© 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 and welcome to S&P Global’s Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions] I would like to inform you that this call is being recorded for broadcast. All participants are in a listen only mode. [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. And thank you for joining us today for S&P Global’s fourth quarter 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 fourth quarter and full year 2019 results earlier. If you need a copy the release and financial schedules, they can be downloaded at investor.spglobal.com. New this quarter we would add an appendix at the end of the slide deck. These slides will not be addressed during the webcast. However, you may access them by downloading the PDF of the slides from the webcast viewer or from the quarterly earnings page on our investor relations Web site.
In today’s earnings release and during the conference call, we are providing 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. Earnings release contains exhibits that reconcile the difference between non-GAAP measures and the comparable financial measures measured or calculated in accordance with U.S. GAAP.
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 our cautionary statements contained in our Form 10-Ks, 10-Qs, and other periodic reports filed with the U.S. Securities and Exchange Commission.
I would also like to call your attention to a 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 are 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 directed to Dave Guarino at 212-438-1471.
At this time, I would like to turn the call over to Doug Peterson. Doug?
Thank you, Chip. Welcome to today’s earnings call. I'm going to review our full year highlights and Ewout will review the fourth quarter results in a moment. 2019 was a notable year for the company with solid financial results while we invested for future growth. In 2019, we delivered 7% revenue growth and 12% adjusted diluted EPS growth. We generated margin improvement in every business. We reported $2.6 billion in free cash flow, excluding certain items, a 29% increase year over year. We returned $1.8 billion through share repurchases and dividends and we'll initiate $1 billion ASR in the next few days.
We also advanced significantly on key initiatives. We made great strides towards our Investor Day targets. We launched a number of new products with very encouraging early success. As we continue to build for the future, we made substantial progress on our 2019 growth investments. In China, we launched a rating agency and started a market intelligence franchise and across the company, substantially expanded our ESG activities and applied automation and AI. We added unique benchmarks, data and analytics with acquisitions of 451 Research, Live Rice Index, enter data and the pending acquisition of Greenwich Associates. We also bolstered our ESG capabilities with the acquisition of the ESG Rating Business from RobecoSAM.
With the progress achieved in 2019, we're well positioned to advance our strategic initiatives and financial targets in 2020. On this slide, we summarize our full year 2019 results. This year, we delivered solid revenue growth of 7%, exceptional margin improvement of 140 basis points to 50.2%, a 2% reduction in shares outstanding and solid EPS growth.
Every business delivered revenue growth and margin improvement in 2019. Indices led the way with 10% revenue growth and three of our four businesses delivered improvement of more than 100 basis points of adjusted operating profit margin. As we indicated on the first quarter 2019 earnings call, market intelligence investment spending in new initiatives increased during 2019, which impacted adjusted profit margin expansion for MI. Our 2019 performance extended our succession of solid revenue and exceptional adjusted operating margin growth.
We've delivered 6% four year CAGR for revenue and improved our adjusted operating profit margin by more than 1000 basis points over the past four years. We're very proud of the collective efforts of our employees to deliver such meaningful financial progress year after year. Remarkable 19% compound annual growth rate of adjusted diluted EPS over the last four years. 2019 adjusted diluted EPS growth was lower than the four year CAGR due to increased investment spending that we outlined for you a year ago.
This is a slide that we shared at our Investor Day in May 2018, powering the markets of the future. It's the framework we use to allocate investments to where we can most deliver growth. We'll continue to invest our core businesses and adjacencies to fuel revenue momentum through improving our products, adding new data sets and entering new geographies, and we'll continue to invest in our foundational capabilities that are necessary for our long-term results.
We're particularly pleased with the success of a number of products that we launched in 2019. Our launch of a ratings franchise in the Chinese domestic bond market was the most publicized new product. We're building a business from scratch and the educational market participant is pivotal to its success. To that end, we met with over 1,600 investors and issuers. During these meetings, we've consistently found a genuine demand for high quality, objective, transparent and reliable ratings in China. With six ratings issued to-date, we expect adoption to steadily increase in the coming years.
Ratings ESG evaluations were launched as a cross sector relative analysis of an entity's ability to operate successfully in the future and optimize long-term stakeholder value in light of its natural and social environment and the quality of its governance. Once again, education is important and we've been meeting with potential issuers around the world to discuss our ESG evaluation. To date, we've published six ESG evaluations and expect adoption to increase quickly in 2020.
After S&P Dow Jones indices introduced ESG versions of our most recognized indices, there was considerable interest among our partners to create ETFs based on these indices. UBS, DWS and State Street have each launched an ETF based on the S&P 500 ESG index. As the end of 2019, these ETFs have collectively surpassed $450 million in AUM.
The Micro E-mini Futures have been touted as one of CME’s most successful launches with over 44 million contracts traded by year end. After introduction of low sulfur Marine fuel prices, both CME and ICE have launched new futures contracts. 667,000 contracts traded in 2019 and momentum is building as more than half of those contracts were traded in the fourth quarter.
On the third quarter conference call, we introduced textual data analytics for earnings conference calls. The team has analyzed 214,000 earnings calls for more than 10,000 companies, providing over 600 maybe 80 million sentiment behavioral scores with history that goes back to 2004. Trucost launched their climate change physical risk data set in the fourth quarter tell companies investors understand their exposure to physical risks and report in line with TCFD recommendations. The dataset covers six climate change, physical risk indicators, such as heat waves and coastal flooding and more than 15,000 companies and 500,000 underlying assets with analytics supporting various climate change scenarios.
In 2019, we continued to invest in ESG benchmarks, data and analytics. We announced acquisitions of one of the most widely recognized leaders in ESG data with the ESG ratings business from RobecoSAM, Unique intelligence expertise and data covering high growth emerging technology segments with 451 Research, a global provider of information and benchmark price assessments for the industry the Rice industry with Live Rice Index, benchmark prices, news and analysis on the Canadian natural gas market with enter data and data and analytics and insights to the financial services industry with Crystal's pending acquisition of Greenwich Associates. In aggregate during 2019, we invested approximately $260 million on these acquisitions.
