Q4 2021 S&P Global Inc Earnings Call

Good morning, and welcome to S&P Global's fourth quarter and full-year 2021 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.SPGlobal.com. If you need any additional technical assistance. Please press star zero and I will assist you momentarily. I would now like to introduce Mr. Chip Merritt, Senior Vice President of Investor Relations for S&P Global. Sir, you may begin.

Thank you for joining today's S&P global fourth quarter and full-year 2021 earnings call.

Presenting on today's call are Doug Peterson, President and CEO, and Ewout Steenbergen, 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.spglobal.com.

Before we begin, I need to provide certain cautionary remarks about forward-looking statements except for historical information. The matters discussed in today's conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 995, including projections estimates and descriptions of future events.

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 results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our form 10, Ks 10, Qs and other periodic reports filed with the US Securities Exchange Commission.

Yes.

In addition, as announced late in 2020, S&P Global and IHS Markit entered into a definitive merger agreement.

In March last year shareholders of both companies overwhelmingly voted in favor of the merger. The merger is pending regulatory approval and we currently expect to close this quarter.

This call will touch on the merger, but does not constitute an offer to sell or buy or the solicitation of any offer to buy or sell any securities nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the Securities law of any jurisdiction.

Under the Securities law and such.

Sure.

No offering of securities shall be made except by means of prospectus, meaning the requirements of section 10 of the Securities Act of 1933.

In connection with the proposed transaction, S&P global and IHS Markit had filed a registration statement on form S4 with the SEC.

This includes a joint proxy statement and a prospectus.

S&P Global and IHS Markit have followed other documents regarding the proposed transaction with the SEC.

Investors and security holders of S&P Global or IHS Markit stock are urged to carefully read the entire registration statement.

And joint proxy statement and prospectus, which are available on our website.

And SEC.gov.

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 comparisons of the corporation's operating performance between periods and to view the corporation's business from the same perspective as management.

The earnings release and the slides contain exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with US GAAP.

This call, especially the 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.

Any investor who has or expects to obtain ownership of 5% or more of S&P Global should give me a 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 that questions from the media be directed to Ola [inaudible] at 212-438-2296.

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

Thank you, Chip. Welcome to everyone joining today's earnings call. The first thing I'd like to do is thank our people at S&P global for their dedication and commitment throughout 2021. We've asked a lot of our people this year as they do their day jobs. While also preparing for the expected merger with IHS Markit and all the while dealing with the uncertainty of the pandemic.

So on behalf of the board and our management team. Thank you.

Now, let me turn to the key financial achievements in 2021. S&P Global delivered 12% organic revenue growth and 17% adjusted diluted earnings per share growth. All four businesses contributed with growth in both revenue and adjusted operating profit margin. This is quite an achievement. Following the remarkable results of 2020.

We generated $3.5 billion of free cash flow, excluding certain items and returned $743 million in dividends.

In addition to the very strong financial results, we made significant progress on our key initiatives as well. Clearly, the most important initiative of the year has been on preparation for the merger and the multiple rounds of synergy validation. Upon closing of the merger, we are well prepared to rapidly begin operating as one company and to begin to realize

both the cost and revenue synergies, we have already outlined to you. In fact, on a run-rate basis, we have already achieved pre realized synergies of $25 million by the end of 2021.

Also after the merger is completed, we will host a post-merger investor call to provide an update on the merged company's strategy business segment details synergies investment programs share repurchase plans and guidance.

The other key initiatives achieved in 2021 include the rapid progress achieved on our 2020 multi-year productivity program. Numerous new product launches and expanded product capabilities, resulting from our strategic investment initiatives. The creation of sustainable one to manage and drive significant expansion in coordination with 

ESG product offerings across the company.

The launch of S&P Platts dimensions pro, a fully integrated user experience connecting pricing, market commentary news and analytics with special emphasis on energy transition and continued progress in China with one example, being the issuance of 57 domestic ratings in China up over 150% from 2020.

This included the first dual rated bond. I'll provide more detail on many of these items in today's call.

These are the strategic initiatives that we shared with you on our fourth-quarter earnings call last year. We made great strides in each of these items and lower lock in more detail on many of them today.

To recap the financial results for the full year. Organic revenue increased 12% to $8.3 billion. Our adjusted operating profit increased 15%. Our adjusted operating profit margin increased to 190 basis points to 55.2% and we delivered a 17% increase in 

Adjusted diluted EPS. It's important to note that adjusted EPS of $13.70 far exceeded our original 2021 guidance of $12.25 to $12.45 and that the adjusted operating profit margin of 55.2% far exceeded our original guidance of 53.8% to 54.3%.

Much of this was due to unexpected outperformance in ratings. Following what was a very strong 2020. [Ewout] will review our fourth-quarter financial performance in a moment.

All four divisions delivered revenue growth and adjusted operating profit improvement. The largest revenue ggain was the 16% and indices. After several years of elevated investment spending market intelligence delivered the largest adjusted operating profit margin increase with a gain of 190 basis points.

It's important to remember that our 2021 financial results are part of a solid track record of performance. Over the past four years, we've posted a compound annual growth rate of 8% for revenue and we have averaged 217 basis points per year of adjusted operating profit margin expansion.

And this has resulted in a nearly doubling of our adjusted diluted EPS over that time frame.

The company also continued to advance its own industry, leading practices and sustainability. We issued our 10th annual sustainability impact report and third annual TCFD report. We expanded parental leave to 26 weeks and introduced a flexible time-off policy with no prescribed maximum in all eligible jurisdictions.

We established a $1.5 billion senior unsecured revolving credit facility tied towards published science-based target goals, one of the first sustainability linked banking facilities in the US.

Our S&P Global Foundation increased its screens by 30% to $15 million to organizations that support COVID-19 relief diversity economic inclusion and environmental sustainability.

And our efforts have been recognized by several leading third parties.

While we continue to improve our own internal sustainability programs, we're investing in our ESG business. In 2021, we launched sustainable one to elevate and coordinate external ESG efforts across the company. This resulted in ESG revenue of $98 million or 51% increase over 2020.

All our key ESG products contributed to this growth.

