西聯匯款 (WU) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Western Union Company fourth quarter earnings conference call. My name is Shane and I'll be your operator for today. At this time all participants are in a listen-only mode. We'll be holding a question-and-answer session toward the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to the host of today's call, Mr. Gary Kohn, Vice President of investor relations. Please proceed, sir.

Thank you, Shane. Good morning, everybody, welcome me to the Western Union fourth quarter 2008 earnings conference call. Thank you for joining us. As we indicated in our press release we have prepared slides to accompany this call and webcast. These slides are available at westernunion.com under the investor relations tab and will remain available after the call.

Before turning things over to Christina I want 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 Security and Exchange Commission, including the 2007 Form 10-K, For additional information concerning factors that cause actual results to differ materially from forward-looking statements. During the call we will discuss items that do not conform to Generally Accepted Accounting Principals. We have reconciled those measures to GAAP measures on our website, 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 has not authorized and disclaims responsibility for any rerecording, replay or distribution of any transcription of this call.

With that it is my pleasure to introduce our President and CEO, Christina Gold.

Thank you, Gary, and welcome to our fourth quarter call. Looking at the fourth quarter, demand for money transfers softened as consumer confidence, unemployment and economic headwinds deepened across the world. However, our fourth quarter earnings per share, excluding restructuring charges, were $0.37, up 16% year over year on revenue of $1.3 billion. Full-year earnings per share, excluding items affecting comparability, were also up 16% to $1.31. This was in line with our previously-guided range and that is something we are very proud of. Our operating margin for 2008 rivals our peers in the money transfer space and nearly all peers in the payment space at 27%, excluding restructuring expenses. This margin was consistent with 2007's operating margin. We generate $1.25 billion of cash flow from operations with minimal CapEx. Cash flow is a key metric for 2009. We believe our overall financial strength has Western Union positioned to continue to creating long-term shareholder value.

Our 2008 results, characterized by 120 basis points of market share gains, were a reflection of our team executing on our four key strategies. In the current environment we are rationalizing expenses and putting an extra filter on investments. Despite that, 2009 is a time of opportunity for Western Union, a period where we will prudently invest to create further market share gains. Within the C2C business we handled 49 million transactions this quarter compared to 45 million in the prior year. Transaction growth moderated from the third quarter and the average amount of money sent per transaction declined. These factors impacted C2C revenue growth in the fourth quarter. Pricing has remained stable; 2008 reductions totaled 1% of consolidated revenue.

Now let me take you through our three C2C regions, Europe. Middle East, Africa and South Asia represent 44% of our total revenue for the quarter and posted a revenue increase of 1% on 16% transaction growth. Full-year operating margin in the region improved to 28%. Europe continues to present a challenge, as we explain -- as we experienced a sequential decline in transaction growth from the third quarter into the fourth quarter. Offsetting some of the weakness in Europe, the Gulf States and India continue to do well and remain among our fastest growers. In India revenue growth was 29% with transaction growth of 50%. Across EMEASA we are directing investments to meet market share opportunities, including making intratransfers available in more geographies and adding new types of agents to the network.

The upcoming implementation of the Payment Services Directive in late 2009 in the European Union presents an exciting opportunity for us. The regulatory change will make it possible to operate in 27 countries under a single license. This also allows us to expand the classes of trade that can offer money transfer services in certain countries. Because this is such a unique opportunity, we believe it is imperative that we act now and the centerpiece of our effort is the agent acquisition we are finalizing. By acquiring one of our largest agents we will have more direct management control over our brand and the sub-agent network and we are better positioned in several key geographies that will benefit from the Payment Services Directive. Additionally, we have established a dedicated sales force that is targeting agents in different classes of trade. We look to PSD as a significant growth opportunity for us long term and the steps we are taking have us poised and ready.

In the fourth quarter, the Americas region represented one-third of consolidated revenue and experienced a revenue decline of 5% year over year on flat transactions. The full-year Americans margin declined 100 basis points to 27% as a result of the revenue decline in the higher-margin domestic money transfer business. In this region our domestic business saw 5% revenue and 4% transaction declines for the quarter, and as we sit here today, we anticipate that these trends will continue throughout 2009.

In terms of Mexico, our transaction performance again out paced the market as reported by the Banco de Mexico; however, our revenue and transactions were weaker than expected, declining 10% and 3% respectively in the quarter. Under Stewart Stockdale's leadership we are implementing a new Go-to-Market strategy in the Americas that we believe enhances efficiency and effectiveness. Specifically, we have combined our US and Latin American organizations, including the Western Union, [Dego], and Orlandi Baluta sales forces. We are looking to open new distribution points and are making progress in the US banking channel. We have also aligned our marketing activities and put in place a new structure and added several new senior leaders, all designed to maximize the opportunity and to continue to make financial and strategic progress.

Asia-Pacific grew 7% on a 30% increase in transactions. The revenue growth slowed in part due to headwinds in China, where revenue declined 8% on 3% transaction growth. Asia-Pacific's full-year margin improved to 25%. For our China business the sequential revenue and transaction trends from the third to the forth quarter have continued, as China, unlike other countries we serve, relies heavily on transactions conducted by entrepreneurs usually exceeding $1,000. The Philippines is another market where Western Union's extensive network and high brand awareness are driving market share gains. Our 2008 growth rates in this market have out paced the 15% in pound market growth as reported by the Central Bank of the Philippines.

