西聯匯款 (WU) 2008 Q1 法說會逐字稿

Good day, ladies and gentleman, and welcome to the Q1 2008 Western Union Company Earnings conference call. My name is Heather, and I will be your conference coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Mr. Gary Kohn, Vice President of Investor Relations. Please proceed, sir.

Thanks, Heather. Good morning everybody, and welcome to the Western Union first quarter 2008 conference call. Thanks for joining us today. As we mentioned in our press release announcing earnings, we have prepared slides to accompany this conference call and Webcast. These slides are available at WesternUnion.com under the Investor tab. The slides will remain available after the call for your convenience and reference. Before turning the call over to Christina, I will take a moment to remind you that today's call is being recorded, and that our comments include forward-looking statements. I ask 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 2007 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 Web site, WesternUnion.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 does not authorize and disclaims responsibility for any recording, replay or distribution of any transcription of this call.

Also, before turning the call over to Christina, I have a save-the-date announcement. Western Union is planning to host an Investor Day, which will focus on our strategy in New York City on the morning of June 20th. There will be more details coming soon. With that, it is my great pleasure to introduce our President and CEO, Christina Gold.

Thank you, Gary, and good morning everyone. As you have seen this morning, Western Union posted a strong first quarter, and we are off to a great start in 2008. Revenue in the first quarter was up 12% or 9%, excluding the $33 million benefit from Euro translation. This is our fourth consecutive quarter of accelerating, organic revenue growth. Once again, we had strong growth in our consumer-to-consumer segment with revenue and transactions up 14%. This performance was driven by 19% increases and revenue and transactions in our international C2C business, which represents two-thirds of our total revenue. The parity in the international revenue and transaction growth rates resulted from the strength of the Euro and from consistent pricing activity. This is as tight as the spread has been in 17 quarters.

The fastest growing part of our business, the subset of international transactions that originates outside of the United States, grew revenue and transactions 28% and 29% respectively. This subset represented more than 50% of total revenue in the quarter. In Mexico, our strategy of leveraging our three brands, expanding distribution and conducting outreach to the community continues to drive results. We achieved positive revenue and transaction growth in our Mexico business in this quarter, marking the third consecutive quarter of revenue growth rate improvement. And with the stable pricing environment, our transaction growth rates outpaced those reported by Banco de Mexico.

Our consumer-to-business segment continues to grow revenue on the strengths of Pago Facil and the demand for electronic bill payments in the United States. Earnings per share, excluding the $24 million of restructuring expenses, was $0.29, representing a 16% increase over the same quarter last year. Reported EPS was $0.27, an increase of 8%.

I am very pleased with this first quarter as is the entire management team. In this quarter, one can really see the strength of our business. Looking out over the next three to five years and even longer term, we believe that Western Union is well-positioned to build shareholder value. Our confidence in the future is built upon, first, our leading position in the huge and growing money transfer market. The money transfer remittance market is estimated to be $369 billion and continues to grow on average 8% annually. Our remittance principal has consistently grown over 20% annually.

Second, our strong Western Union brand recognized worldwide. Third, our unmatched distribution network of 345,000 agent locations, and of course, our financial strength, which enables to us grow the business profitably. In our results, one can clearly see the impact of worldwide migration trends as well as our return on investments in the brand and agent locations. In India, the word's largest inbound remittance country, our revenue grew by 52% on transaction growth of 65%. In China, the second largest inbound remittance country, revenue growth of 35% was well ahead of transaction growth of 22%. These markets, the world's top two remittance-received markets continue to perform very well and now represent 6% of Western Union revenue. We benefit from migration trends not only in nascent markets like China and India, but also in mature markets.

For example, in the U.K., where we have been established for nearly 20 years, first quarter transactions grew 29%. In January, we articulated our four key priorities for the business. Our first priority is to grow the C2C business, specifically to maintain the strong momentum in the international business, deliver modest growth in Mexico and stabilize the domestic business. We are well on our way to accomplish this.

One of the keys in the first quarter was to continue expanding our global footprint. New and existing agents chose Western Union because of our network, brand and financial strength. In all we added 10,000 agent locations in the quarter and have a network totaling 345,000 agent locations. Of particular note in the quarter, we signed Bank Pekao, Poland's largest bank, which operates nearly 900 branches. This is particularly significant because Pekao has been offering competitors money transfer services, but they have decided to offer only Western Union services in the future.

We are also excited to be reopening in South Africa after a multi-year absence. We just signed an agreement to offer inbound and outbound money transfers with ABSA, one of the country's largest financial services organizations and a member of Barclays group.

In the U.S., we will be rolling out 1700 additional Rite Aid locations in the former Brooks/Eckert stores over the next 12 months. This will give us 4,500 Rite Aid locations. We are well underway with our Vigo expansion plans. We are applying for licenses in various European countries and remain on track to further expand in Italy and to open in Spain, Ireland and the U.K. throughout 2008.

On the brand front, we are evolving our brand strategy to ensure it continues to be relevant to our global consumer. Our updated strategy focuses on how we help people who are on the move in pursuit of their dream and how in doing so we help grow economies around the world. We look forward to sharing more on our grand strategy during our June investor conference.

