Q4 2019 Earnings Call
Good morning, welcome to S&P Global is fourth quarter and full year 2000, <unk> earnings conference call.
For this call is being recorded for broadcast all participants are listen only mode. We will open the conference too.
Questions and answers after the presentation instructions will follow at that time.
Access to webcasting slides go to Investor Dot SP Global Dot com.
The additional technical assistance, Please press star zero, but I will assist you momentarily.
To introduce Mr. <unk> senior Vice President of Investor Relations for S&P Global.
Sir you may begin.
Thank you. Thank you for joining us today for us to be Globals fourth quarter earnings call presenting on todays call or Doug Peterson, President and CEO.
I've seen Bergen Executive Vice President and Chief Financial Officer.
Sure news release with our fourth quarter.
2019 results earlier today.
If you need to copy to release it financial schedules they can be downloaded.
<unk> investor.
The global Dot com.
New this quarter, we had an appendix at the end of the slide deck. These slides will not be addressed during the webcast. However, you may access them by downloading a PD up on the slide.
From the web <unk> webcast fewer work from the core earnings page on our Investor Relations website.
In today's earnings release and during the conference call, we're providing adjusted financial information.
This information is provided to enable investors to make meaningful comparison.
<unk> operating performance between periods attitude.
Corporations business from the same perspective as management.
Earnings release contains exhibits that reconcile the difference between non-GAAP measures and the comparable financial measures measured are calculated in accordance with U.S. gap.
Before we begin I need to provide certain cautionary remarks about forward looking statements except for.
Information matters discussed in the teleconference. You may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including projections estimates and descriptions of future about.
Any such statements are based on current expectations at current economic conditions.
They are subject to risks and uncertainties that may cause actual results could differ materially result anticipated in these forward looking statements.
In this regard we direct listeners to the cautionary statements contained in our form 10, Ks and Qs and other periodic reports filed with the U.S. Securities Exchange Commission.
I would also like to call your attention to European regulation, any investor who has worked specs to obtain ownership, a 5% or more that'd be global should give me call to better understand the impact of this legislation on the investor and potentially the company.
We're aware that we do have some media representatives with us on the call.
However, this call is intended for investors and we would ask the questions for the media be directed to date Brito I too want to 4381 for seven one.
At this time I'd like to turn the call over Doug Peterson.
Thank you chip welcome today's earnings call I'm going to review our full year.
Your highlights and eat out will review the fourth quarter results in a moment.
2019 was a notable year for the company was solid financial results, while investing for future growth.
In 2019, we delivered 7% revenue growth and 12% adjusted diluted EPS growth, we generated margin improvement in every business.
At a $2.6 billion in free cash flow, excluding certain items, a 29 <unk> percent increase year over year.
We turned $1.8 billion through share repurchases and dividends and we'll initiate a 1 billion dollar assets or in the next few days.
We also didn't significantly on key initiatives, we made great.
Strides towards our Investor day target, we launched a number of new products with very encouraging early success.
As we continue to build for the future we made substantial progress on our 2018 growth in the investments in China, We launched a rating agency and started to market intelligence franchise and across the company substantially expanded or yes.
She activities and the plate automation and they only.
We added unique benchmarks data and analytics with acquisitions of for 51 Research libraries index entered data and the pending acquisition of Greenwich Associates. We also bolstered our S.G. capabilities with the acquisition of the E.S.G. wedding business from real because too.
With the progress achieved in 2018, we're well positioned to advance our strategic initiatives and financial targets and 2020.
On this slide we summarize our full year 2018 result.
This year, we delivered solid revenue growth of 7% exceptional margin improving 100.
40 basis points to 50.2%, a 2% reduction shares outstanding and solid EPS growth.
Every business delivered revenue growth in March and improving the 2019 indices led the way with 10% revenue growth in three of our four businesses delivered improved more than 100.
Basis points of adjusted operating profit margin.
As we indicated on the first quarter 2018 earnings call market intelligence investment spending in new initiatives increased during 2018, which impacted adjusted profit margin expansion for in line.
Our 2019.
Performance extended our succession solid revenue and exceptional adjusted operating margin growth.
We delivered a 6% four year CAGR for revenue and improved our adjusted operating profit margin by more than 1000 basis points over the past four years.
We're very.
Proud of the collective efforts of our employees to deliver such meaningful financial progress year. After year remarkable 19% compound annual growth rate of adjusted diluted EPS over the last four years.
2019, adjusted diluted EPS growth was lower than the for your Cagar do the increased investment.
I think that we outlined for you a year ago.
This is a slide that we shared our investor day in May 2018, powering the markets of the future. It's the framework, we used to allocate investments to where we can most deliver growth.
We'll continue to invest or a core businesses in adjacent cease to.
Fuel revenue momentum through improving our products, adding new datasets and entering new geographies.
We'll continue to invest or a foundational capabilities that are necessary for long term results.
We're particularly pleased with the success of a number of products that we launched in 2018.
Our lunch of a ratings franchise in the Chinese domestic bond market was the most publicize new product we're building a business from scratch and the education market participants is a pivotal to its success.
That end, we met with over 1600 investors in issuers. During these meetings, we've consistently found a genuine demand for high quality objective.
Transparent reliable ratings in China.
With six ratings issued to date, we expect adoption to steadily increase in the coming years.
Ratings U.S.G. evaluations were launched as a cross sector relative analysis of an entity's ability to operate successfully in the future and optimize long term stakeholder value in light of its natural.
All in social environment, and the quality of its governance.
Once again education is important and we've been meeting with potential issues around the world to discuss our east you evaluation to date, we publish six years chills valuations and expect adoption to increase quickly in 2020.
After S&P Dow Jones indices.
Introduced yes, you versions of our most recognized indices. There was considerable interest among our partners to create Ats based on these indices you'd be S. Dws and state Street has each launched an ATM based on the S&P 500, MSG index as the end of 2019 easy T S that collectively.
Past $450 million anyway.
The micro E mini futures have been touted as one of C. N. These most successful launches with over 44 million contracts traded by year it.
After the introduction of low sulfur marine fuel prices, well see a me and I have launched new futures contracts.
600.
67000 contracts traded in 2018.
Momentum is building is more than half of those contracts were traded in the fourth quarter.