To that point we see the broader Asia-Pacific region as a meaningful contributor to our future growth, as it contains not only China and the Philippines but countries where we have been expanding like Thailand, Vietnam, Indonesia and Malaysia. The opportunity is tremendous as today our Asia-Pacific region makes up only 7% of our revenue. Yet according to the World Bank this market is estimated to be 19% of the world's cross-border remits market. We are extremely focused on achieving more growth throughout Asia-Pacific. We have realigned the team, including expanding Hikmet Ersek's responsibility to include this region. He brings a depth of knowledge and proven strategy that have our teams energized and set to capture the opportunity.

Moving to our Consumer-to-Business segment we generate nearly 90% of the segment's revenue in the United States and we are certainly feeling the impact of the recession, as the American consumer remains under pressure and those likely to use our service are conducting fewer payment transactions, both sequentially and year over year. In an effort to diversify we are pushing hard on international expansion and have introduced bill payment in Peru and Panama. We are also currently working on obtaining our license in Brazil. The [Pagofacil] business continues to perform ahead of our expectations, with full-year revenue growth exceeding 30% and the team making this happen is the same team executing on the international expansion. Additionally we are constantly evaluating acquisition targets that will diversify our payments offering and geographic mix.

So to sum up the C2C and C2B discussion, we generated revenue in 200 countries with no single country outside of the United States contributing more than 7% of our top line. We serve 15,000 corridors and have the ability to shift investments across our portfolio to maximize effectiveness and we believe this is a very good position to be given today's global economy.

Now I would like to turn the call over to Scott.

Thank you, Christina. Fourth quarter revenue of $1.3 billion was down 1% on a reported basis. On a Euro-adjusted basis revenue was flat year over year. Full-year revenue growth was 8% reported and 6% on a Euro-adjusted basis. Euro translations benefited revenue for the year by $82 million operating profit by $19 million. Revenue growth rates on a calendar and currency adjusted basis were generally consistent for each month of the fourth quarter.

Transaction fee revenue for the fourth quarter, which makes up 81% of Company revenue, declined 2% due to slowing transaction growth within C2C and to a lesser extent consumers sending less cash per transaction for the period. Year-over-year C2C principle per transaction declined 4% in the fourth quarter. Foreign exchange revenue is 17% of Company revenue and is generated from the difference between the exchange rate we make available to our customer and the rate at which we or our agents are able to acquire foreign currencies. This revenue stream is primarily driven by our international C2C business. Foreign exchange revenue this quarter was flat year over year due to slowing growth in transactions and lower principle per transaction.

Breaking fourth quarter revenue down further, reported revenue in the C2C segment, which was 85% of total revenue, declined 1% and was flat Euro adjusted. Revenue in this segment was driven by transaction growth of 9% in the fourth quarter. In a broader sense, an increasing number of corridors experienced the impact of the global economic slow down. Our international C2C business saw revenue growth of 2% on a Euro-adjusted basis or 1% as reported. Transactions grew 12%. The portion of the international business that does not touch the US saw revenue growth of 4% Euro adjusted, or 2% reported, while transactions grew 18%.

As slide 17 details, the spread between C2C revenue and transaction growth rates widen in the fourth quarter. The largest factor in the reported revenue number accounting for four percentage points of the ten percentage point difference was currency. Also impacting the spread was first, geographic mix. Transactions carry a different revenue per transaction based on originating geography and destination. Second, product mix. Intratransfers are a lower revenue per trance than our cross-border transactions. The geographic and product mix impact for 2008 were consistent with 2007. And third, pricing. In 2008 pricing declined a total of 1% of revenue compared to 3% in 2007. After adjusting for currency, the transaction and revenue growth spread difference in the fourth quarter was generally consistent with all of 2008. For 2009, the spread may continue to widen from currency translation and our global initiatives to drive our intracountry money business. We expect price decreases in 2009 to be similar to 2008 at around 1% of total revenue.

Fourth quarter C2C operating margin was 28.9% compared to 27.5% in last-year's fourth quarter. Operating margin for the year was 27.3%, up from last year's 26.8%, excluding stock compensation charge. Contributing to the overall C2C margin improvement this year were the relocation of call centers to lower cost geographies, workforce reductions, leveraging of our marketing spend and tight management of expenses. The C2C segment, which is 13% of our revenue, saw revenue decline of 5% on flat transactions in the fourth quarter. Operating income for the segment was down 16% and this quarter's operating margin of 27% is down 350 basis points compared to fourth quarter of 2007. We have taken costs out and will continue to evaluate additional cost savings initiatives. We do not foresee improvements in the US C2B business in 2009 while the US consumer remains under pressure. This makes our international expansion and product diversification, including acquisitions, all the more important. One final note, consistent with previous quarters restructuring expenses were not include in these segment results I just mentioned.

Moving down the P&L, let's go to cost of services and SG&A. To get a meaningful comparison compared to 2007 we excluded the stock-compensation expense from 2007 results and restructuring expenses from 2008 results. The dollar amounts are detailed in the earnings release. On an apples-to-apple basis, in the fourth quarter cost of services declined 3% to 56.5% of revenue versus 57.5% in the fourth quarter 2007. And for 2008, cost of services was 57% of revenues, consistent with 2007. In term of SG&A in the quarter and for 2008 it was 15% of revenue consistent with the fourth quarter and full-year 2007. Fourth quarter consolidated operating margin was 25.9%, as reported, and excluding restructuring expenses it was 28.4%. This is a 50 basis point improvement from 27.9% in the fourth-quarter 2007. Our full-year 2008 operating margin was 25.7%, net reported, or 27.2%, excluding restructuring. This compares to last-year's reported margin of 27.0%, or 27.4%, excluding the stock compensation charge.

