Good morning, and welcome to S&P Global's Second Quarter 2019 Earnings Conference Call. I would 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. I would now like to introduce Mr. Chip Merritt, Senior Vice President of Investor Relations for S&P Global. Sir, you may begin.
Good morning, and thank you for joining S&P Global's earnings call. Presenting on this morning's call are Doug Peterson, President and CEO and Ewout Steenbergen, Executive Vice President and Chief Financial Officer. This morning we issued a news release with our Q2 2019 results. If you need a copy of the release and financial schedules, they can be downloaded at investor. Spglobal.com.
In today's earnings release during the conference call, we're 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. 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.
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 10ks, 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 SMB 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 that questions from the media be directed to Jason Feuchtwanger at 212-438-1247.
At this time, I will turn the call over to Doug Peterson. Doug?
Thank you, Chip. Good morning and welcome to today's earnings call. We're pleased to report excellent second quarter financial results. All four divisions delivered revenue growth and adjusted operating profit margin expansion. Between revenue growth and progress on our productivity initiatives, we achieved significant margin improvement contributing to a 12% increase in adjusted diluted EPS.
Based on these results and our expectations for the rest of the year, we're raising our 2019 adjusted EPS guidance, which Ewout will detail in a moment. Share repurchases are an important component of capital return and in late July, we concluded the $500,000,000 ASR that we initiated in February. We anticipate initiating another $500,000,000 ASR later this month. As you know, we've earmarked funds to make investments in meaningful growth opportunities. In a moment, I'll share details around several of these, including our first ratings in the domestic Chinese bond market, our first ratings ESG evaluations and the successful launch by CME Group of MicroE Mini Index Futures.
To recap the financial results for the Q2, revenue increased 6% to more than $1,700,000,000 Our adjusted operating profit increased 11% and our adjusted operating profit margin increased 220 basis points to 51 point 3%. While this is a meaningful improvement, we measure and track adjusted margins on a trailing 4 quarter basis, which increased 230 basis points to 49.5%. In addition, we reduced shares outstanding by 2%, which contributed to the 12% increase in adjusted diluted EPS. Each quarter, we take an opportunity to highlight key drivers to our business and important projects underway. This quarter, let's start with ratings issuance trends.
During the Q2, global bond issuance decreased 3% with mixed performance across geographies and asset classes. If we also include bank loan ratings, total global issuance declined 13%. In U. S, bond issuance in aggregate declined 4%, as investment grade increased 5%, high yield soared 41%, public finance declined 11% and structured finance dropped 19% with declines in CLOs partially offset by gains in RMBS and CMBS. In Europe, bond issuance decreased 12% as investment grade decreased 17%, high yield declined 4% and structured finance decreased 1% due to declines in CLOs and ABS partially offset by gains in RMBS and covered bonds.
In Asia, bond issuance increased 10% overall. On the Q4 2018 earnings call, we introduced this chart to attempt to track debt issuance and global cash balances of the 50 companies with the most overseas cash at the end of 2017. As you can see here, the cash balances of these companies continue to decline and bond issuance among these companies is increasing compared to the NYMEX 20 18. The latest 2019 global bond issuance forecast is modestly more upbeat than the previous forecast, Excluding International Public Finance, which has minimal impact on our financial results, issuance is expected to increase 1.4%. Investor demand for leveraged loans was more appealing when rates were rising as loans hit variable rates.
Now that the tone from the Federal Reserve is more dovish, expectations have shifted to a rate decrease. In this environment, high yield debt with its fixed rates looks relatively more attractive than loans to investors. This led to a decrease in bank loan ratings revenue in the 2nd quarter to $85,000,000 versus $121,000,000 in the Q2 of 2018. During Investor Day, we introduced the framework powering the markets of the future, including 6 foundational capabilities. We use this framework to set our goals and allocate resources.
I'm pleased to share great progress on a number of our new initiatives in the areas of global, customer orientation and innovation. Last month, S and P Global China Ratings published its inaugural credit rating in the domestic Chinese bond market. This first rating issued was for ICBC Financial Leasing Company Limited, a leading Chinese leasing company, which was assigned a rating of AAA on S&P Global China Ratings National Scale. And just this week, the second rating was issued to Luzhou Banking Company Limited, a city commercial bank headquartered in Luzhou City of Sichuan Province. It was issued a BBB rating on the same scale.
These two ratings begin to demonstrate the wider rating spectrum that they can expect as S and P Global China ratings brings market of significant domestic and global interest built on our long standing principles of objectivity and transparency. In doing so, we hope to contribute to the goals China has for the evolution of its domestic financial markets and its connectivity to the global financial system. S and P Global Ratings issued its 1st ESG evaluation. Separate from a credit rating, the new ESG evaluation is for companies looking to help their investors gain a better understanding of their strategy, purpose and management quality. The ESG evaluation is grounded environmental, social and governance factors to assess an entity's sustainability efforts.
The ESG evaluation process is unique as it includes interactions between our ratings analysts and the company's management. I recently met with several investors who expect the granular factors considered such as greenhouse gas emissions, water usage, safety management and transparency in reporting that each have a score will further differentiate our ESG approach. You can see the factors on this slide. The first ESG evaluation in the U. S.
Was for Next Era Energy, the world's largest producer of wind and solar energy. The first ESG evaluation in Europe was for Mas Movil, Spain's 4th largest telecom operator, providing fixed and mobile voice and Internet services to business and retail customers. Each year S and P Dow Jones Indices releases the annual survey of assets. This chart depicts the highlights of that survey for 2018. Due to the stock market correction that occurred late last year, asset levels in actively managed funds that benchmark against our indices were actually down versus the end of 2017 to $7,700,000,000,000 The assets and passive funds invested in products to our indices were unchanged year over year at $4,800,000,000,000 Numerous indices support the 4,800,000,000,000 dollars Clearly, the S and P 500 is the largest with $3,600,000,000,000 in assets.
