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Financial review

The Group made further sound financial progress in a very challenging year with good revenue, profit and cash performance.

Revenue and profit performance

Group revenue from continuing operations increased by 2% from US$3,789m to US$3,873m, including the benefit of acquisitions. At constant exchange rates, Group revenue from continuing operations grew by 8%.

Profit before tax increased by 11%, from US$521m in the year ended 31 March 2008 to US$578m in the year ended 31 March 2009.

Benchmark PBT for continuing operations rose by US$60m to US$843m (2008: US$783m). At constant exchange rates, EBIT from continuing operations increased by 8% to US$939m. This increase arose from the increase in revenue in continuing operations, together with the benefit of the Group’s previously announced cost reduction programme.

Taxation

The Group’s effective rate of tax for the year based on Benchmark PBT was 21.8% (2008: 23.4%). This rate is defined as the total tax expense adjusted for the tax impact of non-Benchmark items and further excluding the benefit of a one-off corporation tax credit of US$20m (2008: US$nil) that relates to arrangements involving entities no longer part of the Group, divided by Benchmark PBT. The Group’s cash tax rate for continuing operations (based on tax paid in the year and Benchmark PBT for continuing operations) was 4.6% (2008: 10.1%).

Earnings and dividends per share

Basic earnings per share were 48.0 US cents (2008: 43.3 US cents), including 1.2 US cents (2008: 2.2 US cents) in respect of discontinued operations. Benchmark earnings per share increased to 62.3 US cents from 57.5 US cents last year.

The board has announced a second interim dividend of 13.25 US cents per ordinary share (2008: 12.00 US cents), giving a total dividend per share of 20.00 US cents for the full year (2008: 18.50 US cents), an increase of 8%, which is covered 3.1 times by Benchmark earnings per share.

Share price and total equity

The share price of Experian ranged from a low of 274.75p to a high of 453.25p during the year. On 31 March 2009, the mid market price was 436.75p, giving a market capitalisation of US$6.4bn at that date (2008: US$7.4bn).

Total equity at 31 March 2009 amounted to US$1,899m (2008: US$2,117m), which is equivalent to US$1.87 per share (2008: US$2.09), excluding own shares held by employee trusts.

Actuarial losses of US$202m in respect of defined benefit pension plans and currency translation losses of US$428m, mainly as a result of the weakening of sterling, have contributed to the decrease in total equity during the year.

Cash flow, net debt and funding

The Group seeks to ensure that sufficient liquidity is available to meet its foreseeable needs and to invest its cash assets safely and profitably. It has continued to be strongly cash generative in the year with operating cash flow of US$927m (2008: US$886m) and a cash flow conversion of 99%. As indicated in the table below, the Group’s free cash flow in the year ended 31 March 2009 was US$743m compared with US$665m in 2008.

Free cash flow was used to fund acquisitions of US$179m and equity dividends of US$189m. Cash outflow from exceptional items amounted to US$102m. The net cash inflow for the year was US$428m (2008: US$1,277m outflow).

At 31 March 2009, net debt was US$2,110m (2008: US$2,699m). The maturity, currency and interest rate profiles of the Group’s loans and borrowings are shown in note 26 to the Group financial statements. Debt maturities are spread over the next five years, to avoid excessive concentration of refinancing needs. At 31 March 2009 undrawn committed borrowing facilities totalled US$1,050m (2008: US$1,121m). There have been no defaults under any covenants given on the Group’s loans and borrowings in the current or the prior year.

During the year ended 31 March 2009, 6.375% Eurobonds 2009 with a par value of £147m were redeemed out of free cash flow. The balance of these Eurobonds, which was £203m at 31 March 2009, falls due for repayment in July 2009. It is expected that this will be funded from drawings under existing committed borrowing facilities.

In the year ended 31 March 2009, the Group’s net interest expense was US$96m (2008: US$125m). This expense is stated after crediting US$17m (2008: US$23m) in respect of the expected return on pension assets over the interest on pension liabilities. The reduction of US$35m in the other elements of the Group’s net interest expense stems from the environment of declining global interest rates together with the benefit of the Group’s strong cash flow performance.

Capital expenditure, acquisitions and disposals

Capital expenditure incurred on continuing activities in 2009 was US$305m, US$16m lower than last year. Such expenditure was equivalent to 108% of the depreciation charge in 2009.

