S&p Global Inc. · NYSE:SPGI
S&p Global — The McGraw-Hill Companies — Q4 2008 Earnings Presentation
48 slides from S&p Global's earnings presentation, Jan 27, 2009
Slide 1: 4Q 2008 Earnings Call
4Q 2008 Earnings Call January 27, 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 the Company’s businesses and our prospects, new products, sales, expenses, tax rates, cash flows, prepublication investments and operating and capita
Slide 3: MHP 2008 and 4Q 2008 results
MHP 2008 results EPS • 2008: $2.51 – Includes pre-tax restructuring charge of $73.4 million ($45.9 million after tax), or $0.14 per diluted share Revenue • 2008: Declined 6.2% to $6.4 billion 4 MHP 4Q 2008 results EPS • 4Q 2008: $0.37 – Includes pre-tax restructuring charge of $26.3 million ($16.4 m
Slide 4: Controlling expenses
Controlling expenses 2008 actions • Incentive compensation reduced $273.7 million • Workforce reduction of 1,045 positions Cost containment was a priority in 2008 and will be again in 2009 Prepared to take more actions as necessary 6 6 Managing for today while preparing for tomorrow Waiting to see h
Slide 5: Meeting challenges and creating new opportunities
Meeting challenges and creating new opportunities Today’s changing financial landscape presents new challenges and opportunities • Responding by investing in fast-growing businesses at Standard & Poor’s Continuing to leverage content, technology and distribution to deliver new digital products and s
Slide 6: Financial Services
Financial Services McGraw-Hill Education Information & Media Diverse portfolio helped cushion impact of credit crunch, challenging comparisons S&P Credit Market Services 2008 revenue (22.5%) to $1.8 billion 4Q revenue (24.5%) to $396.3 million S&P Investment Services 2008 revenue + 15.0% to $899.5 m
Slide 7: Financial Services: 2008 results
Financial Services: 2008 results Revenue Operating Profit 2008 (12.9%) to $2.7 billion Decreased 22.4% to $1.1 billion • Includes pre-tax restructuring charge of $25.9 million for a workforce reduction of 340 workers • Reflects $166 million decrease in incentive compensation 4Q (15.4%) to $623.1 mil
Slide 8: Turbulence in credit markets carried into 4Q 2008
Turbulence in credit markets carried into 4Q 2008 U.S. RMBS U.S. CMBS 300 80 259.1 70.0 70.7 253.5 (in billions of US$) 61.2 (in billions of US$) 250 60 200 38.1 150 117.6 40 100 49.7 20 10.3 50 5.7 12.5 8.3 2.6 8.1 0.0 0.0 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 U.S. CDOs U.S. ABS 120 100 108.5 112.9 87.6 84.6
Slide 9: Revenue vs. new issuance in 4Q 2008
Revenue vs. new issuance in 4Q 2008 Revenue % Change New Issue % Change 4Q ‘08 vs. 4Q ‘07 Volume 4Q ‘08 vs. 4Q ‘07 Financial (15.4%) Global (46.7%) Services Issuance Credit Market (24.5%) Global (46.7%) Services Issuance International (18.3%) Non-U.S. (39.9%) Issuance Domestic (29.8%) U.S.-only (53.