Other categories include smart beta and fixed income, which both declined and ESG and other, which increased with ESG more than tripling in the past year. S and P Dow Jones Indices is continuing to advance opportunities in ESG. The S and P Dow Jones Indices ESG scores serve as foundation for index eligibility. In May, 22 new indices were added to the ESG Index family with versions of well known country and regional benchmarks, including the S and P Global 1200 ESG, S and PASX 200 ESG S and P Japan 500 ESG. On our Q1 earnings call, we shared that UBS had just launched an ETF in Europe based on our S and P 500 ESG Index.
Early this week, the AUM for the ETF reached $125,000,000 In June, DWS launched the X Tracker's S and P 500 ESG ETF based on the same index, which screens out firms with the lowest environmental, social and government profiles. In May, Micro E Mini Futures were launched at the CME to make trading more accessible. MicroE Mini Futures are 1 tenth the size of existing e Mini Equity Index Futures and that's more affordable for certain investors. These new microe mini futures are based on 4 prominent indices, including the S P 500 and the Dow Jones Industrial Average. The new MicroE Mini's were recently dubbed the most successful launch in CME Group's history with 2,600,000 contracts traded in the 1st full week.
This chart shows the average daily volume of each of the products with the S and P 500 contracts seeing the largest trading volume. Delivering innovation, delivering innovative new products and nurturing existing benchmarks is an important emphasis as S and P Global. Indices recently launched 8 new sector indices in Chile with a focus on local investors of the Santiago Stock Exchange. Examples include the S and P CLX Construction Real Estate Index and the S&P CLX Food and Beverages Index. The development of a market for U.
S. Crude delivered into Europe took a further step forward last month with the first ever trade of a delivered WTI Midland Cargo in the Platts Market on Close assessment process. 2 price assessments that we have discussed on a number of earnings calls have been the 0.5% sulfur marine fuel and the JKM LNG marker. Both of these are being added to the Platte C window. The market on close or MOC is Platts process for offering transparency into bid offers and transactions submitted by participants to Platts editors.
E window enhances the MOC process. The inclusion on E window is an important ongoing maturity and evolution of marine fuel and LNG markets. And now I'd like to turn the call over to Ewout Steenbergen, who will provide additional insights into our financial performance and outlook. Ewout?
Thank you, Doug, and good morning to all of you on the call. Let me start with quarter financial results. Doug covered the highlights of strong revenue and adjusted operating profit growth. I will take a moment to cover a few other line items. Adjusted corporate unallocated improved by 10%, primarily due to reduced project spending.
Please keep in mind that Kensho revenue is included in the 2018 figure, but starting in 2019, it is included within Market Intelligence revenue. Interest expense increased 41% because the prior year figure was unusually low due to a reduction of FIN 48 interest accruals associated with the resolution of New York State tax audits covering several years. The adjusted effective tax rate was 23.1%, 80 basis points lower than a year ago. This was primarily due to slightly higher stock option exercises as compared to the Q2 last year. Share repurchases continue to be an important element of our capital return program.
These actions resulted in a 2% decline in our diluted weighted average shares outstanding. Stock options associated with 120,000 shares were exercised during the Q2. This resulted in a stock based compensation tax benefit on EPS of $0.02 Year to date, stock option activity is running well ahead of last year. However, as the number of Ample stock options continues to decline, we expect the stock based compensation tax benefit to decline as well. Changes in foreign exchange rates had a negative impact on revenue in the Ratings and Market Intelligence divisions and a $0.01 favorable impact on adjusted EPS for the company.
Ratings revenue was negatively impacted primarily by the weakening of the euro, Australian dollar and British pound. Operating profit in Market Intelligence was favorably impacted by the weakening of the Argentinian peso, euro and Indian rupee. There were 4 non GAAP adjustments this quarter, a $20,000,000 restructuring charge primarily in ratings and corporate, a $5,000,000 lease impairment associated with Platts vacating office space at 2 Penn Plaza in New York City and these employees are relocating to our headquarters downtown. $5,000,000 in Kensho retention related expenses and we had $31,000,000 in deal related amortization. This is a slide we shared at our Investor Day in May 2018.
It depicts a framework that we outlined to show the areas where we can most impact shareholder value. The first two require investments. We need to continue to invest to fuel revenue momentum with product innovations, introducing new technology, adding new data sets and reaching out to new customers in new geographies. We have made great progress delivering EBITDA enhancement and we must continue to fund new organic opportunities to drive additional productivity gains. Driving financial leverage involves optimizing interest costs, reducing shares outstanding and optimizing the tax rate.
And finally, we want to return capital to shareholders while maintaining flexible debt capacity. We are committed to returning at least 75% of annual free cash flow to shareholders each year. This quarter, all 4 divisions delivered revenue growth and margin improvement. This is a testament to all the hard work by our employees, Creating innovative new products, nurturing benchmarks, and delivering on productivity improvements are such an important focus across the company. I'll provide color on the individual business results in a moment.
Now turning to the balance sheet. Cash and cash equivalents declined slightly versus the end of 2018, principally due to $644,000,000 of share repurchases during the Q1. However, cash and cash equivalents increased considerably versus the $1,400,000,000 on hand at the end of the Q1 this year. Our adjusted growth leverage to adjusted EBITDA was 1.9x remaining within our targeted range of 1.75 times to 2.25 times. On an unadjusted basis, our gross debt to EBITDA leverage multiple decreased to 1.1 times based on EBITDA growth in the 1st 6 months of 2019.
Free cash flow excluding certain items increased $98,000,000 to $956,000,000 in the first half of this year. With an existing ASR underway, there were no additional shares repurchased during the quarter. This ASR concluded in late July, and we expect to initiate a new $500,000,000 ASR later this month. Dollars 140,000,000 of dividends were paid during the quarter. Now let's turn to the division results, starting with Ratings.
