西聯匯款 (WU) 2007 Q4 法說會逐字稿

(OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today's call, Mr. Gary Kohn, vice president, Investor Relations.

Good morning, everybody, and welcome to the Western Union fourth quarter 2007 conference call. Thanks for joining us. Before turning the call over to Christina, I would like to take a moment to remind you that today's call is being recorded, and that our comments include forward-looking statements. I ask you that you refer to the cautionary language in the earnings release, and in Western Union's filings with the Securities and Exchange Commission, including the 2006 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

During the call, we will discuss items that do not conform to generally accepted accounting principles. We have reconciled those measures to GAAP measures on our website, Western Union.com, under the Investor Relations section. All statements made by Western Union officers on this call are the property of the Western Union company and subject to copyright protection. Other than the replay, Western Union has not authorized and disclaimed responsibility for any recording, replay or distribution of any transcription of this call. With that, it is my great pleasure to introduce our president and CEO, Christina Gold.

Thank you, Gary. And welcome everyone. As you have seen this morning, Western Union reported a solid fourth quarter in line with our expectations. This is our full calendar year as a public company, and I am proud of our accomplishments. In particular, revenue growth accelerated during the year, up 12% in the fourth quarter and 10% for the full year. Driving these results were the combined strong growth of our international C2C business, which contributes nearly two-thirds of our revenue, and a 13% revenue growth of our C-to-B segment.

Supporting this growth was Pago Facil's over achieve of its first year business plan. We achieved full year GAAP EPS of $1.11, or $1.13 excluding the third quarter non-cash stock compensation charge. We continue to drive on the innovation front to ensure that we are positioned to take advantage of long-term opportunities. We built on our strong financial position, and we generated $1.1 billion of cash flows from operations during the year. We achieved a healthy 27% full year operating margin, and we maintained a solid balance sheet with excellent financial flexibility. Once again, our results demonstrate that Western Union is a diverse global company benefiting from strong migration trends and remit ens needs.

In the fourth quarter, the international transactions that originate outside of the United States accounted for 54% of our total revenue compared to 48% in the fourth quarter last year. This subset is the fastest growing component of our business, growing revenue 23% and transactions 29% in 2007. Our domestic business experienced a challenging gear and we do not expect major improvement in this business over the next 12 months, given the current U.S. economic conditions impacting our customers. However, we do plan to invest prudently in brand awareness, customer acquisitions, loyalty and retention programs, like the Gold Card, and to improve WesternUnion.com.

In Mexico, which now ranks as the third largest remit ens market in the world, our transaction growth rates continued to outpace the growth reported by Banco De Mexico. Also, the difference between the revenue and transaction growth rates narrowed in the quarter, further reinforcing that our pricing is at the right levels. We have made no significant price decreases in the Mexico business since early 2007. Our strategy to promote our three brands, Western Union, Vigo, and Orlandi Valuta, and to expand distribution is helping us in Mexico. Accordingly, we expect to have modest growth as we continue to gain market share in 2008.

In the fourth quarter and throughout the year, we furthered our strong position in many of the world's leading remittence answer markets. We have been in the United Kingdom for nearly two decades, in 2007 we nearly doubled our presence to 7000 locations through our existing FEXCO relationships, and with two additional equitation -- Kosta and Finnet. The focus on expanding our distributions in this market and investing in brand awareness is paying off. Transactions grew by 30% in 2007. We will reopen in South Africa after a six-year absence. We have received all the regulatory approvals and will be announcing our rollout plans shortly.

In India, the world's largest received country, with $27 billion in annual remittances, we recently celebrated the opening of our 50,000th agent location with the State Bank of India. In the quarter, revenue was up 45%, and transactions were up 68%. In China, which passed Mexico to become the world's second largest remittance company with $26 billion in annual remittances, we posted solid growth, with revenue up 37%, and transactions up 24% in the fourth quarter. And we are delighted to have welcomed China Everbright Bank as an agent with their 300 branch locations across 30 cities in China.

Combined, India and China now represent 5% of Western Union's annual revenue. That's up from 4% in 2006, and 3% in 2005. There is a lot of opportunity in these two countries, and we are very well positioned for continued growth. The Philippines is the fourth largest received country in the world, with an estimated $17 billion in annual remittances, representing 13% of the country's GDP. We have over 7000 agent locations in the Philippines. And in 2007, our inbound remittance principle grew over 40%, well ahead of the healthy market growth of 11%. In addition to our outstanding inbound business, by leveraging our existing network, we have built a successful interest service in the market and in the near future we will further compliment our network with mobile offerings.

Underlying our efforts to build value for Western Union shareholders are four key strategies. One, to expand and diversify global distribution. Two, to build our brand and enhance the consumer experience. Three, to develop consumer choice and convenience. And four, to develop new technologies and service offerings. In the fourth quarter, we made progress in each of these areas.