Slide 10: Outlook for non-transaction revenue
Outlook for non-transaction revenue We expect non-transaction growth in 2009 based on: • Modest price increases • Large annually renewable contracts • Major enhancements made to subscription- based services – RatingsDirect and RatingsXpress 18 Outlook for new issue volume 2009 new issuance: Flat at
Slide 11: The benefits of a diversified and resilient portfolio
The benefits of a diversified and resilient portfolio S&P Investment Services • Tough comparisons to 4Q 2007 and consolidations in the financial market – Lower rate of growth in 4Q 2008 than in previous three quarters – Assets in ETFs declined from an all-time high of $235 billion in 2007 to $203.6
Slide 12: Continuing to expand index products and services
Continuing to expand index products and services New opportunities: • 14 new ETFs launched in 4Q 2008 • 59 new ETFs launched in 2008 • 203 ETFs based on S&P indices now available worldwide Benefits for 2009: • New products • Growth in shares outstanding in ETFs • Increasing diversity of S&P’s offeri
Slide 13: The regulatory scene: Clarifying the CUSIP issue
The regulatory scene: Clarifying the CUSIP issue Proceeding opened by the European Commission against Standard & Poor’s • Proceedings are not related to ratings • It is not a lawsuit • Involves complaint against CUSIP Service Bureau (Committee on Uniform Security Identification Procedures) 24 The re
Slide 14: The regulatory scene: Clarifying the CUSIP issue
The regulatory scene: Clarifying the CUSIP issue In 2008, the European Commission received complaints that CUSIP was charging fees for access to database The complaint is without merit • ISIN numbers are available at no charge for settlement of cross border securities transactions • Europeans are us
Slide 15: Regulatory issues and actions
Regulatory issues and actions Ongoing outreach to key policymakers, regulators and politicians here and abroad • Meeting with European member states and Parliament Awaiting final NRSRO rules from U.S. Securities and Exchange Commission • We believe smart regulation will help strengthen financial mar
Slide 16: Regulatory issues and actions
Regulatory issues and actions Managing potential for conflicts in ratings process a key regulatory issue • No system completely free of conflict • Conflict can be managed through greater transparency 30 Regulatory issues and actions Transparency key issue for financial markets • Reason for 27 improv
Slide 17: 2009 outlook for Financial Services
2009 outlook for Financial Services Summary • Growth in non-transaction revenue will help cushion uncertainty in new issue market • Growth in S&P Investment Services • Slow start to 2009 • The segment in 2009: –1.5% to 2% revenue growth –Margin decline of 250 to 300 basis points, excluding 2008 rest
Slide 18: McGraw-Hill Education: 2008 results
2008 results at McGraw-Hill Education School Education Group 2008 Revenue (5.4%) to $1.4 billion 4Q 2008 Revenue (18.6%) to $162.2 million Higher Education, Professional and International Group 2008 Revenue + 0.9% to $1.3 billion 4Q 2008 Revenue (2.0%) to $344.4 million HPI Group accounted for 48% o
Slide 19: McGraw-Hill Education: 2008 results
McGraw-Hill Education: 2008 results Operating margin • 2008: 12.0% – Restructuring charge reduced the operating margin by 96 basis points 36 Higher education: Positioned for growth in 2009 Surge in December sales ended 2008 on upswing • Didn’t match U.S. college market’s 3% gain in 2008 • We publish
Slide 20: Higher education: Positioned for growth in 2009
Higher education: Positioned for growth in 2009 Launched McGraw-Hill Connect, a new generation of digital products • Initially available for 12 disciplines • Help faculty and students “Connect. Learn. Succeed.” 741 titles currently on CourseSmart • The industry’s eBook website 38 Higher education: P
Slide 21: Outlook for professional market
Outlook for professional market Weakness at retail hurt sales of professional books in 2008 • Consumers cut back spending Launching key scientific, technical and medical titles in 2009 • Less vulnerable to economic downturns than general retail market 40 Creating new digital products and services fo
Slide 22: The changing outlook for the el-hi market
The changing outlook for the el-hi market Elementary-high school market to decline about 10% to 15% in 2009 after 4% decrease in 2008 2009 state new adoption calendar not robust • 2008: Market topped $980 million, exceeding our earlier projection of $925 to $950 million • 2009: Currently estimate ma
