© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. Welcome to S&P Global's First Quarter 2021 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions and answers after the presentation and instructions will follow at that time. To access the webcast and slides, go to investor.spglobal.com. [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.
Thank you for joining S&P Global's first quarter 2021 earnings call. Presenting on today's call are Doug Peterson, President and CEO; and Ewout Steenbergen, Executive Vice President and Chief Financial Officer. We issued a news release with our results earlier today. If you need a copy of the release and financial schedules, they can be downloaded at investor.spglobal.com.
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 U.S. Securities and Exchange Commission.
In addition, as we announced late last year, S&P Global and IHS Markit entered into a definitive merger agreement. In March, shareholders of both companies overwhelmingly voted in favor of the merger. The merger is pending regulatory approval, and we expect to close in the second half of 2021. This call will touch on the merger, but does not constitute an offer to sell or buy or the solicitation of any offer to buy or sell any securities, nor shall there be any sale of securities in any jurisdiction in which this offer, solicitation or sale would be unlawful prior to registration or qualification under the securities law of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933.
In connection with the proposed transaction, S&P Global and IHS Markit has filed a registration statement on Form S-4 with the SEC, which includes a joint proxy statement and a prospectus. S&P Global and IHS Markit have filed other documents regarding the proposed transaction with the SEC. Investors and security holders of S&P Global or IHS Markit stock are urged to carefully read the entire registration statement and joint proxy statement prospectus, which is available on our website and sec.gov.
In today's earnings release and during the conference call, we provide 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 U.S. GAAP.
This call, especially the discussion of our outlook, contains statements about expected future events that are forward-looking and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from expectations can be found in our filings with the SEC and on our website.
I would also like to call your attention to European regulation. Any investor who has or expects to obtain ownership of 5% or 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're aware that we do have some media representatives with us on the call. However, this call is intended for investors, and we would ask that questions from the media be delivered to Dave Guarino at 201-755-5334.
At this time, I would like to turn the call over to Doug Peterson. Doug?
Thank you, Chip. Welcome to today's earnings call. Since the beginning of the pandemic, the essential nature of our products has demonstrated the resilience of our business model. As the economy improves, our colleagues continue to launch innovative new products to help our customers with the ratings, benchmarks, data and insights they need to navigate the recovery. We continue to prioritize the safety of our colleagues, and I want to thank them again for their dedication and commitment in these extremely unusual and challenging times.
Now let me begin with our first quarter financial highlights. S&P Global is off to a great start in 2021, as we delivered exceptional first quarter results. Revenue increased 13%, and all four businesses delivered revenue growth and adjusted operating profit margin improvement. Ratings once again delivered the strongest revenue growth from a surge in leveraged loans, high-yield issuance and structured finance.
Adjusted expense growth was limited to less than 2%, thanks to our ongoing productivity program and lower T&E. It's very rare when we increase guidance on our first quarter earnings call. However, we expect additional growth in Ratings from strong issuance of high-yield and structured finance and in Indices from the higher level of AUM and equities. Therefore, we're raising our annual guidance for 2021. Ewout will provide details in a moment.
I would also like to share some additional highlights from the first quarter. We issued a report, highlighting the performance of our ratings in 2020, which demonstrated that our ratings showed their value as indicators of creditworthiness and relative default risk.
Our investment in growth initiatives continues to result in new product launches particularly in ESG, Platts benchmarks, Kensho and our Marketplace. Our China Ratings business is gaining momentum, and we just entered into the first sustainability-linked banking facility in the US information services space. We'll provide further details on all these accomplishments on today's call.
The most important initiative of the year will be our upcoming merger with IHS Markit. This is an incredibly transformative opportunity for our company and our customers. The combination of S&P Global and IHS Markit creates a very strong company. We will have increased scale and world-class products across numerous core markets with a track record of deploying cutting-edge technology to accelerate our powering the markets of the future strategy.
Together, we can offer our customers differentiated data, analytics, research and benchmarks, important to the workflows of many of the world's leading companies. I'm incredibly proud of the team we've built at S&P Global, and I look forward to welcoming the talented IHS Markit employees to our company. There are three parallel paths that are underway to close the transaction and prepare for the combination. Our progress is on track, and we continue to expect closing in the second half of 2021.
The first was shareholder approval. The recent shareholder votes at both companies was overwhelmingly passed with 99% of the votes in favor of the merger. The second is regulatory approval. We're working toward regulatory approval in the countries listed. The third is pre-close integration planning. The integration teams continue to prepare for day one readiness. These teams are developing plans that focus on organization integration, real estate consolidation, technology, scale and efficiency, cross-selling and new product development. And the value capture work stream is preparing to pursue and track synergies. We've been doing a lot of work to make sure that when our companies are united, we have the culture, purpose and values in place to position us for success.
To recap the financial results for the first quarter, revenue increased 13% to $2 billion. Our adjusted operating profit increased 23%, and our adjusted operating profit margin increased 450 basis points to 57.6%. As you know, we measure and track adjusted operating profit margin on a trailing four quarter basis, which increased 300 basis points to 54.5%. In addition, diluted shares outstanding decreased [Technical Difficulty] in adjusted diluted EPS. Each quarter, we highlight a few key drivers to our business and important projects underway. This quarter, let me start with Ratings bond issuance trends. During the first quarter, global bond issuance increased 9%.
Turning to the data. In the US, bond issuance in aggregate increased 4% as investment-grade decreased 17%, high-yield increased 111%, public finance increased 9% and structured finance increased 17%, mostly due to a 63% increase in CLOs. European bond issuance increased 23% as investment-grade increased 22%, high-yield increased 53% and structured finance increased 6%, mostly due to more than a tripling of CLO volume.
In Asia, bond issuance increased 11% overall. The data on this slide only [Technical Difficulty] overall global issuance increased 13%. Since bank loan ratings are an important element of Ratings revenue and they're not included in our bond issuance slide, we like to disclose this bank loan rating revenue each quarter. In the first quarter, bank loan rating revenue surged 70% to $148 million. In fact, first quarter revenue from leveraged loans is more than half the leveraged loan revenue in all of 2020.
The next two slides look at the combined high-yield issuance and leveraged loan volume for the US and Europe. Data is not readily available for the rest of the world. This slide shows that over the last three years, the combination of global leveraged loan and high-yield issuance has averaged $244 billion per quarter. The first quarter of 2021 reached a quarterly record of $465 billion, nearly twice the quarterly average for the past three years. This slide depicts the combination of high-yield issuance [Technical Difficulty]. The category with the largest increase was refinancing, some of which could include pull forward. M&A and LBO activity and buybacks and dividends also increased.
The CLO market had the busiest quarter on record in both the US and Europe, with twice the volume of new issuances in the first quarter of last year. We believe that investor demand for floating-rate instruments, their search for yield and the relatively strong CLO performance during 2020 pandemic had contributed to increased CLO issuance this year. Whilst exciting to see increases in issuance, what's always more important to us is how our ratings perform. 2020 was a tumultuous year, yet our ratings performed as designed. In February, S&P Global Ratings issued a report entitled Credit Trends: Review of Ratings Performance Highlights Resilience in 2020. We pulled this chart from the report. You can see that the level of [Technical Difficulty] with lower-rated issuers having higher levels of default.
You will notice that the graph only includes high-yield issuers. This is because, in 2020, not one single issuer that was rated investment-grade by S&P Ratings at the beginning of 2020 defaulted. Importantly, amid challenging economic circumstances our ratings in 2020 showed their value as indicators of creditworthiness and relative default risk.
Turning to our investments in growth initiatives. Let me start with ESG. We continue to make advances with our ESG franchise across the board. After recording ESG revenue of $65 million in 2020, we're off to a good start in the first quarter with revenue up more than 40% to $21 million.
