Morningstar, Inc. · NASDAQ:MORN
Morningstar — Shareholder Meeting (May 2010)
119 slides from Morningstar's shareholder meeting presentation, May 18, 2010
Slide 1: Annual Shareholders' Meeting 2010
Annual Shareholders’ Meeting 2010
Slide 2: Meeting Agenda
Meeting Agenda 1. Call to Order 2. Introductions 3. Business of Annual Meeting 4. Management Presentations 5. Business Presentations Break 6. Questions and Answers 7. Adjournment of Meeting
Slide 3: Morningstar Overview
Morningstar Overview Joe Mansueto Chairman and Chief Executive Officer
Slide 4: Forward-looking statements
Today’s presentations contain forward-looking statements. All statements made that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. Please refer to our most recent earnings release and our most recent Form 10-Q or 10-K for more in
Slide 5: Morningstar Overview topics
Morningstar Overview 2009 Highlights Industry Landscape Growth Strategies 2010 Initiatives Recent Acquisitions My talk today will cover five major areas: · 2009 highlights · Industry landscape · Growth strategies · Major initiatives for 2010 · Recent acquisitions
Slide 6: Our mission
Our mission is to create great products that help investors reach their financial goals. Our mission is to create great products that help investors reach their financial goals. We take this mission very seriously and it frames everything we do as a company.
Slide 7: Advisors, Individuals, Institutions
Advisors Individuals Institutions We have three main audiences: individual investors, financial advisors, and institutions. One of our core values is investors come first, and our work in other areas is also meant to support individual investors.
Slide 8: Company snapshot
LIM’s Analytical Software Service AAA BB C A AA BBB B CCC CC D 7.4 mil Serving 350,000 Investment Offerings 245,000 AAA BB C A AA BBB B CCC CC D 4,200 AAA BB C A AA BBB B CCC CC D AAA BB C A AA BBB B CCC CC D Here’s a snapshot of our company today. We reach about 7.4 million individual investors, 24
Slide 9: 2009 Overview
2009 Overview Revenue Acquisitions 4.7% x Operating Income 9.9% x Core Business d d d d 2009 was a challenging year for us. Revenue was down 4.7% and operating income was down 9.9%. However, we saw a more encouraging trend in the second half of the year. We also continued investing in our core busin
Slide 10: Industry Landscape
Industry Landscape
Slide 11: 2009 Net Inflows / Outflows
2009 Net Inflows / Outflows MF CE VA HF SA/CIT ETF *excludes money market funds ($bil) $377.4* $3.9 $45.8 ($54.6) $4.3 $104.1 Now I’ll turn to the industry landscape. As you know, there was a strong market rebound in 2009, and asset inflows in most areas were positive. Net cash flows to mutual funds
Slide 12: 2009 Net Inflows / Outflows by type
2009 Net Inflows / Outflows *excludes money market funds MF CE VA HF SA/CIT ETF 2008 ($225.1) $0.3 $154.8 ($70.2) ($368.7) $177.2 $377.4* $3.9 $45.8 ($54.6) $4.3 $104.1 2009 ($bil) Inflows for most investment types were generally higher in 2009 versus 2008 because of stronger equity market performan
Slide 13: 2009 Assets
2009 Assets MF CE VA HF SA/CIT ETF *excludes money market funds $11.1 $0.2 $1.0 $1.4 $6.4 $0.8 2008 $9.6 $0.2 $0.8 $1.4 $5.4 $0.5 ($tril) 2009 +15.6% 20.0% +18.5% +60.0% While other investment types have also attracted investor interest, mutual funds remain a significant area, with about $11.1 trill
Slide 14: Spending on Financial Information
Spending on Financial Information 04 05 06 07 08 09 10 11 12 13 Spending ($bil) CAGR 8.8% Projected Spending ($bil) CAGR 4.8% *source: Veronis Suhler Stevenson 10.3% 10.0% 10.1% 10.3% 3.5% –1.8% 2.5% 6.2% 7.9% 9.6% $8.8 $9.7 $10.6 $11.7 $12.1 $11.9 $12.2 $13.0 $14.0 $15.3 There is a large market for
Slide 15: Current Environment
Current Environment 15.7% 5.9% –37.0% 28.5% Morningstar Market Index Total Return 5.2% 06 07 08 09 YTD 05.10.10 –0.43 –5.52 –8.15 8.64 1.95 –5.43 12.34 19.70 11.06 25.79 18.81 20.03 15.54 14.72 21.17 5.68 9.63 10.04 –15.78 –13.98 0.23 –17.14 –19.07 –9.82 –4.04 –11.94 –8.73 –36.17 –35.95 –31.67 -31.4
Slide 16: Growth Strategies
Growth Strategies Next I’ll turn to our five key growth strategies.