We also streamlined our operations with a couple of small divestitures. As we increasingly embed technology into the fabric of the company, we want to not only improve our product offerings but also increase operational excellence. Automation is a large part of this effort. This slide list some of the key projects implemented. I'll discuss two of these today.
Kensho's Scribe, which we highlighted on the third quarter earnings call, will now process preliminary transcripts for nearly all of the 33,000 calls posted to the global platform each year. Human editors refined and approved the final version to meet our customers’ needs. Scribe has enabled us to increase our coverage by 1,500 companies for 2020 with no headcount increased, and expected production cost savings of about 35% compared to 2018 before scribe was launched.
Robotic process automation is a companywide program. Employees across the company were challenged to see if RPA could be used to automate routine tasks. And by working with a small team of RPA experts, projects identified by our employees have saved an estimated 247,000 human hours by automating 218 processes in 2019. Both our ratings business and our indices business can be impacted by short term market movements, and I'd like to put some of these movements into perspective starting with 2019 debt issuance.
Global issuance increased 6% in 2018 the most noteworthy gains were the 51% increase in high yield and the 21% increase in U.S public finance. Leverage loan new issuance activity declined 23% as many issuers chose to utilize the high yield market rather than take out a bank loan. This slide puts high yield and leverage loan issuance into perspective. While high yield issuance was up considerably in 2019, the combination of high yield and leverage loan issuance was consistent with the 10 year average.
The bars on these charts to pick the volatility of leverage loan volumes in both the U.S and Europe. The lines depict the percentage of these loans that we rate. In 2019, we rated 89% of U. S. leverage loans and 92% of European leverage loans.
Turning to industry trends affecting our indices business. This chart depicts the continuing outflows from actively managed U. S. mutual funds into index-based ETFs and mutual funds. There are several reasons for this trend, including growing institutional retail adoption, search for transparent lower fee investments, globalization of passive investing and the growing need for more complex passive solutions. We continue to work with the markets to provide the most comprehensive collection of index solutions.
Specifically to the ETFs AUM associated with our indices, we saw an increase in 2019 due to significant market appreciation combined with product inflows. For the full year, market appreciation added $333 billion and inflows added $58 billion, bringing our year end AUM total $1.7 trillion. AUM is up more than 150% since the end of 2013.
Now I'd like to shift to our 2020 outlook. Our latest GDP forecast was developed in December 2019. Our economists expect 2020 global GDP growth of 3.3%, slightly higher than the 2019 forecast of 3.2%. Lower growth in the U. S., Europe and China is expected to be more than offset by growth in Russia, Turkey, Mexico and Brazil. Please note that this doesn't take into account any potential impact from the outbreak of the Corona virus.
The latest global refinancing study was issued earlier this week. The total amount of global debt maturing in this study is $10.8 trillion over the next five years. This is up slightly from the $10.6 trillion highlighted in last year's study. The chart on the right depicts the global high yield debt maturing over the next five years. It totals to 2.5 trillion, up from 2.3 trillion in last year's study. The report notes that maturities appear largely manageable in the near term as monetary easing by multiple central banks is contributing to favorable funding conditions for companies, particularly those with higher credit quality and about 77% of the debt through 2024 is investment grade.
The company updated its 2020 bond issuance forecast in a report issued last week. Excluding international public finance issuance is expected to increase 5%. This is unchanged from the previous forecast that we shared with you on the third quarter earnings call. As you saw on an earlier slide, we use our framework powering the marks in the future, including six foundational capabilities to set our goals and allocate resources.
For 2020, here are some of the top initiatives aligned to this framework. Some of these are new for 2020 while many are multi-year initiatives that we discussed in 2019. Under global, we believe that we're in a unique position to bring additional transparency and independent analytics to the capital markets in China. Both ratings and market intelligence will continue their efforts in this important market.
Outside China, both plats and ratings will be extending their commercial presence in Asia. Under customer orientation, we continued building the market intelligence platform. In ratings, we want to make the vast array of models and data that are created during the ratings process available to issuers through Ratings 360 and the fixed income investors through RatingsDirect and RatingsXpress.
We're simplifying Platts, 300 plus product offerings and grouping them into about a dozen commodity classes. This will help customers better understand the full breadth and depth of our offerings within the commodity class. Under innovation, after acquiring the ESG ratings business from RobecoSAM, we're now integrating their data and methodologies with ours. This will bolster our ESG product offerings.
Our data marketplace will help clients navigate and link increasing volumes of new and unstructured data. In 2020, we'll introduce weather, satellite, foot traffic and FDA data amongst others linked to market intelligence and Platts data. In addition, our customers are demanding increased private company and SME coverage on the desktop.
We're also working to launch an expanding suite of proprietary climate analytics, covering both physical risk and transition risk on the desktop and express feed, and we're integrating Trucost data with our equity portfolio analytics and our credit analytics products.
Under technology, we're increasingly utilizing technology to improve the customer experience in 2020. An example is the success that Platts and Kensho achieved in 2019 to dramatically accelerate the market on closed process for Dated Brent, while unleashing best-in-class real time analytical and data visualization tools for our customers.
Another Kensho project is Omnisearch. After beta testing with 1,300 customers, we plan to bring Omnisearch into production on the market intelligence platform in 2020. Under operational excellence, we want to expand our successes with Kensho and data ingestion and continue to leverage in house RPA and third party technologies to expand automation. Under people, we want to continue to raise the technological acumen of every employee through our essential tech program and expand the capabilities of the technologists through our data science academy, and we'll maintain our foundational commitment to diversity and inclusion.
