Brian Cassin - CEO Lloyd Pitchford - CFO

Brett Huff - Stephens Rory McKenzie - UBS Paul Sullivan - Barclays Tom Sykes - Deutsche Bank Giasone Salati - Macquarie Rajesh Kumar - HSBC George Gregory - Exane

Thank you and good morning everybody and welcome to our Q3 trading update call. I'm here with Lloyd Pitchford and he will take you through the trading performance following my opening comments. So, we made good progress in Q3 with stronger organic revenue performance across all regions. The total growth was 8% which was 6% to constant rates and 5% organic revenue growth. We're very pleased with our progress in the B2B side of the business. Our organic growth increased to 8% in the quarter driven by strong business performance and a great market response to our new products. We’re also making headwind in Consumer Services and the rate of decline in B2C continue to ease in the quarter. On the combination of both trends gives us confidence that will see further improvements and we expect to have a strong Q4. Let me touch on some highlights for the quarter. In North America, performance is very good and trends consistent with our comments during November. Organic growth in our B2B activities remains very strong at 8%. It’s a healthy credit market in U.S. of high volumes and low delinquency rates. And Our Experian approach is making a difference in Credit Services and Decision Analytics, resulting in larger long-term contracts and deeper embedded relationships with clients. We're benefiting from investments and innovation and our pipeline for new products such as our Ascend, analytical sandbox continues to build. In Consumer Services, IdentityWorks is performing very well, and we’ve now signed over a 150,000 paying members. We're increasing our advertising campaigns as we enter the fourth quarter, which is historically a strong quarter for new enrollments. We both signed new agreements with several major financial and non-financial services partners, and we're in the process of on-boarding these new relationships. We're confident that Consumer Services will return to growth as we exit the year and we will build on that performance in FY'19. Turning to Latin America, it was another good quarter for Brazil and over last time it was up by 7%. We built strong foundation to our business in Brazil which will benefit as the economy continues to recover, and clients are choosing us for the superiority of data, our ability to offer advanced analytics, the sophistication of our Decision Analytics suite and the ability to work with top data clients through our data labs. During the quarter, we were delighted to sign another significant agreement with a major Brazilian bank for our full range of services, which is not a big step in solidifying our long-term relationship with Brazil's largest lenders. Growth prospects in Brazil extends beyond these large clients and we're making further progress in SME sector and continue to engage with consumers through our free score offer. We've now enrolled over 19 million Brazilian consumers through SerasaConsumidor services, which is a fantastic achievement by the team in Brazil. In the UK, B2B delivered growth of 5% and overall we've seen good deal flow in UK with some sizable wins including for PowerCurve Collections which is the new PowerCurve module we recently introduced. We’ve also made a series of investments to position ourselves strategically to take advantage of key market trends and as an example, we're helping clients and consumers with the open banking directives by bringing together capabilities from our acquisition of our own path with key capabilities developed organically through our data labs. In Consumer Services while the soft spot will continue through the credit subscription revenues, we have been building out our loan comparison offer for CreditMatcher. We've added several major new lenders to our platform in the quarter, increasing our inventory of loan offers and CreditMatcher has grown strongly, demonstrating the resonance we have in the marketplace with consumers and we’re also building our membership based through our free score offers, which at the end of the Q3 we've built audience of 3.3 million free members. And finally, we continue to see great performance in EMEA/Asia-Pacific with 12% organic revenue growth and increasing proportion of our wins in our integrated data and analytics offers, particularly in EMEA, which we expect to benefit both commercial positioning of clients and ultimately our margins for profitability in that region. This is a good demonstration of the competitive differentiation we can create when we successfully execute on our One Experian approach. So, overall it's been a good quarter and we have great momentum as we head into Q4. And with that, let me hand it over to Lloyd to take you through the numbers.