In Ratings, in the first quarter, we completed 18 ESG evaluations, six Green Evaluations and 53 SAM benchmark engagements. This compares to 40 ESG evaluations, [Technical Difficulty] SAM benchmark engagements completed in all of 2020. We also launched new social and sustainability Framework Alignment Opinions.
In Market Intelligence, our ESG scores have been enhanced. 400 data points have been made available for each company that we score. The additional data points will provide clients with a better understanding of companies' environmental reporting disclosures, biodiversity commitments, CO2 and greenhouse emissions, waste and hazardous disposal, energy consumption and water usage.
For the social dimension, it will now be possible to determine whether companies disclose safety policies, human rights commitments, code of ethics and whether social reporting disclosures have been independently audited. The new data sets will also provide greater insights on the governance and economic dimensions and help obtain better understanding of companies' codes of conduct and policies addressing anticrime, corruption and bribery, governance of the Board and executive compensation, [Technical Difficulty] disclosures, risk and supply chain management and tax strategy and reporting.
Market Intelligence also launched an ESG data solution to support the European Commission's sustainable finance disclosure requirements, enabling market participants to meet these disclosure requirements.
In Indices, we had $22.9 billion of ESG, ETF, AUM at the end of the first quarter. This is an increase of more than 400% since the end of the first quarter of last year. Our Indices business also launched ESG versions of our S&P MidCap 400 and S&P SmallCap 600 indices.
In addition, UBS licensed the S&P 500 ESG Elite Index for a new ETF, and Barclays licensed the S&P EuroUSA 50, Low Carbon ESG Select Equal Weight Index for use in structured products. Platts has been very active [Technical Difficulty]. You may be wondering why we include a copper assessment as an ESG product. It's because this new assessment will help support the need for increased solar, wind, energy storage systems, electric vehicle and EV charging stations, all of which require large amounts of copper.
For example, an electric vehicle uses approximately 175 pounds of copper. Platts also launched hydro-treated vegetable oil price assessments. HVO, also known as renewable diesel in America, is a biomass-derived fuel suitable for diesel engines. It is made of non-petroleum renewable resources such as natural fat, vegetable oil and greases and can be blended in traditional diesel or used as a substitute.
And finally, Platts launched daily assessments for low-carbon aluminum and zero carbon aluminum, which will complement existing Platts European price offerings for high-grade primary aluminum. [Technical Difficulty] quantify cost and manage risk for the opportunities associated with a growing focus on carbon reduction strategies amid increasing global regulation.
On Earth Day last week, S&P Global launched a new ESG brand, Sustainable1, your single source of essential sustainability intelligence. With the wide array of ESG capabilities that we have and the fact that many of our customers are interested in multiple products from different divisions, we have unified our ESG efforts across the company. This includes product development, technology, channel partnerships, distribution, marketing, sales and client support. We believe that this new brand will help convey S&P Global's commitment and leadership position in ESG.
Outside of ESG, let me highlight a few other new product launches and product enhancements. We launched Kensho NERD, short for Named Entity Recognition and Disambiguation. NERD was developed by the company's natural language processing team, which specializes in machine learning research and engineering related to analyzing and understanding human language.
This is the first entity extraction system specifically optimized for business-related documents. NERD makes it easier for users to analyze unstructured text, for example, investigating suppliers and competitors mentioned in company filings, and enables them to drill down instantaneously to the documents they need to see.
We launched the S&P MAESTRO 5 Index, which is designed to measure the performance of a multi-asset risk parity strategy with a 5% target volatility. The index allocates risk equally among seven equity, fixed income and commodity indices and further mitigates equity market volatility by dynamically allocating to S&P VIX future indices.
With about 100 different data sets available on the Marketplace we launched last year, we created Product Finder, to help clients find what they're looking for based on their job function, topic, use case and workflow. For example, someone working in investment banking and deal origination can receive different results from a search than a corporate client in a supply chain role.
Platts expanded its presence in shipping with the new APSI five dry bulk weighted index for Supramax class bulkers. APSI five is the dry bulk freight market's first regional weighted average index, capturing the Asia Pacific trade on Supramax bulkers. This product continues to fill out our shipping products.
One of the most important aspects of managing benchmarks is to ensure that they are periodically updated to reflect underlying market conditions. When streams of oil that feed a benchmark become depleted, they need to be replaced. After consulting with market participants, Platts is progressing work to add West Texas Intermediate Midland as an additional stream to Dated Brent.
Since the 1980s, Dated Brent has acted as the benchmark for and is currently used to price approximately 60% of global waterborne crude. This change will provide significant additional volume and ensure the continued robustness of the Brent complex.
Let me now turn to our outlook for global issuance and GDP. After issuance growth of 15% in 2019 and 17% in 2020, our ratings research group initial 2021 forecast called for a decrease of 3%. The updated forecast issued earlier this week now calls for a decrease of 2%, excluding international public finance. There were two changes. Structured finance went from a 3% gain to a 6% gain and non-financials went from a 9% decrease to a 7.5% decrease.
Please note that this is a bond issuance forecast. This is not a revenue forecast. For example, it doesn't address non-transaction revenue and doesn't include leveraged loan activity. There are clearly puts and takes when we think about 2021 issuance. For example, the bulk of the first quarter's corporate issuance came from repeat issuers who may have exhausted their funding needs early this year on the anticipation of rising rates.
However, there are several items that should support upcoming issuance, including a rebound in economic growth, very favorable financing conditions, large amounts of sovereign debt with negative yields and a growing pipeline of pending M&A deals. We have revised our 2021 global GDP growth forecast, up by 50 basis points to 5.5%. The economic recovery looks set to accelerate in mid-2021, particularly in the US on back of a massive fiscal stimulus plan, although a high degree of unevenness and uncertainty persists. An issue is the pace of vaccinations and the spread of virus variants.
The US and UK have taken the lead in vaccinations. A slow rollout is hampering the rebound in Europe, and we expect slow vaccination rollouts to cause the recovery in several key emerging markets to lag. Our economists view orderly reflation as a positive development for both the economy and credit. We also believe that rising yields on the back of a robust recovery is a positive as opposed to rising yields solely on inflation concern.
Moving away from very low rates lessens the search for yield and lessens distortions to financial and non-financial asset prices. And finally, Platts is forecasting that oil will remain above $60 a barrel through 2022. This bodes well for the health of the oil industry.
I will now turn the call over to Ewout Steenbergen, who's going to provide additional insights into our financial performance and outlook. Ewout?
Thank you, Doug. Let me start with our first quarter financial results. Doug covered the highlights of strong revenue and adjusted earnings per share growth. I will take a moment to cover a few other items. While there were some acquisitions and divestitures since the first quarter of 2020, the revenue associated with them was not large enough to result in a difference between reported and organic revenue growth.
Adjusted total expenses only increased 2%, thanks to ongoing productivity programs and lower T&E. Keep in mind that while T&E remains almost nonexistent, the year-over-year benefits will no longer exists, beginning in the second quarter. The increase in the effective tax rate was primarily due to a decrease in the tax benefit associated with stock-based compensation and an increase in taxes on foreign operations. While the effective tax rate fluctuates from quarter-to-quarter due to the timing of discrete tax adjustments, our full year tax rate guidance remains unchanged.
Our diluted shares outstanding declined by 1.7 million shares. This was the result of shares repurchased before we paused the share repurchase programs, due to the pending merger. During the quarter, changes in foreign exchange rates had a positive impact on adjusted EPS of $0.03. The only meaningful impact was in Ratings, where adjusted operating profit was positively impacted by $9 million.
We are introducing three new categories to provide insight into the type of expenses that are going to be incurred related to the pending merger. The first category is transaction costs. These are costs related to completing the merger. They include legal fees, investment banking fees and filing fees.
The second category is integration costs. These are costs to operationalize the integration. They include consulting, infrastructure and retention costs. The third category is cost to achieve. These are costs needed to enable expense and revenue synergies. They include lease terminations, severance, contract exit fees and costs related to product development, marketing and distribution enhancements.