Slide 17: Morningstar's Growth Strategies
Morningstar’s Growth Strategies Focus on three platforms Become a global leader in funds of funds Create premier global database Expand internationally Continue building thought leadership We have five major growth strategies that guide how we invest our resources: · Enhance our position in each of
Slide 18: Strategy: Focus on Three Platforms
Strategy: Focus on Three Platforms Morningstar Direct Advisor Workstation Defined Contribution Real-Time Analyst Research Morningstar.com The first of our five strategies is to focus our product offerings on our three major platforms, which are geared toward individuals, advisors, and institutions.
Slide 19: Combined Revenue from Three Platforms
Combined Revenue from Three Platforms Combined Revenue ($mil) and % of Consolidated Revenue $61.6 $85.0 $108.5 $135.1 $135.1 27.0% 24.9% 26.9% 28.2% 27.1% 06 07 08 09 05 This graph shows combined revenue for our three platforms over the past five years, which made up about 28% of revenue in 2009.
Slide 20: Morningstar.com U.S. Premium Memberships
Morningstar.com U.S. Premium Memberships 147,010 165,957 180,366 177,518 150,473 06 07 08 09 05 We had about 150,000 Premium Members on Morningstar.com in the United States as of year-end 2009. The total declined in 2009 because of continuing weakness in our new trial pipeline. During the economic d
Slide 21: Morningstar Advisor Workstation
Morningstar Advisor Workstation 109,461 144,578 150,505 151,874 148,392 U.S. Licenses 06 07 08 09 05 U.S. licenses for Advisor Workstation were down slightly in 2009, reflecting some clients migrating to SiteBuilder, a product that helps investment firms build advisor websites, and changes in the sc
Slide 22: Morningstar Direct Licenses
Morningstar Direct Licenses: U.S. and Non-U.S. 878 1,077 1,564 2,175 1,892 271 665 1,069 985 1,348 2,229 2,961 3,524 1,349 107 Total 06 07 08 09 05 Total licenses were up about 19% in 2009. We now have more than one-third of licenses from outside the United States. We’ve also seen strong growth so f
Slide 23: Strategy: Become a Global Leader in Funds of Funds
Strategy: Become a Global Leader in Funds of Funds Morningstar Managed Portfolios Financial advisors Retirement Advice Retirement plan providers, sponsors, and participants Investment Consulting Variable annuity firms Mutual fund companies Other financial firms Capital Markets Manager Selection Port
Slide 24: Morningstar Fund of Funds Assets
Morningstar Fund of Funds Assets -05 06 07 08 09 Investment Consulting Morningstar Managed Portfolios Managed Retirement Accounts $22.1 $55.5 $97.5 $64.8 $66.2 $8.6 $13.7 $11.0 $15.7 $0.3 $1.4 $1.8 $2.2 $1.6 $2.1 $23.8 $65.9 $113.4 $78.8 $82.6 ($bil) Our combined assets in these three areas totaled
Slide 25: Funds of Funds Industry Assets
Become a Global Leader in Funds of Funds Funds of Funds Industry Assets ($bil)* 05 06 07 08 09 $1,258 $1,676 $1,952 $1,695 $1,645 5.0% 1.9% 3.9% 5.8% 4.6% *source: Cerulli Associates; 2009 amount is projected $23.8 $65.9 $113.4 $78.8 $82.6 Morningstar’s Combined Assets ($bil) This graph shows indust
Slide 26: Strategy: Continue Building Thought Leadership
Strategy: Continue Building Thought Leadership 100 Funds Global Fund Research Coverage as of March 31 Fund Analysts 2010 3,500 75 2009 3,300 Over the past several years, we’ve expanded our analyst coverage in fund markets outside of the United States. We’ve been working to build an integrated team o
Slide 27: Qualitative Fund Ratings in Europe and Asia
Thought Leadership Qualitative Fund Ratings in Europe and Asia Page 1 of 4 | Morningstar® Research Report BlackRock US Dynamic A Acc Morningstar Category Benchmark MSCI USA NR USD Morningstar Qualitative Rating™ Elite Superior Standard Inferior Impaired Chetan Modi Morningstar Analyst Executive Summ
Slide 28: Closed-End and International ETF Coverage
Closed-End Coverage International ETF Coverage Thought Leadership While we already offer quantitative-based tools and star ratings for hundreds of closed-end funds on Morningstar.com, our analysts will be re-introducing full research coverage on the largest and most heavily traded closed-end funds.
