Moody's Corporation · NYSE:MCO
Moody's — Investor Day (February 2018)
134 slides from Moody's's investor day presentation, Feb 28, 2018
Slide 1: Moody's Investor Day, New York, February 28, 2018
New York, NY February 28, 2018
Slide 2: Welcome
Welcome Steve Maire, Global Head of Investor Relations and Communications
Slide 3: Disclaimer
Disclaimer Certain statements contained in this document are forward-looking statements and are based on future expectations, plans and prospects for Moody’s business and operations that involve a number of risks and uncertainties. The forward-looking statements in this document are made as of the d
Slide 4: Logistics
Logistics » All of today’s sessions will take place in the auditorium » All refreshment breaks, including lunch, will be in the NYAS lobby » We ask that you hold all questions until Q&A – Ray McDaniel, President & CEO, will take Q&A during the Closing and Thanks session » If you need assistance, ple
Slide 5: Moody's Investor Day 2018 Agenda
Agenda Time 7:45 am —8:30 am 8:30 am - 8:35 am 8:35 am — 8:50 am 8:50 am — 9:05 am 9:05 am —9:50 am 9:50 am — 10:05 am 10:05 am —11:05 am 11:05 am — 12:00 pm 12:00 pm —12:20 pm 12:20 pm —1:00 pm Topics Registration / Breakfast Buffet Welcome Opening Remarks Session 1: Macroeconomic Overview Session
Slide 6: Opening remarks
Opening remarks Ray McDaniel, President & Chief Executive Officer
Slide 7: Introduction
Introduction » Moody’s is an essential component of global financial markets, providing credit ratings, research, data, tools and analysis that enhance market transparency, integration and risk management » Defending and enhancing our core business are “table stakes” and we have the resources, capab
Slide 8: Strong financial performance in 2017
Strong financial performance in 2017 Synchronous global growth +180 bps adj. operating margin Global economic expansion was strong and stable with Adjusted operating margin expansion of +180 bps at all major economies experiencing growth. Capital MCO to 47.3%, 190 bps at MIS to 56.8% and +140 bps ma
Slide 9: Guided by our mission
Guided by our mission To be the world’s most respected authority serving risk- sensitive financial markets » Defend and enhance our core ratings & research businesses Risk – Ratings: predictive, predictable and Management transparent Credit Risk Curated Data & Technology Advisory Services Measuremen
Slide 10: Key factors shaping vision and strategy
Key factors shaping vision and strategy In a world of heightened complexity, we believe that standards become even more essential Global Capital Political and New Emerging Environmental, Growth Markets Regulatory Technologies Markets Social and Governance » U.S. economy » Growth drives » Despite aba
Slide 11: Creating sustainable competitive advantage in our core while investing in growth
Creating sustainable competitive advantage in our core while investing in growth Insight, conviction and precision to enable a broader long- term vision Execute “table stakes” priorities to defend the core and invest for growth Fill out the credit pyramid and expand our role in the global financial
Slide 12: 2018 Outlook
2018 Outlook Guidance as of February 9, 20181 Revenue Low-double digit % growth Operating Expenses Low-double-digit % growth Operating Margin 43% - 44% ~48% (Adjusted2) Effective Tax Rate 22% - 23% EPS $7.20 - $7.40 $7.65 - $7.85 (Adjusted2) Free Cash Flow2 ~$1.6 billion 1 See press release titled “
Slide 13: Steady execution to achieve long-term growth opportunities
Steady execution to achieve long-term growth opportunities Note: Long-term growth opportunities presented on this slide are on average over time. 1 Assumes no material change in effective tax rate, foreign exchange rates, leverage profile and/or capital allocation policy. 2 Subject to market conditi
Slide 14: Session 1: Macroeconomic overview: Good (but risky) times
Session 1: Macroeconomic overview: Good (but risky) times Mark Zandi, Chief Economist, Moody’s Analytics
Slide 15: The global economy gets it together
The global economy gets it together… Recovery France Expansion Chile US Spain Japan Canada Egypt Indonesia Germany Italy India Israel Russia Australia Saudi Arabia Brazil Turkey UK China South Africa Recession Slowdown Source: Moody’s Analytics. Moody’s Investor Day 2018 15
Slide 16: …and will get a monetary and fiscal boost
…and will get a monetary and fiscal boost… Impact on real GDP growth in developed economies, % Financial Conditions Fiscal Policy Total 3 2 1 0 -1 -2 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Source: Moody’s Analytics. Moody’s Investor Day 2018 16
Slide 17: …Forcing investors to do some adjusting
…Forcing investors to do some adjusting Federal funds rate, % Market implied Moody's Analytics Federal Reserve (Dec '17) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 '17 '18 '19 '20 Source: Federal Reserve, Bloomberg, Moody’s Analytics. Moody’s Investor Day 2018 17
