Interim Results - part 1

RNS Number : 4426I

Experian plc

19 November 2008

 



Experian plc

Half-yearly financial report for the six months   

to 30 September 2008

Highlights 

·     Good revenue, profit and cash flow progress, reflecting balance and diversity of the Group.

·     Total revenue growth of 13% at actual exchange rates to US$2,017m. Revenue from continuing activities up 11% at constant exchange rates to US$1,987m. Organic revenue growth of 3%.

·     Total EBIT growth of 8% at actual exchange rates to US$476m. Continuing EBIT up 8% at constant exchange rates.

·     EBIT margin of 22.8% from continuing activities (2007: 23.0%), excluding FARES contribution.

·     Profit before tax of US$318m. Benchmark profit before tax of US$416m, up 9%.

·     Basic EPS of 25.5 US cents. Benchmark EPS growth of 8% to 30.7 US cents.

·     Strong cash conversion of 83%, in traditionally weaker half of year.

·     Strong performances in Latin America, Consumer Direct and Decision Analytics offset market challenges in US and UK Credit Services.

·     Cost efficiencies ahead of schedule with US$29m contribution in the half. Additional savings identified; target raised to US$130m annualised.

·     First interim dividend increased by 4% to 6.75 US cents per share.

John Peace, Chairman of Experian, said:

'Experian performed well in the first half, delivering good revenue, profit and cash performances, even though market conditions were exceptionally challenging. The Group has strengthened its market position, and is well placed to grow through the current global economic cycle.'

Don Robert, Chief Executive Officer of Experian, said:

'Our business continues to perform well. We are adapting to market challenges, which we expect to persist into next year. We are directing the organisation towards emerging countercyclical opportunities and we are further addressing our cost base. Looking ahead, we expect organic revenue growth for the third quarter to be similar to that in the first half. For the year as a whole, our objective remains to broadly maintain margins and to grow profits, while continuing to position the business for long term success.'

 Enquiries

Experian

Don Robert                     Chief Executive Officer             44(0)20 3042 4215    

Paul Brooks                    Chief Financial Officer

Nadia Ridout-Jamieson    Director of Investor Relations 

Alex Brog                        Head of Media Relations   

Finsbury
Rollo Head                                                                     44(0)20 7251 3801
Don Hunter

There will be a presentation today at 9.30am (UK time) to analysts and investors at the Merrill Lynch Financial Centre, 2 King Edward Street, London, EC1A 1HQ. The presentation can be viewed live on the Experian website at www.experianplc.com and can also be accessed live via a dial-in facility on 44 (0)20 8322 2180. The supporting slides and an indexed replay will also be available on the website later in the day.

There will be a conference call to discuss the results at 3.00pm today (UK time), which will be broadcast live on the website with a recording available later. All relevant Experian announcements are available on www.experianplc.com.  

Experian will update on trading on 15 January 2009, when it will issue the Interim Management Statement in respect of the Third Quarter. 

See Appendix 2 for definition of non-GAAP measures used throughout this announcement and Appendices 3 to 6 for reconciliations of certain of these non-GAAP measures. 

The reported revenues and profits have been restated to reflect the treatment of transaction processing activities in France as a discontinued operation. In addition, there have been a number of small changes to the Group's four business segments reflecting evolving business profile and changes in the reporting structure of recent acquisitions. Notes 3 and 8(b) detail these changes and their impact on the financial reporting.

Roundings

Certain financial data have been rounded within this announcement. As a result of this rounding, the totals of data presented may vary slightly from the actual arithmetic totals of such data.

Certain statements made in this announcement are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward looking statements.

  CHIEF EXECUTIVE'S REVIEW  

Experian performed well in the first half of the year. Our organic revenue growth was 3%, with acceleration as the period progressed (Q1: 1% and Q2: 5%). We delivered continuing EBIT growth of 8% at constant exchange rates and made good progress on cost efficiencies, resulting in broadly flat margins. We improved Benchmark EPS, and we achieved strong cash flow during the traditionally weaker half of the year for cash generation.

This performance was delivered against one of the most challenging environments in recent history, and at a time of great stress for the global financial services industry. It underlines the resilience of Experian’s core business and the benefits we gain from our broad portfolio, as well as the Group’s ability to respond rapidly to changed marketplace circumstances.

Adapting our organisation

Our response to the evolving market environment has been swift. While marketplace challenges persist, new opportunities are emerging for Experian.

Experian is well positioned to compete and grow. We are focusing resources on current needs and helping our financial services clients with cash recoveries and collections. We are intensifying client education efforts, reallocating sales resource and aligning sales incentives in order to get to market quickly with a wide range of countercyclical products, across all relevant business lines. For example, we are delivering to our clients:

• collections strategies that help to identify who to collect from and when, including collections scores and collections triggers;

• tools that identify pre-delinquent loans, both in the consumer and SME markets;

• enhanced contact data to improve contact rates with delinquent borrowers and better segment pre-delinquent borrowers; and

• other services such as tracing tools, loan loss forecasting and provision of real-time data at the point of debt negotiation.

