S&p Global Inc. · NYSE:SPGI
S&p Global — The McGraw-Hill Companies — Q1 2011 Earnings Presentation
38 slides from S&p Global's earnings presentation, Apr 26, 2011
Slide 1: 1Q 2011 Earnings Call
1Q 2011 Earnings Call April 26, 2011 Presenters: Harold McGraw III Chairman, President and CEO Jack Callahan Executive Vice President and CFO Donald S. Rubin Senior Vice President, Investor Relations Donald S. Rubin Senior Vice President, Investor Relations The McGraw-Hill Companies
Slide 2: Comparison of Adjusted Information to U.S. GAAP Information
Comparison of Adjusted Information to U.S. GAAP Information This presentation includes adjusted revenue, free cash flow and net cash information. This information is provided to enable investors to make meaningful comparisons of the Company’s operating performance between periods and to view the Com
Slide 3: MHP: Promising year off to a good start
Harold McGraw III Chairman, President and CEO The McGraw-Hill Companies MHP: Promising year off to a good start As Reported 1Q 2011 1Q 2010 Change Diluted EPS $0.39 $0.33 18.2% Revenue $1.3 billion $1.2 billion 7.7% 5
Slide 4: McGraw-Hill Financial: Strong start
McGraw-Hill Financial Standard & Poor’s McGraw-Hill Education McGraw-Hill Information & Media 1Q 2011 at McGraw-Hill Financial: Strong start As Reported 1Q 2011 1Q 2010 Change Revenue $324.0 million $ 278.8 million 16.2% Operating Profit $96.3 million $71.2 million 35.3% Operating Margin 29.7% 25.5%
Slide 5: McGraw-Hill Financial: Growing subscription revenue
McGraw-Hill Financial: Growing subscription revenue ($ in millions) % of % Revenue 1Q 2011 Total Change Subscription $240.2 74% 16.3% Non-subscription $83.8 26% 16.1% Total McGraw-Hill Financial $324.0 100% 16.2% % of % Revenue 1Q 2011 Total Change Domestic $230.9 71% 16.9% International $93.1 29% 1
Slide 6: New collaboration, new product
New collaboration, new product S&P Indices and S&P Leveraged Commentary and Data collaborated to create new leveraged loan index • Basis of the first bank loan exchange-traded fund to hit the market Assets under management for the new Invesco Powershares leveraged loan ETF reached $70 million in the
Slide 7: How S&P diversifies its indices
How S&P diversifies its indices Changing percentage of assets under management in ETFs tied to the SPDR S&P 500 • 62% in 2006 • 43% in 2010 Change reflects diversification of ETF revenue across different asset classes and geographies 12 More subscribers for Integrated Desktop Solutions Group Strong
Slide 8: Enterprise Solutions Group: Integrating data and streamlining delivery
Enterprise Solutions Group: Integrating data and streamlining delivery Formed to integrate multiple cross-asset data sets and streamline delivery of data into one platform • New integrated technologies enable clients to incorporate data directly into their systems and workflows Increased demand for
Slide 9: 2011 outlook for McGraw-Hill Financial
Research & Analytics: A leverageable resource S&P’s equity research is an important resource for MarketScope Advisor, an online service for more than 80,000 financial advisors In the future, S&P equity research will be available through: • Enterprise Solutions • Integrated Desktop Solutions Group 16
Slide 10: The outlook for S&P
McGraw-Hill Financial Standard & Poor’s McGraw-Hill Education McGraw-Hill Information & Media The outlook for S&P As Reported 1Q 2011 1Q 2010 Change Revenue $442.9 million $401.3 million 10.4% Operating Profit $190.4 million $188.8 million 0.8% Operating Margin 43.0% 47.0% • S&P’s operating profit e
Slide 11: How foreign exchange affected 1Q results
How foreign exchange affected 1Q results Increased revenue by $1.9 million Reduced operating profit by $6.1 million Excluding foreign exchange: • Revenue grew by 9.9% • Operating profit increased by 4.1% 20 Challenging comparisons: 1Q ’10 vs. 1Q ‘11 1Q ‘10 margin: 47% 1Q ‘11 margin: 43% Record 1Q ’1
Slide 12: Why expense comparisons will ease for balance of 2011
Why expense comparisons will ease for balance of 2011 S&P spending for QCCR-related items makes first- half comparisons challenging: • 2010: Incremental $17 million cost realized almost entirely in second half of the year • 2011: Estimated incremental increase of $12 million to $15 million to be mor
Slide 13: Transaction revenue grew by 17.2%