We completed 59 ESG evaluations up 48%. 43 Green evaluations up 79%. 103 Sam benchmark engagements up 36% and we launched social and sustainability framework alignment opinions and completed 42 of them.

We ended 2021 with ESG, ETF, AUM, reaching $32.2 billion, an increase of 59% versus year-end 2020.

At the core of our ESG efforts are the corporate sustainability assessments. These are a key differentiator versus our competitors as they enable us to collect an enormous amount of data directly from corporations around the world.

For the methodology year that ends in March, we have already increased CSA survey participation by 58% to 2,190 companies.

We also enhanced ESG offerings available on capital IQ pro. Expanded S&P Global ESG scores coverage to 11,500 companies and expanded coverage of climate risk analytics to more than 3 million physical assets such as mines power stations in buildings.

In addition to excellent commercial progress and expanded capabilities. We also launched numerous new ESG products initiatives in 2021. While I don't have time to delve into each one of them. Let me just comment on a few.

Second-party opinions assess a transaction against our sustainable finance framework for alignment with consistent and comparable market principles and standards.

Climate change has created the need to evaluate the impact of different climate-related scenarios on counterparties investments in portfolios. To support these efforts market intelligence in Oliver Wyman created climate credit analytics, a climate scenario analysis and credit analytics model suite.

In December, we acquired the climate service. The company sells the climate [nomics] platform, a tool that quantifies physical climate risk for corporates, investors and governments.

Kensho continues to be a driving force for productivity improvement for the company and increasingly for our customers. The key capabilities they've created are listed on this slide. Codecs is an AI-powered document viewer that enables efficient navigation and extraction of relevant information from large quantities of documents. There've been over 300,000 

client users to date. [Codecs] is available on capital IQ pro.

Kensho Agave has transformed Platts process for creating price assessments. The Agave tool developed by engineers at Kensho Platts has transformed the process for creating price assessments.

Platts has implemented a gov in 40 or 57 markets targeted and on average daily price assessments are completed 70 minutes faster.

Internally, Kensho Link facilitated quicker data ingestion by providing automated mappings for 60 million company entities. Externally, Kensho Link was used by our customers to efficiently net $16 million of their own entities to S&P Global unique identifiers.

Many of our customers have taken note of Kensho capabilities and we've begun monetizing Kensho Link, Kensho scribe, RPA, data extraction and machine learning development.

While the innovation, we create internally is what drives much of our success, key industry trends also help one of those is the shift into passive investing. This chart illustrates the 1.9 trillion dollars of cumulative AUM US equity flows in the past 10 years, we are a prime beneficiary of this trend.

Trend.

If we look at ETF AUM associated with our indices. There has been a 173% increase over the past five years to 2.8 trillion dollars. We believe that this trend will continue.

The increase in global issuance has been another positive trend for the company, it's hard to believe but 2021 issuance growth of 15% exceeded 2020 issuance growth of 13% as is often the case there were pockets of strength and pockets of weakness.

In 2020 global investment grade and high yield were the strongest. While in 2021, leveraged loans and structured products were the fastest growing categories.

The market clearly favored leveraged loans over high yield in 2021. The bars on these charts to pick leverage loan volume, which soared in 2021. The lines to pick the percentage of loans that we rated which reached new heights of 95% in the US and 93% in Europe.

I'd now like to shift the presentation to our outlook for 2022.

The latest global refinancing study was issued earlier this month. The total amount of global debt maturing in this study is 11 trillion dollars over the next five years. This is down 3% from the 11.3 trillion dollars highlighted in last year's study.

The chart on the right depicts the global high yield debt and leveraged loans maturing over the next five years. It totals $2.9 trillion dollars down 3% from three trillion dollars in last year's study. It appears that 2021 issuance benefited from a bit of extra pull forward.

Let's put this small decline in upcoming maturities into perspective. This chart shows total global corporate debt outstanding for the past six years is increased at a compounded annual growth rate of 6%. The vast majority of this debt will get refinanced and the pool of debt that needs to be refinanced just keeps getting larger.

After exceptional issuance growth in 2020 and 2021, our ratings research group anticipates that issuance will decrease 2% in 2022. The forecast calls for gains in structured US municipal and financial services issuance of 3%, 2% and 1%, respectively and a decrease in non-financials of 7%.

7%.

Please note that this is an issuance forecast, not a revenue forecast and it does not include leverage loans.

Now, let's start with the latest view from our economists. They were forecasting global GDP growth of 4.2% in 2022. The global economy is in the midst of a robust but uneven rebound from the pandemic. Demand growth is outrunning supply growth and inflation has risen quickly almost everywhere.

GDP growth in the US and Europe reached multi-decade highs in 2021 and have continued in 2022.

Inflation has proven to be more persistent and thought and now presents a key policy challenge in the US and Europe. Our economists now expect at least three fed rate hikes this year starting in March.

Each year, we carefully assess the external factors facing the company. This slide depicts those who we think are most important going into 2022.

Probably the most important positive factors or the expectation for continued healthy economic growth. Borrowing costs that remain historically low. Continued au inflows from active to passive. Elevated commodity levels that helped the financial stability of commodity producers and ample liquidity.

The most significant negative factors are geopolitical uncertainty, sticky inflation, central bank rate increases and a repricing of equities and of course, the pandemic and supply chain disruptions remained general risks facing the global economy.

Before I finish, I want to say that I'm incredibly proud of the team we've built at S&P Global and I look forward to welcoming the talented IHS Markit employees to S&P Global. We're hopeful we'll be speaking with you soon to update you on the merger. Once the merger is complete, we will immediately begin building a new company with an even brighter future.

And now I'd like to turn the call over to Ewout Steenbergen, who is going to provide additional insights into our financial performance and outlook.

Thank you Doug and welcome to all of you on the call. Let me start with our fourth-quarter financial results. Revenue increased 12%.

Adjusted corporate unallocated expense increased 38%, primarily due to increased incentive compensation, higher professional fees and the timing of contributions to the S&P Global Foundation. Adjusted total expenses increased 9% and I'll come back to this on the next slide. Adjusted operating profit margin increased 120 basis points.

Onterest expense decreased 22%, primarily due to a reduction in fin 48 interest expense accruals and adjusted diluted EPS increased 16%.

