Q1 2021 S&P Global Inc Earnings Call

Good morning.

Welcome to S&P Global's first quarter, 'twenty, 'twenty, one and earnings conference call.

I'd like to inform you that this call is being recorded for broadcast.

All participants are in a listen only mode. We will open the conference to questions and answers after the presentation and instructions will follow at that time.

To access the webcast and slides go to Investor day.

Global Dot com.

If you need any additional technical assistance. Please press star zero and that will assist you momentarily.

I would now like to introduce Mr. Chip Merritt Senior Vice President of Investor Relations for S&P Global Sir.

Sir you may begin.

And for joining S&P Global's first quarter 2021 earnings call and presenting on today's call are Doug Peterson, President and CEO and Eva seen Bergen Executive Vice President and Chief Financial Officer.

We issued a news release with our results earlier today, if you need a copy of the release and financial schedules. They can be downloaded at Investor Day SP Global Dot com.

Before we begin I need to provide certain cautionary remarks about forward looking statements.

Except for historical information the matters discussed and the teleconference may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Including projections.

Descriptions of future events.

Any such statements are based on current expectations and current economic conditions.

And are subject to risks and uncertainties that may cause actual results to differ materially from myself and anticipated and these forward looking statements and.

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 and Exchange Commission.

In addition, as we announced late last year S&P Global and I just market entered into a definitive merger agreement and.

And March shareholders of both companies overwhelmingly voted in favor of the merger.

The merger is pending regulatory approval and we expect to close and the second half from 2021.

This call will touch on the merger, but does not constitute an offer to sell or buy wasn't the solicitation of any offer to buy or sell any securities nor shall there be any sale of securities in any jurisdiction in which this offer solicitation or sale would be unlawful prior to registration or qualification and I'm just curious law.

<unk> of any such jurisdiction and no offering up security shall be made except by means of a prospectus meeting the requirements of section 10 of the Securities Act of 19 and 33 and.

In connection with the proposed transaction and that's the big Global and I just market have filed a registration statement on form S. Four with the SEC.

Include a joint proxy statement and prospectus and so.

To be global and IHS Markit.

And other documents regarding the proposed transaction with the SEC.

Passengers and secured holders, especially the global <unk> market stock are urged to carefully read the entire registration statement and joint proxy statement prospectus, which is available on our website and SEC dot Gov.

In today's earnings release and during the conference call, we're providing adjusted financial information and this.

This information is provided to enable investors to make meaningful comparisons of the corporation's operating performance between periods.

And to view the corporation's business from the same perspective as managements.

The earnings release contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with U S. GAAP.

This call, especially a discussion of our outlook contains statements about expected future events that are forward looking and are subject to risks and uncertainties.

Factors that could cause actual results to differ materially from expectations can be found in our filings with the SEC and on our website I would also like to call your attention to a European regulation.

And any investor who has or expects to obtain ownership of five per cent for more our best IP Global should give me a call to better understand the impact of this legislation on the investor and potentially the company.

And we're aware that we do have some media representatives with us on the call. However, this call is intended for investors.

And would ask the questions for the media be delivered to Dave Gaudino at two O 170, 5553 and three four.

At this time I would like to turn the call over to Doug Peterson Doug. Thank.

Thank you chip welcome to today's earnings call since the beginning of the pandemic the central nature of our products and demonstrated the resilience and our business model as the economy improves our colleagues continue to launch innovative new products to help our customers with the ratings benchmarks data and insights they need to navigate recovery we can.

And to prioritize the safety of our colleagues and I want to thank them again for their dedication and commitment and is extremely unusual and challenging times.

Now, let me begin with our first quarter financial highlights S&P global and talk to a great start in 2021 as we delivered exceptional first quarter results revenue increased 13% and all four businesses delivered revenue growth and adjusted operating profit margin improvement ratings. Once again delivered the strongest revenue growth from <unk>.

George and leveraged loans high yield issuance and structured finance.

Adjusted expense growth was limited to less than 2%, thanks to our ongoing productivity program and lower G&A and.

It's very weird and we increased guidance on our first quarter earnings call. However, we expect additional growth and ratings from strong issuance of high yield and structured finance and and indices from a higher level.

And therefore, we're raising our annual guidance for 2021, EBITDA will provide details and a moment.

I would also like to share some additional highlights from the first quarter. We should report highlighting the performance of our ratings and 2020, which demonstrated that our ratings showed the value as indicators of credit worthy and relative default risk our investment and growth initiatives continues to result in new product launches, particularly and ESG platts bench.

Mark can show and our marketplace.

China ratings business is gaining momentum and we just entered into the first sustainability linked banking facility and the U S. Information services space. We will provide further details on all of these accomplishments on today's call.

The most important initiative of the year will be our upcoming merger with IHS market. This is an incredibly transformative opportunity for our company and our customers the combination with S&P global and IHS Markit.

Gary strong company, you will have increased scale and world class products across numerous core markets with a track record of deploying cutting edge technology to accelerate our powering the markets and future strategy.

Together, we can offer our customers differentiated data analytics and research and benchmarks and important to the workflows and many of the world's leading companies I'm incredibly proud of the team we've built with S&P global and I look forward to welcoming the talented IHS markit employees to our company.

There are three parallel paths that are underway to close the transaction and prepare for the combination our progress is on track and we continue to expect closing in the second half of 2021.

But first with shareholder approval and the recent shareholder vote, because both companies was overwhelmingly passed with 99 per cent of the votes in favor of the merger.

And as regulatory approval and we're working toward regulatory approval and the countries listed there.

The third is pre close integration planning the integration teams continue to prepare for day one readiness.

Yeah.

We are working toward regulatory approval and the countries listed there.

And the third is pre close.

Yes.

And for day, one readiness. These teams are developing plans could focus on organization integration real estate consolidation technology scale and efficiency cross selling and new product development and the value capture work stream is preparing to pursue and track synergies. We've been doing a lot of work to make sure that when a company is.

And our United we have the culture purpose and values and place to position us for success.

To recap the financial results for the first quarter revenue increased 13% to $2 billion.

Our adjusted operating profit increased 23% and adjusted operating profit margin increased 450 basis points to 57, 6% as you know we measure and track adjusted operating profit margin on a trailing four quarter basis, which increased 300 basis points to $54 five per.

In addition diluted shares outstanding decreased 1%.

Contributing to the 24% increase and adjusted diluted EPS.

Each quarter, we highlight a few key drivers to our business and important projects underway. This quarter, let me start with ratings bond issuance trends during the first quarter global bond issuance increased 9% turning to the data in the U S bond issuance and aggregate increased 4% as investment grade decreased 17% high yield.

<unk> increased 111% public finance increased 9% and structured finance increased 17%, mostly due to a 63% increase and CLO.

European Bond issuance increased 23% as investment grade increased 22% high yield increased 53% and structured finance increased 6%, mostly due to more than a tripling of CLO volume.

And Asia bond issuance increased 11% overall.

The data on this slide only Bob.

Sure.

And Bob.

Overall global issuance increased 13%.

Since bank loan ratings are an important element of ratings revenue and they are not included in our bond issuance like we'd like to disclose this bank loan rating revenue each quarter and the first quarter bank loan rating revenue surged, 70% to $148 million and fat first quarter revenue from leveraged loans since more than her the leveraged loan revenue.

And all of 2020.

The next two slides look at the combined high yield issuance and leverage loan volume per the U S and Europe, David is not readily available for the rest of the world. This slide shows that over the last three years, the combination of global leveraged loan and high yield issuance has averaged $244 million per quarter.

First quarter of 2021 needs to quarterly record at $465 billion nearly twice the quarterly average for the past three years.

This slide depicts the combination of high yield issuance.

Bob.

The user growth.

<unk>.

The category with the largest increase was refinancing some of which could include pull forward M&A and LBO activity and buybacks and dividends also increased.

