S&p Global Inc. · NYSE:SPGI
S&p Global — The McGraw-Hill Companies — Q3 2009 Earnings Presentation
49 slides from S&p Global's earnings presentation, Oct 26, 2009
Slide 1: 3Q 2009 Earnings Call
3Q 2009 Earnings Call October 26, 2009 Presenters: Harold McGraw III Chairman, President and CEO Robert J. Bahash 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: Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995
“Safe Harbor” Statement Under The Private Securities Litigation Reform Act of 1995 This presentation includes certain forward-looking statements about our businesses and our prospects, new products, sales, expenses, tax rates, cash flows, prepublication investments and operating and capital requirem
Slide 3: MHP 3Q 2009 results and increased guidance
MHP 3Q 2009 results and increased guidance EPS • 3Q 2009: $1.07 Revenue • 3Q 2009: Declined 8.4% to $1.9 billion compared to 3Q 2008 Now expect to achieve the top end of our $2.20 to $2.25 EPS guidance • Excludes 2Q restructuring charge of $0.03, a $0.03 loss on divestiture of Vista Research in May,
Slide 4: Encouraged by recent signs of an improving economy
Encouraged by recent signs of an improving economy Our economists forecast GDP growth of 1.8% in 2010 after 2.7% decline in 2009 • Stimulus funds being spent more slowly than expected in education Positive indications that Federal Reserve and Treasury programs are contributing to improvement in cred
Slide 5: 3Q 2009 results at Financial Services
3Q 2009 results at Financial Services Revenue (2.2%) to $637.0 million • S&P Credit Market Services: +0.7% to $426.1 million • S&P Investment Services: (7.6%) to $210.9 million Operating Profit (10.1%) to $256.2 million Operating Margin 40.2% 8 Key takeaways from Financial Services’ 3Q 2009 results
Slide 6: Key factors in new issue bond market
Key factors in new issue bond market Growth in U.S. and European corporate industrial debt issuance • U.S.: +98.9% in 3Q • Europe: +120.1% in 3Q U.S. high-yield issuance: +491.3% in 3Q off a low base European speculative-grade issuance: +226.2% 10 Interest rate spreads: A key gating factor for issua
Slide 7: Signs of progress in credit markets
Signs of progress in credit markets Companies able to raise cash to fund operations or refinance maturing debt • 3Q global volume for high-yield bonds highest in more than a decade • Speculative-grade companies able to raise dollars as risk premiums fell dramatically from record levels in late 2008
Slide 8: U.S. government supports nearly the entire funding mix
Signs of progress in credit markets Banks becoming more comfortable obtaining funds from each other • The spread between the three-month LIBOR and Fed’s overnight rate—a gauge of how banks assess riskiness of lending to one another—fell to 0.34% 14 U.S. government supports nearly the entire funding
Slide 9: Asset-backed securities market benefited from TALF
Asset-backed securities market benefited from TALF Program stimulated issuance in wide array of ABS asset classes • Including credit cards, auto loans, auto leases and student loans Traditional real money investors have returned to market • Use of TALF leverage has declined sharply 16 New actions to
Slide 10: Positive signs for S&P Credit Market Services
Positive signs for S&P Credit Market Services Comparisons will be easiest of the year • 4Q ’08 revenue fell 24.5%, steepest decline of 2008 Outlook for corporate market is positive • Tight spreads • Healthy refinancing calendar • Low rates • Investor demand for yield 18 Positive signs for S&P Credit
Slide 11: Easier comparisons in second half vs. 2008
Easier comparisons in second half vs. 2008 25 U.S. RMBS 12 U.S. CMBS $22.3 $10.3 (in billions of US$) (in billions of US$) 20 9 15 $12.5 $9.8 10 $5.7 $8.3 $8.1 6 $6.2 5 $2.6 3 $2.5 0 $1.3 1Q 2Q 3Q 4Q $0.0 $0.0 $0.0 0 1Q 2Q 3Q 4Q 96 U.S. ABS 16 U.S. CDOs $87.6 $13.6 (in billions of US$) (in billions
Slide 12: Easier comparisons in second half vs. 2008
Easier comparisons in second half vs. 2008 U.S. Corporate U.S. Public Finance 360 180 $325.2 $160.1 $301.4 $260.3 $264.5 (in billions of US$) (in billions of US$) 270 135 $126.0 $123.6 $106.7 $178.4 $174.5 $89.3 $90.5 180 90 $83.7 $92.6 90 45 0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2008 2009 Source: Thomson Fin
Slide 13: 3Q results at S&P Investment Services