Transaction revenue grew by 17.2% as high-yield issuance soars Worldwide Corporates High Yield $150 (in billions of US$) $75 $121.1 $110.8 $124.4 $90.2 $70.6 $0 1Q 2Q 3Q 4Q 1Q 2010 2010 2010 2010 2011 2010 2011 Source: Thomson Financial, Harrison Scott Publications, Standard & Poor’s 24 Refinancing:
Slide 14: A rapidly growing leveraged loan market
A rapidly growing leveraged loan market Centered around the three R’s of leveraged lending: • Repricing • Refinancing • Recapitalization 26 Unrealized potential in refinancing market A healthy new issue pipeline • S&P estimates $5.6 trillion in bond and loan maturities coming due between 2011 and 20
Slide 15: Risk and the search for yield
Risk and the search for yield S&P has seen: • Deals oversubscribed for companies with B- ratings • CCC rated debt market opened up by increased role of hedge funds Why search for yield will persist: • Interest rates remain low • Spreads remain tight 28 Tightening interest rate spreads: A key factor
Slide 16: Trends in new issuance market
Trends in new issuance market Increasingly active M&A market should contribute to growth Borrowers turning to public debt markets with banks less willing or less able to lend S&P continues to move ahead without much help from the public or structured finance markets 30 U.S. public finance fell by 52
Slide 17: Structured finance was mixed
Structured finance was mixed U.S. RMBS 8 U.S. CMBS (in billions of US$) 8 6.5 (in billions of US$) 6 6 4.3 4.3 4 4 3.5 2.6 2 2 1.1 0.5 0.5 0.8 0.4 0.4 0.0 0 0 Jan Feb Mar Jan Feb Mar 6 U.S. CDOs 25 U.S. ABS 5.0 (in billions of US$) (in billions of US$) 4.6 19.3 20 4 15 2.7 11.4 12.0 12.0 2.1 10.1 10
Slide 18: Standard & Poor's: Growing non-transaction revenue
Gaining clarity on regulatory issues United States: SEC will engage in more rulemaking in 2011 to implement Dodd-Frank Act requirements Hong Kong recently passed new regulations New regulations expected from Canada and Singapore 34 Gaining clarity on regulatory issues S&P is working with regulators
Slide 19: Gaining clarity on regulatory issues
Latest developments on litigation front The record: • 20 cases have been dismissed outright – Five of these cases involved fraud charges • Eight lawsuits have been voluntarily withdrawn 36 Favorable decision in California state court CALPERS case in California alleged negligent misrepresentation in
Slide 20: Latest developments on litigation front
Latest developments on litigation front Abu Dhabi case: Discovery continues Anschutz case: • New York federal court dismissed plaintiff’s claim of negligent misrepresentation in regard to securities issued by Merrill Lynch • Same claim in California federal court has survived a motion to dismiss • C
Slide 21: 2011 outlook for Standard & Poor's
2011 outlook for Standard & Poor’s Summary • Legal risk remains low • Regulatory issues are manageable • High single-digit revenue growth • Operating profit will accelerate for the balance of the year and grow in the high single-digits for the full year 40 McGraw-Hill Financial Standard & Poor’s McG
Slide 22: McGraw-Hill Education: 1Q 2011 results
McGraw-Hill Education: 1Q 2011 results As Reported 1Q 2011 1Q 2010 Change Revenue $302.7 million $317.3 million (4.6%) Operating Loss $(75.5) million $(61.8) million (22.2%) • Operating loss reflects revenue decline and ramped up investment for digital infrastructure that will position McGraw-Hill E
Slide 23: What's different in 1Q: Robust growth of digital products
What’s different in 1Q: Robust growth of digital products 1Q: Particularly strong digital growth in higher education and professional markets Investment in digital capabilities and capacity builds on McGraw-Hill Education’s success • Positions us to meet growing demand for digitally delivered produc
Slide 24: McGraw-Hill Education's new generation of digital resources
McGraw-Hill Education’s new generation of digital resources • Higher education’s suite of products include: –McGraw-Hill Connect: The industry’s most- advanced homework management platform –McGraw-Hill Create: A digital system that allows instructors to customize e-books for their courses –LearnSmar
Slide 25: Investing in technology systems to ensure capacity, support
Investing in technology systems to ensure capacity, support Recent investments in state-of-the-art digital hosting and support center are paying off with increased digital product reliability Will continue to make incremental investments and utilize the cloud to ensure capacity and expert customer s