Total adjusted expenses for the full year increased 7%. For the fourth quarter. They increased to 9%. The fourth-quarter increase was primarily due to elevated variable expenses, including incentives commissions and royalties as a result of strong 2021 financial performance severance charges related to

Management changes in the indices business during the quarter. Increased investments in growth initiatives. Increased professional fees and the resumption of T&D spending. During the fourth quarter, the non-GAAP adjustments totaled to a net pre-tax loss of $131 billion. They included $21 million.

For merger transaction costs, primarily legal fees, $42 million from merger integration cost, primarily consulting fees, retention bonuses branding and technology integration cost. $51 million for merger cost to achieve which will drive synergy benefits. They include lease impairments and restructuring charge.

$4 million for acquisition and divestiture related expenses. $8 million in gains from real estate sales and $21 million in deal-related amortization.

This quarter, all four segments delivered increased revenue with indices, leading away with an 18% increase. All four segments also delivered adjusted operating profit growth with ratings leading the way with an 18% increase. Quarterly margins were mixed but more importantly, all four segments reported a gain in adjusted

operating profit margin for the year.

Each year on our fourth-quarter earnings call, we shared the changes in our headcount. In 2021, headcount decreased 1% primarily for two reasons. The first is operational efficiencies. Much of the operational efficiencies were from automation. In fact, our people create a 225 box in 2021.

With market intelligence leading the way with 167 [bots]. Cognitive automation and RPE generated over 600,000 hours of savings in 2021.

The second is pre realized merger synergies because of the pending merger it didn't make sense to backfill many positions when people left the company in 2021. We estimate that there were about 150 S&P global positions left unfilled, representing freewheel life synergies of approximately $25 million by year end 2021.

<unk> dollars by.

By year end 2021.

This year with your formation of sustainable one, we edit this as a new category many of the people and sustainable one were previously reported in other categories.

Platts was the area with the largest head count increase at 11% due to investments in several growth projects. Market Intelligence had the largest decrease at 6% largely due to automation efficiencies and realignment to sustainable one.

Last year, we shared this slide and estimated that we would invest $100 million on growth initiatives in 2021. We ended up investing $80 million. The primary reasons for the difference or the competing priorities due to merger and a competitive labor market. We will share our 2022 investment spending plans.

After the merger is completed.

On our third quarter 2020 earnings call, we introduced a new $120 million productivity program to be completed over a two to three year period. I am pleased to report that only after 18 months, we have already largely completed the program. There are a few small procurement projects that are waiting to close of the merger to take.

advantage of the increased scale of the combined company. All our productivity efforts will now be focused on achieving the merger synergies.

Now turning to the balance sheet. Our balance sheet continues to be very strong with low leverage and ample liquidity. We have cash and cash equivalents of $6.5 billion and debt of $4.1 billion. Our adjusted gross debt to adjusted EBITDA improved since the end of last year to 1.8 times.

Free cash flow, excluding certain items was $3.5 billion in 2021, an increase of $217 million or 7% over the prior-year period. Because the share repurchase program was suspended due to the pending merger with IHS markets. We only returned 21% of free cash flow to shareholders in 2021.

After the merger is completed, we expect to significantly ramp up share repurchases.

Now, let's turn to the deficient results starting with S&P Dow Jones indices. The segment delivered 18% revenue growth primarily due to gains in AUM linked to our indices and increased exchange-traded derivative activity. Our asset linked revenue also included the benefit of our customer under-reporting true-up.

In the fourth quarter, we reported a 28% increase in adjusted expenses, primarily due to severance increased incentive compensation commissions and royalties.

A 13% increase in adjusted segment operating profit and an adjusted segment operating profit margin of 65.7%, a decrease of 280 basis points. On a trailing four-quarter basis, the adjusted segment operating profit margin increased 80 basis points to 69.9%. 

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S&P Dow Jones indices delivered growth across all revenue channels this quarter. Asset linked fees increased 18% with very strong gains in ETFs and mutual funds. Exchange-traded derivative revenue increased 30%. Data and custom subscriptions increased 10%.

Activity at the CBOE increased in the fourth quarter with S&P 500 index options activity increasing 47% and fixed futures and options activity increasing 18%. CME equity complex volume increased 15% with particular strength in E mini S&P 500 options.

Ratings reported revenue increased 12%.

Adjusted expenses increased 5%, primarily due to increased incentive compensation wages and outside services. This resulted in an 18% increase in adjusted segment operating profit and a 300 basis point increase in adjusted segment operating profit margin. On a trailing four-quarter basis, adjusted segment

operating profit margin increased 180 basis points to 64.2%.

Non-transaction revenue increased 7%, primarily due to fees associated with crystal new entity credit ratings and surveillance, partially offset by lower rating evaluation service as an aside we added over 1000 new entity credit ratings in 2021.

Transaction revenue increased primarily due to strength in investment-grade corporate bonds bank loans and structured products.

This slide depicts ratings revenue by end markets, the largest contributor to the increase in ratings revenue was the 14% increase in corporates. In addition, financial services revenue increased 5%. Structured finance increased 32%. Governments decreased 11% and the crystal and other category increase 14%.

14%.

On the right side of the slide, you can see the changes in revenue within structured products, the largest change wasn't CLOs, which increased 43%.

Turning to Platts. Revenue increased 12% or $26 million, including a 4 million commercial settlement. Approximately 14% of this growth was from new products. Core subscriptions increased 10% and global trading services increased 13%. The gains in GTS revenue were.

Mainly from higher petroleum and iron ore volumes.

Adjusted expenses increased 16%, primarily due to increased commissions growth investments cost of sales and incentives adjusted segment operating profit margin decreased 160 basis points to 50.1% trailing four-quarter adjusted segment operating profit margin increased.

40 basis points to 55.1%.

Platts delivered excellent revenue growth in every category with notable increases in natural gas, power and renewables and petrochemicals.

Market intelligence delivered revenue growth of 8% or $42 million with 34% of the growth coming from new products usage of our key market platforms increased 4% year over year, while year ending active users increased 13% to 299,000 users.

