Mastercard Incorporated

Mastercard Incorporated

$564.76
-1.55 (-0.27%)
New York Stock Exchange
USD, US
Financial - Credit Services

Mastercard Incorporated (MA) Q4 2007 Earnings Call Transcript

Published at 2008-01-31 09:00:00
Executives
Barbara Gasper - IR Robert W. Selander - President and CEO Martina Hund-Mejean - CFO
Analysts
Charles Murphy - Morgan Stanley Adam Frisch - UBS Anurag Rana - Keybanc Capital Markets Moshe Katri - Cowen & Co. Elizabeth W. Grausam - Goldman Sachs & Co. Tien-Tsin Huang - J.P. Morgan Craig Maurer - Calyon Securities Christopher Mammone - Deutsche Bank, North America David Hochstim - Bear Stearns
Operator
Good day ladies and gentlemen and welcome to the fourth quarter 2007 Master Card Incorporated Earnings Conference Call. My Name is Katrina and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] I would now like to turn the presentation over to your host for today's call Ms. Barbara Casper, Head of Investor Relations, please proceed. Barbara Gasper - Investor Relations: Thank you, Katrina. And good morning to everyone. Thank you for joining us, either by phone or by Webcast for a discussion about our fourth quarter and full-year 2007 financial results. With me on the call this morning are Bob Selander, President and Chief Executive Officer. Martina Hund-Mejean, our Chief Financial Officer and Tara Maguire, our Corporate Controller. Following some comments by Bob and Martina highlighting key points about the fourth quarter and the full-year, we will open of the call for your questions. In total, the call will last up to one hour. This morning's earnings release on the slide deck that will be referenced on this call can be found in the investor relations section of our website MasterCard.com. The earnings release and the slide deck that have been had been attached to the 8-K that we filed with the SEC this morning. A replay of this call will be a posted on our website for one week until February the 7th. Finally, as set forth in more detail in today’s earnings release I need to remind everyone that today's call may include some forward-looking statements about MasterCard's future performance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance are summarized at the end of our press release, as well as contained in our recent SEC filings. With that, I would now like to turn the call over to Bob Selander, Bob? Robert W. Selander - President and Chief Executive Officer: Thanks Barbara and good morning everyone. We are thrilled with our strong financial performance in both the fourth and full-year. These results demonstrate our success in leveraging our assets and global business models to differentiate MasterCard in the marketplace. Our diverse offerings and payment insights are clearly resonating with our customer financial institutions and merchants who continue to appreciate the value we provide to their businesses. Turning to Page two of the slide deck. In the fourth quarter, we delivered net income of $304 million or $2.26 per share on a diluted basis. This includes after-tax gains of $185 million or $1.37 per share from additional sales of our investments in Redecard. We once again recorded, quarterly net revenue of over $1 billion, up nearly 28% of the fourth quarter of 2006. This was driven by strong growth in gross dollar volume and process transactions. Including cross-border volumes, which grew by over 27%. Additionally, pricing adjustments contributed approximately 2% of the revenue growth in the quarter. Finally, we saw our operating margin improve 10.3 percentage points, 16% from 5.7%, excluding special items, demonstrating the continued leveragability of our business model. I am sure you are wondering how the economy will affect our ability to maintain these strong results. So let me spend a moment on slide three to make a few observations about the current economic situation in the United States and what it means for MasterCard. Although we have not seen the same impact in our business that the slowdown in the US economy has had on other financial services companies, continued weakness has the potential to slow the rate of our US growth in the future. However, there are four distinct factors about our business that put us in the better position in times of economic uncertainty in the United State. First, a significant portion of our business is transaction driven. We can't predict the future of the US economy but regardless of what happens, we expect that consumers will continue to transact. While consumer spend might be slowing relative to what we have seen in the past, MasterCard US data from the 2001 recession indicates that transactions grew to rates that exceeded volume growth. Additionally, MasterCard advisors’ spending pulse data, which captures more than card based payments, indicates that a mix shift in consumer spending is occurring. Over the past several months, consumers have moved away from discretionary items such as jewelry, full service restaurants, and home furnishings for everyday purchases including gasoline, grocery, and personal healthcare items. This movement to everyday purchases aligns well with where MasterCard is broadly positioned in consumer's wallet. For us, the shift in spending patterns translated into higher fourth-quarter growth rates in US volumes when compared to third quarter of 2007. Let me repeat that, the shift in spending patterns translated into higher fourth quarter growth rates in US volumes when compared to the third quarter of 2007. Second, about half of our business is generated outside of the United States, in regions which are currently experiencing better economic conditions. Our global business model adds diversification to our revenue base and helps to insulate MasterCard from the effects of local economic downturns. MasterCard's business is much more sensitive to disruption and cross border travel, than it is to consumer spending or retail sales in any one region. Third, the secular shift from paper to electronic forms of payment continues to be strong despite a challenging economic environment in the United States. One example of this is the growth of the e-commerce sector as consumers shift their shopping patterns from in-store to online purchases. Finally, since we don't issue cards, we don't have the risk of credit write-offs, as we are not directly exposed to consumer debt. We are closely monitoring the impact that a weaker U.S. economy could have on our customers’ payment businesses and we'll adjust our resource allocation as our customers manage their plans. Overall, we continue to have