西聯匯款 (WU) 2009 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter 2009 Western Union Company earnings conference call. My name is Francine, and I am your operator for today. At this time all participants are in a listen-only mode. We will facilitate a question and answer session towards the end of the conference. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mr. Mike Salop, Senior Vice President of Investor Relations. Please proceed sir.

Thank you Francine and good morning everyone. Today's call will include comments from Christina Gold, President & Chief Executive Officer, Hikmet Ersek, Chief Operating Officer, and Scott Scheirman, Executive Vice President and Chief Financial Officer. In addition to our review of 2009 fourth quarter and full year results, we will discuss our outlook for 2010 and key long-term strategies and initiatives. After our comments we will have time for your questions.

As we indicated in our press release we have prepared slides to accompany this call and webcast. These slides can be found at westernunion.com under the investor relations tab and will remain available after the call. I would like to remind you that today's call is being recorded and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission including the 2008 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 some items that do not conform to Generally Accepted Accounting Principles. We have reconciled those items to the most comparable 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 recording, replay, or distribution of any transcription of this call.

I would now like to turn the call over to Christina Gold.

Thank you, Mike and welcome to everyone on the call.

Overall we were very pleased with our 2009 results. Although the global economic environment was challenging, our business was stable and we were able to deliver on our financial outlook. We maintained strong margins and generated significant cash flow, demonstrating the strength of our business model. We also advanced key strategic initiatives that open up additional opportunities with new customer and market segments. Importantly, we posted another year of market share gains in our C2C business, increasing our cross-border remittance market share from 17% in 2008 to an estimated 18% in 2009. We have increased our share by over 300 basis points since 2006 with significant gains each year.

Our yes! marketing campaign contributed to the share gains and drove uniformity of the Western Union brand image and marketing. The campaign was launched across 200 countries and territories in over 50 languages and drove strong brand awareness. We saw large jumps in key countries such as Germany, which improved unaided awareness by eight percentage points, and India, where awareness increased to over 90%. The campaign also helped us gain efficiencies in our marketing spend. The strategic progress we made in 2009 will drive future growth with both existing customers and new customer segments. This is exemplified by the two strategic acquisitions we made last year -- Custom House, and the money transfer business of FEXCO. Custom House has allowed the Company to establish a position in the large international business to business payments market, which is a great growth opportunity.

We added new banking distribution in the US and made solid inroads in electronic channels. We increased the number of bank agents internationally that offer our account to cash services. Internet transfers through WesternUnion.com was expanded to 18 countries, and we implemented and learned from pilot programs in mobile and prepaid. We also took steps to turn around the domestic money transfer business resulting in an increase in domestic transactions in the fourth quarter. Our financial position remains strong and our business generated significant cash with $1.2 billion of cash flow from operations in 2009. We deployed this cash through reinvestment in the business, the two acquisitions, share repurchase, and the increased dividend.

Before we review the year in more detail, I would like to take a moment to say that Western Union is committed to providing support to the disaster relief efforts in Haiti. We have made donations and set up matching gift programs with great support from our agents and employees. We have also temporarily offered transfers to Haiti from the US, Canada, and France with no transaction fees. Our thoughts and hopes go out to everyone in Haiti.

Turning back to 2009, at the end of last year we implemented an organizational change to help optimize our strategies in 2010 and beyond. Hikmet Ersek, formerly Managing Director of Europe, Middle East, Africa, and Asia Pacific region, was promoted to a newly created position, Chief Operating Officer. Hikmet now has responsibility for our overall business units around the world as well as our operations and marketing functions. Hikmet has been a strong leader at Western Union for over a decade. His new organization is designed around further increasing leadership in core money transfer and advancing electronic channels and business to business payments.

At this time, I would like to introduce Hikmet who will give you a brief review of our fourth quarter business units performance.

Thank you, Christina, and good morning, everyone. I am very pleased to join you in this new role. In my time at Western Union I have seen it grow from a geographically limited business with 80,000 Asian locations to a global market leader with over 410,000 locations. In addition to the core money transfer I also believe we have great opportunities in electronic channels and in the B2B business. We have a strong leadership team in place around the world and I'm very excited about the future.

Let me now review the fourth quarter performance of our C2C business segment. In the fourth quarter C2C revenue increased 2% or declined 2% constant currency adjusted. Transactions grew 5% and increased from 3% growth in the prior two quarters. This improvement was primarily driven by US domestic money transfer business. Western Union cross-border principal declined 3% for the year and was flat constant currency adjusted. For the industry overall, the World Bank and Aite forecasted a decline between 5% and 7% for cross-border principle in 2009.

Our Europe, Middle East, Africa and South Asia region delivered revenue growth of 6%. Transactions increased 8% which was the same rate as the third quarter. Improvement in the region in certain markets was offset by a significant decline in growth related to the Gulf States. Western Europe, a key region for the Company, accelerated transaction growth in the quarter. The UK and Germany were especially strong. Spain's trends, although still negative, did improve significant from the prior quarters. We also saw improvement in Russia.

The Gulf States experienced positive transaction growth in the fourth quarter, however the rate of growth slowed significantly driven by employment declines in the region. Transaction growth in the quarter was only in the single digits following strong double-digit rates in the first three-quarters of the year. The slowdown in the Gulf States is expected to impact 2010 as well. The situation also affects some receive markets such as India, which grew revenue at 6% on transaction growth of 8% in the quarter.

During the quarter we signed several new agents in the region including Bank Central [Popular] in Morocco and Capital Financial Holdings in Cameroon. We also renewed with [Sien Posta Romana and Bank Post], both in Romania, The Industrial Bank of [Cabone], and Echo Bank in Ghana. For the full year, 2009 EMEA's operating profit was 28%, an increase of 50 basis points from 2008. Revenue in the Americas region declined 7% in the quarter, while transactions were flat year-over-year. Both trends improved significantly from the previous two quarters.

