S&p Global Inc. · NYSE:SPGI
S&p Global — The McGraw-Hill Companies — Q4 2009 Earnings Presentation
47 slides from S&p Global's earnings presentation, Jan 26, 2010
Slide 1: 4Q 2009 Earnings Call
4Q 2009 Earnings Call January 26, 2010 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
“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 4Q 2009 results set the stage for more growth in 2010
MHP 4Q 2009 results set the stage for more growth in 2010 43.2% increase in 4Q EPS • 4Q 2009: $0.53, including a $10.5 million pre-tax gain, or $0.02 on divestiture of BusinessWeek • Compares to 4Q 2008: $0.37, including a restructuring charge of $0.05 per diluted share 4Q revenue increased 3.3% Res
Slide 4: Board increases dividend, approves share buybacks
Board increases dividend, approves share buybacks Actions at January 2010 Board meeting: • Increased dividend by 4.4% • Announced MHP’s intention to resume share repurchases in 2010 – Will buy back over time the 17.1 million shares remaining in the program MHP has increased its dividend annually for
Slide 5: 4Q 2009 segment results at McGraw-Hill Education
4Q 2009 segment results at McGraw-Hill Education Revenue +2.6% to $520.0 million • School Education Group: (7.6%) to $149.8 million • Higher Education, Professional and International Group: +7.5% to $370.2 million Operating Profit $33.5 million • Compares to $12.7 million loss in 2008 which includes
Slide 6: Tale of two markets in 2009
McGraw-Hill Education Tale of two markets in 2009: • Elementary-high school market: Declining sales • U.S. college and university market: Consistent counter-cyclical growth 10 Elementary-high school market may decline about 15% in 2009 Total Basal and Supplemental K-12 Net Sales $1,000 $800 (in mill
Slide 7: 30% share in 2009 state new adoption market
30% share in 2009 state new adoption market We captured 30% of the total available dollars in the 2009 state new adoption market • 2009 market: $500 million to $510 million range – Represents 50% decline from 2008 state new adoption market 12 Positive signs for el-hi market Reasons for pick up in 4Q
Slide 8: Shift in testing for the el-hi market
Shift in testing for the el-hi market 7.6% decrease for the McGraw-Hill School Education Group in 4Q 2009 due to decline in testing • Major reason for decline in testing was the managed phase-out of statewide summative contracts in Arizona, California, and Florida In testing, we are increasing the f
Slide 9: 2010 el-hi market could grow 6% to 7%
2010 el-hi market could grow 6% to 7% 2010 state new adoption market estimated between $925 million and $975 million Open territory to decline in 2010 given state budget pressures Residual sales in adoption states expected to decline • Typically falls off in strong state new adoption year 16 Texas a
Slide 10: Outlook for 2010 state new adoption market
Outlook for 2010 state new adoption market Continue to see evidence of pent-up demand • Budget pressures remain until economic recovery is further along California: Market may see some purchasing that was postponed in 2009 • Funding levels remain uncertain • Some districts may buy K–8 reading as par
Slide 11: Outlook for higher education
Outlook for higher education Surge in enrollments helped drive industry growth Two-year colleges and career colleges showed most rapid growth • Career Education was MHP’s fastest growing higher education imprint in 2009 All our major imprints grew in 2009 and are expected to do so again in 2010 20 D
Slide 12: Look for McGraw-Hill e-books on new Apple Tablet
Look for McGraw-Hill e-books on new Apple Tablet All our e-books for college market on CourseSmart already run on iPhone operating system • New Apple device expected to use same operating system • If so, our CourseSmart e-books should run well right out of the box on new Apple Tablet 22 Growing digi
Slide 13: Growing digital opportunities in the professional markets
