Moody's Corporation · NYSE:MCO
Moody's — Investor Day (September 2016)
124 slides from Moody's's investor day presentation, Sep 28, 2016
Slide 1: Moody's 2016 Investor Day
Moopy’s uf) 2016 ; Investor Day | GPM Mid h September 28, 2016 New York, NY
Slide 2: Welcome
Welcome SALLI SCHWARTZ, GLOBAL HEAD OF INVESTOR RELATIONS AND COMMUNICATIONS
Slide 3: Disclaimer
Disclaimer Certain statements contained in this presentation 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. Moody’s outlook for 2016 and other forward-looking statements in
Slide 4: Logistics
Logistics » All of today’s sessions will take place in rooms C/D (where you are now) » All refreshment breaks, including lunch, will be in rooms A/B (next door, to your right when you exit) » We ask that you hold all questions until Q&A – Ray McDaniel, President & CEO, will take Q&A during the Closi
Slide 5: Agenda
Agenda Time Room Topics Speaker(s) 7:45 - 8:30 am A/B Registration / Breakfast 8:30 - 8:35 am C/D Welcome Salli Schwartz, Global Head of Investor Relations and Communications 8:35 - 8:50 am C/D Opening remarks Ray McDaniel, President and CEO, Moody’s Corporation 8:50 - 9:35 am C/D Session 1: Moody's
Slide 6: Opening remarks
Opening remarks RAY MCDANIEL, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Slide 7: Introduction
Introduction » Moody’s is an essential component of the global capital markets, providing credit ratings, research and analytical tools and services that contribute to open and integrated financial markets » Our long-term opportunities are very much intact » However, the macroeconomic environment ha
Slide 8: Full year 2016 guidance as of September 28, 2016
Full year 2016 guidance as of September 28, 20161 Current guidance as of Last publicly disclosed Moody’s Corporation September 28, 2016 guidance on July 22, 2016 Revenue: Increase in the low-single-digit % range NC Operating Expenses: Increase in the mid-single-digit % range NC Operating Margin: App
Slide 9: Reconciliation of EPS guidance
Reconciliation of EPS guidance Year Ended December 31, 20161 Diluted EPS attributable to Moody’s common shareholders – GAAP $4.70 - $4.80 FX gain related to a subsidiary reorganization (Approximately $0.18) Restructuring Approximately $0.04 Diluted EPS attributable to Moody’s common shareholders – N
Slide 10: The macroeconomic environment is becoming more complex, not less
The macroeconomic environment is becoming more complex, not less CORE CREDIT THEMES MACRO ENVIRONMENT SECULAR TRENDS POLITICAL RISKS STABILIZING GAINING TRACTION ELEVATED Supportive Stabilizing Environmental Trade Election Monetary Technology Growth Risks Protection Risk Conditions » Emerging » Grad
Slide 11: We manage through cyclical conditions, while focusing on structural market evolution
We manage through cyclical conditions, while focusing on the deeper pull of structural market evolution Factors Impacting Ability to MIS MA Our Business Control Macro and » Subdued GDP growth, » Riskier markets should drive demand for our Geopolitical / LOW unprecedented rate environment, products a
Slide 12: In a world of heightened complexity, standards become more valued
In a world of heightened complexity, standards become more valued Moody’s Investors Service: Why are ratings Moody’s Analytics: Strengthening Moody’s valued? position in financial risk management » Common language for market participants » Moody’s Analytics’ information, tools and services » Histori
Slide 13: MIS is focused on operational excellence
MIS is focused on operational excellence, ensuring our position at the forefront of risk-sensitive financial markets » Providing high-quality ratings, research and products ˗ Top of mind status with investors for credit opinions and research ˗ Rating performance defines credibility ˗ High quality co
Slide 14: MA has developed a strong foundation for growth
MA has developed a strong foundation for growth Strong Operating Track Record Unique IP » Credit research Unique IP » Quantitative credit modeling and measurement 11% 11% 2008 2008- – 2015 2015 » Analytical calculations for regulatory and CAGR revenue accounting applications CAGR Scale and Global Re
Slide 15: Moody's long-term growth opportunities are intact despite macro challenges
Moody’s long-term growth opportunities are intact despite macro challenges Debt market Disintermediation Growth in Moody’s MA and MIS pricing issuance driven of credit markets in both Analytics driven by initiatives aligned with by global developed and emerging further penetration value; affected by
