S&P Global Inc

NYSE:SPGI

Earnings Call Transcript 2019-Q2

[Operator]

Good morning and welcome to S&P Global's Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

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

[Chip Merritt, SVP of IR]

Good morning and thank you for joining S&P Global's earnings call. Presenting on this morning's call are Doug Peterson, President and CEO; and Ewout Steenbergen, Executive Vice President and Chief Financial Officer.

This morning we issued a news release with our second quarter 2019 results. If you need a copy of the release and financial schedules, they can be downloaded at investor at spglobal.com. 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's. The earnings release contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with US GAAP.

Before we begin, I need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in the teleconference may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates, and 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 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 and Exchange Commission. I would also like to call your attention to a European regulation. Any investor who has or expects to obtain ownership of 5% of 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 are aware that we do have some media representatives with us on the call. However, this call is intended for investors and we would ask questions from the media be directed to Jason Feuchtwanger at 212-438-1247.

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

[Doug Peterson, President and CEO]

Thank you, Chip. Good morning and welcome to today's earnings call.

We're pleased to report excellent second quarter financial results. All four divisions delivered revenue growth and adjusted operating profit margin expansion. Between revenue growth and progress on our productivity initiatives, we achieved significant margin improvement contributing to a 12% increase in adjusted diluted EPS. Based on these results and our expectations for the rest of the year, we're raising our 2019 adjusted EPS guidance which Ewout will detail in a moment.

Share repurchases are an important component of capital return, and in late July, we concluded the $500 million ASR that we initiated in February. We anticipate initiating another $500 million ASR later this month. As you know, we've earmarked funds to make investments in meaningful growth opportunities.

In a moment, I'll share details around several of these including our first ratings in the domestic Chinese bond market, our first ratings ESG evaluations, and the successful launch by CME Group of Micro E-mini index futures.

To recap the financial results for the second quarter, revenue increased 6% to more than $1.7 billion. Our adjusted operating profit increased 11%, and our adjusted operating profit margin increased 220 basis points to 51.3%.

Well, this is a meaningful improvement, we measure in track adjusted margins on a trailing four-quarter basis, which increased 230 basis points to 49.5%. In addition, we reduce shares outstanding by 2%, which contributed to the 12% increase in adjusted diluted EPS. Each quarter, we take an opportunity to highlight key drivers to our business and important projects underway.

This quarter, let's start with ratings issuance trends. During the second quarter, global bond issuance decreased 3% with mixed performance across geographies and asset classes. If we also include bank loan ratings, total global issuance declined 13%. In US, bond issuance in aggregate declined 4%, as investment grade increased 5%, high-yield toward 41%, public finance declined 11%, and structured finance dropped 19% with declines in CLOs, partially offset by gains in RMBS and CMBS.

In Europe, bond issuance decreased 12% as investment grade decreased 17%, high-yield declined 4%, and structured finance decreased 1% due to declines in CLOs in ABS partially offset by gains in RMBS and covered bonds. In Asia, bond issuance increased 10% overall.

On the fourth quarter 2018 earnings call, we introduced this chart to attempt to track debt issuance and global cash balances of the 50 companies with the most overseas cash at the end of 2017.

As you can see here, the cash balances of these companies continue to decline. And bond issuance among these companies is increasing compared to the anemic 2018. The latest 2019 global bond issuance forecast is modestly more upbeat than the previous forecast. Excluding international public finance, which has minimal impact on our financial results, issuance is expected to increase 1.4%.

Investor demand for leveraged loans was more appealing when rates were rising as loans have variable rates. Now that the tone from the Federal Reserve is more dovish, expectations have shifted to a rate decrease. In this environment, high-yield debt with its fixed rates looks relatively more attractive than loans to investors.

This led to a decrease in bank loan ratings revenue in the second quarter to $85 million versus $121 million in the second quarter of 2018. During Investor Day, we introduced the framework powering the markets in the future, including six foundational capabilities. We use this framework to set our goals and allocate resources. I'm pleased to share great progress on a number of our new initiatives in the areas of global customer orientation and innovation.

Last month, S&P Global China ratings published its inaugural credit rating in the domestic Chinese bond market. This first rating issue was for ICBC Financial Leasing Company Limited, a leading Chinese leasing company, which was assigned a rating of AAA on S&P Global China Ratings National scale. And just this week, the second rating was issued to Luzhou Banking Company Limited, a city commercial bank headquartered in Luzhou City of Sichuan Province. It was issued a BBB rating on the same scale.

These two ratings begin to demonstrate the wider rating spectrum that they can expect as S&P Global China ratings brings a fresh perspective to a market of significant domestic and global interest built on our longstanding principles of objectivity and transparency. In doing so, we hope to contribute to the goals China has for the evolution of its domestic financial markets, and its connectivity to the global financial system.

S&P Global Ratings issued its first ESG evaluation. Separate from a credit rating, the new ESG evaluation is for companies looking to help their investors gain a better understanding of their strategy, purpose, and management quality. The ESG evaluation is grounded environmental, social, and governance factors to assess an entity sustainability efforts. The ESG evaluation process is unique, and that includes interactions between our ratings analysts and the company's management.

I recently met with several investors who expect the granular factors considered such as greenhouse gas emissions, water usage, safety management, and transparency in reporting that each have a score will further differentiate our ESG approach. You can see the factors on this slide.

The first ESG evaluation in the US was for NextEra Energy, the world's largest producer of wind and solar energy. The first ESG evaluation in Europe was for Masmovil, Spain's fourth-largest telecom operator, providing fixed and mobile voice, and Internet services to business and retail customers.

Each year, S&P Dow Jones Indices releases the annual survey of assets. This chart depicts the highlights of that survey for 2018. Due to the stock market correction that occurred late last year, asset levels and actively managed funds that benchmark against our indices were actually down versus the end of 2017 to $7.7 trillion.

The assets and passive funds invested in products index to our indices were unchanged year-over-year at $4.8 trillion. Numerous indices support the trillion. Clearly, the S&P 500 is the largest with 3.6 trillion in assets. Other categories include Smart Beta and Fixed Income which both declined, and ESG and other which increased with ESG more than tripling in the past year.