Enhancing our relationship with the customer and reinforcing our brand is an ongoing effort for us. One of the most well known customer loyalty programs is the Western Union Gold Card. In the first quarter, we added 200,000 customers to the program for a total of 9.7 million members spanning 65 countries. This loyalty program provides us insight on the customer behavior. And we use this information for targeted marketing activities and to help us define future financial service offerings.

To increase convenience and to expand distribution channels, we recently launched WesternUnion.com in Italy. Our International.com transactions, those that originate outside of the United States, grew over 40% in the quarter. The U.S.com business was impacted by the security issues related to the card-not-present transactions. The card-not-present issues impacted domestic C2C transaction growth rates by about 100 basis points in the quarter. The issues arose late in the first quarter last year so as we move through 2008, our growth rates will be less affected. In April, we completed the roll-out in Canada of our new collaborative offering with Scotiabank. This offering gives us access to a new customer-base, the online customer of one of Canada's largest banks, who are now originating Western Union transactions from the bank's Web site. While the service is still ramping up, we are already seeing interest and transaction activity. The average principal sent by our Scotia customer is twice that of our walk-in business, indicating that the offering is attracting new customers with different needs.

Our second priority is to expand our C2B business to other countries through joint ventures, acquisitions and Pago Facil expansion. In addition, on the C2B innovation front, we will increase the number and variety of bill payment options. As we look to globalize the C2B business, we will be rolling out Pago Facil to Peru in the second half of this year with other Latin American countries to follow. We are also reviewing an interesting pipeline of potential international bill payment acquisitions.

In terms of new offerings, we are piloting a cross-border bill payment service in 24 states aimed at the increasing need that small businesses have to make payments to overseas suppliers. By going to GlobalBusinessPayments.com, a small business person with a need to pay overseas suppliers can conduct the entire transaction from his or her computer without leaving the office, store or house. We offer a compelling value proposition for the convenience, speed, reliability and safety of the transaction.

Our bill payment offering through Yodlee is progressing nicely, and we expect to make several announcements soon. This offering leverages our brand and 4,000 U.S. biller relationships to make online bill payments more convenient. We are excited about the opportunity to extend our brand to a new customer, the online bank customer with the need to have bill payments posted immediately.

Our third priority is to drive innovation by developing new services and technologies. We are pleased to report that we have successfully tested the prototype for mobile money transfers. We are on track to go live with a customer pilot in the second quarter with our partners, Smart Communications and Globe Telecom in the Philippines. In the pilot, we will be testing price points that as a percent of the remitted principal are in-line with our core walk-in service. We remain confident that this new offering is going to bring new customers to the Western Union brand.

Additionally, we have a U.S.-based mobile transfer test with RadioShack and Trumpet Mobile. Recently, RadioShack rolled out this offering to its 4,300 locations. The early learnings confirm that mobile money transfer will be a three- to five-year opportunity and may be more suited to an adjacent customer -- those with the need to send low principal, highly frequent transactions. Mobile money transfer is offered through an M-Wallet, which an operator must make available to the user. Currently the number of mobile operators offering M- Wallets is limited.

In May, I will be in Cairo where the GSM Association will hold a summit devoted specifically to mobile money topics. I will be the keynote speaker at this conference and meeting with many of the mobile operators who have expressed an interest in working with Western Union.

Also on the new product front, we recently launched a micro-lending pilot. While we are still in the early stages, we are encouraged to see migrants who are well-established in a new country trust Western Union for services beyond traditional money transfers. These 12 to 18-month installment loans are being marketed to select Western Union customers through a direct marketing campaign. As a reminder, we are not assuming the credit risks on the loans and are partnering with Prime Credit Limited in Hong Kong, a subsidiary of Standard Chartered Bank.

Our fourth priority is focusing on profitability. It is important to emphasize that operating income margin improvement is an ongoing objective for Western Union, and we have as a goal margin improvement of up to 50 basis points in 2009. We expect to achieve this by leveraging our cost structure and identifying additional cost saving initiatives.

With that said, we will not forego important investments in the business for compliance, competitive issues or investments for growth. To improve our profitability, we recently implemented some restructuring plans, which Scott will detail in a few minutes. On a personal note, these restructuring decisions are difficult to make as our employees are an important part of our business, and we understand that these actions affect them in significant ways.

On the whole, we are all pleased, and I am personally pleased with the first quarter. The first quarter bears witness to the fact that, despite a challenging economic environment our customers are finding and moving for new employment opportunities and continuing to make money transfers. The power of being global is that Western Union has a presence in virtually every important cross-border market in the world. We have a world class brand and global distribution, but it is the energy and hard work of our people and agents that make the organization complete. I have great confidence in this team and our ability to achieve the goals we have set for ourselves and Western Union shareholders in 2008 and beyond.

With that said, I would like now to turn over to Scott Scheirman, our CFO, who will discuss our first quarter financial performance and 2008 outlook in greater detail. Scott.

Thank you, Christina. Our strong first quarter results are driven by Western Union's geographically diverse revenue stream, strong brand, extensive global distribution and our ability to serve our customers ever-growing needs to transfer money. Just last month, I had the opportunity to attend our Asia-Pacific-Asian Conference in Bangkok and to tour the international markets, where I met with many agents and employees. I continue to be optimistic about the tremendous international growth opportunities.

