萬事達 (MA) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2012 MasterCard earnings conference call.

My name is Pam and I will be your operator for today.

At this time, all participants are in listen-only mode.

Later we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Ms.

Barbara Gasper, head of Investor Relations.

Please proceed.

Thank you, Pam.

Good morning, everyone, and thank you for joining us today either by phone or webcast for a discussion about our first-quarter 2012 financial results.

With me on the call today are Ajay Banga, our President and Chief Executive Officer; and Martina Hund-Mejean, our Chief Financial Officer.

Following comments from Ajay and Martina, the operator will announce your opportunity to get into the queue for the Q&A session.

Up until then, no one is actually registered to ask a question.

This morning's earnings release and the slide deck that will be referenced on this call can be found in the Investor Relations section of our website at MasterCard.com.

The earnings release and slide deck have also been attached to an 8-K that we filed with the SEC earlier this morning.

A dial-in replay of this call will be available for one week through May 9.

Finally, as set forth in more detail in today's earnings release, I need to remind everyone that today's call may include some forward-looking statements about MasterCard's future performance.

Actual performance could differ materially from what is suggested by our comments today.

Information about the factors that could affect future performance are summarized at the end of our press release, as well as contained in our recent SEC filing.

With that, I will now turn the call over to our President and CEO Ajay Banga.

Ajay?

Thank you, Barbara.

Good morning, everybody.

So the first quarter we reported a net revenue growth as reported of 17%, and that is driven by healthy processed transaction and volume growth.

And this helped to fuel net income growth of 21% and EPS growth of 25%.

We've continued to see some improvement in US economic news with unemployment dropping to 8.2% -- a three-year low -- below the 9% we saw a year ago.

Consumer confidence, while roughly flat for two months, is higher than a year ago; and of course this is offset by news the housing market has recently hit its lowest level in a decade.

You've seen the ADP payroll report this morning.

Having said all that the overall trend continued to have a positive impact on total consumer retail spending as reflected in our SpendingPulse insights, which showed that, in March, US consumers increased spending in all 11 retail sectors that we track.

The strongest growth came from restaurants, apparel, hardware and electronics.

For this strength to continue for a sustained period of time, we are going to look for additional improvement in unemployment and a positive turn in housing prices.

Having said all that, this strength in consumer spending as a whole also showed up in MasterCard's own US GDV, which is up 14% for the first quarter.

In Europe, quarterly volumes remained strong, growing 19% -- slightly above the levels we have actually seen over the recent quarters as this was driven by both strong cross-border and domestic volume growth.

And similar to the last quarter, processed transactions in the region were up over 40% in the first quarter as we continue to benefit from the roll-on of domestic processing in the Netherlands.

While there have been renewed concerns in the press about European consumer confidence, a little interesting fact -- it actually held steady in the Eurozone this past quarter after significant declines in the second half of 2011.

It does take a few quarters before changing consumer sentiment impacts our volumes in this region, and as such, we are watching our European business very closely.

Looking at our first quarter, we saw processed volumes for Portugal, Italy, Ireland, Greece, and Spain, in aggregate, continue to post growth rates in the mid-teens.

New business wins, particularly in Italy and Ireland, were compensating for the slowing in Spain and Greece in these peripheral economies as they are called.

Elsewhere in the world Latin America, the Asia-Pacific, Middle East, Africa region volume growth remains healthy with domestic and cross-border volume growth rates all greater than 20%.

Volume growth in these regions will have difficult comparisons, particularly in the second and third quarters of 2012.

Also be mindful that any softening in the major economies of Europe or the US would likely negatively impact these regions as well.

But in the meanwhile, we continue to execute our business strategy.

And the first item I want to focus on is the US debit market where we are executing well in a challenging and shifting environment.

We mentioned last year that the primary element of our US debit strategy post the Durbin amendment was to maximize our presence on these cards.

Before the regulations went into effect, MasterCard functionality was on approximately 25% of US debit cards.

Now, MasterCard is enabled on about half, including three of the largest portfolios in the market.

In addition, we estimate our share of PIN debit transactions exceeded 20% in April, up from high single digits last year.

It is too soon to know how routing will play out longer term.

In the short term, we have roughly doubled our presence in US debit cards and nearly tripled our share of US PIN debit transactions.

At this point I usually walk through a series of business highlights from around the world, but instead, given that we have passed the one-year anniversary of both the acquisitions of DataCash and Access Prepaid, I thought it would be helpful to use this time to update you on the progress we've made with these businesses.

Recall that these extend MasterCard's capabilities in the payment value chain in fast-growing categories, eCommerce and Prepaid.

In both cases the integration into the MasterCard business is largely complete and behind us.

We have been moving people across the businesses as you would expect, such as Ajay Bhalla, who moved over from our Asia-Pacific, Middle East, Africa region to run the DataCash business and Neville Hall, MasterCard's new Global Head of Compliance, who is coming to us from the Access Prepaid business, and there are others at all levels below them.

And this type of movement will continue to ensure that we build over time and integrate a culture of innovation and accountability.

Now let me talk about each business in a bit more depth.

Let's start with Access Prepaid, which we bought from Travelex in April 2011.

For us to be successful in Prepaid around the world, we need to have three core capabilities -- brand, processing and program management.

This Access Prepaid acquisition provides us with program management capabilities across multiple markets with a strong position in the all-important travel vertical, and a position we will continue to leverage for future growth.

In this past year 2011, Access Prepaid saw substantial growth.

Volume on Access Prepaid cards increased roughly 25% versus 2010.

And just as important, we are continuing to build the foundation for future growth.

Since the end of 2010 we have entered seven additional markets including Germany, China, India, and South Korea.

In India, for example, we signed a deal with Thomas Cook, the largest moneychanger in that country.

They will begin issuing Access Prepaid MasterCards in the second half of this year, displacing the competitive cards that they currently distribute.

In Australia, we launched a multi-currency purse that can hold as many as 10 currencies.

