西聯匯款 (WU) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen. Welcome to the fourth-quarter 2010 Western Union earnings conference call. My name is Melanie, and I will be your coordinator today.

At this time, all participants are in a listen-only mode. We will accept your questions at the end of this conference. (Operator Instructions). As a reminder, today's call is being recorded.

I would now like to turn the call over to Mr. Mike Salop, Senior Vice President of Investor Relations. Please proceed.

Thank you and good afternoon everyone. On today's call, we will have comments from Hikmet Ersek, our President and Chief Executive Officer, and Scott Scheirman, Executive Vice President and Chief Financial Officer. The slides that accompany this call and webcast can be found at WesternUnion.com under the Investor Relations tab, and will remain available after the call. Additional operational statistics have been provided in the supplemental table with our press release.

As a reminder, 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 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've 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'd now like to turn the call over to Hikmet Ersek.

Thank you and welcome to everyone on the call. We are pleased to share with you today our fourth-quarter results and our outlook for 2011.

As we enter the new year, our focus remains on our key strategic priorities of growing retail channels, expanding electronic channels, developing our product portfolio, and improving process and productivity.

We had a strong finish to 2010, not only with our business trends and financial results, but also with advances on our key strategic priorities. For the year, we delivered earnings per share of $1.42, excluding restructuring expenses, and generated $1 billion of cash flow from operations. We also grew our retail agent network to 445,000 locations and believe we continue to gain cross-border market share.

In the fourth quarter, revenue increased 3% with constant currency revenue growing 5%. Constant currency revenue growth in our consumer-to-consumer business improved for the fifth quarter in a row, accelerating to a 5% increase. The progress was widespread as revenue growth rates improved in all of our regions compared to the prior quarter. Asia-Pacific led the way with 14% revenue growth, but our biggest change came from the Americas. This region delivered 7% revenue growth for the quarter and 2% for the year, following three straight years of declines.

Contributing to the growth in the Americas was the turnaround in the US domestic business. As we expected, the repositioning which drove high transaction increases throughout 2010 led to revenue growth in the fourth quarter. In the quarter, domestic money transfer revenue increased a strong 7%. Our strategy has been very successful and we believe we've created new demand and attracted new consumers to our brands.

In Global Business Payments, the Bill Payment revenue decline moderated slightly compared to the third quarter. We continue to work towards stabilizing this business through the addition of new billers and the rollout of an improved walk-in payment service.

The Custom House business, which we have rebranded Western Union Business Solutions, delivered strong revenue growth, reaching $30 million for the quarter and $111 million for the year. Globally, we have signed several agreements over the past few months that position us well to execute on our key strategies as we move forward in 2011.

We will be expanding our retail channels with some of the premier banks in Europe and Russia, including Banca Intesa Sanpaolo and Sberbank, and have added several new sub agents in India that combined will bring more than 5000 new locations, primarily in the important (inaudible) region of the country.

In electronic channels, we now have 40 banks that have agreed to offer account-based money transfer, including our first one in China, Shanghai Pudong Bank. We signed a mobile agreement with MTN that covers 21 countries across Africa and the Middle East. We have also begun money transfer services through ATMs in Europe with Banca Transilvania in Romania and Garanti Bank in Turkey with almost 4,000 ATMs active in the region and more on the way. We have expanded WesternUnion.com to 20 countries, recently I think Denmark, Poland and Finland.

In new products and services, we have signed new prepaid card distribution deals such as with income and continue to work on international expansion plans. We have also made good progress in process and productivity. The restructuring we announced last May is on track and we are now anticipating additional opportunities under this program to further streamline our business, which Scott will discuss in a few minutes.

As we look ahead to 2011, we expect the momentum generated at the end of last year to continue. Although there is still generally high unemployment and challenging economical conditions in some countries, we believe the environment has been stabilizing and anticipate modest improvement in the remittance market in 2011.

Overall, we expect 3% to 4% constant currency revenue growth for Western Union in 2011. Our outlook anticipates continued share gains in cross-border remittances from further retail expansion, marketing initiatives and growth in electronic channels.

We expect the bill pay business to continue to be challenging, but we believe the revenue declines will moderate as we progress through the year.

Western Union Business Solutions, which was formerly Custom House, is projected to deliver midteens revenue growth in 2011 and no longer will be dilutive to EPS. Our objective with the prepaid business is to double the cards in force. We expect repaid revenues to grow to approximately 1% of the total Company revenue this year.

Our operating margin outlook calls for expansion in 2011. We anticipate revenue growth and savings from restructuring and productivity initiatives to more than offset investments in the business. We believe we are investing appropriately to drive future growth both from strategic initiatives such as electronic channels, prepaid and business-to-business payments, as well as our core retail money transfer business.

