Experian plc

Experian plc

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Experian plc (EXPN.L) Q3 2015 Earnings Call Transcript

Published at 2015-11-11 19:01:08
Executives
Brian Cassin - CEO Lloyd Pitchford - CFO Guy Abramo - President, Direct to Consumer Kerry Williams - Deputy COO
Analysts
Matthew Walker - Nomura Joel Spungin - Bank of America Merrill Lynch Rob Plant - JPMorgan David Phillips - Redburn Partners Rajesh Kumar - HSBC Global Research Ed Steele - Citi Tom Sykes - Deutsche Bank Research Andrew Farnell - Morgan Stanley
Brian Cassin
Okay, I think we’ve got everybody in. So good morning, ladies and gentlemen, and welcome to Experian's half year results. This is our agenda for today. I'm going to do a short presentation with the strategic and operating overview. Lloyd will then take you through the financials. And then we have a spotlight presentation on consumer services North America with Guy Abramo, who leads the direct-to-consumer business there, and he is going to walk you through some of the progress that we're making in that business. So let's get started with some of the highlights. Last year, we set out our strategic priorities for Experian and we told you what our plan was for getting back into mid single-digit organic revenue growth. Roll forward a year I think you can see we're executing well against that. We're probably there a little bit ahead of our expectations. Momentum is building in the business and growth has stepped up as we've gone through H1. So our organic revenue growth in Q2 was 4%, and that was an increase from Q1 where we posted 3% growth. So for the half overall we were at 4%, and that is a little bit, I think, sooner than we had anticipated, so we're very pleased with that, and we're now back into that target mid single-digit organic revenue growth range. For the year, we said we expected margins to be stable, so we've delivered on that at the half-year. We expect that to remain the same as we go through the rest of the year. And as we look across the results, obviously we've had quite a big impact from foreign exchange this year, and that's impacted our numbers mostly down to the Brazilian real, dollar strengthening against the Brazilian real, so that meant that reported revenue and EBIT were down overall. Now that said, I think we've made great progress across many aspects of the business. We've got our growth back up to a good rate. We've also invested a lot more in some of our businesses, consumer information, business information, health, decision analytics, and all of these businesses are actually posting really strong growth rates, so good performance there. We've also seen some great improvements in consumer services North America where the decline moderated to minus 5% in Q2. And in addition, we said to you last year that we were going to concentrate and focus our resources. So we've exited some non-core activities, and we're going to continue to look at sharpening the portfolio as we go forward. Returning surplus capital, as we said we would, and today we announced an increase in the dividend, and an extension to the share buyback program that we announced earlier this year, as we recycle the cash receipts that we received from the disposals that we conducted. Now, this slide shows, we've seen steady improvement in organic revenue growth as we've moved through the last few quarters, and it's taken us to 4% for the half overall. The constant currency earnings growth was also 4%, and, while the actual earnings were down due to FX, we also raised the interim dividend by 2%. Spending a minute on strategy, and hopefully this slide is familiar to you from this time last year when we laid out these priorities, and I think we can now start to tick some of these boxes. We've completed three disposals of non-core activities, FootFall, Baker Hill, and one of our smaller credit bureaus in EMEA, and we have some other small disposals in the works. So we'll continue to do that, and we'll continue to evaluate the portfolio as we go forward. We've done a lot of investment in our key growth markets that we set out last year, heath, fraud, business credit and many others. And we've seen that in-year investment in the P&L, so that's helping to really protect our growth profile as we work through the next few years. And actually I think, as you look across the business, we're making progress pretty much everywhere. Brazil notwithstanding a really difficult economy, our business is firmly in recovery. And you can see that North America consumer services has also made a lot of progress and it's well on its way. We've also made a lot of progress in marketing services, but we still have some work to do there, and I'm going to come back to that shortly. Something that we don't spend a lot of time talking about, but we're also driving a lot of change and driving for efficiency in our organization. And we're doing that because we wanted to support P&L investment in the year, and that's exactly what's happened this year with those efficiency savings being reinvested back in. And they're coming in the areas of quality of service, improving the quality and accuracy of our data, changing how we interact with and treat our customers, and overall enhancements to the culture in the business. So as we look back on, I think, a year since we put that slide up, we've certainly faced a few challenges, but I think we've risen to them, and we can see that our growth momentum is picking up. And our emphasis internally is moving more away from fix and more into securing the long-term growth of the business. So let's go through some of the key trends by region and start with North America. So the market conditions for credit services and decision analytics remain very strong. We see banks actively looking for new customers. While the marketplace there is changing, as are consumer habits, the regulatory environment is tougher and the risk of fraud has never really been higher. So what we're seeing is a much more complex environment, and clients are really looking for companies like ourselves to partner with them to provide solutions to help them navigate through that. And I think that's really where the strength of Experian comes in, when you look at the breadth of portfolio and products that we have. And our strategy is focused a closer integration of all of our capabilities like data, analytics, software products from across the whole organization into comprehensive solutions that address the challenges that our clients face. And that's something that really some of our competitors will find difficult to replicate and that's where we're focused. Internally, we call this One Experian and it's a big push for us, and it's an opportunity for us to do much more of this across the enterprise, enterprise-wide selling, and we're starting to see this in a lot of our jurisdictions. And these integrated solutions are across most of our verticals; banking, fraud, identity management or targeting new customers. It's also a big part of how we're winning today and a big part of how we intend to win in the future. Turning now to health, this is a great success story. The business is performing extremely well. I think you're all aware we've talked to you a number of times about the market dynamics there that healthcare in the U.S. is expanding at a rapid rate. It's getting close to being 20% of GDP now, and that creates a very strong market backdrop for our products and services. Now, today, we're very focused on revenue cycle management, which essentially helps hospitals and physician practices get paid for the services that they provide. It's a SaaS-based solution. It's embedded within the core patient management systems, and it helps the healthcare providers from the moment a patient schedules an appointment. So what our products do are automate many of the processes involved in that interaction, such as ensuring that people have the right insurance eligibility, managing payment from the payers, all the way through to patient collections. And it's that breadth of capability, which gives us a key competitive advantage in this business. Our products are in roughly 50% of U.S. hospitals and we're seeing steady expansion in total contract value. When we bought Passport two years ago, we were selling, on average, about two products per installation. That's up to about five to six products today, so quite a lot of progress. And when we look at where the growth is coming from, it's roughly 50-50 from new installations and the other 50% from existing clients. Our trends in the business are still very strong, bookings are strong, and we're adding resources to keep up with the pace of implementations. We also have some additional initiatives in healthcare, which can extend our growth prospects even further. So, we're adding additional products like Precise ID and FraudNet to address these opportunities. And in time, we can see that there are adjacencies close to revenue cycle management where some of the products in the existing Experian portfolio can play really well in the health space, and some of these will, obviously, be in areas like fraud, risk management, but also in population health and industry benchmarking. And we think that the trends in healthcare are playing out really well and place us very well, because there is an increasing need to use data and analytics within the hospitals and physician practices, and that really plays to the strengths of our organization. So moving on to North America consumer services, I think we're very encouraged by the progress that we've made in this business. We're growing experian.com, which is the premium membership product. We've also created a new position in the Freemium space, with a total free offer using the freecreditreport.com brand. And we are starting to see that the Affinity clients are beginning to return to marketing. So as a result, our progress was great in Q2. The decline reduced to single digits, so we're really pleased with that outcome. So just talking a little bit, and Guy is going to take you through this in a bit more detail, but we wanted to talk to you a little bit about the prospects that we see in this marketplace. And what we see is that consumers are looking for help in lots of different ways, and that actually creates quite a large addressable market for us in our business and many segments for us to address, and that covers both premium credit monitoring, identity protection, free lead-generation products, and all of these actually create a large segment for us to address. And there are other areas such as consumers who currently pay for credit canceling and advice, so it's not just about credit reports and scores any more. And the key to our success in this business is going to be within our organization actually, unlocking the data and tools and products that we already have, marrying that to the core skills that we have in the organization in consumer