Slide 16: Session 1: Moody's Investors Service
Session 1: Moody’s Investors Service ROB FAUBER, PRESIDENT, MOODY’S INVESTORS SERVICE MICHAEL WEST, MANAGING DIRECTOR, GLOBAL RATINGS & RESEARCH JIM AHERN, MANAGING DIRECTOR, HEAD OF GLOBAL STRUCTURED FINANCE
Slide 17: Introduction
Introduction » Solid issuance outlook despite continued low global growth in the near-term » Securitization market showing post-crisis resilience, offering global opportunities » We continue to invest in our business to optimize our operations and create greater efficiencies while thoughtfully manag
Slide 18: Session overview
Session overview 1. Issuance environment 2. Spotlight on structured finance 3. Strategy and investments 4. Concluding thoughts Moody’s Investor Day 2016 18
Slide 19: Issuance environment
1 Issuance environment Michael West Managing Director, Global Ratings & Research Moody’s Investor Day 2016 19
Slide 20: MIS is a truly global business and manages through cyclical conditions
MIS is a truly global business and manages through cyclical conditions » There is substantial differentiation between world Expansion Slowdown economies’ current positioning UK across the growth cycle India China » Despite near-term macro challenges, long-term growth US opportunities are intact » Gl
Slide 21: Issuance growth has plateaued as rates have stayed lower for longer
Issuance growth has plateaued as rates have stayed lower for longer Global Long-Term Interest Rates and Rated Non-Financial Corporate Issuance 6% $2,000 5% $1,500 4% $ Billions 3% $1,000 2% $500 1% 0% $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Global Moody's-Rated Non-Financial Corporate I
Slide 22: Corporate maturity walls provide a tailwind for future issuance
North America and EMEA non-financial corporate maturity walls provide a tailwind for future issuance ~$3.0 trillion of refunding needs in the next four years Debt Maturities: North America and EMEA Moody’s-Rated Corporate Bonds and Loans Source: Moody’s Investors Service. Total debt maturities repre
Slide 23: Debt capital market penetration continues
Debt capital market penetration continues » Disintermediation of credit is an ongoing trend in the global capital markets » European companies have historically relied more on banks than their US counterparts, but are increasingly turning to the bond market » China is leading emerging economies with
Slide 24: Issuance in current and improved environment
Issuance in current and improved environment Base case – Current environment Upside case – Improved environment Global GDP Growth 2% - 3% » Meaningful uptick in global GDP growth US 10Y < 2% » Moderate increase in interest rates German 10Y < 1% » Global M&A activity increase towards 2015 levels Japa
Slide 25: Spotlight on structured finance
2 Spotlight on structured finance Jim Ahern Managing Director, Head of Global Structured Finance Moody’s Investor Day 2016 25
Slide 26: Securitization-based products finance roughly 20% of global funding needs
Securitization-based products finance roughly 20% of global annual markets-based funding needs Global Bond Market Annual Issuance, 2007 - 2015 US - Securitized US - NonSecuritized Europe - Securitized Europe - NonSecuritized Asia - Securitized Asia - NonSecuritized 2007200820092010201120122013201420
Slide 27: Securitization markets show post-crisis resilience
Securitization markets show post-crisis resilience… but divergent trends – US maturing, EU recovering, Asia expanding Global Securities Market Annual Issuance, 2009 – 1H 2016 US - Private-Label US - Agency Mortgage Europe - Securitization Europe - Covered Bond Asia - Securitization 20092010201120122
Slide 28: Structured finance regional trends and cycles
Structured finance regional trends and cycles United States Europe Asia Pacific Mature Recovering Expanding » After 6 straight years of » 2016 is seeing an upward » Securitization has potential double digit growth, 2016 trend in issuance volume to outstrip GDP growth YTD issuance volume is in after
Slide 29: Focus on US regulatory developments affecting securitization
Focus on US regulatory developments affecting securitization » Risk Retention rules (minimum 5% “skin in » FRTB (Fundamental Review of Trading the game”) are causing “indigestion” for Book) Bank Regulation hurts secondary ‘originate to distribute’ securitization markets for securitization as banks a