The improvement in transaction trends was largely driven by domestic money transfer. Stewart Stockdale and his team did a terrific job in creating a new value proposition. The effective marketing and promotional program successfully drove traffic to our Asian locations and the $50 for $5 promotion helped position us in a new principal bank. The efforts led to domestic transaction growth of 5% in the quarter, with sequential improvement as the quarter progressed. As expected, domestic revenue was down 20% as the lower pricing and holiday promotions impacted revenue per transaction. The repositioning program was intended to drive transaction growth quickly as the result in revenue growth in late 2010. We are on track for the turnaround.

The [year soft bank] business also saw higher transaction growth relative to the third quarter driven by the strength in the Latin America, Caribbean and Asia corridors. In Mexico revenue declined 10% as transactions declined 12%. While still negative, this represents improvement from the prior two quarters. In the fourth quarter, we signed a new agent agreement with Banco Bradesco in Brazil and we renewed a multi-year agreement with Woodforest Bank in the US. The Americas regions operating margin for the full year was 26% down from 27% in 2008 due to revenue declines in the region and the impact of implementing the US domestic strategy. We expect Americas margin to rebound in 2010.

In the Asia Pacific region, revenue in the quarter increased 14% on transaction growth of 13%. In China, our strategies to promote our brands and increase distribution are working. China trends continue to accelerate with 22% revenue growth and 8% transaction growth in the fourth quarter. Christina and I were recently in China where we finalized an extended agreement with the Postal Savings Bank of China, an agent with extensive reach for both urban and rural parts of the country. We also recently completed agreements in China with the Bank of Jilin, Fujian (inaudible) Bank, and the Bank of Harbin. In Indonesia we have added [indomerit] convenience store chain with 1,500 locations.

The 2009 operating margin for Asia Pacific was 27% up from 25% in 2008. As revenue growth and the regional consolidation allowed us to further leverage our cost structure. Asia Pacific is a great opportunity for us relative to our global share we are underrepresented in this region. I have personally spent a lot of time in Asia, and I'm committed to seeing our business realizing its full potential in this large market.

Moving to our global business segment, Ranjana Clark and her team are focused on obtaining new customers for both the consumer bill payment business and P2P. Global business payments revenue increased 4% in the quarter while transactions declined 4%. Excluding [custom outs], segment revenue declined 9%. Our consumer bill payment business primarily based in the United States and heavily linked to the credit sensitive areas of the economy that continue to be challenging. We are focused on acquiring new customers and adding new billers to stabilize our US walk-in and electronic bill payment business.

Internationally, our Pago Facil bill payment business continues to perform well posting transaction growth in the quarter and throughout the year. Our business in Argentina is growing and we continue to expand our [biller base and to swishing] capability in Panama and Peru. Custom House growth was affected in 2009 by declines in global trade flows as we saw lower principal from existing customers. However, customer loyalty and transactions remain strong and the Custom House team continues to have success with new customer acquisition.

Now I would like to turn the call over to Scott to review the financial results for the quarter and our 2010 outlook.

Thank you Hikmet. Revenue for the fourth quarter increased 2% on a reported basis or decreased 1% constant currency adjusted. Custom House added $23 million to revenue and $5 million of operating loss primarily due to acquisition related expenses. Earnings per share on the quarter was $0.32 on both a reported and constant currency adjusted basis. This compares to $0.34 or $0.37 excluding restructuring expenses in the fourth quarter of 2008.

For the full year, we reported revenue of $5.1 billion, down 4% from 2008. In constant currency terms, revenue was down 1% which we believe demonstrates the resiliency of our business in a difficult environment. Custom House added $31 million to revenue and $12 million of operating loss for the year. GAAP EPS was $1.21, or $1.29 excluding the Arizona and multistate settlement accrual recorded in the third quarter. Constant currency EPS was $0.01 lower. In 2008, GAAP EPS was $1.24 or $1.31 excluding restructuring expenses.

In my discussion this morning, all margin and cost comparisons will exclude the 2009 settlement accrual and the 2008 restructuring expenses. Please see the earnings release and slides for the GAAP measures and comparisons. Consolidated operating margin for the full year was 26.6% excluding the settlement accrual. Margins declined 60 basis points from 2008 as cost of services decreased 80 basis points and SG&A increased 140 basis points. The cost of services improvement was primarily driven by profit improvement actions, including agent commission initiatives and savings from the 2008 restructuring. SG&A was negatively impacted by Custom House and FEXCO costs and other expenses.

Operating margin was 24.2% in the fourth quarter and declined from both 2008 and the first nine months of 2009. As we indicated on our third quarter call, margins for the quarter were expected to be lower relative to the first three-quarters of 2009 due to Custom House costs, the US repricing, timing of marketing spending, the assumption of the retail money order portfolio and foreign exchange. Other than currency, the same factors along with FEXCO costs and increased technology investments drove the 420 basis point decline from the prior year. Marketing expenses totaled 4.7% of revenue for the year and 5.2% for the fourth quarter. The tax rate was 21.3% in the fourth quarter, and 25.0% for the year. Both rates were below prior year levels driven primarily by an increase in foreign derived income and continued benefits from our tax efficient strategies implemented in 2008.

In our C2C business consumers continue to transfer funds as transactions increased 5% during the fourth quarter. Constant currency average principal per transaction decreased 6% in the quarter. The international C2C business experienced sequential improvements in both transaction and revenue growth rates in the fourth quarter. Trends in Europe and US outbound improved compared to the third quarter offset by significantly softer growth in the Gulf States. International constant currency principal per transaction decreased 5% in the quarter consistent with the third quarter. Revenue from the portion of the international business representing transactions that do not originate in the United States grew 8% or 3% constant currency adjusted on transaction growth of 9%. The full year C2C operating margin was 27%. Margin was unchanged from 2008 despite the revenue challenges reinforcing the resiliency of our model. Fourth quarter C2C operating margin was 26% and was down from prior year and recent quarters. The decrease was a result of the lower domestic pricing and increased marketing, technology investments, FEXCO costs, and other expenses.