This capability allowed us to gain a foothold with National Australia Bank which, traditionally, has been an issuer of competitive cards.

So now, let's move on to our DataCash Internet Gateway business which we purchased about 18 months back.

DataCash enables acquirers to efficiently gain new business.

It also helps merchants and consumers connect via eCommerce over any type of device -- your personal computer, your phone, or a tablet with speed, dependability, and security.

And as we connect more high-volume merchants and more of the world's leading acquirers together, we increase our opportunity to drive acceptance and preference for MasterCard products.

Like other eCommerce gateways, DataCash handles non-MasterCard transactions as well.

So even if you don't switch the transaction -- which does happen as you know in many markets -- we still see it and we have an opportunity to gain insights for the breadth of transactions we see.

Similar to Access Prepaid, we are expanding the geographic reach of DataCash services, helping to drive nearly 25% transaction growth over the past year.

Let me tell you a little bit about how we are growing this Gateway Services business.

The first way we go to market is to sell to merchants directly and then deliver that business to acquirers.

Over the past year or so, we have directly signed up several thousand merchants, including many in the travel sector.

I will give you a few examples, Jetstar and Scoot, both airlines in Asia-Pacific, Middle, East Africa; Arik Air in the UK; Eurostar, the European rail operator; Volentia, a Spanish airline; Hertz Africa.

We have added these merchants to a portfolio of customers that already included marquee names like Qantas and Singapore Airlines.

There's also been numerous merchants beyond the travel sector, such as Groupon in Taiwan and several retailers in the UK including Ocado, a grocery delivery service, and Sports Direct Group.

That is the first way to go to market.

The second go-to-market strategy is to white label our services for acquirers to include in their offering to merchants.

So Unicredit, for example -- an Italian acquirer, and also a bank client of ours -- is live with the Gateway functionality, and first started servicing merchants in Eastern Europe.

Elavon, part of US Bancorp, is also actively using our white label offerings for its own newly launched gateway solution in Europe.

And there are more of these in the hopper to come.

The third way we go to market is to bundle our capabilities as part of another company's prepackaged eCommerce solution.

So take the example of Capgemini which, as part of its consultancy business, works with large merchants to implement payment solutions.

We are prepackaged in there.

Finally, we are leveraging our Internet Gateway capabilities to gain further entries into large and fast-growing markets to maximize our participation in those markets and their growth.

So for example, the Japanese eCommerce market is the third-largest in the world.

DataCash just completed integration with JCB to enable multinational merchants to accept payments on their website from JCB cardholders in Japan.

Similar example -- moving to China, which is projected to be the second largest eCommerce market in the world by 2016 -- DataCash has successfully completed the technical integration with China Union Pay, which as you know, is part of our MOU with them, thereby opening cross-border eCommerce for consumers in China.

We are already working with a number of large airlines and retailers, travel agencies to enable use of these services.

We are also in the process of customizing our fraud system for the Chinese market.

That is an area of great interest in that location.

These fraud management tools actually are excellent, and, as you will recall, are one of the primary reasons we purchased DataCash.

It provides cross-sell opportunities to existing customers, as well as opens the door to potential new customers, as it addresses a major pain point with eCommerce merchants.

And, as we connect more merchants, we increase our ability to deliver these fraud management tools, as well as other value-added services.

So with that, let me turn the call over to Martina for a detailed update on our financials for the first quarter.

Martina?

Thanks, Ajay, and good morning, everyone.

Turning to page 3 of our slide deck you can see that we're delivering solid top-line and bottom-line results.

Net revenue grew 17% driven by strong volume and transaction growth, as well as new deals.

Pricing contributed about 3 percentage points of this growth.

Total operating expenses increased 14%.

That resulted in an operating income growth of 20%.

Bottom line, we delivered net income of $682 million, up 21%, and diluted earnings per share of $5.36, up 25%.

Cash flow from operations was $427 million and we ended the quarter with cash, cash equivalents and investments of about $5.1 billion.

While not shown on this chart, let me put our results in the same terms as our long-term financial objectives, which are on a constant currency basis.

On that basis, net revenue growth was 19% and EPS growth was 27%.

So there was a 2 percentage point impact on each, for the quarter, from FX.

Operating margin was essentially unaffected.

On the next couple of slides, we are presenting the operational metrics for the first quarter of 2012.

So let's turn to page 4.

And here you can see that worldwide gross dollar volume or GDV was up 18% on a local currency basis, including double-digit growth, in all regions.

US volume growth was 14% driven by almost 21% debit growth as a result of stronger underlying volumes, including prepaid as well as recent signature debit wins.

Credit volumes in the US grew about 7% with consumer credit growth staying steady with previous quarters in the 3 to 4 percentage range and commercial credit posting its seventh consecutive quarter of double-digit growth.

Outside of the United States, our volume growth was 21% on a local currency basis, including about 23% growth in Latin America and Asia-Pacific, Middle East, Africa and 19% growth in Europe.

The growth rate of volumes outside of the US were driven by strength in both MasterCard credit and debit volumes, which were up 20% and 22% respectively.

Cross-border volumes grew 18% on a local currency basis and we saw double-digit growth in every region, including growth rates above 20% in Latin America and APMEA.

In total, European cross-border volume growth was in the high teens, consistent with previous quarters.

Turning to slide 5, you can see that processed transactions were up 29% and this is the highest quarterly growth rate for processed transactions since we went public in 2006.

The growth was primarily driven by the US and Europe as we continued to see the impact of debit regulation in the US as well as new deal signings in both regions.

Global card growth was 9%, to 1.8 billion MasterCard and Maestro-branded cards.

So now let's turn to page 6, where we can discuss our revenue growth in a bit more detail.

The higher volume trends that I described when discussing GDV drove domestic assessments and cross-border volume fees growth of 16% and 15%, respectively.

Transaction processing fees grew 21%, driven mainly by the 29% processed transaction growth.

So there continues to be a gap in these two growth rates, although this gap is slightly smaller this quarter than it was last quarter, due to pricing.