S&P Dow Jones Indices is continuing to advance opportunities in ESG. The S&P Dow Jones Indices, ESG scores service foundation for Index eligibility. In May, 22 new indices were added to the ESG Index family with versions of well-known country and regional benchmarks, including S&P Global 1200 ESG, S&P/ASX 200 ESG, and S&P Japan 500 ESG.

On our first quarter earnings call, we shared that UBS had just launched in ETF in Europe based on our S&P 500 ESG Index. Earlier this week, the AUM for the ESG ETF reached $125 million. In June, DWS launched the Xtrackers S&P 500 ESG ETF based on the same Index, which screens out firms with the lowest environmental, social, and government's profiles.

In May, Micro E-mini futures were launched at the CME to make trading more accessible. Micro E-mini futures are 110th the size of existing E-mini equity index futures, and that's more affordable for certain investors. These new Micro E-mini futures are based on four prominent indices, including the S&P 500 and the Dow Jones Industrial Average.

The new Micro E-mini were recently dubbed the most successful launch in CME Group's history with 2.6 million contracts traded in the first full week. This chart shows the average daily volume of each of the products with the S&P 500 contracts seeing the largest trading volume.

Delivering innovation, delivering innovative new products and nurturing existing benchmarks is an important emphasis at S&P Global. Indices recently launched eight new sector indices in Chile, with a focus on local investors of the Santiago Stock Exchange. Examples include the S&P/CLX Construction Real Estate Index, and the S&P CLX Food and Beverages Index.

The development of a market for US crude delivered into Europe took a further step forward last month with the first ever trade of a delivered WTI Midland cargo in the Platts market on close assessment process. Two price assessments that we have discussed on a number of earnings calls have been the 0.5% sulfur marine fuel and the JKM LNG marker. Both of these are being added to the Platts eWindow.

The Market on Close or MOCs Platts process for offering transparency into bid, offers, and transaction submitted by participants to Platts editors. eWindow enhances the MOC process. The inclusion on eWindow is an important milestone in the ongoing maturity and evolution of marine fuel and LNG markets.

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

[Ewout Steenbergen, EVP and CFO]

Thank you, Doug and good morning to all of you on the call.

Let me start with our second quarter financial results. Doug covered the highlights of strong revenue and adjusted operating profit growth. I will take a moment to cover a few other line items. Adjusted Corporate Unallocated improved by 10% primarily due to reduced project spending. Please keep in mind that Kensho revenue is included in the 2018 figure, but starting in 2019 it is included within Market Intelligence revenue.

Interest expense increased 41% because the prior-year figure was unusually low due to a reduction of FIN 48 interest accruals associated with the resolution of New York State tax audits covering several years. The adjusted effective tax rate was 23.1%, 80 basis points lower than a year ago. This was primarily due to slightly higher stock option exercises as compared to the second quarter last year.

Share repurchases, continued to be an important element of our capital return program. These actions resulted in a 2% decline in our diluted weighted average shares outstanding. Stock options associated with 120,000 shares were exercised during the second quarter.

This resulted in a stock-based compensation, tax benefits on EPS of $0.02. Year-to-date stock option activity is running well ahead of last year. However, as the number of employee stock options continues to decline we expect the stock-based compensation tax benefits to decline as well.

Changes in foreign exchange rates had a negative impact on the revenue in the Ratings and Market Intelligence divisions, and a $0.01 favorable impact on adjusted EPS for the company. Ratings revenue was negatively impacted primarily by the weakening of the Euro, Australian Dollar and British Pounds. Operating profit in Market Intelligence was favorably impacted by the weakening of the Argentinean Peso, Euro and Indian Rupee.

Of our four non-GAAP adjustments this quarter, a $20 million restructuring charge primarily in Ratings and Corporate, a $5 million Lease impairment associated with Platts vacating office space at 2 Penn Plaza in New York City, and these employees are relocating to our headquarters downtown. $5 million in Kensho retention-related expenses, and we had $31 million in Deal-related amortization.

This is a slide we shared at our Investor Day in May 2018. At the pics of framework that we outlined to show the areas where we can most impact shareholder value. The first two require investments.

We need to continue to invest to fuel revenue momentum with product innovations, introducing new technology, adding new data sets, and reaching out to new customers in new geographies. We have made great progress delivering EBITA enhancement, and we must continue to fund new organic opportunities to drive additional productivity gains.

Driving financial leverage involves optimizing interest cost, reducing shares outstanding, and optimizing the tax rate. And finally, we want to return capital to shareholders while maintaining flexible debt capacity. We are committed to returning at least 75% of annual free cash flow to shareholders each year.

This quarter all four divisions delivered revenue growth and margin improvement. This is a testament to all the hard work by our employees, creating innovative new products, nurturing benchmarks, and delivering on productivity improvements our section important focus across the company. I'll provide color on the individual business results in a moment.

Now turning to the balance sheet. Cash and cash equivalents declined slightly versus the end of 2018 principally due to $644 million of share repurchases during the first quarter. However, cash and cash equivalents increased considerably versus the $1.4 billion on hand at the end of the first quarter this year.

Our adjusted growth leverage to adjusted EBITDA was 1.9 times remaining within our targeted range of 1.75 times to 2.25 times. On an un-adjusted basis, our gross debt to EBITDA leverage multiple decreased to 1.1 times based on its EBITDA growth in the first six months of 2019.

Free cash flow excluding certain items increased $98 million to $956 million in the first half of this year. With an existing ASR underway, there were no additional shares repurchased during the quarter. This ASR concluded in late July and we expect to initiate a new $500 million ASR later this month. $140 million of dividends were paid during the quarter.

Now, let's turn to the deficient results starting with Ratings. Ratings revenue increased 3% despite bank loan volume and bond issuance activity that declined 13%. We have emphasized

in the past, the changes in total issuance aren't necessarily indicative of changes in revenue. The issuance mix is very important.