marketing, and our investment in consumer engagement. And that's how we intend to drive the strategy of that business forward. So we're only really in the early first stages of this, but our objective is to actually achieve a new level of engagement with consumers. And the business will become a multi-tiered consumer business, and that will take us well beyond the traditional boundaries more towards a consumer-centric model where we can deliver evermore value. And that's the direction of travel that we're firmly set on in that business. Now, before I move off North America, I want to touch on the recent security incident with T-Mobile USA. I think you're all aware that in early October we announced that we had a data breach in one of our businesses in decision analytics in North America. It involved the theft of T-Mobile data. Notably, it was not the consumer credit database that was accessed. It's, nonetheless, a very unfortunate and regrettable incident. So I just want to recap on the actions that we've taken since that incident. We've now notified the 15 million consumers that were impacted and we've offered them complimentary identity monitoring resolution services. We took immediate steps to strengthen our security systems and we're working with U.S. and international law agencies on the criminal investigation. We proactively engaged with our major clients to assure them that the breach was limited to T-Mobile data and we've not seen any quantifiable impact on revenue. And we don't expect the financial consequence of this incident to be material, but we are making a provision for non-recoverable expenses, and Lloyd will take you through that in his presentation. And then finally, I think over the years, we've earned a fantastic reputation with our clients because of the high standards that we have in our organization, particularly in information security, and we intend to continue to earn that reputation with our clients every day. And that's the focus of our business, of our efforts, going forward. Okay, moving on to Latin America and our business is performing very well, and our business in Brazil is performing well despite a very tough economic backdrop. I think we're very confident about our strategy in Brazil and just let me illustrate that for a second with this slide. You may remember, those of you who were in the January investor seminar, that our Brazilian team that was presenting there had this slide to illustrate the sort of growth potential that we have from a structural perspective because what this chart shows, each bubble represents the size, on the U.S. one as you're looking at it, on the right, shows the size of each vertical in the U.S., and then the chart on the left shows the size of the corresponding vertical in Brazil. And so I think you can just visually see that we have a lot of growth potential and our strategy for the business is actually designed to access the structural growth potential that we've got in those segments. So I think there's a lot to go for. In the short-term, we've done a lot of, I'd say, tactical things to really drive our growth higher. We've changed the way we go to market and improved our sales effectiveness. We're selling more sophisticated products, we're linking more of what we do, and we're adding scores and analytics to a lot of our product set and a lot of our clients. And this is really helping us grow the business in a very difficult environment. So we're also focused, as I said, on some of these verticals, frauds, many of the other areas that we're very large in our other territories, and also on the consumer business, because Brazilian consumers really do need help in managing their credit obligations. It's quite a big opportunity for us. We already do quite a lot today with things like Limpa Nome, which we talked to you before, it's a debt resolution service. It's actually pretty small, but it's growing very fast and we're excited about the prospect of being able to scale that into a much bigger opportunity for us. So overall, while we can't predict the short-term macro environment, we do know that our business is doing exceptionally well. It is down to the actions that we've taken, and our management team, have taken there. And we feel very good about our prospects on the medium and long term in the business. Okay, turning to the UK, again another good story. We're making a lot of progress, particularly in credit services and decision analytics. We've made a lot of new investments in the UK over the last few years in new products and services, and we have a major effort across the organization to really improve our client service and create a world class consumer-centric organization. And we're seeing new growth opportunities open up for us. So for example, our prequalification engine which helps match credit offers to consumers. That's given us new clients in the aggregator space and the price comparison space. And it's also opening up new channels with our traditional financial services clients, and we can see other opportunities to take this product into new verticals. We've also developed a new way of detecting fraud in the energy sector, using our data and analytics to identify utility bill fraudsters, and that's contributing revenue to our business today. Our UK consumer services business continues to grow. We're still adding new members. And we are looking ahead and seeing this market is maturing. And so we're getting ahead of that curve with plans to broaden our product range in the coming months to address what we feel as an evolving and more segmented market. I'll just say, one of the common features actually across all of our businesses, but maybe call it out just in particular in the UK is a lot of our growth initiatives are really based on combining capabilities from across our business to create what we call strategically important propositions for our clients. And it's putting us into a much stronger competitive position, and we intend to drive our strategy to do much more of that as we go forward. Turning now to EMEA/Asia Pacific, I'm really pleased with the progress that we're making in this region. We focused our efforts on key markets and we're transforming the commercial operations. And I think you can all see that in the change in the results in this segment over the last few years. So we're delivering higher growth and more consistent rates of growth, and that's obviously our objective, going forward. We still have plenty of opportunities, so for example, decision analytics in EMEA, it still doesn't have the same -- it just doesn't match the credit bureau footprint that we have in that region. And so there's still a big opportunity for us to unlock more opportunities in the software and services space. And we're now starting to see some great growth in Asia Pacific, and we've been signing some really big deals in that region, particularly in decision analytics, but the business is doing very well. So while we still have work to do in this region, particularly on the margin front, I think we're very pleased with the trajectory and the progress that we're making in getting it up to a really good rate of growth. I want to spend just a moment on marketing services, where our objective here is obviously to improve performance levels, and we talked a little bit about this last year. So we've really been approaching this in a very systematic way. Our first step has been to prune the portfolio and we've sold, or we're in the middle of selling, some non-core activities which really have no synergy with the rest of the portfolio, and that's sharpening up the focus of this business. Essentially, we will be down to a core business which as two segments; it has data quality; and it has our data and data platform operations. And I'll refer to the latter bit as the marketing suite. Just spend a moment on data quality. Data quality accounts for approximately 4% of Experian revenues globally. It's a growth business. It's been averaging high single-digit rates of growth for some time. It has high margins and it has low capital intensity. It's also critical to our clients wherever we go. It helps clients ensure the accuracy of their contact data. And given the amount of data that we're now starting to see in people's systems, it's also a growing need. And so we're seeing that there are opportunities in this business across our own portfolio, because it's a key component as we look at credit and we look at some our decision analytics products, and we look at some of our health products, the requirement to have clean data at the point of entry, gives us a synergy across the Experian portfolio. That's point number one. Point number two, we actually see that there are a lot of growth opportunities for this business in lots of regions. And in fact, we have introduced this business into Brazil this year, and we think there is quite a big growth opportunity there, and in other places. So I think we've got a lot of potential for this business and we're focused on getting after that and making that a real growth driver for the business going forward. Second component is the marketing suite, and that includes our data, our data and analytics that are really used to target specific communications, and also the ability to execute campaigns through email and cross channel marketing. Now we've had some operational instability issues in the past in this business and that has impacted our growth. But we have addressed some of those and we'll continue to address those issues. And in fact, we have great momentum in cross-channel. Although it's still a relatively small revenue base, we're seeing triple digit growth rates in our cross-channel marketing product. So we're very excited about the prospect that we have there. So we'll continue to work our way through this transition. We expect that globally marketing services growth will be modest this year, but we expect that we'll be able to return it to higher rates of growth as we go forward. So to summarize, I think we're making great progress. We're exiting non-core activities, we're investing in exciting new areas for growth, and we're also improving performance in areas like North America consumer services and marketing services. We still have quite a lot of work to do but I think we're executing well against our plans. We're really pleased to see that we're seeing steady improvement in the organic revenue growth now back in our target range and parts of the business growing very strongly and performing extremely well, particularly credit services, also decision analytics. And Brazil is holding up really well in a very tough environment, and that I think down as I said mostly to our own efforts. So as we continue to execute against our strategic priorities, we're creating what we hope is a platform for sustainable long term growth. So with that, I'm going to hand it over to Lloyd to take you through the financials.
