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Good day, ladies and gentlemen, and welcome to the Experian Q3 Trading Update Conference Call, hosted by Brian Cassin. My name is Angela, and I'm your event manager. [Operator Instructions] I'd now like to hand the call over to Brian. Please go ahead.
Thank you, and good morning, everybody, and welcome to our Q3 trading update call. I'm here with Lloyd Pitchford, who will take you through the trading performance following my opening comments.So we made good progress in Q3, with stronger organic revenue performance across all regions. The total growth was 8%, which was 6% at constant rates and 5% organic revenue growth. We're very pleased with our progress in the B2B side of the business, where organic growth increased to 8% in the quarter, driven by strong business performance and a great market response to our new products. We're also making headway in Consumer Services, and the rate of decline in B2C continue to ease in the quarter. And the combination of both trends gives us confidence that we'll see further improvements, and we expect to have a strong Q4. Let me touch on some highlights for the quarter. In North America, performance was very good and trends are consistent with our comments during November. Organic growth in our B2B activities remains very strong at 8%. It's a healthy credit market in the U.S., with high volumes and low delinquency rates. And our One Experian approach is making a difference in Credit Services and Decision Analytics, resulting in larger long-term contracts and deeper embedded relationships with clients. We're also benefiting from investments in innovation, and our pipeline for new products, such as our new Ascend analytical sandbox, continues to build.In Consumer Services, IdentityWorks is performing very well, and we've now signed over 150,000 paying members. We're increasing our advertising campaigns as we enter the fourth quarter, which is historically a strong quarter for new enrollments. We've also signed new agreements with several major financial and nonfinancial services partners, and we're in the process of on-boarding these new relationships. We're confident that Consumer Services will return to growth as we exit the year, and we'll build on that performance in FY '19.Turning to Latin America. It was another good quarter for Brazil, and overall, LatAm was up by 7%. We built strong foundations to our business in Brazil, which will benefit us as the economy continues to recover, and clients are choosing us for the superiority of data, our ability to offer advanced analytics, the sophistication of our Decision Analytics suite and the ability to work with top data scientists through our data labs. During the quarter, we were delighted to sign another significant agreement with a major Brazilian bank for a full range of services, which is another big step in solidifying our long-term relationship with Brazil's largest lenders. Growth prospects in Brazil extend beyond these large clients, and we're making further progress in the SME sector and continue to engage with consumers through our free score offer. We've now enrolled over 19 million Brazilian consumers through SerasaConsumidor services, which is a fantastic achievement by the team in Brazil. In the U.K., B2B delivered growth at 5%. And overall, we have seen good deal flow in U.K. with some sizable wins, including for PowerCurve Collections, which is the new PowerCurve module we recently introduced. We've also made a series of investments to position ourselves strategically to take advantage of key market trends. And as an example, we're helping clients and consumers with the Open Banking directives by bringing together capabilities from our acquisition of Runpath, with key capabilities developed organically through our data labs. In Consumer Services, while the soft spot will continue to be credit subscription revenues, we have been building out our loan comparison offer CreditMatcher. We've added several major new lenders to our platform in the quarter, increasing our inventory of loan offers. And CreditMatcher is growing strongly, demonstrating the resonance we have in the marketplace with consumers. And we're also building our membership base through our free score offers, which, at the end of Q3, we've built an audience of 3.3 million free members. And finally, we continue to see great performance in EMEA/Asia Pacific, with 12% organic revenue growth. And increasing proportion of our wins in our integrated data and analytics offers, particularly in EMEA, which we expect to benefit both commercial positioning with the clients and ultimately our margins and profitability in that region. This is a good demonstration of the competitive differentiation we can create when we successfully execute on our One Experian approach. So overall, it's been a good quarter, and we have great momentum as we head into Q4. And with that, let me hand it over to Lloyd to take you through the numbers.
