Experian PLC

LSE:EXPN

Thank you very much. Good morning, everybody, and welcome to our Q3 trading update call. I hope you're all keeping well. I'm here with Lloyd. We'll take you through the trading performance -- he'll take you through trading performance after my opening remarks. So Q3 was another good quarter. It was towards the top end of our expectations. Total group revenue growth was 15% at constant exchange rates and organic revenue growth was 11%. North America and Latin America delivered double-digit growth, and we had a solid performance in the U.K. By segment, Consumer Services continues to perform very well. We're now at 128 million free members globally, which is great progress. There were very robust performance across B2B too with notable call-outs, being our North America bureau when you exclude mortgage. In all, we're on track to achieve the upper end of the full year expectations that we set out in November. We continue our efforts to help people around the world to improve their financial health, and we're proud this quarter to award our Creating a Better Tomorrow Award to a U.K. project, which helped local authorities identify people close to falling into financial vulnerability, ultimately benefiting around 16 million people in the U.K. We are also, now, very close to the launch of our new Experian Go initiative in the U.S. following a successful pilot, and this is going to help millions of credit invisibles to get a credit profile for the first time. Now, let me touch on some of the regional Q3 highlights, starting with North America. Market conditions have been good. Consumer, core bureau, Decisioning and health have all performed well. Consumer credit quality is strong. Bureau volumes have been robust, with only mortgage in negative territory. This quarter, some highlights include further wins in buy-now-pay-later, continued good progress for Ascend and very strong growth in Decisioning. We're making good progress in employment and verification services, the acquisitions we made are performing ahead of plan. We're winning new clients, and we expect to continue to make good progress in this new part of our business. Health has been very strong. The performance this year does include some one-off revenues that are linked to COVID, but growth is broad-based across the portfolio. What we refer to as a digital front door, where we help providers improve the efficiency of their digital portals, identity management offers and revenue assurance from healthcare providers are all performing very well. Consumer Services continues to make great progress. We now have 49 million free members, which are successfully leveraging into new segments. Our credit marketplace is doing very well. We see favorable trends with strong volume growth in cards and in personal loans. Our lending panel has grown in recognition of the quality of our leads. All in all, we see favorable market conditions ahead. We've also begun the process of leveraging our free base into automotive insurance expansion. We've commenced the integration of Gabi, which will greatly enhance our insurance offer and give consumers a better shopping experience. And we're highly focused on improving the membership experience by adding new features focused on financial health and to make our membership base stickier, and we're very happy with the progress that we're making to date. Turning now to Latin America, which also delivered double-digit organic revenue growth. The credit economy in Brazil is evolving at a rapid pace. We have very good traction with our positive data attributes and scores. Our global platforms are also starting to drive more growth for us. The number of Ascend installations is up, as is demand for decisioning software. And the acquisitions we've made add further to our opportunity, and we're particularly pleased with the progress of BrScan, which extends our position in the fraud and identity management market. Consumer Services delivered a strong performance. Q3 is when we hold our annual Limpa Nome credit fair in Brazil, and we help millions of Brazilians to negotiate their debts, something we're very proud of because it makes a real difference to millions of people, and it is great for our brand in the Brazilian market. We've now started to integrate PagueVeloz, which will update the status of clean names more rapidly. Our plan is to diversify the business and making a lot of progress. Our credit marketplace and premium offers contributed meaningfully to the performance this quarter. We're pleased with the progress in the U.K. and I, which delivered high single-digit growth. The fundamentals are stronger. It's translating into more effective new product innovation and an improved new business performance. Volumes have stayed fairly healthy with strength in credit originations and eligibility. And this is partly due to the robustness of the underlying macro and also reflects our new business performance. We've made inroads into new customer segments like buy-now-pay-later. The uptake of our global capabilities is also on an upward trend. It's encouraging to see greater consistency in the performance of our Decisioning segment. In Consumer Services, continued expansion of our credit marketplace has led our growth. Lead generations have been -- volumes are very strong. It's a further illustration of the strength of consumer balance sheets in the U.K. and the willingness of lenders to extend credit. In EMEA/Asia Pacific, Bureau volumes are slowly recovering across the majority of our markets. Our ambition for this region is to build scale, streamline our operations and drive profitability. We've established strong positions in key bureau markets like South Africa, Spain, Italy and Germany. We're also simplifying our operating structure and evaluating how we can serve clients more efficiently. We see a lot of opportunity in the years ahead arising from positive structural trends and there's good demand from clients in areas like open banking and for cloud-based propositions. And with that short overview, I'm now going to hand it over to Lloyd for the financials.

