Equifax 2003 Annual Report Download - page 23

M ANAGEM ENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
20 EQUIFAX. INFORMATION THAT EMPOWERS.
We expect to continue strong revenue growth for Equifax
North America, excluding Mortgage Services, in 2004. Equifax
North America delivered an operating profit of $324.3 million
compared to $361.6 million for 2002. Our operating margin of 32%
is down compared to 40% in 2002, as a result of asset impairment
and restructuring charges and $33.8 million in eMarketing operat-
ing losses discussed above. Excluding these items operating
income would have been $64.4 million higher and margin 38%.
YEAR 2002 COM PARED W ITH 2001
U.S. Consumer and Commercial Services 2002 revenue growth was
1% over 2001. Revenue growth in 2002 was challenging due to
tough economic conditions in the U.S. and a record 2001 base year.
Revenues in the second half of 2002 grew 5.5%, over comparable
periods, compared to a 3% decline in the first half of the year. The
momentum was driven by mortgage refinancing and market share
gains, principally in financial services. Average prices were flat
year-over-year, influenced by higher mortgage activity. M ortgage
Services delivered record revenues with 24% growth.
Our Marketing Services product lines delivered $274.8 million in
revenues or 6% growth in 2002, driven by $29.9 million in revenue
from our Naviant acquisition. Revenues from our Credit Marketing
Services, which include pre-screening, portfolio review, database
and other marketing products, were down 1% for the year, princi-
pally due to the economic conditions. Revenues from Direct Mar-
keting Services were $110.5 million, or 19% above the prior year,
driven by incremental revenues from our Naviant acquisition. Our
Direct Marketing Services revenues continued to be negatively
impacted by the slow down in spending for advertising, mailings,
and promotions.
Consumer Direct services revenues grew 80% over the prior year. All
products continued strong growth including $6.6 million of incremen-
tal sales from the launch of our Equifax 3-in-1 credit report.
Equifax North America delivered record profit of $361.6 million on
solid revenue growth and strong expense management. We main-
tained operating margins of 40% as we continued to invest in
growth initiatives such as our U.S. Small Business Credit Report
and our Safety and Security Services.
EQUIFAX EUROPE
YEAR 2003 COM PARED W ITH 2002
Equifax Europe, which includes the results of our operations in the
United Kingdom, Spain, Portugal and Italy, and our support opera-
tions in Ireland, continued to improve its profit and operating margins
through expense reductions and operating efficiencies. Positive
performance in our consumer line resulted in improved profit in
Spain and the United Kingdom. These improvements were partially
offset by performance in our commercial line and by losses in Italy.
Revenues increased from $126.1 million to $130.5 million, including
a favorable currency impact of $13.2 million. Our United Kingdom
operations generated 78% of Equifax Europe’s revenues in 2003.
Operating expenses in 2003 of $109.9 million declined 3%. United
Kingdom expenses were flat for 2003, driven by our 2002 restruc-
turing plan focused on rationalizing our United Kingdom operations
and productivity. The commercial business in Spain has been held
for sale since the third quarter of 2002. We were negotiating with
a new prospective buyer at the end of 2003. We wrote down the
carrying value of the discontinued operation an additional $2.7 mil-
lion to reflect the impact of the current offer. Operating income of
$20.7 million increased 63% over 2002, driven by United Kingdom
expense reductions. We continue to focus on driving operational
efficiencies in our European businesses and expect continued
margin improvement in 2004.
YEAR 2002 COM PARED W ITH 2001
Profit and operating margins continued to improve through expense
reductions and operating efficiencies, and the decision to exit the
commercial credit reporting business in Spain. Revenues declined
14% on a local currency basis, driven by our decision to exit the
commercial credit reporting business in Spain, and lower revenues
from our United Kingdom operations. Our United Kingdom opera-
tions generated 77% of Equifax Europe’s revenues in 2002. U.S. dol-
lar revenue benefited $5.4 million from the strengthening of local
currencies, the British pound and the euro.
Operating expenses in 2002 of $113.4 million declined 16%.
United Kingdom expenses decreased 11%, driven by our fourth
quarter 2001 restructuring plan focused on rationalizing our United
Kingdom operations and productivity. For 2002, the results of the
Spanish commercial business have been classified as discontinued
operations. 2001 results were not material to our consolidated
financial position or results of operations and as such have not
been reclassified to discontinued operations.
Operating income of $12.7 million more than doubled over 2001
driven by United Kingdom expense reductions.
EQUIFAX LATIN AM ERICA
YEAR 2003 COM PARED W ITH 2002
Revenues of our Equifax Latin America segment, which includes
results of our operations in Brazil, Argentina, Chile, Peru, Uruguay
and El Salvador, operated in an environment of economic stabili-
zation and increased 4% to $79.9 million. Currency devaluation
negatively impacted our Latin America revenues by $3.0 million, of
which Brazil accounted for $2.3 million. Brazil’s revenues grew 6%
in 2003, driven by performance in commercial reporting services.