西聯匯款 (WU) 2012 Q4 法說會逐字稿

Good afternoon and welcome to the Western Union fourth-quarter 2012 earnings conference call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Mike Salop, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Laurie, and good afternoon, everyone.

Today's call Hikmet Ersek, Western Union's President and Chief Executive Officer; and Scott Scheirman, EVP and Chief Financial Officer, will discuss 2012 fourth quarter and full-year results and the Company's outlook for 2013. Following their remarks, we will open the call for questions. 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 supplemental tables with our press release.

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 2011 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

During the call we will discuss some items that do not conform to Generally Accepted Accounting Principles. We have reconciled those items to the most comparable GAAP measures on our website westernunion.com under the investor relations section. All statements made by Western Union Officers on this call are the property of the Western Union Company and subject to copyright protection. Other than the replay noted in our press release, 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 Hikmet Ersek.

Thank you, Mike, and good afternoon, everyone.

Today we announced financial results for the fourth quarter and full year 2012 which were largely consistent with the outlook we provided in late October. Scott will give you a more detailed review of the results later on the call, but I would like to spend a few minutes recapping 2012 and discussing our priorities for 2013 and beyond.

Overall, the business delivered a third consecutive year of constant currency revenue growth. Despite challenges from compliance related changes affecting Mexico and Latin America, economic softness in Europe, and competitive pressures in some parts of Consumer Money Transfer business. Our Digital and Electronic Account-based Money Transfer business grew rapidly, and we continue to see our online channel attract new customers. For the year, electronic channel revenue increased 27% and now represents 4% of total Company revenue. Although Western Union Business Solutions revenue growth was not as strong as planned, we made good progress integrating the Travelex acquisition and further expanding our product offerings and geographic reach.

One of the great aspects of our business model is generating strong cash flow. In 2012, we continued this trend and cash from operating activities reached approximately $1.2 billion last year. Over the course of 2012, more than $1 billion was returned to shareholders through a combination of stock buyback and dividends.

Moving to 2013, our strategies are focused on three key initiatives, strengthening our consumer money transfer business, driving growth of customers and end usage of Western Union Business Solutions and generating and deploying strong cash flow for our shareholders. Consumer money transfer remains a great business to be in. The remittance market is growing and we are a market leader with strong assets. As we discussed at the end of last year, we have faced competitive pressures and some regulatory related changes in some corridors and we are implementing key actions to address them. We believe we have the right plans in place to regain momentum and we are keenly focused on executing these plans.

Our planned actions include improving the consumer value proposition including pricing, investments in key corridors, continuing to expand our digital and account-based electronic channels and further expanding our agent network. We will also continue to upgrade our anti-money laundering and compliance capabilities. We are committed to be the best-in-class programs in these areas and we are now spending over $100 million a year on these programs.

For the pricing investments, we accept -- we expect to invest approximately 5% of total Company revenue into pricing in 2013 to address challenges in certain corridors. The majority of this pricing will be in some key markets and actions will cover corridors representing approximately 25% of our Consumer-to-Consumer business based on revenues.

Our brand value commands a premium price in most corridors and our brand stands for trust, speed, reliability and convenience. We will continue to market our brand, enhance services, deepen customer relationships and expand convenience through more choice. However, we also want to strike the right balance with price to achieve an attractive consumer value proposition in each market and that is the ultimate goal of the pricing investments. Based on our experience with similar actions over the last several years, we believe that pricing investments will result in a declining Consumer-to-Consumer revenues in 2013 but lead to revenue growth in the following years due to anticipated increases in consumer usage and loyalty.

In late November and early December, we launched about 50% of the planned pricing investments. So we have limited reads on that the data at this point. However, let me share with you some early good news in some of the corridors. For example, we implemented pricing for the Western Union brand from the US to Mexico and we have seen the expected transaction lift. We are seeing brand transaction growth for Mexico increase mid-single digits in December compared to a slight decline in the market according to the Banco de Mexico. This is an early indication that our pricing investments are working.

We have also seen respectable increases in transactions in the westernunion.com business and we have seen nice transaction growth in the France to Africa corridor. While early results from some of the US to Latin American corridors have not seemed as strong yet, we are still in the process of driving awareness in this market.

Let me say once again, it is very early in this process with our pricing investments, but so far so good. Overall, for the portfolio of corridors we have been taking pricing actions, we are seeing the transaction lift we expected, but many of the actions are yet to be rolled out or fully marketed. In addition to improving the consumer value proposition, we also remain focused on further developing electronic channels as we continue to expand our efforts to connect the cash and digital worlds for our consumers.

Both westernunion.com and electronic account-based money transfer through banks are growing fast and we are capitalizing on these fast-growing channels of opportunities. We plan to add capabilities such as direct to bank delivery and more mobile access and further our reach to acquire even more consumers. Westernunion.com money transfer transactions grew over 40% in 2012 and we believe we will see significantly higher transaction growth in 2013.

Revenue exceeded $150 million last year and we remain on track to meet our $500 million digital goal for 2015. Transactions for electronic account-based money transfer through banks increased over 50% in 2012, and we are focused on expanding this service to more banks in 2013 as we believe these electronic channels also represents strong incremental opportunity. We plan to continue to increase our agent location network with a particular focus this year on strategic areas such as rebuilding the Mexico and Russia networks and further expanding in Europe and Asia.