Ratings revenue increased 3% despite bank loan volume and bond issuance activity that declined 13%. We have emphasized in the past that changes in total issuance aren't necessarily indicative of changes in revenue. The issuance mix is very important. With that in mind, high yield issuance is very incremental to our revenue and was up 41% in the U. S, our largest market.
High yield revenue growth combined with modest price increases at the beginning of the year caused Ratings revenue to increase 3%. Excluding the impact of foreign exchange, revenue increased 5%. Adjusted expenses increased less than 1% resulting in a 5% increase in adjusted segment operating profit and a 120 basis points increase in adjusted segment operating profit margin. On a trailing 4 quarter basis, adjusted segment operating profit margin increased 70 basis points to 55.7%. Non transaction revenue decreased due to a $6,000,000 impact from foreign exchange rates with changes in the other components offsetting each other.
Transaction revenue increased as debt rating activity driven by high yield bonds outpaced the decline in bank loan rating activity. Over time, non transaction revenue has been a steady source of growth. This is because the majority of the revenue is subscription like. However, there is some volatility at certain components, namely rating evaluation service, In addition, changes in foreign exchange rates can always have an impact. This slide depicts ratings revenue by its end markets, the largest contributor to the increase in ratings revenue was the 7% increase in corporates.
In addition, Financial Services revenue increased 3%, structured finance declined 6%, government increased 4%, and the Crystal and other category decreased 7%. This includes an increase in inter segment royalties for Market Intelligence, which was more than offset by decline in CRISIL's dollar denominated revenue. Market Intelligence delivered a strong quarter with revenue increasing 8%. I need to remind you of 2 changes that both became effective on January 1. First, we now include Kensho revenue in Market Intelligence rather than recording it as a corporate item as we did in 2018.
2nd, True Cost has been transferred from indices to market intelligence and results in both periods have been adjusted for comparability. With the ESG and climate data and analytics efforts underway at Market Intelligence, we believe True Cost is better suited to be included here. Adjusted expenses increased 6% as investment spending began to pick up in the 2nd quarter. Adjusted segment operating profit increased 14% and the adjusted segment operating profit margin increased 180 basis points to 34.3% despite increased investments in the business. More importantly, on a trailing 4 quarters basis, the division delivered an exceptional adjusted segment operating profit margin increase of 380 basis points to 35.6%.
We expect increased investment spending in the second half of twenty nineteen as we continue to invest in strategic growth initiatives. The sale of the Spaias business that we mentioned on our Q1 earnings call closed on July 1. Spire's revenue was approximately $20,000,000 a year and was included in desktop. Desktop revenue, the largest category, grew 3% excluding acquisitions, while active desktop users grew 11%. Growth in this category has been slowing for the past few quarters due to industry trends and a shift towards data management solutions as customers increasingly prefer data feeds.
Data Management Solutions continues to exhibit strong growth. Credit rich solutions grew 12% with Ratings Express providing the greatest level of growth as we continue to expand the data feeds portion of credit risk solutions. Turning to S and P Dow Jones Indices, the segment delivered 14% revenue growth and this included a non recurring benefit of approximately $11,000,000 associated with several recent contract renegotiations. We do not expect a material change to future revenue from these contract changes. In the Q2, we reported 4% adjusted expense growth, 19% adjusted segment operating profit growth and an adjusted segment operating profit margin of 69.6 percent, an increase of 280 basis points.
On a trailing 4 quarter basis, the adjusted segment operating profit margin increased 130 basis points to 68.4%. Revenue in the various categories was mixed during the quarter. Asset linked fees increased 18% due primarily to AUM growth in ETFs and mutual funds as well as the benefit from recent contract renegotiations. Exchange traded derivative revenue declined 6% from lower exchange fees. Data and custom subscriptions increased 21%, but recall that a year ago we reported a 4% decline associated with a delay in contract renewals as a result of a change in administrative processes.
This is all behind us now and the Q2 2019 revenue reflects a more normalized run rate. For our indices division, over the past year, ETF net inflows were $70,000,000,000 and market appreciation was $69,000,000,000 This resulted in an increase in quarter ending ETF AUM of 10% over the past year to more than $1,500,000,000,000 I want to make a clear distinction between average AUM and quarter ending AUM. Our contracts are based on average AUM, which increased 9% year over year. We disclose quarter ending figures because flows and market gains and losses are best depicted using quarter end figures as shown in the waterfall chart on the right. Industry inflows into exchange traded funds were $108,000,000,000 in the 2nd quarter with the majority going into fixed income and global equity products.
Close into U. S. Equity funds were $42,000,000,000 Key indicators for our exchange traded derivatives volume increased modestly in the Q2. S and P 500 index options activity increased 2%, fixed futures and options activity increased 4%, and activity at the CME Equity Complex increased 12%. ETD volumes increased during the quarter, but revenues declined.
While changes in volume are often a good indicator for changes in revenue, there are pricing elements that change as well. For example, we aren't paid on volume at the C and E. We're paid on the percentage of the profits of the equity complex at the CME and that could differ from volume. And now turning to the last division, Platts revenue increased 4% as a result of a 4% increase in score subscriptions and an 11% increase in global trading services with increased trading volumes of oil, LNG and iron ore. Adjusted expenses decreased slightly leading to an adjusted segment operating profit margin of 52.1 percent, an improvement of 220 basis points.
The trailing 4 quarter adjusted segment operating profit margin was exceptional, increasing 260 basis points to 49.5%. Also yesterday, we closed on the sale of Rig Data to Drilling Info. Rig Data is a small business that we purchased 3 years ago to secure the rights to North American rig information. In conjunction with this sale, we have secured the licensing rights to RigData's datasets for use by Platts Analytics going forward. Power and Gas delivered the largest rate of growth at 7 percent, primarily the result of increased adoption of our LNG benchmark.
