S&p Global Inc. · NYSE:SPGI
S&p Global — Q4 2018 Earnings Presentation
63 slides from S&p Global's earnings presentation, Feb 7, 2019
Slide 1: 4Q 2018 Earnings Conference Call
4Q 2018 Earnings Conference Call Doug Peterson President and CEO Ewout Steenbergen Executive Vice President and CFO Chip Merritt Senior Vice President, Investor Relations February 7, 2019
Slide 2: Comparison of adjusted information to U.S. GAAP information
Comparison of adjusted information to U.S. GAAP information This presentation includes adjusted financial measures that are derived from the Company’s continuing operations. This non-GAAP information is provided in order to allow investors to make meaningful comparisons of the Company’s operating pe
Slide 3: 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 contains “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management’s current views concerning future events, trends,
Slide 4: EU regulation affecting investors in credit rating agencies
EU regulation affecting investors in credit rating agencies European Union Regulation 1060/2009 (as amended) applies to credit rating agencies (CRAs) registered in the European Union and therefore to the activities of Standard & Poor’s Credit Market Services Europe Limited, Standard & Poor’s Credit
Slide 5: Strong results in a volatile year
Stong results in a volatile year • Delivered 3% revenue growth and 23% adjusted diluted EPS growth • Generated significant margin improvement in every business • Reported $2.0 billion in free cash flow, excluding certain items – an 8% increase year-over-year • Returned $2.2 billion through share rep
Slide 6: Adjusted operating profit margin improvement and U.S. tax reform generated 2018 EPS gains
Adjusted operating profit margin improvement and U.S. tax reform generated 2018 EPS gains 2018 2017 Change Revenue $6,258 $6,063 +3% Organic revenue $6,223 $6,063 +3% Adjusted operating profit $3,052 $2,822 +8% Adjusted operating profit margin 48.8% 46.5% +230 bps Average diluted shares outstanding
Slide 7: Revenue growth and productivity efforts propel adjusted operating profit margin improvement
Revenue growth and productivity efforts propel adjusted operating profit margin improvement 2018 vs. 2017 Market S&P Dow Ratings Intelligence Platts Jones Indices Reported revenue (4)% +9% +5% +15% Organic revenue (4)% +8% +5% +15% Adjusted operating +1% +16% +10% +18% profit 2018 adjusted 56.0% 34.
Slide 8: S&P Global extends succession of solid revenue and adjusted operating margin growth
S&P Global extends succession of solid revenue and adjusted operating margin growth Reported Revenue Adjusted Operating 6% CAGR Profit Margin $7,000 60% $6,063 $6,258 $6,000 $5,661 48.8% $5,313 50% 46.5% $5,051 42.4% $5,000 39.7% 40% 36.4% $4,000 30% $3,000 20% $2,000 $1,000 10% $0 0% 2014 2015 2016
Slide 9: Adjusted diluted EPS growth continued in 2018
Adjusted diluted EPS growth continued in 2018 Adjusted Diluted Earnings Per Share 21% CAGR $10.00 $8.50 $8.00 $6.89 $6.00 $5.35 $4.69 $3.99 $4.00 $2.00 $0.00 2014 2015 2016 2017 2018 9
Slide 10: Investments in technology and data
Investments in technology and data Acquired Invested in new world-class Accelerated technologies AI technology ESG and licensed and unique data investments new data capabilities 10
Slide 11: Investments in global growth
Investments in global growth S&P Global Ratings receives first-of-its-kind approval to enter China domestic bond market • First approval for a company wholly owned by an international CRA to rate domestic Chinese bonds • Authorized to rate issuers and issuances from: – Financial institutions – Corpo
Slide 12: 2018 global issuance decreased 6% in volatile market environment
2018 global issuance decreased 6% in volatile market environment 2018 Versus 2017 Global Issuance 5,000 2017 4,000 (5%) 2018 3,000 $ (Billions) 2,000 +18% 1,000 (40%) (23%) 0 IG HY US Public Structured 12
Slide 13: Trailing 12-Month U.S. Speculative-Grade Issuance Volume vs Credit Spreads
Trailing 12-Month U.S. Financial and NonFinancial Speculative-Grade Issuance Volume ($ Bil.) vs Credit Spreads (bps) ($ Bil.) (mm Speculative Grade, Corp. Issuance Vol. (TTM) S&P Speculative-Grade Composite Spread (rhs) (bps) 350 1800 1600 300 1400 250 1200 200 1000 150 J | j\ 800 (| il oo livin TL