We exceeded our expectation by finishing the year with more than 335,000 agent locations, a milestone we are very proud of. We added Penn Traffic, a supermarket operator in the eastern United States with over 100 locations. They previously offered services through a competitor. We formed a new relationship with the Bangladesh Post, adding nearly 450 locations to offer even more convenience to our customers in this important country. Looking now at renewals, we are very excited to have extended our relationships with several important post offices, including Kenya Post Office Savings Bank, Queretaro Argentino, the Argentinian post office, and Deutsche Post Bank. We signed a 10-year renewal with Group of Amenca with over 200 locations in the Dominican Republic. And additionally we have made an equity investment in Grace Kennedy, our agent with a strong presence in Jamaica and other Caribbean Islands. To celebrate our new agreements with Grace Kennedy and group of , Scott and I recently visited Jamaica and the Dominican Republic to meet with the CEOs, tour the market, and review our long-term plans. And on a personal note, I can say that it is gratifying to have these kind of long-lasting business relationships.

In the United States, we extended our relationship with TCF Bank, which covers 360 locations across seven states. Also recently in the U.S., we extended two significant supermarket relationships. In November, we renewed our 22-year history with Kroger, insuring that Western Union continues to be conveniently offered to our customers at the counter in more than 2400 Kroger locations. Eight weeks later, we extended our agreement with Del Hays America, covering more than 1,100 locations. Kroger and Del Hays are especially significant renewals for Western Union. With these signings, we maintain our position with having long-term agreements with eight of the 10 largest supermarkets in the United States.

We remain committed to promoting the brand around the world and developing an even more precise customer-centered approach. We launched several new U.S. outbound holiday promotions to key markets in response to consumer feedback for more frequent and immediate reward and recognition programs. The focus marketing and grassroots events introduced our Africa Cash, Caribbean Cash, and Philippines Homes For the Holidays promotions.

In the fourth quarter, to connect more directly with our customers, we communicated with Gold Card customers via text messages and direct mail in 15 different languages, based on individual customer preference. At year end, we have 9.5 million active Gold Cards, up from 8 million cards in 2006. This program is becoming even more global with cards issued across more than 60 international countries.

We have been offering continuity of income insurance as an attention tool in Hong Kong, Malaysia and Austria. Based on the success we have seen with this program, we continue to expand into other major countries. We have been recognized in the United States as a top 100 brand. I am pleased to say that we were honored with a similar recognition in the Ukraine, the choice brand of the year award. Western Union continues to invest to promote its brand in high growth markets, in China and India, Western Union continues to enjoy high brand awareness, which contributes in part to our strong growth in both China and India.

In addition to the ongoing investments we make in our brands, we are focused on supplementing our core money transfer business, with additional choices and more convenient ways to use Western Union services. In Canada, we launched a new service with Scotia bank, connecting customers to our 335,000 physical locations. Customers needing to send money can initiate a transaction in bank branches, or by a Scotia bank's online service for payout in any Western Union location worldwide. In 2007, we grew our nondomestic intracountry money transfer business to over $80 million in revenue on transaction growth exceeding 30%.

Together with H&R block, we recently launched a pilot to offer Western Union money transfer service using the popular H&R Block Emerald Prepaid MasterCard. To make it simple and convenient for customers to send money over the internet, we continue to expand WesternUnion.com. WesternUnion.com contributes about 2% of total revenue and is available in 12 countries. 20% of WesternUnion.com's revenue originates outside of the United States and this revenue stream grew 45% in Q4.

We pushed hard on the innovation front this year. Last week as part of our GSMA initiative, we joined forces with two different MobileTel com operators in the Philippines. Mark Communications and Globe Telecom. We will go live with these two pilots in the second quarter, and are excited about having offerings that address an adjacent market -- Those consumers with the need to conduct more frequent, lower principle transactions. The mobile money transfer market presents an exciting opportunity in the coming three to five years. Smart, an offering designed to serve customers with bank accounts, ended 2007 with more than 30 million subscribers and already has a mobile financial service platform linking bank accounts to mobile hand services. The Globe offerings will target cash-based customers. Globe already offers it's more than 19 million subscribers an established mobile wallet, offering called GCash.

Also under the GSMA relationship, we formed an agreement with the largest Indian telecom company, Bharti AirTel to jointly and pilot mobile money transfer service for India. Bharti AirTel has more than 50 million mobile phone customers. We are excited about the potential of these agreements and the quick progress we are making with our newly formed relationship with the GSMA and the interest from other Morabora remains very high.

