela, which is difficult to predict. We will continue to make investments in adjacent businesses while we explore reentering the U.S. home security market. Drew, let's open it up for questions.

[Operator Instructions] The first question comes from Jeff Kessler of Imperial Capital.

I noticed that while you don't break out -- well, you don't break out your growth in Latin America country-by-country, you do refer to it. One of the largest components of Latin America that -- where you made a very large acquisition of what you did not own several years ago, the remaining 80% was Mexico. I'm wondering if you could give us an update on where Mexico is in terms of its relative margins compared to where you bought it, where we kind of knew where it was at that point, what the integration of that is, with regard to any other services that may be added in Mexico and what the competitive situation is in Mexico, since it seems to be a big -- it's a big portion of that Latin American chunk.

Yes, Jeff. Tom. So what we've done in the past is we bought Mexico, the 80% we didn't own in 2010 and we've gone from 0% margin in '10 to about 2.6% in '11 to 4% in '12, and this year it's like 5.1%. So we're making progress as we continue to revamp the operations in Mexico. So everything -- specifically else to add, I mean, what -- we're working very hard in Mexico to make sure that we invest in productivity. I think we've told you in the past that we bought it for less than book value and we've been investing in terms of the capital for both branches, as well as armored vehicles. And so Mexico remains a very positive part of our business. It has slowed over the last year or so, but hopefully we'll see that turnaround.

All right. Are you expecting any increase in business in Brazil over the next -- when I say, increase in business in Brazil, are you expecting any type of growth above and beyond what you've been seeing in Brazil because of the 2 -- to the 2 major events that are going to be occurring a couple of years apart, and that's in the sports world there.

Yes. I assume you're talking about the Olympics and the World Cup?

Yes.

Most of that -- we'll probably see a little bit of increase, but most of that will impact the companies that do guarding as opposed to cash-in-transit. So I wouldn't expect a large change from either of those 2 sporting events to our business. We clearly have -- are going to get growth in Brazil and we're working hard on that. But I think assigning too much of it to the Olympics or the World Cup would not be appropriate.

Okay. Also I've realized what currency translation gives us currency translation can bring back or take it -- it can bring back at some point in time. Nevertheless, you've seen some very, very volatile currency markets in the last year or 2, larger than we've seen before. Does this have any impact on your past, I was going to say reluctance to totally hedge, but again, does it have any change -- are you expecting any change either in hedging plans or whatever you want to do to kind of lessen the impact of these currency fluctuations on your P&L?

Jeff, we're naturally hedged in every country because our -- almost entirely across the board, our local revenues and local costs are in the same currency. So the exposure becomes the income that you would repatriate out of those countries, and so once we make the determination of how much we're going to repatriate from a particular country, and repatriate doesn't mean always to the U. S., it means to other parts of the world or to the entity structure. So we hedge the dividends and the income that we plan to repatriate, but hedging the reported income would not be a good economic decision in our view. It certainly could reduce stability, but it wouldn't necessarily match up with the cash flows from an economic standpoint. So we live with the ups and downs of currency movements and hope that over time, it ends up balancing out.

[Indiscernible.]

Yes. Well, that's what I said what take -- if you can give us back at some point. Are you satisfied with your portfolio at this point in Europe? Obviously, you've brought a lot of minority stakes into full-blown stakes. You've upped them. You've got out of a certain -- you've got out of some countries now and in the last year or so, you've gotten out of some more countries. Are you at a point at which you feel that Europe -- that what you have in the portfolio can be managed correctly, so that at least you maintain a pretty stable margin there?

Yes, mostly Jeff. I mean, we'll continue to look at every operation and make sure that it's continuing to perform up to our expectations. So there could be other smaller movements. But I think most of the portfolio analysis and changes that have taken place in Europe have pretty much completed that.

All right. And one final question. With regard to the -- your change in capital allocation and the capital -- I would say, capital expenditures on trucks, things like that without minimizing, or let's say, diminishing your ability to protect both your brand name as well as the people inside the trucks and provide good service. Are you both bringing it in terms of capital expenditures and in terms of pricing the company more into line with the competitive -- where the competitive didn't ask is in large cities, particularly in the East, where you have lost share?

I think the answer to that's yes.