Adjusted expenses increased 5% due to increased cloud hosting initiatives royalties incentives and commissions. Adjusted segment operating profit increased 15% and the adjusted segment operating profit margin increased 200 basis points to 32.7% on a trailing four-quarter basis.

Adjusted segment operating profit margin increased 190 basis points to 34.3%.

Looking across the market intelligence components desktop revenue grew 6%. During 2021, market intelligence rebranded its premier platform offering as capital IQ Pro. The capital IQ Pro platform combines the best of capital IQ and SNL desktops with broad public fundamentals.

And deep industry data. In addition to platform offers greater visibility into private companies and private markets as well as regulatory supply chain climate data and analytics and ESG scores.

Data management solutions revenue grew 11% and credit risk solutions revenue grew 8%.

Due to the pending merger, the company will not provide guidance for 2022 at this time, but we'll provide 2022 guidance for the combined company after the merger is completed. We continue to expect the merger to close this quarter. In addition to the slides that we have refute on this call, there are additional slides and an appendix that can be downloaded.

From the Investor presentation section of the Investor Relations website.

In conclusion, 2021 was a noteworthy year for S&P Global. We delivered strong financial results, realized significant growth, made considerable progress merger preparation and synergy validation and launched multiple innovative new products across the company, including our sustainable one product offerings. And with that, let me

Turn the call back over to Chip for your questions.

Thank you. Just a couple of instructions for our phone participants. To indicate that you wish to ask a question, please press star one and record your name. To cancel or withdraw your question, simply press star two.

Please limit yourself to two questions in order to allow time for other callers during today's Q&A session.

Operator, we will now take our first question.

Thank you. Our first question comes from George Tong with Goldman Sachs. Your line is open.

Hi. Thanks, good morning. With respect to the merger with IHS Markit. Can you elaborate on what steps remain for the companies to complete before the transaction can close?

Hi, George This is Doug. Thanks for the question. Well first of all, as you know from our last call and what you've seen that we've released we have approval from all of the regulators that we require approval from to close the merger.

And but those are conditioned on certain divestitures. So with the UK CMA, we are have already presented them with approved buyers for the base chemicals business, which is news corp. We're waiting for their approval of that potential buyer and then the second would be from the EC, we have they've looked at all of the divestitures and the.

Additional one for them with CUSIP, which we've announced that we signed a contract with Factset and we're waiting for them to approve them as an acceptable divestiture partner other than that we're ready to go.

Got it, very helpful. You pre realized merger synergies over the course of 2021 and early 2022, given your work around synergy realization, how have your views on revenue and cost synergies from the transaction changed?

Good morning, George. This is Ewout, obviously, we have continued to work on further validating our synergies both on the cost side and on the revenue side. We have in the meantime ahead five rounds of synergy submissions by our workstreams. So they do a lot of work on

substantiating synergies, building bottom-up plans and further really developing concrete initiatives around these synergies. So the confidence level is going up for each of those submission rounds. I cannot give you specific numbers today, but we'll get back to you during the merger call.

But a lot of work is continuing shops were ready to realize the synergies immediately after completing the transaction.

Yes.

Got it. Thank you.

Thanks, George.

Thank you. Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open.

Thanks so much. I wanted to ask on ratings, you mentioned that down 2%.

Issuance for this year that your ratings group is forecasting. Just given the potential for rising rates, you mentioned you're expecting three rate hikes. I guess, how are you thinking about upside versus downside to that to down 2% number.

Yeah, Tony. Thank you for that. So first of all, let me just share a little bit of the color of the market. As you know last year had a lot of mixed a movement in the ratings as an example, the corporates in the US were down 30%. Financial institutions were up 17% and then as an example globally structured credit which is CLOs

<unk> was up 265%. So we saw a lot of mix in the movements in our analysts and the team at S&P Global ratings research team had been looking across all of those types of factors what was the part of issuance one thing that they've looked at is what was the growth in issuance over.

Over the last couple of years and all the different different sectors, what's the M&A, what's the M&A landscape. What are we seeing for the pipeline of L. B O private sector transactions private credit transactions and what they see right now is in the what we call the corporates or the industrials, they they're expecting they'll be down by about 7% next year with.

The range of negative <unk> to negative five.

Financial services relatively flat up about 1% with a range from down five to up five.

Structured finance at about 3% growth for the year with could go down as much as five could go as much up as eight and then public finance at about 2% either flat to up 5%. So that gives you a total of down about 2% with a range that could go down eight and it could go up to 3% as I.

Ted This is based on the factors of looking at the pipelines looking at outstanding issuance maturities that are coming up M&A pipeline, what we've what we've learned from the banking sector on what they see with the private transactions et cetera.

That's great very helpful and wanted to ask on E. S. G. So you've mentioned in the past that most of the ESG revenue right now is in platts and but there are significant opportunities in the other segments and you've mentioned a number of those earlier in the call, but just how should we think about the ramp up.

Of ESG in the different segments like would you expect like market intelligence to be able to ramp first our index and you know should shall we see this being sort of a gradual opportunity over time or you know as things gained traction massive step up somewhere you know just how should we think about going forward.

Right.

Good morning, Tony If you look at the revenues for ESG, we're very pleased with the growth during 2021, we realized 51% growth in revenues across the company and so overall, we are continue to be committed to that 40% CAGR that we have laid out before.

Question with respect to each of the segments you're right. The plan is still the highest or largest in terms of ESG revenue contribution market intelligence is very closely following now the platts business and what you are seeing that besides platts, particularly ratings market intelligence and the index page news or having to hide.

You should growth of ESG revenues at this point in time. So this is clearly an enterprise wide initiative. That's why we have created a sustainable one group that just looking across the company and driving commercial initiatives for the company as a whole and we continue to be very excited about the outlook for the ESG revenues.

And particularly also shortened up growth in the other segments outside of flash.

Perfect. Thank you.

Thanks, Tony.

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

Great. Thanks, so much and congratulations obviously theres a lot going on and just really really nice outcome.

Doug you either could you talk about.

Obviously, there's the focus on rates, but there's you know market volatility as well maybe talk about how the volatility impacts the indices business the market intelligence and then platts as well because I think theres puts and takes across the model, but maybe you know the increased volatility again, how that impacts indices intelligence and then you know maybe just.

