Experian plc

Hello, everybody, and welcome to our first half presentation. I'm joined, as usual, by Lloyd, who will run through the financials after my initial overview. Also on the call today is Craig Boundy, our Chief Operating Officer, and Craig will join us for the Q&A segment of the call. So a few highlights from our H1. First, we delivered another strong performance, exactly in line with our expectations. Q2 organic revenue growth was 8%, taking us to 8% for the half. which was solidly in the seven to nine range that we expected coming into the year. Add-in acquisitions and total revenue growth was 9% at constant FX. Second, we're executing really well and new business performance has been strong. And thirdly, our new product investment is adding to our growth and our resilience in the current environment. North America and Latin America performed very well, but a special call out for the performance in Latin America. The UK was robust, particularly in the B2B core bureau, and we're making progress in EMEA Asia Pacific, putting this region on a path to stronger, more profitable growth. B2B growth was good, up 7%, and consumer services growth was again up double-digit at 12%, and our free membership tally is now 145 million. EBIT progression in the half was 8%, both at constant and actual FX, and we're reiterating the full year guidance for constant currency margin progression. And I think it's important to highlight that our cash progression, balance sheet position, and liquidity profile are all highly favorable, giving us a lot of flexibility in this environment. Now, as we look ahead, economic conditions have undoubtedly got tougher, and we're closely monitoring the trends in the credit economy. We know everybody's very interested in that, so we've added some trends in consumer metrics which are in the appendix to this presentation. But just to pull out some of the highlights, there has been an uptick recently in US delinquencies to just above pre-pandemic levels. We have not yet seen, perhaps surprisingly, much adverse change in the UK. And in Brazil, delinquencies have yet to revert to pre-pandemic levels. Turning now to the regions, and let's start with North America, organic revenue growth was strong at 8%. Our B2B volume trends have remained favorable, excluding mortgage. In fact, the core bureau in Q2 grew double-digit, which represented six straight quarters of double-digit revenue growth. And this is strongly linked to our innovation drive, resulting in really good new business progress. There's been much discussion about consumer employment, income spending, and credit performance, but all of these actually held up quite well in age one. There's now a bit more pressure on household balance sheets, but at this point, credit card loan balances are still below pre-pandemic levels, as employment in particular and savings, although being utilized, have remained strong. Now, this presents lenders with an underlying picture which is a bit mixed. There is some distinction emerging between prime and subprime lenders. Some clients are tightening criteria, particularly in FinTech and also for subprime score bands. Tier 1 clients, on the other hand, with a great focus on prime, have remained very active on the acquisition front. We've not yet really seen any significant pullback. We do also see some new types of lending coming to the market to take advantage of a higher rate environment in areas like home equity-based lending. Growth was underpinned by strong new business performance. It's kept our volumes growing as we added more clients, newer products, still in growth phase or a primary factor, as is our ability to put together compelling commercial packages with technology data and our expertise being key differentiators. And to give you some examples of where we're winning, we've added clients in the financial services mid-market, successfully deploying analytics, Ascend and PowerCurve, We've tapped into new areas of client spend in Tier 1, for example, with Ascend Marketing and now Ascend Ops. Large technology companies have become a specific area of focus as they establish their financial services platforms. And we have really good momentum in business credit where we're securing new primary positions. Ascend is a key factor in all of this. It's now a suite of solutions that increasingly integrate across more and more of our B2B products. This has positioned us as a lead innovator in our markets with advanced solutions for an increasing range of client needs. And these products bring significant productivity benefits to clients, and as such, demand remains strong. We have more users, more new clients, and we continue to introduce new modules. Send marketing is one of the more recent and perhaps one of the more exciting evolutions and a great example of how we're accessing new value pools. Financial marketing services revenue growth in Q2 was in the mid-teens, for example, which was significantly outperforming the market. The SendOps is another great prospect with client uptake accelerating. And we developed the SendOps specifically to help clients simplify their operations. It deploys data, attributes, and scores in a way that greatly reduces model deployment time, making clients more productive, and so is very appropriate for the current changing environment. And when you add this to the strength that we have in decisioning analytics, it's a pretty compelling package and creates new business opportunities and drives our performance. Verifications is also adding to this growth picture. In the two years since we entered this