We are also expanding our alternative distribution channels. Approximately 100,000 ATMs globally have the Western Union money transfer capability today. As we take the steps to strengthen our value proposition in key corridors, attract new customers to a digital and account-based channel expansion, and other initiatives and further grow our network, I am confident we will see a rapid transformation in 2013 and return the consumer money transfer business to growth in 2014 and '15.

Our second strategic initiatives for 2013 involves driving growth in customers and usage in Western Union Business Solutions. We continue to believe Business-to- Business payments offer a long-term opportunity for Western Union. Global trade is expected to grow at attractive rates over the long term and Western Union Business Solutions offers strong platforms, services and customized solutions for small businesses and other customers at competitive rates.

All the slowdowns in trade and normal integration challenges impacted the Western Union Business Solutions revenue growth in 2012. We made strategic progress that should support our growth in the future. We expanded our presence to 30 countries, realigned and refocused our sales organization and incentives and laid the groundwork to increase our product offerings.

Our B2B sales organization focus will have more specialization on product and customer segments, and sales and incentives have been better aligned to drive performance. Product offerings are being expanded as we will introduce options and forward products in additional countries, provide specialized payment services for nonprofit organizations and focus on developing export-driven models, as well. We believe new customer acquisition and additional usage will drive stronger revenue growth in Business Solutions as we progress through 2013 and we should see additional benefit and stronger growth over the long term as global trade returns to better levels.

Finally, the third key initiative we are focused on 2013 is to continue to generate strong cash flow and deploy it for our shareholders. We anticipate cash flow from operating activities of approximately $900 million in 2013, or approximately $1 billion excluding IRS agreement tax payments, and we do not anticipate any significant acquisition activity. We expect to return approximately $700 million to shareholders in 2013. This includes approximately $400 million of share repurchases and around $300 million of dividends. Based on recent stock price levels these actions combined would represent returning approximately 8% of our market capitalization to shareholders.

To summarize, we are seeing the foundation is strong. With a valued brand, a global network, worldwide operation and expertise and robust cash flow. The balance sheet is healthy and even in this 2013 transition year, the Company should generate over $1 billion of operating income. We are focused on execution in 2013 as we take the steps to reset the business. But we believe in our plan, in our investment and I'm confident the strategic actions that we are implementing should position us well to drive growth in the future. We anticipate a return to revenue and profit growth in 2014 as we benefit from having more customers, better value proposition, additional products and services, and further cost efficiencies while participating in our growing markets.

Now to give you a more detailed review of the financial results and other 2013 outlook, I will turn the call over to Scott.

Thank you, Hikmet.

As I review 2012 financial results, I will primarily focus on the fourth quarter. 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 of $1.4 billion, which was flat with the year-ago quarter on both a reported and constant currency basis. Consolidated pro forma constant currency revenue, including a full quarter of Travelex Global Business Payments in the prior-year period, decreased 1% and was negatively impacted by 1% by the Vigo and Orlandi Valuta brands. Revenue for the Vigo and Orlandi Valuta brands declined over 50% primarily due to the Mexico location reductions in the third quarter which resulted from the Southwest Border Compliance changes. Vigo and Orlandi Valuta represented about 2% of total Company revenue for the full year.

In the Consumer-to-Consumer segment, revenue decreased 2% on a reported and constant currency basis with transactions down 1% compared to the prior-year period. Excluding Vigo and Orlandi Valuta, Western Union branded Consumer-to-Consumer constant currency revenue grew slightly in the quarter on transaction growth of 3%. B2C cross-border principal declined 3% in the quarter, or 2% on a constant currency basis, an improvement from last quarters' rate. Western Union branded principle increased in the fourth quarter. C2C principal per transaction declined 2% year over year which also represented an improvement from the third quarter rate.

Turning to the regions, C2C revenue in the Europe and CIS region, which represented 22% of total Company revenue, increased 5% year over year. The decline included a negative 2% impact from currency translation, transactions in the region were flat with the year-ago quarter. Although much of Europe remains soft, Germany continued to perform well, and overall revenue transaction trends for the region improved relative to the third quarter.

Turning to North America, revenue declined 9% from the prior year while transactions were down 6%. The region represented 19% of total Company revenue. US outbound revenue declined in the quarter while domestic money transfer revenue was flat on transaction growth of 7%. US outbound revenue was impacted by some of our pricing actions, which, as we mentioned, are meeting our overall expectations.

Mexico revenue declined 25% and transactions decreased 21% in the quarter. Mexico revenue is being impacted by a full quarter of the compliance related reduction in Vigo locations and by the pricing investments that were implemented in the quarter for the Western Union brand. For the Western Union brand, Mexico revenue declined 8% while transactions increased 2% for the full quarter. As Hikmet mentioned, transaction results improved to mid single-digit growth in December following our pricing actions.

In total, Mexico represented 4% of total Company revenue in the quarter. While Mexico revenue trends will be very challenging until we reach the anniversary of the Vigo location reductions and the pricing actions, we are actively working to expand our agent locations in the country and leverage the Western Union brand.

Regarding the Southwest Border agreement, the monitors' term was scheduled to end July 31 and we are continuing to work diligently on the monitors' recommendations. We have spent over $40 million on Southwest Border Compliance activities since we signed the agreement in early 2010 and made major changes to our business model in Mexico. While we have devoted significant time and resources to these efforts, we do not expect to have all of them fully implemented by July 31 due to their extensive and complex nature.