In the first quarter, the non-GAAP adjustments collectively totaled to a net pre-tax loss of $81 million. They included $9 million for merger transaction costs; $40 million for merger integration costs. There were no merger costs to achieve this quarter. These will begin to occur around the closing of the merger. A $2 million gain for an adjustment on the prior year period divestiture, $2 million for Kensho retention-related expenses and $31 million in deal-related amortization.
This quarter, all four divisions delivered increased revenue and adjusted operating profit. On a trailing four-quarter basis, adjusted operating profit margin increased significantly in Ratings, Platts and Market Intelligence, while Indices had a small decrease. I will provide color on the individual business results in a moment.
Now, turning to the balance sheet. Our balance sheet has low leverage and ample liquidity. We have cash and cash equivalents of $4.5 billion, debt of $4.1 billion, an undrawn revolver capacity of $1.5 billion and no commercial paper outstanding. Our adjusted gross debt to adjusted EBITDA improved since the end of last year to 1.8 times.
We recently entered into the first sustainability-linked banking facility in the US information services sector. Linking our line of credit to our emission reduction targets verified by the Science Based Targets Initiative is another tangible example of our commitment to becoming net zero by 2040.
Free cash flow excluding certain items was $718 million in the first quarter, an increase of $100 million or 16% over the prior year period. Due to the pending merger with IHS Markit, share repurchases have been curtailed. If there is an open window and we have an opportunity, we will repurchase shares before the merger closes. If not, we anticipate resuming share repurchases after the merger is completed.
Now let's turn to the division results. Ratings revenue increased 23%. This revenue growth was driven by the increase in issuance Doug already discussed. Adjusted expenses increased 9%. Excluding changes in foreign exchange rates and the acquisition of Greenwich Associates by CRISIL, adjusted expenses increased 5% primarily due to increased salary and incentives, partially offset by lower T&E. These resulted in a 32% increase in adjusted segment operating profit and a 440 basis point increase in adjusted segment operating profit margin.
On a trailing four-quarter basis, adjusted segment operating profit margin increased 340 basis points to 63.6%. Please keep in mind that, the 67.5% adjusted segment operating profit margin achieved in the first quarter is temporarily elevated based on the surge of issuance in high-yield, levered loans and structured finance.
In China, we see momentum and interest in our ratings picking up. In fact, we completed 18 ratings in the first quarter compared to 22 in all last year. Non-transaction revenue increased 10% primarily due to growth at CRISIL, fees associated with surveillance as well as elevated new entity ratings and Ratings Evaluation Services activity.
Notably, revenue from Ratings Evaluation Services and new entity ratings each increased approximately 30%. In fact, there were 217 new entity ratings this quarter, the highest quarterly total in over two years. This was due to investors quest for yield and increased risk appetite, enabling increasingly weaker credits to raise debt.
Transaction revenue increased 35% primarily due to substantial levels of high-yield issuance, bank loan ratings and structured finance. This slide depicts Ratings revenue by the end markets. The largest contributor to the increase in Ratings revenue was a 27% increase in corporates.
In addition, financial services revenue increased 10%, structured finance increased 34%, governments increased 18% and the CRISIL and other category increased 8%. On the right side of the slide, you can see the changes in revenue within structured finance. The clear driver of growth was a 70% increase in CLO revenue.
Turning to S&P Dow Jones Indices, the segment delivered 4% revenue growth primarily due to gains in AUM linked to our indices and data subscriptions, substantially offset by reduced exchange-traded derivative activity. In the first quarter, adjusted expenses only increased 2%. This was particularly low as the first quarter of 2020 had elevated expenses, including a $4 million catch-up charge on past royalties.
The adjusted segment operating profit increased 5%, and the adjusted segment operating profit margin increased 70 basis points to 71.3%. On a trailing four-quarter basis, the adjusted segment operating profit margin decreased 40 basis points to 69.3%.
Revenue growth was mixed this quarter. Asset-linked fees increased 15% with gains in ETFs, mutual funds and insurance and over-the-counter derivative activity. Exchange-traded derivative revenue decreased 24% on reduced trading volumes. The first quarter of last year saw extraordinary volatility related to the pandemic market correction, creating a very difficult comparison. Data and custom subscriptions only increased 1% due to a catch-up in real-time customer reporting in the first quarter last year.
For our Indices division, over the past year, ETF net inflows were $125 billion and market appreciation totaled $749 billion. This resulted in quarter-ending ETF AUM of $2.2 trillion, which is 65% higher compared to one year ago, when the market was near its pandemic low. Our ETF revenue is based on average AUM, which increased 30% year-over-year. Sequentially, versus the end of 2020, ETF net inflows associated with our indices totaled $73 billion and market appreciation totaled $143 billion.
As I just noted, exchange-rated derivative revenue faced a difficult comparison. Activity at the CBOE decreased in the first quarter with S&P 500 Index options activity decreasing 29% and VIX futures and options activity decreasing 23%. Activity at the CME equity complex decreased 6%. Market Intelligence delivered reported and organic revenue growth of 4%. Collectively, revenue from recently launched products increased by over 40%. This was primarily from ESG, Panjiva, aftermarket research, Marketplace and SME data.
Adjusted expenses were flat as recent productivity initiatives and lower T&E offset salary growth and higher investment spending. Investment spending continues, particularly with the Marketplace and SME initiatives. Adjusted segment operating profit increased 13%, and the adjusted segment operating profit margin increased 260 basis points to 33.5%. On a trailing four-quarter basis, adjusted segment operating profit margin increased 120 basis points to 33.1%.
Looking across the Market Intelligence components, Desktop revenue grew 2%. Data Management Solutions revenue grew 9% and Credit Risk Solutions revenue grew 6%. Based on our ACV trends, we expect Desktop to grow low to mid-single digits for the full year and both Data Management Solutions and Credit Risk Solutions to grow high single-digit this year.
And now turning to Platts. Reported revenue increased 5%. Our core subscriptions increased 6%. Over the past year, oil prices have increased, resulting in a customer base that is healthier, and our retention rates remained in the mid-90s.
Global Trading Services decreased 4% compared to a very strong first quarter of 2020. GTS revenue decreased, mainly due to lower petroleum and natural gas volumes partially offset by increased LNG volume. Adjusted expenses improved 7% due to lower T&E, rent and bad debt provision.
Please note that we expect expenses to pick up in the second quarter as Platts investment spending increases. Adjusted segment operating profit margin increased 520 basis points to 58.1%. The trailing four-quarter adjusted segment operating profit margin increased 280 basis points to 56%.
On our first quarter earnings call last year, Doug noted that the first-ever Kensho-powered price assessments went live. One year later, we now have 19 markets that have Kensho-powered price assessments. This has resulted in more than a 75% reduction in publishing time. This quarter, because shipping has increasingly become an important product offering for Platts customers, we're introducing shipping as a new category. Shipping is essential to commodities trading with 90% of global trade transported by sea.
S&P Global Platts has been in the business of providing transparency to the shipping market for more than 35 years. These assessments are used by market participants for physical benchmarking, and five are listed by exchanges as the basis of derivative contracts.
In 2014, Platts expanded its freight offering into the dry freight market with daily assessment of freight rates for key commodity trade routes for products such as iron ore, coal, grains, sugar, bauxite and alumina. Platts now publishes hundreds of daily freight rate assessments covering all major shipping markets. To help you with your models, we have provided historical quarterly information on the new reporting basis in the appendix of this slide deck.
And finally, while every category on this slide grew revenue during the quarter, the fastest growth was in petrochemicals. We're not providing 2021 GAAP guidance because, given the inherent uncertainty around the merger, management cannot reliably predict all the necessary components of GAAP measures.