Slide 29: Equity Research Coverage
Thought Leadership 104 Funds Equity Research Coverage as of March 31 Analysts 2010 2,000 120 2009 2,250 We now have about 100 equity and credit analysts worldwide and cover approximately 2,000 stocks. This is one of the largest independent equity research staffs in the industry. As you probably know
Slide 30: Research Methodology: Credit Ratings
Research Methodology: Credit Ratings AAA BB C A AA BBB B CCC CC D Competitive Analysis Cash-Flow Forecasts Scenario Analysis Quantitative Checks Rating Committee One of the major initiatives we announced in 2009 was our entry into the corporate credit rating business. Entering this business leverage
Slide 31: Structured Credit Research and Ratings
Structured Credit Research and Ratings 1 B M - 0 1 0 2 F C S B R m o c . t n i o p l a e r . w w w CMBS PRESALE REPORT RBS Commercial Funding Inc. Commercial Mortgage Pass-Through Certificates, Series 2010-MB1 PRELIMINARY RATINGS (AS OF: 4/1/2010) CLASS BALANCE/ NOTIONAL AMT PRELIMINARY RATINGS REAL
Slide 32: Strategy: Create Premier Global Database
Strategy: Create Premier Global Database Growth in Global Investment Database Coverage 190,000 265,000 300,000 350,000 145,000 Funds Stocks Capital Markets/ Indexes Real-Time Quotes Alternatives Variable Annuities Pension and Life Documents People 06 07 08 09 05 We currently have comprehensive data
Slide 33: Global Investment Database
Global Investment Database ~350,000 Investments Globally Canada 16,500 U.S. 177,000 Latin America 2,600 South America 1,500 Cross Border/ 52,500 Global Europe 63,800 Asia 16,300 Middle East 150 South Africa 2,300 14,000 Australia/NZ Eastern Europe 600 Here you can see our global database coverage. I
Slide 34: Strategy: Expand Internationally
Strategy: Expand Internationally 2,760 Morningstar Employees as of March 31, 2010 125 Canada 1,170 U.S. 385 Europe 160 Australia/NZ 720 Asia 195 India 5 South Africa More than half of our employees are outside the United States. We have large offshore data centers in China and India, and also have o
Slide 35: Worldwide Fund Assets
Worldwide Fund Assets 55% 33% 12% If you look at the distribution of fund assets globally, about half are in North America, a third are in Europe, and the remainder is in the Asia/Pacific region.
Slide 36: Morningstar Revenue (2009)
Morningstar Revenue (2009) 77% 15% 8% In 2009, about 77% of our revenue was from the United States and Canada, 15% was in Europe, and 8% was in the Asia/Pacific region. So we see plenty of room for expansion outside the United States.
Slide 37: Revenue by Region
Expand Internationally -Revenue by Region ($mil) $29.4 13.0% $44.3 $89.7 $121.4 $129.2 14.0% 20.6% 24.2% 27.0% % of total Australia Japan Europe Asia Canada 06 08 09 05 07 This graph shows our revenue by region over the past five years. Overall, international revenue made up about 27% of our consoli
Slide 38: 2010 Initiatives
2010 Initiatives Now I’ll turn to a few of our larger initiatives for 2010. We have many great things going on here, and these are just a few of the highlights. We’ve moved from a more defensive mode back to investing more aggressively in the business.
Slide 39: Major Initiatives for 2010
Major Initiatives for 2010 Build Out Credit Ratings and Research AAA BB C A AA BBB B CCC CC D AAA BB C A AA BBB B CCC CC D Invest in Development Team AAA BB C A AA BBB B CCC CC Expand Sales Team AAA BB C A AA BBB B CCC CC D AAA BB C A AA BBB B CCC CC Invest in Development Team We have a core develop
Slide 40: Major Initiatives for 2010 (continued)
Fees and Expenses Portfolio Holdings Executives and Insiders Attributes Documents Manager Biographies Fundamental Data Price Invest in Data Manufacturing Major Initiatives for 2010 Globalize Consulting Capabilities AAA A AA AAA AA Invest in Data Manufacturing We also plan to invest in our data manuf
Slide 41: Recent Acquisitions
Recent Acquisitions In addition to investing in internal growth, we’ve made a number of acquisitions over the past year and half or so, which all tie into the five growth strategies I mentioned earlier.