Western Union Business Solutions was recently added to the scope of the monitors' review, and in late January the current monitor resigned. A new monitor is in the process of being identified. We are conferring with the State of Arizona about the Company's progress in implementing the recommendations and the implications for the agreements. We will update you when we have further information about the status.

Turning back to the Middle East and Africa region, revenue in the quarter increased 3% on a reported basis, including a negative 2% impact from currency, while transactions grew 6%. Trends improved compared to the third quarter and strong outbound business from the Gulf states help drive the growth. The Asia-Pacific region was flat in the quarter -- the Asia-Pacific region revenue was flat in the quarter including a positive 1% impact from currency translation with flat transaction growth. China revenue increased slightly in the quarter but this was offset by declines in other large inbound markets.

The Latin America and Caribbean region revenue grew 2% including a negative 2% impact from currency. Transactions declined 5% in the quarter and were negatively impacted by the Vigo and Orlandi Valuta compliance related changes implemented in the third quarter. Westernunion.com C2C revenue increased 16% on a reported basis with no impact from currency. Transaction growth accelerated to 46%, partially driven by the success of promotional and other pricing investments and tended to accelerate customer acquisition. As a reminder, westernunion.com results are not included in the growth rates for the other five regions, although they are included when we discuss specific country trends.

Total electronic channel revenue, which includes westernunion.com, account-based many transfer through banks and mobile, increased 22% in the quarter. Electronic channels represented 4% of total Company revenue, up from 3% of revenue in the year-ago period. Revenue from account-based money transfer through banks increased 37%. We now have nearly 115 banks signed for account-based money transfer, with services launched at over 50% of these banks.

Prepaid revenue increased 16% in the quarter. The prepaid business including third-party top up represented approximately 1% of Company revenue. Our prepaid cards were available at approximately 40,000 retail locations globally at the end of the quarter, including approximately 1500 locations outside the US.

Turning back to the total C2C business, the spread between transaction and revenue declines in the quarter was 1 percentage point and there was no impact for currency. For C2C the impact of net price decreases was approximately 2% in the fourth quarter, while mix had a positive impact of approximately 1%. For the full year, the pricing impact was approximately 1% of both C2C and total Company revenue.

Moving to the Consumer-to-Business segment, revenue decreased 1% in the quarter, including a negative 3% impact from currency translation. South America continues to have steady growth, but this was offset by declines in the US walk-in business. Business Solutions reported revenue of $93 million in the quarter, which compared to $68 million a year ago. On a pro forma basis, including a full quarter of Travelex results in the prior-year period, Business Solutions constant currency revenue was down 2%. Our Business Solution customer count continues to grow and we now have a presence in 30 countries compared to 23 a year ago. Transactions are growing in double digits, but principal per transaction declined, an indication of a soft global trade conditions.

Turning to consolidated margins. The fourth quarter consolidated GAAP operating margin was 20.1%, or 20.9% excluding $12 million of Travelex integration expenses, compared to 25.0% in the prior-year period, or 25.4% excluding $5 million of integration expenses. The current quarter includes $31 million of expenses related to new cost savings initiatives. In addition, the margin was negatively impacted by the higher Business Solutions bank fees and other spending, pricing investments, increased marketing, higher compliance related to Southwest Border and Dodd-Frank and increased bad debt expenses.

EBITDA margin was 25.2% compared to 29.2% a year ago, excluding integration expenses in both periods. Other expense net was $41 million in the current quarter compared to $6 million a year ago. As a reminder, in the fourth quarter of 2011, we recognized a gain of $20 million related to the revaluation of the Company's previous ownership position in European Super Agent Finint and the gain of $21 million on foreign currency forward contracts related primary to the acquisition of Travelex Global Business Payments.

Reported earnings per share in the quarter was $0.40 compared to $0.73 in the prior year. EPS was $0.42 excluding Travelex integration expenses, which compared to $0.40 in the prior year excluding a $205 million tax benefit related to the IRS agreement. EPS in the current quarter includes $0.03 of expenses related to the cost savings initiatives.

The C2C operating segment margin was 25% compared to 28% in the same period last year. The margin was impacted in the quarter primarily by cost savings initiative expenses, price investments, increased bad debt expenses and higher market. The Consumer-to-Business operating margin was 17% compared to 27.3% in the prior-year period. The margin decline was primarily driven by the impact of the renegotiation of the third-party sales and distribution agreement which should benefit C2B margins in future quarters and expenses related to cost savings initiatives.

Business Solutions reported an operating loss of $18 million for the quarter compared to a loss of $2 million in the year-ago period. Last year's operating loss reflected only a partial quarter of Travelex Global Business Payments following the November acquisition. The current quarters' $18 million loss included $18 million of depreciation and amortization and $12 million of Travelex integration expenses. Depreciation and amortization in last year's fourth quarter was $13 million while integration expense was $5 million. Bank fees from higher transactions and IT and compliance spending also increased compared to last year.

Turning to our cash flow and balance sheet. We once again generated strong cash flow in 2012. Cash flow from operations for the year was approximately $1.2 billion, which includes the impact of $92 million of net tax payments relating to the agreement with the IRS. We have approximately $100 million remaining tax payments related to this agreement which we expect to pay in 2013.

Capital expenditures in the quarter were $85 million and included increases in agent signing bonuses including some major renewals. For the year, capital spending was just under 5% of Company revenue in line with our outlook. Depreciation and amortization expense was $62 million in the quarter. At the end of the year, the Company had debt of $4 billion and cash of $1.8 billion. Approximately 50% of the cash was held by United States entities.

