Experian plc (OTCQX:EXPGF) Q2 2023 Results Conference Call November 16, 2022 4:30 AM ET
Company Participants
Brian Cassin – CEO
Lloyd Pitchford – CFO
Craig Boundy – COO
Conference Call Participants
Paul Sullivan – Barclays
Kelsey Zhu – Bernstein Autonomous
Justin Forsythe – Crédit Suisse
Sylvia Barker – JPM
Anvesh Agrawal – Morgan Stanley
Kate Carpenter – Bank of America
Andrew Ripper – Liberum
Kean Marden – Jefferies
Brian Cassin
Hello, everybody, and welcome to our first half presentation. I’m joined as usual by Lloyd, who will run through the financials after my initial overview. Also on the call today is Craig Boundy, our Chief Operating Officer. And Craig will join us for the Q&A segment of the call.
So a few highlights from our H1. First, we delivered another strong performance exactly in line with our expectations. Q2 organic revenue growth was 8%, taking us to 8% for the half, which was solidly in the 7% to 9% range that we expected coming into the year. Add in acquisitions, and total revenue growth was 9% at constant FX. Second, we’re executing really well and new business performance has been strong.
And thirdly, our new product investment is adding to our growth and our resilience in the current environment. North America and Latin America performed very well, but a special callout for the performance in Latin America. U.K. was robust, particularly in the B2B core bureau. And we’re making progress in EMEA/Asia Pacific, putting this region on a path to stronger, more profitable growth.
B2B growth was good, up 7%. And Consumer Services growth was again up double digits at 12%. And our free membership tally is now 145 million. EBIT progression in the half was 8% both at constant and actual FX. And we’re reiterating the full year guidance for constant currency margin progression.
And I think it’s important to highlight that our cash progression, balance sheet position and liquidity profile are all highly favorable, giving us a lot of flexibility in this environment. Now as we look ahead. Economic conditions have undoubtedly got tougher, and we’re closely monitoring the trends in the credit economy. We know everybody is very interested in that, so we’ve added some trends in consumer metrics, which are in the appendix to this presentation, but just to pull out some of the highlights: There has been an uptick recently in U.S. delinquencies to just above pre-pandemic levels.
We have not yet seen, perhaps surprisingly, much adverse change in the U.K. And in Brazil, delinquencies have yet to revert to pre-pandemic levels. Turning now to the regions. And let’s start with North America. Organic revenue growth was strong at 8%.
Our B2B volume trends have remained favorable, excluding mortgage. In fact, the core bureau in Q2 grew double digits, which represented 6 straight quarters of double-digit revenue growth. And this is strongly linked to our innovation drive resulting in really good new business progress. There’s been much discussion about consumer employment, income, spending and credit performance, but all of these actually held up quite well in H1. There’s now a bit more pressure on household balance sheets, but at this point, credit card loan balances are still below pre-pandemic levels as employment, in particular, and savings, although being utilized, have remained strong.
Now this presents lenders with an underlying picture which is a bit mixed. There is some distinction emerging between prime and subprime lenders. Some clients are tightening criteria, particularly in fintech, and also for subprime score bands. Tier 1 clients, on the hand — on the other hand, with a greater focus on prime, have remained very active on the acquisition front. We’ve not yet really seen any significant pullback.
We do also see some new types of lending coming to the market to take advantage of the higher rate environment, in areas like home equity-based lending. Growth was underpinned by strong new business performance. It’s kept our volumes growing as we added more clients. Newer products, still in growth phase, are a primary factor, as is our ability to put together compelling commercial packages with technology, data and our expertise being key differentiators. And to give you some examples of where we’re winning: We’ve added clients in the financial services mid-market, successfully deploying analytics, Ascend and PowerCurve.
We’ve tapped into new areas of client spend in Tier 1, for example, with Ascend Marketing and now [Ascend Ops]. Large technology companies have become a specific area of focus as they establish their financial services platforms. And we have really good momentum in business credit, where we’re securing new primary positions. Ascend is a key factor in all of this. It’s now a suite of solutions that increasingly integrate across more and more of our B2B products.
This has positioned us as a lead innovator in our markets with advanced solutions for an increasing range of client needs. And these products bring significant productivity benefits to clients, and as such, demand remains strong. We have more users, more new clients; and we continue to introduce new modules. Ascend Marketing is one of the more recent and perhaps one of the more exciting evolutions and a great example of how we’re accessing new value pools. Financial marketing services revenue growth in Q2 was in the mid-teens, for example, which has significantly outperformed the market.
[Ascend Ops] is another great prospect, with client uptake accelerating. And we developed [ Ascend Ops ] specifically to help clients simplify their operations. It deploys data, attributes and scores in a way that greatly reduces model deployment time, making clients more productive; and so is very appropriate for the current changing environment. And when you add this to the strength that we have in decisioning and analytics, it’s a pretty compelling package and creates new business opportunities and drives our performance. Verification is also adding to this growth picture.
In the 2 years since we entered this space, we’ve made significant progress. We’re adding to the total and unique record count through new payroll partnerships, client wins and employer services. And we’ll add to this the consumer permission data. Experian Verify is growing. And revenues are on a good, upward trajectory.
If we should take one data point from this slide: We’ve signed contracts for Experian Verify with 16 top mortgage centers. Moving on then across to other key verticals. Automotive and targeting are exhibiting good resilience. And health, of course, is fairly acyclical. We saw good strength in automotive in H1.
In automotive, there is a lot of pent-up demand for cars because of supply chain issues and chip shortages. And dealers have started to market more, and we’ve seen an uplift in profiles.
This is because dealers are now having to search for new customers. And at the same time, there’s been a significant shift in available financing options. It is helping us to sell more instances of Ascend, and so it might sound a bit counterintuitive, but we’re actually cautiously optimistic about the outlook for auto in the second half and beyond.
Targeting also delivered a very solid half. The Tapad acquisition has performed extremely well. We’re seeing great strength in our digital portfolio, particularly addressable TV. Structurally this business is much healthier than it was in the global financial crisis. We are intentionally diversified.