The tax rate this quarter, which benefited from the favorable resolution of certain US tax matters, was 22.8%, excluding restructuring expenses. This compares to 27.4% in the fourth quarter of 2007. The 2008 GAAP tax rate was 25.8%, an improvement from 29.9% in 2007. The effective non-GAAP tax rate for 2008, which excludes restructuring expenses, was 26.6%. Our tax rate continues to benefit from increased foreign-derived profits, which are taxed at lower rates compared to US derived profits and the finalization and implementation of foreign tax planning strategies. We expect these items to drive sustainable cash benefits on a go-forward basis.

In 2008 cash flow from operations was $1.25 billion and capital expenditures was $154 million. This implies a net income to cash flow conversion of 120% and it's a very important metric to our liquidity, giving us a competitive advantage as we invest cash to grow the business. We finished the year with $1.3 billion of cash on hand, with $700 million in the US and $600 million internationally. We had outstanding debt of $3.1 billion, including about $100 million of commercial paper. This program is fully backed by a $1.5 billion revolving credit facility that expires in 2012. Excluding commercial paper, maturities are $500 million in late 2009, $1 billion in each 2011 and 2016, and the last $500 million in 2036. In November we paid off a maturing $500 million note with cash and commercial paper, which we then replaced with a short-term syndicated loan with an estimated cost of around 5% to 6%. During 2008 we had nearly $300 million of our surplus international cash invested with the Reserve International Liquidity Fund. So far we have received $194 million in cash from the fund and we expect the remainder to be returned. We feel good about our financial strength in an environment where liquidity is critical.

Before addressing our 2009 outlook I want to update you on our pending agent acquisition. This acquisition positions us to better gain market share and improve margins across key European geographies, especially in light of the upcoming implementation of the Payment Services Directive throughout the European community. The benefits are clear. We'll have a closer relationship with the network agent and we can run the country or region more profitably by utilizing our scale and operating expertise. This acquisition, including integrating expenses, will utilize less than $200 million of international cash, impacts 2009 operating margin by about 40 basis points, and will be $0.02 dilutive to earnings.

Beginning in 2009 we'll provide revenue and EPS on a reported and constant-currency basis. The Euro is the majority of our foreign currencies, but as the international business continues to grow, other currencies may become more meaningful for Western Union's business. For comparative purposes 2008 revenue growth was 6% on both a Euro-adjusted and constant-currency basis. Fourth quarter revenue growth was 2% constant currency. In 2008 there was an operating income benefit on a constant currency basis that is offset by derivative losses, so netted out there is no EPS impact from foreign currencies in 2008.

Looking at our outlook for 2009, we expect constant currency revenue to be down 2% to 5% and reported revenue be down 5% to 8%. Our revenue forecast is based on many drivers including: We anticipate the world's cross-border remitted principle to grow less in 2009 compared to 2008; we expect single-digit growth in our total cross-border principle handled; we expect this growth to be faster than the overall market growth and therefore, again, increase market share; we expect mid to high single-digit growth in C2C transactions, with transactions likely to be weakest in the higher-margin US business; we expect principle per transaction to decline; C2C price decreases are expected to be consistent with 2008 at approximately 1% of consolidated revenue; and finally, for C2B segment we expect the fourth-quarter 2008 revenue and profit trends to continue into 2009, C2B margins will likely decline but not to the same degree as in 2008.

Our outlook for constant currency EPS is $1.16 to $1.26. Our outlook for reported EPS is $1.18 to $1.28. Our EPS range assumes: $0.02 dilution from the agent acquisition; net other expense of approximately $150 million due to less interest income, this adversely impacts 2009 EPS by $0.03 compared to 2008; a tax rate of approximately 26%; and buy back of $400 million. We provided a wide EPS range to reflect the uncertainty we see across our 15,000 corridors and the factors that will impact profitability. We are trying ha -- we are trying to hold margins in 2009 but recognize that variables exist, such as revenue performance, product mix, the pending agent acquisition and investments that may impede margin stability. We expect revenue and EPS to be slightly stronger in the second half of 2009. In addition, we have historically and plan to achieve higher operating margins in the back half of the year.

During 2008 we improved our cost structure by relocating operations to Costa Rica and outsourcer, eliminating positions and selectively reducing agent commission. And had the global economy not changed so significantly the business model would have delivered margin expansion in 2009. About 65% of our costs are variable. These costs should move as revenue moves. In addition, we will closely manage expenses in 2009, including marketing and other expenses. The cost reduction steps we have taken and our leverageable business model should allow us to drive margin expansion as the market improves and revenue reaccelerates.

In addition to our revenue and EPS outlook we expect to generate cash flow from operations in excess of $1.1 billion and to make capital expenditures of less than $150 million. The $400 million buy back target stems from several factors. First, in today's environment we believe that liquidity is very important and we need to be conservative until the market stabilizes. Second, we believe it's important to maintain our A- credit rating. And finally, we believe that the acquisition landscape will be increasingly more favorable in 2009. This is simply a prudent strategy in the current environment. We will monitor this throughout the year and align our cash priorities accordingly.

Christina?