Thanks, Brian, and good morning, everyone. As you've seen, we had another good quarter with organic revenue growth of 11%, which is at the high end of our expectations. Core lending markets performed well, with strength in North America and Latin America, health, and Consumer Services also continue to grow strongly. Organic revenue for Consumer Services was up 19%, whilst B2B was up 8%. Including acquisitions, total revenue growth at constant exchange rates was 15%. And exchange rates were a 1% revenue headwind in the quarter, and including this, total revenue at actual exchange rates grew by 14%. Looking at the regional performance, and starting with North America, where we had organic revenue up 13%, with B2B up 10% and Consumer Services up 19%. Inside B2B, our data business grew 7% organically. And within here, Bureau revenue grew 15% organically with U.S. mortgage revenue declining 21%, as volumes continue to decline from the highs of the refinancing boom in the prior year. We still expect mortgage to be a 1% headwind to group revenue for the year and into next year. Excluding this, revenue grew 16% organically as demand for traditional credit pools and prequalification of volumes remain high. Ascend continued to grow well with growth across our platforms. Automotive grew 4% organically against the backdrop of tough trading conditions. Targeting grew 7%, continuing to benefit from a return of advertising demand. Our Decisioning business grew 16% as all business units grew double digits. Health continued to perform strongly with 17% organic revenue growth for the quarter. Volumes across the product suite remains strong, and we continue to benefit from some one-off COVID-19-related activity, which, for this year as a whole, we expect to add around 4% of health growth this year. Decision Analytics had another good quarter with 13% organic growth. Volumes within identity and fraud continue to perform well, driven by demand from financial services clients. Our Consumer Services grew 19%, our eighth quarter of double-digit organic growth. Lead generation more than doubled during the quarter, benefiting from the return of credit supply earlier in the year. Moving on to Latin America, where organic revenue was up 11% at constant exchange rates, total revenue was up 21%. And this included revenue from the recent acquisitions in Brazil. Factoring in the FX headwind during the quarter, revenue grew 16%. B2B was up 10% organically, while Consumer Services was up 19%. Bureau revenue grew 10% organically for the quarter, as bureau volumes continue to recover from the COVID-19 lows in the prior year. Growth was further supported by positive data. Ascend also continues to perform well with increasing numbers of installations during the quarter. Decisioning, overall, delivered 9% organic growth, driven by demand for collection products. And Consumer Services grew 19% during the quarter. eCred, our lead generation product performed well with strong demand for consumer credit propositions in Brazil. On to the U.K., we saw 8% organic revenue growth, up 10% at actual rates. B2B and Consumer Services grew 6% and 13%, respectively. Bureau revenue grew 6% during the quarter with total credit search volumes trending above pre-pandemic levels. New business continues to perform well, with key clients wins supplementing volume growth. Decisioning grew 7% during the quarter, in line with elevated online credit activity levels and new business wins, and we've also seen an increase in fraud and ID related volumes. And Consumer Services delivered strong organic growth of 13% with lead generation, almost doubling during the quarter. On to EMEA and Asia Pacific, where organic revenue growth was flat, with data up 3% offset by Decisioning, which was down 6%. EMEA declined 4% during the quarter, where we've seen a slower return to pre-pandemic credit volumes overall, with the ongoing restructuring limits in this region for the current COVID outbreak. But it's on an improving trajectory as we exit the year. Asia Pacific grew 10% as the bureau volumes -- bureau businesses performed well in Australia, India and Southeast Asia with volumes continuing to recover. And onto our guidance. Given the strong performance this quarter, we're tightening our organic revenue guidance to 12% to 13% at the top half of our previous guidance and all other guidance for the year remains unchanged. And with that, I'll hand you back to Brian.