Slide 19 shows the components of the three percentage point difference between the revenue and transaction growth rates for the C2C segment in the fourth quarter. A weaker dollar benefited this spread in the quarter by four percentage points, but this was offset by domestic and other price reductions and geographic and product mix. Excluding the fourth quarter domestic price reduction, the combined impact of non currency related items has generally -- has remained generally consistent in recent quarters. For the full year, price reductions were in line with expectations at approximately 2% of consolidated revenue. In global business payments, full year operating margin was 25% or 27% excluding the Custom House acquisition which compares to 28% operating margin in 2008. C2B margins were negatively impacted by declining volumes. Fourth quarter operating margin for global business payments was 20%. Excluding the impact of the Custom House acquisition the segment margin was 26% during the quarter down 140 basis points from the prior year, driven by the same factors that affected the full year. In 2010 segment margins for global business payments will continue to be impacted by negative US bill payment trends and Custom House related costs and investments.

Cash flow from operations in 2009 was $1.2 billion. Capital expenditures were $99 million, and we utilized approximately $500 million of international cash for the Custom House and FEXCO acquisitions. During 2009 we repurchased 24.8 million shares at an average price of $16.10, for a total of $400 million and paid $41 million in dividends. At year end, we had $1.7 billion of cash on the balance sheet with slightly more than half outside the United States, and $3 billion of debt. The debt is rated A minus, A3 with the nearest maturity in November 2011. We also have a fully available $1.5 billion line of credit which does not expire until September 2012.

Turning to our 2010 outlook, we are expecting a modest recovery in the global remittance market. The economic environment remains challenging and unemployment remains high in major send markets. The November 2009 World Bank Report estimated a 1% increase in cross-border remittance principal in 2010. This estimate was made prior to the end of the year slowing in the Gulf States. We believe many markets have stabilized and some are beginning to show signs of improvement. In our C2C business we are targeting continued global market share gains with improvement in transaction revenue trends relative to 2009. EMEASA and Asia Pacific are expected to continue with positive transaction growth and improved revenue trends. However we believe the Gulf States will contribute a significant lower growth in 2010.

In the Americas, Mexico will still be challenging but we expect the rates of decline to moderate. The US domestic strategy should help the region's transaction trends. Overall for the Americas regions we project revenue will decline but at a lesser rate than 2009. We expect improvement in transaction rates in the region in 2010. In global business payments we project the Custom House B2B business will deliver double digit revenue growth driven by increased penetration in existing markets and expansion to new countries. We believe the US bill payment business will remain soft with continued negative revenue and margin trends as we experienced in 2009. Overall we expect Western Union reported revenue in the range of down 1% to up 2%. Constant currency revenue is anticipated to be one percentage point lower than reported.

We remain committed to investing in high return growth opportunities in both C2C and global business payments. In total we expect to invest over $50 million of operating expenses in 2010 to support PSD, electronic channels, and Custom House expansion. In 2009 the Company invested $25 million of operating expenses in these initiatives. The electronic channels investments include westernunion.com, account to cash, mobile, and prepaid cards. Despite incremental investments in electronic channels and PSD, C2C margins are expected to expand in 2010. Global business payment margins however are expected to decline. Additional Custom House expansion and acquisition related costs combined with the softness in US bill payments will result in lower margins. Intangible amortization from the Custom House acquisition will be approximately $13 million in 2010, an increase from the $4 million recorded in the final four months of 2009. Due to the increased amortization in investment spending, Custom House is expected to be slightly dilutive to EPS this year. We do not expect Custom House to be dilutive beyond 2010.

The Company's consolidated 2010 margin will also be affected by a full year of managing the retail money order portfolio. This should impact margins by approximately 40 basis points for the full year, although there is no impact to EPS. As a percentage of revenues we expect a combination of marketing and price reductions to be in a similar range as recent years. Marketing is projected to decrease slightly to approximately 4% of revenues, we are gaining efficiencies in marketing through our global branding campaigns and our standardized pricing programs in the domestic business. Pricing is expected to increase to approximately 3% of revenue primarily as a result of the full-year impact of the US domestic repricing. Marketing and other investment spend which was weighted towards the back half of the year in 2009 is expected to have a more normal seasonal pattern in 2010. We project the combination of increased margins in the C2C business and declines in global business payments to result in a consolidated margin of approximately 26%.

The decline from 2009 levels can be attributable to the incremental investment costs, Custom House intangible amortization, and the full year impact of the assumption of the retail money order portfolio. We also anticipate second half 2010 margins will be stronger than first half. We believe our business model supportive of margin expansion when revenue growth accelerates and the market improves. We anticipate a tax rate in 2010 of 24% to 25% and net other expense of approximately $160 million. In light of these factors our outlook for GAAP EPS for 2010 is $1.29 to $1.34. We currently do not expect any impact from currency on EPS.

As we move through the year, foreign exchange could impact our reported revenue, margins, and earnings. For each 5% change in the European currencies, the annual impact on revenue would be approximately $60 million. Due to our hedging programs, the impact to profit would be considerably less at approximately $6 million. Turning to 2010 cash flows, capital expenditures are expected to be in our recent range of 2% to 3% of revenue. Two other items are projected to impact cash flows this year. Both items have been previously expensed and recorded as liabilities but will likely impact cash flow in 2010. First we expect to pay the $71 million related to the Arizona and multistate settlement this year. Also, we plan to make a refundable cash deposit with the IRS. This deposit relates to potential federal tax liabilities arising from our 2003 international restructuring making the deposit limits further accrual of interest and the deposit is refundable if we prevail in our position. We are planning to deposit $250 million with the IRS in 2010.