In the fourth quarter, we issued $750 million of debt including $500 million of five-year notes at a coupon of 2.875% and $250 million of three-year notes at a coupon of 2.375%. We plan to use a portion of the proceeds to pay off $300 million of notes that mature in March. During the fourth quarter, we spent $351 million to repurchase approximately 27 million shares at an average price of $13.12. In addition, we declared $72 million in dividends which were paid in December.

As Hikmet mentioned, we returned over $1 billion to shareholders through share repurchases and dividends in 2012. We repurchased 51 million shares last year or just over 8% of total shares outstanding. As of year end, we had 572 million shares outstanding and $394 million remaining under our repurchase authorization, which expires at the end of 2013.

Turning to our expectations for 2013. Our outlook reflects the strategic actions we are implementing this year to drive future revenue growth and enhance long-term profitability. The strategic actions are expected to negatively impact revenue to profitability in 2013, but lead to growth in 2014 and 2015.

We expect the economic environment in 2013 to be similar to 2012. The outlook includes a pricing investment of approximately 5% of total Company revenues, or approximately 6% to 7% of C2C revenues in 2013. We expect these pricing investments to improve transaction trends this year with Western Union-branded C2C transactions anticipated to increase mid to high single digits in 2013 compared to 4% in 2012.

Total C2C transaction increases are expected to be about 2 percentage points lower than Western Union brand due to declines from the Vigo and Orlandi Valuta. Transaction growth rates should improve sequentially as we move through the year as the pricing and other actions take effect. We have only implemented about 50% of our planned pricing investment so far and are still building awareness of the actions in many markets. So we would expect to see an overall transaction lift for the Western Union brand beginning in the second quarter and then see acceleration as we go through the rest of the year.

To increase productivity and fund a portion of our growth based spending, we are implementing additional cost savings initiatives. The net impact of these cost saving initiatives is expected to be negative in 2013 due to the upfront cost, but beneficial to margins and profits beginning in 2014. The outlook includes approximately $45 million of expenses from new cost savings initiatives this year which is in addition to the $31 million incurred in the fourth quarter of 2012.

These initiatives include expenses such as severance, out placement and other related benefits, and expenses related to relocation of certain operations to existing Company facilities or third-party providers. The cost savings initiatives are expected to generate approximately $30 million of savings in 2013 and approximately $45 million of savings beginning in 2014.

The 2013 outlook also puts approximately $20 million of expenses for continuing Travelex integration. As a result of all these factors, the outlook for revenue and margins in 2013 is constant currency revenue down low-single digits, GAAP operating margin of approximately 20% and EBITDA margin of approximately 24.5%. Approximately two-thirds of the GAAP operating margin decline compared to 2012 is attributable to actions being implemented to improve competitive positioning and mix. The pricing investments are expected to result in higher variable costs from increased transactions and negative fixed cost leverage from lower revenue in 2013. Average commission rates are also expected to increase this year due to mix, some large Asian renewals and other factors.

The other one-third of the margin decline is primarily due to a combination of growth investments and increased compliance and regulatory cost. The other growth investments include additional investments in digital and prepaid and the development of new products. These investments are largely infrastructure related, are expected to be ongoing cost to the business in future years. Net expenses for TGBP integration and cost savings initiatives are expected to be lower in 2013 than prior year. But this is being offset by changes in incentive compensation which was at reduced levels in 2012.

The 2013 operating margins includes approximately $65 million of expenses which should not recur in 2014. These include the approximately $45 million of expenses associated with the cost savings initiatives and approximately $20 million related to TGBP integration.

Turning to the tax rate, we expect an effective tax rate of approximately 15% in 2013 which is higher than last year due to benefits and favorable settlements in 2012.

In 2012 we provided both GAAP EPS and EPS excluding TGBP integration expense. For 2013, we are only providing GAAP EPS. The GAAP earnings per share outlook for 2013 is a range of $1.33 to $1.43 including an approximately $0.03 per share impact from Travelex integration expenses. The 2013 earnings per share outlook also reflects an approximately $0.06 per share impact from expenses related to the new cost savings initiatives. Compared to 2012, the EPS range includes an increase in other expense net of approximately $0.04 per share, primarily due to higher net interest expense from incremental long-term debt at higher average rates and other miscellaneous changes.

Cash flow from operating activities was expected to be approximately $900 million, or $1 billion excluding final tax payments of approximately $100 million related to the IRS agreement which we expect to pay in 2013. Capital expenditures are expected to be approximately 4% to 5% of revenues in 2013, although we anticipate they will average closer to 3% over the next few years. As Hikmet mentioned, we expect to return approximately $700 million to shareholders in 2013 through repurchases and dividends, including approximately $400 million of share repurchases.

We remain committed to consistently generating and deploying strong cash flows for our shareholders while also maintaining an investment grade credit rating. We would anticipate continuing to increase the dividend in future years consistent with business performance.

In 2013, we expect our actions to have the most significant negative impact on our financial results in the first half of the year. Revenue is expected to decline in the first half based on current trends and the initial impact of the pricing investments. We will also continue to face challenging comparisons for Vigo and Orlandi Valuta until the middle of the third quarter. Much of this spending for the cost savings initiative is expected to be in the first three quarters of the year. As we move through 2013, we expect financial trends to improve sequentially due to the timing impact of pricing investments, incremental customer acquisition and cost savings initiatives.