Slide 30: Strategy and investments
Moody’s Credit Ratings Provide Tangible Value 3 Strategy and investments Rob Fauber President, Moody’s Investors Service Moody’s Investor Day 2016 30
Slide 31: Current operating environment
Current operating environment MIS relevance remains high… …but we are operating in a more complex environment » Strong market coverage and » Evolving competitive landscape investor feedback where stakeholders are pushing for greater competition » Credit sensitive environment » Issuers face increasin
Slide 32: MIS seeks to differentiate as the Agency of Choice
MIS seeks to differentiate as the Agency of Choice Proven rating accuracy and Focus on research deeply experienced leadership analysts Rating Research & Quality Insight Value Service Expanded sales Proposition Level Improving the and marketing issuer / investor activities in experience Commercial Gr
Slide 33: Proven rating predictiveness, deeply experienced analysts
Proven rating predictiveness, deeply experienced analysts » Moody’s credit ratings rank-order credit risk and assign low ratings to defaulters well in advance of default » Predictive value of Moody’s ratings drives investor confidence Seven-Year Default Rates of Global Non-Financial Corporates as of
Slide 34: Focus on research leadership
Focus on research leadership » MIS research is deep, timely and relevant; market participants value MIS research as validated by share of voice1 and number of views Blockchain Thought Leadership “Robust, Cost-effective Topical & Applications Key to Unlocking Blockchain's Potential Credit Timely » Fi
Slide 35: Improving the issuer experience
Improving the issuer experience » Focus on delivering a best-in-class analytical and commercial experience for our issuers Analytical Commercial » Extensive analyst training » Contract simplification » Standardized process for onboarding » “How to Get Rated” page on new customers moodys.com » Issuer
Slide 36: Expanded sales and marketing activities
Expanded sales and marketing activities » New marketing function in the Commercial Group with material focused on Moody’s products, expertise and value » New platform to communicate to our issuers the level of investor engagement in their ratings and the research written on them Moody’s Investor Day
Slide 37: Illustrative value of a Moody's rating
Illustrative value of a Moody’s rating Example: 10 year $500 million corporate bond Unrated Rated by Moody’s $500,000,000 Bond $500,000,000 x 4.3% Interest rate x 4.0% = $21,500,000 Annual interest payments = $20,000,000 X X 10 years Tenor 10 years = $215,000,000 Lifetime interest expense = $200,000
Slide 38: Investing for the future to maintain our leadership
Investing for the future to maintain our leadership » We continue to invest in our people, technology and processes and controls to maintain our leadership around rating quality, research, service level and compliance » Better align tasks to skills so analysts can focus on core ratings, research and
Slide 39: Global presence, knowledge, expertise and engagement
Global presence, knowledge, expertise and engagement ~1,500 Analysts 2015 220+ Conferences 250+ Teleconferences 220+ Americas EMEA APAC Roundtables » 5,900 rated » 2,800 rated » 1,100 rated companies companies companies 115+ 3rd Party Conferences » $31 trillion rated » $21 trillion rated » $15 trill
Slide 40: Revenue growth in emerging markets remains strong
Revenue growth in emerging markets remains strong and we continue to invest in key international markets $228M $128M 2013 2014 2015 2016 » MIS Warsaw Office » MIS Shanghai Office (Increased stake to 50.1%) (Acquired 100%) (Increased stake to 100%) » MIS Mumbai Office » MIS Stockholm Office 1 Trailin
Slide 41: Spotlight on India
Spotlight on India » Moody’s ownership of a leading local agency is further deepening our presence and capabilities in India and enhancing the value we bring to issuers and investors #1 Cross Border (MIS) Rating Coverage1 » 100% coverage in 20151 » 46 cross-border ratings #1 Domestic (ICRA) Rating C
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 #1 Cross Border (MIS) Rating Coverage1 » 326 ratings (of which 211 are in Mainland China2) » 87% coverage in 2
Slide 43: Concluding thoughts
4 Concluding thoughts Moody’s Investor Day 2016 43
Slide 44: Concluding thoughts