Great. Thanks, Lloyd. And so, to summarize, Q3 was another strong quarter for Experian. We're realizing the potential in Consumer Services with a lot more to come. We're taking advantage of unique market opportunities like Brazil. We've entered new market segments like employment verification services, which have a lot of promise. This coupled with the investments we continue to make in widening our data assets and innovation, gives us a lot of opportunity to sustain our growth, both this year and beyond. And we feel very positive about our prospects as a whole. With that, we're going to open it up -- open up the line for your questions. So back to you, operator.

Thank you, Brian. [Operator Instructions] Okay. Brian, your first question comes from Paul Sullivan from Barclays.

Three for me. Firstly, I'm a little intrigued as to why LatAm growth slowed so much and is running barely ahead of inflation, particularly in light of all the structural positives that you've been talking about. Should we expect to bounce back in the fourth quarter? That's the first question. Secondly, Lloyd, you touched on sort of lead gen, sort of doubling again in the in U.S. consumer, but any more color on the other moving parts of the U.S. consumer business and the sustainability of growth from here? And then, finally, Brian, your sort of thoughts on the bigger picture and macro backdrop, what customers are saying to you? And any early thoughts on how we should be thinking about the shape of fiscal '23?

Okay. Thanks, Paul. Do you want to deal with the growth ones and I'll come back on the macro?

Yes, sure. So I'll start with lead gen. Paul, all the individual bits of the North America consumer business grew double digit in the quarter. If you think about the trend across the quarters, we clearly ingested a lot of subscription members during the pandemic. So, as we go forward, we're expecting that bit of the business to trend more to be stable over the next 12 to 18 months with much more of our growth coming from the Marketplace business. And obviously, with the launch of the auto insurance product set on the back of the Gabi acquisition. So, probably, looking ahead, you're more likely to see the North America consumer business more in the low teens than the high teens given that mix, but all bits of the business, going well. On LatAm, clearly, it takes a little while for inflation expectations to filter their way through the bits of contracting. In this quarter, Brazil was a bit ahead of the growth in LatAm overall, so in the 12% to 13% range. The consumer business was a bit slower this quarter, and that's really because we have the Limpa Nome fair, which is a mostly, physical fair, and where we interact with them. Lots of people, as Brian mentioned. So it can be -- the growth in this quarter can be a bit focused on the performance of that fare and expect that to improve as we go into the fourth quarter. So, probably LatAm growth, Q4, is probably more like the 13% to 15% range than the 11% that we saw in Q3.

Okay. And Paul, then on the macro. Well, look, I think we see -- if you exclude mortgage in North America, which is obviously linked to the refinancing cycle that we've been through in the last couple of years, we're seeing really good conditions. I think, the banks are in good shape. Consumer is in good shape. The signs across the economies are pretty good. I know, everybody is focused on the Fed increasing interest rates, but I think that's more to do with the sort of hot conditions we're seeing across inflation and growth. So, I think we feel pretty good about the outlook. There's no signs of distress anywhere in the system. And obviously, when you look across as big a portfolio as ours and pick an economy, you can get whatever answer you want. But as we look across our bigger economies, say, the U.K., for example, we've been surprised at how -- I think, all of us have been surprised at how robust the U.K. economy has been and that continues to be the case despite the sort of ongoing challenges of temporary lockdowns here and there. And of course, we do have some particular spikes in inflation coming later in the year with energy costs and so on, that will feed through to consumer. But generally speaking, consumers face into this in pretty good shape. We can see that wages are rising. So, our overall view is pretty positive. And we continue to sort of monitor how we progress the pandemic. We're not through that. So we probably would expect continued sort of spikes here and there. But I think the backdrop, we feel is pretty good.

And any thoughts on the shape of next year, at this stage?

Well, I think -- I mean, Lloyd could comment in a bit more detail, but we expect next year to be a year of really good growth. And Lloyd, do you want to...

Yes. I think, if you look at our guidance for the fourth quarter, you back out year-to-date, that suggests, in the fourth quarter, were about 8% to 9%. And that's after a 1% headwind on mortgage. And that's where consensus is for next year. We'll formally guide when we get to May. But we're pretty comfortable at this stage and that tells you we're pretty confident about the progression of the business.