Slide 18: Session 2: Moody's Investors Service
Session 2: Moody’s Investors Service Rob Fauber, President, Moody’s Investors Service Jim Ahern, Managing Director, Head of Global Structured Finance
Slide 19: Session overview
Session overview 1. Issuance environment 2. Spotlight on structured finance 3. Strategy and execution 4. Concluding thoughts 5. Q&A Moody’s Investor Day 2018 19
Slide 20: Key messages
Key messages » Global GDP growth will continue to drive debt market issuance despite uncertainty about central bank actions, US policy changes and the EU political cycle » Securitization market is still showing post-crisis resilience, but EU recovering, Asia expanding » Our mission remains to be the
Slide 21: Issuance environment
1 Issuance environment Rob Fauber President, Moody’s Investors Service
Slide 22: GDP growth will continue to drive debt issuance
GDP growth will continue to drive debt issuance US corporate issuance1 and nominal GDP $1,000 $25,000 $800 $20,000 $ Billions $ Billions $600 $15,000 $400 $10,000 $200 $5,000 $0 $0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Issuance (L) Nominal GDP (R) » Global GDP growth to be supported by:
Slide 23: Corporates have significant refunding needs
Corporates have significant refunding needs » Five-year investment grade maturities set a new record in North America, exceeding $1 trillion while spec-grade refinancing outlook is lower than last year but remains at $1 trillion1 Debt maturities: North America Moody’s-rated non-financial corporate b
Slide 24: Leverage is increasing but default forecast is low
Leverage is increasing but default forecast is low supported by improving liquidity Demand for yield and low interest rates have led to an increase in low-rated credits 100% 75% 50% B2 53% 25% B3 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Caa and below % B3% B2% B1% Ba3% Ba2% Ba1
Slide 25: Debt refinancing and M&A are most frequently stated uses of proceeds
Debt refinancing and M&A are most frequently stated uses of proceeds Uses of funds from USD high yield bonds and bank loans1 Debt Refinancing M&A Capital Spending Shareholder Payments 9% 4% 12% 13% 18% 17% 18% 20% 16% 17% 11% 22% 17% 5% 22% 5% 6% 7% 8% 8% 8% 7% 19% 25% 39% 31% 30% 31% 41% 41% % of M
Slide 26: Debt capital market penetration continues
Debt capital market penetration continues Emerging Mature Size of bubble reflects 2018 GDP forecast United States Middle East Latin China & Africa America Canada India CEE/CIS ASEAN Developed Asia Western Europe -3%0% 10% 23% 36% 49% 63% 76% 89% 102% 115% 2017 Private Sector Bonds Outstanding / GDP
Slide 27: Growth of new mandates driven by Asia
Growth of new mandates driven by Asia MIS fundamental signed new credits 1,200 1,044 2015 – 2017 CAGR ~1,000 1,000 China: 32% 772 738 800 Rest of Asia: 32% Latin America: 24% 600 EMEA: 16% US + Canada: 6% 400 Total: 16% 200 0 2015 2016 2017 2018E US + Canada EMEA China Rest of Asia Latin America Sou
Slide 28: US tax reform: Mixed impact on issuance
US tax reform: Mixed impact on issuance Partial Immediate Limitation of Corporate tax elimination of Repatriation of Tax Policies expensing of municipal bond rate interest offshore cash CAPEX tax exemption deductibility Positive Negative Negative Positive Negative Short Term • Free cash flow • For p
Slide 29: Spotlight on structured finance
Spotlight on 2 structured finance Jim Ahern Managing Director, Head of Global Structured Finance
Slide 30: Structured finance funds ~20% of annual global bond market-based funding needs
Structured finance funds ~20% of annual global bond market-based funding needs Securitization as a % 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20171 of Global Issuance: 35% 28% 22% 20% 21% 22% 21% 18% 20% 19% 19% Global bond market annual issuance, 2007 – 20171 U.S. - Securitized U.S. - NonS
Slide 31: Structured markets show post-crisis resilience
Structured markets show post-crisis resilience U.S. mature, EU recovering, Asia expanding Global structured product annual issuance, 2009 – 20171 U.S. – Private Label U.S. – Agency Mortgage Europe – Placed Europe – Retained Europe – Covered Bonds Asia - Securitization $3,000 $1,600 $500 $2,500 $1,40
Slide 32: Structured finance regional trends
Structured finance regional trends United States Europe Asia Pacific Mature Recovering Expanding » ~20% volume growth in 2017; » ECB continues to be largest » Volume growth is mainly Increasing reliance on funding source for European driven by China (expansion of securitization to fund structured pr
Slide 33: Strategy and execution
Strategy and 3 execution Rob Fauber President, Moody’s Investors Service
Slide 34: Agency of Choice strategy
Agency of Choice strategy Proven rating Focus on research accuracy and deeply leadership experienced analysts Rating Research & Quality Insight Value Engagement Proposition and Service Expanded sales and Analytical and marketing activities in commercial outreach Commercial Group Moody’s Investor Day