Acquisition expenditure amounted to US$179m (2008: US$1,720m). During the year, the Group completed a number of small acquisitions, including SearchAmerica, a leading provider of data and analytics to the US healthcare industry, and KreditInform, a commercial credit information and analytics provider in South Africa, and settled deferred consideration of US$59m in respect of prior year acquisitions. In addition, the Group purchased a 40% stake in DP Information Group, a credit bureau in Singapore, and invested in a joint venture in Japan with CCB.

On 31 October 2008, the Group received US$203m on completion of the disposal of the transaction processing business in France, after settlement of working capital and net debt. These funds were used to pay down existing loan facilities.

Accounting policies, estimates and assumptions

The principal accounting policies used by the Group are shown in note 2 to the Group financial statements. These include details of critical estimates and assumptions, the most significant of which relate to tax, pension benefits, goodwill and financial instruments.

The estimates made in respect of the Group’s tax assets and liabilities include the consideration of transactions in the ordinary course of business for which the ultimate tax determination is uncertain.

The recognition of pension assets and obligations involves the selection of appropriate actuarial assumptions and changes therein may impact on the amounts disclosed in the Group balance sheet and the Group income statement. At 31 March 2009 the Group has a net pension liability of US$58m (2008: asset of US$132m). This consists of a deficit in the Experian defined benefit plan of US$19m (2008: surplus of US$182m) and other pension obligations of US$39m (2008: US$50m). Further details of the defined benefit plan are included in note 28 to the Group financial statements.

Goodwill is allocated to cash generating units. The assumptions used in the cash flow projections underpinning the impairment testing of goodwill include assumptions in respect of profitability and future growth, together with pre-tax discount rates specific to the geographical segments in which the Group operates. These assumptions are set out in further detail in note 2.

The assumptions in respect of the valuation of the put option associated with the remaining 30% stake of Serasa Experian are set out in note 25(d) to the Group financial statements.

Financial risk management

The risks and uncertainties that are specific to Experian’s business model together with more general risks are set out on the Risks and uncertainties pages. As indicated therein, the Group’s financial risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

The Group seeks to reduce its exposures to foreign exchange, interest rate and other financial risks and full disclosures in respect of such risks, as required by IFRS 7 ‘Financial Instruments: Disclosures’, are included within the notes to the Group financial statements.

Foreign exchange risk

The Group’s reported profit can be significantly affected by currency movements. In the year ended 31 March 2009 approximately 33% of the Group’s EBIT from continuing operations was earned in currencies other than the US dollar, of which approximately 19% was attributable to sterling and 8% to the Brazilian real.

The Group is exposed to foreign exchange risk from future commercial transactions, recognised assets and liabilities and investments in, and loans between, entities with different functional currencies. The Group manages such risk, primarily within entities whose functional currencies are sterling, by borrowing in the relevant foreign currencies and by using forward foreign exchange contracts. The principal transaction exposures are to the US dollar and the euro. There have been no significant transaction exposures in respect of the Brazilian real.

The Group has investments in entities with other functional currencies, whose net assets are exposed to foreign exchange translation risk. In order to reduce the impact of currency fluctuations on the value of such entities, the Group has a policy of borrowing in US dollars and euros, as well as in sterling, and of entering into forward foreign exchange contracts in the relevant currencies.

Interest rate risk

The Group’s interest rate exposure is managed by the use of fixed and floating rate borrowings and by the use of interest rate swaps to adjust the balance of fixed and floating rate liabilities. The Group also mixes the duration of its borrowings and interest rate swaps to smooth the impact of interest rate fluctuations.

Credit risk

The Group’s exposure to credit risk is managed by dealing only with banks and financial institutions with strong credit ratings, within limits set for each organisation. Dealing activity is closely controlled and counterparty positions are monitored regularly.

Liquidity risk

The Group maintains long-term committed facilities to ensure it has sufficient available funds for operations and planned expansions. The Group monitors rolling forecasts of projected cash flows to ensure that it will have adequate undrawn committed facilities available.

Capital risk management and going concern

The Group’s objectives in managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure and cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce net debt. As part of its internal reporting processes the Group monitors capital employed by geographical segment. For this purpose, capital employed excludes net debt and taxation balances. The Group manages its working capital in order to meet its target for the conversion of at least 85% of its EBIT into operating cash flow. This target forms one of its key performance indicators.

The board has formed a judgment at the time of approving the financial statements that there is a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the board has taken account of current and anticipated trading performance, together with the current and anticipated levels of net debt and the availability of the committed borrowing facilities detailed above. For this reason, the going concern basis continues to be adopted in the preparation of the Group and the Company financial statements.