As of December 31st, 2009, the total liabilities on our balance sheet for known tax exposures were approximately $500 million which includes potential tax liabilities related to the 2003 international restructuring and other items. On a GAAP basis, including these items, cash flow from operations was expected to be $800 million to $900 million. Our business model has consistently generated cash flow in excess of earnings and we expect that to continue in the future. We plan to utilize these cash flows to invest in the business, make strategic acquisitions, and return capital to shareholders through both stock buy back and dividends. We increased our dividend significantly at the end of last year to $0.06 a quarter. In addition we plan to continue to be active with stock buy back again in 2010 providing a balanced payback for our shareholders.

Now I will turn the call back over to Christina for some final comments on our long-term strategies. Christina?

Thank you, Scott. Although the environment is still challenging in 2010 we see strength in our core. Trends in the C2C business are improving and we believe our brand, network compliance expertise and financial strength position us well for long-term profitable growth.

In 2009 we evolved our strategies, our organization and our go to market initiatives. Our growth strategies can be characterized in three primary areas -- the core C2C money transfer, electronic channels, and business payments. In our core C2C we are aggressively pursuing opportunities in Europe with the new retail agent distribution available under the payment services directive. We are aiming to grow in these markets through strategic expansion of our network and targeted marketing. As a result of the PSD in Europe we expect to have an additional 10,000 retail agent locations operational by the end of 2010 and believe we will be able to significantly expand locations and revenues over the next several years. By 2011, we anticipate the added distribution in Europe will add one to two percentage points of revenue growth to our overall business. In Asia, where revenue and profitability are ramping up, we are also rapidly expanding our distribution network. Worldwide we expect to have over 450,000 agent locations by the end of the year. In the Americas we are targeting revenue growth in the domestic business by late 2010. We also plan to add more banks to our distribution network bringing new customers and the potential to provide account to cash offerings. Additionally, we see opportunity to increase our distribution into new classes of trade through the GoCash in-lane money transfer service which we will pilot later this year.

Outside the US, we are targeting our intra business in certain countries through focused marketing efforts. Excluding US domestic, intra is approximately 2% of our overall revenue and there are opportunities for us to grow this business in markets such as the UK and Indonesia. The second growth strategy focuses on development of electronic channels, including woo.com, account to cash, prepaid cards and mobile. Our strategy is to invest and expand our efforts now to be at the forefront of these channels as they evolve. We believe these efforts will give us access to new customer segments and provide more choice for existing consumers extending our lifecycle with them. We continue to grow westernunion.com led by the international markets where transaction growth exceeded 50% in the fourth quarter. We are focused on adding new countries, increasing awareness, expanding customer payment options, and improving the customer experience. Westernunion.com is currently available in 18 countries and by the end of this year, it will be present in market covering over 60% of our global outbound principal volume. Our US westernunion.com consumer data indicates that over half of our online customers are either completely new to Western Union or have not used our core retail service in the last 12 months. These customers have higher incomes and are more fully banked than our traditional cash consumers which expands our market opportunity.

Transactions from our account to cash service with banks increased over 60% in the quarter, although off a small base. We currently have 12 banks globally that offer our account to cash service and we are working with both existing and new bank agents to more than double this number in 2010. Our prepaid programs are targeted at providing new services to our existing under bank consumers. We tested prepaid cards in 2009 with Western Union Gold and Money Wise Visa and MasterCard programs and are very pleased with the results. We are moving forward with a larger rollout of these cards as well as additional offerings and we plan to have over 750,000 enrolled cards in the US by the end of 2010. We will need to drive usage of these cards once enrolled, but we are already seeing solid response rates. The US prepaid market is large and growing with industry projections estimating open loop principal volume at over $100 billion. Our cards offer a great value proposition to our consumers and good economics to us through reload and interchange revenue so we are very excited about the opportunity.

Our mobile strategy is evolving. In 2009 our pilots targeted cross-border transfers to mobile phones in Kenya and the Philippines. In the fourth quarter of last year, we enabled 10,000 Western Union agent locations with the technology to provide cash to mobile service. In 2010, we are focused on continuing to enable our agent network with the point of sale capability for mobile as well as targeting new relationships and markets. By the end of this year we plan to have 75,000 locations enabled, representing our key global send locations. We are also targeting being connected to over 150 million mobile phones by the end of this year. Although there will not be an immediate financial impact from these connections, as mobile wallets become more prevalent we will be well established.

Mobile revenue is still a long-term proposition and is currently limited by consumer preference, regulatory restrictions, and technology challenges. Although there are nearly five billion mobile phones in the world today, the number of mobile wallets is only in the tens of millions. Mobile wallet adoption is expected to increase rapidly with industry forecasts projecting around one billion accounts in the next five years. As the market evolves we will continue to leverage our telecom relationships to reach a significant portion of active mobile wallets. In total, our C2C electronic channels including westernunion.com, account to cash, prepaid and mobile account for about 2% of overall Western Union revenues today. We believe that these channels become more important over time and our strategies and investments today will position us well as a leader in these areas as they evolve.

Our third key growth area is business payments. The acquisition of Custom House has given us a strong platform for growth in a large market segment. We estimate the small to medium enterprise cross-border payments global revenue opportunity is at least as great as C2C money transfer. Custom House has proven itself adept at serving the cross-border foreign exchange payment needs of businesses of all types, in particular small and medium size enterprises. We have begun increasing penetration in our existing seven counties with additional sales and product personnel and offices and plan to expand into new markets in 2010. Custom House has a strong track record of customer loyalty so investing up-front to acquire new clients and expand to new territories will pay off with long-term revenue streams. Canada, where Custom House is based, is our largest market with approximately $30 million of revenue. Given the size of Custom House's Canadian business, we believe increasing penetration in the US by itself is a huge opportunity in addition to expansion in other markets across the world.