space, we've made significant progress. We're adding to the total and unique record count through new payroll partnerships, client wins, and employer services. And we'll add to this with consumer permission data. Experian Verify is growing and revenues are on a good upward trajectory. To pick one data point from this slide, we've signed contracts for Experian Verify with 16 top mortgage lenders. Moving on then across other key verticals, automotive and targeting are exhibiting good resilience and health, of course, is fairly acyclical. You saw good strength in automotive in H1. In automotive, there is a lot of pent-up demand for cars because of supply chain issues and chip shortages. And dealers have started to market more, and we've seen an uplift in profiles. This is because dealers are now having to search for new customers. And at the same time, there's been a significant shift in available financing options. It is helping us to sell more instances of Ascent. And so it might sound a bit counterintuitive, but we're actually cautiously optimistic about the outlook for auto in the second half and beyond. Targeting also delivered a very solid half. Tap ad acquisition has performed extremely well. We're seeing great strength in our digital portfolio, particularly addressable TV. Structurally, this business is much healthier than it was in the global financial crisis. We are intentionally diversified and we've moved up the value chain to participate in connected TV, campaign activation, and data enablement, which are all higher growth segments. And it's another area where we're securing good competitive wins also on the back of integration of our capabilities in targeting into Ascend to gain greater share in financial services marketing. So when you add all this up, the benefits of our strategy become clear. We're accessing new value pools in North America B2B, and our client base has become broader. Okay, turning now to North America Consumer Services, which had a major half for new product introductions. Some of them included Boost with Rent, which is helping us attract and engage more members. We've introduced Claim Your Car for auto insurance. Members can now compare and switch auto insurance easily. We've added a new bill negotiation feature to help members save money on their everyday bills, highly relevant in today's environment. We've also introduced a personal privacy scan, which is an upsell to premium. And Experian Activate, which is targeted at the lenders in our credit marketplace, is helping those lenders to get to better target our customers and making our client relationships more sticky. These richer features are showing up in our engagement statistics, which are on a positive trajectory. They're important steps for us to establish trusted relationships with consumers. And we've added to our free membership tally, and we see free memberships upsetting well into premium services. Premium membership enrollments have risen recently, reflecting the investment we've put into the product and the natural counter-cyclicality of this revenue stream. Our credit marketplace has seen some tightening of standards, Lenders have become more selective of who they want to acquire and in which bands. We're managing this through the diversity of our portfolio and its counter-cyclical elements. New sources of revenue are also starting to contribute. Insurance, and particularly digital agency revenue, is starting to scale as we write new policies. And this balances our portfolio and gives us assurance in the growth outlook. We also continue to see good performance in partner solutions with a strong new business performance and our lender partners focus on driving engagement and education with their customers. And moving to Latin America, which is going to have another very strong year, both in Brazil and Spanish Latin America. As we previously highlighted, there's a huge change underway in Brazil in the way credit risk is assessed, and our strategy has positioned us to benefit from this. Positive data is part of this equation. We've introduced new scores, we're upgrading our analytics, and we've created a good base for Experian Ascend with much further to go. Since positive data was enacted, we've introduced over 190 new products with different features and scores. Open receivables and open banking reforms are going to add to this opportunity. Open banking provides access to customer transaction data and we have some promising pilots in flight. Open receivables enable companies to register trade receivables which can then be used by SMEs as collateral to access credit or lower lending costs. We expect this to add to the credit analysis package we provide to SMEs and to extend our position in this segment. Other diversifications and growth comes from fraud and ID and our agribusiness, all of which are performing very strongly. Consumer services is developing well. As in the U.S., we continue to add features to establish ourselves as the premier consumer financial health management platform. Our 76 million members demonstrate the reach of the Sarasa brand, and our focus is turning to enhancing value of our offers to drive greater engagement. Adding to Limpa Nome and our credit marketplace, we're also developing our e-wallet, or digital account, so consumers can pay regular bills, such as tax or utility bills, which we believe is a very interesting opportunity Moving now to the UK, the UK and I had a good first half, up 5% organically. B2B continued its strong run with a strong start in core bureau, analytics, and identity management. We have major innovations