Petroleum and Metals and Ag grew 4% and 3%, respectively. Petrochemicals revenue declined 1%. And now lastly, I would like to discuss our 2019 guidance. This slide depicts our GAAP guidance. Those items that changed are highlighted.
Please keep in mind that our guidance reflects current spot market ForEx rates. And now let me review the changes to our adjusted guidance. Corporate unallocated expense has been reduced by $10,000,000 due to a reduction in professional fees resulting in an increase to our operating profit margin range. Interest expense has been reduced by $10,000,000 primarily due to improved accounts receivable collections and cash management benefits associated with converting overseas cash to U. S.
Dollars. The tax rate has been reduced by 0.5 percent point with higher levels of stock option activity than initially anticipated. These items result in a $0.10 to $0.15 increase to our diluted EPS guidance range. While these changes increase our expectations for free cash flow, we're still within the guidance range we provided before. So in conclusion, we continue to execute upon our corporate initiatives including our stepped up investment in growth opportunities and our $100,000,000 cost reduction program.
Some of our progress can clearly be seen in our current results. Other programs are just getting underway. We're pleased with the progress we are making both to advance the company and to deliver on our new 2019 guidance. And with that, let me turn the call back over to Chip for your questions. So thank you.
Just a couple instructions for our phone participants. To indicate that
you wish to ask a question, but would now like to ask a question, we ask that you lift your handset prior to pressing star 1 and remain on the handset until your question has been answered.
I would now introduce Ms. Manav Patnaik from Barclays. Your line is open.
Thank you. Good morning, gentlemen. The first question is just on the market intelligence desktop growth of 3%. I was just wondering if you could elaborate a little bit more on some of the trends. I think we know the obvious ones, but the deceleration was a little bit more notable to the 3%.
And also the 11% user growth is obviously positive, but at what lag do you monetize that user growth to show better desktop growth?
Manav, this is Doug. Thank you for your question. First of all, the 3% growth, as you know, is something that we it's a little bit below what we've been targeting. We're targeting a mid single digit growth going forward. And as you know, there's been a few industry trends of some equity shops that have been shrinking, etcetera.
So occasionally, we get a request from customers like that to negotiate. But what's really what we're focused on is the diversification of our business model. If you think about it, we have different customer sets. We've got we have banks, investment banks, insurance companies, buy side, sell side, corporate, government, regulators, etcetera. And so when we look at our user growth, 11% is a good leading indicator for us.
We also are coming up during the year, we have different Okay
Okay, got it. And then just secondly, given you guys obviously still have one of the most flexible balance sheets in our universe right now, Just trying to think about how you plan to maybe use that flexibility and the appetite for M and A just given some large deals recently including the one today, just curious and how we should think about that?
Well, first of all, you should think that we're very careful stewards of our capital and our balance sheet. We take it very seriously our obligations to manage those funds on behalf of our shareholders. As you know, we're always looking to see what would be potential opportunities for us to grow and to invest. In the slides, I included a framework, which we call Powering the Markets of the Future. And that's really how we guide where we're going to be investing in the future.
And we've put a major emphasis as you can see the last year or so on internal organic investments as in China with ESG with other initiatives. So as you would imagine, we're looking all the time to see what would be out there. It's just part of having a corporate development strategy, but nothing specific that I would talk about right now.
Thank you, guys.
Thank you. Thanks.
Thank you. This question comes from Alex Kramm of UBS. You may ask your question.
Yes. Good morning, everyone. I want to ask about China, obviously. I know it's a little bit more long term, but obviously things are happening. Wondering, Doug, what other, I guess, metrics you can provide so far in terms of what you've seen?
You obviously have a couple of ratings now, but I know it's early days, but any things you can disclose around pricing you're getting, new interest levels you're seeing? Is this opening up any sort of data sales opportunity at this point already? And if you can comment on what these companies have seen in terms of you mentioned BBB just now. I mean, have credit spreads been impacted? So I guess a big question about like give us what you can about what you're seeing so far?
Okay. Well, thanks, Alex. First of all, the reception for our business in China has been very positive, both from the markets themselves, from issuers, from investors. As you can see, we were approached to issue a bond that was actually not a AAA rating. It's the first time this week that we that anybody had issued a BBB rating in the market and the market reaction was actually curious and very positive.
They were interested to see what is the criteria we're using, how it's going to be applied, as well as people have very high expectations for the way that we're applying our global expertise into a domestic market. As you know, the market is still very large. It's the 3rd largest bond market on approaching the number 2 bond market. But overall, as you know, the bonds are still there very short term about 3 years. Corporate issuance is about 12% of the total market.
Local government is about 31%, policy banks about 17%, commercial banks about 14%. Overseas investors still only 2% of the total bonds in the Chinese market. And so if you think about those dynamics, the people we've been approaching for on the issuer side, we have a very active program with our commercial team to approach issuers and talk to them about what are the opportunities to be rated by S and P China. And we're getting very good response from them. We're starting to build a pipeline, nothing that we would be able to talk about formally yet.
And then on the investor side, we're really swamped with investors calling us to learn more about our approach and especially now having 2 different ratings, a AAA to a BBB, it demonstrates that there's going to be a widespread of ratings in China as opposed to the domestic ratings, which are all clustered around the AAA and AA level. What we'd like to do is over time as we get more track record, as we have more ability to give you data, we will start sharing more of that. But we're very pleased with the progress we've had so far and also I'm really pleased that we've already had 2 ratings, especially that cover a range of ratings.
All right, great. Thank you. I'll stay tuned. I guess then for AVOUT, on the margin side, I mean, you continue to do really deliver good operating leverage, but also seems to show that you're still finding new efficiency. So I guess it's a broad question, but just curious how you feel about the ability to continue to do that?
How many stones there are still to turn over to find these efficiencies or if we're starting to run out? Thank you.
