西聯匯款 (WU) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2010 Western Union Company earnings conference call. My name is Jeri and I'll be your coordinator today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I would now like to turn the conference over to your host today, Mr. Mike Salop,Senior Vice President of investor relations. Please proceed, sir.

Thank you, Jeri, and good morning, everyone. On today's call we will haver comments from Christina Gold, Western Union's President and Chief Executive Officer; Hikmet Ersek, our Chief Operating Officer; and Scott Scheirman Executive Vice President and Chief Financial Officer. After the 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 also like to point out that additional operational statistics were provided in a supplemental table with our press release.

As a reminder, today's call's 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 2009 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 directly comparable GAAP items on website, westernunion. com, under the investor relations section. All statements made by Western Union officers on the call are the property of the Western Union Company and subject to the 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. I am sure many of you have read this morning that I announced my intention to retire as President and Chief Executive Officer of Western Union on September 1st. After leaving the Company for over eight years I feel the timing is right. The Western Union brand and network are strong, our strategies are in place, and we have a sound succession plan. I have been very fortunate to have worked with exceptional employees, agents and business partners over the years and one of those exceptional people is Hikmet Ersek. Hikmet has been with Western Union for over 10 years, most recently as Chief Operating Officer after previously leaving our Europe, Middle East, Africa and Asia Pacific region. Hikmet will assume the President and CEO role and I am very confident he is the right person to lead Western Union forward.

Now, our business is off to a good start in 2010 as we execute on our strategies of driving profitable growth in our core C2C money transfer, developing electronic channels and expanding business payments. Globally our core cash money transfer business is gaining momentum. Although we still face challenging employment levels in key send regions we are experiencing improving trends in many markets and believe we are continuing to gain market share. Our total international business has been steady, with transaction gains in US outbound offsetting the expected less favorable trends in the Gulf states. Transactions in our C2C business grew at a healthy 8% rate, which was 300 basis points higher than the fourth quarter of 2009 and our strongest increase in the last five quarters. The improvement was primarily driven by the Americas region, where we continue to benefit from last year's repositioning of the US domestic business. Our plan to pull US consumers to our brand remains on track and domestic transactions ramped up to 18% growth in the quarter. In addition to US domestic, the Americas benefited from improved trends in both US outbound and Mexico.

We also made advances on our strategic initiatives. We are signing new retail agents and activating locations in Europe as we move towards our target of an incremental 10,000 retail agent activations by year end. We have been placing particular emphasis on signing smaller independent shops, which are located in areas where large immigrant populations work and live. One retail signing we just completed is the Martin McColl convenience store chain in the UK, which will provide an additional 700 agent locations. In the US, our banking strategy took another step forward as we completed the roll out of our money transfer service at more than 1300 Fifth Third Bank locations. Banks now represent 13% of our total US and Canada network locations.

Within our electronic channels westernunion.com had a record transaction month in March, with the international portion posting over 60% growth in the quarter. We are moving forward with our country expansion plans for later in the year and adding new product offerings to the US site, such as overnight home delivery and gift cards. We are also enhancing nontransaction services as we have seen a large number of visitors using westernunion.com for activities such as finding agent locations, evaluating products, or checking on the status of their transactions.

Our account-to-cash service experienced over 65% transaction growth in the quarter and we just initiated an online service, with Banco do Brasil, the country's largest financial institution. We are also implementing an innovative service with Absa, one of the largest financial service groups in South Africa and a subsidiary of Barclays. Absa customers will soon be able to initiate money transfers both to and from their accounts utilizing the Bank's on-line site or its mobile banking platform. In total we now have 15 banks that have agreed to offer account-to-cash service with others in the pipeline.

In prepaid, at the end of the quarter we had over 365,000 cards in force in the United States. Most with the result of direct marketing efforts to Western Union's current consumer base. At the end of March we began retail distribution of our prepaid cards and we now have over 4,500 retail locations carrying the cards. We continue to be encouraged by the consumer response to our fee-friendly cards and believe prepaid gives us an opportunity to provide additional financial solutions for our consumers while participating in a large and growing market. Enrollments continue to ramp up and we are on target to have over 750,000 cards in force by the end of the year.

In mobile we have over 19,000 agent locations in 10 countries enabled to provide cash-to-mobile service as we progress toward our goal of 75,000 by year end. We are currently focused on activating the most operational mobile corridors, so the majority of today's connections target the Philippines and Kenya. The activation of mobile service capabilities is part of our program to upgrade to web-based point-of-sale technology, which will speed up all transaction and simplify our business processes. We are also positioning ourself to participate in other mobile models that are emerging. These models are based on mobile banking platforms rather than mobile wallets and are being driven by regulatory requirements in some countries. The agreement with Absa in South Africa is one example. Western Union's brand and global distribution network are key compliments for banks that wish to offer this service to their mobile banking customers. Electronic channels in total represent 2% of Company revenue and we continue to expect strong growth from these channels as we further roll out services and increase our capabilities.