Slide 35: Rating performance drives investor confidence
Rating performance drives investor confidence » We remain focused on analytical expertise and the continuous refinement of our credit methodologies to provide predictive, predictable and transparent ratings » Reinforces investor “demand pull” Three year cumulative default rates of fundamental rated
Slide 36: Broad coverage serves global needs
Broad coverage serves global needs $72+ trillion of Total Rated Debt 4,700 Rated Non-Financial Corporates 4,100 Rated Financial Institutions 138 Rated Sovereigns 47 Rated Supranational Institutions Americas EMEA APAC 450 Rated Sub-Sovereigns » 32,500 rated » 4,600 rated » 2,000 rated 17,700 companie
Slide 37: Focus on research leadership
Focus on research leadership Increased depth, relevance and outreach in 2017 Research Volume Cross-Sector Credit Outlook Email Outreach Annual Outlooks Research @ 29,000+ Reports 75+ Reports 180,000+ Views 3,000+ Reports 155+ Reports Robust volume Thought leading Strong readership Reports with email
Slide 38: Commercial initiatives support future growth
Commercial initiatives support future growth Sweden (Stockholm) 56 RM staff in Norway Finland 31 RM staff in EMEA Denmark Beijing APAC Saudi Arabia (Riyadh) China Shanghai Specialists in: 41 RM staff in Hong Kong • Insurance the U.S. • Bank loans • Project finance 13 RM staff in the Americas The Nor
Slide 39: New product development to meet market needs
New product development to meet market needs Green Bond Assessment Other » ~$250 billion green bond » Servicer Quality issuance volume Assessments in forecasted for 20181 LATAM » 26 green bond » Private Monitored assessments assigned Rating extension as of December 2017 globally » Private Rating for
Slide 40: Global regulation and Brexit
Global regulation and Brexit MIS is regulated in 41 countries1 IOSCO / European Regulation » Endorsement requirements » Thematic report on fees » Ancillary products Brexit » Incremental rebalancing; begun to operationalize » Submitted / reviewed with ESMA » Contingency plan developed 1 MIS is not re
Slide 41: Investing in emerging markets growth
Investing in emerging markets growth Revenue in emerging markets MIS affiliate revenue in 2017 $313M MERIS1 Equilibrium2 KIS CCXI KIS Pricing ~$150M $81M Midroog ICRA 2007 2017 Emerging Asia Latin America Middle East Wholly-owned Majority-owned CEE/CIS Africa Minority-owned 2013 2014 2015 2016 2017
Slide 42: Spotlight on Greater China
Spotlight on Greater China » Moody’s extensive China capabilities can help multi-national companies with their domestic financing needs and enrich their understanding of the Chinese markets Cross Border (MIS) Rating » >425 ratings Coverage » 78% coverage in 20171 Domestic (CCXI) Ratings » >1,000 dom
Slide 43: China onshore bond market
China onshore bond market CRA industry is opening-up » China recently announced it will allow foreign firms to provide credit rating services » The People’s Bank of China has announced general requirements for providing credit rating services for the Growth interbank bond market Opportunities in Chi
Slide 44: Further operationalizing enabling technologies
Further operationalizing enabling technologies We focus on three core activities in …and incorporate new technologies into MIS … our current processes Robotic Process Reading & Automation Extracting Machine Learning, x MIS Focus x Analyzing Artificial x Areas Intelligence & Big Data Publishing Natur
Slide 45: Concluding thoughts
4 4 Concluding thoughts Rob Fauber President, Moody’s Investors Service
Slide 46: Concluding thoughts
Concluding thoughts » Outlook on issuance is positive – driven by economic growth » Longer term issues will place further pressure on our operating environment - Geopolitical uncertainty, trends in the investment management industry, technological change, increasing competition, and regulatory evolu
Slide 47: Globally and locally acknowledged for award-winning expertise
Globally and locally acknowledged for award-winning expertise in credit ratings, research and risk analysis. AMERICAS EMEA ASIA PACIFIC Ly ay 4, Creditfiue, _fnstitutional eh) = & MM CLO Census 2017° IVESTOL GIFASy 2 ale > pas ratng dency GlobalCapital GLOBAL ISLAMIC FINANCE AWARDS, 7 Eh ‘Bond Award
Slide 48: Q&A
4 Q&A 5 Rob Fauber President, Moody’s Investors Service Jim Ahern Managing Director, Head of Global Structured Finance
Slide 49: Break
Break
Slide 50: Session 3: Moody's Analytics
Session 3: Moody’s Analytics Mark Almeida, President, Moody’s Analytics Steve Tulenko, Executive Director, Enterprise Risk Solutions Dan Russell, Executive Director, Bureau van Dijk
Slide 51: Session overview
Session overview 1. Moody’s Analytics 2. Spotlight on Enterprise Risk Solutions 3. Bureau van Dijk update 4. Q&A Moody’s Investor Day 2018 51
Slide 52: Moody's Analytics
Moody’s Analytics 1 Mark Almeida President, Moody’s Analytics
Slide 53: Key messages