On this trip I toured two markets, the United Arab Emirates and India, where there are great market opportunities. For example, UAE has slightly fewer than one million citizens, but well over four million ex-patriots who are employed in the oil, service, construction and other industries. In fact, UAE is home to 16% of the world's large construction cranes. And just the Gulf areas, have nearly 14 million ex-patriots.

While there, I visited Western Union location that is conveniently located close to where many ex-patriots live. This one location alone does over 25,000 transactions per month. With our 345,000 locations, the strength of our brand, I firmly believe Western Union is well-positioned, not just in the UAE, but also in every major corridor around the globe.

Revenue for the first quarter grew 12% to $1.27 billion, or 9% excluding $33 million from the translation of the Euro. Transaction fee revenue, which makes up over 80% of company revenue, grew 10%, reflecting consistent transaction and pricing trends in both the money transfer and bill payment businesses. For 2008, we continue to expect C2C price decreases to be approximately 3% of total Western Union revenue.

Foreign exchange revenue, which is generated from the difference between the exchange rate we make available to our customers and the rate at which we, our agents are able to acquire foreign currencies, grew 26%. Foreign exchange revenue is 17% of total company revenue and is driven by our international business.

Our first quarter operating income margin was 24.4% as reported, or 26.3% excluding the $24 million of restructuring expenses. Last year's first quarter operating margin was 26.9%.

For year-over-year comparative purposes, the following items impacted our margins -- the restructuring expenses and product mix shifts within our C2B businesses. Accordingly, our operating income margin was in line with our expectations for the quarter. We continue to expect full year 2008 operating income margin excluding the total of $69 million in restructuring expenses to be consistent with last year's margin of 27%. Also consistent with our historical pattern, we expect operating income margin, excluding restructuring expenses, in the second half of this year will be higher than the first half of the year.

In the first quarter, we executed restructuring actions that will improve profitability and resulted in $24 million in restructuring expenses. The $24 million was comprised of two components -- $17 million from the decision to close our facilities in Texas and Missouri and to transition the operations to existing facilities outside the U.S. as well as to third-party providers. This is part of the $60 million related to the facility closures we announced on March 20. And, in separate actions, $7 million related to the elimination or relocation of positions to our Costa Rica operating center and to third-party providers.

In January, we told that you we expected $5 million in restructuring expenses. However, in February we identified additional positions to be eliminated or relocated, which resulted in an additional $2 million of expense. Of the $24 million, $22 million was included in cost of services, and $2 million was included in SG&A. The restructuring expenses were not allocated to the operating segment. For the full year 2008, we expect to have a total of $69 million in restructuring expenses from these actions, which includes $60 million from the Texas and Missouri facility closure and $9 million from the positions we identified in the first quarter. We recognized $7 million of this in the first quarter and will recognize the additional $2 million in the second quarter.

As a result of these initiatives, we expect to achieve expense savings of approximately $10 million this year and over $30 million annually in 2009 and beyond. And while it is too early to provide specific guidance for 2009, we expect that these savings and other initiatives will enable to us deliver operating income margin expansion of up to 50 basis points in 2009.

It is also important to note that we have transition plans in place to continue to provide strong service to our customers and agents. Currently, the Texas and Missouri operations handle our settlement functions and about 20% of our domestic customer calls and none of our international customer calls. On a personal note, I want to echo what Christina said. These decisions impact our employees' lives, and we do not take them lightly.

Cost of services grew 17% in the quarter and was 60% of first quarter revenue. Excluding $22 million of restructuring expenses, cost of services grew 14% and was 58% of revenue. The growth in cost of services, which is primarily agent commissions, is attributable to the faster growing international C2C business and the mix shift in the C2B segment.

SG&A in the quarter grew 10%; excluding $2 million of restructuring expense, SG&A grew 9%. The tax rate in the quarter was 29.2% compared to 31.5% in the first quarter of 2007. As expected, the tax rate in the first quarter was lower primarily as a result of increased foreign derived profits, which are taxed at lower rates compared to U.S. derived profits. And within our foreign-derived profits, a higher proportion of those earned in lower tax jurisdictions. We will continue to expect full-year tax rate of 29%.

We earned $0.29 per share in the first quarter, excluding restructuring expenses, an increase of 16%, or $0.27 per share as reported an increase of 8%. We continue to generate strong cash flows. Cash flows from operations was $318 million in the first quarter and has us well on our way towards our goal of $1.2 billion of cash flows in 2008. We finished the quarter with cash and cash equivalents of $1.9 billion on our balance sheet. Our cash flow generation combined with our significant cash balances gives us great flexibility in executing our business plan. Moreover, our business does not require significant capital for day-to-day operations. In fact, total capital expenditures for 2008 are projected to be less than $200 million. In the first quarter, capital expenditures were $23 million.

So when combining our high cash balances, our ongoing cash flow generation against relatively low capital expenditures, we have the ability to invest back in the business while still returning immediate value to our shareholders through stock repurchases. In the first quarter, we bought back 14 million shares for $297 million at an average price of $21.41. Since being public, we have repurchased over $1 billion of our stock. At quarter end, we had $956 million remaining for purchases under our current board authorization.

Taking a deeper look at some of the highlights for the quarter, our C2C segment, which is over 80% of total revenue, had revenue and transaction growth of 14% in the first quarter driven by the strength of our international business. Operating income increased 15% and operating margin was 25.9%, which is up 10 basis points compared to last year's first quarter operating margin of 25.8%.