Growing digital opportunities in the professional markets Subscriptions to our services are growing at a double- digit pace In 1Q 2010, we will launch AccessPhysiotherapy • Sixth specialty site in the AccessMedicine family of online medical information subscription sites • Broadens market beyond med
Slide 14: 2010 guidance for McGraw-Hill Education
2010 guidance for McGraw-Hill Education Growth in key education markets • 6% to 7% increase in the 2010 el-hi market • 5% to 7% growth in U.S. college market Segment revenue growth of 7% to 8% Operating margins unchanged from 2009 26 McGraw-Hill Education Financial Services Information & Media
Slide 15: 4Q 2009 results at Financial Services
4Q 2009 results at Financial Services Revenue +10.6% to $689.2 million • S&P Credit Market Services: +19.4% to $473.4 million • S&P Investment Services: (4.8%) to $215.8 million Operating Profit +14.6% to $250.0 million 28 4Q 2009 results at Financial Services Operating margin • 4Q 2009: 36.3% • Ful
Slide 16: U.S. corporate issuance up 7% for 2009
U.S. corporate issuance up 7% for 2009 U.S. Corporate 360 $325.2 • 19.4% increase in 4Q $302.6 $265.3 revenue at S&P Credit $260.7 (in billions of US$) 270 Market Services $183.9 $173.7 180 $160.5 $92.5 90 0 1Q 2Q 3Q 4Q 2008 2009 Source: Thomson Financial, Harrison Scott Publications, Standard & Poo
Slide 17: 4Q issuance increased for industrial and high-yield bonds in Europe
4Q issuance increased for industrial and high-yield bonds in Europe 4Q high-yield issues in Europe • 4Q 2008: No high-yield issues • 4Q 2009: 27 high-yield issues Dollar value of European industrial issuance was $93.6 billion, up 36.9% in the fourth quarter • Represented 154 deals, an increase of 46
Slide 18: Outlook for 2010: S&P Credit Market Services
Outlook for 2010: S&P Credit Market Services We expect revenue growth in 2010 from: • Transaction and non-transaction • Domestic and international markets S&P Credit Market Services’ international revenue was up 17.7% in 4Q 2009 • All regions grew • Provided 49.4% of total revenue 34 Interest rate s
Slide 19: Favorable trends in the credit markets
Favorable trends in the credit markets Spread between three-month LIBOR and Federal Reserve’s overnight rate is down to 0.25% • Key gauge of how banks assess riskiness of lending to one another Spread contraction also across major consumer asset-backed securities during 2009 Asset-backed January 200
Slide 20: Favorable trends in the credit markets
Favorable trends in the credit markets Non-financial firms are borrowing now to repay expensive debt • Widely expected that corporate borrowing costs will increase as economy improves Deleveraging of financial institutions • Credit availability is declining systemically –Limited availability of bank
Slide 21: Public finance: 2009 a solid year; 2010 looks promising
Public finance: 2009 a solid year; 2010 looks promising U.S. Public Finance 180 $160.1 (in billions of US$) 135 $125.3 $124.5 $128.2 $106.7 $89.3 $90.4 90 $83.7 45 0 1Q 2Q 3Q 4Q 2008 2009 Source: Thomson Financial, Harrison Scott Publications, Standard & Poor’s 40 Structured finance: 2010 recovery p
Slide 22: 2009 results at S&P Investment Services
2009 results at S&P Investment Services S&P Investment Services produced about 33% of Financial Services’ 2009 revenue • 4Q 2009: Revenue down 4.8%, but down only 1.7% excluding divestitures • Full year 2009: Revenue declined 4.2% to $861.9 million; declined 1.5% excluding divestitures • Expiration
Slide 23: Finding new ways to grow index business
Finding new ways to grow index business S&P has expanded into different indices for new asset classes, investment strategies and markets: • Commodities • Fixed income • Real estate • Custom • Thematic • Has successful relations with exchanges around the world 217 exchange-traded funds based on S&P i
Slide 24: 2010 guidance for S&P Investment Services