With that in mind, high-yield issuance is very incremental to our revenue, and was up 41% in the U.S., our largest market. High-yield revenue growth combined with modest price increases at the beginning of the year cost Ratings revenue to increase 3%. Excluding the impact of foreign exchange, revenue increased 5%.

Adjusted expenses increased less than 1%, resulting in a 5% increase in adjusted segment operating profit, and a 120 basis points increase in adjusted segment operating profit margin. On a trailing four-quarter basis, adjusted segment operating profit margin increased 70 basis points to 55.7%.

Non-transaction revenue decreased due to a $6 million impact from foreign exchange rates, with changes in the other components offsetting each other. Transaction revenue increased as debt rating activity driven by high-yield bonds outpaced the decline in bank loan rating activity. Over time, non-transaction revenue has been a steady source of growth. This is because the majority of the revenue is subscription like. However, there is some volatility at certain components, namely Rating Evaluation Services, ebb and flow with M&A activity. In addition, changes in foreign exchange rates can always have an impact.

This slide depicts Ratings revenue by its end-markets. The largest contributor to the increase in Ratings revenue was a 7% increase in Corporates. In addition, Financial Services revenue increased 3%, Structured finance declined 6%, governments increased 4%, and the CRISIL and other category decreased 7%. This includes an increase in inter-segment royalties for Market Intelligence, which was more than offset by decline in CRISIL's dollar denominated revenue.

Market Intelligence delivered a strong quarter with revenue increasing 8%. I need to remind you of two changes that both became effective on January 1st. First, we now include Kensho revenue in Market Intelligence, rather than recording it as a corporate item as we did in 2018. Second, Trucost has been transferred from Indices to Market Intelligence, and results in both periods have been adjusted for comparability.

With the ESG and climate, data analytics efforts under way at Market Intelligence, we believe Trucost is better suited to be included here. Adjusted expenses increased 6% as investment spending began to pick up in the second quarter. Adjusted segment operating profit increased 14% and adjusted segment operating profit margin increased 180 basis points to 34.3%, despite increased investments in the business.

More importantly, on the trailing four-quarters basis, the deficient delivered an exceptional adjusted segment operating profit margin increase of 380 basis points to 35.6%. We expect increased investment spending in the second half of 2019 as we continue to invest in strategic growth initiatives. The sale of the SPIAS business that we mentioned on our first quarter earnings call, closed on July 1st. SPIAS revenue was approximately $20 million a year, and was included in Desktop.

Desktop revenue, the largest category grew 3% excluding acquisitions while active desktop users grew 11%. Growth in this category has been slowing for the past few quarters due to industry trends and a shift towards Data management solutions as customers increasingly prefer data feeds.

Data management solutions continues to exhibit strong growth. Credit Risk Solutions grew 12% with RatingsXpress providing the greatest level of growth as we continue to expense the data feeds portion of Credit Risk Solutions.

Turning to S&P Dow Jones Indices. The segment delivered 14% revenue growth, and this included a non-recurring benefit of approximately $11 million associated with several recent contract re-negotiations. We do not expect a material change to future revenue from these contract to changes.

In the second quarter, we reported 4% adjusted expense growth, 19% adjusted segment operating profit growth, and adjusted segment operating profit margin of 69.6%, an increase of 280 basis points. On a trailing four-quarter basis, the adjusted segment operating profit margin increased 130 basis points to 68.4%.

Revenue in the various categories was mixed during the quarter. Asset-Linked fees increased 18% due primarily to AUM growth in ETFs and mutual funds as well as the benefit from recent contract re-negotiations. Exchange-Traded Derivative revenue declined 6% from lower exchange fees.

Data & Custom Subscriptions increased 21%, but recall that a year ago we reported a 4% decline associated with a delay in contract renewals as a result of a change in administrative processes. This is all behind us now and the second quarter 2019 revenue reflects a more normalized run rate.

Our indices division over the past year ETF net inflows were $70 billion and market appreciation was $69 billion. This resulted in an increase in quarter-ending ETF, AUM of 10% over the past year to more than $1.5 trillion. I want to make a clear distinction between average AUM and quarter-ending AUM. Our contracts are based on average AUM, which increased 9% year-over-year.

We disclose quarter-ending figures because flows and market gains and losses are best depicted using quarter-end figures as shown in the waterfall chart on the right. Industry inflows into exchange-traded funds were $108 billion in the second quarter, with the majority going into fixed income and global equity products. Flows into US equity funds were $42 billion.

The indicators for our exchange-traded derivatives . Volume increased modestly in the second quarter. S&P 500 Index options activity increased 2%, VIX futures & options activity increased 4%, and activity at the CME equity complex increased 12%. ETD volumes increased during the quarter, but revenues declined.

While changes in volume are often a good indicator for changes in revenue, our pricing elements that change as well. For example, we aren't paid on volume at the CME, we're paid on the percentage of the profits of the equity complex at the CME and that could differ from volume.

Now turning to the Platts division. Platts revenue increased 4% as a result of a 4% increase in Core subscriptions, and an 11% increase in Global Trading Services with increased trading volumes of oil, LNG, and Iron ore. Adjusted expenses decreased slightly leading to an adjusted segment operating profit margin of 52.1%, an improvement of 220 basis points. The trailing four-quarter adjusted segment operating profit margin was exceptional, increasing 260 basis points to 49.5%.

Also yesterday, we closed on the sale of RigData to Drillinginfo. RigData is a small business that we purchased three years ago to secure the rights to North American rig information. In conjunction with this sale, we have secured the licensing rights to RigData datasets for use by Platts Analytics going forward. Power and gas delivered the largest rate of growth at 7%, primarily the result of increased adoption of our LNG Benchmark. Petroleum and Metals & Ag grew 4% and 3% respectively. Petrochemicals revenue declined 1%.

And now lastly, I would like to discuss our 2019 guidance. This slide depicts our GAAP guidance. Those items that changed are highlighted. Please keep in mind that our guidance reflects current spot market ForEx rates. And now, let me review the changes to our adjusted guidance.