coming through, and it's again showing up in a strong new business performance. In this half, we extended client positions and secured new clients across a wide range of industries, including public sector, telecoms, energy and utilities, as well as across financial services. There has been some fallout from the October mini-budget, which lenders have been dealing with, but we generally see B2B holding up well. Consumer demand for cards, loans, buy now, pay later is still quite healthy, and consumers are still actively seeking credit. Lenders have been adjusting for the instability in the economy and are doing a lot of analysis to understand what their lending policy should be. Most continue to lend where they see good credit quality. We've positioned ourselves well to deal with this. We've created a cost of living package to help lenders assess vulnerability, affordability, and expenditure. It will also help lenders to meet their obligations under the new consumer duty measures required by the FCA. Affordability is a really strong theme currently, as you might expect, and we expect clients to intervene sooner and to introduce forbearance measures. And we're helping them with this and with analytics to optimize things like credit limits. We're also responding to client needs to understand risk in their portfolios. And this demand for analytics helps to drive up volumes. We're also making rapid progress in verifications. We are live with the work report and pay dashboard where we're building a two-sided market. We have accumulated meaningful records with 20 million contracted PAYE records representing 70% of the contracted market. UK consumer services was flat in the quarter and will be a soft point into H2. Lenders are seeking good quality customers, but credit supply at the subprime end has contracted, which will affect marketplace revenues. Our business is naturally a bit more defensive because of the subscription revenue base and because our brand skews more into the prime segments. People are also looking for help, and we have a big part to play helping consumers manage through the cost of living crisis. and this will be a feature of how we develop this business over the coming months. Turning now to EMEA Asia Pacific, which made progress in the half on an ongoing basis, helped by recovery in our Asian markets, and we are on an improving margin trajectory. Ongoing margins rose by 480 basis points. We're implementing our plan to drive stronger and more profitable growth. We have a strong bureau presence in the markets you see here, which we'll build on. along with certain other geographies where we see a path to scale. We're also closing or disposing of operations where we lack scale, and this simplifies our operations and will continue to enhance profitability. We expect these actions to put us on a path to scale through common growth initiatives based on core experience capabilities. And with that, I'm going to hand you over to Lloyd for the financials.

Thanks, Brian, and good morning, everyone. As usual, I'll start with some of the highlights. As you've seen, We had a good first half in FY23, setting us up really well to deliver against our full year guidance. We saw the strong performance from Q1 continuing to Q2, where organic revenue growth was also 8%. For the half, organic revenue was therefore also up 8%. Acquisitions added a further 1%, coming from our verification acquisitions in North America, as well as consumer acquisitions in North America and Latin America. FX was a 2% headwind to revenue growth, so total revenue growth was 7%. And that growth flowed well through to EBIT with 8% EBIT growth at both constant and actual rates. After restating or re-presenting for our mere Asia Pacific exits, EBIT margins were up 40 basis points at actual FX rates. Earnings per share were up 6% at both constant and actual rates. Operating cash flow remained strong in what is usually our week and a half with 88% conversion. And you've seen we've announced a first interim dividend of 17 cents, up 6% on the prior year. Our net debt to EBITDA leverage over the last 12 months was 1.9 times, just below our 2 to 2.5 times guidance range. Touching briefly on our revenue trends, you can see on the chart we've delivered 8% growth consistently through the half. And if you exclude the mortgage headwind, in North America, half one organic revenue growth was 10%. And within that, our B2B business grew overall 7% and B2C grew 12% organically. Turning now to the regional growth, North America delivered 8% organic revenue growth for the half and the quarter. For Q2, we saw 10% growth in our core bureau, excluding mortgage. We saw continued strength across core profiles, ascend and clarity, and good progress in income and employment verifications. Mortgage was down 38% in Q2 and 35% for the half. And based on the current outlook for the mortgage market, we now expect mortgage to be down somewhere in the 35% to 40% range for the year as a whole, which is around a 1.5% headwind to organic growth at the group level. With that outlook, by the end of this year, U.S. mortgage will represent about 2% of our overall group revenue. We've seen good growth in automotive as some of the backlog of demand in the sector has started to find supply, while targeting has remained strong as we execute our strategy to grow our digital portfolio and digital identity resolution. Health continued its consistent record of growth, up 8% in the quarter, And looking ahead into Q3, as a reminder, last year we benefited from some one-off COVID-related revenue in health, which last year