Ajay Banga - President, Chief Executive Officer Martina Hund-Mejean - Chief Financial Officer Barbara Gasper - Head of Investor Relations.

Sanjay Sakhrani - KBW Tien-tsin Huang - JP Morgan Andrew Jeffrey - SunTrust Kevin McVeigh - Macquarie Bob Napoli - William Blair Jason Kupferberg - Jefferies Glenn Greene - Oppenheimer Don Fandetti - Citigroup James Friedman - Susquehanna Bill Carcache - Nomura Tom McCrohan - Sterne Agee Dan Perlin - RBC Capital Markets Bryan Keane - Deutsche Bank.

Welcome to the MasterCard fourth quarter and full-year 2014 earnings conference call. My name is Heather and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Ms.

Barbara Gasper, Head of Investor Relations. Ms. Gasper, you may begin..

Thank you, Heather, and good morning everyone. Thank you for joining us for a discussion about our fourth quarter and full-year 2014 financial results. With me on the call today are Ajay Banga, our President and Chief Executive Officer, and Martina Hund-Mejean, our Chief Financial Officer.

Following comments from Ajay and Martina, the operator will announce your opportunity to get into the queue for the Q&A session. Up until then, no one is actually registered to ask a question. Even if you think you have already dialed into the queue for the Q&A, you will need to register again following our prepared comments.

This morning’s earnings release and the side deck that will be referenced on this call can be found in the Investor Relations section of our website at MasterCard.com.

We’ve added a new table in the slide appendix to the deck that breaks out the impact of various items to our financial results as an easy reference for those of you who track that detail. These documents have also been attached to an 8-K that we filed with the SEC earlier this morning.

A replay of this call will be posted on our website for one week through February 6. 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 will now turn the call over to Ajay..

Thank you, Barbara. Good morning everybody. I’m very pleased that we were able to deliver strong results for both our fourth quarter and the full year performance despite what everybody knows is a mixed economic environment.

In the fourth quarter after adjusting for currency, we had net revenue growth of 17% and EPS growth of 25% driven by solid underlying metrics. For the full year, we saw net revenue growth of 14% and EPS growth of 19%. Both EPS growth figures exclude the impact of last year’s special item for a charge related to the U.S. merchant litigation.

So in total, we had a good year where we were able to continue to meaningfully invest in growth initiatives that I think will position us very well for the future. Those initiatives included actions resulting in a restructuring charge in this past year’s fourth quarter, which Martina is going to go through in some detail later.

Moving on to look at some of the current underlying global economic trends, let’s start with the United States which is in relatively decent shape. Our SpendingPulse data showed U.S. retail sales growth ex-auto was 2.9% in the fourth quarter, and that’s down from the third quarter growth of 4.2%. Most of that deceleration is due to lower gas prices.

Excluding auto and gas, retail sales growth was 4.1% for the fourth quarter versus 4.8% for the third quarter, showing just a modest deceleration in spending. Even though 4% growth is nothing to sneeze at, we haven’t yet seen the extra savings from lower gas prices translate into additional discretionary consumer spending.

While overall retail spending growth softened in the quarter, underlying economic indicators did remain positive with unemployment levels and consumer sentiment both showing some improvement. Looking at our own U.S. business, as we have said for the past couple of quarters, the Chase de-conversion is having an impact on our U.S.

GDP growth rate, but if we take that out, the underlying growth remained roughly the same over the course of 2014. Outside of the U.S., Europe’s recovery slowed somewhat in the fourth quarter, it still remains challenged and across the region, consumer confidence and economic sentiment decelerated slightly.

While unemployment levels were high, they remained steady with the prior quarter. There were a few bright spots - the U.K. experienced good momentum in the quarter. SpendingPulse data for the U.K. is showing fourth quarter retail sales growth of 3.6%, up from 2.9% in the third quarter.

Even in Spain, preliminary indicators are showing some early signs of recovery. MasterCard’s total European volume growth for the fourth quarter was in the mid-teens and process transaction growth in the lower 20’s, both of which increased from the last quarter due in part to a number of our recent wins across several European markets.

Latin America, a number of indicators there that highlighted the sluggish economic performance across the region. Our fourth quarter SpendingPulse data from Brazil showed retail sales growth of just 0.9%, down from the 2.4% growth that Brazil saw in the third quarter.

For the entire region, annual GDP growth is now expected to be around 1%, down slightly from earlier projections of 1.3%. Mexico, however, is an exception. It continues to benefit from improving exposure to the U.S. and actually is undergoing a slow recovery. Our business in the region remains solid.

Our fourth quarter GDV and process transaction growth is in the mid-teens, about the same as the last quarter. Across Asia-Pacific, overall business sentiment actually improved in the fourth quarter.

Optimism from Indian companies following the recent elections has driven some of that, but was tempered a bit by lingering concerns over the slowing economic growth in China. Consumer confidence across the region is holding steady. Our business in the region continues to do well.

GDP growth in the mid-teens, process transaction growth in the mid-20’s is about the same as the last quarter. So overall, the economic environment hasn’t changed much from last quarter. The U.S. looks to be in a little better shape, challenges remain for continental Europe, for Brazil and parts of Asia.

But despite all of this, you can see the strong fundamentals of our business have not changed. So before we go to our business highlights, there has been recent news about European regulatory matters and Russia, so let me touch on those a little bit first. Let me start with the proposed European legislation related to card payments.

The European Parliament, the Council of Ministers and the Commission have reached an agreement in December, and we are waiting for the formal adoption and publication of the final text. As expected, interchange caps have now been established for consumer credit and consumer debit cards. Commercial cards are excluded.