In the medium term, we expect some consolidation of the financial services industry and the emergence of larger global institutions. We also anticipate a growing need for these larger institutions to standardise and upgrade their risk management processes as a result of increased regulation. These are both factors that play to Experian's strengths. We therefore see opportunities to: 

• win in the marketplace with value-added, integrated solutions that enable Experian to become the global platform of choice for clients;

• achieve greater market penetration through cross-selling, where our comprehensive global sales approach gives us a significant head start.  

Portfolio diversity is one of our strengths and, in recent months, this has distinguished our performance from that of our competitors. We see significant opportunities in new verticals and new geographies, and we are continuing to invest in these areas. For example, we see good growth potential in new verticals such as capital markets and healthcare, and in the geographic regions of Latin America and Asia Pacific.

Strategic progress

The three elements of our strategy are to focus on data and analytics, drive profitable growth and optimise capital efficiency. 

Focus on data and analytics

In the first half we invested in further opportunities that will lay the foundations for future growth. 

• We entered into a joint venture in Japan to develop and operate a credit bureau. New regulations in Japan make this an attractive future market for Experian. 

• We acquired a minority stake in a business credit bureau in Singapore. 

• We continued to invest organically in

  • new credit bureau builds in Canada, Morocco and India;

  • new data sources for our Marketing Services businesses;

  • new products such as fraud prevention tools at Consumer Direct; and

  • new verticals such as extending our position in UK public sector.

We also continue to refine the portfolio where the strategic fit is not strong, such as the disposal of the transaction processing activities in France.

Driving profitable growth

During the half, the majority of our business grew well and we extended our market-leading position. Our business in Brazil has performed very strongly, ahead of our expectations. Consumer Direct delivered excellent performances in both the US and the UK, driven by strong growth in subscription revenue. Our Decision Analytics activities delivered high single-digit organic revenue growth, reflecting strong demand for countercyclical products in the UK, share gains in the US, and increased market penetration in new geographies. In Marketing Services, our digital marketing activities now have real scale, and we are growing our footprint globally. 

Our cost efficiency programme has progressed well, delivering savings ahead of schedule, with cost savings in the half of US$29m. We have identified additional efficiencies and today raise our estimate for total annualised cost savings by US$20m to US$130m. We expect the benefit for the full year to 31 March 2009 to be approximately US$70m. The incremental restructuring charge associated with achieving these additional savings is expected to be US$30m, to take the total charge for the programme to approximately US$170m.

Incremental savings largely reflect additional strategic measures, which will give rise to permanently lower operating costs. These include further offshoring, infrastructure consolidation, organisational efficiencies and product rationalisation.

Optimise capital efficiency 

We remain committed to maintaining a prudent but efficient balance sheet. Net debt at the end of the period was US$2,616m, after funding capital expenditure of US$146m and acquisition spend of US$52m. Following the receipt of US$203m from the disposal of our French transaction processing activities at the end of October, net debt is now back within our target range of 1.75 - 2.0x EBITDA. Given the current financial and economic climate, which puts a premium on financial soundness and liquidity, we think it is appropriate to target the bottom end of this range, although we will continue to review this in the light of external conditions and the development of our credit ratios.

Experian is due to repay bonds maturing in July 2009 of £308m (US$462m at an exchange rate of £1/US$1.5). It is Experian's current intention to fund the redemption of these bonds by drawing on existing committed bank facilities, where current headroom is approximately US$1.1bn. No other borrowings are due for repayment until July 2012.

Dividend

We have announced a first interim dividend of 6.75 US cents per share, representing an increase of 4% year-on-year, and consistent with our dividend policy to have cover based on Benchmark EPS of at least three times on an annual basis. The first interim dividend will be paid on 30 January 2009 to shareholders on the register at the close of business on 5 January 2009.

 GROUP FINANCIAL HIGHLIGHTS 

Total revenue growth of 13% at actual exchange rates

Revenue from continuing activities up 11% at constant exchange rates to US$2.0bn; 3% organic 

EBIT from continuing activities up 8% at constant exchange rates to US$476m

Total EBIT up 8% at actual exchange rates to US$476m

EBIT margin from continuing activities excluding FARES of 22.8%

Profit before tax of US$318m, Benchmark profit before tax of US$416m

Basic EPS from continuing operations of 25.9 US cents, Benchmark EPS of 30.7 US cents, up 8% 

Six months to 30 September	Revenue		Profit
	2008  US$m	2007  US$m	2008  US$m	2007  US$m
North America	1,037	1,020	295	290
Latin America	263	102	68	24
UK and Ireland	475	469	123	126
EMEA/Asia Pacific1	212	160	17	19
Sub total	1,987	1,751	503	459
Central Activities	-	-	(27)	(27)
Continuing activities	1,987	1,751	476	432
Discontinuing activities2	30	38	-	7
Total revenue/EBIT	2,017	1,789	476	439
Net interest			(60)	(58)
Benchmark PBT			416	381
Exceptional items			(33)	(2)
Amortisation of acquisition intangibles			(70)	(50)
Charges for demerger-related equity incentive plans			(21)	(24)
Financing fair value remeasurements			27	(34)
Tax expense of associate			(1)	(1)
Profit before tax			318	270
Tax			(42)	(51)
Profit after tax for continuing operations			276	219
Benchmark EPS (US cents)			30.7	28.5
Basic EPS from continuing operations (US cents)			25.9	21.2
Weighted average number of ordinary shares (million)			1,011	1,008