Thanks, Brian. Good morning, everyone. As you've seen from the announcement and as we guided at the half year, growth accelerated in Q3, with total revenue growth of 8% at actual rates, 6% at constant exchange rates and organic growth of 5%. As Brian mentioned, we delivered strong and improving growth across B2B, and our progress on product diversification further moderated the decline in our B2C business. For the group, B2B organic revenue growth strengthened to 8% as we saw the benefit of our new product innovations gaining traction. And B2C improved from minus 8% in half 1 to minus 4% in Q3. We expect further improvements in the group's organic growth into our traditionally strong fourth quarter with the continuation of these trends. And in addition, the acquisitions made so far this year have started well and are performing ahead of our expectations.Turning to the performance by region and beginning with North America, where total revenue growth was 7% and organic revenue growth was 5%, primarily reflecting the Clarity acquisition. B2B continues to grow well, up 8% organically in the quarter, with Consumer Services improving to be down 1%. Credit Services was up 8%, with good growth in core credit volumes, boosted by a number of new signings for the new Ascend analytical sandbox as well as further progress in health. Decision Analytics had a very strong quarter, up 17%, driven by software sales and good growth in fraud. Marketing Services was flat for the quarter due to phasing of revenue in our targeting business. And the progress we've highlighted at the half year in Consumer Services has continued. Since the launch in the middle of the calendar year, we've now added 150,000 paying members in IdentityWorks and seen good progress in our Partner Solutions business. And we now expect this part of the business to return to modest growth in Q4. Moving on to Latin America. At constant exchange rates, organic revenue growth was 7%, Credit Services grew 7%, Decision Analytics 9%, and Marketing Services was flat against the very strong comparator in the prior year. Growth primarily reflected higher core volumes in Brazil, the new contract wins we have secured with the major Brazilian banks as well as continued benefit from countercyclical products. Spanish Latin America remains a slight drag on growth in the quarter. Turning to the U.K. where organic revenue was flat overall, reflecting 5% growth in B2B, offset by the expected decline in Consumer Services. Credit Services performed well, up 5%, led by solid underlying trends and further growth -- progress in prequalification services. Decision Analytics was up 4%, driven by strong growth in our fraud prevention services. And Marketing Services had a good quarter, up 5%, benefiting from good demand for digital marketing services. And the rate of decline in Consumer Services continue to moderate, down 15% in the quarter, reducing from 17% down in the second quarter, with strong growth in CreditMatcher, offset by the expected decline in paid-for subscription revenue.And finally in EMEA/Asia Pacific, where organic revenue growth was 12%, with strong growth across Credit Services, Decision Analytics and Marketing Services as we secure a greater value from clients through integrated services. Turning now to the outlook. We expect performance to strengthen further into our traditionally strong final quarter as we benefit from the new trended data service in U.S. Credit Services and we expect further improvements in Consumer Services. For the year as a whole, we continue to expect organic revenue growth in mid-single digits, with stable margins and further progress in earnings per share. Turning to a couple of other items. On U.S. tax reform, we continue to review the full implications of the Tax Cuts and Jobs Act. As you know, the U.S. tax regime to date has been a high headline rate, high deduction system. And the effect of the new regime for Experian will be a reduction in both the headline rate and the deductions available for certain group costs, including interests. We expect these 2 effects to broadly offset, leaving our expectation for FY '18 group Benchmark tax rate unchanged from our previous guidance of 26% to 27%. Whilst we previously expected the group's tax rate to trend upward in future years, following this change, we currently expect that, assuming a constant mix, it will remain broadly similar for FY '19. On our share repurchase program, we've now completed $530 million of the $600 million program as at the end of December, so the majority of the program now complete. And one final point before I hand back to Brian is that in May, with the prelims, we'll be restating our results for the introduction of IFRS 15. As I said before, we don't expect these to materially impact revenues. But we're using the opportunity for these restatements also to look at our segmental structure. And should that result in any changes, we'll update on these in May too. And with that, I'll hand back to Brian.
Thanks, Lloyd. So to summarize, we're making great progress across the portfolio, scaling the products that we've introduced over the year, with more introductions to come over the coming months. And this will help us to sustain the great rates of growth we're seeing in the B2B and the continued recovery in our B2C operations.
[Operator Instructions] Okay, our first question comes from the line of Brett Huff.
The question I had was, if you could give us some more -- give us a little bit more detail on how the conversions from some of the free subscriptions or free services that you're providing in the Consumer Services business were converting to some of the paid services? I know there is an effort to both do a full paid version but also a method to try and convert folks from free to paid. Give us a sense about how that's going as you kind of move that Consumer Services business back to growth?