3Q results at S&P Investment Services 3Q revenue declined 7.6%, reflecting: • Divestitures of Vista Research, CRISIL’s Gas Strategies Group • Expiration of independent research settlement at end of July • Some softness in index products and services Excluding divestitures, 3Q revenue declined 4.4% 2
Slide 14: Softness in index products and services
Softness in index products and services Softness due to reduction in trading volume of over-the-counter and exchange-traded derivatives based on S&P indices 26 Softness in index products and services Assets under management in exchange-traded funds have increased sequentially since 1Q 2009 • Now mor
Slide 15: Finding new ways to grow index business
Finding new ways to grow index business Launched five new exchange-traded funds based on S&P indices in 3Q 2009 Now 214 exchange-traded funds based on S&P indices • Up from 189 at end of 3Q 2008 • More in the pipeline 28 The regulatory outlook for S&P: Creating a global framework U.S.: Working with
Slide 16: The regulatory outlook: Creating a global framework
The regulatory outlook: Creating a global framework We expect U.S. Congress to pass legislation on rating agencies as part of omnibus financial reform bill • Expect to pass in Fall 2009 or early in 2010 • Drafting process is underway and situation is still fluid 30 The regulatory outlook: Creating a
Slide 17: Latest developments on litigation front
Latest developments on litigation front Lawsuits grouped into three general categories: 1. Lawsuits alleging S&P is an underwriter or seller of securities 2. Lawsuits alleging corporate statements on earnings and ratings were misleading (stock drop suits) 3. Lawsuits based on state law claims We con
Slide 18: Standard & Poor's has strengthened ratings over last 18 months
Standard & Poor’s has strengthened ratings over last 18 months Taken important steps to: • Improve ratings stability • Add value to ratings through more analysis and features • Increase comparability of ratings • Increase transparency of its processes • Add more checks and balances to the process •
Slide 19: How S&P is adding value to ratings
How S&P is adding value to ratings New stability measures added to ratings criteria • Accounts for gradual decay in credit quality versus sudden deterioration • Also considers other factors, such as payment priority of an obligation following default and potential payment after default 36 How S&P is
Slide 20: How S&P is adding value to ratings
How S&P is adding value to ratings S&P has expanded compliance efforts • Chief compliance officer and team of independent compliance professionals oversee compliance with regulatory requirements, S&P policies, and policies related to managing potential conflicts of interest 38 How S&P is adding valu
Slide 21: 2009 outlook for Financial Services
How S&P is adding value to ratings Educating market participants about ratings, what ratings represent and how to use them • Publications include S&P’s “Guide to Credit Rating Essentials” 40 2009 outlook for Financial Services Summary • Slight decline in revenue • Operating margin decline of 175 to
Slide 22: McGraw-Hill Education
Financial Services McGraw-Hill Education Information & Media McGraw-Hill Education: Tale of two markets 2009: • U.S. college and university market: Counter-cyclical growth fueled by a surge in enrollments • Elementary-high school market: Declining sales; budget pressures and only a modest benefit fr
Slide 23: 3Q 2009 segment results at McGraw-Hill Education
3Q 2009 segment results at McGraw-Hill Education Revenue (11.6%) to $1.0 billion • School Education Group: (19.6%) to $501.3 million • Higher Education, Professional and International Group: (1.8%) to $498.7 million Operating Profit (15.9%) to $298.1 million Operating Margin 29.8% 44 Outlook for 200
Slide 24: Challenging comparisons all year vs. 2008
Challenging comparisons all year vs. 2008 Total Basal and Supplemental K-12 Net Sales $1,000 $800 (in millions) $600 $400 $200 $0 Jan Feb M ar Apr M ay Jun Jul Aug Se p Oct Nov De c 2008 $74.9 $84.3 $159.0 $202.2 $326.2 $763.6 $977.5 $719.7 $325.1 $143.2 $94.1 $127.2 2009 $57.8 $76.0 $139.9 $154.8 $
Slide 25: District-level postponements in reaction to state and local budget pressures
District-level postponements in reaction to state and local budget pressures Postponements in adoption states: • California • Florida • Kentucky • Oregon • Georgia Harder to track in the open territory, but postponements had a negative impact • Open territory sales declined 12.7% through August year