confidence in our ability to drive future growth and deliver shareholder value. Before turning the call over to Martina, there are few developments on page four that I would like to highlight. On the legal and regulatory front in December, we received a ruling from the European Commission with respect to our cross border interchange rates. As you know, we are not economic beneficiaries of interchange, but there is no immediate direct impact on MasterCard's financials. We plan to file an appeal with the European Court of First Instance, by the beginning of March. They're carefully analyzing the commission's decision and hope to meet with the Commission in the near future to discuss their decision. We intend to comply with the commission's order during appeal process and are prepared to take action to ensure that our payment products remain competitive. At this time, we are unable to comment further on the decision. Switching gears for a minute, let me provide you with an update on our progress related to SEPA, Single European Payments Area. Despite some of the uncertainties surrounding SEPA, we have made very good progress and we continue to believe that MasterCard has the best product solution for banks in Europe to become SEPA compliant. We've completed migration agreements from national use only brands to Mystro, for roughly 20 million cards, Germany, Italy, Ireland, Portugal and the Netherlands. All of these agreements cover brands and some also include domestic processing. This is incremental to all offering debit cards, which had already migrated to Mystro. Additionally, domestic transactions on all cards issued to the Mystro logo can now be routed through our network if an acquirer or merchant chooses to do so. As a result, we've now started processing some domestic transactions on over a 140 million cards, during both the domestic and Mystro brands in Ireland, Portugal, Italy, Austria, The Netherlands, and Germany. This means that even if a bank does not migrate their national branch to Mystro, MasterCard can still gain incremental domestic processing business. On our US litigation, we have no significant updates to report at this time. As I just mentioned on slide 2, 2007, we recognized gains from sales of a significant portion of our investments in Redecard in the fourth quarter and for the full year. We recognized after tax gains of $185 million and $254 million respectively. These gains have been reported as investment income on our income statement. In October of 2007, our Board approved a $750 million Class A common stock repurchase program, it was incremental to the $500 million program announced last April. The aggregate repurchase program totals $1.25 billion. As of December 31st, 2007 approximately 4 million shares of Class A common stock had been repurchased at a cost of $601 million while the aggregate program was about half way complete at that time. Also during 2007, we implemented and completed two separate conversion programs in which 11.4 million shares out of an eligible 13.4 million shares of Class B common stock were converted into Class A common stock and subsequently sold to public investors. As a reminder, our Class B shares are held by our customer financial institutions. As a result of these repurchase and conversion programs, as of year end 2007, Class A shares represented 67% of total shares outstanding, 10% of which was held by the MasterCard Foundation. With that, I will now turn the call over to Martina for a more detailed update on the financial results. Martina Hund-Mejean - Chief Financial Officer: Thanks, Bob and good morning everyone. I am pleased to be part of the MasterCard team and I look forward to meeting you all soon. Let me begin on page five of the slide deck. As Bob mentioned, net revenue for the quarter was almost $1.1 billion, an increase of 27.8% versus the year ago quarter. Currency fluctuations of the euro and the Brazilian Real, relative to the US dollar contributed 4.7 percentage points of the net revenue increase, resulting in organic growth of 23.1%. Approximately two percentage points of this was due to pricing adjustments. Our operating income of $172 million resulted in an operating margin of 16%, a 10.3 percentage point improvement over last year, excluding the impact of special items. As we've mentioned in the past, our strong revenue growth enabled us to leverage our operating margin. The margin contribution from revenue growth was more than twice as much as the impact from expenses. The contribution from foreign exchange was less than one percentage points. Net income was $304 million or $2.26 per share on a diluted basis. Without the impact of gains from the sale of a portion of our investment in Redecards, fourth quarter EPS was $0.89 per share on a diluted basis. Turning to page six, in the fourth quarter, we saw a double-digit in both gross dollar volumes and process transactions across all regions. GDV grew 15.2% on a local currency basis and 20.9% on a U.S. dollar converted basis, $634 billion. The fourth quarter was the 15th consecutive quarter of double-digit worldwide gross dollar volume growth on a local currency basis. And despite the economic downturn in the U.S., our U.S. GDV growth was 10% and U.S. purchase volume growth was even stronger at 11.1%. Both of these growth rates were higher on a sequential basis than the third quarter of 2007. Although not shown on page six, worldwide purchase volume was up 16.1% and cash volume was up 12.3%, both on a local currency basis. Additionally, cross border volume or the volume that is generated from card holders who travel outside of the country where their card is issued, was up 27.7%. Processed transactions, or the actions processed across MasterCard's network, increased 17.2% to $5.2 billion in the fourth quarter. While the full impact of the economic downturn in the U.S. remains to be seen, the global diversification of our business and MasterCard's ability to generate significant volume, transactions and revenue from economies outside of the U.S. remained strong. Additionally, MasterCard's performance based pricing continues to moderate the impact on revenue driven by swings in volume. In other words, because of our [inaudible] pricing arrangements, lower issue of volumes can result in lower rebates and incentives. And as Bob mentioned in his opening remarks, distorted data indicate that this secular shift from paper to electronic forms of payment continues even during times of economic slow down. As you know, one of the metrics we focus on is revenue yield. Our net