First Data Announces Plan to Separate Western Union Business and more changes
First Data Announces Plan to Separate Western Union Business; Will Realign Merchant, Card and International Businesses - Reports 4th Quarter and 2005 Results; Provides 2006 Guidance
DENVER, Jan 26, 2006 (BUSINESS WIRE) -- First Data Corp. (NYSE: FDC) today announced that its Board of Directors, following a review of the Company's businesses and structure, has decided to separate its fast-growing Western Union consumer payments business into an independent publicly traded company through a tax-free spin-off of 100% of Western Union to First Data shareholders.
The transaction will create two well-positioned public companies with global franchises: a high-growth company focused on serving consumers and a steady-growth company with great cash flow focused on serving merchants and financial institutions. First Data believes that its shareholders, customers and employees will all benefit from the focus of each company on its own strategic initiatives, growth plans and capital usage. First Data expects to complete the separation in the second half of 2006, and will update shareholders on the structure and timing of the transaction when first quarter results are announced in April.
First Data also announced that it will retain its domestic Card Issuing business, and will organize and report its businesses after the spin-off in three primary segments: First Data Financial Institution Services (including the Card Issuing business), First Data Commercial Services and First Data International. This alignment enables an increased focus on each customer group and better targeted sales and marketing programs.
Ric Duques, Chairman and Chief Executive Officer, said: "Since I returned to First Data two months ago, I have spent considerable time evaluating our businesses and working with the Board on a strategic plan to reinvigorate growth, reduce our cost structure and simplify our organization with a sharpened focus on our core competencies and our three customer groups -- consumers, merchants and financial institutions. I am confident that this strategy, coupled with the simpler structure, recent management changes in our Merchant and Card businesses, and a renewed commitment to meeting the needs of our financial institution and merchant customers, will benefit our shareholders and lead First Data into a new phase of growth and expansion."
The independent Western Union company, which will include Western Union, Orlandi Valuta and the recently acquired Vigo business, will be the largest money transfer company, offering customers the ability to transfer money or make payments virtually anywhere in the world. Western Union handles more than 275 million money transfers each year through its more than 271,000 agent locations in over 200 countries and territories. The business will be led by Christina Gold, who will become chief executive officer of Western Union.
Duques said: "We have concluded that our shareholders will derive long-term benefit from keeping the U.S. Card Issuing business as part of First Data and taking concerted actions to improve this business. We will capitalize on the significant growth opportunities in each of our three new segments. First Data has successfully expanded globally by leveraging the credibility we have gained and the relationships we have established over many years with major U.S. customers. Building on this foundation, our laser-like focus on all three segments will make First Data an even more formidable player in the worldwide payments industry."
Overview of New Segments
First Data's businesses will be reported in 2006 in the following primary segments. Accompanying this release are schedules with the preliminary reclassifications in the new segment format by quarter for 2005 and 2004. Final adjusted schedules will be provided with the first quarter earnings release.
-- First Data Financial Institution Services, which had revenue and operating profit of approximately $1.9 billion and $378 million respectively for 2005, presented in the new segment format. This business, which includes the Card Issuing, Debit, REMITCO and Output Services units, will be led by David Bailis, who is currently president of First Data's Card Issuing Services business.
-- First Data Commercial Services, which had revenue and operating profit of approximately $3.8 billion and $893 million respectively for 2005, presented in the new segment format. This business, which includes the Merchant Domestic, Merchant Debit, TeleCheck and Prepaid units, will be led by Ed Labry, who is currently president of First Data Merchant Services.
-- First Data International, which had revenue and operating profit of $915 million and $113 million respectively for 2005, presented in the new segment format. This business, which includes all current First Data International businesses, will continue to be led by Pam Patsley, who is currently president of First Data International.
-- Western Union, which had revenue and operating profit of approximately $4.0 billion and $1.3 billion respectively for 2005, presented in the new segment format. This business, which includes Western Union, Orlandi Valuta and the recently acquired Vigo business, will continue to be led by Christina Gold.