And now I'd like to turn the call over to Ewout Steenbergen who will provide additional insights into our capital plans and financial performance. Ewout?
Thank you, Doug. And welcome to all of you on the call. Let me start with our fourth quarter financial results. Revenue increased 13%. Adjusted corporate and allocated loss increased by 27% due higher incentive compensation and professional fees.
Adjusted total expense increased 12% due to higher incentive compensation and investment spending, and this lead to 40 basis points improvement in our adjusted operating profit margin. The increase in the tax rate was due to unusually low rate in the fourth quarter of 2018, as we know that a year ago, new tech regulations related to U. S. tax reform were issued in the fourth quarter of 2018, which altered our previous assumptions. Due to our share repurchase programs throughout the year, our diluted weighted average shares outstanding declined by 2% and finally, we achieved 14% increase in adjusted diluted EPS to $2.53 during the fourth quarter.
For a number of non-GAAP adjustments to pretax income this quarter, let me highlights the largest items. During the quarter, we took advantage of lower interest rates with higher $800 million in depth and replaced it with 1.1 billion in new lower interest rate debt. As a result, there was $57 million associated with the premium date to retire bonds early. $11 million in restructuring charges in market intelligence and corporate, we expect that this will result in an estimated $20 million in annual savings. We had $30 million in fuel related amortization.
This is a slide that we share at our Investor Day in May, 2018. It depicts a frame work that we outlined to show the areas where we most impact shareholder value and we have made great progress. This quarter recorded revenue growth in every business with ratings leading the way with a gain of 24%. As we indicated on the first quarter 2019 earnings call, market intelligence incurred a substantial increase in investment spending, which impacted its adjusted operating profit margin. All of the other businesses reported gains in adjusted operating profit margin.
Here you see our headcount by business at the end of the last three years. One of the most important changes in 2019 was the creation of technology centers in India where we in sourced IT work that was previously handled by outside contractors. While this resulted in the addition of 687 employees, we estimate that it will contribute approximately $16 million in annual savings.
We believe that funding organic growth projects is the best use of capital. During the 2018 fourth quarter earnings call, we announced our plan to invest $90 million to $110 million in new projects to fuel additional future organic growth. Many of these items are multi-year endeavors. We've made great strides twice in advancing these projects and ended up investing $102 million in 2019.
While the items marked with a single asterisk have been completed, I don't want to leave you with the impression that our work in ESG is completed. There's still a substantial effort underway to incorporate the data and methodologies from RobecoSAM and continue to build out our product offerings. However, these efforts are now funded as part of business as usual spending by each business.
During 2020, we plan to invest $150 million to continue to expand many of the projects that have begun in 2019, as well as invest in several new projects. Once again, about half of these investments will be in markets intelligence. The new items are listed in that and include SME product build out. Our focus is not only to capture foundational data like financial statements and corporate structure for millions of private companies, but to complement this with differentiated alternative data and risk signals. Through a layering analytical tools based on SAP credit methodologies to give our customers a uniquely informed perspective on SME companies they do business with.
Marketplace commercialization, the marketplace store front will include access to a robust catalog of S&P global data, starting with market intelligence and select Platts content and over time extend across a fuller gamut of SPGI data assets. Also, the third party data offered by the marketplace will be structured and linked to S&P Global data to create logical alternative data packages that can readily be consumed. Platts benchmark acceleration, plus shipping business is a small, fast growing segment of the business covering tankers. We will be expanding coverage and building benchmarks in that dry bulk freight and container freight. Since shipping is linked to most of the other commodities, which Platts assesses, it will help extend the value of our ecosystem.
In addition within petro chemicals, we will introduce price assessments for recycled plastics. This aligns with the increased emphasis on ESG across the company. No price reporting agency correctly has benchmark status in container freight or recycled plastics. All of these investments are aimed at either growing revenue or enhancing EBITDA.
At Investor Day, we introduced $100 million three year cost reduction plan. It was based on productivity improvements often through investments in support functions, real estate, technology and digital infrastructure. I'm pleased to report that after our second year, we have made significant progress towards the $100 million original plan. We estimate that we have achieved run rate savings of approximately $85 million. Examples include reducing our real estate footprint by exiting space at our London office, 2 Penn Plaza in New York and our headquarters at 55 Water Street in New York. We also combined data centers of certain business services and consolidated select work streams from the businesses to centers of excellence. We anticipate further savings in the future from technology and digital infrastructure as these projects require more time to execute along with continued consolidation of our real estate footprint.
Now turning to the balance sheet. We ended the year with $2.9 billion of cash and cash equivalents. During the first quarter, we expect this balance to decline due to payments for the new $1 billion ASR, the closing of the acquisition of the ESG rating specialist from RobecoSAM, and a new incentive compensation payments, which always occur in the first quarter. Our adjusted growth leverage increased to 2.0 times, but remains well within our targeted range.
Free cash flow, excluding certain items, increased 29% in 2019 to $2.6 billion. This level is a bit higher than our 2019 guidance due to strong four quarter ratings revenue and improved receivable collections associated with the implementation of a new order to cash system.
During the year, we returned $1.8 billion to repurchase 5.5 million shares and paid $560 million in dividends. In addition, we’re actively working to fuel future growth through acquisitions and organic investments. In 2019, our return of capital to shareholders equaled 70% of 2019 free cash flow. This was less than our target of 75% for a good reason, because the fourth quarter cash flow was higher than expected. While we have already begun our 2019 share repurchase program with open market purchases of approximately $120 million in January we’ll initiate a new $1 billion ASR in the next few days.