The CLO market had the busiest quarter on record and both the U S and Europe with twice the volume of new issuances. The first quarter of last year, we believe that investor demand for floating rate instruments their search for yield and the relatively strong CLO performance. During 2020 pandemic has contributed to increased CLO issuance this year.

While it's exciting to see increases and issuance, what's always more important to us is how our ratings per form.

<unk> and 'twenty was a tumultuous year, yet our ratings performed as designed and February S&P Global ratings issued a report entitled Credit trends, we view of ratings performance highlights with resilience and 2020.

And we pulled this chart from the report you can see that the level of line.

And with the rank order of proceedings with lower rated issuers, having higher levels of default you will notice that the graph only includes high yield issuers and this is because in 2020 not one single issuer that was weighted index.

Great by S&P ratings at the beginning of 2020 defaulted importantly, amid challenging economic circumstances, our ratings and 2020 showed their value as indicators of credit worthiness and relative default risk.

Turning to our investments and growth initiatives, let me start with ESG, we continued to make advances with our ESG franchise across the board after recording ESG revenue of $65 million and 2020, we're off to a good start and the first quarter with revenue up more than 40 per cent to $21 million and.

And ratings and the first quarter, we completed 18, ESG evaluations sixth Green evaluations and 53, Sam benchmark engagements.

This compares to 40 ESG evaluations.

The value.

And Mark engagements completed and all of 2020, we also launched new social and sustainability framework alignment opinions.

And market intelligence, our ESG scores have been enhanced 400 data points have been made available for each company that we score the additional data points will provide clients with a better understanding of the company's environmental reporting disclosures biodiversity commitment cotwo and greenhouse emissions waste and hazardous disposal energy.

And water usage.

For the social dimension, and we will now be possible and determined whether companies disclosed safety policies human rights commitments code of ethics, and whether social reporting and disclosures have been independently audited and new datasets will also provide greater insights from the governance and economic dimensions and help obtain better understanding of the company's codes of conduct.

And policies addressing and anti crime corruption and bribery governance of the board and executive compensation.

Owners.

The reality disclosures risks and supply chain management and tax strategy and reported.

Market Intelligence also launched and ESG data solution to support the European Commission and sustainable finance disclosure requirements, enabling market participants to meet these disclosure requirements.

And indices, we had $22 $9 billion and ESG ETF AUM at the end of the first quarter. This is an increase and more than 400% since the end of the first quarter of last year.

Our indices business also launched ESG versions of our S&P mid cap 400, and S&P Smallcap 600 indices. In addition, UBS license. The S&P 500, ESG elite index for new Etfs and Barclays license, the S&P Euro USA 50, low carbon ESG Selim.

Equal weighted index for use in structured products pluses.

<unk> has been very active as well and want to assess and carbon.

Okay.

You may be wondering why we include a copper assessment is and the ESG product.

Because of this new assessment will help support the need for increased solar wind energy storage systems electric vehicle and EV charging stations all of which require large amounts of copper for example, and electric vehicle uses approximately 175 pounds of copper.

And that's also launched hydro treated vegetable oil price assessments HBO also known as renewable diesel and America is a biomass derived fuel suitable from diesel engine. It is made of non petroleum renewable resources, such as natural fact, vegetable oils, and greases and can be blended and traditional diesel who used to the subs.

Terry.

And finally, platts launched daily sections for low carbon and aluminum and zero carbon aluminum, which will complement existing plants European price offerings for high grade primary aluminum.

And prices are.

The bucket quantify cost and manage risks for the opportunities associated with the growing focus on carbon reduction strategy amid increasing global regulation.

On Earth day last week, S&P Global launched a new ESG brand sustainable one youre a single source of essential sustainability intelligence with a wider array of ESG capabilities that we have and the fact that many of our customers are interested and multiple products from different divisions, we have unified our.

ESG efforts across the company. This includes product development technology channel partnerships distribution marketing sales and client support we believe that this new brand will help convey S&P global's commitment and leadership position and ESG.

Outside of ESG, Let me highlight a few other new product launches and product enhancements.

We launched 10 showed nerd short for named entity recognition and disambiguation North was developed by the company's natural language processing team, which specializes in machine learning research and engineering related to and analyzing and understanding human language. This is the first entity extraction system specific.

<unk> optimized for business related documents nerd makes it easier for users to analyze unstructured text for example, investigating suppliers and competitors mentioned and company filings and enables them to drill down instantaneously from the documents and to see.

We launched the S&P my stroke, five index, which is designed to measure the performance of our multi asset risk parity strategies with a 5% target volatility index allocates with equally amongst seven equity fixed income and commodity indices and further mitigates equity market volatility by dynamic.

Likely allocated to S&P VIX future indices.

With about 100 different data sets available in the marketplace. We launched last year, we created product finder to help clients find what they're looking for based on their job function topic use case and workflow for.

For example, someone working and investment banking and deal origination can we see different results from a search and then our corporate client and the supply chain World Platts expanded its presence and shipping with the new SP five dry bulk weighted index for Super Max Class Poker's ABSSI five is the dry bulk freight markets first.

Weighted average index, capturing and Asia Pacific trade and Super Max brokers. This product continues to fill out our shipping products.

One of the most important aspects of managing benchmarks is to ensure that they are periodically updated to reflect underlying market conditions when streams of oil and feed a benchmark become depleted they need to be replaced after consulting with market participants platts is progressing work at West, Texas Intermediate Midland as an additional stream to David.

Brent.

Since the 19 eighties, David Grant has acted as the benchmark for and is currently used to price approximately 60% of global waterborne crude this change will provide significant additional volume and ensure the continued robustness of the Brent complex.

And let me now turn to our outlook for global issuance and GDP.

After issuance growth of 15% and 2019, and 17% and 2020, our ratings research group initial 2021 and forecast called for a decrease of 3%.

The updated forecast issued earliest week now calls for a decrease of 2% excluding international public finance there.

There were two changes structured finance went from a 3% gain two 6% gain and non financials went from a 9% decrease to seven 5% decrease. Please note that this is a bond issuance forecast. This is not a revenue forecast for example, it doesn't address non transaction revenue and doesn't include leveraged loan activity.

There are clearly puts and takes when we think about 2021 issued for example, the bulk of the first quarter's corporate issuance came from repeat issuers, who may have exhausted their funding needs. Early this year on the anticipation of rising rates. However, there are several items that should support upcoming issuance, including a rebound and economic growth and very favorable.

Financing conditions large amounts of sovereign debt with negative yields and a growing pipeline of pending M&A deals.

We have revised our 2021 global GDP growth forecast up by 50 basis points to five 5%.

And the economic recovery looks set to accelerate and mid 2021, particularly in the U S. On back of a massive fiscal stimulus plan, although a high degree of unevenness and uncertainty persists at issue is the pace of vaccinations and the spread of virus variance the U S and the UK have taken the lead and vaccinations a slow rollout is hampering the rebound and you.

Europe, and we expect flow vaccination rollouts to cause and recovery in several key emerging markets to lag.

Our economists view orderly reflation as a positive development for both the economy and credit.

So believe that rising yields on the back of a robust recovery as a positive as opposed to rising yields solely on inflation concerns.

Moving away from very low rates lessens, the search for yield and lessons distortions to financial and non financial asset prices.

And finally platts is forecasting that oil will remain above $60 a barrel through 2022. This bodes well for the health of the oil industry I will now turn the call over to <unk> Steenbergen, who is going to provide additional insights into our financial performance and outlook <unk>.

Thank you Doug.

Let me start with our first quarter financial results, Doug covered the highlights of strong revenue and adjusted earnings per share growth I will take a moment to cover a few other items, while there were some acquisitions and divestitures since the first quarter of 2020, the revenue associated with that it was not large enough to result in a difference between them.

Reported and organic revenue growth.

Adjusted total expenses only increased 2%, thanks to ongoing productivity programs and lower T&D and keep in mind to Doug well peony remains almost non existent a year over year benefits will no longer exist beginning in the second quarter and <unk>.