Sure. Brett, you mean on the credit subscription products or more broadly?
The credit subscription products.
Yes. Well, the free channel is actually a strong acquisition channel for us, and we see pretty strong upsell from that. That's actually both in the U.S. and the U.K. I don't know whether we've given specific metrics on that, Lloyd, do you...
No, we haven't. But it's our primarily -- our main monetization channel for our free acquisitions that has been and continues to be the upsell into the paid product. And the upsell rates have continued to strengthen.
Okay, great. And I have one more question. You mentioned in Brazil in the commentary in Brazil in the release that improving market conditions were one of the drivers of the performance there. I think it was a couple of quarters ago that you mentioned that Brazil had sort of started to turn the corner. Any comment on whether it's gotten meaningfully better here sequentially from the last quarter update? Any kind of commentary in the underlying economic health there? And how much -- kind of where we are in that recovery and how much more benefit that might be here in the next couple of quarters?
Yes, there's been no step change. We did 9% in Brazil during the quarter. As we look into Q4, obviously we had a very tough comp, we had double-digit growth in Q4 in Brazil last year. But the underlying trends remain positive. As we look out, we said next year we'll have, we think, some weakening in some of our countercyclical products, which will soak up some of the additional growth that might come from improving economic conditions. But it then bodes well as we exit next year and go into FY '20, assuming the economic conditions continue.
The next question comes from Rory McKenzie from UBS.
I'm going to start with 2 on the U.S. Consumer division, please. Firstly, on customer numbers, can you maybe say how many customers you have overall in that division now and how many of them are paid-up subscribers? And then secondly, with either LendingWorks or CreditMatcher, those 2 new products, can you talk at all about pricing or any targets you have for monetization or how you expect revenues in that part or division to grow?
Thanks. Do you want to deal with the customer enrollments?
Yes. So we've got about 2 million paid members in North America, Rory, so the credit subscription members are declining, that's a trend that we've seen continue. And then the 150,000 that we've got in the IdentityWorks product, that's up from 120,000 at the end of October. Obviously, November, December, traditional holiday period for these sorts of products, our slowest quarter. We're into our peak quarter now in the post-Christmas period. So you've seen us launch new advertising campaigns, new products into the mix in the IdentityWorks, and that's trending well. Sorry, what was your second question?
Just on the lending works products. I think you were looking for some metrics around that, Rory. I don't think we've given any metrics around that. I think what we've said, and I think this is as consistent in Q3 as it was at the first half, was that we've seen more progress there in the U.K. where we've actually built a relatively sizable revenue stream off the back of the CreditMatcher product. And it has been less of a focus for us in the U.S. because we've really been pushing the IdentityWorks product. So that hasn't changed. What I would say is that we continue to see improvement in both U.K. and the U.S. in CreditMatcher and in LendingWorks. But still, no significant efforts, particularly in the U.S., as of yet.
Okay, fine. And then just overall in that minus 1% organic growth in U.S. Consumer in Q3, can you at least give us a sense of how much, say, Partner Solutions contributed, how much new products added and then how much the kind of traditional subscriber base revenues are declining? And whether you're now very confident that you're at that tipping point for growth ahead. So even a sense of the relative magnitude of the moving parts will be helpful.
Yes, so we've said -- if you think about the 150,000 paying members, we've got about equal share between our $10 a month product and our $20 a month product. So you can get a sense of the scale, that that's growing at in terms of annual revenue. Partner Solutions was growing low to mid-single digits. And then you've got high single-digit decline in the credit subscription volume. Those are the moving parts. And they're pretty similar to what we talked about at the half year. We're very confident that Consumer Services in North America will be into modest growth in Q4.
Next question comes from the line of Paul Sullivan from Barclays.
Do you -- can you provide any further thoughts on the fallout from Equifax? I don't know whether any -- you have any additional color in terms of potential market share gains or perhaps other positive or negative things coming out of that. That's the first question. Secondly, with the CFPB leadership change, how does that -- does that have any implications in your view? And then thirdly, is there any logic in consolidating the U.K. Consumer market?