The spike in oil within the context of Platts if he could.

Absolutely, Kevin and good morning, I actually the way how we look at the volatility that is in many cases also a positive for our businesses because if theres more volatility going on in the markets more activity happening there is more demand for our products for our research for our insights.

So actually volatility in markets, usually show more of the higher value at all of our products and then on top of that we see two of our businesses that are directly benefiting from all the more volatility from a trading perspective, we have global trading services revenue and flats that just going up when there is more market.

The volatility in the commodity markets and then we have to exchange traded derivative activity in the index business, which is.

The case that there's more hedging going on in more volatile equity markets and that is one of the revenue drivers of our our index business. So clearly volatility is helping the company both from a value add but then also about directly to revenue streams from both the index in the Platts business.

Okay.

That's great I'll get back in thank you so much.

Thank you Kevin.

Thank you. Our next question comes from Alex Kramm with UBS. Your line is open.

Hey, good morning, everyone I'm wanted to come back to the ratings agency discussion for a second.

Doug you mentioned, obviously that the forecast from your team doesn't include loan markets, but if you look at the loan business for you in 2021, obviously that business doubled so curious where you shake out in terms of loan market expectations in terms of issuance and obviously that filters into the structure.

I'd find it as well in case, it's a soft environment, which you've seen so far in January thank you.

Yeah. Thank you well when it comes to the loan market, we still see conditions, which are quite attractive for loan issuers first of all even though there's discussions about rates going up we've seen estimates from 3456, even seven Ah hikes recently as the last couple of days our own economists have increased their expectation for right.

Rate hikes in the U S up to a range of more like a five or six now.

But even if you look at rates rates are still quite low and there's a lot of demand for floating rate instruments, given that the rate cycle and there could be increases there. We also see a very strong M&A pipeline. As you know M&A is one of the biggest drivers of loan issuance as people complete M&A. They many times are financing it with a <unk>.

Bridge loan or potentially going into the loan market. So when we look at the entire the entire market. We think that even though rates are going to be going up they are still low on a historical levels spreads are very tight there's a lot of demand for floating rate paper.

There's been a large pipeline of transactions coming through both from a combination of M&A as well as private equity transactions. So we're seeing right now is still a very strong market for loans into the into the near future.

Alright fair enough and then maybe this could be for a vote are you inflation. Obviously is a topic that's been coming up a lot curious I know youre not giving any guidance at this point, but how you think on the one hand that could impact your cost pressure that we've seen with other companies and then maybe.

Remind us how much C. P. I you have built into some of your contracts and market intelligence may be flat. So I guess the question is will could inflation actually help organic growth in 2022, which some people may not be thinking about thank you.

Thanks, Alex I'm going to start and then I may hand, it over to Eva out well first of all when we look at inflation, we see the last year.

As an example in the U S. It was a 7% annualized rate in December .

That that annualized rate of 7% as well.

Obviously led to a very animated discussion about interest rates in the U S. So as we built our plan and we're looking forward we'd been looking at this in the U S and the U K around the world. So first impact because we believe that interest rates will be going up you've seen that doesn't go up in the U K, they're talking about it in the E C. The ECB.

He's now been rumored to be looking at interest rate increases and then in the U S. There's expectations. This year. So we built those factors in when it comes to our labor markets. That's one of the areas I'm watching myself quite closely both from a systemic point of view and then for our company itself. We've seen some wage pressure in areas like AR technology.

Allergy rules are there are some ESG roles that we've seen some pressure wage pressure because those were obviously going to be paying market rates, but let me hand, it over to Eva to give you some more thoughts about how we're applying it for our budget for this year.

Good morning, Alex if you think about the impact of inflation on the company. We think overall this is going to be manageable for us because of a couple of reasons. Obviously, there will be expense increases with respect to people cost and procurement and as Doug said, we're making some targeted adjustments for certain job groups within.

The company, but then the offsets are the following we are continuing to run productivity programs and you have seen that we have made quite good progress with the program. We announced in 2020 of course, we're getting significant synergy programs and then we have an opportunity based on the high value add of our products and services.

To achieve more favorable contract terms and fees over time, when we are at that point of renewal, obviously that depends on facts and circumstances for each of our businesses, but clearly we will be looking at balancing growth margins.

Or relations and then ultimately shareholder value by managing the impact of inflation, but that's actually I said at the beginning we think that this overall manageable from a financial results perspective.

Very helpful. Thank you.

Thanks, Alex.

Thank you. Our next question comes from Ashish <unk> with RBC capital markets. Your line is open.

Thanks for taking my question.

Getting back to the window Info acquisition was announced the company had guided to a mid single digit EPS growth for 'twenty. Two I understand you will provide the guidance on the after the acquisition closes but a lot has changed since then so I was just wondering if you could just provide us some puts and takes since the original guidance was given and whether the buyback.

It was included in that original guidance.

Any incremental color will be helpful. Thanks.

Ashish fully understand this is a very unusual situation that we cannot provide you guidance at this point in time, having said that you should expect us from a philosophical perspective, how we manage the company to continue exactly for what you have seen us doing in the past and what we have told you before so expect to grow revenue.

And all of our businesses in 2022 and also to continue to expand our margins and we will be more specifics during the merger call and give you more quantification around that.

That's very helpful color. Thank you for that and then just on the multiyear productivity, it's great to see the progress there and an ability to.

Pull forward, our ability to execute at a out of them.

I had a better than expected piece and then now the focus on cost synergies going forward.

Just a question there would be is that opportunity for as we are in addition to the cost synergies could Debbie motor Portuguese foot productivity, our global productivity improvement on Standalone businesses as well thanks.

We will continue to look at all the opportunities you may expect us to see us continue to be very disciplined from a cost management perspective, there are areas, where we are further looking at across the whole company from productivity through real estate to automation.

Many many different areas again, we will give you a full update on what that means for the combined company from a synergy perspective, but overall I'm very pleased with the progress, we're making to get ready to start to realize the synergies and the concrete plans that we have put behind us and as I said before five rounds, we now had in terms of.

Synergies submissions by the work streams.

Credible amount.

