The Western Union Company reported financial results for the fourth quarter and full year 2007
The Western Union Company reported financial results for the fourth quarter and full year 2007
Highlights for the fourth quarter include:
— Revenue of USD 1.3 billion, up 12pct
— EPS of USD 0.32, up 14pct
— Operating income margin of 28pct
— Consumer-to-consumer revenue increased 12pct, transactions up 14pct
— Consumer-to-business revenue grew 13pct, transactions up 49pct
Highlights for the full year include:
— Revenue of USD 4.9 billion, up 10pct
— EPS of USD 1.11, or USD 1.13 excluding the previously announced USD 0.02 per share non-cash charge
— Operating income margin of 27pct
— Cash provided by operating activities of USD 1.1 billion
— More than 335,000 agent locations
— 572 million total C2C and C2B transactions
"Western Union's revenue and earnings growth accelerated throughout the year, which enabled us to deliver our expectations for the fourth quarter, and we are pleased with these results," said President and Chief Executive Officer Christina Gold. "2007 demonstrated Western Union's strengths as a geographically diverse global company, with 65pct of total annual revenue generated by our international consumer-to-consumer money transfer business. Additionally, our consumer-to-business segment continues to grow with Pago Facil, our bill payment company in Argentina, continuing to exceed expectations."
Fourth Quarter Results
Revenue was USD 1.3 billion, up 12pct, or 10pct excluding the December 6, 2006 acquisition of Pago Facil. Revenue also included USD 28 million from currency translation of the euro.
Total consumer-to-consumer revenue in the fourth quarter grew 12pct to USD 1.1 billion on transaction growth of 14pct. A significant portion of the growth was attributable to the continued strong performance within the international consumer-to-consumer business, which increased revenue 17pct while growing transactions 19pct. The international-to-international subset, those transactions that originate outside of the U.S., grew faster still, posting 25pct revenue growth and 28pct transaction growth. This international-to-international subset contributed 54pct of Western Union's fourth quarter total revenue.
The Mexico business had flat revenue from transaction growth of 3pct. As expected, the difference between revenue and transaction growth rates continued to tighten as a result of a steady Mexico pricing environment. The company's Mexico transaction growth rate continued to outpace the market, based on data released by Banco de Mexico.
The domestic business posted revenue and transaction declines of 9pct and 3pct, respectively.
Revenue in the consumer-to-business segment was USD 183 million in the quarter, growing 13pct, or 4pct excluding the December 2006 acquisition of Pago Facil.
In the fourth quarter, consolidated operating income was up 9pct. Operating income margin was 28pct compared to 29pct in last year's fourth quarter. The decrease in operating income margin was caused by the ongoing shift in business mix, reflecting stronger growth in the international business, which carries lower profit margins than in the U.S.-originated businesses, and USD 17 million of incremental independent public company expenses compared to USD 9 million in the fourth quarter of 2006.
Fourth quarter consumer-to-consumer operating income increased 11pct, and operating income margin remained strong at 27.5pct compared to 27.6pct a year ago. Operating income growth and margin were impacted by the international and U.S. mix shift and incremental independent public company expenses, which were offset to a lesser extent by expense leverage.
Fourth quarter consumer-to-business operating income declined 3pct, and operating income margin decreased to 30pct from 35pct a year ago. The decline was primarily due to the segment's lower-margin electronic-based services growing faster than the segment's higher-margin cash-based services and Pago Facil, which has an operating income margin lower than the segment's average. In addition, the segment's operating income growth and margin were impacted by incremental independent public company expenses.
The tax rate was 27.4pct in the fourth quarter versus 30.8pct recognized in the first three quarters of 2007. The lower tax rate in the quarter was primarily due to the favorable resolution of certain tax matters.
The agent network had more than 335,000 locations at year end, which was ahead of expectations. During the quarter, Western Union took significant steps in strengthening this network by entering into new agreements and re-signing existing agreements around the world.