Slide 26: Outlook for 2011 U.S. education market
Outlook for 2011 U.S. education market The el-hi market is stabilizing Market could still meet or exceed 2010 levels • Depends to great extent on Texas legislature and how it funds instructional materials –Won’t know until sometime in May • Carefully watching North Carolina’s reading and literature
Slide 27: 2011 outlook for McGraw-Hill Education
2011 outlook for McGraw-Hill Education Market expectations: • Flat to minimal growth in elementary-high school market • 4% to 6% growth in U.S. higher education market For McGraw-Hill Education: • Revenue: Expect growth in low single-digits • Operating profit: A decline driven by investments, especi
Slide 28: Information & Media: Strong growth in 1Q
Information & Media: Strong growth in 1Q 1Q: Delivering on the promise of a sustainable operating margin As Reported 1Q 2011 1Q 2010 Change Revenue $227.5 million $206.2 million 10.3% Operating Profit $37.4 million $27.8 million 34.5% Operating Margin 16.4% 13.5% 54 Business-to-Business Group: More
Slide 29: Platts: BENTEK acquisition adds to capabilities in energy markets
Platts: BENTEK acquisition adds to capabilities in energy markets Platts has a strong position in market news, data, and price discovery across many commodities including oil, natural gas, coal, metals, petrochemicals, nuclear and electricity Core Capabilities Extended Capabilities Market News Funda
Slide 30: Solid growth at Broadcasting Group in 1Q
Solid growth at Broadcasting Group in 1Q As Reported 1Q 2011 1Q 2010 Change Revenue $20.6 million $18.7 million 10.2% Key drivers: • A pick up in automotive time sales • Increased retransmission revenue 58 2011 outlook for Information & Media Summary: • Revenue: Expect mid single-digit growth • Adju
Slide 31: 2011 outlook for The McGraw-Hill Companies
2011 outlook for The McGraw-Hill Companies Solid start to year • 1Q is seasonally small 2011 EPS guidance: Expect earnings per diluted share in the $2.79 to $2.89 range 60 Jack Callahan Executive Vice President and Chief Financial Officer The McGraw-Hill Companies
Slide 32: 2011: Expect another year of strong cash flow
2011: Expect another year of strong cash flow Before dividends: • Expect to generate cash flow greater than $1 billion After dividends: • Projected to be in excess of $700 million despite increased capital investments 62 The outlook for prepublication investments 2011: Continue to expect roughly $20
Slide 33: The outlook for capital expenditures
The outlook for capital expenditures 2011: Expect approximately $150 million • Driven in part by increased digital and technology investments • Compares to $115 million in 2010 64 A well-capitalized company Net cash and short-term investments: • As of March 31, 2011: $100 million Cash and short-term
Slide 34: Capital allocation in 1Q 2011
Capital allocation in 1Q 2011 Spent $250 million on acquisitions and share repurchases • Primary drivers of $250 million decline in cash and short- term investments from year-end $126 million on acquisitions • Most notable: BENTEK Energy which is now part of Platts in the Information & Media segment
Slide 35: Outlook for corporate expenses
Outlook for corporate expenses 1Q 2011: $34 million, a decrease of 4% or $1.5 million compared to the prior year • Benefited from a decline in real estate costs and tight cost control 2011: Expect mid single-digit increase • Compares to adjusted corporate expense of $164 million in 2010, which exclu
Slide 36: Effective tax rate
Effective tax rate 1Q 2011: 36.4%, flat versus 2010 70 Net income attributable to non-controlling interests 1Q 2011: $4.2 million, largely driven by CRISIL 71
Slide 37: A decline in diluted weighted average shares outstanding
A decline in diluted weighted average shares outstanding (WASO) 1Q 2011: 309.6 million shares • 6.7 million decrease from prior year • 0.7 million decrease from 4Q 2010 Decline is primarily due to share repurchases, which more than offset equity related awards 72 1Q 2011 Earnings Call April 26, 2011
Slide 38: 1Q 2011 Earnings Call
1Q 2011 Earnings Call April 26, 2011 Replay Options Internet replay available for one year Go to www.mcgraw-hill.com/investor_relations • Click on the Earnings Announcement link under Investor Presentation Webcasts Telephone replay available through May 26, 2011 Domestic: 800-518-0083 International:
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