Corporate Unallocated expense has been reduced by $10 million due to a reduction in professional fees, resulting in an increase to our operating profit margin range. Interest expense has been reduced by $10 million primarily due to improved accounts receivable collections and cash management benefits associated with converting overseas cash to US dollars. Tax rate has been reduced by 0.5% points with higher levels of stock option activity than initially anticipated.

These items resulted in a $0.10 to $0.15 increase to our diluted EPS guidance range. While these changes increase our expectations for free cash flow, we're still within the guidance range we provided before.

In conclusion, we continue to execute upon our corporate initiatives, including our stepped up investments in growth opportunities, and our $100 million cost reduction program. Some of our progress can clearly be seen in our current results, other programs are just getting underway. We are pleased with the progress we are making, both to advance the company and to deliver on our new 2019 guidance.

And with that let me turn the call back over to Chip for your question. Chip?

[Chip Merritt, SVP of IR]

So, thank you. Just a couple of instructions for our phone participants. [Operator Instructions] Operator, we will now take our first question.

[Operator]

I would now introduce Ms. Manav Patnaik (sic) [Mr. Manav Patnaik] from Barclays. Your line is open.

[Manav Patnaik, Barclays]

The first question is just on the Market Intelligence Desktop growth of 3%. I was just wondering if you could elaborate a little bit more on some of the trends, I think we know the obvious ones, but the deceleration was a little bit more notable to the 3%, and also the 11% user growth is obviously positive, but at what lag do you monetize that user growth to show better desktop growth?

[Doug Peterson, President and CEO]

Manav, this is Doug. Thank you for your question. Well, first of all, the 3% growth as you know, is something that we, it's a little bit below what we've been targeting. We're targeting a mid single-digit growth going forward.

And as you know, there has been a few industry trends of some equity shops that have been shrinking et cetera, so occasionally we get a request from customers like that to negotiate, but what's really - what we're focused on is the diversification of our business model. If you think about it, we have a different customer sets. We've got - we have banks investment banks, insurance companies buy side, sell side, corporates, governments, regulators et cetera.

And so when we look at our user growth, 11% is a good leading indicator for us. We also were coming up during the year, we have different cycles of re-negotiations of our contracts, but overall we're still projecting mid single-digit revenue growth for the rest of the year.

[Manav Patnaik, Barclays]

And then just secondly, given you guys obviously still have one of the most flexible balance sheet in that universe right now. Just trying to think about how you plan to maybe use that flexibility in the appetite for M&A, just given some large deals recently including the one today just curious and how we should think about that?

[Doug Peterson, President and CEO]

Well, first of all you should think that we are very careful stewards of our capital and our balance sheet. We take it very seriously, our obligations to manage those funds on behalf of our shareholders, as you know, we're always looking to see what would be potential opportunities for us to grow and to invest.

In the slides I included a framework, which we call powering the markets for the future and that's really how we guide, where we're going to be investing in the future, and we've put a major emphasis as you can see, the last year so on internal organic investments as in China with ESG, with other initiatives.

So as you would imagine, we're looking all the time to see what would be out there, it's just part of having a corporate development strategy, but nothing specific that I would talk about right now.

[Operator]

This question comes from Alex Kramm of UBS. You may ask your question.

[Alex Kramm, UBS]

Yes, good morning everyone. Want to ask about China, obviously, I know it's a little bit more long term, but obviously things are happening. Wondering, Doug, what other I guess metrics you can provide so far in terms of what you've seen, you obviously have a couple of ratings now. But, and I know it's early days, but anything you can disclose around pricing you're getting, new interest levels you're seeing, this is opening up any sort of data sales opportunity at this point already, and if you can comment on what these companies have seen in terms of, you mentioned BBB just now, I mean if credit spreads have been impacted. So I guess a big question about would like give us what would you can about what you're seeing so far?

[Doug Peterson, President and CEO]

First of all, the reception for our business in China has been very positive, both from the markets themselves from issuers from investors. As you can see, we were approached to issue a bond that was actually not a AAA rating, is the first time this week that we that anybody has issued a BBB rating in the market, and the market reaction was actually curious and very positive.

They were interested to see what is the criteria we're using, how it's going to be applied, as well as people have very high expectations for the way that we're applying our global expertise into a domestic market. As you know, the market is still very large, it's the third largest bond market on approaching the number two bond market.

But overall, as you know, the bonds are still there, they are very short-term, about three years. A corporate issuance is about 12% of the total market, local governance about 31%, policy banks about 17%, commercial banks about 14%, overseas investors still only own about 2% of the total bonds in the Chinese market.

And so if you think about those dynamics the people we've been approaching for on the issuer side we have a very active program with our commercial team to approach issuers and talk to them about what are the opportunities to be rated by S&P China, and we're getting very good response from them. We're starting to build a pipeline. Nothing that we would be able to talk about formerly yet.

And then on the investor side, we're really swamp with investors calling us to learn more about our approach and especially now having two different ratings at AAA to a BBB, it demonstrates that there is going to be a widespread of ratings in China as opposed to the domestic ratings, which are all cluster around the AAA and AA level.

What we'd like to do is over time as we get more track record as we have more ability to give you data. We will start sharing more of that, but we're very pleased with the progress we've had so far. And also, I'm really pleased that we've already had two ratings, especially that cover a range of ratings.

[Alex Kramm, UBS]

I'll stay tuned. I guess then for Ewout, on the margin side, I mean you continue to do really deliver good operating leverage, but also seems to show that you're still finding new efficiencies. So I guess it's a broad question, but just curious how you feel about the ability to continue to do that, how many stones they are still to turnover to find these efficiencies or if we are starting to run out? Thank you.

[Ewout Steenbergen, EVP and CFO]

I would say a whole pile of stones we still to have in the company, and we are very pleased with the progress we are making. As you have seen, we are very disciplined with the execution of all of our programs to deliver on the commitments we have given to our shareholders. So if you look at the margins overall, we have now one business that has its aspirational margin targets, that is the Index business.