We are working in Hong Kong with Prime Credit, a subsidiary of Standard Charter Bank, to begin offering micro loans on a test basis. It is worth noting that we will not be responsible for the credit risk on the loan.

I am pleased with 2007, and I am even more excited about the possibilities that lie ahead. We are confident the market growth exists. We have promising opportunities ahead of us, and the tools to succeed. The number of global migrants, as estimated by The World Bank, is around 200 million, or 3% of the world's population. The amount of principle remitted around the globe is projected to continue to grow to 8%. We will remain focused on investing where the opportunities exist. Similarly, on the consumer to business side, there are billions of bills paid by consumers and businesses around the globe.

Right now, Western Union, for bill paying, is primarily in only two countries, the United States and Argentina. So, we see a global market opportunity to expand our bill payment business. Our strategy is to leverage Western Union's strength to deliver valued financial services to our consumers that will drive long-term, top line and bottom line growth. We have an extensive physical distribution network of more than 335,000 agent locations in 200 countries. We operate four great brands, Western Union, Vigo, Orlandi Valuta and Pago Facil.

We have 9.5 million Gold Card customers. We have great agent partners around the globe, and very strong operational capabilities and compliance programs, and we have 6000 employees dedicated to our success. Looking to 2008, we have four key priorities. The first priority is to grow the C2C business, especially the international business. We will continue to expand our distribution, adding about 25,000 locations annually, including expanding our Vigo brand in Europe. We will build and promote our brands, including investing in customer relationship managing programs to retain customers and drive additional transactions. Our second priority is to expand our C2B business to other countries through joint ventures, acquisitions, and by introducing Pago Facil to other Latin American countries. In addition, we will increase the number and variety of bill paying options, as we have done recently with Yodelle, Google and others. Our third priority is to drive innovation by developing new services and technologies.

In 2008, we have plans to push hard for new products. We plan to test mobile money transfers, micro lending, and other services. In addition, we will continue to expand our presence on the internet through WesternUnion.com. And our fourth priority is a continued focus on the bottom line. We are committed to growing profitably. We will make wise investments all the while remaining focused on improving the cost structure, implementing operating efficiencies, and delivering strong margins. I am very confident that we have the right strategy and have set the right priorities to continue to gain share within this huge and growing market. We are setting guidance for 2008 to grow revenue 9 to 11%, and to achieve earnings per share in the range of 1.24 to $1.28, or 10% to 13% growth. I will now turn the call over to Scott Scheirman, our CFO, who will provide more detail on the fourth quarter and full year 2007 financial performance, as well as our 2008 guidance.

Thank you, Christina. Revenue for the fourth quarter was $1.3 billion, up 12%, or 10% excluding the December 2006 Pago Facil acquisition. Revenue also included $28 million from the translation of the Euro. For the full year, revenue was $4.9 billion, an increase of 10%, or 8% excluding Pago Facil. Full year revenue included $79 million from the Euro.

During 2007, our organic revenue growth, revenue excluding Pago Facil and the Euro translation, accelerated in the second half of the year. Additionally, fourth quarter organic revenue growth was stronger than the third quarter. This acceleration was driven by the C2C business, especially the international business.

In the fourth quarter, C2C was 84% of total revenue. Revenue growth for the segment was 12%, and profit growth was 11%. Operating income margin was 27.5%, compared to 27.6% in last year's fourth quarter. Impacting both the margin and the profit growth were the mix shift related to the faster-growing international business and incremental public company expenses. These impacts were offset in part by expense leverage. Within the C-to-C segment, our Mexico C-to-C business, which represents 7% of our total revenue, achieved sequential revenue growth rate improvement since the second quarter of 2007. Fourth quarter revenue was flat on transaction growth of 3%. For the full year, revenue declined 4%, and transactions were up 4%.

Our domestic C2C business, which represents 11% of total Western Union revenue, showed declines of 9% and 3% in revenue and transactions respectively during the quarter and for the full year as we saw declines of 10% in revenue and 4% in transactions. In addition to the market conditions in the U.S., the domestic C2C business is also impacted by the security issues related to the card not present transactions, which includes WesternUnion.com and telephone money transfer transactions. Excluding the card not present transactions, the domestic C2C transactions would have been flat this past quarter. We continue to work hard on the card not present issues. Specifically, we continue to work with banks to address their fraud concerns, and we have seen the banks return to accepting transactions.

On the consumer side, we are exploring opportunities to improve the customer experience by making the service more convenient. Our international consumer to consumer business had another strong year, growing revenue and transactions 15% and 20% respectively, with operating income margin in the mid 20s. The transactions that originate outside of the U.S. grew revenue at 25% and transactions at 28% in the fourth quarter. Full year consumer to consumer price decreases and foreign exchange actions totaled 3.2% of total company revenue, which was less than our expectation for the year.