Finally, we plan to continue in 2011 with strong cash flow generation and meaningful return to capital to our shareholders. We anticipate generating $1.2 billion to $1.3 billion of cash flow from operating activities this year.

During 2010, we returned $750 million to shareholders through buyback and dividends, and we will be active in 2011. Today, we are announcing a new $1 billion of share repurchase authorization and in December, our board increased the quarterly dividend by 70% to $0.07 per share. As I have mentioned in the past, I believe we have the right strategies in place and our successes will depend largely on execution. Our strategic priorities of growing retail channels, expanding electronic channels, developing our product portfolio, and improving process and productivity presents us many opportunities.

Our priority to grow retail channel is driven by positive long-term demographic trends that should support migrant flows and remittance growth over time. The need for cash in much of the developed world is still critical. We believe we can gain share through expanding our network, marketing our brand, and complementing our physical network with electronic channels. We now have almost 60 million loyalty cards, and in 2011, we plan to increase our retail network by another 30,000 to 40,000 agent locations.

Our second strategic priority is expanding electronic channels. There are many emerging competitors in electronic channels, but none can match the combination we offer with our agent network, brand compliance capabilities and scale. Our development of WesternUnion.com, account-based money transfer through banks and mobile money transfer not only allows us to offer more choice to consumers but also reach new consumers who already utilize account-based methods.

Our third strategic priority is developing our product portfolio. We can utilize our agent network, brand and consumer business relationships to enter new areas. With prepaid cards, we are offering an additional service to new and existing consumers in a fast growing global market. With Western Union Business Solutions, we are entering a large fragmented market by serving the underserved, in this case small and medium-size enterprises that have cross-border payment needs.

Our final priority is to improve process and productivity. We believe there are many opportunities to create a faster moving, more efficient organization that can generate long-term margin expansion.

The restructuring activities we have undertaken to drive efficiencies are one example. I am committed to driving continuous improvement. So, we are confident in our strategies. With the improvement in our business in the fourth quarter, the many new agreements in place, and the advances we are making in our initiatives, we believe we are well-positioned to drive execution and growth.

Now, to give you a more detailed review of the financial results for the fourth quarter and the 2011 outlook, I would like to turn the call over to Scott.

Thank you.

As I review 2010 revenue results, I will primarily focus on the fourth quarter. The similar information for the full year can be found in our press release and the attached financial schedules.

Overall for the quarter, we reported consolidated revenue growth of 3%, or 5% on a constant currency basis. Total Western Union transaction fee revenue represented 70% of total company revenue for the quarter and increased 2% from the prior year. Foreign exchange revenue represented 20% of total company revenue and increased 7% from the prior year. Our Consumer-to-Consumer segment revenue growth rate accelerated from prior quarters, posting an increase of 3%, or 5% on a constant currency basis. Each region contributed to improved trends, although currency translation continued to negatively affect Europe.

Transaction growth in our C2C segment for the quarter was 9%. Trends in the international C2C business improved from the third quarter as revenue grew 3% or 5% on a constant currency basis on transaction growth of 8%. The company's C2C cross-border principal increased 6% in the quarter, or 7% on a constant currency basis. C2C principal per transaction decreased 3% year-over-year, or declined 1% on a constant currency basis.

Turning to our regions, our C2C business in the Europe, Middle East, Africa, and South Asia region grew transactions at 6%, up from the 5% growth in the third quarter. Revenue declined 1% and was again negatively impacted by currency translation.

On a constant currency basis, EMEASA revenue increased in the quarter. Large markets such as the UK, Germany and Russia continue to deliver solid constant currency revenue growth, but the real change came from some improvements in areas that were challenged the last few quarters, such as the Gulf states. After a couple of quarters of declines, the Gulf states returned to transaction and revenue growth in the fourth quarter. India also contributed to the quarterly improvement with transaction growth of 6% and a revenue increase of 8%.

As we announced at the end of the year, we have agreed to acquire the remaining 70% interest in one of our leading super agents in Europe, Angelo Costa. This acquisition will allow us to more directly access our network locations and be closer to our consumers as well as more quickly introduce new products and services such as prepaid cards.

From a cost standpoint, we will be able to optimize commission levels, and as a result of combining Angelo Costa with the business we acquired through the FEXCO acquisition in 2009, we expect to realize efficiencies and economies of scale over time.

For the full year, the EMEASA operating margin was 28% and increased 10 basis points from 2009.

Turning to the Americas region, the US domestic repositioning helped drive improved revenue growth in the quarter. Overall, the Americas region delivered a revenue increase of 7% on transaction growth of 11%. Domestic money transfer delivered a strong 7% revenue growth in the quarter as we reach the anniversary of last year's repositioning.

Domestic transaction growth continued as well, with an increase of 29% in the quarter. We believe the repositioning has been driving new business to our network and we expect continued revenue growth in 2011.