Slide 23: Budget pressures evident in testing
Budget pressures evident in testing Custom contract revenue declined for 2008 and 4Q • Lower volume of work on several contracts • Discontinuation of two contracts that produced income in 2008 • Difficult to replace revenue as state budgets tightened in second half of 2008 Acuity is adding new distr
Slide 24: What new federal education budget may offer
What new federal education budget may offer New federal budget expected in February • May contain Title 1 grant increases for districts with disadvantaged students – Funds can be used for instructional materials School infrastructure funding could free up state and local allocations for instruction-
Slide 25: 2009 outlook for McGraw-Hill Education
2009 outlook for McGraw-Hill Education The market in 2009: • Federal funds may alleviate pressure on state and local funding for education • 10% to 15% decline in the el-hi market in 2009 • 3% to 4% growth in U.S. higher education market The segment in 2009: • Low single-digit revenue decline in 200
Slide 26: Improvement at Business-to-Business Group in 2008
Improvement at Business-to-Business Group in 2008 2008 revenue +4.1% to $954.8 million 4Q revenue +0.2% to $254.1 million Key factors in 2008 • Growth in business-to-business markets • Record year in political advertising for Broadcasting • Weakness in print advertising 50 Improved performance in th
Slide 27: Information & Media: 2008 results
Information & Media: 2008 results Revenue Operating Profit 2008 + 4.1% to $1.1 billion + 45.0% to $92.1 million • Pre-tax restructuring charge of $19.2 million, primarily for a workforce reduction of approximately 210 workers • $22.6 million decrease in incentive compensation 4Q + 1.3% to $285.8 mil
Slide 28: Platts—a key driver in 2008
Platts—a key driver in 2008 2008: Benefited from volatility in energy markets • Increased the demand for information • News, pricing, and growing conference business produced solid results in 2008 2009: We look forward to solid results 54 Meeting challenges at Business-to-Business Group J.D Power be
Slide 29: Broadcasting: Benefiting from political advertising
Broadcasting: Benefiting from political advertising Record revenue in political advertising • Hit $27 million in 2008 • More than half generated in 4Q 2008 Advertising market will be challenged in 2009 with a recessionary environment and no significant elections 56 Issues for segment in 2009 Weaknes
Slide 30: Outlook for Information & Media
Outlook for Information & Media For 2009: • Low single-digit revenue decline • 200 to 300 basis point reduction in operating margin, excluding 2008 restructuring charges 58 Outlook for The McGraw-Hill Companies Summary • 2009 will be a challenging year – Tight credit markets – State and local budget
Slide 31: Robert J. Bahash
Robert J. Bahash Executive Vice President and Chief Financial Officer The McGraw-Hill Companies Key points for 2008 Achieved $2.65 EPS, high end of our guidance despite challenging environment $455 million in free cash flow Repurchased 10.9 million shares in 2008 for $447 million 61
Slide 32: 4Q 2008 operating performance
4Q 2008 operating performance Standard & Poor’s • Credit Market Services revenue declined 24.5% –Minimal debt issuance in October and November • Investment Services revenue grew 7% –Slower than first three quarters from weakness in banking and investment services sectors • 4Q margin of 35.5%, exclud
Slide 33: 4Q 2008 operating performance
4Q 2008 operating performance Information & Media • Revenue grew 1.3% –Broadcasting’s strong political sales in Denver market –Continued growth from Platts’ news and pricing services –Offset by softness in Broadcasting’s local and national advertising revenue and declines in BusinessWeek’s advertisi
Slide 34: 2009 guidance for Financial Services
2009 guidance for Financial Services Revenue: Expect 1.5% to 2% revenue growth • Investment Services: High single-digit growth • Credit Market Services: Slight decline – 66% of total Financial Services’ revenue Guidance based on current foreign exchange rate projections • Strengthening dollar will n
Slide 35: A December pick up in 4Q U.S. corporate new issuance
A December pick up in 4Q U.S. corporate new issuance U.S. Corporates U.S. Public Finance 120 75 (in billions of US$) (in billions of US$) 112.1 108.1 90 60 88.3 83.6 54.0 45 60 30 32.8 30.6 29.4 30.8 40.8 30 23.7 15 23.4 0 0 Oct Nov Dec Oct Nov Dec Source: Thomson Financial, Harrison Scott Publicati