For 2008, we expect C2C price decreases to be approximately 3% of total Western Union revenue. The consumer to business segment grew revenue 13%, or 4% excluding Pago Facil during the fourth quarter. The operating profit decline of 3%, and the operating margin of 30% in the quarter, were impacted by the faster growth in the electronic bill payment products, compared to the higher margin cash-based products, the low are margin Pago Facil business, as well as incremental independent company expenses. Full year C2B revenue increased 13%, or 4% excluding Pago Facil. We are earned $.32 cents per share for the fourth quarter, an increase of 14%. Earnings per share was $1.11 for the full year on a GAAP basis or $1.13 per share when adding back the $22 million non-cash stock compensation charge from the third quarter of 2007.

On the margin front, consolidated operating income margin was strong at 27% for the full year. For year-over-year comparisons, fourth quarter 2007 was impacted by the mix shift discussed previously, and $17 million of incremental independent public company expenses, compared to $9 million in last year's fourth quarter. For the full year 2007, these expenses were $59 million, which is right in line with our expectations, compared to $25 million in 2006. Also impacting the full year operating margin was the $22 million non-cash stock compensation expense.

In 2008, our objective is to deliver strong operating margin, consistent with 2007, while maintaining the appropriate level of investment in the business for growth. This investment includes marketing investments in 2008 at around 6% of revenue. To support our profitability objectives, we have taken steps aimed at improving our operating efficiency. For example, we consolidated and relocated several operating functions in 2007. And last week we announced a work force realignment in certain operating areas, where approximately 120 jobs will either be relocated to our operating center in Costa Rica, or eliminated. As a result of this action, we will incur an additional operating expense, which are part of our guidance of approximately $5 million in the first quarter.

In 2008, we expect the operating income margin to be lower than the annual average in the first half of the year, and higher in the second half of the year. Our tax rate was 27.4% in the fourth quarter, compared to 29.1% in the fourth quarter 2006. Full year tax rate was 29.9% compared to 31.5% in 2006. Increased foreign derived profits, compared to U.S.-derived profits, have helped our overall tax rate in 2007. We also had favorable resolution of certain tax matters in the fourth quarter.

With the credit crunch remaining in the news, I want to reiterate my comments from the last earnings call regarding credit exposure. Western Union participates in the money order business by offering Western Union branded money orders, but we do not carry the related float investments on our balance sheet. However, you will see on our balance sheet settlement assets related to our money transfer and bill payment businesses. There's little exposure in these assets to the recent credit market issues, and we have not taken any write-offs.

At year end our total settlement asset balance was $1.3 billion, of which $203 million was cash, $922 million is agent receivables, and $194 million was invested primarily in highly rated municipal bonds. We regularly monitor credit risks and mitigate credit exposure by making high quality investments. As expected, our full year cash flow from operations was strong at $1.1 billion, and capital expenditures were $192 million. In the fourth quarter, we bought back 6.4 million shares for $146 million, at an average price of $22.73. For the full year we spent $727 million to repurchase 34.7 million Western Union shares at an average cost of $20.94 per share. In December 2007, the board authorize the an additional $1 billion for stock buyback. We now have $1,253,000,000 available for repurchases.

We continue to believe our stock represents a real value at these levels. I would further point out that while cash used to buy back shares could potentially come from increased borrowings, we plan to maintain our A-minus credit rating. We are pleased with our fourth quarter financial performance and with the revenue acceleration we achieved in the latter half of 2007. Our 2008 financial plan anticipates the international C2C business to remain strong. The Mexico business to have modest growth, and the U.S. domestic and U.S. outbound businesses to be challenged in light of the current economic circumstances in the United States.

Our guidance for full year revenue growth is 9% to 11% and we are estimating earnings per share of $1.24 to $1.28, or growth of 10% to 13%. And our long-term objective remains to deliver 10% to 12% revenue growth, and 12% to 14% earnings per share growth. For 2008, we also expect strong operating income margins consistent with 2007, cash flow from operations of approximately $1.2 billion, capital expenditures of less than $200 million, a tax rate of approximately 29% in 2008, compared to 30% in 2007. However, net other expense will be slightly higher in 2008 compared to 2007. In 2008, our cash priorities for cash remain unchanged. Our cash priorities are to grow the business, make acquisitions, return capital to shareholders, primarily through stock buyback. In addition to cash flow from operations we have over $1 billion of cash on our balance sheet available for acquisitions and investments.

In summary, I have spent considerable time with our teams to review our 2008 priorities and initiatives, including both the opportunities and challenges in the market today and in the future. I am confident that we have set appropriate goals for 2008. I believe our success will be a result of our focus on the priorities Christina articulated and the market opportunities that exist globally. Operator, we are now ready for the questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Liz Grausam with Goldman Sachs.