revenue is $1000 of GDP. This metric was 16.9 basis points in the quarter versus 16 basis points in the fourth quarter of 2006. The improvement in revenue yield can be primarily attributed to foreign exchange, pricing adjustments and new services. Let's turn to Page 7. You can see that net operations fees increased 25.2%, $167 million to $829 million in the fourth quarter. Gross operation fees increased 25.2% or $186 million to $925 million. This growth was driven by several factors. First, growth in process transactions, first quarter volumes, and gross dollar volume that I previously described on page 6. Second, the continued impact of pricing adjustments in new programs such as higher utilization and pricing changes for stand-in authorization services, acceptance development fees and a new fee associated with rewards programs to further enhance acceptance that was implemented back in June, 2007 and other operation fees driven by new account enhancements that allow our customers to move card holders to different programs without a change in account numbers. In the fourth quarter, net operation fees as a percentage of growth operation fees remained unchanged. Since we won't be filling our 10-K until later in February, we have included the quarterly operation fees details for your reference in Appendix B to the slide text. Let's turn to Page 8, there we show the net assessment increased 37.9% versus the fourth quarter of 2006, or $67 million to $244 million. In the fourth quarter gross assessments increased 18.5% or $89 million to $569 million due to strong GDV growth. Net assessments as a percentage of growth assessments also improved, primarily due to lower growth in incentives [inaudible] volume as well as the timing and lower growth of merchant incentives. In 2007, merchant incentives were most evenly distributed throughout the year versus 2006, and a higher percentage of merchant incentives were recorded as contra revenue in the fourth quarter. Please turn to Page 9, for some detail on expenses. During the fourth quarter, total operating expenses increased 13.5% of which 3.3 percentage points were related to currency fluctuations, this increase was mainly driven by three factors. First, an increase in personnel cost for additional staff to support customer facing, technology and product areas. Personnel costs were also driven by an increase in performance incentive accruals, as well as severance expenses resulted from... resulting from a corporate resource alignment, which occurred later in the quarter. This resource realignment was undertaken to cut costs in certain areas and provided with a flexibility to invest in others and to ensure that resources were appropriately allocated to support the company's strategic priorities. This initiative resulted in the reduction of about 100 positions. As of year-end 2007, MasterCard had approximately 5,000 full-time employees. The second driver of the increase in total operating expenses was higher professional fees related to legal costs to defend outstanding litigations. And the third driver was 4.5% increase in advertising and marketing expenses versus a year ago period, primarily due to foreign exchange. Also the company made an additional $10 million cash contribution to the MasterCard Foundation in the fourth quarter this contribution completed our previously disclosed intention to contribute up to $40 million in cash to the foundation over four years following our IPO. On our last earnings call, we said we expected G&A growth in the second-half to be slightly lower than it was in the first half. In actuality, second-half G&A growth quite came in at 17.3%, slightly higher than the 16.4% we experience in the first half. This difference can be more than attributed to the severance expense related to the corporate resource realignment later in the quarter. We have included the quarterly G&A details for your reference in Appendix C. Turning to page 10, let's take a quick look at our full-year performance, which was also very impressive. We delivered net income of $1.1 billion or $8 per share on a diluted basis. This includes after-tax gains of $254 million or $1.87 per share from gains on the sale of a significant portion of our investment in Redecard. We achieved full-year net revenues of $4.1 billion, representing growth of 22.3%. Excluding the impact of currency fluctuations, organic net revenue growth was 19.2%, which includes approximately two percentage points of pricing adjustments. Net revenue growth was driven primarily by strong growth in GDV and process transactions, including cross-border volume, which grew 21.1%. Finally, we saw our full-year operating margin improve 7.8 percentage points to 27.3% from 19.5%, excluding special items in both 2006 and 2007. Similar to the fourth quarter, the margin contribution from revenue growth was more than twice as much as the impact from expenses. The contribution from foreign exchange was less than one percentage point. Moving to the cash flow statement and balance sheet highlights on page 11, we generated $770 million in cash flow from operations during 2007, $52 million of which was generated in the fourth quarter. We ended the year with $3 billion in cash, cash equivalents and available-for-sale securities. Capital expenditures increased $156 million in 2007 to accommodate our increased workforce as well as to develop new services and increase capability. In 2008, we expect both CapEx and D&A to be slightly higher than they were in 2007. As of year-end, we repurchased approximately 4 million Class A shares on aggregate amount of $601 million. About half of these shares were repurchased in the fourth quarter. And in January, we repurchased an additional 657,000 shares at a cost of $124 million. Finally, for the full-year, accrued expenses increased $135 million due to customer merchant incentives and higher personnel costs. I will now turn the call back over to Bob for some comments on our 2008 outlook. Robert W. Selander - President and Chief Executive Officer: Thanks Martina. Before moving to the Q&A, I'd like to address a few items on page 12. Given the uncertain U.S. economic environment, I would like to provide you with some additional thoughts about our outlook for 2008. Keeping in mind some of the points Martina and I have made already about the global balance of our business, our lack of consumer credit exposure and our commitment to adjust our initiatives as the opportunities presented by our customers in different markets evolve. First, we are currently evaluating whether it is appropriate