The amount of work has gone into dish prefer to validate and to bring up the confidence level in terms of what we will be able to accomplish.

That's great and congrats on such a strong quarter.

<unk>.

Thanks Ashish.

Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is open.

I'm just looking at the slide here and I, just wanted to kind of a high level overview on what the pipeline that can show looks like just you know with S&P at the moment and I imagine you know IHS markit only opens up the doors there.

Thanks, Manav and you know this is always one of my favorite topics to talk about so we continue to be so excited about the initiatives of can show and how cancer was helping to transform S&P global and what it can do also for the combined company. After we complete that transaction you've seen some of the highlights.

The accomplishments of can show during 2021, and we are expecting to see that continuing in 2022, we have such a complete toolkit of AI for unstructured data, which is about linking data extraction speech to text. The codex platform that is now on kept by cube pro and <unk>.

It's already 300000 users to date and you cannot imagine the amount of demand that Kent you will have going forward. We will have some prioritization decisions to make wherever we think we can create the highest value and where to use those resources also by the way the attention for Ken show from external customers.

Or is it going up at this point in time, there's more and more external activity happening and also the relations with central with some of the large technology firms. There's further expanding so we're actually really excited that the external recognition of potential remains very healthy high so high value creation for it for Concho and it's going to be really close.

They have to see what is going to be next for <unk> in a way to help to catalyze innovation for the company.

Got it. Thank you for that and then just a quick update on China. Obviously, the number of ratings is growing really nicely as you disclosed just wondering like is is the revenue material, yet and you know what that kind of pace looks like.

Yeah. Thanks Manav.

We're so excited about China, we have a fantastic team there with really good leadership, we've been out educating the market as you know theres been some opportunities for us to provide some seminars on credit we've seen a very large increase in traffic coming to us, especially given the current credit environment in China. As you mentioned, we got up to 57.

Weightings in 2021, the one of the things that's important to us is that they span the different levels of investment grade ratings, they they're broad from AAA to triple B rated financial institutions corporate structure.

And the regulatory environment is also one where there is some very good initiatives going on to look at changing the floor of our ratings that are gonna be available for a financial institutions and insurance companies, but our revenue is still light it's not material to the company its something that were putting a major focus on in 2022. So we can do.

Our commercial organization faster and harder to take advantage of a really strong start that we're off to.

Alright, Thank you very much thanks.

Thanks Manav.

Thank you. Our next question comes from Hamzah, Missouri with Jefferies. Your line is open.

Hey, good morning, Thank you.

My question is just on market Intelligence group could you just remind US you know are all those contracts now on an enterprise wide arrangements and and maybe do you see the mix changing where data management solutions kind of being a much bigger part in any any mixed.

As you see within this business you know post merger I know, it's one of your highest growth businesses and margins seem to have come back.

Some of your earlier investments.

Oh I'm sorry, good morning, definitely what we expect to see is that the data management solutions is going to grow faster and becoming a more and more prominent part of your market intelligence business over time, so maybe going back to a couple of the comments you made with respect to enterprise wide.

Fracs that process is done so we have now all our contracts on that on that basis, what youre seeing is very steady and healthy growth in desktop we really like the commercial activity in 2021, we've seen some very healthy sales levels and that sets us up well for 2022 from a desk.

Top growth perspective at 6% reported growth and and that is more or less at mid single digit steady growth is to be expected going forward, then data management solutions in a normal quarters, you should see that grow at high single digits to low <unk>.

Things were a bit higher this quarter about 11%, a particularly nice growth in marketplace and in the true cost area as well. So those are doing particularly very well and then the last you were referring to margins. We have been investing as you know over the last few years, a lot of new growth initiatives and market intelligence.

And we're very happy to see that paying off from our overall revenue growth perspective, and we said that you should see margins coming back in 2021, and two that gets 30 levels and we're very happy to see that actually ultra has taken place or market intelligence is very well positioned I think for the next few years.

Got it very helpful and just one follow up question I'll turn it over is just around.

Just a ratings business I know you highlighted your global issuance forecast for 2022, and I know your revenue differs obviously with Oh, what was that figure, but it goes with pricing and you know non.

Actual business and mix et cetera, but maybe could you talk about you know what you're seeing in Europe around issuance, maybe in Asia I know you touched on China and in some of your prepared remarks.

But any thoughts as to you know outside of North America are how those markets look like as you look at you know 2022. Thank you.

Yeah, just to give you some thoughts about the markets well first of all the numbers. We gave you we're a global issuance forecast those take into account all the different markets. We're in but Europe is very similar to the United States last year and a full year in and also in the in the final final numbers in the quarter Europe was down in corporate.

But it was up in financial institutions as well as very strong in CLO and structured credit.

In addition to C N B S market in Europe was strong we saw it's not a it's not a big market, but there was a lot of interest in C and D. S. In the European market. We see the continued conditions in Europe that are strong for capital markets are there is an interest I've mentioned this before on other calls in the European policy sector to stop.

Having all of the dependents for corporate financing coming from banks and moving more to capital markets. As that continues we see that as a long term valuable trend for us that trend in Asia is also something that we're seeing more of as well.

A little bit about 2000 22021.

In Europe , and the Asia across holiday should both for corporates and financial institutions were up corporates were up about 10% and financial institutions were up about 14% through the year, whereas the overall are structured in in Asia was was only up about 30% most of that being <unk>.

In traditional ABS in RMB S, where the major volume is but we do see again in Asia that move towards capital markets away from banking markets as a trend. There's also a lot more M&A activity, taking place and part of Asia, Obviously is China, where we are on the ground floor, there as that becomes a much more sophisticated market.

Alright, thank you.

Thanks Hamzah.

Yeah.

Our next question comes from Craig Huber with Huber Research Partners. Your line is open.

Great. Thank you I just wanted to touch on the cost a little bit further because you gave some good detail earlier on this but in the fourth quarter can you just touch on internal investments spending how that may have deferred or a dollar wise if he could versus a year ago were sequentially and also incentive compensation as well as it was that materially different.

How was it accrued over the course of the year and I have a follow up thank you.

