S&p Global Inc. · NYSE:SPGI
S&p Global — The McGraw-Hill Companies — Q1 2008 Earnings Presentation
37 slides from S&p Global's earnings presentation, Apr 29, 2008
Slide 1: 1Q 2008 Earnings Call
1Q 2008 Earnings Call April 29, 2008 Presenters: Harold McGraw III Chairman, President and CEO Robert J. Bahash Executive Vice President and CFO Deven Sharma President, McGraw-Hill Financial Services Donald S. Rubin Senior Vice President, Investor Relations Donald S. Rubin Senior Vice President, Inv
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 the Company’s businesses, new products, sales, expenses, tax rates, cash flows, prepublication investments and operating and capital requirements. Su
Slide 3: MHP 1Q 2008 results
MHP 1Q 2008 results EPS • 1Q 2008: $0.25 – Compares to $0.40 in 1Q 2007 (included $0.03 gain on divestiture of a mutual fund business in March) Revenue • 1Q 2008: Declined 6.1% to $1.2 billion 4 Outlook for U.S. economy Continued financial sector problems • Expect Federal Reserve to cut interest rat
Slide 4: McGraw-Hill Education 1Q 2008 segment results
McGraw-Hill Education Financial Services Information & Media 1Q results at McGraw-Hill Education 1Q 2008 segment results Revenue - 0.5% decline to $330.2 million Operating loss Reduced by 0.5% to $90.3 million Operating margin unchanged from year ago 7
Slide 5: 1Q results at McGraw-Hill Education
1Q results at McGraw-Hill Education School Education Group Revenue - 4.8% to $138.8 million Higher Education, Professional and International Group Revenue + 2.9% to $191.4 million 8 How to assess 1Q results for McGraw-Hill Education El-hi: 1Q revenue depends more on fill-in copies and supplemental m
Slide 6: Positive indicators for 2008 at School Education Group
Positive indicators for 2008 at School Education Group Expect new state adoption market to grow 10% to 15% • North Carolina only adoption state to place substantial basal materials order in 1Q Strength in state new adoption market starting to materialize 10 Outlook for education: Market growth in 20
Slide 7: Good start for School Education Group in key adoption states
Good start for School Education Group in key adoption states Major opportunities in 2008: • Elementary reading and math • Three adoption states: Florida, Texas, California Florida: K-5 reading adoption • Positive reports on Treasures, Imagine It and Reading Mastery Texas: K-5 math adoption • New sta
Slide 8: Encouraging signs in open territory
Encouraging signs in open territory Open territory decisions typically made through end of second quarter Expect to benefit from: • Math Connects, a new K-5 national program • TimeLinks, a new K-5 social studies program Anticipate gains in market share for Treasures, our elementary reading program 1
Slide 9: Establishing a leadership position in formative testing
Establishing a leadership position in formative testing Strengthening new revenue stream as formative assessment gains importance Measuring the success of Acuity, our new formative program since 2007 introduction: • Selected for New York City Periodic Assessment Program • Largest formative contract
Slide 10: Support for education funding remains strong
Support for education funding remains strong State support for History of Elementary and Secondary Education Funding education consistent for U.S. States: Fiscal 2001-2007 this decade Elementary and • Funding has Secondary Education Year Funding (% increase) increased in 50 states every year 2001 7.
