Experian 2016 Annual Report Download - page 24

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Viability statement
Assessment of prospects
The context for the assessment
Our business model and strategy are central to understanding
our prospects, and details can be found in those sections
of the Strategic report. We have a regular cycle of strategic
planning, budgeting, and forecasting of current year business
performance and future prospects. This considers the
Group’s revenue, EBIT, cash flows, dividend cover, committed
and forecast funding and liquidity positions and other key
financial ratios, including those relevant to maintaining our
investment-grade credit ratings. Over the last three years, we
have generated free cash flow of US$3.3bn which, alongside
modest increases in Net debt, we have principally used to fund
dividends of US$1.1bn, net share purchases of US$1.2bn and
acquisitions of US$1.3bn.
Our strategic aims are to focus on our core areas of competitive
strength and develop growth opportunities in our key markets.
Our plans for the Group’s core operations therefore include
organic strategic initiatives and inorganic opportunities.
The assessment process and key assumptions
We assess our prospects through our planning process and
review our growth expectations and the external environment
annually as part of the strategic planning process. The Board
participates in this process, using the January strategy meeting
each year to focus on the Group’s strategy. We then develop our
annual budget and a further two-year financial plan.
The key assumptions in the latest financial forecasts, presented
to the March 2016 Board meeting, reflect the approved strategy
and include:
• mid single-digit organic revenue and EBIT growth at
constant exchange rates;
• cash flow conversion in excess of 95%;
• Net debt/EBITDA ratio in the range of 2.0 to 2.5;
• broadly stable effective tax rates over the medium term; and
• use of excess cash for acquisitions and shareholder returns.
The table of Principal risks in the Strategic report summarises
the risks that could prevent the Group from executing its
strategy. As explained below, we have considered a number of
these risks as part of our assessment of the Group’s viability.
Assessment of viability
The directors have concluded that the most relevant time period
for this assessment is the three-year period of our normal
financial planning cycle. In making their assessment, the
directors have taken account of the strongly cash-generative
nature of our business, our robust capital solvency position,
our ability to raise new finance in most market conditions, and
our key potential mitigating actions of restricting acquisitions,
capital investment and, in considering scenarios affecting
viability, reducing dividend payments.
Although the strategic plan reflects the directors’ best estimate
of the Group’s future prospects, they have also tested the
potential impact of a number of scenarios over and above
those included in the plan, by quantifying their financial impact
and overlaying this on the plan’s detailed financial forecasts.
These scenarios, which are based on aspects of the principal
risks highlighted above, represent ‘severe but plausible’
circumstances that we could experience.
The scenarios tested included:
• an event leading to serious reputational and brand damage,
legal penalties and class action litigation;
• a significant regulatory change or restriction to our business
through law change or enforcement, or taxation, leading to a
change in how we operate our business; and
• a significant economic deterioration, currency weakness or
restriction in one of our major countries of operation.
The results of this stress testing showed that, due to the
diversified nature of the Group, the resilience of the core
business, its substantial free cash flows and strong investment-
grade rating, the Group would be able to withstand the impact
of these scenarios occurring during the period of the financial
forecasts, by adjusting its operating plans within the normal
course of business.
Viability statement
Based on their assessment of prospects and viability, the
directors confirm that they have a reasonable expectation
that the Group will be able to continue in operation and meet
its liabilities as they fall due over the three-year period ending
31 March 2019. The directors have considered whether they are
aware of any specific relevant factors beyond the three-year
horizon and have confirmed that there are none.
Strategic report •Viability statement