Operator, we're now ready for the first question.

(Operator Instructions) Bob Napoli, William Blair & Company.

On your pricing investments that you've made this year, your pricing gap, I think, versus competitors has narrowed, or is narrowing, but is still relatively wide. How confident are you that you won't need abnormal levels of pricing investments beyond what you've announced so far?

Well, Bob, thank you for the question. If you look at our business, we are pretty confident that the existing pricing action will work. We did -- have done that many pricing actions in the past, I personally have done about more than hundreds of pricing actions in my career and typically they come back after 12 to 18 months also to our revenue growth. The pricing actions we implemented, the early signings, it's really too early. We started mid-November beginning of December, but as I mentioned before the US to Mexico pricing is working so far so good pretty well.

We see the first indications in December, Banco de Mexico data shows that there's a decline on principle but we have mid single-digit growth, right Scott, in Mexico that corridor. So we are beating the market at early indications. We've been in so many corridors we adapt pricing actions to the customer needs but we are pretty confident that we are turning back in 2014 to 1% to 3%, our usual pricing investment. And so the first indications are so far so good.

Okay, on your westernunion.com business, obviously great transaction growth, 46%, revenue growth at 16%. First, what percentage of that business is card based, credit or debit versus ACH?

Well first we don't -- I don't think we gave the numbers here, which percentage is credit cards versus ACH, but many is used by the cards. And we are very satisfied with the growth rates here. We are getting new customers. Just a reminder, 80% of the customers are new to our brand, so new to the westernunion.com, never used Western Union but new to Western Union they are using and we grew 46% on transactions. So that's the current environment and I'm very satisfied with westernunion.com.

Last question related to that, are there additional pricing investments in the westernunion.com sector to come?

Bob, this is Scott. I don't want to get ahead of myself as far as what pricing we might be doing in certain markets in the future for competitive reasons, but we feel like we're well-positioned in westernunion.com., 80% of the customers are new. And to circle back on your one question to add to color what Hikmet said, that as far as the funding methods, it's primarily credit cards for us today. But that's where we see an opportunity as we think about growing this business to provide our customers with different funding sources and payout sources. Not only leveraging our 500,000 location network, but being able to drop money in the bank accounts, but allowing customers to pay through ACH and other ways. So that's one of the things that'll allow us to get to that $500 million business by 2015.

Thank you.

Tien-Tsin Huang, JPMorgan.

Wanted to ask about -- I know there's a lot of detail shared here, I'm curious the lost Vigo and the OV business, were you able to recapture that with your pricing initiatives? What's -- what are you -- what's some of the intelligence telling you in terms of recapture of share?

Well, we are basically growing under the Western Union Brand business. We did not capture that on Vigo and Orlandi Valuta, we still have location lost last quarter as you know, Tien-Tsin, about 7,000 locations in Mexico. We are very focused to expand our location network in Mexico. But the pricing actions that we did was on the Western Union branded transfers and that's working pretty well. The loss of Vigo and Orlandi Valuta is still here and it's the majority of why the corridor is losing on the performance. But I'm very pleased with the Western Union branded price actions.

Okay, good to know. And on the -- I'm curious with all the price cuts it sounds like you still have a little bit more to do and we'll learn more about that, but what's been the agent response to the price cuts? And I'm curious if the higher commission comment is tied in any way to the pricing investments that you're talking about, or if that's separate.

Well I think there are two separate things Tien-Tsin. The agent response were quite positive because our brand attracts traffic to the retail network and agents were very pleased that they can gain again our ultimate goal is to grow. And it brings traffic in 2013, and they are pretty pleased on that. I did not see any agent negative reaction from market or from somewhere. I didn't hear it so far.

Regarding on the agent commission, as you know, that we have the agents commission, agent agreements for five to seven years in average and over the few years it has been declining. '13 we have a little bit higher commission rates, Scott, right? But generally our goal is as you know bringing down the commission rates (inaudible) situation. I don't see as an early signing that it's a competitive issue or pricing issue, I see that as an agent renewal timing issue.

Okay, so it's just timing, very good. That's good to know. Last one and I'll jump off, the -- you've returned a lot of capital to shareholders, obviously. But the implication for '13 is a step down in buybacks. Is that a -- again is that a timing issue or a little bit of a pause or could that actually step up as the year progresses?

Tien-Tsin, this is Scott, we generate strong cash flows, historically $1 billion plus for sure. And historically we've been very committed to getting cash back to our shareholders. Just in 2012, between dividends and buyback over $1 billion. In fact in the fourth quarter $350 million of buybacks. So we're committed between dividends and buyback in 2013 to return $700 million. We want to continue to target an investment grade credit rating as we move forward. And Hikmet and I continually have dialogue with each other and with the Board discussing our cash flows and how to best deploy those for our shareholders as we move forward. But our track record has been strong and I think $700 million is a strong step forward right now.

Okay, great. Thanks so much.

Sara Gubins, Bank of America Merrill Lynch.

This is David Choa for Sara Gubins. What percentage of your agent base is WU branded versus non-WU branded?

David, a majority of the agent base is WU branded, if you will. The revenue that we called out for Vigo and Orlandi Valuta is about 2% of our revenue. So the rest of the network is really -- it's a Western Union network primarily.

And as you know Vigo and Orlandi Valuta is mostly Mexico and Latin America.

Okay, great. And is there -- can you share your expectations for B2B in 2013?