to update our existing three-to-five year long-term performance objectives. This involves multiple factors including the evaluation of current economic and competitive conditions as well as our ongoing planning efforts. We expect to address our objectives at our annual investment community meeting this spring. When thinking about 2008, there are three items I would like to highlight. First, we expect slower net revenue growth than 2007, but still at double-digit rates. Second, our G&A expenses should grow to a rate that is both slower than net revenue growth and below the 2007 G&A growth rate. As we moderate our hiring as compared with last year. And finally, with respect to advertising and marketing expenses we anticipate continued modest growth particularly to support our efforts in international markets. These guidelines assume current foreign exchange rates no global recession, no event which significantly disrupts cross-border travel. To wrap up, we are trilled with our fourth quarter and full-year results. And continue to be encouraged by the transaction growth and cross-border trends we are experiencing. We are committed to growing the business and adding value for our customers, merchants and shareholders. Barbara Gasper - Investor Relations: We are now ready to begin the question-and-answer period. In order to get to as many people as possible in our allotted timeframe, we ask that you limit yourself to a single question with one follow-up and then queue back in to ask additional questions. Katrina, can we start the Q&A please? Question and Answer
Operator
Thank you. [Operator Instructions]. Your first question comes from the line of Charlie Murphy representing Morgan Stanley. Please proceed. Charles Murphy - Morgan Stanley: Thanks very much. We’ve heard about a price increase, which MasterCard implemented in January '08 to its merchant acquirer customers, could you size for us what percent of the currency conversion and cross-border fees are cross-border, and then what percent of those fees are charged to merchant acquires to help us potentially size that price increase? Martina Hund-Mejean - Chief Financial Officer: Hi, Charlie. Let me take that one. First of all, we obviously don't comment on specific price increases until such time where you actually see it showing up in our financial statements. We don't comment on those obviously for competitive reasons too. It's very sensitive from a competitive point of view. As we said already in the prepared remarks, both the fourth quarter and the full year is actually impacted by… positively impacted by two percentage points in terms of price adjustments. I think we would call it price adjustments, because it is not just price increases typically wrapped around the value proposition that we have for our customer. I think we're really not prepared to break it into its parts. Charles Murphy - Morgan Stanley: Okay, thanks.
Operator
Our next question comes from the line of Adam Frisch representing UBS. Please proceed. Adam Frisch - UBS: Thanks, good morning guys and nice quarter. I think you’re the only green stock on my screen so far today. So a nice job there. On the expense items that you spoke about, the A&M and G&A, lots of questions we get from investors speaking about '08. Obviously, the growth isn’t going to be as strong in '08 as '07, so a lot of focus is going to be on your cost structure. Slower growth is one thing, if you could just provide maybe a better order of magnitude or areas of leverage to give us a better feel for how much leverage you can get out of those two line items in your P&L in '08? Robert W. Selander - President and Chief Executive Officer: I am the one who made a couple of the observations, Adam, I think about 2008, and I did observe that we had a great year revenue growth wise in '07. But we do see things slowing, but we do expect we will still be able to achieve double-digit growth rates in revenue. On the G&A side, obviously in order for us to improve operating margins we need to have that growing plus rapidly the revenues, and clearly that has been the case and we plan to manage it, so it continues to be the case. Given that we did add a significant amount of resources, Martina described I think the staff count at about 5000, up from I think it was 4600 a year before. We would anticipate slower growth in terms of additional resources this year, but clearly to the extent that there is some rapid turnaround in the US or some other developments. We don't want be in a position to flexibly respond to that, but suffice it to say we are sensitive to that G&A line. As you noted in the quarter, we've got about a 100 positions, gave us additional flexibility on that line as a result of that one-time severance charge we took during the quarter. And again back to the A&M, we have flexibility in that line. We have commitments to do things with customers to the degree those customers’ expectations change of how the market environment changes. I think we have an ability again to respond to that. We expect modest growth in that line. Adam Frisch - UBS: Okay. Turning to Europe as my follow-up question, lots of noise obviously in that region around regulatory form, you spoke to it a little bit in your prepared comments? What are your near-term expectations for this region, and can you maintain your growth and margins in that part of the world? Robert W. Selander - President and Chief Executive Officer: Well, I keep telling our guy Javier Perez who is President of our business in Europe that he has got a tiger by the tail. I think we have great opportunities in that marketplace. We are beginning to see some of the things that the financial institutions and MasterCard have been working on for years come to fruition with some of these debit deals that I have mentioned in my remarks as we begin the plastic branded cards, also I think on Mystro as a now cross-border brand. That is enabling us not only to capture some additional business what they convert completely to Mystro, but also to capture what otherwise would have been [inaudible] only types of process transactions. One of the other things we announced earlier quarter, this was early in January, is that we’ve also got a deal to bringing together our activities with those of Europe… France by doing due diligence process on that, but we expect that's going to enhance… sharpen our ability to deliver the customers in that marketplace. That's something that we anticipate a deal closing sometime late this quarter or early in the second quarter. Adam Frisch - UBS: Okay, thank you.