Thanks Brian. Good morning everyone. As you've seen from the announcement and as we guided at the half year, growth accelerated in Q3 with total revenue growth of 8% at actual rates, 6% at constant exchange rates, and organic growth of 5%. As Brian mentioned, we delivered strong and improving growth across B2B, and our progress on product diversification further moderated the decline in our B2C business. For the group, B2B organic revenue growth strengthened to 8% as we saw the benefit of our new product innovations gaining traction. And B2C improved from minus 8% in the half one to minus 4% in Q3. We expect further improvements in the group's organic growth into our traditionally strong fourth quarter with the continuation of these trends. And in addition, the acquisitions made so far this year have started well and are performing ahead of our expectations. Turning to the performance by region, and beginning with North America, where total revenue growth was 7%, and organic revenue growth was 5% primarily reflecting the Clarity acquisition. B2B continues to grow well, up 8% organically in the quarter with Consumer Services improving to be down 1%. Credit Services was up 8% with good growth in core credit volumes boosted by a number of new signings for the new Ascend analytical sandbox as well as further progress in health. Decision Analytics had a very strong quarter, up 17% driven by software sales and good growth in fraud. Marketing Services was flat for the quarter due to phasing of revenue in our targeting business. And the progress we've highlighted at the half year and Consumer Services was continued. Since launch in the middle of the calendar year, we've now added a 150,000 paying members in IdentityWorks and seen good progress in our Partner Solutions business. And we now expect this part of the business to return to modest growth in Q4. Moving onto Latin America, constant exchange rates, organic revenue growth was 7%. Credit Services grew 7%, Decision Analytics 9%, and Marketing Services was flat against the very strong comparator in the prior year. Growth primarily reflected higher core volumes in Brazil, the new contract wins we have secured with the major Brazilian banks, as well as continued benefit from countercyclical products. Spanish Latin America remains a slight drag on growth in the quarter. Turning to the UK where organic revenue was flat overall, reflecting 5% growth in B2B, offset by the expected decline in Consumer Services. Credit Services performed well up 5%, led by solid underlying trends and further growth -- progress in prequalification services. Decision Analytics was up 4% driven by strong growth in our fraud prevention services and Marketing Services had a good quarter of 5% benefitting from good demand for digital marketing services. And the rate of decline in consumer services continue to moderate, down 15% in the quarter reducing from 17%, down in the second quarter with strong growth in CreditMatcher offset by the expected decline in paid for subscription revenue. And finally in EMEA/Asia-Pacific where organic revenue growth was 12% with strong growth across Credit Services, Decision Analytics and Marketing Services as we secure a greater value from clients through integrated services. Turning now to the outlook, we expect performance to strengthen further into our traditionally strong final quarter as we benefit from the new trended data service in U.S. Credit Services and we expect further improvements in Consumer Services. For the year as a whole, we continue to expect organic revenue growth in mid-single digits with stable margins and further progress in earnings per share. Turning to a couple of other items, on U.S. tax reform, we continue to review the full implications of the Tax Cuts and Jobs Act, as you know the U.S. tax regime to-date has been a high headline rate, high deduction system. And the effect of the new regime for Experian will be a reduction in both the headline rate and the deductions available for certain group cost including interest. We expect these two effects to broadly offset leaving our expectation for FY '18, group benchmark tax rate unchanged from our previous guidance at 26 to 27%. Whilst we previously expected that the group's tax rate to trend upwards in future years following this change, we currently expect that assuming a constant mix, it will remain broadly similar for FY '19. Our share repurchase program, we now completed 530 million of the 600 million program as of the end of December, so the majority of the program now complete. And one final point before I hand back to Brian is that in May with the prelims we will be restating our results through introduction of IFRS 15. As I've said before, we don't expect these to materially impact revenues, but we're using the opportunity for this restatement also to look at our segmental structure and should that result in any changes we'll update on these in May too. With that, I'll hand back to Brian.

Thanks Lloyd. To summarize, we're making great progress across the portfolio, scaling the products that we've introduced over the year with more introduction to come over the coming months. And this will help us to sustain the great rates of growth we're seeing in the B2B and the continued recovery in our B2C operations.

[Operator Instructions] Our first question comes from the line of Brett Huff from Stephens. Please go ahead.