Now, let me turn to the segment results, starting with ratings. A surge in high yield issuance and gains in investment grade issuance resulted in 24% increase in ratings revenue. We reported an 18% increase in adjusted expenses, primarily due to increased incentive compensation and investment spending, offset partially by lower IT costs from in sourcing. The adjusted segment operating profit margin for the quarter was 57.7%. For 2019, ratings delivered 120 basis points improvement in adjusted segments operating profit margins to 57.2%. Loan transaction revenue increased primarily due to fees associated with surveillance and intra segments royalties, partially offset by lower new entity ratings. Transaction revenue surged due to strong bonds rating activity, offset partially by bank loan ratings.
This slide depicts ratings revenue by end markets, corporate increased 26%, financial services increased 30%, structured finance increased 24% and governments increased 43%, while CRISIL and other categories decreased 1%. The chart on the right depicts additional detail of our structured revenue. The strongest areas of growth were in CMBS, RMBS and structured credit.
Earnings to S&P Dow Jones indices, the segment delivered 9% revenue growth, 6% adjusted expense growth and 10% adjusted segment operating profit growth. This led to an adjusted segment operating profit margin of 67.8% for the quarter. For the full year, adjusted segment operating profit margin increased 120 basis points to 69.2%.
Strong revenue growth during the quarter was driven by a 27% increase in assets linked fees. This was partially offset by 35% decline in exchange graded derivatives, resulting from the elevated levels of market volatility that what we experienced during the fourth quarter of 2018. Key indicators for our exchange graded derivatives volume were at more normalized levels in the fourth quarter compared to the extremely strong volume in the fourth quarter of 2018. S&P 500 index options activity decreased 31%, fixed futures and options activity decreased 35% and activity at the CME equity complex decreased 28%.
Market intelligence delivered organic revenue, which excludes revenue from the acquisitions, primarily from 451 Research and the divestiture of SPIAS of 6% and active desktop user growth of 10%. Also this was the first $0.5 billion revenue quarter for market intelligence ever. Adjusted expenses increased 12% as roughly half of the company's 2019 investment spending was directed toward market intelligence projects. As a result, adjusted segment operating profit decreased 6% and the adjusted segment operating profit margin decreased 410 basis points to 34.4%. For the full year, the adjusted segment operating profit margin increased 10 basis points to 34.2%.
While the year-over-year adjusted operating profit margin decline was large in the fourth quarter, as you can see on this chart, the quarterly adjusted operating profit margin has been fairly steady throughout 2019 as we had signaled before. Desktop, the largest category grew 1% organically. As we noted last quarter, growth in this category has been slowing for the past few quarters due to several industry trends, lower industry growth in the desktop category, a continued competitive environment and evolving customer preference for desktop and data feeds. The timing of contract renewals also impacted the growth in the quarter.
In addition, we don't believe that desktop growth can reach its full potential until we have completed building out the market intelligence platform and transitioned a material number of our customers to this next generation platform. Data management solutions realized 11% revenue growth this quarter. Once again, benefiting from expansion and enhancement of the data feeds business. Risk services grew 10% with RatingsXpress providing the greatest level of growth as we continue to expand data feeds portion of risk services.
And now turning to the final business segment, Platts delivered organic revenue growth, which excludes revenue from acquisitions of Live Rice Index and enter data and the divestiture of RigData of 2%. Revenue growth was negatively impacted by about 1% from U. S. sanctions restricting our ability to conduct business in certain countries, and another 1% from the timing of contract renewals.
Global trading services revenue increased 5% due mainly to increased trading volumes in iron ore and LNG. LNG was particularly strong but lower fuel oil activity tempered GTS growth. Adjusted expenses declined 3% due to productivity improvements and disciplined cost control. The fourth quarter adjusted segment operating profit margin increased to 50.4%. The full year adjusted segment operating profit margin increased 110 basis points to 50.2%.
Platts revenue growth was the strongest in metals and agriculture, followed by power and gas. These categories have benefited from recent product launches, such as Black Series and LNG, petroleum blue 2%. Beginning in 2020, we are changing our methodology for elevating technology expenses. The new methodology more accurately reflects usage, a recast portion of our 2018 and 2019 quarterly results will be released in March. In the meantime, to help you with your modeling this table shows the expected pretax impact to 2020 expenses for each of the businesses.
During the Investor Day in May of 2018, we introduced medium term aspirational targets for the company. We're pleased to use this morning's investor call to fine tune these targets and to share the progress we have made in just the first two years. We target organic revenue growth of mid to high single digit each year. During 2019, all four businesses achieved this target. We target low double digit adjusted EPS growth.
During 2019, we delivered 12%. We're committed to return at least 75% of our free cash flow each year. In 2019, we returned 70% through share repurchases and dividends as our fourth quarter cash flow ended up being higher than we expected and we established adjusted operating profit margin levels that we targeted to achieve by the end of 2021.
In 2019, we made substantial progress with each of the businesses contributing to an overall 140 basis points improvement in the company's adjusted operating profit margins. We’re tightening the range for two of the businesses medium term outlooks for adjusted operating profit margin. We’re narrowing market intelligence from mid to high 30s to mid 30s, and indices from mid to high 60s to high 60s. While some of our aspirational targets have already been met, we continue to work towards full achievement of all of our Investor Day aspirational targets.
Next, I would like to update you on Kensho. Kensho’s capabilities are embedded throughout the company with projects underway in every business and a robust pipeline of additional projects. Omnisearch enables considerably more advanced search functionality in our customer facing platforms for both structured and unstructured data. Data versions of Omnisearch were released to select clients in investment banking, private equity and investment management in the second half of last year. New production is expected to last on the market intelligence platform in the middle of 2020 and at that time, the plant is for Omnisearch to be the default tool for all generalist users.
Entity linking uses machine learning to link data from different sources to the correct entities without errors and in a fraction of the time it will take our employees. We have successfully automated the linking of more than 7 million entities in 2019 from a UK company house branch based in China, GUILD data, Trucost and several other alternative data providers. Now that we're up and running, we anticipate linking an additional 20 million entities in 2020. This technology has capped our time to market for new data by six months and reduced manual processing needs by more than 260,000 hours.
