Ladies and gentlemen, please welcome Chip Merritt, Vice President of Investor Relations for S&P Global.
All right. Welcome to S&P Global Investor Day. I want to thank those of you on the for attending here today, for those of you on the webcast. But particularly some of you folks travel from quite a distance. We've got folks from California and Canada, Zurich, 6 folks from London.
But the award goes to Marcus Guzzardi from Australia. So thanks for that. That's a true shareowner right there. I've done a number of Investor Days and there's basically 2 principal complaints you get afterwards. The number one complaint after Investor Day is that the humble, hardworking IR guy doesn't get enough stage time.
So that we're not going to fix that today. So but the other complaint is not enough time for question and answers. So you're going to get plenty of chances today to ask the speakers questions. So as always, I need to read the obligatory statements. So first, our non GAAP adjusted information.
In today's press release and throughout Investor Day, 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. And then, look ahead here. And of course, we get the Safe Harbor. In addition, I need to provide certain cautionary remarks about the forward looking statements.
Except for historical information, the matters discussed today will 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 filings filed with the U. S. Securities and Exchange Commission.
Okay. So with that, let's introduce what's going to occur today. We'll start off today with opening remarks from Doug Peterson, our President and CEO, and we'll talk about strategy. We'll go to Mike Chin after that, talk about market intelligence. Martina Chung, we'll talk about ESG.
Ewout and I were in Europe last week. And I don't think there was a meeting we had where there wasn't ESG question. So you Americans, it's coming. And then Martin Frankel for Platts. At that time, we're going to have a Q and A.
That Q and A will be specifically just for Mike, Martina and Martin. Okay? You'll get Doug later. After the Q and A, we'll have a refreshment break. Get a chance to go outside where you got your lunch, take a quick break, we'll come back in, we'll pick up with Alex Meturi from Index, John Beresford from Ratings, then we've got technology panel.
So Mike is going to come back up and host a little panel with Nick Caffarillo, our Chief Technology Officer and Daniel Nadler, the Kensho's Founder and CEO. We'll then have another Q and A. At that Q and A, it will simply be for Alex, John and the panel members. Okay, then we'll have our final speaker, Ebert Stenbergen. Then we'll have the last Q and A, which will be Doug and Ewout and our 4 presidents, okay?
So plenty of chances for questions. Now I hope that most of you had a chance to see the showcase. If not, after the presentations, there will be a cocktail reception and an opportunity to go see the showcases that you didn't see. Ratings 360, you've heard us talk a lot about that. Please go visit that booth.
Factor allocator, you probably know anything about it, worth visiting. We talked about the market intelligence platform, right? That's something that Mike and his team are putting together. There's three examples of it for you out there from 3 different persona groups. Data feeds, very interesting, very interesting data as a unique way of using data feeds.
Platts has something about blockchain with Fujairah. We've talked about on our conference calls, you can kind of see it as live as you can see something in technology. And then at Davos, at the World Economic Forum, we had a panel, a huge wall, and we've kind of made a version of that here for the big picture energy. And lastly, we made the Kensho acquisition and there's a chance to go out there and talk to folks who can answer things that I can't. So please take the time, ask them the tough questions that just go right over my head.
So with that, let's start the day with Doug Peterson.
You, Chip, and good morning, everyone. Good afternoon. It's great to be here. I want to welcome you to New York to our Investor Day. It's been a few years since we've had an Investor Day.
As you know, we've been interacting with you through our quarterly earnings calls and visits around the globe. But over those few years, we've been having really strong performance. Our company has delivered strong returns. We've delivered margin improvements. We've been able to raise our market cap.
But there is challenges around us. We still see around us various challenges. Our customer expectations have changed dramatically. There is a disruption around us from technology, changing every kind of business model you can imagine. And the macroeconomic environment has changed.
This morning I went to CNBC to talk for a few minutes and I thought I was going to get bumped because of one of those macroeconomic and geopolitical issues which relates to North Korea. But throughout that, we've actually had 150 years of dealing with disruption and change. Our roots in this company go back to the original Mr. Poor, Henry Varnum Poor that launched reports on railroads and canals. And over those last 150 years, we've developed products and services to deliver intelligence and products and data that our customers use to make decisions and they ask the question what does S and P think, what does S and P Global think before they make decisions.
And so today we're going to talk a little bit about the past, we're going to talk a little bit about our performance, but we're also going to give you a vision for the future and how we're going to position ourselves for growth to return more for our shareholders. Over the last 3 years, 5 years, 7 years, we've transformed this company and if you remember 4 years ago when we had our last Investor Day, we had just completed a transformation of McGraw Hill and turned it into a data and analytics company focused on financial markets. And when we took the strategy and took a step back, I thought about the company in different ways. We were global and the types of products and services that we could provide that would have the most impact would be global. We were going to build scale businesses.
We were going to have strong brands and our data and our analytics and our benchmarks were going to be entirely focused on markets, financial markets and commodity markets. So during that time, we divested of non core businesses, we did acquisitions, one of the most important was acquiring S and L. And as you've seen, S and L has been transformative for us. We put together the market intelligence division. SNL now forms a core part of our company when it comes to technology and data operations.
And also during this time, we've invested in risk and control and compliance to have that foundation. So we've invested to have a strong foundation. And what were some of the results you saw? You saw the margins go from 30% to 47% over that 6 year period and our revenues increased last year to 6,100,000,000 dollars Our total shareholder return on the prior 3 years, the CAGR was 26% from 2015 to 2017 versus 11% for the S and P 500. But one of the things that unified all of us across that platform was the brand, the S and P Global brand, something that brought the company together, gave us a single purpose and allowed us to have all of our employees and all of our services to have this intense focus on essential intelligence.
So our ratings business which provides opinions to global markets and local markets, market intelligence serving investors, risk managers, investment bankers with models, with data, with analytics. S and P Dow Jones Indices that is the benchmark when people ask how did the market do, people answer with either S and P 500 or Dow Jones and Platts, S and P Global Platts which is embedded across the energy complex. But you might ask who are we? Who is our company? Our 20,000 employees in 31 countries, we have over 200,000,000,000 data points across all of our different platforms.
We serve 97 of the top 100 Global Fortune 100 Companies, and we serve 10 of the top 10 global banks. And you think about these customers, over the last year, I've spent a lot of time with customers. It's one of the things that I enjoy in my job, getting out into the markets, meeting with different people who are making decisions, who are using our data and analytics. Last year when I met with the treasurer of Boeing, we talked about their competitive dynamics and how they think about the markets. We talked about their supply chain and we talked about how they raise financing for a very complex global aviation industry.
And we talked about Cap IQ and how Cap IQ is integral to all of their decision making on the industry dynamics. We talked about how they were using rating services with a new structured finance approach to raising aircraft financing for the emerging markets. Earlier this year, I was in San Francisco, I met with the CEO and the CFO of Salesforce. I learned a lot from them about their business model because we're spending a lot of time understanding technology, but they also were taking a trip their first time to tap the public markets for debt and appreciative of having S and P Global ratings along with them. Early this year, I was in Japan meeting with GPIF, which is the largest pool of assets under management anywhere in the world.
And as Chip just said, the ESG and sustainability focus was the main part of our conversation, and they are using our index business to help them shape new indices and benchmarks for their performance. And finally, at the end of the year last year, I was in Mexico meeting with the CEO and CFO of Pemex. And as you know Pemex is looking at how the oil markets and gas markets are transforming from shale as well as all of the production dynamics in the Gulf, in the South Western part of the United States and we talked about that and how they use the Platts benchmarks and the Platts data to make their investment decisions. And as our customers are adapting to change, so are we. It's necessary that despite having 150 years of performance and especially the last 5 years, 3 years with very strong performance, we can't be complacent.
We have to be cognizant that the world is changing around us. Now more than ever, we have to understand what is happening that's shaping the environment. AI and machine learning, the millennials, in fact, 64% of our employees are millennials, and they have different expectations on how they're going to work. And the regulatory landscape has been changing, but very importantly, customer insights are changing, customer needs are changing. So last year despite having had a very strong track record, we took a step back and said let's revisit our strategy, let's revisit our vision, we're not going to change our purpose, we're not going to change the foundation of what we are, we're not going to let go of the things we're doing well, But let's see how we are going to approach the future.
So we took 60 of our top employees along with our operating committee. We formed 8 teams, those teams went out and met with 155 companies, these teams focused on 5 client segments including Investment Banking, Commercial Banking, Governments, Corporates. We had 3 teams, one of them looked at competition, one of disruption, one of technology and for almost 3 months, we spent time understanding all of those insights and what the implications were for us. And what did we learn? We learned that customers' expectations are changing.
When customers and users end up at the office, their experience is very different at their desktop than what it is on their cell phones. And when they are arriving at office in the way that new products and services are integrated, delivery is different, the graphification, the visualization tools, the color, the interactivity. They also have a demand for transparency. And very importantly around the globe, we hear that there is new data sets when it comes to ESG in particular, as well as supply chain data, private company information that there is increasing demand for. So with that, we developed a strategy called powering the markets of the future based off of the customer feedback, these insights, views on competition and disruption, the future of the markets.
But based on our own employees' insights and how we did that as a team and you can imagine the kind of excitement that that's created across the company that our own employees could go out and meet these hundreds of customers and develop our own strategy. And as part of that, we've developed a framework. This framework is what we're going to use today throughout the presentations. This is we're going to be using for the next few years to guide our investments, to guide how we're going to grow the company. And this has a couple of different approaches.
First, we're going to use this to serve our customers better, to anticipate their needs and meet their needs. We're also going to use it to serve our own people better, to serve our shareholders. And this framework has three elements to it, has an approach to evolving and growing our core businesses, finding adjacencies in places that we can invest for the future that cut across S&P Global or their new needs we can go out and fulfill. And then we have foundational capabilities being global, customer oriented, innovation, technology, operational excellence and our people, our commitment to our people to ensure that we continue to invest in mentoring and leadership training, managing our people better. And one of the areas that we've looked at specifically recently is technology training in a program called essential tech, something that we've rolled out across the company starting with me, starting with the operating committee, so we ourselves can become much more savvy about technology, especially since we're going to be investing so much there.
Now going back to what I mentioned earlier about listening to our customers, over the last 5, 6, 7 years, especially starting in Europe and especially starting in Northern Europe, we've been hearing this need to start bringing more ESG information to the markets, environmental, social and governance, data analytics, benchmarks, different ways that investors, risk managers, corporations, governments can make decisions incorporating this kind of information. So as part of that, we've undertaken an approach and you're going to hear more about it on how we can take some of the products and services we already have, but understand what those needs are. As an example, today there is over 9,000 companies reporting some type of ESG information and through true cost, we are actually gathering that in one of our products and services. 1700 companies have already signed the United Nations principles for responsible investing including ourselves. And so you're going to be hearing more about the design team and what they're doing.
But also ESG is something that we've taken seriously ourselves We have a carbon offset program for our travel. In the S We have a carbon offset program for our travel. In the S space, last year we donated 40,000 hours of our employees' time to community activities. Earlier this year as you know we invested $20,000,000 in our foundation and we're an industry leader when it comes to employee resource groups that provide our diversity programs a really unique way to connect our employees. And as you also know over the last 5 years, we've refreshed and diversified our Board of Directors who really provide an excellent oversight and strong governance.
Now as you know, technology and innovation is going to have to be part of our future, part of everyone's future. And when we envisioned our strategy and we thought about the future, we didn't see one that technology wasn't going to be integral to it. In fact, we had a lot of arguments as how much our machine is going to be taking over decision making, what is going to be the relationship between human decision making and machine decision making, and we felt like this was so important for us that we had to really raise our game in technology. So over the last few years, we have been investing in technology already through S and P Global Ventures, through relationships with venture capital firms in San Francisco, in Singapore and Tel Aviv, in direct investments that we've been making ourselves. We also knew that we had to commit to have platform to the S and P Global platform, which we've been developing and you'll hear more about this morning.
And we acquired Panjiva, which is providing data sciences. It has advanced data supply and data science capabilities. When you go back to the showcases, you can see some of the Panjiva data incorporated in some of our products. And with Kensho, who you're also going to be hearing more from this afternoon, you're going to see that Kensho has brought an incredibly what we call an extension of our brains, a way to extend our intelligence and make what was essential intelligence even more essential and more important. We have some early wins that you're going to hear about with our Crunchbase data of private companies which was incorporated in hours and a few weeks of planning as opposed to months months.
So technology is something that doesn't happen by accident. You need to take it on proactively to ensure that you can become successful. And one of the ways we thought about at the company is to think about how are we going to manage the company as well. And we've last year after understanding what the demands were in the markets, what our needs were to be more technologically savvy, we developed a program where we now have operational services across S and P Global where we've unified our digital infrastructure, our engineering and technology and innovation services as well as our data operation services. And this gives us a platform to have scale, agility, apply agile approaches and have best in class and speed in how we deliver.
Now putting all this together, during today, you're going to be hearing from our executives about our future, about this framework on how we're going to evolve our core businesses, pursue adjacent opportunities, develop our foundational capabilities and how we're positioning S and P Global, starting with the strategy that's already been very successful, being global, having scale, strong brands, serving markets and how we're going to use this approach to provide our future and we're going to have the ability today to give you a vision for that future, a commitment to our employees, a commitment to the markets, how we're going to deliver growth, how we're not being complacent about what we see happening around us, a commitment to our shareholders and how we're going to continue to deliver. With that, I want to hand it over to Mike Chin and thank all of you and welcome you for being with us this afternoon. Thank you.
Good afternoon, everybody. I am delighted to be here with you to share the market intelligence story, to share our goals and our aspirations and our visions for the market for intelligence business and show you how our strategy connects to the broader S and Global strategy that Doug just shared with you today. We are believe that in a world that is awash in data, where data is providing every day the fuel for decision making in the 21st century, we believe that we are very well positioned to take advantage of a multitude of opportunities that that environment creates to help our customers drive better decision making and faster decision making and to continue to deliver above market revenue growth and ongoing creation of shareholder value. Doug showed you this framework that we're all going to use today to talk to you about our businesses. In particular around the foundational capabilities, I'm going to focus in on 4 of those.