At Custom House expansion activities are progressing nicely. In the quarter we opened new sales offices in Atlanta and New Jersey and are in the process of obtaining licenses to provide additional services in certain European countries. The business results are on plan, the new customer acquisition strategies are being implemented and we are well into the process of strengthening Custom House capacity for global expansion. Western Union's financial position remains strong. In the quarter we deployed our cash to shareholders by repurchasing $200 million of stock and paying $41 million in quarterly dividends, and we also extended the maturity of $300 million of our debt. Overall, we are encouraged by the first three months of the year, and the improvements we are seeing in the marketplace. We feel very comfortable with our full-year financial outlook, as well as our ability to continue to gain market share.

At this time, I would like to welcome Hikmet and turn the call over to him for a further review of the quarter.

Thank you, Christina, and good morning, everyone. Before I review the results I would like to say that I am very thankful to Christina and to our board of directors for their confidence and trust and I am very much looking forward to taking on the challenge of leading Western Union. I believe the long-term opportunities for the Company are terrific and we will work hard to drive the strategies to achieve them.

This morning, though, let's return to the review of the first-quarter performance. Given the environment entering the year we are pleased with our consumer-to-consumer business in the first quarter. C2C revenue increased 3% or about flat on a constant currency basis. Our 8% transaction growth was aided by the double-digit increase in the US domestic money transfer business, but we also saw better trends in the US outbound than Mexico and continued strength in Europe and Asia. Our Europe, Middle East, Africa and South Asia region delivered revenue growth of 5% on the transaction increase of 6% in the quarter. The transactions performance was slightly below the 8% level in the fourth quarter, primarily due to the relatively flat results in the Gulf states.

Most markets in Europe delivered stable or slightly improved transaction trends relative to the fourth quarter. Russia continued to show improvement, delivering solid growth in the period. India reported growth of 7% on transaction growth of 6% in the quarter, was impacted by the moderation in residences from the Gulf states. However, we continue to make good progress in the market. The Reserve Bank of India recently released official remittance data for all of 2009, which indicated Western Union delivered significant outperformance. Among the new signings in the quarter in the EMEASA region, where the United Bank for Africa and Nigeria and Banco Africano de Investimentos in Angola.

We saw our most dramatic improvement in the quarter in the Americas region. Transactions, which were flat in fourth quarter, increased 8% in the first three months of 2010. Revenue in the region declined 3% compared to a 7% decrease in the fourth quarter of 2009. The US domestic repositioning continues to deliver strong results. We are driving new consumers to our brand and increasing usage, resulting in the 18% transaction increase in the quarter for domestic money transfer. The $50 for $5 transfers were very successful and our improvement was broad based, as we recorded better transaction trends across all of our domestic principal bands. Domestic revenues declined 13% for the period, an improvement from the 20% decrease they experienced last quarter. We continue to expect revenue growth to turn positive later this year. Domestic money transfer also remains a very profitable business for us, which operating margins of over 30%.

The new pricing and marketing is just one part of the integrated strategy in the US. We are also acquiring new customers through the banking channel and westernunion.com and providing new product offerings, such as prepaid cards and GoCash and in-lane money transfer solution. Our integrated US [region] is in the early stages of implementation but the initial results are very encouraging. The US outbound business also experienced improved transaction growth in the quarter, as we saw favorable trends across all of our major corridors. Mexico business trends improved nicely from the recent quarters. Transactions declined 3% while revenues were down 7%. Each month in the quarter performed better than the prior one and Mexico recorded a positive transaction growth in the month of March. In addition to the continued steady performance of our strategic and regional account, our small independent agents also delivered much better results than recent quarter. Another key agent signing In the Americas region was the Giant Eagle supermarket chain the US, which was a competitive take away.

In the Asia Pacific region revenue increased is 14% on a transaction growth of 15%. China continued its positive trends with 21% growth on the revenue and 8% in transactions. We also recently added more banks to our network in China, raising our total to eight banks. The Philippines once again delivered strong transaction growth in the quarter and we are focused on supplementing our retail network in the country with additional banking distribution. The global business payment segment performed in line with expectations in the quarter, which reported revenue growth of 4%. Excluding Custom House revenue declined 10% due to challenges in the US bill pay. However, international Pago Facil continued to perform well. We are working hard to improve the US bill payment business. Our strategies are focused on diversifying our product offerings and aggressively pursuing new customers and billers in the marketplace and increasing efficiencies in our cost structure.