Codex is an end to end service that can ingest any document and provide the relevant data and information for a user's needs. Examples include SEC filings or conference call transcripts. A beta versions will be introduced to select clients in the next few months. Market on close is the price discovery process used by Platts to determine commodity prices. Kensho has two efforts underway. Internally, there is a project to optimize the price assessment process and get assessments out to clients earlier.
Externally, we are creating an interactive platform to offer clients a more dynamic analytics offering of key insights around trends and volumes, price differentials, spread movement and trading activity. We estimate the projects underway have the potential to generate a net present value equal to the full purchase price of Kensho. We have made great strides and believe there is much more value generation to be achieved as we implement these and other projects over the next few years.
Now I would like to introduce our 2020 guidance. This slide depicts our GAAP guidance. And please keep in mind that our guidance reflects current spot markets ForEx rates. This slide shows our adjusted guidance, an increase in revenue of mid to high single digits with contributions by every business segment; corporate and allocated expense of $150 million to $160 million; deal related amortization of $115 million to $120 million; Kensho retention plans of $10 million to $15 million; operating profit margin in the range of 50.3% to 51.3%; interest expense of $135 million to $140 million; tax rate of 22.0% to 23.0%; and diluted EPS, which excludes deal related amortization of $10.40 to $10.60.
In addition, we expect capital expenditures of approximately $90 million and free cash flow, excluding certain items, in the range of $2.6 billion to $2.7 billion. Our 2020 guidance reflects an increase in planned organic investments in new revenue opportunities and productivity programs. This guidance also reflects our expectation that global economies will continue to expand this year.
In conclusion, we delivered solid 2019 financial assaults, while making great progress on productivity programs, investment projects and new product launches. We're well positioned to continue to advance our strategic initiatives and deliver solid financial results again in 2020. We look forward to updating you on this progress as 2020 unfolds.
With that, let me turn the call back over to Chip for your questions.
Thank you, Ewout. [Operator Instructions] Operator will now take our first question.
Thank you. The first question is from Toni Kaplan from Morgan Stanley. Your line is now open.
You're spending a lot of investment dollars in market intelligence, which was telegraphed in previously, so totally understand. But it is your most competitive business that you're in and you've just lowered the margin target for the business on 547. I guess why is it the right strategy to be investing in market intelligence in such a heavy way, just any thoughts around that? Thank you.
First of all, as you know when we meet with our customers and we're out in the market, listening to what are the needs, as well as we understand what is one of the most important trends happening in business globally, it's about data and it's about technology. Market intelligence is the data engine of S&P Global. It's the distribution platform for our ratings business. Platts is increasingly using the market intelligence platform as an S&P Global platform. We have data factories and expertise in data factories, data sciences, in those businesses that we can utilize.
In addition, it's a platform for us for innovation. As you heard and you know the projects that we're working on, whether it's the ESG projects that cross all of S&P Global, the data factory there is one part of it that's really important. You understand that we're adding new datasets all the time into this business. So it is a very competitive business. We recognize that. But for us, when you think about the data revolution that's going on right now, the capabilities we need, the distribution for company, we think it's the right place to invest.
And then for my second question, Kensho, you talked about the different initiatives you have going on there. Just in terms of rating specifically, I know you're looking at being able to be more efficient essentially with getting the current news and making that sort of determine which credits should be analyzed. And so just want to hear the status on that and timing of when that target is to be implemented, and if there's any sort of efficiencies and ratings embedded in the guidance from that for ratings specifically? Thank you.
Kensho has also several projects underway in ratings, for example, with respect to surveillance, with respect to the build out of the Ratings360 platforms and with respect to alternative credit indicators, so many of those initiatives are underway. Overall, you should look at Kensho initiatives for the company as a whole. They considered about half of those in revenue enhancement and half into efficiencies.
We have mentioned to you that Kensho is now working across the whole company. So all businesses are taking advantage of this and we're very pleased with where we are with Kensho. Clearly, we are ahead compared to the original plan with respect to the number of initiatives we have in flight, and the overall value generation that we're able to achieve with Kensho.
Next question comes from Manav Patnaik from Barclays. Your line is now open.
The first question is just around the whole ESG initiative. I know you said it wasn't done, but I just wanted to try to understand like what it meant by the data factory being complete and the new products and how does that fit into all this in terms of incremental monetization for all your assets?
First of all, when you hear probably other investors and other investor calls, when you see what were the discussions over the last six months from investors, from Davos, et cetera. ESG and climate transition and related topics are really top of mind for investors as they think about climate transition, they think about the factors which are important for companies and organizations to be successful. So within that trend, we took a step back as you know about a year and a half ago and put in place a team that crossed all of the S&P global to design a future business model for us. It would allow us to take advantage of those trends.
And there is a couple of elements I want to mention. First of all, we've decided that for our own company, we need to operate at very high standards of ESG. So when it comes to the E, we've done a TCFD reporting. We have goals, our own measurable goals for greenhouse gas emissions, for plastics, for paper, et cetera. In the S, we're dedicated to D&I, community, how we think about that across the entire company. And then in the governance, as you know, we have a separation of the CEO and the chairman and we have very strong practices at our board.
So in order for us to have a credible approach to ESG, we think it has to start in our own company. So then more to your question, we think that addressing that needs of issuers, of investors, of asset owners, of regulators, of governments, et cetera, that we're going to have to have a set of different types of products and solutions that will meet all those different needs. And in order to do that, we have a unified data approach at the center, which includes the true cost and analytics now RobecoSAM is being built into that. And we think that that's a way that we can start meeting all the different needs.