This slide depicts our adjusted guidance. While we expect that the merger will occur in the second half of this year, we're providing adjusted guidance on a standalone basis. The second column shows our new 2021 adjusted guidance with all the line items that James highlighted.
We're making these changes because we now have expectations for greater revenue growth primarily due to improved outlooks in Ratings and Indices. While we expect greater revenue growth, it's not enough to change our revenue guidance. Therefore, our revenue guidance remains a mid single-digit increase.
Operating profit margin is increased by 20 basis points to a range of 54% to 54.5%. And this results in a $0.30 increase in adjusted diluted EPS guidance to a new range of $12.55 to $12.75. And finally, free cash flow generation has been increased by $100 million to a range of $3.4 billion to $3.5 billion.
In conclusion, we're off to a great start to 2021 with exceptional first quarter results. Vaccinations are rolling out. The global economy is poised for accelerated growth, and our customers are benefiting from these improvements.
During this pandemic, we have been working hard to ensure the safety of our employees, and I want to end by thanking them for their perseverance, creativity and passion and by thanking all of you for your continued investment in S&P Global.
And with that, let me turn the call back over to Chip for your questions.
Thank you. Just a couple [Technical Difficulty] We have a technical difficulty at this end. Can you hear me now? Operator, let's have the questions. Thank you.
Thank you. Our first question comes from Toni Kaplan with Morgan Stanley. Your line is open.
Thank you. Wanted to ask about capital return. You talked earlier and last quarter about the limitations of buybacks until the deal closes. But you do have $4.5 billion of cash on the balance sheet, and it's building as you generate free cash flow every quarter. So after the deal close, should we expect a large ASR or a special dividend, or will capital return be far below the typical 85% of free cash flow in 2021? Thanks.
Good morning, Toni. This is Ewout. Thank you for raising that point. Definitely, the way we look at our current cash balances is that this is temporarily elevated. We are thinking about the following in terms of what we are planning to do going forward.
First of all, once we have an open window, the likelihood is low that the open window will be before the merger will close so that means after the merger close is more likely, what we will do is, first, we have an opportunity to catch up with respect to our capital return targets from the last few quarters because, clearly, we have not been able to deliver on those targets given these limitations.
And then going forward, we have the new capital return target of at least 85%. So what you may expect is a kind of a catch-up after the merger will close and then ongoing, an increased level of capital return to our shareholders. I can't give you exact numbers and amounts so I can't quantify this for you. But philosophically, this is the direction of our thinking.
That's great. I wanted to ask about index subscription. You're up 1% in the quarter. I think it was closer to about 10% last year. I think you mentioned a change in the reporting. But could you give a little bit more color on what that was? And also just broader, if you could just talk about the trends that you're seeing in index subscription like cancellations and pricing and competition. Thank you.
Toni, this was more a catch-up in reporting that we had last year first quarter, and this was due to what we call real-time reporting catch-up, which had to do with the change of some administration. And therefore, the period-over-period differential looked relatively small with a growth of just 1%.
Strategically, this is definitely an area we would like to grow, so the 1% is unusually low and should not be the basis of what to expect going forward. We should expect much higher growth from data and custom subscriptions. And we would like to grow this because we think it's a good balance in the overall revenue mix for the index business, where we have, as you know, fees over assets under management, we have the derivative trading fees. And recurring revenue, subscription-like revenues in the index business is definitely an area we will grow as well. So unusually low at 1% and the expectation should be much higher growth going forward.
Did anything come out of your index consulting from last year? Thanks. I'll stop there.
Toni, we're going to limit to two questions as always, please, okay, so that we get everybody involved. Okay? Thanks.
Yes, sorry. Thank you.
No problem.
Thank you. Our next question is from George Tong with Goldman Sachs. Your line is open sir.
Hi thanks. Good morning. Ratings revenue saw a strong growth in the quarter. To what extent do you believe there was a pull forward in issuance from future quarters? And how does your outlook for 2Q through 4Q debt issuance and Ratings revenue change?
Hi George, this is Doug. Thanks for joining the call. Well, first of all, as you know, we saw a very strong increase in results in the first quarter. Just to give you a few numbers to put them in context. As an example, investment-grade in the US was down 17%, and you think about that being down 17%.
At the same time, investment-grade in Europe was up 22%. High-yield in the US was up 111%. High-yield in Europe was up 53%. Structured finance globally was up 5%, but a couple of tidbits there. In the US, CLOs were up 63%, and in Europe, CLOs were up 300%. And bank loans were also up 70% as well. So, you could see a mix of different aspects of what were up and what were down.
We think that in the investment-grade, both in the US and Europe, that there probably wasn't necessarily pull forward, to use that phrase, because you saw the 17% down in the US, but there was definitely an interest in investment -- non-investment-grade issuers as well as structured finance to look at the -- what they believe is going to be upcoming economic growth. Rates and spreads have been quite attractive. Spreads are at an all-time historical low in some cases or lows over the last two or three years.
And there's also potentially some expectations that inflation starts coming in the market and interest rates will start going up again. But as you know, in our forecast that we just gave you, we saw at the original forecast that the corporates would be down about 9%. We now see them down about 7.5% for the forecast for the year. Financial services that originally were going to be up about 5%, we see them now up around 4%. It hasn't changed that much. Structured finance is where we saw a bigger swing, originally up 3% and up now about 6%.
So, when you look at the total, we had originally forecasted that the issuance for 2021 would be down about 3% and now we think it's going to be about -- down about 2%. As I started off, it's always hard to tell what pull forward is and what's coming in this pull forward, but it's possible that there could have been some in the high-yield space in particular.
Very helpful. And then just a follow-up with the Ratings operating margins. How do you expect those to perform as debt issuance normalizes from strong 1Q levels?
Good morning George. If you think about the Ratings margins, we think about it as three data points. One is the full year margins last year, 2020, which was somewhere in the 62% at the 62% level. Then we look at it for the trailing four-quarter at this moment, which is around the 63% level, and then the quarter standalone was around 67% level. The 67% level is clearly elevated due to the surge in the issuance environment and shouldn't be seen as the new normal.
We think that there is an opportunity to expand margins from the level that we saw in 2020 but not at the level of what you saw in the first quarter of this year. So, directionally, improvements but this quarter was elevated due to the reasons we just explained.
Very helpful. Thank you.
Thank you. Our next question is from Hamzah Mazari with Jefferies. Your line is open.
Good morning. My question was just on Market Intelligence organic revenue growth. I realize it was a slightly tougher comp, but could you maybe talk about some of the investment spend that you're doing and how that will help your topline specifically and timing of that?
I know from a margin side, you've already talked about margins there being in the high 30s on a target basis. So, any thoughts on the ramp and the growth from all the investment spend you're doing there? And maybe any other areas to highlight?
Good morning Hamzah. If you think about Market Intelligence, there were some reasons why the revenue growth was a bit lower this particular quarter. Think about the Desktop that has seen some uneven recovery in various regions, particularly, therefore, the COVID impact from 2020, impact from the past ACV. But what we are seeing is a really healthy commercial activity now, and therefore, you heard us guiding to still low to mid-single-digit growth for revenue -- for Desktop revenue this year and high single-digit growth for Data Management Solutions and Credit Risk Solutions.
Specifically with respect to the growth initiatives, we're very excited about all the new initiatives and the investments we are making. We know that it always takes a bit of time to see the revenue ramp up, and of course, from an overall basis, these numbers are still relatively small.
But think about that Data Marketplace is doing very well and we see very nice growth. Actually, the revenues in the first quarter were more or less the same of the total revenues we booked over the full year 2020. The same applies for SME, ESG, private company data. So, overall, I think, it's clearly very, very good initiatives, and we see a lot of traction.
Overall, Market Intelligence growth is expected at mid to high single-digit for the full year 2021, so mid to high single-digit growth for the full year 2021, which we think is a very healthy growth for this business and clearly helped by some of those initiatives.