Key messages » Moody’s Analytics (MA) is well positioned for continued growth and steady margin improvement » Solid 2017 results across Research, Data & Analytics (RD&A) product lines provide momentum » Enterprise Risk Solutions (ERS) expects temporary softness on top-line as business mix transition
Slide 54: Strong results in 2017
Strong results in 2017 Good organic growth strengthened by Bureau van Dijk Revenue ($ millions) 2017 2016 Growth ($) Growth (%) Moody’s Analytics $1,430 $1,233 $197 16% Research, Data & Analytics $833 $668 $165 25% Enterprise Risk Solutions $449 $419 $30 7% Professional Services $149 $147 $2 1% Bure
Slide 55: 2018 outlook: Accelerating growth
2018 outlook: Accelerating growth Driven by RD&A; partially offset by ERS transition 2018 2017 Comments Guidance1 Result Moody’s Analytics + mid-20s % + 16% » Growth lifted by Bureau van Dijk acquisition, tailwinds from FX range Moody’s Analytics + low-double- + 8% » Higher growth driven by strength
Slide 56: RD&A results driven by deepening relationships with existing customers
RD&A results driven by deepening relationships with existing customers Subscription Sales Growth (constant currency) Expansion of ratings and Full Year 2017 5.7% 109.4% research coverage 95.5% 8.2% Production of insightful credit Retained Base Upgrades and Price New Sales Business Base analysis New
Slide 57: RD&A: Enriching our unique content
RD&A: Enriching our unique content Enhancing stand-alone value through product development synergies ~65%1 Credit Research Research and ratings from Moody’s Investors Service Ratings Feeds ~25%1 EDF Metrics • Quantitatively-derived measures of default risk Consumer Credit • Retail credit modeling Ec
Slide 58: Solid progress on margin expansion
Solid progress on margin expansion 140bps of margin increase in 20171 Progress Headwinds » Accelerating top-line growth in RD&A » Accounting conventions hit top-line in 2017 and 2018 » Mix-shift driving expansion in ERS – Deferred revenue adjustment for acquired revenue » Addition of high margin Bur
Slide 59: Innovating with a purpose
Innovating with a purpose Leveraging new technologies to address customer needs Artificial Intelligence Cloud Alternative Data Blockchain » Automated » Launching next » Providing new » Demonstrating data processing of generation of insights by provenance to financial statements analytic tools levera
Slide 60: Spotlight on ERS
2 Spotlight on ERS Steve Tulenko Executive Director, Enterprise Risk Solutions
Slide 61: ERS: Solid track record of growth
ERS: Solid Track Record of Growth ERS: Strong reputation in the market Market conditions and product strategy driving temporary moderation in growth rate TTM Revenue Since 4Q12 2012-17 CAGR = 13% 500 450 ERS Revenue: 2017 vs 2016 400 7% growth 350 31% of total MA revenue 300 15% of MA growth 2
Slide 62: ERS: Strong track record of growth
ERS: Strong track record of growth Market conditions and product strategy driving temporary moderation in growth rate Revenue1 Since 4Q 2012 $500 $450 ERS Revenue: 2017 vs 2016 $400 » 7% growth » 31% of total MA revenue $350 » 15% of MA growth $300 $ Millions $250 $200 Revenue Mix: 2015 vs 2017 » Pr
Slide 63: Shift in drivers of ERS revenue growth
Shift in drivers of ERS revenue growth Stylized representation of business dynamics for illustrative purposes Product Strategy Decisions: Total Revenue Low margin services Revenue Perpetual licenses SaaS & subscription products Products1 Macro/Market Trends: Demand for accounting solutions Services
Slide 64: Strategic focus on subscription products delivers stronger P&L over time
Strategic focus on subscription products delivers stronger P&L over time Illustrative example: cumulative sales impact License vs. subscription Difference License Subscription $1,400 Fees ($ Millions) 1 2 3 ... 10 $1,200 License (L) $ 250 -- -- ... -- $1,000 Maintenance (M) $ 50 $ 51 $ 52 ... $ 60 $
Slide 65: Pivot to subscription products drives margin expansion
Pivot to subscription products drives margin expansion ($ in Millions) Direct 2013-15: Growth from installed software Revenue EBITDA1 » One-time projects – installed software & services $120 » Bespoke projects accelerated development of IP $500 » 61% of revenue from renewable products in 2015 $449 $
Slide 66: Next generation products present important growth opportunity
Next generation products present important growth opportunity Accounting/Finance Demand Digitization/Automation Demand CECL/IFRS9 – New impairment standards require Loan Origination Products – Faster, better credit credit expertise decisions » Impairment Studio launched in 2017 » CreditLens launched
Slide 67: Key messages
Key messages Product strategy to deliver stable growth and higher margins » Intentional transition – from lumpy, one-time projects to renewable SaaS and subscription products – will result in some temporary softness on the top line » Look to sales numbers as leading indicator of revenue growth – sub