Yes, David, in simple terms, we expect the revenue growth rate and profitability to improve in 2013 compared to 2012. And a couple of things that are really driving that. And first I would say is that we're in a market that's growing. The global market for trade, if you will, is probably growing anywhere from the mid-single digits to high-single digits depending upon the period. And then the team in London and around the globe is very focused on driving increased sales effectiveness and we're getting very customer focused there. We're going to expand to more countries. A year ago we were in 23 countries today we're in 30. When we have this discussion a year from now, we're going to be in more countries.

And then we also have an opportunity to diversify our product offering. An example I would give you is we have option products, forward products, but not in all countries, we have opportunities to move those products into other countries. So, the simple answer coming back to it is we expect to see revenue growth and profitability improve in '13 compared to where we were in 2012. On a long-term basis, we expect a top line to grow that business in the low-double digits from a revenue standpoint.

Okay, thank you very much.

Darrin Peller, Barclays.

A quick question first on the corridors that you've actually addressed, I know you can't specifically mention all the ones by name, but give us a sense maybe how many you've done and how many you still have to do as part of this pricing initiative this year? Can you tell us maybe percentage wise how many actual corridors have more to go? And then a follow up on pricing.

Corridor wise we won't disclose, but 25%, we plan about 25% of our business putting some pricing actions. Some are related to the compliance issues like in some regulatory compliance changes and US and Mexico. But some of them like US, the Europe to Africa and especially France to Africa it's working pretty well. We did some in westernunion.com. The transactions growth lifted very well and we have good traction there. And also we are planning some US to Latin America. It's in early stages, we started quite late. We do some marketing programs behind that, but please understand for competitive reasons I don't want to give more corridor specific--

That's fine I understand. A quick follow up to that though, a couple of years ago I remember you changed domestic pricing and there was always very solid, you had great transaction growth pretty immediately. I think it lasted about 1.5 years where transactions were well above what you'd even -- 20 percentage type range and then it came down and moderated and it seems like it's now slowing to, I mean you tell me, I think it was down to low-single digit, I don't remember what you said exactly before, but it's down again. And is that because of some of the pricing changes you're doing now that go -- touch on the domestic corridor again and that's having an impact on revenue and transactions now? Or can you help us understand why it wasn't more sustainable?

I'm very pleased with DMT, US DMT transaction growth. It's 7%.

Yes, Darrin, the last three quarters it's grown 7% and 8% for the year, so we've got strong call it high single-digit transaction growth.

There's the mix though.

Yes, and what you're seeing is some mix where we're seeing more growth in the lower bands, call it the zero to 50 not quite as much growth in the higher bands. But as you think about what we've done with domestic money transfer compared to had we maybe not done anything, now we're seeing more transactions, more customers in the franchise. So, as we think about evolving our brand and evolving our product offerings, we've got more touch points with customers. So I still -- we're still very pleased with the success of the domestic money transfer repositioning and pricing that we've done.

Three years ago it was really going down. Darrin, are you there?

Yes, I don't know if you can hear me now. But one last question on the .com channel. With regard to ACH, I think that came up before, that's definitely one other alternative to help you price efficiently going forward. How far off do you think you are from getting that capability in terms of more real time and authorization to go versus some of your competition going forward?

It depends really on the countries. We are very far on the ACH in many countries, especially in the European countries to getting money from your account is very common, and direct in realtime, and it has definitely better interchange fees then the credit cards. But most of them are still credit card transactions, and the team is very much -- it's growing very fast the ACH and the direct debit is going pretty good. So I believe that the long term also help our profitability on the westernunion.com.

Okay, great. Thanks, guys.

Tom McCrohan, Janney.

Steve, what was the transaction growth this quarter adjusted for the situation in Mexico?

Are you looking for the total C2C transaction growth or just for Mexico itself?

C2C, total C2C.

Total C2C it was up 3% transaction growth.

Okay, that's helpful. And how many of your customers today in the C2C segment have a bank account?

About 70% of our centers.

The majority have a bank account.

Majority have a bank account.

70%?

70%, yes.

70%, got it. And how does your pricing in that account-to-account corridor or segment compare to your competition with these pricing actions? Are you now in line or below, give us some sense?

It depends really on the corridors. It depends really -- I think we are pretty much gaining market share there. A reminder, our westernunion.com is growing 46% and our account-to-account is growing 50%. And 80% of the customers are new. So we don't give specific corridor numbers, but I'm very pleased with the account-to-account transaction. We signed 115 banks, and we activated of the 115 banks, 60 of them and the transaction growth is over 50%.

Yes, and Tom as you know most of our businesses is really cash to cash or online to cash. So we really got it started on delivering to bank accounts, so not much of our business today actually goes to accounts.

Yes, it's additional (inaudible).

And so even the bank relationships that you've been growing, is that account to cash for the most part?

Most of that, yes.

So primarily yes, account-based money transfer which is primarily account to cash.

Account to retail.

Yes, as Hikmet and Mike, mentioned dropping funds into an account is an opportunity for us for sure.

Great, and my last questions on the regulatory side was this push out and the deadline for rule 1073, do you have any insight into how that's going to impact Western Union? It seems like the banks will have more of a problem complying with these new rules, but I wanted to confirm that with you and how do you -- do you view that new rule as an advantage or a disadvantage for you folks going forward?

Yes, I want to make sure you're referring to Dodd-Frank, is what you're referring to?

Yes.