If you exclude the impact of pricing the gap, actually widens to about 12 percentage points.

The majority of this gap was due to the addition of transactions outside of the US.

Recall that the incremental revenue for most of these new transactions comes at a lower-than-average revenue yield.

Other revenue grew 29%, driven by the acquisition of Access Prepaid, which anniversaried at the beginning of April, as well as other non-volume-related fees.

And finally, rebates and incentives increased 24%, driven by the impact of new and renewed deals, as well as strong volume growth.

Moving to page 7 for some detail on expenses.

So within total operating expenses, you see that general and administrative expenses increased 17%.

Five percentage points of this growth came from the inclusion of Access Prepaid and the remaining 12 percentage points primarily came from the investment in strategic growth initiatives.

Advertising and marketing expense was actually 3% lower than last year's first quarter, mainly due to the impact of foreign currency.

And depreciation and amortization increased about 30% due to the amortization of intangible assets from Access Prepaid and increased capitalized software associated with our strategic projects.

Turning now to slide 8, let's discuss 2012 starting with an update of what we have seen for the second quarter through April 28.

Our cross-border volumes grew about 18% globally, in line with the growth that we saw in the first quarter.

This was driven by continued healthy growth in all regions.

In April, our US processed volume, a proxy for GDV, grew about 10%.

This is somewhat lower than the 15% we saw in the first quarter, largely due to the impact of the extra day in the quarter -- leap year; the tax refund programs that we have seen in the first quarter; and the lapping of new business wins.

Processed volume growth outside of the US was just above 16%, slightly below the 19% growth that we saw in the first quarter, primarily due to the leap year.

And in Europe, which I know is of particular interest to many of you, processed volume growth softened slightly by a couple of percentage points.

Globally, processed transaction growth was about 32%, and reflects the impact of US debit rule changes, as well as the continued roll-on of domestic transactions in the Netherlands.

Based on what we see now, let me give you some thoughts for full year 2012.

We had a good start-up to the year, though we do not expect that the first-quarter net revenue growth rate to be the run rate for the balance of the year.

In addition to the items I just mentioned, which benefited Q1 versus April, there are several other factors that you should keep in mind -- the anniversary of the Access Prepaid acquisition, the lapping of our April 2011 pricing and the expected timing of new and renewed deals over the balance of the year.

We also have generally tougher comps in the next three quarters, given the very strong revenue growth we saw in the last nine months of 2011.

So while Q1 saw consumer confidence at decent levels, as Ajay told you, this is an economic indicator that we are watching very carefully, particularly in the US and Europe.

So you should keep this in mind as you are looking out over the rest of the year.

Assuming the euro trades around the 1.30 level and the Brazilian real around the 1.75 level for the rest of the year we continue to expect about a 2 to 3 percentage point headwind to as-reported net revenue, net income and EPS growth for full year 2012.

Based on our current plans for 2012's strategic investments, we continue to believe that we might have an opportunity to deliver some operating margin expansion this year.

However, the amount of any improvement will depend on several factors, including global economic conditions and investment opportunities that might serve us during the year.

Our plans currently call for G&A growing at a higher rate than advertising and marketing expense.

We also expect our depreciation and amortization to grow by roughly $30 million this year, as a result of our strategic investment activity.

And as I said at a conference earlier this year, other income and expense should be negative for the year, driven by anticipated equity losses associated with the two Telefonica JVs in Latin America, which are typical in the early stages of many JVs, especially in these new spaces.

Also, remember that our cash is held in extremely safe and liquid investments, which currently offer de minimis yields.

Turning to the tax rate, we now believe that we could see a full year tax rate of around 31% versus our previous expectation of slightly below 32%.

This is due to certain tax planning initiatives from which we expect to recognize some benefits that were not previously anticipated, along with the likelihood that some local tax examination could result in a one-time benefit to our 2012 full year effective tax rate.

So for modeling purposes, you should not assume that all of the benefits in the tax line drop to the bottom line since we will opportunistically look to reinvest some of the savings back into the business.

Finally, we remain focused on our objectives for the 2012 to 2013 period -- a net revenue compounded annual growth rate of 12% to 14%; a minimum annual operating margin of 50%; and an earnings per share CAGR of at least 20%.

These objectives are all on a constant currency basis and exclude any new acquisitions.

Now I'll turn the call back to Barbara to begin the Q&A session.

Barbara?

Thank you, Martina.

We are now ready to begin the question-and-answer period and, in order to get to as many people as possible, we ask that you limit yourself to a single question and then queue back in for additional questions.

Pam?

(Operator Instructions).

David Hochstim, Buckingham Research.

I wonder -- yesterday the Federal Reserve Board put out some updated data on debit interchange and I wondered if you could comment about their observation that network fees made by large issuers seem to have declined from 2009 to the end of 2011.

You obviously didn't talk about acquirer fees or any other pricing changes you made.

Your pricing has held up, but I just wonder if you have a comment on what the Fed seems to be suggesting?

Yes, David, I am going to take that one.

First of all, as you said the results were only released yesterday so we are still working through the details in terms of what was really released.

But when we are looking at the published network fees, there seem to be some potential disconnects in the comparisons and we want to understand those before we draw any conclusions.

I am going to give you a couple of disconnects that we need to understand.

So first of all the Fed compared the network fees in the fourth quarter of 2011 with full year 2009.

As you know, any fourth quarter is usually a high spend quarter.

So, issuers will pay effectively lower fees since core fees are tiered, based on volume.

We can't really compare a fourth quarter to a full year and that is one thing we are just going to have to deep dive into it more.

The second thing is the Fed had actually requested different categories of network fees for each of these periods.

So the calculation and the comparison of the per cost transaction is unclear.

In 2011, I can tell you the Fed had asked the networks to provide only auth/clear/settlement fees.

And back in 2009, we provided all fees collected on a transaction.

So, therefore, the network fees that have been compared in a report might be apples and oranges.

