A wave of new rules following the financial crisis “plays right into our hands”, admitted the chief executive Don Robert as he reported on Experian’s results of its financial year ending March 31st, 2011.   Revenues were up 9% reaching US$ 4.24bn.  Pre-tax profits were up 13% to US$679m (chart 1)

Diversification had saved the day for Experian and it is now reaping the benefits of its diversification strategy.  It is today outpacing its competitors in growth and is more than double the size of its nearest competitors (chart 2)

North America growth returns:  North America delivered good growth, reflecting modest market recovery and good progress on a number of strategic initiatives. Total revenue from continuing activities was US$2,254m, up 9%, with organic revenue growth of 7%. The difference related to the acquisition of Mighty Net (acquired September 2010).

Latin America drives ahead with double digit growth: Latin America performed strongly. Revenue was US$722m, with growth at constant exchange rates of 19%. Organic revenue growth was also 19%.

UK and Ireland still sluggish:  In the UK and Ireland, revenue from continuing activities was US$736m, up 3% at constant exchange rates. Organic revenue growth was 2%. The acquisition contribution related primarily to Techlightenment (majority stake acquired January 2011).

Europe, Middle East, Africa and Asia Pacific (EMEA/Asia Pacific):  There was strong growth across the EMEA/Asia Pacific region, with revenue from continuing activities of US$502m, up 12% at constant exchange rates, and organic revenue growth of 7%. The difference related principally to contributions from email marketing businesses acquired in Germany and Japan.

EMEA/Asia Pacific Credit Services:  Total and organic revenue, at constant exchange rates, declined 1%. Conditions were tough across bureau operations in the more developed markets of Europe. This was largely offset by strong performances in emerging markets, notably China and South Africa.

EMEA/Asia Pacific Decision Analytics: Total and organic revenue, at constant exchange rates, increased 9%. Growth has been driven by significant new business wins across Asia Pacific and strength in emerging Europe, particularly in Russia and Turkey.

EMEA Marketing Services: Total revenue at constant exchange rates increased 31%, while organic revenue growth was 17%.  Growth was driven by strong demand for targeted digital marketing products, including good growth across the key markets of France, Germany and Spain, as well as Asia Pacific.

For EMEA/Asia Pacific, EBIT from continuing activities was US$54m, up 7% at constant exchange rates. EBIT margin was 10.8% (2010: 11.2%). The decline principally reflected business mix effects and ongoing investment in the business, including the bureau development in India.

Initiative to become a large player in the commercial credit information market:

Experian believes that the US market for commercial credit information offers significant potential for expansion because a single supplier holds more than 80% market share.   BIIA believes this an overly simplistic view and does not take into account that credit insurance and rating agencies are part of the market.  Quantitative data is not readily available hence current assessment is left to personal opinions.  More detailed insights on the actual size of the US commercial credit information market would be welcome.

Users of credit information also tend to rely on ratings and benchmarking tools from rating agencies for the assessment of large trade credit risks.  Rating agencies can provide predictive default modeling for commercial risks to the financial service sector replacing, to some extent, the need for credit information products. 

Credit insurance plays an increasing role in the market of credit risk management services.   Once a company decides to lay off risk by insuring its trade receivables, credit decisions will be made by the credit insurer relying on a large pool of internal and external data and decision analytics backed by a team of underwriters.   The underwriting process is largely automated with up to 80% of credit decisions being made by the system without the involvement of an underwriter (chart 3 & 4).

Experian intends to leverage its US based assets:  Data and analytics, matching technology, SME coverage, large pool of consumer data, existing and new products and platforms plus flexible pricing to break into the market for commercial credit information.  It expects to create a string of products and capabilities across the ‘credit life cycle:  Collection modules, portfolio management, prospecting tools, risk pre-screening, business reports, commercial risk scores, fraud prevention and business owner profiles.  Management declared in a recent investor presentation that it will be able to achieve a leadership position by 2013 (chart 5).

Source:  Equifax Press Release and Investor Presentation – BIIA Editorial Observations