I'm going to talk about how we continue to evolve the way that we engage with our customers, get orient ourselves so that we can most effectively understand their challenges and their problems and help them design solutions to solve those problems. We'll talk about how we have opportunities to continue to become a much more global business in every respect. And maybe most importantly, how we are going to continue to harness and invest in technology to drive innovative solutions and grow our business over the long term. We think that by doing all of those things, successfully harnessing all of those capabilities that we can help our customers make better, faster and smarter decisions with greater conviction than they ever have before. We think about the Market Intelligence business, we have assembled an amazing array of content and data assets, great brands that we've assembled over many years that serve as the foundation for everything that we do.
We focus on differentiated content, unique content that has an incredibly high degree of quality and relevance, all sorts of business and financial data that serves as the bedrock for our business. On top of that, we've developed excellent technological capabilities and skills, software engineering that allows us to build workflow tools atop that content and help our clients get to the answer quicker. And then the 3rd key ingredient for us is that we have a proactive, knowledgeable, customer facing commercial and go to market organization, so that we can not only design products that help our customers, but sell those successfully and help our clients maximize the value that they get from those products. We do this with over 10,000 colleagues around the world in over 40 offices, including significant operation centers and delivery centers in areas all over the world, where there is a strong alignment of culture and of what we're trying to achieve really around the world. We have over 230,000 active users of our platforms today, And we cover over 4,000,000 companies across those databases.
As we look at the last couple of years, we've delivered very strong top line growth, organic growth. And what you'll notice here is that, that growth is very consistent across all three product categories that we produce. Our desktop business, maybe the most familiar, host of great brands where we deliver our content through excel and mobile and web experiences. Our risk services business, where we monetize the intellectual property that comes from the ratings agency and then supplement that with new solutions that look at the unrated universe and help our clients understand credit and model out credit risk. And then our data management solutions where we directly feed all of that rich content into the internal systems of our customers.
And you can see that across the board quite consistent growth around 9% over the last couple of years. At the same time that we've been growing, we have made really good headway on the margin front since the acquisition of S and L and the integration of those two businesses. You can see that margins have grown almost 900 basis points, about half of that is due to delivering the S and L related synergies in a greater quantity and faster than we thought at the time of closing of the deal. We've also done a lot of work to streamline processes, leadership structure, tools and products and then there also of course is inherent operating leverage in our business, in our heavily subscription based business. And so those 3 big areas together have enabled us to grow our margins impressively over the last couple of years.
As we look at the overall environment in which we operate, market growth, the Financial Data and Analytics business is growing about 3% to 4%, So there's strong baseline growth. There is, of course, a growing demand for tools and software solutions that help our customers do things faster, do it more efficiently, cut costs, automate things and just generally create greater productivity and greater insights. So we have the wind at our back there too. We also think that regulation on balance is modestly constructive for our business, as regulations change, as the environment for the companies that we serve change, they often turn to us to help them comply with new regulations. MiFID II is small impact for us because we just don't have a lot of exposure to that ecosystem around broker research.
And so for us, that's not a significant impact for us. And then around market intelligence specifically, we have great revenue visibility. Over 95% of our revenue comes from subscription based products and our renewal rates are around 95%. So the combination of those two things provides us with a lot of ballast and a lot of consistency going forward. If you look at the chart on the right, you'll see that we are still heavily indexed to North America with respect to our revenue.
And while the areas in EMEA and APAC are growing faster, we know that we have opportunities to add fuel to the fire and grow faster outside of the U. S. And then lastly, we also have great diversity in our revenue streams, not only by product group, but also by the segments that we serve and the personas that we serve within those customer segments. And so I want to give you a sense for the breadth and the depth and the size of those of that diversity of segments. If you look here on the left side, you'll see that we do serve a lot of segments and I think this is to some degree unique and interesting around the market intelligence franchise in relation to some of our peers in the market.
Investment Banking and Investment Management continue to be and will always be important segments for us and those comprise a little less than 50% of our revenue. But I'll point you to the last few blocks in that chart on the left and you'll see that private equity, commercial banking and insurance, non financial corporations and then other companies, which include professional services firms of all stripes, consulting, accounting and law firms, government and regulatory agencies, that's more than 50% of our revenue and what you'll we think that is interesting for a couple of reasons. Doug referenced a 3 60 degree view of the market. We think that by engaging deeply with all of these segments, we actually can build products and then monetize them across, but also bring new insights that we may learn in one segment to another segment. And we think that is unique about our franchise.
You'll also notice that all 4 of those segments are growing faster than Market Intelligence overall. There is tremendous change going on in the corporate world, and we have deep, deep relationships from which we can springboard. So just to give you a sense for what that looks like, we took one of our clients, a large commercial bank, and are showing you the depth and breadth of our relationship there. We have over 600 users at this commercial bank, and certain segments would be very familiar to you in finance, capital markets, credit risk, where we have very strong assets, but you can also see that we have strong penetration in revenue producing parts of these commercial banks, retail lending, commercial lending, leverage and sponsored finance. So not only are these deep relationships, but they're broad, they continue to grow and you can also see that from a product perspective, this isn't just a one trick pony with SNL content or Cap IQ content, we also have very strong product diversification within these accounts.
So we think this is an interesting part of our business, maybe not terribly well understood, but you can see that it is really fueling our growth and fueling the way that we help our customers. So now let's turn to another part of our business that we're very excited about. Data Management Solutions for us is our data feeds and API business. In some way, this is the purest part of what a content and data and analytics company does. We takes advantage of our tremendous capabilities in sourcing and integrating and cleaning and synthesizing data of all stripes and then feeding that directly into the systems of our end users.
This is about 20% of our business today and you can see on the left that it also is growing faster than market intelligence overall. We think this just has tremendous potential. As our clients continue to get more and more sophisticated with technology, they are coming to us for content to fuel all of those processes, risk processes, revenue producing processes and a whole series of other use cases. We thought to illustrate this, we would show you one example of our experience with 1 quant hedge fund client over the last 18 months. And what you'll notice here is that we started off with a very modest contract, dollars 12,000 where we were feeding them PDF files of our transcripts.
But as over time, we made that machine readable, we made it streaming in real time. And most importantly, we tag those transcripts with everyone who spoke in those transcripts, with all the analysts who asked questions in those transcripts, with an understanding of ownership data of those companies. And by increasing the amount of linking and integration and making that available so that our in quant fund customer could actually understand what did it mean when this analyst asked that question, what kind of estimates did they have on this company? You can see that we actually create not just linear value, but we create exponential value for the end customer. And by doing all of that heavy lifting upfront for them, we save them tremendous time and let them focus on insight generation.
Typical data scientists or machine learning expert may spend 80% of their time cleaning and integrating and synthesizing data and by doing this for them, we believe that we create exponential value. And this isn't just a hedge fund opportunity for us. We are as the world continues change and data is increasingly the fuel for decision making, we see that commercial underwriting teams, insurance underwriting teams and data lakes and data scientists among our customer base continue to demand this content for us. So this is an area where we're investing not only in the infrastructure but in our commercial capabilities. So given that we've got this fairly broad product suite and a number of different products, how do we actually get out to the market and engage with our customers?
We have spent a lot of time over the last couple of years retooling and reorganizing our entire commercial team with the goal of making things simple and easy for our customers to engage with us, to buy from us, to be trained by us and ultimately for us to deliver more value for them. We also have structured ourselves so that we can create much deeper relationships, not just transactional relationships around sales and invoices, but much deeper relationships where we can bring to bear the full capabilities of our firm and help them create new insights from the information that we provide. Fundamentally, we did 2 things, we had to get organized and aligned and we had to make things simple. So for instance, we have about 800 people in our commercial organization, every one of them focuses only on one of those segments that we serve, because we believe we need to be as expert in our client businesses as they are and the best way to do that is to focus in on one segment. We also created role clarity.
We have new sales people, we have relationship managers, and we have product specialists or sales engineers. And we've got the right incentives in place for all of those, so that we can not only drive white space production or new logos, but we can build much deeper relationships with our existing customers. We also knew that we needed to simplify and make it easy and reduce friction for our customers to interact with us. We reduced our product packages by 90%. We've also moved about 70% of our legacy per seat contracts to enterprise agreements.
And the reason that we like enterprise agreements is it creates greater stickiness, it reduces the friction for any client, any end user to get value from our product, and we think that it's just a much better arrangement all the way around and creates a much deeper relationship. So this is what we spent a couple of years doing, and we're starting to see results. We've got some very strong leading indicators that tell us that this is starting to make an impact. Our renewal rates have improved from the low 90s to 95%, which is indicative of deeper, more insightful and we're bringing more value to these relationships. We're also starting to see that new logo generation, where we are actually bringing new customers into market intelligence fold have increased dramatically.
Our relationship managers are delivering more referrals, which tells us they're actually getting in and understanding what problems we can help our customers solve and as a result, we're seeing very strong user growth of about 14% year on year. And we think we'll monetize that over the long term through higher renewal rates, stickier relationships, better pricing and also more willing referrals. And then also more on a more qualitative basis, we've reduced the administrative burden by simplifying everything on our frontline salespeople by about 10%. And as a result, all of these things have helped fuel that strong organic growth that we looked at a few minutes ago. So now that we've gotten our commercial model a little more dialed in, it's really important that we equip all of our commercial folks with the right technology and the right products to get out to the market.
So the S and P Global Platform, Doug mentioned, this is the largest software engineering project underway at S and P. Fundamentally, what we're trying to do here is to bring together all of our legacy platforms into one consistent user experience that's simple and integrated. This will allow our clients to interact with us very consistently across every channel, Excel, web, mobile, feeds even. But this is a big project for us. And you can see here that this is a project that will be a multiyear journey, not only for us, but also for our end customers because we have about 230,000 of them to move to this new platform.
We took the first steps in doing this with the S and L platform over the last few months, we've heard a lot of feedback from a lot of our end customers who are very accustomed to the systems that we have. And in response to that feedback, we've stepped up our release cycle so that we can be more responsive and address the feedback that's coming in. We've done 4 subsequent releases since last November and we've moved about 100,000 users to the new platform. The Cap IQ platform is under development, this will take 2 or 3 years, we want to be very deliberate, very thoughtful, and cognizant of the fact that we are changing deeply embedded work tools. And we have the luxury of taking the long view on this.
And then there are some other products that we need to move. At the same time, the market intelligence platform has also become truly the S and P Global platform. And it is built on the architecture and infrastructure of the new market intelligence platform. Ratings direct, we'll move to that and then our colleagues in Platts and Martin will talk about this in a bit, also we'll be able to build upon this architecture. We think this helps everyone at S&P Global get to market more efficiently and quicker than we would if we were all doing this independently on our own, and we think this is a big win for S&P Global.
So now looking forward a little bit, we think we have a multitude of opportunities to build off of this very robust and strong foundation. We've grouped them into 3 buckets, these opportunities. The first, we think there are some very logical and yet material extensions of our core data and analytics franchise. In our risk services business, and you'll hear from Martina in a little bit, there are opportunities for us to expand our ESG coverage, to expand our cyber risk coverage, to make sure that we're providing a holistic view of risk and credit risk to our customers. We also are experimenting and doing on behavioral and sentiment based models, so that moving beyond just pure financial credit risk, but also taking in the totality of information that's available in the market today.
And we also are responsive in taking advantage of new regulations, IFRS 9, CECL and other things that are changing the way that showcases focused on that. Similarly, we think there are ways to continue and opportunities to continue to expand our core competencies around differentiated and unique content. Doug referenced Panjiva, which is a really innovative company doing interesting things around supply chain data and trade flow data. We think that supply chain presents a nice opportunity for us going forward. We also have opportunities to round out where we are already very deep in certain sectors, opportunities to round out global coverage and we also are really interested in continuing to expand our sector specific, sector relevant model to sectors that we do not follow today.
And we've done some pretty extensive research to identify opportunities that we think are ripe for our style of coverage and our approach to the market. 2nd big group and I mentioned this earlier is that we know that we have bigger opportunities outside of North America than we've taken advantage of so far. Some of this is just building out our commercial teams, we've identified areas to supplement those teams in fast growing emerging markets. And in risk services in particular, given the relative immaturity of certain markets around the world and emerging economies, we bring a particular product set and skill set to helping commercial banks and insurance companies evaluate all sorts of asset class risk with some of our scorecard solutions. We also have opportunities and the need to make our products more relevant in some of these markets, some things are as straightforward as product localization, making sure that our products are easily used by the full scope of users in some of these countries.
Private company data Doug mentioned, it's a big opportunity for us. We've prioritized key markets where we think we have a real ability to build solutions off of private companies and provide greater detail and context there. And then the last part of that is in certain countries where financial data is either less available or less reliable, we've done some very interesting work to start to build alternative credit models that look at non financial data where traditional data is limited. And then the 3rd bucket and last bucket of opportunities that I'll talk about today is embracing the tremendous opportunities that have been created by the proliferation of new sources of content outside of traditional data and new technologies. And we think about these in 2 ways.
First is non traditional or alternative data as it's often called, We are already doing this in many areas, there is a great showcase around using transcripts and linking that together with other content, I referenced that a little bit ago. But we believe, as I said earlier, that linking this alternative data, geographic data, satellite data, logistics data, other things together with our traditional data creates exponential value. It also leverages some of our strong suits and some of our core competencies around sourcing, ingesting and integrating content, we'll talk about this later. And again, as I mentioned earlier, this is not just a quant hedge fund opportunity for us, we see these opportunities across the multitude of segments that we serve. And then on the emerging technology side, we think we have a big opportunity to improve discoverability and usability of our platforms by incorporating a much more natural language Google like search into our products to help our customers get to the answer faster and find what they're looking for more efficiently.
And then machine learning also accelerates for us time to market. We've talked about Crunchbase, something that would have taken us months has been distilled down to hours or days to get out to market quicker. And so this whole area is a great opportunity for us to marry together our core data capabilities with capabilities around emerging technologies. So just to close here, we think that over the last couple of years, we've been the fastest growing organic fastest organic grower in our space. We would hope to continue to do that given the huge spectrum of possibilities and opportunities that we have.
And we'll continue to focus on 3 things, the first is leveraging our strong content heritage, building off of this robust foundation of unique assets and must have content to expand our core franchise. The second is we have big opportunities to streamline and enrich the customer experience. The S and P Global platform is one part of that, but there are a number of things that we need to do and opportunities we have there across all of our delivery platforms. And then as I just mentioned, we are very well positioned to harness the proliferation of data from all sorts of new sources and use emerging technologies like Kensho and others to integrate that into our products and build new things that the market hasn't seen before. So I'll close there.