And we’ve moved up the value chain to participate in connected TV, campaign activation and data enablement, which are all higher-growth segments. And it’s another area where we’re securing good competitive wins, also on the back of integration of our capabilities in targeting into Ascend to gain greater share in financial services marketing. So when you add all of this up, the benefits of our strategy become clear. We’re accessing new value pools in North America B2B and our client base has become broader. Okay, turning now to North America Consumer Services, which had a major half for new product introductions.
Some of them included boost with rent, is helping — which is helping us attract and engage more members. We’ve introduced claim your car for auto insurance. Members can now compare and switch auto insurance easily. We’ve added a new bill negotiation feature to help members save money on their everyday bills, highly relevant in today’s environment. We’ve also introduced a personal privacy scan, which is an upsell to premium.
And Experian activate, which is targeted at the lenders in our credit marketplace, is helping those lenders to get — to better target our customers and making our client relationships more sticky. These richer features are showing up in our engagement statistics, which are on a positive trajectory. They’re important step for — steps for us to establish trusted relationships with consumers. And we’ve added to our free membership tally, and we see free memberships upselling well into premium services. Premium membership enrollments have risen recently, reflecting the investment we’ve put into the product and the natural countercyclicality of this revenue stream.
Our credit marketplace has seen some tightening of standards. Lenders have become more selective of who they want to acquire and in which bands. We’re managing this through the diversity of our portfolio and its countercyclical elements. New sources of revenue are also starting to contribute. In insurance and particularly in digital agency, revenue has started to scale as we write new policies.
And this balances our portfolio and gives us assurance on the growth outlook. We also continue to see good performance in partner solutions with a strong new business performance and our lender partners focused on driving engagement and education with their customers. Now moving to Latin America, which is going to have another very strong year both in Brazil and Spanish Latin America. As we previously highlighted, there’s a huge change underway in Brazil in the way credit risk is assessed. And our strategy has positioned us to benefit from this.
Positive data is part of this equation. We’ve introduced new scores. We’re upgrading our analytics. And we’ve created a good base for Experian Ascend, with much further to go. Since positive data was enacted, we’ve introduced over 190 new products with different features and scores.
Open receivables and Open Banking reforms are going to add to this opportunity here. Open Banking provides access to customer transaction data, and we have some promising pilots in flight. Open receivables enable companies to register trade receivables, which can then be used by SMEs as collateral to access credit or lower lending costs. We expect this to add to the credit analysis package we provide to SMEs and to extend our position in this segment.
Other diversifications and growth comes from fraud and ID and our agribusiness, all of which are performing very strongly.
Consumer Services is developing well. As in the U.S., we continue to add features to establish ourselves as the premier consumer financial health management platform. Our 76 million members demonstrate the reach of the Serasa brand. And our focus is turning to enhancing value of our offers to drive greater engagement. Adding to Limpa Nome and our credit marketplace, we’re also developing our e-wallet or digital account so consumers can pay regular bills such as tax or utility bills, which we believe is a very interesting opportunity.
So moving now to the U.K. The UK&I had a good first half, up 5% organically. B2B continued its strong run with a strong start in core bureau, analytics and identity management. We have major innovations coming through and it’s again showing up with a strong new business performance. In this half, we extended client positions and secured new clients across a wide range of industries, including public sector, telecoms, energy and utilities as well as across financial services.
There has been some fallout from the October mini budget which lenders have been dealing with, but we generally see B2B holding up well. Consumer demand for cards, loans and buy now pay later is still quite healthy; and consumers are still actively seeking credit. Lenders have been adjusting for the instability in the economy and are doing a lot of analyses to understand what their lending policies should be. Most continue to lend where they see good credit quality. We’ve positioned ourselves well to deal with this.
We’ve created a cost-of-living package to help lenders assess vulnerability, affordability and expenditure. It will also help lenders to meet their obligations under the new consumer duty measures required by the FCA. Affordability is a really strong theme currently, as you might expect. And we expect clients to intervene sooner and to introduce forbearance measures.
And we’re helping them with this and with analytics to optimize things like credit limits.
We’re also responding to client needs to understand risk in their portfolios, and this demand for analytics helps to drive up volumes. We’re also making rapid progress in verifications. We are live with Work Report and PayDashboard, where we’re building a 2-sided market.
We have accumulated meaningful records with 20 million contracted PAYE records, representing 70% of the contracted market. U.K.
Consumer Services was flat in the quarter and will be a soft point into H2. Lenders are seeking good-quality customers, but credit supply at the subprime end has contracted, which will affect marketplace revenues. Our business is naturally a bit more defensive because of the subscription revenue base and because our brand skews more into the prime segments.
People are also looking for help. And we have a big part to play helping consumers manage through the cost-of-living crisis, and this will be a feature of how we develop this business over the coming months.
Turning now to EMEA/Asia Pacific, which made progress in the half on an ongoing basis, helped by recovery in our Asian markets. And we are on an improving margin trajectory.
Ongoing margins rose by 480 basis points. We’re implementing our plan to drive stronger and more profitable growth. We have a strong bureau presence in the markets you see here, which we’ll build on, along with certain other geographies where we see a path to scale.
We’re also closing or disposing off operations where we lack scale, and this simplifies our operations and will continue to enhance profitability. We expect these actions to put us on a path to scale through common growth initiatives based on core Experian capabilities. And with that, I’m going to hand you over to Lloyd for the financials.
Lloyd Pitchford
Thanks, Brian. And good morning, everyone. As usual, I’ll start with some of the highlights. As you’ve seen, we had a good first half in FY ’23, setting us up really well to deliver against our full year guidance. We saw the strong performance from Q1 continuing to Q2 where organic revenue growth was also 8%.
For the half, organic revenue was therefore also up 8%. Acquisitions added a further 1% coming from our verification acquisitions in North America as well as consumer acquisitions in North America and Latin America. FX was a 2% headwind to revenue growth, so total revenue growth was 7%. And that growth flowed well through to EBIT, with 8% EBIT growth at both constant and actual rates.