That's great. And then, just -- maybe just any thoughts on the China business and what you're seeing there in terms of gaining traction relative to your expectations? Aside from the pandemic, just sort of any color as to how big China could be over time, what you're seeing there in the revenue base today? Thank you.
Hamzah, this is Doug. And thank you for joining the call today. As you know, China is one of our most important strategic initiatives for the entire company. And we typically talk about Ratings, but we have other initiatives. We're investing with Platts. We're investing in our index business. And recently, we've had some very good traction with our credit portal from Market Intelligence. But let me give you a quick update on Ratings.
Last year, we had 22 ratings that were issued in the full year of 2020, and this year, in the first quarter alone, we issued 18 ratings. We believe that the market participants are really interested and increasingly interested in the quality of the ratings themselves, the underlying ratings.
As I've talked about over time, we've assembled a very, very strong team. The market is building up over time. We see that the market has started attracting more offshore investors as well as the foreign banks that are coming in with their wholly owned or controlled subsidiaries, which is bringing new capital and new approach to the markets.
But what we're out doing is educating the market. We're doing literally hundreds of meetings a week. And when we have seminars or events when we've rolled out some new research, we're getting thousands of people joining that.
One thing that I'm very pleased with is that -- in addition to having such a strong team, is that the ratings that we've done when you look over the last two years. We've now rated financial structured products, our first non-financial corporation, and the breadth of our ratings goes from AAA to BBB. We're getting a lot of really good attention, a lot of high traction to our websites, et cetera. So, we see China as a long-run investment, but off to a really good start.
Thank you.
Okay.
Thank you for your question. Our next question is from Kevin McVeigh with Credit Suisse. Your line is open.
Thank you so much. Doug or Ewout, I wonder if you could just contextualize. Like you've done an amazing job capturing kind of this default cycle as opposed to the last one, where there's a lot more disruption. What does that mean for the next cycle as you think about this in the business and capturing some of the more secular trends in the business?
Well, as we look out over the next few years, clearly, there's various factors that are important to us. As we showed you in the slides themselves, we think that the economy globally is recovering, although it's going to be a choppy recovery.
You've got the US growing at 6.5% this year on the back of a very, very successful vaccination program. China is going to be growing at 8%. Actually, the government says themselves they're going to grow at double-digit, at a 10% rate. But you also see that Europe and India and some other markets might not be growing at a very quick rate.
But, overall, given the pull of the US and China and other markets that are recovering pretty quickly like the UK, we think that the growth this year is going to be 5.5% globally. The following year is also going to be quite strong, because those other markets that haven't had the vaccinations yet will continue to improve as well. So, global growth over the next couple of years in the 4% to 5% range, which bode well for our businesses.
One of the biggest trends we look at is and what we talk about is as markets become capital markets around the world. And the question we just had about China is an important one for us, as China savers move from just investing in real estate to putting money into financial assets, into pension, insurance and savings program. As foreign investors move into China, we're seeing a much more advanced capital markets.
The European trends over the last couple of years, we've always talked about them, but they've been very strong the last couple of years. And we've seen them incredibly strong in the last couple of quarters and becoming more like capital markets.
Now, one final comment. When we take a step back and we think about our strategy that's called Powering the Markets of the Future, it allows us to take all of the different capabilities of S&P Global, whether it's the rating agency, it's the index business.
And now when we think about the addition of the IHS Markit capabilities, we'll have -- right now, we'll move from -- up to 76% of our business will be coming from subscription or subscription-like recurring revenue services. That will give us some stability as we head into potentially high-growth markets over the next couple of years but as well any sort of choppiness that could come from either fiscal policy or coming out of the very low interest rate environment, et cetera.
But we watch very carefully the external environment. We think our businesses are well prepared to support the growth of financial markets and our customers. And we always then incorporate that into our planning of where we invest and how we set up our budgets.
That's very helpful. And then, Ewout, real quick. Is there any way to think about how much the ratings mix contributed to that 67.5% margin like in terms of just the mix relative to what it is historically?
It plays a bit of a role, Kevin. Because if you think about bank loans and high-yields, those are usually not on frequent issuer programs, so that helps from the translation of overall activity in terms of volumes and issuance to revenue. So definitely, mix has played a role here as well.
Okay. Thank you.
Thanks Kevin.
Thank you for your question. Our next question comes from Manav Patnaik with Barclays. Your line is open.
Thank you. Good morning guys. I just had a quick question. You've, obviously, curtailed your buybacks, as you said, as you wait for the deal to close. But are you holding back on your M&A pipeline as well, like presumably just tuck-ins? Would just be curious there.
Manav, let me take that. As you know, right now, the number one priority for S&P Global is to successfully execute the integration program with IHS Markit after the deal closes. So we don't have an active aggressive M&A program. If something came along in the ESG space in particular or if there was a fill-in for a new asset class for Platts to expand our energy transition or battery metals opportunity, carbon trading, things like this could be something we might look at, but those will be small tuck-ins. But right now, our major emphasis is on successful closing and successful integration of the IHS Markit transaction.
All right. That makes sense. And then I just had one small follow-up, which is breaking out the shipping segment in Platts. Is there any particular reason for that? I mean, is there something we should be looking out for? Could that be a category that's really going to grow fast for you guys?
It's -- Manav, it's an interesting question. We had a lot of discussion around it. Shipping is becoming one of those areas where the markets are looking for news. And we've had a couple of instances over the last few months where the data and the analytics and the research from Platts have been in very high demand. If you recall, there was -- there's been a period where the ships are stacked up at ports like in Long Beach in California, around China, around Yokohama in Japan, where they're -- the rates have gone up, they've doubled, they've tripled. We also had the large ship, which was stuck in the Suez Canal.
So not only is there a heightened demand for information about shipping, it's been in the news, and we felt like our very high growth rate there gives us an emphasis and a focus to continue to invest there and grow there. And it highlights for us, which is a very interesting area with a lot of implications for global trade, for energy transition, for climate. It's a great area for us to invest in, and we're pleased that we can break it out now.
All right. Thank you guys.
Thank you for your question. Our next question is from Alex Kramm with UBS. Your line is open sir.
Yeah. Hey, good morning, everyone. Just shifting to the deal quickly. You made a comment that you've been spending more time with the teams from IHS Markit as this deal closing approaches. I know this is not the time for any updates to financial expectations, I assume. But anything else you can share with us potentially on the cost and revenue side where you may have just gotten more comfortable, new things that you've discovered as you've spent more time? I mean, it's been, I think, exactly five months now, so I assume there's a few new findings. So anything you can share would be great.
Good morning, Alex, this is Ewout. Definitely, a lot of work is going on with respect to the integration planning, getting to know each other, thinking about organizational design, thinking about future strategy. At the same time, these are still two independently run companies. The transaction hasn't closed, as you know, so these are two companies that are still independently functioning with their own management teams and with their own boards for the oversight.
So we are working, I think, in a great way, in a very collaborative way with respect to the integration planning. Definitely, we're diving deeper in terms of the revenue synergies, the expense synergies, trying to build up what we have detected during the due diligence phase, trying to build this up bottoms up and get additional levels of comfort around it.
Yes, I am not, as you already mentioned in your question, able to give you any new indication with respect to numbers. These are the numbers we're committed to, the $480 million expense synergies and the $350 million of revenue synergies. But we are working very hard to make sure that we're able to deliver on that. And further updates, we can provide to you after the merger will close.
Fair enough. Staying on a similar topic though. A few people asked about capital returns. When it comes to buybacks in the future, I mean, obviously, you've mentioned the new leverage target. And again, this is not a new thing. But I know there's been some hesitancy in the past of levering up just to buyback your stock. So can you maybe just remind us how your thinking may have changed there? Given that, I think, as Doug just mentioned very shortly ago, you're going to have your hands full, so there's probably not a lot of other things to do. So what's the appetite to fully leveraging up the balance sheet, after this period of not buying back your stock to accelerate that?