Okay, let's deal with them in turn. So Equifax, we commented, I think, extensively on this in response to questioning at the half year. It's actually only 6 or so weeks since we talked to you on that, so nothing's really changed. In terms of market performance, I think we've said at the half year and we'd reiterate is that we're very confident in our own performance, driven, frankly, by the things and actions that we've taken in our own business. And so the performance of something like Ascend is giving us great wins, it's a great product and we're getting a lot of traction with that. So we're doing very well. We've always said that it's way too early to actually estimate any kind of long-term implication from what happened at Equifax. We weren't expecting anything in the short term. We do believe the strength in our business is, frankly, down to the stuff that we've done. Second question was on CFPB. Again, I don't think that there's anything really to comment on at this stage. I mean, there has been a change at the top, but there hasn't really been any fundamental change across CFPB as of yet. We still engage with them on a regular basis. We don't expect that, that much is going to change in the short term. And as we've always said that, while has been a significant issue for us over the last few years, we've coped with it extremely well. And I think we've got a very productive relationship with CFPB, so it's business as usual as far as we can see. And then -- and the final question on -- I think it's probably a reference to [indiscernible], we're not going to comment on it, actually.
I didn't think you would. Maybe I can just do one follow-up. I mean...
Paul, as you know, we never comment on any speculation in relation to potential acquisition targets and we're sticking to that.
Can I just have -- can I just ask one follow-up? With revenue growth accelerating into the fourth quarter, I mean, it looks -- it's setting itself up to be quite a strong year of revenue growth in fiscal '19. What is -- do we dare start to imagine that we could see some margin expansion on the back of that accelerating revenue growth?
Paul, we give -- we'll come to guidance on margin in May. I mean, clearly, you've seen the benefit in our revenue growth acceleration of some of the investments that we've been making in previous years. We've got a number of other areas we can invest in the business, including in the build-out of the LendingWorks product in both the U.S. and then the launch of Identity in the U.K. So we've got things to invest in. Exactly what that nets out to next year, we'll update you in May.
Next question comes from the line of Tom Sykes from Deutsche Bank.
I was wondering if you could just help with a little bit of the math around the growth of your subscribers, please. So it seems like you've got about $25 million to $30 million of annualized revenue on your subscriber base from the ID project -- product now. Is that actually contributing to the bottom line yet? And as you grow your subscriber base, are you getting more efficient to adding those subscribers and still narrowing down the customer acquisition costs, please? And maybe could you give us an idea of the churn-off rates as people end the free trial, please?
So just so I'm clear, are you talking on Identity, Tom, or are you talking about [indiscernible]?
Just on Identity, just on that incremental revenue from the 150,000 subscribers you've got, how should we think about that beginning to translate into some absolute EBITDA growth, please?
Yes, so I think we've said, and if you look at competitors in the market, the Identity product is quite a long payback product. So you have to invest a little to acquire the customers, but customers then are much stickier than credit education customers. So we'll continue to invest to grow that business, and we'd expect it to be an investment in growth certainly as we go through next year. In terms of the rates of memberships, so the increase from 120,000 to 150,000 over that 2-month period is the net. So you've got the additional acquisitions offset by those who choose to roll off. We're in really the peak period now, so Q4 is really -- actually, for calendar Q1, is really the peak period for this type of product. A lot of holiday days in the November and December period. We're not giving data on conversions. It's still too early in the development of the business, so we'll leave with the message of the paying members, you can then translate that through, at about $15 per paying member per month on average gives you a good sense of where revenues are projecting.
Okay. And would you be able to make some comments on the growth of CSID and maybe what ballpark is -- revenue number is, and also growth in nonfinancial services versus financial services clients in your B2B business in North America, please?
So CSID, you remember when we took on that business, we had some of the competitors in our identity business were our customers, so we saw them roll off. If you exclude that, then it's very strongly double-digit for the CSID business. And if you look at the growth rates overall, you're seeing -- obviously, growth is weighted towards the financial services business because of the trended data product and the Experian Ascend. But we're seeing good growth across all sectors.
Next question comes from Giasone Salati from Macquarie.