On the third quarter conference call. We're just textual data analytics for earnings Conference calls. The team is generally 214000 earnings calls for more than 10.
The companys, providing over 600, maybe 80 million sentiment behavioral scores with history that goes back to 2004.
True cost launched their climate change physical risk dataset in the fourth quarter to help companies investors understand their exposure to physical risks and report in line with Tcfs de recommendations.
Good.
Dataset covers six climate change physical risk indicators, such as heat waves and coastal flooding.
For more than 15000 companies and 500000 underlying assets with analytics supporting various climate change scenarios.
In 2019, we continue to invest in.
Yes, she benchmark data and analytics, we announced acquisitions of one of the most widely recognized leaders in E.S.G. data with the Iasci ratings business for Robeco soon.
Unique intelligence expertise and data covering high growth emerging technology segments with 451 research a global provider of information benchmark price assessments.
For the waste industry with labor ice Endex.
Benchmark prices news in the analysis on the Canadian natural gas market with entered data and data analytics and insights to the financial services industry with crystals pending acquisition of Greenwich Associates.
In aggregate during 2019, we invested approximately 260 million.
<unk> on these acquisitions.
We also streamlined our operations for the couple of small divestitures.
[laughter].
As we increasingly embed technology into the fabric of the company.
We want to not only improve our product offerings, but also increased operational excellence.
Automation is a.
Each part of this effort. This slide lists some of the key projects implemented all discuss two of these today.
10 shows gripe, which we highlighted on the third quarter earnings call well now Prost process preliminary transcripts, where nearly all of the 33000 calls posted to the global platform each year.
You've been editors.
Refine and approve the final version to meet our customers' needs scribe has enabled us to increase or coverage by 1500 companies for 2020 with no head count increased and expected production cost savings of about 35% compared to 2018 before scribe was launched.
Robotic process automation as a company wide.
Program employees across the company were challenged to see if our P.A. could be used to automate routine tasks and by working with a small team of RPK experts projects identified where employees have saved an estimated 247000 human hours by automating 218 processes in 2018.
Both our ratings business or indices business can be impacted by short term market movements and I'd like to put some of these movements into perspective, starting with 2019 debt issuance.
Global issuance increased 6% in 2018, the most noteworthy gains were the 51% increase in high yield and the 21.
In person increasingly as public finance.
Leverage low new issuance activity declined 23% as many issuers chose to utilize the high yield market rather than take out a very close.
This slide puts high yield and leveraged loan issuance into perspective.
Well high yield issuance was up.
Considerably in 2018, the combination of high yield and leverage loan issuance was consistent with the 10 year average.
The bars on these charts to pick the volatility of leveraged loan volumes in both of us in Europe.
The lines to pick the percentage of the loans these loans that we rate in 2019.
Well at 89% abuse leverage loans and 92% of European leverage loan.
Turning to industry trends affecting or indices business. This chart depicts the continuing outflows were actively managed U.S. mutual funds into index based E gifts and mutual funds. There are several reasons for this.
Trends, including growing institutional retail adoption searched for transparent lower fee investments globalization of passive investing and the growing need for more complex passive solution.
We continue to work with the markets to fried the most comprehensive collection of index solutions.
Specifically to.
Yes, you m. associated with or indices, we saw an increase in 2018 due to significant market appreciation combined with product inflows for the full year market appreciation at a $333 billion and inflows added $58 billion, bringing our year end you until the 1.7 trillion dollars.
Hmm is up more than 150% since the end of 2013.
Now I'd like to shift toward 2020 outlook.
Our latest GDP forecast was developed in December 19th in December 2019, or economist expect 2020 global GDP growth.
3.3% slightly higher than the 2019 forecast to 3.2%.
Lower growth in the U.S., Europe, and China is expected to be more than offset by growth in Russia, Turkey, Mexico and Brazil.
Please note that this doesn't take into account any potential impact from the outbreak of the Corona virus.
The latest global refinancing study would it was issued earlier this week the total amount of global debt maturing in this study is 10.8 trillion dollars over the next five years. This is up slightly from the 10.6 trillion dollars highlighted in last year's study.
The chart on the right depicts the global high yield debt maturing over the next.
Five years it totals to 2.5 trillion a point to up from 2.3 trillion in last year's study.
The report notes that maturities, a pure largely manageable in the near term as monetary easing by multiple central banks is contributing to favorable funding conditions for companies, particularly those with higher credit quality and about.
77% of the debt through 2024 is investment grade.
The company updated its 2020 bond issuance forecast.
Report issued last week, excluding international public finance issue is expected to increased 5%.
This is unchanged for the previous forecast that we shared with you on.
The third quarter earnings call.
As you saw in an earlier slide we use our framework powering the marks as future, including six foundational capabilities to set our goals and allocate resources.
For 2020, here's some of the top initiatives aligned to this frameworks. Some of these are new for 2020, well many or more.
Your initiatives that we discussed in 2019.
Under global we believe that we're in a unique position to bring additional transparency and independent analytics to the capital markets in China.
Both ratings in market intelligence will continue their efforts in this important market.
Outside China, both platts and ratings will be extending their commercial presence.
It's in Asia.
Under custom orientation, we continue building the market intelligence platform in ratings, we want to make the vast array of models and data that would create a during the ratings process available to issuers to ratings 360, and the fixed income investors through ratings directed ratings Express.
We're simplifying platts three.
Hundred plus product offerings and grouping them into about a dozen commodity classes. This will help customers better understand the full breadth and depth of our offerings within a comedy club.
And the innovation after acquiring the ESG ratings business from a big assume we're now integrating their data methodologies with ours. This will bolster our ESG products.
At Jefferies.
Our data marketplace will help clients navigate and linked increasing volumes of new and unstructured data in 2020, we'll introduce weather satellites foot traffic and the FDA data amongst others linked to market intelligence and platts data.
In addition, our customers are demanding increased private.
The newness and meet coverage on the desktop.
We're also working to launch in expanding suite of proprietary claim in analytics covering both physical risk and transition was on the desktop and express seat and we're integrating true cost data with our equity portfolio analytics and our credit analytics products.
Under.
Oh, Gee, we're increasingly utilizing technology to improve the customer experience and 2020.