Yes, it's hard for me to speak for the banks but I can speak for what we're doing at Western Union, and we're doing all the things that we need to be ready for that. The initial date was going to be early February, then the regulatory authorities have pushed that out. So probably at the earliest it'll be mid-summer right now, and the regulatory authorities are still working for that. But we've been working diligently on that, and feel like when the time comes we will be well prepared and our agents will be well- prepared.

Okay, thank you.

Bryan Keane, Deutsche Bank.

Want to ask, it looks like the pricing actions have gone to your expectations, and I know it's early, but as we go into '13 obviously you'll implement more. But how confident are you that you return to revenue growth and profit growth in '14 and '15? And maybe you can give us why you're confident on that.

Yes, Bryan, I am pretty confident because we did many pricing actions and every pricing action there were big investment of course. (Inaudible) has a question, but based on my experience, based on the Company experience, it takes about 12 to 18 months depending when you start with the pricing. And the pricings we start I'm confident that in '14 you will see positive impact here on the revenue impact. And so we are targeting 25%.

And Bryan as you remember, DMT pricing investment which we did about two years ago, in the beginning it has a transaction growth, high transaction growth and after about 12 to 18 months the revenue came also. And we were very pleased, and turned around this business. So based on all those experiences, I believe it will be successful.

And Bryan the only thing I would add to what Hikmet said is pricing is one lever that we're looking at to grow the business in '14 and '15, but we're rapidly expanding westernunion.com, we're doing some really good things with account-based money transfer. We feel like we're on track to grow B2B faster in '13 than we did in '12. We expect some growth out of the C2B business. So, I think all those things combined give us confidence that in '14 and '15 we can grow revenues and profits.

And then thinking about pricing as we look out, it sounds like we're likely to go back to the typical 1% to 3% decline cycle that we were in previously. What gives you confidence that there's nothing in the compliance, or something that stings you that you don't know about? One of the ways to think about it is there's probably -- is there anything out there that could be as large as the situation that happened with Vigo and Orlandi Valuta that could have that kind of an impact on price?

Well from today points of view, I really believe that we're going to come to 1% to 3% pricing environment. The regulatory environment is challenging, it's obviously we are very in regulated market. But all our investments, about $100 million a year we invest in anti-money laundering and compliance are really putting us as an industry standard. Being a market leader puts us in an industry standard and we want to be a best-in-class and see that as a long-term competitive advantage. I think regulatories are looking also at us and we do have a duty to satisfy customer needs and we are working very hard on that.

Okay and then lastly for me two macro questions. I know pre the great recession, WU quoted that the construction vertical was about 20% to 25% of revenue. I'm curious what that number is now in 2012 after this year? And then secondly, immigration reform, a lot of talk about that in D.C., can you give us some thoughts on if you think that would be a positive or negative for Western Union? Thanks so much.

Yes, hi Bryan, this is Scott. On the construction, what I would tell you broadly is that if you think around the globe, our customers come from -- work a lot of different areas. So whether it's in nursing, the service industry, retail, construction, so I would say we continue to be diversified around the globe. I don't have a specific number to give to you on construction.

On immigration, in general, what we'd say is that we're not necessarily pushing for one side or the other, but immigration reform we think would be good just so that everybody understands what are the rules, what are the regulations. So overall we support immigration reform.

Yes, I think it's -- Bryan I think it will have a positive impact. I think we support immigration reform. I think the people who are immigrated to the US do have relatives, loved ones and they would like to use a service like Western Union, I believe.

Okay, thanks so much.

Jason Kupferberg, Jefferies.

I wanted to ask a little bit more about post 2013 and I realize it's way too early to be precise in some answers there, but it feels to me probably one of the biggest issues for investors is what is the post 2013 earnings power of the Company? Do you think -- is it realistic at some point in time beyond this year for EBIT margins to get back to the mid- 20s in a decent macro environment? Or are we going to be stuck down more in the lower 20s, just given what the new pricing environment looks like?

Scott just jump in, but generally what I would say that our business model is attractive to and is built to grow the top line. Every top line growth will help to increase our margins. And so, we are really set up in 2013 to bring the higher growth and top line growth and profit growth. Scott, any --

Yes, there's a couple of things I would add, Jason, and to build on Hikmet's point. The most important thing for us for profitability is driving the top line revenue, that is really key. And if you think about our business model, 65% of our costs are variable. About 35% are fixed. And probably the broad view I'd put this around is that we're not providing any specific outlook for '14 or '15 it's just too early. But if you think about our Business, our C2C Cross-border business, we're in a healthy industry where the industry is growing principle in the mid-single digits. And our long-term goal is we want to not only grow at that rate but gain more than our fair share of growth there as we move forward. Also, the B2B business it's in a market that's growing probably mid-to-high single digits depending on the period you look at with what we trade.

And then finally as you think about margins and this is probably more particular to 2014, is that there is about $65 million of cost that we're going to incur in 2013 that we don't expect to incur -- recur in 2014. And specifically Jason, that's $45 million for the cost savings initiatives that we're taking on in '13 that we won't have that expense in '14. And then there's about $20 million of Travelex integration that we're incurring in '13 that we won't incur in '14. And then the last thing I would add to that is, as we think about these cost savings initiatives, we believe that will drive about $30 million of savings this year, that'll ramp up to be about $45 million in '14. So we even got a little bit better on the cost savings. But what's -- back to the headline or the punch line, what's most important for us for margins and profitability is we want to optimize revenue growth, optimize profit growth. The goal for us is to really drive that top line which should be helpful to profitability.