And the last thing I want to tell you is that we have actually not changed our fee structure to issuers on the debit business.

You know, in fact, as you know in every quarter we are going after business very surgically and opportunistically and we are signing deals -- both signature deals and PIN deals in every quarter.

Quite frankly, you can see those results in our numbers today.

So lots more to clarify, but I told you as much as we know at this point in time.

Okay, thanks.

That's helpful.

Chris Brendler, Stifel Nicolaus.

I'm just wondering if you can give us a little more detail and a little more color on the US processed transactions growth.

I think you said it was globally above 30% in April, and some benefit from April 1 exclusivity provision.

Can you give us any color on what your US volume looks like in April on a processed transaction basis and where you are seeing those gains?

Thanks.

April is very similar to the first quarter but it is a higher growth rate.

So the growth rate in the first quarter was 29%.

In April, we are seeing 32%, and the growth is both benefited by what is happening in the United States as well as the Netherlands.

But very, very typical trend.

In the 29%, by the way, that we saw in the first quarter we believe that a fairly significant portion probably in the neighborhood of 13 percentage points is due to new deals and really adds to what we need to be doing in the market.

April is not shaping up any different.

It is the same.

Just continue to get the business.

I guess my focus is more on the PIN debit business and how much that is moving the needle in April.

Again, as I said before, it is very similar to the first quarter.

April is just an extrapolation for what happened in the first quarter.

We are seeing more PIN business.

You have just got to remember, Chris, that a lot of the cards that got enabled for PIN didn't get enabled on the first day of January.

They kind of got enabled over the course of the first quarter.

So over the next two, three, four quarters you will get moving around on the PIN debit transaction growth because you will get cards coming on, but you will also see routing changes as merchants and acquirers respond to what issuer networks do.

So, it is going to be a little bit of in and out for the next few months.

And that is how we think about it.

But our first task, as we said, was to get onto these cards and be enabled on them.

That is what we have been trying to do over the last few months, and now our next task is to try and surgically manage as much of that routing as makes economic sense for us.

That's kind of how we're approaching this business.

Excellent.

Thank you.

Bill Carcache, Nomura.

Question on your EMV initiative -- What kind of merchant pushback are you getting, if any?

And what do you see as some of the hurdles to completing the migration by the 2015 liability transfer date that you have established?

The way we went about EMV was that we actually created a consultative process with a ton of merchants, issuers, and acquirers and had them coming together and talk about what is involved in saying that EMV should happen, as compared to just mandating it, which we felt would've been one way of doing it, but probably not the best way to get so many people together on the same page.

And thus far, by and large, the reaction to the roadmap has been sort of the same consistency of we have got to make sure that we can get this done.

We have got to make sure that the investment that goes into it makes sense.

We have got to -- there's a lot of moving parts around how it will actually get implemented.

You know, what we did was we created a set of incentives for merchants and issuers to use the most secure verification methods and it created a sliding scale on that security angle.

So, the more secure your verification as an issuer or as a merchant, the liability shifts and the incentives go towards that party.

That is what they are trying to work their way through and understand and work with.

So frankly, right now, what we've got is a good dialogue going on.

At this early stage you expect some issuers, some merchants to go in slightly different directions, and that is what we're seeing.

But in truth, when they come together we have a healthy dialogue they kind of come around saying -- makes sense, right thing to do, it gives more security.

The question is, if they are incented, it makes it easier for us to do it.

All that has been factored into the way we constructed our EMV strategy.

But it is very early days and it is going to take a few quarters to work its way through the way they actually deliver what they are going to say they will deliver.

Okay, and can you talk about how we should think about the economic impact to your P&L given that EMV economics...

Our understanding is they are PIN debit-like?

How should we think about that?

And that's it.

Thanks.

First of all, just because by the implementation of EMV you should not be jumping that everything goes to PIN economics.

You know, for instance, EMV has been rolled out in a significant way in Europe and you have -- there's actually no difference on a signature credit PIN point of view for, instance on the pricing.

So you cannot analogize from EMV [that] everything goes to PIN pricing.

It does not.

Bryan Keane, Deutsche Bank.

What has been the impact on the market on Visa's new merchant pricing initiative?

And maybe you can update us on the strategic direction MasterCard plans to take due to what Visa is doing on merchant pricing.

So, in truth you have got to ask Visa what they see as the response from merchants for that.

From our perspective, it is very early.

I haven't seen much happen as -- remember, the first quarter was when all of this was being constructed.

It is really over the next few quarters as I said in response to an earlier question, that these routing transactions will become clearer.

And as I have said a couple of times now, our focus is going to be on making sure that we operate strategically and surgically to try and keep those routings with us to the extent we can and to the extent it makes sense economically.

We did the same thing with getting ourselves on the back of issuers' cards.

We are going to do the same thing with working with merchants and acquirers on the routing.

So it's early stages.

That is where it is today.

Okay, just a quick follow-up.

Any update on the merchant interchange litigation settlement?

I know we have a trial date set that is coming up here in September.

No.

Nothing new at all there.

Nothing new.

No change to our views, by the way.

Darrin Peller, Barclays Capital.

Good morning.

Over the past few quarters, we have seen obviously Huntington, Sovereign, and Swedbank; and then in Europe, Italy, Netherlands; and then PIN debit wins, among others.

I think you mentioned Italy and now Ireland, actually, which sounds a little newer.

Can you just help us understand the opportunity actually in Ireland?

And then more longer term, and just overall, are these opportunities similar to what we have seen in the Netherlands and obviously Italy and how long is this runway?

And then, lastly, are there other conversions like Huntington or Sovereign, that we can expect in the near few quarters?

So, the fact is that we had a lower market share in some of these markets as you know and that is what we are basically trying to win back deals in.

The Ireland deal win is the beginnings of what we hope will turn our business around in Ireland.

But it is going to be a two- , three- , four- , five-year slog, because typically deals with the other banks are signed up with competitive brands for a certain number of years at a time.