Lloyd Pitchford
Thanks, Brian. Good morning, everyone. I'll start, as usual, with the key financial data and then I'll move on to review the results in a little bit more detail. As Brian mentioned, we saw continued growth momentum in the second quarter, taking us to a 4% organic growth for the half as a whole at constant exchange rates. After the significant movement in foreign exchange rates, our total revenue declined by 6% at actual rates. At constant FX, our EBIT margin was in line with the prior year and was 60 basis points lower when taking into account the impact of foreign exchange rates. And this represents around an 11% currency headwind at the EBIT level. And with a reduced share count, benchmark EPS grew by 5% at constant rates with a 12% FX headwind. And finally, cash conversion continues to be good at 95%, which is in our seasonally weaker first half. Turning to revenue growth in the first half as a whole, here you can see the effects of adjusting for the recent disposal activity, and that all of our regions contributed positively to growth in the first half, particularly with North America returning to growth. We saw good momentum across the regions and, as a result, the Group's revenue growth increased to 4% in the second quarter, and 4% for the half as a whole. So as you can see, it was a fairly strong 4% in the second quarter. As you can see, the effect of the stronger U.S. dollar here, particularly against a significantly weaker Brazilian real led to that significant drag on currency. Taking a closer look at those organic revenue trends. We're generally seeing an improving picture or stable picture across the Group. North America returned to growth as I mentioned in the second quarter as the drag from the consumer services business reduced. Latin America was stable, despite some of the challenging economic environment conditions. And we're seeing consistent growth in the UK and Ireland. And EMEA and Asia Pacific continue to grow well with a strong decision analytics performance in particular during the first half. And if we take those same results by business line, you can see credit services performed strongly, helped particularly by strength in the US and the UK. Decision analytics grew very well, we've had good progress particularly in software deployments and in fraud management in particular. As Brian mentioned, marketing services remains variable, and we expect this to continue until we see the full benefits flow through from the marketing suite and the new cross-channel platform. And consumer services continues to improve as we see the results of the efforts on the transition in North America, which Guy will walk you through in a little bit more detail in a moment. Turning to the EBIT margin drivers; adjusting for the disposals in the prior year, you can see that that rebases the margin to 26.3%. And there was good underlying progress in North America with marketing spend expected to be phased towards the second half of the year, a little more this year than last, whilst in the UK, we saw additional legal and regulatory costs. But overall Group margin at constant FX was stable, in line with our guidance. As you can see, the FX drag was around 60 basis points, made up mostly of the impact of the weaker Brazilian reais, which takes the overall reported margin to 25.7%. So if you wrap the impacts of foreign exchange up, we saw a 10% impact at the revenue level, 11% of EBIT, and a 60 basis points impact at the margin level. So for the rest of the presentation, I'll just focus on the underlying results at constant-exchange rates. So turning to North America and the regional performance in more detail; the North America business delivered both total and organic revenue growth of 1%. Credit services grew strongly, up 8% organically, with growth across all areas. We saw strength in prospecting, in customer management. Business information continues to perform well. And particularly, the verticals of healthcare and automotive were both up double digits. We saw improvement in decision analytics, which can be a little lumpy between quarters, in the second quarter, and that was helped by stronger demand for our suite of fraud prevention services in particular. Marketing services, as a whole, declined by 2%, as the growth in data quality and cross channel isn't yet sufficient to offset attrition in our email marketing business. And we made good progress in consumer services with a stronger performance in Q2 than we'd expected. Experian.com continued to perform strongly, up 20% in the half, with a drag from the legacy brands in the region of around 20% as well. And this means that, for the half as a whole, the Experian portfolio is now larger than our legacy free portfolio. And while Affinity continues to decline, as Brian mentioned, we're seeing more active engagement with key clients. Second quarter included an element of one-off revenue, but still a good underlying improvement. And our expectation, going into the third quarter, is that North America consumer services will decline in the mid single-digit range. On EBIT margin for North America, margins were up 10 basis points, as we expect marketing spend this year to be more weighted towards the second half. On to Latin America; we continued to trade well, despite a weakening macroeconomic backdrop in Brazil, and both total and organic revenue growth were 6%. Growth in credit services of 7% was driven across both consumer and business information, where we benefited from strength in countercyclical products, as well as from new features and services we're introducing across the region. And we also had a positive contribution from our bureau in Spanish Latin America. Decision analytics was strong, with growth at 9% on the back of strong software sales. And these two areas offset a decline in marketing services, which has been more exposed to the tough trading conditions and economic environment. Underlying EBIT for the region increased 7%, but the strength of the US dollar, compared to the Brazilian reais and the Colombian peso, created a significant drag on the reported EBIT. Moving to the UK and Ireland; we saw total revenue growth of 6% and organic growth of 5%. Organically, credit services grew 4%, and we saw strong volumes in consumer credit, growth in consumer prequalification services, and continued progress in business information, particularly across the SME channel. Decision analytics was exceptionally strong again, boosted by the rollout of new identity verification services in the UK. And elsewhere, underlying trends were good, helped also by new software deployments and strength in our fraud products. Marketing services was down 1%, with growth in integrating marketing suites tempered by reductions in some of the research driven consumer insights activity. And finally, consumer services, we saw continued to grow well, driven mainly by new memberships. Overall, EBIT increased 3%, with a reduction in margin due