• Chinese, Nigerian presidents satisfied with bilateral ties • Pang Yuliang Acquired German Parchim Airport

invest in it. And I think over time it's a competitive advantage. And we want to be excellent in the -- on the compliance front.
UNIDENTIFIED COMPANY REPRESENTATIVE: Phil, I think the other question Craig had on the bank discontinuous -- discontinuance issue I think is the other question on the cost set.
We do provide in those cases where there is difficulty for agents to get a bank relationship, we do provide those banking relationships. We open the account and it's just part of the cash management approach we use at those banks. The cost of that is relatively minor. It's not a big cost to us. And in fact we still have a few well known institutions out there that are not doing business with MSVs. But there still are plenty out there that are very willing to do business with the money services business, with us and in fact we have them coming in here on a regular basis looking at our compliance process and they've been very pleased.
KARTIK MEHTA, ANALYST, FTN MIDWEST RESEARCH: Kartik Mehta with FTN Midwest. So you talked about the slowing transactions in Mexico and a couple of reasons you gave were immigration and I think the Mexican economy getting stronger. But I guess another theory that's out there is that there are second, third tier companies that are trying to sell themselves. As a result, they've lowered their pricing and that's causing some pricing pressure on the market. Have you seen that? And if so, has that stopped or what is happening to pricing for you as to Mexico?
PHIL MILNE: Maybe I'll take a crack at it and Tony can do a deeper dive on it. I don't think that we've seen a broad-based across the board price decrease. I think over Christmas, in that area -- in that time frame we saw the FX rates get a little bit more competitive and we saw some people doing some city paring in terms of more competitive pricing.
Tony, I don't know, maybe you want to add to that. I think it's been fairly stable, but it's been probably a little tighter on the FX than we' ve seen it.
TONY RYAN: Yes, I think the biggest place has in the FX and a couple of things. Probably California, California has been the -- one of the bigger markets that we've seen a little bit more competition in, but I think for the most part, we were already there from a pricing standpoint, we were on top of the niche players and leading the way in that value chart. So I think you see more of the reflection of the statistics with Central Bank in Mexico. I think the issue's been more the market decline than it's been competitive pressures from our vantage point.
KARTIK MEHTA: Thanks. And Phil, a second question. We hear a lot about China and India as two markets that have a lot of potential. But as you look at your growth and you look -- you brought out MoneyGram 2010, when do those two markets have to start contributing for you to maintain the double-digit transaction growth you have? Is that further out or does that start to happen soon?
PHIL MILNE: No, I think you'll start to see it show up over the next few years. I mean, we're investing heavily in those two markets and boy India's, I think Tony, at the top two or three in terms of the size of the remittance market and China I think is right up there as well. So we see those as big opportunities and as you look at MoneyGram 2010, I think they will start to play a more significant role in that result. It's not going to be the biggest part of it, but will start to play a more significant role. And we think we have a lot of opportunity in those markets. Thanks Kartik.
JOSH ELVING, ANALYST, PIPER JAFFRAY: Hi, Josh Elving from Piper Jaffray. A quick question regarding, I think its Slide 38, going back to that US to Mexico market.
PHIL MILNE: Oh, okay.
JOSH ELVING: Just trying to understand that slide a little bit better. I think your transaction volume growth in the fourth quarter was something in the neighborhood of 20% on a year-over-year basis. And looking at the Banco de Mexico data for January, I think that was running at about 10%. When you talk a little bit about coming back to the main as far as growth, I mean is that somewhat -- are you seeing a significant slow down specifically in the first quarter thus far? Am I reading that the right way?
PHIL MILNE: Well I --
JOSH ELVING: From what we hear that transaction volume from US to Mexico are somewhat stabilizing. So I would assume that --
PHIL MILNE: I think the way that Tony positioned is the way we'll leave it. We are growing more in line with the Banco de Mexico numbers in the first quarter. And rather than outpacing it, as we did in 2006. I think there's probably a lot of different factors and a lot of it was a lot of the network that we brought on in 2006. But I think we'll just leave it at that.
JOSH ELVING: Okay. And I guess one other question with regard to the -- talking a little bit more about the India and China, is the opportunity there taken from some the underground networks as these countries are pushed to bring money transfer to more formal -- to go through more formal channels? Or is there just that much growth opportunity?