We expect growth to ramp up as we execute on our rollout plan. We believe we can grow business to business payments to $1 billion business over time with solid margins once we complete integration and major expansion spending. As we focus on long-term growth in our core C2C, electronic channels and B2B businesses, we believe we are well positioned to take advantage of the opportunities. Western Union is a trusted and preferred brand among consumers. Our industry leading compliance systems and expertise are critical in cross-border money transfer. And our unparalleled brick and mortar network is a significant competitive advantage when cash is necessary on either end of a transaction. We know from our tracking studies that a large majority of our customers still prefer cash transactions in the immediate future.

As we look at the market, we believe the long-term secular trends for global remittance growth clearly remain intact. The income gap between emerging and developed countries will still be substantial for the foreseeable future. Developed markets are projected to continue to have needs for foreign workers to supplement aging populations and support economic growth. Emerging markets will project large needs for surpluses of workers. Globalization will continue to drive long-term migration, and as economies and employment rebound, remittance flows will follow. Overall, 2009 was a resilient year for Western Union given the headwinds. We delivered on our outlook and improved our market position thanks to the tremendous efforts of our employees and agents around the world. There are still challenges in 2010, but we have confidence in our business model and our strategies and believe we are well positioned to continue to gain share and grow our business.

Thank you for joining us today. Operator, we are ready for the first question.

Yes, ma'am. (Operator Instructions) Our first question comes from the line of Ashwin Shirvaikar with Citi.

Hi, thanks. My first question is with regards to the idea of continued market share gains, if I look at the World Bank data and I look at your own 2010 growth projections, it does it not look like you can sustain another year of market share gains, at least in the near term. Maybe beyond 2010, but certainly for 2010 it looks like it may not happen. Is that an accurate characterization, and why are we in this spot, if you can answer that?

We feel very confident that we will continue to gain share in 2010. I think as we look at that time projections from the world bank, obviously one of the issues has been slowdown in the Middle East and Gulf States, and that actually occurred after Ramadan in December. But despite that we saw that we gained share in that region as well, so we felt very confident our plans this year will allow us to continue to gain market share.

So you are actually saying that the World Bank information will be adjusted down is what you are saying, and so you can continue to gain share. Is that --?

I think we look at that it way. Also we look at that, we look at the growth we're seeing in other markets, and we're looking at the principal that we're moving around the world, so we feel very confident that we will gain share again in this year.

Okay. And if I can have a last question, the initial evidence on whether the US domestic pricing promotions that you had in the fourth quarter, have they helped volumes, and by how much?

We really saw a really integrated plan as the team looked at repositioning the US. So there was pricing, there was marketing, there was really a whole halo effect on this business recognizing that the pricing was only in bands below $200. Actually, there was some price increases in bands over $200. As we came through the quarter, you saw that our transactions came at 5%, but we actually grew transactions to higher and higher rates of growth to a double-digit position as we came out of the quarter.

It's also important to note that it wasn't just, let's say, the $50 band or the $200 or the next-day product, we saw a halo effect so that all of the different price categories, even over $200 where we were not pricing, we saw growth and improvement in the transaction rate. So we're very confident that we're going see revenue growth in the back half of 2010, and it's very important for us because this is a big business and it's also a very profitable business to the Company.

Thank you. All the best for 2010.

Thank you.

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

Good morning. Just wanted to talk a little bit about the C2C business. It looks like constant currency revenue was minus 2% for the quarter and for the year, and transaction growth was about 4.5% or close to 5%. So when we go into 2010, do we immediately see improvement off those numbers in the first quarter or do we have to take a step function down due to the Gulf States?

Bryan, good morning this is Scott. How are you doing today?

Doing all right.

Good. As we think about 2010, overall, on the C2C business, those trends will be stronger than 2009, both in transaction and revenue growth. Asia Pacific, there's some still big opportunities there where we have 8% of our revenue but it's 20% of the market opportunity. PSD, as an example, we're going to add 10,000 locations. The ramp-up of that will be from a revenue standpoint -- the latter part of 2010, but, for example, with PSD we believe that's going to add 1% to 2% consolidated revenue growth in 2011.

So we do believe 2010 will be a building year, if you will. Margins will be stronger in the second half of the year than the first half of the year, but within the C2C business we expect to gain share, and we expect to expand the margins in the C2C business in 2010.

So is -- when you look at all the corridors, is it almost all corridors increasing or accelerating except the Gulf States? The second question to that is, what percentage of revenue does the Gulf States come out to be?

I think what we're seeing in the business is an overall improvement across the world except the challenge of the Gulf, and the Gulf really had the biggest difficulty right at the end of the year, so we've built that into our plans. But we see an improving world out there. We do not give the percentage of the Gulf, but maybe Hikmet can talk a little bit about how important Saudi Arabia is and some of those countries.

As you say, Christina, I think we see the challenging economic environment, but we are very well positioned in the countries. We have really a great brand awareness, we have great dedicated locations -- Saudi Arabia, [UE], Qatar, Aman, Kuwait, I think the transaction will still grow into quarter four, but then employment decline did impact our transactions in Q4.

But we are very well positioned if the economy comes back. And, if you look at our business, we are in 200 countries and territories. We have thousands of corridors, and the Gulf States is one of our regions of many regions.

Last questions from me, just the global business payments margins are going to be down, looks like pretty significantly this year. Can you talk about does that rebound in 2011, and then I might have missed it, Scott, but tax rate guidance for 2010.

Let me start with tax rate guidance. 24% to 25% Bryan on the tax rate for 2010 and then on global business payments broadly, two things are impacting that business. First is the US bill payment business. We've got challenges with the credit environment in the US. Much of our bill payment in the US is skewed toward mortgages, auto loans, and credit cards, and those have just been very challenging because of the macro environments in the US. So that will put pressure on the margins.

The second is Custom House and the business to business space. We see that as enormous opportunity. In fact, historically, we would use a word like game change or we think that really could be, so we're going to continue to invest in that business in 2010. That will impact the margins. But we think longer term that's got the legs, if you will, to be $1 billion business. We know that the market opportunity there, the revenue market opportunity, at least as the C2C, as big as the C2C revenue market opportunity. So we will continue to invest and grow. It's probably too early to talk about 2011 and specifics, but with Custom House it will be slightly dilutive in 2010 but we don't expect dilution beyond 2010 with Custom House.