Slide 68: Bureau van Dijk update
Bureau van Dijk 3 update Dan Russell Executive Director, Bureau van Dijk
Slide 69: Overview
Overview » €3 billion acquisition closed on August 10, 2017 Long History of Profitable Growth2 » Bureau van Dijk is a leading aggregator and distributor of private company business intelligence and data, serving Revenue EBITDA € 272 (€ in millions) over 6,000 unique institutions worldwide » Extends
Slide 70: Collects and enhances information to deliver a market leading global dataset
Collects and enhances information to deliver a market leading global dataset Diversified IP Proprietary Data High Value Customer Network1 Augmentation & Processing Tools Solutions 280 Million+ » Link data sources Selected Product Examples Private Companies » Create unique identifiers Global Database
Slide 71: Diverse data set leads to high value customer solutions
Diverse data set leads to high value customer solutions Compliance and financial crime Transfer pricing Conduct on-boarding and anti-money laundering research Find comparable companies and conduct peer with extensive corporate structure and beneficial analysis for tax compliance. ownership data comb
Slide 72: Use-case example: Ownership analysis
Use-case example: Ownership analysis Orbis data combined with our global M&A database provide the most comprehensive view of ownership on the market Without Orbis With Orbis A controls 10% of D A controls 65% of D Company Other Other Owners A Owners 100% 100% Company Company Company A B C Company Co
Slide 73: Use-case example: Ownership analysis
Use-case example: Ownership analysis Moody’s Investor Day 2018 73
Slide 74: Broad application to customer needs
Broad application to customer needs Sales volume by use case Corporate Finance and M&A Business 9% Compliance and Development Financial Crime 10% 23% Data Management 15% Credit Risk Transfer Pricing 23% 22% Note: Use cases can have multiple purposes and, as a result, percentages do not sum to 100%.
Slide 75: Extends Moody's expertise to new customer sets beyond financial institutions
Extends Moody’s expertise to new customer sets beyond financial institutions Customer count by industry Customer count by region 3% 9% 10% 14% 9% 7% 31% 15% 32% 84% 61% 31% Bureau van Dijk MA 72% EMEA Americas APAC Average annual spend ($ thousands) 23% BvD $47 BvD MA Financial Institutions Corporat
Slide 76: Guiding principles for integration help to maintain focus and prioritize resources
Guiding principles for integration help to maintain focus and prioritize resources Protect the core Deliver synergies Implement controls Minimize disruption of the Execute on plans to realize Implement controls and core businesses of Bureau expense, product risk management van Dijk and Moody’s devel
Slide 77: Successful progress to achieving ~$80 million in synergies by 2021
Successful progress to achieving ~$80 million in synergies by 20211 Sales Execution Market Penetration » Created new sales operations » Implemented incentives for MA sales organization to accelerate adoption of team to extend Bureau van Dijk’s reach best practices for sales execution beyond current
Slide 78: Building on a strong foundation
Building on a strong foundation » Continue to expand information provider network – Enhance front-end applications (Catalyst suite) to solve new use cases » Expand distribution – Harness potential of extensive Moody’s Analytics and Bureau van Dijk distribution capacity » Adopt modern data collection
Slide 79: Q&A
Q&A 4 4 Mark Almeida President, Moody’s Analytics Steve Tulenko Executive Director, Enterprise Risk Solutions Dan Russell Executive Director, Bureau van Dijk
Slide 80: Session 4: Financial strategy
Session 4: Financial strategy Linda Huber, EVP and Chief Financial Officer David Platt, Managing Director, Head of Corporate Development Melanie Hughes, Senior Vice President, Chief Human Resources Officer
Slide 81: Session overview
Session overview 1. Financial overview 2. Capital allocation strategy 3. Corporate development 4. Human resources and compensation 5. Q&A Moody’s Investor Day 2018 81
Slide 82: Financial overview
1 Financial overview Linda Huber EVP and Chief Financial Officer
Slide 83: Key messages
Key messages » Moody’s has demonstrated strong operating performance » We have continued our strategic focus on costs and business efficiency » We are reducing leverage post-Bureau van Dijk acquisition » Our capital allocation priorities have not changed Moody’s Investor Day 2018 83
Slide 84: Delivering strong financial results…
Delivering strong financial results… +9% +400bps +15% Revenue Growth Adj. Op. Margin Expansion Adj. Dil. EPS Growth (’13 - ’17 CAGR) (’13 - ’17 Growth) (’13 - ’17 CAGR) Moody’s Investor Day 2018 84
Slide 85: …in-line with our long-term growth opportunities