PHIL MILNE: Well, I think it's a combination of a lot of different things one probably is some of the underground and some of the niche players that are doing business there. But it is a -- just an enormous market and just the sheer size of it and the sheer growth of it represents a huge opportunity for us. And we've got a -- getting to be a fairly sizable full-time team on the ground out of Mumbai now. We've had a -- we have a seasoned country head in India now and an expanding agent base.
So that was what work we were doing here in the States and Western Europe and the Middle East. We just think it's a huge opportunity, we're really going to invest in it.
Thanks.
PAUL BARTOLAI, ANALYST, CREDIT SUISSE: Thanks. Paul Bartolai from Credit Suisse. Phil, you talked a lot about the investments you made in '06 and that had obviously an impact on capital spending. I was hoping you could give a little bit more color on what specifically drove the capital spending increase in '06, where you see capital spending going in '07? And maybe in conjunction with that, if you could talk about any of the terms, especially in the competitive situation you saw in the renewal of some of the agents you just signed?
PHIL MILNE: Sure. Capital spending in '06, I think it was really driven by investment in the back office, some of the systems work we're doing, product development and of course just the investment we've made in high agent growth. So a lot of agents came on, a lot of locations, so supporting that with PCs or systems work and signage. And so a 24% growth in the agent that required some investment. And that's a very exciting thing. And I'd love to have that same issue in 2007.
I think you'll see more of the same in '07 with the network growth and supporting that, continuing to invest in the back office. Some of the items that Tony talked about with the call center automation and trying to drive down costs through automation. Some of the infrastructure issues -- the investments that we're doing in MoneyGram International itself, continue to push on the signs on a global basis and Dave, Tony, anything that I'm missing. I think it's more of the same in '07.
UNIDENTIFIED COMPANY REPRESENTATIVE: Yes, I mean we -- with the expansion of the customer-agent base, obviously, there's a lot of investment that goes into point of sale equipment and signage and the like. Also with the growth in the business and the -- bringing on additional people, we've obviously needed more space to house those folks, so there's investment in that as well.
PHIL MILNE: In terms of the competitive landscape for bringing agents on, I don't think we've seen really anything that we haven't seen over the last few years in terms of -- I assume you're referring to sign-on bonuses and things like that. I think it's been more of the same. I don't think we've seen anything unusual or any trend that we found disturbing.
PAUL BARTOLAI: But do you have a specific CapEx target? I mean, should we see growth in the same range that we saw it in '06? Any more color you can give us on that?
UNIDENTIFIED COMPANY REPRESENTATIVE: I -- the -- well we haven't actually put a CapEx number out for '07. But -- I think I talked about in he conference call, our investment probably will be a bit less than last year, although the focus is going to continue to be on that agent location expansion, the network and we'll continue to do that and you'll see some additional investment there. I think the other place you'll see it is on the retail front as we continue to open up additional locations.
PAUL BARTOLAI: And then just last question, any big agents that are coming up for renewals in the near future?
PHIL MILNE: We generally don't comment about that. Our contracts are three to five years, so you're going to see 20% of our agents in any particular year. Getting super value behind this was a big one for this year. I don't think we really have anything of that size right off the top of my head. I think that was probably one of the most important ones we had for the year. So it's kind of a continual issue, but I think we're in pretty good shape on that. Thanks.
MARK SPROULE, ANALYST, THOMAS WEISEL PARTNERS: It's Mark Sproule with Thomas Weisel. You've talked in the past about sort of the money transfer margins being kind of in excess of 20%. Is -- how do we look at that now as we go forward? Is it the maturity of your agent base globally? Is it -- is that offset by the investment in just building the network and the marketing spend and where do we get to that level or are we still on that sort of projection?
PHIL MILNE: Well, I think over time, we still feel like we can get there and -- but I think what we have found, Mark, is that as we continue to expand across the globe and the network opportunities have been just tremendous for us. And then when we travel and we see the size of the opportunities in places like in India and in the Middle East and in China, it just spurs us on. We said, we've got to continue to invest in this business. And so I think what we're seeing is, yes, we're getting economies of scale in the back office. We're getting costs down on a per unit basis. We're doing things like call center automation. So we're getting more efficient in the back office, but we're still in the investment mode in this business.
And we -- when you get a big agent to sign up, you've got to get signs up there. You've got to get POS equipment out there, you've got to support them with marketing and so what we're finding is that, yes, we're getting more efficient, but we're really in the investment mode in this business. And I think it's really critical right now for us to stay in that mode because of the size of this business, the global aspects of it and just the opportunity ahead for us. So I want to temper, yes, we are getting efficiencies, but we're investing. And I think it's the right thing to do from a shareholder perspective and we really believe that.