Exceptional items

Expenditure of US$92m arose in the year in connection with the Group’s strategic programme of cost efficiency measures. Of this, US$51m related to redundancy and US$34m related to offshoring activities, other restructuring and infrastructure consolidation costs. The programme of cost efficiency measures is now expected to deliver annualised savings of approximately US$150m, of which US$80m has been realised in the current year. Total exceptional costs of this programme are now expected to be in the region of US$170m.

During the year Experian initiated the closure of its Canadian credit bureau and is in discussions to terminate the joint venture in Japan.

Demerger and related restructuring costs comprise legal and professional fees, together with costs in connection with the cessation of a number of subsidiaries of the former GUS plc.

Other non-GAAP measures

IFRS requires that, on acquisition, specific intangible assets are identified and recognised separately from goodwill and then amortised over their useful economic lives. These include items such as customer relationships, completed technology, data provider relationships, trademarks and brand names, to which value is first attributed at the time of acquisition. The Group has excluded amortisation of these acquisition intangibles from its definition of Benchmark PBT because such a charge is based on judgements about their value and economic life.

A goodwill adjustment of US$1m arose in accordance with IFRS3 ‘Business Combinations’ following the recognition of a benefit in respect of previously unrecognised tax losses relating to prior year acquisitions. The corresponding tax benefit reduced the tax charge in the year by US$1m. The equivalent adjustment in the prior year was US$2m.

The charge in respect of the demerger-related equity incentive plans relates to one-off grants made to senior management and all other staff levels at the time of demerger under a number of equity incentive plans. The cost of these one-off grants is being charged to the Group income statement over the five years following the demerger, but is excluded from the definition of Benchmark PBT. The cost of all other grants is charged to the Group income statement and included in the definition of Benchmark PBT.

An element of Experian’s derivatives is ineligible for hedge accounting. Gains or losses on such derivatives arising from market movements, together with gains and losses on put options in respect of acquisitions, are credited or charged to the Group income statement. The credit for the year includes a credit of US$21m (2008: US$69m) in respect of the revaluation of the Serasa put option liability. The gain in respect of the valuation arising in the current year relates primarily to an increase in the Brazilian risk free rate used in the Monte Carlo simulation model.

Use of non-GAAP financial information

Experian has identified certain measures that it believes will assist understanding of the performance of the Group. As the measures are not defined under IFRS they may not be directly comparable with other companies’ adjusted measures. The non-GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance. Certain non-GAAP measures identified by the Group are shown in note 2 to the Group financial statements. Further non-GAAP measures and reconciliations of those measures are set out below.

Discontinuing activities: Experian defines discontinuing activities as businesses sold, closed or identified for closure during a financial year. These are treated as discontinuing activities for both revenue and EBIT purposes. Prior periods, where shown, are restated to disclose separately the results of discontinuing activities. This financial measure differs from the definition of discontinued operations set out in IFRS 5, under which a discontinued operation is a component of an entity that has either been disposed of, or is classified as held for sale, and is: (i) a separate major line of business or geographical area of operations; (ii) part of a single plan to dispose of a major line of business or geographical area of operations; or (iii) a subsidiary acquired exclusively with a view to resale.

Continuing activities: Businesses trading at 31 March 2009 that have not been disclosed as discontinuing activities are treated as continuing activities.

Organic growth: This is the year-on-year change in continuing activities revenue, at constant exchange rates, excluding acquisitions (other than affiliate credit bureaux) until the first anniversary date of consolidation.

Direct business: Direct business refers to Experian’s business exclusive of the financial results of associates (including FARES).

Constant exchange rates: In order to illustrate its organic performance, Experian discusses its results in terms of constant exchange rate growth, unless otherwise stated. This represents growth calculated as if the exchange rates used to determine the results had remained unchanged from those used in the previous year.

Free cash flow: Free cash flow is derived from operating cash flow by excluding net interest and tax paid together with dividends paid to minority shareholders.

Roundings

Certain financial data have been rounded within this report. As a result of this rounding, the totals of data presented may vary slightly from the actual arithmetic totals of such data.

Comparative financial information

As a consequence of the disposal of the Group’s transaction processing activities in France in October 2008, those activities are now classified as discontinued in accordance with the definition of discontinued operations set out in IFRS 5 ‘Non-current assets held for sale and discontinued operations’ and the comparative information given within this report has been restated as appropriate.

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