The regulation provides for a level playing field by imposing interchange caps on three-party networks when they operate similarly to a four-party network. There are some possible exceptions to this, but overall we are pleased with the outcome at this point, because it is an important one for us.

Also, a network will no longer be allowed to charge a co-badging fee if it does not process the transaction, and finally the regulation requires the functional rather than legal separation of scheme and processing functions, an outcome that we had sought once it became clear that some form of separation would be required.

We are now working to build this separation, the functional separation, into our operations. The next formal step is for the language of the agreement to be endorsed by parliament and by the member states. Our best estimate this will occur in the first half of 2015. Interchange caps will become effective six months after that.

All of the parts of the legislation will apply to us starting 12 months after the endorsement, so that’s probably sometime in 2016. So now a little bit about Russia. We’ve been working through the challenges of connecting to NSPC, which is the domestic processing switch of the Russian Central Bank in order to meet a late March 31 deadline.

Going forward, by the way, nothing has changed in terms of being able to issue MasterCard-branded cards for use in the Russian market. In terms of the financial impact to our business, our best estimate is still something less than $50 million on an annualized basis.

It will now hit our GMA line, the expense line, as a data processing expense rather than the revenue line, as we’d previously shared. Moving on to some of our recent business activity, we have expanded relationships with a couple of our large global customers, and that’s great news.

We renewed our multi-year global partnership with Bank of America that will expand share opportunities for us, both domestically and outside of the U.S., and primarily on the commercial side. We recently won new business with HSBC, which involves converting the remainder of their U.S.

consumer credit portfolio to MasterCard in the first half of this year. In the Middle East and Africa, we signed a number of new business agreements in the quarter. That should help us increase our credit, debit, commercial and prepaid businesses in countries such as Nigeria, Tanzania, Rwanda, Jordan, Kuwait and the UAE over the course of 2015.

It was built on the strong momentum that we’ve developed in the region. Over the last two years, we’ve signed close to 100 new business agreements. We now have an acceptance footprint in 50 out of Africa’s 55 markets. We feel strongly about activities that take our services to people who were previously excluded from access to the financial system.

In Africa, close to 95% of the region’s transactions are still done in cash and 80% of adults don’t have access to a bank account. Working on that whole aspect and reflecting our commitment to what’s going on in Africa, we have also launched a number of financial inclusion initiatives, and today I’m going to pick on two of those.

First, last week we announced the start of a collaboration with the African Development Bank to broaden access to financial services. We are going to do that in partnership with local governments in Africa and private sector companies.

We have the expertise to design and to scale financial solutions, and the African Development Bank is a major source of funding for the economic development of its 54 member countries. We believe together we can help drive financial inclusion and economic development across Africa over the next few years.

Secondly, last December in partnership with the Bill and Melinda Gates Foundation, we announced that we will be opening a MasterCard Lab for Financial Inclusion in Kenya. This is our seventh global innovation hub, but it’s the first that we have in Africa. It’s also the first to receive outside funding.

The lab will be dedicated specifically to creating and incubating programs that are targeted to more than 100 million people in this part of the world who are financially excluded or underserved. Our efforts on innovation, by the way, are not limited to one region, like we were discussing Africa, or only to the labs.

We’re also opening up our technology to external developers, something we’ve been trying to do for a while now. The most recent example is the 10-city hackathon competition that starts next month in Sydney in Australia, and will go on to Hong Kong, Singapore, Israel, Brazil, Canada, the U.K. and the United States.

This competition, which has already been planned for some more cities beyond these, will bring together developers and entrepreneurs using MasterCard APIs to create a new generation of commerce applications that leverages our platforms, our product capabilities such as [indiscernible] from our information services business, our MasterPass, and our prepaid, our loyalty and our fraud solutions.

Meanwhile, continuing with the global expansion of MasterPass, since this introduction in the spring of 2013, we now have the platform launched in 16 countries and just recently signed on a number of new merchants - Neiman Marcus, Office Depot, Blue Nile, Broadway.com - just some new names in the merchant list.

We’re also creating some new and noteworthy partnerships. One example is with Paylib in France.

Paylib was initially formed by BNP Paribas, La Banque Postal, and Société Général, who are by the way mainly customers of one of our key competitors, and yet they have chosen to partner with MasterPass because of what they believe is our global reach in handling all of their cross-border ecommerce transactions as well as some of the domestic transactions too.

With this partnership, up to 40 million people will have access to MasterPass acceptance with Paylib wallets linked to a card from their bank. So before I turn it over to Martina, let me quickly update you on two recent acquisitions. In December, we acquired the payment gateway services business of Transaction Network Services, TNS.

That deal gives us the ability to expand our payment gateway to the U.S. and Mexico and to position ourselves more competitively around the rest of the world, whereas you know with DataCash and our original mix platform, we’ve only had a presence.

So for example in Asia-Pacific and the Middle East and Africa, we will add new capabilities - tokenization, fraud management, and we will also be able to leverage what I think are highly skilled product and software teams that have now recently joined the company with this transaction. Additionally, we acquired 5one Marketing Limited.

That’s a marketing, analytics and consulting firm, and their clients are basically large retailers across many different consumer sectors. 5one has some proprietary software. They have used that to develop insights from a retailer’s own data that can be used for marketing, for merchandising, and for operational decisions.

You take that and you combine that kind of in-depth merchant understanding with our existing advisors’ capabilities, and I think that will allow us to provide greater insights to retailers and the ability to expand our business opportunities with the merchant community.