Thanks.

Thanks, Bryan.

Our next question comes from the line of Adam Frisch from Morgan Stanley.

Thanks, good morning. Ironic that we're finally starting to see some encouraging signs in C2C growth but now it appears that B2B and C2B is struggling at this point. The operating margin guidance is also the thing that I think is really throwing people this morning and frustrating them -- a least the shareholders. So maybe if we could take a step back and reposition or clarify some things here, can you delineate the challenges there between transition costs and operating and ongoing operating headwinds and talk about the factors that are putting pressure on margins in 2010? I think most people out there were not expecting a [26 handle] on margins. So talk about what's going on, on margins, and why we should at all believe that they could go up in 2011 and 2012.

Adam this is Scott. Let me first broadly start with the consolidated margin of 26% and what is putting some pressure on that. First I'd say the C2C business which is 85% of our revenues, we expect those margins to expand in 2010. And we believe that business model clearly is set up to grow margins as revenue reaccelerates and the market improves. But C2C margins will expand in 2010. On a consolidated basis, what's putting pressure on the margins, I would really probably put it in three buckets.

First, the retail money order portfolio. We took that over from First Data on October 1st. In the fourth quarter that impacted our margins by about 50 basis points. We'll have that for three-quarters in 2010, so that will be approximately a 40 basis point impact on margins. Second, I would point to Custom House. We've got $13 million of intangible amortization related to the acquisition intangibles there. And then the third area is investments we're making in the business. We invested about $25 million in 2009.

We'll invest about $50 million, and we think it's really important that we make those investments. We see really good opportunities in the B2B space. We see good opportunities in electronic. Electronic channel today is only 2% of our revenues and it has the opportunity to be much bigger than that. So we would like to make those investments. We think that's prudent to do. We do believe, as the market improves, as revenue reaccelerates, we've got a business model that can drive margin expansion on a go forward basis.

Okay. So -- this is a little bit different than I think the way the press release reads and the way the stock is reacting pre-market, because the margin pressure in 2010, the initial view of 26% looks really bad. And will draw a lot of pressure on this management team in terms of what are you guys doing in terms of executing. But if you are telling me that the pressure is coming from a portfolio that's coming in from the outside, the Custom House intangibles and investments, which are another 50 basis points, overall the business looks more stable in 2010 than it did before with the potential for revenue growth to be better, given the current trends we're seeing in the fourth quarter.

You're right, because the C2C we expect margin expansion in 2010, in the core business.

Okay. So the business itself looks a hell of a lot more stable than the press release is suggesting. I just want you to know the perception in terms of what's going on out there and the explanation you just gave are two very different things.

The other question I will ask here is on the increased investment in payments initiatives. We think it's necessary. We'd love to see that the increase is happening there but why only $50 million? The uptick is $25 million. Where is that money being spent, and why isn't it a bigger number?

I think we look at in terms of what we think is a realistic target and where we really want to focus. So if we look at our dot-com expansion we're really going after new markets and opening that up. I think we feel we have adequate funds to do what we need. We also look at some of the funds that we already have within our marketing and investment budgets, and we reallocated as well. So we feel very good about what we're investing. If you look at PSD and because we're looking to see really strong revenue coming out of that later in the year and into 2011.

So I think we're in good shape there. The prepaid is also going to accelerate as we go through the year. So we will look at it as well depending on what happens in the marketplace. If we see initiatives that really start to ramp up very quickly, we would reconsider putting more funds behind it if we see the return coming fast enough.

Okay. Thank you very much.

Thanks.

Thanks, Adam.

The next question comes from the line of Christopher Mammone with Deutsche Bank.

Thanks. Following up also on the margins, in past calls we heard a lot about your various successes in renegotiating agent commissions lower and the benefits that's had on the margin. Could you maybe quantify what the benefit of those initiatives were in 2009 and maybe where you are in that progress? It wasn't a part of your prepared remarks, so I wonder how much more do you have to do there, can you do there, and how will that help maybe stem the tide of some of these other margin pressures in 2010?

I think the important thing is this is an ongoing process. It's not a one-year type of program. So as we renegotiate contracts we really work at getting a better financial results in terms of how we renegotiate those contracts. But also a lot of new contracts that come to us we start at a different point in terms of commissions, and maybe, Hikmet, you've been doing quite a few of those in the last little while.

Yes, quite a few of those, Christina. We signed agreements with the better conditions that are lower commission rates and long-term agreements which benefit, also using new customers using that agent -- benefit to our cost structure. Also, maybe a point is PSD license in Europe. With the PSD license we are the super agent ourselves, and we have direct access to the locations with better commission rates. That helps also to drive our cost structure down.

Okay. And then I guess on Custom House, I think, Scott, you mentioned what the intangible amortization was in 2009, was it $4 million?

You're right, Chris.

So I guess you had that, then what would you characterize that as other acquisition related costs? And then was -- Custom House, if you exclude all of that, was Custom House actually profitable after the time you brought it on board?

Yes, within Custom House, we had clearly deal costs to pay bankers and attorneys. We're embarking on integration costs as we move forward. And so as we think about 2010, it will be slightly dilutive, but as we leave 2010, we don't expect it to the have any impact, or not be dilutive to our earnings in 2011.

Okay, thanks, guys.

Thanks.

Thank you.

We have a question from the line of Darrin Peller with Barclays Capital.

First on the pricing pressure associated with US Marketing and changes you made can you quantify how much of that you expect to play into the -- I think you said three points of pressure from pricing during 2010.

On the pricing for 2010, we're running at that 3%, within that historical 1% to 3%. The DMT pricing probably moved us from a 2% range to a 3% range in 2010 because of the repositioning. But well within our historical average and what we think makes a good investment in the business.