Slide 14: Trailing 12-Month U.S. Investment-Grade Issuance Volume vs Credit Spreads
Trailing 12-Month U.S. Financial and NonFinancial Investment-Grade Issuance Volume ($ Bil.) vs Credit Spreads (bps) ($ Bil.) mums Investment Grade, Corp. Issuance Vol. (TTM) 1200 S&P Investment-Grade Composite Spread (rhs) 1000 i 800 600 400 \ | ht al M Mint ry 2005 2006 2007 2008 2009 2010 2011 201
Slide 15: Change in U.S. tax law related to repatriation severely impacted debt issuance
Change in U.S. tax law related to repatriation severely impacted debt issuance Data for the 50 companies with the most cash overseas at the end of 2017 Number of as a percent of Year-end global companies that Debt Issuance U.S. investment- cash balance issued debt grade issuance 2017 43 $170 15% $95
Slide 16: Global issuance decreased 19% vs 4Q17 as market volatility widened credit spreads
Global issuance* decreased 19% vs 4Q17 as market volatility drove widened credit spreads United States* Europe* Asia* 622 579 486 537 460 448 433 422 496 389 392 371 399 329 292 4Q17 1Q18 2Q18 3Q18 4Q18 4Q17 1Q18 2Q18 3Q18 4Q18 4Q17 1Q18 2Q18 3Q18 4Q18 36% decrease YOY in 4Q 11% decrease YOY in 4Q 8
Slide 17: 4Q18 faced difficult comparison to 4Q17 and was in line with historical 4Q levels
4Q18 faced difficult comparison to 4Q17 and was in line with historical 4Q levels Total Global Issuance 2,000 1,500 ($ in millions) 4Q18 1,000 500 0 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 Period Ending * Excludes sovereign issuance Sources: Thomson Financial and Harrison Scott Publications 17
Slide 18: U.S. speculative-grade borrowers increasingly turn to the loan market
U.S. speculative-grade borrowers increasingly turn to the loan market 18
Slide 19: Percentage of leveraged loan volume rated by S&P Global Ratings continues to increase
Percentage of leveraged loan volume rated by S&P Global Ratings continues to increase United States Europe $700B 100% $160B 100% $600B $140B 80% 80% $500B $120B 60% $100B 60% $400B $80B $300B 40% 40% $60B $200B $40B 20% 20% $100B $20B $0B 0% $0B 0% 20 20 20 20 20 20 20 20 20 20 20 20 20 20 12 13 14
Slide 20: Bank loan ratings revenue reached $380 million in 2018
Bank loan ratings revenue reached $380 million in 2018 $400 $350 4Q $300 $250 3Q $200 $150 2Q $100 $50 1Q 1Q $0 2010 2011 2012 2013 2014 2015 2016 2017 2018 (revenue, $ in millions) 20
Slide 21: Total indexed assets and cumulative fee savings from passive investing
Total indexed assets and cumulative fee savings from passive investing Source: S&P Dow Jones Indices. Data as of December 29, 2017. Total indexed assets calculated as assets invested in products linked to S&P 500, S&P MidCap 400, and S&P SmallCap 600. Past performance is no guarantee of future resul
Slide 22: Investment Company Institute source chart
Source: Investment Company Institute. 2018. 2018 Investment Company Fact Book: A Review of Trends and Activities in the U.S. Investment Company Industry 22
Slide 23: Tribute to Jack Bogle the father of Indexing
Tribute to Jack Bogle the "father of Indexing" In 1976, Jack introduced the first indexed mutual fund, now called the Vanguard 500 Index Fund 23
Slide 24: ETF AUM associated with our indices declined YOY due to year-end market correction
ETF AUM associated with our indices declined YOY due to year-end market correction 19% CAGR Since Year-End 2012 24
Slide 25: 2019 Outlook
2019 Outlook S&P Global
Slide 26: Our economists expect 2019 global GDP growth of 3.6%
Our economists expect 2019 global GDP growth of 3.6%, slightly lower than 2018 • U.S. – Waning fiscal stimulus and gradual rate normalization • Eurozone – Brexit, Italy's budget, Germany's new leadership • China – Deleveraging and trade war S&P Real GDP Forecast 8% 6% 4% 2% 0% U.S. Eurozone China Wo
Slide 27: Latest global refinancing study shows increase in global corporate debt maturities
Latest global refinancing study shows continued increase in global corporate debt maturities 2018 study totaled $10.2 trillion 2019 study totaled $10.6 trillion Global Corporate Global Corporate High- Debt Maturities Yield Debt Maturities $3.0 $800 $2.5 $600 $2.0 $1.5 $400 $1.0 $200 $0.5 $0.0 $0 201
