EXPERIAN: one of a trio of red-faced credit ratings agencies in Australia
A string of companies that monitor, grade and rank the creditworthiness of millions of Australian borrowers are themselves scrambling to keep their businesses ticking over.
The Australian operations of consumer credit ratings providers – Experian, Illion and Equifax – have each been reporting large operating losses in recent years despite booming demand for credit-related data and borrower assessments from financial institutions.
According to the latest financial accounts lodged with ASIC by the holding companies of these entities, two of the providers – Experian Australia Holdings Pty Ltd and Credit Data Solutions Pty Ltd (owner of Illion) – are under extreme financial pressure and continue to trade only with special support from either their global parents or strategic local investors.
The financial condition of Experian Australia Holdings appears especially challenged after the company reported a net loss of A$19.5 million for the 12 months to the end of March 2023.
Experian’s Australian business now has accumulated losses of more than $333 million and reported a working capital deficiency of $40.2 million on its latest balance sheet, that was audited by KPMG audit partner Dana Bentley on 26 June.
In a special note to the 2023 accounts addressing the company’s ability to continue as a going concern, the directors of Experian Australia Holdings revealed that the local operation would require additional funding from its Irish-based parent (Experian PLC) over the next 12 months based on management forecasts.
“Experian plc has provided a non-legally binding letter of financial support for the Group to provide financial support for at least twelve months from the date of approval of the financial statements of the Group to pay any creditors due,” the directors of the Australian subsidiary revealed in their accounts.
“The directors also have satisfied themselves beyond the 12 months’ period of the letter of support that the parent entity will continue to support the Group, where the investment remains of strategic importance to Experian plc.
“Whilst the directors are confident in the Group's ability to continue as a going concern, in the event Experian plc’s support is not forthcoming within 12 months of the date of approval of these financial statements, or in the immediate period thereafter, there is significant uncertainty as to whether the Group will be able to continue as a going concern as it is dependent on the continued financial support of the ultimate shareholder.”
Bentley’s audit report included a matter of emphasis noting “a material uncertainty that may cast significant doubt on the group’s ability to continue as a going concern”.
Experian is currently developing a fraud identification and prevention platform and other services with equity support from six lenders – ANZ, CBA, Westpac, NAB, American Express and Latitude Financial.
According to ASIC filings, the entity overseeing these development programs received a $20 million capital injection on 30 June that was supported by ANZ and Experian Australia.
Credit Data Solutions (CDS) is the holding company for a swathe of businesses that leverage the “Illion” brand, including the key operating entity, Illion Australia Pty Ltd.
The holding company of Illion has been balance-sheet insolvent since the end of June 2021 when it reported a net asset deficiency of $3.4 million.
The financial position of the holding company deteriorated in 2022 after it reported a net loss of $18.6 million.
This contributed to a blowout in the net asset deficiency to $22 million at the end of June last year.
The Illion businesses have been frequently touted in the business press since 2020 as being up for auction, but the global pandemic appeared to upend any attempts to do so by key shareholders such as Archer Capital.
Credit Data Solutions’ loan liabilities have ballooned since November 2020 when Macquarie agreed to open new lines of finance to the group.
According to disclosures in the 2022 annual accounts, the value of unsecured loans provided by Macquarie to Illion have risen to $169.3 million.
The loans are due and payable in December 2025.
Banking Day approached Illion to contribute to this story but a spokesperson said the company was not able to comment.
US-based credit data provider Equifax has also racked up heavy losses through its Australian operation.
Equifax Australia Holdings posted a net loss of $185.2 million in the 12 months to the end of December, mostly due to high financing costs ($84 million) and $114 million in asset impairments.
The local Equifax arm also reported a working capital deficiency.
At the end of December, the short term liabilities of Equifax Australia Holdings exceeded current assets by more than $1.2 billion.
There are some striking similarities in the financial reporting of the Australian arms of Equifax and Experian.
Both are generating year-on-year losses partly because their international parents each appear to be funding the local businesses through the extension of loans rather than equity.
This practice might be magnifying the negative pre-tax operating performances of the Australian businesses.
Both Equifax Australia Holdings and Experian Australia Holdings also received income tax benefits from the Australian Taxation Office according to their most recent financial accounts lodged with ASIC.
Equifax received combined income tax benefits worth more than $36 million in 2021 and 2022, while Experian’s local arm netted total income tax benefits worth more than $4.5 million in 2022 and 2023.
Australian media representatives of Equifax and Experian did not respond to requests for comment from Banking Day.
*Banking Day was unable to access ASIC’s record of the annual accounts of another leading credit ratings bureau, CreditorWatch, owing to its status as unlisted public company.