After restating or re-presenting for our EMEA/Asia Pacific exits, EBIT margins were up 40 basis points at actual FX rates. Earnings per share were up 6% at both constant and actual rates. Operating cash flow remained strong in what is usually our weaker half, with 88% conversion. And you’ve seen we’ve announced a first interim dividend of $0.17, up 6% on the prior year. Our net debt-to-EBITDA leverage over the last 12 months was 1.9x, just below our 2 to 2.5x guidance range.
Touching briefly on our revenue trends, you can see on the chart we’ve delivered 8% growth consistently through the half.
And if you exclude the mortgage headwind in North America, half 1 organic revenue growth was 10%. And within that, our B2B business grew overall 7% and B2C grew 12% organically. Turning now to the regional growth. North America delivered 8% organic revenue growth for the half and the quarter. For Q2, we saw 10% growth in our core bureau excluding mortgage.
We saw continued strength across core profiles Ascend and Clarity and good progress in income and employment verifications. Mortgage was down 38% in Q2 and 35% for the half. And based on the current outlook for the mortgage market, we now expect mortgage to be down somewhere in the 35% to 40% range for the year as a whole, which is around a 1.5% headwind to organic growth at the group level. With that outlook, by the end of this year, U.S. mortgage will represent about 2% of our overall group revenue.
We’ve seen good growth in automotive, as some of the backlog of demand in the sector started to find supply, while targeting has remained strong as we execute our strategy to grow our digital portfolio and digital identity resolution. Health continued its consistent track record of growth, up 8% in the quarter. And looking ahead into Q3, as a reminder, last year, we benefited from some one-off COVID-related revenue in health, which last year benefited Q3 in particular by around 7%. And we saw particular strength, around last year’s holiday season, in short-term lending. Together these contributed around 3% to last year’s Q3 growth in North America B2B.
North America Consumer Services continued to deliver strongly, up 11% in Q2 and 12% for the half. Credit marketplace was — performance was very strong, up 60% for the half. As Brian mentioned, we’ve seen some tightening of lending criteria by some lenders, particularly in the subprime area. Subscription revenue grew modestly during the half. And partner solutions grew double digit, benefiting from contract wins for data breach and core services.
Latin America grew 18% for the quarter and the half, as the benefits of positive data and business diversification continued to deliver strong momentum in Brazil; and as we see demand for our global platforms, including Ascend and Experian One. Spanish Latin America also delivered a very strong half. Q2 Consumer Services in Latin America was up 18%, and up 29% for the half, with a good performance from our Limpa Nome debt renegotiation platform and a growing contribution from premium subscription services.
The UK and Ireland region grew well, up 5% organically for the half and 6% in Q2. Q2 B2B growth was 8%, with particular strength in the core bureau, up 10% in Q2 and for the half; as well as across analytics and identity management, all boosted by new business, where our performance has been very strong.
Consumer Services was in line with prior year for the quarter and the half, with strong growth in marketplace offset by lower revenue in subscription services as we lapped the strong subscriber numbers we saw during COVID. And as Brian explained, we’re in the process of refocusing our EMEA/Asia Pacific business. We’ve therefore shown the growth for Q1 here for the ongoing business. And on this basis, we delivered growth of 3% in Q1, 4% in Q2 and 4% for the half. And I’ll give you a little bit more detail of the moving parts in EMEA/Asia Pacific in a moment.
Turning now to EBIT margin, if you look at the chart, starting on the left. Last year, we reported EBIT margin for the half of 26.3%. In line with our historic practice, we’ve re-presented last year’s margin for the businesses that we plan to exit, most primarily in EMEA/Asia Pacific. This added 60 basis points to our prior year first half margin, bringing it to 26.9% on a like-for-like basis. North America margin was down organically during the half, which largely reflected the decline in high-margin mortgage revenue.
As some of our growth initiatives gain further scale, we expect the full year decline in North America margin to moderate. Latin America margin increased from 24% to 27.2% during the half, reflecting the strong revenue performance across the region. UK and Ireland margin was down 150 basis points principally due to the investment behind our income verification launch and the active choice we’ve made in the U.K. to front-load investment behind that opportunity that Brian mentioned. EMEA/Asia Pacific margin improved by 480 basis points on last year on a like-for-like basis.
This is largely reflecting modest revenue growth and tight cost control for the ongoing business. And as we discussed last year, half 1 central activities saw 20 million one-off cost catch-up in our incentive program, which we’ve now annualized, so this all resulted in a margin of 27.1%, an increase of 20 basis points on the prior year organic activities.
Acquisitions were a 50 basis point headwind. And a large portion of this is attributable to our acquisition of CIC Plus, which generates most of its revenue in the fourth quarter, so we expect this to improve to around a 30 basis points headwind for the full year. Including acquisitions, the constant rate EBIT margin was 26.6%.
FX was a 70 basis point benefit to margin reflecting a weaker pound sterling and a stronger Brazilian real. And as a reminder, around 65% of our central costs are denominated in sterling. Overall then, our EBIT margin was 27.3%, an increase of 40 basis points against our restated margin position and up 100 basis points versus our FY ’22 first half reported margin.
Looking forward for the full year, our restated FY ’22 EBIT margin. We expect the impact from exited activities on the full year to increase margins by 40 basis points.
This means the restated FY ’22 EBIT margin will go from 26.2% to 26.6%. And you can see a full reconciliation of this re-presentation in the earnings announcement. And should current exchange rates sustain, we expect FX to be a full year tailwind of 60 basis points to margin.
And then, looking at our operational business, our constant currency margin guidance of margin — of modest margin growth remains unchanged. So if I turn now to EPS, starting from last year, in which the half 1 benchmark EPS was $0.617 per share.
Benchmark EBIT from continuing operations grew 8%, reflecting the strong organic revenue growth performance. Interest expense increased to 62 million as a result of higher short-term interest rates.
The tax rate is 26%, in line with our expectations for the full year, so EPS was therefore up 6% on a constant and actual FX basis. Turning now to cash flow. On the chart, you can see our trend of first half cash generation.