Our total international consumer-to-consumer business grew revenue and transactions by 19% during the first quarter. The subset of our international C2C business, those transactions that originate outside the U.S. and total more than 50% of Western Union's revenue and 80% of total international C2C revenue, grew revenue 28%, and transactions 29% in the first quarter.

Operating income margin for the international business was higher than the first quarter of 2007 and remains strong in the mid-20s. In our Mexico business, first quarter revenue growth was 1% on transaction growth of 2%. Revenue and transaction growth continue to converge as we have anniversaried the price reductions we made in the first quarter of 2007. Our domestic business, which represents 10% of total Western Union revenue, showed decline as expected of 8% and 3% in revenue and transactions respectively.

On the revenue line, this is a sequential improvement over the last four quarters. Also since pricing has been stable for a year now, the difference between revenue and transaction growth rates has narrowed to about 500 basis points. The consumer-to-business segment, which represents 15% of our total revenue grew revenue 4% during the first quarter on transaction growth of 3%.

As you will recall, we have anniversaried our Pago Facil acquisition so these growth rates are organic. Operating income was down 8%, and this quarter's operating margin of 29.6% was consistent with the last two quarters. Last year's first quarter margin was 33.4%. The operating profit and margin were impacted by the ongoing product mix shift from the cash bill payment services to electronic.

For 2008, our revenue, cash flow from operations and capital expeditures guidance is unchanged from what we provided in January. Revenue growth is expected to be 9% to 11%. We expect to generate cash flow from operations of $1.2 billion. And we expect our capital expenditures to be less than $200 million. We expect earnings per share to be in the range of $1.25 to $1.29, excluding $69 million of restructuring expenses which is equivalent to $.06 per share. This range also includes the anticipated cost savings of $.01 per share achieved from the 2008 restructuring activities. This is a growth of 11% to 14% from last year's non-GAAP earnings per share of $1.13.

On a GAAP basis, we expect earnings per share in the range of $1.19 to $1.23, including the $0.06 impact from the $69 million restructuring expenses and a $0.01 benefit from the $10 million in estimated cost savings from the 2008 restructuring activities. For clarity, our previous GAAP guidance for 2008 earnings per share was a range of $1.24 to $1.28 and included $5 million or less than $0.005 per share in operating expense. That amount is now being included in the $69 million of total restructuring as we've decided to treat all the restructuring expenses together given their size.

The first quarter was strong on the top and bottom lines. In particular, we again saw the strength of our international business in driving revenue and earnings. We also took some important cost saving actions in the first quarter that will help improve our margins in 2009. Margin expansion is an important objective for Western Union. In 2008, we expect to generate strong cash flows, which gives us the flexibility to execute against our stated priorities for the use of cash. These priorities are to grow the business, make acquisitions and return capital to the shareholders primarily through stock buy-back.

In summary, we had a great start to the year. We are confident in the state of the business and our 2008 objectives. And we are well-positioned in the global market. Heather, with that we are now ready to take the questions.

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

Great. Thanks, I wanted to touch on the margin goals that you outlined for 2009 with 50 basis points of expansion now in your plans, the first time we've heard from you a commitment to margin expansion in the business, but it sounds like it's fairly focused due to the restructuring issues that you've laid out. Could you help us understand your perspective on the inherent or natural margin expansion available in this network as a result of your brand strength and network breadth in this industry? And when we may see really the kind of natural leverage in this business start to re-emerge, and if that's contingent on really the U.S. recovering in any time period?

Thanks, Liz. I would just say a couple of things here, and then I will pass it on to Scott. But I think even as you look at the C2C business in the first quarter, you saw a margin expansion by 10 basis points so we are already starting to see the impact of that international positioning and growth of that network and the strength and really the size of international as it relates to our business.

As we look to our target for '09, the 50 basis points is really looking at the restructuring we are doing and a commitment to give that back to shareholders, but it doesn't preclude what we are already seeing in the business as we look at leveraging just the size of the brand and the scope of the business. And, Scott, I don't know if you want to put a little bit more on that.

Yes, what I would add to that, Liz, is there's a number of avenues for margin expansion, and management is very focused on improving our margins up to 50 basis points in 2009. Some of those items that will be helpful as we move towards margin expansion is our international margins. We continue to gain scale there, leveraging our global footprint.

The first quarter '08 margins were better than the first quarter '07 margins, and those are running in the mid-20s. And we continue to see margin expansion opportunities there. We took some actions in the first quarter, some restructuring actions, and will continue to make sure we have the most effective and efficient cost structure as a global company. There's opportunities to continue to improve the profitability of Vigo. We have taken actions there in '07 and continue to drive to improve the profitability of Vigo. And, as Christina mentioned, is really an opportunity to optimize our investments, whether it's marketing or pricing, to ensure that each dollar of investment we even get a better and better return as we put those investments out there. So, we continue to see a roadmap to drive strong margins and improving margins up to 50 basis points in 2009.

And could you give us a sense of the scope of what you would consider your investment budget to support your mobile inititatives, micro-lending inititiatives, a lot of new business lines, business-to-business that you're getting into? Is that a substantial amount expense account that you have running through your P&L now, and when do you expect to start seeing at least some returns on those investments from a revenue standpoint?