Slide 11: Outlook for growing enrollments in Higher Education
Outlook for growing enrollments in Higher Education Annual enrollments grew over last 10 years despite weakening economy Students staying in school longer • Some returning to enhance employability Enrollment expected to climb over next decade • Fastest growth among women and minorities, according to
Slide 12: Financial Services 1Q 2008 segment results
McGraw-Hill Education Financial Services Information & Media Financial Services 1Q 2008 segment results Revenue -11.6% decline to $644.3 million Operating profit -25.3% to $260.0 million Operating margin 40.4%, down from 47.7% in 1Q 2007 Improved compared to 4Q 2007 (35.8% plus 2.5% 4Q restructuring
Slide 13: Cost containment a top priority
Cost containment a top priority Starting to benefit from the restructuring in 4Q 2007 • Will see full impact starting in 2Q 2008 Strictly limited hiring Cut back on discretionary expenses Reduced 2008 incentive compensation Costs declined year-over-year 24 Cost containment a top priority Considering
Slide 14: The benefits of a diversified and resilient portfolio
The benefits of a diversified and resilient portfolio Growth of Investment Services is a key in efforts to diversify Investment Services grew by 18% to $217 million in 1Q 2008 • Represented 34% of segment’s revenue • Expect double-digit revenue growth for balance of year 26 Diversifying at S&P Credi
Slide 15: Growth in unearned revenue at Financial Services
Growth in unearned revenue at Financial Services Unearned revenue increased 13.6% to $812 million • Represents 74% of corporation’s total unearned revenue for 1Q 2008 Expect deferred revenue to continue growing Produced increases at S&P Credit Market Services in: • Subscription services • Annual fee
Slide 16: Diversification strategy cushioned segment in first quarter
Diversification strategy cushioned segment in first quarter Diversification buffered S&P Credit Market Services in 1Q 2008 from decline in structured finance market 30 Revenue vs. new issuance in 1Q 2008 Revenue % Change New Issue Volume % Change 1Q ’08 vs. 1Q ‘07 1Q ’08 vs. 1Q ‘07 Financial Service
Slide 17: Turbulence in credit markets
Turbulence in credit markets has carried into first quarter of 2008 U.S. RMBS U.S. CMBS (in billions of US$) 120 60 (in billions of US$) 100 106.4 50 50.2 96.3 80 88.0 86.3 40 82.6 39.4 60 70.9 30 40 20 23.6 23.622.0 20 23.8 10 11.3 1.9 3.7 16.3 9.6 5.1 5.1 2.2 4.8 0.7 9.1 1.2 0 0 Oct Nov Dec Jan Fe
Slide 18: European credit markets
European credit markets Similar pattern in 1Q 2008 European structured finance • Downturn hit: –Residential mortgage-backed securities –Commercial mortgage-backed securities –Collateralized debt obligations Only dollar volume of asset-backed securities showed increase in U.S and Europe • Without one
Slide 19: Outlook for Financial Services
Outlook for Financial Services Asset-backed securities market • Non-mortgage ABS pipeline remains healthy • Credit card issuance off to a good start in 1Q • Student loan sector under pressure U.S. and European corporate market • Investment-grade issuance continues to attract investors • Increased sa
Slide 20: Data and information benefiting Investment Services
Data and information benefiting Investment Services Capital IQ continues to add customers • Now serving more than 2,300 clients • 24% increase vs. 1Q 2007 Continues to upgrade product line • Latest release includes 3,500 non-traditional media sources, improved download capabilities, and improved cha
Slide 21: Regulatory and legal outlook
Regulatory and legal outlook Working to be part of the solution Announced 27 Leadership Actions in February • Focused on four key areas: – Analytics – Governance – Information – Education Updated market on these actions on April 10, 2008 Response has been positive from regulators, legislators and ot
Slide 22: Outlook for Financial Services
Outlook for Financial Services Summary • Expect double-digit growth for S&P Investment Services • Credit ratings markets face continued uncertainty • If steep drop experienced in 1Q in structured finance continues for rest of year, segment revenue would decline 7% to 9% – Would also expect a 500 to
Slide 23: Information & Media 1Q 2008 segment results
Information & Media 1Q 2008 segment results Revenue + 3.2% to $243.4 million Operating profit +18.6% to $11.7 million Operating margin 4.8%, up from 4.2% in 1Q 2007 44 Growth at Business-to-Business Group Revenue grew 3.5% in 1Q to $219.7 million Key contributors • Value-added information for global
Slide 24: Growth in volatile global energy markets