2010 guidance for S&P Investment Services We expect revenue to increase with more growth from S&P Indices and Capital IQ Mitigating factors in first part of 2010: • Divestiture of Vista Research in May 2009 • Expiration of Research Settlement in July 2009 46 The regulatory outlook for S&P: Creating
Slide 25: The regulatory outlook for S&P: Creating a global framework
The regulatory outlook for S&P: Creating a global framework Australia: • January 1, 2010: S&P has been licensed to provide its ratings to wholesale investors Canada, Japan and India: • We continue to work with regulators 48 The regulatory outlook for S&P: Creating a global framework United States: •
Slide 26: Latest developments on litigation front
Latest developments on litigation front Three general categories of lawsuits: 1. Lawsuits alleging S&P is an underwriter or seller of securities • Update: We continue to make applications seeking dismissal and oral arguments have been proceeding in several of them 2. Lawsuits alleging corporate stat
Slide 27: 4Q 2009 results at Information & Media
McGraw-Hill Education Financial Services Information & Media 4Q 2009 results at Information & Media Revenue (11.4%) to $253.3 million • Broadcasting Group: (26.6%) to $23.3 million • Business-to-Business Group: (9.5%) to $230.0 million Operating Profit +40.6% to $45.9 million • Includes a pre-tax ga
Slide 28: Information & Media: 4Q 2009 results
Information & Media: 4Q 2009 results Operating margin • 4Q 2009: 18.1% – Versus 11.4% in 4Q 2008 • Full year 2009: 9.7% – Reflects gain on the sale of BusinessWeek – Excluding the gain and the 2Q 2009 restructuring charge of $4.0 million, the operating margin was 9.0% 54 Information & Media: 4Q 2009
Slide 29: Reduced exposure to cyclical advertising
Reduced exposure to cyclical advertising 2009: Advertising represented approximately 3.5% of MHP’s total revenue • Down from about 4% in 2008 2010: Exposure to advertising market will be reduced to approximately 2% with the sale of BusinessWeek 56 Broadcasting: Positive signs for 2010 Political adve
Slide 30: Improvement expected at J.D. Power in 2010
Improvement expected at J.D. Power in 2010 Global automotive market recovering • Global light vehicle sales forecasted to rise 1.6% after 3.1% decline in 2009 • Continued growth in China—an increasingly important market for J.D. Power • North America begins recovering; volume up 10% 58 J.D. Power’s
Slide 31: New online platform to cut costs at J.D. Power
New online platform to cut costs at J.D. Power J.D. Power will complete migration of syndicated studies to online platform • Will reduce costs and improve data quality and utility of research data for clients 60 Tracking the digital transformation of Information & Media A plus for the segment in 201
Slide 32: More global expansion at Platts
More global expansion at Platts Platts is strengthening its benchmark status in core commodity markets • Launched series of new oil price benchmarks for Indian markets • Launched new price assessment for first Russian petroleum stream flowing through Eastern Siberian Pacific Ocean pipeline for Asian
Slide 33: Guidance for The McGraw-Hill Companies
Guidance for The McGraw-Hill Companies 2010 diluted earnings per share in the $2.55 to $2.65 range 64 Robert J. Bahash Executive Vice President and Chief Financial Officer The McGraw-Hill Companies
Slide 34: MHP starts 2010 in a strong financial position
MHP starts 2010 in a strong financial position Ended 2009 with cash and short-term investments of $1.23 billion Year-end gross debt: $1.2 billion • Comprised of long-term unsecured senior notes • No commercial paper outstanding at end of 2009 Slight positive net cash position at end of 2009 compared
Slide 35: Expenses declined in 2009 at McGraw-Hill Education
Expenses declined in 2009 at McGraw-Hill Education McGraw-Hill Education’s adjusted expenses declined • 4Q 2009: (4.2%) • Full year 2009: (8.4%) Adjusted expenses, at constant currencies, also declined • 4Q 2009: (6.2%) • Full year 2009: (7.3%) Full year decline, despite higher incentive compensatio
Slide 36: 2009 expenses at Financial Services