In business-to-business payments Custom House reported revenue of $26 million in the quarter, an increase from $23 million in the fourth quarter last year. The growth was driven by stronger business in Canada, and the US. As we move through the year we expect to see further benefits from our investment and new customer acquisition. We are on track with laying the ground work to expand the C2B over the several next years and remain excited about the opportunity.

Now I'm going to turn the call over to Scott to review the financial results for the quarter. Scott?

Thank you, Hikmet. Consolidated revenue increased 3%, including two percentage points of favorable currency translation. Sequentially constant currency revenue growth rates improved 200-basis points and margins improved 140-basis points relative to the fourth quarter. The 8% transaction growth in C2C drove 3% revenue growth in the segment for flat constant currency. In global business payments the strong Custom House business offset the expected decline in US bill payments, resulting in 4% revenue growth. Total Western Union transaction fee represented 78% of Company revenue and grew 1% in the quarter. Foreign exchange revenue represented 19% of total Company revenue and increased 16% from the prior year, benefiting from the acquisition of Custom House.

We are pleased with two consecutive quarters of accelerating transaction growth in C2C, up from the recent lows of 3% in the second and third quarters of 2009. Revenue in the international C2C business grew 6% in the quarter, or 3% constant currency, on transaction growth of 8%. Performance was driven by continued strength in Europe and Asia Pacific and improving trends in the US outbound business, partially offset by the relatively flat transaction growth in the Gulf states. The Company's C2C cross-border principle volume increased 7% in the quarter, or 4% constant currency. C2C principle per transaction was flat, or decreased 3% in constant currency, compared to the same period a year ago. The trend improved relative to the fourth quarter when constant currency C2C principle per transaction declined 6%. We view the moderation in the principle per transaction declines as one indicator of increased confidence by consumers in their economic outlook.

The spread between C2C transactions and revenue in the quarter was five percentage points and included a three-point benefit from currency. The factors affecting the eight-point currency adjusted spread include strong growth in the low principle brands -- low principle bands in domestic money transfer, pricing and mix. In the first quarter domestic money transfer was responsible for three points of the transaction to revenue spread. This represented a combination of both pricing and mix, as we saw large transaction increases in the low principle bands. Excluding currency and the impact from domestic money transfer, the other factors impacting the transaction revenue spread were generally consistent with prior quarters. In our full year outlook we expect pricing actions, including domestic, to total approximately 3% of consolidated revenue. We anticipate full-year average pricing actions will be lower than the first-quarter 2010, partially as a result of lapping the domestic price changes later this year. The current period also included some impact from zero fee or reduced fee transfers to Haiti and Chile that we implemented to support the people affected by the earthquakes.

Consistent with our expectation, consolidated operating margin of 26% decreased relative to the same period last year but improved sequentially from the fourth quarter. As you may recall we had a strong margin of 28% in the first quarter of 2009, in part due to delayed investment and expense spending given the uncertain 2009 economic environment. Compared to the first-quarter 2009 margins were impacted by incremental investments related to technology, PSD, electronic channels and Custom House expansion initiatives. During first-quarter 2010 we made a number of key strategic investments. For example, we invested about $5 million in prepaid, primarily to drive enrollment in our card programs. Prepaid is estimated to be a $100 billion market in the US and our investments are helping us establish a solid position in this space.

We continue to invest in business-to-business payments, including opening new sales offices, hiring more sales and product personnel, improving technology and on-line capabilities, and strengthening the compliance infrastructure. We believe the B2B revenue market opportunity is at least as big as the cross-border C2C revenue markets and we're investing now to drive growth in future years. In addition to investment, also impacting first-quarter margins were the assumption of the retail money order portfolio, amortization of acquisition-related intangibles, a weaker US dollar, and volume declines in the US bill payment business. The impact of the retail money order portfolio assumption was 40-basis points and incremental intangible amortization was approximately 40-basis points. Marketing expense was 4% of revenue, in line with our full-year outlook.

Earnings per share for the quarter were $0.30 compared to $0.32 in the first quarter of 2009. We expect our operating margins in the second half of the year to be stronger than the first half, as we reach higher volumes and start to see benefits from several of our growth investments. We will also continue to manage cost carefully, work to improve efficiency, and selectively reduce agent commissions. C2C segment operating margin was 27%, down 120-basis points year over year and sequentially up 170-basis points from the fourth quarter of 2009. Compared to first-quarter 2009 C2C margins were impacted by incremental technology and other investments and a weak dollar compared to a year ago. For the full year we continue to expect 2010 C2C margins to be higher than last year.