On a trailing four-quarter basis, 68.4%, and we set the aspirational target is mid to high '60s. We have one business that is getting close to the aspirational target, that's the Platts business, that is on the trailing four-quarter basis now at 49.5%, and then Ratings and Market Intelligence have still a little bit of room with Ratings being now at 55.7 with the aspirational target of high '50s, and Market Intelligence at 35.6 trailing four-quarter margin and the aspirational target is mid to high '30s.

So, we will continue to execute on our plans to deliver on the operational leverage that we have to deliver on our productivity programs to grow the top line, which of course the best way to expense margins is to grow the top line in a healthy way. You've seen that we have had strong revenue growth this quarter in all of our businesses, and that's way you may expect us to continue with that and we have a lot of opportunity still to continue on the spot.

[Operator]

This question comes from Toni Kaplan of Morgan Stanley. You may ask your question.

[Toni Kaplan, Morgan Stanley]

Similar to your largest competitor, your ratings performance in the quarter notably outperform the issuance environment, and I know you attributed a lot of that to mix, just given the strength and high yield, but could you also talk about if there are any other drivers outside of mix and price. Are you seeing similar mix shift in the quarter to more infrequent issuers and M&A financings or is there anything else that can just explain really, really strong performance in ratings, even though the environment is still pretty muted? Thanks.

[Doug Peterson, President and CEO]

This is Doug. There is really nothing that is really more beyond what you just mentioned what we've talked about, and it is the pricing. It's also the mix as you saw there was a 41% increase in high-yield issuance, which is really a significant increase, and the mix this quarter was very different in prior quarters. We saw the 41% increase in high yield in the US is definitely a big part of that.

We also saw a corporates, which many of the corporates went to go to the markets during the quarter were people that actually pay us with transaction fees versus those that on a frequent issuer fees that we're not going to the market this quarter.

So those are really the most important drivers, there is nothing that was unusual overall. What's unusual is that there was the 41% increase in high yield in all of a sudden in really dramatically in June as well. But other than that, there is really nothing that a main shift quarter-on-quarter from prior quarters.

[Toni Kaplan, Morgan Stanley]

And then shifting to Market Intelligence. With the recent large M&A announced this morning, maybe you could talk about if you see the industry changing in the coming years? And if you plan to make any changes to your CapIQ strategy or Intelligence strategy overall, just I guess does large M&A sort of change anything in your view going forward?

[Doug Peterson, President and CEO]

Well, first of all, it's a very interesting transaction, and I don't want to comment on the actual transaction itself, but they're both formidable competitors, both in MI and in Indices. But when it comes to the landscape, we've been watching, and obviously watching very carefully, what would be the landscape, and what could be some of the changes that take place with this type of a competitor which is already very formidable on its own, but we are very pleased with our strategy at Market Intelligence and indices. We've got a diversified segments in our businesses, as I mentioned earlier, we have customers and government agencies, corporates, universities etcetera.

And we have a growing data business, which is something that's not only in Market Intelligence, but also across the company. We're looking to see how we can harness our data business even more than we have already.

So these are some of the things that we will watch in terms of industry trends from our competitors, but we also feel with the various transactions we've done the last few years for data assets like Trucost what we're doing with ESG, Kensho which is showing that there is a lot of value in artificial intelligence machine learning data linking etcetera. We feel that we're very well positioned to be also to be a tough competitor in this space.

[Operator]

This question comes from Bill Warmington of Wells Fargo. You may ask your question.

[Bill Warmington, Wells Fargo]

So, question for you on Market Intelligence. You've been talking about and you've been executing on creating a unified platform for us SNL and Capital IQ, I was hoping to get an update on how the migration of the Cap IQ users onto that new platform is going?

[Doug Peterson, President and CEO]

Yes, first of all, the MI platform is we've discussed is a platform that we're in addition to working on the migration, it's also important for us the way we're supporting other divisions. As an example, the S&P Global platform, which we're using to support Ratings360 & Ratings, and new very dynamic data delivery products for Platts. But going back to your question, we continue to add Cap IQ data sets and functionality to the MI platform on an ongoing basis, and this will continue in through 2020.

And so along the way, we've found some ways to be more flexible to - our clients to also be more involved in the transition from Cap IQ to MI, so that the customers themselves can choose the timeline for their own migration to make sure that they can transfer all of the functionality along with that. So the transition is going well, but it's probably a little bit slower than we had originally envisioned. So it's now moving into more of a timeline into 2020.

[Bill Warmington, Wells Fargo]

So when that transition is completed, what kind of a - you're able to actually shut down the legacy Cap IQ system, what kind of a margin benefit do you think you can get from that shutdown?

[Ewout Steenbergen, EVP and CFO]

Well, we haven't really quantified that, but obviously running two platforms with all the maintenance expenses that come with that is expensive. So there should be operating leverage benefit that will come out of that, but we haven't really quantified that at this point in time.

[Operator]

This question comes from Joseph Foresi of Cantor Fitzgerald. You may ask your question.

[Unidentified Analyst]

This is Drew coming in for Joe. Could you provide a little more color on the ESG scoring system and the early customer reaction you're getting?

[Doug Peterson, President and CEO]

Yes, so, thank you. First of all, there is various ESG products we have across S&P Global, with in Indices, in ratings, and in market intelligence. And we in the prior call talked about how we had put together design team to ensure that we had a common data architecture, which we've been managing, as well as to ensure that across the different groups where we have a consistency of approach in methodologies. But the on the slides this time , there was a Slide 14 where I included the profile factors which are used for the ESG evaluations, and not to go into too much detail.

Just as an example, the ratings ESG evaluations, it starts with an approach to look at the overall geography and an overall market. It then also has a way to look at 44 different industry structures for environmental and social factors. We've been doing a lot of governance over the years.

And then for each of the different ESG companies are being evaluated. There is factors - four factors for environmental, four for social, and four for governance and each of those are scored. What makes these unique compared to some of the other tools being used in the market right now is that the person that receives this evaluation can then dig into and analyze each of these different factors to understand how they led to the total score.