Good morning Alex. I would say a whole pile of stones we still have in the company and we are very pleased with the progress we are making. As you have seen, we are very disciplined with the execution of all of our programs to deliver on the commitments we have given to our shareholders. So if you look at the margins overall, we have now one business that has its aspirational margin target that is the index business on a trailing 4 quarter basis 68.4 percent and we said the aspirational target is mid to high 60s. We have one business that is getting close to the aspirational target that's the Platts business that is on the trailing 4 quarter basis now at 49.5%.
And then Ratings and Market Intelligence have still a little bit of room with Ratings being now at 55.7 with the aspirational target of high 50s and market intelligence at 35.6 trailing 4 quarter margin and the aspirational target is mid to high 30s. So we will continue to execute on our plans to deliver on the operational leverage that we have, to deliver on our productivity programs, to grow the top line, which is of course the best way to expense margins is to grow the top line in a healthy way. You've seen that we have had strong revenue growth this quarter in all of our businesses and in that way you may expect us to continue with that and we have a lot of opportunity still to continue on this path.
Very good. Thank you.
Thanks, Scott.
Thank you. This question comes from Toni Kaplan of Morgan Stanley. You may ask your question.
Thank you. Good morning. Similar to your largest competitor, your ratings performance in the quarter notably outperformed the issuance environment. And I know you attributed a lot of that to mix just given the strength in high yield. But could you also talk about if there are any other drivers outside of mix and price?
Are you seeing similar mix shift in the quarter to more infrequent issuers and M and A financings? Or is there anything else that can just explain the really, really strong performance in ratings even though the environment is still pretty muted? Thanks.
Thank you, Tony. This is Doug. There's really nothing that is really more beyond what you just mentioned what we've talked about. And it is the pricing. It's also the mix.
As you saw, there was a 41% increase in high yield issuance which is really a significant increase. And the mix this quarter was very different than prior quarters. We saw the 41% increase in high yield in the U. S. Is definitely a big part of that.
We also saw corporates, which many of the corporates that went to go to the markets during the quarter were people that actually pay us with transaction fees versus those that aren't on frequent issuer fees that were not going to the market this quarter. So those are really the most important drivers. There's nothing that was unusual overall. What's unusual is that there was the 41% increase in high yield in all of a sudden and really dramatically in June as well. But other than that, there's really nothing that's a main shift quarter on quarter from prior quarters.
Great. Thanks. That's helpful. And then shifting to Market Intelligence, with the recent large M and A announced this morning, maybe you could talk about if you see the industry changing in the coming years and if you plan to make any changes to your Cap IQ strategy or market intelligence strategy overall, just I guess does large M and A sort of change anything in your view going forward?
Well, first
of all, it's a very interesting transaction and I don't want to comment on the actual transaction itself, but they're both formidable competitors both in MI and in indices. But when it comes to the landscape, we've been watching and obviously watching very carefully what would be the landscape and what could be some of the changes that take place with this type of a competitor, which is already very formidable on its own. But we're very pleased with our strategy at Market Intelligence and Indices. We've got a diversified segment in our businesses. As I mentioned earlier, we have customers growing data business, which is something that's not only in market intelligence, but also across the company.
We're looking to see how we can harness our data business even more than we have already. So these are some of the things that we will watch in terms of industry trends from our competitors. But we also feel with the various transactions we've done the last few years for data assets like True Cost, what we're doing with ESG, Kensho, which is showing that there's a lot of value in artificial intelligence, machine learning, data linking, etcetera. We feel that we're very well positioned to be also to be a tough competitor in this space.
This question comes from Bill Warmington of Wells Fargo. You may ask your question.
Good morning, everyone. So question for you on Market Intelligence. You've been talking about and you've been executing on creating a unified platform for SNL and Capital IQ. I was hoping to get an update on how the migration of the Cap IQ users onto that new platform is going?
Yes. First of all, the Mi platform is, as we've discussed, is a platform that we're in addition to working on the migration, it's also important for us the way we're supporting other divisions. As an example, the S and P Global platform, which we're using to support ratings 360 and ratings and new very dynamic data delivery products for Platts. But going back to your question, we continue to add Cap IQ datasets and functionality to the Mi platform on an ongoing basis. And this will continue in through 2020.
And so along the way, we've found some ways to be more flexible to allow our clients to also be more involved in the transition from Cap IQ to MI, so that the customers themselves can choose the timeline for their own migration to make sure that they can transfer all of the functionality along with that. So the transition is going well, but it's probably a little bit slower than we had originally envisioned. So it's now moving into more of a timeline into 2020.
So when that transition is completed, what kind of a and you're able to actually shut down the legacy Cap IQ system, what kind of a margin benefit do you think you can get from that shutdown?
Bill, we haven't really quantified that. But obviously, running 2 platforms with all the maintenance expenses that come with that is expensive. So there should be operating leverage benefit that will come out of that, but we haven't really quantified that at this point in time.
Well, thank you very much.
You're welcome.
Thank you. This question comes from Joseph Foresi of Cantor Fitzgerald. You may ask your question.
Hi. This is Drew Kootman on for Joe. Could you provide a little more color on the ESG scoring system and the early customer reaction you're getting?
Yes. So, thank you. First of all, there's various ESG products we have across S and P Global with indices, in ratings and in market intelligence. And we in a prior call talked about how we had put together a design team to different groups where we have a consistency of approach and methodologies. But on the slides this time, there was a slide 14 where I included the profile factors which are used for the ESG evaluations and not to go into too much detail.
Just as an example, the ratings ESG evaluations, it starts with an approach to look at the overall geography and overall market. It then also has a way to look at 44 different industry structures for environmental and social factors. We've been doing a lot of governance over the years. And then for each of the different ESG companies that are being evaluated, there's factors 4 factors for environmental, 4 for social and 4 for governance and each of those are scored. What makes these unique compared to some of the other tools being used in the market right now is that the person that receives this evaluation can then dig into and analyze each of these different factors to understand how they led to the total score.