Global business payments operating margin of 21% included the Custom House intangible amortization expense and and investment spending for future growth. Excluding Custom House segment margin of 26% was down from 29% last year but consistent with the fourth quarter. Reduced volumes in the US bill payment were responsible for the decline from last-year's first quarter. The Custom House base business is healthy but overall its contributions to earnings is expected to be slightly dilutive due to the investment spend and intangible amortization. We do not anticipate dilution from Custom House beyond 2010.

Turning to balance sheet and cash flow, our financial position remains strong, enabling a significant return of capital to shareholders. As of March 31st the Company had total debt of $3 billion and cash of $1.5 billion, of which approximately $700 million is outside the US. During the quarter we repurchased 12.4 million shares at an average price of $16.17 for a total of $200 million and paid $41 million in quarterly dividends. At quarter end we had $800 million remaining on our share repurchase authorization and we plan to remain active during the year. The cash flow from operations was $74 million, which included the impact the $250 million refundable tax deposit that we made with the IRS in the quarter. As we announced in the fourth-quarter earnings release the deposit related to potential tax liabilities, including those arising from the Company's 2003 international restructuring. The deposit limits further accrual of interest on such potential tax liabilities, which have been previously recorded in our financial statements. Capital expenditures totaled $15 million and we continue to expect them to range between 2% to 3% of revenues for the full year. In March we completed a debt exchange, retiring $304 million of 5.4% notes due in 2011 and issuing $325 million of 5.25% notes due in 2020. This leaves our nearest date of maturity at approximately $700 million due in December of 2011.

Turning to our outlook for the year, we are off to a good start in 2010 but it is still early. We affirm our full-year GAAP revenue and EPS outlook provided in February. This includes GAAP revenue in the range of minus 1% to plus 2% and GAAP EPS in a range of $1.29 to $1.34. Based on current foreign exchange rates we expect GAAP and constant currency revenue to be similar. GAAP and constant currency EPS are also expected to be similar. We plan to continue to deploy our strong excess cash through reinvestment in the business, selective strategic acquisitions if available, and returning cash to shareholders in the form of stock buy back and quarterly dividends. Although we utilized almost $500 million in the first quarter on share repurchases, dividends and the tax deposit we still have over $1.5 billion of cash on our balance sheet and expect stronger cash flow generation in the second half of the years.

That concludes our prepared comments on the quarter. Jeri, we are now ready for the first question.

(Operator Instructions). Your first question comes from the line of Tien-Tsin Huang with JPMorgan. Please proceed.

Hi, hope you can hear me.

Yes, we can.

All right, great. Thanks. Really quickly I wanted to first talk about the US outbound and Mexico. I think that was the area that I was most oddly surprised by. Can you -- I know you gave some details there, but can you talk about how much of that was maybe an improvement in some of the cyclical factors, or if it's really more just share gains? If you can just dig into that because the Mexico piece looked like it out performed the Banco de Mexico data and the US outbound it sounded like it'd get better.

I think what we've seen in the US business to begin with is just the whole repositioning of the domestic money transfer business had that a halo effect on the whole market and so it's pushing all of the different sectors, not only domestic but US outbound and on the US to Mexico. But also in the Mexico portion of the business, as you remember last year we were shutting down some of the [VIGO] locations because of credit issues, but the team worked very aggressively over the last few months to find new sources and new locations that didn't have these problems and we're kind of lapping that but we're also seeing much more productivity coming out of those locations. So we feel very good about what we're seeing in our Mexico business. As well as in the US outbound, again it is not as tied to what we've seen in terms of the issues and the unemployment in construction in the United States, so again, the US outbound across the globe we're very nice growth across that -- those segments.

Any material or notable change in the -- some of the cyclical factors domestically as we move month to month?

Well, I think obviously you have the issue of what we did in the fall, but I think what we saw month to month we continue to gain strength and momentum in the domestic money transfers, so we're very pleased and feel we made the right move at the right time to drive that business.

Got it. Then the prepaid piece, it looks like the cards in force did spike up nicely. Can you give us some detail around loads and activity, or revenue, anything else that you can share there just to give us a sense of how active those users are?

I think we're starting to see some nice up tick in terms of activation for the cards but I think it's a little early days yet because a lot of the cards came on late in last year. If you remember we finished last year at 150,000, now we're at 365,000, so that's one thing that Stewart and his team is really working on now to find out what are the different methods to drive activation, the size of a load, and then the new thing that we've done as of March is really put it on the retail counter so that's really going after a different customer, as well. So we'll have more information as we see progress here, but we are very, very happy with what we're seeing and as you saw from Scott's remark, we are investing to grow this business because we think it's a huge opportunity for the Company.

Okay, great, last quick one, You spent $200 million on our buy back, is that representative of what we might see for the rest of year in terms of buy backs?