Concluding thoughts » Our relevance remains high » Outlook on issuance is positive » Macro-economic factors may not provide as much tailwind as they have in the past » Increased competition and evolving regulatory boundaries place further pressure on our operating environment » However, we continue
Slide 45: Market participants view MIS as the Agency of Choice
Market participants view MIS as the Agency of Choice Moody’s Investor Day 2016 45
Slide 46: Q&A
Q&A ROB FAUBER, PRESIDENT, MOODY’S INVESTORS SERVICE MICHAEL WEST, MANAGING DIRECTOR, GLOBAL RATINGS & RESEARCH JIM AHERN, MANAGING DIRECTOR, HEAD OF GLOBAL STRUCTURED FINANCE
Slide 47: Session 2: Moody's Analytics
Session 2: Moody’s Analytics MARK ALMEIDA, PRESIDENT, MOODY’S ANALYTICS STEVE TULENKO, EXECUTIVE DIRECTOR, ENTERPRISE RISK SOLUTIONS
Slide 48: Key messages
Key messages » MA continues to perform well » Executing on plans for continued growth and steady margin improvement » Business environment plays to our strengths » Very well positioned to leverage experience and capabilities to seize good growth opportunities with our core customers and new customer
Slide 49: Since inception, MA has doubled in size
Since inception, MA has doubled in size… $1,200 $1,000 $800 Revenue $ Millions $600 $400 $200 $0 2008 2009 2010 2011 2012 2013 2014 2015 Added +$600 million in revenue in 8 years Added +$600 million in 8 years Moody’s Investor Day 2016 49
Slide 50: ...and established valuable businesses
…and established 3 valuable businesses $1,200 Research, Data & Analytics $1,000 » $653 million1 » 6% CAGR, ~90% organic $800 Revenue $ Millions $600 Enterprise Risk Solutions » $401 million1 » 18% CAGR, ~70% organic $400 $200 Professional Services » $149 million1 $0 » 44% CAGR, ~15% organic 2008 200
Slide 51: RD&A continues to deliver solid growth
RD&A continues to deliver solid growth Revenue Top Performing RD&A Product Lines Growth1 Economics 15% Structured Finance Analytics 11% Ratings Data Feeds 13% Credit Research 9% Total RD&A Revenue 10% 1 Represents constant dollar organic year-over-year revenue growth (1H 2016 vs. 1H 2015). Moody’s I
Slide 52: RD&A growth driven by retention, new sales and pricing
RD&A growth driven by retention, new sales and pricing Moody’s Investor Day 2016 52
Slide 53: Solid track record of growth for ERS
Solid track record of growth for ERS, despite short-term variability ERS: TTM1 Revenue Over the Last 5 Years ERS: YoY Revenue Growth by Quarter $450 45% $400 40% $350 35% $300 30% CAGR = 16% $ Millions 25% $250 20% $200 15% $150 10% $100 5% $50 0% $0 -5% 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
Slide 54: Professional Services: extending the brand into new markets
Professional Services: extending the brand into new markets and deepening relationships with customers Financial services training » Provider of global learning capabilities to banks, asset managers, regulators and non-bank financial institutions » Expansion into new markets: ˗ India: Signed MOU wit
Slide 55: Moody's Analytics is a global franchise
Moody’s Analytics is a global franchise… Global business Scale and worldwide reach » 4,700 institutional clients worldwide » 25 offices » 53% of 2015 revenue generated from » More than 700 technology professionals customers outside the US » More than 500 sales professionals » Customers in 140 countr
Slide 56: ...with a distinguished reputation worldwide
…with a distinguished reputation worldwide American Banker Year(s) Insurance Risk Year(s) FinTech Forward 2014, 2015 Best Solvency II Solution 2014, 2015 The Asian Banker Year(s) Best Data Management Solution 2013, 2014 Liquidity Risk Technology Project of the Year 2016 Best Economic Scenario Genera
Slide 57: Business environment plays to our strengths
Business environment plays to our strengths Customer Challenges Solutions Required Insightful, authoritative analysis and unique data Macro » Credit analysis and company financials Uncertainty » Interpretation of macroeconomic data » Risk analytics on companies and securities Data management, capita
Slide 58: Multiple avenues to seize demand
Multiple avenues to seize demand Continuous improvement of content and user experience to Product reinforce MA’s unique value proposition for its customers enhancements Integrated Enhanced Multichannel experience content & delivery coverage Ease of use More value Ubiquity » Research » Supplemental »
Slide 59: Multiple avenues to seize demand