An example is the success the platts and can show achieved in 2019 to dramatically accelerate the market on close process for dated Brent while unleashing best in class real time analytical and data visualization tools for our customers.
Another can show project is omni search after beta testing with 1300 customers, we plan to bring omni search into production on the market intelligence platform in 2020.
Under operational excellence, we want to expand our successes with can show and did ingestion and continue to leverage in house, our PPA and third party.
He technologies to expand automation.
Under people, we want to continue to raise a technological accumulative every employee tour essential Tech program and expand the capabilities or technologist stored data Science Academy, and we'll maintain our foundational commitment to diversity and inclusion.
And now I'd like to turn the call over.
Steenbergen, who provide additional insights into our capital plans and financial performance ate out.
I think your dog and welcome to all of you will Nicole.
Let me start with our fourth quarter financial results revenue increase to 13% adjusted corporate and allocated <unk> increase by 27% due to higher incentive compensation and professional fees.
Just a total expense increased to 12% due to a higher incentive compensation and investment spending this let's do a 40 basis points improvement in our justice operating profit margin.
The increase in the tax rates was due to an unusually low rate in the fourth quarter of 2018.
Noted a year ago, new tax regulations related to U.S. tax reform were issued into fourth quarter of 2018, which altered our previous assumptions.
Due to our share repurchase programs throughout the year or would they looted weighted average shares outstanding declined by 2% and finally, we achieved a 14% increase in adjusted that looted E.P.S. $2.53 during the fourth quarter.
Or a number of nongaap adjustments to pretax income this quarter, let me highlights the largest items.
During the quarter. It took advantage of lower interest rates to retire 800 million dollar in debt and replace it with 1.1 billion in new lower interest rate that.
<unk>, there was $57 million associated with the premium fate to retire bones early.
$11 million in restructuring charges in market intelligence and corporate we expect that this will result in an estimated $20 million an annual savings.
$30 million in deal related or more cessation.
This is a slide to to share at that hour invested day in May 2080 depicts a framework that we outlined to to show the area, where we most impact shareholder value and we have made great progress.
This quarter recorded revenue growth in every business with ratings, leading away with the gain of 24%.
We indicated on the first quarter 2019, earning school market intelligence encourage a substantial increase in investment spending which impact that it's adjusted operating profit margin.
The other businesses regard it gains in adjusted operating profits margin.
Here you see I had gone by business at the end of the last three years what off the most important changes in 2019, Boston creation of technology sensors in India, where we <unk> I.T. work that was previously handled by outside contractors well. This resulted in the.
Edition of 687 employees, we estimate that as will contribute approximately $16 million in annual savings.
We believe that funding organic growth projects, it's the best use of capital during the 2018 fourth quarter earnings School, we announced our plan to invest $90 million to $110 million in new projects to fuel additional future organic growth.
Many of these items are multi year endeavors, we've made great strides flights in its financing these projects and ended up investing $102 million in 2019.
Well the items marked with a single Estrich have been completed I don't want to leave you with the impression that our work in E.S.G. is completed there still a substantial effort underway to incorporate the data and methods <unk> and continue to build out our product offerings. However, these efforts.
<unk> as part of business as usual spending by each business.
During 2020, we plan to and fast $150 million to continue to its <unk>. Many of the projects that the gum in 2019 as well as invest in several new projects. Once again about half of this investments that will be in markets intelligence the new items.
Are listed in rats and includes.
That's a meat product to build out our focus is not only to capture foundational data like financial statements and corporate structure for millions will fly with companies, but to compliment is with differentiated alternative data and risk signals.
Layer in analytical tools based on as a big credits methodology to give our customers.
Uniquely informed perspective on it to me companies they do business with.
Marketplace commercialization the marketplace storefront what include access to a robust catalog.
P global data, starting with market intelligence, and select flats contents and overtime extend across at full gamut of S.P.G.I. data assets.
So the third party data over to find a marketplace will be structured and linked to as a p. global data to create logical alternative data packages that can readily be consumed.
Laps benchmark acceleration <unk>.
<unk> shipping business, it's a small fast growing segment of the business covering tankers will be expanding coverage and building benchmarks <unk> dry bulk freight and container freight since shipping is linked to most of the other commodities, which flats assess it will help extends the value of our.
Ecosystems.
In addition, within petrochemicals hula introduce price assessments for recycled plastics. This aligns with increased emphasis on E.S.G. across the company no price reporting agency currently has benchmark status in container afraid or recycled plastics.
All of these investments are aimed at either growing revenue for enhancing EBITA.
At Investor Day, we introduced a 100 million dollar three year cost reduction plan was based on productivity improvements often through investments in support functions real estate technology and digital infrastructure I'm pleased to report to the off the our second year they've made.
Never going to progress towards the 100 million dollar original plan.
Tomatoes, we have achieved runrate savings of approximately $85 million. Examples include producing a real estate footprint by accepting space at our London office to <unk> in New York and our headquarters at 55 Water Street in New York.
We also combined data centres of short shorts and business services unconsolidated select workstreams from the businesses to centres of excellence, we anticipate further savings in the future from technology and digital infrastructure as these projects require more time to execute along with <unk>.
<unk> of our real estate footprints.
Now turning to the balance sheets.
We end up to hear what $2.9 billion of cash and cash equipped for lunch. During the first quarter. We expect this balance to decline due to payments for the new 1 billion dollar A.S.R. The closing off the acquisition of T.E.S.G. rating specialists from Robeco, Sam and and you'll incentive compensation paid.
<unk>, which always occur in the first quarter, Oh, what adjusted growth leverage increase to 2.0 times, but remains well within our target is range.
Free cash flow, excluding certain items increased 29% in 2009 team do $2.6 billion. This level is a bit higher than our 2019 guidance do too strong for for their ratings, rather new and improved receivable collections associated with the implementation.
Oh, a new order to cash system.
During the year, we were turned $1.8 billion <unk>, five and a half million shares and paid $560 million independence. In addition, we're actively working to fuel future growth through acquisitions and organic investments.
In 2019 hour turn of capital to shareholders equals 70% of 2019 free cash flow just was less than our target or 75% for good reason because the fourth quarter cash flow was higher than expected.