Okay, no, that's good color. And to ask a follow up on the electronic channels. We would estimate that in 2012 electronic channels in total was maybe about $200 million in revenue and I know you guys are standing by your target of $500 million in 2015. That means you need to grow this base about 35% or so CAGR over the next three years to get there. Is that achievable organically without any acquisitions?

Yes, we think it's achievable and Jason let me put a little bit of color on your numbers to make sure we're clear. The westernunion.com business that we believe can be a $500 million business in 2015, that's about $150 million business today. So your 35% math is probably closer in round numbers to about 50%. But the punch line is that we think that that is very achievable.

And some of the reasons I would give you is we're going to expand to additional countries. We also have opportunities to give our customers more choice and convenience as far as how do they pay for that money transfer, but also how does their loved one pick up their money transfer. And we think there's additional opportunities to leverage not only the best of our cash network at the 500,000 locations but be able to drop money into bank accounts and other things. So you saw 46% transaction growth in the fourth quarter, and we believe that that business will grow faster than the 40% overall rate that we had in '12 and 2013.

Yes, and short answer is yes it's achievable and our operating plan, incentives, everything is built on that.

Okay we need to see that gap narrow obviously between the transaction growth and the revenue growth in that channel.

Absolutely.

Absolutely.

Yes, yes, okay, great. Thank you, guys.

Ashwin Shirvaikar, Citi.

It's actually Phil Stiller on for Ashwin. Scott, I was wondering if you could help us with the timing of the $65 million of one-time expenses throughout 2013 and what segments those would be focused on click.

Yes, Phil, primarily they will (technical difficulties) billion the first three quarters of the year. So, primarily in the first three quarters of the year clearly the $20 million will be all in the B2B segment for integration. Then the remaining $45 million will probably follow a little heavier to the C2C business since that's about 80% of our business and then lesser extent to the C2B segment and the other segment.

Okay and just one other question on the C2B business you talked about some investment that occurred in the fourth quarter that impacted the margins. I was wondering if you could provide some more color around that and what the impact on 2013 would be?

Yes, absolutely, we think that we had an opportunity to renegotiate a sales and distribution agreement that cost us some money in the fourth quarter, but we believe that that will have benefits in '13 and '14 for sure by saving some distribution costs that we will no longer have to incur. As we think about the C2B business, that's probably a business that will have a 2 in front of the margin on a go forward basis, and then probably have some revenue growth on a go forward basis, too.

Okay, thank you.

Laurie, we'll will take one more question.

John Williams, UBS.

I just had two. I don't want to harp on the westernunion.com thing but you did talk a little bit about the delta between transaction and revenue growth. I wanted to get some help from you on the margin structure of those transactions. Seems like they should be meaningfully higher, given the lack of send side commission but it seems like you might also have pricing impacting that and making it less of a factor. Could you give a little bit of detail on that?

I think it's really a profitable model, but don't forget as I mentioned before the majority of the transactions are credit card transactions. It has an interchange cost, fee costs, so it does impact. As we move to more to ACS directed bank and direct debit, the interchange fee should be more profitable. Long term we believe that we have the savings under send side commissions. On the receive side, it depends on if you drop it to a bank account or if you paid out in a retail money transfer as a cash, it differentiates from the commission side.

I know in the past when we've talked you've said, Scott, that the margin profile is similar to the rest of the transactions that you typically see. Is that safe to say or are they somewhat higher still even after the interchange is taken into account?

Well, John, let me put it in terms of this that today the .com business even though we don't have a send side commission, we are heavier in the credit cards and we're transitioning that model. But on a long-term basis we do see the margins being, I'll say closer to the Company average on a long-term basis. Today because we're making some investments and we've got a do some things to scale a little bit there, the margins are somewhat lower than the Company average. But we believe we can get to the Company average as we get into 2015.

Okay so there currently --

It is a profitable business today.

But they're currently lower than your typical transactions is what you're saying?

Yes, because of the investments, because of the credit card fees, if they're lower than current margins.

Okay, one other question on capital allocation. Obviously, the business has a pretty consistent cash flow profile, the one question we constantly get from investors is what's keeping you from taking a bigger step here and taking advantage of the dislocation and the share price, and maybe doing a bigger buyback or something that's going to be more weighty than executing against the current authorization?

No, John, thanks for the question because we get that question at times, too. But we have been active in deploying the capital. Again we, to your point, we generated $1 billion of cash flow, it's very strong, it's very consistent. We did deploy $350 million in the fourth quarter to buy back our stock. We plan to deploy about another $400 million in 2013 to buy back our stock. And then Hikmet and I continue to have discussions with our Board, with each other, we'll take into consideration our cash flows, we do want to maintain an investment grade credit rating, so that's important from a business standpoint. But we'll continue to have that dialogue with our Board and ourselves as we move forward.

Also as a reminder, a big part of our cash is abroad so that has also an impact on our cash flow. Before we close I wanted to thank you for attending this call. As I mentioned before and Scott mentioned before, we expect that 2013 is really a transition year. We will reset the pricing actions in key corridors, we'll be investing incrementally on the infrastructure to drive really the future growth. We believe that '13 is a transformation year, but we are confident that we have the plan. We have the strategic actions that 2014 and '15 will be future growth years and I am confident that we're going to execute against that. So, thank you again attending this call and we'll talk you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.