Multiple avenues to seize demand Expansion Build on experience with largest financial institutions in developed markets to broaden and deepen customer base into new markets Leverage existing Adapt product Adjust sales capabilities offering deployment » Credit analysis » Customize/ » Respond to new »
Slide 60: Increased focus on innovation and technology
Increased focus on innovation and technology 1 Key technology trends Energize MA’s focus on innovation » Rapid advances in 2 technology Anticipate customers’ evolving needs & expectations » Increased technology focus from our customers » Proliferation of data 3 Engage in proactive assessment of new
Slide 61: Spotlight on ERS
Moody’s Credit Ratings Provide Tangible Value Spotlight on ERS Steve Tulenko Executive Director, Enterprise Risk Solutions Moody’s Investor Day 2016 61
Slide 62: ERS is a growth engine for Moody's Analytics
ERS is a growth engine for Moody’s Analytics ERS CAGR = 16% Over the Last 5 Years $1,200 ERS Revenue $1,000 1H 2016 vs. 1H 2015 $800 17% growth $ Millions 51% of MA growth $600 $400 TTM1 Revenue Mix $200 71% product 29% services $0 1 MA TTM ERS TTM1 1 Trailing twelve months as of June 30, 20
Slide 63: What we said last year about margin expansion
What we said last year about margin expansion Robust demand + Converging customer needs = Potential for operating leverage Sales » Features can be shared; can invest in Products common code base » More selective about the deals we do - Provide Services where we bring unique domain knowledge, not com
Slide 64: Now executing on the plan
Now executing on the plan What we said last year… Initial results suggest… Sales $300 TTM1 Revenue Products Products $200 Strategic $ Millions Services Lower Margin $100 Services Services $0 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Today 2020 » Operational adjustm
Slide 65: GGY acquisition supports ERS strategy
GGY acquisition supports ERS strategy Expanding footprint into insurance, benefiting from sharing best practices Moody’s provides: » Further expands Moody’s presence in insurance market segment Strong brand » Life insurance cashflow, valuation and ALM solution – a core Extensive (and often manda
Slide 66: Technology developments at a tipping point?
Technology developments at a tipping point? Our R&D efforts focus on three important trends » Customers using technology to gain insights, answering questions previously considered too difficult to ask Big Data » Architecture affords flexibility » Open-source tools lower cost of ownership » Customer
Slide 67: Key messages
Key messages » MA continues to perform well » Executing on plans for continued growth and steady margin improvement » Business environment plays to our strengths » Very well positioned to leverage experience and capabilities to seize good growth opportunities with our core customers » Increasing foc
Slide 68: Q&A
Q&A MARK ALMEIDA, PRESIDENT, MOODY’S ANALYTICS STEVE TULENKO, EXECUTIVE DIRECTOR, ENTERPRISE RISK SOLUTIONS
Slide 69: Session 3: Legal and Regulatory Update
Session 3: Legal and Regulatory Update JOHN GOGGINS, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
Slide 70: Session overview
Session overview 1. Update on ratings-related litigation 2. Regulatory update Moody’s Investor Day 2016 70
Slide 71: Ratings-related litigations – overall status
Ratings-related litigations – overall status » Significant progress in resolving ratings-related litigations filed since 2007 – In the US, nearly five dozen cases have been filed, and fewer than 10 of the cases naming Moody’s as a party remain open – Outside the US, we have 2 open cases, and more th
Slide 72: Ratings-related litigation – selected US appellate court precedents
Ratings-related litigation – selected US appellate court precedents » IN RE LEHMAN BROTHERS MORTAGE-BACKED SECURITIES LITIGATION – Second Circuit 2011 – A “rating issued by a Rating Agency speaks merely to the Agency’s opinion of the creditworthiness of a particular security.” – A rating agency’s li
Slide 73: Ratings-related litigation – selected international rulings
Ratings-related litigation – selected international rulings » Moody’s has been very successful in getting international courts to consider and in some cases adopt reasoning of US courts – E.g., Israeli court recently cited US cases in concluding the standard of liability for a rating agency must be
Slide 74: Regulatory update – general overview