to the higher regulatory costs as we prepare for FCA accreditation, and as we made some continued organic investments. On to EMEA and Asia Pacific; as Brian mentioned, we saw continued consistent delivery of growth of 6% for the half. Credit services was down 3%, mainly due to weakness in the Nordic region and South Africa and in EMEA but this was partially offset by strong performances in the bureaus in Asia Pacific. Decision analytics was also very strong, reflecting new client wins, particularly in Asia Pacific and pleasingly high growth in EMEA, following some of the strategic transformation efforts we made last year towards offering more integrated value-added services to our clients. And here, marketing services performed well, at 8% organically. And we're making a lot of headway with the deployment of our integrated marketing suites. Overall for EMEA/Asia Pacific, our underlying EBIT grew by 4%, before the effects of a stronger U.S. dollar. So on to the benchmark earnings summary -- income statement summary. Our total underlying EBIT grew by 3% to 576 million. Net interest fell slightly on the prior year, due to lower debt levels, and this gave benchmark PBT a 541 million, reflecting underlying growth of 4%. The benchmark tax rate in the half was 25%. And after a reduction in the weighted average number of shares, due to the share repurchase program, benchmark EPS for the six months was $0.42, up 5% at constant rates. And notwithstanding the FX headwinds in the first half, in line with our capital allocation policy we've raised the first interim dividend by 2% to US$0.125 per share. If we take a little look at our reconciliation of benchmark to statutory income, you'll see that we had a number of one-off items in the first half, which I'll run you through. Progressing our portfolio strategy, we've concluded some non-core disposals in the half. And the first item on the slide represents the net gain on the disposal of the Baker Hill, FootFall and Moroccan credit bureau which overall resulted in a $63 million gain in the first half. And this was partially offset by a 20 million charge relating to the T-Mobile security incident in North America. And, as Brian mentioned, this represents our non-recoverable costs which we expect to incur associated with the incident, both the deductible on our insurance policy, but also some costs that wouldn't be recoverable. The other big movements in the six months were in financing fair value re-measurements, and this relates to foreign currency effects on inter-Group funding into Brazil. So if you take all of those items into account, our statutory profit before tax was $458 million. Turning to cash flow, we converted 95% of EBIT into operating cash, which was in line with the prior year. And, after net interest payments of $26 million, and cash tax of $103 million, free cash flow was $416 million. And this represents a cash conversion from benchmark earnings of 102%. On net debt, we ended the half with $3.4 billion of net debt, up 138 million from the start of the financial year. Our net share repurchases this year were 405 million. And with the proceeds from disposals of 164 million, we saw net debt-to-EBITDA in the period at 2.1 times, so at the lower end of our 2 times to 2.5 times guidance range. That takes us on to our capital framework, and we've continued to make progress during the half-year towards the strategic goals that we outlined in January. And this has been reflected in our uses of cash. We continue to make organic investments in the business. And in addition to the organic capital investment that you can see on the slide, we've also been investing through the P&L, as we target some of the key growth initiatives. And this has been achieved whilst maintaining stable EBIT margins at constant currency, in line with the guidance that we laid out earlier in the year. We announced, in January, the new capital allocation framework for the Group and a commitment to returning capital to shareholders. And we've followed this through in the first half of the year as we progressed our $600 million share repurchase program. And in line with that focus on capital, following the receipt of disposal proceeds, we're announcing today an addition to the program of a further 200 million of share buybacks for the remainder of this year. And that brings the total program to $800 million that we expect to complete over the next six months. And I think, going forward, as we've said previously, we'll update on capital allocation principally once a year with our May results presentation. Turning to some of the modeling considerations. We now expect net interest for the year to be in the region of $70 million to $75 million. And that's due to a continuing low US interest rates and slightly higher Brazilian interest rate, where we get some interest income. Our tax and CapEx expectations are unchanged. And with the additional share buyback, the full-year weighted average number of shares is expected to be in the region of 960 million shares. Foreign exchange movements will continue to be a significant headwind. And if the rates we've seen recently prevail, we expect a 10% to 11% headwind for the year as a whole at an EBIT level, with an EBIT margin impact, again for the year as a whole of around 60 basis points. And again, if recent rates continue we also expect that to translate into a headwind but at a smaller level in FY17, something in the region of 2% to 3%. So to summarize, at constant FX, we've delivered good consistent growth in the half with stable operating margins and earnings progression. We continue to focus on our strategic investments, made good progress with the existing share repurchase program and have chose to expand the program by $200 million during this financial year. Whilst FX rates continue to impact our results we're achieving good momentum in our underlying business and at constant rates we expect organic margin for the year to be in the mid single digit range, margins to be stable and to deliver further progress in earnings per share. With that, I'll hand you back to Brian.
Brian Cassin
Okay, as we said, we have a short spotlight presentation for you today on our North America consumer services business. And I'm delighted to have Guy Abramo with us. Welcome, Guy. Guy leads the direct consumer part of this business, which is the largest part of that business and works very closely with Ty Taylor, who some of you may have met at our January investor presentation. And I think as we take a look back two years ago, this business was in a very different place. It operated really with a single business model, with a multitude of different brands, many of which were relatively undifferentiated. And Guy and his team have changed all of that. We now have a business with some really exciting prospects and we're making great progress. So we've asked Guy to come up and give you a little bit more color on the progress that we're making. So, Guy?
