Letter from the President and
Chief Executive Officer
Dear Fellow Shareholder:
I am delighted to report that 2016 was a standout year for our Company.
- We launched S&P Global in April. This milestone symbolizes everything we have done to reposition the business portfolio. The brand acknowledges our history of delivering essential business insights while offering a modern look. The name resonates with our clients and our employees are enthusiastic about our renewed common sense of purpose and values.
- We delivered strong financial performance in 2016 and achieved the three-year annual financial goals we defined in 2014.
- We made significant progress integrating SNL Financial and S&P Capital IQ.
- We completed the sale of J.D. Power for $1.1 billion in September, and in connection with the closing, entered into a $750 million Accelerated Share Repurchase agreement.
- We divested two pricing businesses where we did not have critical mass—Standard & Poor's Securities Evaluations, Inc. and Credit Market Analysis—and we also exited our Equity Research business.
- We invested for future growth by adding complementary capabilities, including three tuck-in acquisitions to build out Platts' analytical offerings.
- And we made several key appointments to our Operating Committee.
These accomplishments are significant in any year, but they were especially gratifying in 2016, a time marked by global political, economic and market volatility. Unpredictability seemed to be the one constant as rising populism drove the Brexit vote and U.S. election results, questions persisted about rising interest rates in the U.S., and oil prices rebounded sharply after hitting their cyclical lows at the start the year.
Amidst all of this change, I am grateful for our 20,000 employees around the globe, who give our customers the confidence they need to use our data, analytics and benchmarks to make critical decisions.
Essential to evolving markets
Uncertainty continues in 2017. The markets are now faced with a geopolitical dynamic that will test the way in which we all work together. The backlash against globalization is real and support for populism is significant. The need for leaders to think beyond the short term is acute and it is important for companies and governments to find middle ground on pro-growth public policies that bring long-term structural change and global competitiveness—such as tax reform, infrastructure investment, trade liberalization and regulatory reform.
In the U.S., we need to address taxes. This is a change that is long overdue to reflect the makeup of the 21st century U.S. economy and that will enable economic, job and export growth; capital inflows; and investments.
Beyond these shifting geopolitical sands, we are all faced with rapid technological innovation and an evolving regulatory environment. The world around us doesn't stop changing. Uncertainty can spark volatility and risk aversion—a recipe that can hurt business confidence, investment, lending and funding conditions, and ultimately growth.
Yet S&P Global is well positioned to benefit from many of the changes taking place around the world, making us excited about the future.
For S&P Global Ratings, there are a number of dynamics in the market influencing the business.
Debt Issuance: The health of the economy, first and foremost, is the driver most closely correlated to bond issuers coming to market. Economic growth propels business investment, and when companies need to raise capital the debt markets serve as a critical funding mechanism. S&P Global economists expect worldwide GDP growth of 3.5% this year, and overall, we expect global issuance to grow about 3% to $6.7 trillion in 2017.
In the medium term, a large amount of corporate debt will be maturing. We estimate that nearly $9.6 trillion in rated global corporate debt needs to be refinanced between 2017 through 2021. Much of this debt will need to be rated and S&P Global will be there to help issuers and investors evaluate credit risk.
It's still early to tell exactly what public policy changes will be coming from Washington, DC, and what sort of impact they will have on our ratings business. We are watching these issues closely. What we do know is that changes to tax policy, Dodd-Frank, the Affordable Care Act and infrastructure investment policy will have implications for economic growth and market dynamics.
Growth of Passive Investing: One of the biggest stories in investing is the shift from actively managed funds to index-based or passive investments. This trend benefits S&P Dow Jones Indices and is being driven by investors' search for transparent, low-cost, diversified and efficient investable products. From 2004 to 2015 assets under management in passively managed U.S. equity and bond index funds and ETFs from $812 billion to $4.4 trillion.1
Index-based assets under management in the U.S., even with their rapid rise in popularity, only make up 28% of the total funds under management, suggesting there is plenty of room for growth.
Evolving Regulations: The changing and disparate regulatory environment confronting our customers around the globe related to capital and liquidity, market infrastructure, reporting and stress testing is yet another trend creating opportunities for us to serve a market need. While the regulatory agenda will increase the cost of compliance for some customers, it will also create demand for external data and analytics solutions.
That is why Risk Services, an offering of S&P Global Market Intelligence, is a growing area of attention. The market for credit risk services is estimated to be $9 billion, excluding the market for ratings. To help our clients assess risk, the team launched two new products last year, Credit Analytics and Bank Scorecard, which are both performing well, albeit off of a small base. In addition, there is exciting work going on with our RatingsDirect® product. In 2016, we added structured and public finance content to round out the RatingsDirect® offering on the Capital IQ platform, and later this year, we will begin offering clients a more visual, interactive and dynamic way to explore RatingsDirect® data.
Achieved Growth & Performance Goals 2014-2016
– Continue to pursue attractive acquisitions
– Sustain dividend growth and share repurchases (trade basis)
* Excluding legal and regulatory settlements, insurance recoveries and tax on gain from sale of J.D. Power
What is essential to us in the future?