¹ 2007 restated to exclude French transaction processing activities, which are now classified as a discontinued operation

² Discontinuing activities include UK account processing, Loyalty Solutions and other smaller discontinuing activities

 

See Appendix 1 for analysis of revenue and EBIT by principal activity and Appendix 3 for reconciliation of revenue and EBIT by geography

See Appendix 2 for definition of non-GAAP measures

 NORTH AMERICA

Revenue from continuing activities up 2%; 1% organic

EBIT from continuing activities up 5% excluding FARES; up 2% including FARES

Excellent margin performance - EBIT margin excluding FARES up 60 basis points

Six months to 30 September	2008  US$m	2007  US$m	Growth1  %	Organic growth1  %
Revenue
- Credit Services2	372	390	(5)	(5)
- Decision Analytics2	59	59	-	-
- Marketing Services2	181	173	5	2
- Interactive2	425	398	6	6
Total North America	1,037	1,020	2	1
EBIT
- Direct business	272	261	5
- FARES	23	29	(23)
Total North America	295	290	2
EBIT margin3	26.2%	25.6%

1     Growth at constant exchange rates

2     2007 restated for reclassification of certain businesses between segments, see note 8(b)

3     EBIT margin is for continuing direct business only and excludes FARES

Operational review

Experian North America delivered a good result against difficult market conditions. There was sequential improvement in organic revenue in the half, and margins progressed by 60 basis points, benefiting from proactive cost control measures. 

Credit Services

Credit Services revenues declined by 5% year-on-year, reflecting the impact of global credit constraints on mortgage origination and credit prospecting. Strong demand for countercyclical products such as portfolio management and collections tools offset much of the weakness in credit originations. As clients have become more focused on managing rising delinquencies, they are seeking better segmentation tools and strategies to mitigate losses and to operate more efficiently. Risk concerns have also generated renewed interest in scores, including bankruptcy prediction. Meanwhile, demand for credit reference products has remained strong within non-financial verticals. Experian’s automotive information business has also continued to grow well, driven by market share gains in the sale of vehicle history reports.

Experian has strengthened its market position, with several significant client wins that will largely benefit future reporting periods, including a large win for Bankruptcy Predict. 

 Decision Analytics

Revenue in Decision Analytics was flat year-on-year, against a strong prior year comparative. There was strong demand in the half for collection and recovery scores, for commercial lending software and for fraud prevention products. This offset weaker demand for loan origination products, such as application processing software. While the sales cycle continues to be long for major projects, the pipeline for Decision Analytics remains strong.

Marketing Services

Total revenues at Marketing Services grew by 5%, with organic revenue growth of 2%. Growth was driven by excellent performances across new media activities, specifically email marketing, contact data management (QAS) and online competitive intelligence (Hitwise). New media activities have continued to perform well, as clients seek to manage their existing customer base more effectively and to realise efficiencies in marketing spend. In addition, Experian gained share through new contract wins. While traditional direct mail marketing activities have continued to decline, there has been ongoing focus on cost efficiency, including the initiation of a major offshoring programme, which will permanently lower costs in areas such as list processing, data and database.

Interactive

Revenue at Interactive grew by 6% year-on-year.

Consumer Direct further extended its market-leading position in the period, delivering growth in excess of 20%. Growth was primarily driven by increased memberships for Experian’s Triple Advantage credit monitoring product, on the back of highly successful broadcast advertising campaigns. Membership subscriptions are a high proportion of revenues at Consumer Direct, providing a strong recurring revenue stream and representing a key competitive distinction for Experian. There was also good growth in the affinity channel, as well as first-time contributions from new identity theft protection products.

In lead generation, Experian Interactive Media experienced ongoing weak mortgage market conditions due to the challenging environment. PriceGrabber’s performance reflected the wider decline in US consumer demand and changes in the revenue mix.

Financial review

Revenue from continuing activities was US$1,037m, up 2%, with organic revenue growth of 1%. The acquisition of Hitwise (in June 2007) contributed 1% to revenue growth.

EBIT from direct businesses was US$272m (2007: US$261m), an increase of 5% in the year, giving an EBIT margin of 26.2% (2007: 25.6%). The improvement in margin was largely attributable to offshoring and other cost efficiencies, while continuing to fund investment for future growth. 

EBIT from FARES, the 20%-owned real estate information associate, was US$23m (2007: US$29m). This reflected ongoing cost action, which helped offset the very weak environment for mortgage origination.