…in-line with our long-term growth opportunities +9% (’13-’17 CAGR) 47% 2017 Adj. Operating Margin +15% (‘13-’17 CAGR) Note: Long-term growth opportunities presented on this slide are on average over time. 1 Assumes no material change in effective tax rate, foreign exchange rates, leverage profile a
Slide 86: Performance at top end of peer group
Performance at top end of peer group Only 4 companies in S&P 500 Financials & Services peer group1 performed as well as Moody’s over the last 5 years2 Financials and Services Peer Group (101) Rev CAGR ≥ 9% (27) Total Return EPS CAGR ≥ 15% ≥ 18.2% (13) (3) Margin ≥ 43% (5) 1 Peer group comprised of S
Slide 87: Total shareholder return has outperformed S&P 500 and peer group
Total shareholder return has outperformed S&P 500 and peer group1 2 MCO S&P 500 Financials & Services Peers 260% +261% » Moody’s total shareholder 220% return was 59% in 2017, compared to 22% for the 180% S&P 500 and 22% for the 140% Financials and Services +124% Peers +114% 100% 60% » Moody’s 2017
Slide 88: Best practices and cost management contribute to operating leverage
Best practices and cost management contribute to operating leverage Sales Mix ERS shifting mix to Staffing Mix higher margin product sales Shifting staff from high- cost to lower-cost geographies Synergies Executing on Bureau van Dijk integration Technology synergies Enabling technology to support o
Slide 89: Capital allocation strategy
2 Capital allocation strategy
Slide 90: Generating significant free cash flow and strong conversion relative to peers
Generating significant free cash flow and strong conversion relative to peers Free Cash Flow1 Free Cash Flow / Revenue (Five Year Average)3 Free Cash Flow Settlement Charge 2 $1,800 $1,600 Moody's 28% $1,400 Peer Average 22% $1,200 $1,000 S&P 500 12% $800 $600 2013 2014 2015 2016 2017 2018F 1 Free c
Slide 91: Capital allocation priorities support long-term growth
Capital allocation priorities support long- term growth Investing in Growth Opportunities Return of Capital Reinvestment Acquisitions Dividends Share Repurchase Invest in existing Evaluate carefully to Grow dividend in line Follow reinvestment, businesses to make sure aligned with earnings; target d
Slide 92: Shifted 2017 capital allocation due to Bureau van Dijk and Settlement Charge
Shifted 2017 capital allocation due to Bureau van Dijk and Settlement Charge Moody’s Capital Allocation ($ in billions) $0.4 $1.1 M&A Settlement Charge Dividends ~107% of free $3.5 Share Repurchase 71% cash flow $4.1 returned to shareholders 36% $0.3 $0.7 $0.2 ~75% of free cash flow 2012 - 2016 2017
Slide 93: De-leveraging in 2018 to maintain current BBB+ credit rating
De-leveraging in 2018 to maintain current BBB+ credit rating 1 Debt Outstanding (L) Gross Debt/Adj. Operating Income (R) $6,000 3.0x $5,000 2.5x $4,000 2.0x $ Millions $3,000 1.5x $2,000 1.0x $1,000 0.5x $0 0.0x 2010 2011 2012 2013 2014 2015 2016 2017 2018E » Current long-term credit ratings from S&
Slide 94: Reduced share count by 11% since 2013
Reduced share count by 11% since 2013 Share Repurchases Share Repurchases (R) Shares Outstanding (L) 230 $1,600 214 210 204 196 $1,200 Millions of Shares 191 191 $ Millions 190 $800 170 $1,221 $1,098 $893 $400 150 $739 $200 130 $0 2013 2014 2015 2016 2017 Avg. Buyback Price $63 $88 $101 $96 $121 » T
Slide 95: Increased dividend by ~70% since 2013
Increased dividend by ~70% since 2013 Colors Annual Dividend Per Share Dividend Payout 35% $1,400 $1.76 30% $1,200 $1.48 $1.52 25% $1,000 $1.36 20% $ Millions $1.12 $800 $600 15% $0.90 $400 10% $200 5% $0 0% 2013 2014 2015 2016 2017 1 2 2013 2014 2015 2016 2017 2018 Net Income (L) Cash dividends (R)
Slide 96: Key messages
Key messages » Moody’s has demonstrated strong operating performance » We have continued our strategic focus on costs and business efficiency » We are reducing leverage post-Bureau van Dijk acquisition » Our capital allocation priorities have not changed Moody’s Investor Day 2018 96
Slide 97: Corporate development
Corporate 3 development David Platt Managing Director, Head of Corporate Development
Slide 98: Acquisition approach
Acquisition approach » M&A used as a strategic tool and we have been active on multiple fronts – Bureau van Dijk: opportunity to acquire a premier business on a proprietary basis – Embracing Technology: Selective investments to learn and innovate » Our core business presents a high bar and demands a
Slide 99: Acquisition activity
Acquisition activity Our acquisition activity has been guided by our mission to be the most respected authority serving risk-sensitive financial markets and vision to become the global standard enabling all financial risk and credit-related decisions Note: In the last 10 years, Moody’s has analyzed
Slide 100: Acquisition requirements
Acquisition requirements Clear Industrial Logic Disciplined Financial Requirements » Complementary ratings, content, data, analytics, risk » IRR at / above Moody’s cost of capital management, etc., in existing and / or high growth markets » >10% annual cash return yield within 3-5 years » Financial