Tien-Tsin, this is Scott. We haven't provided any specific outlook on that, but we think $200 million is a good start. We'll carefully manage our cash and cash flows to invest in the business, acquire companies and return cash to shareholders and with that we will be active as we move through the year with the stock buy back, but no specific outlook there in particular.

Okay, great. Thanks. Congrats, Hikmet, on the promotion and Christina, good luck to you.

Thank you.

Thanks, Tien-Tsin.

Your next question comes from the line of Andrew Jeffries with SunTrust. Please proceed.

Hi, good morning, thanks for taking my question. Just for starters, as a follow up on the prepaid business, which is obviously getting a lot of attention here in the US as an industry on a stand-alone business, you mentioned you spent about $5 million in the first quarter investing in that business, how does that compare to the investments you made last year and is that a pretty good quarterly run rate as far as what we should expect as 2010 continues to unfold here?

Here's how I would frame that is that the -- probably go back to somewhere in March we made about 90 days ago in our fourth quarter earnings call that we'll spend about $50 million on strategic investments and that's up about $25 million from 2009. That $50 million will be, if you will, ratably spent for the most part throughout 2010, maybe a little bit more heavily weighted in the first half of the year. Those investments will clearly be around our strategic priorities; prepaid as we're talking about right now, but also in the B2B, Custom House area, but also in our electronic channels as it relates to westernunion.com, mobile and account to cash. So we'll continue to invest and we see both in the B2B space and prepaid just some very nice large market opportunities there and balanced with that opportunities to continue to grow our C2C business and gain share in that area, too.

Okay. And then it sounds like you're starting to highlight some of these new growth drivers, the account-to-cash and some of the international electronic transaction part of the business. I know one of the challenges in westernunion.com in the US historically has been regulatory, can you just comment on the regulatory environment and whether you feel like you've solved that equation as you sound like you're reemphasizing some of these electronic money transfer channels. Is it consistent, do you feel like maybe you've made internally as far as regulatory compliance is concerned that gives you more confidence, or how should we think about the challenges potentially of that growth versus the opportunities, which seem big?

We see it as a huge opportunity for us and it really was not so much in the United States a regulatory issue as opposed to an issue of fraud. And so what happened to us a couple of years ago, with some of the credit card problems that they had there was a large -- high level of fraud in business so we had to do a lot of things to really control how much we would allow people's credit cards to be accepted at -- through the on-line transaction and that made it a very clunky, unpleasant transaction for customers. So we have invested now heavily this year and we will complete all of the work, I think, by June this year so that when customers go on-line in the US it will be a very seamless transaction. So we feel very confident that we can continue to grow this business very aggressively and we'll see tremendous growth there. So it really wasn't the regulatory issue, it was more protecting the Company from fraud.

Okay, and it sounds like you've solved some of those challenges.

Yes, yes.

Great. Thank you very much.

Thanks.

Good, thank you.

And your next question comes from the line of Jason Kupferberg with UBS. Please proceed.

Thanks, good morning, and let me add my congratulations to the management team. A couple of questions here. First of all, on the transaction side with India and China specifically, I guess India slowed a little bit and you guys talked about some of the contagion from the Gulf states and China I think was flat versus last quarter. How do you guys think about the normalized transaction growth for those two countries over the median to long term, assuming a more normal global macro environment?

Well, I think -- let me take that one, Christina. China, India. I think we are progressing in both countries. In China we had a revenue growth of 21% on a transaction growth of 8%. Also in India we are -- have a posted transaction growth. Recently the Reserve Bank of India released their numbers, remittance numbers for 2009, which shows really that we've outperformed the Reserve Banks numbers so we are doing pretty well here. We get a little bit from the Gulf states, Gulf of South Asia to India. We had some slow down here, but even in India (inaudible) being globally (inaudible) and our presence being globally everywhere helps to drive the transactions. And also in China, we have now -- our strategies are working in China. We had for years two big banks and they are now very valuable agents to -- like the Post Bank and the Agricultural Bank of China, but we now had also regional banks and we are having eight banks so we are really everywhere also in China. We are expanding our strategies and doing pretty well, so I think the Asia -- our Asia strategy's working pretty well.

All right. So net-net that transaction growth you expect will accelerate over the next year or so in these two countries based on everything you described?

Yes, Jason, what I would add too that if you think about just Asia it's about 20% of the market opportunity but it's only about 8% to 9% of our revenue so we continue to have a lot of opportunities to gain share there.

Right. Let me switch gears for a second to pricing, and I know you guys talked about an overall 3% pricing investment for this year and then you had a nice chart in your deck showing the walk from transaction growth down to revenue growth and there's a couple of pieces there that are price related. One of them looks to be a mix of domestic price reduction in mix and then you've got the other bucket of other price reductions, so in aggregate those two buckets look like they're bigger than 3%, so does that mean that the net impact of price reductions on revenue is going to diminish as we go through the balance of the year? In other words it seemed like more than 3% pricing investment in Q1 so does that moderate later in the year to get you to 3% for the full year?