MARK SPROULE: And understanding that you're investing in a global sense, if we -- if you were to, and maybe you don't want to get into this detail, but if you were to sort of segment it out --
PHIL MILNE: I know, but you'll ask anyway.
MARK SPROULE: Yes. If you were to look at someone maybe your more mature age and locations in more mature sort of send regions, would you say you're kind of almost at that margin level, maybe focusing on it for the Mexico, Latin America corridors versus where you would be in Eastern Europe, Asia, et cetera, which are obviously much more nacent areas?
PHIL MILNE: Jeez, I don't really want to get down into that detail, but I think the way I want to position is, one is that we still have a fairly young agent base. And if you look at -- we've put the bulk of our agents on [oh] for the last four to five years. So a lot of the work that was done in the early 2000s is really ramping up now and I think you've seen that in our results. But we continue to add network and if you look at last year, I think it was our best year ever in network growth I believe.
So that is going to require some investment, which we think is a great use of capital. And as I said, as you look at the size of some of these opportunities that we're just starting to tap into, it's really an exciting place to be. So yes, I don't want to get down to whether -- what the margins are in a particular region. I just think we look at the size and scope of the opportunity and then some of the emerging products, like bill payment and you look at that and there's a handful of companies that have a direct connection to the amount of billers that we have. And we think that's a real strategic asset that's worthy of investment. So I mean that's really what's going on from a dynamics standpoint.
MARK SPROULE: And if I could shift gears a little bit, when you look at the retail store building that you're just started, France, Germany, et cetera, how do you look at the ramp rate or expected ramp rate of those locations versus kind of the historical maturity of the agent base. Is it the same sort of time frame, kind of a two, three-year cycle to get them up to maturity and is that when we'd start to see them maybe being additive from an earnings perspective or should we see them earnings positive on a shorter term phase?
PHIL MILNE: I think that the first -- the earlier comment that we're seeing it ramp up in a similar fashion, although I think we've been, it's a small sample size, but we have been I think pleasantly surprised with the results that we've had on the ones that we've got up and running. And that's with just hanging a sign and really we really haven't supported heavily yet with marketing as we try to get some critical mass. So just getting a sign up and getting our decals on the windows, we're seeing some really nice ramp up. But I think it's going to take a couple of years before -- I mean, that's why we gave the $0.03 a share this year. Because it's going to take us a few years to get critical mass and get the things to a point where we have a positive contribution. But it -- those markets are huge, France and Germany specifically. And they're very important and we've got to get our -- in excess of our fair share and brand to do that.
MARK SPROULE: And then I guess to the last question for you. When you look at -- and understanding that the money order business is a declining business and you guys haven't really focused on trying to build that portfolio for some time, but with FDC pulling out of that segment, how do you look at their portfolio as far as trying to maybe expand your business in money order. Maybe make an opportunity to see your broader float portfolio go from the 6 3 billion back upwards and that's sort of an ironic twist here as we go back part of the year. So, is there parts of the business that you won't do? Is there pricing points that you sort of cut off or is it -- should we look at this as sort of a very unique opportunity to see some sort of upside growth from that part of the business as we go forward?
PHIL MILNE: Well, I think as I understand, Western Union is -- has the money orders, but I think First Credit is the processor. I don't think First Credit itself is doing much in the way of money order business, maybe through some banks, who I think are in combination with their official check providers. So I think Western Union has a long-term contract for processing with First Credit. I believe that --
UNIDENTIFIED COMPANY REPRESENTATIVE: It goes through 2011.
PHIL MILNE: So I don't think you're going to see Western Union getting out of the money order business, it would be our guess. I think probably the other piece of it, and might as well just address it on the official checks, I mean obviously they're getting out of that business and what does that mean to us? I think from our standpoint, I think maybe you get two things out of it. One you might get a little bit better pricing power. And two, some selective opportunities. So I think I want to use the word selective. I mean we have to do the right deal for us at the right price and then I think we would take a look at it. Tony, anything to add to that?
TONY RYAN: No, I think it's -- what we tried to outline in the presentation is if I do -- trying to get the same target margins that we have historically. Maintaining our focus on the fee-based side of the business and as I said, we were already stepping up our activities going into that year. Trying to sell more official check business than we have historically and I think this will probably give us a little bit of incremental opportunity on top of that, but we are going to maintain a very disciplined approach to that.