4Q and 2005 Financial Results
First Data also announced financial results for the fourth quarter and full year ended December 31, 2005. Consolidated revenue for the quarter was $2.8 billion. Net income from continuing operations for the quarter was $409 million, or $0.53 per share. EPS includes $0.03 of integration expenses and $0.09 of other charges, $0.05 of which relates to the restructuring charge announced in December. As previously planned, EPS also includes a $0.03 gain on the sale of a portion of First Data's ownership interest in the PNC alliance.
For the full year, consolidated revenue was $10.5 billion, and net income from continuing operations was $1.6 billion, or $2.04 per share, which includes $0.12 of integration expenses and $0.11 of other charges, primarily related to restructuring and impairment. EPS also includes the aforementioned $0.03 gain on the sale of a portion of First Data's interest in the PNC alliance.
Existing Segment Results
For the quarter, Payment Services generated revenue of $1.2 billion, a 13% increase from the fourth quarter of 2004. Operating profit for the quarter was $375 million, up 24% compared to the fourth quarter last year.
For the full year, the Payment Services segment generated $4.4 billion in revenue and $1.4 billion of operating profit. 2005 revenues grew 10%, and operating profit grew 6%. Segment profit margin was 31%.
For the quarter, Western Union money transfer, including Vigo, represented 87% of Payment Services' revenue. Western Union delivered outstanding results, driven by strong consumer-to-consumer transaction growth of 29% and consumer-to-business transaction growth of 11%. Money transfer revenue increased 14% for the quarter to over $1 billion, and operating profit grew 23% to $351 million. Margin was a strong 34%. Excluding Vigo, consumer-to-consumer transaction growth would have been 22%, money transfer revenue growth would have been 12% (13% excluding the impact of the Euro), and profit growth would have been 23%. Margin for Western Union, excluding Vigo, would have been 35%.
For the full year, Western Union money transfer revenue, including Vigo, grew 14% to $3.8 billion, and operating profit grew 18% to $1.3 billion. Excluding Vigo, money transfer revenue and profit growth for the year would have been 13% and 18%, respectively. Margin would have been 34%.
For the quarter, Merchant Services reported revenue of $1.1 billion. Operating profit was $283 million. Margin for the quarter was 25%, and transactions were up 13%. Fourth quarter 2004 merchant revenue and profit included $101 million from a portfolio sale.
Full year revenue was $4.1 billion, up 7%. Operating profit was $971 million, down 2% and margin was 24%.
Fourth quarter Card Issuing Services revenue was $568 million, down 7%. Operating profit was $112 million, down 8%. Margin for the quarter was 20%.
Full year Card Issuing Services revenue was $2.4 billion, down 1%. Operating profit was $456 million, down 10%. Full year margin was 19%.
Outlook for 2006
Commenting on 2006, Duques said revenue growth for the combined Company is expected to be in the range of 10% to 13%, which includes approximately $250 million of current year revenue from planned acquisitions primarily in the First Data International segment. Overall revenue growth will be led by expected high-teens revenue growth at Western Union.
The Company expects to deliver EPS from continuing operations in the range of $2.35-$2.42 for 2006. Included in the EPS range is an approximately $0.07 impact from expensing stock-based compensation as a result of adopting Statement of Financial Accounting Standards Number 123R. This guidance does not include the costs that will be incurred in the Western Union spin-off.
After the Western Union spin-off is completed, annual revenue and EPS growth over the long-term for the new First Data is expected to be in the range of 8-10%, and annual revenue and EPS growth for Western Union is expected to be in the mid-teens.
Investor and Analyst Conference
First Data will hold an investor and analyst conference today at 8:00 a.m. EST. Ric Duques, chairman and CEO, will host the meeting. To listen to the broadcast and view the slide presentation, please log on to http://www.firstdata.com, and click on the link under the Invest section at least 15 minutes prior to the start of the call. To participate in the call, dial 888-831-9087 (U.S.) or +1-210-234-0003 (outside the U.S.) ten minutes prior to the start of the call and enter passcode FDC. A replay of the webcast will be available on the company website shortly after the meeting ends until 5:00 p.m. EST Feb. 2, or call 800-666-8092 (U.S.) or +1-203-369-3311 (outside the U.S.). No passcode is required.