In addition, in the ratings ESG evaluation, there's also a management meeting which takes place which allows the ratings analyst and the management team to discuss their overall ESG and overall governance and stewardship profiles. So we think it's a really interesting approach. We've only issued 2 of these ESG evaluations so far. Although True Cost, which is one of the other companies, which we acquired 3 years ago and as Ewout mentioned earlier is now included in the Mi Pro in the Mi segment is also a very advanced company when it comes to the 15,000 different companies that they have included environmental profiles, including greenhouse gas emissions, waste and pollution, etcetera. So this gives us also we think a real leading position with having true cost that we can use across all of our ESG products.
So much more to come really good feedback so far from the markets on what we're developing.
Got it. And then just to add on top of the one of the previous questions about China. So with that BBB rating, are you seeing any pushback or hesitancy from companies that were thinking of getting rated and now they see you guys are going to be all over the place and now they're a little concerned by that?
We haven't seen that at all. In fact, quite the contrary. People, especially institutional investors have come to us to really learn more and more about our methodology because they see this granular approach with a wider spread that actually is much more reflective of what the pricing is in the market as well. So we haven't this is it's probably too early for me to draw conclusions from 2 ratings. But the response has been really enthusiastic.
Perfect. Thank you.
Thank you.
Thank you. This question comes from Tim McHugh of William Blair and Company. Thank you. You may ask your question.
Yes, thanks. Just wanted to ask about Platts, both in terms of, I guess, it was a slightly slower growth rate in the subscription piece. So is anything happening there? And then the sale of rig data, is there anything that's reflective of in terms of the broader strategy with regard to kind of additional research and analytics you're selling on top of the price assessment products? Thanks.
Good morning, Tim. This is Ewout. I think you should not read anything with respect to the Platts results that there is a change in trends. We expect the Platts business to grow mid single digits growing forward. That can always stands around a bit that's a little bit quarter by quarter.
But this is a very steady business where there's a lot of recurring revenues. We see the GTS business doing well. We see strong margin improvements and we expect the Platts business to continue on that path. So again expectation of mid single digit revenue growth going forward. With respect to Rig Data, Rig Data was acquired approximately 3 years ago.
The main strategic reason at that time was to secure the data source of the rig counts in North America and the only way to secure that at that time was through the acquisition. In the meantime, we had an opportunity to secure that going forward through a licensing agreement and therefore there was a better owner for this asset in the future and that's why we decided to sell rig data to the other owner, but at the same time have access of this data set on an ongoing basis. As I mentioned in the prepared remarks, the data was a relatively small business, approximately $10,000,000 of annual revenue for this business.
Okay, thanks. And then just more, you also sold the kind of investment advisory business. I guess, is this is there any sort of sign that you're doing a refresh portfolio review or reassessing some of the smaller business units? Or is it just, I guess, coincidence 2 of these situations popped up here recently?
Tim, we are very happy with our portfolio. We think we have a fantastic set of businesses. So there is nothing large happening underneath with respect to a portfolio review. But we always are looking at certain elements and where we first of all can strengthen our portfolio based on acquisitions. But sometimes there are certain elements and smaller businesses that we think there is someone else who could be a better owner.
So don't see that this is anything large in terms of a change in our strategic intent. This is just continued healthy review of our portfolio, but these are all in general terms small businesses, so there's nothing behind that.
Thank you. Thank you. This question comes from George Tong of Goldman Sachs. You may ask your question.
Hi, thanks. Good morning. I'd like to dive deeper into your ratings revenue performance this quarter. Your other major competitor reported a 2% decline in ratings revenue in 2Q compared to 3% ratings revenue growth at S and P, would you say that you have structurally higher exposure to high yield issuance that explains this difference or perhaps different pricing power?
George, good morning. This is Ewout. I think it's hard to of course for us to comment on some of our peers. But I think in terms of our market profile, indeed you always have to go 2, 3 layers deeper and looking at mix changes and to market positions in certain areas and we have smaller market positions in other areas. So for example, if there is a decline in CLOs, our CLO position is relatively modest.
So we won't be impacted so much based on that. The other element is what Doug mentioned before at the previous question and that is that we saw particularly a decline in sorry, we saw an increase in issuance from issuers that are paying us more on a per transaction basis. So we have our frequent issuer programs where we have more fixed fee arrangement. So we saw more an increase on the customers that are on a transaction basis and therefore benefiting a bit a little bit more this quarter than if the issuance growth would have been in the frequent issuer programs, which wasn't the case.
Got it. That's helpful. You increased your full year EPS guidance to reflect lower corporate expense, interest and taxes. Given the strength in your ratings business, is your view on full year revenues also improved or do you expect weaker trends in the back half of the year that could offset 2Q outperformance?
George, I think you should look at the increase in our guidance overall that we are very optimistic around our current performance, the growth progress we are making, the progress we are making with respect to our productivity programs. Doug mentioned the issuance outlook that is modestly stronger for the full year. So overall you have to take all of these elements to account if you think about our new EPS guidance. One element I would like to point out is that the investment spend will be a bit higher in the second half of this year. So think about approximately €15,000,000 higher investment spend in the second half than compared to the first half of twenty nineteen and that EUR 15,000,000 will mostly be incurred in the Market Intelligence segment.
And then also if you look at the 2 divestments we did, Spies and Rig Data, on an annualized basis both companies combined had a revenue of $30,000,000 $30,000,000 So we're also missing a bit of revenue in the second half of the year because of those divestments. So look at that all in combination, but I think what you should clearly take out of our improved guidance is we're very happy with the current performance. As you have seen, this has been a very strong quarter for the company and we are also optimistic about the outlook for the second half of this year.
Very helpful. Thank you.
Thank you. This question comes from Craig Huber of Huber Research Partners. You may ask your question.