 LATIN AMERICA

Revenue of US$263m, up 119% at constant exchange rates; organic revenue up 22%

EBIT up 136%; with EBIT margin of 25.9%

Strong Serasa performance, ahead of the acquisition buy plan

Six months to 30 September	2008  US$m	2007  US$m	Growth1 %	Organic growth1  %
Revenue
- Credit Services	251	96	122	18
- Decision Analytics	4	3	23	23
- Marketing Services	8	3	118	118
Total Latin America	263	102	119	22
EBIT
Total Latin America	68	24	136
EBIT margin	25.9%	23.5%

1     Growth at constant exchange rates

Operational review

Experian delivered excellent organic revenue growth in Latin America, across all areas of activity, with improved margins. Good strategic progress was made in the period as a combined sales force was established in Brazil to cross-sell products across all lines of activity.

Credit Services

There was strong growth in Credit Services in Latin America. Total revenue increased by 122% at constant exchange rates, with organic revenue growth of 18%. The acquisition contribution related to Serasa, which anniversaried in June. Growth was excellent in both consumer information and business information services. In consumer information, high levels of consumer demand for credit have driven strong origination revenues. Experian has also benefited from a number of new business wins within financial services and across other verticals. In business information, Experian has leveraged its data superiority and market-leading position to capitalise on the strong demand for commercial credit. In addition, Experian has benefited from investment in new data sources within its prospecting suite, as well as from good demand for new collections products. 

Decision Analytics

Decision Analytics performed well in Latin America, with revenue growth of 23% from a relatively low base. The business in Brazil has benefited from the relationship with Serasa, which has resulted in new cross-selling opportunities. Experian is expanding its services in Brazil and other Latin American markets, leveraging the core Experian product suite. New product introductions include software for origination, account management, collections and fraud prevention.

Marketing Services

Marketing Services performed very strongly in the half as total revenue more than doubled, with growth of 118% at constant exchange rates. Growth was driven by a series of new business wins leveraging the Serasa relationship, as well as good underlying demand for prospect targeting, data cleansing and campaign management tools.

Financial review

Revenue was US$263m, up 119% at constant exchange rates. Organic revenue growth was 22%. The contribution to revenue growth from acquisitions in the half was 97%, attributable to the acquisition of Serasa in June 2007.

EBIT was US$68m, up 136% at constant exchange rates. The EBIT margin was 25.9% (2007: 23.5%). The margin improvement reflects both strong positive operational gearing at Serasa and its first full time inclusion in the half year.

 UK AND IRELAND

Revenue from continuing activities up 4% at constant exchange rates; 1% organic

Strong demand for countercyclical products and Interactive offset Credit Services weakness

EBIT margin of 25.9%; reflecting a decline in consumer credit transactions 

Six months to 30 September	2008  US$m	2007  US$m	Growth1 %	Organic growth1  %
Revenue
- Credit Services2	150	155	(1)	(4)
- Decision Analytics	131	119	13	8
- Marketing Services2	152	165	(5)	(7)
- Interactive	42	30	46	46
Total - continuing activities	475	469	4	1
Discontinuing activities3	30	30	n/a
Total UK and Ireland	505	499	4
EBIT
- Continuing activities	123	126	-
- Discontinuing activities3	-	6	n/a
Total UK and Ireland	123	132	(5)
EBIT margin4	25.9%	26.9%

1 Growth at constant exchange rates

2 2007 restated for reclassification of certain businesses between segments, see note 8(b)

3 Discontinuing activities include UK account processing and other smaller Marketing Services activities

4 EBIT margin is for continuing activities only

Operational review

The UK and Ireland held up well against a challenging market environment. Experian’s resilience was attributable to heightened demand for countercyclical products, as well as strong secular growth across the direct-to-consumer channel. Experian has continued to strengthen its market position, with share gains across all business lines.

Credit Services

Total revenue at Credit Services declined by 1% at constant exchange rates, with organic revenue down 4%. The acquisition contribution related to The pH Group. Organic revenue declined due to the downturn in consumer lending caused by the credit crisis. There was good progress in non-financial verticals, including public sector, which helped offset lower consumer credit transaction volumes. There was growth at business information, where Experian has strengthened its market position through improved client retention and new business wins. There is a good pipeline at business information, built around new value-added propositions, including countercyclical products and services. 

Decision Analytics

Total revenue at Decision Analytics increased by 13% at constant exchange rates, and was up 8% organically, benefiting from some one-off software deliveries. The acquisition contribution related to Tallyman and N4 Solutions, both of which performed ahead of plan. Growth was driven by strong demand for countercyclical products, including the rebuild of custom scorecards, as well as for collections software. There was also good progress in new verticals, such as identity management applications for online gaming, and within the telecoms sector. New business in the half included multi-million, multi-year wins, for example with Orange.

Marketing Services

Total revenue at Marketing Services declined by 5% at constant exchange rates, with organic revenue down 7%. The acquisition contribution was attributable to Hitwise. Traditional direct marketing activities continued to be affected by cutbacks in financial services marketing expenditure. There was good progress across new media marketing activities, including several new business wins within email marketing, such as T-Mobile and John Lewis Partnership. Contact data management (QAS), where Experian provides licence-fee based software, also performed well, as did online competitive intelligence (Hitwise), benefiting from new business wins and strong retention rates. 