So I tend to view these as building blocks and I tend to view our business and our approach to selling in these countries as building the right relationships, bringing value to these clients, and starting to win small business from the ones that have large business ties with competitors, and then wait for our opportunity to get a bigger deal with them.

That is true of every market around the world.

What you are seeing in us in the last couple of years is an engagement with issuers and merchants both, by the way, both financial-institution issuers and non-FI issuers, as well as merchants around the world, to build our position and our relationship with them so we are in the right place to try and take advantage of opportunities as they come up.

It is nothing more strategic or rocket science than that; it's good old-fashioned selling.

Now, as part of what is going on in the Netherlands is concerned, the Netherlands in particular was a large one-time switch off the way in which those transactions are processed from a local debit switch to us.

That is giving us a lot of benefit.

It will lap.

We are working on other such things in SEPA, as a whole, in the European area.

Actually our transactions seen are up 280% over the prior quarter, which by the way, is similar to the number in the prior quarter.

The fact is we are beginning to see transactions in France and Belgium and Germany and Italy, not to the same kind of impact as the Netherlands' mass movement, but we are beginning to see them.

So I think we are on this path of building our business (technical difficulty) and deal by deal.

And what you're getting is the result of that.

So I wouldn't conclude that there's some dramatic thing that is going to happen tomorrow.

Neither would I conclude that the runway is nearing anywhere near an end.

We have got a lot of market share again, and, bigger than that, we have got this whole fight against cash, which is where our real growth is coming from.

So we have kind of got both things to do here.

And it is going to take years to

Sanjay Sakhrani, KBW.

Thank you.

First off, congrats on the execution on the PIN debit side and the good quarter.

I guess when I look at the rebates and incentives line, I look at it relative to gross revenues.

That percentage was up 100 basis points to 25%.

Can you just talk about how much of that increase was driven by wins versus renewals and then how we should think about that line going forward?

Thanks.

First of all, a lot of this was actually driven by the volume increases that we had.

So the business has increased.

Obviously with volume increases you are paying more rebates out, and then a smaller portion of that was related to new and renewed wins.

I am not going to break that up for you.

But again yes you did see an increase in this quarter.

I also said in our thoughts for 2012 we are, and as Ajay was just saying, we are running after other deals, and depending on when they come through, in which quarter, you'll see some changes to rebates and incentives.

But I know you guys have a love for looking at rebates and incentives as a percent of growth.

In 2010, the contra as a percent of gross was actually 27%.

It was 25% in 2011.

It is now a little higher.

As you can appreciate over the last five to six years, first of all, it will jump around by year depending on what kind of deals we do and what the volume development is in that particular year, and you have the same kind of phenomena also on a quarterly basis.

So all I want to tell you with all of this is there is nothing to read into this.

This is just us going after the business the right way.

Tom McCrohan, Janney.

Thanks for taking the question.

Can you help us quantify how much of your revenues today have already benefited from your increased penetration in the US debit business as a result of Durbin?

And then looking ahead, can you help us quantify what you see to be the incremental revenue you expect to pick up?

I know it is hard to -- it is probably going to be a range, based on your execution of getting your brand put on a lot of the issuer debit cards here in the United States.

Just trying to get a revenue impact from all of these activities.

Thanks.

The only statistics that we have from a revenue perspective out there on the debit side is that, at one point in time, we told you that debit is about, what, 14% of revenues.

It is a little lower at this point in time at 13% of revenues, but that is just because of how actually our overall business has been growing -- both in the United States on the credit side as well as overseas outside of the United States.

So, revenues are growing in the debit business, and as you can see from Ajay's remarks earlier this morning we are winning very nicely -- both from a signature as well as on a PIN share point of view.

I will give you this little additional thought around it.

While I'm not going to make a prediction going forward on what I think revenues could be from PIN debit because of two reasons.

One is, I don't like making those predictions and, two, I am genuinely unsure of how routing will play out over the next few quarters.

So I actually haven't really got a lot of revenue built in from there in my expectations.

But you have to remember the dynamics of this revenue.

PIN revenue in the United States is low yield business.

And by low, I mean substantially lower than the other yields we have.

The only good news is because we are leveraging our fixed cost infrastructure for driving this volume even though it is billions of transactions incrementally, the good news is that the profit yield from these transactions is still attractive to our Company.

And so, we look at it that way, that our revenue yield will probably be small but our profit yield will be attractive enough for us to keep going after it.

But it is difficult to predict, given that we have just completed one part of the chessboard game which is the getting ourselves on the back of the issuer cards; the second part is going on right now with the merchant acquirer incentive play; and then there will be the third part that will come in a year or two, which will be the increased impetus towards EMV, which will also change this mix a little.

So I kind of view this as interesting, nice to have.

What it's showing is that we can win our share on it, but move on from it.

There is a lot more going on in our business that has greater revenue impact than just the PIN debit business in the United States.

Patrick O'Brien, Brown Advisory.

A couple of questions.

Your tax rate is going down, quite a bit over the years I guess as the earnings from lower tax jurisdictions become more important.

Is that cash now trapped in low cash -- low tax environments?

Or do have a policy for repatriating it?

Let me take that.

First of all, yes, your observation is absolutely right.

We have been working on our tax rate quite considerably.

There are a number of factors that you work on from a tax planning point of view, one of which is obviously we are trying -- the one that you were referencing, you make earnings in lower tax jurisdictions.

It's lower tax there to the extent you can actually lock those earnings into those jurisdictions and then you have the whole issue of how can you bring the cash back.

I have to tell you, we are in the very early innings of this game.

MasterCard essentially was a two-country kind of company.

United States as well as Belgium and Europe, and we have been diversifying quite significantly from that.

You might, when you read our Annual Report as well as our Q's, you might be able to pick up that we have been actually trying to make sure that our Asia-Pacific, Middle East, Africa business gets recognized as such, and doesn't get run down back into the United States, but gets run into Singapore, where we obviously negotiated a great tax agreement with the Singaporean authority.