And your next question comes from the line of Sylvia Barker from JPMorgan.

Maybe, just to clarify a little bit on the Q4 moderation You've now commented on full year '23 as well. So, it seems that in Q4, around that kind of 9-ish percent level seems reasonable. If we think about the delta, the consumer subscription seems to be kind of probably 50%, 60% of that. I don't know if that's fair. And then maybe, if you can just touch on the health impact of the COVID impact within the health business and maybe just the core credit bureau. Secondly, just the free users within North America, I guess, the growth in that slowed down a little bit quarter-on-quarter. Maybe, just the dynamics there. We do get questions around how quickly that can carry on, going forward. What is a reasonable expectation, I guess, of that user base growth? And to what extent is that something to focus on, given you're obviously cross-selling and building the business around kind of each user and to a greater extent with more products anyway? And then finally, on margins in the U.K. and EMEA, Asia Pac. Just to check in on the previous comments, so you said the U.K. margin should be reaching 30% at some point over the next few years. And then, India and Asia Pac should be profitable, going forward. Just to check in on those 2, please, as well.

Okay. So, I think, the -- so, I'll start with the U.K. and EMEA/Asia Pacific. So no change to what we said before. So the long-term guidance for the U.K., over 5 years, just to get that back to 30% margin. So this is the first year of that and you've seen in the first half results a strong bounce back. And progression from here will be more ratable over the next 4 years. On EMEA/Asia Pacific, we're expecting an improvement in profitability this year, as we said. And then, our goal is to really improve the financial performance of that business, and we'll have a bit more to say about that in May. On the consumer user base, we're continuing to add millions of free members across the base. So, if you go back this year, Q1, we were 116 million and 122 million, now 128 million. So some really good progress across that base. Naturally, there are diminishing returns as you get up into a high penetration across those user base. So our goal is to expand that and continue to expand it, but drive engagement with products. And that's really where we're targeting all of the investment that we're making across the consumer base. We've got a pretty powerful distribution engine there and our goal is to be able to provide additional functionality into that consumer base, create value through that. And then, just on the outlook. So, let's say, 11% this quarter and in that 8% to 9% range. Moving parts there. Clearly, we've got elevated growth in Q3 on health. Some areas of elevation around the holiday season in the bureau in North America, et cetera. So, we probably expect North America to come down a bit, Brazil to go up a bit, EMEA/Asia Pacific to get better, and the U.K., B2B business will probably get a little bit better, but then the subscription business would moderate the consumer business a bit in the U.K. So those are roughly the moving parts. But trajectory into Q4 and next year, underlying in the 9% to 10% range with a 1% headwind of mortgage is where we're looking at just now.

Sylvia did disconnect. So I'm not sure if you want to ask anything else, [Operator Instructions]Okay. Would you like to take the next question?

Yes, please.

Yes, no problem. And it comes from Anvesh Agrawal from Morgan Stanley.

Just got a couple of follow-ups on what's been asked already, really. In Brazil, I mean, with sort of Limpa Nome probably sort of comping out and eCred still ramping up. Can we be in sort of a couple of quarters where we see slightly slower trend? Or do you see an immediate ramp-up happening from Q4 and sort of Q1 next year? And then, just on the auto slowdown, is that purely related to what's sort of happening with the supply shortages? Or is there anything else that's sort of going on there? And then finally, the CFPB news that sort of came out, and I understand that you have sort of agreed to a new mechanism in order to how to address the third-party complaints. Are we looking for any additional cost from that or nothing sort of materially changes from that?

Lloyd, why don't you deal with the Brazil and I'll come back on CFPB?

Yes. So, as I mentioned, the third quarter is a bit focused on Limpa Nome. Naturally, as the business gets bigger, the growth rates moderate a little bit, but we're still expecting strong growth from the Consumer business. And Q4, I think, will be higher than we've seen in Q3 as much more of the growth of the eCred business impacts at all. As I look back, what, maybe 3 years ago, Limpa Nome was sort of 70% to 80% of the business in -- the Consumer business in Brazil. It's now about 50%. So, you can see the effect of the very strong growth and even eCred that's having there. On auto, it's just really the supply chain issues that well publicized that anybody who's tried to buy a car recently knows you have to wait a long time and that's pushing down into lack of availability also in the used car market, where you're seeing a lot of inflation. So, I think we're going to have to see those effects work their way through that business before we're likely to see growth elevated back into the high single-digit range. Brian?