Guy Abramo
Thanks, Brian. So good morning everyone. It's a pleasure to be here this morning to provide you an update on the progress we're making in consumer services. It's been 18 months since we began this transformation to reposition the business and that pace has been fast and furious to say the least. The improvements in our financial performance give you some idea of the success that we're having in moving it forward, but it really doesn't reflect the tremendous effort by our team. Over the past 1.5 years, we've recruited outstanding talent in areas like marketing, product development, technology and married their skills together with an existing team and between the two of us we're moving the business at an entirely different pace than ever before. Our mission is about empowering consumers to make the best decisions regarding their various life events, and you'll see some early indications of this focus in my presentation. Let me begin by reminding you of the size and scale of this business. Despite the challenges over the past couple of years, we remain the leader in the market with a tremendous track record. We have over 15 years of market leadership in consumer credit information products and services. Today, we're serving the needs of nearly 11 million consumers through our direct and Affinity relationships. And we do that by operating with huge scale. As an example, we handle nearly 7 million consumer calls every year, that's roughly 20,000 calls each and every day. As we move forward, we're using that scale and experience as a foundation for developing the next chapter of this business. For example, our premium value propositions, which we're marketing under the flagship brand Experian.com, a renewed and exciting use of our well known brand, freecreditreport.com which has been around for 10 years and we're developing the next generation of Affinity relationships, centered on collaboration with some of the biggest brands in the consumer market. And I'll speak more about each of these as I move forward. In this era of big data and mobile connectivity, consumers are demanding that the companies that they do business with have a very clear understanding of who they are. Each and every one of us has an expectation that the company that we do business with knows our individual needs and will provide products and services that match those needs. So our business is coming consumer centric. Meaning, we're putting the consumer at the center of each and every part of our business. With the breath of data Experian has about consumers and our expertise in modeling and analytics, we can truly differentiate propositions on an individual basis, tailored to each consumer's individual needs. We like to say that we're moving beyond a business that's about people and becoming a business that is for people. And that mindset is beginning to permeate every aspect of our business from marketing and advertising to customer service and product delivery. At the January Investor Day, my boss Ty Taylor laid out six major steps in our short-term roadmap for moving this business forward, and I'll give you a quick status check on where we are today. First, we said that the market was bifurcating and our marketing strategy had to respond to that market change. Well we did respond by putting the full power of our resources behind the Experian.com brand to secure our position at the premium end of the market. As a result, experian.com grew 20% in the first half and is now, as Lloyd said earlier, our largest brand in the portfolio. We also began to test the opportunities at the other end of the spectrum, the free space. We piloted the re-launch of freecredit.com as a totally free service, and we're very pleased with the initial success. From where we sit today, it's now clear that the market isn't simply bifurcating. It's segmenting into a larger, higher growth marketplace, creating opportunities for us to play in many segments over the coming years. Second in January, we also introduced an announcement of the FICO score as an enhancement to our core products in Experian.com, which is the first of many steps to differentiate this product. The FICO score has had the effect we expected, drawing higher volumes of traffic to Experian.com and helping increase both take up and retention rates of members. Since January, we also completed the migration of all of our legacy domains into Experian.com. As you'll see when we come to talk about new technology, this consolidation was a very important step in simplifying our business model and improving our levels of consumer engagement. We know that consumers want to interact with businesses when and where they choose, so engagement must be driven through mobile devices. Our iOS and android apps are receiving great reviews from consumers; in fact, the iOS platform gets an average of 4.8 out of 5 rating and android is 4.6 out of 5. These are very, very good engaging apps. The most important factor for us, though, is that mobility enables us to proactively communicate. As an example, today we push notifications directly to the mobile device and a consumer can take action with a simple click. So with [MyApp] in the States I get a notification that my FICO score has changed, I click on that notification and then I'm four digits away from logging into my system and seeing what the impact of that change was. That real-time connection with consumers extends our reach and provides more stickiness with engagement. Five is, we said that our Affinity partners would move back into active marketing this year. That has, indeed, happened with many of them. We've renewed our long-term agreements with several of the big players, which is a real sign of commitment, their commitment, to the affinity space. And as we look forward, the regulatory and market change mean that we'll be more collaborative in partnering with each of these FIs. Finally, we're investing in the development of an entirely new technology platform, which you'll see me reference quite often. This will provide us the flexibility and speed to market that we need to support the long-term growth of this business that we were challenged on years ago. So to that end, we successfully launched our new platform in October, and we're well underway in moving the core products over to this new system. The new platform includes all the best-of-breed features you hear in the IT space, cloud computing, agile development, big data analytics, CRM, and is paramount to our ability to transform this business and sustain long-term growth. Products that previously took one year or more are being developed and launched in weeks and months. More importantly, the new platform gives us full visibility to every engagement with every consumer that enters in on the platform. So as an example, that means that every single customer service agent will have full visibility to interactions with consumers. The consumer won't have to explain every time they call us who they are and what they need. That information is being built right into the new customer support tool. So we can anticipate and cater to each individual's needs and deliver the right personalized proposition just when they need it. And frankly, that's exactly what consumers expect today. The system is agile, it's flexible and it's scalable, and it enables us to put the full power of Experian's capabilities to work for the consumer. Now turning to our free proposition; for more than a decade we operated the consumer business under the freecreditreport.com brand. Through our investments in marketing and advertising, we created a very powerful and well-recognized consumer brand. In May, we began testing a totally free offer, going after the segment of consumers who are initially interested in free access. No credit card is required to enroll and gain free access to an Experian credit report. The questions we had to answer were, could we attract high volumes of consumers using the power of this brand, and could we convert enough of the free traffic to paid members to make it worth our while? Based on our results to date, the answer to both of these questions is a resounding yes. Since May, we've acquired nearly 1.5 million new members through the free proposition, and that was done with no broadcast advertising. We're driving traffic through search marketing and we've doubled our share of voice on generic search terms like free credit report. And we've converted a significant number of free members to paid services through cross-sell of membership products and transactions like FICO scores and three-bureau reports. For those reasons, we have growing confidence in our ability to capitalize on the freecreditreport.com brand as another significant source of revenue for the consumer business. At the other end of the spectrum, we're capturing the premium market using our Experian.com brand. This model's familiar to you. It's a membership product which provides unlimited access to Experian credit reports and FICO scores, as well as valuable tools like score tracking and score simulators that enable consumers to see how their behaviors change their score and, as a result, can change their eligibility for the best credit products and credit terms. The use of the Experian.com brand, combined with enhancements like the FICO score and mobile apps, have attracted high volumes of new visitors to our site, driving 20% growth in the first half. Over a third of our members have already downloaded the new score tracker apps, putting the power of the products directly in their hands. With our new technology platform in place, we're executing against a robust road map of future product enhancements and new value-added propositions. We know consumers come to us for a handful of reasons. They're either in the market to buy a car, apply for a mortgage, and historically, we've provided consumers with the data but left them to decipher what they needed to do to reach that goal. Now, leveraging the breadth of Experian's data and analytics, we're not only able to provide them access to the information, but we can help them understand what they should expect when it comes to rates and offers in completing their credit journey. You can expect to see a full array of new propositions that empower consumers with an emphasis on self-service, through our mobile capabilities and delivering the ability to activate and deactivate various features in the product, as the consumer deems necessary. Now turning to Affinity, we are the partner of choice with some of the most prominent consumer brands in the financial industry and we're committed to helping them build stronger relationships with their consumers. We're beginning to see this market open up. More large financial institutions are returning to marketing their fee-based services to drive loyalty and improve retention in their card portfolios. Among their top priorities are credit marketing and identity theft protection. So we expect growth to slowly return in this segment as we move through FY17. There's three factors that make us the preferred partner in this space. One is our commitment to compliance. In this highly regulated market that is a very big consideration. Second is our ability to integrate into our clients' online systems so that their consumers have a seamless experience. And third, it's our willingness to collaborate on building new products for those clients which bring greater value to the relationship that they have with their consumers. We're also seeing a great deal of activity from new non-financial services partners, and we're leveraging the power of this new platform to capture and launch these opportunities in unprecedented timelines. It will take several quarters before the marketing efforts of these partners begin to take hold and they return to growth in their membership base, and we are currently fully engaged with helping them in that process. So to summarize, we've made great progress on this multiyear journey to transform consumer services. We've a lot of work ahead of us to fully realize the potential of this business, but we have an awful lot going for us. We're the content owners. We have the deepest, richest data compared to anyone else in our industry. We're operating with two of the strongest brands, Experian.com and freecreditreport.com. We have very strong relationships, not only with our major clients, but also strategic partners like FICO. We have the ability to invest in innovation and we're operating with the agility and flexibility that's needed to move this business forward. Of course, as we execute on these plans, we'll build a bigger, stronger, business. With that, I'll hand it back to Brian.