While we have already begun our 2900 and share repurchase program with open market for our chasers or approximately $120 million in January will initiate a new 1 billion dollar A.S.R. in the next few days.
Now, let me turn to the segments results, starting with ratings a search in high yield issuance in games in investment grade issuance resulted in a 24% increase in ratings for Avenue.
We reported in 18% increase in adjusted expenses for a merrily due to increased incentive compensation and investment spending all set partially by lower I.T. costs from insourcing.
Adjusted segments operating profit margin for the quarter was 57.7%.
2019 ratings delivered a 120 basis point improvement in adjusted segments operating profit margin to 57.2%.
<unk> increased primarily due to fees associated with surveillance and intersegment royalties, partially offset by lower new entity ratings.
In section of Avenue search do too strong bond rating activity offset partially like bank loan ratings.
Disliked depicts ratings racking you bites nth markets corporate increased 26% financial services increased 30% structured finance increased 24% and governments increased 43%, while the crystal and all that.
<unk> decreased 1%.
The chart on the right to <unk> additional detail.
Our structure revenue the strongest every outgrowth, we're in C.M.B.S.R. and B.S. and structured credit.
Turning to as a p. doubt Jones indices segments to deliver to 9% revenue growth, 6% adjusted expense gross and 10% adjusted segment operating profits girls.
Soon adjusted segments operating profit margin of 67.8% for the quarter for the full year adjusted segment operating profit margin increased 120 basis points to 69.2%.
Strong revenue growth during the quarter was strengthened by 27% increase in essence link feasts. This was partially offset by 35% decline and exchange traded derivatives, resulting from the elevated levels of market volatility. That's we experienced during the fourth quarter of 2018.
T indicator for our exchange traded during for this volume we're at more normalized levels in the fourth quarter compared to the extremely strong full hume into for Florida of 2018, as a B. 500 index options activity decreased 31% fix futures and <unk>.
Activity decreased 35% and activity at the C.M.U. equity complex decreased 28%.
Market intelligence delivered organic revenue, which excludes revenue from the acquisitions, primarily from 451 research enter divestiture of spy S. of 6% an active that's still use for growth of 10%.
So this was the first half a billion dollars revenue quarter for market intelligence ever.
Adjusted expenses increased 12% as roughly roughly half of the company's 2019 investment spending was directed toward the market intelligence projects as a result adjust the segments operating profits decreased 6% and do you adjusted segment operating profit margin decreased.
410 basis points, 34.4% for the food <unk> adjusted segments operating profit margin increased send basis boards, 34.2%.
Well the year over year adjusted operating profit margin decline with large into fourth quarter. As you can see discharge the quarterly adjusted operating profit margin, that's being fairly steady routes 2019, as we had signal before.
That's stop the largest catch Greek group, 1% organically as we know that lasco quarter growth in this country has been slowing for the past few quarters due to several industry trends lower industry growth in the destiny category. It continued competitive environment ends.
Evolving customer preference for desktop and data feats.
Timing of contract renewal also in fact that growth in the corridor.
In addition, we don't believe that desktop growth can reach its full potential until we have completed the building out the market's intelligence platform and transitions and material number of our customers who this next generation platforms.
Data management solutions realized 11% revenue growth this quarter once again benefiting from expansion and enhancement of the data feats business.
Risk services group, 10% with ratings express providing the greatest level growth as we continue to expend today dot feats portion of rich surfaces.
And now it's running to the final business segment, <unk> organic revenue growth, which excludes revenue from acquisitions of life Rice index and their data ended <unk>, Rick data of 2% revenue growth was negatively impacted by about 1% from U.S. sanctions.
Restricting our ability to conduct business in certain countries and another 1% from the timing of contract renewal.
Global trading service revenue increase to 5% due mainly to increase trading volumes, Ivan or an l. and G.L. and G. was particularly from but lower fuel oil activity tempered G.T.S. gross adjusted expenses declined 3% due to productivity improvements and discipline <unk>.
Control.
The fourth quarter adjust the segment operating profit margin increased to 50.4% full year adjusted segments operating profit margin increased 110 basis points to 50.2%.
Laps revenue growth lost the strongest and metals and agriculture, followed by power and gas. These categories have benefited from recent product launches such as Black Sea wheat, and LNG Petroleum group, 2%.
Beginning in 2020, we're changing our methodology for elevating technology expenses, the new methodology more accurately reflects usage.
<unk> version of our 2018 and 2019 board to leave results will be released in March in the meantime to help you with your modeling. This stable shows the expected pretax impact to 2020 expenses for each of the businesses.
During the Investor day in May of 2018, we introduced medium term aspirational targets for the company. We're pleased to use this morning's investor goal to fine tune do star gets into shared a progress we have made in just the first two years.
Target organic revenue growth of mid to high single digits each year during 2009 team or 404 businesses achieved this targets.
Retarget low double digits adjusted E.P.S. growth during 2019, we delivered 12%.
Are committed to return at least 75% of our free cash flow each year. In 2019, we were turned 70% fruit share repurchase ended buttons as our fourth quarter cash flow ended up being higher than we expected.
And we established adjusted operating profit margin levels that we've targeted to achieve by the end of 2021.
In 2009 team mates substantial progress with each of the businesses contributing to an overall 140 basis point improvement in the company's adjusted operating profit margin.
<unk> tightening the range for two of the businesses medium term outlooks for adjusted operating profit margins, where a narrowing market intelligence from mid to high thirties to mid thirties and indices from mid to high sixties too high sixties, well some of our inspirational targets have already been met we continue to work toward.
Fool achievement.
All of our invested today inspirational targets.
Next I would like to update you on can show.
Those capabilities are embedded throughout the company with projects underway in every business and it robust pipeline of additional projects.
<unk> enables considerably more at fence search functionality in our customer facing platforms for both structured and unstructured data they'd have to <unk> only source or released to select clients investment banking private equity and investment management in the second hospitals last year.
Production is expected to lounge on the market intelligence black for him in the middle of 2020 and at that time. The plan is for only search to be the default tool for old generalist users.
Entity linking uses machine learning to link data from different sources to the correct entities without errors and in a fraction of the time to to take our employees. We have successfully ultamate that the linking of more than 7 million entities in 2019 from you Clay Company House Brunch base pinched.