Creating S&P Global last year was much more than changing the Company's name. We have worked hand in hand with our Board of Directors to establish a long-term growth strategy and a culture built on a strong foundation of enduring values—integrity, excellence and relevance.
- People & Corporate Responsibility: We have been investing in our people. Last year, we established an executive development program that brings together leaders from different divisions and functions to address specific business issues. We have also created a fresh approach to maximize our business capabilities, volunteerism and financial support to nonprofits to strengthen the economies and communities where we live and work.
- Technology, Data & Analytics: We have been investing in technology, data operations and enhanced analytics. We see opportunities to better leverage these assets, including putting more attention on utilizing alternative data sources, to enhance the client experience.
- Continuous Improvement: We are committed to continuous improvement. To illustrate this point, our adjusted operating margin from continuing operations has increased by 1,040 basis points to 42.9% since 2012. A key contributor of this expansion was achieving slightly more than $140 million in productivity savings since 2014. At the same time, we have not lost sight of our history of being able to adapt to changing market needs, which is why we will continue to make investments that maximize the essential intelligence we provide.
- Responding to Market & Customer Needs: We continue to align our businesses with powerful secular trends by investing in the areas where there are the greatest opportunities for long-term growth. Fortunately, growth opportunities to meet our customers' needs are spread across S&P Global, including credit ratings, equity and fixed income indices, commodities price assessments and analytics, and risk analytics.
As we look ahead, an ongoing commitment to growth and excellence in everything we do will be essential to our success as a world-class digital data and analytics Company.
Let me give you a few examples of initiatives underway that illustrate our dedication to growth and excellence.
We invested in organic growth in 2016 with the development of a platform for debt issuers called Ratings 360™, and after an early 2017 pilot, we anticipate rolling it out later this year. This powerful platform offers integrated, full-spectrum analytical insights from S&P Global Ratings. It is a holistic, singular view of credit risk that has never before been presented in this way and provides a new level of transparency.
Last year, we acquired three businesses—Commodity Flow, PIRA Energy and RigData—to build a world-class energy and commodities supply and demand forecasting platform for customers of S&P Global Platts. Aided by alternative data sources such as satellite imagery of shipping routes, this business is leveraging a team of analysts and sophisticated models to provide customers with the information, trade flow analysis, insight and forecasts they need to make better-informed trading and business decisions.
We have demonstrated our commitment to serving the increasing needs of long-term investors interested in sustainable finance by expanding the breadth and depth of our ESG solutions. I am very proud that last year S&P Dow Jones Indices acquired Trucost—a business established to deliver the insights and transparency fundamental to transition to a low carbon, resource efficient economy—and S&P Global Ratings proposed two evaluation tools to assess risks to sustainability, which we expect to introduce more broadly this year.
There is perhaps no better example of our commitment to operational excellence and flawless execution than the integration of SNL and S&P Capital IQ. It remains a top strategic priority. Later this year, we will begin rolling out to the investment banking community a beta version of the combined SNL and Capital IQ solutions which brings together the best of both products into a single-user interface and experience. This new platform, available on desktop, mobile, and MS Office, will include in-depth industry news and streaming real-time market data. As a result of this combination, our clients will glean greater insight, make better and faster decisions, and operate with greater efficiency.
Quality is a key element of operational excellence. The S&P Global Market Intelligence team is passionate about delivering the highest possible degree of quality, timeliness and completeness in its data and earlier this year they extended the SNL reward program to S&P Capital IQ clients. Under this program, if a client reports a mistake in the data or news on public companies distributed through our desktop and enterprise products, we will send them a $50 reward. This is a clear example of how a commitment to excellence can translate to client confidence and even higher quality data in the future.
At S&P Global Ratings, the work we are doing and investments we're making in technology to streamline and strengthen our processes is another area where we are demonstrating a sharp focus on operational, analytical and functional excellence.
We are committed to these types of initiatives across the enterprise in order to produce the essential intelligence that institutions, investors and individuals need to make informed decisions across global capital and commodities markets.
Supporting women entrepreneurs all around the globe is one of the pillars of S&P Global's corporate responsibility (CR) strategy.Learn more about our approach to CR
Essential intelligence: the way forward
In summary, the strengths of our Company—the integrity and ingenuity of our people; the rich data sets, powerful analytics and independent benchmarks that bring clarity to clients and transparency to complex markets; and an enduring commitment to growth and excellence—have been the cornerstone of our success, and they will continue as our foundation in the years ahead.
Our vision is to build the business in a way that delivers long-term growth and value. We accomplish this through:
- The effective deployment of capital,
- Deeper penetration of existing markets and thoughtfully entering new ones,
- And leveraging innovative technology and data operations.
Our businesses—S&P Global Ratings, S&P Dow Jones Indices, S&P Global Market Intelligence, CRISIL and S&P Global Platts—are clear leaders in their markets, are powerful brands and are well positioned for long-term success.
As a result, I look to the future with a great deal of optimism and pride. I thank our Board of Directors, shareholders, employees, customers and partners for their commitment to S&P Global.
Douglas L. Peterson
President and Chief Executive Officer