Great. Thank you. Doug, curious to hear your updated thoughts on the debt issuance environment out there when you think about where we're at right here in the cycle in terms of credit spreads, M and A calendar, obviously strong financing calendar coming up etcetera? And I have a follow-up.
Yes. Thanks, Craig. Well, first of all, as Ewout just mentioned and was mentioned earlier, we have built our global issuance summary based off of many different factors. We've been looking at obviously what's the pipeline of refinancings coming up, what's people's balance sheets for having for maturity schedules. We speak with the debt capital markets groups of various investment banks.
And we also watch very carefully what we think are going to be some of the factors driving that including rates and obviously growth. So we in our current forecast, we see that industrials and corporates are going to be up about 2.5%, financial service is about 0.8%, structured finance about flat for the rest of the year and public finance up a little bit as well, which leads to about a 1.4% total. But a couple of the factors, which you've asked about though are pretty interesting right now. The investment grade composite spread has been pretty low recently. Its recent high was about 100 and 76 basis points.
Right now in July, it was down to below 140. In speculative grade, high yield investments, high yield issuance, right now the spreads about 400 basis points. It's been as high as 500 recently, and it's been as low as around 300 recently. So still a little bit higher than it had been down at 300. But we see that the conditions for issuers is still very strong, low rates.
And then on top of that, you know that the overall rate environment is very low. The United States 10 year as of yesterday was just 2.06%. The UK is at 0.6 percent, Japan is negative at 0.15 percent negative, Germany is now down to 0.43 negative and Switzerland is down at negative 0.64%. So with underlying 10 year base rates this low and trending lower along with spreads which are very attractive, they're not as low as they have been, but they're still attractive. Financing conditions are attractive.
There's still a lot of liquidity out there. We think that overall it's a good environment for issuers. It's a more of an issuer friendly environment. Although we don't see the markets going gangbusters, which is I think reflected in our overall 1.4% expectation for growth for the rest of the year.
And my second question, Doug, if you just comment on your Kensho acquisition in terms of curious in terms of employee retention rates there, how that's doing? And also what are you guys most excited about right now, what they're working on from a cost perspective, but also enhancing the products that you have and stuff with 4 or 5 areas that you're willing to talk what you're most excited about? Thank you.
Yes. Let me start and then I'm going to hand it over to Ewout. So I am really excited about the things that I've been seeing in Kensho. And recently I've had opportunity to meet with some employees in Platts as well as indices and ratings who are having direct contact or direct product development beyond just what we'd originally done with MI. And so the enthusiasm is really great and there's interesting enhancements that are being looked at for the market on close, for surveillance, in ratings, for enthusiasm across the company.
We're starting to see tangible products delivered or beginning to be scaled. But let me hand it over to Ewout who will elaborate on that and tell you a little bit more also about the attrition.
Yes, Greg, I can just share the enthusiasm of Doug around Kensho. If you, for example, hear about the redesign on the market of closed process in Platts, the enthusiasm in Platts and the people that are involved with that in working in the joint team with Kensho to redesign such a process which will be really a leapfrog in terms of the proposition that Platts has to its existing customers. That's fantastic. If you think about the Omnisearch and how much that is completely changing the experience of our customers in terms of the market intelligence platform and looking at more and more data that we add to this platform, which will make it more and more difficult to search what you're really looking for. So a very strong search engine is important and in fact it doesn't really exist in the B2B markets today.
So that is already being rolled out today to certain customer groups and the feedback is very positive. I can give you the whole list, but of course I don't want to spend too much time on that. Greg you asked one very specific question about retention which is of course an important metric that we are measuring and following very closely. And I'm happy to tell you that the current attrition levels are below industry benchmarks for Kensho. So we're pleased with that as well.
Great.
Thank you.
Thank you. Dan Dolev from Nomura, you may ask your question.
Hey, guys. Thanks for squeezing me. I appreciate it. Great results. So if you I look at your guidance starting from last year, you went from negative to 0.6 to +1.2 to +1.4 in terms of the issuance outlook.
Maybe asked differently, is this just a matter of being deeper into the year or increased optimism or a little bit of both?
Thanks, Dan. Well, this is a combination. I would say that this is really a combination of what we saw in the first half. As I mentioned a little while ago and I can give you a few more statistics, there was a lot of volatility in the first half of some numbers as I've mentioned before with high yield up 41%. In Europe, investment grade issuance was down 17%.
In Europe, corporates were down 17%, sovereigns were down 28%, public finance in the U. S. Was down 11%, but corporates were up 17%. So what we do is we try to look and see what was the issuance so far this year against these our initial expectations. Also looking at, as I mentioned, what are maturity schedules that are coming forward.
And so this is something that our team our fixed income research team, they put this together in a way that they're taking into account all of these different factors based on what was the issuance earlier in the year, what is the important factors, which is also part of that is the outlook for rates. And we've seen the ECB, Japan and then yesterday in the U. S. That the Fed lowered rates by 25 built into this 1.4% increase for the rest of the year. So those are all of the different factors that would be built into this 1.4% increase for the rest of the year.
Got it. Thank you. And given it's ninethirty 6, so I want to ask a follow-up, but thanks again.
Thanks, Dan. Thank you.
Thank you. This question comes from Jeff Silber of BMO. You may ask your question.
Hey, good morning. It's Henry Chen. Good morning, Doug. Just wanted to ask a high level question on the strategy around Powering Markets. I guess, especially in the Market Intelligence and Platts Business, I was wondering if you could just comment on how you're thinking about investments in either data and analytics for and how you're thinking about which markets to sort of attack and to build products for?
Thanks.