Slide 42: 2009 Acquisitions
2009 Acquisitions Logical Information Machines, Inc. A leading provider of data and analytics for the energy, financial, and agriculture sectors $53.5 mil C.P.M.S. Equity Research and Data Businesses Tracks fundamental equity data for approximately 4,000 securities in the United States and Canada an
Slide 43: 2009 Acquisitions
2009 Acquisitions Intech Pty Ltd A leading provider of multimanager and investment portfolio solutions in Sydney, Australia, Intech also manages a range of single sector, alternative strategy, and diversified investment portfolios, has one of the leading separately managed account databases in Austr
Slide 44: 2010 Acquisitions
2010 Acquisitions Realpoint, LLC A Nationally Recognized Statistical Ratings Organization (NRSRO) that specializes in structured finance. $52 mil Footnoted.org and Footnoted Pro Footnoted is a highly regarded blog for professional money managers, analysts, and sophisticated individual investors. Foo
Slide 45: Morningstar Moat
Morningstar Moat S MF VA RT AL D P PL CM Research Design Technology Text We’re excited about the opportunities we see to expand our business and continue our mission of helping investors in the years ahead. We’ve continued to focus on building out our moat, or sustainable competitive advantage, by m
Slide 46: Financial Highlights
Financial Highlights Scott Cooley Chief Financial Officer
Slide 47: Financial Highlights topics
Financial Highlights 2009 Highlights First Quarter 2010 Capital Allocation My talk today will cover three main areas: · 2009 Highlights · First Quarter 2010 · Capital Allocation
Slide 48: 2009 Highlights
2009 Highlights
Slide 49: 2009 Key Metrics
2009 Key Metrics $139.1 $125.3 – 9.9% Operating Income ($mil) 09 08 $83.8 $103.9 –19.4% Free Cash Flow* ($mil) *Free Cash Flow is considered a non-GAAP financial measure under SEC regulations. 09 08 – 4.7% $502.5 $479.0 Revenue ($mil) 09 08 We have three key metrics that we use to measure our result
Slide 50: Morningstar Revenue
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Morningstar Revenue Taking a longer-term view of revenue over our 26-year history, last year was only the second time that revenue was down. (The other time—in 1995—the downturn was only 1%.)
Slide 51: Revenue 5-Year CAGR
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Morningstar Revenue 5-YR Compound Annual Growth Rate 21.7% Despite last year’s downturn, our five-year compound annual growth rate remains over 20%.
Slide 52: Revenue 10-Year CAGR
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Morningstar Revenue 10-YR Compound Annual Growth Rate 25.0% Over the past 10 years, we’ve compounded revenue at about 25% per year, on average.
Slide 53: Investment Information Segment
Investment Information Segment Operating Income ($mil) Share of Consolidated Revenue Revenue ($mil) $138.9 $138.6 –0.2% 08 09 80.7% $390.7 $386.6 –1.0% 08 09 Revenue for our Investment Information segment, which accounts for about 81% of company-wide revenue, declined by 1% in 2009, as the lower rev
Slide 54: Investment Management Segment
Investment Management Segment Operating Income ($mil) Share of Consolidated Revenue Revenue ($mil) $60.4 $52.9 08 09 19.3% $111.8 $92.4 –17.4% 08 09 –12.4% Investment Management segment revenue was down 17.4% in 2009, driven by the loss of two larger contract renewals in Investment Consulting (one i
Slide 55: Corporate Items
Corporate Items Year ended Dec. 31 ($000) 2009 2008 % change Operating expense excluding stock-based compensation, depreciation and amortization $ 35,872 $ 35,616 0.7% Stock-based compensation $ 3,924 $ 4,013 (2.2%) Depreciation and amortization $ 26,349 $ 20,550 28.2% Operating loss ($ 66,145) ($ 6
Slide 56: Two Expensive Foot Faults in 2009
Two Expensive “Foot Faults” in 2009 Operating Expense For $ 6.1 mil related to adjusting tax treatment of some stock options originally considered ISOs $ 3.4 mil penalties related to timing of deposits withheld on stock-option exercises from 2006–2009 $ 9.5 mil total Unfortunately, two tax-related p
Slide 57: Contributors to Revenue Growth
05 06 07 08 09 Contributors to Revenue Growth -38.8% 26.4% 38.1% 15.5% –4.7% Acquisitions Organic Growth Foreign Currency 1.3% 16.0% 14.1% 5.9% 6.2% 0.4% 1.2% 0.5% (1.8%) 0.4% 24.7% 22.4% 22.8% 8.8% (8.8%) This graph shows the components of revenue growth over the past five years. In 2009, acquisiti
Slide 58: Quarterly Organic Revenue Growth