Brian Cassin
Okay, thank you, Guy. So that brings us to a conclusion of our presentation this morning. I hope you can see that we're very excited about the prospects of the business going forward. As I said earlier, we had some challenges, but we're getting past them and we're moving definitively from a fixed phase to a growth phase in the business. And our goal is to get back to delivering consistent mid single-digit organic revenue growth and strong earnings growth, and to create a lot of value for our shareholders. So with that, we'd like to open it up for your questions, and I'm also going to invite Kerry to the stage to join us. A - Brian Cassin: Okay we have a question there back, just there in front of you.
Matthew Walker
Thanks very much, it is Matthew walker from Nomura Two questions, please. The first is on the health business. You mentioned it's in 50% of hospitals; could you say what that figure was when Passport was acquired? Also, on the products, they've gone from two to five products on average per hospital; could you say how the average revenue for the additional three products compares to the first two products? That would be helpful. And lastly, just a quick confirmation, Verisk have their health business up for sale; given your focus on organic performance, can you sort of rule out that you're interested in that Verisk health business? Thank you.
Brian Cassin
So I'm going to ask Kerry to just talk about the progression of the business since acquisition in terms of the number of products. Lloyd, maybe you can then add in on some of the financial aspects of the question and I'll come back on the acquisition front.
Kerry Williams
Thanks, Brian. On share, we've made really good progress on the number of hospitals. Our target market is about 6,000, 6,500 hospitals. We're over 3,000 at this point, and we've continued to grow that in a pretty good clip since the acquisition of Passport. They had about 2,800 hospitals at that point in time, so we've grown it by not 1,000 but somewhere in that mid-500 range. And then on the two to five gain on products, our average contract size after we acquired Passport was around $100,000, $110,000, and we're closer to $400,000 to $500,000 now in the average contract size, so that's the relativity in terms of the product movement from two to -- five to six products per contact.
Lloyd Pitchford
He's covered the financial questions. You can take all of those, Kerry; that's good.
Brian Cassin
On the acquisition front, I'm not going to make a habit of commenting on whether we're looking at every asset that comes to the market. What I'd say about the Verisk asset it's quite a diverse asset, lots of different positions in markets that we're not really closely in. Our focus is in revenue cycle management, and the close adjacencies that we have there that we will continue to look at lots of different assets in the healthcare space, so we may or may not see that, going forward. But that one is not a really great fit with our business.
Joel Spungin
Good morning. It’s Joel Spungin, Merrill Lynch. Just a couple of questions, first of all capital allocation, I think you said that that process is ongoing in terms of analyzing portfolio. Should we consider Baker Hill, FootFall to get the larger end of the things you're looking at? Are those the chunky ones and things that follow from here on in are likely to be much smaller? And related to that obviously that impacted your decision to increase the share buyback. Should we consider that any other proceeds that come from acquisitions will be recycled into the share buyback? And that's my first question. And then the second one, just on U.S. consumer -- thank you for the additional detail that’s helpful. I was just wondering if you could maybe talk a little bit about the levels of stickiness or churn that you're seeing in the premium product. And related to that just to help us understand how Experian.com is positioned apart from FICO what else differentiates Experian.com from Credit Karma, because they obviously offer a lot of the same monitoring services, they've launched a helpline service and so on and so forth. So I was just wondering if you could maybe elaborate what you see as your point of differentiation.
Brian Cassin
So I'll deal with the capital allocation one. I think we've been very clear in our plans for what we want to do this year with share buyback. We have realized some additional proceeds and we don’t have -- we haven't completed any additional acquisitions this year. So it seems sensible for us to just return that. We come back to this topic pretty much every year, and we update everybody once a year on our balance sheet plans going forward so we're going to stick to that. This one's a little bit unusual given the timing of those disposals. As I said, we have got a few smaller ones in the works there's nothing substantial. This is really sharpening the portfolio, getting rid of businesses that don't really have a strong fit and are more of a -- well, they're not growth drivers for us and they tend to be a bit more of a distraction than anything else. So tidying that up makes a lot of sense, if it realizes some proceeds that's fantastic. We're focused on really making that focus and concentrated effort going forward.
Lloyd Pitchford
The rounding to $200 million anticipates some completion on some of the smaller disposals in the second half. So you can see I think where the program might finish this year.
Brian Cassin
And then Guy, maybe you can give some comment on the Experian.com point?
Guy Abramo
Sure. You first asked about levels of stickiness. So retention for our products is right in line with our expectations. We're finding that in particular the mobile apps have a lot of stickiness, so you'll see us progressing that product to be more engaging we'll continue to invest in mobile apps. The FICO score and Experian data continue to be a good source of differentiation for us. On the free product with freecreditreport.com, of course the market doesn't have access to a free Experian report. The only place they can get that is at freecreditreport.com. So we're seeing the growth in that and you'll continue to see the evolution of that product to have a lot more rich features and engagement as well, over time.
Unidentified Analyst
Just a couple from me, firstly, on the security issue, do you think you need to spend more on security? And what was the decision or the thinking behind exceptionalizing the costs, because surely that's just a cost of doing business? That's the first point. Then on the U.S. consumer business, is it still your anticipation that you'll exit this year in growth? And do you have now the visibility to be able to communicate your thoughts on medium-term growth or margin aspirations in that business?
Brian Cassin
Okay, well, I'm actually going to ask Lloyd to address both of those questions.
Lloyd Pitchford
So on security, we've been paying -- expanding our program for a number of years. The external environment has been changing, the threat level and the environment have increased, and we've been increasing the cost of our program and adding headcount and adding investment. We don't expect any change to that program, but that trajectory of increased costs ahead of the growth in the business we expect to continue. And that's all wrapped up in our underlying margin guidance. In terms of the exceptional treatment just transparency isolating it so you can see it. You can see the underlying performance of the business excluding that. By its nature, we see it as a one-off event and we've been transparent and isolated in that way. In terms of growth rates on consumer, we see the trend rate has continued. With Experian.com now bigger than the legacy free brands, you can see the weight of that portfolio growth will start to bear a bit more heavily on the overall segment. But the thing that's dragging us down is the progression on the Affinity, and data breach [another channel]. When we get back to growth will really depend on how that piece of the puzzle progresses. My expectation is that will probably be into next year before we see that improving so that the overall channel is in a positive growth position. Long term, if you look back across a number of years, this segment has been accretive to the Group's revenue growth. It has been dilutive clearly in the recent past and our challenge is to get it back to the place where it's accretive to Group growth. There are lots of different tools and ideas that we've got to do that, some of which Guy outlined, but that's our challenge.
