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S&P Global Revenue Increased 13% in the First Quarter with Growth Across All Four Divisions

Petrochemical industry | 06 May 2021 IST | Polymerupdate.com
Diluted EPS Increased 19% to $3.12; Adjusted Diluted EPS Increased 24% to $3.39
Operating Profit Margin Improved 260 Basis Points to 53.6%
Adjusted Operating Profit Margin Improved 450 Basis Points to 57.6%
Advances in Technology Continue to Drive Productivity and New Product Innovation
Company Increasing Adjusted Guidance
Progress Toward Pending Merger with IHS Markit Continues

S&P Global reported first quarter 2021 results with revenue of $2,016 million, an increase of 13% compared to the same period last year. Net income increased 18% to $755 million and diluted earnings per share increased 19% to $3.12 primarily due to revenue growth in every segment and productivity programs and lower T&E across the Company.

Adjusted net income increased 23% to $820 million and adjusted diluted earnings per share increased 24% to $3.39. The largest adjustments in the first quarter of 2021 were for costs related to the pending merger with IHS Markit and deal-related amortization related to previous acquisitions.

"Since the beginning of the pandemic, the essential nature of our products has demonstrated the resiliency of our business model. As the global economy recovers, we continue to launch innovative new products to help our customers with the ratings, benchmarks, data, and insights they need to navigate the changing markets," said Douglas L. Peterson, President and Chief Executive Officer of S&P Global. "As to the pending merger with IHS Markit, the shareholders of both companies overwhelmingly approved the transaction and we continue to work with global regulators in anticipation of closing the merger in the second half of 2021."

Profit Margin: The Company's operating profit margin increased 260 basis points to 53.6% primarily due to strong operating results partially offset by costs related to the pending merger with IHS Markit. Adjusted operating profit margin increased 450 basis points to 57.6% primarily due to strong operating results.

Return of Capital: During the first quarter, the Company returned $186 million to shareholders in dividends. There were no share repurchases during the quarter due to the pending merger with IHS Markit.

Ratings: Revenue increased 23% to $1,017 million in the first quarter of 2021. Transaction revenue increased 35% to $582 million primarily due to substantial levels of high-yield bond issuance, bank loan rating activity and structured finance. Non-transaction revenue increased 10% to $435 million due to strength in CRISIL, surveillance, new-entity ratings, and Ratings Evaluation Services.

Operating profit increased 31% to $681 million and operating profit margin improved 390 basis points to 67.0% compared to the first quarter of 2020 due to exceptional revenue growth partially offset by increased expenses. Adjusted operating profit increased 32% to $686 million and adjusted operating profit margin improved 440 basis points to 67.5%.

S&P Dow Jones Indices: S&P Dow Jones Indices LLC is a majority-owned subsidiary. The consolidated results are included in S&P Global's income statement and the portion related to the 27% noncontrolling interest is removed in net income attributable to noncontrolling interests.

Revenue increased 4% to $270 million in the first quarter of 2021 as gains in asset-linked fees were substantially offset by reduced exchange-traded derivative fees.

Asset-linked fees include fees associated with ETFs, mutual funds, and certain over-the-counter derivatives. Revenue from ETFs is the largest component of asset-linked fees, and average ETF AUM associated with the Company's indices increased 30% year-over-year. Quarter-ending ETF AUM associated with our indices was $2.2 trillion, a 65% increase from the end of the first quarter of 2020.

Operating profit increased 5% to $191 million and operating profit margin improved 80 basis points to 70.8% due to revenue growth partially offset by increased expenses. Adjusted operating profit increased 5% to $192 million and adjusted operating profit margin improved 70 basis points to 71.3%. Operating profit attributable to the Company increased 5% to $140 million. Adjusted operating profit attributable to the Company increased 5% to $141 million.

Market Intelligence: Revenue increased 4% to $539 million in the first quarter of 2021 with growth in Credit Risk Solutions, Data Management Solutions, and Desktop. Operating profit increased 13% to $166 million and operating profit margin improved 260 basis points to 30.9% due to revenue growth and expenses that were essentially unchanged. Adjusted operating profit increased 13% to $181 million and adjusted operating profit margin improved 260 basis points to 33.5%.