Please note: All statements made by First Data officers on this call are the property of First Data and subject to copyright protection. Other than the replay, First Data has not authorized, and disclaims responsibility for, any recording, replay or distribution of any transcription of this call.
About First Data
First Data Corp. (NYSE: FDC) is a leading provider of electronic commerce and payment solutions for businesses and consumers worldwide. Serving 4.6 million merchant locations, 1,500 card issuers and millions of consumers, First Data powers the global economy by making it easy, fast and secure for people and businesses around the world to buy goods and services using virtually any form of payment. The company's portfolio of services and solutions includes credit, debit, private-label, smart and stored-value card issuing and merchant transaction processing services; money transfer services; money orders; fraud protection and authentication solutions; check guarantee and verification services through TeleCheck; as well as Internet commerce and mobile solutions. Western Union and its subsidiary, Orlandi Valuta, together make up one of the world's largest money transfer networks with approximately 271,000 Agent locations in more than 200 countries and territories. The company's STAR Network offers PIN-secured debit acceptance at 1.9 million ATM and retail locations. For more information, visit www.firstdata.com.
Notice to Investors, Prospective Investors and the Investment Community; Cautionary Information Regarding Forward-Looking Statements
Statements in this press release regarding First Data Corporation's business which are not historical facts, including the revenue and earnings projections, are "forward-looking statements." All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Important factors upon which the Company's forward-looking statements are premised include: (a) no unanticipated developments that delay or negatively impact the planned tax-free spin-off of 100% of the Western Union subsidiary to the Company's shareholders; (b) continued growth at rates approximating recent levels for card-based payment transactions, consumer money transfer transactions and other product markets; (c) successful conversions under service contracts with major clients; (d) renewal of material contracts in the Company's business units consistent with past experience; (e) timely, successful and cost-effective implementation of processing systems to provide new products, improved functionality and increased efficiencies; (f) successful and timely integration of significant businesses and technologies acquired by the Company and realization of anticipated synergies; (g) continuing development and maintenance of appropriate business continuity plans for the Company's processing systems based on the needs and risks relative to each such system; (h) absence of further consolidation among client financial institutions or other client groups which has a significant impact on FDC client relationships and no material loss of business from significant customers of the Company; (i) achieving planned revenue growth throughout the Company, including in the merchant alliance program which involves several joint ventures not under the sole control of the Company and each of which acts independently of the others, and successful management of pricing pressures through cost efficiencies and other cost management initiatives; (j) successfully managing the credit and fraud risks in the Company's business units and the merchant alliances, particularly in the context of the developing e-commerce markets; (k) anticipation of and response to technological changes, particularly with respect to e-commerce; (l) attracting and retaining qualified key employees; (m) no unanticipated changes in laws, regulations, credit card association rules or other industry standards affecting FDC's businesses which require significant product redevelopment efforts, reduce the market for or value of its products or render products obsolete; (n) continuation of the existing interest rate environment so as to avoid increases in agent fees related to IPS' products and increases in interest on the Company's borrowings; (o) absence of significant changes in foreign exchange spreads on retail money transfer transactions, particularly in high-volume corridors, without a corresponding increase in volume or consumer fees; (p) continued political stability in countries in which Western Union has material operations; (q) implementation of Western Union agent agreements with governmental entities according to schedule and no interruption of relations with countries in which Western Union has or is implementing material agent agreements; (r) no unanticipated developments relating to previously disclosed lawsuits, investigations or similar matters; (s) no catastrophic events that could impact the Company's or its major customer's operating facilities, communication systems and technology or that has a material negative impact on current economic conditions or levels of consumer spending; (t) no material breach of security of any of our systems; and (u) successfully managing the potential both for patent protection and patent liability in the context of rapidly developing legal framework for expansive software patent protection.
SOURCE: First Data Corp.
Copyright Business Wire 2006