Slide 28: 2019 global issuance forecast to decrease <1%
Latest 2019 global issuance forecast to decrease <1%, excluding International Public Finance $7,000 Forecast $6,000 $5,000 Nonfinancial $4,000 Financial Services Structured Finance* $3,000 U.S. Public Finance $2,000 International Public Finance $1,000 $0 2014 2015 2016 2017 2018 2019 ($ in billions)
Slide 29: Powering the Markets of the Future
Powering Evolve and Grow the Pursue Growth via the Markets Core Business Adjacencies of the Future Develop Foundational Capabilities Global Customer Innovation Technology Operational People Orientation Excellence 29
Slide 30: 2019 areas of focus
2019 areas of focus • Bring additional transparency and independent analytics to Chinese capital markets with Ratings and Market Intelligence programs • Expand Platts capabilities in Asia Global • Continue S&P Global platform development ◦ Ongoing CIQ client migration ◦ Begin adding Platts pricing a
Slide 31: 2019 areas of focus
2019 areas of focus • Enable cloud first strategy • Implement numerous Kensho projects Technology • Optimize management of data ingestion and data operations • Leverage AI and machine-learning capabilities Operational • Continue to improved cyber security Excellence • Raise technological acumen of a
Slide 32: Campaign to promote an inclusive economy
Campaign to promote an inclusive economy #ChangePays S&P Global’s data and insights make clear that gender equality is an engine for the global workforce and that greater workforce inclusivity leads to healthier, stronger economies. Our campaign illuminates the positive impact of women in the workfo
Slide 33: Ewout Steenbergen
Ewout Steenbergen Executive Vice President, Chief Financial Officer 33
Slide 34: Margin improvement, buybacks, and lower tax rate generate 20% adjusted diluted EPS growth
Margin improvement, buybacks, and lower tax rate generate 20% adjusted diluted EPS growth 4Q 2018 4Q 2017 Change Revenue $1,536 $1,589 (3%) Organic revenue $1,524 $1,589 (4%) Adjusted Corporate Unallocated (A) ($35) ($47) +24% Adjusted total expense $775 $845 (8%) Adjusted operating profit $761 $744
Slide 35: Stock-based compensation tax benefit $0.14 lower in 2018
Stock-based compensation tax benefit $0.14 lower in 2018 EPS Impact 1Q 2Q 3Q 4Q 2017 $0.04 $0.02 $0.14 $0.08 2018 $0.04 $0.01 $0.01 $0.08 FASB Accounting Standard requirement to record the tax effect related to share- based payments at settlement (or expiration) through the income statement results
Slide 36: Changes in foreign exchange rates improve 4Q 2018 adjusted EPS
Changes in foreign exchange rates improve 4Q 2018 adjusted EPS S&P Dow Favorable Market Ratings Platts Jones (Unfavorable) Intelligence Indices Revenue ($9) ($1) – – Adj. operating profit $4 $9 $2 – Adj. EPS $0.01 $0.03 $0.01 – ($ in millions) Key factors mitigating impact of currency changes • Appr
Slide 37: 4Q 2018: Non-GAAP adjustments to operating profit
4Q 2018: Non-GAAP adjustments to operating profit Pre-tax expense excluded to arrive at adjusted results 4Q 2018 Restructuring in Ratings and Market Intelligence ($16) Pension accounting adjustment ($5) Kensho retention-related expenses ($9) Deal-related amortization ($31) Total ($62) Details may no
Slide 38: Creating shareholder value: the path forward
Creating shareholder value: the path forward 1 Fuel Revenue Momentum Deliver EBITA Enhancement 2 4 Return Capital to Shareholders Drive Financial Leverage 3 38
Slide 39: Revenue gains and productivity efforts drive adjusted operating profit margin improvement
Revenue gains and productivity efforts drive adjusted operating profit margin improvement 4Q 2018 vs. 4Q 2017 Market S&P Dow Ratings Intelligence Platts Jones Indices Reported revenue (16)% +8% +7% +13% Organic revenue (16)% +7% +7% +13% Adjusted operating (16)% +27% +18% +17% profit 4Q 2018 adjuste
Slide 40: Since 4Q 2016, headcount growth lags revenue and adjusted operating profit growth