Elsewhere in the region, Mexico transactions and revenue each grew 3% in the quarter, and the US outbound business continued to perform well. For the year, the Americas operating margin was 28%, a 200 basis point increase from 2009.

The Asia-Pacific region continued its strong performance with growth of 14% in both transactions and revenue in the quarter. Many countries across Asia-Pacific are performing well, including the Philippines and Australia. We are also off to a good start in developing our business in Japan. In China, transactions grew 7% and revenue increased 6%. The Asia-Pacific operating margin for 2010 was 29% and increased 210 basis points from 2009.

For the overall C2C business, the spread between transaction and revenue growth in the quarter was 4 percentage points, excluding the impact of currency, which had a negative 2 point impact. The spread narrowed from previous quarters, primarily due to the anniversary of the changes -- the price changes in domestic money transfer.

If you recall, we initially repositioned the business at the beginning of the fourth quarter in 2009, and with the $50 for $5 segment enacted in mid-November of that year. The pricing impact on the spread in the fourth quarter was only 2% due to the anniversary of the domestic changes. Full-year C2C pricing impact was 4%. This year, we'll adjust our pricing reporting to more precisely differentiate pricing and mix using prior-year transaction volumes as the basis for the pricing calculation rather than current-year transaction volumes. Under the new definition, our pricing impact in 2009 would have been 3%. In 2011, we expect pricing reductions to be approximately 2% to 3%.

Moving to Global Business Payments segment, overall revenue was flat. The Bill Payment business decline moderated slightly with a decrease of 5%, again due to the US market. Western Union Business Solutions revenues were $30 million in the quarter, up from $23 million in 2009.

In the US Bill Payment business, we continue to roll out our new walk-in bill payment platform. The new enhanced service will simplify branding and product positioning, improve the consumer experience, and give us the flexibility to implement more dynamic pricing models for the Bill Payment business.

Before we move on to margins, I want to give a brief update on our progress in metrics and electronic channels and prepaid. In the fourth quarter, our WesternUnion.com transactions in international markets increased 50%. Including the US, globally, WesternUnion.com increased transactions by over 20%. We added three new country transaction sites in the quarter, raising our total to 20 countries around the world.

Account-based money transfer transactions, which includes cash-to-accounts and account-to-cash through banks, increased over 40% in the quarter. We now have 40 banks that have agreed to offer this service.

In Mobile Money Transfer, we have 12 agreements in place with mobile network operators and banks, and we have also enabled over 80,000 of our agent locations in 48 countries to be able to provide cash to mobile service. In total, electronic channels represented 2% of total company revenues for both the quarter and the year.

In prepaid, we increased our cards in force in the US to 890,000 with retail distribution at nearly 9500 locations. For the year, over $350 million of principal was loaded onto the Western Union prepaid cards through 1.5 million loads. Our prepaid revenue in 2010 was not material and mainly driven by third-party top-up.

In 2011, we should start to see the early results of the CCH tax refund card offering as well as benefit from the income distribution. Internationally, our prepaid group has been working with multiple country teams around the world to prepare for prepaid launches.

Turning to margins, fourth-quarter consolidated GAAP operating margin was 24%. Excluding restructuring charges, the consolidated operating margin was 25%. The fourth-quarter operating margin, excluding restructuring charges, improved approximately 30 basis points from the same period last year. Excluding restructuring, the operating margin declined relative to the third quarter of 2010 due to planned increases in marketing and investment spending, as we discussed in the third-quarter call.

We recorded $11 million of restructuring charges in the quarter related to our May 27 announcement. Approximately $1 million of the charge is included in cost of services and $10 million is in SG&A. These charges are not included in our segment operating results.

Our full-year 2010 GAAP operating margin was 25%, or 26% excluding the restructuring charges. Full-year operating income margins, excluding 2010 restructuring charges and the 2009 settlement accrual, declined approximately 40 basis points compared to last year. Increased investment and acquisition amortization were the main drivers, partially offset by lower marketing spending and operating efficiencies.

For the year, we recorded $60 million in restructuring charges with $15 million in cost of services and $45 million in SG&A. In December this year, we received the final settlement of our claim with the Reserve International Liquidity Fund. We received a cash payment of $37 million, which resulted in a $6 million benefit in the Other Income expense line in the fourth quarter.

The fourth-quarter tax rate benefited from favorable cumulative adjustments. Consequently, we reported a tax rate of 16% for the quarter and 21% for the year, which compared to 25% for the 2009 full year. The 2010 full-year tax rate was favorably impacted by an increasing proportion of profits being foreign-derived, the cumulative positive tax benefit of previous foreign acquisitions and tax planning, and IRS settlements relating to prior years.