The question I had was, if you give us some more -- give us a little bit more detail on how the conversions from some of the free subscriptions or free services that you're providing in Consumer Services business, more converting to some of the paid services? I know there is an effort to both do a full paid version but also a method to try and convert folks free to paid, and give us a sense about how that's going as you kind of move that Consumer Services business back to grow?

Sure, hi Brett, you mean on the credit subscription products or more probably?

The credit subscription products?

Yes, the free channel is actually a strong acquisition channel for us, and we see pretty strong up-sell from that. That's actually both in the U.S. and the UK. I don’t know whether we've given the specific metrics on that Lloyd.

No, we haven't. But it's our primarily -- our main monetization channel for our free acquisitions that has been and it continues to be the up-sell into the paid product and then the up-sell rates have continued to strengthen.

You mentioned in Brazil in the commentary in Brazil and in the release that including market conditions were one of the drivers of the performance there. I think it was the couple quarters ago that you mentioned that Brazil had sort of started to turn the corner. Any comment on whether it's got meaningfully better here sequentially from the last quarter update? And kind of commentary on the underlying economic health there and then how much kind of where we're in that recovery? And how much more benefit that might be here in the next couple of quarters?

Yes, there has been no step change. We did 9% in Brazil during the quarter. As we are look into Q4, obviously, we have a very tough comp with the double digit growth in Q4 in Brazil last year, but the underlying trends will remain positive. As we look out, we say next year we will have -- we think some weakening in some of our account cyclical products which will soak up some of the additional growth that might come from improving economic conditions. But it then bodes as well as we exit next year and go FY'20 assuming the economic conditions continue.

Thank you. The next question comes from Rory McKenzie from UBS. Please go ahead.

I want to start with two on the U.S. consumer division please. And firstly just on the going customer numbers. Can you maybe say how many customers you have overall now division out and how many of them are paid outs subscribers? And then secondly with either LendingWorks or CreditMatcher and those two new products, can you talk about pricing or any target you have to monetization or how you expect revenues not that part of the position to grow?

Do you want to deal with the customers?

Yes. So, we thought about 2 million paid members in North America, Rory. So, the credit subscription members are declining and that's a trend that we're seeing continue. And then the 160,000 that we got in the IdentityWorks product that up from a 120,000 at the end of October, obviously November, December traditional holiday period for us of these sorts of products. Our slowest quarters were into our peak quarter now in the post-Christmas period. So what you've seen as launched new advertising campaigns, new products into the mix of in the IdentityWorks and that's trending well. Sorry, what was your second question?

It's from the LendingWorks product.

I think you were looking for some metrics around that, Rory. I don't think we've given any metrics around that. I think what we've said and I think this is as consistent in Q3 as it was of the first half was that some, it was seen more progress there in the UK where it has actually built relatively sizeable revenue stream of the back of the CreditMatcher products. And it has been less of a focus for us in the U.S. because we've really been pushing the IdentityWorks product. So that hasn’t changed. What I would say is that we continue to see improvement in both UK and the U.S. in CreditMatcher and in LendingWorks, but still no significant efforts particularly in the U.S. as of yet.

Okay and then just overall in that minus 1% organic growth in U.S. consumer in Q3. And can you at least give us a sense of how much say Partner Solutions contributed? How much new you products added? And then how much the kind of traditional subscriber base revenues are declining? And whether you now very confident that you're at that tipping point growth ahead? So even a sense of the relative magnitude of the moving parts will be helpful?

So we said, if you think about the 150,000 paying members, we got about equal share between our $10 a month products and our $20 a month products so you can get the sense of the scale that that's going in terms of annual revenue. Partner Solutions was growing low-to-mid single digits and then you've got high-single digit decline in the growth subscription volumes. Those are moving parts in there, that pretty similar to what we've talked about the half year. We're very confident that Consumer Services in North America will be in to modest growth in Q4.

Your next question comes from the line of Paul Sullivan from Barclays. Please go ahead.

Can you provide any further thoughts on the fallout on Equifax? I don't know whether any -- you have any additional color in terms of potential market share gains or perhaps some other positive or negative things coming out of that? That’s the first question. Secondly with the fifth CFPB leadership change, how does that -- does that have any implications in your view? And then thirdly, is any logic in consolidating the UK consumer market?