And we’ve seen another strong first half, with benchmark operating cash flow conversion of 88%. Nominal cash flow was up $49 million and increased in line with EBIT growth. And net capital expenditure represented 9% of revenue, in line with our expectations for the full year. And this reflects our continued focus on investing in new products to drive growth and our continuing technology transformation. Given the changes to the interest rate environment,
I’d like to highlight further our strong funding and interest rate fixing position. Around 90% of our current debt is in bonds which have an average remaining tenor of 6 years, with no refinancing due until September 2024. We also have undrawn committed bank facilities of $2.4 billion. In the chart, you can see how much of our current debt is fixed for the coming years. Over 90% of our total debt is fixed for the next 2 years, and over 60% is fixed for at least 6 years.
And we have no bond refinancing required until September 2024, so given this position, our interest guidance for the year is unchanged at $120 million to $125 million.
Our net debt-to-EBITDA leverage was 1.9x, below our guidance range of 2x to 2.5x. And all this means that we have a very strong liquidity and funding position. And our program to fix forward interest rates has mitigated for quite some time the full impact on our current debt of rising interest rates. As you’ve seen, we’ve started to implement our plans to improve the efficiency and profitability from the EMEA/Asia Pacific region. And as you heard from Brian, we’re predominantly focusing on markets where we have the ability to drive scale and improve financial returns.
We’ve decided to either sell or close operations in a number of subscale markets. While we work through this process, both revenue and EBIT associated with these operations will be recorded in exited business activities. And we expect this to take around 18 months to fully complete the exits and closures. During the half, restructuring costs of $20 million associated with this program were incurred, mainly consisting of severance expenses and change-related professional fees. And we expect these to be around $50 million for the full year.
On the right-hand side of the slide, you can see that we’ve provided a table of the impact on last year’s numbers for the changes we’ve made. And a full reconciliation is included in Page 12 of the release. And we expect all of these changes to enable improved financial returns from our EMEA/Asia Pacific business. And our goal is to elevate EBIT margins over time to the mid-teens range. Taking a look at our usual reconciliation to statutory results.
Our benchmark profit before tax grew 7% at constant rates and 8% at actual rates, driven by the strong revenue performance. Acquisition intangibles and acquisition-related expenses grew in line with acquisition activity. The fair value of contingent consideration payable on prior acquisitions were $66 million in the half. This was driven by TCC in North America, reflecting its very strong performance since acquisition. Exceptional and other items is largely made up of the restructuring charges related to EMEA/Asia Pacific I mentioned earlier.
We recorded an accounting impairment charge of $152 million related to the EMEA business, principally due to the change in interest rates lowering the valuation of future cash flows and consideration of the current European macroeconomic outlook. Changes to noncash financing remeasurements was driven, as usual, by FX changes on intercompany financing; and also movements on interest rate hedging, where we recorded a gain of around $90 million following the interest rate fixing program that I mentioned earlier. So this leads to statutory profit, before tax, of $517 million. So lastly, if I turn to FY ’23 modeling considerations, which relates to our ongoing activities. Our guidance related to operational performance is unchanged.
We continue to expect 7% to 9% organic revenue growth for the full year. Acquisitions are expected to add around 1% to our organic revenue growth for the year. On divestments and closures, the full year impact at the margin level of our divestments and exits is to add 40 basis points to margin. We continue to expect modest organic margin progression at constant currency for our ongoing business. Recent moves in FX rates mean we now expect to add around 60 basis points to the full year operating margin, for the FX tailwind.
We still expect net interest for the year to be between $120 million and $125 million. The benchmark tax rate is still expected to be around 26%. The weighted average number of shares is still expected to be in the region of 914 million. Our CapEx guidance is unchanged at 9% of revenue. And we continue to expect a strong cash conversion of over 90% for the year.
And with that, I’ll hand you back to Brian.
Brian Cassin
Thanks, Lloyd. So to summarize. We performed really well in H1, exactly in line with our expectations. The economic outlook in H2 is going to be somewhat tougher, but we’re confident we’re going to be able to grow and deliver within the guidance range we set out in May, which given the challenges that have emerged since then, I think, is a real testament to the strength of our business. Financial services clients are generally in good shape, with no wholesale impact across the industry.
Inevitably, there is some recalibration going on, but many remain active, particularly in prime segments. And we also see clients continue with programs to improve efficiency, innovation; and to pursuing growth strategies. Our own innovation-led agenda has positioned us very well. And it’s becoming increasingly evident in our competitive position, which has quite clearly strengthened. And our financial position is also very strong. All of that gives us great confidence as we look ahead.
And with that, I’m going to hand back — you back to the operator for your questions and for which we will be joined by Craig Boundy. Operator, over to you for the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions] And we will take our first question from Paul Sullivan from Barclays.
Paul Sullivan
Yes. 3 from me. Firstly, just Brian, your thoughts on macro tailwinds and what you’re incorporating into guidance. And is there any change to the sort of peak-to-trough scenario or slowdown scenario you’ve previously talked about? Then on consumer, is there anything to note in the second quarter Lat Am slowdown?
And what are your thoughts on the second half given the recent warning from Credit Karma? And can you just remind us how you differentiate them — from them in marketplace? And then finally, when it comes to Brazil, is there anything we should be thinking about or is there anything that you’re thinking about given the transition of power in Brazil to Lula? I mean, is he a fan of positive data?
Brian Cassin
Okay, thanks, Paul. So quite a few questions there, and I’ll lead off. Macro tailwinds. I mean I think I kind of outlined it really in the talk track. And definitely there are some more of them about.
It’s going to be, as we said, a tougher, I think, H2. And I think what makes us feel confident is all the things that we referred to, which is momentum that we have in the business, a lot of initiatives, new product initiatives and underlying strength that we see in the business. I mean we definitely have seen a bit of pullback in subprime. Perhaps surprisingly, when we talked to you in May, I think there was a lot of questions about what the outlook would be. We remained very confident about the outlook at that point, and the performance in H1 has really borne that out.