So with that, Martina for an update on financial results and operational metrics..

Thanks Ajay, and good morning everyone. As Ajay already said, we’re very pleased with our 2014 full-year performance, which delivered net revenue growth of 14% and EPS growth of 19%. I now turn to the details of our fourth quarter results.

Let me begin on Page 3 of our slide deck, where you see the difference between as reported and FX-adjusted growth rates for this quarter is more significant than it has been in the recent past. This is primarily due to the headwinds from the euro-U.S.

dollar exchange rate, especially with what we saw in the FX markets during the last 45 days of the quarter and its continuation into this quarter. These figures also exclude the impact of the special item related to the U.S. merchant litigation taken in the fourth quarter of 2013.

I’d like to highlight three things while on this slide and then dive into the details of the major P&L line items and subsequent lines. First, EPS growth was 25% after adjusting for currency, and share repurchases contributed $0.03 per share. During the fourth quarter, we have purchased 2.1 million shares at a cost of approximately $155 million.

Through January 23, we repurchased an additional 2.5 million shares at a cost of approximately $250 million, and we now have $3.8 billion remaining under the current authorization. We continue to look to repurchase shares on an opportunistic basis.

Second, part of the EPS growth is the result of a very favorable tax rate of 20.3% in the quarter as some initiatives only came together within the last couple of months to better align our tax structure to our European business footprint between Belgium and the U.K.

We took some of that benefit to reinvest back into the business, which I’ll discuss on the operating expense slide. Third, cash flow from operations was $725 million. We ended the quarter with cash, cash equivalents and other liquid investments of about $6.4 billion.

So let’s turn to Page 4 where you can see the operational metrics for the fourth quarter. Our worldwide gross dollar volume, or GDV, was up 13% on a local currency basis, up slightly from last quarter. Overall, our U.S. GDV grew 8%, similar to last quarter. Credit growth was 7% and debit growth was 8%, both the same as last quarter.

Outside of the U.S., volume growth was 15% on a local currency basis and primarily driven by Europe. Cross-border volume grew 19% on a local currency basis, higher than the 15% we saw in the third quarter, primarily driven by Europe. Growth in Europe was in the low 20’s. Key contributors to this growth included the U.K., Italy, Germany and Sweden.

All regions except the U.S. saw an increase in cross-border volume growth in the fourth quarter. Let me turn to Page 5, and here you can see process transactions grew 11% globally to $11.6 billion. We continue to see double-digit growth in most regions.

Growth increased from the 10% we saw in the third quarter primarily due to Europe, driven by Russia, Sweden, Poland and the Netherlands. Globally, the number of cards grew 9% with 2.1 billion MasterCard and Maestro-branded cards. Now let’s turn to Page 6 for highlights of a few of our revenue line items.

Overall, net revenue growth was 14% as reported, or 17% FX-adjusted due to currency headwinds primarily from the euro exchange rate. Additionally, the impact of local currency exchange rates to the functional currency billing rates was a little more than 1 ppt. In total, acquisitions contributed 3 ppt to our net revenue growth.

So after excluding the impact of both local and functional currencies, as well as the impact of acquisitions, we saw very strong underlying growth of 15%. Looking at the individual revenue line items on an FX-adjusted basis, domestic assessments grew 7% while worldwide GDV grew 13%.

This 6 ppt gap is primarily due to the impact of local currency and lower than average revenue yields in some markets outside of the U.S., similar to prior quarters. Cross-border volume fees grew 8% while cross-border volume grew 19%. Of the 11 ppt gap, about 7 ppt is due to the impact of local currency.

The remaining portion of the difference is mainly due to the higher mix of intra-European activity. Transaction processing fees grew 15% primarily driven by the 11% growth in processed transactions. This line item also benefited from additional revenues not driven by transaction count and some pricing, partially offset by mix.

Other revenues grew 28% driven largely by contributions from our Pinpoint acquisition as well as our advisors business. Moving on to Page 7, you can see that total operating expenses were up 26% in the quarter or 29% on an FX-adjusted basis. Of this growth, 9 ppt was due to expenses related to our acquisitions.

The other big driver was the restructuring charge, which contributed 8 ppt to the growth, so let me focus on that a bit more. Specifically, we took an $87 million restructuring charge to cover a series of actions.

First, as you know, we have made a number of acquisitions in the processing space and we are now consolidating all of our processing assets under one organization, thus driving significant synergies.

Second, we are realigning some roles within the company’s business groups and redeploying resources geographically in order to invest in and enhance our capabilities in new product areas and technology, such as digital and mobile.

Overall, these actions will impact over 500 people, but our total headcount will decline by a smaller amount given the reinvestment that I just mentioned.

The remaining opex growth of 12% was primarily driven by some opportunistic spend, such as adding A&M spend around our Apple Pay and Priceless initiatives, as well as continuing our digital investments such as MasterPass and tokenization, similar to prior quarters.

Let me turn to Slide 8, and here we discuss what we’ve seen in January through the 21st. Most of our business drivers are similar to what we experienced in the fourth quarter after excluding the impact of lower gas prices, particularly in the U.S. The numbers through January 21 are as follows.

Starting with processed volume, we saw global growth of 9%, down 2 ppt from the fourth quarter. In the U.S., our processed volume grew 3%, down 2 ppt from what we saw last quarter primarily driven by lower gas prices. Processed volume outside the U.S. grew 16%, about 1 ppt lower than the fourth quarter with growth of mid to high teens in each region.