Increase and the effective tax rate was primarily due to a decrease and the tax benefit associated with stock based compensation and an increase in Texas on the foreign operations, while the effective tax rate fluctuates from quarter to quarter due to the timing of discrete tax adjustments, our full year tax rate.

<unk> remains unchanged our diluted share outstanding declined by one 7 million shares and this was the result of shares repurchased before it falls to share repurchase programs due to the pending merger.

During the quarter changes and foreign exchange rates had a positive impact on adjusted EPS of three to.

The only meaningful impact Washington ratings, where adjusted operating profit was positively impacted by $9 million. We are introducing three new categories to provide insights into the type of expenses that are going to be incurred related to the pending merger. The first category is transaction cost.

These are cost related to completing the merger they include legal fees and investment banking fees and filing fees and the second category is integration cost. These are costs to operationalize. The integration. They include consulting infrastructure and retention costs and FERC category as costs to achieve these.

Our cost needed to enable expense and revenue synergies. They include lease terminations and severance contract exit fees and costs related to product development marketing and distribution enhancements in the first quarter. The non-GAAP adjustments collectively totaled to a net pre tax loss.

Over $81 million. They included $9 million from merge our transaction cost $40 million from merger integration costs. There were no merger cost to achieve this quarter. These will begin to occur around the closing of the merger of $2 million gain four and adjustments on the prior year period.

Sure $2 million potential retention related expenses and $31 million and deal related amortization.

This quarter all four divisions delivered increased revenue and adjusted operating profit on a trailing four quarter basis, adjusted operating profit margin increased significantly and ratings platts and market intelligence, while indices at a small decrease I will provide color on the individual business results in a moment.

Now turning to the balance sheet, our balance sheet has slowed efforts and ample liquidity, we have cash and cash equivalents of four and $5 billion, that's a $4 $1 billion and.

Drawn revolver capacity of one 5 billion and no commercial paper outstanding our adjusted gross debt to adjusted EBITDA improved since the end of last year to one eight times. We recently entered into the first sustainability linked banking facility and the U S information search.

If it's a sector linking our line of credit to our emission reduction targets verified by the science based target initiative and other tangible example of our commitment to becoming net zero by 2040.

Free cash flow, excluding certain items was $718 million.

In the first quarter and increase of $100 million or 16% over the prior year periods due to the pending merger with IHS market share repurchases have been brookdale and if there is an open window and we have and opportunity we will repurchase shares before the merger closes if not we.

Anticipate resuming share repurchases after the merger is completed.

Now, let's turn to the deficient results ratings revenue increased 23%. This revenue growth was driven by the increase and issuance Doug already discussed adjusted expenses increased 9% excluding changes in foreign exchange rates and the acquisition of Greenwich Associates by Crystal adjusted.

Expenses increased 5%, primarily due to increased salary and incentives, partially offset by lower T and E D.

This resulted in a 32% increase and adjusted segment operating profit and a 440 basis point increase and adjusted segment operating profit margin on a trailing four quarter basis. Adjusted segment operating profit margin increased 340 basis points to 63, 6%.

Please keep in mind that the 67 and the hospice and adjusted segment operating profit margin achieved in the first quarter is temporarily elevated based on the search of issuance and high yield leveraged loans and structured finance.

And China, we see momentum and interest and our ratings picking up in fact, we completed 18 ratings and the first quarter compared to 22 and all last year.

Non transaction revenue increased 10%, primarily due to growth at crystal fees associated with surveillance as well as elevated new entity ratings and ratings evaluation services activity, notably revenue from ratings evaluation services and new entity ratings each.

Increased approximately 30% in fact, there were 217, new entity ratings this quarter, the highest quarterly total and over two years. This wasn't due to investor quest for yield and increase the risk appetite, enabling increasingly weaker credits to raise debt.

Transaction revenue increased 35%, primarily due to substantial levels of high yield issuance bank loan ratings and structured finance.

This slide depicts ratings revenue by the end markets the largest contributor to the increase and raising revenue was 27% increase and corporates. In addition financial services revenue increased 10% structured finance increased 34% governments increased 18% and the crystal.

And other category increased 8% from the right side of the slide you can see the changes and revenue within structured finance the clear driver of growth was a 70% increase and CLO revenue.

Turning to S&P Dow Jones indices, the segment delivered 4% revenue growth, primarily due to gains and AUM linked to our indices and data subscriptions substantially offset by reduced exchange traded derivative activity in the first quarter adjusted expenses only increased 2%. This was.

Particularly low as the first quarter of 2020 had elevated expenses, including a $4 million catch up charge on past royalties. The adjusted segment operating profit increased 5% and the adjusted segment operating profit margin increased 70 basis points to 71, 3%.

And the trailing four quarter basis adjusted segment operating profit margin decreased 40 basis points to 69, 3%.

Revenue growth was mixed this quarter.

Linked fees increased 15% with gains and Etfs mutual funds and insurance and over the counter derivative activity.

<unk> net revenue decreased 24% on reduced trading volumes and the first quarter of last year, So extraordinary volatility related to the pandemic market correction, creating a very difficult comparison.

Data and custom subscriptions only increased 1% due to a catch up and real time customer reporting in the first quarter last year.

For our indices division over the past year ETF net inflows were 125 billion and market depreciation.

Depreciation totaled $749 billion.

And this first of all this and quarter ending ETF AUM of $2 two trillion dollars.

Which is 65% higher compared to one year ago, when the market was near its been Derek Lowe.

Our ETF revenue is based on average AUM, which increased 30% year over year sequentially first at the end of 2020, ETF net inflows associated with our indices totaled $7 3 billion.

And market depreciation totaled $143 billion.

As I, just noted and exchange traded derivative revenue faced a difficult comparison activity at the CBOE decreased in the first quarter with the S&P 500 index options activity decreased 29% and fixed futures and options activity decreased 23% activity at the CME equity complex.

<unk> decreased 6%.

Market intelligence delivered reported and organic revenue growth, 4% collectively revenue from recently launched products increased by over 40%. This was primarily from ESG and <unk> aftermarket research marketplace and SME data.

Adjusted expenses were flat and some recent productivity initiatives and lower G&A offset salary growth and higher investment spending and investment spending continues, particularly with the marketplace and SME initiatives.

Adjusted segment operating profit increased 13% and adjusted segment operating profit margin increased 260 basis points to 33, and 5% from a trailing four quarter basis adjusted segment operating profit margin increased 120 basis points to 33.1.

Net.

Looking across the market intelligence components desktop revenue grew 2% data management solutions revenue grew 9% and credit risk solutions revenue grew 6% based on our ACP trends, we expect desktop to grow low to mid single digits for the full year and both data management.

Solutions and credit risk solutions to grow high single digits. This year.

And now turning to Platts reported revenue increased 5% our core subscriptions increased 6% over the past year oil prices have increased resulting in a customer base that is healthier and our retention rates remain in the midst nineties.

Global trading services decreased 4% compared to a very strong first quarter of 2020, GTS revenue decreased mainly due to lower petroleum and natural gas volumes, partially offset by increased LNG volume <unk>.

Adjusted expenses improved 7% due to lower <unk>.

Rent and bad debt proficient. Please note that we expect expenses to pick up and the second quarter is flat investment spending increases adjusted segment operating profit margin increased 520 basis points to 58, 1% the trailing four quarter adjusted segment operating profit.

<unk> increased to 180 basis points to 56%.

On our first quarter earnings call last year, Doug noted that the FERC fr potential power price assessments and went to life. One year. Later, we now have 19 markets that have potential power price assessments. This has resulted in more than a 75% reduction and publishing time.

And this quarter because shipping has increasingly become and.

Port and product offerings from <unk> customers, we're introducing shipping as a new category shipping is essential to commodity trading with 90% of global trade transported by sea S&P Global Platts has been and the business of providing transparency for the shipping markets for more than 35 years he's assessed.