Thank you, Scott. Before closing I want to provide some insight into January. In January, this year we similar patterns to Q4 for C2C transactions. Across our geographies we continued to see softness in places like Europe and the United States while other regions, like to Gulf States, India and the Philippines remained strong. January results are consistent with our expectations relative to our 2009 outlook. We believe we are entering an era where the strong will get stronger. In 2008, Western Union delivered record levels of revenue and cash flow. Revenue was $5.3 billion and we generated $1.25 billion in cash flow from operations. We handled $67 billion in cross-border C2C remittances and while we are very proud again to have grown our market share in 2008, we know that with 17% global share we have opportunity to capture additional market share.

We remain a leader in the money transfer industry and by the end of 2009 we will have a global agent base that exceeds 400,000 locations. It is our business model and how it translates into financial performance that I believe creates such an advantage for us. Specifically, we generate significant levels of cash flow and yet the ongoing cash needs of the business are relatively modest. And in terms of expenses, about 65% are variable, allowing us to respond to the economic environment quickly.

In terms of our core business, we will invest in our most important assets; our brand, our network, our technology, and our people. We believe that this will allow us to gain market share faster than those that may not have the ability to invest at this time. Specifically on the marketing front, we plan to spend roughly 5% of revenues on marketing; although we have some flexibility here. Our research shows that this is the time to go out with a more efficient global campaign. Our focal point is the recently-launched Yes campaign designed to support consistent global messaging. We believe it will enhance awareness and trust, aiding us over time and entering more markets and new businesses.

Our network expansion has and will continue to drive growth. Take India for example. Since 2003 we have grown the network in India by 3.5 times to more than 50,000 agent locations, driving revenue growth of more than six times. This has been a great success and as I mentioned earlier, we look to replicate the India success in markets like Indonesia, Thailand, Vietnam, and Malaysia. Again, the opportunity here is very large. Asia-Pacific is only 7% of our revenue and yet it makes up an estimated 19% of the global cross-border principle market.

We are increasing our investment in technology and systems in 2009. In fact, we continue to evolve our systems that allow us to move money from virtually anywhere in the world in not only a compliance matter but in minutes. The rules on money transfer and global payments are becoming more complicated and in some cases more onerous. We are fortunate that we have the financial strength and infrastructure to enable us to respond to these developments. Additional technology enhancements are designed to support new products, additional distribution channels and to perform deeper analytics on our customer relationship program.

On the mobile front, our many capabilities like physical agent locations, brand recognition, technologies and compliance are helping us make progress and insure we are positioned to succeed over the next three to five years as consumer acceptance evolves. We offer money transfer services in almost every region where mobile operators exist and have partnered with top operators and associations including: Vodafone, Orascom Telecom, Bharti Airtel, Globe Telecom, Smart Communications and the GSM Association. On the C2B side we are investing in international expansion and broadening our product offering. We will also be evaluating acquisitions. We are optimistic about the landscape and we believe we participate in consolidation with the goal of strengthening money transfer, diversifying further into payments and adding value to the Company through technology. And finally, I am confident that we can accomplish all of this and still return capital to shareholders in 2009.

Longer term, we are very, very confident in our future. We have a proven business model with talented and committed employees. We have an unrivaled network, which is distinctive in its competitive advantage. We serve a large market ,which will grow when the e economy improves. In fact, the World Bank sees remittances to developing countries growing 6% in 2010. The mobile workforce will continue seeking employment opportunities throughout the world. There are an estimated 200 million cross-border migrants, as well as an estimated 300 million people who have migrated within company -- within a country. This population will not only need to transfer cash home, but they will ultimately need other services at the point of sale. We are very well positioned to service the existing and expanding needs.

So in closing, I will revisit what I talked about in my opening remarks. Although 2009 will be a challenging year for Western Union and many other companies around the world it is an opportunity to make smart choices by deploying capital to extend our industry leadership and positions us for continued share gains in the money transfer market and other global opportunities that leverage our network, our brand, and customer relationships. With that, operator, we are now ready for our first question.

(Operator Instructions). Your first question comes from line of Tien-tsin Huang with JPMorgan.

Hi, thanks so much. A couple questions. First, what are your underlying assumptions for C2C principle per transaction in 2009? It looks like you're expecting transaction growth to stay within give or take Q4 level, so curious about the principle per transaction and also how that relates to World Bank and their outlook for 1% to 6% declines in principles remitted?

The World Bank is looking at 0% to -6% and they were looking -- I think in 2008 they had about 6% in principle growth. We had 17%. So we always have a much stronger number than they do because of the volume of transactions that we move through the system. But as we look at principle per transaction in 2009, there's a number of variables that are at work here. You saw in the fourth quarter we had a decline of 4%. The other issues that we have are geographic mix and also intra versus international transactions.

As you know an intracountry transaction, like in the Philippines, has a much lower principle and a much lower RPT, so the growth that we are pushing there is incremental but it doesn't give you the same amount of principle to RPT, so there is some of that at play in our business model, as well. And I think that we are monitoring that across the spectrum and trying to balance the different corridors, where the growth is, where there's some slowing, because obviously, in the Middle East and India, where we see strong growth you tend to see a lower PPT and a lower RPT so that has an impact. So it's really balancing all of those 15,000 corridors across the globe to really come up with where we got to the 2% to 5% decline on a constant currency basis.

Okay. It sounds like a little bit of a premium still to some of the World Bank outlook, but it'll hinge o -- it'll depend on mix the end?