Why not guild data troop cost and several other alternative data providers now that we're up and running we anticipate linking an additional 20 million entities and 2020.
Technology has got to our time to market for new data by six month and reduced manual processing each by more than 260000 hours.
<unk>, it's an end to end surface. That's in ingest any document and provide the relevant data and information <unk> needs. Examples include F.C.C. findings or conference call transcripts, a beta version will be introduced to select clients in the next few months.
Markets on close it's the price discovery process used by slaps to determine commodity prices can show has two efforts underway internally. There is a project to optimize the price assessment process and get assessments out to clients earlier.
Externally, we are creating an interactive flat for him to offer clients in more dynamic an olympics offering <unk> insights around trends in full use bryce differentials stress movements and trading activity.
We estimate the project underway have to potential to generate a net present value equal to the food <unk> <unk>. We have made great strides and believes there is much more fell your generation to be achieved as we implement these and other projects over the next few years.
Now I would like to introduce our 2020 guidance disliked depicts our gap guidance and please keep in mind that our guidance reflects current spoke markets for x. rates.
Disliked shows our adjusted guidance and increase in revenue of mid to high single digits with contributions by every business segments.
<unk> allocated expense of $150 million to $160 million, you were latest or more cessation of $115 million to $120 million, then show retention plans of $10 million to $15 million.
Operating profit margin in a range of 50.32, 51.3% interest expense of 100 to 35 to one and and a $40 million a tax rate of 22.0% to 23.0%.
Diluted G.P.S., which excludes fuel related or more cessation of $10.40 to $10.60. In addition, we expect capital expenditures of approximately $90 million and free cash flow excluding certain items in the range of 2.62 0.7 Bill.
<unk>.
Over 2020 guidance reflects an increase in plans organic investments in new revenue opportunities and productivity programs. This guidance also reflects our expectation that global economy will continue to expense this year.
In conclusion, we delivered solar 2019 financial results, well, making great progress on productivity programs investment projects and new product launches were well positioned to continued with fans our strategic initiatives and deliver solak financial results again in 2020.
We look forward to update you on this progress S. Twentytwenty unfolds with that let me turn to go back over to chip for your questions.
Save out just a couple instructions for a phone participants to indicate you wished ask the question. Please crestar one and record your name.
Cancel withdraw your question Dobley press start to let me. So please limit yourself to two questions as two questions in order to allow time for other callers operator will not take our first question.
Thank you the first questions from Tony capital.
From Morgan Stanley you're in line and open.
You're spending.
Mmm.
Which was polygraph have previously shell totally understand but.
Most competitive.
And you just floored that margin target for that.
Slide 47, I guess.
There Ain't strategy.
Parking intelligent.
Just sending <unk>. Thank you.
Thank you Tony first of all is you know when we meet with our customers who are out in the markets listening to what are the needs as well as we understand what is one of the most important trends happening in business globally. It's about data and it's about technology market intelligence is the data engine of S. and P. global it's the distribution plan.
For ratings business plants is increasingly using the market intelligence platform as an S.P. global platform, we have data factories and expertise and data factories data sciences in those businesses that we can utilize in addition, it's a it's a platform for us for innovation as you heard and you know the projects that were working.
On whether it's the E.S.G. projects at cross all of this and P. global or the data factory. There is is one part of it's it's really important Oh, you understand that we're adding new data sets all the time into this business. So it is it is a very competitive business, we recognize that but for us when you think about the data revolution, that's going on.
Right now the capabilities, we need to distribution for a company. We we think it's the right place to this.
That makes sense.
<unk> you talked about the <unk>, they're different initiatives you'd have going on there just in terms of ratings clean I know, you're looking at being able to be more <unk> essentially.
The current.
Current news.
Making that I sort of determine which which credits.
Analysing <unk>.
Status on that and you know timing of.
Targeted to the implemented.
<unk>.
Guidance from from that.
Right exactly yeah.
Good morning, Tony This was about indeed potential has also several projects underway in ratings for example, with respect to surveillance with respect to to build the out off the ratings, we 60 platform and with respect to alternative credits indicators. So many of those initiatives are underway.
Parole you should look at can show initiatives for the company as a whole that will contribute about half of those in revenue enhancement and half in two efficiencies. We have mentioned to you that can show is now working across the whole company. So all businesses are taking advantage of this and we're very pleased with where we are with can show clearly.
<unk> compared to the original plan with respect to the number of initiatives, we haven't flights and the overall value generation, that's were able to chief with can show.
Thanks, so much.
Thanks, Tony.
Next question comes from one of my from Barclays. Your line isn't open.
Good morning, gentlemen, the first question is just around the whole E.S.G. initiative I know you said it wasn't done but I just wanted to trying to understand like what it meant by the data factory being complete on the new products and you know how to San fit into all this in terms of you know incremental monetizations all your assets.
<unk> well first of all when you hear probably other investors and other investor calls when you see what were the discussions over the last six months from investors from Davos et cetera, E.S.G. and climate transition and related topics or are really top of mind for investors as they think about climate.
Transition they think about the factors, which are important for companies and organizations to be successful. So within that trend. We took a step back 'cause you know about a year and a half ago and put in place of team that crossed all of this and P. global to design a future business model for us that would allow us to take advantage of those trends and there's a couple elements I want to men.
First of all we've decided that for own company, we need to operate at very high standards of E.S.G. So when it comes to the E.. We've done a T.C.F.D. reporting we have goals our own measurable goals for greenhouse gas emissions for plastic for paper et cetera in the S. were dedicated to D. and I community.
How we think about that across the entire company and then in the governance is you know we have the separation of the C.E.O. and the chairman and we have very strong practices that are bored. So in order for us to have a credible approach T.E.S.G.. We think it has to start in our own company. So then more to your question, we think that addressing the needs of.
Issuers of investors of acid owners of regulators of governments et cetera that we're gonna have to have a set of different types of products and solutions that we'll meet all those different needs and in order to do that.
We have a unified data approach at the centre, which includes the true cost and analytics now real because Sam as being built into that and we think that that's a way that we can start meeting all the different needs as I've said before on other calls I think we're in the second ending of this in a nine any game, maybe it'd be actually even more accurate to say that the that the.