benefited Q3 in particular by around 7%, and we saw particular strength around last year's holiday season in short-term lending. Together, these contributed around 3% to last year's Q3 growth in North America B2B. North America consumer services continued to deliver strongly, up 11% in Q2, and 12% for the half. Credit marketplace performance was very strong, up 60% for the half. As Brian mentioned, we've seen some tightening of lending criteria by some lenders, particularly in the subprime area. Subscription revenue grew modestly during the half, and partner solutions grew double digit, benefiting from contract wins for data breach and core services. Latin America grew 18% for the quarter and the half, as the benefits of positive data and business diversification continue to deliver strong momentum in Brazil, and as we see demand for our global platforms, including Ascend and Experian One. Spanish Latin America also delivered a very strong half. Q2 consumer services in Latin America was up 18% and up 29% for the half, with a good performance from our LimpeNome debt renegotiation platform and a growing contribution from premium subscription services. The UK and Ireland region grew well, up 5% organically for the half and 6% in Q2. Q2 B2B growth was 8%, with particular strength in the core bureau, up 10% in Q2 and for the half, as well as across analytics and identity management, all boosted by new business, where our performance has been very strong. Consumer services was in line with prior year for the quarter and the half, with strong growth in marketplace offset by lower revenue in subscription services, as we lapped the strong subscriber numbers we saw during COVID. As Brian explained, we're in the process of refocusing our EMEA Asia Pacific business. We've therefore shown the growth for Q1 here for the ongoing business. And on this basis, we delivered growth of 3% in Q1, 4% in Q2, and 4% for the half. And I'll give you a little bit more detail of the moving parts in EMEA Asia-Pacific in a moment. Turning now to EBIT margin, if you look at the chart starting on the left, last year we reported EBIT margin for the half of 26.3%. In line with our historic practice, we've re-presented last year's margin for the businesses that we plan to exit, primarily in EMEA Asia-Pacific. This added 60 basis points to our prior year first half margin, bringing it to 26.9% on a like-for-like basis. North America margin was down organically during the half, which largely reflected the decline in high-margin mortgage revenue. As some of our growth initiatives gain further scale, we expect the full-year decline in North America margin to moderate. Latin America margin increased from 24% to 27.2% during the half, reflecting the strong revenue performance across the region. UK and Ireland margin was down 150 basis points, principally due to the investment behind our income verification launch, and the active choice we've made in the UK to front-load investment behind that opportunity that Brian mentioned. EMEA Asia Pacific margin improved by 480 basis points in the last year on a like-for-like basis. It's largely reflected modest revenue growth and tight cost control for the ongoing business. And as we discussed last year, half of our central activities saw a $20 million one-off cost catch-up in our incentive program, which we've now annualized. So this all resulted in a margin of 27.1%, an increase of 20 basis points on the prior year organic activities. Acquisitions were a 50 basis point headwind, and a large portion of this is attributable to our acquisition of CIC+. which generates most of its revenue in the fourth quarter. So we expect this to improve to around a 30 basis points headwind for the full year. Including acquisitions, the constant rate EBIT margin was 26.6%. FX was a 70 basis point benefit margin, reflecting a weaker pound sterling and stronger Brazilian REI. And as a reminder, around 65% of our central costs are denominated in sterling. Overall then, our EBIT margin was 27.3%, an increase of 40 basis points against our restated margin position, and up 100 basis points versus our FY22 first half reported margin. Looking forward for the full year, our restated FY22 EBIT margin, we expect the impact from exited activities on the full year to increase margins by 40 basis points. This means the restated FY22 EBIT margin will go from 26.2% to 26.6%. And you can see a full reconciliation of this representation in the earnings announcement. And should current exchange rates sustain, we expect FX to be a full year tailwind of 60 basis points to margin. And then looking at our operational business, constant currency margin guidance of modest margin growth remains unchanged. So if I turn now to EPS, starting from last year, in which the half one benchmark EPS was 61.7 cents per share, benchmark EBIT from continuing operations grew 8%, reflecting the strong organic revenue growth performance. Interest expense increased to 62 million as a result of higher short-term interest rates. The tax rate is 26% in line with our expectations for the full year, so EPS was therefore up 6% on a constant and actual FX basis. Turning now to cash flow, on the chart, you can see our trend of first half cash generation, and we've seen another strong first half, with benchmark operating cash flow conversion of 88%. Nominal cash flow was up 49 million and increased in line with EBIT growth. A net capital expenditure represented 9% of revenue in line with our expectations for the full year. And this reflects our continued focus on investing in new products to drive growth and our