I would not say it's substantial. I think it's part of our total overall marketing budget. And I don't think as we've talked about mobile, that's a three- to five-year horizon so we don't see that having a really great impact on the top or the bottom line at this point.

We really are in a learning phase at this point, so we are investing to make sure we have the right technology and the right marketing to attract customers and drive both the lending and the mobile. But, it's early days yet. And as we see more and learn more, we will certainly share all of that information with you.

Great. Thank you.

Thank you.

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

Thank you. Christina and Scott, I was wondering if we could discuss the potential for lowering agent commissions, particularly in domestic and Mexico business, how do you think about that? Is there the potential to do that, and if you could just discuss that, that would be great.

I think as we look at agent commissions around the world it's pretty stable. One of the things that we have focused on in the last period of time is looking at the received markets of the world because there is a differential in international, and we have been able to reduce some of the commission rates as we have re-signed agents clearly because they have seen the value of the brand. They now have a much larger business, a much larger scale, so it's much more complex negotiations. So there's opportunities there. It's something we are always looking at.

And as we always say, we look for opportunities, but we also are very conscious of the profitability of our deals, making sure that it is good for the company and good for the agent. So, we feel it's very balanced. We are focused on it, but it's not something that is going to change dramatically overnight.

Ok, great. And as a quick follow up, Scott, I was wondering if we could get the percent of revenue from the internationally originated C2C transactions?

Are you excluding the U.S. outbound, Charlie, on that?

If possible, I think --

Yes, it's a little - a little bit over 50%. It's over half our business.

Right.

And then the international, the 19% revenue and transaction growth that's about two-thirds or 67% to 68% of our revenues.

Okay. Thanks very much.

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

Thanks, and great job, guys. Just going back to Charlie's question on agent commissions, can you just talk generally about the competitive environment and the trends in agent commissions over time as well as the trends in signing bonuses?

I think what we would say is it's pretty stable. It's been consistent. I think we have seen from some competitors in the U.S. willing to take a pretty aggressive stand in terms of what they want to pay, and we have not been willing to go to that extent. Clearly also, there's a lot of competitive nature in our Vigo agent relationship so where that is a different part of our model, which we really don't discuss a lot but we also look at that and we have different commission rates there. But, I would say, Jim, it's pretty stable really, except for a few anomalies in the United States that we've seen.

Just given some of the issues around some of your competitors are you seeing the behavior change out there at all?

I don't see it in terms of pricing and how the business moves. No, we don't see it. I think in terms of holding on to the network they have, yes, we have seen it.

Okay, great. And, Scott, CapEX declined a fair amount in the first quarter. Do you know some of the factors that may be driving the decline?

Some of that is just I described as timing, Jim. Our full year outlook is still less than $200 million of capital expenditures. And we've got great cash flows, $1.2 billion, to invest in our business and to buy back stock, but I would just point out it's timing more than anything.

One last question, WesternUnion.com in the United States, is it fixed, or is it just going to remain fairly subdued here?

It's getting better. I think what we are doing is we are actually working with some outside assistance in terms of looking at the technology and looking at the process to make it much more customer friendly. So we can do the transactions and all of it, but it's not as simple and robust as it was prior to our issue. So that's in the process of going through a major overhaul.

Great. Thank you.

Thanks.

Your next question is from the line of Frank [O'Turinelli] with William Blair & Company. Please proceed.

Good morning. A couple of questions for you, if I may on the margins, I just wanted to make sure that my recollection is correct. I think in the past we've discussed the fact that the international businesses have had lower margins because of the different super-agent and agent structure. And I was kind of wondering as the international continues to outpace the domestic growth, the fact that you're proposing to increase margins is in fact a stronger operational performance given the margin going against you.

I think as we see our margins in our international business as we've gained scale and also we've done negotiations on agent commissions, we've seen that margin expansion so that it is in the mid-20s and actually first quarter international margins were stronger than first quarter international's last year so we are leveraging that.

We are also leveraging the cost structure because we build the infrastructure in the countries, and now as we gain scale. So we obviously as we went through some of the very rough time in '06 when we had that very drop in the U.S. and the very high surgence of international that had a real tough impact on our margins. But over time we see our margins really lining up in a more consistent pattern, and Scott can give you a little more color on that.

Yes, Frank, it's continuing in the international business both are mid 20-margins, those have been improving. And it's our ability to leverage our scale and our global footprint as we build presence in Asia Pacific, build presence in Europe, Asia, Eastern Europe and so forth so we are leveraging that scale, and able to effectively drive more dollars to the bottom line as we do that.

One other question for you, Scott, on the consumer-to-business side, can you, I remember the product mix shift but can you give us or maybe remind us of some of the factors that are affecting margins there, and where should we expect that to kind of stabilize out?

The margins this quarter were right at 30%, and that's been consistent with the last couple of quarters if you look at the latter half of 2007. What's driving that mix shift is we have a very successful Pago Facil business. It's been a very good acquisition. It does run lower margins.

And our U.S.-based business, the electronic part of that, is growing faster and it has slightly lower margins, too. The cash-based business is not growing as quickly with higher margins, and some of that there is a shift from cash-based payments to electronic-based payments. Our view on the margins is we continue to expect to have strong margins there in 2008 relatively consistent with what we've seen in the first quarter and what we've seen in the last couple of quarters, too.

Were any of the restructuring initiatives, will any of those affect the margins in the consumer-to-business segment or are they all essentially all C2C focused?