PHIL MILNE: Thanks Mark.
MARK KINNAMAN, ANALYST, MORRIS AND POWER: [Mark Kinnaman] from [Morris and Power]. Phil, Wal-Mart represents 24% of global funds transferred in 2006. I'm curious where you would expect that number to be in 2010. Would it be higher or lower, any thoughts on that?
PHIL MILNE: Let's see, how would we want to answer that?
UNIDENTIFIED COMPANY REPRESENTATIVE: Well do you want me -- why do you keep looking at me?
PHIL MILNE: Sure.
UNIDENTIFIED COMPANY REPRESENTATIVE: I think we're obviously not going to project that out to that point. Wal-Mart has been an outstanding agent relationship for us. We expect them to continue to be an important for us in our future growth. But at the same time, we're doing a lot of other things to grow the business so that we're not ultimately dependent on any one agent. So it's a very good thing, but we do focus a lot on diversification of that revenue stream.
MARK KINNAMAN: Okay. And then the tiered commission structure that you mentioned on the K, is that something that's pretty typical for your larger agent relationships.
UNIDENTIFIED COMPANY REPRESENTATIVE: No, we're only doing that with a handful of very strategic agents. But we also like it a lot because it really kind of gives everybody some skin in the game to go drive the business. So we've hit a couple of those tiers and that's a good thing, it's just sometimes the timing's not where we thought it would be and that's actually happened a little faster, which is a good thing.
MARK KINNAMAN: What happens to the kind of operating profitability of that as those tiers kick in?
UNIDENTIFIED COMPANY REPRESENTATIVE: Well I think over time, we get a lot of leverage out of the thing and especially with -- I think we talked about Wal-Mart. I mean, we've got one pipe going into there, so their transaction growth, the timing may be off from a forecasting standpoint and they hit a little faster than we wanted, but over time the leverage we'll get out of that is just tremendous. So it's a good thing.
MARK KINNAMAN: And just lastly, what is the nature of the exclusivity with Wal-Mart?
PHIL MILNE: Well, I mean we have an exclusive money transfer, money order, urgent bill payment contract with them.
MARK KINNAMAN: It doesn't restrict your ability to gain agents outside of Wal-Mart [multiple speakers]
PHIL MILNE: Oh, no, no.
UNIDENTIFIED COMPANY REPRESENTATIVE: They're exclusive to us.
PHIL MILNE: They're exclusive to us. It's not the other way.
MARK KINNAMAN: Thank you.
PHIL MILNE: So, yes, there's no restrictions on us.
MIKE ABRAMS, ANALYST, NEW MARKETS FINANCIAL FUND: [Mike Abrams] from [New Markets Financial Fund]. Could you comment maybe just generally about the domestic to domestic business in money transfers? You've been talking about the global aspect quite a bit, do you have any thoughts on that?
PHIL MILNE: Well, we've had very strong growth on our domestic to domestic business. And it continues to be a very large market and I think probably on a global basis, it's probably the highest market share we have is right here domestic to domestic. And that's really been driven by the terrific partnerships that we have here in the States. People like Wal-Mart, SUPERVALU, Albertsons, ACE, just some of the bigger chains that we have. So that's a very strong market and we continue to grow very, very rapidly in the domestic to domestic business. We like it very much.
UNIDENTIFIED COMPANY REPRESENTATIVE: It's also where we did a lot of the simplified pricing as well. The simplified pricing was a big aspect of the domestic growth and just simplifying that message back to the consumer, making it easier for the agent to execute and that's helped us drive the domestic footprint and growth to the consumer. I mean, that's one of the great things about this business that we really like. We've got strong growth growing out of the States. We've got strong growth within the States and then the international opportunity. So it's just -- that's why we just love the size and scope of the opportunity.
DAVID PARKER, ANALYST, MERRILL LYNCH: David Parker from Merrill Lynch. You talked about rolling out bill payments to your money order locations, your 55,000 locations. How many currently provide that service?