<unk> are used by market participants for physical benchmarking and five are listed by exchanges as the basis of the relative contracts in 2014 lapsed expenditure trade offering into the dry freight market with daily assessment of freight rates for key commodity trade routes for products and such.

Iron ore coal Grange, Shuker bauxite and alumina labs now publishes hundreds of daily freight rate assessments, covering all major shipping markets.

To help you with your models, we have provided historical quarterly information on the new reporting basis in the appendix of the slide deck and finally, while every category on this slide grew revenue during the quarter the fastest growth was in petrochemicals.

We're not providing 2021 GAAP guidance, because given the inherent uncertainty around the merger management cannot reliably predict all the necessary components of GAAP measures.

And this slide depicts our adjusted guidance, while we expect that the merger will occur and the second half of this year, we are providing adjusted guidance on a standalone basis. The second column shows our new 2021 adjusted guidance with all the line items that changed highlighted we're making these changes because.

We now have expectations for greater revenue growth, primarily due to improved outlooks and ratings and indices, while we expect greater revenue growth, it's not enough to change our revenue guidance. Therefore, our revenue guidance remains a mid single digit increase operating profit margin has increased.

By 20 basis points to a range of 54 to 54 five per cent and this result, and a 30 <unk> increase and adjusted diluted EPS guidance to a new range of $12 55 to $12 and 75 and.

And finally free cash flow generation has been increased by $100 million to a range of three four and three 5 billion.

In conclusion, we're off to a great start to 2021 with exceptional first quarter results vaccinations are rolling out the global economy is poised for accelerated growth and our customers are benefiting from these improvements. During this pandemic, we have been working hard to ensure the safety of our employees.

And then wanted to and by thanking them for their perseverance creativity and passion and by thanking all of you for your continued investment and S&P global and with that let me turn the call back over to chip for your questions.

Just a couple.

Robert.

Sure.

Yeah.

Okay.

You have a technical <unk> and this and can you hear me now.

Operator, let's go and start the questions. Thank you. Thank you. Our first question comes from Toni Kaplan with Morgan Stanley. Your line is open.

Thank you.

I wanted to ask about capital return.

Talked earlier and last quarter about the limitations of buybacks until the deal closes.

You do have $4 $5 billion of cash on the balance sheet and it's building as you generate free cash flow every quarter.

After the deal close and should we expect a large ASR or a special dividend or well capital return be far below the typical you know 85% of free cash flow and 21. Thanks.

Good morning, Toni This is <unk> and thank you for raising that point definitely the way we look at our current cash balances is that is temporarily elevated.

Our thinking about the following in terms of what we are planning to do going forward first of all once we have an open window at the likelihood is low that the open window will be before the merger will close so that means after the merger close more likely what we will do is first we have an opportunity to catch up with respect to our cap.

<unk> return targets from the last few quarters, because clearly we have not been able to deliver on those targets. Given these limitations and then going forwards and we have the new capital return target of at least 85%. So what you may expect day as a kind of a catch up after the merger will close.

And then ongoing and increased level of capital returned to our shareholders I cant give you exact numbers and amounts so I cant quantify this for you, but philosophically. This is the direction of our thinking.

That's great I wanted to ask about index subscription.

You were up 1% and the quarter I think it was closer to about 10% last year and thank you mentioned net change in net reporting.

But could you give a little bit more color on what that was and also just broader if you could just talk about the trends that you're seeing and index subscription like cancellations and pricing and competition. Thank you.

Toni this was more a catch up in reporting that we had last year first quarter and this was due to what we call real time reporting catch up which had to do with the change all from administration and.

And therefore the period over period, a differential looked relatively small with a growth of just 1% and strategically. This is definitely an area I would like to grow so the one percentage unusually low and should not be to basis, what to expect moving forward. If we should expect much higher growth from data and custom subscription.

<unk> and we would like to grow this because we think it's a good balance in the overall revenue mix for the index business, where we have as you know fees over assets under management, we have the derivative trading fees and recurring revenue subscription like revenues in the index space and this is definitely an area, we will grow as well so and.

Usually low at 1% and the expectation should be much higher growth going forward.

Did anything come out of her index consulting from last year, Thanks, and I'll stop there.

Toni Werner and limited two questions as always please okay. So what we get ever been involved okay.

Thank you Bob.

Bob. Thank you. Our next question is from George Tong with Goldman Sachs. Your line is open Sir.

Hi, Thanks, Good morning ratings revenue saw a strong growth and the quarter up to what extent do you believe there was a pull forward initiatives from future quarters, and and how does your outlook for <unk> through <unk> debt issuance and ratings revenue change.

Hi, George this is Doug thanks for joining the call well first of all as you know we saw a very strong increase and the results and the first quarter just to give you a few numbers to put them in context as an example investment grade and the U S was down 17% and and you think about that being down 17%.

At the same time investment grade and Europe was up 22% high yield and the U S was up 111% high yield and Europe was up 53% structured finance globally was up 5%, but a couple of tidbits there in the U S. <unk> were up 63% and and Europe, <unk> were up 300% and <unk>.

<unk> loans were also up 70% as well so you could see a mix of different aspects of what we're up and what were down.

We think that and the investment grade both in the U S and Europe that there probably wasn't necessarily pull forward to use that phrase because you saw the 17% down and the U S.

But there was definitely and interest in the investment and non investment grade issuers as well as structured finance to look at the what they believe is can be upcoming economic growth rates and spreads have been quite attractive spreads are at all time historical low and some cases or lows over the last two or three years and there.

Also potentially some expectations that inflation starts coming and the markets and interest rates will start going up again, but as you know and our forecast that we just gave you we saw at the original forecast at the.

Corporates would be down about 9%, we now see them down about seven 5% of for the for the forecast for the year.

Financial services and originally we're going to be up about 5%, we see them now up around 4% hasn't changed that much structured finance is where we saw a bigger swing originally up 3% and up now about 6%.

So when you look at the total we had originally forecasted that the issuance for 2021 would be down about 3% and now we think it's going to be about down about 2%. It's as I started off it's always hard to tell what pull forward is and what's coming and this pull forward, but it is possible that there could have been some in the in the high yield space in particular.

Very helpful. And then just a follow up Bob with the readings operating margins. How do you expect those to perform as debt issuance normalizes from strong <unk> levels.

Yeah, Good morning, George.

You think about the ratings margins, we think about it as three data points. One is the full year margins last year, 2020, which was somewhere in the 62% at the 62% level. Then we look at it for the trailing four quarter at this moment, which is around 63 <unk>.

Level and then the quarter Standalone was around 67% level to 67% level is clearly elevated due to the surge in the issuance environment and shouldnt be seen as the new normal we think that there is an opportunity to expand margins from the level that we saw in 2020.

At not at the level of what you saw in.

In the first quarter of this year, so directionally improvements, but this quarter was elevated due to the reasons. We just explained.

Very helpful. Thank you.

Thank you. Our next question is from Hamzah <unk> with Jefferies. Your line is open.

Hey, good morning.

My question was just on market intelligence.

Organic revenue growth.

I realize it was a slightly tougher comp, but could you maybe talk about some of the investment spend that you're doing and and how that will help your topline and specifically and timing of that I know from a margin side, you've already talked about you know.

Margins there being in the high Thirty's on on a target basis.

And so any any thoughts on the ramp and the growth from all the investments and Youre doing there and maybe any other areas to highlight.

Sure.

Good morning, and Hamzah.

You think about market intelligence to where some reasons why the revenue growth was a bit lower.

Particular quarter think about the desktop that has seen some uneven recovery and various regions, particularly therefore, the COVID-19 impact from 2020 impact on the past ACC, but what we're seeing is a really healthy commercial activity now and therefore, you heard us guiding to a still low to mid single digit growth for revenue.

And.