Operator
Our next question comes from the line of Anurag Rana, representing KeyBanc. Please proceed. Anurag Rana - Keybanc Capital Markets: Hi, good morning everyone. Congratulations on a strong quarter. For the past few quarters, we have observed a divergence between GDV growth rates and the overall revenue growth rates. As we look ahead, how should we model this relationship between the two, and then I have a follow-up? Robert W. Selander - President and Chief Executive Officer: I will make a couple of comments on that, and Martina you may want to jump in as well. Clearly one of our strategies has been to broaden our offerings to our customers, Anurag, and that means that we may go in and provide services, which don't necessarily generate an incremental dollar volume. They may not issue any more MasterCards as a result, but it may be we are in doing advisory services in and maybe we are providing information that enables them to better manage their business. And maybe we're providing a stand-in processing, which enables them to bend down in some ways, some of their own processing capabilities. At the end of the day, those things derive revenue, but don't necessarily drive GDV. Now the second observation I'd make is there is a mix of business taking place. Martina mentioned a very robust cross-border transaction growth, which was over 27%, and that type of transaction, those cross-border transactions tend to carry more revenue relative to the dollar volume than our average transaction. So there are a couple of factors that I would identify that are working their way through there. Over time, we may have to come back to you with some other things, other than revenue relative to GDV. I think those are two of the factors that are significantly affecting that as we see things evolve. Martina Hund-Mejean - Chief Financial Officer: And let me add to this a little bit, if I look at 2007 over 2006, and I'm looking now at… Anurag I am looking over the whole year, our revenue growth... net revenue growth was 22.3%. If you take foreign exchange out and if you take pricing out, the revenue growth was really just a little bit over 17%, so 17.2%. You might want to compare that to three other factors, local GDV growth which was 14.4%, process transactions, which increased 16.2%. So you can kind of see that those two components are starting to inch towards that 17% as you saw net of revenue growth, excluding foreign exchange and pricing. And then really what makes the difference up is our cross-border…. as Bob said, our cross-border volume for the year that was 21%. So that just really bridges you between the 14% and 16% up to the 17%. So when you look at year-over-year, 2006 to 2007, you can put it all together that the underpinning is the local GDV growth, the process transaction, but the increased rate was really driven mostly by cross-border volume, and that was a little bit... year-over-year was a little bit over lower incentive growth and revenue look at our numbers. Anurag Rana - Keybanc Capital Markets: Thank you. That was really helpful. Also, could you please give us some more details regarding the number of transactions that you processed on your own network in Europe this quarter versus last year or a couple of years ago? Thank you. Robert W. Selander - President and Chief Executive Officer: Well, as you know we processed, I think it was $5.8 billion for the quarter globally. I'm sorry, $5.2 billion globally and over $18 billion globally for the year. We don't break those down in terms of one part of the world or the other, but we think that underlying growth rate I think are parallels of the GDV growth in many markets and in those markets where we don't do as much domestic processing. So, for example that would be a lot of Europe. We think we have opportunities for faster growth rates there. Just to remind everybody, we did a lot of domestic processing in USA, Canada, Brazil, Australia and most of the other markets around the world have very small proportion of our own branded transactions that we process. So I would love to see more rapid growth in process transactions outside of those supply markets I highlighted for the foreseeable future. Anurag Rana - Keybanc Capital Markets: Thank you.
Operator
Our next question comes from the line of Moshe Katri representing Cowen and Company. Please proceed. Moshe Katri - Cowen & Co.: Hey, thanks. Good morning. Was there any major change in gross dollar volume growth during the month of December given the apparent slowdown in consumer spending? And then if we are looking at modeling our net revenue growth for '08, by how much can we… can a decline in GDV growth be offset by declining contra-revenues from payment incentives? Thanks. Robert W. Selander - President and Chief Executive Officer: Let me take the first part of that. With regard to the... how the months looked within the quarter. We report quarterly gross dollar volume, and as we have mentioned, we had a strong fourth-quarter and in particular within the U.S., we saw a higher growth rate in the fourth quarter versus the prior year than we had seen in the third quarter. Now if you take a look within the quarter, we don't track or report the monthly GDV numbers, but we do have through MasterCard advisors our spending pulse data, which we do report out. That tracks retail sales in United States. And if you take a look at that data for the months of October November and December and you look at total retail excluding automobiles, then you will see in the month of October we had about a 7.5% year-over-year growth rate, November about 8.2%, and December was about 6.4% versus the prior year. So those were all actually pretty good numbers, but there was a downturn from November to December. Now my colleagues at MasterCard Advisors have advised me to be sensitive to the fact that based at the U.S. marketplace at an early Thanksgiving, which brought in earlier Black Friday shopping day so that the November data probably got a little bit inflated because you had a little more shopping… holiday shopping activity in the month of November than we might have had the prior year. So that's what we have seen happening. Obviously, from our perspective, balance that we have outside of the US is very important to us as half or more of our dollar volume is being generated outside of United States. I think the second part of your question is related to how to model of GDV. One of the things that we’ve traditionally talked about is the yield relative to gross dollar volume. I think Martina you’ve got a couple of data points on that. I would just observe that our lower than what might have been anticipated contra-revenue or incentives this quarter. We believe that we'd rather have our customers meeting our exceeding expectations and objectives we have set and be incurring those costs. So while it does act as a bit of a shock absorber when things don’t turn out as well as we had hoped because there are performance based requirements or agreements. At the end of the day we think that seeing a robust growth and paying out those incentives is probably in our longer-term best interest. But prior to the actual revenue yield Marina if you want to – Martina Hund-Mejean - Chief Financial Officer: Yes, I mean, as Rob already said there are a number of factors that I hear being in place of being implied on GDV versus our net revenue, obviously the growth of the GDV in fact is rebase pricing actions that we do. And we really try to capture this overall in the concept of the revenue yield. If I can give a little bit of perspective for… again I'm going to just talk about the full year 2006 versus 2007. In 2006, our revenue yield was 17.3 basis points. In 2007 our revenue yield was 17.9 basis points. So it actually did go up I think 0.6 basis points. And really when you close a piece apart, it was really driven by two major factors. One was foreign exchange and the other was really cross-border volume and each of the factors contributed roughly 50-50 to that increase. Moshe Katri - Cowen & Co.: Thank you very much.