Slide 101: A premier business: Bureau van Dijk
A premier business: Bureau van Dijk Strategic Rationale » Extension into European SME / private company data & analytics » Broadens Moody’s coverage of the credit market Ratings or Standards Business » Aggregates, standardizes and distributes one of the world’s most extensive private company dat
Slide 102: Embracing technology: selective investments
Embracing technology: selective investments Rapidly Changing Technology Multiple Initiatives Selective Investments » Embracing and empowering the » Grounded in creating & defending organization to take risk and innovate revenues and achieving efficiencies Cloud using new technologies & best practice
Slide 103: Expanding our addressable markets
Expanding our addressable markets We continue to focus on both organic and acquired growth in our core markets and selectively consider potential opportunities in adjacent market segments ~$23 Billion ~$28 Billion » Continue to find aspects of Insurance Analytics, these areas potentially Commercial
Slide 104: Post-acquisition monitoring
Post-acquisition monitoring » Clear accountability with regular reporting to senior management and board » Generally prefer to fully integrate (within acquiring business unit) albeit practical approach to maintain unique and / or entrepreneurial characteristics – Corporate functions, sales force, IT
Slide 105: Key messages
Key messages » Our business is solid and the bar for acquisitions is high » We actively seek to expand our total addressable market » Transactions must have clear industrial logic and meet return parameters » We conduct regular post-close review to ensure accountability » Common sense and our missio
Slide 106: Human resources and compensation
Human resources 4 and compensation Melanie Hughes Senior Vice President, Chief Human Resources Officer
Slide 107: Key messages
Key messages At Moody’s, our organization drives business outcomes » Our people are our advantage ˗ The insights, opinions and solutions we provide are based on our deep expertise and experience and are key differentiators in the market » Our approach provides leverage ˗ We drive efficiency, effecti
Slide 108: Meeting skill requirements of the future
Meeting skill requirements of the future Fluid approach to workforce planning and strategy is critical Recent Trends in Workforce Dynamics » 50% millennials by 2020 » Artificial intelligence » Employer / employee loyalty » Big data » Gig economy » Tech skills shortage » Virtual workplace » Immigrati
Slide 109: People strategy driven by business strategy
People strategy driven by business strategy We balance our investment in talent and business growth with a focus on efficiency and cost The P&L of Human Capital Revenue Growth Margin Growth » “Talent First” mindset » Automation of roles » Reputation as a market leader for talent » Leveraging artific
Slide 110: We have a strong global presence
We have a strong global presence 2017 3,591 627 2,526 1,594 3,557 11,896 U.S. Americas EMEA APAC (ex. India) India total employees1 2012 2,593 245 1,356 901 1,478 6,573 U.S. Americas EMEA APAC (ex. India) India total employees2 1 As of December 31, 2017. 2 As of December 31, 2012. Moody’s Investor D
Slide 111: Compensation philosophy
Compensation philosophy Generating better shareholder returns by aligning rewards with business outcomes Attract & Retain Link Align Provide competitive Link compensation to Align employees’ total compensation that the achievement of rewards with attracts, retains and Moody’s financial and sharehold
Slide 112: Moody's compensation closely tracks peers while delivering greater TSR
Moody’s compensation closely tracks peers while delivering greater TSR Bonus Funding (% of target) Total Shareholder Return (TSR) MCO TSR Relative to 12/31/08 Peer Group 1 MCO 1 Average Peer Group TSR Relative to 12/31/08 140% 800% +740% 115% 117% 700% 120% 600% 100% 500% 80% 400% +378% 60% 300% 40%
Slide 113: Concluding thoughts
Concluding thoughts » People are our advantage » We have built, and continue to adapt, our culture to attract and retain top talent » We create efficiencies through smart use of technology and geographical hubs without compromising quality » Our compensation plans link pay to performance and are dir
Slide 114: Q&A
Q&A 4 5 Linda Huber Executive Vice President and CFO David Platt Managing Director, Head of Corporate Development Melanie Hughes SVP, Chief Human Resources Officer
Slide 115: Closing and thanks
Closing and thanks Ray McDaniel, President & Chief Executive Officer
Slide 116: Corporate Social Responsibility: Open the door to a better future
Corporate Social Responsibility: Open the door to a better future Three focus areas, all supported by our colleagues Opening doors to Activating an environmentally Helping young people opportunity sustainable future reach their potential Changing the lives of people all over Through internal efforts
Slide 117: Survey