Thank you very much. And I'd like to introduce Martina Chung.
Thanks, Mike, and good afternoon, everyone. It's my first time meeting many of you, and I'm really delighted to be here today. So I can talk to you a little bit about our ESG initiative at S&P Global. I didn't want to make any assumptions around how deeply all of you were familiar with ESG. So I thought it would be good to maybe start from a fairly foundational level in terms of how we think about ESG at S&P Global.
So we view ESG as critical to long term value creation. And that's not just for companies, it's for investors and a lot of other stakeholders in the market. Some of the top factors driving this value creation, for example, under environmental, think about factors such as greenhouse gases, greenhouse gas reduction rather, resource consumption. Under the social category, you can think about factors such as labor standards, such as product quality and safety. And on the governance area, I think about remuneration, Board composition and policies as well as shareholder rights.
And of course, all of these things have the ability to impact both your top and bottom line. So rather than just thinking about it from the standpoint of reporting and disclosure requirements, we could look at, for example, your ability to manage operational risk. If you think about disruption possible in your supply chain as a result of ESG impacts. If you think about also the ability to manage your costs, for instance, through more efficient energy consumption. We also look at the ability to really differentiate your brand and increase retention and loyalty with your employees through strong ESG programs.
We're also seeing the use of a lot of what we think of as upside ESG strategies. So for example, if you are a big tech company and you decide to power your data center through solar, you may be able to sell your excess power back to the grid at a profit and that's a great example of an ESG upside strategy. And so when you think about all these things together, they're getting back cash flow, profits and ultimately long term company value. Of course, we're not alone in thinking like this. By any measure, this market has experienced exceptional growth in the last several years.
Doug mentioned that there are over 9,000 companies reporting ESG today. That's up from about 20 companies in the early 90s. When you think about the 1700 signatories of the UN PRI, their asset under management has effectively grown by 11x between 2006 and 2017. And today globally there are around 23,000,000,000,000 dollars assets that are managed under responsible investing strategies, and that's an increase of about 25% since 2014. So very fast growing market and lots of adoption in that market.
And when we see the adoption in a market that's fairly young and nascent, we also see the customer needs start to increase. Now I want to just make sure to emphasize to you, a lot of you might think about the ESG use cases being very much sort of driven by the investors. And certainly that's been an area where there has been a lot of focus in the last several years. But for us, ESG actually has broad application across the many use cases and users that we have across all of our divisions. So certainly, investors would use ESG for exclusionary screening.
Some of you may already do that. You'll see a lot of ESG investment themes, for example. But we also serve lenders who are interested in ESG linked lending and who may also need ESG factors to actually track loan covenants, for example. In
addition to
that, I mentioned operational risk. A supply chain manager may have operational risk exposure if their counterparties in the supply chain have poor labor standards and have strikes and disruptions, for example. And then last but not least, think about the CFO. Not only do they have oftentimes the burden of compliance or regulatory disclosures, they're also responsible for actually being able to calculate the financial impact of these ESG factors for reporting purposes. Now when we talk to all of those customers and all of those users of ESG information, what they tell us is that they're experiencing quite a bit of pain in terms of how they do their analysis.
And this comes down into several areas. The first will be around data. So it's not just enough to have the ESG score. Our users and our customers want the underlying data that goes under that score and they want to know that so they can run their own analysis and run their own scenarios. The second and many of you will probably be familiar with this is that there is a huge push for very deep asset level data.
You'll see that as it relates to the need to report at factory level and plant level for new disclosures such as SaaS B, TCFD, etcetera. In addition to that, we're seeing a lot of demand for scenario based planning tools, but also for other types of analytic tools that will help take this big swath of VSG data that's out there and actually drive insights for users. And then lastly, but I think also very importantly, a lot of the folks in the last several years has been on listed companies. What we're hearing from our customers is they would like to see these ESG factors, these ESG analyses applied not just to listed in public companies, but also private companies and other asset classes, so for example, real estate. Now at S&P Global, many of you would probably be aware that we already play a very important role in the markets as it relates to ESG.
Doug mentioned the first, which is that we have our own award winning corporate responsibility program, but we also participate quite a bit in the industry dialogue around setting standards and frameworks for ESG. So Doctor. Richard Madison, who is the CEO of True Cost participates in the EU Sustainable Finance Plan and Mike Wilkins from our S and P ratings group participates in the governance panel for the TCFD. So we really help to drive the dialogue around ESG and to help make sure that there are rigorous and robust frameworks set up going forward. And of course, last but not least, the 3rd way we participate is that each of our divisions has very deep assets in this area.
So to cut across, think about data, we have incredibly deep energy data, including carbon, biofuels, renewables in both Platts as well as Market Intelligence. Market Intelligence also has really a market leading governance data set, which is very powerful. When you think about analytics, I could give you some examples here that include the Platts 2 Degrees scenario planning service as well as the True Cost Carbon Scorecard. That carbon scorecard has been applied to all of the standard S and P Dow Jones Indices. And then finally thinking about research and insights, ratings just launched their green evaluation product last year.
And within Mark Intelligence, we now have a dedicated ESG team that's reporting ESG news. And we're getting quite a bit of adoption on those products. Just in terms of the ratings themselves, a recent look back against the ratings highlighted over 700 ratings assessments that were impacted by the E or environmental and climate concerns between 2015 2017. But if you look even outside of that into Platts and into MI, for example, or Market Intelligence, Platts already has 600 customer using their 2 degree scenario planning service. Market Intelligence has received hundreds of requests for deeper renewable data as many of our customers are thinking about disclosures, operational risk, etcetera.
I'm not going to spend time speaking further about some of the products here because I mentioned a lot of them. I did want to also just add that last week, True Cost launched their SDG evaluation tool, which is a quantitative model that helps companies evaluate the performance their own performance against SDGs in the context of their geographic coverage. So lots of new products coming out of our divisions also. So you see in each of our divisions, we have very strong assets. We have very strong products, a lot of expertise.
We did see an opportunity to really accelerate and scale these products at an S and P Global level. So in December, we launched the ESG Design Team. It is a cross divisional, cross functional group. And the goal of the team is to effectively identify and prioritize opportunities in ESG that cut across the divisions. Now this is made possible by the fact that we have this common data and technology backbone that Doug referenced earlier in the session.
And that's really going to help us here because data is very critical to building some of the better and more sophisticated ESG products that we'd like to do. Our initial areas of focus are going to be on data. So we're very focused on ensuring that we have fully populated data sets for asset level data, particularly in the energy space. We're also looking at ensuring that we can create the first foundation for what we're terming ESG Data Factory. Big part of that is actually bringing all of the data we currently have in house onto the same platform.
And we've made some investments there particularly focusing on true cost data and Platts data and bringing those data sets onto the S and P Global platform. We're also looking to focus on better educating our clients in terms of the overarching set of capabilities and products that we have around ESG. So that's going to be quite a good quite a big focus going forward. And I would say that the team itself has an incredible amount of energy and enthusiasm for this. We also see it as an incredible opportunity for us, one that is necessary really for us to serve our customers in the best possible way.
So I will finish up there. Thank you. And I'm going to hand over to Martin Frankel.
Thanks, Thanks, Martina, and good afternoon to everyone. It's my privilege to introduce the Platts business to you. The Platts business has shown strong growth for quite a number of years now, both through the ups and the downs of the commodity market cycle, and it continues to grow. The business has been favored through these the ups and downs by some favorable market trends, particularly the liberalization of energy markets around the world and the increasing trade flows in all commodities. So as we talk today about the business and using the framework which Doug outlined at the beginning, I'm going to focus on how Platts continues to grow the core business by serving our global customers and by striving to deliver them exceptional customer experience and with an increasing focus on operational excellence.
I'm also going to discuss with you some of the ways in which we're applying technology to bring new and innovative solutions to the changing energy market environment. So Platts has been serving commodity markets for over 100 years. And Platts price assessments are integral to the workflows of very many of our customers all around the world. And they're integral to multiple workflows in those customers and right through the supply chain. And that's part of the underlying strength of our business.
We have a unique platform, the eWindow platform, which is an electronic platform, which shows real time bids, offers and transactions in markets at particular times during the day on the market on close in particular. And that's a unique competitive advantage because once we bring customers onto the e window, once we bring markets onto the e window, it's something which none of our competitors have. And the Platts business is the most global of the S and P Global Businesses. Our revenue streams are approximately evenly distributed across the 3 major geographical regions. We're slightly underweight in Asia, but Asia is our fastest growing region.
And Asia currently is much favored by those trends towards liberalization of energy markets, particularly in countries like Japan and China, which are some of the biggest energy consumers in the world. So as we look at those markets, it's worth mentioning that our business is our largest business is in oil. And we think that that's a good place to be because we're in one of the most attractive segments, price reporting, in the largest commodity oil, and we have a very strong position in that segment of price reporting. So oil is a really important activity for us and will continue to be so. But we have very strong positions and growing positions in other commodity markets as well.
Now those commodity markets are much smaller, so they're always going to be a smaller part of our revenue mix. But we have market leading positions in areas such as petrochemicals, metals and in natural gas in the United States. So as we look at those mature businesses, on the left hand side of this slide, you can see Dubai crude oil and a suite of products around natural gas in the U. S. And these are some of our biggest markets in crude oil and natural gas.
And you can see that they're continuing to grow. Now we use a number of measures to see how our markets are growing, things like the adoption of our prices, our price assessments in the physical purchase and sales contracts of our clients around the world. But the most visible way to track the growth of our assessments is through futures contracts, which are public information and which is what are on this slide. And futures contracts become relevant to us when exchanges around the world choose to use Platts price assessments as the settlement mechanisms for those futures contracts. And generally, the futures exchanges will choose a Platts price assessment when we have traction in the physical markets, when market users are using our assessments and when they think there's an opportunity obviously to launch a financial derivative against them.
So what excites us at the moment is not only do we have a strong position in our existing markets, but we think we're winning the white space in new emerging commodity markets. On the right hand side of this slide, we mention and we show the futures on 3 of those markets: iron ore, steel scrap and most recently, the Black Sea wheat contract. Now it may be hard to see on this slide, but the excuse me, the axes are differently labeled on these graphs. So I don't want you at all to think that the emerging benchmarks are at the stage of development of the established ones. They're not.
These are all relatively early stage benchmarks at different stages of developments. But what you can see, I think, fairly clearly on these futures contracts is that there is traction in all of these benchmarks. And the traction is reflective of the fact that they've already been adopted in physical markets around the world. Another point to note on this slide is that the exchanges which have listed these contracts are multiple. They are ICE, the Intercontinental Exchange CME Group SGX, which is the Singapore Exchange LME, the London Metal Exchange and also Tokyo, the Tokyo commodity market, which has the Dubai contract listed.
So you can see that we have multiple exchange relationships, and building those relationships is core to
having a
global business and growing these benchmarks. But the probably the assessment that we are most excited about at the moment is LNG, liquefied natural gas. Liquefied natural gas is a condensed concentrated form of gas, which can be shipped around the world. And the trade in LNG is connecting gas markets around the world, and we already hold a very strong position in North American gas and in other gas markets. And the trade flows in LNG are changing.
And I would encourage you, if you already haven't had a chance, to have a look at the product showcase outside. Doug mentioned or Chip mentioned the Energy Data Wall, which shows you real time trade flows in LNG among other asset classes. So as these trade flows are changing, the pricing structure is changing from long term contracts to spot contracts, and that gives opportunities for price assessment agencies such as ourselves. Platts launched its LNG assessment, the JKN marker, Japan Korea marker, in 2,009. And we've been working at it ever since.
And our assessment has been used as a settlement mechanism for futures contracts on CME ICE and TOCOM. And you can see on the top graph on the right hand side of this slide that those derivatives have taken off in the last couple of years. And this is indicative of the inflection point we believe that LNG trading around the world has reached, and we think that this is going to continue to grow for years to come and will change the structure of gas markets around the world. So our position in LNG has been recognized by 3rd parties. Earlier on this year, Reuters published an article saying that in the battle to establish the benchmark for LNG pricing in Asia, which many price assessment agencies, exchanges and others have been competing for, Reuters said that Platts had won the battle.
So there's still a lot of work to be done, but we're very encouraged by this. And why does this matter? Because if we establish a benchmark in the way that we have done in many occasions in the past, it establishes a strong and recurring revenue stream for the business. The benchmark becomes embedded in the client's processes in the ways that I describe. And then we can then have multiple applications, which continue to grow the revenue stream thereafter.
And that's what really drives the resilience of the Platts business model. So what you can see on the right hand side of this slide is that as many of you know, commodity prices collapsed in 2014 2015 and going into 2016. And several of our customer segments had really dramatic this had a dramatic impact on the revenue streams of some of our customers, particularly in the oil and gas upstream sector, but also on the commodity businesses of banks and other financial market players, many of whom either exited commodity markets or severely curtailed their businesses. Throughout this downturn, Platts' business continued to grow. And that's a testimony to the resilience of this business model that I've described, particularly as these benchmarks become established.
It's also explained by the diversity of our client base. As you can see, we have customers in consuming as well as producing sectors. And overall, it's supported by a revenue stream, which is over 90% based on subscription, and that 90% renews at a renewal rate of 94%. So it's a strong business model. The remaining 9% is what we call the Global Trading Services Revenues, GTS revenues.
And these are linked through our licensing agreements with exchanges to certain key contracts on those exchanges. And similar to exchange volumes, those revenues are much more volatile. So as we move forward, we think that we can build on the solid base that we already have to apply some of the technology and innovation across the organization to move the business further forward. We can simplify our processes. We can bring our technology platforms together.
And that will allow us both to operate the business more efficiently, but also to provide new products to our customers, going leveraging both across data across Platts, but also going outside of Platts into market intelligence, ratings in the way that Martina was discussing, for example, in ESG and in other areas. And we think it will also give us opportunities to improve the customer experience for our clients. We're well advanced in integrating our analytics acquisitions, which have been made over several years, so that we have one voice to the customer, one interface for the customer where we currently have multiple websites. And we will use the S and P Global platform for that interface for customers. So, it will provide an overall better experience.
We will also be able to simplify our product packaging to allow us to move more rapidly towards Enterprise Solutions, the advantages of which Mike discussed earlier. And as we move forward with that innovation, we believe that as we with that customer experience, we also believe we will be able to continue to innovate. I mentioned the EU window. It's 10 years old now. We continue to add new applications and new markets onto the EU window.