Interactive

Interactive delivered an excellent performance, with revenue up 46% at constant exchange rates. There was further strong growth in CreditExpert, driven by increased membership revenue in the half. CreditExpert has delivered strong growth from direct-to-consumer sales, and is making good progress in driving indirect memberships through affinity channels. 

Financial review

Revenue from continuing activities was US$475m, up 4% at constant exchange rates. Organic revenue growth was 1%. The contribution to revenue growth from acquisitions in the half was 3%, including Tallyman (acquired May 2007) and N4 Solutions (acquired July 2007).

EBIT from continuing activities was US$123m, and the EBIT margin was 25.9% (2007: 26.9%). The lower margin reflects the negative organic revenue trend in Credit Services, in addition to investment in new verticals in the half. 

  EMEA/ASIA PACIFIC

Revenue from continuing activities up 21% at constant exchange rates

Organic revenue growth of 8%, including strong performances in Decision Analytics and Marketing Services

EBIT margin of 8.0% after infrastructure investment in Asia Pacific

Six months to 30 September	2008  US$m	2007  US$m	Growth1 %	Organic growth1  %
Revenue
- Credit Services2	86	71	10	4
- Decision Analytics	67	56	11	10
- Marketing Services	59	33	63	13
Total - continuing activities	212	160	21	8
Discontinuing activities3	-	8	n/a
Total EMEA/Asia Pacific	212	168	16
EBIT
- Continuing activities	17	19	(18)
- Discontinuing activities3	-	1	n/a
Total EMEA/Asia Pacific	17	20	(21)
EBIT margin4	8.0%	11.9%

¹ Growth at constant exchange rates

² 2007 restated to exclude French transaction processing activities, which are now classified as a discontinued operation

³ Discontinuing activities include Loyalty Solutions

⁴ EBIT margin is for continuing activities only

Operational review

Experian made good progress in EMEA/Asia Pacific, including new strategic initiatives in Japan and Singapore. Marketing Services is now a business of some scale in the region and growing strongly. Experian has stepped up investment across the region to drive future growth.

Credit Services

Total revenue for Credit Services grew 10% at constant exchange rates, with organic revenue growth of 4%. The acquisition contribution primarily reflected an increase to majority control of Experian’s stake in Sinotrust in China. Experian also entered into a 50% joint venture partnership with CCB to develop and operate a credit bureau platform in Japan. There was good bureau progress in the period in Italy, Spain, the Netherlands, Estonia and emerging markets. New business in the period included a large, multi-year win in the Netherlands, a significant automotive win with eBay and a range of smaller wins for consumer and business information products.

Decision Analytics

Decision Analytics performed well. Total revenue growth at constant exchange rates was 11%, with organic revenue growth of 10%. The acquisition contribution related to Tallyman. Growth was driven by strong demand for origination, account management and collections software. Geographically, there was excellent conversion of the sales pipeline, with new business wins in Russia, Spain, Korea, New Zealand and Australia across a broad spectrum of products.

Marketing Services

Total Marketing Services revenue increased by 63% over the half at constant exchange rates, with organic revenue growth of 13%. The acquisition contribution was due to Hitwise, Emailing Solution and the move to majority control at Sinotrust. Growth was driven by strong demand for email marketing, contact data management and online competitive intelligence. Geographically there were good performances across the established markets of France, the Netherlands, Germany, Spain and Australia, as well as excellent progress within emerging markets across Asia Pacific. 

Financial review

Revenue from continuing activities was US$212m, up 21% at constant exchange rates. Organic revenue growth was 8%. The acquisition contribution of 13% included Tallyman, Sinotrust, Hitwise and Emailing Solution (acquired May 2007).

EBIT from continuing activities was US$17m, down 18% at constant exchange rates, with an EBIT margin of 8.0% (2007: 11.9%). The margin dilution reflects a step up in investment in the Asia Pacific region.

  OTHER ITEMS

Balance sheet

Reported net assets amounted to US$2,103m (2007: US$1,949m), which is equivalent to US$2.1 per share (2007: US$1.9), excluding own shares held by employee trusts. The assets and liabilities of the transaction processing activities in France at 30 September 2008 are classified as held for sale.

Cash flow and net debt 

Experian has continued to be strongly cash generative in the half. Operating cash flow of US$396m (2007: US$321m) was generated in the period. Capital expenditure incurred on continuing activities was US$146m in the period (2007: US$129m). 

Acquisitions of US$52m (2007: US$1,704m) and dividends of US$121m (2007: US$115m) were funded from free cash flow in the half. During the period, the Group completed a small acquisition and settled deferred consideration of US$42m in respect of prior-year acquisitions. In addition, Experian purchased a 40% stake in DP Information Group, a bureau in Singapore, and invested in a joint venture in Japan with CCB. On 31 October 2008 Experian received US$203m on completion of the disposal of the transaction processing business in France, after settlement of working capital and net debt. These funds, before further costs and taxes of US$25m, have been used to pay down existing loan facilities.