Operator
Our next question comes from the line of Eliz Grausam representing Goldman Sachs. Please proceed. Elizabeth W. Grausam - Goldman Sachs & Co.: Great. Thanks. Just I’d like to dig in a little bit more on the trends you're seeing in the US. You noted that the card growth is actually pretty healthy about 6.5% this quarter, contributing a lot to the GDV growth and the GDV per card growth is actually fairly small. Could you talk a little bit about what you're seeing really on a per card level versus particularly your market share and growing your card base in the US as that may pertain to a difference in your consumer level spending exposure versus your overall market growth? Robert W. Selander - President and Chief Executive Officer: Hi, Liz, how are you today? Elizabeth W. Grausam - Goldman Sachs & Co.: Very good, thanks. Robert W. Selander - President and Chief Executive Officer: Couple of things, I have said this I think on numerous occasions over the last couple of years that we aren't necessarily focusing at any given point in time or any given market, on share, whether that’s share of cards or share of the gross dollar volume, etcetera. We have always talked about trying to get profitable share. If you look at what happened last year with regard to MasterCard card issued, we added over a 100… or our financial institution customers added more than 100 million cards in global marketplace. So we went up from 800 million to just over 900 million MasterCards globally. And we have continued to see that double-digit type of growth rate now for several quarters. Clearly the mix varies from one market to another. In the case of the US, we are seeing more rapid growth on the debit side of the ledger than we are in the credit and you can see that in the attachments to our earnings press release. But with regard to explicitly saying "wow we think we really did a good job in share or whatever". [inaudible] in both card and dollar volume share, that's not something that we are particularly focused on. Elizabeth W. Grausam - Goldman Sachs & Co.: Okay. I guess what I was getting at is, even if the GDV per card is not growing that rapidly and the consumer is a little bit pressured. Do you still feel that the underlying card growth in your business, particularly on the credit side where we are seeing more pressure, in the US is going to support positive total volume growth on your network even in an instance where the consumer might retrench? Robert W. Selander - President and Chief Executive Officer: Yes. If we go back, the answer to that is, yes, I think we are going to see positive result because at the end of the day and I have already observed this and I think Martina did as well, you have that secular movement, which were sort of riding that wave. And then from a transaction standpoint, we went back and we did look at the data back in the 2001-2002 period. And although we did see some slow down what was then still a very robust gross dollar volume growth. Transaction growth actually accelerated beyond, it was faster than the volume growth. And that was obviously driving at that time lower ticket sizes as you had indicated, although we nevertheless continued to see transactions. And obviously a good portion of our revenues are transaction-based as opposed to dollar volume assessment based. Elizabeth W. Grausam - Goldman Sachs & Co.: Great. Thank you.
Operator
Our next question comes from the line of Tien-Tsin Huang representing JPMorgan. Please proceed. Tien-Tsin Huang - J.P. Morgan: Hi, good morning. I had a follow-up question actually on the cards in-force number as well that Liz just asked. What's driving the growth in number of cards outside the US? We actually saw a nice acceleration in growth sequentially in terms of the regions. Is this sustainable and how does the pipeline look? Robert W. Selander - President and Chief Executive Officer: I guess I can make just a couple of comments on that. We continue to see very positive business momentum. I think globally, I look at our results in the US in the fourth quarter, I think they are very good. But if you look outside the US, clearly we have more rapid growth in dollar volume as well as cards being issued into the marketplace. I kind of think of cards as one of the leading indicators of future business potential. It takes a while once a card is issued to get it fully utilized by the new cardholder. The other dimension obviously is what we're doing in terms of broadening acceptance, that is new acceptance channels or better penetration, that’s cash and checks with a given merchant category. Thus far at least the feedback we are getting despite the concerns obviously here domestically with the US economy is certainly Asia is feeling very strong, Middle-East Africa, Latin America very strong. I think Europe, we are sensing the economies are slowing a little bit there and of course everybody is sort of waiting to see does some of the slowdown in the US amplify into more of a slowdown in these other markets. But thus far, we're not experiencing that, and we remain pretty optimistic that we will be able to see these international markets continue to contribute more than share growth that they’ve contributed. Tien-Tsin Huang - J.P. Morgan: Yes. Very good. I mean just a… is a question about the rebates and the incentives recognizing that if it can serve as a buffer against any kind of weakness we might see in the US. I just wanted to better understand what triggers these rebates and incentives, is it typically based on nominal dollar volume thresholds or is it based on growth targets, just trying to better see how that ratchets down as things change? Robert W. Selander - President and Chief Executive Officer: Let me just make a couple of points on that, and I think this is something that we discussed in a couple of occasions. If you take a look at our typical year-end or fourth quarter factor, 2005, 2006, that has tended to be the period of the lowest revenue yield and most challenging sometimes revenue growth comparable quarter-over-quarter. That is because many of our customers were reaching the lowest priced volume tier based on cumulative volume and cumulative transactions done for the year. To the extent they don't get there, they may not yet too as lower pricing tier as we had forecast or imagined, then we won’t necessarily be either lowering the prices for that volume of transactions or providing them with incentives or rebates. It tends to be driven off of volume and transactions. And then the third area is also in terms of marketing programs. To the extent our customers slow down or decide not to proceed certain programs because of things going on in their business, that may cause us also not to spend money that we might have otherwise anticipated would be spent. So all three of those factors were worked away and our customers' volumes, transaction, and marketing plans pay out. Tien-Tsin Huang - J.P. Morgan: Okay. Just a quick follow-up, actually the severance charge, did you quantify that number in the quarter. Thanks again. Martina Hund-Mejean - Chief Financial Officer: Yes, I mean I think the better time to give you a pointer that really when you look at the first half of the G&A growth of 16.4% versus 17.3% in the second half, more than is offset by the severance charge. So, hopefully you can get to close enough estimate. We also gave you the number of 100 positions, but we are really not prepared to give you the specific number.
