S&P Global Inc. — 2019 Form 10-K
Business context and reporting period. S&P Global provides ratings, benchmarks, analytics and data to global capital and commodity markets through Ratings, Market Intelligence, Platts and Indices. The filing covers the fiscal year ended December 31, 2019; fourth-quarter figures below are unaudited. Amounts are in U.S. dollars.
Financial performance
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $6.699 billion | $6.258 billion | +7% |
| Operating profit | $3.226 billion | $2.790 billion | +16% |
| Operating margin | 48% | 45% | +3 percentage points |
| Net income attributable to S&P Global | $2.123 billion | $1.958 billion | +8% |
| Diluted EPS | $8.60 | $7.73 | +11% |
| Cash provided by operating activities | $2.776 billion | $2.064 billion | +34% |
| Free cash flow (non-GAAP) | $2.518 billion | $1.797 billion | +40% |
Fourth quarter: Revenue was $1.735 billion versus $1.536 billion in Q4 2018; operating profit was $818 million versus $704 million; net income attributable to S&P Global was $541 million versus $512 million; and diluted EPS was $2.20 versus $2.03.
Segment revenue and operating profit: Ratings revenue was $3.106 billion (+8%) and operating profit $1.763 billion (+15%); Market Intelligence revenue was $1.959 billion (+7%) and operating profit $607 million (+11%); Platts revenue was $844 million (+4%) and operating profit $438 million (+15%); Indices revenue was $918 million (+10%) and operating profit $630 million (+12%).
Liquidity, debt and capital returns
- Cash and cash equivalents were $2.866 billion at year-end, with $20 million of restricted cash. Working capital was $1.619 billion.
- Total debt was $3.948 billion, up from $3.662 billion. The company issued $1.1 billion of senior notes in November 2019 and used proceeds to repay $700 million of 3.3% notes due 2020 and part of its 6.55% notes. No commercial paper was outstanding; a $1.2 billion revolving credit facility remains available through June 2022.
- Net interest expense increased 48% to $198 million, primarily reflecting costs associated with early debt repayment. The debt covenant caps the defined indebtedness-to-cash-flow ratio at 4:1; the company reported it had never exceeded the limit.
- Dividends paid were $560 million, or $2.28 per share, and share repurchases used $1.240 billion. The board approved a quarterly dividend increase from $0.57 to $0.67 per share in January 2020.
- Free cash flow is a non-GAAP measure defined by the company as operating cash flow less capital expenditures and distributions to noncontrolling interest holders.
Material changes and unusual items
- Revenue increased across all four segments. Ratings benefited from stronger corporate bond and public finance issuance; Market Intelligence from subscription contract-value growth; Platts from demand for data and price assessments; and Indices from higher ETF and mutual-fund assets under management.
- Operating profit growth included a $49 million pre-tax gain from the RigData and SPIAS sales. 2018 had higher legal settlement expense, which also improved the year-over-year comparison. Costs rose for technology, incentives, compensation and headcount.
- A $113 million non-cash pension settlement charge followed the purchase of an annuity contract that transferred obligations for about 4,600 retirees and beneficiaries. The transaction reduced qualified pension obligations by approximately $370 million.
- Tax expense was $627 million and the effective tax rate was 21.4%, compared with 20.9% in 2018. Management attributed the increase primarily to higher accruals for potential prior-year tax liabilities.
- Adoption of lease accounting in 2019 added $676 million of right-of-use assets and $732 million of lease liabilities; the filing says adoption materially affected the balance sheet but not income or cash flows.
- The redeemable noncontrolling interest in S&P Dow Jones Indices was $2.268 billion, up from $1.620 billion. The joint-venture agreement gives minority holders put rights, including a right to sell at least 20% of their interest; timing and ultimate payment are uncertain.
Outlook, commentary and risks
Management did not provide a consolidated numerical earnings or revenue forecast in the supplied filing text. For 2020, stated priorities include growing core businesses, expanding ESG and other offerings, improving product delivery and technology, pursuing international growth—particularly in China—and returning capital to shareholders. Management expected cash on hand, operating cash flow and credit-facility availability to cover operating and recurring cash needs and planned obligations in 2020.
Key risks include sensitivity of Ratings to debt issuance and credit-market conditions; Indices exposure to market levels, ETF assets and derivatives volumes; Platts exposure to commodity-market activity; cybersecurity and data-protection failures; changing regulation of ratings, benchmarks and data; litigation and government inquiries; competition, customer cost-cutting and acquisitions; foreign exchange and geopolitical uncertainty; and Brexit-related regulatory changes. The filing also discusses business-continuity risks, including pandemics, and privacy-law compliance costs.
The company disclosed approximately $3.48 million of 2019 revenue from Platts information sales to subscribers owned or controlled, or appearing to be owned or controlled, by the Government of Iran; it described the information as generally exempt from U.S. sanctions and the revenue as de minimis. The filing says two relationships with customers designated under Executive Order 13224 were terminated and related revenue ceased.
Ernst & Young issued an unqualified opinion on the financial statements and internal controls; management reported effective controls and no identified material weaknesses.
Important facts for investors to verify
- How much of 2019 earnings growth reflects recurring operations versus the $49 million disposition gain, prior-year legal costs and the pension settlement charge.
- Whether stronger credit issuance, ETF assets and subscription growth persist, and how weaker structured-credit issuance and derivatives volumes affect segments.
- The terms, potential timing and funding implications of the S&P Dow Jones Indices minority-interest put rights and the $2.268 billion recorded value.
- Debt refinancing, interest costs, share repurchases and the higher dividend against future cash generation and capital needs.
- Developments in ratings, benchmark, privacy and sanctions regulation; litigation and investigations; and cybersecurity or business-continuity incidents.
- Integration and returns from acquisitions and ESG initiatives, including the RobecoSAM ESG Ratings Business acquisition completed in January 2020.