2017 Annual Report

CEO's Letter

Douglas L. Peterson
President and Chief Executive Officer

Dear Fellow Shareholder:

The shifting conditions that were the backdrop to so many world events in 2017 are still front and center in many places.

Geopolitical risks and social movements are ongoing. New technologies are emerging. Public policies and the regulatory landscape are changing. Customer expectations are evolving.

All of these factors have the potential to be disruptive. Amidst this period of uncertainty, S&P Global must be agile and adaptable and possess the ingenuity and farsightedness to successfully navigate a dynamic, complex and rapidly moving business environment.

In business, disruption can create opportunities for companies to be formed while it causes others to disappear. Research indicates, for the first time, that new American companies are failing at a faster rate than they are being started.

To capitalize on today's greatest changes and to identify emerging trends, innovation is more essential than ever. Improving operations and products are important but so is the way we develop and execute our long-term strategy. Last year we began a future-defining project to ask our customers and market participants about the geopolitical, regulatory, technological and economic developments they face doing business. The powerful insights we gleaned from these conversations have allowed us to develop a strategy and vision for what lies ahead—a belief that S&P Global will power the markets of the future with its essential intelligence by delivering an exceptional, differentiated customer experience across the globe.

This ambition is built on a rich heritage. For generations this Company has endured because of its ability to adapt to shifting markets while remaining relevant to our customers. From our founding during the first Industrial Revolution to the Big Data Analytics Revolution of today, businesses have turned to us to help them make informed decisions.

Today the tradition of innovation, the spirit of continuous improvement and the commitment to operational excellence go on as we find new ways to enhance our proprietary data, to make better use of technology and to work more closely together.

Today the tradition of innovation, the spirit of continuous improvement and the commitment to operational excellence go on as we find new ways to enhance our proprietary data, to make better use of technology and to work more closely together.
13%
Organic revenue increased in 2017

In short, we envision a world of opportunities.

This approach coupled with favorable market conditions served us well in 2017. I am very pleased that every business division generated organic revenue growth and improved productivity.

  • Organic revenue increased 13%.
  • Adjusted operating profit margins expanded 420 basis points to 47%.
  • Adjusted diluted earnings per share grew 29%.

The underlying strength of each of our businesses was evident.

  • Attractive credit conditions supported strong bond issuance and an increasing number of bank loan ratings, which drove S&P Global Ratings' positive results.
  • The shift from actively managed funds to passive investments continued as S&P Dow Jones Indices benefited from record funds flowing into exchange-traded funds associated with our indices.
  • The need for actionable insights based on unique and proprietary content from a wide range of customers, beyond banks and investors, propelled S&P Global Market Intelligence.
  • And the critical nature of our benchmark pricing data and analytics, together with a successful push to diversify offerings into areas such as liquefied natural gas (LNG) and agriculture, helped S&P Global Platts deliver another year of growth.

An exceptional performance in 2017 provides a strong foundation for growth in 2018. There is still much work to be done, and we are excited about the initiatives underway across our Company to deliver value to our customers and to further improve our own productivity during this time of change.

We are seizing opportunities to work together and with new partners to leverage advanced technology that enables future growth.

Technology is always a topic that comes up when I talk with other CEOs because of its potential to change businesses and industries.

Artificial Intelligence (AI) and machine learning present both risks and opportunities. We are responding with new solutions. As an example, S&P Global Market Intelligence has applied natural language processing (NLP) to corporate earnings call transcripts to dissect the tone, complexity and overall level of engagement with analysts as indicators of earnings sentiment to help investors uncover new insights.

To succeed in the future, we will need to develop entire ecosystems of companies with these new capabilities. In 2017, we made a number of investments in early-stage financial technology, or fintech, firms that give us access to AI and predictive analytics. This presents opportunities to work with innovative small businesses to test new solutions for customers.

To kick off 2018, we have reorganized our technology functions by establishing three operational services teams specifically focused on Technology Innovations and Software Engineering, Data Operations and Digital Infrastructure. These three teams are working closely together to ensure we achieve the full potential of our data and the latest technologies.

In 2018, other ongoing technology priorities include protecting our Company, as we remain vigilant about cybersecurity, and updating the technology and workflow tools that are essential to our employees.

We see opportunities to build a stronger workforce.

We continue to thrive thanks to our diverse, global team and by promoting a work environment focused on leadership development, career advancement and open feedback linked with performance management.

Positioning the Company for growth in an age of technology disruption also means new investments in our people. Over the last two years we've increased our hiring of software engineers and developers, data and content managers, information security specialists and other technology roles.

Technology and people are our two largest investments. But it's not just about hiring. We also need to give our technology teams, and all our employees, more advanced training. In 2017, we launched a project called EssentialTech to enhance the technology acumen of our entire employee base and provide the networks and tools necessary to help them compete and succeed.

We are capitalizing on opportunities to optimize data, create new platforms and deliver new insights.