Globally, processed transaction growth was 11%, similar to what we saw in the fourth quarter with double-digit growth in all regions except the U.S, which grew in the low single digits. With respect to cross-border, our volume grew at 19% globally, the same as our fourth quarter growth.

We continue to see high growth in major European markets, including the U.K., Italy and Sweden. Looking ahead, let me start with some commentary about full-year 2015. Given what’s happening with currency rates and the impact being seen by U.S.

multinationals across a number of industries, I’m going to start with that, especially since it was back in 2012 that MasterCard last faced such a big impact from FX. Remember that currency impacts us in two ways.

First, we have the impact of local currency rates relative to the functional currencies, and this is the FX exposure that we actively hedge, normally on a rolling 12-month basis and typically, as you know, we hedge about 50 to 75% of our total net exposure for about 30 currency pairs. Given that many currencies have depreciated against the U.S.

dollar and the euro, new hedge contracts will come on at lower rates over the year, thus we continue to expect some net headwind throughout the year, both to revenue and the bottom line. Based on the current rates, this is likely to be in the 2 ppt range, and this is already included in our FX-adjusted guidance.

Second, we have the impact of the translation of our major functional currencies, which are particularly the euro and the Brazilian real, into U.S. dollars to consolidate our financials, and we do not hedge those exposures. When we talk about FX-adjusted growth rates, we are only adjusting for the impact of these two functional exchange rates.

If the rates for our functional currencies remain similar to where they are today, so that’s the euro trading at the 1.13 level and the Brazilian real at the 2.58 level for the rest of the year, the net impact of the euro and the real would be a 4 to 6 ppt headwind, and it’s actually driven mostly from the euro to our as-reported results for the full year, depending on which line item we are talking about - revenue, net income or EPS, and I will get into that a little bit more.

With that backdrop, now let me get into some of the P&L line items. We expect high single digit net revenue growth for 2015 on an FX-adjusted basis, and that will be before and after a roughly 2 ppt contribution from last year’s M&A transactions.

Our underlying business remains strong and we are seeing traction from many of our recent portfolio wins and new product initiatives; however, this year’s FX-adjusted revenue growth will be impacted by some items specific to 2015, and that’s including the remaining Chase portfolio attrition mostly impacting the first half of the year, as well as the local currency headwinds I just talked about.

Also included are a couple of expected significant contract renewals, some of which will likely have more front-loaded rebates and incentives than our typical agreements, but these renewals provide the foundation for future growth.

On an as-reported basis, the net revenue growth rate will likely be in the mid-single digit range as a result of strong FX headwinds primarily from the euro functional translation. Based on current FX rates, this would be about a 4 to 5 ppt impact.

Overall, we project the growth rate for total operating expense for full-year 2015 to be in the high single digits on an FX-adjusted basis. This growth is predominantly due to a roughly 6 ppt impact from our previously announced acquisitions with more of that impact occurring in the first half of the year.

The as-reported growth will likely be in the mid-single digit range after considering a roughly 2 to 3 ppt range impact, mostly again from the euro translation. Let me give you an update on potential dilution from last year’s acquisitions.

Now that we’ve done a few more deals, like TNS and 5one that Ajay just mentioned, we now expect total EPS dilution to be about $0.08 to $0.10 for the full-year 2015, and a little less than half of the expected dilution is actually due to the amortization of acquired intangibles.

You should now assume a full-year 2015 tax rate of about 28% due to the continued benefits we expect from the tax initiatives I discussed earlier, so this is a sustainable tax benefit for future years. Now given all the detail that I just went through, let me step back and summarize for you.

We expect solid fundamentals to drive our business in 2015 despite the mixed economic environment and significant headwinds from FX and gas prices. We continue to sign customer contracts and invest in the right strategic areas while managing our expenses prudently.

Finally let me move on to our long-term performance objectives for the 2013 to 2015 period. Given our expectations for 2015 revenue growth, we now believe that we will deliver at the low end of our 11 to 14% net revenue CAGR.

We continue to expect at least 20% EPS CAGR for the three-year period due to continued expense management as well as benefits from our lower tax rate and share repurchases. We remain committed to our annual operating margin target of at least 50%.

Remember, these objectives are on a constant currency basis and they exclude our 2014 M&A activities as well as any new ones that may occur this year.

As a reference point for your modeling, when looking at our performance from a two-year CAGR perspective, so that’s for 2013 and 2014, on a constant currency basis we have delivered a net revenue CAGR of 12.5% and an EPS CAGR of 21.1%, which is based on the 2012 normalized EPS of $2.14 per share that we provided to you earlier.

Now many of you have asked when we will be rolling our performance objectives forward. As you can see, the underlying drivers of our business are in good shape and we are expanding our reach in areas that we are strategically targeting, such as processing, loyalty, information services, and all things digital.

The overall growth prospects for the payments industry have not changed, and for now we have given you some clarity around 2015 as this is the last year of our current 2013 - 2015 performance period.

Once we have worked through the many moving parts, including the impact of those resulting from the final European payment regulations and the new payments environment in Russia, both from a revenue and an expense perspective, we will provide you with our new long-term objectives before the end of this year.

Now let me turn the call back to Barbara to begin the Q&A session..

Thank you, Martina. We’re now ready to start the Q&A session, and I would just remind everyone that in order to reach as many people as possible, we ask that you limit yourself to a single question and then queue back in for additional questions.

Heather?.

[Operator instructions] Sanjay Sakhrani with KBW is on the line with a question..