We saw really strong performance actually in the prime segment in H1, a lot of customers still out there acquiring. And I think, undoubtedly, pressure is building in the system, but we refer back to — I think, to the overall kind of point that we made in May, which is — you look at some of the stats that we included in the appendix. Yes, there are some signs of delinquencies ticking up, but they’re still more or less at the 2019 levels. Key thing is the financial services clients remain in very good shape from a capital perspective. It is there is an opportunity to do well if you’ve got your credit risk profile balanced properly, so we’re not seeing a sort of wholesale pullback in the marketplace across the board.
We’re seeing that in spots. And obviously, that, we have to see how that progresses as we go through H2, but I think we feel okay about that. And let’s move on, I think, just to Brazil. I don’t think we see any changes as a result of the election. It’s obviously we’re still just very soon after the presidential election, but we do have a situation where we have a split congress in Brazil.
So there’s a balance of power in there. We know that Lula’s priorities will probably be for — aimed toward sort of more income redistribution, which we’ve seen before. We don’t really anticipate any major shifts that are going to change the kind of drivers for us, particularly around the changes in positive data in the marketplace and all of the initiatives that are being undertaken by the central bank to improve competitiveness and to drive more financial inclusion. I think that actually will be very much aligned with the sort of agenda that Lula would want to pursue, anyway. So early days, but we don’t think that there’s a whole lot of change to that.
And then on the — there were 2 consumer questions, one, on LatAm; and two, I think, in North America, in relation to what we expect in the second half. Lloyd, do you want to lead off? And maybe we’ll ask Craig to comment as well.
Lloyd Pitchford
Yes, I’ll lead off there. So Latin America consumer business continues to grow well. If you look back over the last year or so, you’ll see we’ve been pretty consistently in the 20% to 40% strong growth range. Some quarters, it’s better than others. So nothing really to call out there.
I expect that to continue to just grow strongly in the second half. And we’re really getting scale in that business, as you’re seeing start to come through into the margin progression for the Latin America business. In North America, a few things to call out, very strong growth in marketplace in the first half. And as we’ve said, that business, the marketplace business, is often driven by availability or supply of credit, which remained strong. We’re seeing a little bit of tightening in the subprime area.
So we continue to expect strong growth in that, maybe moderating a little from those rates but still strong growth. On the other side, the — if you look at our subscription business, typically that’s a business that does well on acquisition of subscribers at times when there are a few more economic headwinds. And we’ve seen the early stages of that behavior over the last couple of months, where the acquisition of subscribers has increased and is growing quite strongly, so just, I think, some signs of encouragement there that the different bits of that portfolio act as we would expect. I’ll ask Craig to chip in maybe on the competitive position you asked, Paul.
Craig Boundy
Yes. Paul, I mean, I think, if you look at our various consumer businesses, we do find ourselves very well positioned. We have a different set of offerings in both membership and in the marketplace, but I think we’ve continued — and Brian touched on this in his presentation, continued to add in more value for consumers. So adding in the ability for people to add their rental payments via boost is another important thing that you can do with Experian; lets consumers really get access to the best products that they possibly can, things like the personal privacy scan that we’ve added in, so we continue to add more and more value for the consumers. The same in our Brazil business where the team there — allowing you to pay bills online; and actually, at the moment, our Limpa Nome fair, underway as we speak, allowing people to settle their debts, having great success.
So I think we find the breadth of the offering and our continued innovation really driving the excellent engagement with the consumers.
Brian Cassin
Okay, thanks, Craig. Paul…
Operator
The next question is coming from Kelsey Zhu from Bernstein Autonomous.
Kelsey Zhu
Guys, just on Brazil, we have seen rising NPL ratio and deteriorating credit conditions, which might lead to poor credit growth. Just how should we think about the growth rate of that market sort of in the second half?
Lloyd Pitchford
I think the key thing when you look at the metrics for credit is just how much the deregulation on the data side is really driving structural growth, yes, in our business. We know that credit spreads are very high in Brazil because of the absence of complete and accurate data to be able to do risk underwriting. And with that change, that brings a lot of new competition into the market, a lot of new sources of credit, which is really driving our structural growth.
It’s also interesting to see some of the economic metrics in Brazil, obviously, moving in the opposite direction to the U.K. and the U.S. with lower inflation forecasts, et cetera, and this year as a whole, slightly higher GDP growth expectations. So we’re very confident in the outlook in Brazil. And as we said, the changes to the market that really drive financial inclusion and drive credit capacity across the market, we think, will provide a tailwind for a number of years.
Operator
The next question is coming from Justin Forsythe from Crédit Suisse.
Justin Forsythe
Just two from me, if you don’t mind. Firstly, I want to assume — I want to get a little bit more around the assumptions going into next year. So of course, you mentioned it seems like a little bit of weakness starting to show in the U.S. side of the business. I mean, what sort of timing are you thinking about for a potential kind of more concentrated downturn?
And also there’s a lot of differences, I think, to the GFC. And you’ve talked in the past about your resilience through the GFC, but perhaps you could parse through what you’re thinking about when kind of laying out, kind of reiterating guidance for the remainder of the fiscal year and then going into kind of the following. Secondarily, a more strategic-type question around Open Banking. I know you’ve mentioned some initiatives in Brazil in a few different fronts but really wanted to think longer term as to whether you think of that as a threat or a potential benefit, meaning Open Banking effectively democratizes access to a lot of the data that you as a company sell to third parties. And so I just wanted to get your view longer term on partnerships and strategy around Open Banking more holistically, especially when it comes to credit data.
Brian Cassin
Sure. Thanks, Justin. I think maybe I’ll deal with the Open Banking. I want to come back on the guidance, I think. Just on the point, I think we’ve already given sort of guidance for H2.
I don’t think we’re going to give guidance for next year at this stage, but I’ll let Lloyd to elaborate on that a little bit and also to address the differences on the GFC profile of the business then and now. Open Banking, we definitely see as a big opportunity for us. It already is one. This started a number of years ago in the U.K. And in the U.K.
there have been really 2 areas where we’ve seen growth as a result of it. One is the product that we call categorization.