Earnings per share in the fourth quarter were $0.37, or $0.38 excluding restructuring charges. On a constant currency basis, EPS was also $0.38, excluding restructuring. This compares to GAAP EPS of $0.32 in the fourth quarter of last year.

Our C2C segment operating margin in the fourth quarter was 27%, an increase of 130 basis points over the same period last year. The full-year C2C operating margin was 28% which represented 110 basis point improvement over 2009. The fourth-quarter margin improvement was driven by revenue growth and lower marketing spending, while the full-year improvement was primarily due to lower marketing spending.

Global Business Payments operating margin was 13% in the fourth quarter, which compared to 20% in the fourth quarter of 2009. The margin declined compared to last year primarily due to the revenue declines and mix shifts in US Bill Payments, as well as higher investment in Western Union Business Solutions, which was formerly Custom House. Margin declines compared to the third quarter relate primarily to the Bill Payment revenue and mix changes. Excluding Business Solutions, operating margin was 21% in the fourth quarter of 2010, which compared to 26% in the prior year.

For the full year, Global Business Payments operating margins were 17%. As expected, Western Union Business Solutions contributed an operating loss due to integration expenses, intangibles, or amortization, and investment spending for future growth. We expect this business to be non-dilutive in 2011. Excluding Business Solutions, full-year operating margins were 24%, which compared to 27% in 2009, and were negatively impacted by the decline in the US Bill Payment revenue and mix of business.

Moving to our cash flow and balance sheet, our financial position remains strong. In 2010, cash flow from operations was $994 million and included the impact of the $250 million refundable tax deposit that we made with the IRS in the first quarter.

Capital expenditures were $114 million for the year and $26 million in the fourth quarter. At year-end, the Company had total debt of $3.3 billion and cash of $2.2 billion of which approximately $1.3 billion was outside the United States.

During 2010, we spent $584 million to repurchase nearly 36 million shares, or 5% of the total shares outstanding, at an average price of $16.44. In the fourth quarter, we repurchased 4 million shares at an average price of $18.15 per share, for a total of $70 million. As of December 31, we had $416 million remaining under the previous stock repurchase authorization, which is incremental to the $1 billion authorization that was announced today. Both authorizations expire on December 31, 2012.

In December, we also raised our quarterly dividend by 17% to $0.07 per share. During 2010, we paid a total of $165 million in dividends.

Turning to our full-year 2011 outlook, we expect the momentum we realized in the fourth quarter to continue. We would characterize the overall economic environment as stable with economic challenges in some parts of the world and continued high unemployment levels. We anticipate modest improvement in the global remittance market.

Our outlook projects stronger Consumer-to-Consumer revenue growth, moderating Bill Payment declines, and midteens revenue growth from Western Union Business Solutions. Electronic channels are projected to grow to 3% of total Company revenue, and Prepaid, including third-party top-up, is expected to reach approximately 1% of revenue.

Overall, we expect constant currency revenue growth of 3% of 4% for the year. Based on recent exchange rates, we expect GAAP revenue to be similar to constant currency.

Operating income margins are projected to expand in 2011 to approximately 27%, excluding restructuring charges, which compares to 26% in 2010. From a GAAP standpoint, we project operating margins of approximately 26% compared to 25% in 2010. Revenue leverage, restructuring savings, and other operating efficiencies are expected to more than offset investments in strategic initiatives and fixed cost inflation.

As our strategic initiatives become more combined with our other businesses, we will no longer plan to break out specific investment dollars, but as a frame of reference, we are increasing investment spending compared to 2010. We are projecting 2011 marketing expense as a percentage of revenue to be similar to 2010 levels at around 4%. We anticipate recording approximately $50 million of pretax restructuring charges in 2011, which represents an impact on GAAP EPS of $0.06.

As you recall, in May of last year, we announced a multi-phased global initiative to simplify business processes with decision-making closer to the marketplace and leverage our cost structure. At that time, we anticipated recording approximately $80 million of restructuring charges over 18 months, and in 2010, we recorded $60 million of these charges. After further analysis of our organization design opportunities, we are now expecting the total charges and related savings to be higher than originally projected. Our 2011 outlook includes anticipated pretax savings from restructuring actions of approximately $50 million, which compares to $8 million of total savings achieved in 2010. Beginning in 2012, we now expect annualized savings of $70 million from the restructuring initiatives.

Currency is expected to negatively impact 2011 earnings per share by approximately $0.02 due to differences in foreign exchange head rates in 2011 compared to 2010. To give you an idea of sensitivity to future foreign exchange rate movements, based on our current hedge position, a 5% move in the European currencies would impact revenue by approximately $55 million and pretax operating income by around $7 million on a full-year basis.