Rob Plant
Thanks. Rob Plant from JPMorgan. Do the economics of free stand alone, or do you need to up-sell to make exceptional returns?
Brian Cassin
Could you repeat the question, sorry?
Rob Plant
In free, do the returns stand alone, are they acceptable, or do you need to up-sell to make it acceptable?
Guy Abramo
So freemium today, the primary revenue path is an up-sell into the paid membership products to stand-alone FICO scores and three-bureau reports. But we will continue to add to the portfolio in that product to generate new sources of revenue through regeneration which we have in a subtle way today in the product, but we'll expect this to enhance that feature a lot more.
Lloyd Pitchford
I think the thing I'd add there, Rob, the market's segmenting. In the end, a segmented market is a larger market because we can target products and offerings individually to each segment.
David Phillips
Good morning, David Phillips from Redburn. Can I just clarify something you said on healthcare, when you talked about the average contract size. I scribbled down $110 had become $400 to $500, was that the correct number?
Lloyd Pitchford
Thousands.
David Phillips
Thousands? Great. So healthcare as a grouping was growing at about 20% clip last year; is that rate of growth sustained into this year?
Lloyd Pitchford
Overall, it's around 15% to 16%, and the Passport business that we acquired was growing at 20%. The legacy business that we had was growing a little bit more slowly, so the aggregate business is now managed very much as an integrated unit, so the split is less relevant. But it's mid-teens growth.
David Phillips
Thank you. And at the time you announced FICO, you were talking about that there would be costs associated because you'd be passing some of the revenue straight to them, but margins have held up pretty well in consumer. Has there been an ongoing cost saving plan that you have internally invested in? Could you put a number on that?
Lloyd Pitchford
This is in North America consumer?
David Phillips
Yes.
Lloyd Pitchford
I think I mentioned that the weighting of marketing costs this year would be more heavily weighted than the prior year to the second half, so I think you're better looking at the full-year margin than the half-year. But we'd said we'd seen about a 5 percentage point reduction pre this change in the market, and by the time we're through we'd expect that probably to sustain, so mid-20% margin is where we think we'll target it.
David Phillips
Thank you.
Rajesh Kumar
Good morning, Rajesh Kumar from HSBC. Just following up on the portfolio optimization question, if you look at EMEA and AsiaPac, that division is still making a loss. Do you have cost plans or plans to optimize certain businesses which you do not see longer-term potential in? Second, following up on the consumer division, could you give us some color on the differences in the type of people who visit Credit Karma, Experian.com and free? Are they similar basically 25 to 35 looking for these three types of credit, or are there nuances which could help us understand the different market segments?
Brian Cassin
On the EMEA Asia Pacific region, I think we are making substantial progress there. And within that region, actually it's our smallest region, also has two of our biggest organic P&L investments in the Indian and Australian credit bureau, which actually account for quite a significant of that EBIT performance there. And we're seeing really good growth off fairly small bases for those businesses, but the growth that we are seeing is contributing, obviously significantly, to our EBIT progression. Our view is that, as we enhance the commercial operations there and really reengineered our decision analytics business which was underperforming a few years ago in both of those regions, both from a revenue perspective and in terms of delivery and profitable delivery in those regions, that's actually changed very significantly. And so we can see a path over the next few years where those additional revenues that come through, through our organic activities, are really going to start to change the EBIT profile of that division, going forward. So I think we're very confident that we'll continue to make progress. It does require us to continue at a good growth trajectory. I think Asia Pacific is certainly in the zone where we needed to be. I think EMEA clearly needs to -- we still have some European territories in there that are not growing and we've got a bit more work to do there. But I think we're very happy with the plan we've set out, the actions we've taken, and I think we're going to make more and more progress there, we then deal with the consumer?
Guy Abramo
I don't believe I heard the question clearly enough. So could you repeat the question?
Rajesh Kumar
If there are differences in the profile of consumers who come to Credit Karma versus Experian.com versus freecreditreport? Or is it the same kind of people you're targeting, same kind of [adverts] you're bidding for?
Guy Abramo
I don't know. I can tell you that the freecreditreport.com personnel and the Experian.com members look a lot like the same types of members. The real issue is what need are we satisfying. Okay, the question back there?
Ed Steele
Good morning. Ed Steele from Citi. A couple of questions. First of all, on the same subject of North American consumer, of your 1.5 million new subs, are they all -- what proportion of those are new to Experian, versus having previously used one of your other URLs or even the same URL in a previous guise? Secondly, on the Experian.com URL, I think at the beginning of the year when we heard about FICO being integrated, you said that this was the first of many new initiatives and each quarter we expect a new one. What's happened in the last nine months that you could point to as being the most significant new part of Experian.com, please? And I do have a small question as well on LatAm credit services. Could you give us a rough feel for the split between volume and price growth, please?
Brian Cassin
Okay so, Guy, if you can deal with the consumer services ones and, Lloyd, maybe you can give an overview of the LatAm volume trends?
Guy Abramo
Your first question about what percent of the 1.5 million are new to Experian, as far as we know all of them are. We don't allow dual memberships. If you join freecreditreport.com you can up-sell into a paid membership. But if you're already in a paid membership you would then have to down-sell into the free membership. So these are incrementally new members to us. On the second question about Experian.com and what's changed in the last nine months, there's, I would say, a lot. We've rebuilt the product. The website is now totally mobile responsive so it can be viewed on any device. We launched new mobile apps which are incredibly sticky and very highly rated. We launched the FICO score, but not just the FICO score, but all the analytics and simulators around FICO. So it's the only place that you can get to build what-if scenarios around your credit. The marketing campaigns have also been very effective at reaching our message to consumers, that they can use our products to empower themselves and give them information when they're in the market for lending. And you'll continue to see us launch new features into the product along those lines over the course of the next year.
Kerry Williams
The technology platform also you can't underestimate the amount of investment and the amount of flexibility that now gives us, in terms of continuing that stream of new innovation into the marketplace. So the launch in October was a significant event for us from [an ability] to continue to moving the business forward.
Lloyd Pitchford
On Brazil, you've got a number of different moving parts. You've got price compression on the big financial institutions, and that's similar to the trend we see across the Group. You've got positive price progression on some of the other channels, and particularly a mix benefit as you see a greater percentage of the Group outside of the core financial institutions. When you wrap that all up, in Brazil, something of the order of 2% to 3% is an inflationary pass-through on price and the rest will come from volume and mix.
Ed Steele
Okay. Thanks very much.
Unidentified Company Representative
We’ve got a couple of questions at the front here, just one behind, continue to say, I am behind you.