continuing technology transformation. Given the changes to the interest rate environment, I'd like to highlight further our strong funding and interest rate fixing position. Around 90% of our current debt is in bonds, which have an average remaining tenor of six years, with no refinancing due until September 2024. We also have underworld committed bank facilities of $2.4 billion. In the chart, you can see how much of our current debt is fixed for the coming years. Over 90% of our total debt is fixed for the next two years, and over 60% is fixed for at least six years. And we have No bond refinancing required until September 2024. So given this position, our interest guidance for the year is unchanged at $120 to $125 million. Our net debt to EBITDA leverage was 1.9, below our guidance range of 2 to 2.5. And all this means that we have a very strong liquidity and funding position. And our program to fix forward interest rates has mitigated for quite some time the full impact on our current debt of rising interest rates. As you've seen, we've started to implement our plans to improve the efficiency and profitability from the EMEA Asia Pacific region. And as you heard from Brian, we're predominantly focusing on markets where we have the ability to drive scale and improve financial returns. We've decided to either sell or close operations in a number of subscale markets. While we work through this process, both revenue and EBIT associated with these operations will be recorded in exited business activities. And we expect this to take around 18 months to fully complete the exits and closures. During the half, restriction costs of $20 million associated with this program were incurred, mainly consisting of severance expenses and change-related professional fees. And we expect these to be around $50 million for the full year. On the right-hand side of the slide, you can see that we've provided a table of the impact on last year's numbers for the changes we've made. and a full reconciliation is included in page 12 of the release. And we expect all of these changes to enable improved financial returns from our EMEA Asia Pacific business, and our goal is to elevate EBIT margins over time to the mid-teens range. Taking a look at our usual reconciliation to statutory results, our benchmark profit before tax grew 7 percent at constant rates and 8 percent at actual rates, driven by the strong revenue performance. Acquisition intangibles and acquisition-related expenses grew in line with acquisition activity. The fair value of contingent consideration payable on prior acquisitions was $66 million and a half. This was driven by TCC in North America, reflecting its very strong performance in its acquisition. Exceptional and other items is largely made up of the restructuring charges related to EMEA Asia Pacific I mentioned earlier. We recorded an accounting impairment charge of $152 million related to the EMEA business, principally due to the change in interest rates lowering the valuation of future cash flows and consideration of the current European macroeconomic outlook. Changes to non-cash financing remeasurements was driven, as usual, by FX changes on intercompany financing and also movements on interest rate hedging, where we recorded a gain of around $90 million following the interest rate fixing program that I mentioned earlier. So this leads to statutory profit before tax of $517 million. So lastly, if I turn to FY23 modeling considerations, which relate to our ongoing activities. Our guidance related to operational performance is unchanged. We continue to expect 7% to 9% organic revenue growth for the full year, Acquisitions are expected to add around 1% to our organic revenue growth for the year. On divestment and closures, the full year impact to the margin level of our divestments and exits is to add 40 basis points to margin. We continue to expect modernist organic margin progression, a constant currency, for our ongoing business. Recent moves in FX rates mean we now expect to add around 60 basis points to the full year operating margin. for the FX tailwind. We still expect net interest for the year to be between $120 and $125 million. The benchmark tax rate is still expected to be around 26%. The weighted average number of shares is still expected to be in the region of $914 million. Our CapEx guidance is unchanged at 9% of revenue, and we continue to expect a strong cash conversion of over 90% for the year. With that, I'll hand you back to Brian. Thanks, Lloyd.

So to summarize, we performed really well in H1, exactly in line with our expectations. The economic outlook in H2 is going to be somewhat tougher, but we're confident we're going to be able to grow and deliver within the guidance range we set out in May, which, given the challenges that have emerged since then, I think is a real testament to the strength of our business. Financial services clients are generally in good shape, with no wholesale impact across the industry. Inevitably, there's some recalibration going on, but many remain active, particularly in prime segments. And we also see clients continue with programs to improve efficiency, innovation, and pursuing growth strategies. Our own innovation-led agenda has positioned us very well, and it's becoming increasingly evident in our competitive position, which is quite clearly strengthened. And our financial position is also very strong. All of that gives us great confidence as we look ahead. And with that, I'm going to hand back to the operator for your questions, for which we will be joined by Craig Bounty. Operator, over to you.