Most recently a specialist petrochemical market just a couple of weeks ago in Singapore. And we also are using new technologies such as blockchain to solve our customer experiences. We announced a successful application of blockchain technology in the port of Fujairah a couple of months ago to allow the port and port the tank owners to put their inventory data on an aggregate basis through blockchain, which would allow Platts to publish that data. It's a key part of allowing the port of Fujairah to bring more transparency to markets and allow the inventory owners to inventory in their individual tanks to do that in a secure way and with an audit trail. So we believe this is one of the first, if not the first, successful application of blockchain technology in the Middle East, if not in global energy markets.
It's resonated very highly with our customer base. I'd encourage you again to look at the product showcase outside to get more details of this. But we think that this is exactly the same process as we've used successfully over the years with e Window to grow our ecosystem by using technology. So as we move forward, our focus will be to continue to extend the core through innovation, responding to energy market and commodity markets evolution. We'll simplify our product strategy and our platform strategy increasingly using the S and P Global Platform.
And that will enable us to drive a commercial transformation moving to enterprise pricing models. Thank you. Mike to rejoin me for Q and A. Thank you.
Okay. We have some folks that will have microphones. So if you'd like to ask a question, please raise your hand. We ask in light of what Mike said earlier about the transcripts and the value we can get, okay? It's incredibly important you state your name and your firm's name very clearly.
We're going to
I'm going to take a risk here. We'll start with Peter Raffert. But Peter, you understand, just because you've got the microphone now, you can't keep it after the first question. Okay. We're sticking
with the rule of no more than 10 questions.
Exactly. So we're going to start with Peter.
Peter Appert from Piper Jaffray. Thanks. So two questions actually for Mike Chin. So the margin improvement story has been really impressive over the last few years. Margins are now approaching pretty much at the level of facts that are close to it, certainly better than what Thomson Reuters is doing.
So can you quantify us for us how much is left and what the runway can be from here? And then the second question, I guess, Mike, for you, maybe for Martin as well. You spent a lot of time discussing the global platform. How do you help us think about how meaningful that is? Is it a cost motivated program primarily?
Is it something that moves the needle from a product standpoint as well? What drives it? And quantification of any cost benefit you see from it? Thanks.
Thanks, Peter. So the first question around margins, I mean, look, we certainly think there's more to do. We've made a lot of progress as you noted, but we think there's more to do there. We'd like to be sort of best in class around both growth and margin. Clearly, there's a balance there over time.
I think we've made good headway in things that were not easy, but were clear and we have more to do. So our goals and I think Ewout is going to talk about this at the tail end, but we think sort of mid to upper 30s is where we can get to over time. And at the same time, we know that we operate in a competitive space. Technology investments are really important. We're going to have to continue to make plenty of those.
And at some point, there is a balance between continuing to invest for long term revenue growth, which we think is really meaningful to a premium multiple and capturing a lot of that is margin. So there's more to do. Maybe I'll start on the second question and Martin can jump in. Around the platform, would say there are a couple of primary motivations there. The first is, we think it's just simply more efficient from an overall S and P Global Technology spend to reuse and share architecture and technology wherever we can.
So not only over time is that certainly creates a cost advantage over time that's difficult to quantify. But we also think maybe more importantly that it helps everyone get to market quicker. Building these complicated software distribution systems is a lot of work. And we think that by sharing what we've been able to do over the last couple of years on the market intelligence side with everyone else enables them to make the kind of changes that everyone that they want to make to their businesses and just get there quicker and time to market is really important in our world.
Yes, I'd echo that. I mean, when you talk about the platform, I mean, within Platts, we were already looking at how can we bring our customer platforms into one place from the multiple platforms which we currently have from the analytics acquisitions. And you start to look around in the marketplace and then the S and L acquisition happened and we're looking at the way forward. And it really doesn't make sense to start building something new when you've got a best in class solution, which is in your sister company. So I think that just purely from a practical approach perspective, you wouldn't go at a different way.
But then when you start to sort of dig a bit deeper, you start to think about, well, what are the proper product opportunities which may come out of here. And our the analysts in all of our divisions, they ask us really regularly about this in terms of, well, how far have you got on this? When are we going to be able to use different data across the organization? Because they can see the opportunities.
Okay. We're down here.
About ESG. Just curious about the longer term bigger picture plans. I think I'd like to comment around this is not just about the investor side, there's so much more. When we talk to investors, it's kind of like S and P, that was your guess today, I think it came up pretty low on the list in terms of having ESG franchise, I think, maybe not 4, if I'm being generous. So I mean, are you trying to be number 1 or 2 at some point?
Do you have to buy somebody to get there? And then maybe say just lastly, can you actually disclose so much sorry,
hopefully anybody
heard this, but can you actually just do I have to repeat all this now? Can you actually disclose kind of like the what you define as your ESG revenues all in across all the different segments?
Yes. So let me cover the first part of it, which is there is I mean, there is a fairly buoyant market out there right now in the sense that there are a lot of different players trying to respond. We view it, frankly, as still being in very early innings in terms of ESG. And you only have to look at the number of frameworks that are being developed by regulators, industry groups, etcetera, to understand just how early this is in terms of the forming of the market. And so there's a lot of runway here.
And we don't think it's a winner takes all situation. So there's got to be room for a couple of different perspectives in the market. It's incredibly important to have a broad base of perspectives. And it's for that reason, we'll have even within S and P Global, we'll have perspectives from ratings, we'll have perspectives from S&P Dow Jones Indices, from Market Intelligence, etcetera. So hopefully, that gets to the first part of your question.
I think in terms of the second part of your question, so we have as you can probably guess, we don't break ESG out today. In many cases, it's actually bundled into enterprise contracts, for example. So it's quite difficult to get a sense for what's specifically and directly ESG. Our best analysis, I guess, is a range of around $20,000,000 that's direct ESG, but that's not counting quite a bit of indirect revenues as well that we couldn't necessarily separate. So that's where we are right now.
We'll go here we'll go way back. Hamzah?
Hi. It's Hamzah Mazari from Macquarie. Maybe for Mike to start. You have exposure to Commercial Banking Insurance. You highlight those as sort of 52% of your mix.
They're growing much faster. If you look at your competition, they're not really penetrated there. So maybe just talk about how defensible that is. You have a large private equity competitor that's going to close a deal soon. Can they penetrate that market?
Just help us understand sort of the competitive set and how you defend that diversity? Thanks.
So in that 52%, I would say I'm not sure I would say that it's less competitive, but I think the competitors are different as you point out. I can't speak too much to their plans, but I would just say that over time, some of those larger competitors have chosen have been in those markets before and have chosen to get out. And then also some have started to inch their way in. I'd say we have a few advantages. One is we've been across a lot of the different legacy assets across market intelligence, virtually all of those businesses that have now come together have been operating in banking and non financial corporates and insurance for a very long time.
So this isn't a new thing for us. It's a long time focus. So I think we've built some really deep, as I we tried to illustrate for you some very deep broad relationships that we think are quite sticky, where we year after year in those markets continue find new use cases and new personas where we can bring our information and our analytics and help them solve new problems. So that's what's really driving the growth. There's also just frankly a lot of companies to sell to in those spaces.
So we're very positive on that space. It's not that we're not investing in investment banking and investment management, we are, because investment management is our biggest segment. But we just think that we need to direct a lot of investment to those areas, because you can see in the numbers that it's a very rich source of growth for us.
Okay, thanks. Let's go right here in the
yes. Hi, Connor Fitzgerald from Goldman Sachs. Mike, just a question for you. It feels like the marginal investment dollar from some of your customers is moving from the back office to the front office. Just wondering if that's something you're seeing from your customers?
And what products are you focused on using to capture that investment dollar trend?
I think that's true that things are starting to sort of swing to the front office. I think everyone's focused on revenue growth and product differentiation and all those sorts of things. I think probably where we're seeing that the most are in some of these corporate areas, certainly in banking and insurance, in lot of the underwriting and lending functions. I think that perhaps those groups have been a little later to embrace
sort of
these new workflows and new ways of doing things. And any time we can get in the front office or where we can directly diagnose a problem that speaks to revenue generation, we love to be in those areas, because it's just easier to talk about a product that's helping you drive top line than something that's sitting off in the back office and helping you drive efficiencies. So I think in those markets, we're certainly seeing that. We're in a lot of insurance product design and development areas in the corporate space. We love to be in strategy and corp dev too, because that's maybe not exactly front office, but certainly helping drive growth and drive strategic positioning.
So I think your point is a good one and I think we're seeing it and we are increasingly focused on training our people to be able to have those conversations.
Okay. Let's go way over there, Tim.
Hi. Tim McHugh with William Blair. Just asking on the data feeds growth you talked about, the growth looks
great, but
I would have to think of that as a more competitive type of area just because there's others who can offer somewhat similar data feeds. So how is competition? How do you differentiate and how price sensitive are the clients when you're trying to grow that product right now?
I would say that the data feed business is similarly competitive to the desktop, because a lot of the same players are in that space. In terms of differentiation, we always come back to uniqueness of content, proprietary of course is great, linked together effectively, we think we're really good at that. Quality is everything as people are back testing models, I mean, high quality and low quality sorts itself out pretty quickly and we think we went on quality. It's from a pricing perspective, I'd say that the ticket prices tend to be higher. There is appetite to pay for data.
The sales cycles tend to be longer because you're we're engaging with lots of different people to get one of those opportunities across the finish line, including technology and data folks on the client side. But it's very sticky once we're in, the renewal rates are really, really high. So we love the business, We think we can do more there, both from a product development perspective and a commercial perspective. And then alternative data really is a whole different set of opportunities for us.
We'll take one last question for the freshen break. So down here in the front.
It's Manav Patnaik with Barclays. I just had a broader build versus buy question for each of you. So Mike, you talked a lot about alternate data and technology and building that out. Like is that technology helping you get unstructured data and structuring it or do you need to buy the structured data? For Martin, for you as well, like you're putting all these brands together, I guess, now like how much more white space is there that you think you can acquire?
And I think Martina you sort of answered it, but just I know you guys acquired True Cost, but is there more that you need to do or is this now an organic build out?
So on the alternative data question, the way forward there, I think there are a number of different ways to address that. We bought Panjiva, which had a great business on its own, but also is definitionally alternative data in a way. We thought that made sense for us. There's also partnerships are very typical in the space, whether those are revenue shares or just buying the rights to distribute content on a proprietary basis. So I think we'll do what we think makes sense, but there are a number of different ways to do that and a number of different models for bringing that alternative data to our platform and we'll pursue all of them.
But I think as far as Plattsburgh business is concerned, I mean, we've got very strong organic market positions in most of our markets. So we think organic growth is going to be important, But there will and we continue to pursue tuck in acquisitions to build out the product set. And there are opportunities, and they come, and we review them regularly. And when they make sense, then we'll proceed.
And I would just say there's so much that we can do organically. And I mean, one of the reasons why we might not have factors as highly in conversations in Europe is that we haven't to date done a good enough job of connecting the dots between the divisions. And that's really the goal of the design team is to do that. And there's quite a bit of low hanging fruit. I mentioned bringing True Cost onto the global platform, Platts data onto the global platform, even connecting what we do in Platts and MI around energy with the asset level data we have is very powerful.
And of course, we're talking to 3rd parties where we have to fill data gaps, but those are immediate areas of focus.
Okay. I took an audible there and stole 5 minutes from your refreshment break. So we can do 5 minutes of Q and A. So please be back here at 2:40.
Move. Thank you.
Can you hear me? Yes, great. Okay, please take your seats. Let's get started. I think you guys did pretty well with the bottleneck in the men's restroom.
So let's continue with the program. And now up next is Alex Maturi
talking about
our index business. So Alex?
So good afternoon. This afternoon, I'd like to give you a little bit of insight into how S and P Dow Jones Indices is going to be powering the markets of the future. Our core business continues to be the same, which is it's continuing to develop indices for use in investment products and as a measurement of investment performance. We're very focused from a global perspective both in terms of the markets that we serve and the underlying assets that we use to build our indices and take a laser focus on our customers And just as importantly, our customers' customers, because at the end of the day, those are the people that are actually driving the investment dollars going into these investment products. And we believe in the continuous innovation, which for us means continuing to develop indices that become relevant for market participants.
So how do we do this? So S and P Dow Jones Indices is one of the largest providers of indices globally. We have almost $14,000,000,000,000 benchmark to our indices and our products run the gamut of asset classes and geographies. In terms of the indices that we develop that we offer out, we cover U. S.
And global equities, frontier markets, commodities, fixed income, volatility, real estate and other economic indicators. And we offer these from a global perspective in terms of the underlying regions that they cover. In addition, we have a full suite of indices that are specialized versions of these standard indices. These include things like ESG that you heard Martina talk about earlier, factors or sectors, different ways of slicing and dicing the market in new ways. In addition, we provide research and analytics that help support the use of our indices for investors.
And we continue to offer custom index capabilities where we actually calculate indices for typically banks or asset managers where it's their own intellectual property and they need an independent index calculation agent. So over the past 4 years, our compounded annual growth rate has been 10%. And this revenue mix for us continues to be about 80% coming from market forces. These are the assets under management tied to the products that we earn for licensing our intellectual property. These could be structured products, index funds, ETFs, trading volumes tied to exchange traded derivatives based on our indices, with the remaining 20% coming from our custom index business plus the sale of our real time or end of day data.
From a revenue mix, we always show up as very U. S. Centric. But I urge caution when you look at that, and that's really a function of where our customers are headquarters. Our largest customers are the ETF providers, the banks, and most of them get billed out of the U.
S. So our revenue shows up as U. S. Regardless of where the underlying customers are, the people using the products, and also what the underlying where the products may be listed. So what's been driving the growth of our business?
The biggest trend has been this continued shift from actively managed strategies to passive strategies. If you look at the chart in the middle, over the past 10 years, there's been almost an equal amount of money that's been flowing out of actively managed mutual funds into ETFs and index funds. And today, the definition of an index product or a passive product is much broader than the traditional view of just a cap weighted index and is quite, quite broad. But what's been driving this sort of growth? It's been a desire for investors to look for lower cost products.