Alex, as we always have said, we set a leverage range target. And once we fall outside of that range, we will take action to bring ourselves back within the range. The range has been increased. We were at 1.75 to 2.25 as a range as S&P Global stand-alone. After the merger, that range will be brought up to two to 2.5 times.
As you saw in our earnings announcement this morning, we're currently at 1.8. IHS Markit is slightly higher levered than S&P Global today. So we need to see and look at the mix after we combine the debt base of both companies.
But clearly, if we will fall below the lower end of the new range, we will take action. We will add additional leverage on our balance sheet to make sure that we have an optimal overall corporate financing structure. And if that means we have excess cash and excess capital going forward, that will be an opportunity to return to shareholders as well.
All right. Fair enough. Thank you very much.
Thanks, Alex.
Thank you for your question. Our next question is from Andrew Nicholas with William Blair. Your line is open, sir.
Hey, good morning everybody. This is actually Trevor in for Andrew. Thanks for taking our questions. First of all, just on the Ratings segment, bank loans and high-yield both performed really well to start the year. You kind of talked about some of the market drivers already. Just wondering, since those two categories don't always move in the same direction, do you have any thoughts on the trajectory for both of them going forward the rest of the year? Do you expect them to both continue to see similar levels of strength?
Hi, Trevor, this is Doug. Thanks for joining the call today. Yes, you're absolutely right, sometimes bank loans and high-yield do not move in the same direction. This time, they did. We look at a few of the key factors which drove that.
Clearly, there is a lot of capital-chasing deals. We see that the M&A pipeline has increased to a level which is it's not quite historic, but it's getting there, and there's a lot of M&A pipeline that is out there. It's from a combination of private equity firms, strategic investments as well as the SPACs, and that brings along with it revenue for us, which is not just an issuance revenue from loans and from high-yield bonds. We also see from new issuer fees as well as Ratings Evaluation Services that comes from that kind of a pipeline.
But we see going forward this year, as I mentioned earlier, the overall corporate sector, we think is going to be down with the investment-grade issuers not being very active in the market, especially in the US. And with the high-yield probably leveling out, we don't know exactly what's going to happen with rates and spreads. But you're right that they do usually move in opposite directions.
There's one other point I want to make. There has been demand for loans from investors that are looking for potential increase in interest rates. You saw that the 10-year yield had started climbing over the last three or four months. And so there's a lot of demand from investors for loans, which are floating rate. They want to, in a sense, kind of hedge their interest rate exposure and have floating-rate exposure.
So it's embedded in our outlook for the rest of the year and are -- as well as our -- what we see is our forecast for issuance. But you're right that they don't always move lockstep, and this quarter, they did.
Okay. Great. Thank you. That's helpful. And then just kind of given some of the increasing focus on ESG, just wondering if you could talk about your energy transition practice within Platts a bit. Just how large is that business now? What's your outlook going forward? And then if there's any way the IHS resource business plays into the strategy there, I would just love to hear your thoughts. Thank you.
Great. Thank you. And I'll take that also. Well, first of all, we are very pleased with the progress we're making on our ESG franchise. As you probably saw last week, on April 22nd on Earth Day, we announced a new brand, Sustainable1, for our ESG efforts across the entire company. And it's -- as we call it, it's your single source of essential sustainability intelligence.
Across all of S&P Global, we're now coordinating our ESG initiatives, and we have over 500 people that are dedicated full time to this. But to dig a little bit deeper into what you mentioned about Platts. Platts is building up an expertise in energy transition as well as transportation, and you heard us talk about shipping a few minutes ago. And when it comes to energy transition, you think about the move from coal to renewables as maybe the end of the spectrum.
But in between, there is a whole new set of opportunities for Platts to be looking at, many of them we're already in. Hydrogen is an example. We have a hydrogen benchmark. We're the first one with a hydrogen benchmark. There is something called clean oil. There's clean natural gas. What that means is that clean oil has had the entire value chain of the delivery of that oil has been rebuilt to ensure that you can capture all of the methane, that there's no leakage along the way, so there's ways that refineries are run, that storage systems and pipelines are run. And we're able to provide the research and the data and the analytics and the benchmarks against something like clean oil.
We also -- in Platts, we mentioned earlier on the call about copper. There's a whole set of new metals, which are quite important to the energy transition. As an example, copper, which there's 175 pounds at least of copper in an electric vehicle. You also have lithium in the batteries. So these are areas where we also see a lot of opportunities for the benchmarks to be used from a combination of new power grids, from the metals that are in them, from the clean energy that is going to be clean transition energy.
Finally, I'd like to mention that with the merger with IHS Markit, they also bring along a set of new products and services that bringing together will strengthen our ESG franchise. At IHS Markit, they have additional research that comes from their transportation business, which is going to be quite valuable for the Platts business in the energy transition.
They also have a carbon registry. They've got a set of other carbon research products and then generally, other research and news on energy transition and ESG, which are going to be quite valuable to us.
So we think we're very well positioned. We've just launched the Sustainable one brand. We have an organization in place with over 500 people. And we're ready to really start growing.
And as a quick addition, Platts is already today the largest contributor to the overall ESG revenues of the company, so clearly, an important contributor to the overall strategy.
Great. Thank you both very much.
Thanks, Trevor
Thank you for your question. Our next question is from Craig Huber with Huber Research Partners. Your line is open.
Yes. Hi. Thanks. My first question on costs, can you just give us a broad sense of how much cost you think will come back into the system for T&E, other general office expenses once people start coming back and you get back to a normal workflow in the company? And how many hundreds of millions of dollars you think that might add on an annualized basis?
Good morning. Let me give you a couple of data points here. First, pre the COVID pandemic, in 2019, we spent on overall T&E $85 million as a company. Last year, we spent $15 million.
But clearly, going forward, what we would expect to be the new normal with new ways of working, hybrid working, more virtual tools, it's correct that we wouldn't expect the whole $85 million to come back.
Our best estimate would be maybe a haircut of, let's say, 25%, so maybe around $60 million or so that should be a T&E kind of level after the whole COVID situation is over. Some of the benefits of that are already captured in our productivity program. So a part of the $120 million productivity program.
But clearly, we expect overall more efficiency due to a different way of working going forward and the lessons that we have learned of being able to operate over the last 12 months to 15 months.
By the way, the same applies to real estate. We clearly expect also real estate expenses to come down. We don't need the extensive footprint that we have today because we would expect people to be spending, less days at the office going forward. And also the benefits of that are already captured in the productivity program, the $120 million productivity program.
And then, my last question, please. Can you just talk about the pricing on average for this year in your non-indices businesses? Is it sort of up 3% to 4% over normal range you have year-in, year-out?
We're always careful to talk about pricing going forward, as you know, Craig. But nothing is different than what you should have seen historically from what we're doing in our businesses. And I think that should be overall, in general terms, the expectation across the company.
Great. Thanks guys.
Thanks, Craig.
Thank you. Our next question is from Owen Lau with Oppenheimer. Your line is open sir.
Good morning. Thank you for taking my questions. So I have a question about Trucost. I think State Street just announced a strategic engagement with Trucost. And President Biden also committed to cut greenhouse gas emission in half by 2030.
I'm wondering how all these have impacted your Trucost business and also your outlook. If you can talk about the recent traction there and also the opportunities ahead, that would be great. Thank you.
Great. Thank you, Owen. Let me take that question. Well, when we think about the energy transition and now in a much more broad way. And you look at all the different initiatives going on around the globe.
One of the most important dialogues that we have no matter where we go -- any meeting I go to, whether it's with central bankers, ministers of finance, it's with corporate bankers, investment bankers, with corporate executives, people are talking about energy transition, they're talking about climate and they're talking about ESG.