Thank you, good morning. I guess I had a question on the quote Ajay had in the press release. It mentioned new wins and renewals in the pipeline. Is it both wins and renewals, because I know you guys talked about the renewals; and then just on the tax rate, Martina, that 28%, can that come down further in future years? Thanks..

Hi Sanjay, good morning. It is wins and renewals. If you recall my earlier comments, I talked about Bank of America’s commercial and some consumer, so those were actually wins. HSBC is a win - we’re actually converting the rest of their portfolio. There is renewals as well.

There’s a combination of renewals with a deeper extension into other markets, which I would count as a part-win, so it’s kind of a mix of both, and all that is happening as we speak, actually..

So on the tax rate, Sanjay, as you know, we are very much committed to be aligning our business operations to our tax infrastructure, and over the last couple of years we’ve been able to work down the tax rate quite considerably, so in fact in 2014 we are ending up at 28.8%.

We’re planning that that will go down to 28% in 2015, and over a longer period of time we believe that we will have even more work that we can in order to lower the tax rate..

Thanks..

Operator, next question?.

Tien-tsin Huang is on the line with a question from JP Morgan..

Thank you and good morning. Just wanted to follow up on Sanjay’s question. The small rise in rebate was surprising this quarter given your comments on the deals, so just curious if there were any unusual items within that.

Can you give us, Martina, some context on where rebates could trend this year? It sounds like, like you just said, there will be some renewals and wins..

Yes, so first of all in the prior year quarter in 2013, we actually had some relatively large contracts coming to fruition, both from a new and from a renewal point of view, so this is just the year-over-year cadence. There’s nothing unusual that is going on in the Q4 of 2014.

Looking forward when you talk about 2015, as I mentioned in my prepared remarks, we are expecting a number of customer renewals that will have more front-loaded rebates and incentives into the front part of the year, not smooth over the entire years of a contract.

So it will have a more considerable impact on rebates and incentives in 2015, and that is all baked into our net revenue guidance of the high single digits, FX-adjusted..

And to be clear, it’s renewals and wins, as I said. It’s not just renewals..

Andrew Jeffrey from SunTrust is online with a question..

Hi, good morning. Thanks for taking the question. Ajay, I wonder just from a high level if you could step back and described the acquisition strategy, just in the context of your long-term growth.

It seems like you’re perhaps ramping up some of your acquisition activity, and I wonder if there is some specific criteria you evaluate when you look to do a deal, and also just whether or not there’s an overall or overarching narrative that we might think about in terms of how MasterCard is augmenting its robust organic revenue growth and position..

Okay, this particular year, we actually ended up doing six acquisitions and one JV. We had TNS, 5one, Pinpoint, ECS, C-SAM, and Provus, starting in January though December, and then the HomeSend JV. But that’s--I wouldn’t say you should take that as the norm. Deals are deals when they happen.

You can look at 25, 30 deals in a year and sometimes in the previous two years, one or two worked out. It just so happened that a number of these were in the hopper, so to say, and they began to close at different times in the year. So the first thing I’d say is, don’t take this as trend line of how it happens. It’s just the way deals work out.

Now, you deeper question was around what we’re doing and where we are going for, what’s the big picture here.

The big picture here is we are trying to expand our presence in the payments value chain, not just in being in the clearing, authorization and settlement business but everything before, during and after a transaction, how can we expand our presence so we can be stickier and we can therefore extract better value for the services we offer, and that provides us with some new capabilities and hopefully gives us some space to become bigger leaders or better leaders in key growth areas.

So what would those areas be? Data and analytics, which is what the information services is about, so 5one for example is right in that space. Processing, which is what we’re doing with Provus and with ECS and ENS [ph] also does fit in there. We’ve had the key commerce gateway businesses bought over time.

That are these things that all tie back to processing. And why are we doing processing? Because the idea is to be able to see more of the transactions around the world, because that allows me to use that knowledge in my data analytics business, so it’s interconnected to that space.

Then the third area is safety and security, so DataCash got us some great fraud management solutions. There are similar ones in some of these - the HomeSend JV could actually be very useful not just for moving money around the world but also for safety and security. Then loyalty, which is why Pinpoint came into it, [indiscernible] some years ago.

So these are all in that bailiwick of data and analytics, processing, safety, security, and loyalty, and mostly we try and figure out if there is a good strategic fit.

Are these companies giving us some critical capabilities we didn’t have on our own - technology, product distribution, some geographic reach maybe, and do they have the right kind of risk profile and are we getting some talent and skills we would not have been able to get easily.

So C-SAM, for example, brought us a number of very highly qualified mobile payments technicians. Hiring hundreds of them organically would be a very slow build. This gave us the ability to get with it much quicker. It’s kind of a mix of those reasons, and that’s what we’re trying to do..

In addition to the strategic evaluation, we obviously do a financial evaluation and we do an integration possibility evaluation.

So on the financials, first of all, we differentiate between those acquisitions, as Ajay said, that are really bringing us skill sets that don’t necessarily bring us in the immediate term revenues that would be good over time, but it brings a skill set.

Then we have acquisitions that are more the traditional acquisitions, like Pinpoint or TNS, that are bringing us also revenues.

We do the very traditional cash flow modeling with the right kind of hurdle rates, vary it by the type of business, the riskiness of the business, where the business is located, and then beyond that analysis we obviously also do an analysis on the integration possibility of this particular business with our company so that we can drive some synergies on the bottom line..

Kevin McVeigh with Macquarie is on the line with a question..