Yes, Jason, it does moderate. It is -- to your point, it is higher in the first quarter, if you may recall we launched the domestic pricing initiative. Most of it was October 1st. We did some things in the second or third quarter last year, but we'll begin to lap that as we get to the latter part of 2010. We've been pleased with domestic initiative and I think what's important there that business is profitable. It's got 30% margins, transactions were up 18% so we very much like what we see there. But on a full-year basis our pricing will be 3% of our consolidated revenues.

Okay, so the real improvement will be in Q4 when you anniversary the domestic --?

Yes, some. A little second and third quarter but a lot of it in Q4.

Okay, and last one for me. On the US bill pay business I know you said that's still kind of weak, how much of a turn around there is embedded in your guidance for 2010?

I think as we look at it -- Hikmet can talk to some of the initiatives that he's putting in place, but I think it's still going to a challenged business on the bill pay in US side but the B2B is our real opportunity.

I think the -- but, Tina, don't forget that our payment service that the bill payment is still a [strategic] -- a very strategic initiative for us, especially the walk in. Our agents like that, the customers walk in and do transactions there, so -- and it's still a very profitable business (inaudible). Now what we are doing is definitely we are looking and then you have their hard look on the bill payment business. We are looking at the processes, we are looking at the cost structure to improve the business there, but strategically it's an important business and it's still heavily linked the [creative-sensitive] areas of the US economy, which still remain challenged; right. So I think when that picks up then it will be back.

Okay, thank you.

Your next question comes from the line of Julio Quinteros with Goldman Sachs. Please proceed.

Good morning. This is John Williams in for Julio.

Good morning.

Morning.

Morning. we were curious to see just what we could expect in terms of -- from Hikmet in terms of changes and what his operating priorities might be for the next few years?

Well, I'm very fortunate that I have a business which I have a tailwind, let me phrase like that. We have -- we are present in 200 countries, we have a fantastic business. It's a global business and I've been fortunate also of being with that business the last ten years. I remember in the early stages I was celebrating the 75,000 locations with some of my colleagues and we were dreaming about 100,000 [other] locations, now we are over 400,000 because we're around 450,000 locations. So it is a very great business and I'm going to use that tail wind and I'm also fortunate that I have a long relation (inaudible) with Christina, which she supported me for many years. Also additional on that, definitely we are look on expanding our customer segment, we are looking on the electronic channels. The beauty of our business is being present in 450,000 locations globally, everywhere in 200 countries, and if you link the electronic channels with our locations, (inaudible), that gives the opportunity also to the future importance for this Company. So I'm very optimistic about that and you'll definitely drive this in my -- under my leadership, also.

Hikmet, I think you touched on something interesting, which is the idea that you have to sort of manage the emerging channels versus the agent network, how do you go about -- or how do you think about that in the next few years. Do you feel like the agent network maybe has some level of critical mass at this point where you can focus more on new channels, or is there still the need to grow that pretty aggressively as you go forward over the next five years?

I think our core business has improved pretty well. I think the cash-to-cash -- I've been in the market for many years, especially in the emerging countries if you say that that cash had some value. I think that will definitely continue to grow, and the customers are carrying cash to the location and pay off in cash. I've been in parts of the -- in Africa or Asia you could see that our locations are kind of manpowered ATMs, right, for the customers. However, on the sending side also I am -- me says being an immigrant and using the westernunion.com at midnight after hours I'm sending money from my ATM to a location, both at any time, I think that's the connection what I am talking about. If you look at our westernunion.com or account base money transfer electronic it's growing 60%, especially international part, and we are now in 15 coun -- more than 15 countries and we are expanding that one. And our agents, especially our bank agents, are very welcoming on the send side to support so many things that their accounts are linked to electronically to our 450,000 locations globally.

Got you. One last one and then just very quickly, what do you expecting for C2B margins, how should we think about that as we go forward in the next year or two?

John, this is Scott. One of our key priorities in C2B and global business payments, especially with the US bill payment business, is we need to stabilize at the top line revenue and that's so tied to the subprime in the US, and we need to continue to focus on doing that. We'll have to carefully manage our costs and get efficiencies there but also what'll be important in that segment is that we continue to expand our product offering through B2B and also through geographic expansion of bill payment to selective countries. So we'll continue to work through that but our priority is really getting the top line to go north as we think about this on a long-term basis.

Great. Thanks, guys, appreciate the time.

Thanks.

Thank you.

(Operator Instructions). Your next question comes from Ashwin Shirvaikar with Citi. Please proceed.