Ed Steele
Three quick questions. Firstly, just on the healthcare, would it be possible to quantify the amount of revenues from your healthcare vertical, just for the first half? Secondly, on the consumer business, you mentioned how you have repositioned the U.S. consumer business over the last 18 months; do you see any need to reposition also the UK consumer business, particularly learning from some of the U.S. experiences? And then lastly, just on the dividend, you mentioned -- so there's a bit of an increase in the payout, particularly in the context of some FX headwinds. How much further would you feel confident to increase the dividend payout?
Brian Cassin
Okay. So maybe -- you've just got the UK one, you've got the LatAm question. What was the first part again, sorry?
Unidentified Company Representative
The first one just revenues from healthcare.
Brian Cassin
Healthcare, okay. Let me deal with the UK one. I think what Guy's shown you is a playbook, really, for how you're going to move a consumer services business, going forward. I think we're very confident in that strategy and we will be using the same playbook in the UK. We've enjoyed tremendous growth in that business for a long time; a couple of years ago our business was still growing 20%, still growing today. But we are anticipating that, over coming years, that there will be changes to that marketplace and we're getting ahead of that now. Do you want to deal with the --?
Lloyd Pitchford
Healthcare, around [$130 million] for the first half, so it will be around $270 million, $275 million business for the full year and growing, as I mentioned earlier, mid-teens overall. And then the dividend, clearly we take the decision on the dividend each time. We looked at the very material adverse headwinds that we've seen this year, but contrasted that with the good progress in the underlying performance of the business. So felt confident to progress it by 2%, but we'll come back and outline more at the end of the year.
Tom Sykes
Tom Sykes, Deutsche Bank. And couple of questions on the U.S. credit services businesses, please. One, could you maybe just pick out the growth rate in business and auto and whether the auto growth, which presumably is quite strong is sustainable into the second half and going forward? And maybe just whether you could quantify at all maybe in the U.S. and UK the compliance investments that you're putting in, because you said that security was running ahead of the growth rates in business, the investment into security is compliance running ahead and when may that actually not be running ahead of the cost of the business, or growth of the business so you may start getting some leverage please? And then just finally, it was just another question on consumer services North America. But it’s just the rate of up-sell from freecreditreport to Experian.com, I'm not sure you've said that. How quickly is that happening, please?
Guy Abramo
I'll start off on a couple of these and maybe ask Kerry to join in on the U.S. credit. The automotive business has been growing at over 10% for nearly 10 years now. So that business was miniscule, probably 10-12 years ago and we've really driven that into a very substantial vertical through a lot of market expansion, a lot of our own expansion in market share. We don't see any change to that, and I think our ability to continue to drive that business forward is absolutely still there in the marketplace today. But inevitably, changes in the economy will have some impact around the margin, but I still think we feel very confident about the growth outlook for that business. I think on the consumer services business maybe you could -- Lloyd, maybe deal with the compliance issue in the UK.
Lloyd Pitchford
We said that if you look back the cost of regulatory and legal, and also that includes our IT infrastructure to meet some of those requirements has added 10s of basis points to our costs or diluted the margin by 10s of basis points over the last number of years. And that was wrapped up really in that comment. As we look ahead, we'd expect some of that clearly to continue. To the extent that we're making some one-off costs around compliance with regulation, new regulations, FCA accreditation in the UK, part of that cost will be an extra cost and that will drop out. But we've really been focusing the progression of the Group's EBIT on reinvestment in some of the businesses. As you know, we outlined that in our margin guidance this year. We're focusing on getting the business back to growth we've done that this year. Our guidance was flat margin and we'll outline the margin guidance for next year at the May presentation.
Brian Cassin
I would just add there I think it's wrong to look at any of our businesses in isolation in any one year, because if you track back in the UK over the last few years, you'll actually see that we've driven the margin quite strongly there so it's very significant. So the operating leverage is absolutely there. And in any particular year you're going to have to deal with some issue that comes towards you, be it investment requirement be it an FCA regulatory compliance obligation and that happens. And we take the decisions across the business to invest where we need to at the right time. But I think if you take a two to three year view on that you'll see that that business has expanded its margins quite significantly. And then could you just remind me of the consumer services question again?
Tom Sykes
Just the pace at which you're able to convert people from freecreditreport onto Experian.com, and then how much of that is contributing to the 20% overall growth of Experian.com, say compared to when you was 20% a quarter ago, what's the…
Brian Cassin
Well, I'll let Guy chime in. But obviously we've just started on freecreditreport.com, and we are seeing some up-selling to the Experian.com site. But it's not significant at this stage. And we expect that to grow as the proposition gains more traction. Guy, do you want to add to that?
Guy Abramo
I think you answered that well. We have 5.5 months in market and we will continue to optimize it. I'd say it's performing as expected.
Lloyd Pitchford
I think one point I'd add, Brian, if I can the split between free and Experian.com is becoming less relevant. This is an integrated portfolio now where we're bringing people in one channel and selling them up and bringing them back down from the other channel. So this is probably the last time that we'll talk about those splits in that way and we’ll really focus on the direct to consumer growth overall now, going forward.
Tom Sykes
If somebody comes in via freecreditreport.com instead of going straight to Experian.com, do they pay the same amounts? Are they worth the same per service as a customer, or do you have to then up sell a bit to once they're into Experian.com if they've come through the freecredit channel?
Brian Cassin
Well, I would just add and I'll ask Guy to answer in detail. But I think you're going to see a variety of different price propositions going forward. It's actually one of the key features of the new technology platform to enable us to have different flexibility to treat each customer according to their circumstances. But today, if they sell up to the Experian.com platform the price point at which they go onto.
Guy Abramo
Yes, they're up-selling at the same price point.
Tom Sykes
Okay. Thank you.
Andrew Farnell
Hi, it's Andrew Farnell from Morgan Stanley. If I look at your decision analytics business it looks like it's performing much better outside the US. Just wondering how much of that is to do with the internationalization of 41st Parameter or is it more one-off?
Brian Cassin
No, I don’t think you can -- I mean we get this question about decision analytics pretty much every quarter when we have a low growth quarter somewhere, and we have a shoot the lights out quarter somewhere else. First of all, I think you've got to look at this business globally; it is actually more and more a global business, so you need to look at the performance globally. If you look at the performance globally, you'll see it's actually consistently growing at the high single digit and even into the double digit, and that's been going on for quite some time. It's also quite lumpy, so in any different jurisdiction you can get a quarter where you don't complete some deals and they slip into the next quarter. So it's quite difficult to predict a smooth sort of revenue trajectory for that business in any particular locality. The business in North America is strong, it has grown from -- similar to the story that we had on automotive; it was a very small business 10 years ago, and we've consistently posted very strong rates of growth in decision analytics. We continue to see that trajectory and potential, going forward, so I think we feel very confident about that. Yes, this year growth slightly lower than we'd anticipated, but I don't think there's any change to our prognosis or outlook. Okay, well, I'd like to bring it to a conclusion. Thank you, everybody, for your attention and we look forward to seeing you again in a few months' time. Thank you.