Great, thanks. I wonder if you could just give us a sense of the advertising and marketing line in Q4, and then how we should think about that over the course of ’15 as well..

Yes, so first of all in Q4, as I said, we took actually advantage of some of the goodness that we had on the tax side to be reinvesting that, and we did specifically reinvest that in [indiscernible] as well as in our price initiatives. So you saw a little bit of a higher number in A&M than you otherwise would expect in Q4.

I think for the full year of 2015, the A&M spend is really embedded in my comments that I said about operating expenses, and I don’t think you should be expecting too big of a difference from a overall A&M spend number for 2015 than what we had in 2014..

Bob Napoli from William Blair is online with a question..

Thank you. I just wanted to follow up on the growth in local currency of the debit and credit businesses internationally. It’s pretty impressive, the 17% going to 23% in debit, and a little bit of acceleration in credit.

I was just trying to get a little more color and what your outlook is for those pieces of the business, given that the global economy doesn’t seem so hot right now outside of the U.S..

Well Bob, as you heard Ajay speak, actually a big part of this is due to the terrific work that our European colleagues have been doing.

A number of the countries that we called out - the U.K., Sweden and some others - have been growing terrifically in these kinds of businesses, so that obviously contributed to our bottom line growth despite where the economic environment is at this point in time..

Yes, the economic environment translates into consumer confidence translates into spending, and that does impact quickly; but we also have--what’s going on here is share growth in some of these markets, and what’s also going on here is conversion from cash to electronic, and it’s kind of a mixed bag of all three that comes out into the numbers you’re seeing.

You can actually make that work faster and harder for you if you’ve got the right marketing and the right approaches, so there’s a lot of blocking and tackling that’s going on to help us get to where we’re getting. .

Great, thank you..

Jason Kupferberg from Jefferies is online with a question..

Yes, hi guys. I was just curious sin terms of what theories you might have as to why we haven’t seen the pick-up in discretionary spending from U.S. consumers, given the magnitude of the drop in gas prices.

Separately, can you just clarify your pricing assumptions in the 2015 guide?.

So Jason, that’s actually a very good question. I myself, I’m kind of stumped with what’s going on there. I think about the fact that it’s $800 a month, or whatever it is to a middle class family, the gas prices are down 40% over this same time the previous year, and that’s not a small number.

So when we put all that into context, you would have thought it would flow through. But the way I think about it, and [indiscernible] we’ve talked to so many other fields about this, I just feel that maybe it is that it’s going to take three or four months for the U.S.

consumer to feel that this is something that’s going to with them for a little while. If you have a longer term perspective of the price of gas, not going back to $100 but maybe settling in at $75, $80, that’s where we’re thinking. I don’t think the U.S.

consumer knows whether to expect this to be sticking around or not, so I think there’s some degree of, let’s say, the desire to see that through before they really start spending that kind of money. That’s kind of where I think this is.

So if you were to ask my opinion and my guess, I would say we’re probably a month or two or three away, if this price stays where it is, for them saying, you know what? I do have $800 a month more in my pocket, and I could afford to go and buy X. I think that’s kind of what I think about it.

But on pricing, Martina?.

Yes, on the pricing side, for 2014 actually for the whole year, we had about a 1% price increase, so relatively small. We think that what we have out there for 2015, it will be relatively similar..

Glenn Greene from Oppenheimer is online with a question..

Thanks, good morning. Martina, I know you like to level-set us in terms of expectations, and there was a lot of commentary on guidance, but I just wanted to clarify and make sure I heard it right. So in terms of revenue, you talked about high single-digit net revenue on an FX-adjusted basis, including M&A.

So the first question would be, how much M&A benefit is there? And I was unclear exactly what you said in terms of the expense expectation, given the FX impact and the M&A..

Okay, well let me just go through it..

Yes, she’s very good at level-setting expectations inside the company too, so don’t feel discriminated against..

Good to know!.

So you’re absolutely right - FX-adjusted, high single digit net revenue growth for 2015. That includes about 2 ppt of M&A transactions. But by the way, even when you pull these 2 ppt of M&A transactions out, you still get to high single digit growth on the underlying business, so you can probably get a good sense on the numbers on that one.

On the expense side, what I said is also on an FX-adjusted basis, you have operating expenses high single digits, and actually most of that - 6 ppt - is due to the acquisitions, so the underlying growth of our underlying expenses is relatively small, okay? Now, when you put the FX translation into it, you have to deduct about 2 to 3 percentage points, so you’re getting for the as-reported opex growth into the mid-single digit range..

So you get a benefit from the euro and expenses, just that you get a headwind on the revenue. That’s kind of what’s going on.

The M&A transactions, what’s happening is you typically get--the first year or two, you tend to get the expenses, that you’ve got to either get them up to speed with our systems or with our security or the investment you’re putting in to do things with their technology or their geography or their distribution, and then you get the revenue that comes in a little later.

Or, you get things like C-SAM, which are really more building our capacity, our mobile and digital, and doesn’t really give you a lot of revenue in the first year or two or three. That’s the mix that’s going on inside our company..

Don Fandetti from Citigroup is online with a question..

Yes Ajay, I had a question around tokenization. I was wondering if you can help us understand sort of the timeline for tokenization for online browser-based purchases. I think Visa had mentioned there could be some products over the next few quarters.

How will that sort of play out?.

You know, before digital space, if you kind of bust it up between in-app, contactless and online browser, as you read through it, contactless is still relatively small in the U.S., online browsing tends to be the large amount.