For desktop revenue this year and high single digit growth for data management solutions and credit risk solutions, specifically with respect to growth initiatives. We're very excited about the old and new initiatives and the investments, we're making we know that it always takes a big time to see the revenue ramp up and of course in and old from an overall basis.

Numbers are still relatively small, but think about the data marketplace is doing very well and we see very nice growth actually the revenues and to first quarter were more or less the same of the total revenues with books over to full year 2020, the same applies for SME ESG and <unk>.

<unk> company data. So overall I think clearly a very very good initiatives and we see a lot of traction overall market intelligence growth is expected at mid to high single digits for the full year 2021, so mid to high single digit growth for the full year.

2021, which we think is a very healthy growth for this business and clearly helped by some of those initiatives.

And that's that's great and and.

And then just.

Maybe just any thoughts on the China business and and what Youre seeing there in terms of gaining traction you know relative to your expectations.

Aside from the pandemic.

You know just sort of any color as to how big China could be over time, what youre seeing there and the revenue base today and thank you.

Hamzah. This is Doug and thank you for joining the call today is <unk>.

China is one of our most important strategic initiatives for the entire company and we typically talk about ratings, but we have other initiatives, we're investing with platts, we're investing and our index business and and recently we've had some very good traction with our credit and portal from market intelligence, but let me give you a quick update on ratings last year.

And we had 22 ratings that were issued and the full year of 2020, and this year and the first quarter alone. We issued 18 ratings. We believe that the market participants are really interested and increasingly interested in the quality of the ratings themselves. The underlying ratings as I've talked about over time, we've assembled a very very strong.

Team.

The market is building up over time, we see that the market has started attracting more offshore investors as well as the foreign banks that are coming in with their wholly owned or controlled subsidiaries, which is bringing new capital and and new approach to the markets, but what we're out doing is educating the market we're doing literally hundreds.

And of meetings, a week and when we have our seminars or events when we've rolled out some new research, we're getting thousands of people joining that.

One thing that I am very pleased with is that in addition, having such a strong team is that the ratings that we have done when you look over the last two years.

We've now rated financial structured products, our first non financial Corporation and the breadth of our ratings goes from AAA to Triple B, we're getting a lot of really good attention a lot of high traction to our websites et cetera. So we see China as a long run investment but off to a really good start.

Thank you.

Okay.

Thank you for your question. Our next question is from Kevin Mcveigh with Credit Suisse. Your line is open.

Great. Thank you so much.

Doug readout and wondering if you can.

To contextualize like dental and amazing job capturing from this default cycle as opposed to the last one where there is a lot more disruption and what does that mean to the net cycle and you think about positioning the business and no cash grants from the more secular trends and the basis.

Well as we look out over the next few years clearly there is various factors that are important to US is as we showed you in the in the <unk>.

Slides themselves that we think that the economy globally is recovering although it's going to be a choppy recovery you've got the U S growing at six 5%. This year on the back of a very very successful vaccination program, China is going to be growing at 8% actually the government says themselves are going to grow at double digit at a 10% rate.

But you also see that Europe, and India, and some other markets might not be growing at a very quick rate, but overall given the pull of the U S and China and other markets that are recovering pretty quickly like to U K, we think that the growth. This year is going to be five 5% globally.

And following years also going to be quite strong because those other markets that haven't had the vaccinations yet.

We'll continue to improve as well so.

Global growth over the next couple of years, and the 4% to 5% range, which bode well for our businesses one of the biggest trends we look at is.

And what we talk about is as markets become capital markets around the world and the question. We just had about China is an important one for us as China's savers moved from just investing in real estate.

Money into financial assets and to pension and insurance and savings programs as of foreign investors move into China, We're seeing a much more advanced capital markets. The European trends over the last couple of years, we've always talked about them, but they've been very strong. The last couple of years and we've seen them incredibly strong last couple of quarters are becoming more like cap.

Markets now and one final comment when we take a step back and we think about our strategy that's called powering the markets of the future. It allows us to take all of the different capabilities of S&P global whether it's the rating agency. It's the index business and now when we think about the addition of the IHS markit capabilities will have.

Right now we will move from up to a 76% of our business will be coming from subscription or subscription like recurring revenue services.

They will give us some stability as we head into potentially high growth markets over the next couple of years, but as well and you sort of choppiness that could come from either fiscal policy or.

Coming out of the very low interest rate environment et cetera, but we watch very carefully the external environment. We think our businesses are well prepared to support the growth of financial markets, and our customers and and we always and incorporate that into our planning of where we invest and how we set up our budgets.

Yes.

Very helpful and then.

What's the good way to think about how much the ratings mix contributed to that 67, 5% margin in terms of just the mix.

And what is historically.

Okay.

And it plays a bit of a role Kevin because if you think about bank loans and high yields those are usually not on frequent issuer programs and.

So that helps from the translation of overall activity in terms of volumes and issuance to revenue. So definitely mix has played a role here as well.

Thank you.

Thanks, Kevin.

Thank you for your question. Our next question comes from Manav APAC and.

Nick with Barclays. Your line is open.

Thank you good morning, guys and just had a quick question.

<unk> always seen cookie and your buybacks and he said as you wait for the deal to close but.

Are you holding back on your M&A pipeline and as well.

Jim will be just tuck ins, but just be curious there.

And I'll have let me take that.

As you as you know right now the number one priority for S&P global is to successfully execute the integration program with IHS Markit after the deal closes.

So we don't have a and an active aggressive M&A program, if something came along and the ESG space in particular or if there was a fill in for a new asset class for platts to expand our energy transition ore from <unk>.

Battery metals opportunity carbon trading and things like this could be something we might look at but those will be small tuck ins, but right now our major emphasis is on successful closing and successful integration of the IHS market transaction.

Alright that makes sense and then I just had one small follow up which is breaking out the shipping segment and perhaps is there.

Any particular day.

And so that I mean is there something we should be looking out fully could that be a category, that's really going to grow faster.

It's the amount of its a interesting question, we had a lot of discussion around shipping is becoming one of those areas where the markets are looking for news and we've had a couple of instances over the last few months where.

The data and the analytics and the research from plants have been very high demand. If you recall there was there has been a period, where the ships are stacked up at ports like and long Beach, and California around China around Yokohama, and Japan, where the rates have gone up they've doubled or tripled. We also had the.

And the large ship, which was stuck and the Suez Canal. So not only is there a heightened demand for information about shipping it's been and the news and we felt like our very high growth rate. There. It gives us an emphasis and a focus to continue to invest there and grow there and it highlights for us which is a very interesting area with a lot of implications for global trade.

And for energy transition for climate.

Great area for us to invest in and we're pleased that we can break it out now.

Alright, Thank you guys.

Thank you for your question. Our next question is from Alex Kramm with UBS. Your line is open Sir.

Hey, good morning, everyone.

Just shifting to the deal quickly you made a comment that you've been spending more times with the teams as from final.

And just market as this deal closing approaches I know this is not the time for any updates and financial expectations I assume but.

Anything else you can share with us potentially on the cost and revenue side, if you will.

You may have just gotten more comfortable new things that you've discovered as you've spent more time spend and I think exactly five months now so I assume there's there's a few new finding so anything you can share would be great.

And good morning, Alex This is <unk>.

Definitely a lot of work is going on with respect to the integration planning and getting to know each other and thinking about organizational design and thinking about future strategy at the same time. These are still two independently run companies.

Transaction Hasnt close to issue no. So these are two companies that are still independently functioning with their own management teams and with our own boards for the for the oversight and.

So we are working I think in a great way and a very collaborative way with respect to the integration planning and definitely we're diving deeper in terms of the revenue synergies.

<unk> expense synergy striving to build up what we have detected during the due diligence phase trying to build this up bottoms up and get additional levels of comfort around it.

And I am not issue already mentioned to your question able to give you any new indication with respect to numbers.