Our outlook also includes a net $0.01 benefit to EPS from the Angelo Costa acquisition, which is expected to close in the first half of the year. The acquisition impact is a result of a gain anticipated to be recorded on Western Union's previous 30% equity ownership position in Angelo Costa, partially offset by slight dilution from integration costs.

We anticipate our tax rate to be higher in 2011 as we had various benefits in 2010 from cumulative adjustments and favorable resolutions. We currently project our GAAP tax rate at approximately 24% to 25% for 2011 versus 21% in 2010, which results in a negative impact to EPS of $0.06 to $0.08 in 2011 compared to 2010. We believe future-year tax rates should continue to benefit from an increasing proportion of profits being derived outside the US.

Finally, we expect capital expenditures to continue to be around 2% to 3% of revenue. Given all of these factors, our outlook for 2011 is constant currency revenue growth in a range of 3% to 4%; GAAP revenue growth similar to constant currency; GAAP operating margin expansion to approximately 26% in 2011 compared to 25% in 2010; operating margin expansion to approximately 27% in 2011, excluding restructuring charges, compared to 26% in 2010; GAAP EPS of $1.41 to $1.46, including $0.06 of restructuring charges; EPS of $1.47 to $1.52, excluding restructuring charges; and GAAP cash flows from operating activities of $1.2 billion to $1.3 billion.

In summary, we're pleased with the improving trends in our business and the progress we are making on our strategic priorities. We finished 2010 on a positive note, and our 2011 outlook balances growth, margin expansion, and strong capital deployment for shareholders with appropriate investments for the future.

I would now like to turn the call back to Mike for Q&A.

Once again, in order to maximize the number of people we can get on the call and still finish within an hour, we would ask you to limit yourself to one question per person. Melanie, we are ready for the first question.

Adam Frisch, Morgan Stanley.

Thanks guys, and nice job. I wanted to focus on C2C for a second and the operating margin that you guys are targeting for C2C in 2011, and also provide some detail on the contributions from revenue growth and what went into those assumptions. I know it's about 84% or so of total rev. So your guidance there is kind of in line with consensus. Just want to see what your assumptions were there to gauge how conservative that may prove, and then the expense reduction as well. Thank you.

Sure. Good afternoon. This is Scott. We're pleased with the C2C business. As you mentioned, it's about 85% of our work revenue, and in 2011, we expect our margins to expand consolidated from -- roughly by a little bit less than 100 basis points, excluding the restructuring charges. A fair amount of that will come from the C2C business. We expect the revenue to grow quicker in 2011 than 2010 in the C2C business. We see strengths in various pockets around the globe, some challenges in some other areas, but overall we expect both the margin for the Company and the margin for C2C to expand in 2011.

Tien-Tsin Huang, JPMorgan.

Hi, thanks. Glad to see the margin expansion. I'll ask about revenue. I was curious about the Gulf states or the Middle East. Given all of the turmoil there in Egypt, can you share with us your revenue exposure to Egypt and what your 2001 outlook assumes and if it contemplates a pretty bad case in the region if that plays out?

We are, as everybody (inaudible) we are also worried what happens in the Middle East. But if you look at our portfolio in 200 countries, in none of the countries that are outside the US we are bigger than 6% of our revenue. No country is bigger than that. Particularly in Egypt, it's less than 1% of our revenue. So being in 200 countries and territories gives us the opportunity to have the right balance against the [risks] and opportunities. We are of course watching the Middle East very carefully currently, but our transaction -- we are pleased with our transaction growth in Q4 within the Gulf states. We see slight improvements there, and that has also impacted the South Asia corridor. So currently we are watching Egypt, as I said, and we are -- it's, as I said, it's less than 1% of our revenues, so that's the case currently.

Bryan Keane, Credit Suisse.

Good afternoon. I guess my question is on constant currency revenue growth. For the quarter, I think it was 5%, but you guys are guiding to 3% to 4% for the year. Is that just you guys being conservative? If I can sneak in a second one, just on Bill Payment margins, obviously that still seems to be impacted. What's the outlook there to rightsizing that business to fix the Bill Payment margins? Thanks so much.

Maybe I'll start. Scott, you'll take it (multiple speakers). If you look at our business in 2010, we had a good quarter in 2010 fourth quarter. But overall, ex constant currency, ex Custom House, we had a 1% revenue growth and coming to 3% to 4% overall 2011 revenue growth I believe is a good revenue growth. We are quite confident that we have forecasted good revenue growth here. The transactions are coming, so we are cautiously optimistic on the economical environment, but I believe that 3% to 4% for 2011 is a good revenue growth. Do you want to add something Scott?

I would just comment to the second part of your question on the Global Business Payments segment. Things that will be helpful to improve those margins as we move into 2011 is that the Business Solutions, which was formerly Custom House business, we expect the revenue to grow in midteens. We're going to see nice topline growth there and that business will no longer be dilutive. So that will be helpful to the margin profile.