As I've said before on other calls, I think we're in the second inning of this in a nine inning game. Maybe it'd be actually even more accurate to say that the rules of the game are still being formulated, why it's also important that we're at standard setting boards like the TCFD that has the in places like the world economic forum. Just finally one other comment. We've already launched many products, which I think have been quite successful. As you know, Trucost and SAM on their own have successful products. We've mentioned the S&P 500 ESG and the rating evaluations. We think we're off to a strong start. But we think this is going to be a really important tool and area for all financial investors.
And then just on the market intelligence side of things, I guess you know I think you talked about the desktop business probably doesn't reaccelerate or get better until you transition everyone to the market intelligence platform. So where are we on that in terms of timing with that and when we could expect desktops start doing better?
This is going to continue through 2020. And through 2020, we have various new datasets that we're adding in. I mentioned a couple of them earlier, which are, weather, FDA data. We also have internal datasets ready and like Trucost and RobecoSAM. But in addition to that, we have a program where we're starting to offer dual access to users throughout the year as we continue with the transition as the program. So by the end of the year, we expect that we will have a large percentage of the customers on dual access.
As you know, there's a couple of really important functionality in the Cap IQ platform that we want to make sure that we are very careful with the transition. It's screening. It has to just plugging, things like that. And so we want to make sure that we're very conscious of the needs of the customers as we continue with this transition.
Next question in the queue is from Michael Cho from JP Morgan. Your line is now open.
I just want to follow up on the ESG points that you made. Just I think what was the ESG performance kind of throughout the company in general and what kind of expectations you have going into 2020?
Michael, we saw significant growth in our revenue for ESG across the company. At the same time, we fell slightly short from the revenue target that we have disclosed in our TCFD reports. The reason was there that some of our initiatives we had to slow them a bit down with respect to the acquisition of SAM, because the SAM acquisition provide us a common ESG data platform common methodologies. So some of the new businesses initiatives we had to slow down in order to get in a better place to accelerate going forward again. So we're still committed to 40% CAGR on our ESG revenues over the next few years.
And if I could just switch gears, I just touch on market intelligence China initiative. Can you just remind us just on the go to market in China for market intelligence specifically, what kind of customers or industries are you targeting, are there certain subs that you're looking to go after first? Thanks.
Yes, the market intelligence platform in China launch is based off of a similar proposition that we have in other markets around the world. We see that the Chinese capital markets are starting to open up. In fact, it was quite encouraging that in the recent trade negotiations with U. S. and China, we saw a lot of progress on the opening up of financial -- foreign financial players in China.
And so if you think about what the needs are in the Chinese market it’s in Mandarin language. And so in addition to providing Mandarin language of our own offshore data we're taking to China, we're building relationships with credit shops, with data providers, et cetera to bring the traditional data we would have of balance sheet, financial statements, corporate actions, et cetera and certain types of news. So we're building out a platform in Mandarin, which will be responsive to the needs of the new investors.
Next question is from Hamza Mazari from Jeffries. Your line is now open.
Doug, you referenced China opened up its market for ratings, companies in Phase 1 of the trade agreements. Do you think that creates extra competition for you? I know you're sort of first-mover there? And maybe how does that change the dynamic for you, if at all, in your long-term strategy there?
First of all, Hamzah, it's nice to hear back from you. So in China, with the changes in the financial markets, we think that there's plenty of room for many different opinions of the credit markets and that we will actually benefit from having other international rating agencies with a domestic presence using similar standards that we have. And in addition to that, as I mentioned, more broadly, the overall message that the financial markets are going to continue to open is one that's very positive.
And just on my follow-up question. Anything investors should be looking out for as you think about the November 2020 election that could impact your business, positive or negative? And the reason I ask is when you had tax reform, that really impacted the Ratings business, and some people were caught off guard with how issuance played out. And I know there are various scenarios here, and nobody can predict sort of movement. But just anything positive, negative we should be looking out for?
Well, as you know, the foundation of all of our businesses is less external factors, political factors. It's much more related to fundamental economic growth, interest rates, the pipeline of M&A transactions, etc.. Those are the factors that have the largest impact on our opportunities. And so those are the things that we'll be watching. So if there could be some sort of political impact on growth that might be the way that we would see some sort of changes to our business. But for us, right now, what we're spending much more of our time is looking at factors that are going to be driving growth.
The one factor I'd mentioned, which is maybe a little bit less political because it's in the central banks, is negative interest rates. When I meet with investors around the world, one of the topics that people are still trying to figure out is what's going to be the long-term direction of interest rates, will we see interest rates stay low for a long time. And so that is probably the one factor beyond growth that I also watch very carefully.
Next question is from Andrew Nicholas from William Blair. Your line is now open.
First, just on the medium-term guidance change for Market Intelligence. I just was curious. I mean is that primarily due to the new IT allocation policy? Or is there also a structural change in the level of investment you needed or believe you need from a competitive perspective?
Andrew, that change in the aspirational targets for Market Intelligence narrowing this to mid-30s is independent from the change in our technology allocation. So in other words, we would have done that anyhow independently if we would have made the change to the allocation methodology or not. And if you look at Market Intelligence margins for this year, we would expect those to be more or less flat with 2019, excluding this allocation change. What you see is two underlying trends, one normal course of business margin expansion; and then the dilutive effect of some of the more recent acquisitions going in the other direction so therefore, excluding the allocation change year-over-year more or less flat.
And then in 2021, we expect that margins will continue to expand again for Market Intelligence towards the aspirational target level of mid-30s. But you have to take into account that we are making those additional significant investments with respect to our strategic projects for Market Intelligence, so it is a bit of an impact you see for these years. But ultimately, obviously, those will yield to additional benefits in terms of commercial position, revenue, sales improvements and also margin expansion in the future.