The launch of the S&P Global Market Intelligence platform has been a massive data and technology project that clearly demonstrates the value of our businesses increasingly working side by side.

One of the most visible ways we have been integrating the SNL Financial and S&P Capital IQ businesses was the creation of a single platform for delivering essential intelligence to the markets. Powerful visual displays of data and deep analytics reveal insights delivered in an intuitive design that provide customers with the essential information they need, whenever they need it. One of the important benefits of this project is that it was built as an S&P Global platform so that our other businesses can build their own solutions on it for their own clients. In fact, S&P Global Platts and the S&P Global Ratings teams are already taking advantage of this architecture and utilizing this technology platform.

We recognize the opportunity to anticipate and fulfill evolving customer needs.

I visit customers around the world to listen and learn about their aspirations, strategies and needs. It's one of the most interesting aspects of my role. Becoming a more customer-oriented organization is essential to our long-term success.

To accomplish that we need to continually improve the client experience. One example is last year's introduction of Ratings360™ to corporate issuers. Ratings360™ is a new digital delivery system that provides a comprehensive, 360-degree view of a company's critical credit risk factors, along with new tools, services and support, all in one easy-to-use and interactive platform. Ratings360™ is helping deepen customer relationships and it is one more way we are working together to demonstrate our essential intelligence.

Another evolving customer need is the growing interest among companies and investors in environmental, social and governance (ESG) issues. In this case we are increasingly collaborating across our businesses to support market demand. Last year S&P Global Ratings launched Green Evaluations, an asset-level environmental credential for investors interested in a more comprehensive picture of the green impact and climate risk attributes of their portfolio. This is an ongoing collaborative effort that has benefited from the environmental data and risk analysis of Trucost, which S&P Dow Jones Indices acquired in 2016. Trucost has helped the Ratings team develop the analytical framework, source the data and refine their overall approach to Green Evaluations. We are encouraged by the enthusiasm for this new offering in the market.

The long-term growth potential of global capital markets offers exciting prospects to serve new customers. We are interested in opportunities that augment our benchmark, proprietary data and tools and analytics capabilities; provide geographic diversification, including in developing markets; bolster recurring revenues; and/or provide synergies.

S&P Global Platts further demonstrates the work we're doing to meet the evolving needs of customers. We've heard from many customers who believe that our products and services can bring added value, especially if they come together in a new way that allows them to connect the dots of a commodity's trade flow. The combination of rig information at the wellhead, pipeline flow data that goes all the way to a shipping terminal and satellite tracking of cargo around the globe can be quite powerful. By putting all those assets together to see the flow of commodity data gives a completely new dynamic to an oil company, an airline or other customer developing business plans or trying to improve a forecast. Bringing together this comprehensive set of data and forecasting tools is one of the biggest growth engines for S&P Global Platts.

I visit customers around the world to listen and learn about their aspirations, strategies and needs. It's one of the most interesting aspects of my role. Becoming a more customer-oriented organization is essential to our long-term success.

We are securing opportunities to address changes in the regulatory and public policy environment.

New legislation and regulatory requirements that affect our business are emerging. We're operating under the assumption that in markets across the globe there will be increasing levels of regulation and oversight for all of our businesses; however, compliance, risk management and control functions are already part of our operations, and integrity is a core value embedded in our culture.

In the U.S., tax reform legislation became law last year. As a result, we estimate our effective corporate tax rate in 2018 will decline to a range of 21% to 22.5% from an adjusted rate of 28.9% in 2017. The reduction in our effective tax rate will generate approximately $200 million of additional cash flow in 2018. Tax reform also resulted in a 22% increase in our regular quarterly cash dividend, a $20 million contribution to the S&P Global Foundation and improves our 2018 earnings per share outlook by more than $1.00 per share.

We are always evaluating new rules in different countries to determine their impact on our business. For example in Europe, recent regulatory changes to the Markets in Financial Instruments Directive, or MiFID II, took effect and are likely to disrupt the research industry but may also provide an opportunity for us to meet the evolving data and research needs of customers.

On behalf of my 20,000 colleagues, I want to thank our customers, our shareholders and our partners for putting their trust in S&P Global and our ability to deliver essential intelligence to power the markets of the future.

We see a world of opportunity to power the markets of the future.

I am really proud of the way our employees are responding to change. I am grateful for their enthusiasm, dedication and teamwork. Our collective ability to collaborate in new ways, to thrive in evolving markets and to leverage new technologies creates exciting new global opportunities.

One thing that does not change is our commitment to our core values of relevance, excellence and integrity. Providing relevant solutions, embracing teamwork and acting with transparency are the principles that guide everything we do.

On behalf of my 20,000 colleagues, I want to thank our customers, our shareholders and our partners for putting their trust in S&P Global and our ability to deliver essential intelligence to power the markets of the future.

Sincerely,

Douglas L. Peterson

Douglas L. Peterson
President and Chief Executive Officer