All right. Then just quickly, I think you touched on this earlier, but to deconstruct the guidance you have for revenue. You are calling for a range that I think is a little below some of the expectations, but just wondering how much conservatism is built into that. If we think about $75 million as probably the year-over-year comp that you are going to have from the -- from Custom House, maybe that's 1.5% of growth. Excluding that you have pricing pressure. You pointed to about three points. But given where transactions trends are, seems to be somewhat favorable on most of your corridors this quarter versus the prior quarter. Can you talk about what's going to drive the -- what are the other components of the guidance for revenue besides those two?

I think as we look around the world what we do as we develop that guidance, we do a bottoms up from all of our countries and our 15,000 corridors. So we do a deep dive to have a good understanding of where the puts and takes are on the forecast. I think we also see some softness coming from the US to Mexico business. That is not rebounding. But as we talked about today we do see improvements in Europe and other parts of the world. So really, there's two areas where we're focused, and one is the Gulf States, and the other is the Mexico piece. Those are our two biggest challenges.

But obviously as we develop with the PSD and some of our electronic channels, we'll see some pickup in revenue and also see that pickup later in the year on our domestic side. But we tried to be as, I would not say as conservative -- but as balanced as possible -- because if we remember last year when we talked about revenue we always cautioned that the Gulf was always something that we were concerned about. It didn't materialize until later in the year but it did it happen. So I think we feel that we've been very realistic in terms of how we've put this together, and a lot will depend, particular let's say in our US business, in terms of the unemployment rates and how that goes over next six to 12 months.

All right, thanks.

You are welcome.

We have a question from the line of Julio Quinteros from Goldman Sachs.

On the numbers, just to follow up on the assumptions for growth -- the pressure, three percentage points of pressure from pricing looks like, based on the numbers we have, we have about 1.5% of benefit from acquisitions. Can you fill the gap in terms of what the underlying transactions volume assumption is? I might have missed that.

Sure, Julio. This is Scott. Good morning. For the C2C business, both from a transaction standpoint and a revenue standpoint, using 2009 as a benchmark, if you will, we believe the C2C transactions and revenue will be north of that number for 2010. As you think about your guidance, or your outlook, as you're pulling your model together.

We're seeing improvements in the US outbound business. We saw some strength in that in the fourth quarter. We saw western Europe pull through, Russia, the UK, Germany. Areas where we're probably going to he see some headwinds in 2010 would be the domestic money transfer repositioning. It's the right investment to make, but we won't see positive revenue growth until the fourth quarter there as we exit the year.

The other area is probably just some headwinds in the US C2B business. That will provide some headwinds. Overall we expect for C2C, we expect to expand the margins and grow transactions and revenue north of where we grew them in 2009.

Is your sense, and maybe just backing up a little bit, having gone through this cycle and obviously never having seen one quite like this for you guys -- is the sense now that as you look at 2010, is this model just going to end up being more of a lagging model, a lag recovery relative to what we're seeing on the broader macro trends?

Can you just address that? Because it feels to me like at least what seems to be changing on the margin for me is a sense that this is not a leading recovery story, but more of a lagging recovery, so is there some way to think about that, or help us think about how that dynamic plays out in your model in 2010?

It's very much focused also in terms of what regions of the world are having the difficulty, because if we look at Europe, we see the rebound, and its come pretty quickly. We look at Russia. It's coming back. Even Spain is returning. So we are leading there.

Where we see the lag is more in the US and also in the Gulf. And that was the question we had before, in the US we went in earlier, and we seem to be having a longer time frame to come out, particular to Mexico, and that's really coming back to the whole issue of unemployment. We see the same issue in the Gulf. But in other parts of the world we see very nice rebound so we feel confident in our ability to drive our business there. It's just balancing the portfolio this year in terms of -- as different markets are in different stages of recovery and that's been a bit of the challenge and why we have the guidance we have in terms of our revenue numbers.

Maybe to put some perspective on that, the mix of agents or the corridors, if you take US, Mideast, and Mexico what percentage of your agent base is that versus the other parts of the world, and I guess relative to revenue as well?

We don't really give that number but just -- Mexico is about 5% to 6% of our revenue, so you can take it, that's a big chunk of that there. No other market is quite that large. So that's -- outside of the US -- that's one of our biggest markets.

When you look at the new channels, obviously you guys are doing a lot on the mobile and the bank channels and everything that's out there. Give us a sense of what you're seeing there in terms of principals per transaction because it seems like that's another area where the volume or at least the principal leverage that you are seeing is probably lower than expected. Do you have any sense on how the new channels are comparing to what would I guess be your traditional business in terms of the overall principal over transaction?

It depends on the customers, because some of our newer customers we see large principals, but certain channels you would see less principal only because there's more controls as it relates to managing compliance and also fraud when you're dealing on the electronic side.

On the mobile side we definitely see a smaller level of principal. That's just been what we've seen in the traditional of it so far. But we see a lot of opportunity in the account to cash, as we develop that with the different banks, because they know their customer that we can start expanding the principal bands in that particular category.

Okay. Great. Thanks, guys, good luck.

Thanks.

The next question comes from the line of Tien-Tsin Huang with JPMorgan

Did you provide a target for principal growth expected in 2010 or principal per transaction?

We did not. Our overall thinking just broadly is we think that could abate somewhat, from what we've seen in 2009 but didn't give any specifics on that.

Okay. But still a premium to whatever the World Bank ends up coming out with in the forecast?

We believe we're going to gain market share in 2010.

Got it. The investment spending, glad to hear you're picking that up -- you gave us some targets, Christina, in terms of some of the metrics there. I tried to write some of that down. How should we measure the success in terms of revenue? It sounds like electronic channel is about 2% now. Where should we expect that for 2010 and similarly for Custom House what should we expect there? What should we be watching for in 2010?

