S&p Global Inc. · NYSE:SPGI
S&p Global — The McGraw-Hill Companies — Q3 2011 Earnings Presentation
35 slides from S&p Global's earnings presentation, Oct 20, 2011
Slide 1: 3Q 2011 Earnings Call
3Q 2011 Earnings Call October 20, 2011 PRESENTERS Harold McGraw III Chairman, President and CEO Jack Callahan Executive Vice President and CFO Lou Eccleston President, McGraw-Hill Financial Donald S. Rubin Senior Vice President, Investor Relations Donald S. Rubin Senior Vice President, Investor Rela
Slide 2: Comparison of adjusted information to U.S. GAAP information
Comparison of adjusted information to U.S. GAAP information This presentation includes adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the Company’s operating performance between periods and to view the Company’s business from the sa
Slide 3: Performing well despite challenging market conditions
Harold McGraw III Chairman, President and CEO The McGraw-Hill Companies 4 Performing well despite challenging market conditions • 3Q 2011 results: McGraw-Hill Financial: Double-digit revenue and profit growth McGraw-Hill Information & Media: Double-digit revenue and profit growth from continuing o
Slide 4: MHP: Outlook for 2011
Performing well despite challenging market conditions The McGraw-Hill Companies As Adjusted 3Q 2011 3Q 2010 Change Diluted EPS* $1.21 $1.21 - 0.2% Revenue $1.9 billion $2.0 billion - 2.5% As Adjusted YTD 9/30/11 YTD 9/30/10 Change Diluted EPS* $2.27 $2.14 + 6.3% Revenue $4.7 billion $4.6 billion + 3
Slide 5: Pro forma of McGraw-Hill Markets: Strong results
Pro forma of McGraw-Hill Markets: Strong results • Strong results do not reflect benefits of combining businesses into one streamlined operating company McGraw-Hill Markets As Adjusted 3Q 2011 3Q 2010 Change Revenue $970.7 million $901.5 million +7.7% Op. Profit $333.0 million $309.6 million +7.6% O
Slide 6: McGraw-Hill Financial: Strong growth led by S&P Indices
Lou Eccleston President, McGraw-Hill Financial The McGraw-Hill Companies 10 McGraw-Hill Financial: Strong growth led by S&P Indices McGraw-Hill Financial As Adjusted 3Q 2011 3Q 2010 Change Revenue $348.5 million $ 294.3 million 18.4% Op. Profit $112.6 million $85.8 million 31.2% Op. Margin 32.3% 29.
Slide 7: Unlocking value at McGraw-Hill Financial
Unlocking value at McGraw-Hill Financial • Strong results flow from successful execution of innovative operating model: Successfully integrated our businesses Capitalized quickly on market opportunities Positioned to benefit from market dynamics 12 S&P Indices: 3Q revenue grows by more than 30% i
Slide 8: McGraw-Hill Financial: Strong growth in subscription revenue
McGraw-Hill Financial: Strong growth in subscription revenue • Accelerated sales and market share growth helped drive a 15.6% increase in subscription revenue S&P Capital IQ, Global Credit Portal, and the integration of TheMarkets.com • 3Q subscription revenue: $251.8 million Represents more than
Slide 9: Operating model: Unlocking value in assets
Operating model: Unlocking value in assets Acceleration, Differentiation, Sustainability Corporates, Investment Investment Wealth Credit Broker/Dealers, Customers Customers Commercial Banking Management Management Analysis Exchanges (End-Users) (End-Users) Lenders S&P Capital IQ Services & S&P Indic
Slide 10: McGraw-Hill Financial: Leveraging our global and flexible infrastructure
McGraw-Hill Financial: Leveraging our global and flexible infrastructure • Created S&P Indices Fundamental Data Package Applies S&P Indices’ unique and widely accepted index-level aggregation methodology Includes Compustat and Capital IQ fundamental data Solution offers more than 100 index-level
Slide 11: S&P's diversification strategy buffers market volatility in 3Q
Review of 3Q 2011 results McGraw-Hill Financial Standard & Poor’s McGraw-Hill Information & Media McGraw-Hill Education 20 S&P’s diversification strategy buffers market volatility in 3Q • Non-transaction revenue grew 9.5% • International revenue increased 9.1% • Largely able to offset 19.5% decline
Slide 12: Standard & Poor's results and new issue dollar volume