Thank you. Why don't you chat about your international C2C business, where obviously we're seeing a tightening between transaction growth and revenue growth and also a healthy clip of agent renewals. If you could talk a little bit about the pricing dynamic you're seeing at the consumer level internationally, and if you're seeing improvements there. And also the commission rates that you're negotiating on your renewals, if they are stable or if you're getting any benefit now that you've been in these markets for several years.

Thanks, Liz. In terms of pricing, we see pricing, as we said, about the 3% range for 2008. And we actually saw in the fourth quarter a nice lifting of revenue of 25% in the international subsegment. We see it as pretty steady. Really the normal pressures, but there's really not a great push for compression of margins and driving pricing to a deeper level. I think the other very good news is we've done a number of resigning of key agents around the world and as we've negotiated the contracts, and they now have scale and size in terms of their business, we are negotiating those contracts to our advantage as it relates to commissions.

Great, and then just overall market pricing trends, you obviously have a very large competitor that is having some internal problems and liquidity problems. Are you seeing any signs, early signs of stabilization globally in pricing and, or agent renewals that would work to your advantage in the market, given perhaps some lower leverage that your competitor has?

I think we really have to look at who the competitors are around the world. I think one of the biggest Corridors that we all compete is in Mexico and that's been stable for quite sometime, so I don't think we see that impact in there. And internationally, we have numerous competitors, so it's not just that particular one, but there are banks and other institutions. One thing I will say, that is the strength of Western Union, is that it is so important as we sign up agents who are banks and post offices and large government entities, that we have a good credit rating. So that is very much to our advantage and helps us as we look to 2008 and the future.

Great, and one last question. On the earnings guidance, do you incorporate any view on your share repurchase activity for 2008. And what would you expect that to be?

I'll give that to Scott.

Good morning, Liz.

Good morning.

On our share repurchase, it's probably just helpful to walk through our cash priorities, and our cash flow from operations. We are expecting $1.2 billion of cash flow from operations. And then our cash needs from there is to invest back in the business to grow the business. We anticipate capital expenditures to be less than $200 million for 2008, and then part of that cash flow would also be to look at for acquisitions or M&A. And then the next priority is stock buyback. And there will be ample cash flow for stock buyback in 2008.

The 124 to 128 range, though include. .

Some stock buyback in that range, yes

Thank you.

Your next question comes from the line of Adam Frisch with UBS. Please proceed. Hi. It's Glenn [Foader]. Thanks for taking my question. On the economic front how much margin for error is built into your forecast? For example, when you say modest domestic and outbound growth, how much would GDP or unemployment or other economic metrics have to move to be at risk.

I think one of the beauties of our business is that we operate in 200 countries, but we also monitor about 16,000 corridors. So, as we vail the plan for 2008, we did it by region. Scott worked closely with the finance teams. We looked at the risk not only here, but around the globe. And we really tempered it to make sure we accounted for any risk that we saw on the horizon. We looked at risks and opportunities. I feel very comfortable with what we've built into the 9 to 11% guidance for 2008.

Okay. And I know you've given some good color on '08 margin potential, but this is a question we get a lot from investors when they are looking at the stock. I was wondering past '08. I was wondering if you could talk about where you think margins could go or where the leverage to expansion would come from.

Yeah, Glenn, this is Scott. Good morning. You know, on a long-term basis, we want to continue to balance having strong margins. We feel there's such an opportunity to grow our business globally. If you look at just India and China combined, it's about 5% of our revenues and those are the two largest receiver remittance markets in the world. So, ample opportunity there to grow. So we'll balance with that for growth, but we do have strong margins. We clearly understand that's a proxy for cash flow and profitability and shareholder value. But I will say my international business, where I have margins in the mid 20s have been very strong and even throughout 2007, that margin moved up slightly throughout the year, so I'm very pleased with our margin. But again, it will be a balance act of investing for growth and delivering profitability to our shareholders.

Okay, thank you.

Thank you.

Your next question comes from the line of Greg Smith with Merrill Lynch. Please proceed.

Yeah, hi. Good morning. Just looking at China and India, the fact that both of those markets are now bigger than Mexico, but yet your -- Mexico's still bigger on a revenue standpoint for Western Union. Is your market share lower in India and China, or is there maybe more money going through informal channels? Trying to figure out that dynamic.

I think you got a little bit of both, but I think really when you think back to Mexico, we've been there for over 100 years in money transfer. When we look at India and China, we're looking at really the last decade and actually the last five years. We've really been pushing that growth, and those economies have really shifted in the last five years if you just look at what's happened there. For me and for our company, this is a huge opportunity for us. Because, no, we don't have a huge share of market and we have a great opportunities. And you look at India continues to grow 45% revenue, China, 37% revenue. And all we see is green lights in terms of growth opportunity and building that business to even a greater extent.