A number of the merchants and retailers have been launching their own apps in an effort to get people to come straight to their [indiscernible] and then hopefully control more of the transaction as well as the relationship with the consumer when they’re inside their app, as compared to coming the usual way.

So it depends who you believe, but everybody is making projections based on whatever they think about where these three will go over the next few years.

My sense is you’re going to get NFC growing decently, particularly with terminalisation, and I believe terminalisation will happen with all the EMV and chip migration as well as the fact our new terminals are coming contactless-equipped, so you’re probably seeing a two or three-year cycle of a fairly dramatic increase in contactless-equipped terminals in the United States.

That’s only happening, by the way, in Australia and Canada, Turkey, and some other countries. But the U.S., which is the large one, I think you’ll see that.

In terms of browsing, browsing tends to be the large chunk, and I still believe that online browsing will remain a pretty large number for a few years to come, and I think you’ll get two or three kinds of efforts made. You’ll get a lot of effort made around improving the card and file experience.

You’ll get a lot of efforts made around improving the use of easy use checkout wallets, whether it be MasterPass or Visa’s offering, or PayPal or other such offerings. And I think you’ll get all of those getting a degree of capabilities built with tokenization just making it safer and safer over the next few quarters.

So we’re all working on similar things, and I don’t think you should read too much into a quarter here or a quarter there. These things are slow burns.

You saw Apply Pay talk about their mobile payment growth, and at the end of the day, yes, they’ve done a great job and it’s excited the market, but it’s still a very small percentage of what the total number of transactions are. So I would take all this in that context, and not run to the races with more than that.

But we are very focused on--you know, tokenization and [indiscernible], just to make sure I don’t miss that aspect. It’s a very important aspect of where we’re going for safety and security. Apple Pay was the first version of that to come out.

We’re putting it into MasterPass, just regular MasterPass over the next few--period of time, let me put it that way, so I don’t give you information that’s beyond what is likely, and that will be--you’ll see in a year or two’s time, tokenization will become kind of fiddlesticks in the game on ecommerce. [Indiscernible].

James Friedman with Susquehanna is online with a question..

Hi. I was hoping you could share some perspective on the relative performance of debit and credit domestically, excluding the gasoline vector. Is there any evidence of steering in the market? Thank you..

No, I don’t--the last part of your question is about is there either steering or secular change going on in the behavior around credit and debit, and I’d say there’s no evidence of that.

But you should know this, that the growth rate of debit versus credit, there are changes that are going on between that over time, and there’s no doubt that as credit histories and credit positions are improving, banks are becoming more willing to go out and push credit acquisitions again, and that in itself will change over a period of time some degree of behavior between debit and credit.

But there’s no real pushing or steering or anything going on that I can see, not in our numbers, anyway..

Bill Carcache from Nomura is online with a question..

Thank you, good morning. Martina, you talked about how you actively hedge, I believe you said 50 to 75% of your FX exposure.

Can you discuss some of the trade-offs behind why you wouldn’t hedge an even greater percentage? Wouldn’t forward contracts be relatively inexpensive? And then finally, if you could offer any thoughts at a high level on some of the more significant differences between your hedging strategies versus that of your large competitor, which last night discussed how they layer in their hedges on a rolling 12-month basis..

Yes, so first of all with the last comment, of course we listen to each other’s comments from time to time, and I would believe that we do a hedging strategy and have a hedging philosophy that is extremely similar. We layer in our hedges over a 12-month rolling period, so we never run, so to speak, naked during any type of period.

We do it for the most significant currency pairs. You know that we are doing actually business in 150-plus currencies, but we really pick the most significant currency pairs in order to do our hedging.

In order to do hedging, you have to have really appropriate exposure forecasts coming out over the next 12 months rolling period, and that is where you typically step back and take a little bit of a more conservative view and don’t layer in 100% of the exposure in terms of hedges, you do 50 to 75%.

So we don’t take a view--the 50 to 75% is not taking a view in terms of hedging a particular currency pair, but it is in terms of making sure that between the exposure that we know and the hedges that we layer on, that we have the right kind of balance.

The one other thing that I wanted to let you know is just to make sure, we are hedging things on a net basis, which means we take revenues in that particular currency and we deduct the operating expenses that we spend in that particular currency, and then we do a hedge on that, and you would not see the gain or the loss on the hedge showing up in the revenue line.

Most of that is actually reflected in our GMA line item..

By the way, this layered hedging is kind of the way that I used to work it, even in my previous job in the banking industry. When you go to companies--and that’s exactly what you do.

You go in and you attempt to hedge more of the exposure in the immediate quarter out there, a little less in the quarter after, a little less in the quarter after, and even a little less in the quarter after.

So when Martina talks to you about the 50 to 75%, you’re probably looking at a higher level hedge in the immediate quarter because you have more certainty of that net exposure within those currency pairs that she just referred to.

You hedge a little less out four quarters because you have less certainty in those currency pairs that she’s referring to. Also remember, the euro and the real are not being discussed in those currency pairs. The 2 percentage point headwind that we’ve already put in our revenue growth estimate for next year, it’s from these currency pairs.

The euro and the real goes over and beyond that, and kind of could be a far more significant one, particularly because of the euro, as Martina was pointing out..

That’s extremely helpful, thank you..

Tom McCrohan from Sterne Agee is on the line with a question..

Hi Ajay. You talked about the commercial business in the past as having some good momentum. Can you just give us an update how the year ended out and what your prospects are in looking at 2015? Thanks..

That business exciting. We’re doing well, and it’s across the world, by the way. The U.S. has got the most traction in some ways, but there’s good growth in Europe, there’s good growth in Latin America. Asia, the Middle East, Africa remain real opportunities for us.