Slide 26: Postponements and the outlook for the el-hi market
Postponements and the outlook for the el-hi market California: Opportunity for new spending • Last reading adoption in 2002 for only two programs, including Open Court • State approved broader K-5 list for 2009 adoption – New edition of Open Court, now called Imagine It! – State-specific K-5 edition
Slide 27: Postponements and the outlook for the el-hi market
Postponements and the outlook for the el-hi market Oregon: Good outlook • Many first-year postponements • Captured solid share in 2009; anticipate doing well in 2010 and 2011 Pent up demand very real in some markets • Extent to which it can drive revenue may depend on improving economic conditions •
Slide 28: $100 billion for education from federal stimulus an important factor in 2010
$100 billion for education from federal stimulus an important factor in 2010 Funds from the American Recovery and Reinvestment Act of 2009 (ARRA) have been moving slowly into the pipeline Following money down to district level is not easy • Most of stimulus dollars in 3Q appear to be from IDEA speci
Slide 29: Congress is working on FY2010 budget for U.S. Dept. of Education
$100 billion for education from federal stimulus an important factor in 2010 Other U.S. Department of Education programs could offer new opportunities for providers of el-hi instructional materials and assessments • “Race to the Top” fund: $4.3 billion in competitive grants to encourage state-level
Slide 30: Federal stimulus dollars contributed to growth in college enrollments
Federal stimulus dollars contributed to growth in college enrollments Federal dollars had an indirect effect with stimulus coming from: • Higher Pell Grants scholarships • Higher tax credit: Up to $2,500 a year for tuition and other college-related costs, including course materials Post 9/11 GI Bill
Slide 31: Surging enrollments strengthened higher education market
Surging enrollments strengthened higher education market Market up 11.0% through August, according to AAP reports • McGraw-Hill Higher Education experienced growth in 3Q in all four major imprints Use of technology is expanding opportunities • Our digital products growing at a double-digit rate 60 O
Slide 32: Mixed 3Q results in international markets
Mixed 3Q results in international markets Strong demand for higher education products Offset by: • Softness in school and professional sales • Unfavorable foreign exchange rates 62 Mixed 3Q results in U.S. professional markets A bright spot: Digital subscription products • Science • Medicine • Techn
Slide 33: 2009 outlook for McGraw-Hill Education
2009 outlook for McGraw-Hill Education Now expect segment’s revenue to decrease 10% to 11% due to decline in el-hi school market • Previous forecast of an 8.5% to 9.5% decline With tight cost controls, now expect margin to decline 300 to 350 basis points, excluding 2008 and 2009 restructuring charge
Slide 34: 3Q 2009 results at Information & Media
3Q 2009 results at Information & Media Revenue (10.1%) to $238.9 million • Broadcasting Group: (23.6%) to $19.1 million • Business-to-Business Group: (8.7%) to $219.8 million Operating Profit +29.3% to $29.5 million • Includes a pre-tax restructuring charge in 3Q 2008 that reduced operating profit b
Slide 35: Factors influencing 3Q results at Business-to-Business Group
Factors influencing 3Q results at Business-to-Business Group Platts continues to be a stand out performer • Volatility in crude prices and other commodities continue to create demand for our data and information services – Oil prices are approximately half compared to last year Strength in data and
Slide 36: Outlook for 2009: The McGraw-Hill Companies
Outlook for 2009: The McGraw-Hill Companies Summary: • Revenue to decline approximately 7% because of continued weakness in school education and advertising – Versus previous guidance of 5.5% to 6.5% decline • With stringent cost controls, we now expect to achieve top end of $2.20 to $2.25 diluted E
Slide 37: Key factors influencing 3Q results and full-year guidance