And over time, and this will take a long time, we will be having the benefits of those kind of structure.

At this point in time, we have mostly cash sitting in the United States as well as in Europe.

We have knocked those up a significant amount of cash in other jurisdictions and with the way that we build up our structure for the foreseeable future; so let's say for the next few years I see absolutely no restrictions on being able to utilize the cash wherever we need to utilize the cash in the world -- be it for what we're doing at the moment from a share repurchase program point of view or at some point in time, acquisitions.

You suffer a tax consequence for using that cash in not low tax jurisdiction?

What I wanted to tell you is that at this point in time I don't have that tax consequence because we put some planning strategies in place, as well as we are only in the early innings of actually putting earnings out to lower tax jurisdictions.

So it is going to take some years to be building up cash in those lower tax jurisdictions.

And then it is going to take some time for us to ever having to use those that cash somewhere else.

Okay.

Thanks.

The only thing I would add to that is think about what those jurisdictions are.

We are investing a lot of time, effort, and energy into building our footprint across Asia, and Singapore is the hub where we are putting a lot of this.

And in truth, I see a lot of opportunity for growth in that part of the world over the next few years.

So in fact for that cash flow to be there, I believe it will give us some opportunity for adding to our footprint and our franchise through an acquisitive nature of growth in that part of the world.

So I think there is going to be opportunities to use that right now.

We are fortunately at very early stages of this.

So, as Martina was trying to tell you, we aren't at the stage where we have this as an issue.

We actually see this as a big opportunity or our Company over the next four or five years.

Okay.

Thank you.

Donald Fandetti, Citigroup.

Ajay, I just talked to the bank issuers on the card side.

They clearly seem to be struggling with some regulatory issues from the CFPB and others.

Just curious on your thoughts in the US.

It seems like a pretty good environment for you right now.

Is there anything percolating or do you generally feel pretty good about the environment from a reg standpoint?

Yes, well, I -- you know, the fact is that I can tell you where my perspective is as the MasterCard guy talking to these banks.

I think they are all going through the early stages of trying to figure out their new P&L and its construct given all the regulatory changes.

And you know those regulatory changes extend way beyond the card business to very fundamental things in the way the money center banks are constructed; and how their capital is used; and what they can do with it.

So I think they are all going through that phase right now.

In our specific space, the fact is that the payments industry probably becomes a little more interesting in terms of its capital utilization for banks over a period of time.

So they have also realized, as we all have, is that there is an opportunity to grow there.

How they grow and how they construct their growth is a little bit all working their way through.

So it's actually a good discussion.

I feel that these are discussions that are -- that change is tough for them, but eventually coming out of this a year or two down the road, I suspect we'll all be in a better place, and that is what I am hoping for.

So we are engaged in a constructive practical way on payment strategy with a number of banks in the US and elsewhere.

That is kind of where I am right now.

Okay.

Thanks.

Moshe Katri, Cowen & Company.

Just maybe focusing on credit trends, I think, Martina, you said that credit trends in the US remain stable.

I think from a gross dollar volume perspective they are up maybe 6 [or] 7% for the quarter similar to last quarter; rest-of-world looked better; globally, it looked better.

What do you think we should look for for the remainder of the year?

You are asking the good question, right?

So this is always tough to do.

I think you have to put it into the context of what we said about the economic environment.

We are very much focused on making sure that we understand what consumer confidence is, what is happening on the unemployment rate, what is happening on housing starts.

We are obviously feeling relatively good with what we have seen in the first quarter.

But this has to persist for the rest of the year in order to have these kind of growth rates coming in.

The other issue that you are going to have to think about is, look back to the last three quarters and, particularly, the last two quarters in 2011.

Those had already some fairly healthy rates.

The credit growth in the United States in the third quarter and fourth quarter of 2011 was 7% each.

So I would suggest to you that there might be a bit of a tougher comparison coming in, and that is why we also said when we talked about our revenue growth, don't just take the first-quarter revenue growth and chart it out for the rest of the year.

Do you think it is too early to think that this is an inflection point on the credit side, or as you said, we have to keep on looking at that environment?

I think we have to look at it, and I think it is far too early to say that there is an inflection point on the credit side.

A lot depends also on the specific institution and its appetite right now.

You'll see that for the last few quarters, different banks and institutions have moved differently in terms of acquiring new credit cards.

Some were very aggressive until a couple of quarters ago.

That slowed down.

Others have moved up.

I have seen that happen with a number of issuers.

So I think it is still moving around and it is connected a little bit to Don's question earlier about how the banks are looking at the payment business.

So it would be tough to declare this as an inflection point yet.

I look at all the banks, I look at the delinquencies improving, I look at early-stage delinquencies coming down.

So I think about all that change in their portfolio and I think about the fact that they do want to grow their revenue.

But it is based on a risk appetite.

But they need to get into a place depending on how the regulatory capital needs move around on them across that entire franchise.

That is happening as we speak.

So, tough to say it is an inflection point.

But it is not in bad shape.

April -- April the month will -- when you see all the consumer spending -- that is the time we will know how April did.

But one month does not a quarter make and does not a trend make.

That said, March was a good month.

11 out of 11 retail sectors were positive.

By the way, it's almost February and that is not the case in January.

So without anything to go by, remember, February also had a little benefit of an extra day which in one day out of 90 is more than a percentage point of growth for a company.

So, you've got to factor all of that in and not conclude yet that we are going to have that inflection point.

That is how I feel.

Thanks.

Marc Lombardo, Meredith Whitney Advisory.

I just wanted to hear if there was a restatement on the split of debit and credit for rest of world volume?

And if there was, just what the motivation was around it?

I'm sorry, can you repeat that question?

You were very faint.

Yes.

Just wanted to hear if there was a restatement on the split of the volumes for credit and debit for the rest of world.

I'm not sure what you mean about restatement.

So, the split from fourth-quarter volumes of $405 million worldwide for credit and charge.