They want cheaper products. They want more transparent products. There's been this fiduciary obligation of advisors nowadays to seek lower cost products. And there's been this growing importance of the distribution channels for investment based products that have been driving a lot of this. And we see these trends are going to continue into the futures.
If you look in the right hand side, one area of particular growth has been smart beta. These are ways of slicing indices into fundamental factors into different ways of driving performance. This is an area that we see again continued very, very strong growth. And our own efforts in this area now have reached over $250,000,000,000 index to this. So let's dig a little bit deeper into the growth of our business.
Here in the U. S, which we think is one of the more indexed markets in the world, our estimates are that there's only about 20% of U. S. Equity Capital Markets that's indexed. So there's still plenty of room for this growth to continue into the future.
When we look at this on a global basis, we're starting from much smaller levels, both in Europe and in Asia. But again, the growth rates are going to be much faster as these markets are now starting to go through the evolution that's happened in the U. S. Over the past few years. So we think there's plenty of room to continue growing over the near term.
Now an important aspect of our success is how we operate across the full index value chain. Our direct customers are the people that we license our index intellectual property to. These are the product issuers, the ETF providers, the mutual funds, exchanges. These are the people that use our IP, use our indices to develop products that they sell into the marketplace. But just as important to us are the indirect customers or the customers of our customers and it starts really with the distribution chains, the distribution channels.
These are like the financial advisors, the consultants that are now becoming the important gatekeepers to make an investment decision for a lot of investors. These are the wirehouses, firms like Morgan Stanley or Merrill Lynch that are now getting more and more involved in making these decisions on behalf of investors. And then there's the actual end investors themselves, the actual asset owners. These could be pension funds, These could be the sovereign wealth funds that you find throughout the world. Doug mentioned GPIF, one of our large clients based in Japan, the largest single asset pool in the world.
In addition to individual investors, they're all part of the value chain that we seek to serve. Now our commercial strategy targets each of these segments differently. We target the direct customers through our licensing efforts with our product teams, with our research teams to make sure that they have the support necessary as they launch their products. And our business model is very much aligned with the success of our customers. We get paid typically basis points with some sort of variable fee tied to the success of the assets that are accumulated or the volumes that come from trading of indices that are tied the products that are tied to our indices.
So we do a lot to help their efforts to grow and capture assets. But just as importantly is the amount of time that we spend, we have separate teams that call we call our channel strategy that go after the financial advisers that call on consultants. And here the goal is really to get involved in the benchmark selection process, make sure they understand the indices, influence that decision. Because by influencing the decision about what index you're going to use, that's going to indirectly influence the actual products that these customers will end up using. And then, of course, there's the end investors.
More and more we're seeing sophisticated pension funds that are using index based strategies to meet their asset allocation needs and working with them to come up with customized solutions for them is very, very important. Now this approach has several benefits. First of all, it keeps us very close to the customers. We understand what's going on in the marketplace. We understand what their needs are and we can factor that into our index development process.
Just as importantly, a lot of our efforts help our direct customers. We help them in terms of actually raising assets going out and talking about indices. We go on roadshows with the banks that issue structured products. And again, because our interests are aligned, if they're successful, our revenues are also successful. And so this loop becomes very, very important.
And there's been much discussion about fee compression in ETFs. But fees are not the only drivers of success in this important market segment. It's important when we look at ETFs to think about all the factors that really drive success. And it really comes down to the total cost of ownership, not just the expense ratio itself. What's the bid ask spread on that ETF?
How liquid is it? Who has the 1st mover advantage? Is that ETF being used as a hedge for structured products? Is a lot of factors that drive success and fees are not just the only component of that. If you look to the right, there's 3 large S and P 500 ETFs here in the U.
S. The Vanguard product, the iShares product and then the State Street product, the Spider product. The State Street product, of course, was a first to market. Now that's the product that actually has the highest expense ratio. And yet that's still the most popular product to be used.
It's still the largest product largest ETF product in the world. And a lot of that is due to a function of it's got such a tight bid ask for the liquidity of this is so good that people could move money in and out of this product all the time and people are willing to pay for higher pay higher fees to access that sort of liquidity. And this phenomenon is not just with the S and P 500, we see this with many other indices that the lowest cost product is not necessarily the product that captures the assets. You have to look at it in its totality. And it's not just a function of just our own indices.
We see this even with some of our competitors. An important part of our success has always been our exchange strategy. We have 14 exchange partners throughout the world. And we've emphasized the faster growing markets, the markets that are earlier in the development cycle. And it's a symbiotic relationship that we develop with these exchanges.
With the exchange itself, what do they get out of these sort of partnerships? Well, certainly they get the commercial reach that we could offer them that they can't get on their own. We can commercialize their indices in ways that they hadn't thought of, ways that we can protect intellectual property to make sure that they're actually earning money on the use of their indices where many of them used to give this all away. Just as importantly, we bring their index development to global standards. This is becoming more and more important as we've become now regulated in Europe and in other markets.
So it brings that to that level that these indices can be used in Europe because if they're not available to meet those global standards, they can't be part of products there, for example. And of course, we can continue to develop new index concepts that they're just not used to thinking about. And from our side, we gain a benefit of being in the markets with a strong local player. We get access to the local brand, which is important as we develop products for these local marketplaces, much better to go into Japan, for example, using the topics brand and just using an S and P brand. And so everything we develop with the Tokyo Stock Exchange becomes S and P topics.
That local brand gives you a much better chance of having success of having recognition into a lot of these markets. We also gain a strong partner that opens doors for us. They know all the pension communities in a lot of markets. In Latin America, for example, a lot of these pension funds are buying U. S.-based products.
They don't have enough local products. And by having exchange partners, we get to know who the pension funds are, we can get in and see them and talk to them about, if you're going to buy U. S. Based product, we want it to be a product with an S and P index inside. So we gain that benefit of a very strong local partner.
They help us with regulators as regulators are now starting to look at our business. So it's a very important part of our global strategy is to build it around these core partners in exchanges. Now exchange partnerships are a key component of our build from the core strategy. Some of you have heard me talk about this. But I want to show you how this all comes together.
So in our core strategy, we have our base indices. This could be the S and P 500, it could be the topics in Japan, it could be the VAVESPA Index in Brazil, and they all have a core index that's well known. From that we then start building out our product suite. We could start with sectors, we could apply ESG, we can make it factors, many, many different ideas all built off of this combined brand S and P plus the local brand on this core index. The 3rd layer is how we then figure out what's the right way to distribute this index.
Is it appropriate for an ETF? Should it be a structured product? Should it go into a fund? Who's the right partner to be the person that we license this index to? These are all factors that will help increase success.
So as an example, we took our S and P BMI, which is a broad market index. We applied a 2 factor model that included combining intrinsic value with low volatility, 2 well established factors in academic research to create what's called the S and P Givi Index. This was licensed in Japan to a lot of the index funds, including used by GPIF and today has $28,000,000,000 in assets tied directly to that index to this product. What made this successful was just as much having the Tokyo Stock Exchange be a partner of ours that allowed us to distribute this with them behind it. So what does the future look like for S&P Dow Jones Indices?
We will continue to build on our core franchise of developing indices. We'll continue to innovate these indices to meet investor needs throughout the world. And we'll continue to expand globally through our partnership of product issuers and exchanges. Thank you very much. And next up is John Beresford.
All right. Good afternoon, everyone. So I've got 25 minutes. I'm going to try to
do 3 things.
I'm going to give you a sense reintroduce you or introduce you to the ratings business, depending upon how familiar you are with it. The second thing I'm going to do is give
you a little bit of
the market backdrop for issuance and the context on why we're optimistic about issuance. And then 3rd, and the lion's share of my time I'd like to spend on the initiatives that we have either in flight, underway or imagined to create sustainable ways of growing and creating value for this business. So you've seen this framework before. It works really well for ratings. On the growth side, we've got opportunities to evolve and grow our core business, and that is by extending our methodologies, our coverage, the globality of our coverage and adding new issuers to our pipeline.
On pursuing growth via adjacencies, this is about we have some of the richest IP and data in the franchise. And initiatives like Project Simplifier are allowing us to discover and make accessible that data. And we see opportunities to create products off of that data. The one thing I would remind you is you may not see those, they may not be ratings products. The opportunity might be in some other part of the portfolio, but we have a lot of that data and we see growth opportunities via adjacencies leveraging that data.
On globality, you saw the news morning. We see an opportunity to extend our coverage by extending globally. Our priorities are in Asia Pac. ASEAN countries are very attractive to us, and you obviously know we're very committed to China at this point in time. On customer orientation, 3 years ago, we hired Chris Heusler to lead our Chief Commercial Officer Organization, and we are maniacally focused on engaging with clients.
And for us, that's issuers and investors. We had over 22,000 face to face meetings with issuer clients last year, which explains why we added net new clients in 2017. And what that allows us to do, that dialogue with clients, it allows us to think about innovating. Often dialogue with clients, they have a thesis that we actually have data or content somewhere in the pipeline informing the way we think we can innovate. Operational excellence for us is really, really important.
We're a 150 year old company, And I would fair to say it's fair to say that most of that time was spent building a very bespoke operating environment, largely built around the habits of how we actually handle credits asset class by asset class, industry by industry. And for those of you that I've spoken to before, you know we committed to really foundational work on workflow and data architecture that we're beginning to cycle to the end of, and that's allowing us to ask more sophisticated questions about how we use technology. And then this will this is today and will be for a long time a people intensive business. That's why when we talk about technology, we talk about augmented intelligence. We don't see a scenario where our analysts aren't sitting in the middle of our credit analysis, but there are ways to change the nature of their work and move them up the value chain and away from the spreadsheet jockeying that analysts can do in a very bespoke environment by leveraging technology to do that.
So this is the business overview. Four things I would say upfront. The real attributes of this business that I love are the power of its brand. This brand is known for integrity, independence and transparency. The second thing is the globality of our coverage and the depth of our coverage.
That takes a long time to build, and it's not easy to do, but our coverage is, in fact, global. The third thing is, and you would know this, we're a deeply regulated business. We have over 28 regulators around the globe. And what's happened over the course of time is that regulatory scheme has matured and so has our ability to ingest and absorb those regulations. And we think the regulation has been good for this industry and our business because it's yet another set of high standards on how we produce quality, the highest quality ratings and forward looking opinions.
And at the end of the day, we like to believe that we compete on quality. A couple of other facts about this business. We have 1500 analysts globally, and that work that analyst community is actually growing. We have 125 countries where we produce ratings. We have over 1,000,000 credit ratings outstanding, and we've been in the market for 150 years.
You would know our clients to be largely issuers, investors and intermediaries and we take all of that client group very seriously. They give us really rich feedback about how to make our business better. You'll see on the upper right, we have some financial momentum. We've had a good couple of years with a 7% growth CAGR and several years ago we saw an opportunity to sustainably and thoughtfully extend our margins and we've done that without compromising any of the capabilities that we have to create quality in our offerings. And then in terms of the concentration of this business, you could see we're largely North American and Europe.
We have good coverage in South America. I don't know that I would call that a big growth driver over the next couple of years, but APAC should be. APAC has been growing very nicely. It's 10% of our business today. We are entering China, and I'll talk about that in detail in a minute.
And we're bullish on ASEAN countries, and we think over the course of time, they'll open up the way that China has at some point in time. Market trends creating tailwinds for this business. Total corporate debt outstanding continues to grow over time, which is a real attractive, obviously, market condition for us. I'll give you some of the details about that. Securitization market is returning after a period of softness.
There were a couple of years where that got really soft. It was largely a function in our view of the new regulations like risk retention, and the market needed some time to absorb those. We think they've absorbed them, and we saw really good growth last year and into Q1. You heard Martina talk about ESG and Cyber. Our view is that those are not passing whims that they look like sticky themes.
And we think ratings is well positioned to incorporate them into our ratings and also leverage some of the IP and content we create to satisfy use cases on our portfolio or beyond it. And then geographic expansion in China, and I'll take you through that in more detail in a minute. So if you look at we've shown this chart. This is one of Chip's favorite charts that he's ever seen in his life. The correlation between GDP growth and debt issuance, by the way, he's a very simple guy, so he only has like 2 charts.
The correlation between debt issuance and GDP growth is actually quite strong and been true and stood the test of time. And what we're seeing around the globe is synchronized GDP growth. We just, earlier this year, took our GDP growth for Europe up pretty substantially. And so we like that as one of the backdrops for why we're bullish on issuance. Capital markets are still underpenetrated in key regions.
You can see the penetration in the United States and Europe is very strong, which kind of drives you to the refinancing walls that we see on the right hand side of the page in the corporate refinancing chart. But China and ASEAN are actually quite underpenetrated, and that represents a real good solid growth opportunity for us, and we're committed to seeing it. And then you can see LatAm and India are quite underpenetrated. And then significant corporate refinancing needs in the U. S.
That give us great confidence that issuance will be pretty positive or good enough. Now on issuance, I would say, what you've seen over the last couple of years is, this is a management team and a business that's capable of maximizing good markets. And in Q1, we had a soft market, and I think we proved we can navigate the troughs pretty well as well. And so we're conscious of being able to be agile enough to adjust to market conditions. This is the picture on structured markets.
So you can see pretty strong growth in 2017 over 2016. You saw good growth in Q1. We think that is a function of real confidence in the markets. They've absorbed the regulations and I think gotten comfortable with those regulations. And then over on the right, leverage loans are have more than doubled in the 8 years.
And in the U. S, there are over 1,000 issuers, which is really good growth and gives us a good indication that those markets are very healthy. So we have multiple opportunities to extend into new markets, and this is the way we think about it on the left hand side. So this is an opportunity for us to expand coverage beyond our cross border credit ratings. And being in the domestic market allows us to participate in the build out of the credit culture and gives us relevance, more relevance than someone not participating in the domestic markets to be even more relevant for the cross border stuff.
Supporting capital market development, as I mentioned, building that credit culture. And what we've seen is large developed bond markets and emerging markets really need foreign direct investment and the governments of those countries and the regulators see us as a real attractive way to bring transparency to that market and therefore attract investment into that market. We have 2 paths, 3 paths really. We can buy a domestic rating agency, we can do a JV to the extent that we can't fully own a subsidiary or we could go greenfield. The markets that are attractive to us working from the bottom up, Philippines and Vietnam are on our watch list, Malaysia and Indonesia and Thailand, we have JV arrangements with domestic rating agencies.