Yes, thank you. Well, this is the one of the things that we've done with this strategy of Powering the Marks of the Future and you saw the framework in the materials that we provided, it gives us a way that we can speak to our businesses about their core investments in their core businesses as well as areas of disruption or what we would call adjacencies. And as part of that, we're looking and driving this on what our customers want and what we hear from our customers. We decided that we needed to drive our investments and drive our growth by hearing what comes back from the markets instead of just trying to come up with ourselves. So in addition to our strategic teams and our executives, we also have our commercial teams and others out listening as much as they can, what are the key trends.
And you mentioned what is one of the most important trends for not only Platts and Market Intelligence, but also indices and ratings and that's the future of data. This is where we are very pleased to see the growth of over 10% is 11% in the data feeds business and market intelligence. When we meet with our Platts customers, they're talking about data. They have oodles and piles and an avalanche of data in their own business that they're trying to make sense of. And one of the questions they're asking us is, can you provide us with more data that's easier for us to use and also make sense of our own data.
So the data equation is one that is most on the minds of our customers with a combination of how do you use that through technology, through modeling tools, etcetera. And as we look at that, that's how we decide where we're going to invest. It's really based off of customer feedback, customer insights and it's not just a team that is doing this in a theoretical way. We're actually out boots on the ground visiting our customers to listen to what they need.
Got it. Okay. That's great. Thanks so much.
Thanks, Henry.
Thank you. We will now take our final question from Michael Cho of JPMorgan. You may ask your question.
Hi, good morning. Thanks for squeezing me in here. My first question, I want to touch on ESG. I mean, we talked about ESG length on this call, but I was hoping if you can give an update on how you're thinking about framing the overall size of the ESG opportunity for S and P? And do you think S and P has all the assets today to adequately capture that opportunity?
Let me start and give you a little bit of a view of the market opportunity and how we're thinking about it. And then Ewout will give you a little bit thoughts about the market sizing and we're heading from that point of view. In terms of the opportunity and how we think about it, it's one that's really expanding very rapidly. When people ask me about this in meetings that I met, I usually say that I think we're in the 2nd inning. This is a very early stages of the development of the ESG data market.
There are we're finding demands from the investor side. The buy side is trying to understand what this means for their portfolios. And it's going beyond what were the traditional impact investors or investors that had some sort of a sustainability quotient already included in their mandate. And so this is also starting to now filter through to pretty much all institutional investors. When we look at this, we also know that there are needs from governments, from corporates, from issuers, etcetera.
And we're trying to see and make sure that we have the right mix and right portfolio of products and services. We think that there are opportunities for every single one of our divisions to provide ESG products and services. We also believe that with a true cost as an anchor, which is an excellent anchor for what we do, that this gives us the ability to have a starting point for environmental factors. Our governance work that we've been doing for over 30 or 40 years in the ratings business also helps us with the foundation there. So you're going to see us developing these products and services coming out of all of the different divisions.
And as we've shown in the last couple of quarters, this is a commitment for us, an investment commitment. We've also started building in a way that we designed it from the ground up. So we've got a very sophisticated approach to data across S and P Global. So we don't duplicate our efforts. But that's the general approach.
You should see us continuing to talk about this, investing in it and growing it from what we think is a strong foundation, but in the very early innings. Let me hand it over to Ewout.
Yes, Michael. Good morning. So if we look at the overall size of our ESG business, we're looking at activities and products across all of our divisions as Doug just explained. So think about renewable energy in Platts, think about True Cost and ESG scorecards that are being developed in Market Intelligence, the S and P Dow Jones Sustainability Index and the new 500 ESG Index, the Ratings ESG evaluations and many more products that are currently under development. Overall last year we reported approximately $37,000,000 of revenues for ESG.
The forecast for this year is approximately $50,000,000 of revenue for the whole company and the outlook is growth of approximately 40% over the next few years. So 40% growth, so this will be clearly a growth driver for the company in the future.
Great. That's very helpful. I'm going to squeeze just one more in on China. Doug, I mean outside of Ratings, I mean on the call you talked about powering market harnessing data. But in China, I mean, can you give us framework and update on how we should think about the incremental opportunity within China because of the establishment of the local ratings business?
Well, first of all, thank you, Michael for initiating coverage. We appreciate having JPM as one of the organizations that's covering us and thank you for the questions. On China, just we've mentioned this before. We are thinking about China and we're entering it with a consolidated comprehensive effort for all of S and P Global. So right on the heels and I could see even nipping on the heels of ratings is market intelligence that's also building out a domestic data and analytical service for the financial markets as well.
So we look at this as a really important transition of a large financial market that is moving towards becoming more of a capital market than a bank market. As you know right now in China most of the financing is actually on bank balance sheets as opposed to bonds. And the most of the bonds that are actually issued are very short term, they're 3 years and they're also going on bank's balance sheets. And so when we look at this transition that we think is going to take place is the the capital markets are reformed, they become more sophisticated and also more linked globally. We believe that there's going to be opportunities for all of the S and P Global Businesses to establish domestic onshore products and services.
We don't have a sizing for you yet. We will provide that over time as we get more experience and we build out that build out the roadmap for you. But right now you can be assured that we look at this comprehensively across S and P Global. The 1st onshore investments in the 1st products that are launched during ratings, but market intelligence is really close behind.
Great. Thank you.
Thank you. So with that, let me thank everyone again for joining the call today. I'm very pleased with the strong quarter that we had. I'm pleased that we're continuing with a lot of progress in all of our investments in our core businesses, which you saw demonstrated today from our strong results. And then it's also encouraging to see the progress that we're making on these new investments such as the China discussion we just had, the ESG products and services that are based on anchored off of some of the true cost benefits that we had from that investment.
So thank you again everyone for following the company. I hope everyone has a great summer and we'll be back in a quarter. Thank you very much.
That concludes this morning's call. A PDF version of the presenters' slides is available now for download from investor. Spglobal.com. A replay of this call, including the Q and session will be available in about 2 hours. The replay will be maintained on S&P Global's website for 12 months from today and by telephone for 1 month from today.
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