Yeah, Good morning, Greg and thanks for asking that question, though I would first I would like to point out that the expenses are unusually high during this quarter. The vast majority if not recurring and you should see continued expense discipline from us going forward. So having said that you are special.

You're asking about shorting categories. So what you were seeing where from an expense growth perspective. That's the majority of the growth was coming from variable expenses performance related expenses, which I can say that our good expenses because they are directly correlated with healthy sales and revenue activity. So these are commissions.

Real peace and incentive compensation incentive compensation. You also specific question around that we're accruing at this moment are significantly above 100% for our short term incentive compensation and that's a bit higher compared to 2020 and also the performance factor so with our long term incentive compensation are running.

A bit higher than in 2020, so that drove some of the additional expenses with respect to growth investments. Although you saw that they were overall a bit lower compared to the year before that doesn't mean that it doesn't have an impact on the overall expense levels because some of those growth initiatives go to a baseline.

And it means that some of the new growth initiatives are still incremental to what we already have in place. So overall growth in net investments drove approximately 50 million off the expense growth during the fourth quarter. So we think these are clear reasons why the expense growth.

Turning the underlying recurring expense growth is actually very limited and very very minimal.

And my follow up I guess.

You guys touched on a little bit earlier about upon bank loan for your outlook for that can you just go a little bit deeper I mean.

That's obviously a huge wildcard this year, obviously is not included in your.

Global.

Debt issuance forecast here, so let me touch on a little deeper what do you think the likely outcomes are for bank loans versus last year's strength up about 100% even touch on steel those are supposed to think about this new year. Thank you.

Thanks, Craig Yeah, right now I can talk to you a little bit about the conditions, but we're not giving any guidance right now for 2022, but as I mentioned the conditions for the market as of the current market are still quite favorable for bank loans in particular, the M&A market, we see a strong there's a there's a large backlog of transactions, which have already been announced that haven't been.

Closed yet you have a large private equity pipeline of transactions, which are going on even though interest rates are starting to go up and we've seen the 10 year Treasury Hasnt hit 2%, but it's getting closer.

But spreads are tight and interest rates are still very low on historical basis, there's a lot of demand as well from insurance companies from banks and other institutional investors for floating rate paper. So we do think that the conditions are still very strong for the loan market, but as of now we're not giving any specific guidance for <unk>.

'twenty two.

Thank you.

Thanks, Craig.

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

Hi, Good morning. This is actually Trevor Romeo in for Andrew I. Appreciate you taking the questions. Just a couple of quick ones for me first just wanted to go a bit deeper on platts with 12% growth in the quarter I think 18% growth in the U S. I know some of that might be one time from the commercial.

Settlement is there anything you'd call out there in terms of drivers of that strength and how much is that strong commodity market driving growth.

Across the various areas of plants right now.

Good morning, Trevor definitely very pleased to see such a high revenue growth in Platts I think it has been a long time ago, we feel flat to growing in the double digit space. So this is really excellent results you're right. There was about $4 million commercial settlement in those numbers. If you would take that out you're at the.

Approximately 10% or 10% growth for revenues for platts in the fourth quarter, So still quite a quite strong. So what is happening behind there in terms of revenue growth, we see strong commercial momentum in both the core business, which is the price reporting business and the insights business and that is mostly been.

We see customers being health healthy with the current commodity prices the current commodity market environment, It's actually very good for our customers and then also global trading surfaces is doing well, we're growing clearly here based on the overall price volatility in the markets and then the third reason behind the distal.

Revenue growth of flat is the new initiatives, we have invested in new initiatives like LNG energy transition and agriculture, and they'll also start to pay off at this moment. So very pleased with the results of <unk> overall.

Yeah.

Great. Thank you and then just a quick follow up.

Just wanted to ask about your recent acquisition of the climate service I'm sure that's probably a fairly small acquisition, but just wondering if you could talk a bit more about how that kind.

Kind of physical climate risk more broadly fits into your ESG strategy. Thank you.

Yeah. Thank you for that the climate service is a really interesting business and it's an excellent fit for us with the suite of climate products in particular that we've been putting together both homegrown as well as you know the true cost acquisition, we made four and a half years ago. It brings a platform called climate, Nymex, which is you're able to bill.

<unk> across different datasets. It allows companies to look at their physical risk in many different categories cyclones hurricanes fires floods et cetera, and it can be model to different approaches as an example, the task force for climate related financial disclosure modeling. So this is something that we find that it's a great fit for our organization but.

More importantly, it also brings a really talented group of people people, who are entrepreneurial they've got passion, they've got energy and theyre going to be a great addition to S&P global as well because they're going to bring all of that energy as we build out even further or a sustainable one business platform.

Great appreciate the color. Thanks again.

Thanks Trevor.

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

Good morning, and thank you for taking my questions.

I wanted to get your thought about the potential development of ESG East year, and there has been a lot of conversation about the inconsistency of ESG data and ratings and there are obviously some benefits of ESG data as well, but could you. Please talk about some of the potential fans with development. This year that can potentially get us.

Closer to a more standardized ESG disclosure or ESG data and waiting so thank you.

Yeah I think so this is this is really an important area for us both as S&P global and as well as an industry and by that I mean, the entire financial industry. As we look to this important factor that starts to get included in People's decision, making what we see is that the ESG market itself for data and analytics and scores it started to evolve.

As more and more insurance companies institutional investors asset managers take those factors into account as they make decisions and as of now as you know the factors, which are being used by different organizations are not the same you have organizations that care more about climate you have some that care more about diversity inclusion or support.

Why chain and so there's different language out there whether it's a an impact fund it's an ESG fund its ESG approach approach.

And we're working very closely with different organizations, such as the I F. R. S. In the ISP, they're setting up the international sustainability standards for disclosure the IOSCO, which is the international organization of Securities Commissioners is looking at new rules around the globe for disclosure as well both disclosure from the point of.

You of of issuers, but also disclosure that could be asked for by different types of investors as they sell their funds or sell their investments.

We do think that there is a really good effort going on across the private sector as well as Ngos along with these regulatory agencies to start addressing what would be the potential regulatory requests as well as the market themselves coming to our standards of how we're gonna be disclosing as S&P global for our products all of our.