Yes, it is . I think you -- that's exactly right. And I think there will always a premium because we intend to gain market share

Got it, okay. Then the -- my last question just -- I guess I'm having a hard time getting to the -- or getting down to the midpoint of your EPS guidance with the cost savings, the lower tax, sounds like flat margins and we got the down revenues. I think the difference is other expenses and I was just hoping to just get a little more clarity on that?

Yes, Tien-tsin, this is Scott. Good morning. The other expenses we're estimating net of $150 million and those will be $0.03 worse compared to 2008 and it's primarily related to our cash -- our cash on hand. The interest rates earning on cash are just at all time lows, so it's tough to earn interest there. And our key with our cash balances is safety is most important and then earnings is the second most important within our business model.

Right. Are there some derivative losses that are baked in there, as well, Scott, or is there --?

No, it;'d be primarily interest income on the cash that will be less in 2009 compared to 2008.

Okay, maybe just a quick follow up o to that. The constant currency EPS and the difference between that and the GAAP EPS, the $0.02 or so, what was the delta there?

Yes, it's -- we've had a very effective hedging strategy over the last two to three years, and we layer in hedges over the next 12 to 36 months on a rolling basis. So if you -- I used the Euro as one example, when we hedged out '09, we really hedged it at '08 rates, and when we hedged '08 we hedged it at '07 rates, so as the dollar has devalued against the Euro we continue to gain on the bottom line there. So it should -- our best estimate right now it should be a couple of pennies helpful to us as we move into 2009 because of our effective hedging strategy.

Thank you.

Thanks.

Then your next question comes from the line of Julio Quinteros from Goldman Sachs.

Hi, it's Julio for Julio. First of all on the guidance, how do you view your guidance. Are you very comfortable with the lower end of the guidance, do you need to actually have a couple of new signings to make the lower end of your EPS guidance and revenue?

I think we feel comfortable in the guidance in terms of light of what we see that the moment in time. It's been a bottom-up formulation in terms of how we built the plan. We've worked the 15,000 corridor, we obviously know the markets where we have some stress, but we al -- also where we have great opportunities so we've tried to balance that. So we feel very comfortable with the ranges that we put out there for 2009.

Okay, thank you. And the other question I had was 65% of your cost structure being variable and with the rebates coming down as a percentage of revenue, where do you think you have the most of leverage in your cost structure in '09 and what should be our -- what's your margin expectation into '09? If you could give us a little more color, if possible.

Sure, Julio, this is Scott. Our goal is to hold margins in 2009 if possible. It will be dependent upon revenue performance and other factors and investments and so forth. We do believe our business model has leverage and we expect margins to expand as revenue reaccelerates, so we believe we have a leverageable business model for sure. One thing that is helpful with our business model is that roughly 65% of our costs are variable so those will move as revenue moves. We took some nice actions in 2008, relocating our operations to Costa Rico, to outsourcers. We did do some reduction in force and so we've taken all of the right steps to get our cost structure positioned well. And then a key will be -- in long term our goal will be to continue to gain market share. We're very well positioned in the marketplace and as revenue reaccelerates we expect to see margin expansion.

Got it. Thank you very much.

Thank you.

Your next question comes from the line of Kartik Mehta from FTN Equity Markets.

Good morning. I was hoping to get a little bit more insight into your agent acquisition, if you are able to talk about the revenue size of that agent. And maybe from a big picture standpoint, was this just a great economic opportunity or does this allow you to do things maybe that the agent didn't want you or that the structure wouldn't allow?

I can give you a little bit. We should have finalizing all of the details before the end of the month, but I think was actually a very important strategic acquisition for us. With the Payment Service Directive has coming into Europe that will impact 27 countries, it will change the playing field for money transfer companies. So we saw this as an important opportunity to go in and be able to manage a business and expand our network and operate a little bit differently than we do now with the sub-agent network and so we really are -- we're looking a -- we needed a large scale agent and we've been negotiating this for quite some time. This is a -- so it's been over a year that this has been in discussion so we're delighted that we're coming to a final close on this. But I think over the years this is going be a key acquisition that's going to give us incremental revenue and will be a tremendous asset for us.

So from a timing stran -- standpoint, would you ex -- when in 2000 would you expect -- or how have you put that in the guidance?

I think it's built in there as $0.02 dilutive and I think it's 40 basis points on the margin.

40 basis points on the margin, $0.02 dilutive, so it's in the guidance that we provided this morning.

No, I guess I was ask (inaudible), so would you expect -- is that assuming it happens today or it happens in the middle of the year?

We anticipate it close some time in the second quarter.

And Scott, a question on the cash, I understand wanting to save cash in this environment, so is it that acquisitions -- you would do acquisitions in 2009 but they'd have to be just incredibly lucrative, or is it that acquisitions in 2009 look like there's some really good potential because of what's happening in the environment, that's why you'd like to save some of this cash?

We see good opportunities in 2009 and 2010, and as we look at acquisitions strategically it has to fit. Our C2B is one area we're keenly focused in on, but strategic fit is very important to us, sticking close to our knitting, if you will. And then also we want to make sure it has the right cash-on-cash for the economic return as we look forward. So we think 2009 is a year of opportunity. The strong will get stronger and we want to be well positioned to take advantage of the market opportunities.

And one last question. You talked a lot about this intercompany transfer and I know it's fairly new, but if this bill subsides what would be the impact to margins? Is this a business that has similar margin characteristics as your core business or does it have better or worse?