In addition, the US Bill Payment business, we expect the revenue declines to moderate, and then we've got a number of process improvement or productivity initiatives, so our objective with the Global Business Payments is to really, if you will, stabilize those margins and really look toward slightly improving those margins compared to the fourth-quarter levels as we move forward. But we are very focused. Hikmet, I, and the team are very focused on that business and making improvements to that segment, in particular the US Bill Payment business.

James Kissane, BAML.

Scott, can you review the change in the pricing definition, and maybe give us a little more color on pricing across the different corridors? Should we assume pricing is flat in the United States in 2011? Thanks.

Sure. Pricing, as we think about forward-looking, we are somewhere in that range of 2% to 3%. If I compare that back to 2010, clearly one of the bigger pricing actions we did was with domestic money transfer, really if you will drove that pricing impact to 4%. But we are really pleased with that because we've got 7% revenue growth in the fourth quarter, and that's a business that's got 30%-plus margins.

As we thought about how to best articulate and communicate pricing with our investors, we think one of the key things is a better measurement as we look forward is to really take any change in revenue per transaction because of pricing and really compare that to the prior-year volumes compared to the current year volumes just to better offset or better balance what the pricing impact is in the mix.

But as we look forward in 2011, we do think the pricing will be in the range of 2% to 3%, a little bit less than we saw in 2010. Then in the US, we think we are well positioned there. Never say never, but don't contemplate any pricing changes there of any significance. Then we do manage 16,000 corridors, so we will look corridor by corridor. As it make sense, we may make some pricing adjustments all in the effort to drive long-term revenue growth and market share.

Darrin Peller, Barclays Capital.

Thanks guys. Congrats on a good quarter. But a quick question on some of the emerging payments trends. On prepaid debit cards first, you reached 890,000 by year-end, and I think you talked about 1% of revenue being from prepaid. So what kind of growth in cards is that in '11? What is the expected margin on that? Then also, around the mobile money transfer side, your discussions have been more around a lot of the international operations and some successes there. Have you been in any discussions around the US mobile money launching platforms that we've heard discussed?

Let me start with the prepaid side and then a little bit on the mobile. On the prepaid side, we are -- it's in early stages. We are pretty pleased with our expansion on that 890,000 cards in force. We have 9,600 active locations that are selling. We did direct marketing on that also [to issue] new cards. We recently signed an [income] agreement with [an income] which gives us the capability to expand the number of locations to sell the cards. It will take some time to expand.

We are looking also on the expansion out of the US I believe that is a huge opportunity also given our brand, global brand, global network, agent relationship. We believe that we have also learnings from the US can expand and launch new countries. But it will take some time on that part. We believe that, with the top-up, we assume that about additional 1%, incremental 1% of the revenue will come from the prepaid.

On the mobile side, it's really also long-term opportunity as an emerging part of our business. But we have about I will say 80,000 locations, Scott, activated --

Yes.

80,000 locations activated globally to send money from 48 countries. (inaudible) we have agreements with 14 mobile operators. I think we are very well positioned here also.

The big advantage we have despite the others is that we have one brand, one global network, which connects the dots and we have the cash availability to pay in in 450,000 locations and pay out in 450,000 locations. So I think we are very well-positioned to give that. We also look of course also for the possibility to expand our mobile opportunities on the US.

David Togut, Evercore Partners.

Thank you. Based on your cash flow forecast and 2% to 3% of revenue being CapEx and dividends is somewhere about $188 million, it looks like you'll have free cash flow somewhere between $862 million and $1.01 billion. So what do you intend to do with all that cash?

A couple things, first is to invest in the business. As you summarized, CapEx will be $100 million, $150 million. Our second priority is to really invest in the business through mergers and acquisitions. We announced the Angelo Costa deal about a month ago. That will be a good use of our international cash. All the time, we are looking at other things out there, so we want to look to acquire companies. But it's got to fit well with our strategy, and it has to have the right cash-on-cash economic return. Then from there, really returning cash to our shareholders. As we announced today another $1 billion stock buyback, so we've got about $1.4 billion through the end of 2012. Back in December, we moved to a more balanced payout on our dividend. Our board increased that by 17%. And so as we look forward, we will prioritize our cash that way.

Probably one important thing to remind everyone too is that about half of our cash flows are US, about half of our cash flows are international. So we'll prioritize those, as we need to, to move forward. But we are in the fortunate position of generating $1.2 billion to $1.3 billion of cash, and this will really allow us to drive and execute our strategies and return capital to shareholders.