Slide 36: Financial Services: 2009 expenses and operating margin
Financial Services: 2009 expenses and operating margin Projecting a 250-300 basis point margin decline • Implies expenses will increase approximately 6% • Operating margin between 37.7% and 38.2% On constant currency basis, we expect expenses to increase approximately 10% reflecting: • Full year imp
Slide 37: 2009 guidance for McGraw-Hill Education
2009 guidance for McGraw-Hill Education HPI Group’s overall growth will be negatively impacted by: • Challenging professional market • Stronger dollar on overseas sales HPI will benefit from growth in U.S. college market; will grow in line with the market at 3% to 4% School Education Group will be i
Slide 38: 2009 guidance for Information & Media
2009 guidance for Information & Media Expect revenue decline in low single digits • Growth from Platts not enough to offset: –Loss of political advertising in a non-political year –Extremely challenging advertising environment –Turmoil in automotive market • Results will be adversely impacted by non
Slide 39: Impact of incentive compensation
Impact of incentive compensation For MHP: $273.7 million year-over-year decline in incentive compensation in 2008 2009: Appropriate incentives of approximately $110 million are being reinstated across all segments and corporate 76 2009 outlook for corporate expenses Expect increase of $25 to $30 mil
Slide 40: Completion of data center will help with expenses in 2009
Completion of data center will help with expenses in 2009 Migration costs • 2008: Completed in 2008 at cost of $31 million • 4Q 2008: $10 million • 2009: No significant costs 78 2009 outlook for lower effective tax rate 2008: 37.5% 2009: Approximately 37.0%; lower rate influenced by: • Higher growth
Slide 41: Measuring 2008 free cash flow
Measuring 2008 free cash flow ($ in millions) Cash provided by operating activities (GAAP) $1,168.8 Investments in prepublication costs (254.1) Purchase of property and equipment (106.0) Additions to technology projects (25.4) Dividends paid to shareholders (280.5) Other adjustments, primarily forei
Slide 42: Pension funding requirements in 2009
Pension funding requirements in 2009 Potential for any pension plan contributions have not been factored into free cash flow guidance U.S. plan is underfunded due to significant market declines in 2008 • Continue to follow guidance from government agencies regarding contribution formula changes – Ma
Slide 43: Update on share repurchases
Update on share repurchases 2008: 10.9 million shares repurchased for $447.2 million; average price of $41.03 • Capacity: 17.1 million shares remaining in 2007 buyback program 4Q 2008: No share repurchases given our desire to maintain debt levels comparable to year end 2007 84 Reduced diluted weight
Slide 44: Outlook for net interest expense
Outlook for net interest expense 4Q 2008: $15.4 million net interest expense • Compared to $11.9 million in 4Q 2007 2008: $75.6 million for year • Compared to $40.6 million in 2007 2009: Expect it to be roughly comparable with 2008 86 Reducing prepublication investments in 2009 2008: $254 million 20
Slide 45: Reducing capital expenditures for property and equipment in 2009
Reducing capital expenditures for property and equipment in 2009 2008: $106 million 2009: Expect approximately $90 million • $16 million decline due to reduced technology spending 88 Outlook for non-cash items Amortization of pre-publication costs • 2008: $270 million • 2009: Expect $285 million, re
Slide 46: Outlook for non-cash items
Outlook for non-cash items Depreciation • 2008: $120 million • 2009: Expect approximately $130 million 90 Outlook for non-cash items Amortization of intangibles • 4Q 2008: $17.5 million – Accelerated amortization of certain acquired intangibles • 2008: $58.5 million • 2009: Expect approximately $55
Slide 47: Outlook for increase in unearned revenue in 2009
Outlook for increase in unearned revenue in 2009 2008: $1.1 billion • Increased 1.3% year-over-year • Grew at 3.8% at constant foreign currency exchange rates Financial Services: Grew 2.7% in 2008 • Grew at 6.1% at constant foreign currency exchange rates • Segment represents approximately three qua
Slide 48: 4Q 2008 Earnings Call
4Q 2008 Earnings Call January 27, 2009 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 February 27 Domestic: 800-756-0529 International
The McGraw-Hill Companies — Q4 2008 Earnings Presentation on 6ix