These are the numbers, we're committed to the $480 million expense synergies and to $350 million or revenue synergies.

We are working very hard to make sure that we're able to deliver on that and further updates. We can provide to you after the merger will close.

Fair enough.

Paying on a similar topic, though a few people asked about capital returns.

When it comes to buybacks and the future I mean, obviously you've mentioned the.

The new leverage targets and again. This is this is not a new new thing, but I know theres been some hesitancy in the past of levering up and just to to buyback. Your stock. So you maybe just remind us how youre thinking may have changed they are give.

Given that I think as Doug just mentioned very shortly and go.

And you're going to have your hands full so there's probably not a lot of other things to do so what's what's your appetite to fully leveraging up the balance sheet. After after this period off of not buying back your stock to accelerate that.

Alex as we always have headsets, we set a leverage range targets and once we fall outside of that range, we will take action to bring ourselves back within the range. The range has been increased we were at 175 to 225.

As a range as S&P global spend alone after the merger that range will be brought up to two to two five times.

And as you saw in our earnings announcement. This morning. We're currently at one eight IHS Markit has slightly higher levered and S&P global to day, So we need to see and look at the mix. After we combine the desk base of both companies, but clearly if we will fall below the lower end of the new range we will.

Action, we will add additional leverage on our balance sheet to make sure that we have and optimal overall corporate financing structure and if that means we have excess cash and excess capital going forward that will be and opportunity to return to shareholders as well.

Alright fair enough. Thank you very much thanks, Alex.

Thank you for your question. Our next question is from Andrew Nicholas with William Blair. Your line is open Sir.

Hey, good morning, everybody. This is actually Trevor and for for Andrew Thanks for taking our questions.

First of all just on on the ratings segment.

Bank loans and high yield book performed really well to start the year, you kind of talked about some of the market drivers already.

Just wondering since those two categories don't always move and the same direction.

You have any thoughts on the trajectory from both of them going forward. The rest of the year and you expect them to both continue to see similar levels of strength.

Hi, Trevor this is Doug and thanks for joining the call today, Yes, youre, absolutely right sometimes of bank loans and.

High yield do not moving the same direction. This time. They did we look at a few of the key factors, which drove that clearly there is a lot of capital chasing deals we see that the M&A pipeline has increased to a level, which is it's not quite historic but it's getting there and theres a lot of M&A pipeline that is out there is from a combination of of.

Private equity firms strategic investments as well as the specs and that brings along with it our revenue for US which is not just and issuance revenue from loans and from high yield bonds. We also see from new issuer fees as well as the ratings evaluation services that comes from that kind of a pipeline.

What we see going forward this year as I mentioned earlier the overall corporate sector. We think is going to be down with the with the investment grade issuers, not being very active and the market, especially in the U S.

And with the high yield and are probably leveling out we don't know exactly what's going happen with rates and spreads, but youre right that they do usually move in opposite directions. There is there is one other point I want to make it there has been demand for loans from investors that are looking for potential increase in interest rates.

You saw that the 10 year yield had started climbing.

Over the last three or four months and so theres a lot of demand from investors for loans, which are floating rate.

Want to and have since kind of hedge their interest rate exposure and have floating rate exposure.

So it's embedded in our outlook for the rest of the year.

And our as well as our.

What we see is our forecast for issuance, but youre right that they don't always move lock step and this quarter they did.

Okay, great. Thank you that's helpful. And then just kind of given some of the increasing focus on ESG.

Wondering if you could talk about your energy transition practice within platts a bit.

And just how large is that business now what's your outlook going forward and then if there's any way to the IHS resource business plays into the strategy. There would just love to hear your thoughts. Thank you.

Thank you and I'll take that also.

First of all we are very pleased with the progress we're making on our ESG franchise as you probably saw last week on April 22nd on Earth Day, We announced a new brand sustainable one for our ESG efforts across the entire company and it's as we call. It. It's your single source of essential sustainability intelligence across all.

All of S&P Global we are now coordinating our ESG initiatives and we have over 500 people that are dedicated full time to this but to dig a little bit deeper into what you mentioned about platts.

Platts is building up expertise and energy transition as well as transportation that you heard us talk about shipping a few minutes ago and when it comes to energy transition you think about the move from coal to renewables is maybe the ends of the spectrum, but in between there is a whole new set of opportunities for <unk>.

And that's to be looking at many of the more already and hydrogen as an example, we have a hydrogen benchmark where the first one was a hydrogen and benchmark.

There is something called clean oil and there is clean natural gas what that means is that clean oil has had the entire value chain of the deliveries that oil has been rebuilt to ensure that you can capture all of the methane that there is no leakage around all along the way.

So there is ways that refineries, Iran storage systems and pipelines are run and we're able to provide the research and the data and the analytics and the benchmarks against something like clean oil, we also and platts.

And we mentioned earlier on the call about copper, there's a whole set of new metals, which are quite important to the energy transition.

And as an example, copper, which theres a 175 pounds at least of copper and electric vehicle. You also have lithium and the batteries. So these are areas, where we also see a lot of opportunities for the benchmarks to be used from a combination of new power grids from the metals that are in them from the clean energy that is going to be.

Clean transition energy finally, I'd like to mention that with the merger with IHS Markit. They also bring along a set of new products and services that bringing together will strengthen our ESG franchise at IHS Markit. They have additional research that comes from their transportation business, which is going to be quite valuable for.

And the Platts business and the energy transition. They also have a carbon registries they've got a set of other carbon research products.

And then generally other research and news on energy transition and ESG, which youre going to be quite valuable to us. So we think we're very well positioned we've just launched the sustainable one brand, we have and organization and placed with over 500 people and we're ready to really start growing.

And as a quick addition, platts is already two day the largest contributor to the overall ESG revenues of the company. So clearly important contributor to the overall strategy.

Great. Thank you both very much.

Thanks Trevor.

Thank you for your question. Our next question is from Craig Huber with Huber Research Partners. Your line is open.

Yes, hi, Thanks. My first question on cost can you just give us a broad sense.

Of how much cost you think will come back into the system for Teeny and other general office expenses once people start coming back and you get back to normal normal workflow with the company and how many hundreds of millions of dollars I think that might add annualized basis.

Good morning, Let me give you a couple of data points here.

<unk>.

The cohorts pandemic and 2019, we spend on overall T and the $85 million as a company last year, we spent 15.

But clearly going forward with what we expect to be the new normal with new ways of working are hybrid working at more virtual tools is Greg that we wouldnt expect the whole $85 million to come back our best estimate would be maybe a haircut of let's say, 25%, so maybe around $60 million or.

So that should be and <unk> kind of level. After the whole COVID-19 situation is is over and some of the benefits of that are already captured in our productivity program. So a part of the $120 million productivity program, but clearly we expect overall more efficiency due to a different way of working.

Going forward and the lessons that we have learned while being able to operate over the last 12 to 15 months by the way the same applies to real estate. We clearly expect also real estate expenses to come down we don't need to do extensive footprint that we have two day, because we would expect people to be spending less days.

The office going forward and also the benefits of that are already captured in the productivity program to $120 million productivity program.

And then my last question. Please can you just talk about pricing on average per this year and your non indices businesses is it sort of up 3% to 4% over normal range and you have your and in your outlook.

And we are always careful to talk about our pricing going forward as you know Greg, but nothing is different than what you should have seen it historically from what we're doing and our businesses and I think that should be overall in general terms day expectation across the company.

Great. Thanks, guys. Thanks, Craig.

Thank you. Our next question is from Owen Lau with Oppenheimer. Your line is open Sir.

Good morning. Thank you for taking my questions. So I have a question about true cost I think state Street, just and not as a strategic engagement with the true cost and precedent bite and also committed to cut greenhouse gas emission and half by 2030.

Wondering how all of these have impacted your true cost business and also your outlook. If you can talk about the recent traction there and also with the opportunities ahead that will be great. Thank you.