Survey » Please provide your feedback on Moody's 2018 Investor Day via a brief survey that will be emailed to you following today's event – Webcast participants will receive a link to the survey at the conclusion of the presentation Moody’s Investor Day 2018 117
Slide 118: Q&A
Q&A
Slide 119: Speaker biographies
Speaker biographies
Slide 120: Moody's Investor Day 2018 presenters
Moody’s Investor Day 2018 presenters Steve Maire Global Head of Investor Relations and Communications Stephen Maire is Vice President, Global Head of Investor Relations and Communications at Moody’s Corporation. In that capacity he oversees investor relations, media relations and internal communicat
Slide 121: Moody's Investor Day 2018 presenters
Moody’s Investor Day 2018 presenters Mark Zandi Chief Economist, Moody’s Analytics Mark M. Zandi is chief economist of Moody’s Analytics, where he directs economic research. Dr. Zandi is a cofounder of Economy.com, which Moody’s purchased in 2005. A trusted adviser to policymakers and an influential
Slide 122: Moody's Investor Day 2018 presenters
Moody’s Investor Day 2018 presenters Jim Ahern Managing Director, Head of Global Structured Finance Jim Ahern, Managing Director, Head of Global Structured Finance Group, is responsible for Moody’s securitization, structured finance and covered bond ratings businesses in the Americas, EMEA and Asia
Slide 123: Moody's Investor Day 2018 presenters
Moody’s Investor Day 2018 presenters Steve Tulenko Executive Director, Enterprise Risk Solutions Stephen Tulenko serves as Executive Director - Enterprise Risk Solutions for Moody’s Analytics. Prior to this appointment, Mr. Tulenko was Executive Director - Sales, Customer Service and Marketing from
Slide 124: Moody's Investor Day 2018 presenters
Moody’s Investor Day 2018 presenters Linda Huber Executive Vice President and Chief Financial Officer Linda Huber is Executive Vice President and Chief Financial Officer of Moody’s Corporation with management responsibility for 3,000 employees. Ms. Huber has executive responsibility for the corporat
Slide 125: Moody's Investor Day 2018 presenters
Moody’s Investor Day 2018 presenters Melanie Hughes Senior Vice President, Chief Human Resources Officer Melanie Hughes is Senior Vice President and Chief Human Resources Officer of Moody’s Corporation. Ms. Hughes has a strong record of leadership in human resources and talent development, with more
Slide 126: Appendix
Appendix
Slide 127: Compensation philosophy and structure align employee & shareholders' interests
Compensation philosophy and structure align employee & shareholders’ interests Our programs: » Link compensation to the achievement of Moody’s financial and operating objectives and to the individual's performance » Align employees’ rewards with shareholders’ interests » Provide a competitive total
Slide 128: Annual cash bonus funding metrics are aligned with shareholder interests
Annual cash bonus funding metrics are aligned with shareholder interests » Financial funding metrics include Operating Income, EPS and Sales and differ based upon individual areas of responsibility– payouts are based on individual and relative performance All Other Management & NEOs1 and other CEO D
Slide 129: Long-term incentives (LTI) are performance-focused
Long-term incentives (LTI) are performance-focused LTI Performance Goal Weightings for “Top 60” Executives1 MCO EBITDA MIS Ratings Performance MA Sales 100% 20% 80% 50% 50% 20% 60% 40% 50% 50% 60% 20% 0% "Top 60" MIS "Top 60" MA "Top 60" MCO Shared Services » The “Top 60” executives receive 60% of t
Slide 130: Incentive metrics align with strategy and shareholders
Incentive metrics align with strategy and shareholders » Moody’s incentive metrics align management with shareholder interests as well as business strategy over the short- and long-term. » Moody’s incentive compensation scheme aligns pay with company performance * Investor Survey targets debt invest
Slide 131: Reconciliation of Adjusted Financial Measures to GAAP
Reconciliation of Adjusted Financial Measures to GAAP Adjusted Operating Income and Adjusted Operating Margin Reconciliation (in $ millions) 2012 2013 2014 2015 2016 20171 As Reported Operating Income $1,077.4 $1,234.6 $1,439.1 $1,473.4 $638.7 $1,809.1 Operating Margin 39.5% 41.5% 43.2% 42.3% 17.7%
Slide 132: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation Diluted EPS Reconciliation 2013 2014 2015 2016 2017 2018F1 Diluted EPS - GAAP $3.60 $4.61 $4.63 $1.36 $5.15 $7.20 - $7.40 Legacy Tax (0.09) (0.03) (0.03) - - - Impact of Litigation Settlement 0.14 - - $3.59 - - ICRA Ga
Slide 133: Website and email
Website: http://ir.moodys.com Email: ir@moodys.com Moody’s Investor Day 2018 133
Slide 134: Moody's Investor Day 2018
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors by MOODY’S. and affiliates (collectively, “MOODY’S”). All rights reserved. To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, CREDIT RATIN