Operator
Our next question comes from the line of Craig Maurer representing Calyon Securities. Please proceed. Craig Maurer - Calyon Securities: Yes, good morning. In terms of your, I am just trying to gauge the growth potential there for you, of the 300 million plus Mystro cards you have in the region, you had talked about now doing processing for over 100 million. Is that… does that sort of see… the difference from the 300 to the 100, does that properly represent the opportunity you have there, as my assumption is that 200 million cards right now are not generating what you would call significant revenue for you now, it's really the processed cards that are generating that revenue? Robert W. Selander - President and Chief Executive Officer: Yes. Hi Craig, how are you doing? Craig Maurer - Calyon Securities: Good. Robert W. Selander - President and Chief Executive Officer: I guess I’d sort of cut it into three tranches, using that 300 million and there is over 300 million Mystro cards that we have in Europe, you have a large number of those cards that also have domestic grants on them and to the extent those cards cross boarders, we would be involved in doing the cross-border transaction processing. And additionally, not being involved in terms of the domestic processing or domestic brand [inaudible] or frankly where Mystro has been embraced as the domestic brand. But that might not be something we processed either. So if you take the 300, all 300 generate cross-border traffic for us. The 140 are the number that we also have the activity and the capability and are beginning to see in addition to cross-border domestic transactions being processed on those cards. And it may not be every bank in a given market, it may be certain specific issuers continue to have a domestic logo on it. That says to us that we still have significant upside potential, not only to get more domestic processing out of those 140, we could get some, but also from the balance where we essentially only get cross-border at this point. Craig Maurer - Calyon Securities: Okay. Thank you. And looking at what’s been going on with GDV, you talked about your growth and a slowdown, I was wondering if you are specifically seeing it? If you look at the programs out there that you have, have you seen a slowdown or I guess a more conservative spending stance by the affluent segment, because American Express did discuss seeing a slowdown that you guys and Visa haven’t really talked about. So have the affluent been pulling back on some of their discretionary spending and since you guys are on the non-discretionary side, you are not really seeing that> I was wondering if that’s something you are seeing in your numbers? Robert W. Selander - President and Chief Executive Officer: We have seen… I guess we have two sources of data. Obviously, we have the actual transactions that we process. And then we also have the spending pulse data that MasterCard advisors produces that is broader retail spending than MasterCard captures, spending products including cash and checks. With regard to that spending pulse data, I have already commented on that we have seen and a more rapid growth that spending pulse data has demonstrated, but would be considered sort of non-discretionary, it’s gasoline, it’s food, let’s face it, commodities prices underlying, oil and food prices, have been contributing significantly to what we are all paying when we go on to a gas station or to a grocery store. Consumers clearly, because they are spending more to full up their cars or food on you table, are not participating in certain other areas, not making other investments. Home furnishings has been down consistently throughout 2007. Obviously, there are some other areas where consumers have cut back in order to support their spending. We have seen a similar thing going on with regard to the spend, our mix of business on our cards. Currently, if you go in and analyze and I don’t have this data available so I can only speculate, I would assume that we are seeing a movement by most… every consumer more spending in the day-to-day thing. It doesn’t matter how wealthy you are, how high up you are in the hierarchy, you still are going to pay more for gas. So I think that mix is happening across the board. Craig Maurer - Calyon Securities: Okay, thank you.