And then one on Platts. I think in your prepared remarks, you talked about the new investment plans there. Your idea is to accelerate some investments in the benchmark business. So on that topic, I was just hoping you could remind us what a typical product adoption curve looks like for a new benchmark. Just trying to get a sense for when you generally expect a new benchmark to start contributing in terms of revenue.
Yes, benchmarks definitely take a while to develop. But on the other hand there's a lot of new asset classes that either don't really have a strong benchmark or they're looking for much more liquidity or global trading. And we've had an approach over the last four or five years to start looking for addition of new types of asset classes to diversify us beyond traditional petroleum. We've looked at wheat. We just recently bought rice. In the energy sector, we think that natural gas is a really important transition energy. We've just recently launched some new benchmarks. Hydrogen is one that we've just launched, and Ewout mentioned earlier that we are looking at recycled plastics. But back to the question you have, it does take years from three to seven years for a benchmark to become a true benchmark when you're starting from scratch, which is one of the reasons, like buying a company like Live Rice or Enerdata that already have benchmarks, also allows us to accelerate our knowledge and expertise in a new type of asset class.
Next question comes from Bill Warmington from Wells Fargo. Your line is now open.
So I had a question on Market Intelligence, the data marketplace. That seems like a particularly competitive business. And just wanted to ask what you're doing to differentiate your offering versus the other competitors in the space.
You're absolutely right, but for us, we think of it as we bring the expertise in our data management and our ability to link and pull data together. We also have -- we start with the position of strength that the core data that we already have is must-have data, whether it's Ratings, it's Platts, it's energy data, et cetera. But we're able to find partnerships of people who don't have access to the kind of customer base we do, third-party information, some of it being from public sources and some of it being from private sources. So we see this as an opportunity. What's interesting for me when I meet with our customers is how many of them need data solutions, ways that they can use their own data linked with the kind of data we have. And we see this as a really necessary capability we have to be competitive in the future.
And for my second question, I wanted to ask if you could talk about the higher medium-term margin target for indices and what's behind them.
Bill, more or less, if you look at the actual results for the Index business, we're already at the high 60 level. So that's the reason why we have narrowed the range to effectively we're already today with respect to margins for the Index business.
Next question is from Craig Huber from Huber Research Partners. Your line is now open.
My first question is on ESG. Can you just talk a little bit about how you plan on pricing ratings assessments, if you will, for ESG going forward here? Is it going to be an annual fee? Or is it going to be a large upfront fee and then just more of a surveillance fee like you're doing on the traditional debt ratings side of things? And also, along the lines, what is the annual run rate of ESG revenues right now, including RobecoSAM? And then I have a follow-up question.
Yes, let me answer the first one, and then I'll hand the second part off to Ewout. The model that we have is an issuer pay-type model. We find that having access to management to be able to go meet with them, to understand their entire ESG program in depth as well as their company. And it's very important that one of the aspects we look at in our ESG evaluation is the readiness of management, their preparedness to look at across all of the ESG factors. And we're starting off with a single fee at issuance, and then something that will be maintained over time. But we can provide you some more information as we have more volume. But in addition to the annual fee, there will also be, I mean, to the -- fee at launch, there will also be a surveillance fee along with that. And Ewout will answer the question on the...
With respect to our overall ESG revenues, including RobecoSAM, approximately $50 million, that's where we are. The way you have to look at RobecoSAM is this is a very strategic acquisition for the company. It is not an entity that comes with a lot of revenues because the data sources there were more used for the investment process of Robeco itself as well as this was the main data source underneath the Dow Jones Sustainability Index, the S&P 500, ESG index and other ESG indices from our Index business. But now we own these data sources. And particularly, the time series that come with it, that is very important.
We're able to commercialize this going forward. So RobecoSAM, you should see more as an opportunity for us to address two very large ESG market needs. First, the need to get to standards. And secondly, the need to get to better quality data because most of the data today is outside in, and this provides us with much more details based on the surface that are being filled in by 1,300, 1,400 corporates around the world. So therefore, we see this as a very strategic acquisition that should help us with acceleration of our ESG revenues in the future.
And then my last question here. On the Ratings side, can you just remind us a year ago what you were looking for, for global debt issuance? And on your data, what did the year end up as? And one particular question is, what was materially better or worse than you guys were originally expecting? I realize, of course, a year ago, we have come up with a difficult fourth quarter, a tough start to the year and all, that's not being derogatory. The question, I'm just curious, what was materially better or worse versus your original outlook for debt issuance for 2019?
I don't remember the precise number. I'd rather get back to you with the precise number of what we said for the year. But I know that we've far exceeded it. So if you look at total debt issuance in 2019, it was up 6% overall, but it was, as usual, the mix was quite different than maybe what we thought at the beginning of the year. Corporates were up about 34.5%, financial institutions were up 35%. Public finance was way up. And if you recall, we were also coming off of what had been the 2018 tax reform impact of corporates that had stopped issuing.
If you remember, there was a synthetic issuance that had been happening when people were doing synthetic bond issuance to bring basically cash. So we've seen in 2018, there were a lot of factors in 2018 that we were not quite certain where it's going to come out. I see now that the 2019 issuance forecast was actually flat to down about 1%. So it ended up being up 6%. But there's a combination of capital markets activity, low interest rates, mergers and acquisitions, public finance market rebounded. It was up over 50% last year.
Structured finance was actually down in 2019. It was down 9% for the full year. So there were a lot of movements in this. And you can see that full year, we went -- ended up at 6% overall with up in corporate, up in financial services, public finance. Actually, I gave you that number before, 51% was for the quarter. The year was 20%. So if you look at those, the mix ended up being different than what we originally expected at the beginning of the year.
Next question comes from Jeff Silber from BMO Capital Markets. Your line is now open.
I know you typically don't give specific segment guidance, but Ewout, you kind of opened up the door when you were talking about Market Intelligence in terms of what you're expecting for margins this year. Can we get a little bit more color for the other segments on margins as well?