UNIDENTIFIED COMPANY REPRESENTATIVE: We're not going to -- we're in the beginning stages of that roll out, so I don't think we want to dive into those types of numbers, but we -- as I said, first of all, there's a handful of companies with the direct access to the billers that we have and the number of billers. That's a strategic asset for us. And we've been in the walk-in bill payment business for a number of years. And I think over time, that's going to be a real solid business for us, with some terrific growth opportunities. So we're in the early stages of rolling that out, but we really like it and encouraged by the results so far. Tony, anything to --
TONY RYAN: Just keep in mind, we just rolled it out in November of 2006, right? So it's very, very early. And any time you do a roll out with a new platform like that, the first thing you're doing is testing that platform and making sure that everything is the way it needs to be. So that was really the focus of this first phase and throughout 2007, now we'll be looking at expanding our network, both in terms of biller connections and in terms of our footprint to that 55,000 agent locations.
DAVID PARKER: And then how difficult would it be to provide electronic bill payment to your official check financial institution customers and is this a market that you'd look to get into as well?
PHIL MILNE: Well the, kind of the home banking, that's not what we're focusing on right now. How hard it would be, I don't even know. We're really focused on leveraging the assets that we have and that's the walk-in network that we have. So I think that's going to be our first focus. I don't know how hard it would be for us to leverage into a kind of a home banking bill payment module. Obviously, you've got the payment mechanism for it with the whole back office, but our -- really our focus is on the walk-in side.
UNIDENTIFIED COMPANY REPRESENTATIVE: We do think that -- I mean if you take a look at the urgent bill payment market, we have US Bank offering both money transfer and urgent bill payments. And part of our strategy, in one of the slides, we talked about the ability to be able to be able to cross-sell urgent bill payment and then also telephone and web-based bill payment into the financial institutions. And we're in that market today, and we're doing a business with a lot of financial institutions with tel and web products. So I think that'll be a part of our focus as well as -- and if you look on the back side, as far as receiving payments, a lot of financial institutions who mortgage, credit card, auto loans and that type of thing are actually ExpressPayment customers of ours. So we feel very good about the future in terms of penetrating both from the distribution side, where they're agents and receiving payments and then also recipients of payments for their own use. So I think both are potential fertile ground for us as we go forward.
UNIDENTIFIED COMPANY REPRESENTATIVE: But, David ,that gets back to the strategic value of what we've built on the bill payment business, the back office and the relationships. It's a very leverageable asset for us.
RICK LEGGETT, ANALYST, BARBER CAPITAL: [Rick Leggett] with [Barber Capital]. I'm fairly new to looking at the money transfer business, but it certainly looks like one where scale advantages can be developed and applied and I'm just curious as you think about breadth of network, compliance, things like that becoming competitive advantages. Are we at a point in this industry where consolidation is likely to accelerate and given that we have seen some deals, you said prices are full. I'm curious how you view that opportunity to consolidate this business strategically? Whether it be just organic growth or what you would foresee over the next two years for acquisition opportunities.
UNIDENTIFIED COMPANY REPRESENTATIVE: I think that you have seen several deals, and it's probably what, 3 or 4 in the last 18 months. And I would assume you're going to continue to see some consolidation and -- but as I said, they've been very pricey. And as we look at it, what's the most efficient way for us to get market share and from our vantage point, we felt that it's getting into the neighborhoods, getting the right value proposition, getting the signs up, supporting it with the marketing and going after it that way rather than consolidating through acquisition. That's kind of our view right now. Certainly things could change on that, but I would say that the organic growth and that's going out and taking shares is right now our preferred model on it.
RICK LEGGETT: So as you pursue the competitive landscape the next two years, if scale advantage can be developed and applied, would you anticipate that your ability to take share organically could actually accelerate, given that the mom and pop's that have operated in so many places can't keep up with compliance, don't have the breadth of network, aren't doing e-Payments, things like that?
UNIDENTIFIED COMPANY REPRESENTATIVE: Yes, and Tony maybe you can jump in. I think it's the -- that what you're talking about is going to put significant pressure on the niche players.
TONY RYAN: Yes, I don't think we'd characterize it in terms of whether it would accelerate or not. I think that what -- if you look at our growth rate, we've been 22 consecutive quarters over 25%. A lot of the companies that we've been looking at have actually been growing much slower than we are, so they would be dilutive to our growth rate, which is one of the challenges.
But if you take a look at the opportunities out there, we've actually turned our network, our value pricing, our marketing message, we've turned that into market share growth. We've gone from 1.6% to 4% market share and in this size market, 269 billion, that's a significant step forward.
So if we can continue to do that and take share organically and make the