They are primarily C2C, but there are some things we have done that will be helpful to the consumer-to-business segment, too.

Great, thank you. Good quarter.

Thank you.

Your next question is from the line of Austin Root with DLH Capital. Please proceed.

Good morning. You noted that revenue included $33 million benefit from currency translation of the Euro. I wondered what the total currency translation benefit was?

You know, this is Scott. We have not provided that historically. I will share with you that when you look at foreign currency translations Euro is the biggest part of the foreign currency translation that we have.

Okay. And I would assume that given some of your costs are in those currencies that the margin benefit or the EBIT benefit is less than that 33 million?

Yeah, the EBIT benefit would be less than the $33 million, yes, significantly less than $33 million.

Okay. Just one last question on the margin, then I have one other on the currency, I mean. If, would the international margins have been better year-over-year if not for the currency?

Well, where I will leave it, is the international margins were better on a year-over-year basis. From a revenue line, the international business had 19% revenue growth. The Euro impacted that about 400 basis points so it's still very strong growth from an international standpoint.

Okay. And then just last question on aggregate value of dollars transferred on the C2C side, what were those in the first quarter?

We haven't provided that today but when we file the 10(Q), we'll make sure to include that.

Okay. Thanks very much.

Your next question is from the line of Brian Keane with Credit Suisse. Please proceed.

Hi, good morning. I was just hoping to get some color on India and China, the two largest inbound remittance quarters. Can you give us some updateded positives and also some challenges in each of those two countries?

Obviously, in India, we are very excited about the progress there with revenues up 52%. We have a location count well over 50,000 locations inside India. We have a very strong team. We continue to work on the network expansion, the brand awareness is well over 75%. So clearly, we feel very confident about our position in the world's largest remittance market and also signed with Bharti Airtel to work on a mobile solution as well. I think we are extremely well-positioned in that market.

So, we really don't see challenges. We see opportunities, and that is very much the case with China as well with revenues of over 35% in the quarter. We continue to grow that business with strong locations of over 25,000, great agent partners. So, and great teams in both countries. So we don't see them as challenging, we see them as opportunities. They now represent, both countries, 6% of our business and continue to grow very, very aggressively.

Yes, I know, they've been growing great.

Yes.

I was just curious to know if there was anything that you were working on to try to continue to improve those areas of growth.

I think it just keeps accelerating every quarter, and you think of the number of years we've been in the markets, we just get stronger and stronger so we are delighted to see the progress.

And, I would add, I had the opportunity to visit both India and the UAE. There's a major corridor from the UAE to India. I was there about a month ago. The energy of our agents, the excitement of our employees, and there's just a lot of opportunity for growth there.

Your market share continues to gain in those two countries. What's the main competition when you are looking at those corridors? They'e obviously huge in size, but you guys are just scratching the surface. Who are you competing with there?

I think when you look at both markets, it's very interesting, because there are many, many small competitors. You obviously have banks, but what you really see in these two markets is the traditional, what we call the hawala business, which is almost, maybe about 50% more on top of what we are already seeing in terms of remittances.

Like in India $27 billion is probably more like $37 or $40 billion once we count sort of the underground, and that's really the biggest competitor that we have. And as we look at both markets, both governments are very much interested in bringing all of these transfers into the formal channels, and with our top-notch state-of-the-art compliance system, this gives us a tremendous competitive advantage.

Okay, and then just lastly, turn to mobile payments, what type of competition do you guys expect to see there more or less from your kind of current business today?

I think it's a very different customer and what we see in our testing in the U.S., and it's people that are really sending small amounts. Rather than let's say a $400 or $500 transaction, it's $50. So it's quite different. I think we will see a lot of different players in the space. But with our arrangement with the GSM, it's really given us a head start, and we see tremendous demand by the mobile carriers. And I look forward to my trip to Egypt next month to really talk about what countries are next and where we can continue to expand our mobile footprint.

Do most of your Gold Card members have cellphones, do you know?

Some do, some don't. I think, it's a large percentage. Because if you look at our customers, it's very interesting there's certain things they ever and don't have, but the mobile, even in India and China, it's becoming very much a piece of technology that many people have.

Okay. Thanks a lot, and congratulations on the quarter.

Thank you.

Thank you.

Your next question is from the line of Craig Maurer with Calyon. Please proceed.

Yes, good morning.

Morning.

Two questions for you. One to follow up on the China question, I was wondering if we should expect to see any sort of one-time movement in numbers, whether it's surrounding additional marketing campaigns or any projected short-term additional growth in transactions around the Olympics.

You know, I think as we look back to the time in Greece when we had the Olympics there, we did some promotions and programs specifically targeted against the travelers that were there that might need funds, but we don't see a major uplift. But it's an opportunity to create more brand awareness of Western Union to all of the visitors that come in from all over the world and just show the presence that we have in China.

Okay, and I was wondering if I could get your perspective the actions being proposed by the Department of Homeland Security when it comes to non-matching Social Security numbers at the employee level -- at the employers.

This has been a situation for our customers in terms of immigration and some of the issues we face that we really felt the brunt of that in 2006. I think it's important to remember too that over 70% of our customers have bank accounts and are well-established in this country.