Quarterly Organic Revenue Growth % Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 07 08 09 10 26.1 17.4 13.3 7.7 –1.3 –7.1 –10.9 –10.2 –6.6 23.2 23.2 –1.6 Our 2009 results also suffered because of the continuing effects of the severe market downturn in 2008, which put pressure on client budgets and led to cons
Slide 59: Retention and Renewal Rates
Retention and Renewal Rates 05 06 07 08 09 100–105% 95– 100% 90– 95% 95–100% 95–100% 90–95% 80–85% 60–65% 60–65% 65–70% 60–65% 55–60% Renewal (contract-based products) Retention (subscription-based products) In 2009, we estimate that our retention rate for subscription-based products, such as Princi
Slide 60: Top Five Products
Top Five Products 2009 Revenue* ($000)* % of Revenue Licensed Data $ 91,524* 19.1% Morningstar Advisor Workstation $ 65,673* 13.7% Investment Consulting $ 62,531* 13.1% Morningstar.com $ 39,454* 8.2% Morningstar Direct $ 29,968* 6.3% Total $ 289,150* 60.4% *revised for reclassification Licensed Data
Slide 61: Significant Operating Leverage
Significant Operating Leverage 06 07 08 09 05 Revenue and Operating Income ($000) $46,480 $77,527 $117,254 $139,119 $125,320 $227,114 $315,175 $435,107 $502,457 $478,996 Operating margin % 24.6% 26.9% 27.7% 26.2% 20.5% With revenue down slightly in 2009, we also saw some compression in our operating
Slide 62: Cost Savings Measures in 2009
Cost Savings Measures in 2009 Category Change from 08 ($mil) Bonus expense ($ 28.9) 401(k) match ($ 6.6) Travel, telephone, training, and conferences ($ 4.5) Advertising and marketing ($ 4.3) We implemented a series of cost-savings measures in 2009, which reduced our expenses in a few key areas.
Slide 63: Free Cash Flow
Free Cash Flow* 06 07 08 09 05 $40,994 $93,955 $101,022 $103,927 $83,810 ($000) Capital expenditures ($4,722) ($11,346) ($48,519) ($12,372) ($7,451) Cash provided by operating activities $98,677 $112,368 $152,446 $96,182 $48,445 *Free Cash Flow is considered a non-GAAP financial measure under SEC re
Slide 64: Solid Balance Sheet
Solid Balance Sheet Consolidated balance sheet data ($000) as of Dec. 31, 2009 as of Dec. 31, 2008 Cash, cash equivalents, and investments $ 342,553 $ 297,577 Working capital $ 237,218 $ 180,295 Total assets $ 919,583 $ 803,940 Deferred revenue $ 127,114 $ 130,270 Long-term liabilities $ 35,830 $ 34
Slide 65: First Quarter 2010
First Quarter 2010
Slide 66: First Quarter 2010 Key Metrics
First Quarter 2010 Key Metrics Operating Income ($mil) 10 09 $34.6 $30.9 –10.6% *Free Cash Flow is considered a non-GAAP financial measure under SEC regulations. Free Cash Flow* ($mil) 10 09 $12.8 ($12.9) NMF 10 09 Revenue ($mil) $116.7 $128.3 9.9% Here’s a snapshot of our key metrics in the first q
Slide 67: First Quarter 2010 Balance Sheet
First Quarter 2010 Balance Sheet Consolidated balance sheet data ($000) as of March 31, 2010 as of Dec. 31, 2009 * Cash, cash equivalents, and investments $ 360,743 $ 342,553 Working capital $ 270,866 $ 237,218 Total assets $ 930,402 $ 919,583 Deferred revenue $ 136,842 $ 127,114 Long-term liabiliti
Slide 68: Capital Allocation
Capital Allocation
Slide 69: Free Cash Flow and Acquisitions
Free Cash Flow and Acquisitions 3.9 03 05 08 09 99 (13.1) 00 01 02 04 06 07 0.0 (47.2) (11.1) 0.4 10.6 (3.5) 21.1 10.8 25.1 0.2 41.0 8.2 94.0 117.3 101.0 60.5 103.9 105.4 83.8 74.2 Free Cash Flow Acquisitions and Acquisition Spending as a % of FCF (8.3%) 0.0% (3.6%) (33.0%) 51.2% 0.8% 20.0% 124.8% 5
Slide 70: Potential Uses of Cash
Potential Uses of Cash acquisitions organic expansion dividend stock buyback Balance sheet strength We try to use our cash balance in ways that will maximize returns over the long term. In addition to maintaining a strong balance sheet, there are several other potential areas we could deploy cash. W
Slide 71: Reconciliation of Non-GAAP Measures
Organic revenue (illustrated in a previous slide) is considered a non-GAAP measure. The tables below reconcile consolidated revenue with organic revenue (revenue excluding acquisitions and the impact of foreign currency translations): ($000) 2009 Consolidated revenue $ 478,996 Less: acquisitions (29
Slide 72: Reconciliation of Non-GAAP Measure with Nearest GAAP Measure
Reconciliation of Non-GAAP Measure with the Nearest Comparable GAAP Measure Organic revenue (illustrated in a previous slide) is considered a non-GAAP measure. Reconciliation from consolidated revenue to revenue excluding acquisitions and foreign currency translations (organic revenue) 2007 2008 200