I mean, I look out my window everyday and I see...

I mean fundamentally, what we're doing is we are becoming much more disciplined in the use of capital, and it's become a much more rigorous action for the various operations to get the capital from us. So Joe and I spend a lot of time going over capital projects and what the returns are. Whether it's the U.S. or any of the other countries. Joe, you want to...

Sure, I would add, Tom made reference to the hiring of a global procurement leader and what I'll tell you is, we have not been anywhere near as effective at leveraging the scale of being a global $4 billion company as we should have or could. And so we are in process of value engineering, reengineering our vehicles. We have had a team of security procurement and fleet management together for a full week. In fact, at the end of last year, to reevaluate how we manage our fleet, how we acquire our fleet and what fleet application we need given all of the different markets we operate in. And to your point, there's some markets where there are various levels of security appropriate. And we will be more flexible about that going forward and match the security with the threat, and we believe there's opportunity for us there to be more efficient and cost-effective across the board. That is inclusive of getting better value from our suppliers in the form of lower prices or better services for the same price, and that also means global tenders, which is something we've never done that we plan to do here very shortly this year.

[Operator Instructions] The next question comes from Victoria Constantino of Thompson [ph] Brian.

I have a quick question on the U.S. operations. I was wondering if you can give more color on the high-value services in U.S. and what's the competitive environment? [Indiscernible] and the other ATM manufacturers are actually trying to get into to that market, do you see them as a direct competitor?

Well, so I mean, high-value services are -- encompass what we currently do with Brink's global services business, so that we have a lot of high-value Services there. You're speaking specifically to the Integrated Managed Services or the end-to-end ATM management.

Yes, for the ATM.

Right, so there will be times when we're -- competitors with the, in the OEMs, we do have some advantages in that you still need armored vehicles to service and to carry the cash. So I think in some cases, we'll be competitors, in other cases, we'll be partners and it depends on the specific opportunity.

And then do you see like the potential of getting, servicing those little banks like [indiscernible] had this recent announcement for the -- I think TD Bank, servicing there, I mean did you bid for that project for them or will you work with them for that?

I can't comment on the specifics of TD bank. We clearly do work with them but -- so in general, we work with Diebold [ph] and the other manufacturers on some opportunities, and we compete on others.

The next question comes from Rich Glass of Deutsche Bank.

Expanding on the challenge of Jeff's question. I was a little surprised to see the percentage increase in your 2014 CapEx spending estimate, I guess, can you talk more about where that's going and I say that the order of magnitude, in a sense that the organic growth you cited is a lower number for pretty much everywhere than the increase in CapEx, and I would think in North America, maybe it's flat or even down on the CapEx front. So can you kind of give us a little more understanding where that's going or why that's the right number?

Yes. I'm going to let Joe comment on the specifics. One of the things you have to take into account, because we do look at it versus depreciation and with the escalating currencies as well, it does cost more on some of the capital expenditures than you would, or normally think. But Joe, you want to talk about any of the details?

Sure, sure. Rich, as we look at our business, we think somewhere between a 1.0 and 1.1 reinvestment ratio is appropriate for our geographic footprint, particularly when you look at Latin America being over 40% of our business and the inflation in some of the key markets that we're in, the cost of replacing maintenance CapEx such to get significantly above the depreciation and amortization from previous years' purchases. And so we did have a significant decline in CapEx. We're managing it very tightly and we've tried to convey the mixed shift in our CapEx. We're spending more to drive productivity projects. But the reality is, there is a certain level of maintenance CapEx in our business. We believe the work we're doing on our fleet management, our fleet procurement is going to help us to get to a 1:1 or lower reinvestment ratio going forward. But when the maintenance spend has to replace the existing infrastructure, and particularly in places like Latin America where the inflation is significant, particularly in places like Venezuela, Argentina where you're dealing with 30% to 50% inflation rates, there's going to be an impact from that, that you can't mitigate in the short term.

Right. So there's a number of factors, I guess. But one of the things I'm wondering is, is there a sort of onetime spend on some of the IT infrastructure productivity-related spending? That -- if you're spending $10 million or $15 million this year, once those are deployed, that spend sort of goes down as a maintenance spend, maybe. But is there sort of some onetime spending and catching up on some of these initiatives?