Okay, and then in the U.S. to Mexico corridor specifically, one of your smaller competitors has recently talked about shutting down some branch locations. Are you seeing any of the stresses in the market have kind of negative ramifications on some of the smaller players, which, begs the question will this eventually all accrue to your advantage potentially?

I think we have tremendous agents on the cents side all around the globe, particularly in the United States. We talked about 8 of the top 10 grocery supermarket chains are part of our network going in. Obviously a lot going into Mexico. Then as we look at Mexico with our two great partners with Electra and Banamex, they have extensive distribution and very strong in terms of their compliance and all the things we do with them, and also telecom and other agents in Mexico. I feel very confident that we have the right locations, the right network, and we will continue to grow it as we grow the business. And there may be some that come across because they have left another, private company. But really we have a very strong, powerful network for Mexico.

Okay, thank you.

Thanks.

Your next question comes from the line of Charlie Murphy with Morgan Stanley. Please proceed.

Hi. This is actually drew [Tannen Balm] for Charlie. In the third quarter 10 Q you commented that you've been experiencing a convergence between international EBIT margins and profit margins of your U.S. originated business. Does that mean that international operating margins are going up or that U.S. operating margins are coming down or some combination of the two?

I mean I think what we are saying, and I'll let Scott add to it, but international margins are going up as we gain scale. Once you build the network, you invest in brand awareness. You in vest in marketing to get consumers knowledgeable about your product and your company. Then you start to get scale and then you also you are leveraging the bottom line as you can see with the growth in India and China, but Scott, maybe you would want to add to it.

I agree, Christina, the international margins that are running mid 20's, for overall corporate margin, call it 27%. The international is very close to the corporate average and even throughout '07 we have seen that margin continue to increase as we have gained scale and we're able to leverage the cost structure that we've put out in Europe and Asia and so forth. Those margins are very strong and they have been growing throughout 2007.

Do you expect them to continue to grow into 2008?

Well, you know, what we've guided for 2008 is that we're going to have strong operating margins consistent with 2007. So it will be a combination of the international business and the U.S. based businesses and those combined will deliver a very strong margin for 2008.

One of the other components I might mention also is that our Vigo business now is profitable, so that's also helping us from the U.S. side because that was a bit of an issue for us.

Okay, great. Thank you very much.

You're welcome.

Thanks, Drew.

Your next question comes from the line of James Kissane with Bear Stearns. Please proceed.

Thanks, and good job. Scott, can you give us a little more color on CapEx in '08, meaning priorities in '08, and maybe what's the base maintenance CapEx?

Good morning, Jim. How are you doing?

Hi, Scott.

Our CapEx in 2008 will be less than $200 million, and it's really a balance between signing new agents, recouping agents where we have contracts that are renewing and then also investing back in our business for growth. When we were part of First Data, a lot of that CapEx was outlaid by First Data, whether it was gear or equipment now is being a separate stand-alone company, we got to put that CapEx out. But it will really be a combination to resign new agents, renew new agents and invest in our infrastructure. And we have been very comfortable with our renewals in '07. We renewed every agent we wanted to. And we got real good visibility of '08 of how we want to spend our money and invest for growth.

Do you think maintenance CapEx is less than 100 million?

I don't want to get into too fine detail of our capital expenditures, but we're looking at that less than $200 million. And every time we put capital out there, I look at a strong cash on cash return to make sure we're delivering economic value to the company and our shareholders.

Okay, great. Christina, given all the concerns around international, given the slowdown in U.S., are you seeing any pockets of weakness in your international corridors? Last quarter you talked about the to Bangladesh was growing at 60%.

Yeah, I think our international is really strong. Like I told you, if you just look at the UK where we've been for such a long time, growing transactions of 30%. So it's not just the new markets, but our established markets as well. Feel very strong about it. And also we have the flexibility to invest more in some of the faster growing markets so we cannibal our portfolio at any given time.

Okay, and two last questions. Maybe how fast can you ramp South Africa? I think going way back that was like 1.5 to 2% of revenue. Then the last one, WesternUnion.com in the U.S., Scott, when do you think you can get that fixed?

Let me first speak to Western Union.com, Jim. 2007, I would really call the year of getting the security and the fraud things fixed and right and we worked hard on those. Our banks are accepting the credit cards. We've implemented some technology things. The goal for '08 is to really focus on the customer experience. It's a little bit cumbersome to do a transaction on WesternUnion.com. Combination of technology, prime leveraging our Gold Card and some other things. We want improve the customer experience in 2008 on WesternUnion.com, and we do think there's continued opportunities to grow that business. Today it's only 2% of revenues. It can be much bigger than that and we still have global expansion opportunities. The international business grew 45%, you know, this past quarter, so it's been very strong there. On South Africa, we have the regulatory approval to move forward there. We want to be as quick in that market as we can be, and we expect to make progress in there during 2008.