Maybe just adding on that, David, is also our M&A [strategy, or] using the cash flow, M&A is aligned with our strategy. I mean, as you heard recently from the Costa acquisition, it's supporting our core business, but we are also looking on the emerging side, the emerging new opportunities on the M&A side. So I think we have the fortunate position to have the cash to be active on the market also, but it has to be aligned, as Scott said, with our business initiative and it has to be close to our business.

Julio Quinteros, Goldman Sachs.

Thanks guys. I just wanted to circle back on the target margins for the Global Business Payments. So, when you talked a lot about the initiatives and the things that you're doing to try and sort out the improvements in the Global Business segment, but when it's all said and done, from the 13% level or so that we are looking at coming out of this quarter, where do you guys actually expect that margin to sort of shake out? What levels do you think it can actually get back to as we go forward from here? Thanks.

For sure we expect it to be much better than the 13% that we reported in the fourth quarter. Custom House not being dilutive will be helpful as we implement our productivity initiatives, but those will be helpful. So I would say we are very focused on that business, getting the revenue to go north, improving those margins. But I would say, just going back to the overall consolidated business of portfolio of products and services and channels, that we want to improve the margins by a little bit less than 100 basis points in 2011. So it will be a combination of all those things, both the US Bill Payment and the C2C business, to drive that margin expansion, but at the same time making sure we've got the right investments in the business.

Kartik Mehta, Northcoast Research.

Good afternoon. In the past, you've talked about PSD having a positive impact on revenue growth. I'm wondering if you could discuss maybe what impact you anticipate it having on 2011, and if it hasn't yet, when you might expect that impact to continue. Just to follow on to Europe, maybe where in Europe you might be seeing pricing pressure as transactions grew faster than obviously revenue.

First of all, let me start with the PSD part. I think we are pleased, the team and I am pleased with the development of the PSD sector. We have about activated 2000 locations in Europe with the PSD. A good thing also is that half of that is about independent locations like [ethnic] locations. We in the past had limited access in Europe with that. So that gives us opportunity. We still target 1% incremental revenue coming in 2011 by PSD initiatives to incremental to our total revenue generated by the PSD. So we are pretty well underway on the PSD. We have a kind of list to activate. We signed some agreements to activate the location. It takes some time to activate the locations. As you can recall, there are some big retailers, there are some big service chains to activate them to get to -- or connect them and activate their point-of-sale can take some time. On the -- second question was --?

On your second question, the transaction revenue spread within Europe and so forth. One thing I would point out is that the euro currency continues to negatively impact revenue out of Europe. So if you exclude the impact of currency, the revenue growth in Europe in that division was actually positive in the fourth quarter.

Ashwin Shirvaikar, Citigroup.

So my question is on margin improvement for 2011. Is it possible to break out the impact of scale versus restructuring versus other things that you're doing on the margins?

Then a second question is how much of the buyback is assumed in guidance? Should we sort of do it ratably and say $700 million per year?

Yes, I think we're very focused on margin expense, as I mentioned that about a few months ago at our investors relationship meeting we had in New York. Our priorities are process and productivity. What [we put is] kind of a strategic process and productivity priority here. We have a method how we go after the margin expansion, and optimizing our processes and very focused on productivity. Besides that, I believe also we have the right tools on the market, we have the right agent agreement, which helps our margin expansion. (multiple speakers)

What I would add on the margin expansion, I won't necessarily break out the specifics, but it is driven from a combination of several things, which is good, which means it's diverse. But revenue growth will be helpful. We will continue to optimize our commissions, as Hikmet mentioned, improvements in process and productivity. Somewhat offsetting that are some investments in the business that are important for the long-term growth and health of the business.

On the stock buyback, yes, our outlook does assume some level of stock buyback. I don't necessarily have a specific target I want to share, and the reason is it's important to have flexibility. As the year goes by, we will prioritize our cash flows accordingly to have the best return to our investors of how we invest or utilize those cash flows. But I will say that we plan to be active. We were active in 2010. We bought back nearly $600 million of stock, and we have a $1.4 billion authorization for roughly the next two years.

Craig Maurer, CLSA.

Good evening. If we go back, and I know it seems like forever ago, but before the recession, there was discussion -- you guys had discussed global price stabilization. I was wondering if you think there is a chance we might see that again over the next few years, or are we in a terminal price decline of 2% to 3% per year basically for the foreseeable future?

If we look at your business with the global expansion, we are reaching about 16,000 corridors. We are in 200 countries, and we are really managing our pricing based on the voice of the customers. We have 16,000 corridors; we have 200 countries. We have within the corridors we have different brands, which we managed the pricing. So I think the 2% to 3% of pricing decline was (inaudible) where we forecast for 2011, and the biggest price investment we had was last year in the US with our [DMT] turnaround. As you know that it has been a very successful action here and promotion that we gained -- not only turned around the business, but we also gained new customers with our $5 for $50 [tracking new brand].