We’ve developed a product called Trusso which we’re actually using all over the world now, which uses machine learning to essentially categorize transactions. And it’s very helpful in customer management and understanding areas of consumer spend and so on. There are specific aspects of regulation around Open Banking in every market, which mean that the answer to your question about does it ever replace the core bureau is really, really difficult.
So for example, in the U.K., current legislation doesn’t allow you to store the data and then you have to reconsent every 3 months. So you have no history, so really you need to think about this as an add-on, not as a substitute. And we’ve seen that evolve into Brazil. It’s still very early stages in Brazil around Open Banking, but I think one of the things that we see, given our membership base there, is that we’re going to be able to very rapidly use the Open Banking legislation to get access to additional consumer-contributed data, which will again further enhance our B2B business and our B2C propositions. And although we don’t have Open Banking in North America, we’ve been actively really pushing open banking concept.
So boost is really an open banking concept which we use in North America to get consumers to contribute more data to their file. And something in the order of 11.5 million people have done that already, so I think you’re going to see this become a bigger and bigger opportunity for us. And of course, in EMEA/Asia Pacific, primarily EMEA, Open Banking again really plays into things like affordability; and in many cases, depending on the structure of the market, can actually enhance the prospects of B2B business because you don’t have perfect data sets everywhere where we operate. So I don’t see it as a threat. I see it as an opportunity.
There’s a lot of players in it. I think there’s a tremendous amount of funding gone into it. I think, if you looked across the open banking world, you’d probably find that we actually have more revenues than all of them put together. So very much in its infancy. For example, Open Banking in the U.K. has been around for at least 5 years, if not more. It took a long time to get going, but we think it’s a great opportunity for us longer term.
Lloyd Pitchford
And Justin, on to the guidance. We obviously outlined our guidance for this year back in May. Clearly a lot has happened in the world since then, but you can see the strength of the business and the momentum that we have. We’ve reiterated that guidance today after reporting a strong first half. As you think about the outlook into next year, obviously we’ll guide in May to next year.
On your question of a possible economic downturn. Clearly we’re seeing a number of — the number of economists that are forecasting the U.K. and the U.S. entering recession is clearly increasing. That probably is more a next-year question than a this-year question.
Looking back, we’ve had 2 big global shocks, since we’ve been a listed company, with the GFC and the pandemic. And we didn’t go negative in either of those. We reported 2% through the GFC. And the outlook we’ve given, the guidance we’ve given previously is, if we — if you apply the GFC-type scenario on our current business portfolio that’s changed quite a bit, you might expect growth to be something in the 4% to 5%. Now that’s a very particular scenario.
Clearly the froth has been taken out of the mortgage market, which is a bit of our business ahead of any coming economic downturn, so that might turn that 4% to 5% into a 5% to 6% range. Clearly every economic cycle is different, but I think we’ve shown the ability to be very resilient in a downturn and to be able to also protect margins and investing for the future so that we have a strong recovery when it comes.
Operator
The next question is coming from Sylvia Barker from JPM.
Sylvia Barker
3 questions, please. Firstly, on expectations by quarter. Your comments indicate that you might be below that 7% to 9% range for Q3, but you’ve maintained the range for the full year. Can you just talk about the sensitivities you have within the guidance for Q4? Secondly, the cost split between H1 and H2 in North America.
Can you give us any quantification of, I guess, how much more you spend in H1 and how much less you might spend in H2? And then finally, on verification. Any update on the $150 million run rate for this year? Can you comment maybe on the employer services versus verification mix by year-end? Or are you still not commenting on that?
Brian Cassin
Well, Lloyd, do you want to deal with the expectation? And maybe we’ll go to Craig, just talk generally about verifications.
Lloyd Pitchford
Yes, sure. So on the — we don’t give individual quarterly guidance, Sylvia, but I’ve highlighted that we had in the prior year 2 particular bits of one-off income that we called out at the time in health and around the short-term lending. So you have to take that into account a bit when you think about the seasonality, but it’s more a last-year effect than a this-year effect. And we’ve got about 4.5 months to go in this year, a very strong 8% banked for the first half, so that gives us the confidence really to reiterate the guidance, the momentum we have. So nothing really further to add on that.
And on the cost split, I think my — the guidance I’ve given on the margin, we expect some of the margin headwind in North America to abate in the second half as we get a better flow-through on some of our investments. So it’s really about that, those scaling, rather than a difference in our discretionary spend.
Brian Cassin
And Craig, do you want to just comment more generally on the progress in verifications? I think Sylvia’s specific question — I don’t think we’ve given the details yet.
Lloyd Pitchford
Yes, the $150 million I’ve mentioned previously. And we said over $150 million and we’re very confident in that. And we’ll give you more details on that at the year-end.
Brian Cassin
Craig?
Craig Boundy
Yes. I think, Sylvia, overall we’re very pleased with the progress that we’re making. The employer services capability combines very well then with allowing us to build out the Experian Verify proposition. So I think Brian covered earlier we got 134 contracts signed, I mean, really across a range of sectors, which shows us making excellent progress there. And our record count keeps growing.
And so I think that this is something where the combination of our understanding not just of data but also of the analytics and use of the data is helping us really grow that business very effectively. So pleased to see the growth across a range of different client groups and sectors. And the combination of employer services works very well, allowing us to strengthen our verify proposition.
Sylvia Barker
And maybe just on the growth in record. So you’ve got some payroll providers in the U K. You’ve obviously got at least one that we know of in the U.S. Maybe since the previous time you spoke, can you maybe just update us on any progress with the payroll providers themselves or new payroll provider relationships that you might have signed up, as opposed to getting more records through the employer services side?
Lloyd Pitchford
So just to clarify. The records that we talk about and the $150 million, that’s entirely focused on the U.S. business. Brian outlined in his slides the great progress. We’ve taken a market-leading position with the payroll providers in the U.K., progressed very rapidly.
And we’ve continued to add to those payroll providers in the U.K. during the first half and in the U.S. during the first half also, so very strong progress. As you see, we’ve had a particular focus in this period on contracting financial services clients with the verify products and making great progress on that. And that tells you a lot about the scale that we’ve been able to achieve now in the record count, so very optimistic about the outlook for the business.