Slide 73: Morningstar Canada
Morningstar Canada Scott Mackenzie CEO Morningstar Canada
Slide 74: Canada Overview
Canada Overview Clients 500+ Client Countries 1 Morningstar Offices 2 2009 Revenue $23M Employees 125 Morningstar’s Canadian operations commenced in November 1999. Canada has a population of approximately 33.3 million people. The 2008 GDP for Canada—at current prices—is $USD 1.5 trillion (source: Wo
Slide 75: Morningstar Canada Revenue Growth
Morningstar Canada Revenue Growth 2002 2003 2004 2005 2006 2007 2008 2009 CA $25 Mil 20 15 10 5 Organic CPMS Andex In 2002, revenue was $8.3 million (CAD). Since then, revenue has almost tripled to $23 million (CAD). $17.6 million (CAD) of 2009’s revenue came from organic sources and the balance ref
Slide 76: Morningstar Canada Operating Income
Morningstar Canada Operating Income 2006 2007 2008 2009 Organic CPMS Andex CA $10 Mil 5 Operating income in 2009 was $7.5 million (CAD), representing a 92% increase over the past 3 years. About 46% of that growth has come from the organic portion of the business.
Slide 77: Organic Revenue Mix
2002 2007 2009 Organic Revenue Mix 100% 75 50 25 Advisor Desktop Software AWS/Licensed Tools Data Investment Research Consulting In 2002, 61% of revenue came from advisor desktop software. By 2009, with increased focus on web-based software and other lines of business, desktop software now represent
Slide 78: Canadian Investment Landscape
Canadian Investment Landscape
Slide 79: Share of Household Financial Wealth
Share of Household Financial Wealth 1990 1995 2000 2004 2005 2007 2008 2009 0% 25% 50% 75% 100% Bank Deposits Funds Other Source: Investor Economics Inc Bank deposits represented 65% of household financial wealth (sometimes referred to as “investable assets”) in 1990. By 2009, bank deposits represen
Slide 80: Growth of Mutual & Seg Funds
Growth of Mutual & Seg Funds (in Billions of CDN Dollars) 1990 1995 1999 2004 2009 Mutual Segregated 800 Bil CAD 600 400 200 Mutual and segregated funds (which are analogous to variable annuities in the United States) have grown dramatically over the past 20 years. Segregated funds continue to grow
Slide 81: RRSP Assets
RRSP Assets (in Billions of CDN Dollars) 1990 2009 Bank Deposits Funds Other 700 Bil CAD 525 350 175 The tax-deferring Registered Retirement Savings Plans (RRSPs) are arguably the most engaging segment of individual investing and are seen by many as a necessary supplement to national pension and cor
Slide 82: Competitive Landscape
Competitive Landscape Number of Products Number of Clients Approximate size of business Lipper CTV GlobeMedia (Investment Only) Fundata Inc. Bloomberg FactSet Thomson (ex-Lipper) Morningstar While difficult to quantify precisely, the above graph provides perspective in terms of the relative position
Slide 83: Major Initiatives
Retail Advisor Consulting CPMS Major Initiatives Here are a few of the major initiatives we have planned. In the retail area, we plan to launch our first Premium version of www.morningstar.ca. In the advisor area, we plan to launch Morningstar Advisor Workstation 2.0 in Canada this summer. We also p
Slide 84: Morningstar
MORNINGSTAR
Slide 85: Equity & Credit Research Business (Life After GARS)
Equity & Credit Research Business (Life After GARS) Catherine Odelbo President, Equity & Credit Research
Slide 86: Overview of Equity Research
Overview of Equity Research 2,000 Stocks 180 Industries All IPOs 104 Stock Analysts Our equity research asset remains robust. Globally, we have more than 100 stock and credit analysts covering 2,000 companies across 180 industries. They also cover every company that files for an initial public offer
Slide 87: Institutional Equity Research Key Products and Audience
Institutional Equity Research Key Products and Audience Analyst access, full financial models, detailed company & sector reports Competitive Advantage (Economic Moat), Fair Value & Uncertainty analysis Investment ideas Money managers; buy-side analysts; pension and endowment investors One of our mos
Slide 88: Institutional Equity Research: The Business Opportunity
Institutional Equity Research The Business Opportunity $3 billion in the addressable global market for fundamental equity research 6,000 investment management firms globally Subscription revenue model Our global addressable market for fundamental investment research is approximately $3 billion, enco