We can't fully own a subsidiary, but at some point in time, that may happen. And if it does, we're really well positioned and those bond markets are quite large. And then in South Korea, we just entered into a commercial arrangement with a domestic rating agency. We'll see how Korea develops, but it's we view it as attractive for the moment. So let's talk about China.
So we're going to enter China with a greenfield. A year ago, China opened up the market to the large rating agencies and we pursued parallel paths. We were looking at a domestic rating agency and we were looking at what it would take to build a greenfield in China. Our assumption was that given the opening up of the markets, the domestic rating agencies would valuations would come down. And while we believe that, they didn't.
And so one of the things that caused us to choose to go greenfield is valuations remain very high. And at the end of the day, we like the idea. And to be frank, the shareholder structure would have been a little complicated. And a greenfield allows us to enter the market on our pace and be in more control of the analytics. And in the end, that's what we've decided to do and we're quite convicted about it.
So we're going to build a leading rating agency in China, 100% S and P owned. The idea methodologically or analytically is to take the domestic scale and over the course of time, build it into a China scale, but ultimately, over the long term, would map to our global scale. We have to be sensitive to not being disruptive to the inter bond market or the bank markets in China. And so we think there's a way to do that and be quite relevant. And our dialogue with the PBOC has been really productive.
They've been very clear about what their needs are. They've been very inquisitive about the global regulatory landscape for CRAs, and our dialogue gives
us optimism that we can find the right path
forward in China. So ratings 360 as a digital platform that delivers our ratings and a whole bunch of other content to issuers. So think about this product as compared with some of the stuff that Martina and Mike own as a product for issuers. We have other use cases that we might extend it to, but at the end of the day, think about it as issuer. It's a you could see it's a simple way for issuers to see their ratings, they can begin to compare peer sets and suppliers.
It's beginning to include forms of alternative data like investor sentiment and that's a consistent theme across our portfolio. We're getting comfortable with how we use that kind of data. Our economic research, and it gives them a way to engage with their analysts. We are quite confident that this is a very differentiated offering in this space, and we're proud that we built it, and it's an example of really good synergies and collaboration across the portfolio because while we built the content and the prototype, Mike and his team built the production version, and we think that makes good sense. Otherwise, I would have, over the course of time, had to make some investments that would have been redundant with his.
We see other forms of innovation. So green evaluations, think about green evaluations as an issue level assessment. So this is a bond, this is the A credit rating. We've done somewhere around 30 evaluations since we launched our methodologies a year ago and the pipeline is building. This pipeline is actually quite rich.
This is what we know today, but this is building quite nicely for us. And then we look at things like transparency score, governance and mitigation score. We also think beyond credit ratings, our analytical capabilities allow us to think about other forms of assessment, and ESG is one of those forms of assessment. So think about that as an entity level assessment, where green evaluations is more focused on the bond. Another synergy opportunity is that we're leveraging True Cost data and we're introduced to True Cost by the Index business and they are they have been a wonderful partner.
And importantly, we've spun up 2 teams in S and P ratings. 1 is an analytical innovation team. Don't think about that as commercial, but think about it as getting the market feedback that we get from issuers and advisors and thinking about how to extend our footprint through methodologies or cut work or coverage. And then the second is we have a green finance team led by one of our ESG experts in Europe. And this is a cross practice, cross sector team that is looking for the right set of methodologies, data and scoring for us to be relevant in an ESG assessment.
And then on cybersecurity, we created we entered into a partnership with CYENS. CYENS is a cyber threat data and Ratings 360, but this offers seen a lot of that data in Ratings 360, but this offers visibility into a new risk, and we're quite convinced that our issuer clients are going to find that data coupled with our own models and data to be very useful as they think about risk broadly. This is a ratings presentation. So the core of what we do is analytical excellence. We get feedback all the time, informally and formally, and here's what issuers and investors tell us.
Our strengths are our brand. Our brand stands for integrity, transparency and quality. Our reach is extensive and global, so we show up with a point of view, quality ratings and forward looking credit opinions. Our coverage continues to get stronger and the quality of our analysts are a distinguishing feature and we intend to maintain that differentiation. They also tell us that we have opportunities to improve.
One of the areas is market engagement. And by market engagement, what we mean is analytical engagement with investors. Those gaps are important for us to close. And so under Jan Lipalik's leadership and our analytical practices, we are doing a lot of training and a lot of we have a lot of initiatives to get our analytical teams more engaged with investors and close those gaps. And we made progress last year in that area.
I expect us to make more progress over the course of the next year. And then the last thing is, 3 years ago, when we took an honest assessment of our technology and data capabilities, we had a lot of technical debt. And by that, I mean, software systems that weren't running to their performance standards and a lot of complexity. And so we're addressing that through our analytical organization as well. So the priorities here are analytical engagement with investors, augmented intelligence, which is about and I'll talk more about this in a second, but this isn't about replacing our analysts.
We don't see that in the future, but we do see leveraging technology to augment what they do. Not everything they consider is important to the outcome of rating, and some of those things lend themselves quite well to technological solutions. Analytical talent and leadership, one of the things that I assure you we do in this business is we sweat leadership appointments. We fundamentally believe that leadership appointments matter and drive a lot of value. And we are focused on continuity and expertise and sector knowledge in our analytical organizations.
But on the flip side, we've been aggressively retooling our IT and data capabilities. You can imagine as we deal with that technical debt and retire some of those dated systems, we have to find new sources of talent with different skills. And the two areas I would point out are data science and software engineering, which were not in our wheelhouse. And then finally, we're simplifying our organization. Over the course of time, I think, in response to a variety of factors in the market, we got a little clunky and complicated in our organization structure.
We saw an opportunity to simplify, especially the way we thought about our methodologies, the development of those methodologies and the validation of those methodologies. But broadly, we saw an opportunity to simplify the organization. You saw us take a Q4 charge, and we actioned those matters in Q1, and we're beginning to see some cost benefit from that as well. But the real purpose of this was to define absolute role clarity and accountability because only with that can we execute well. And when that's diffused or distributed, you're guessing about the level of execution you're going to get.
We're confident those actions will help us do that. Just a couple of minutes on technology and data. 3 years ago, we committed to a pretty transformative tech and data agenda. You can see the process and capabilities on the left hand side, but what we've really done is deal with workflow. And Project Simplify was the project by which we wanted to standardize our workflow.
We have 3 practices to go. We're in the tail end of that. And importantly, our number one goal was 100% standardization of our analytical workflow, and we are achieving that to date and would expect to achieve that at the end. The other thing that we're working on is our data architecture. We have an initiative called our integrated data facility, and we're doing some of this work with Mike's team on Data Factory.
But the rest, content and publishing, sales and distribution other than Ratings 360 remain in front of us. And the outcomes we're looking for are digitized analytical workflow, which we've accomplished. And just to give you another highlight of Simplify, much of the data that you see in Ratings 360 was discovered and enabled by implementing standardized workflow in our analytical practices, right? I mean, at the end of the day, that's hard to do when the data is inconsistent or inaccessible or undiscoverable. And so that little project on or massive project, if you're one of our analysts, is actually enabling other streams of value.
And the best example of that is data that's actually showing up in SIMPLIFY. Augmented Intelligence, the Ratings 360 platform. On Data Factory, I've mentioned to some of you that we committed to moving our Data Factory in chunks over the course of time to Market Intelligence. One of the things we found attractive about SNL and combining it with Cap IQ was they run data factories to scale. And if you think about what I want in terms of data ingestion, I want the highest quality on the lowest landing cost, and Mi can do that.
And so we're through Phase 1 of that and are optimistic about the next chapter of that. So three use cases for augmented intelligence, and these are early days, so don't ask me questions about how much value I'm going to get out of that in Q2, but we're bullish on the potential here. On ratings production, so this is the factors that our analysts consider on the way to producing a rating. And what we're trying to understand is, which of those are really highly correlated to rating outcomes and what of those are not as highly correlated to rating create algorithmic or technological ways to do that, what that allows us to do is move our analysts forward in the value chain to do more value added stuff. And out of the work that you can imagine they do when they're operating in a very bespoke environment without standardized workflow.
Surveillance optimization, we have 1,001,000 credits outstanding, and we surveil those, right, all the time. And one of the things we're really excited about talking to Kensho about, and we've had sessions about this to date is, what we can't do today is see signals and patterns in that big tranche of data. So what we do is surveil them periodically, annually against some schedule. But we also know that that surveillance doesn't always produce a rating a change in a rating. And so we love the notion of being able to see those signals and patterns, both to extend the quality of our And that also allows us to think about how we use And that also allows us to think about how we use our analysts' time and move them more forward in the value chain, and they are very exciting propositions.
And then data and IP distribution, this is about unlocking more of the data. You would be surprised how much data we create, how much data and content we create on the way to producing a rating that we don't do anything with, right? And our clients have been very helpful in telling us, I'll bet you have this. I'd like to see that. I'd like to see it in this format.
And we'll sort out over time who gets credit for that, what P and L it shows up in, but we're very confident we can be a driver of growth either on our own portfolio or across the portfolio. So let me wrap up here. Our priorities, if they're not clear by now, are to strengthen our analytical excellence, and we think both in traditional ways and leveraging technology is a useful way to do that. Executing our tech and data strategy, which is getting which is moving from being more foundational to more transformational, and we're quite excited about the growth opportunities in Asia Pac and excited to get started in China. So thank you very much.
I'm going to turn this thing over to Mike Chen, who's going to host the technology panel, and I'll talk to you guys later. Thanks.
All right. So for our next session here today, we are going to spend 20 minutes drilling into this topic of technology that has come up over and over again today and get some insights from these gentlemen who've joined me on the stage around some of those issues. So let me do quick introductions. On my far left here is Nick Caffarello. Nick is Chief Technology Officer of S&P Global.
He in his background has worked for a number of financial information businesses over time. He's always had product roles, so he understands the direct impact of clients and the amazing things that we can do when we bring technology to solving client problems. So welcome, Nick. And then I have Daniel Madler right here on my left. Daniel is Founder and CEO of Kensho.
He is an academic by training, but one with tremendous commercial sensibilities. And Daniel started Kensho a few years ago and has stockpiled just an amazing group of talented data science, artificial intelligence machine learning experts. And so we're thrilled to welcome Ken Cho to the S and P fold just in the last couple of months. So let's get into a few things. So Nick, Doug referenced the new operating model in his opening remarks that has sought to bring together technology, software engineering and data operations across the franchise.
So maybe you can kick us off by telling us what that means for S and P and what does that mean for our clients?
Sure, yes, great. I think everybody's heard from the different presenters that technology and data really sit at the core of who we are and there's a lot to get done. I think what excites me about the new operating model is we're bringing technology and data operations forward. We're bringing it to our clients. We're making it a part of our commercial organization, our business organizations, we're getting out in front of clients, we're listening to our clients' problems and we're taking all that information in to what we're doing internally.
And we play an interesting role in the market because not only can we learn from our clients and make our products better, but what we're finding is many of our clients are struggling with the same challenges that we have. They want to understand how to use the cloud more effectively. They want to understand machine learning and artificial intelligence and when maybe they can apply that. And they're turning to us as a trusted partner for a lot of that information. And so it's really a great opportunity to showcase the things that we can do and to learn from those things.
I would say the second benefit or thing that I get excited about in terms of this new operating model, it gives us a chance to look across the organization and to really apply best practices. Most of our technologies historically are very heads down. They're dealing with the fire that's in front of them. They have a hard time looking up and looking long term. And this new operating model really puts a premium on that.
We need to be thinking about the long term for our clients and the client value that they drive. We need to be thinking about the long term for our organization. What does it mean to leverage continuous development? What does it mean to leverage the cloud? How can we build communities of excellence around artificial intelligence and machine learning and use these emerging technologies to power our business and ultimately help our clients.
So I think this operating model really helps position us in a way to be successful for the future.
So how do you balance, I think one of the risks is that all of this sort of technology and data becomes centralized and sort of turns into this sort of bureaucratic process rather than something that accelerates the business. So how do you balance in this model, sharing
best practices and doing those kinds of things
for the benefit of everyone, but
and bureaucratic, bureaucracy, bureaucratic process, I think, and bureaucratic, bureaucracy, bureaucratic process, I guess it's 3 words. What we do is we have an operating model where the technology teams are still embedded in the businesses. We don't take them out of the businesses because again we want them to be close to the clients, we want them be close to the P and Ls, we want them to have joint responsibility for those P and Ls. Those technology teams report not only into me but they report into the Presidents so that they stay focused on the business. But at the same point, they have goals and objectives set across the organization to drive that long term growth.
So to some extent, they're focused in the short to medium term within the business, getting things done, executing, driving the machine, but also looking long term to say, okay, how can I leverage some of these tools, these best practices really to put us in a better position for the long term? So it's that short term focus, having those goals, having those objectives aligned with the business and then that long term focus with goals and objectives for S&P Global.
And I think we've found that there are a lot of shared challenges within the divisions and if we can raise these things up and reuse code
and
reuse applications, then we can just do things a lot more efficiently. We talked about that earlier.
Absolutely.
Great. So Daniel, coming from Kensho, I guess, tell us why S and P? Why was this a good home for you and your talented colleagues?
Sure. So one of the things that you hear a lot, maybe some of you have heard this phrase is that data is the new oil. Whenever I say that the Platts guys get very excited. And so if you think about Kensho and what Kensho is and what motivates our talent. Kensho was a company when it was independent that had built some of the best oil refinement and extraction technology in the world, but controlled almost none of the world's oil.
And we saw S and P as this company that was in this very special moment, analogous for those of you who know your oil history to where Texas was at the turn of the 20th century, sitting on top of some of the most vast oil reserves in the world, but with almost none of it having been tapped and refined by data science. So for us that was just a very, very attractive moment and a very attractive partnership. The other thing to keep in mind is that this wasn't a blind date. So if you look at what makes a lot of acquisitions not so successful, especially among my colleagues in California, it's a big company finds very, very sexy company, acquires it, knows really nothing about it, company knows really nothing about the acquirer. And then day 1, they get together and it's like, so what do you do?
Wait, what do you do? Why do we acquire you? Why do we join you, right? And it was the opposite in this case where we had worked together for about 18 months prior to the acquisition, S and P was our largest both investor and our largest customer by the time of the acquisition. And we had spent the previous 18 months before the acquisition working on one of the hardest and most attractive problems to us, which is natural language search engine capability across the S and P platform.