Operator
The next question is coming from Anvesh Agrawal from Morgan Stanley.
Anvesh Agrawal
I’ve got 3 questions, please. The first is, I mean, Lloyd, you talked about the balance sheet below leverage target range. And clearly, given the rates environment, the private market multiples must be coming down, so I’m just wondering what set of opportunity you see on the M&A side. Do we expect an acceleration? And if that’s — answer to that is yes, like, what are the areas you are looking to add?
The second question is clearly the U.K. margin got pegged back by the investments we have seen. Just wondering, where are you on the cost saving or transformation plan? And any change to your mid-term expectation of improvement in that business? And then sort of third question is clearly the FHFA ruling.
And I know mortgage is quite small for you but, given your sort of stake in Vantage, wondering any sort of pickup we expect in the adoption of the VantageScore; and then also what impact the regulation that, instead of 3 scores, the lenders can now use only 2 can have on the business.
Brian Cassin
Great, thanks. So quite a few questions there. We’ll sort of divvy them up. Let me deal with the M&A one, first. And then Lloyd can talk about balance sheet and the margin. And maybe we’ll go to Craig on the FHFA question. M&A, we continue to be very active in looking at opportunities. I think, at the start of the year, I referenced the fact that prices haven’t adjusted in the private markets. We’re still seeing low levels of activity, so it may take a bit more time, yes. We’ll always be judicious in how we use that capacity, so — and we’re looking to make good strategic additions at good-value prices if we can get them, so I wouldn’t — I don’t have anything in particular to sort of say if it’s about to sort of accelerate, but we do think there should be more opportunities in this environment and we’re actively looking.
The areas that we’d be focused on will be the areas that we’ve spoken about before, strengthening core data assets, looking to add in areas like fraud and identity, some of the add-ins in some of our business units and some of our targeted verticals, so it’s quite a broad spread. So plenty of opportunities. Whether we can get them all with a right value equation remains to be seen. Balance sheet, Lloyd?
Lloyd Pitchford
Yes. I think we’ve covered — very strong. We’re in — below the bottom end of our leverage range. And this is a great time to have that balance sheet strength given the valuations as you mentioned.
Brian Cassin
And maybe we can go to Craig for the FHFA. And we’ll come back on the U.K. margin progression.
Craig Boundy
Yes. No, absolutely. Maybe let me start at the beginning with sort of what the FHFA ruling was. So this is a ruling that applies to mortgages that are securitized by Fannie or Freddie. And it laid out 2 particular things: one, the ability for lenders to use a new score.
And they were using FICO 2, which is really quite an outdated score, so 2 potentials, 1 of which is Vantage. And the second is to move from a 3-bureau report to a 2-bureau report. Now important to understand the timing. The mortgage industry typically moves quite slowly. And at the moment, this is just an announcement with no guidance on exactly how to implement, and so it will take a — quite a period of time for this to be implemented.
Of course, the purpose of the change is to drive inclusion, which is something we’ve been a big driver of as an organization and something that we think is incredibly important given things like Vantage allowing a broader scoring of the population. So for us this — we think this will take a while to play out, but the ability to add in Vantage, we think, is a good thing.
And this will drive for us some demand in archive and analytics, some kind of retrospective analytics and score analysis. In terms of the move to 2 bureaus, there it will come down to the strength and importance of the data. And we — and the analytics.
And so our Ascend capability place us very well to allow people to conduct the right analytics. And our boost offering, particularly most recently adding in the ability for people to add rental payments, which are very important in mortgage underwriting, I think, gives us another good strength. So as an organization, we really believe in financial inclusion. We think these moves are very good for financial inclusion, but it’s the mortgage industry and so it will be slow for them to be adopting. And at this stage, there isn’t even any guidance on exactly how to implement, but we’re well positioned, particularly with the boost and the Ascend analytical capabilities that we’ve got, to — for this to be a good thing that we can do and adding and — our help to financial inclusion.
Lloyd Pitchford
And on the U.K. margin, Anvesh, no change to our long-term guidance there. Over the medium term, we’d expect the great position that we’ve staked out in the verifications market to contribute well to margin. In the near run, by — you look at the full year and into next year. We’d expect the underlying margin to continue to progress in the U.K.
Clearly we’re making the investments in verifications, but we’ll call both those movements out. But no change to the long-term guidance.
Brian Cassin
Maybe I will just add I think the investment we’re making in U.K. verifications is a fairly material one. I think it’s another example of the sort of investments we make in the P&L to drive longer-term growth opportunities for us. So we expect that will play out to our benefit in years to come, but we’re doing a number of those across the business this year irrespective of macro environment.
Operator
The next question is coming from Kate Carpenter from Bank of America.
Kate Carpenter
Just a follow-up on Verification Services. I definitely appreciate that there are strong structural growth opportunities here but was wondering if you could talk about how increasing revenue and earnings from this business line could impact the cyclicality of your overall business mix, maybe not this year but as we think about the medium term. And then second question, just if you could elaborate on the customer profiles of your value-added services such as Ascend and whether the mix skews more towards larger or smaller institutions.
Brian Cassin
Sure. I think — do you — on the cyclicality, I mean I think, quite frankly, at this stage, it’s going to make no difference, but longer term, I mean if we’re hugely successful in this, it may add a bit. But — Lloyd?
Lloyd Pitchford
Yes. I think it’s probably procyclical that — if you think about what we’re doing with that business. Clearly there’s a lot that we — a lot of opportunity with those records, not just within the markets that they’re currently used within but more broadly. And that’s, why long term, it’s a really interesting market for us. It’s probably procyclical long term, but it’s still a small part of the business for us.
Brian Cassin
And then on Ascend, maybe I can invite Craig to just give a bit more detail on that.
Craig Boundy
Yes, absolutely. I think Brian, I think, touched on this earlier. Ascend is really a suite of products now. And so if you start with the analytical sandbox: It’s really a big data analytics platform that is certainly used by very large lenders, but over time, it’s being used by mid-size and smaller lenders as well. And it’s particularly relevant in the current economic climate with people wanting to be able to more quickly change models and update them.