Products, we provide very simple clear consistent disclosure on everything that we are providing in the ESG products. Our disclosure is built in a way that's consistent it's transparent it's comparable you can see what the what the actual criteria is it's used to determine an index or a score or the weighting of the score.

And we think that that's going to be a key differentiating factor for us as we build out our ESG business.

Got it that's very helpful. And then one follow up questions about the buyback and I guess.

And I know you don't provide any specific guidance on buyback, but how should we think about kind of the magnitude and also the timing after a S. All I mean, the stocks of trade on quite a bit since the beginning of this year would you be opportunistic to do one large ASR or you would do multiple as all four full photo right.

With this year. Thank you.

Well, let me explain to you philosophically, what we are having in mind, obviously, we need to do a catch up because we have not been able to do buybacks over the last two years. The same apply for IHS markets. We have the opportunity to do buybacks based on the proceeds or some of those divestitures. We're also.

Of course looking at the overall refinancing that we can do off the IHS markit debt and potentially some opportunity for upsizing and then very quickly you would like to go in a normal course return of capital. We still are committed to the capital targets that we provided at the call when we announced the merger.

At least 85% of children of our free cash flow. So we definitely are ready to resume buybacks. After the transaction is completed and we would like to do that as quickly as possible in order to get to in a normal rhythm again for the combined company.

Got it thank you very much.

Thanks Owen.

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

Thanks, I know, it's late I'll just ask one.

Your comments you talked a bit about labor costs I was wondering if you can drill down a little bit more first of all is it more difficult to find and retain people I know a lot of companies are talking about that and then what does that translate into the labor cost you've been incurring and what you expect for this year.

Yeah.

Thanks, Jeff I'm going to start and then hand, it over to ease out them as I mentioned earlier, where it's critical for us that we're competitive and we're paying market rates in all of the different markets. We're in we're seeing a little bit of inflation or increase in job expenses wage expenses as I mentioned in some specific areas like a high high demand.

Knowledge areas data scientists.

One market in particular, we're seeing increase in some pressures in India.

And I'll give you. An example of something you might not have thought of but we're actually seeing a lot of our recruiters getting recruited away people are trying to hire people who can hire people.

So we're seeing certain areas, where we do see some.

Increase in turnover.

We're seeing clearly the areas that we're watching quite carefully but our philosophy is to pay market rates to ensure that this is a great place to work and he can talk a little bit more of how that translates.

Yeah and in addition to what Doug said I think we are not having any problem with hiring we are still very attractive companies people like to work for them for us and to stay competitively from a paid perspective, we have made adjustments for short term job groups I think about the ratings analyst at technology and <unk>.

She and we're also increasing the merit levels in certain jurisdictions. So that is just to make sure we stay competitive but overall as I said to an earlier question. We believe that the impact is manageable because we have opportunities also to look at productivity synergy efficiencies automation.

As well as the opportunity to look at some contractual terms and fees overtime.

Okay. That's really helpful. Thanks, so much.

Thanks, Jeff.

Thank you. Our final question comes from Jeff <unk> with Baird. Your line is open yeah. Thank you heard you loud and clear no guidance at this time, but I thought a vote said that you expect to grow revenue and all of your businesses in 'twenty two if I could just confirm if that's what was said obviously asking specifically for ratings.

If that's the case and then a related technical question just given your team your ratings team maintaining the down to issuance forecasts, but also explicitly saying risks weight to the downside did they lowered the low end of their range in that down eight seven at the low end already reflects the current views of that downturn.

<unk> risk or did they maintain a whole range and and they're kind of probability weighting different parts of the range or take there could be a future adjustment. Thank you.

Good morning, Jeff first to your question about revenue growth. Indeed, I said before that we expect to grow revenues and all of our businesses in 2022 and that we will get back to you with more specifics during the merger call with respect to your question about some of the ranges with respect to that.

The issuance forecasts by our research group I think youre right as compared to a quarter ago. Some of the range you have widened but overall the issuance forecast is still at minus 2% level and range you'd have to become wider because as we showed you in one of those slides in the prepared remarks, clearly there is more uncertainty.

The macro environment, so the level of headwinds and potential tailwind that we're seeing is a bit it's a bit larger so ranges are wider but overall the midpoint is still the same makes sense and thanks for the reinforcement. Thank you.

Yeah. Thanks, Jeff Let me just reinforce what Dave said about the business isn't just clarify that this is S&P global businesses that we're talking about we have no discussion whatsoever about the about the.

H S market businesses, but let me wrap up the call and I want to thank everyone again for joining the call for your questions for your support I want to thank again as I always do our very dedicated people. This has now been two years for the pandemic was going into our third year.

We've asked our people do a lot last year in the last two years and we want to ensure that they are fully prepared for the expected merger with IHS markit, because we're gonna be working really hard and running fast as soon as that closes.

And throughout 2021, we continue to perform as you saw today with the strong financial results and the progress on our strategic initiatives, especially those that are going to be driving growth in the future and.

Ken show data Sciences data analytics, ESG, what we've talked about with investment in our global businesses.

Going back to one of the first questions. We received about the merger we're very excited about the merger and the progress that we've been making planning for the merger we're going to host a call as soon as it's completed we'll do a post merger investor call. We can provide an update on the company's strategy the business segments the synergies the investment program.

Share repurchases things that you asked about today I wanted to ask about today and that would include guidance.

One last point I'd like to make on the call is I want to thank chip Merritt he's been an incredible partner as our head of IR, he's going to still be with us for a few more months until may but for the past nine years. He's been a great partner he's helped position the S&P global as the leading financial data and analytics and benchmark company and always.

With a great sense of humor. So chip. Thank you so much for your partnership throughout we could've never done as well if we have as well that we had without you. So again I want to thank everyone for joining the call today, we're very proud of all that we've been able to achieve but we also have a lot to look forward too. So thank you again everyone.

That concludes this morning's call a PDF version of the presentation slides is available now for downloading from Investor Dot S. P. Global Dot com replays of the entire car will be in an available in two hours the webcast with audio and slides will be maintained on S&P Global's website for.

One year.

Only telephone replay will be maintained for one month.

Half of S&P global we thank you for participating and wish you a good day.

Yeah.