Okay, let's deal with them in turn. So Equifax, we commented I think extensively on this in response to questioning of the half year. It's actually only six or so weeks. Since we talk you on that, nothing is really changed. In terms of market performance, I think we said the half year and we'd reiterate is that we're very confident in our own performance driven frankly by the things and actions that we’ve taken in our own business. And so the performance of something like Ascend is giving us great wins, it’s a great product and we're getting a lot of traction with that. So we're doing very well. We've also said that its way to early to actually estimate any kind of long-term implication from what happened with Equifax. We weren't expecting anything short term. We do believe that strength in that business is, frankly, down to the stuff that we've done. And second question was on CFPB. Again, I don’t think that there is anything really to comment on at this stage. I mean there has been a change at the top, but there hasn't really been any fundamental change across CFPB as of the yet. We still engage with them on a regular basis and we don’t expect then that much is going to change in the short-term. And as we always said that well has been a significant issue for us over the last few years, we've coped with it extremely well. And I think we've got a very productive relationship with CFPB, so its business is usual as far as we can see. And then and the final question on, I think is the topic of reference to -- we're not going to comment around.

I don't think you would. Maybe I can just do one follow-up I mean…

As you know we never comment on any speculation in relation to potential acquisition targets and we're sticking to that.

Can I just have -- can I just ask one follow-up, and with revenue growth accelerating into the fourth quarter, as such it looks, it's setting itself up to be quite strong year of revenue growth in fiscal '19. What does -- do we dare start to imagine that we could see some margin expansion on the back of accelerating revenue growth?

Well, we give them -- we will come to guidance on margin at -- in May. I mean clearly you've seen the benefit in our revenue growth acceleration of some of the investments that we've been making in previous years. We've got a number of other areas. We can invest in the business including in the build out of the LendingWorks product in both the U.S. and then the launch of Identity in the UK. So we've got things to invest in, exactly what that nets out to next year we'll update you in May.

Next question comes from the line of Tom Sykes from Deutsche Bank. Please go ahead.

I was wondering if you could just help with the little bit of the maths around the growth of your subscribers please? So, it seems like you've got about 25 million to 30 million of annualized revenue on your subscriber base from the ID product now. Is that actually contributing to the bottom line yet? And as you grow your subscriber base, are you getting more efficient to adding those subscribers and still narrowing down the customer acquisition costs, please? And maybe could you give us an idea of the churn off rate as people end the free trial please?

So, just so I'm clear, are you taking on Identity, Tom, or are you talking about…

It's just on Identity, just on the incremental revenue from the 150,000 subscribers you've got. How should we think about that beginning to translate into some absolute EBITDA growth please?

Yes. So, I think we've said and if you looked at the competitors in the market, the Identity product is quite a long payback product. So you have to invest a little to acquire the customers, but the customers then are much stickier than credit education customers. So, we'll continue to invest to grow that business and we'd expect to be an investment in growth as certainly as we go through next year. In terms of the rights of memberships, so the increase from 120 to 150 of that two month period is the net. So, you got the additional acquisitions offset by those who choose it to roll off. And we're in really the peak period now. So Q4 is really, actually for calendar Q1 is really the peak period for this type of product, a lot of holiday days in November and December period. We don't give any data on conversions. It's still too early in the development of the business. So we'll leave with the message of paying members, you can then translate that through, at about $15 per payment, a month on average, gives you a little sense of where revenues are projected.

And would you be able to make some comments on the growth of CSID and maybe what ballpark is revenue number is, and also growth in non-financial services versus financial services clients in your B2B business in North America please?

So, CSID, you'd remember when we took on that business, we had some of the competitors in our Identity business were customers, so keep them rolled off. If you exclude that then it’s very strongly double digits the CSID business. And if you look at the growth rates overall you're seeing obviously growth is weighted towards the financial services business because of the trended data product and the Experian in a sense, but we're seeing good growth across all sectors.