At 30 September 2008, net debt was US$2,616m (31 March 2008: US$2,699m) with undrawn committed borrowing facilities of US$934m. In the six months to 30 September 2008, the related net interest expense, before financing fair value remeasurements, was US$60m (2007: US$58m). This expense is stated after crediting US$10m (2007: US$10m), in respect of the expected return on pension assets over the interest on pension liabilities (see note 11).

Central Activities

Central Activities comprise costs associated with the Group's central corporate functions. In the six months to 30 September 2008 Central Activities was unchanged at US$27m.

Exceptional items

Six months to 30 September	2008  US$m	2007  US$m
Restructuring costs	30	-
Demerger-related costs	-	2
Losses on disposal of businesses	3	-
Total	33	2

Expenditure of US$30m arose in the period in connection with the Group's programme of cost efficiency measures. Of this, US$13m related to redundancy, US$5m related to offshoring activities and US$12m related to other restructuring and infrastructure consolidation costs. The programme of cost efficiency measures is now expected to deliver annualised savings of approximately US$130m, of which US$70m will be realised in the current year. Total exceptional costs are now expected to be in the region of US$170m. All other restructuring costs have been charged against EBIT in the segments in which they were incurred.  

Costs relating to the demerger of Experian and Home Retail Group in the six months to 30 September 2007 comprised the balance of legal and professional fees in respect of the transaction, together with costs in connection with the cessation of the corporate functions of GUS plc.

Other exceptional items are those arising from the profit or loss on disposal of businesses or closure of material business units.

Other non-GAAP measures 

Six months to 30 September	2008  US$m	2007  US$m
Amortisation of acquisition intangibles	70	50
Charge in respect of the demerger-related equity incentive plans	21	24
Financing fair value remeasurements	(27)	34
Total other non-GAAP measures	64	108

Amortisation of acquisition intangibles

IFRS requires that, on acquisition, specific intangible assets are identified and recognised separately from goodwill and then amortised over their useful economic lives. These include items such as customer relationships, completed technology, data provider relationships, trademarks and brand names, to which value is first attributed at the time of acquisition.  

Charge in respect of demerger-related equity incentive plans

This charge relates to one-off grants made to senior management and all other staff levels at the time of demerger under a number of equity incentive plans. The cost of these one-off grants is being charged to the Group income statement over the five years following the demerger, but is excluded from the definition of Benchmark PBT. The cost of all other grants is charged to the Group income statement and is included in the definition of Benchmark PBT.

Financing fair value remeasurements

An element of Experian's derivatives is ineligible for hedge accounting. Gains or losses on such derivatives arising from market movements, together with gains and losses on put options in respect of acquisitions, are credited or charged to the Group income statement.

The credit for the period includes a small credit in respect of the revaluation of the Serasa put option liability. This fair value movement was primarily the result of an increase in the Brazilian risk free rate used in the Monte Carlo simulation model.

Taxation 

In the six months to 30 September 2008, the effective rate of tax on Benchmark PBT was 20.9% (2007: 22.7%). This rate is defined as the total tax expense adjusted for the tax impact of non-Benchmark items and further excluding the benefit of a one-off corporation tax credit of US$20m that relates to arrangements involving entities no longer part of the group, divided by Benchmark PBT. Experian expects the effective rate of tax on Benchmark PBT to be approximately 22% for the current financial year, excluding the benefit of the one-off corporation tax credit.

Earnings per share

At 30 September 2008, Experian had approximately 1,025m ordinary shares in issue (2007: 1,023m). The number of shares to be used for the purposes of calculating basic earnings per share going forward is 1,011m after deducting own shares held by employee trusts.

In the six months to 30 September 2008, Benchmark EPS was 30.7 US cents (2007: 28.5 US cents) and basic EPS was 25.5 US cents (2007: 22.2 US cents). This was calculated on a weighted average number of shares in issue of 1,011m (2007: 1,008m).

Foreign exchange

The £/US$ exchange rate moved from an average of US$1.99 in the six months to 30 September 2007 to US$1.93 in 2008. The US$/Brazilian Real exchange rate moved from an average of US$1.98 in the six months to 30 September 2007 to US$1.68 in 2008. The €/US$ exchange rate moved from an average of US$1.35 in the six months to 30 September 2007 to US$1.53 in 2008. The effect of these exchange rate changes on the results for the period is to increase reported revenue by US$43m and EBIT by US$9m. 

At 30 September 2008 the closing £/US$ exchange rate was US$1.79 (2007: US$2.04), the closing US$/Brazilian Real exchange rate was US$1.92 (2007: 1.84) and the closing €/US$ exchange rate was US$1.41 (2007: US$1.42).

Pension assets and obligations

There is a net pension asset at 30 September 2008 of US$62m (2007: US$151m). This consists of a surplus in the defined benefit scheme of US$109m (2007: US$210m) and other pension obligations of US$47m (2007: US$59m). Further details of the Group's defined benefit scheme are included in note 17 to the unaudited condensed Group half-yearly financial statements.