This is the intrabusinesses? I think when you look at the margins, the margins support the businesses. If we look at EMEASA there's a lot of intrabusiness in EMEASA in Russia and some of the countries there, and you saw how they've come up to a 28% margin in the fourth quarter. We have it in the Philippines and again, in Asia we've come up to 25% margins. So it's really incremental, it's just maximizing the network you have but your fundamentals change because you're starting with a lower principle and a lower RPT, but on a profitability basis it's very supportive of our margins.

Thank you much.

Thanks.

And your next question comes from the line of James Kissane from Banc of America.

Thanks and hi. Is your guidance assuming a slowdown in the Gulf States and India?

When we put the guidance together, Jim, we tried to look at where the risks were in the plan because we have seen some slowing in India. Although it's very strong, it's not as strong as we saw earlier in 2008 so we built that in. The other unknown that we see is in some of the gift giving occasions where we normally get a big bump we've pulled that down a bit because we saw, even in the fourth quarter with Christmas although okay wasn't what we had expected. So we've built that in and we've also built in some flexibility in case one part of our corridors have some challenges because it's very difficult to read right now what's happening. We are reading all of the commentary. We've run the guidance also with some economists to get a feel in terms of how they feel about how the different parts of the world are functioning. So we feel very comfortable with what we put out there, but recognizing it's very challenging times and this is an economy that we've never quite seen before.

And how quickly can you react on the cost structure if the revenue comes in at the low end of you range or even below that?

I think -- obviously we've already got plans in place in terms of we've earmarked certain things that we can do. Scott, as he continues to look at other ways that we leverage our business. So, as you saw in the fourth quarter we were still able to have margin expansion despite the fact that our revenues were basically flat, so we can react pretty quickly and we keep our eye on it on the time, so we're watching it very, very closely.

Scott, what happened in Mexico in October? Can you give us a little more color, especially since it was on the heels of a FX hit in the September quarter?

Sure, Jim. In October, during a couple of week period the peso very rapidly devalued against the dollar as much as 20% and what we saw -- and this is primarily in our [vegil] business -- what we saw was consumers rushed to the counters to send pesos to Mexico. What we normally do is estimate what we think the customers are going send and they sent dramatically more pesos than we had anticipated. And as a result, as we -- when we went back to the market to buy the pesos we bought them at slightly unfavorable exchange rates. A couple of things to put this in context, it was about $5 million. Second is we've improved the process and we're more diligent. And then third, I would say Mexico, because it's probably been our oldest international market per se, it's unique as far as how we settle. We supply the pesos there. Almost all of the other received countries around the globe I settle either in US dollars or Euros primarily. So we feel like we've taken the necessary steps to prevent that, but we did want to honor the customers when they sent their transactions to pay those out in Mexico.

Okay, and just a question on the super agent. I though the super agents typically had other activities but it's not adding anything your revenue post acquisition, so are you just buying a slice of the business?

We're going to clarify that, I guess, when we get to final announcements, but basically we are buying the piece in total, what we're looking at buying. And what that really allows us to do is to really go out and look at our network, how we operate, and really look at driving incremental revenues in different countries because of this new legislation that's coming up and just giving us a difference in the model.

So this is unique you won't be able trying to buy the other super agents?

No, I think it's where we think there's an opportunity and where's enough size and scale to make a difference.

Okay, thank you.

Thanks.

Thank you, Jim.

Your next question comes from the line of Bryan Keane with Credit Suisse.

Hi, good morning. I guess just looking at the guidance it's pretty much what a lot of us expected. I guess the big difference in delta is this principle per transaction, so can you talk about the C2C principle transaction for the first three quarters of the year and what it did in the fourth quarter? And then do you expect that to get materially worse or change the deltas to get negative going into 2009.

I think we -- as we went through 2008 it was growing in the mid single digits and then went to a negative in the fourth quarter, so obviously there was a big swing there and it happened -- particularly as we came into the Holiday period we saw that drop off. As we look to 2009 we anticipate that our consumers will still be under stress, so we -- it's going to -- as you look at previous years it'sgoing to be a bigger swing so we anticipate that that will be a little bit more difficult in 2009. That's why we have a bit of a wider range, but it also will depend on which parts of the world are on -- which corridors are feeling the most stress.

Did I hear -4% for the fourth quarter?

Yes.

That's right, Bryan.

Okay. And then also I guess mix is playing a part into this, so is there a percentage of transactions now that are intracountry and is there any other piece of the mix that we need to think about?

I think our intrabusiness as it sits outside the US it is not that large except in countries like the Philippines or Russia and also Chili, but we see that we can drive that business to a more meaningful amount to our business, but it does drive transactions -- a high level of transactions but doesn't give you from same RPT so that it does dilute that a little bit.

Okay. And the revenue per transaction in some of the regions that you're expecting to take a hit from are probably larger than the ones that are going to be relatively resilient?

It varies region by region but we plan at 15,000 corridor level, but it'll vary region by region.

Okay, last question. I might have missed it, but is there a location growth number? I know for the year you ended at 375 but do you expect for --?

We expect at least 400,000 by the end of 2009.

Okay, great. Thanks a lot.

Thanks.

Thanks, Bryan.

Your next question comes from the line of Franko Turrinelli from William Blair and Company.

Good morning, all.

Morning.

Good morning.

Christina, a couple of questions. Back on the Asian front, to pick up on Jim's business -- Jim's question, I wasn't clear if this will be a pure acquisition in the money transfer business or if you're going to end up picking up and subsequently needing to shed some of our unrelated businesses?