So this wasn't a blind date, it was something that once day 1 occurred, it was really just a continuation of day 400, day 500 and that's something that was attractive to me and my team and made it very successful.
So in the context of the operating model that Nick just talked about, what's Kensho's role in that going forward and how do you engage with the divisions to help them solve problems?
Well, our role is making you guys look good. But if you we're at a moment historically where every Fortune 500 company talks about technology obsessively. But if you look really closely, a lot of these companies are paying lip service to it because practically at most it means let's make our teleconferencing equipment work. And it doesn't really mean anything innovative. And I think to look at how do you have a Fortune 500 company, a 150 year old plus company truly innovate, the gold standard historically is Xerox PARC.
Xerox PARC, many of you probably know this is where the graphical user interface was developed, basically all the technology that made the personal computer possible today came out of Xerox PARC. And Xerox PARC never would have succeeded if all the technology people at Xerox were improving photocopiers, right? What they had to do is they had to segment away a subset of them and say to them, look, we have a lot of people tweaking the photocopier, but we want you guys to really just figure out 25 year horizon technology and we don't even know what it is and we don't really even we can't even give you the mandate to say develop this or develop that because it's really something that you need to see over the horizon and do. And so what made Xerox PARC work was cultural independence, a little bit of operational independence and that's the model that we're pursuing here.
Great. So you guys are going to engage to help us make much bigger leaps in technology than frankly we would have been able to do on our own, which makes good sense. So let's get into that. Let's start talking about some specifics here about, you mentioned, Daniel, some work that had been done over 18 months leading up to the deal. I think when we think about artificial intelligence, we think about injecting these technologies, one of the first places people go is how do we use this to drive productivity gains, how do we use this to replace manual labor, human labor, human capital with technology?
So let's talk about a few of those things first. Like maybe you can talk about where we've seen opportunities to use Kensho technology to drive efficiency in the business?
Yes, and as you mentioned earlier and we've talked a little bit about, we have a large state operations team. We cover millions of companies around the world. We have thousands of analysts out there doing that work and they can't do it without technology. If we had to do everything manually, there would be no way to meet our timing of this goal, drive the kind of quality that's expected in the industry and continue to drive growth. And so we're constantly looking at ways to automate what we do to use bots for what we do.
We already have hundreds of bots in production. We kid with our analysts that it's bring your bot to work day. So you have your bot sitting alongside of you as you're doing your job. And so we're looking at individual problems where technology can solve that problem and we always test ourselves, we really feel embarrassed if we can't automate something, if we can't use these newer technologies. And one example that we were struggling with for a while where we really were having a hard time was something that occurs right at the beginning of the data collection process and that is when we bring new content into the system, the first thing we have to do is we have to take the entities for that content and we have to look them up in our system and try to figure out do those entities exist and if they do, we have to link it together because as we've talked about quite a bit today, linking content really unlocks a lot of the value, a lot of those insights.
And so as we link those entities, it would seem pretty simple in a public company world, everybody has an identifier, works great. But as you start to look at assets, as you start to look at private companies, as an example, it gets pretty murky. And this was a challenge where we continue to look at ways to try to automate that process and it's very, very hard. And when you're talking about adding 100,000 companies, it's a few months. When you're talking about adding 55,000,000 to 100,000,000 companies, it becomes a problem that's really impossible to solve.
And then along comes Kensho, and Daniel and I were talking about some different things and I think we were actually talking about Omnisearch at the time, and we said, hey, this algorithm, this is really cool, could we apply it to this entity linking problem? And so, well, not sure, let's try it. And we were able to apply it. Somebody mentioned earlier Crunchbase, we were able to automate the entity linking process for Crunchbase. We took it from a process that should have taken 9 to 12 months down to a few days, and it made the impossible possible.
We're now taking that same technology, and we're using it to cycle through private companies from the various registries around the world. And over the coming months years, we look to add another almost 100,000,000 companies, which for some of the other products we've talked about and you talk about extending credit lower into small to medium sized enterprises, that type of thing is critically important, having those private companies is a must and we couldn't have done it without them.
And that makes technology really concrete and practical because for many people very abstract, but time to market matters, time to market matters. Customers, we're not in a static world in terms of data, the amount of data is doubling every month, right? So, for a company to even come up with a way to ingest all the data that's simply being added, never mind the data that it no longer has never included in the 1st place would be trying to race as fast as you can on a treadmill unless you use technology. I think that's really illustrated because people have this big misconception with respect to technology that everything comes down to cost, especially in the area of machine learning and AI. And to me that's as mistaken as the notion that while the advantage of drones is that you save money on pilots.
Well that's sort of misses the point, right? Drones can fly into mine shafts, right? No amount of pilots can no pilot can do that no matter what they cost. And so what Nick discussed is an example of something that you would never even undertake it in the 1st place. If you wanted to ingest every single private company in the world in real time and then add the new ones as they're being added because companies are popping up every day.
It's not a matter of well, does it take 5,000 or 10,000 or 15,000 humans, you're talking about something with 5,000,000,000,000 possible combinations and matches per geographical region. So that's an example of something where technology simply unlocks the possibility of bringing to market a new type of data that would never have been brought to market in the 1st place.
So, yes, those are great examples. So that's maybe on efficiency and time to market. Let's talk about a few things that you guys are working on around customer experience itself. And you mentioned natural language search. So talk to us about how that what we think is possible there, what we're working on and how this sort of technology teams and arms work together on something like that?
Yes, I think it starts with the S and P Global platform that's been mentioned a few times. It's a great tool for integrating a lot of content and solving many business problems. But one of the challenges when you have a vast tool like that with so much content is how do I find things? One of the questions we get asked quite a bit when we're out meeting with clients, they'll ask us, do you have X? And yes, we have it, but they can't find it.
And natural language processing and search capability like Omni Search can unlock that. Being able to go into the product now and ask very simply, show me all of the hotel properties that Hilton owns and they pop up and I have them and I have data associated with them is much easier than trying to learn which menus to click on and where do I go. And this was again, I think what's nice about the partnership that we have is we think of things through a business problem type of a lens. And when you sit down and you think of all of the problems you can solve with search, it's pretty exciting because nothing like this really exists in the market today.
This is an area where we are first to market, we as S and P because just to put it bluntly, all financial information companies, including some of the competitors that were mentioned here today, have a millennials problem. Millennials are not just something that media Look like you understand something. I know something about this millennials issue. Something about this millennials issue. And I can speak personally that millennials on behalf of my demographic, I don't speak personally, probably won't tolerate for very long such a discrepancy between the way they experience technology in their personal lives and the way they experience technology at work, right.
So 2 thirds of financial professionals today are millennials. As a refresher, these are people who grew up not knowing what it was like to not have the Internet, not knowing what it was like to not even have Google, right. And so they go home and their lives are so easy at home, they use natural spoken language questions to access information and then they have to go to work and try to remember the function key and the short key and the shortcut to get at that information if it even gets them at that information and most of it is still buried. So there's such an opportunity now because there's this discrepancy between their personal lives and their work life And the 1st company that can close that gap, I think will actually capture the millennials market, there was one of our competitors you could argue in the 80s had captured an entire generation of financial professionals. I think there's an equally sized opportunity right now for S and P Global to capture the entire generation of financial professionals that the millennials represent.
If we can give them natural language search, if we can give them natural language ways of asking questions and calling up information, and that's something that's super strategic and existential for us as a company collectively that we're going to be working on together and are working on together.
And I suppose if you can marry together sort of an evolved user interface that takes advantage of the way that most people work in their consumer lives and then you can actually inject it with much broader and deeper content that actually lets you ask and answer more questions, then we'd really be on to something.
Yes. All right.
We just have a few minutes left. Yes. Maybe just talk about other things that are on the roadmap that we've dug into or not, a couple of things that you might be excited about. Daniel, why don't you start?
Sure. Well, as John mentioned, one of the things we're really excited about is the rating space, obviously, that's something that we have to look at with all deliberate speed because it is so complex and it is regulated. But as John mentioned, there's the entire surveillance exercise as something that is very costly, very human centric and very much about pattern recognition and that's something where you're never going to quite have an algorithm replace a human, but it could be a lot like a heads up display in a fighter pilot cockpit, where you're giving a small elite group of analysts the ability to identify when a change in a set of economic or other variables has occurred that in the past would have led them to reevaluate a ratings decision. The other thing that we're really excited about in the rating space is alternative credit metrics, using alternative data, things that are perhaps leading to the traditional economic data that typically goes into a ratings decision and making sure that S and P Global is first to market to include those types of variables. Both of those things are things we're actively working on right now.
These are not speculative. So those are very sensitive.
And we've got an example of that I think out in the showcases. Maybe Nick, we've got one minute left.
Yes. So I think what excites me the most, Daniel and I have talked about this, it's the next frontier of data. We keep using the term alternative data and there are different forms of alternative data, but one in particular that I think would be very interesting to the financial markets is the Internet of Things data, IoT data. If you could understand better with the use of devices, the shelf life of devices, take all that sensor data that sits in devices and bring it back, synthesize it, clean it and link it back to more conventional data about the companies, you could gain some really informative insights into potential performance, potential credit risk, etcetera. And so it's a that's a very big space, it's very fragmented today and it's actually really well suited for what we do in the data company taking very complex data sets that are fragmented, not very clean, bringing them in, linking them, cleaning them and putting them in a relevant format.
And then beyond the linking, then using machine learning and AI technologies actually figure out
what the insights are and all that. Absolutely, absolutely.
Fantastic. All right, we're out of time. Nick, Daniel, thanks for
joining us. Thanks.
Great, thanks.
Right there, in the middle. Micrones? We get right. Oh, you okay?
Thank you, I'm sorry.
Hi, I'm Steve
Goldstein, Morgan Stanley. This question is for John.
Maybe we're
going to
get to this in the financial section, but
just on margins. I know the number that's been out there for a while is low 50s in your business. So I'm just curious, long term, you've been talking about a lot of initiatives here. You just went through Project Simplify, but it seems like you have some longer runway. So just how should we be
thinking about the long term margins on that side?
Our strat plan is and our initiatives inside of our strat plan are designed to drive some margin expansion. You're not going to see the kind of margin expansion that you saw over the last couple of years, but these initiatives are, in fact, designed to do that. When we think about uses of technology, ultimately, we don't know quite how to harvest the value of that yet because it's early days, but it could be either in the form of productivity or it could be creating capacity to chase more growth. So give us a little bit of time to sort that out, what to do with the capacity we create, but we're going to create capacity. And in the short term, I think we've got room to run on margins and let us develop how to use the excess capacity over the next couple of years, and we'll be over we'll be able over time to give you better answers to that.
But we can extend margins.
Shlomo?
Shlomo Rosenbaum from Stifel. This is also a question for John. Do you think about the risks of expanding into China? This time last year, Moody's got slapped with a fine for a report that actually would be considered a normal report here in the United States about a lot of the companies that were over there. And just balancing the need to be open with the investors together with the sensitivity that they have in China with not necessarily wanting be so open, how are you going to deal with that?
I think it's going to have to be a slow build over time. Here's what I'm encouraged by. We have rich intimate dialogue with the PBOC and NAFME has been appointed as the rating agency regulator, and we're going to continue that dialogue. The second is, I think, there are 3 secrets to getting into China in my view, having the right talent, having the right analytical path forward and having the right technological enablement, but we're going to have to make sure that we have the right migration plan analytically. I said in my presentation, we have to be sensitive to not being overly disruptive to the Chinese market because it's built the way it's built.
But we think their objectives of attracting foreign investment into the market are real. We think we can play that role. And so the other thing I think Greenfield gives us is, if we're wrong about any of that, we can be agile, right? I mean, the investments are a lot less than buying a domestic rating agency. And so I think it allows us to kind of pivot.
And if we get uncomfortable with the risk, we'll address that.
John Hegarty from Atlantic Equities. Also for John, sorry. So 2 questions on China. So I was just very interested, firstly, on how you're going to square the circle between the China rating scale and the global rating scale. So that's something which has been problematic, I think, for a while.
And also just on the ambitions in those medium term, long term size of that market, because it's always been a huge untapped potential, but will it ever have a real sort of meaningful impact on revenues?
Yes, let me start with the latter half of that. China cross border our cross border China business is actually quite big today. And it's a sizable contributor, a meaningful contributor to both the top line and the bottom line. And we think that the growth potential for China, both cross border and domestically, is actually quite large. It almost has to be, given the overall size of the bond market, it's the 3rd largest bond market in the world.
I think the trick is getting the analytics right, right? I mean, how do we account for the domestic scale and over the course of time converge? I don't know that we got the perfect answer because we don't have perfect data yet. We've got to, I think, get our arms around what the existing ratings look like, get more private public company data and sort that out. But we're our analytical teams are confident that we can do that and that we can do it well.
And I think the final equation is winding that up with the right talent and making sure that not just domestically in China, but in Greater China, that we have the right resources and that they're senior enough and can handle that volume is the secret. But look, we spent the last year looking at this from every angle, and we're quite confident we can navigate it.
Okay. Let's go to the car over there. Vincent
Hung from Autonomous. Just a question for John. So once you've finished implementing Project Simplify and augmented intelligence, etcetera, are you expecting a big uplift in productivity in terms of the number of credits that can be rated per analyst? Or should this be reflected in the quality of the actual analysis?
I would think about it as we are quite confident that this suite of technology and data initiatives create capacity. And then the question is, does that get converted into productivity or is there a way to use that capacity to chase other forms of growth? I think it's too early to say, but whether that capacity gets converted into actual productivity or whether it gets used in other ways, but we're confident that these initiatives create capacity.
So John, we'll be back in the final Q and A. So let's have a question not for John. Right here.
Ask Daniel Nadler if he owns a tie. Somebody asked that question. This is
This is, I think, a question for Mike. So this is just around the data kind of acquisition strategy. I mean, it sounds like from what a lot of you guys are talking about, there's opportunities in alternative or alternative credit data. And it seemed like that the presentation before, there's opportunities, at least in the private company space or serving corporates. So I'm just curious, is there any change of what you have to do to get that kind of data?
Or would you have to acquire that data? Or are you kind of you already have that already?