Thank you. My question is -- I guess the first one is EMEASA. If you can provide a break out of -- you have provided the South Asia part of it, but if you can provide a break out of how things are going in Europe, particularly with regards to PSD I'd appreciate that?

Sure, sure. Let me talk about Europe and South Asia a little bit. Europe, most markets in Europe we have saw stable to improving markets so we like what we're seeing in Europe. There are markets, such as Spain where there continues to be some challenges, slight negative growth there, but we continue to see that abate as we move forward. The other area we've got our eye on is the Gulf area. The transactions were, I'll call them flat for the first quarter so we'll continue to monitor that. But from a PSD standpoint we continue to make progress there. We think that is very nice opportunity for us. We continue to sign retailers and in particular we're focused on Germany and France. And I can let Hikmet comment on what the teams have been focused on in particular, but we see that as a nice long-term opportunity.

As I mentioned in the previous calls, for Germany and France it's an important opportunity and also in other countries like Benelux countries. As you know in these countries we had the banking channels as our agents, which limited opening hours. Now this PSD gives us -- with the PSD license we can have also retail chains and we have targeted 10,000 locations, additional 10,000 locations by year end in Europe, and I think we are on the good progress to reach that. We already have a little below 1,000 locations activated, especially in the countries of -- these countries where we are heavily banked channels, so we see good progress activating these locations and we see already the transfer transactions coming from these location, so I think it's a good strategy.

And with --

The next thing I would add is not related to PSD but we also -- Europe we're going a little bit further east so nice transaction growth in Russia, too.

Yes, Russia is doing well.

Okay. Just a further update on Gulf, which I believe did play a part in your overall revenue guidance three months ago. Some of our checks show that although Dubai itself is still quite slow with construction project cancellations and hold ups, in other parts of the Gulf construction activity is coming back. Is that similar to what you're seeing and would that -- over the course of the year would that have a tendency to provide upside?

You're right. Growth rates [of development] country by country are mixed. Some countries, like Kuptar or Kuwait are doing pretty well, but some countries, like UEAR, it's still challenging, It' not only Dubai, it's some or -- other countries are still challenging but we believe we will return to growth late 2010 and when the construction picks up and it will have an effect to our transactions, you are right.

And last question on bank relationships, should we expect more along the lines of some of the ones they designed last year, and if you could also provide some idea of progress on those relationships?

The project went very well in the US. We have the US bank results have been excellent. Fifth Third now is ramped up and active and now they are 13% of our distribution in the US. We are looking at a couple of other banks that are close to signing so hopefully we'll have some news for you in the next few weeks in terms of finalizing those agreements, as well. But we're very confident in our footprint and our banking strategy in the US.

Okay. Congratulations, Hikmet, and good luck, Christina. I'm sure we'll --

Thank you.

-- still see you --

Thank you very much.

Your next question comes from the line of Jim Kissane with Banc of America/Merrill Lynch. Please proceed.

Yes, thanks, and I'd like to add my congratulations to Christina and Hikmet, as well. Enjoy your retirement, Christina.

Thank you.

Can you provide a little more color on Custom House? I know you touched on it in the slides but maybe the year-over-year growth and the margin trends and also maybe what the incremental cost to build out the operations are?

I could talk a little bit about the growth and then Scott can talk a little bit to the costs. I think that as you saw in the fourth quarter we had $23 million worth of revenue and this quarter we have $26 million. Also, they were not part of the business last year in first quarter but they did grow over their own numbers from last year. We also saw that the focus of what we've done is really focused on US and Canada right now because Canada was under represented in their numbers and the US numbers were about, well over 20%, 30%, 40% in that range so they're getting tremendous new customer acquisition there. So we feel really good about what they're executing on and the investments are reasonable. We're taking it step by step, making sure that we're going to get the return on our investments, but we feel very confident in what they're doing.

Jim, I would add to Christina's point that the investments are reasonable. The base business before the investments are amortization and intangibles, that it is profitable for sure. It is growing. And then really just speaking to the -- if you will the margin profile, we said it'll be slightly dilutive in 2010 and I mean slightly dilutive, and we don't expect dilute beyond 2010. So we think given the market opportunity and the ability to leverage our brand, our core competencies, it's really a good investment for us to make at this stage in the game.

Okay. And answering Ashwin's question you touched on PSD but maybe can you pinpoint FEXCO and how that's driving the PSD initiative?

Sure. I think we have really a great platform. [I think that for the very strategic Good investment] we have our sales people on the FEXCO on the field, getting more retail agents on our network and the beauty of that is that we are a direct agent. We are the agents here and we have a direct access to the small retailers and that helps us also on our commission and on our cost structure also of having that direct access. And also direct promotions placing the ethnic marketing there, having the sales people direct connection with that, that helps a lot. I think the FEXCO acquisition was a very good and appropriate acquisition.