In addition, in the Ratings ESG evaluation, there is also a management meeting, which takes place, which allows the ratings Analyst and the management team to discuss their overall ESG and overall governance and stewardship profiles. So we think it's a really interesting approach.

We've only issued two of these ESG evaluation so far. Although Trucost which is one of the other companies, which we acquired three years ago and as Ewout mentioned earlier, is now included in the MI Pro in the MI segment, is also a very advanced company when it comes to the 15,000 different companies that they have included environmental profiles including greenhouse gas emissions, waste and pollution et cetera.

So this gives us also we think a real, a leading position with having Trucost that we can use across all of our ESG products. So much more to come, really good-- really, really good feedback so far from the markets on what we're developing.

[Unidentified Analyst]

And then just to add on top of the one of the previous questions about China. So with that BBB rating, are you seeing any push back or hesitancy from companies that we're thinking of getting rated and now they see you guys are going to be all over the place, and now they are a little concerned by that?

[Doug Peterson, President and CEO]

We haven't seen that at all. In fact, quite the contrary, people especially institutional investors have come to us to really learn more and more about our methodology because they see this granular approach with a wider spread that actually is much more reflective of what the pricing is in the market as well. So we haven't, this is - it's probably too early for me to draw conclusions from two ratings, but the response has been really enthusiastic.

[Operator]

This question comes from Tim McHugh of William Blair & Company. Thank you. You may ask your question.

[Tim McHugh, William Blair & Company]

Just wanted to ask about Platts, both in terms of I guess it was a slightly slower growth rate in the Subscription piece, so is there was anything happening there? And then the sale of RigData, is there anything that's reflective of in terms of the broader strategy with regard to additional research and analytics you're selling on top of the price assessments products? Thanks.

[Ewout Steenbergen, EVP and CFO]

Tim, this is Ewout. I think you should not read anything with respect to the Platts results that there is a change in trends. We expect the Platts business to grow mid-single digits growing forward, that's going to always surrounds a bit that's a little bit quarter-by-quarter, but this is a very steady business where there is a lot of recurring revenues, we see the GTS business doing well. We see strong margin improvements and we expect to Platts business to continue on that path.

So again expectation of mid-single digit revenue growth going forward. With respect to RigData, RigData was acquired approximately three years ago. The main strategic reason at that time was to secure the data source of the rig counts in North America, and the only way to secure that at that time was through the acquisition. In the meantime, we had an opportunity to secure that going forward through a licensing agreement.

And therefore, there was a better owner for these assets in the future, and that's why we decided to sell RigData to the other owner. But at the same time have access of this data sets on an ongoing basis. As I mentioned in the prepared remark RigData, it was a relatively small business, approximately $10 million of annual revenue for this business.

[Tim McHugh, William Blair & Company]

And then just more, you also sold the kind of investment advisory business, I guess, is this - is there any sort of sign that you're doing a refresh portfolio review or reassessing some of the smaller business units or is it just I guess coincidence, two of these situations popped up reselling?

[Ewout Steenbergen, EVP and CFO]

So, Tim, we are very happy with our portfolio, we think we have a fantastic set of businesses. So there is nothing large happening on the need for suspect to a portfolio review, but we always are looking at certain elements, and where we first of all can strengthen our portfolio based on acquisitions, but sometimes there are short and elements and smaller businesses that we think there is someone else who could be a better owner.

So don't see that this is anything large in terms of a change in our strategic intent. This is just continued healthy review of our portfolio. But these are all in general term small businesses, so there is nothing behind that.

[Operator]

This question comes from George Tong of Goldman Sachs. You may ask your question.

[George Tong, Goldman Sachs]

I'd like to dive deeper into your Ratings revenue performance this quarter. Your other major competitor reported a 2% decline in Ratings revenue in 2Q compared to 3% Ratings revenue growth at S&P, would you say that you have structurally higher exposure to high-yield issuance that explains this difference or perhaps different pricing power?

[Ewout Steenbergen, EVP and CFO]

And George, good morning. This is Ewout, I think it's hard to of course for us to comment on some of our peers. But I think in terms of our market profile, in each you always have to go two three layers deeper and looking at mix changes and to understand the impact on our company. So for example, if you look at structured finance, we are having strong market positions in certain areas, and we have smaller market positions in other areas.

So for example, if there is a decline in CLOs, our CLO position is relatively modest. So we won't be impacted so much based on that. And the other element is what's Doug mentioned before at the previous question and that is that we saw particularly a decline in - sorry, we saw an increase in issuance from issuers that are paying us more on a pure transaction basis.

So we have our frequent issuer programs where we have more a fixed fee arrangement. And so we saw more an increase on the customers that are on a transaction basis and therefore benefiting a bit, a little bit more this quarter then if the issuance growth would that have been in the frequent issuer programs which wasn't the case.

[George Tong, Goldman Sachs]

You increased your full-year EPS guidance to reflect lower corporate expense, interest and taxes given the strength in your ratings business is your view on full-year revenue has also improved, or do you expect weaker trends in the back half of the year that could offset 2Q outperformance?

[Ewout Steenbergen, EVP and CFO]

George, I think you should look at the increase in our guidance. Overall, that we are very optimistic around our current performance, the growth progress we are making, the progress we are making with respect to our productivity programs. Doug mentioned the issuance outlook, that is modestly stronger for the full year.

So overall, you have to take all of these elements into account if you think about our new EPS guidance. One element I would like to point out that the investment spend will be a bit higher in the second half of this year.

So think about approximately $15 million higher investment spend in the second half than compared to the first half of 2019 and that $15 million will mostly be incurred in the market intelligence segments.

And then also, if you look at the two divestments we did is SPIAS and RigData, on an annualized basis both companies combined had a revenue of $30 million, $30 million, so we're also missing a bit of revenue in the second half of the year because of those divestments.

So look at that all in combination but I think what you should clearly take out of our improved guidance is we are very happy with the current performance, as you have seen this has been a very strong quarter for the company, and we are also optimistic about the outlook for the second half of this year.