But I think that, as these things have evolved over the last 12 to 18 months, we kind of worked our way through some of these issues, and we're moving forward, and our customers are moving forward. We see our transactions now starting to come to a more positive position in terms of revenue. We are outpacing the Banco de Mexico. So we feel confident that this is behind us, and we are moving forward. And our strategy in terms of outreach and communication with our consumer is really the winning strategy for us.

Okay. Thank you.

Thanks.

Thank you.

You next question comes from the line of Patrick Burton with Citigroup.

Hi, good morning, and congratulations on the quarter as well. My question is on the restructuring. With the $69 million of expenses, over some period of time, would you expect the cost savings to actually be greater than the $30 million number in '09 since you do mention more than $30 million in the press release?

Hi, Patrick, this is Scott. Clearly, that's our goal is to drive as much savings as possible, but still providing the right service and the right efficiency in our operations. But we'll continue to focus on that. We will incur $69 million, our best view right now is that 2009, and annually we'll have savings of over $30 million, but we'll try and work that hard.

Am I misreading then that you're cutting out $69 million of expenses, or is that what it's costing you to go through the severance?

Yes, the $69 million is the cost of the restructuring. So that's severance, there's some fixed assets and leaseholds I've got to write off, and then there's some extensive training to make sure we've got a smooth transition and a solid plan there, which we have, so the $69 million is the cost of the restructuring. That's what we'll incur.

Okay, and there is new training costs and things like that embedded in the number?

Absolutely. Absolutely.

Thank you very much.

Thank you.

Thanks.

Your next question is from the line of Greg Smith with Merrill Lynch.

Yes, hi, good morning. I don't think I saw or did you say that Mexico as a percentage of total revenues?

We didn't say, but it continues to be about 7% of our revenues. So India and China are now at 6% so they are almost equal and probably will surpass.

Rounding, maybe we'll get there next quarter.

We'll work on it.

And then, in the U.S. to Mexico corridor, are you seeing competitors re-trenching and actually shutting down branches?

We are seeing a lot of different activity. We have seen some of that because of obviously the issues in the business. We see a stable environment as it relates to the pricing and also to the spread. That's pretty stable.

Some of things that we are also seeing is we're seeing movement of customers to different parts of the country and even to Canada. We are seeing very strong growth to Mexico and Canada was up 58%, Canada and Mexico. So our customers are on the move, and if they can't find a job in one city they will move to another or to another country.

Great, any idea where that Canada to Mexico was say two years ago or a year ago off-hand?

It wasn't 58%.

And then, in the domestic C2C business, obviously, you have the .com weighing you down some. But outside of that, is sort of dragging on growth, I think I ask this a lot, but is it a secular trend, people just using alternative methods more or is it more just the same issue of immigrants affecting you?

I think that particular business has been impacted the most in terms of what we look at in terms of the economy right now and housing and construction.

But also, what we have done, is we are doing some things right now in terms of investing in our loyalty programs and also doing some media in that particular, in that segment. But we have focused more of our investments in the high-growth markets because we recognize that there are some issues in this market, we don't expect a big turnaround in 2008. It's going to be pretty consistent, a little bit better stabilizing that business, but that business longer term, we don't see it as growing more than 3% to 5%. So this is not going to be a big driver of growth. So, therefore we focus our resources on the growth engines of the company.

Great. Thank you.

Okay.

Next question is from the line of Glenn Greene with Oppenheimer. Please proceed.

Thank you, good morning. A couple questions on international. I was wondering if you could talk about the convergence of the transaction of revenue growth of 19%, sort of been converging for the last couple of quarters and sort of got the parity this quarter. Is it an anamoly, or is this kind of sustainable going forward?

It's great to see. We are delighted to see that the strength of the transaction, the revenue. Obviously, we got a little bit of a lift from the Euro, but I think the other thing is what we are seeing is our brand and our network and the pricing is relatively stable. So we are not seeing a lot of movement on that front, and we said about 3%. So, I think this is something that we hoped going forward would stay within that particular range because of the power of the brand and the stability of the pricing.

And then moving on you did sort of affirm sort of the 3% price hit.

Yeah.

For the year. But, all in for the quarter, not only the international but all in you look pretty flat. So does that suggest, sort of, things will get somewhat worse in the back hit, back three quarters of the year or are you being conservative at this point?

I think, when we look at any year, you never know what's coming. So what we try to do is look at it with all the corridors that we have, 15 to 20,000 corridors.

Our the plans are set at the beginning of the year so this is what the team has put together for '08, so we feel it will be around 3%. It's not - it's really a question of timing, and it's a question of sometimes of spreads and things like that, but we feel very comfortable that we're in a stable, sort of, steady-as-we-go environment.

And that portion of international that was originated outside the U.S., that 50% of revenue that grew in the high-20s, that obviously accelerated this quarter, is that largely driven by India/China, or are there sort of some other dynamics there?

You know it is driven by the whole world, because we have such a great network, now at 345,000 locations, but India and China are growing, but remember they are only 6% of our revenue. So it's really all - all elements of the business are functioning well.

As I said earlier the U.K. is at 29%. We see our Middle Eastern business, from the UE with the growth that's going on there. Because we have such a strong brands and such a strong network, we are getting fired up and powered all over the world, and our teams are on the ground, making sure that we capture that business in every part of the globe.

And then, just finally, how meaningful do you think South Africa will be to your results this year?