Growth in volatile global energy markets Increasing demand for Platts’ news and pricing services • Platts growing faster overseas than in North America • Attracting new customers in emerging markets like former Soviet Republic and the Middle East 46 Growth in international markets for J.D. Power and
Slide 25: Advertising mixed in 1Q
Advertising mixed in 1Q BusinessWeek • Ad pages for global edition down 19.4% in 1Q 2008, according to Publishers Information Bureau Broadcasting revenue of $23.7 million flat vs. 1Q 2007 • Increases in political advertising offset by declines in national time sales Outlook for political advertising
Slide 26: Summing up for The McGraw-Hill Companies
Summing up for The McGraw-Hill Companies Outlook for The McGraw-Hill Companies Summary • Year-over-year comparisons easier in second half in Financial Services • Possibility of finishing 2008 on upswing • If current trends in financial markets continue, expect EPS in $2.65 to $2.75 range in 2008 51
Slide 27: Updating guidance for 2008
Robert J. Bahash Executive Vice President and Chief Financial Officer The McGraw-Hill Companies Updating guidance for 2008 McGraw-Hill Education unchanged • Expect revenue growth of 6% to 8% and a 50 to 100 basis point decline in operating margin • Transfer of our Advanced Placement “AP” courses fro
Slide 28: Revised outlook for free cash flow
Updating guidance for 2008 Financial Services’ Investment Services • Maintaining forecast of double-digit growth Financial Services segment • If little or no improvement in financial markets this year, we would expect revenue to decline 7% to 9% and operating margin to be reduced 500 to 600 basis po
Slide 29: $34 million for acquisitions in 2008
$34 million for acquisitions in 2008 1Q 2008 • S&P Maalot, an Israeli securities rating company • Licensing rights to S&P Case-Shiller Home Price Indices 2Q 2008 • Umbria, a marketing intelligence company social media and consumer-generated media research 56 Revised stock buyback target Capacity: •
Slide 30: Net debt
Net debt 1Q 2008: $1.2 billion in net debt • $400 million increase versus year-end 2007 • Commercial paper borrowing in 1Q to fund primarily seasonal cash requirements along with share repurchases As of March 31: • Gross debt of $1.2 billion of unsecured senior notes and $396.2 million in commercial
Slide 31: Reduced fully-diluted weighted average shares outstanding
Reduced fully-diluted weighted average shares outstanding (WASO) 1Q 2008: 323.4 million shares • 38.1 million share decrease compared to 1Q 2007 • 7.4 million share decrease compared to 4Q 2007 60 Outlook for lower corporate expenses 1Q 2008: Decreased $1.2 million to $33.9 million, compared to a ye
Slide 32: Measuring impact of incentive compensation in 2008
Measuring impact of incentive compensation in 2008 1Q benefited from decreased incentive compensation, including stock-based compensation • $40 million decrease year-over-year at S&P Decline in incentive compensation expense not as pronounced for rest of year • Accruals less significant in second ha
Slide 33: Monitoring costs at Financial Services
Monitoring costs at Financial Services 1Q ’08 vs. 4Q ’07: Expense decreased $70 million, or 15.4% • Excludes restructuring charge taken in 4Q ’07 We are benefiting from expense management, hiring delays and curtailments, and 4Q restructuring actions • Lower incentive compensation a key factor, but n
Slide 34: Outlook for tax rate
Outlook for tax rate 2008: Expect effective tax rate of 37.5% • Approximately same as 2007 on full-year basis 66 Reduced projection for prepublication investments 1Q 2008: $66.6 million, compared to $57.4 million in same period last year 2007: Now expect $290 million • Down from previous $300-$310 m
Slide 35: Lower capital expenditures for property and equipment
Lower capital expenditures for property and equipment 1Q 2008: $23.6 million, compared to $22.7 million in same period last year 2008: Now expect $160 million • Normal replacement expenditures • Additional purchases of software and technology equipment for new data center in first half of 2008 • Con
Slide 36: Outlook for non-cash items
Outlook for non-cash items Depreciation • 1Q 2008: $27.5 million, compared to $28.9 million in same period last year • 2008: Still expect approximately $125 million – Completion of data center – Purchases of new technology equipment for data center – Other increases in capital expenditures 70 Outloo
Slide 37: 1Q 2008 Earnings Call
1Q 2008 Earnings Call April 29, 2008 Presenters: Harold McGraw III Chairman, President and CEO Robert J. Bahash Executive Vice President and CFO Deven Sharma President, McGraw-Hill Financial Services Donald S. Rubin Senior Vice President, Investor Relations NOTE: The presenters’ slides will be avail
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