The other thing I would just add, Jim, is that also with that we acquired the platform called [Bexlink], which we're now putting into all of our send locations, which really is a web-based technology which allows us not only to do our regular money transfer but to add other products like mobile, like prepaid into the transaction, so that is very good, as well. Just as aside, our UK business where FEXCO is really based was our top performer over plan last year, so really it is paying off and it's doing a lot for our business.

Okay, and just last question. Does it make sense at some point to start breaking out westernunion.com? It seems like it's becoming a bigger piece and it's driving some growth.

I think as we drive our electronic channels and it becomes a bigger part of the business. Like we've said it's 2% of our business. As we gain scale on that we would open that up but not right now.

Okay, great. Thanks.

Thanks.

Thanks, Jim.

Thank you, Jim.

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

Hi, good morning.

Good morning.

I just wanted to talk about the World Bank report. Over the weekend the World bank raised its forecast for 2010 and 2011 for remittance flows. Is Western Union seeing that same type of momentum?

I think we were really pleased to see the results from the World Bank but, obviously it's an affirmation that the business and the resiliency of our customers and the importance of remittances in the global economy. They're projecting 6% for this year and 7% for next year. Interesting to note that our first quarter our total principle that we moved was 7%, so we're off to a very good start. I think other thing that we're seeing is particularly in the month of March we saw a really -- an up-tick there. That's where when Mexico went positive that was our record for westernunion.com. So it's early days for us in terms of looking at 2010 but I think all of the signs are looking very good for our business.

Typically you guys have beaten the World Bank estimate as you take share?

Yes, we have. if you look at last year they were down -6% and we were down -3%, so if you take the total principle we were twice -- we beat them and we always do.

Okay, and then I just want to ask about the PSD. There's -- I've gotten a few questions about just the competitive landscape and how that might change, so now that we're a few months in I'd be interested in, Hikmet, getting your assessment on that?

I think -- Bryan, we have the license, which was the bigger part. Not everybody -- it's not easy to get to license, right, because the regulators are really looking at -- we had a bigger part here, we got the license, and I have to say that our sales people are on the field and really getting this retail chain here. It takes some time to -- having a big retailer acquiring it takes some time to activate them because you have a host-to-host connection, you have to go to their point-of-sales system. But I think that we are very well under way to make a big opportunity out of this.

Okay, that's it for me. Thanks and congratulations, Hikmet, on the new role and Christina, good luck in retirement.

Thank you.

Thanks, Bryan.

Jeri, we're near the top of the hour so why don't we take one more question?

Yes, sir. Your last question comes from the line of Tim Willi with Wells-Fargo. Please proceed.

Thanks. I have one question and one follow up. First is in the US market where that spread has widened sequentially from 4Q, which I think is probably just due to a full quarter effect of the pricing strategy building, but could you talk about monthly -- is there any way to think about how the spread between revenue and transaction looked? Was it pretty stable as you progressed through the quarter or were there any changes?

I think Scott can talk to the spread but I think if we look at the momentum of that business, as we came out of the fourth quarter we were running transactions at 5% and now we're running transactions at 18%. But you need to think this thing is building momentum not slowing down so what we're seeing is month after month a strengthening of that business.

It's clearly building momentum. I think what's important to keep in mind, Tim, is that, one, domestic money transfer's got a 30% margin business, it's a very profitable business for us. And then two, we expect positive revenue growth as we get to the latter part of 2010.

Did transaction growth in the US accelerate as the quarter went on, because if I remember I think you said in December of last year it was like 10% for the month so this quarter's performance would say that you continued to accelerate throughout the quarter?

Yes.

Yes.

Okay, and then my follow-up question was just around the electronic channels. As you've moved forward now over the last couple of years with a variety of different electronic channels, whether it's mobile or account-to-cash internet, et cetera, are you seeing anything within the pricing or the profit metrics around transactions or profit per principal? Anything that would you think over time be sort of a secular negative for the margin structure of Western Union as these channels emerge, or do you think you still price appropriately for the value of the brand?

We see that these electronic channels are margin supportive. I think that over time we will continue to gain share in the electronic channels and build so I think even then as we drive more transactions that way we'll leverage even more of our cost structure. So we feel comfortable that they will support the overall margin of the business.

Okay, that's all I had. Congrats to both of you and Hikmet. Thanks.

Thank you.

Thanks.

Thank you very much for being on the call today and we would look forward to talking to you again. ANd Hikmet, congratulations again.

Thank you. Thank you, Christina.

Thanks everybody.

Thanks.

Thank you for participating in today's conference. This concludes the presentation. You may now disconnect and have a great day.