2009 expenses at Financial Services Financial Services’ adjusted expenses increased • 4Q 2009: +10.3% • Full year 2009: +1.6% Adjusted expenses, at constant currencies, also increased • 4Q 2009: +4.1% • Full year 2009: +3.4% Full year 2009 expense growth was driven by increases in incentive compensa
Slide 37: Expenses declined in 2009 at Information & Media
Expenses declined in 2009 at Information & Media Information & Media’s adjusted expenses declined • 4Q 2009: (12.1%) • Full year 2009: (8.7%) Adjusted expenses, at constant currencies, also declined • 4Q 2009: (12.7%) • Full year 2009: (7.9%) Factors influencing decline: • Restructuring savings and
Slide 38: Measuring the impact of BusinessWeek divestiture
Measuring the impact of BusinessWeek divestiture 2010: Now expect a pre-tax benefit of approximately $25 million from the BusinessWeek divestiture • Previously estimated $20 million to $25 million Information & Media’s 2010 results will reflect $38 million in savings from BusinessWeek divestiture •
Slide 39: 2010 outlook for corporate expenses
2010 outlook for corporate expenses 4Q 2009: $36.4 million • $7.4 million increase compared to 4Q 2008, excluding the 2008 restructuring charge, largely due to $10.3 million increase in incentive compensation 2009: Increased $20.9 million, excluding the 2008 restructuring charge • Largely due to $23
Slide 40: Foreign exchange rates: A factor all year
Foreign exchange rates: A factor all year For nine months, foreign exchange decreased revenue and expense; minimal impact on profits Trend reversed in 4Q 2009: • Foreign exchange benefitted revenue by $25.8 million while increasing expenses by $36.3 million • Operating profit was reduced by $10.5 mi
Slide 41: Outlook for free cash flow in 2010
Outlook for free cash flow in 2010 Key drivers of growth in free cash flow in 2009: • Significant reduction in cash incentive compensation payments • Lower inventory purchases • Significant improvement in accounts receivable collections • Investments declined $116.2 million, primarily driven by a re
Slide 42: Strong financials provide flexibility
Strong financials provide flexibility Well positioned to fund investments and return cash to shareholders while maintaining financial flexibility Recently approved a 4.4% increase in dividend Plan to resume share repurchase program in 2010 • 17.1 million shares remain from 2007 authorization 82 Incr
Slide 43: Increasing property and equipment expenditures
Increasing property and equipment expenditures 2009: $68.5 million 2010: $90 million to $100 million • Largely reflects increase in technology spending 84 Outlook for non-cash items Amortization of prepublication costs • 2009: $270 million • 2010: Expect $260 million to $265 million –Reflects lower
Slide 44: Outlook for non-cash items
Outlook for non-cash items Depreciation • 2009: $113 million • 2010: Expect to grow to $120 million 86 Outlook for non-cash items Amortization of intangibles • 4Q 2009: $16.0 million – Impacted by acceleration of the amortization of certain acquired intangibles • 2009: $52.7 million • 2010: Expected
Slide 45: Diluted weighted average shares outstanding
Diluted weighted average shares outstanding (WASO) 4Q 2009: 314.5 million shares • 1.6 million share increase compared to 4Q 2008 • 0.8 million share increase compared to 3Q 2009 2009: 313.3 million shares • 5.4 million year-over-year decline – Driven by full year impact of 2008 share repurchases Fu
Slide 46: Outlook for effective tax rate
Outlook for effective tax rate 2009: 36.4% for the full-year 2010: Expect a comparable rate 90 Outlook for unearned revenue in 2010 2009: $1.1 billion • 1.5% increase over 2008 • In constant currency and excluding impact of divestitures, grew 2.8% versus prior year Financial Services represents appr
Slide 47: 4Q 2009 Earnings Call
4Q 2009 Earnings Call January 26, 2010 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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