Slide 89: Institutional Equity Research Value Proposition
Institutional Equity Research Our Value Proposition The only independent equity research shop in the world with sell-side scale and service No ax to grind Strong performance track record Outsource to us at a fraction of the cost of adding headcount Our independence, performance, and scale give us a
Slide 90: Momentum Is Strong
Momentum Is Strong YoY (%) Growth of Our Institutional Equity Research Business YTD April 2010 56.0% New Contracts YTD Renewal Rate Number of Clients Sales Pipeline Growth 80.0% 96.0% 83.0% April 2009 April 2010 Number of Clients 35 63 New Contracts YTD 9 14 We’re adding new clients at a healthy cli
Slide 91: New Initiatives
New Initiatives
Slide 92: Our New Research Initiatives
Our New Research Initiatives Leverage our expertise in equity research Add a new security class—structured credit—to Morningstar’s dataset Expand Morningstar’s addressable market We’re leveraging our equity research asset into new businesses.
Slide 93: Morningstar Corporate Credit Research
Morningstar Corporate Credit Research Key Products and Audience Corporate credit ratings and research on 700+ issuers Company credit reports for advisors/brokers Credit modeling, analyst access and investment ideas for institutional investors We launched our corporate credit research initiative last
Slide 94: Morningstar Corporate Credit Research sample report
Morningstar Corporate Credit Research This shows a sample credit research report.
Slide 95: Corporate Credit Research: The Business Opportunity
Morningstar Corporate Credit Research The Business Opportunity The time is right for a new entrant Cutbacks in sell-side credit research Multibillion-dollar market for credit research Expand addressable market and deepen existing client relationships The time is right for a new, trusted entrant in c
Slide 96: Corporate Credit Research Value Proposition
Morningstar Corporate Credit Research Our Value Proposition Trusted brand Forward-looking: Economic Moats, future free cash flows, scenario analysis Consider all of a company’s obligations, not just debt Depth: full cash-flow models for each company Breadth: we cover the companies investors care abo
Slide 97: Corporate Credit Research Process
Morningstar Corporate Credit Research Process Management interviews Conference calls Trade-show visits Competitor, supplier, distributor, and customer interviews Assign Economic Moat Rating Forecast future free cash flows to the firm Derive estimate of Cash-Flow Cushion™ Model bull, bear, and base c
Slide 98: Corporate Credit Research Strategic Rationale
Morningstar Corporate Credit Research Strategic Rationale Leverages our equity research staff Expertise across a company’s entire capital structure Credit ratings flow through each of Morningstar’s platforms Subscription fees from our Institutional Research service Licensing fees from Broker/Advisor
Slide 99: Realpoint
Realpoint What it is Commercial Mortgage-Backed Securities (CMBS) research and surveillance service with a subscription-based revenue model Realpoint is an NRSRO (Nationally Recognized Statistical Ratings Organization) Realpoint has rated three new CMBS offerings using an issuer-pay revenue model We
Slide 100: Realpoint Key Products and Audience
Realpoint Key Products and Audience Research, ratings, and monthly surveillance on all 700+ CMBS in the secondary market CMBS Workstation—web-based platform for accessing research and monitoring holdings New-issue CMBS ratings and research Institutional investment managers; banks; insurance companie
Slide 101: Realpoint: The Business Opportunity
Realpoint The Business Opportunity Failure of status-quo ratings of structured credits during the financial crisis opens the door to new entrants Realpoint has investor support for new-issue ratings New SEC rules promoting unsolicited ratings encourage investor-pay business models for new-issue rati
Slide 102: Realpoint Value Proposition
Realpoint Our Value Proposition The most transparent and rigorous CMBS research of any ratings agency Maintain loan-level data Underwrite nearly every property underlying every loan Monitor and update loan-level research every month Investors, not issuers, pay Realpoint for surveillance and maintena
Slide 103: Realpoint: New Issue Ratings Process