Rules of the game are still being formulated but it's also important that we're at standard sitting boards like to T.C.F.D. This as B. and places like the World Economic Forum. Just finally, one other comment we've already launched many <unk> products, which I think or have been quite successful is you know true cost and and Sam on their own have.
Successful products, we've mentioned the S. and P. 500, E.S.G. and the weighting evaluations. We think we're off to a strong start but we think this is going to be a really important tool and area for all financial investors.
Got it and then just on the market intelligence side of things I guess, you know I think you talked about the desktop business, probably doesn't reaccelerate or you don't get paid out until you transition them like everyone to the market intelligence platform. So where are we on that in terms of timing.
You know with that and when we could expect desktop start doing better.
Yeah. This is gonna continue through 2020 and through 2020, we have various new data sets that we're adding in I mentioned, a couple of them earlier, which are whether F.D.A. data. We also have internal data sets ready and like true cost and would because Sam.
But in addition to that we have a program where we're starting to offer dual access to users throughout the year as we as we continue with the transition of the program. So by the end of the year. We expected we will have a a large percentage of the customers on dual access as you know there's a couple of really important to functionality in the <unk>.
Q platform that we want to make sure that we are very careful with the transition. It's screening it has to do it's X.L. plug ins things like that and so we want to make sure that were very conscious of the needs of the customers as we continue with this transition.
Alright, thank you.
The next question on the cues from Michael Cho from J.P. Morgan, you're let us know open.
Hi morning, and trying to follow up on the on your on the she points that you made <unk> what was the E.S. cheap performance broadly for for the company in general and what kind of expectations you have gone into into 2020.
And Michael we saw a significant growth in our revenue for E.S.G. across the company at the same time be fell slightly short from the revenue targets that we have disclosed to in our T.C.F.D. report to reason lost their that some of our initiatives, we had to slow down a bit down with respect to the acquisition.
Sam because this I'm acquisition provides us a coleman E.S.G. data platform Coleman methodology. So some of the new business that they should this we had to slow down in order to get in a better place to accelerate going forward again, so we're still committed to 40% cagar on our E.S.G. revenues.
For the next few years.
Okay, great and if I could just switch gears and it's one touch on on market Intelligence, China initiative.
<unk> you know with the thumb to go to market in China for market intelligence, specifically, what kind of customers are industries are you are getting out of there <unk> like like here I'm looking to go after perspective.
Thank you Yeah. This is the market intelligence platform in China launch is is based off of the similar proposition that we have in other markets round. The world, we see that the Chinese capital markets are starting to open up in fact, it was quite encouraging sit in the recent trade negotiations with U.S. in China, We saw a a lot of progress on the on the.
Opening up of of financial foreign financial players in China, and so if if you think about what the needs are the Chinese market. It's a Mandarin language and so in addition to providing mentor language of our own off shore data, we're taking into China were building relationships with credit shops, with a data providers et cetera to bring that traditional data we would have.
Of balance sheets financial statements corporate actions et cetera, certain types of news. So we're we're building out a a platform in Mandarin, which will be responsive to the needs of the of the new investors.
Thank you.
Thanks, Michael.
Next question is from Hamza, Missouri from Jeffries, your let us know open.
Good morning. Thank you got your reference you know try not <unk> Mark your talk for ratings companies and there's one other credit agreements <unk> do you think that creates extra complications for you I I know you sort of first mover, there and and and maybe you know how does that change the diner.
Makes where you where you started all in your long term start as either.
I I first of all a welcome homes, it's nice to hear back from you. We were so in China with it with the change in the financial markets. We think that there's plenty of room for many different opinions of the credit markets and that we will actually benefit from having other international rating agencies with a domestic presents using.
Similar standards that we have and in addition to that as I mentioned more broadly the the the overall message that the financial markets are going to continue to open is one that's very positive.
Okay and just on just on my follow up question anything investors should be looking out for you know as you think about for November 2020 year next year and backward impact your business positive or negative and and the reason I ask your you know you know when you're not tax reform that that really impacted to reduce business and and some people.
Clark off guard <unk>, how issuance laid out.
I I know, they're various scenarios here and nobody can predict sort of you know who.
Just anything positive negative you know, we we should be looking out for you.
Well as you know the the foundation of all of our businesses is less external factors political factors, it's much more related to fundamental economic growth interest rates the pipeline of him an a. transactions et cetera. Those are the those are the factors that have the largest impact on our opportunities and so those are the things that that will be.
Watching so if there could be some sort of the political impact on growth that might be the way that we were that we would be some sort of changes tour business, but for US right now what we're spending much more of a time and is looking at at factors that are going to be driving growth. The one in fact, I'd mentioned, which is maybe a little bit less political.
Because it's in the central banks is is negative interest rates when I meet with investors around the world one of the topics that people are still trying to figure out is what's going to be the long term direction of interest rates, where we see interest rates stay real low for a long time and so that is probably the one factor beyond girls that I also watch very carefully.
Alright, thank you so much.
Next question is from Andrew Nicholas from William Blair, Let us know open.
Thanks, Good morning.
First on the the medium term guidance change her market intelligence.
Was curious I mean is that.
Primarily due to the new I.T. allocation policy or is it also.
You know a structural changes in the level of investment you needed or believe you need from a competitive perspective.
Good morning, Andrew that's change indie aspirationally targets for markets intelligence narrowing it this to mid thirties is independent from the change in our technology L. location. So in other words, we would have done that anyhow independently. If we would have made to choose.
Change to do I location methodology or not if you look at margin market to intelligence margins for it. This year, we would expect dose to be more or less flats with 2019. Excluding this l. location change what you see it's two underlying trends one normal course of business margin.
Expansion and then to dilutive effects of some of the more recent acquisitions going in the other direction. So therefore, excluding the allocation change year over year more or less flats and then in 2021, we expect that margins will continue to expend again for market intelligence towards <unk> target level of <unk>.
Thirties.
I have to take into account that we are making dos initial significant investments with respect to our strategic project for marketing intelligent. So it is a bit of an impact you see where this year, but ultimately obviously those role that yields two additional benefits in terms of commercial position.
Revenue sales improvements and also March and expansion in the future.