And we see that there is a need for people to have clear, simple, concise, comparable, consistent data and analytics around climate, around ESG. As you know, we did an acquisition of Trucost about 3.5 years ago, and it brought to us, the premier set of data and analytics around carbon, around climate, around physical risk as well as waste, water and other types of analytical information.
We also have physical risk. We have SDGs, sustainable development goals as ways that we can do analytics on that. But going to your -- the first part of your question. We just announced an agreement with State Street, where we're providing them information from Trucost that can be embedded in all of their modeling.
All of their clients will be able to use that intelligence and that risk information and build it into State Street's existing client-focused ESG services. State Street has about $40 trillion of clients -- of assets under management that their clients hold. So we're going to be able to be providing that functionality.
What it does is? It allows those clients to have access to the carbon footprint and other environmental data that will map to their portfolios. As you know, a lot of organizations are increasingly using the Task Force on Climate-related Financial Disclosure reporting.
And you can take the Trucost data, the Carbon Earnings at Risk, the Paris alignment, the physical risk data, the general carbon information and build it right into that kind of modeling.
So we're very pleased with that partnership with State Street. We see this as a start of many, many other partnerships and something that for us is quite important and one of our most important strategic initiatives in the entire company.
Got it. That's helpful. And then maybe switching gears a little bit to the index business. You have a partnership with Lukka and the potential launch of a global cryptocurrency asset-based -- asset index. Could you please talk about your thinking about the product launch and the revenue model there in your index business, participating in the crypto space? Thank you.
Yes. It's another one of those areas. It's not nearly as far along as something like ESG is. Crypto is just, just starting. And we feel that it's such an important asset class, it's on everyone's minds, that we needed to do some specific research around crypto. And one of the groups where we can do that, where there's a lot of relevance is within the index business.
So this actually goes back for more than just the last few weeks or last few quarters. We've been researching crypto for a while and hadn't felt that it had the seriousness and the ability to be hedged, the ability for crypto to be really understood, to be traded, to have the liquidity in it. It was quite speculative, and we had not launched any products up until now.
We haven't launched any products yet, we're close to. But because crypto is becoming more mainstream, it's beyond just Bitcoin. There's many other sources. They're -- that you can trade them on other exchanges. There are some companies now that have listed that are crypto companies, that have the standards of being a listed company. You've got -- some of the exchanges have started having futures and forwards. You're starting to see some of the conditions that would allow us to develop some products.
As of now, our revenue model would be similar to the revenue model we have on other indices, which would either be AUM-based fees or it would come from data that we would sell to the markets that could use the data from a product or an index like that. But an area that's quite promising, but it's really -- it's starting at zero. So I can't give you much of a projection of what the revenue might look like, because it's starting so low, but something that we feel like we need to be understanding and learning and building into our portfolio of products.
That’s very helpful. Thank you, Doug.
Thanks, Owen.
Thank you for your question. Our next question comes from Jeff Meuler with Baird. Your line is open, sir.
Yes. Thank you. So you obviously have a fantastic margin expansion track record over many years, while investing in innovation, and obviously, that continued this quarter. IHS Markit also has been expanding margin. And you've given us post-deal synergy targets.
But I guess my question is did the expense synergy targets incorporate running similar productivity programs that you've run at S&P in recent years at IHS post close, or would those types of productivity programs be incremental to the targets that you've provided? And if so, does it appear to be a significant opportunity for you?
Jeff, good morning. First of all, welcome to the call.
Thank you.
And thank you for initiating your coverage of S&P Global. We're very pleased with that. With respect to your question about our expense management philosophy, first of all, both companies today already have philosophies in place.
As you know, we have our productivity program on the S&P Global side, where we're aiming now at the $120 million goal of cost takeout. And IHS Markit is having a particular target with respect to margin expansion of 100 basis points on an annual basis.
What we are planning to do once we bring the two companies together is to, of course, focus on the overall expense synergies that we have mentioned to you before. That's going to be a large program.
In order to achieve that, that's a period of two to three years that we are fully able to achieve those expense synergies, although the ramp-up will go fast. We are probably in year two at a level of 80% of the expense synergies.
But philosophically, on top of that, you may expect us to continue to look at opportunities where we find scale across all of the different divisions that we'll have going forward. As you know, we are in a business where scale really matters, particularly with all the technology investments that are needed, and we have an opportunity to leverage that across the company.
We also will continue to benefit from operating leverage, just the benefit of growing your top line faster than your expense line. The incremental margin on the next dollar of revenue that comes into the company should always be higher than your average margin, because you don't have your fixed cost that you need to cover anymore.
So philosophically, you may expect us to continue to be very focused on taking benefit of efficiencies and scales on top of all the existing programs and commitments that we already have in place.
Okay. And then on Platts, it's had this resilient and good mid-single-digit growth through some pretty challenging end markets. You mentioned a healthier customer base. And I guess the Platts oil forecast remain above $60 per barrel through 2022.
Does that allow you to take an even more aggressive posture on price or create more growth opportunities for you to potentially break out of the mid-single-digit growth to the upside at some point? Thanks.
Again, Jeff, we don't talk about future pricing, but let me give you a little bit of a color and perspective of what we are seeing within Platts at this moment. As you mentioned, very healthy revenue development during the quarter.
If you think about the recurring part, the subscription part of the business, it was growing 6%, a little bit held back by the Global Trading Services. But that is understandable because Global Trading Services was really elevated in the first quarter of last year, a little bit similar to the ETDs within the index business.
When the markets show a lot of volatility, there's a lot of trading, hedging that is happening. And the hedge programs are helping the GTS revenues to go up.
But if you look at it in perspective, GTS was, in fact, higher on a stand-alone basis this quarter than the last three quarters itself. So nothing from our perspective as we look at GTS that we think that, that wouldn't be helpful going forward. It's just that the comp one year ago was so high. So all-in-all, if you put it together, we see healthy developments, good retention rates in the mid-90s, good commercial activity. The book of business, that is building up well. We like that. The ACV and subscription level is at that 6-ish percent at the moment.
So overall, mid-single digits is the outlook for Platts for this year in terms of revenue growth. But overall, incrementally, we are definitely positive on the outlook of this business given where are the commodities markets and the health of the customer base as well.
Understood. Thank you.
Thank you for your question. Our next question is from Jeff Silber with BMO Capital Markets. Your line is open, sir.
Hey. Good morning. This is Ryan filling in for Jeff. Just had a quick question. Did the SPAC boom create any incremental need to issue debt? And if so, do you know what the contribution of the SPAC frenzy was to debt issuance or your ratings revenue in the first quarter? Thank you.
Good morning, Ryan. If you think about SPAC activity, that is definitely helpful at multiple levels for the ratings business. First, it can help with Ratings Evaluation Services activity. Then it can help with new entity ratings fees. And then thirdly, it will ultimately lead to new issuance, and that is helpful as well. So we think the SPAC activity definitely is overall an important and good element of the overall M&A market and will help ratings at multiple different levels.
Thank you.
Thank you.
Thanks, Ryan.
Thank you. Our next question is from Judah Sokel with JPMorgan. Your line is open.
Hi. Good morning. Thank you. You mentioned $21 million of ESG revenues in the quarter. I was trying to think about does that number reflect your total ESG initiatives. Or is it possible that there is some level of ESG products and services that are kind of embedded in other products that might just be increasing, reinforcing the value of those products, but not necessarily driving incremental revenues or necessarily unpacked in that $21 million revenue number?
We believe it's a pretty complete level in terms of our overall revenue base. Obviously, we have very clear definitions of what we think should be contained with respect to ESG and energy transition and what's not. We actually have built, as you have heard, a horizontal organization across the company that touches all of the different divisions.