Since 4Q 2016, headcount growth lags revenue and adjusted operating profit growth Market S&P Dow Ratings* Intelligence Platts Jones Corporate Total Indices 4Q 2016 7,227 10,316 1,239 495 699 19,976 4Q 2017 7,205 10,331 1,265 530 1,093 20,424 4Q 2018 7,099 11,033 1,323 498 1,206 21,159 Headcount chan
Slide 41: Progress on new ~$100 million, 3-year cost reduction program
Progress on new ~$100 million, 3-year cost reduction program Target annual run-rate savings 2017 to 2020 Run-rate savings achieved in first year Productivity improvements across support functions $45-55mn and real estate Productivity improvements $60mn in technology & digital $55-60mn $45mn across s
Slide 42: Capital position remains solid
Capital position remains solid 4Q 2018 4Q 2017 Cash and cash equivalents (A) $1,958 $2,779 Short- and long-term debt $3,662 $3,569 Adjusted gross leverage (B) $6,152 $5,893 Adjusted gross leverage to adjusted 1.9x 1.9x EBITDA ($ in millions) • Completed the October 2018 $500 million ASR program on 1
Slide 43: Free cash flow, excluding certain items, increased 8%
Free cash flow, excluding certain items, increased 8% 2018 2017 Cash provided by operating activities $2,064 $2,016 Capital expenditures (113) (123) Distributions to noncontrolling interest holders (154) (111) Free cash flow $1,797 $1,782 Tax on gain from sale of SPSE and CMA — 67 After-tax legal se
Slide 44: Ratings: Trailing four-quarter margin gains continue despite issuance decline
Ratings: Trailing four-quarter margin gains continue despite issuance decline 4Q 2018 4Q 2017 Change Revenue $661 $789 (16)% Adjusted segment operating profit $367 $437 (16)% Adjusted segment operating profit 55.5% 55.4% +10 bps margin Trailing four-quarters adjusted 56.0% 53.6% +240 bps segment ope
Slide 45: Ratings: Transaction revenue decline reflects soft issuance and difficult comparison
Ratings: Transaction revenue decline reflects soft issuance and difficult comparison 4Q 2018 4Q 2017 Change Non-transaction $378 $388 (3)% Transaction $283 $401 (29)% ($ in millions) 4Q 2018 HIGHLIGHTS: • Non-transaction revenue decreased primarily due to forex. Lower excess issuance fees associated
Slide 46: Ratings: Non-transaction revenue has been a steady source of growth
Ratings: Non-transaction revenue has been a steady source of growth Ratings' Non-Transaction Revenue 400 4Q18 300 ($ in Millions) 200 100 0 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 46
Slide 47: Ratings: Weak issuance resulted in declining revenue in every category
Ratings: Weak issuance resulted in declining revenue in every category $789 $800 Revenue $86 $73 (2%) $661 $600 (33%) $84 $94 $49 Corporates (14%) $122 $80 Financial Services (22%) $400 $95 Structured Governments $200 $414 (15%) $353 CRISIL, Other* $0 4Q 2017 4Q 2018 ($ in millions) *Other includes
Slide 48: Market Intelligence: Delivered exceptional adjusted operating profit growth
Market Intelligence: Delivered exceptional adjusted operating profit growth 4Q 2018 4Q 2017 Change Revenue $478 $441 +8% Adjusted segment operating profit $184 $145 +27% Adjusted segment operating profit 38.5% 32.8% +570 bps margin Trailing four-quarters adjusted 34.1% 32.1% +200 bps segment operati
Slide 49: Market Intelligence: Data Management Solutions led growth
Market Intelligence: Data Management Solutions led growth Revenue $500 $478 $441 $7 $450 $1 $400 $135 $127 +6% $350 Desktop $300 $90 $80 +12% Data Management $250 Solutions $200 Risk Services $150 +6% $232 $246 Acquisitions $100 $50 $0 ($ in millions) 4Q 2017 4Q 2018 Details may not sum to total due
Slide 50: S&P Dow Jones Indices: Double-digit revenue and adjusted operating profit growth
S&P Dow Jones Indices: Double-digit revenue and adjusted operating profit growth 4Q 2018 4Q 2017 Change Revenue $215 $190 +13% Adjusted segment operating profit $144 $123 +17% SPGI share of Adj. Seg. Op. Profit* $106 $90 +18% Adjusted segment operating profit 67.1% 64.9% +220 bps margin Trailing fou
Slide 51: SPDJI: Strong growth driven by Exchange-Traded Derivatives
SPDJI: Strong growth driven by Exchange-Traded Derivatives $250 Revenue $215 $200 $190 $41 +19% $35 Asset-Linked Fees $150 +43% $48 $34 Exchange-Traded Derivatives $100 +4% Data & Custom $121 $126 Subscriptions $50 $0 ($ in millions) 4Q 2017 4Q 2018 51
