Experian makes $462m profit in first year as independent

Experian, the credit rating agency that holds files on more than 300 million borrowers around the world, made profits of $462m (£234m) in its first year trading as a standalone company, it revealed yesterday.

Experian, which was spun out of the GUS group last October, demerging from the Home Retail Group, said the figure compared with profits of $396m in the last full year of operation under the GUS umbrella, after stripping out $606m related to activities that have been discontinued since the demerger.

The company is now eyeing acquisitions, having set aside funds of $700m a year for takeover activity. Experian said it could spend as much as $1.5bn on acquisitions this year, having only spent $100m over the past 12 months.

Experian now makes around 40 per cent of revenue from credit checking services for major lenders, but has recently begun branching out into consumer services. It runs a series of internet sites that offer consumers price comparison services, as well as services that enable people to study their own credit ratings.

The company is particularly dependent on the US market, which generated $2bn of its total sales of $3.48bn last year. The UK was responsible for a further $843m of revenue.

Don Roberts, Experian's chief executive officer, said: "Looking forward, while we face some specific market challenges, the strength of our portfolio of businesses reflects our confidence for the current year and beyond."

The main risk facing Experian is a slowdown in the consumer credit markets in the US and the UK. Losses in the US sub-prime mortgage market have already begun to damage demand for credit among American consumers, while the UK credit market has been hit by four interest rate rises since last summer.

Fewer applications for loans, mortgages and other credit products reduces the need for lenders to ask for credit checks. Mr Roberts said the company was beginning to face "a bit of a headwind" in this context.

Experian is facing particular problems at its US website Lowermybills.com, which is designed to help borrowers renegotiate their mortgage costs. The unit's sales fell 5 per cent over the six months to the end of March and Mr Roberts warned yesterday that there has been a further decline since then, in the face of a slowdown in US mortgage lending.

As part of plans to diversify the business, Experian has made concerted efforts to expand its operations in emerging markets. The company has already signed a deal to provide consultancy services to Industrial & Commercial Bank of China, China's largest bank. It also recently announced an agreement with ICICI Bank, India's largest bank, its first move into the country.

These contracts enabled Experian to grow its sales in Europe, the Middle East, Africa and Asia by 13 per cent last year.

Mr Roberts said he expected this expansion to help Experian grow at a rate of close to 10 per cent this year, with an acceleration of sales expected in the second half of the year.

Christian Koefoed-Nielsen, an analyst at stockbroker Panmure Gordon, said: "This was a pretty solid set of results - the company is managing the transition of the business into new digital channels very effectively."

Kevin Lapwood, an analyst at Seymour Pierce, said: "Lots of people were saying the market would decline because of sub-prime problems in the US, but we are seeing no evidence of that and you could argue that those problems would mean even more business for credit checking."

Experian holds financial files on almost every adult in UK

Experian and its rivals in the credit ratings sector hold more information on individuals around the world than almost any other organisation.

In the UK alone, Experian holds files on 45 million consumers - almost every adult in the country, as well as additional records on about four million companies.

The company's primary objective is to provide lending institutions with the best possible information on whether potential borrowers are likely to default on loans, mortgages and other credit accounts.

The sheer volume of information held by Experian - which covers every credit agreement consumers have even entered into, from mobile phone contracts to mortgages - has unnerved some consumer groups concerned about the company's power.

However, Experian argues that it doesn't actually provide lenders with credit ratings, let alone blacklist applicants for credit; rather it supplies details of borrowers financial records, as well as basic data such as electoral roll details. Lenders make their own decisions bases on this information.

Experian and rival credit ratings agencies, such as Equifax, have also been criticised for failing to keep files up to date. However, the agencies have repeatedly promised to amend incorrect files free of charge.

Lenders, meanwhile, are increasing the amount of information they share with the credit reference agencies in an attempt to counter accusations of irresponsible lending. Many lenders now share information on how much borrowers are paying off credit card bills, for example, even where there has been no default.

In recent times, Experian has expanded its database to include lifestyle data on 8.4 million households with 14 million individuals. This includes information on consumers' spending behaviour, which is hugely valuable to marketing and advertising executives.

Experian's case files extend well beyond the UK, to more than 300 million worldwide. In the US alone it has consumer credit files on 215 million consumers, and a similar number are covered by its marketing database. Its American national vehicle database covers 500 million vehicles.