It will be a pure money transfer acquisition.

Great, thanks. And actually, if we look at your acquisition strategy obviously it's been a while since you did anything other than agent acquisitions. As you say, the strong get stronger, the weak get weaker in this environment. Are you interested in going back and looking at other money transfer businesses other than the agents that you're already working with?

Yes, I think we are looking at some across the globe but we are always looking. I think one of the phenomenons that we're seeing, particularly in the international business, some of the very small niche players are really having difficulty because of liquidity, so that's also offering us an opportunity to move transactions over to us, as well.

Do you think that'll just be -- do you just stick around and wait for them to fail by themselves or do you help put them out of their misery?

We kind of do -- we're trying to -- well, I won't say put them out of their misery (LAUGHTER) but we're kind of negotiating a deal to move transactions, not buying the entity but buying the transactions across.

Sounds good. Scott, on the derivative strategy, as you point out that's working out pretty well for you right now. Are you -- this is not something that you plan to make money on, right, this is really just a hedging strategy. Is your intention to continue to hedge forward rates or are you backing that off a little given where the dollar's going?

Yes, our objective is completely for hedging and predictability of cash flows so we'll continue with our 12 to 36 month rolling hedging program, but it's to give predictability of our cash flows and no element of it is for speculation at all.

Great. Thanks. Hey, thanks for providing guidance in this uncertain time. I think that's very helpful.

Thank you.

Okay, thank you.

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

Good morning.

Morning.

Yes, just the first question, I was wondering if you could give us some color on -- specifically within Europe, were there any countries, regions that you particularly noticed that really softened Q to Q?

I think where we continue to see is the stress point in Spain. We have seen that through the back half of 2008 and it continues to be a challenge. Obviously the UK had some issues. Some of the markets although are still growing but not at the pace they were growing before, so that has its impact. And we -- you can see a little bit in Russia, as well, because there's a lot of turmoil in Russia.

So it's real think economies that you would expect based on the economic trends?

Exactly. As you look at GDP and you look at what's going on in different countries, because it's really pushing our customer and they're looking for jobs. In the end it will create great opportunity for us because people will have to migrate to different geographies or to different jobs and we'll be able to pick that up, but as the ind -- in this time of uncertainty they're holding back a bit.

Okay. And you haven't seen real weakness in any -- really, the oil producing nations, because you did mention Russia, but --?

In the Middle East is still a jewel for us. It's doing extremely well. We're very, very pleased to see that and we see that going into January, but obviously, we're monitoring that on a daily basis because we read the newspapers. But the Middle East is also -- there's so many different types of labor, people that are in so many different industries that it offers a great opportunity for us in our business.

Okay. And then I think I heard this, but I'll ask it again, the monthly transfer of the quarter, was it pretty consistent October, November, December, or did it get worse during the end of the quarter?

No, it was consistent, however we didn't get the bump up that we would normally have appreciated to have, especially for the Christmas season.

Okay, great. Thank you.

Thanks.

Thank you.

Your next question comes from line of Bob Napoli from Piper Jaffray.

Thank you. Good morning. A question -- I was hoping to get a little more color on how you think the market's going to change related to the Payment Services Directive?

Well, from our perspective it gives us an opportunity to open different classes of trade, which is much more -- in some of the countries that we operate in you have be a bank. Now you do not have to be so that -- it gives better hours, you can create different types of locations. But we are cognizant, as well. From a competitive point of view it's easier to get a license if you can get one license for 27 countries. So that's one of the reasons that we want to make sure we do this acquisition now and that we're building that network to make sure that we capture all the opportunities out there.

Okay. And this acquisition is -- did I hear $200 million?

Under $200 million.

Under $200 million. On your share repurchase program I saw you had $400 million for it. Is that -- do you expect to execute on that consistently through the year unless there was unusual stress on your stock or something like that?

We'll -- it's probably helpful to review our cash priorities; investing in the business; acquiring companies and returning capital to shareholders. So we have targeted $400 million and we'll look at such things as the financial markets, our cash flows and a variety of things, but right now our objective is to repurchase $400 million of stock.

Okay. The transaction growth -- again, for me hit on this again -- next year is a lot stronger than what we thought it, how much of it is intracountry of that transaction growth?

We provided a ra -- the range and what we're thinking about is mid to high single digits and it'll be a combination of both cross-border and intracountry. I think one key thing to keep in mind is that we want to gain market share in the cross-border remittance market. We've gained market share every year the last three or four years, and we believe with our strong brand, we'll have 400,000 locations a year from now, our financial strength, we're well positioned to gain market share. That's the key for us in the cross-border remittance market.

And are you seeing -- on the acquisition front are you seeing more opportunities in the pipeline for -- you're focused, I assume, solely on C2B and money transfer rates at this point?

Right. And we do see targets in sight and -- but clearly for us they must be strategic in that they give us a long-term return. And we do see some things that we're very interested in.

Can you talk about which geographies? Is it that you're most interested in expand --?

We're -- everywhere but I would say that one things that we also look at is using our international cash, like the acquisition we're doing now with the agent uses international cash. But again, if it's strategic and it's going to bring value to shareholders we'll go after it wherefore it is.

Okay. Thank you.

Okay.

Your next question comes from the line of Tim Willi from Avondale Partners.

Thank you and good morning.

Morning.