Great. Thank you Owen let me take that question when we think about the energy transition and now and a much more broad way and you look at all the different initiatives going on around the globe. One of the most important dialogues that we have no matter, where we go any meeting and I go to whether it's with the central bankers ministers of finance.

With corporate bankers investment bankers with corporate executives and people are talking about energy transition and Theyre talking about climate and Theyre talking about ESG and we see that there is a need for people to have clear simple concise comparable consistent.

Data and analytics around climate and around ESG as you know, we did and acquisition of true cost about three and a half years ago and it brought to us the premier set of data and analytics around carbon around climate around physical risk as well as wastewater and other types of other types of analytical.

And the information and we also have physical risk, we have STG sustainable development goals as ways that we can do analytics on that but going to your the first part of your question, We just announced an agreement with State Street.

We're providing them information from true cost that can be embedded and all of their modeling all of their clients will be able to use that intelligence and that risk information and build it into state street's existing client focused ESG services.

State Street has about 40 trillion.

Clients have assets under management and their clients hold so we're going to be able to be providing that functionality. What it does is it allows those clients to have access to the carbon footprint and other environmental data that will map to their portfolios. As you know a lot of organizations are increasingly using the task force for climate.

And related financial disclosure reporting and you can take the true cost data that carbons, earning at risk the Paris alignment and physical risk data.

General carbon information and build it right into that kind of modeling. So we're very pleased with that partnership with state Street. We see this as the start of many many other partnerships and something that for US is quite important and one of our most important strategic initiatives and the entire company.

Got it that's helpful. And then maybe switching gears a little bit to the index business you have a partnership with luker.

And the potential launch of a global critical currency asset base.

Index could you. Please talk about your thinking about the product launch and the revenue model there.

Index business participating in the equip those space. Thank you.

Yes.

It's another one of those areas, it's not it's not nearly as far along as something like ESG is crypto is is just just starting and we feel that it is such an important asset class. It's on everyone's minds that we needed to do some specific research around crypto and one of the groups, where we can do that where there's a lot of relevance is within the index business.

So this actually goes back for more than just the last few weeks of last few quarters, we've been research and crypto for awhile and hadn't felt that it had the the seriousness and the ability to be hedged the ability for a crypto to be really understood to be traded to have the liquidity and it was quite speculative and we have not launched any products.

Up until now we Havent launched any products, yet, we're close to but because crypto is becoming more mainstream.

And beyond just bitcoin, there's many other sources there that you can trade them on other exchanges theres. Some companies now that have been listed that are crypto companies that have the standards of being a listed company.

<unk> got some of the exchanges have started having futures and forward youre starting to see some of the conditions that would allow us to develop some products.

As of now our revenue model would be the similar to the revenue model, we have on other indices, which would either be AUM based fees.

Or it would come from data that we would sell to the market that could use the data from a product or an index like that but an area that's quite promising but it's really it's starting at zero. So I can't give you much of a projection of what the revenue might look like because it's starting so low but something that we feel like we need to be understanding and learning and building and.

Our portfolio of products.

That's very helpful. Thank you Doug.

Thanks Owen.

Thank you for your question. Our next question comes from Jeff Miller with Baird. Your line is open Sir.

Yes. Thank you. So you obviously have a fantastic margin expansion and track record over many years, while investing in innovation and obviously that continued this quarter IHS market also has been expanding margin and you've given us post deal synergy targets, but I guess my question is did the expense synergy targets incorporate running Sim.

More productivity programs that you've won.

S&P in recent years at IHS post close or would those types of productivity programs be incremental so the targets that you've provided and if so does it appear to be a significant opportunity for you.

Jeff Good morning, and first of all welcome to the call and thank you. Thank you initiate and your coverage of S&P Global and we're very pleased with that and.

With respect to your question about our expense management philosophy first of all both companies today already have philosophies and place as you know we have our productivity program on the S&P global sites and where we are aiming now at the $120 million cost take outs.

And IHS Markit is having a particular targeted with respect to margin expansion of 100 basis points on an annual basis and what we are planning to do once we bring the two companies together.

Two of course focused on the overall expense synergies.

And that we have mentioned to you before.

That's going to be a large program in.

Order to achieve that that's a periods of two to three years that we are fully able to achieve.

Achieve dose expense synergies, although the ramp up will go fast we are probably in year two at a level for 80% of the expense synergies, but philosophically on top of that you may expect us to continue to look at opportunities, where we find scale across all of the different efficiencies that we will.

Going forward as you know, we are and a business where scale really matters, particularly with all the technology investments that are needed and we have and opportunities to leverage stats across the company. We also will continue to benefit from operating leverage just the benefit of growing your topline faster than your expense line the incrementals.

Margin and the next dollar of revenue that comes into the company should always be higher than your average margin. Because you don't have your fixed cost that you need to cover anymore. So philosophically you may expect us to continue to be very focused on taking benefits of efficiencies and scales on top of all the existing programs and commitments that.

We already have in place.

Okay, and then on Platts and said this resilient and good mid single digit growth through some pretty challenging end markets, you mentioned, a healthier customer base and.

I guess, the platts oil forecast remain above 60 per barrel through 2022 does that allow you to take a even more aggressive posture on price or create more growth opportunities for you to potentially break out of the mid single digit growth to the upside at some point. Thanks.

Again, GAAP, we don't talk about future pricing, but let me give you a little bit of a color and perspective, what we're seeing with implants at this moment and as you mentioned very healthy revenue development during the quarter. If you think about the recurring part the subscription part of the business and what's growing.

And 6% a little bit held back by the global trading services, but that is understandable because global trading services was really elevated in the first quarter of last year and little bit similar to the ETD within the index business when the markets show a lot of volatility there's a lot of trading hedging that is happening.

And the hedge programs are helping the GTS revenue to go up but if you look at it and perspective GTS was in fact higher and on a standalone basis this quarter than the last three quarters itself. So nothing from our perspective, if we look at GTS that we think that that wouldn't be helpful going forward.

It's just that the comp one year ago, while so high so all in all if you put it together, we see a healthy developments good retention rates in the mid nineties are good commercial activity and book of business that is building up well we liked at ACC.

And subscription level is at that six ish percent at the moment. So overall mid single digits is the outlook for flat for this year in terms of revenue growth, but the overall incrementally we are definitely positive on the outflow book This business, given where are the commodity markets and the health of the customer base as well.

Yes.

Understood. Thank you.

Thank you for your question. Our next question is from Jeff Silber with BMO capital markets. Your line is open Sir.

Hey, Good morning, this is Ryan filling in for Jeff.

Just had a quick question did the spec them create any incremental need to issue debt and if so do you know what the contribution of the spec from G was that issuance or your ratings revenue and the first quarter.

And you.

Good morning, Ryan if you think about spec activity that is definitely helpful. At multiple levels for the ratings business first it can help with our rating evaluation services activity then it can help with new entity ratings fees and then thirdly it will ultimately.

And two new issuance and that is helpful. As well. So we think the spec activity definitely is overall and imported and good element of the overall M&A market and will help ratings at multiple different levels.

Thank you.

Thank you thanks Ryan.

Thank you. Our next question is from Judah <unk> with Jpmorgan. Your line is open.

Hi, Good morning. Thank you you mentioned $21 million and ESG revenues and the quarter I was trying to think about does that number reflect your total ESG initiatives or is it possible that there is some level of <unk>.

<unk> products and services that are kind of embedded and other products. They might just be increasing reinforcing the value of those products, but not necessarily driving incremental revenues are unnecessarily.

Unpacked and that $21 million revenue number.

And we believe it's a pretty complete level in terms of our overall revenue base. Obviously, we have very clear definitions, what we think.

Should be contained with respect to ESG and energy transition and what's not we're actually have built SUF Herbert Hoover's.

Horizontal organization across the company that touches all of the different deficient and we think ESG is such a great initiatives because it is really being driven by all of the parts of S&P global to day and actually even being helped also and the future with the parts of IHS markets that are joining the company.