Platts: Revenue increased 5% to $225 million in the first quarter of 2021 with growth in the core subscription business partially offset by lower Global Trading Services revenue. Operating profit increased 15% to $129 million and operating profit margin improved 530 basis points to 57.2% due to increased revenue and a decline in expenses. Adjusted operating profit increased 15% to $131 million and adjusted operating profit margin improved 520 basis points to 58.1%.

Corporate Unallocated Expense: This expense increased from $49 million in the prior period to $86 million in the first quarter of 2021 due to $49 million of expenses related to the pending IHS Markit merger partially offset by a $7 million restructuring charge in the prior period. Adjusted Corporate Unallocated expense declined from $30 million in the prior period to $28 million primarily due to pandemic-related management actions.

Provision for Income Taxes: The Company's effective tax rate increased to 23.4% in the first quarter of 2021 compared to 21.5% in the same period last year, and the Company's adjusted effective tax rate increased to 23.2% in the first quarter of 2021 compared to 21.7% in the same period last year. The increase in the effective tax rates was primarily due to a decrease in the tax benefit associated with stock-based compensation and an increase in taxes on foreign operations. The Company's effective tax rate may fluctuate from quarter to quarter due to the timing of discrete tax adjustments.

Balance Sheet and Cash Flow: Cash, cash equivalents, and restricted cash at the end of the first quarter were $4.5 billion. In the first three months of 2021, cash provided by operating activities was $768 million, cash used for investing activities was $24 million, and cash used for financing activities was $293 million. Free cash flow in the first three months of 2021 was $681 million, an increase of $63 million from the same period in 2020, primarily due to increased net income. Free cash flow excluding costs associated with the pending merger with IHS Markit was $718 million, an increase of $100 million over the same period in 2020.

Outlook: The Company is not providing 2021 GAAP guidance because given the inherent uncertainty around the merger, management cannot reliably predict all of the necessary components of GAAP measures. The Company is providing adjusted guidance on a stand-alone basis that excludes anticipated merger expenses, the potential revenue and expense impact from consolidating IHS Markit following the merger, and amortization of intangibles related to acquisitions. 2021 reported revenue is expected to increase mid single-digits. Adjusted diluted EPS guidance has been increased by $0.30 to a new range of $12.55 to $12.75. Guidance for free cash flow excluding certain items has also been increased to a new range of $3.4 billion to $3.5 billion.

Comparison of Adjusted Information to U.S. GAAP Information: The Company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP"). The Company also refers to and presents certain additional non-GAAP financial measures, within the meaning of Regulation G under the Securities Exchange Act of 1934. These measures are: adjusted diluted earnings per share, adjusted net income, adjusted operating profit and margin, organic revenue, adjusted Corporate Unallocated expense, adjusted effective tax rates, adjusted diluted EPS guidance, free cash flow, and free cash flow excluding certain items. The Company has included reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP on Exhibits 5 and 7. Reconciliations of certain forward-looking non-GAAP financial measures to comparable GAAP measures are not available due to the challenges and impracticability with estimating some of the items. The Company is not able to provide reconciliations of such forward-looking non-GAAP financial measures because certain items required for such reconciliations are outside of the Company's control and/or cannot be reasonably predicted. Because of those challenges, reconciliations of such forward-looking non-GAAP financial measures are not available without unreasonable effort.

The Company's non-GAAP measures include adjustments that reflect how management views our businesses. The Company believes these non-GAAP financial measures provide useful supplemental information that, in the case of non-GAAP financial measures other than free cash flow and free cash flow excluding certain items, enables investors to better compare the Company's performance across periods, and management also uses these measures internally to assess the operating performance of its business, to assess performance for employee compensation purposes and to decide how to allocate resources. The Company believes that the presentation of free cash flow and free cash flow excluding certain items allows investors to evaluate the cash generated from our underlying operations in a manner similar to the method used by management and that such measures are useful in evaluating the cash available to us to prepay debt, make strategic acquisitions and investments, and repurchase stock. However, investors should not consider any of these non-GAAP measures in isolation from, or as a substitute for, the financial information that the Company reports.
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