Just on South Africa, too, I was talking with the team last week. We do have agents on site and everything sort of lined up. I think what we want to do is make sure that we enter the market with as much push as fast as we can, but that we get a global hit because obviously there's pockets all over the world and also South Africa itself, because it is an important market within Africa itself.

Great, thanks very much.

Okay.

Your next question comes from the line of Josh Elving with Piper Jaffray. Please proceed.

Hey, good morning. I have a couple higher level question. And I guess the first one I have is, there's been a lot of various projections of the worldwide remittance market being about 300 billion. And if you kind of look at, you know, your share with some of your competitors, it appears that there is, you know, close to 75% of remittances worldwide that are done through informal channels. What, what level of that remaining, call it $200 or a little bit more billion is actually addressable and could be picked up through formal transfer?

I think when you look at the numbers, a lot of the numbers that are issued are formal channels and the informal is not necessarily accounted for in that number. So there's actually more than that $300, so you can talk about $400. So, you know, it's a huge market. So when he we look at our share, we continue to grow share every year. For us, that's what we think is the huge opportunity. If we just look at the amount of principle that's moving around the world, last year the principle globally was running at about 8%. We're running in around like 20%, 24%. So we're growing three times faster in terms of principle.

So we see huge opportunities for growth. And also, the other thing that's happening is a phenomena, as we've become more global world, these informal channels, governments are pushing to drive funds into more formal channels because a lot of concerns about many issues in terms of money laundering and terrorism. That also helps us, because we have such a compliant, robust system to move money.

Okay. Thanks. And then I guess just on mobile transfer, it seems to be some conflicting thoughts with regards to what that, that opportunity really is longer term. I think you suggested in some of your opening remarks just about how you were very active in the Philippines. And I believe the Philippines was kind of a test market for a lot of the mobile transfers and it seems to have picked up pretty aggressively there. Can you give us any kind of an update on Philippines and what you think bigger picture, longer term?

As I said earlier, the Philippines market is about, is the number 4 largest remittance received market in the world. Money moving into the Philippines last year grew at 11%. We grew 40%, so we feel very comfortable in terms of our growth. In the mobile, the Smart and Globe are both carriers that have mWallets, because you can't do mobile transfers without mWallets. So the fact that they have that capability now allows us to hook into with our money transfer system to create a methodology in terms of transferring funds to the Philippines. This is actually our first test outside of the United States. We will be doing that in second quarter, but we have been doing some testing in the United States and what we have seen with mobile is low ticket sends. It's about 50 -- our average is about $53 just to put it into perspective and our average remittance is much larger. So this consumer is not the same consumer. This is someone that wants to send a small amount of money very quickly, more frequently. So we see this as an add-on and it's all in test, it's all learning, but huge opportunity for us in a market where we have inbound, we have intra, and thousand we have mobile. Also as I said, we are working with India, the largest remittance market in the world, to develop a methodology to do it with Bharti Air Tel into India as well.

Great. Thank you very much.

You're welcome.

Your next question comes from the line of Glenn Greene with Oppenheimer. Please proceed.

Thank you, good morning. Not to beat a dead horse here, but wanted to talk more about the international C2C margins and wanted to get a sense for -- I mean you talked about mid-20s for the year, but the progression during the year, where we exited the year, and I think it would be very helpful to get a sense for how it's ramped year-over-year '07 versus '06.

I'll say a little bit and then I'll give it to Scott. I think the thing is to look at, you really have to think about when we go back to say, Asia, when we started, our investment was almost 12% of revenue just to get the marketing up, to get everything up. So the margins were much lower. As we've come through now, you know, that's starting to support our total international margins. As Scott said, it's in the mid 20s and it continues to accelerate as we move forward. Not rapidly, but it's moving up, not down. So, you know, Scott, if you want to add a little more color.

What I would add is we've built the global footprint, whether it be in Europe or Asia Pacific, or around the globe. We had a certain amount of fixed costs that we've had to put out there to build that scale, and now we've got the ability to leverage that around the globe. You know, each quarter in '07 we saw improvements in the margin, and on a go-forward basis, again our challenge will be to really balance the strong profitability, but also investing for growth. And as we talked about a little bit earlier, India and China, only 5% of our revenues. We think there's continued opportunity to grow that market. Many markets around the globe, whether western Europe, eastern Europe, Russia, South America, we continue to see a lot of opportunities to increase our market share. So we'll invest, but we also want to deliver strong margins to our shareholders.