And we have now so called insight on a horizontal basis of our revenues on the oil and ESG level as well as we start to think about what that does from an overall P&L perspective. So we're pretty comfortable that this is a complete number $21 million is clearly north of 40% growth year.

Over year in terms of our ESG revenue base. So we're still very comfortable that that 40% CAGR that we have mentioned to you in the past is still achievable.

Okay, Great and Thats really clear my other question is just about flat.

Highlighted all the different commodities that you've expanded into certainly expanding and diversifying beyond just petroleum and in the past you've talked about not being too worried about peak oil and it's still many years away couple of decades potentially.

But I was thinking about it maybe from the other perspective, which is that maybe a move away from petroleum could be beneficial for you guys just from the standpoint that quarter after quarter. It seems that the other some of the other asset classes are growing faster and petroleum for Ya and now you've broken out shipping, which is another potentially a SaaS growth area. So is it a situation that may be as the market moves.

And some of these other asset classes, a year growth rate to pick up and plants or is it just perhaps cannibalizing itself and it will stay the same and that mid single digit area. Thank you.

Well, thanks, Judah what the way we look at it is that what's critical for US is to be the most relevant benchmark research analytics news organization for commodity solutions, we think about it as you just described the peak oil is going to be a while away people still forecasts that could be 810 and 15.

People say, even 20 years away it depends a little bit on some of the programs around the world for energy transition and climate change, but when we look at that we believe that there will be a lot of different types of of services and commodities are going to be taking the place of what is today oil that's used and transportation and <unk>.

Manufacturing etcetera. So that's one of the reasons, we've invested in our ESG.

Products and services. We also look at power grids, we're looking at renewable energy and power at our power generation as you've heard us over time, we've also expanded into agriculture. We've.

We've looked at metals and mining. So we think that there is two aspects to this one of them is the diversification and generally speaking of taking the expertise, we have and commodities and expanding that to other commodity classes and we hope that that brings us growth over time and then the second is filling the gap of the needs of whats.

And the happened and climate and energy transition and moving very rapidly and aggressively into all of this space spaces that will be the opportunities there like carbon registries carbon pricing hydrogen et cetera. So it's kind of two different angles.

And the same way, it's the growth horizontally and then it's filling this space for all of the opportunities related to ESG.

Okay perfect. Thank you.

Thank you for your question. Our next question is from Zamir, Kelly <unk> with Deutsche Bank. Your line is open.

Hi, Thanks for taking my question.

Just wanted to get an idea of the scale of the technology transformation.

Program, that's going to be involved in and integrating all of the.

Technology programs across the two companies. So I'm wondering if there's any way to quantify that and in terms of how youre tracking it and there's a number of projects our teams and.

And just just to get a sense of how does it compare and scale with with S&P global platform and showed that <unk> been working on.

Well, thank you Samir for joining the call. When you look at our overall program from the integration with IHS market. There is a major emphasis on technology transition and there is a few different categories. The first is what I would start with that relates to just pure infrastructure, how do we run our rails who are major service.

<unk> of <unk>.

Of our desktops of our communication services of our cloud and so there is a program on that that provides us the way that we run our business and everything around the business and as you know at S&P global over the last four years, we have put in place a centralized program to manage our data centers our cloud transformation.

And all of that and we're able to take that learning and also take what IHS Markit has done along the same way and very quickly look at a program to bring all of that together. The second aspect of technology relates to delivering services to customers and that's where we have a very similar approach where within the businesses. We have development teams.

Client services teams claim that client experience teams and we are working on looking at the merger of those organizations in the divisions. As an example, like the market intelligence and financial services Division. There's a whole set of work streams around how are we going to use the desktop which is the market intelligence cap IQ desktop.

How are we going to do.

Use the workflow and and the service and products that IHS Markit has and how you take the data and how you work those together. So that's a whole another set of work streams that we have and then the third work streams relate to risk management cyber risks and we have and absolutely aligned attitude and policies.

On ensuring that we always operate at the highest standards of risk and control and compliance as well as ensuring that we are ahead of any sort of cyber risk.

And then the fourth is data sciences, and artificial intelligence natural language processing et cetera, we have Ken show, which has been a fantastic organization that joined S&P global three years ago, and and what they've been able to achieve is really unprecedented and we talk right now about nerd on this call but.

As you know Ken shows had a really strong track record at S&P global and at IHS market. They have the data lake and as well. They also have data sciences teams as we do across all the businesses. So thinking about that community of data sciences and ways to think about the most modern approach to running technology. So we have teams work.

King and parallel working together across all of those different work streams. We think this is one of the advantages of the scale of the business. Overall, we can really take advantage of of large global scale and technology and we can also take advantage of large global scale of our data science machine.

And machine learning, our natural language processing and so we're very excited this is going to be one of the most important upsides of working with IHS markit.

Great. Thanks, and just just to.

Just a quick follow up on that and you you've been working together over the past five months.

And with all the teams interacting with each other any surprises you've come across and the things you described in terms of work streams and like infrastructure and data and analytics flows between the two companies.

There've been no major negative surprises, but theres a lot of positive surprises that many of the areas that we knew from the outside or saw as either clients or competitors or understanding how their products work together. We've seen that there are some really really high quality products. There is high quality people, we think that the.

And the complementary and the way that our products complement each other are quite strong. So we see that there are some really really exciting opportunities. We are all waiting to be able to get together to learn more about the businesses. Once we can operate together after the transaction closes and so we're all very excited about this.

For us as I said earlier, our most important strategic initiative. This year is to have a smooth integration and smoothed close on this transaction and all of the surprises are in areas that were just so excited and we get more excited the more we learn and in particular the more we learn about the people.

So if you don't mind, let me wrap up the call first of all I want to apologize for some of those sound glitches. We had earlier on the call. It was something that or do we still have another we have another we have another question sorry about that.

Awesome. Thank you.

Thank you and last question will come from Shlomo Rosenbaum with Stifel. Your line is open.

Hi, and thank you for squeezing me in Doug and I got to make it very quickly just to piggyback question and something from before.

Just in terms of the spec market.

And its importance for <unk>.

Issuance for ratings, if we see a real slowdown this back market either because of legislation and the U S or because of freezing of the pipe markets or anything like that should we expect that that's going to have material impact on issuance or do you think there are corporates that have been kind of waiting and the wings and if some of the valuations come down and there would be ready to step into and it should not make it.

Material impact thanks.

Yeah, I don't think there'll be a material impact we are we've got people. Our staffing model is quite strong we've got a we've got a team and we like to keep our team ready. In addition, you'll recall that every time, we do a rating we have surveillance that goes along with that rating over time, which means that we always have a certain level of activity to ensure that we are.

Always watching the market quite carefully and we have formalized programs around surveillance and it's not just something that's done randomly.

I would think that we have a very strong staffing team, we don't want to lose all of that expertise we have.

Okay. Thank you.

Okay, well, thank you Shlomo well against let me wrap up the call and I want to apologize for some sounded glitches that happened along the way I think we were able to get those fixed at some point.

We're very pleased with our performance this quarter and our prospects for our strategic initiatives, we've talked about ESG about China about the merger with IHS market, but I want to go back to where I started and one of the things that <unk> said and very importantly, our people and they continue to show and unparalleled commitment during very difficult times.

Especially as the third wave of the pandemic hits countries like India, where we have a large group of employees. So we want to thank all of our employees and I also want to thank all of you who joined the call today for your support again, thank you very much.

That concludes this morning's call a PDF version of the presenter slides is available now for downloading from Investor Dot SP Global Dot com.

A replay of the entire call will be available and about two hours.

Webcast with audio and slides will be maintained on S&P Global's website for one year.

The audio only telephone replay will be maintained from one month.

On behalf of S&P Global and we thank you for participating and wish you a great day.

Okay.