Thank you. Next question comes from Giasone Salati from Macquarie. Please go ahead.

Hi Brian and hi Lloyd. Thanks for taking my question. Two questions please, first on U.S. credit cycle, if you have an increment really in general or in the specific? Secondly more on UK and Europe, if GDPR change this summer is an opportunity, and if we have to think about an investment related to that opportunity? And lastly and I know you didn't comment on acquisitions, but I wonder, are you happy with the portfolio as it is in terms of further disposal, so you think it can be trimmed for the best in the future?

Okay, I don't think that our view on U.S. credit cycles really changed since we talked to you in November and it still remains strong in our view. We're seeing good volumes and good take up amongst clients and backdrop I think is evident in the performance of the U.S. Credit Services business, so that remains pretty strong. The second question on GDPR, we did talk about this in November. I mean obviously it's quite a big change across the whole of Europe. I think a lot of companies are going to be struggling to get ready for that. We have a whole suite of products which are targeted towards helping people comply with GDP, always been working and positioning ourselves for that for some time. So, yes, it did -- it clearly does require us to put some effort into it, but that sort of included within the normal guidance for our business going forward, nothing out of the ordinary. And I do think it's a good opportunity for us but we have to see how it plays out. And then on the disposals point, now we've been through a period I think over the last three years where we've actually taken lot of actions across portfolio to clean it up. I think we're largely through that. We did say when we're asked this question previously that there could be some smaller peripheral stuff, but the larger stuff I think is complete.

And the next question comes from Rajesh Kumar. Please go ahead. He's from HSBC Bank. Thank you.

Just following up on the tax question. With the change in taxation rate, I know it's early days, but have you had some initial thoughts on how it impacts your capital allocation policy going forward? And the second related question is, should we think of BEPS regulation and any impact of that on your numbers in terms of either tax rate or revenue opportunities at all?

Hi Rajesh, it doesn't really affect capital allocations because it’s not really -- the net amount we pay in the U.S. isn't really changing, so that doesn't really -- doesn't really affect it when you look at the deductions that reducing as well as the headline rate, so no real change. And on that, we've gone mostly through the impacts now the fact that the U.S. regime has clarified, I think is a big uncertainty removed. Previously, we've been expecting the tax rate probably to trend up a bit given some of the uncertainties in the U.S. and some of the implementation of that. Now, I think it is more stable and independent about 26% to 27% range, so it feels good to get some of that uncertainty removed and be in a stable rate going forward.

Just a follow-up on the GDPR issue. Are you seeing a lot of interest from clients? Or is it still an initial phase of discussion and you will see a big flush off meet the deadline work around May?

Well, we're only a few months away from the deadline. I think as a general comment I think company is more broadly has been slow to realize the implication of GDPR. So during the second half of last year, we saw an acceleration of inbound interest and the outreach that we had was getting more attraction and it's a very complex issue for a lot of companies to deal within. So, I think there is a lot of activity around this phase and I expect that to continue.

And within the service offering, how does your offering compare with the likes of, basically, legal companies or legal consultancies or IT services? Or are you offering a full-bundled product within that?

Well, I mean it's very long conversations described the full capabilities that we have, which is as GDPR. But essentially, it moves across the entirety of our data and our data quality operations. We think if that the basis of the regulation which is consent management and accuracy of data, it applies to a number of different areas of experience business. So we are extremely well positioned, there is lots of companies looking at this marketplace. And in fact we will play in this marketplace both directly and by providing our products and services to other participants because quite frankly the number of companies that actually need to address this just can't simply be addressed just by experience along. So I think it's a big a trend.

Next question comes from George Gregory from Exane. Please go ahead.

Lloyd, you previously gave some guidance with the H1 numbers on cash flow in the second half following the slightly higher working capital asset in the first half and the elevated CapEx. I wonder whether you can just give us an update on that please?

Yes, no change. We expect cash conversion in the second half to improve. It always does around 90% for the full-year this year.

There are no further questions at this moment.

Okay with no further question, so thanks everybody for joining today, and we look forward to seeing and speaking to you again in May for our preliminary results.