Slide 52: SPDJI: Inflows into passive ETFs continued during market downturn
SPDJI: Inflows into passive ETFs continued during market downturn Asset-Linked Fees: • Sequentially, since 9/30/18, ETF net inflows associated with our indices Quarter Ending ETF AUM totaled $22 billion and market associated with SPDJI indices depreciation was $218 billion $1,343 $90 --- ($125) ---
Slide 53: SPDJI: Exchange-traded derivatives volume increased significantly
SPDJI: Exchange-traded derivatives volume increased significantly due to market volatility Key Contracts (in thousands) Key Contracts (in thousands) (Average Daily Volume) (Average Daily Volume) 5,000 1,500 4,000 1,000 3,000 2,000 500 1,000 0 0 4Q 2017 4Q 2018 4Q 2017 4Q 2018 S&P 500 Index Options C
Slide 54: Platts: Delivered steady revenue and margin growth
Platts: Delivered steady revenue and margin growth 4Q 2018 4Q 2017 Change Revenue $210 $197 +7% Adjusted segment operating profit $101 $86 +18% Adjusted segment operating profit 48.2% 43.5% +470 bps margin Trailing four-quarters adjusted 49.1% 47.1% +200 bps segment operating profit margin ($ in mil
Slide 55: Platts: GTS revenue improves with increased Fuel Oil and Gas Oil activity
Platts: GTS revenue improves with increased Fuel Oil and Gas Oil contract activity Global Trading Services Revenue $20 $15 $10 $5 $0 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 ($ in millions) 55
Slide 56: Platts: All commodity groups delivered mid-single digit growth
Platts: All commodity groups delivered mid-single digit growth Revenue $210 $197 $200 +4% $15 $14 +5% $11 $180 $10 $160 +7% $38 $36 $140 Petroleum $120 Power & Gas $100 +7% $80 Petrochemicals $136 $145 $60 Metals & Ag $40 $20 $0 ($ in millions) 4Q 2017 4Q 2018 Details may not sum to total due to rou
Slide 57: Investor Day targets reconfirmed – meaningful progress achieved in 2018
Investor Day targets reconfirmed – meaningful progress achieved in 2018 Medium-term Outlook 2018 Performance Organic revenue growth Mid to high single-digit 3 of 4 businesses Adjusted EPS growth Low double-digit 23% FCF** return to shareholders ≥ 75% 108% Adjusted operating profit margin: Company lo
Slide 58: Investments totaling $90 - $110 million planned in 2019
Investments totaling $90 - $110 million planned in 2019 to help fuel additional future growth Global ~$35mn ▪ Domestic ratings in China ▪ Market Intelligence China initiative ▪ Platts commercial expansion in Asia Innovation ~$30mn ▪ Ramp up ESG data factory ▪ Pilot new ESG analytic and data products
Slide 59: Kensho capabilities integrated to enhance S&P Global product offerings
Kensho capabilities integrated to enhance S&P Global product offerings Company-wide projects building capabilities across divisions to provide timely, high-quality, comprehensive, and relevant intelligence to clients Data Ingestion Currently Implementing ▪ Omnisearch – Revolutionize usage of the S&P
Slide 60: 2019 GAAP guidance
2019 GAAP guidance GAAP Revenue Mid single-digit increase Corporate unallocated expense $205 - $215 million Deal-related amortization N.A. Operating profit margin 46.6% - 47.6% Interest expense $145 - $150 million Tax rate 21% - 22.5% Diluted EPS $8.50 - $8.70 Capital expenditures ~$120 million Regu
Slide 61: 2019 adjusted guidance
2019 adjusted guidance Adjusted Revenue Mid single-digit increase Corporate unallocated expense $155 - $165 million Deal-related amortization $120 - $125 million Kensho retention plans $20 - $25 million Operating profit margin 48.8% - 49.8% Interest expense $145 - $150 million Tax rate 22.5% - 23.5%
Slide 62: 4Q 2018 Earnings Conference Call
4Q 2018 Earnings Conference Call Doug Peterson President and CEO Ewout Steenbergen Executive Vice President and CFO Chip Merritt Senior Vice President, Investor Relations February 7, 2019
Slide 63: 4Q 2018 Earnings Conference Call replay options
4Q 2018 Earnings Conference Call Doug Peterson REPLAY OPTIONS President and CEO Internet: Replay available for one year Ewout Steenbergen Go to http://investor.spglobal.com Executive Vice President and CFO Telephone: Replay available through March 7, 2019 Chip Merritt Domestic: 866-427-6407 Senior V