You then add onto that our [Ascend Ops] capability which lets people deploy models into production. So you’ve designed a model and you want it to go live. And [Ascend Ops] really cuts a lender’s ability from probably something up in the several hundred days it would have taken them to deploy models to less than a week and so both improving productivity but also improving the speed of deployment. And then Ascend Marketing that lets you combine those analytical technology capabilities and deployment capabilities used in underwriting now into marketing and customer acquisition. And again very important, that actually plays across a wide range of client segments.
And so I think that we found over time it’s absolutely used by large organizations and into some of the prime lenders but now progressively used by smaller and mid-sized lenders as well; particularly important in the current climate, for the agility that they bring, and then most recently, adding in data and information into those platforms about small business lending and building out our strength and capability there.
Operator
The next question is coming from Andrew Ripper from Liberum.
Andrew Ripper
Well done on the numbers. I’ve got a couple, please. First of all, could you just remind us, on tech transformation, where you are in the program? I think this year is quite a significant one for the rollout in the U.K. And Lloyd, maybe you can just touch on the sort of the deltas in terms of cash and P&L.
That’s the first question. And secondly, actually an addendum to that, is just I noticed the CapEx on internally generated software was up about $40 million in the first half. Maybe you can just talk a little bit about where you’ve been spending the money. Secondly, on cash flow. Lloyd, you mentioned $50 million reorg on Asia Pac, EMEA for this year.
Just can you confirm, is that all cash cost or a P&L charge? Is there going to be any difference between the two? And then finally, back to consumer, I think probably the only question that hasn’t been asked on consumer: You’re hitting the annualization of the Gabi acquisition. And we haven’t really discussed insurance today. I wonder if you can just give us a brief update on how the insurance vertical is going.
And what sort of growth are you seeing in that business organically?
Brian Cassin
Andrew, a lot of questions there, a lot of P&L and CapEx ones there, so I’ll give Lloyd a moment to gather his thoughts on that. Maybe we would touch on the Gabi acquisition and the insurance progress, first. I’ll start off and maybe ask Craig to join in as well. I mean I think we’re happy with the progress there. We’re seeing good growth.
We’ve always said actually that the main product launch will be towards the back end of this year. And really that’s sort of a substantial improvement in the — what we call digital agency and really developing kind of a consumer proposition that you would expect more to see in the sort of cards and personal loans. And you can currently get online an insurance in the U.S. today. So that’s progressing quite well and we expect that to be a contributor to growth in H2.
Just going back, on the techs transformation — I’m sorry. Craig, I mean, maybe — do you want to just join, add a comment on Gabi?
Craig Boundy
Yes. I mean I think one of the things that’s important here is the claim your car proposition that we’ve launched to our consumer members that prompts them the ability to sort of say, “Yes, that’s my car.” And we’ve pre-populated that with our existing automotive data that we hold. So one of the abilities to bring together our capabilities here, giving our consumer members the ability to say, “Yes, that’s my car,” and then off the back of that, connect that into stronger insurance offerings. And so I think, as Brian said, the digital insurance market in the U.S. is still very nascent relative to other countries.
And we’re very well positioned for our consumer base to continue to grow there.
Brian Cassin
And Andrew, on the tech transformation, we’re at sort of at various stages in different regions but progressing well; a large way through, for example, in North America; less so in the U.K., although it’s a heavy lift this year and into next year; and then ongoing work in Brazil which is at various stages of completion. We still have quite a few years to go on that. And I — Craig, again do you want to add anything to that?
Craig Boundy
I mean I think you said it well. Our — a lot of very good progress all over the organization as we start to see the benefits, particularly to our speed of innovation from the new technologies that we’re building and the new platforms that we’re able to operate. And I think you see that come out all the way through the presentations today, most obviously in things like the new modules we’re building into Ascend that’s on our new technology stack.
Lloyd Pitchford
Yes. And just to add that into the costs. Obviously, a number of years ago, we put the whole of the consumer business onto cloud modern infrastructure, so if you look across the different businesses, we’re well progressed. As a reminder: All of the tech transformation is going through our normal financial numbers. Of the 9% CapEx guidance that we’ve got for this year, about 1.5% is associated with the migration and tech transformation costs.
So that gives you a sense. And in terms of the step-up in spend that you mentioned, Andrew, a bit of that is due to the start of the U.K. transformation program. And quite a bit of it is due to a really active program of new product development in our direct-to-consumer businesses. You can see the breadth of activity that we’ve got there and particularly as we gear up to expand the insurance proposition.
On the EMEA/Asia Pacific restructuring: so $50 million for the full year. Roughly — rough expectations now, about 3/4 cash and about 1/4 noncash.
Brian Cassin
And I think we’ve got time for one more question.
Operator
The last question is coming from Kean Marden from Jefferies.
Kean Marden
I had a very quick one and again sort of for Lloyd. So the $152 million write-down, I’m just wondering whether you can give any insight into whether that relates to a country or a particular acquisition you may have made in the past. And just any other CGU where the headroom is currently tightened, when you retest over the next 12 months, you might need a similar outcome?
Lloyd Pitchford
Yes. So the key thing that happened in the first half, as I think everybody has seen, is the step change in global interest rates. And if you look in the financials, that had 2 effects in the first half. The first one that’s positive, and you can see it in our numbers, is we have the marked to market, the fixings that we’ve done on our debt portfolio. And there was about a $89 million gain on that in the first half.
On the other side, you’re required to redo your carrying value tests. And that step change required, it was the EMEA CGU. That step change in rates required us to take the $152 million accounting noncash charge. And if you go back to the full year, the — all the disclosures are there in the full year, Kean. And if you look at the change that we’ve seen in interest rates, if you look back at what we put at the end of last year, you would have expected an impairment given that change in rates.
It’s a very marked step-up, but it’s the group of assets in EMEA, so all the way back in time immemorial, all combined together in a single cash-generating unit.
Brian Cassin
Great. So that concludes today’s session, so thanks, everybody, for joining us. I hope you all have a good day. And we look forward to speaking to you again in January for our Q3 trading update. Thank you very much.
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