When we looked this quarter it is now $384 million for GDV.

Trying to understand what he means.

There hasn't been any restatement.

No, there hasn't been any restatement.

There hasn't been any change whatsoever.

Are you looking at local rates because you are going to have to look at the volume growing in a local way not on US dollar because US dollar is distorted, obviously, by the foreign exchange impact.

Okay.

But there has been absolutely no change in terms of how we are reporting it.

All right.

Thank you.

And maybe we should take that off-line, Marc.

So if you can (multiple speakers).

We can call you.

We'll get in touch with you.

Craig Maurer, CLSA.

I just had a question for Ajay regarding what is going on in the US.

You know, it seems to me that the US issuers have a complete disconnect versus with merchants, and the way US issuers are strategizing around their rates and their product emphasis is in complete opposite of what retailers are thinking about, which is pushing large retailers to again discuss their own payment system.

I was wondering how you talk to issuers about being more retailer-friendly or else this might become the type of issue that eventually comes back to kill their own business if they don't be careful.

Yes, Craig.

Boy, you chose to put a grenade on the table which I am trying to figure out what the --.

So, here is the thing with it.

I think that this disconnect is -- more is made out of it than is true.

At the end of the day, in most of these banks, there is -- the fact is that merchants have got one perspective in growing their revenue and their P&L and at the other end of the pipe is the bank, that is trying to grow its revenue and P&L.

And all that happens is a natural tension of the two opposing views between these parties.

I actually think a number of the banks and issuers have built reasonably good relationships with some of the big merchants over the last few years.

They are doing a lot of promotions together.

They are doing a lot of things together.

But the fact is that the economic value of what is involved in the payment system is a constant matter of interest to merchants as well as to the banks.

And so, there is always some tussling going on there.

But even we ourselves have been in regular contact with a series of merchants over the last few months, and I haven't seen anything new in that dimension compared to where it used to be a year or two ago.

But it is the natural tension that you are referring to between those two constituents of the payment system.

So that is kind of what is going on there.

I don't think it is anything more than that.

Okay.

Thank you.

Glenn Fodor, Morgan Stanley.

Since the Durbin regulation went into effect you have done a very good job of winning PIN business.

But if you had a portion of the wins that you got, can you characterize for us how much of -- what percent of them were winning all the PIN business outright versus just a portion of it being just the second mark on the card?

We aren't at liberty, unfortunately, to tell you that because every single issuer is being cautious and careful in this environment about how this is explained and talked about.

Remember they don't have to reissue the cards with the brands on the back and so everyone is on that statement right now.

So unfortunately, I don't have the liberty to tell you that.

We have got a mix of both.

We have got a mix of deals where we are the only PIN brand at the back.

And there are deals where we are an additional PIN brand at the back along with other PIN brands.

I just am not at liberty to tell you what the breakup is.

Sure.

Fair enough.

Just switching to some color on investments.

It is clear you are still investing.

This is what people want to see.

But investors also want to be able to characterize the go forward trajectory, you know, the payoff of those investments and how it is going to contribute to revenues and margins.

So could you give us perhaps a view on fiscal 2013?

I guess every year has a certain amount of revenue growth that's attributable to investments that were made, say, in the last two or three years.

So some of those are now going to be paying off in 2013.

So, is the contribution of growth investments in 2013 going to be, say, bigger than it might have been in 2011 and 2012 or is it kind of like an average year?

How should we think about your investments today and when they are going to be paying off?

Glenn, thanks for trying on this one.

But first of all, I think you obviously know that for 2012 and 2013 on a combined reg of compound annual growth rate for net revenues we said 12% to 14%, right?

So in the 12% to 14% we obviously had to make our judgment of how much our newer investments would be contributing to the topline.

And I think you have heard me lay out before, many of you heard, that we have investments in the category that are more shorter term investments, return on investments, mid-term investments and longer term investments.

So for instance, when we invest into the Commercial business or in the Prepaid business we probably get a payoff over an 18- to 24-month period.

So of course you should be seeing in 2013 some contribution of these kind of investments.

Conversely, when we go to the longer term such as, for instance, the mobile investments that we have been making, we have been very public out there that we might not be seeing a return for four or five years.

So we obviously wouldn't be putting a lot of that into our revenue line for 2013.

But I think that is how you are going to have to think about it.

And when we put out in a public way our net revenue growth, like we did for the next two years, the 12% to 14% is basically recognizing the reinvestment and how it might come to fruition from a return point of view over time.

Thank you.

Julio Quinteros, Goldman Sachs.

I wanted to just check in on a couple of quick things on the expense trends for the year and also the joint venture losses for the rest of this year.

Just how to think about the seasonality of any of that or if there is anything unusual that would be rolling on, rolling off?

Well, let me take the last one first because obviously when you look at the other income and expense line it will be tracking differently than what you have seen in the prior years, because we are charting the investments that we are making and the joint ventures in Telefonica in there.

So you see almost $1 million negative in Q1 which has a number of components in there, it is not just the Telefonica JV; you have what is happening from an interest income and expense point of view, et cetera.

And basically you should be taking this forward and you should be thinking about negative numbers, a bigger magnitude as the quarters go along because remember we only started the investment in the joint venture for Telefonica in Brazil very recently.

So you are going to have to -- you have to recognize that every quarter we will be investing a bit more.

So this will be a negative trend.

From a G&A point of view, I'm not sure if I can say more.

What we basically said is you will -- you should expect some growth in G&A, for sure.

I think we gave you a little bit of the split in the first quarter so that you can analyze Access Prepaid, which was 5 percentage points out of the 17 so the 12 was kind of the baseline.

We will continue to see some increase in G&A.

Remember, we hired about a little over 1,000 people back in 2011 of which around 400 people or so were Access Prepaid.

So organic hire was 700 people.

That is kind of a 12% increase on our headcount which has to work its way through the personnel lines.

You are going to have to look at that.

And then for advertising and marketing, we definitely said that that will be a lower growth rate than G&A.