Regulatory update – general overview » The legislative landscape is relatively stable » Moody’s has made substantial IT and other enhancements over the past several years that enable it to operate effectively within the new legislative landscape » Moody’s is now examined by: ─ SEC (on an annual basi
Slide 75: Q&A
Q&A JOHN GOGGINS, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
Slide 76: Session 4: Financial strategy
Session 4: Financial strategy LINDA HUBER, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER DAVID PLATT, MANAGING DIRECTOR, HEAD OF CORPORATE DEVELOPMENT
Slide 77: Session overview
Session overview 1. Financial overview 2. Capital allocation strategy 3. Issuance update 4. Corporate development Moody’s Investor Day 2016 77
Slide 78: Key messages
Key messages » Delivered strong financial performance and an attractive total shareholder return versus information services peer group1 and the S&P 500 » Stock price has proven resilient following recent macro-driven declines and P/E multiple is in the middle of the range of peer group1 » Long-term
Slide 79: Financial overview
1 Financial overview Linda Huber Executive Vice President and Chief Financial Officer Moody’s Investor Day 2016 79
Slide 80: Strong total shareholder return vs. peers and the S&P 500
Strong total shareholder return vs. peers and the S&P 500 Total Shareholder Return (Last 5 Years)1 290% 287% 240% 190% 140% 124% 113% 90% 40% -10% Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 MCO S&P 500 MCO Peer Group 2 1 As of September 23, 2016. Source: FactSet. 2 Includes CLGX, DNB, EXPN, FDS, INFO
Slide 81: Resilient stock price performance following macro-driven declines
Resilient stock price performance following recent macro- driven declines MCO Stock Price Performance1 Rebound Pre-Brexit high 9/23/16 $115 $109.27 6/23/16 $101.70 Investor Day 2015 $110 9/30/15 $98.20 Rebound: Stable market Q1’16 Earnings $105 3/4/16 4/29/16 $95.40 $95.72 + 11% $100 $95 Q2’16 Earni
Slide 82: Moody's P/E multiple is in the middle of the range of its peers
Moody’s P/E multiple is in the middle of the range of its peers Moody’s P/E Multiple vs. Peers 30x 26x 25x 22x 20x P/E Ratio 16x 15x 10x 5x 9/23/2011 9/23/2012 9/23/2013 9/23/2014 9/23/2015 9/23/2016 Range of Peer P/E Multiples MCO P/E Multiple Source: FactSet. Peer group includes CLGX, DNB, EXPN, F
Slide 83: EPS CAGR of 14% since 2011 mostly driven by business performance
EPS CAGR of 14% since 2011 mostly driven by business performance » 2006 – 2011: Below the line items offset loss of structured finance revenue » 2011 – 2Q16: EPS driven by growth in the underlying business EPS1 Growth Drivers 1 Amounts shown are Non-GAAP EPS. See Appendix for a reconciliation of Non
Slide 84: Consistently delivered strong performance; 2016 more challenging
Consistently delivered strong performance; 2016 more challenging Moody’s Investor Day 2016 84
Slide 85: Moody's long-term growth opportunities are intact despite macro challenges
Moody’s long-term growth opportunities are intact despite macro challenges Debt market Disintermediation Growth in Moody’s MA and MIS pricing issuance driven of credit markets in both Analytics driven by initiatives aligned with by global developed and emerging further penetration value; affected by
Slide 86: Full year 2016 expenses flexed to reflect challenging MIS revenue environment
Full year 2016 expenses “flexed” to reflect more challenging MIS revenue environment Expense Management Actions: ~$60 million » Reduced incentive compensation » Limiting hiring in MSS and MIS (have frozen budgeted hiring, are reviewing essential hires on a case-by-case basis) FY 2016 » Reducing othe
Slide 87: Targeted investments and cost control initiatives to enable margin expansion
Targeted investments and cost control initiatives to enable margin expansion 2012-Current » Business investments, 2014-2016 including new products, technology enablement Cost control focus on and acquisitions 2017 + flexible areas » Retention of key talent Realization of investments » Initial usage
Slide 88: MIS, MA and MSS all undertaking actions to manage expense growth
MIS, MA and MSS all undertaking actions to actively manage expense growth Moody’s Investors Service Moody’s Analytics Moody’s Shared Services » Revised organizational structure » High-margin product focus » Staffing shift to low-cost locations » Reengineering analytical support » Limited growth of l
Slide 89: Capital allocation strategy