In November, Western Union entered into a multi-year extension with Kroger, an agent for 22 years, covering 2,400 locations. In January, the company extended its agreement with supermarket operator Delhaize America, which offers Western Union services at 1,120 U.S. locations. The re-signing of these two supermarkets maintains Western Union's strong position of having long-term agreements with eight of the 10 largest supermarkets in the United States.
To solidify its position in a key region, Western Union made a 25pct equity investment in Grace Kennedy, a key agent in Jamaica and other Caribbean islands. The company also signed a 10-year renewal with Grupo Vimenca, with over 200 locations in the Dominican Republic.
In a significant new development, Western Union has received the required approvals to resume service in South Africa and expects to be offering services later in 2008 after a six-year absence.
In January, the company signed an agreement with Penn Traffic, a leading U.S. food retailer with over 100 locations. Penn Traffic previously offered money transfer services through a competitor. Additional notable new relationships include an agreement to offer money transfer services at over 300 China Everbright Bank branches in more than 30 cities in China, and a new relationship with the Bangladesh Post.
Significant renewal agreements included: Correo Argentino, representing 1,300 postal locations, Deutsche Postbank, covering 3,200 locations in Germany and the Kenya Post Office Savings Bank. In the United States, TCF Bank renewed its agreement to offer Western Union services at 360 locations across seven states.
Full Year Results
Revenue for 2007 was USD 4.9 billion, a 10pct increase, or 8pct excluding the acquisition of Pago Facil. Full-year revenue included USD 79 million from currency translation of the euro.
Total consumer-to-consumer revenue for 2007 grew 9pct to USD 4.1 billion on transaction growth of 14pct over 2006 with a significant portion of this growth attributable to the international consumer-to-consumer business. Operating income margin declined from 29pct to 26pct in 2007, primarily as a result of the shift in business mix reflecting stronger growth in the international business, which carries a lower profit margin than the U.S. originated businesses, incremental independent public company expenses and the third quarter non-cash stock compensation charge.
Consumer-to-business segment revenue increased 13pct from USD 636 million in 2006 to USD 720 million in 2007. Excluding the impact of the acquisition of Pago Facil, revenue increased 4pct. Operating income margin decreased from 35pct to 31pct as the segment's electronic-based services and Pago Facil, both of which have margins lower than the segment's cash-based services, became more significant to the segment's overall results. In addition, operating income growth and margin were impacted by incremental public company expenses and the non-cash stock compensation charge.
Consolidated operating income was USD 1.3 billion and the operating margin for the year was 27pct compared with 29pct in 2006. Full-year operating income and operating income margin were impacted by the mix shift described above, the USD 22 million non-cash stock compensation charge, as well as USD 59 million in incremental independent public company expenses compared to USD 25 million in 2006.
The tax rate was 29.9pct compared to 31.5pct in 2006, primarily due to increased foreign-derived profits compared to U.S.-derived profits, as well as the favorable resolution of certain tax matters.
Western Union continues to generate strong cash flow. Cash provided by operating activities was USD 1.1 billion. Capital expenditures were USD 192 million. Cash at year end was USD 1.8 billion and total outstanding borrowings were USD 3.3 billion.
During the fourth quarter, Western Union repurchased 6.4 million shares for USD 146 million at an average price of USD 22.73. For the full year 2007, Western Union repurchased 34.7 million shares for USD 727 million at an average cost of USD 20.94 per share. The company has USD 1.25 billion remaining under its board-authorized repurchase plans.
Western Union continues to make progress with new products and offerings. On the mobile money transfer front, Bharti Airtel and Western Union will jointly develop and pilot a mobile money transfer service in India. In the second quarter of 2008, Western Union expects to launch two separate mobile money transfer offerings in the Philippines, one with Smart Communications and the other with Globe Teleco, the two major mobile operators in the Philippines. In Canada, Western Union launched a new service with Scotiabank connecting customers to Western Union's 335,000 physical locations. Customers needing to send money can initiate a transaction at bank branches or via Scotiabank's online service for payout in any Western Union location worldwide.
Western Union has partnered with PrimeCredit Limited, a wholly owned subsidiary of Standard Chartered Bank PLC, to begin offering micro loans on a test basis in Hong Kong. Western Union will not take the credit risk on the loans.