We think ESG is such a great initiative because it is really being driven by all of the parts of S&P Global today and actually even being helped also in the future with the parts of IHS Markit that are joining the company. And we have now so-called insight on a horizontal basis of our revenues on the -- on an ESG level as well as we start to think about what it does from an overall P&L perspective.
So we're pretty comfortable that this is a complete number. $21 million is clearly north of 40% growth year-over-year in terms of our ESG revenue base. So we are still very comfortable that 40% CAGR that we have mentioned to you in the past is still achievable.
Okay. Great. No, that's really clear. My other question is just about Platts. You highlighted all the different commodities that you've expanded into, certainly expanding, diversifying beyond just petroleum. And in the past, you've talked about not being too worried about peak oil, that it's still many years away, a couple of decades potentially.
But I was thinking about it maybe from the other perspective, which is that maybe a move away from petroleum could be beneficial for you guys just from the standpoint that quarter-after-quarter, it seems that the other -- some of the other asset classes are growing faster than petroleum for you. And now you've broken out shipping, which is another potentially fast-growth area. So is it a situation that maybe as the market moves into some of these other asset classes, your growth rate could pick up in Platts, or is it just perhaps cannibalizing itself and it will stay the same in that mid-single-digit area? Thank you.
Well, thanks, Judah. The way we look at it is that what's critical for us is to be the most relevant benchmark, research, analytics, news organization for commodity solutions. We think about it as you just described. The peak oil is going to be a while away. People still forecast that could be 8, 10, 15, sometimes people say even 20 years away. It depends a little bit on some of the programs around the world for energy transition and climate change.
But when we look at that, we believe that there will be a lot of different types of services and commodities that are going to be taking the place of what is today oil that's used in transportation and manufacturing, et cetera. So that's one of the reasons we've invested in our ESG products and services. We also look at power grids. We're looking at renewable energy, at power generation. As you've heard us over time, we've also expanded into agriculture. We've looked at metals and mining. So we think that there's two aspects to this. One of them is the diversification, generally speaking, of taking the expertise we have in commodities and expanding that to other commodity classes.
And we hope that, that brings us growth over time. And then the second is filling the gap of the needs of what's going to happen in climate and energy transition and moving very rapidly and aggressively into all of the spaces that will be the opportunities there like carbon registries, carbon pricing, hydrogen, etcetera. So it's kind of two different angles on the same way. It's the growth horizontally, and then it's filling the space for all of the opportunities related to ESG.
Okay, perfect. Thank you.
Thank you for your question. Our next question is from Samir Tiluca [ph] with Deutsche Bank. Your line is open.
Hi, thanks for taking my question. I just wanted to get an idea of the scale of the technology transformation program that's going to be involved in integrating all the technology programs across the two companies. So I'm wondering if there's any way to quantify that in terms of how you're tracking it in terms of number of projects or teams and just to get a sense of how does it compare in scale with the S&P Global platform initiative that you've been working on?
Well, thank you, Samir, for joining the call. When you look at our overall program for the integration with IHS Markit, there is a major emphasis on technology transition, and there's a few different categories. The first is what I would start with that relates to just pure infrastructure, how do we run our rails, who are our major service providers of our desktops, of our communication services, of our cloud.
And so there's a program on that is -- provides us the way that we run our business and everything around the business. And as you know, at S&P Global, over the last four years, we have put in place a centralized program to manage our data centers, our cloud transformation and all of that. And we're able to take that learning and also take what IHS Markit has done along the same way and very quickly look at a program to bring all of that together.
The second aspect of technology relates to delivering services to customers, and that's where we have a very similar approach, where within the businesses, we have development teams, client services teams, client experience teams. And we're working on looking at the merger of those organizations in the divisions; as an example, like the Market Intelligence and Financial Services division.
There's a whole set of work streams around how are we going to use the Desktop, which is the Market Intelligence/CapIQ Desktop; how are we going to use the workflow and the service and products that IHS Markit has and how you take the data and how you work those together. So that's a whole another set of work streams that we have.
And then the third work streams relate to risk management, cyber risk. And we have an absolutely aligned attitude and policies on ensuring that we always operate at the highest standards of risk and control and compliance, as well as ensuring that we're ahead of any sort of cyber risk.
And then the fourth is data sciences and artificial intelligence, natural language processing, etcetera. We have Kensho, which has been a fantastic organization that joined S&P Global three years ago. And what they've been able to achieve is really unprecedented. And we talked right now about NERD on this call. But as you know, Kensho has had a really strong track record at S&P Global.
And at IHS Markit, they have the data lake, and as well, they also have data sciences teams as we do across all the businesses, so thinking about that community of data sciences and ways to think about the most modern approach to running technology. So we have teams working in parallel, working together across all of those different work streams.
We think this is one of the advantages of the scale of the business overall. We can really take advantage of large global scale and technology, and we can also take advantage of large global scale of our data science, of our machine learning, our natural language processing. And so we're very excited. This is going to be one of the most important upsides of working with IHS Markit.
Great. Thanks. And just a quick follow-up on that. I mean you've been working together over the past five months with all teams interacting with each other. Any surprises you have come across in the things you described in terms of work streams in like infrastructure and data or analytics flows between the two companies?
There have been no major negative surprises. But there's a lot of positive surprises, that many of the areas that we knew from the outside or saw as either clients or competitors or understanding how their products work together, we've seen that there are some really, really high-quality products. There's high-quality people. We think that the complementarity – the way that our products complement each other are quite strong. So we see that there are some really, really exciting opportunities.
We are all waiting to be able to get together to learn more about the businesses once we can operate together after the transaction closes. And so we're all very excited about this. It's -- for us, as I said earlier, our most important strategic initiative this year is to have a smooth integration and a smooth close on this transaction.
And all the surprises are in areas that we're just so excited and we get more excited the more we learn and in particular, the more we learn about the people. So if you don't mind, let me wrap up the call. First of all, I want to apologize for some of those sound glitches we had earlier on the call. It was something that – oh, do we still have another – we have another question. Sorry about that.
Thank you. Our last question will come from Shlomo Rosenbaum with Stifel. Your line is open.
Hi. Thank you for squeezing me in. Doug, I'm going to make it very quick. It's just a piggyback question on something from before. Just in terms of the SPAC market and its importance for issuance, for ratings. If we see a real slowdown in the SPAC market either because of legislation in the US or because of freezing of the pipe markets or anything like that, should we expect that that's going to have a material impact on issuance, or do you think there are corporates that have been kind of waiting in the wings and if some of the valuations come down, they would be ready to step in and it should not make any material impact? Thanks.
Yeah. I don't think there would be a material impact. We are – we've got people – our staffing model is quite strong. We've got a team, and we like to keep our team ready. In addition, you recall that every time we do a rating, we have surveillance that goes along with that rating over time, which means that we always have a certain level of activity to ensure that we're always watching the market quite carefully. And we have formalized programs around surveillance. It's not just something that's done randomly. So I would think that we have a very strong staffing team. We don't want to lose all that expertise we have.
Okay. Thank you.
Okay. Well, thank you, Shlomo. Well, again, let me wrap-up the call. And I want to apologize for some sound glitches that happened along the way. I think we were able to get those fixed at some point. We're very pleased with our performance this quarter and our prospects for our strategic initiatives. We've talked about ESG, about China, about the merger with IHS Markit.
But I want to go back to where I started and one of the things that Ewout said, very importantly, our people. They continue to show an unparalleled commitment during very difficult times, especially as the third wave of the pandemic hits countries like India, where we have a large group of employees. So we want to thank all of our employees. And I also want to thank all of you who joined the call today for your support. Again, thank you very much.
That concludes this morning's call. A PDF version of the presenter's slides is available now for downloading from investor.spglobal.com. Replays of the entire call will be available in about two hours. The webcast with audio and slides will be maintained on S&P Global's website for one year. The audio-only telephone replay will be maintained for one month. On behalf of S&P Global, we thank you for participating and wish you a great day.