So I think we see the pricing investments more from a promotional marketing idea and to getting new customers, winning on the corridors. If you look at our strategy, obviously the customers are reacting pretty well. We are gaining market share. We believe that we gained again market share in 2010, and we expand our business. So on the pricing, I would say that's our strategy and it works pretty well.

James Friedman, Susquehanna.

Thank you. I wanted to ask about -- as we try and project your margins in 2011 and potentially beyond, I wanted to ask what was new in your commentary regarding the savings. I know you said $8 million in 2010, $50 million in 2011. I don't recall what you had said previously, if anything, about 2012. Is that $70 million a new number as we try and project your margins going forward?

Yes, that is a new number. Our prior communication was we expected roughly about $50 million in 2012. In the last month or so, we've identified some additional opportunities to streamline the organization, further leverage our global operating centers. Because of that, we now expect about $70 million of savings in 2012, up from the $50 million that we talked about about 90 days ago.

(Operator Instructions). Chris Mammone, Deutsche Bank.

Thanks. So it looks like, normalizing for the tax issue in 2010, that your cash flow guidance is flat for 2011. So I'm just wondering if you could provide -- sort of bridge that out for us and just provide sort of like the puts and takes to get from '10 to '11.

Then as a follow-up just back to the Egypt issue. I think the Gulf states in general was enough, was big enough for you to call it out as a detriment to 2010 guidance. I'm just wondering, as we look at that region in general, if unrest in Egypt sort of spreads region-wide, would that be enough to cause the 2011 revenue outlook to be at risk?

Let me first start on the cash flow. For 2011, we are estimating $1.2 billion to $1.3 billion. Again, that's a range as we look forward. We think the topline revenue growth of 3% to 4% will be helpful with that. There may be some changes in working capital, so overall we feel good about $1.2 billion to $1.3 billion. We'll see where that goes as the year progresses, but we think that's very solid, very steady, very consistent from that standpoint.

On the Gulf states and potential challenges there, it's hard to predict the future for sure. As Hikmet mentioned, Egypt is less than 1% of our revenue. The Gulf states in general, we saw improvement in the fourth quarter versus the first three quarters of the year. We could also say, as part of our 2011 outlook, we've got very moderate expectations for the Gulf states. We'll have to see how all that plays out. But the beauty of our business model is being in 200 countries. There is no one country outside the US with more than 6% of our revenue, so diversification is very helpful being in 200 countries.

Tim Willi, Wells Fargo.

Thanks and good afternoon. I was wondering if you could talk a bit about the M&A environment. You made a comment that seems to indicate it's a little bit more of a priority than maybe I would've thought, versus prior quarters' commentary. Is it most likely still to be in money transfer related entities, or do you see more and more opportunities to do things around mobile or prepaid, some international platforms that may be for sale, those kinds of sort of electronic channel opportunities, or would it, again, just be back to sort of the traditional super-agent or money transfer-based properties?

If you look at our M&A strategy, which is aligned with our general strategy, if you look at that, as I outlined at our investors day and several times in the past, I think we look at our -- with our cash flow what we have, we look at in the market exactly the things what we are focused on. Is it in the core business? Is it in electronic channels? Is it in the prepaid structure? The beauty of our business is generating a lot of cash, and with that we also have the opportunity to be active in the M&A target. So I think we will continue to look at our -- adapting our list and we continue to look at the market.

Bob Napoli, Piper Jaffray.

Greg Smith, Duncan Williams.

My questions were answered. Thank you.

David Parker, Lazard Capital Markets.

Yes, thank you. Good afternoon. I was hoping you could talk about maybe the regulatory environment. Are you -- is there anything that you are paying close attention to, both domestically and internationally? Then also just specifically address the formation of the Consumer Financial Protection Bureau in the US, and do you anticipate any new regulation in your core remittance business or in your prepaid business from that entity? Thanks.

As you know, we are operating in a very regulated environment. Obviously, we're watching every -- in every country, 200 countries and territories where we are active, we're watching the regulatory environment very close. So we have experience here, how we operate. I might think we are very well positioned to respond to the regulatory needs.

One of the things which is coming constantly the questions [and especially also] in the US is the consumer side how transparent we are. We believe that we are way -- how we operate is very transparent. You know that we have this [fix on sent] money transfer that we inform the sender immediately how much he has to pay, what -- so we are very transparent of the fees and on the FX. So the sender can call also the receiver talking about the fees and the FX rate. So from that side, we are I believe very well-positioned to respond to the questions and to the needs of the regulatory environment.

It's just about the bottom of the hour, so we're going to close the call. I want to thank everybody for joining us today. There is a replay of the call available. The call-in information is on our press release, is on our website as well. So again, thanks for joining us. Have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the presentation. You may disconnect. Have a wonderful day.