It will be just slightly higher than what you see in 2011.

And no impact from the Olympics or anything along those lines to think about?

You know what?

You might see a bit -- and this is why we are not giving you the quarterly cadence.

We are moving some monies around, obviously quarter over quarter, depending on what kind of activities are happening in the world where we want to participate.

Operator, I think we have time for one last question please.

John Williams, UBS.

Thanks for sneaking me in here at the end.

Just a quick question, Ajay.

I know you mentioned a couple of times seeing a positive trend in the 11 spending categories.

Was hoping you might be able to provide a little color on what you have seen perhaps among the high end of luxury categories, the shift credit versus debit, or perhaps non-discretionary versus discretionary.

John, I haven't seen a lot of shift from credit versus debit in total because I think that is still early days and I'm not sure that there is any great trend coming out of that yet.

Actually, I haven't even seen a big shift between PIN and signature, other than the fact that on our own volumes -- because of the PIN deals we have won over these last few months -- are moving around a little bit.

But your question is more about the market and the consumer as a whole, rather than MasterCard customer sales, right?

So I haven't seen any great moves on that.

What I would tell you is that what has really been interesting, I have been tracking SpendingPulse for the better part of 2.5 years now.

Because I have a frequent call with some really interested parties who take this information from us and use it as part of their decision-making process in various governmental bodies.

And it is fascinating what has happened over the last six, eight months.

Six or seven months ago, hardware, electronics, stuff that had to do with home improvement, were actually languishing in pretty negative territory.

In the last few months, that has moved to the point where now those are actually the growth areas, and that tells me that people are either using that to reinvest in renovating their homes or they are putting it into the homes that they are buying.

And it kind of links up with some of the things we are reading about, some activity improving in home building and home buying.

Still not showing up in the prices of homes, but it has bottomed out.

So that's the first thing I am seeing there.

The second thing I am seeing is that in luxury goods, jewelry, fine dining -- slightly different trends.

Luxury goods and jewelry are doing well.

Jewelry is moving around a little bit, but it depends on festivals and stuff like that.

But mostly, luxury goods are doing well.

Fine dining, on the other hand, has moved through cycles where it has been in great shape and then it has taken a beating.

It has actually taken a beating recently again, but casual dining and family dining has come back up on that growth rate.

So [it's] kind of moving around on us a little bit and I don't yet have a good trend on that aspect.

That's super helpful.

Just one other question on -- Martina, I think you had mentioned your processed volume has been down by a couple of percentage points.

I just wanted to make sure you weren't specifically saying 2% or anything like that.

You were just giving kind of general direction there, right?

On Europe, you mean?

Yes, correct.

Yes.

I was just -- Well, look, I can give you the numbers.

So as you were saying, 19% growth in Europe for the first quarter.

When you actually do the analogous processed volume calculation as we do it, it is about 17%.

So the 19% is equal to the 17%, and [that's] what we are seeing in the first quarter.

What we are seeing in April is about 15%.

We just -- so it is a very healthy growth rate, let me tell you -- 15%.

But it is a couple of percentage points below what we are seeing -- what we saw in the first quarter.

Have you directionally given what an equivalent same-card sales metric would be in terms of ex-ing out the impact of perhaps the new portfolios that you've signed?

No, we haven't.

(multiple speakers).

But I can tell you if you look at things like SpendingPulse you can come to conclusions pretty quickly about what's going on at the core, versus new business.

And, very similarly, in Europe, spending is actually holding up.

What happens, as I've said about Europe very often, is that in the go-go days, Europe never went crazy with spending.

And now there's -- so they are a far more stable pattern of saving and spending in Northern Europe.

Southern Europe can be a little complicated and can move a little differently from Northern Europe.

Our Company, it is interesting but a majority of our European business, because of the way it was constructed from its beginning as well as the acquisition of EuroPay that happened along the way some years back that our predecessor had done, we have actually got a mix of volumes that comes more from Northern Europe than from the Southern European countries, which actually has seen us have a more stable pattern over the course of this last year or so.

Now, the other good news is that we are winning deals in some of those Southern European markets.

So even as Spain and Greece are slowing down, that is where the Ireland Italy angle came from.

So we have got a mix of portfolios changing along with the nature of the business on how consumers are spending in Europe.

But, essentially, consumer spending, as a whole, in Europe, is holding up and consumer confidence, as a whole, in the first quarter, actually held up.

Now it moved differently.

Germany went up, the UK went up, Spain and Greece went down.

But Europe as a whole held up.

That is actually public data on consumer confidence that you can get from the Nielsen guys.

Which I just saw again the other day.

Thanks for the insight.

You're welcome.

Thanks a lot for your questions.

With no further questions in queue, I would like to turn the call back over to Mr.

Ajay Banga for closing remarks.

So, let me leave you with just a few closing thoughts after those set of questions.

We are off to a good start for 2012.

We have made some really solid progress, particularly, as we have all been discussing, in our US debit business.

But of course there is more to come there.

Just remember that any incremental PIN debit transactions come at a lower than average yield though with good profitability.

And things are moving around with the routing.

Remember that, as Martina mentioned, our first-quarter net revenue growth rate will not be a representative run rate for the balance of the year.

That is because we will be faced with more difficult comparisons as the year progresses, as well as several items that lap, which, by the way, contribute to the difficult comparisons, including the Access acquisition and several new business wins that we had over the course of the previous two years that came up with cards in this period last year.

I also want to remind you that there is the potential for us to increase our level of investment, depending on how much room we have in our P&L.

That room could come from things such as stronger-than-expected topline growth, all the potential lower tax rate benefits that Martina mentioned.

There is no shortage of growth opportunities in this business and we want to evaluate as many as we can.

We will act on the ones that provide the best potential for maximizing our long-term growth, and [we will] let anything left over drop to the bottom line.

Net, we are working hard to deliver another good year and meet our performance objective.

Thank you for your time today and thank you for your interest in MasterCard.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect and have a great day.