[Operator]

This question comes from Craig Huber of Huber Research Partners. You may ask your question.

[Craig Huber, Huber Research Partners]

Doug, curious to hear your updated thoughts on the debt issuance environment out there when you think about where we are at right here in the cycle in terms of credit spreads, M&A calendar, strong refinancing calendar coming up et cetera and follow-up?

[Doug Peterson, President and CEO]

Thanks, Craig. Well, first of all, as Ewout just mentioned was - mentioned earlier, we have built our global issuance summary based off of many different factors. We've been looking at obviously what's the pipeline of refinancings coming up, what's on people's balance sheets for having to for maturity schedules, we speak with the debt capital markets groups of various investment banks, and we also watch very carefully what we think are going to be some of the factors driving that including rates and obviously growth.

So in our current forecast, we see that in Corporates are going to be up about 2.5%, Financial Services about 0.8%, Structured finance about flat for the rest of the year, and Public finance up a little bit as well, which leads to about a 1.4% total.

But a couple of the factors which you've asked about though are pretty interesting right now. The investment grade composite spread has been pretty low recently, its recent high was about 176 basis points right now, in July it was down to below 140. In speculative grade, high-yield investments - high-yield issuance right now the spreads about 400 basis points, it's been as high as 500 recently, it's been as low as around 300 recently.

So it's still a little bit higher than it had been down at 300, but we see that the conditions for issuers is still very strong low rates. And then on top of that, you know that the overall rate environment is very low the United States 10 year as of yesterday was just 2.06%, the UK is a 0.6%, Japan is negative at 0.15% negative, Germany is now down to 0.43% negative, and Switzerland's down at negative 0.64%.

So with underlying 10-year base rates this low and trending lower along with spreads which are very attractive. They're not as low as they have been, but there is still attractive, financing conditions are attractive. There is still a lot of liquidity out there, we think that overall, it's a good environment for issuers, it's a more of an issuer-friendly environment, although we don't see the markets going gangbusters, which is I think reflected in our overall 1.4% expectation for growth for the rest of the year.

[Craig Huber, Huber Research Partners]

My second question, Doug. Can you just comment on your Kensho acquisition in terms of, curious, in terms of employee retention rates there, how that's doing? And also, what do you guys most excited about right now with, working on it from a cost perspective, but also enhancing the products that you have with four, five areas that you're willing to talk with you most excited about? Thank you.

[Doug Peterson, President and CEO]

Yes, let me start and then I hand it over to Ewout. So I am really excited about the things that I've been seeing in Kensho, and recently I've had opportunity to meet with some employees and in Platts as well as Indices, in Ratings who are having direct contact or direct product development beyond just what we had originally done with MI.

And so the enthusiasm is really great, and there is interesting enhancements that are being looked at for the Market on Close, for Surveillance, in Ratings for the new Index team which is joined the Index team from Kensho into our Index business.

So there is a lot of enthusiasm across the company. We're starting to see tangible products delivered or beginning to be scaled but let me hand it over to Ewout who will elaborate on that and tell you a little bit more also about the attrition.

[Ewout Steenbergen, EVP and CFO]

I can just share the enthusiasm of Doug around Kensho. If, for example, here about the redesign on the Market on Close process in Platts, the enthusiasm in Platts, and the people that are involved with that in working in a joint team with Kensho to redesign such a process, which will be really a leapfrog in terms of the proposition at Platts has to its existing customers. That's fantastic.

If you think about the Omnisearch and how much of that is completely changing the experience of our customers in terms of the market intelligence platform, and looking at more and more data that we add to this platform which will make it more and more difficult to search what you're really looking for, so a very strong search engine is important, and in fact, it doesn't really exist in the B2B markets today. So that is already being rolled out today to certain customer groups and the feedback is very positive.

I can give you the whole list, but of course, I don't want to spend too much time on that. Craig, you also have one very specific question about retention which is of course an important metric that we are measuring and following very closely, and I'm happy to tell you that the current attrition levels are below industry benchmarks for Kensho. So, we're pleased with that as well.

[Operator]

Dan Dolev from Nomura. You may ask your question.

[Dan Dolev, Nomura]

Thanks for squeezing me and I appreciate it. Great results. So I look at your guidance, starting from last year, you went from negative to 0.6 to plus 1.2 to plus 1.4 in terms of the issuance outlook, maybe ask differently, is this just a matter of being deeper into the year or increased optimism or a little bit of both?

[Doug Peterson, President and CEO]

Well, this is a combination. It's - I wouldn't - I would say that this is really a combination of what we saw in the first half. As I mentioned a little while ago and I can give you a few more statistics, there was a lot of volatility in the first half of some numbers, as I've mentioned before with high yield up 41%.

In Europe, investment grade issuance was down 17%, in Europe corporates are down 17%, sovereigns were down 28%, public finance in the US was down 11% but corporates were up 17%. So what we do is we try to look and see what was the issuance so far this year against our initial expectations.

Also looking at, as I mentioned what are maturity schedules that are coming forward. And so this is something that our team, our fixed income research team, they put this together in a way that they are taking into account all of these different factors based on what was the issuance earlier in the year, what is the upcoming maturity schedule, what are they hearing from the banks, what are they seeing from the M&A pipeline, and the one of the most important factors which is also part of that is the outlook for rates, and we've seen the ECB, Japan and then yesterday in the US, the Fed lowered rates by 25 basis points as well, which is really setting a more attractive rates environments as well.

So those are all of the different factors that would be built into this 1.4% increase for the rest of the year.

[Operator]

Next question comes from Jeff Silber of BMO. You may ask your question.

[Henry Chen, BMO]

It's Henry Chen. Good morning, Doug. Just wanted to ask a high level question on the strategy around powering markets. I guess especially in that Market Intelligence and Platts business, I was wondering if you could just comment on how you're thinking about investments in either data and analytics for and how you're thinking about which markets you can sort of attack and to build products for? Thanks.