I wouldn't characterize it as onetime on a global scale, but certainly on a regional basis, there have been some onetime concentrated investments that the U.S. in particular has gotten a significant amount of our information technology spend to drive some of the process efficiencies that we are targeting and we're counting on the payoff of those investments later this year and going into 2015 to deliver the higher margins in the U.S. But what we've done is, we have a global project management organization that is now taking control of these major expenditures and major projects to drive the right kind of rigor and project management, to drive us to the benefits that we derive from these investments. And what we're going to do is take some of the efforts that we've been implementing in the U.S. and spread them around the globe to some of our larger countries to allow us to get the synergies and scale of the investment we made in the U.S. So in a perfect world, what we'll be taking successfully implemented projects in the U.S. and translating that capability into our other large countries. Once we then have the large countries covered, then we can roll into smaller countries and get the benefits there as well. So it's one-off in the sense of an individual country, but it should have a ripple effect across the globe.

[indiscernible] That's what we'd like to have happen.

Right. And what's the timeframe for that kind of rollout for those -- some of those things theoretically. I mean, there's no...

The U.S. projects will -- many of them will be rolled out and being fully implemented by the second half of 2014 and as soon as those resources have successfully implemented the U.S., we can redeploy them to other parts of the world. One of the major changes we've made in the company is organizationally, we have a global IT organization, which gives us the ability to develop the skills and capabilities we need, but then to transfer them more easily around the world, which in our historically very decentralized organization has been difficult. This organizational change facilitates more effective transfer of capability from country to country.

I think the other thing, Rich, that's clear is that when we do demonstrate that we're getting those savings and the productivity gains, we'll then have to prioritize which of the countries it goes into, how quickly we can put it in because as we have talked, we are limiting the CapEx, we are focusing the discipline on CapEx and so, it won't be a shotgun sort of approach, but a very targeted approach. Once we demonstrate that we get the productivity savings and then we figure out which countries it will be the most effective in.

And Rich, to your comment about the increase in CapEx, which is $17 million to $27 million, we're projecting an increase in depreciation of $11 million to $16 million, so it's only a slightly higher increase than in depreciation.

Okay. Well, there might be a different discussion whether those numbers should go up at the same rate or not, but I have another question on some of the 2014 investments but I'll take that offline. It might be an essay question.

The next question comes from Chris Marangi of GAMCO.

Just for the -- to one of your earlier questions. Can you give us an update on how global services ended up the year, especially given all the activity in gold?

Global services ended up the year above our expectations. A lot of that was driven by additional precious metal movements. A lot of it in the Far East. But in general, they were positive across the globe. Joe, do you have anything at this? We're looking at some of the details right now, Chris. But in general, they were above -- they were up -- they were clearly up in the Far East. They were up in Europe. Commodities were the big driver, which fundamentally is gold. We did have weak because India tried to limit the gold shipments into India. So they made it -- we lost most of that market. Hopefully, we'll see that come back, but that's a governmental sort of thing. But in general, China kind of overtook India for shipments on the precious metal sides. But in general, most of the global services businesses were up for the year.

And then Tom, just to clarify your comment about home security. You mentioned getting inquiries. Are we talking about investor inquiries or are we talking about inquiries from potential partners? Because I assume that's one of the elements you would consider.

No. It's both, Chris. I mean, everybody was clearly aware when our prohibition or non-compete expired. And so we were getting inquiries from people that wanted to talk with us, from investors, from all sorts of different areas. And the real reason for coming out now and saying everything is that there are just a whole lot of rumors out there in the marketplace, and we just figured we would rather than wait for the questions, I would just try and put some of those rumors to bed.

All right. Well, we'll wait to hear more. One last big picture question. The balance sheet, the pension, the tax structure, the business itself, all in much better shape now than a year ago. Congratulations on that. Is there -- when is it appropriate to reconsider your capital allocation policies, given you may have more some flexibility now? Seems like you're tilting towards growth investments and areas of new growth.

We're tilting towards growth. I mean, clearly, each time, when we have our meetings with the board, we do go into that -- but I'm not -- we don't have a change to announce at this point.

[Operator Instructions] Seeing that there are no questions, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.