So sounds like you're kind of at the point where you built the scale on the infrastructure and it's kind of a balancing act of how much leverage you want to shed on the bottom line versus investing for growth?

Yeah, we've really built out the global footprint. We have 335,000 locations. We want to add another 25,000 locations to that every year, but the global footprint has been built out from an operating standpoint.

Okay, and then different direction, the domestic business, which has continued to struggle for I guess five or six quarters here, seems to be lagging the Mexico turnaround. I don't know if they should be correlated, but I think they would be. I'm wondering why that domestics takes longer to turn around than Mexico is.

I think in the domestic market we see a lot more impicture on the housing, what's going on in construction, and in employment. And we've also seen more impact on the immigration front, because it's across a lot of different dynamics. So that's really what we've seen. In the Mexico business as well, we've seen shifts in terms of customers where they are. Some have gone to Canada, some have gone to Europe, but I think that's why we feel we're being very tempered in terms of our prognosis for domestic in 2008.

Okay, and then finally, Scott, quickly, you wanted to recap your comments on the margin expectations in the first half versus the second half. Just want to make sure I heard that right.

Sure. In the first half of 2008, our margins will be slightly lower compared to the second half of 2008. So the second half of 2008, we will have stronger margins. The one other comment I would add to the domestic discussion we had a few minutes ago is that if you think about the fourth quarter, our retail business really had flat transactions. The card not present really drug that down by a couple hundred basis points. So the walk in business, we did see flat, flat growth in the fourth quarter on the domestic business.

And what was the reason for the margins being lower in the first half than the second half? Was there any reason for that?

We normally have some seasonality in the business. So you'll see the seasonality, where in the third quarter, especially in the fourth quarter is our biggest, you know, sending time of the year, where people are sending money to loved ones, so the revenue really jumps up in the fourth quarter, which is really good for our business. We have a fixed cost structure that we can effectively leverage. Then also in the first quarter of this year, we will have about $5 million of operating expenses. Within our guidance, but $5 million of operating expenses related to the 120 jobs that we're relocating to Costa Rica.

Great, thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS) and your next question comes from the line of Chris Mammone with Deutsche Bank. Please proceed.

Hi, this is (inaudible) filling in for Chris. If you could just touch on how big you think is the market opportunity for micro lending and mobile remittances? And if any contribution from, if any meaningful contribution from that is baked into 2008 numbers.

I think as we look at both of those initiatives, we're really at the beginning stage of that, so, you know, I think we know that it's a huge market on both. On the mobile, we'll have to see how that goes because the question there is customer acceptance and we see that as a three to five-year horizon before it really becomes meaningful, if all the tests go well. On the micro lending, we are just at the beginning stage, working with prime credit, part of Standard Charter Bank in Hong Kong to understand the dynamics of how we can do that, how profitable is it to us and what is the accept built of this product with our customer. I think it's early days yet, to really give any kind of number, but I do not see it as being a meaningful number in the 2008 revenue or profitability numbers.

Your next question comes from the line of Robert Dodd with Morgan Keegan. Please proceed.

Hi, guys. It's actually Michael Shepherd in for Robert. One quick housekeeping question, then forgive me if you guys have already provided this information, but what is your expected tax rate for 2008? Thank you.

Expected tax rate for 2008 is 29%.

Great. That's all I have. Appreciate it.

Okay, thank you.

Operator, can we go to the next question?

Your next question comes from the line of Adam Fritsch with UBS. Please proceed.

Hi, it's Glenn again. Thanks for the follow-up. Just your top line growth guidance of 9 to 11%, can you decompose that into organic or same store growth, plus new business less attrition, and then plus or minus pricing?

I think in terms of that, all I would say, we've given guidance in terms of pricing. We expect it to be about 3%. In terms of acquisitions, there's no acquisitions in there and there's no major revenue from any of the new initiatives in terms of mobile or lending. I think -- that would be probably all we could give you today.

But the portion of growth that just comes from growth at your existing same store locations versus adding new agents, do you sort of have a conceptual view on that?

Not really, because we're adding every year on the same basis about 25,000 locations, and it takes a period of time for them to ramp up before they really become active in the network.

Yeah, the growth coming from a combination of same store sales and adding new locations to the network. It will be a combination of both of those. We have not dissected that in great detail for anyone.

Okay, thank you.

Thanks, Glenn. I'm going to turn it back to Christina for closing comments.

I want to say thank you for being on the call today. Again, I would reiterate after our first full year as a public company, we're very proud of our performance. And in particular I want to thank all the employees across the globe who helped to make it happen. Thank you very much. We look forward to talking to you throughout 2008. Bye-bye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a good day.