Realpoint: New Issue Ratings Process Net cash flow and valuation for each underlying property Property inspections and management meetings Identify critical structural features and risks Incorporate risks in collateral analysis and modeling Review assumptions Approve cash flows and property valuatio
Slide 104: Realpoint Strategic Rationale
Realpoint Strategic Rationale Expand our research capability to structured finance Expand our credit research initiative Realpoint‘s “investors first” business model comports with Morningstar’s Expand Morningstar’s addressable market to structured- finance investors and issuers Bringing Realpoint in
Slide 105: Realpoint: Crushing the Black Box
Realpoint Crushing the Black Box Real int &
Slide 106: Morningstar Asia
Morningstar Asia Jin Tian CEO, Morningstar Asia
Slide 107: Asia Sales Overview
Asia Sales Overview Clients 500+ Client Countries 15 Morningstar Offices 8 2009 Revenue $10M Employees 107 Morningstar entered the Asian market in 2000 with the opening of our Hong Kong office. Since then, we’ve grown rapidly through both organic expansion and acquisitions in Asia. Today, we have mo
Slide 108: Morningstar Asia Growth
Morningstar Asia Growth 03 05 06 07 08 09 Started China operations Started Investment Consulting & Equity Research in China Started Taiwan operations Acquired S&P Fund Business Acquired Ibbotson Japan Started India operations Increased stake in Korea to 80% 10 $Mil Rev 7.5 5 2.5 We’ve seen steady gr
Slide 109: Asian Mutual Fund Markets: Large & Growing
$Bil 700 525 350 175 2004 2009 2013 E JPN CHI KOR IND TWN THAI HK MAL SNG 627 Equity Market 3,533 3,573 835 2,531 657 177 2,305 289 481 532 354 182 134 62 55 33 23 Source: Cerulli Associates, World Federation of Exchanges, Investment Company Institute Asian Mutual Fund Markets: Large & Growing The g
Slide 110: Competitive Landscape
Quick Crisil Wind Competitive Landscape Number of Products Number of Clients Mstar Asia Lipper Financial Express Mercer Bloomberg Thomson/Reuters Moody’s Factset Interactive Data S&P Approximate size of business Value Research TianXiang Mstar Asia Morningstar is still a relatively new entrant in man
Slide 111: Revenue by Product
Revenue by Product Japan HK/TW Korea China Singapore India Revenue 15 20 25 30 5 15 Employees Research Consulting Data Software 4 $Mil 3 2 1 We have a diverse mix of product revenue across our operations in Asia. This is based on the local market conditions and the historical focus of each of the co
Slide 112: Major Initiatives
Major Initiatives Diversify Software Offerings Establish Product Management Expand Local Market Research Expand Sales Force . We’re focusing on four major initiatives to capture the opportunities in Asia: · Establish local product management teams to localize Morningstar products · Diversify our sof
Slide 113: Development Center Overview
Development Center Overview
Slide 114: Offshore Snapshot
Offshore Snapshot China India Mutual funds Equities Ownership Global Documents Equities Transcripts Direct Advisor Workstation Web sites Equity Data Hemscott IR LIM Advisor Products 380 Data Analysts 152 Data Analysts 244 Developers 36 Developers We have established offshore development centers in b
Slide 115: Development Expenditures
Development Expenditures 05 06 07 08 09 15 $Mil 10 5 China India We’ve significantly increased our spending for the China offshore center over the past five years. We obtained an offshore center in India in 2008 via the Hemscott acquisition.
Slide 116: Benefits for Development Center
Benefits for Development Center Financial Time Talent Pool Deploy Locally a . 0 Morningstar realizes a wide range of benefits from its development center activities. · Financially , the labor cost is less than 20% of the cost in United States. · The time difference between the offshore center and Un
Slide 117: Competitors Operating Development Centers in Asia
Competitors Operating Development Centers in Asia Thailand Thomson Reuters China Bloomberg Thomson Reuters Moody’s Dow Jones Philippines Factset India Bloomberg Thomson Reuters S&P Factset Telekurs SNL Morningstar is not alone in setting up the offshore center in Asia. Many of our competitors also h
Slide 118: Development Center Initiatives
Development Center Initiatives New Facilities Build Up India Expand Activities j We have three major initiatives focused on the development centers: · We are building a new Shenzhen facility with capacity for 1,000 employees. · We recently opened a new facility in Mumbai, which can house 220 employe
Slide 119: Morningstar
MORNINGSTAR