Operator
Our next question comes from the line of Chris Mammone representing Deutsche Bank. Please proceed. Christopher Mammone - Deutsche Bank, North America: Hi, Chris Mammone. I think we have reviewed a several times the robust cross-border volume growth in the fourth quarter, I think it was about 20.6% in the third quarter of ‘07, so a good acceleration there. Do you happen to have the 4Q ‘06 number for cross-border volume? Robert W. Selander - President and Chief Executive Officer: Chris, off the top of my head I don't… what I'll do is I will just make sure that Barbara, one of our colleagues to follow up with you on that. Christopher Mammone - Deutsche Bank, North America: Okay. I appreciate that. And then as a follow-up, just on the pricing adjustments, were there any new pricing measures undertaken in the fourth quarter or is that all explained by sort of the same… the measures that we had already [inaudible] stand-in and the rewards? Martina Hund-Mejean - Chief Financial Officer: For the fourth quarter specifically there were really no new pricing adjustments that we did. So, everything that we had described on prior quarters during 2007 really took effect in the fourth quarter and by the way took over the effect earlier in 2007, Chris. Christopher Mammone - Deutsche Bank, North America: Okay. Thanks for the color.
Operator
Our next question comes from the line of David Hochstim representing Bear Stearns. Please proceed. David Hochstim - Bear Stearns: I wonder could you just tell us how much you have left in Redecard stock? Martina Hund-Mejean - Chief Financial Officer: Yes, I mean when we file our 10-K what you will see is that we have about $99 million left on Redecard. However, David, just that… obviously this is a publicly traded company so the stock price moves and it’s in Brazilian real and Brazilian real move, so we… you will see the number as of 12/31 but to keep in mind it will move as whatever the market is doing. David Hochstim - Bear Stearns: Right. Thanks. And then could you just give a sense of what to expect in the way of advertising and marketing spending on a quarterly basis, what kind of unusual fluctuations could there be this year around the Olympics or anything else? Robert W. Selander - President and Chief Executive Officer: 2006 was the last year were we had a sort of atypical pattern and that was because of our heavy-up in the second quarter surrounding the World Cup event that took place in Germany that year. So 2007 came in a more normalized year where we didn't have the bringing forward of spend or the concentration of spend into the second quarter. And I think we’ve hit back into what I would call a more typical pattern where you tend to see higher spending in the fourth quarter, which tends to also the part of the year where we have our highest volumes of business and the most promotional and other activities taking place, report of various customer programs through the quarter. David Hochstim - Bear Stearns: So we could look for that kind low single digit rate over and… evenly over the year? Robert W. Selander - President and Chief Executive Officer: Well, if deals come along or specific promotions or programs come along it can cause some choppiness, but I think it will be a more typical seasonality, and yes we do think we're going to have modest low-single digit growth year-over-year for the full year. David Hochstim - Bear Stearns: Okay. Thanks. Barbara Gasper - Investor Relations: Operator, I think we are about our time. So let's take one more question.
Operator
Our final question comes from the line of Dan Teller [ph] representing Lehman brothers. Please proceed.
Unidentified Analyst
Thanks guys. Just a quick one SEPA, any updates? I know you commented before on some traction. Early ’08 there were supposed to be some decisions on some plans at the banks in Europe would have. Can you just comment on any type of… what you are seeing that with that and how the progression has been going, any type of opportunities you think you have in this year regarding that? Robert W. Selander - President and Chief Executive Officer: I made a few observations, Dan, about some of the successes that we have had in getting some customer commitments, the Mystro. We believe that with our print on their cards that virtually every financial institution in Europe can be SEPA compliant in terms of being able to offer their customers access to payments throughout Europe, not being equally in their home town. With regard to the decision I commented on, one of those things that I think a lot of financial institutions were waiting for were some commentary out of the European election [ph], in particular the decision that they made with regards to our cross-border interchange. An important part of an issuers’ business model and their financial model is interchange, that is cost reimbursement mechanism. But I think what’s happened now as a result of the decision it’s now clear that there is less certainty around level of interchange fees than may have been present leading up to that, but at least we’ll be able to work our way through this with the commission and with our customers. That should, I hope by the end of this year, provide a more stable platform for financial institutions to make their investment decisions about how aggressive they are going to be in trying to market and promote benefits of SEPA to cardholders and merchants alike. As I said, some of the early signs we saw was over 20 million additional commitments made across a handful of countries, some additional processing coming. I remain very optimistic about our position and prospects in that market.
Unidentified Analyst
Great, thanks. Real quickly, there doesn’t seem to any real traction on the verbiage around another network forming an EU. Anything you have seen around that as well? Robert W. Selander - President and Chief Executive Officer: Well, I read about it the same papers that you do. So I can’t add a lot of comment to that. I would just say that we began in 1992 I believe it was, 15… a little over 15 years ago we build debit product and Mystro was that product, has been epicentered in Europe over that 15 years and it continues to represent over 50% of the cards that we have globally, over 600 million cards globally over 300 [inaudible]. So we think that the European banks and [inaudible] with us. Feel that they have want they need in hand and are now getting on with life. Obviously, we are doing our very best to encourage them to do that.
Unidentified Analyst
All right thanks. Great quarter, guys. Robert W. Selander - President and Chief Executive Officer: Thanks very much, Dan.
Operator
Ladies and gentlemen, this concludes the time we have for questions today. I would now like to turn the call back to Mr. Bob Selander for closing remarks. Robert W. Selander - President and Chief Executive Officer: I don't have a lot to say. We're just extremely pleased with our results for the quarter and the full year 2007. And we appreciate all of you joining us for this call today. Have a great day.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.