If you look at the electronic channels, most of them are growing at 50, 60, double digit rates. In the electronic channel, Custom House we said, we're looking at double-digit growth. So we're looking at very strong growth rates, and they become more meaningful to our business. So we will report on those numbers that I talked about today. We will report on them every quarter so you can track. And also later this year we want to have an investor conference with all of you so we can also give you more information in terms of how some of these numbers all connect so we can start -- we'll talk a little bit about different metrics as we look at electronic and where we really want to take the business over time so that we expand our portfolio and our customer base.

Good, so we'll be able to track that. That that's good to hear.

We'll keep you posted.

The Gulf Coast, it did sound like it slowed commensurate with some of the Dubai news. Just to be clear are you looking for transactions to still be positive in 2010, and how did it look in November, December, and even January? If you could share that, just to give us an idea.

Overall for the Gulf, we're in really good shape in terms of our locations and our agents. We anticipate growth in 2010 but not at the double-digit rates that we were seeing in 2009. But where we did see the slowdown, it was really at the very end of the quarter after Ramadan. We didn't see the uptick come back. And that's really been the challenge. We've factored that into our forecast for the year.

Okay, but still positive. Last one, just a housekeeping one maybe for Scott, just the First Data money order portfolio. You gave the margin dilution that's consistent with what you've said in the past so what's the positive impact on the tax rate in the fourth quarter and maybe for 2010? Can we tie those two together to lower margins but also lower tax rate?

There is definitely some impact because of the interest income on the Munis is tax exempt, so it factors both into the 24% to 25% range that we have for a tax rate outlook for 2010, then also how the tax -- it was one of the factors of why the tax rate came down in 2009 although for 2009 it was also the tax planning strategy we've put in place in 2008, then more of our profits are being generated internationally which are taxed at a lower rate. So a combination of all those things that helped drive the tax rate down.

Great, thanks.

Thanks, Tien-Tsin.

Next question comes from the line of Jim Kissane of Banc of America.

Thanks. Christina, just a quick question. Just trying to drill down on Custom House. It seems like it's coming up a little bit short relative to your expectations. I thought it was supposed to be accretive and generate around 20% margins so maybe you can drill down a bit.

I think what we're really looking at is we see the opportunity for us as being similar to the C2C business. We have the capabilities, and we have the team to expand it, so as we speak, I think they're hiring an awful lot of people on the East Coast and the West Coast just in the United States, because the US is certainly under penetrated, and if you look at Canada being $30 million, it's usually 10 to 1, so you can imagine how big the US should be for us in that business. So we are rapidly going after that now. So, we are really -- we're on our business case but actually putting more investment early on because we want to make sure that we grow to that billion dollar revenue stream.

Can you give us a sense on what your target for revenue in 2010 is?

It will be double-digit. It will be double-digit growth, a lot is going to be dependent also on new customer acquisition because it's really the expansion that we have to see and their ability to -- we saw in fourth quarter we did see some -- their average principal on some of their customers had slowed a bit but their customer acquisition rate is well up in the 30% rate, so that's wonderful and they have a real skill set at doing that.

Just last question. Given the impact on transactions in the US, will you consider more aggressive pricing actions outside the US?

We would not. I think we would just consider, the US has been an issue for a long period of time. That domestic business is a very big business, and it was really the problem of having every city had a different price, we couldn't get a uniform marketing position. It's still a very profitable business.

The profit of that business is above the Western Union average so it's important to us but as you look at other parts of the world, when we go into the intra business it's only 2% of our revenue or less than 2%. So the impact on our overall Company to move intras to different price points -- you just wouldn't see that, we wouldn't be doing that, so we don't have the same issue. This is a long established business that really needed a relook and a rethink and we're very delighted to see all the levels of our business in the US starting to move on the domestic side.

Perfect, thank you.

Okay.

We have a question from the line of Robert Dodd from Morgan Keegan.

At the risk of beating a dead horse, if I can go back to the guidance again and look at your revenue growth guidance, the margin was in line for me, but the midpoint of that range looks to essentially be flat. If we take out double-digit growth in the B2B that implies for the C2C business you're looking down a couple of percent at the midpoint. Is that correct? And if it is, with 300 basis points of pricing compression, it comes down to the issue that it looks like your implicit volume growth numbers are up about one and don't include market share gains against the World Bank.

I think that we see growth and growth potential. I think the other thing, as you look at the revenue growth, one thing you have to remember is the domestic pricing is having an impact on our growth rate. And it is probably at about 100 basis points on the year. So that's there, too. But it doesn't really show. But that's what's happening to us. But we don't see the growth from that business until the back end of the year.

Right, but that's included in the 300 basis points price compression.

It's also included in your revenue growth rate.

Absolutely.

You're working on both ends.

Okay. The other question, on the currency issue that you gave us some color -- in terms of the 5% Euro move in terms of revenue, that given we've got a little bit of a tailwind so far, at least, would seem to say that's a driver for margin compression in 2010 as well. Is that correct? And if so, how much of your margin compression is a result of the current status of the FX rates?

You're right that does pose a headwind on the margin. In our outlook we believe constant currency revenue growth will be 1% lower, so on a GAAP basis we're picking up, call it roughly $50 million -- 1% on a $5 billion business -- so about $50 million of revenue. And our EPS outlook had no impact from currency. So in simple terms, we're picking up $50 million of revenue, no bottom line impact, so that really does put some -- a little bit of negative pressure on the margin because of that. Probably if you do the math, it's probably 20 or 30 basis points.

Got it, thank you. Thank you.

We've run a little long but we want to thank everyone for joining the call. There is a replay available, it will be available in one hour. The number is 888-286-8010. The passcode is 36555485. Thanks.

Thank you very much for being on the call. Again, we look forward to talking to you next quarter. Thank you.

Ladies and gentlemen, that concludes today's presentation. We thank you for your participation. You may now disconnect. Have a great day.