Great. Thank you and then one on on class I think in your prepared remarks, you talked about the new investment plans. There your your ideas to accelerate some investments in the benchmark business. So I'm a topic I was hoping you could remind us what the typical product adoption curve looks like.
For a new benchmark just trying to get a sense for when you channel expect a new benchmark to start contributing in terms of revenue.
Yeah.
Thank you Yep benchmarks definitely take a while to develop a but on the other hand, there's a lot of new asset classes that either don't really have a strong benchmark or they're looking for much more liquidity or or global trading and we've had a approach over the last four or five years to start looking for edition of new types of asset classes.
Diversify us beyond traditional petroleum we've looked at we'd we'd just recently bought rice in the energy sector. We think that natural gas is a is a really important transition energy. We've just recently launched some new benchmarks hydrogen is one that we've just launched and ate out mentioned earlier [laughter] that weird.
Looking at recycled plastic but back to your the question that you have it does take years from three to seven years for benchmark to become a true benchmark when you're starting from scratch, which is one of the reasons like buying a company like life rice or enter data that already have benchmarks also allows us to accelerate or knowledge and expertise in in a new type of that.
Asset class.
Mmm.
[noise]. Thanks, Thank you.
Next question comes from Bill Warmington from Wells Fargo, you're a lot of snow open.
[noise] Oh come on every one.
So I I had a question on a market intelligence to the data market place that seems like a particularly competitive business and just wanted to ask what you're doing to differentiate you're offering versus the other competitors in the space.
Yeah. Thank you you're absolutely right, but it's for US we think of it is we bring the expertise in our in our data management and our ability to link and end up pulled data together. We also have we start with the position of strength that the core data that we already have is must have data whether it's ratings it's platter.
Energy data et cetera, but we're able to find partnerships of people, who don't have access to the kind of customer base. We do third party information some of it being from public sources in some of it being from a private sources. So we see this is an opportunity what's interesting for me when I move was it was our customers is how many of.
Them need data solutions ways that they can use their own data linked to the kind of data we have and we see this is a really necessary capability, we have to be competitive in the future.
Mm.
And for my second question.
I'd ask if you talk about the higher medium term March and target for indices and what's behind that.
Morning, Bill more or less if you look at the actual results for a deep index basin is we're already at the height 60 levels. So so that's the reason why we have narrowed arranged to effectively we're already today with respect to margins pretty index business.
Thank you very much.
Thanks.
Mmm.
Next questions from Crowkeeper from Huber Research partners are a lot of smoking.
Thank you my first question Who's on E.S.G. can you just talk a little bit about.
How you plan on pricing ratings assessments, if you will for E.S.G. going forward here as it can be and annual fee yours would be a large up let's see more of a surveillance feel like you're doing it on the traditional debt rating side of things and also along the lines. What is the annual run ready to be S.G. revenues right now, including real Pico Sam don't have a follow up question. Thank you.
Yeah, Let me answer the first one [laughter] and then I'll have the second part off to a about the the model that we have is an issue or pay type model, we find that being having access to management to be able to go meet with them to understand their entire E.S.G. program indepth as well as their their company and it's very important that.
One of the sex we look at in R.E.S.G. evaluation is the readiness of management there preparedness to look at across all the E.S.G. factors and we're starting off with a with a a single of fit issuance and then it will be something will be maintained over time, but we can provide you some more information as we have.
More more more volume, but in addition to the annual fee. They're also be [noise] I mean to the <unk> fit launched there will also be a a a surveillance feel along with that.
And that will answer the question on the back to our overall ears, g. revenues, including <unk> approximately $50 million <unk>, that's where we are the way you'll have to look at <unk> very strategic acquisition for the company. It is not the and an entity that.
With a load of revenues because the data sources stared were more use 40 investment process or <unk> itself as well as this was the main data source source underneath the Dow Jones sustainability index <unk>, if she index and other <unk> indices from our index <unk>, but now we.
<unk> these data sources, and particularly to time series that come with it that is very important we're able to commercialized is going forward. So <unk> you should see more as an opportunity to for us to address two very large ears j. market needs first of the needs to get to standards and secondly, they need.
Two cats to better quality data because most of the data today, it's outside in in this provides us with much more details based on the surveys that are being filled in by 1300 14, hundreds corporates around the world. So therefore do we see this is a very strategic acquisition debts would help us with acceleration Oh.
All right E.S.G. revenues in the future.
And then my.
Last question here on the ratings like he just remind us a year ago. What you were looking for for global debt issuance and put it on your data what did the year end up as and <unk>.
Tickle question is.
What was particularly better or worse than you guys were originally expected that I realize of course, a year ago, we've come up with typical fourth quarter of a tough store to the year and all that might be derogatory. The question I'm. Just curious what was mature we'd better or worse for sure original outlook for <unk> for 2019. Thank you.
We I'm I don't remember the precise number I'd, rather get back to the precise number of what we said for the year, but I know that we far exceeded so if you look at total debt issuance in 2019, it was up 6% overall, but it was [laughter] as usual the the mix was quite different than maybe what we thought it.
The beginning of the year corporate swear up about 34.5 per cent financial institutions were up 35% public finance was way up and if you recall, we were also coming off of of a what had been the 2018 tax reform impact of corporate that had stopped issuing if you remember there was a synthetic issue.
Instead of that had been happening when people were doing synthetic bond issuance too brink basically a cash so we'd seen 2018 do a lot of factors in 2018 that we were not quite certain words are gonna come out we I see now that the 2019 issuance forecast was actually flat flat to down.
In about 1%. So it was ended up being up 6%, but there's a combination of capital markets activity low interest rates mergers and acquisitions public finance market rebounded there was up over 50 per cent last year structured finance was actually down in in 2019, it was downed or 9% for that.
All year. So there were so there are a lot of movements in this and you can see that full year. We went ended up at 6% overall.
Up in corporate up and financial services public Finance actually I gave you the number before 51% was for the quarter of the year was 20%.
So if you look at those it the the mixed ended up being different to what we originally expected at the beginning of the year.
Right. Thank you.
Thanks.
Next question comes from Jeff Silver from B.M.O. capital markets. Your line is now open.
So much I know you typically don't give a specific segment guidance, but Dave out you kind of open up the door. When you were talking about market intelligence terms of what you're expecting for this year can we get a little bit more color for the other segments on margins as well.