S&P’s diversification strategy buffers market volatility in 3Q Standard & Poor’s As Adjusted 3Q 2011 3Q 2010 Change Revenue $409.9 million $417.5 million - 1.8% Op. Profit $169.1 million $180.0 million - 6.1% Op. Margin 41.3% 43.1% As Adjusted YTD 9/30/11 YTD 9/30/10 Change Revenue $1.3 billion $1.2
Slide 13: Measuring U.S. and European new issue dollar volume
Measuring U.S. new issue dollar volume U.S. Corporates Investment Grade & High Yield , 2011 vs. 2010 $300 (in billions of US$) $200 $69.5 $64.2 $61.7 $73.3 $77.0 $41.3 $20.5 $100 $175.3 $150.4 $163.9 $138.3 $132.6 $90.0 $112.0 $0 1Q 1Q 2Q 2Q 3Q 3Q 4Q 4Q 2010 2011 2010 2011 2010 2011 2010 2011 2010 2
Slide 14: S&P: Lower costs, easier comparisons
S&P: Lower costs, easier comparisons • Tight grip on expenses in 3Q 3Q 2011: Expenses grew by 1.4%, excluding $7.3 million pre-tax gain on sale of certain equity interests in India in 2010 1H 2011: Expenses increased 19.3% • 4Q 2011: S&P will continue to keep a tight grip on costs 26 S&P: Outlook
Slide 15: Spreads remain wide; key to pick-up in 4Q new issue volume
Spreads remain wide; key to pick-up in 4Q new issue volume Basis 10/14/11 One Month 1/1/11 5 year Points ago Mvg Avg Investment-grade composite spread 222 209 177 232 Speculative-grade composite spread 758 743 538 688 Notes on Spread to U.S. Treasuries: Investment-Grade: Average tenor is nine plus y
Slide 16: Latest developments on litigation front
Latest developments on litigation front • On October 19: U.S. Second Circuit Court of Appeals affirmed the previous dismissal of two stock drop lawsuits Decision concerns the Gearren and Sullivan ERISA lawsuits brought against McGraw-Hill, our Board of Directors, and several executives Court of
Slide 17: Latest developments on litigation front
Latest developments on litigation front • Last week, S&P resolved a lawsuit brought by the Connecticut Attorney General’s Office in 2008 Lawsuit was in connection with S&P’s ratings for public finance bonds Under the settlement, S&P does not admit any liability or violation of law. S&P will give
Slide 18: Latest developments on litigation front
Latest developments on litigation front • In Australia, S&P is involved in a trial with a plaintiff looking to recover losses stemming from an investment in a Constant Proportion Debt Obligation (CPDO) We have pointed out that the plaintiffs were not permitted to purchase instruments under their o
Slide 19: Latest developments on regulatory front
Latest developments on regulatory front • CalPERS case: Court is scheduled to hear concluding arguments on October 28 Court will decide whether CalPERS has met its burden under California law to move this case to the next stage 36 Latest developments on regulatory front • Europe: Standard & Poor’s
Slide 20: Latest developments on regulatory front
Latest developments on regulatory front • United States: SEC issued a report on its examination of each of the NRSROs as mandated by Dodd-Frank • Key point: No material regulatory deficiency was found 38 Review of 3Q 2011 results McGraw-Hill Financial Standard & Poor’s McGraw-Hill Information & Medi
Slide 21: McGraw-Hill Information & Media: Strong results in 3Q
McGraw-Hill Information & Media: Strong results in 3Q McGraw-Hill Information & Media As Adjusted 3Q 2011 3Q 2010 Change Revenue $228.5 million $204.1 million + 11.9% Op. Profit $51.3 million $43.8 million + 17.1% Op. Margin 22.4% 21.4% As Adjusted YTD 9/30/11 YTD 9/30/11 Change Revenue $657.6 milli
Slide 22: Solid results at J.D. Power
Solid results at J.D. Power • Keys to growth in 3Q 2011: Increased demand for J.D. Power’s benchmark research data on the U.S. automotive market Expansion of the firm’s global business, especially in China 42 Review of 3Q 2011 results McGraw-Hill Financial Standard & Poor’s McGraw-Hill Information
Slide 23: Lower state new adoption sales weighed on School Education Group results
Lower state new adoption sales weighed on 3Q results for School Education Group • 3Q 2011 elementary-high school market proved to be a weaker quarter than originally projected School districts postponed or limited purchasing citing budget issues • El-hi market down 15.6% through August Open territ
Slide 24: The dampening effect of Texas' new allotment system