[Doug Peterson, President and CEO]

Well, this is the one of the things that we've done with this the strategy of powering the markets for the future and you saw the framework in the materials that we provided. It gives us a way that we can speak to our businesses about their core investments in their core businesses as well as areas of disruption or what we would call adjacencies.

And as part of that, we're looking and driving this on what our customers want, and what we hear from our customers, we decided that we needed to drive our investments and drive our growth by hearing what comes back from the markets instead of just trying to come with come up with ourselves.

So in addition to our strategic teams and our executives, we also have our commercial teams and others out listening as much as they can, what are the key trends, and you mentioned what is one of the most important trends for not only Platts and market intelligence, but also Indices and Ratings and that's the future of data.

This is where we are very pleased to see the growth of over 10% and 11% in the data feeds business in market intelligence. When we meet with our Platts customers, they're talking about data, they have oodles and piles and an avalanche of data in their own business that they're trying to make sense of.

And one of the questions they are asking us is "Can you provide us with more data that's easier for us to use and also make sense of our own data?". So the data equation is one that is most on the minds of our customers with the combination of how do you use that through technology, through modeling tools etc.

And as we look at that, that's how we - how we decide where we're going to invest. It's really based off of customer feedback, customer insights, and it's not just a team that is doing this in a theoretical way. We're actually out, boots on the ground, visiting our customers to listen to what they need.

[Operator]

We will now take our final question from Michael Cho of JPMorgan. You may ask your question.

[Michael Cho, JPMorgan]

Thanks for squeezing me in here. My first question. I want to touch on ESG. I mean, we talked about ESG on this call, but I was hoping if you can give an update on how you're thinking about framing the overall size of the ESG opportunity for S&P, and then do you think S&P has all the assets today to adequately capture that opportunity?

[Doug Peterson, President and CEO]

Let me start and give you a little bit of a view of the market opportunity and how we're thinking about it and then Ewout will give you a little bit of thoughts about market sizing and where we're heading from that point of view. In terms of the opportunity and how we think about it, it's one that's really expanding very rapidly. When people ask me about this and meetings that I met I usually say that I think we're in the second inning. This is a very early stages of the development of the ESG Data market.

We're finding demands from the investor side, the buy side is trying to understand what this means for their portfolios, and it's going beyond what were the traditional impact investors or investors that had some sort of a sustainability quotient already included in there in their mandate. And so this is also starting to now filter through to pretty much all and institutional investors.

When we look at this, we also know that there are needs from governments, from corporates, from issuers, etc and we're trying to see and make sure that we have the right mix and right portfolio of products and services. We think that there are opportunities for every single one of our divisions to provide ESG products and services. We also believe that with Trucost as an anchor, which is an excellent anchor for what we do, this gives us the ability to have a starting point for environmental factors.

Our governance work that we've been doing for over 30 or 40 years in the ratings business also helps us with the foundation there. So you're going to see us developing these products and services coming out of all of the different divisions, and as we've shown in the last couple of quarters this is a commitment for us, an investment commitment. We've also started building in a way that we designed it from the ground up. So we've got a very sophisticated approach to data across S&P Global, so we don't duplicate our efforts.

But that's the general approach, you should see us continuing to talk about this investing in it and growing it from what we think is a strong foundation but in the very early innings. And let me hand it over to Ewout.

[Ewout Steenbergen, EVP and CFO]

So if we look at the overall size of our ESG business we're looking at activities and products across all of our divisions as Doug just explained. So think about renewable energy in Platts, think about Trucost and ESG scorecards that are being developed in market intelligence, the S&P Dow Jones Sustainability Index, and the new 500 ESG Index, in Index the ratings ESG evaluations and many more products that are currently under development.

Overall, last year we reported approximately $37 million of revenues for ESG, the forecast for this year is approximately $50 million of revenue for the whole company and the outlook is growth of approximately 40% over the next few years. So 40% growth, so this will be clearly a growth driver for the company in the future.

[Michael Cho, JPMorgan]

I'm going squeeze just one more in on China. Doug, I mean outside of ratings on the call you talked about powering market harnessing data but in China, I mean can you give us framework, an update on how we should think about the incremental essence, the opportunity within China, because of the establishment of the local ratings business?

[Doug Peterson, President and CEO]

Well, first of all, thank you Michael for initiating coverage. We appreciate having JPM as one of the organizations that's covering us and thank you for the questions. On China, just we've mentioned this before, we are thinking about China and we're entering it with a consolidated comprehensive effort for all of S&P Global.

So right on the heels and I could say even nipping on the heels of ratings as market intelligence that's also building out a domestic data and analytical service for the financial markets as well. So we look at this as a really important transition of a large financial market that is moving towards becoming more of a capital market than a bank market.

As you know, right now in China, most of the financing is actually on bank balance sheets as opposed to bonds and most of the bonds that are actually issued are very short term, there's three years and they're also going on banks' balance sheets.

And so when we look at this transition that we think is going to take place as the capital markets are reformed, they become more sophisticated and also more linked globally, we believe that there is going to be opportunities for all of the S&P Global businesses to establish domestic onshore products and services.

We don't have a sizing for you yet. We will provide that over time as we get more experience and we build out the roadmap for you, but right now, you can be assured that we look at this comprehensively across S&P Global, the first onshore investments in the first products that are launched in ratings but market intelligence is really close behind.

[Doug Peterson, President and CEO]

Thank you. So with that let me thank everyone again for joining the call today. I'm very pleased with the strong quarter that we had. I'm pleased that we're continuing with a lot of progress in all of our investments in our core businesses which you saw demonstrated today from our strong results.

And then, it's also encouraging to see the progress that we're making on these new investments such as the China discussion we just had, the ESG products and services that are based on anchored off of some of the Trucost benefits that we had from that investment, so thank you again everyone for following the company. I hope everyone has a great summer and we'll be back in a quarter. Thank you very much.

[Operator]

That concludes this morning's call. A PDF version of the presenters' slides is available now for download from investor.spglobal.com. A replay of this call, including the Q&A session will be available in about two hours. The replay will be maintained on S&P Global's website for 12 months from today and by telephone for one month from today.

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