Experian has delivered on its targets set out at the start of the year, returning to mid-single digit organic revenue growth in FY16, while maintaining margins. Underlying revenues and profits came in at US$4,477m and $1,195m, respectively, both up 5%; excluding the impact of currency movements and business disposals. The full year dividend rises by 2% to 40.0 US cents per share.
Brian Cassin, CEO, commented: "As we look forward, we're investing in a range of initiatives which will help us deliver another year of good growth, within our target range of mid single-digit organic revenue growth, with stable margins and further progress in Benchmark earnings per share."
The shares fell by 1-2% in early morning trading.
At actual exchange rates, revenue fell by 4% and operating profit declined by 6%, mainly due to a 31% weakening of the Brazilian real against the US Dollar (the group's reporting currency).
Cash flow conversion was again very strong at 105%. Net debt decreased by US$194m, with the net debt to EBITDA ratio remaining stable at 1.9 times.
The group returned $972m to shareholders through dividends and net share repurchases in the period. Underlying earnings per share grew in line with operating profits (+5%), as the impact of business disposals broadly offset the c. 2% reduction in average shares outstanding.
Post year-end (19 April 2016) the group agreed to acquire CSIdentity Corporation, a leading provider of consumer identity management and fraud detection services, for $360m in cash.
Geographic highlights (organic, constant currency):
North America (55% of revenues) returned to growth in 2016, with revenue up 3%. Credit Services performed strongly, up 10%. Consumer Services was down 3% for the year, but moved into positive territory in the second half (+2%), reflecting continued strong growth in the premium brand and a new client win in the Affinity channel.
UK and Ireland (21% of revenue) was up 5%. The group warns the Consumer Services division is seeing increasing competitive pressures from alternate credit score providers, with the trend expected to continue into this year.
Latin America (14% of revenue) held up well in a worsening economic environment, with revenue growth of 7%, helped by new growth initiatives and counter-cyclical revenue streams such as delinquency notifications and collections.
EMEA/Asia Pacific (9% of revenue) grew by 7%, with a more focused approach, centred around fewer markets, leading to a narrowing in operating losses to $4m (FY15: $10m).
Experian isn't the most exciting company in the world, but in these uncertain economic times, when many companies are struggling to deliver any meaningful growth at all, this is probably no bad thing.
2016 was another solid year, in which the company did exactly what it said it was going to do. Namely, return to mid-single digit top line growth, dispose of non-core assets, and return prodigious amounts of cash to shareholders.
If we had one grumble, it would be that margins aren't growing. Experian's business model is very capital light and should be highly scalable. However, rising regulatory costs and investment in so called 'growth initiatives' has seen margin progress stall. On the plus side, at least Experian has the scale to shoulder this regulatory burden, while investing to maintain its competitive position.
The North American consumer services division has been under attack from alternate providers, offering free credit scores. Experian responded by stepping up marketing and investment in its premium website, Experian.com; which provides tools to help customers understand their credit score, rather than just showing them a number. Progress has been encouraging, with the division returning to organic growth in the second half of the year.
Experian's Latin American operations have continued to perform well, even as Brazil's economy goes from bad to worse. Partly this is because some of the group's revenues are derived from chasing up late debt payments; which are on the rise. It also reflects the power of Experian's brand and dominant market position in this region; which ought to leave it well positioned once economic conditions improve.
The group trades on a price to earnings ratio of 19x for FY17, falling to 16.3x by FY19, on analysts' forecasts. The prospective yield is 2.3%, with the dividend having grown every year since listing in 2006. Although remember past performance is not a guide to future returns.
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