I think in '08, it will not really be a substantial amount because we will be rolling that out later in the year. It's a very careful roll-out in terms of what we need to do with the government there, and the regulators there, so I think that will grow as we get into '09. But in '08, I think it's not really a meaningful number.

Okay. Thank you very much.

But it's great news for us.

Thank you.

Thanks.

Next question comes from the line of Bob Napoli with Piper Jaffray. Please proceed.

Thank you, good morning. A couple questions left. The mobile business, the mobile money transfer business, Christina, as you dig into this more, is this looking in your opinion more of a threat to your business model or an opportunity and an add-on to your business model? There are a lot of ways this could go over the next several years, and it's very difficult to come up with the right answer from my perspective.

I really don't see it as a threat. I think one of the reasons why we wanted to get involved at the start of this is because this is an opportunity. We are the money movers of the world so we wanted to connect with the mobile carriers. What we've seen in tests, it is a different customer so that's an incrementality to us. So it's a question of working at the dynamics in terms of the profitability, and this is a high-volume business, so the volume will give us the profitability and then it is a question of making sure that we can make the cost of doing these transactions very efficient. So, I think it's terrific.

The other thing is that, in some countries we don't do inter-country transactions. Let's say in India or China, we don't do a transaction around India or around China. We can only go into India. This now gives us the door to intra-country, which we don't have, so that to me is a whole new incremental business. Because if you think of the domestic U.S. business, which is about 10% of our business, imagine what that would mean in India or China. How big that could be for us. To me, it's all a win-win. It's a question of learning and working with the carriers to really make this work for our business.

Great. Thank you. That's very helpful. On the price, your goal, I think over the long-term as part of your model has been a 3% price decrease, and as we see some global inflation maybe and as your pricing has come down over the last couple of years, do you still see that 3% price decrease, or are you starting to look more like prices will flatten out?

Well, one of the things that we are working on very diligently right now, is really looking at our value proposition. So some of it is like looking at the pricing and saying, what are we going to add in from loyalty so that price is not the solution for everything as we look at the competition, but it's also using Vigo and our other brands more effectively. We are moving Vigo into Europe so now we will have a different brand to lever for other customers that are more price sensitive so that will give us a balancing act that we can really manage our business more effectively. The pricing strategy is not just about Western Union, but it is taking our three brands and looking at how do we maximize the opportunity in each customer segment and make it work so that we gain our share of busines, but maintain a good, solid profitability level.

Great. And just last question, obviously one of your big competitors has had some serious problems, and I just wondered if you are seeing any benefits from the competitive shake up and challenges that your competitor has?

You know, I think as an industry, you never like to see that happen in an industry because it always doesn't reflect well on anyone in an industry because it does make people concerned. But I think from our perspective we've always been very competitive looking at not only the opportunities for customers and pricing but also for the network, and this quarter we added bank Pakao, which is the largest bank in Poland to our network, which was a take away from competitors. I think there are some opportunities there that we will continue to explore.

Thank you for taking the questions, and nice quarter.

Thank you.

Heather, at this point, we have time for one more question, please.

Your next question is from the line of Shan Shan Wong of JPMorgan. Please proceed.

Thanks, good morning. And nice quarter as well. I have a few questions. First on the foreign exchange revenues, which were up sharply, I think at 26%, should we expect that trend to continue? It looks like it's well above that of international revenue growth and transaction growth.

Yes, I would say that trend is really factored into our guidance of the 9% to 11% on a full-year basis, and that will be one component of our revenue growth for 2008.

Does that trend driven beyond what we are seeing in terms of currency dynamics?

Well, there's a little bit of currency dynamic in there, but, you said it earlier, it's really tied to our international. We had tremendous international growth in this quarter and so as we had that international growth, that also drives the foreign currency.

Very good, and then in domestic and Mexico C2C, what kind of average ticket trends are you seeing, and how is this impacting the spread between revenue and transaction growth?

I think you are referring to principal per transaction is what you're looking for?

Yes.

On an overall global basis we are seeing our principal per transaction are up slighty so consumers are sending a little bit more money. We are seeing that in Mexico, too. In our domestic business the principal per transaction is down slightly, but on a global basis it's up.

Very good. And, then, lastly just to clarify the 50 basis points in margin expansion in '09, is that limited in '09, or can we expect some expansion beyond that? Meaning beyond fiscal '09. Because I heard a lot of commentary around C2B getting better and commissions, etc., and in the past you talked about margins being relatively flat. So is there any reason to think that we can expect margin expansion starting in '10 and beyond?

Well, I'll share with you, management is very focused on profitability and expanding our margins. And in 2009, we've got the objective of up to a 50 basis points increase. So we are going to be very focused on driving profitability and improving profitability as we move forward, but our line of sight right now is through 2009, and that's the objective of up to 50 basis points in 2009.

Great. Very good. Thanks, again.

Thank you.

I just wanted to take this opportunity to thank you all for joining us this morning. We are very excited about the quarter, but more importantly, we are excited about 2008 and what we see before us. We are very confident in the year, and in terms of what we can achieve.

And our customers are also very resilient in making sure that they are moving around the globe, sending money home and really helping to drive our business. And thank you to all of our agents and to our employees for a great quarter, and I look forward to seeing all of you in June at our conference. Thank you very much.

Ladies and gentleman, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.