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Our business performed well across all regions
of activity in the first half of this year, delivering sales growth
from continuing activities of 14%, with organic sales growth of
6%. This growth was achieved against an increasingly challenging
market backdrop in the US and the UK and demonstrates the strength
and resilience of our business model. We maintained EBIT margins
during the period while funding a number of new initiatives, which
will help drive future growth at Experian.
Portfolio balance provides resilience
In these less benign markets for credit origination, we are seeing
the benefits of previous strategic initiatives to diversify and
broaden our business base.
- New services - Our decision to
build up our collections activities in North America is paying
off as financial services customers have become more risk averse,
and have switched their focus to managing risk in existing credit
portfolios.
- New vertical markets - In the
UK we have secured rich new growth opportunities in vertical
markets such as telecommunications and government.
- Geographic expansion - The strategic
move to expand our operations geographically means we are less
reliant on any single country and have increased our exposure
to faster growing emerging markets.
Strategic and operational progress
In the first half of the year we have again taken a number of important
operational and strategic steps to deliver sustainable growth at
Experian.
- The acquisition of a majority stake in
Serasa, the market-leading credit bureau in Brazil, is transformational
for Experian. It provides us with access to this important emerging
credit economy and consolidates our global leadership in Credit
Services. In our brief period of ownership Serasa has performed
well, and we have identified numerous synergy and cross-selling
opportunities.
- We have won a number of major new contracts
with clients including Barclays, Carrefour and Rakuten KC, the
Japanese internet services company, and have made further progress
in the UK public sector with three new contracts to assist in
fraud control and identity verification.
- We continue to build our infrastructure
in Asia Pacific to support growth in demand for both our Decision
Analytics capabilities and Marketing Services activities.
- As the transformation of our Marketing
Services activities gains momentum we have made infill acquisitions
to extend our footprint in France and Brazil. Meanwhile
the acquisition of Hitwise brings us new, unique datasets
with many cross-selling opportunities.
- Under new leadership at Interactive, we
have integrated LowerMyBills and our education vertical lead
generation activities onto a single platform. This will facilitate
future diversification into new verticals.
Future investment priorities
In line with our strategy, we will continue to drive growth both
via organic investment (through deeper client relationships, geographic
and vertical expansion and product innovation) and to strengthen
our market position through complementary acquisitions. Going forward
our principal acquisition focus will be on credit bureaux, scarce
datasets, enhanced analytics and marketing services.
Financial
performance
Sales growth from continuing activities was 14% in the first half
at constant exchange rates. Organic sales growth was 6%, with acquisitions
contributing the balance.
As previously indicated, organic investment through the income
statement has been particularly weighted to the first half, and
so EBIT margins were in line with the prior year at 21.9%. Investment
initiatives included further emerging markets development, the
first phase of the establishment of our near-shoring facility
in Chile and further investment in the Canadian credit bureau.
While we continue to invest, we expect the year as a whole to
benefit from restructuring activities over the past year (particularly
in Marketing Services), operational gearing in Marketing Services
due to the business mix shift, data centre integration in the
UK and Continental Europe, payback on the Chilean near-shoring
and aggressive action on direct and discretionary costs.
We also continue to invest through capital expenditure and via
acquisition. Capital expenditure in the first half was $140m (2006:
$118m), with some $330m to $350m expected for the full year. EBIT
conversion into operating cash flow in the period was 70%, in
what is the traditionally weaker half-year for cash generation.
For the full year we are on track to meet our target of converting
at least 85%.
Acquisition expenditure in the first half was $1.7bn, including
the acquisition of the stake in Serasa, together with Hitwise,
Informarketing, Tallyman, Emailing Solution and other small infills.
Experian also agreed a small disposal in the period of Loyalty
Solutions in Germany. We expect the acquisition contribution to
sales growth in the second half of the year to be in the low teens.
The Board of Experian has announced a first interim dividend of
6.5 cents per share. This is consistent with our dividend policy
to have cover (based on Benchmark EPS) of at least three times on
an annual basis.
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