Comparative financial information

As a consequence of the agreement to dispose of the Group's transaction processing activities in France, these activities are now classified as discontinued in accordance with the definition of discontinued operations set out in IFRS 5 (Non-current assets held for sale and discontinued operations). Details of this and further restatements of comparative information are set out in note 3 to the unaudited condensed Group half-yearly financial statements. 

Seasonality

Some activities at Experian exhibit seasonality. Credit Services activities in Latin America are weighted towards the first half of the year, reflecting the timing of the holiday season in Brazil. Marketing Services activities in North America and in the UK and Ireland are seasonally weighted towards the second half of the year, reflecting some exposure to the retail sector. PriceGrabber, which is mainly reported within North America Interactive, is seasonally weighted towards the third quarter as online shopping volumes traditionally increase towards the Christmas period.

RISKS AND UNCERTAINTIES

Risks to Experian are anticipated and regularly assessed and internal controls are enhanced where necessary to ensure that such risks are appropriately mitigated. The principal risks and uncertainties to Experian in the second half of the year remain those detailed on page 34 of the annual report and audited financial statements for the year ended 31 March 2008, a copy of which is available on the website at www.experianplc.com. Experian's major risks relate to use of data, security of technologies and dependence on highly skilled staff. Additionally, in response to the current evolving market environment, we are monitoring the risks related to consolidation occurring in the banking sector and, in light of the global economic downturn, we are responding with a wide range of countercyclical products and solutions, across all relevant business lines. We continue to monitor counterparty positions regularly. Treasury activity is conducted only with banks and financial institutions with strong credit ratings, within limits set for each organisation.

 APPENDICES

1. Revenue and EBIT by principal activity

Six months to 30 September	2008  US$m	2007  US$m	Total growth1 %	Organic growth1  %
Revenue
- Credit Services2,3	859	712	15	-
- Decision Analytics3	261	237	9	7
- Marketing Services3	400	374	7	-
- Interactive3	467	428	9	9
Total - continuing activities	1,987	1,751	11	3
Discontinuing activities4	30	38	n/a
Total	2,017	1,789	11
EBIT
- Credit Services - direct business2,3	263	231	10
- FARES	23	29	(23)
- Total Credit Services	286	260	6
- Decision Analytics3	82	80	5
- Marketing Services3	35	33	4
- Interactive3	100	86	17
- Central Activities	(27)	(27)	(3)
Total - continuing activities	476	432	8
Discontinuing activities4	-	7	n/a
Total	476	439	6
EBIT margin5
- Credit Services - direct business	30.6%	32.4%
- Decision Analytics	31.4%	33.8%
- Marketing Services	8.8%	8.8%
- Interactive	21.4%	20.1%
Total EBIT margin5	22.8%	23.0%

¹ Growth at constant exchange rates

² 2007 restated to exclude French transaction processing activities, which are now classified as a discontinued operation

³ 2007 restated for reclassification of certain businesses between segments, see note 8(b)

⁴ Discontinuing activities include UK account processing, Loyalty Solutions and other smaller discontinuing activities

⁵ EBIT margin is for continuing direct business only, excluding FARES

 2. Use of non-GAAP financial information 

Experian has identified certain measures that it believes will assist understanding of the performance of the business. As the measures are not defined under IFRS they may not be directly comparable with other companies' adjusted measures. The non-GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance but management has included them as these are considered to be important comparables and key measures used within the business for assessing performance. The following are the key non-GAAP measures identified by Experian:

Benchmark profit before tax ('Benchmark PBT'): Benchmark PBT is defined as profit before amortisation of acquisition intangibles, goodwill impairments, charges in respect of the demerger-related equity incentive plans, exceptional items, financing fair value remeasurements and taxation. It includes the Group's share of associates' pre-tax profit.

Earnings before interest and tax ('EBIT'): EBIT is defined as profit before amortisation of acquisition intangibles, goodwill impairments, charges in respect of the demerger-related equity incentive plans, exceptional items, net financing costs and taxation. It includes the Group's share of associates' pre-tax profit.

Earnings before interest, tax, depreciation and amortisation ('EBITDA'): EBITDA is defined as profit before amortisation of acquisition intangibles, goodwill impairments, charges in respect of the demerger-related equity incentive plans, exceptional items, net financing costs, tax, depreciation and other amortisation. It includes the Group's share of associates' pre-tax profit. 

Benchmark earnings per share ('Benchmark EPS'): Benchmark EPS represents Benchmark PBT less attributable taxation and minority interests divided by the weighted average number of shares in issue, and is disclosed to indicate the underlying profitability of the Group.

Exceptional items: The separate reporting of non-recurring items gives an indication of Experian's underlying performance. Exceptional items are those arising from the profit or loss on disposal of businesses, closure costs of material business units or costs of significant restructuring programmes. All other restructuring costs have been charged against EBIT in the segments in which they are incurred.