The dampening effect of Texas’ new allotment system • Under Texas’ new system for purchasing instructional materials: Each district receives an allotment based on its student population District decides which state adopted materials to buy District can use the money for various purposes and save
Slide 25: School Education Group reduced participation rate in state new adoptions
School Education Group reduced participation rate to 75% in 2011 state new adoptions • School Education Group weighed cost of developing print programs against opportunities in state new adoption market Did not participate in Florida K–5 science, all Texas programs • Capture rates in state new adop
Slide 26: Slow down in enrollment growth weighs on higher education market
Slow down in enrollment growth weighs on higher education market • Net sales increased in 3Q for three out of four of our main product lines, including career education • Digital products and services grew at a double digit rate McGraw-Hill Connect and McGraw-Hill LearnSmart have received very posi
Slide 27: 3Q 2011: Operating performance
Jack Callahan Executive Vice President and Chief Financial Officer The McGraw-Hill Companies 52 3Q 2011: Operating performance Revenue Adjusted Segment (Dollars in millions) Operating Profit (Dollars in millions) +7.7% -11.1% $971 $937 +7.6% -11.0% $333 $315 McGraw-Hill McGraw-Hill McGraw-Hill McGra
Slide 28: YTD 2011: Operating performance
YTD 2011: Operating performance Revenue Adjusted Segment (Dollars in millions) Operating Profit (Dollars in millions) +11.7% $2,950 - 8.3% +12.1% $1,777 $1,018 -18.1% $281 McGraw-Hill McGraw-Hill McGraw-Hill McGraw-Hill Markets Education Markets Education Margin 34.5% 15.8% 54 54 Corporate expense 3
Slide 29: Adjusted income from continuing operations
Adjusted income from continuing operations 3Q % YTD % (dollars in millions) 2011 Change 2011 Change Adjusted segment operating profit $648 -2.4% $1,299 +3.8% Corporate expense $41 -8.0% $119 +1.3% Adjusted operating $607 -1.9% $1,180 +4.0% profit Interest $18 -6.0% $57 -8.6% Tax rate 36.3% NC 36.3%
Slide 30: 2011: Another year of strong cash flow
2011: Another year of strong cash flow YTD YTD (dollars in millions) 2010 2011 Cash provided by operating activities $1,053 $1,038 Investment in prepublication costs ($99) ($105) Capital expenditures ($65) ($70) Dividends paid to shareholders ($221) ($225) Dividends paid to noncontrolling interests
Slide 31: Summary: Solid balance sheet and outlook
Summary: Solid balance sheet and outlook • Net cash and short-term investments As of September 30, 2011: $1.5 billion $149 million increase from June 30, 2011 • Share repurchases and acquisitions were largely funded by free cash flow • Gross debt: Approximately $1.2 billion Comprised of long-term
Slide 32: Growth & Value Plan
Growth & Value Plan Unlocking Value 62 Complex undertaking to separate global operations • Plan to complete separation by the end of 2012 • Multiple work streams under way; making good headway • Pursuing plan with great sense of urgency to complete work as quickly as possible 63
Slide 33: Making significant headway in extensive cost reduction program
Making significant headway in extensive cost reduction program • Cost reduction program involves disaggregating shared services and establishing two appropriately-sized corporate centers • Targeting at least $100 million in cost reductions over the next 15 months, based on initial analysis 64 Entere
Slide 34: Actively searching for a new CEO for McGraw-Hill Education
Actively searching for a new CEO for McGraw-Hill Education • We are working closely with Heidrick & Struggles 66 Summary • McGraw-Hill had a solid 3Q and first nine months of 2011 • Making progress to implement Growth & Value Plan • Results demonstrate rationale for decision to separate Markets and
Slide 35: 3Q 2011 Earnings Call
3Q 2011 Earnings Call October 20, 2011 PRESENTERS Harold McGraw III Chairman, President and CEO Jack Callahan Executive Vice President and CFO Lou Eccleston President, McGraw-Hill Financial Donald S. Rubin Senior Vice President, Investor Relations NOTE: A replay of this webcast will be available app
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