Thank you, Jeff, and I realize I have invited you with that statement to answer this question. With respect to top line, we expect all businesses to achieve mid- to high single-digit revenue growth for this year, except for Platts. For Platts, the expectation should be more around mid-single digits for 2020. But all other segments, as well as the company as a whole, think about mid- to high single-digit revenue growth this year.
And on the margin side…
On the margins, we don't give really by segment, but you saw in the overall guidance, a range of 50.3% to 51.3%, up from 50.2% for last year, so continued margin expansion. Underneath, you should see this in a way of a $50 million net increase of our strategic investment program from $102 million to $150 million, offset by continued self-funding of those initiatives, productivity programs, efficiency programs, operating leverage and, therefore, margin expansion also year-over-year.
And my follow-up, you have that great slide on slide 15 where you talked about total high-yield issuance and leverage loan volume kind of staying at the 10-year average. I'm just curious, when you have a mix from one to the other, how does that impact margins in your Ratings business, if at all?
It doesn't have that big of an impact on margins. Occasionally, the leverage loan volume ends up being more repricing than it is actual new issuance, which is a much lower revenue piece. But the difference in pricing between two is not that significant.
Next question is from George Tong with Goldman Sachs. Your line is now open.
You updated your 2020 bond issuance forecast and expect total issuance to be up 5%, which is unchanged from your prior forecast. Can you discuss the nuances on what's changed within the bond issuance categories, if any?
There hasn't been much change on the issuance categories between the two forecasts. The way that they're set up right now, we're looking at these. As you know, we look at what is the maturity schedules, which are coming forward for different types of corporates, financial institutions, etc. We have outlooks on growth, which we provided you some of our expectations on growth.
And then we also take a look at what's happening in the mergers and acquisitions field, what we see going forward there. And we talk to banks and investment banks. But we see the corporate sector up about 6%; financial institutions, a little bit over 3%; and then we we believe there's going to be pretty active activity in the public finance area, which really picked up last year and be up about 5%. And structured finance, we see relatively flat.
You're ramping your investment spend to $150 million this year with half of the investments going to Market Intelligence. What do you think the cadence of investment spending will be over the course of 2020? And what kind of a revenue lift do you expect from the investment specifically in Market Intelligence?
You will see this more equally being divided over the four quarters this year. You recall, last year, it was quite a ramp-up in the second half of the year with investment spend for those strategic projects. This year, it should probably be a little bit more equal. It's hard to give you a precise answer on when you see the benefits showing up because it really depends on each of those initiatives. Some of the benefits are already in our current results. Think about some of the technology benefits for Scribe, the Transcript business, think about some of the automation, some of the processes that we have in place. Some, we will see the commercial benefits coming in later this year and in 2021. Think about the ESG initiatives, the SME marketplace and some are a little bit further out. Think about the China initiatives that we really expect the revenue benefit to be in a few years in the future. So it depends a bit by initiative. Of course, we have strong business cases underneath all of them, so that we are really comfortable that those investments ultimately will pay off in the right way economically for the company and our shareholders.
We will now take our final question from Joseph Foresi from Cantor Fitzgerald. Your line is now open.
I should make mine like a six-part question, I'm kidding, just two and you can be brief with the answers. I'm wondering about trying to figure out how the future catalysts are going to play out. You've gotten a lot of questions on ESG. Can you give us some sense of how big you see that as an opportunity? And then what determines the winners there? I mean, everyone seems to be kind of working on a land grab, and I wanted to just get your opinion on sort of how we can determine who's going to win there.
Yes. I can't necessarily tell you what the end game size is, but this is going to become a very big initiative at all investors. Every investor I've been meeting with recently is coming up with some sort of an approach that they need to respond to asset owners. There is a demand coming from asset owners to understand within the investment managers what's inside of the portfolios, what's the climate impact, what's the social impact, et cetera. And there's different types of investments that span from the pure impact investing to that which is looking more to an energy transition portfolio.
But my assumption here is that this is going to be large. It's going to be like a Market Intelligence-type product over time. Whether it's going to be the size of our entire Market Intelligence business or a large segment within it, that's the way we're thinking about it. When you think about what's going to determine who are going to be the winners who's going to survive in this, we think that we're already seeing a consolidation starting to take place with us and others buying up some of the smaller properties.
You've seen that we bought Trucost and we bought RobecoSAM. But what's going to create success is somebody who's going to have global reach. They're going to have the highest quality products, highest quality services. They're going to be able to have responsive products across multiple types of asset classes, multiple types of needs. So we see this as a scale business with multiple needs. And we're going to have to have really good people that are driving this. So those are the factors that we're putting in place to drive this. But we see that global and scale are going to be really would end up seeing the winner.
And then finally, just to close the conversation on China. You talked about some of the recent political changes there. And the virus aside, how do you think about when that starts to be a material impact to numbers and how big could that opportunity get for you as well?
Joe, overall, the China revenues for the company are less than 2%. So in the bigger scheme, the impact would not be material for the result of the company in the future, whatever is going to be the scenario, how this fire situation is going to play out.
Well, let me just make a final comment. First of all, I want to thank everyone for being on the call and for your questions. As you know, we're very pleased with the solid financial results we had in 2019 across the company. And in addition to being able to be responsive to the markets, we also were very pleased that we can also invest for growth. And you heard our excitement about the different areas we're investing in marketplace, ESG, SME, China, etc. And we think that those are important for us to drive with discipline, continue to report how those are going. At the same time, we have great people that are driving our day-to-day business ahead very well. So we're very pleased with our prospects for 2020, and we look forward to keeping in touch with you throughout the year. Thank you very much.
That concludes this morning's call. A PDF version of the presenter slides is available now for downloading from investor.spglobal.com. A replay 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 we wish you a good day.