Yes. And on the CFPB point, I mean, it's not a significant change. And certainly, we will be adding additional resource to handle those additional volumes, but not significant in the overall grand scheme of things.

And your next question comes from Karl Green from RBC.

Yes. Thank very much. I think, you've just partly answered my question around the CFPB statement which came out earlier this year. I mean, they made some fairly strong comments about the industry being either unable or unwilling to comply with the FCRA. So just to be clear, in terms of those extra resources you're putting in, do you think that, that will take you to being deemed compliant with the law as per the CFPB's understanding of that?

Yes. Let's get a few things clear here which is, that we've always been compliant with the law. So, there's never been any question about that. The CFPB has a different interpretation about how we should deal with mass complaints that come in through the CFPB portal. What's driving this is credit clinics which the CFPB also acknowledge accounts for a very significant volume of the complaints or complaints that put through. Most of these attempts to get data, which is on people's credit reports changed. In some cases, there are valid reasons why that should be done. But in many cases, there is no valid reason that's borne out by the number of times that the actual reports are changed themselves. So, what we're seeing here is an escalation in volume of complaints into the consumer portal and an agreement between us and the CFPB about how we deal with those. We have always been obligated and always have dealt with complaints that come directly through to the bureaus. And I think, this is obviously an area that CFPB is very, very focused on, and we expect they will continue to pay a lot of attention to this going forward.

Okay. But you would disagree with that contention that this -- a question as to the compliance with the law?

Well, we've always been fully compliant with the FCRA. There's no question about that. What we're talking about here is a change in procedure in dealing with large-scale complaints.

And your next question comes from George Gregory from BNP.

Just one from me, please. Following up on some of your earlier comments. The guided growth in U.S. consumer in the low teens with stable subscription businesses would seem to suggest marketplace revenues increasing fiscal '23 year-over-year by sort of a similar magnitude, I suppose, to what they will have possibly increased in the current year. That's obviously against a base, which is significantly larger. Just any color you can share really, on the sort of the implied deceleration of the business. Appreciate some of those businesses will naturally mature, but you're also scaling up in new verticals. So, just trying to get a sense of the range of scenarios on the U.S. credit market into next year, please?

Yes. So if you look at the current makeup of the business, about 60% is a subscription business. That's both credit education and identity effect which they're really merging into a single product. About 20% is marketplace and about 20% is Partner Solutions. So, if you think about the kind of the natural evolution of that, the vast majority of our growth over the next few years is going to come from marketplace. Product subscription, we'll have to really invest the big peak of membership that we brought in over COVID. So, that's more likely to be broadly stable to up a bit over the next 12 to 18 months and before more normal growth would return. If you think about Partner Solutions, that's kind of a mid- to a bit more than that, growth rate. Under normal times, it's marketplace that's really going to drive the growth. And so I think if you look at that rate, you can see we're still expecting very strong growth from that marketplace business as we continue to grow the propositions, launch the insurance business and expand some of the other propositions that we've got in the innovation pipeline. Still there, George?

Lloyd, sorry, I was on mute. Yes, I guess, I'm just trying to get a sense for the sort of the context for that low single digit and the kind of implied growth rate on credit marketplace [indiscernible], in fact...

When you say low single digit, I didn't say that...

Low teens, pardon me. Low teens, pardon me. Yes, more just to get a sense for whether that could possibly prove conservative, given that the pace of growth in your marketplace business and the scaling of some of the new verticals?

Yes. I think -- look, we've got a lot of exciting plans for that. We've grown, what now is well over $200 million annual business. So, there are clearly a range of outcomes. Today, it's 20% of the consuming business overall. So you kind of have to factor that in, but it's clearly scaling well. So I think that probably covers it.

There are no more questions. So back to you, Brian, for final remarks.

Great. Thank you. Well, thanks, everybody, for joining today, and thank you for the questions. I hope you all have a good day, and we look forward to speaking to you again in May for our full year results. Thank you.