My Fellow Shareholders
2008 was a watershed year. A year when economic and political factors converged to form the beginning of what will be a multi-year transformation of the global financial services industry. The adage, "expect the unexpected," became the norm, and we buckled in for what will likely be the most economic turbulence in more than 70 years.
Change is not Optional
The financial services industry is the eye of the storm. In fact, some might say the broad-based group that comprises depository institutions - banks, thrifts and credit unions - is under siege. And while the negative pressure is spreading rapidly across the entire economy, the financial services sector has felt the majority of the early impact. The wave of bad news across much of the industry, and the impact on those serving financial services providers, grew progressively worse during the year. And even though Fiserv achieved strong financial performance in 2008, our results were clearly impacted by the negative market conditions. The range of business opportunities we have seen over the last several years, along with the manner in which consumers acquire financial services, is now in flux. That point is without debate. While we would certainly prefer a very healthy end market, we view the current dislocation as an additional catalyst to accelerate our level of change.
In 2006 we launched our platform for change, known as Fiserv 2.0. This transformation has proven even more propos as the dynamic global financial services market is impacting how we all do business. The proactive approach we started several years ago has us in the enviable position of being well ahead of the change curve. For the last few years, we have taken a number of steps to extend our business model, with a stronger focus on integration and innovation, enhancing efficiency, pinpointing the most distinct market opportunities, and executing a more disciplined approach to capital allocation. The events of 2008 have served as a further catalyst, which is helping us to achieve a larger share of the market opportunities. We expect the efforts we began two years ago to pay dividends well into the future.
Meeting Our Commitments
At the beginning of 2008, we shared three primary goals with our shareholders:
- Deliver earnings results consistent with our commitments, regardless of economic conditions
- Make significant progress in integrating CheckFree
- Enhance our level of competitive differentiation through innovation and integration, leading to superior results for our clients and shareholders
We shared these goals as a road map for our owners to assess our financial and strategic performance, given the acquisition of CheckFree and the prospect of challenging market conditions. We are proud to say that we achieved our objectives on all three fronts in a market that was far worse than we anticipated. We did what we said we would do, and more.
"We have identified more opportunity to create market differentiation and economic upside than we originally anticipated."
Our financial performance for the year was strong. Total revenue for the year increased nearly $1 billion largely on the strength of the 2007 acquisition of CheckFree. And while the environment clearly impacted our internal revenue growth, we served more clients and delivered more products than ever before. We grew adjusted earnings per share by 23 percent to $3.29. This growth reflected the resilience and diversity of our business model, along with strong execution, which offset several negative environmental impacts on our results. We negotiated a three-year contract extension with our largest client, which added more certainty and longevity to this important relationship. We also generated record free cash flow of $611 million, which we deployed to a combination of acquisition, share repurchase and more than $1.3 billion of debt repayment.
Our top strategic accomplishment for the year was the integration of CheckFree. We are ahead of schedule on the integration, which is translating to more value for clients and shareholders. In addition, as we have combined the businesses, we have identified more opportunity to create market differentiation and economic upside than we originally anticipated.
We continued to enhance our focus on innovation and were rewarded a number of times during the year. In addition to several top awards for product innovation, we once again claimed the top spot in the FinTech 100. Fiserv was ranked among the top five in the InformationWeek 500, and importantly, as the most innovative user of technology for
the Financial Services and Banking industry. Our early efforts to spur innovation are making a difference for clients and energizing our associates.
Fiserv 2.0 Momentum
We introduced Fiserv 2.0 in order to continuously evolve and enhance our level of market leadership. We designed a platform to extend our leadership and better serve the needs of our clients. We made distinct progress in our transformation. We continued to deliver more integrated value to clients, achieving better than 130 percent of our integrated sales targets for the year. We enhanced our payments relationships with clients - selling bill payment services to 550 clients in our initial year after the CheckFree acquisition and winning more than 200 new EFT/debit relationships during the year. And, although in many cases we are just getting started, the remaining potential is tremendous.
We further refined our mix of businesses by selling a majority interest in our insurance group, which allows us to place additional focus on our core businesses. We freed up capital from this transaction and will share in the potential additional value to be created in the future.
"Our dynamic new color palette visually separates us from the commonality of the competitive mass."
In early 2009, we launched a vibrant and energetic brand identity that embodies the spirit of our new organization. The response from clients, associates and shareholders has been tremendous. This new identity represents the next stage of our evolution. Our dynamic new color palette visually separates us from the commonality of the competitive mass. The lower-case typeface is a manifestation of the confidence that resonates across our client base as a result of their relationships with Fiserv. Our clients know that we are their "partner in possibility" by working to further their business goals and enable their desired levels of success. Being a Fiserv client is not a question; it's a statement.
For us, the proof point is in what we do every day. It's not an accident that we lead the industry on virtually any metric that measures sustainable success: product innovation, clients served, sales wins, transactions processed, award-winning recognition, cash flow and a whole host of others. It's the cumulative result of the organization's commitment to excellence each and every day.
Fiserv as a Beacon
The death of the banking industry has been greatly exaggerated. The key driver of the banking industry is less the number of institutions, which has been shrinking for more than 20 years, than the number of accounts that underlie those institutions. Over the last five years, the number of deposit accounts in the U.S. has increased by 6 percent annually, even while the total number of institutions declined by more than 2,000 over the same period.
"Being a Fiserv client is not a question; it's a statement."
Consumers and businesses will continue to transact, and although there may be some short-term variability, we expect transactions and accounts to grow over time. The strength of Fiserv's recurring revenue business model is that our key revenue drivers are more aligned with accounts and transactions than with the number of institutions. That business model, along with the quality of our people, will allow us to prosper even in this challenging environment.
We recognize that market share is won and lost in a time of crisis. We are investing in our products and solutions, with a goal of significantly increasing the number of Fiserv flags. As the economic tides change, we expect to be even better positioned to realize additional success. Those investments, along with the leading solutions we have today, will have the cumulative effect of placing our clients among the most successful in the evolving landscape of financial services.
"Serving clients extraordinarily well is in our DNA. It always has been, and it always will be."
Our continuing ability to deliver a full range of solutions in this environment further validates the quality of our solutions, the diversity of our client base, and the strength of our management team. It is also testament to our
20,000 associates around the world who stand together to help financial institutions navigate choppy waters. Serving clients extraordinarily well is in our DNA. It always has been, and it always will be.
As we celebrate our 25th anniversary we are reminded of the commitment and dedication of the many people whose collective efforts have shaped the company. Fiserv is an American success story, and a reminder that leadership comes in all shapes, sizes and colors. We have the right combination of energy, innovation, excellence, and an unprecedented commitment to transform the delivery of financial services.
Moving forward, the color of financial services technology leadership is orange.
Jeffery W. Yabuki
President and Chief Executive Officer
Donald F. Dillon
Chairman of the Board
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