Key factors influencing 3Q results and full-year guidance The decrease in consolidated costs and expenses • Down 5.4% in 3Q, or 3.8% excluding last year’s restructuring charge • Decrease achieved despite $68.3 million increase in 3Q incentive compensation Influence of foreign exchange on our results
Slide 38: Costs at Financial Services
Costs at Financial Services 3Q 2009: Increased 5.1%, excluding 2008 restructuring charge • Increased 7.0% at constant currencies • Excluding impact of increased incentive compensation, expenses would have declined slightly due to tight cost controls and restructuring savings, as well as benefits fro
Slide 39: Costs at Information & Media
Costs at Information & Media Information & Media expenses • 3Q 2009: Decreased 8.6%, excluding 2008 restructuring charges –Restructuring savings and lower cost of goods sold were key drivers, partially offset by increased incentive compensation • Full Year ’09 Guidance: New margin guidance implies a
Slide 40: 2009 outlook for corporate expenses
2009 outlook for corporate expenses 3Q 2009: $27.9 million, an $18.2 million increase compared to same period last year • Largely due to higher stock-based and short-term incentive compensation 2009: Now expect an increase of $20 million to $25 million, excluding 2008 restructuring charge • Down fro
Slide 41: Measuring the impact of incentive compensation
Measuring the impact of incentive compensation Now expect full-year incentive compensation to increase closer to $75 million compared to 2008 • Previously forecasted $90 million increase • Decrease primarily due to reductions in stock- based compensation accruals and reductions in short-term accrual
Slide 42: Foreign exchange rates: A factor all year
Foreign exchange rates: A factor all year Reduced revenue significantly in 1H ‘09 • Dramatic strengthening of U.S. dollar in 2H 2008 reduced year-over-year revenue growth by $74.6 million and expenses by $82 million in first half of 2009 3Q 2009 had less of an impact: • Currency reduced revenue by $
Slide 43: Measuring the 2010 impact of the BusinessWeek sale
Measuring the 2010 impact of the BusinessWeek sale 2010: Reduces year-over-year revenue growth by about $100 million • Expect savings of $20 million to $25 million pre-tax, or $0.04 to $0.05 per diluted share, net a portion of allocated expenses such as shared services and rent • Savings will vary d
Slide 44: A decline in net debt at end of 3Q
A decline in net debt at end of 3Q Net debt: $240.5 million at end of 3Q • Down $490.7 million versus 2Q and down $555.5 million versus year-end 2008 • Reflects strong free cash flow generation in 3Q 2009 Gross debt: $1.2 billion at the end of 3Q • Comprised of long-term unsecured senior notes • Off
Slide 45: Changes in the effective tax rate for 2009
Changes in the effective tax rate for 2009 3Q 2009: 36.4% versus 37.1% in 3Q 2008 2009: Expect 36.4% for the full-year 88 Diluted weighted average shares outstanding (WASO) 3Q 2009: 313.6 million shares • 3.6 million share decrease compared to 3Q 2008 – Primarily due to 2008 share repurchases and to
Slide 46: Outlook for 2009 prepublication investments
Outlook for 2009 prepublication investments 3Q 2009: $44.7 million, down $20.6 million compared to 3Q 2008 2009: Still expect approximately $200 million 90 Outlook for 2009 property and equipment expenditures 3Q 2009: $15.7 million, compared to $17.7 million in same period last year 4Q 2009: Expect
Slide 47: Outlook for non-cash items
Outlook for non-cash items Amortization of prepublication costs • 3Q 2009: $127.2 million, compared to $124.6 million in same period last year • 2009: Still expect $275 million to $280 million –Compares to $270 million in 2008 92 Outlook for non-cash items Depreciation • 3Q 2009: $26.0 million, $3.9
Slide 48: Outlook for non-cash items
Outlook for non-cash items Amortization of intangibles • 3Q 2009: $11.1 million, compared to $13.6 million for same period last year • 2009: Still expect approximately $50 million 94 Outlook for unearned revenue in 2009 End of 3Q 2009: $1.1 billion • Roughly flat year-over-year and with 2Q 2009 • In
Slide 49: 3Q 2009 Earnings Call
3Q 2009 Earnings Call October 26, 2009 Presenters: Harold McGraw III Chairman, President and CEO Robert J. Bahash Executive Vice President and CFO Donald S. Rubin Senior Vice President, Investor Relations NOTE: A replay of this webcast will be available approximately two hours after the end of the c
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