I’m not going to give you separate numbers for that, but you should know that it still is a big focus. We’re focused on--T&E [ph] is focused on fleet cards, it’s focused on purchasing, it’s focused on some B2B payment streams.

It’s not just our own effort with individual clients like Bank of America and Chase and Citi that you heard me talk about our other global clients, but it’s also focused on partnerships with companies in the travel space, partnerships with companies in the fleet management spaces. All of these are giving us opportunities in commercial..

Actually from a growth perspective, just to jump in here, it’s really a nice mid-teens kind of growth worldwide..

There you go. Martina is willing to give you more information than I am. That’s an exception..

Isn’t that interesting?.

Dan Perlin from RBC Capital Markets is online with a question..

Thanks. Can you just speak a little bit to the nuances that we might expect to see as you get more and more of this mix shift in ecommerce? Inherently, it seems a little more credit-centric. The interchange categories are quite a bit different, so maybe there’s a bigger pool from which everyone could draw from.

I want to be thinking about this as this mix shift accelerates. The other thing, if you could just kind of explain, the $50 million shift into G&A versus revenue from Russia, how did that come about? And I’ll hop off - thanks..

Yes Dan, so let me take the Russia question first. So what actually happened is the last legs of the legislation in Russia is that we continue to be a direct partner to our clients and that we actually will be facing our clients on all products and services that our clients need.

Then we then subcontract in particular [indiscernible] in switching to the local processing entity, and therefore we still get the revenues from our clients but we have to pay a servicing fee which will be showing up in the data processing line to the local entity that would switch [indiscernible].

Ajay, on ecommerce?.

I don’t know how to answer that in a way that’s different. I would say to you that what’s going on in ecommerce right now is that you’ve got--as you grow, there is no doubt that credit has a greater share than debit in ecommerce, although I’d say that’s also because the U.S. is a larger ecommerce market than most other parts of the world.

In Europe, it’s not as similar as it is in the U.S. Now remember, the U.K. and Spain, Portugal are more credit-sensitive now, northern Europe is more debit-sensitive, so a lot of it depends on the originating market from where the transaction is placed into the ecommerce system.

So what we are seeing right now is also a function of mix, and I wouldn’t try and draw more conclusions than that right now..

Okay, thank you..

Bryan Keane from Deutsche Bank is online with a question..

Hi guys. Now that the European regs, the agreement seems to be in place between the three parties, just trying to get an idea of--you guys have probably looked at it for ’16, what kind of an impact might there be. Secondly, Martina, just on operating margins for the year, there’s a lot of moving pieces.

Should we expect fiscal year ’15 operating margins to increase, and then what does that all total out to be for EPS growth as reported for fiscal year ’15? Just want to make sure I have that right. Thanks..

On your first question, look - the European regulations, the text is finalized but there is a lot of work that has to be done in order to implement that, so I’m not prepared to be giving you guidelines for 2016 at this point in time.

That’s why you are going to hear only later this year about our long-term performance targets as we are going to be renewing them for a period.

Secondly on the operating margin, of course when you have high single digit revenue growth and high single digit opex growth on an FX-adjusted basis, you should basically assume that the operating margin, which is terrific for 2014, will be roughly a similar operating margin in 2015. We are not giving guidance for the bottom line. .

Let me now turn the call over to Ajay Banga for closing remarks.

Ajay?.

Great. Thank you all for those questions. I’m going to just leave you with a few closing thoughts. We ended what I think was a very good year on a strong note. Seventeen percent revenue growth in fourth quarter, ex-FX, ’14 with that effect, that’s not a bad place to be.

Volumes, share, innovation, deals - we’ve done all of that while navigating through what I would say was one of the more complex economic and political years that I’ve seen over the last decade. Aside from the actual couple of years of the financial crisis, this was probably one of the more difficult years.

For 2015, we see the same underlying trends, economically and for our own business. We believe that we will deliver our three objectives, and that means that net revenue growth this year will be in the high single digit range at constant currency.

So your question would be, why is that growth lower than 2014? Because one, we have those local FX headwinds that we were just discussing in the Q&A in those key currency pairs, and that’s before the euro, by the way, and the real translation impact, which as you know is larger.

But just those local FX headwinds and because there are some very good deals in the pipeline, both renewals and wins, that are probably going to have an upfront load. But they're good deals - they’re good for us. So if you look at all that, at the same time, we plan to keep investing in our business and our capabilities.

We know how to dial our expenses up and down, and we’re going to keep a very close eye on that if needed. I just don’t overdo that through a short-term cycle.

We took advantage of the tax benefits that, while sustainable as Martina talked about, they came to us in the latter part of the quarter and got finalized, and she and I sat down and said, you know what? This is a good time - Apple Pay is out in the market, price initiative [ph] out in the market.

It’s a good season and quarter for us - let’s take some of this benefit and put it back into the system. Those kind of decisions are taken every week and every day by us together as a team.

So overall, we haven’t changed our thinking about our business prospects from what we indicated at our investor day a few months ago--or rather, the two investor days. The payments space is a terrific place to be. We are very confident in our ability to guide this company through the current mixed environment.

We’re going to keep growing share and we’re going to keep driving the conversion of cash to electronic payments around the world. We expect to continue to deliver strong financial performance in the foreseeable future. So thank you so much for your continued support of our company. Thank you for taking the time to join us today..

Thank you ladies and gentlemen for participating. This concludes today’s conference. You may now disconnect..