Moody’s Credit Ratings Provide Tangible Value 2 Capital allocation strategy Moody’s Investor Day 2016 89
Slide 90: Disciplined capital allocation; returned ~$5 billion to shareholders since 2013
Moody’s has a disciplined approach to capital allocation; returned ~$5 billion to shareholders since 2013 Moody’s (2013 – 2016 YTD1) Peer Group Average (2013 – 2016 YTD1) 8% 5% M&A 29% 16% Capex 18% Dividends Return of 17% 71% Capital = 87% Share Repurchase Return of 36% Capital = 53% 1 Year-to-date
Slide 91: Reduced share count by 14% and increased dividend by 222% since 2011
Reduced share count by 14% and increased dividend by 222% since 2011 IR to Update » Average annualized net share count reduction of ~3% from 2011 to YTD 20161 » TTM3 2Q 2016 dividend payout ratio of ~30% (target payout ratio of 25-30%) » YTD 2016 average share repurchase price of $95.301 1 Share rep
Slide 92: Moody's has strong free cash flow generation
Moody’s has strong free cash flow generation $1,200 $1,000 $800 $ Millions $600 $400 $200 $0 1 2 2011 2012 2013 2014 2015 2016F 3 Free Cash Flow Net Income Capital Expenditures 1 Net income includes a non-cash pre-tax gain of $102.8 million in the second quarter of 2014 related to securing majority
Slide 93: Leverage metrics remain within criteria for current ratings
Leverage metrics remain within criteria for current ratings $3,500 2.5x $3,000 2.0x $2,500 $ Millions $2,000 1.5x $1,500 1.0x $1,000 0.5x $500 $0 0.0x 1 2010 2011 2012 2013 2014 2015 TTM 2Q 2016 EBITDA2 (L) Debt Outstanding3 (L) Gross Debt/EBITDA (R) » Current long-term credit ratings from S&P and F
Slide 94: Well-spaced maturity profile reduces refinancing risk
Well-spaced maturity profile reduces refinancing risk Debt Maturities $700 $600 $500 5-yr notes $ Millions $400 10-yr notes $300 12-yr notes1 $200 30-yr notes $100 $0 // 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2044 » No more than ~$1 billion in total maturing debt in any three ye
Slide 95: Significantly reduced the cost of our public bond portfolio
Have significantly reduced the cost of our public bond portfolio over time 1 The €500 million of 1.750% Senior Notes issued on February 27, 2015 converted to USD using the spot rate as of that date of $1.1314 to €1. 2 The $500 million of 4.875% Senior Notes issued on August 7, 2013 had a maturity of
Slide 96: Issuance update
3 Issuance update Moody’s Investor Day 2016 96
Slide 97: USD market: issuance views
USD market: issuance views Views on this page are from various investment banks. Issuance views are for both financial and non-financial US dollar issuance and may not align with Moody’s revenue categorizations. Investment Grade » Biggest August for investment grade bond supply ever as issuers take
Slide 98: Euro market: issuance views
Euro market: issuance views Views on this page are from various investment banks. Issuance views are for both financial and non-financial euro issuance and may not align with Moody’s revenue categorizations. Investment Grade » Very active market with near-record volumes and opportunistic issuance »
Slide 99: Key messages
Key messages » Delivered strong financial performance and an attractive total shareholder return versus information services peer group1 and the S&P 500 » Stock price has proven resilient following recent macro-driven declines and P/E multiple is in the middle of the range of peer group1 » Long-term
Slide 100: Corporate development
Moody’s Credit Ratings Provide Tangible Value 4 Corporate development David Platt Managing Director, Head of Corporate Development Moody’s Investor Day 2016 100
Slide 101: Moody's acquisition approach
Moody’s acquisition approach » Highly selective and disciplined acquisition program – Moody’s core business presents a high bar – Have not come across assets we view as must-have at any price – Have no acquisition quotas; we consider many and execute on few » Focused on acquiring businesses that are
Slide 102: Moody's acquisition activity
Moody’s acquisition activity Since 2005, we have analyzed 500+ companies, made 29 acquisitions / investments and spent approximately $1.3 billion Moody’s Investor Day 2016 102
Slide 103: Moody's acquisition requirements
Moody’s acquisition requirements Clear Industrial Logic Disciplined Financial Requirements » Complementary ratings, businesses, content, data, » IRR at / above Moody’s cost of capital analytics, risk management, etc., in existing and / or high growth markets » >10% annual cash return yield within 3-