A question around just some of the marketing initiatives you're doing, I think you talked about some realignments of some regions, I think you recently talked about a new global campaign, as well. Is there anything I would say special or different that you've had to reconfigure around these big emerging markets like Asia, India, that we may not see initial benefit, but your history in building other markets would show that if you're correct in how you're going to be approaching these new markets with what you've learned that 12, 18 months down the road, there should be a real noticeable improvement out of what you're trying to do with the brand and the agent network versus how they have been performing?

Maybe I would take it in two tranches. If I take the Americas and Stewart's team I think they have really organized as one front to the consumer and looking at the segmentation of the consumer but really making a more effective face to the consumer. So like with the Yes campaign, incorporating that, going against the right target, so I feel very strongly that we will see benefits of that. As the US market improves I think we're really going to see gains there. As I look at the region that we created between EMEASA and Asia, India has been a strong performer with us and that's been within Hikmet's group. I think when you look at Indonesia and Malaysia and having the the leaders from India now connected to those markets I see tremendous opportunities to take that 7% of our business and move it to -- double it. So there's huge opportunities there is and I think that team with their skill sets -- and we've done some reorganize underneath Hikmet -- I think that's really going to drive and we're going to see very great numbers from them as we move forward.

Is there -- how much of that Asia area would you say meeting the metrics and the returns and the goals you've set for that marketing program, how much of that would be dependent upon the macro environment? You've said in the US that market has to turn, but are there things you can -- and levers you can pull with Asia just on the marketing side that you could see a benefit without the macro having to come to back to a great degree?

I think in Asia we have more opportunity in certain markets. Obviously China's a very different kettle of fish. There's issues in China but if you look at some of the other markets I think one big one is just network expansion. There's a -- Hikmet's team has really driven growth in the network. We talked about India. They grew to 50,000 locations. At the same time -- four or five years ago we had 3,000 locations, now we have 50,000 and their revenues have grown six times. So you really can see the importance of having the network right and having the connections right, so that kind of thinking is going to into countries like Indonesia, where there's a huge population and we really have such a small share of that market.

Great. Thank you very much.

Thanks.

Hey, Shane, this is Gary. At this point we have time for one more question, please.

Your last question comes from the line of David Scharf from JMP Securities.

Hi, good morning. Two topics. First I want to revisit the acquisition and the Payment Services Directive. As I understand the PSD it basically makes it easier for other entities to enter the money transfer business, it tries to increase competition and level of the playing field. And I'm trying to understand the context of this acquisition. It's positioned in your comments as strategic and a big boom. It sounds like you're spinning close to $200 million defensively because you have to because of this directive and I'm just wondering if similar initiatives are potentially [afflicting] in other parts of the globe, not just within the European Union, and if this is going to be a trend in a more competitive marketplace we may be seeing for a number of years?

I think it's a great opportunity for us. Obviously, certainly there's a competitive element to it, but the real issue is that certain classes of trade were closed to money transfer companies. We know how to really put feet on the street and drive those classes of trade into our network. By making this acquisition picking up a sales force, connecting with our sales force, building that team, we will move through Europe to make sure that we pick up that network and we don't leave it to others and as we do that we will gain more market share and more points of presence for our business.

Okay. Do you have any sense of what the landscape in Europe's going to look like the next 24 months with this initiative in place in terms of other nontraditional remittance companies perhaps entering the market and maybe fairly well capitalized, or do you feel that at the end of the day it's really not going invite that many new entrants?

You have to think about the brand, which we have, which is outstanding, plus you need a network because even if you open up a location you have to send it somewhere so we have that. We'll have 400,000 locations. You also have to have compliance because regardless you have to have the capabilities and all of this takes money and we have cash. So I think those are all the important ingredients to make it happen.

Got you, thanks so much. And one last question, just to revisiting the underlying assumptions behind the revenue guidance. I realize this is a bottom-up 15,000 corridor plan, but just incrementally I'm wondering ultimately what type of unemployment assumptions are really underlying the low end of the guidance, the 8% revenue fall off? The immigrants are in place. People crossing borders that trend hasn't stopped but the bottom line is they need jobs and obviously employment tends to be a lagging recoverer and we're -- everything spreads from the US globally. Are you making -- is the low end of your revenue guidance assuming a certain unemployment rate in the US and ultimately how that may filter out for the rest of the globe?

We've taken that into consideration. Clearly we recognize the US is one of our more challenged market, but we've also looked at other markets across the globe individually so it's a combination of all of that and I feel very comfortably that we've really dug into this to get a good feeling of what have. And we recognize, too, that our customers, regardless of unemployment, which is a big issue, will still look for ways to earn money but still have a little less to send. So I think that this is a -- is not something that's going to last forever. We will come through this phase and the strength of our business will allow us to continue to see enormous growth as we come out of this, and also the work we've done on our value chain will really help us to leverage our margins going forward. So we feel very confident in what we put into our guidance and where we're taking the business.

Okay. And maybe just one follow up to that, should unemployment in the US by the middle of '09 actually are reach double digits -- it's close to that here in California --and then the implications for what that means for Western European economies, which have so many immigrant workers, would the low end of your revenue guidance capture that potential --?

I think that's what we tried to do in having a much wider range is to give us a feel of what are the bookends of this. I don't have a crystal ball. I'm -- there could be something extraordinary that happens in six months, but as we sit here today we feel comfortable with the guidance that we have out there and we feel very confident in our business model.

Terrific. Thanks so much.

Thank you.

Shane, I think that's it. Thank you all for joining us today. We'll talk to you soon.

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