Three questions, please. First, on U.S. credit cycle, if you have any comment, really, in general or in the specific? Secondly, more on U.K. and Europe. If GDPR changed this summer is an opportunity, and if we have to think about any investments related to that opportunity. And lastly, I know you've -- you don't comment on acquisitions, but I wonder, are you happy with the portfolio as it is in terms of further disposals or you think it can be trimmed for the best in the future?
Okay. I don't think that our view on U.S. credit cycles has really changed since we talked to you in November. I mean, it still remains strong in our view. We're seeing good volumes and good take-up amongst clients. The backdrop, I think, is evident in the performance of the U.S. Credit Services business. So that remains pretty strong. The second question on GDPR, yes, we did talk about this in November. I mean, obviously, it's quite big change across the whole of Europe. I think a lot of companies are going to be struggling to get ready for that. We have a whole suite of products which are targeted towards helping people comply with GDPR. We've been working and positioning ourselves that -- for that for some time. So yes, it clearly does require us to put some effort into it, but that's sort of included within the normal guidance for our business going forward, nothing out of the ordinary. I do think it's a good opportunity for us, but we have to see how it plays out. And then on the disposals point, we've been through a period, I think over the last 3 years, where we've actually taken a lot of action across portfolio to clean it up. I think we're largely through that. We did say when we were asked this question previously that there could be some smaller peripheral stuff, but the larger stuff I think is complete.
And our next question comes from Rajesh Kumar. He's from HSBC Bank.
Just following up on the tax question. With the change in taxation rate, I know it's early days, but have you had some initial thoughts on how it impacts your capital allocation policy going forward? And the second related question is, should we think of BEPS regulation and any impact of that on your numbers in terms of either tax rate or revenue opportunities at all?
Rajesh, it doesn't really affect capital allocation because it's not really -- the net amount we pay in the U.S. isn't really changing, so that doesn't really affect it when you look at the deductions that are reducing as well as the headline rate. So no real change. And on BEPS, we're kind of mostly through the impacts. Now -- the fact that the U.S. regime has clarified, I think is a big uncertainty removed. Previously, we've been expecting the tax rate probably to trend up a bit given some of the uncertainties in the U.S. and some of the implementation of BEPS. Now I think it's more stable and underpinned in that 26% to 27% range. So it feels good to get some of that uncertainty removed and be at a stable rate going forward.
Appreciate that. Just to follow up on the GDPR issue, are you seeing a lot of interest from clients? Or is it still in initial phase of discussion and you will see a big flush of meet-the-deadline work around May?
Well, we're only a few months away from the deadline. I think -- as a general comment, I think companies, more broadly, have been slow to realize the implication of GDPR. So during the second half of last year, we saw an acceleration of inbound interest, and outreach that we had was getting more traction. It's a very complex issue for a lot of companies to deal with. So I think there is a lot of activity around this space and expect that to continue.
And within the service offering, how does your offering compare with the likes of, basically, legal companies or legal consultancies or IT services? Or are you offering a full-bundled product within that?
Well, I mean, it's a very long conversation to describe the full capabilities that we have which [ test ] GDPR. But essentially, it moves across the entirety of our data and our data quality operations. We think about the basis of the regulation, which is consent management and accuracy of data, it applies to a number of different areas of Experian's business. So we're extremely well positioned. There's lots of companies looking at this marketplace. And in fact, we will play in this marketplace, both directly and by providing our products and services to other participants, because quite frankly, the number of companies that actually need to address this just can't simply be addressed just by Experian doing it alone. So I think it's a big trend.
Next question comes from George Gregory from Exane.
Just one question from me. Lloyd, you previously gave some guidance with the H1 numbers on cash flow in the second half following the slightly higher working capital outflow in the first half and the elevated CapEx. I wonder whether you could just give us an update on that, please.
Yes, no change. We expect cash conversion to -- in the second half to improve. It always does around 90% for the full year this year.
There are no further questions at this moment.
Okay. With no further questions, so thanks, everybody, for joining today, and we look forward to seeing and speaking to you again in May for our preliminary results.
Thank you. Ladies and gentlemen, that concludes your call for today, you may now disconnect. Thank you for joining, and have a good day.