I think to Jeff and I I realize I have invited you with that statements to off that's question with respect to top line, we expect to old businesses to achieve mid to high single digits revenue growth for this year, except for flaps for plants, the expectation should be more around mid single digits for 2020, but all all there.
Segments as well as the company as a whole think about mid to high single digits revenue growth this year.
<unk>.
Well the margins, we don't give really by by segments, but useful in the overall guidance arrange you'll 50.32 51.3 up from 50.2 for last year. So continued margin expansion underneath you should see days in a way off at 50 million nets increase of hours. So.
Dziedzic investment program from 102 to 150 million Oh stats by continued don't funding of those initiatives productivity programs efficiency programs operating laugh rich and therefore margin expansion also year over year.
My.
Slide 15, where you talk about total high yield any issue instead of leverage loan vine kind of staying at 10 year average I'm just curious when you have a mix from one to the other how does that impact margins in your ratings.
Thanks.
It it doesn't have that big of an impact on margins occasionally the leverage loan volume ends up being more repricings than it is actual new issuance, which is a is a much lower revenue piece, but the but the difference in pricing between the two is not that significant okay. Thanks, so much.
<unk>.
Next questions from Georgia talk with Goldman Sachs or a lot as the open.
Hi, Thanks. Good morning, you updated you're 2020 bond issuance forecasts and expect total issuance to be 5%, which is unchanged from or prior forecast can you discuss the nuances on what's changed within the the response issuance categories are funny.
There hasn't been much change on the issuance categories between the two forecasts the way that they're set up right now that we're looking at these as you know we look at the what is the maturity schedules, which are coming forward for different types of corporate financial institutions et cetera, We we have outlooks on on gross which we provide.
Did you some of our expectations on growth and then we also take a look at what's happening in the mergers and acquisitions field, what we see going forward, there and we talked to banks investment banks, but we see the corporate sector up about six per cent financial institutions are a little bit over 3% and then we see we believe there's gonna be pretty active activity in the public financing.
What's really picked up last year and be up about 5% and structured Fent finance, we see relatively flat.
Got it that's helpful. You've you wrapping your investments spent 150 million this year with half of the investments going to market intelligence. What do you think the keyed in some investment spending will be over the course of 2020, and what kind of a revenue lift do you expect from the investment specifically in Mark intelligence.
Yeah, you will see this more equally being divided over the four quarters. This year you recall last year. It was quite a ramp up in the second half of the year with investments spend for those strategic projects. This year, it should probably be a little bit more equal it's hard to give you a precise answer on when you see.
The the benefits showing up because it really depends on each of those initiatives some of the benefits are ready.
Our current <unk> think about some of the technology benefits for scribe the transcript business ink about some of the <unk> that we haven't place. So we will see the commercial benefits coming in later this year and in 2021 think about the ears g. initiatives T.S. you need market.
Place and some are a little bit further out think about the China initiatives doubts we really expect the revenue benefits to be in a few years in in the future. So it depends a bit by initiative of course, we have strong <unk> underneath all of them. So that we are really comfortable that those investments ultimately will fail.
In the right way economically for the company and our shareholders.
Got it very helpful. Thank you.
We will not take our final question from Joe suffering from Cantor Fitzgerald, or let us know open.
Hi, I should make mine like a six part question [laughter] I'm kidding.
[laughter], just too and you can be briefly the answers I'm I'm wondering about trying to figure out how the future catalysts are going to play out we've gotten a lot of questions on E.S.G.
Can you give us some sense of how big you see that as an opportunity and then what determines the winters. There I mean, everyone seems to.
Be kind of working on a land grab and I wanted to get your opinion on sort of how.
Determine who's going to win there.
Yeah, I I don't can't necessarily tell you what the and the games sizes, but this is going to become a very big initiative at all investors every investor. They meeting with recently is is coming up with some sort of an approach that they need to respond to asset owners, there's a demand coming from acid owners to understand within the investment.
Managers, what's inside of the portfolios, what's the climate impact puts a social impact et cetera, and there's very there's different types of investments that span from the cure impact investing to the that which is looking more to energy energy transition portfolio, but this my assumption here is that this is going to be large it's going to be.
Like a like a market intelligence type product over time, whether it's going to be the size of our entire market intelligence business or or a large segment within it that's the way we're thinking about it when you think about what's going to determine who are going to be the winters who's going to survive. In this we think that we're already seeing a a consolidate.
<unk>, starting to take place with us and others buying up some of the smaller properties you've seen that we bought true cost and we bought a room, because sam but what's going to create successes somebody who's going to have global reach they're going to have the highest quality products highest quality services. There are going to be able to have responsive products across multiple types.
Asset classes multiple types of needs. So we we see this as a scale business with multiple needs and we're going to have to have really good people that are driving is so those are the factors that we're putting in place to drive this but we see that global in scale are gonna be really would end up seeing the winter.
Okay, and then finally just to close the conversation on China.
We talked about some of the recent political changes there and the yeah virus aside.
How do you think about when that starts to be a material impact to numbers and and how big <unk> opportunity you get for you as well thanks.
The Joe overall, the China raping used for the company are less than 2% so into bigger scheme, the impacts would not be material for it or sold off the company in the future whatever is going to be the scenario. How this fire situation is going to play out.
Thank you.
Well, let me I'm just make a final comment first of all I want to think everyone for being on the calling for your questions. As you know, we're very pleased with the solid financial results and had in 2019 across the company and in addition to be being able to be responsive to the market's. We also we're very pleased that we can also invest for growth and you heard or excite.
<unk> about the different areas, where investing in marketplace E.S.G.S.M. me, China et cetera, and we think that those are important for us to drive with discipline continue to report how those are going at the same time, we have great people that are driving or day to day business ahead, very well. So we're very pleased with our prospects for 2020, and we look forward to keeping in touch with.
Throughout the year. Thank you very much.
That concludes this morning's call a P.D.F. version of the presenter slide is available now for downloading from Investor Dot S.P. Global Dot com.
Replays of the entire call will be available in about two hours to web cast with audio and slides will be maintained on has some people mobiles website for one year. The audio only telephone replay it will be maintained for one month on behalf of some people mobile we thank you for participating and we wish we could.
[noise].