Discontinuing activities: Experian defines discontinuing activities as businesses sold, closed or identified for closure during a financial year. These are treated as discontinuing activities for both revenue and EBIT purposes. Prior periods, where shown, are restated to disclose separately the results of discontinuing activities. This financial measure differs from the definition of discontinued operations set out in IFRS 5 (Non-current assets held for sale and discontinued operations). Under IFRS 5, a discontinued operation is a component of an entity that has either been disposed of, or is classified as held for sale, and is: (i) a separate major line of business or geographical area of operations; (ii) part of a single plan to dispose of a major line of business or geographical area of operations; or (iii) a subsidiary acquired exclusively with a view to resale.

Continuing activities: Businesses trading at 30 September 2008 that have not been disclosed as discontinuing activities are treated as continuing activities.

Organic growth: This is the year-on-year change in continuing activities revenue, at constant exchange rates, excluding acquisitions (other than affiliate credit bureaux) until the first anniversary date of consolidation.

Direct business: Direct business refers to Experian's business exclusive of the financial results of associates (FARES).

Constant exchange rates: In order to illustrate its organic performance, Experian discusses its results in terms of constant exchange rate growth, unless otherwise stated. This represents growth calculated as if the exchange rates used to determine the results had remained unchanged from those used in the previous year.

Operating cash flow and free cash flow: Operating cash flow is calculated as cash generated from operations adjusted for outflows in respect of the purchase of property, plant and equipment and other intangible assets and adding dividends from associates but excluding any cash inflows and outflows in respect of exceptional items. It is defined as EBIT less changes in working capital, add depreciation/amortisation, less capital expenditure, less profit retained in associates. Free cash flow is derived after further excluding net interest and tax paid together with dividends paid to minority shareholders.

Net debt: Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings (and the fair value of derivatives hedging loans and borrowings), overdrafts and obligations under finance leases. Interest payable on borrowings is excluded from net debt.

3. Reconciliation of revenue and EBIT by geography

Six months to 30 September	2008			2007
	Continuing activities	Discontinuing activities1	Total	Continuing activities	Discontinuing activities1	Total
	US$m	US$m	US$m	US$m	US$m	US$m
Revenue
North America	1,037	-	1,037	1,020	-	1,020
Latin America	263	-	263	102	-	102
UK and Ireland	475	30	505	469	30	499
EMEA/Asia Pacific2	212	-	212	160	8	168
Total revenue	1,987	30	2,017	1,751	38	1,789
EBIT
North America - direct business	272	-	272	261	-	261
FARES	23	-	23	29	-	29
Total North America	295	-	295	290	-	290
Latin America	68	-	68	24	-	24
UK and Ireland	123	-	123	126	6	132
EMEA/Asia Pacific2	17	-	17	19	1	20
Central Activities	(27)	-	(27)	(27)	-	(27)
Total EBIT	476	-	476	432	7	439

¹ Discontinuing activities include UK account processing, Loyalty Solutions and other smaller discontinuing activities

² 2007 restated to exclude French transaction processing activities, which are now classified as a discontinued operation

 4. Reconciliation of EBIT to Operating profit for continuing operations

Six months to 30 September	2008		2007
	US$m		US$m
EBIT from continuing operations	476		439
Net interest	(60)		(58)
Benchmark PBT	416		381
Exceptional items	(33)		(2)
Amortisation of acquisition intangibles	(70)		(50)
Charges for demerger-related equity incentive plans	(21)		(24)
Financing fair value remeasurements	27		(34)
Tax expense on share of profit of associates	(1)		(1)
Profit before tax	318		270
Share of post-tax profits of associates	(20)		(27)
Net financing costs	33		92
Operating profit	331		335

5. Group cash flow summary

Six months to 30 September	2008		2007
	US$m		US$m
EBIT from continuing operations	476		439
Depreciation and amortisation	141		121
Loss on sale of fixed assets	4		-
Capital expenditure	(146)		(129)
Change in working capital	(93)		(119)
Profit retained in associate	(1)		(5)
Charge in respect of equity incentive plans within Benchmark PBT	15		14
Operating cash flow1	396		321
Net interest paid	(76)		(53)
Tax paid	(40)		(32)
Dividends paid to minority shareholders	(10)		-
Free cash flow	270		236
Net cash outflow from exceptional items	(46)		(18)
Acquisitions	(52)		(1,704)
Purchase of investments in associates and available for sale financial assets	(28)		(1)
Equity dividends paid	(121)		(115)
Net cash flow	23		(1,602)
Foreign exchange movements	(22)		12
Other financing related cash flows	43		1,120
Movement in cash and cash equivalents - continuing operations	44		(470)
Movement in cash and cash equivalents - discontinued operations	(23)		(8)
Movement in cash and cash equivalents	21		(478)

¹ A reconciliation of cash generated from operations as reported in the Group cash flow statement on page 26 to operating cash flow as reported above is given in note 19 to the unaudited condensed Group half-yearly financial statements

6. Reconciliation of depreciation and amortisation

Six months to 30 September	2008		2007
	US$m		US$m
As reported in the notes to the Group cash flow statement	213		171
Less: amortisation of acquisition intangibles	(70)		(50)
Less: exceptional asset write-off	(2)		-
As reported above	141		121

 

END

 

 

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