Slide 104: Overview of recent transactions
Overview of recent transactions » RMBS loan-level data aggregation and technology » Extends loan-level coverage and strengthens position in securitized transactions » Tuck-in acquisition with attractive economics » Automated financial data collection and business intelligence solutions for the SME m
Slide 105: Moody's post-acquisition monitoring
Moody’s 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 f
Slide 106: Expanding Moody's addressable markets
Expanding Moody’s 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 ~$17 Billion ~$30 Billion Small and Medium » Find aspects of these areas Enterprises potentially interesting
Slide 107: Key messages
Key messages » Our business is solid and the bar for acquisitions is high » We have an active M&A program and are in the market » Transactions must have clear industrial logic and meet return requirements » We actively seek to grow and expand our total addressable market » The information services s
Slide 108: Q&A
Q&A LINDA HUBER, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER DAVID PLATT, MANAGING DIRECTOR, HEAD OF CORPORATE DEVELOPMENT
Slide 109: Closing and thanks
Closing and thanks RAY MCDANIEL, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Slide 110: Survey
Survey » Please provide your feedback on Moody's 2016 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 2016 110
Slide 111: Q&A
Q&A RAY MCDANIEL, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Slide 112: Speaker biographies
Speaker biographies
Slide 113: Moody's Investor Day 2016 presenters
Moody’s Investor Day 2016 presenters Salli Schwartz Global Head of Investor Relations and Communications Salli Schwartz is Moody’s Global Head of Investor Relations and Communications. In this role, Ms. Schwartz oversees Moody’s investor relations, media relations and internal communications for Moo
Slide 114: Moody's Investor Day 2016 presenters
Moody’s Investor Day 2016 presenters Rob Fauber President, Moody’s Investors Service Rob Fauber was appointed President of Moody’s Investors Service in April 2016. He is responsible for managing the operations of Moody’s rating business. Prior to this, Mr. Fauber was Head of the Global Commercial Gr
Slide 115: Moody's Investor Day 2016 presenters
Moody’s Investor Day 2016 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 116: Moody's Investor Day 2016 presenters
Moody’s Investor Day 2016 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 117: Moody's Investor Day 2016 presenters
Moody’s Investor Day 2016 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 5,300 employees. Ms. Huber has executive responsibility for the corpora
Slide 118: Appendix
Appendix |
Slide 119: Reconciliation of Non-GAAP financial measures to GAAP
Reconciliation of Non-GAAP financial measures to GAAP Adjusted Operating Income and Adjusted Operating Margin Reconciliation (in $ Millions) 2011 2012 2013 2014 2015 As Reported Operating Income $888.4 $1,077.4 $1,234.6 $1,439.1 $1,473.4 Operating Margin 39.0% 39.5% 41.5% 43.2% 42.3% Add Adjustment:
Slide 120: Reconciliation of Non-GAAP financial measures to GAAP (cont.)
Reconciliation of Non-GAAP financial measures to GAAP (cont.) Moody's Corporation Free Cash Flow Reconciliation (in $ Millions) 2010 2011 2012 2013 2014 2015 2016F1 Cash Flow from Operations $ 653.3 $ 803.3 $ 823.1 $ 926.8 $ 1,018.6 $ 1,153.6 Approximately $1.1 billion Less Adjustment: Capital Expen
Slide 121: Reconciliation of Non-GAAP financial measures to GAAP (cont.)
Reconciliation of Non-GAAP financial measures to GAAP (cont.) Moody's Corporation EPS Reconciliation 2010 2011 2012 2013 2014 2015 2016F1 Diluted EPS – GAAP $2.15 $2.49 $3.05 $3.60 $4.61 $4.63 $4.70 - $4.80 Legacy Tax (0.02) (0.03) (0.06) (0.09) (0.03) (0.03) - Impact of Litigation Settlement - - -
Slide 122: Reconciliation of Non-GAAP financial measures to GAAP (cont.)
Reconciliation of Non-GAAP financial measures to GAAP (cont.) Moody's Corporation EBITDA Reconciliation TTM ($ Millions) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2Q 20161 Net Income attributable to Moody's $753.9 $701.5 $457.6 $402.0 $507.8 $571.4 $690.0 $804.5 $988.7 $941.3 $889.4 Provisio
Slide 123: Investor relations contact
Website: http://ir.moodys.com Email: ir@moodys.com Moody’s Investor Day 2016 123
Slide 124: Moody's Investor Day 2016
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