Certainly, there's a data acquisition component to all the things that we've been talking about. I think what I think where we want to go and much of this stuff is available. Some of it depending on the provider, it might be a licensing arrangement, there's still lots of data available from governments around private companies that we're just not ingesting today. So all of it needs to be acquired. There are different methods and different arrangements for doing that.
But I think what we're enthusiastic about is that the single biggest governor historically on being able to put new content into the product was often it was manual, so I. E. Expensive over time and the level of effort was such that getting to market, I mean these would be multi year projects to put something significant into the market. That will probably still be the case for certain nuanced data that still requires a lot of human intervention, But for a lot of these larger data sets that are on our priority list, we think it just accelerates our ability to do more of them simultaneously and get them to market quicker. So that's where the opportunity lies.
Okay. Let's go very front row here.
Actually, Colin Duchamp from Sterling Capital. I have a question for Nick and Daniel. Curious over like a 3 to 5 year timeframe as you integrate Kensho's expertise into the broader S and P franchise, specifically how are you going to measure success? And if you put yourself in our seats as investors and analysts, what would you recommend we look to that Kensho is indeed achieving traction across the franchise? Thanks.
It's very kind of you to ask that. I'm going to give it to John.
I'm not answering it,
template, but I think one of the things that guide illustrates is new product innovation, new products to market as a metric for success because the role of an institution like Kensho within S&P Global is not to make incremental or marginal improvements to the photocopier. There are people doing that and they should be doing that and I'm not trying to diminish that in any way. But our role is to ensure that there are completely new and unprecedented ways of interfacing with S and P that are now possible because we're in the organization. We cited one example which is natural language search, so a very concrete thing that you should hold us to is in the quarters ahead, does it become easier to discover what you're looking for in the S and P global platform that's getting created. If it's still very difficult and you're pulling your hair and you can't really get it, then we're not succeeding.
Conversely, if you can actually not only find what you're looking for, but have the recurring experience of wait, S and P has that data set, I don't even know I have that data set, right? Think about what that does for renewal rates, think about what that does for stickiness with the platform. And so that's how that's part of the way that I think about it.
Yes, exactly, I think it's going to be through new product additions to the product suite driving new solutions out in the marketplace and it will be up to the businesses to then commercialize that and drive that with customers. But I think you should hold us to coming up with new solutions and really changing the trajectory.
Okay.
Down here in front, Manav?
Thank you. Manav Patnaik with Barclays again. Alex, a question for you. Maybe it was just a factor of time, but do you think you guys already run a pretty lean and efficient operation there, but do you think Kensho and these technologies that everyone was talking has some added value for the index franchise and how so? And then just for Daniel and Nick, I know you talked about IoT, but broadly if you're thinking about even bigger picture, like is this aspiration to get more data, is that more taking your Kensho technology and structuring the unstructured data?
Or do you have go out and acquire a bunch of datasets?
So first of all, Kensho actually had already started developing indices that they're actually licensing out. And so that's something that we'll be taking over. Traditionally, when we looked at doing something like a sector thematic, the way you looked at it was much more based on something like Kix, right, very rigid. Their technology, you can get at pure answers. So new ways of looking at sub segments of the market that are more accurately representing what investors want.
So I think that's the interesting opportunity. So just a matter of time as we start to work that through from the transition side.
I would just say from a data perspective, I think it's going to be a little bit of a combination. Where we've been really successful, it's not buy or build, it's a little bit of both. Where we acquire some of the data sets, we marry those with maybe some conventional data sets we already have. We have really great acquisition capabilities internally to take on new data items. And so you sort of marry all of those capabilities together to arrive not just at a new data set, but ultimately to arrive at an insight that somebody can act on because our users want answers.
And so some of the if you're on the showcase and you saw the commercial real estate example, it's a combination of data from S and P, data that we acquired from other sources and then some insights that we could provide using these techniques. So it's not one size fits all, it's going to be really a combination.
Yes, as Nick and Mike said, the challenge often is not acquiring it. Many of these data sets are free and in the public domains. Here is a very concrete example. Let's say you wanted to analyze what the effect of a Category 3 hurricane was on oil markets or in various sectors of the energy space. And you want to know when were all the category 3 hurricane landfalls in the United States, that's on the NOAA, which is a federal agency's website, but it's embedded in the JavaScript and so what you have at banks are junior analysts going there, manually writing it down or copied into Excel, trying to create a clean date list of when all the category 3 hurricanes were, so that they can then do an analysis in R or Stata that they give to the quants to run that against energy price movements.
So that's an example of something that's free, but it's to as was implicit in your question, it's unstructured, it's lightly structured. The ability to bring structure to that type of data and then to have the analysts just say in natural language, whenever this category 3 hurricane landfall in the United States, tell me what happens to oil prices in the next 3 days. That's the future, right. That's what we're going for and that's less about the cost of this data to acquire and much more about bringing structure to unstructured data.
Bill over here.
Bill Warmie, Den from Wells Fargo. So a question for Alex, You described some of the success you've had expanding internationally by partnering with some of the local exchanges. And has this been taking share or could it take share from MSCI or are we talking about 2 different capital pools?
It's actually 2 different strategies. So our strategy is to be the local index in the local market, where their strategy is to be a global provider. So if you go to Canada, if you go to India, if you go to Australia, if you're a local investor in those markets, you're using our indices. Those same investors may use somebody else's indices for their international, they're outside of their home country. So it's I would say opposite of their strategy.
Okay. Final question. It has to be for either Daniel or Nick because you're not going to see them again. It a question for Daniel or Nick? Wow.
Right here.
Connor Fitzgerald from Goldman Sachs. Just a big picture trick question on whether you think it's possible to create a sustainable competitive advantage with artificial intelligence? Or do you think this is something that over time the market commoditizes?
I think precisely because over time the market commoditizes artificial intelligence, a sustainable
competitive advantage is when you marry
it with data that's very hard to acquire. Competitive advantage is when you marry it with data that's very hard to acquire. And as I mentioned, that was the rationale for the acquisition because, yes, we were first to market with AI in the financial space. But you're right, all things tend toward this type of commoditization, but you take that first to market technology and you marry it with 150 year old company that has all this long range history and long range data. And I think that creates a very, very robust mode and that's what we did.
Great. Let's turn now to our final speaker. Thank you all. So and from the best presentation, Eivant Seinbergen.
Good afternoon, ladies and gentlemen. Earlier, you heard from Doug about our new strategic framework. You heard from our business leaders about our plans to continue to develop and grow our businesses. You heard from our technology leaders about our aspirations with respect to innovation and the implementation of new technologies in our business models. And you heard from Martina about some of the cross enterprise strategies, particularly with respect to ESG.
In my section, I would like to bring that all together and particularly focus on the question how we're going to create shareholders value in the future. I will focus on our operational leverage, our financial leverage, our capital management approach. I will give you some insight in case of a stress situation, the resilience of our business model. I want to give you some insight in our valuation models and what those tell you, our financial projections and then ultimately, how that translates in aspirational new financial targets for the company. So let's first look at the last 5 years back.
Of course, a very remarkable transformation of the portfolio and you have seen all the different divestitures and acquisitions. You're very much aware of those. I particularly would like to point out some of the acquisitions, the formation of the joint venture between S and P and Dow Jones Indices, of course, S and L already mentioned and more recently Kensho. And if we look at the performance over this period, the operating profit margin has seen an increase of 33% to 47%. And also the total shareholder return has done very well on a relative basis, clearly outperforming the overall market, the S and P 500, but also clearly outperforming the peer group.
Recently, we were recognized by the Drucker Institute. And this is a new ranking, a new ranking that is following the core principles of Peter Drucker. And those core principles are around customer satisfaction, employee engagement, innovation, about the financial strength and also our social responsibility. And if you look at the overall ranking and it's almost 700 companies, SAP Global is ranked number 16. But with respect to financial strength, we are actually ranked number 2 only behind Apple.
And you see some of the key metrics on the left hand side here. So we're clearly anchored in a position of strength. If it is about our motivated employees, our clear strategy, our operating model around operational excellence. But I would like also to point out particularly our capital light business model. This is very important because we can grow a lot S and P Global in the future and that doesn't require a lot of capital going forward.
So if you think about the future and think about our strength, that is really helping us to make very specific investments. And I think particularly investments in technology are important. And given the theme of today, I wanted to show you more insight in the overall spend in technology for the company. And what you see is over the last 2 years, technology spend has come down slightly to $740,000,000 just under 25 percent of our overall expense base. But more importantly, you see a very important shift in the composition of the spend.
2 years ago, we spent far more on what is called run the business, which means more the day to day maintenance, running off the networks and the applications. But we have made a very large shift, a large shift through working more in an agile way, taking complexity out of our environment. And now we are spending much more on transformational technologies, also called change the business. So investments in the new platform, as Mike already explained, other commercial strategies and of course Kensho is also a part of that. If you think about creating shareholder value, we are thinking about 4 main components.
The first is what we would call operational leverage the third, financial leverage and the last one is what we would call our capital management approach. And over the next few minutes, I will go in more detail in each of these areas. So let's think about the revenue momentum we have as a company. You heard a lot of the plans of the business leaders. I would put them in many different categories.
We have our commercial productivity. We have new logos, new markets, new products. But we also have in Ratings, our issuance growth. We have in Platts the growth of the trading volumes. We have on our indices business growth of exchange traded derivative volumes.
So overall together, I would say it is not one single lever here that will drive our revenue growth in the future. A combination of all of these will ultimately drive our revenue growth as a company. And you see here in the mid- to high single digit range. Then the next category with respect to our shareholder value creation is the EBITDA enhancements. Production program of $100,000,000 to $115,000,000 And that is on top of already run rate saving programs that we have introduced in the second half of last year at a level of $65,000,000 The $65,000,000 you have seen in some of the restructuring charges we have taken in the 3rd Q4 of 2017.
The $100,000,000 to $115,000,000 new efficiency program, we have found these after many months of looking very deeply at our organization, at processes and at other opportunities and a lot of benchmarking work we have done. And the main categories here are as follows. In our support functions, we see a lot of opportunity for standardization, for centralization to centers of excellence, to the implementation of automation. Think about our invoice processing. There's a lot of opportunity for automation there to do the accounts payable in a more efficient way.
With respect to our real estate, we have a large and expensive real estate about real estate footprint around the world. And there's certainly also there are excess real estate. So we're planning to reduce that over time and that will also lead to expense reductions. And then the last is in the area of our digital infrastructure organization. We have a new approach with respect to sourcing.
We are looking at moving more to the cloud, data center integration and all of those combined will lead to that $100,000,000 to $115,000,000 expense reduction over the next 3 years and we have a very high level of commitment and conviction around that. Then the 3rd component of shareholder value creation is our financial leverage. You see here the borrowing costs. We will continue to manage that at attractive levels. Our effective tax rate is coming down a lot this year.
We will continue with finding tax planning strategies to continue to manage that. Our overall outstanding shares are coming down and therefore the EPS is going up. This year approximately 23% to 25% and that is consistent with the guidance in dollar terms we have provided to you. So today, we are affirming that particular EPS guidance for 2018. And then the last area is our capital management approach.
Capital management in our view starts with free cash flow generation. We're generating a lot of free cash flow and in fact that has gone up in a very healthy way over the last few years. 5 years ago, €1,300,000,000 to this year approximately €2,300,000,000 and with a very nice increase between 20172018. And what do we do with that free cash flow? We're actively returning that to our shareholders on average over the last 5 years at the level of 71%, and that is adjusted for the proceeds of some of the divestitures we have done over those years.
And you see here also how we have distributed that in sense of share buybacks and dividends. We have a clear framework with respect to our capital philosophy and targets going forward. And we have explained that to you last year. And let me tell you again about some of the key components. On the one hand, a continued commitment to return capital to shareholders.
At least 75% of our free cash flow generation will return to shareholders. We'll do that through disciplined buybacks, but we'll also do that through our dividends and dividend growth. We have been growing our dividend over the last 45 years. So we're one of the so called dividend aristocrats in the market and we clearly are planning to continue to do that as well. But then on the other hand, we have a prudent and flexible balance sheet.
We like our balance sheet with a lot of room to maneuver. We think that can be attractive at the right point in time. So we certainly will continue with the balance sheet on that basis. We have that high level of conviction around our capital distribution and capital management framework because of the resilience of our business model. We do a lot of stress testing of our financials for moderate to severe short term stresses.
And the impact of that is overall relatively modest, certainly taking into account some of our variable expenses that we can adjust as well. And why is that the case? If you look at the sources of our revenues, in fact, there is a very large component that is subscription based, non transaction based, asset linked based. That is the dark blue part of here, the bar graphs you see here on the slide. But then if you look at Ratings transaction, in our view, there is also a very solid component in Ratings transaction.
That is the shaded part in the Ratings bar. And the reason is there will always be a lot of refinancing that needs to happen in the market. Over the next 5 years, €10,200,000,000,000 of corporate debt is set to mature, €10,200,000,000,000 That is not going away. That needs to be refinanced. So in fact, therefore, there is a very solid part in the Ratings transaction revenue.
So if you add it all up, 71% of our revenue is subscription, non transaction based, then 25% is Ratings transaction and 4%, we would call that in the category of non ratings, non subscription. To give you some other examples of our resilience of our business models. You see Ratings corporate revenue up over the last 10 years despite very difficult cycles in terms of the economy over the last 10 years. And John already explained, mostly directly correlated with GDP. We've seen the stickiness of our Market Intelligence business going up.
The renewal rates are every year getting better. We've seen Platts doing well in difficult commodity markets over the last few years. And then if you look at the revenue of S P Dow Jones Indices, also up each and every year, although we have seen cycles with respect to assets under management growth. But if you look at the yellow line, the exchange traded derivative volumes, there is a kind of nice natural offset. There is a bit of a natural hedge in that business as well.
So those are some of the examples around the resilience of our overall business model. With respect to our valuation models, we are developing those models with some outside help to try to understand the correlation between the levers that we can pull as a company and what creates most shareholder value in the future. And the conclusion of those models is very interesting because it's showing that revenue growth is by far the most important element. In fact, what it is telling is 1% point improvement of our top line growth creates 5 times more value than 1 percent point of margin expansion on our businesses. And that's because our margins in our business are already so high.
So growing those businesses as fast as we can is clearly the most important. So that's why we have a very clear commitment to grow at least in line with market or better as a company going forward. But we also have that efficiency opportunity. So if I think about what we can do is a part of the efficiency opportunity can reinvest in the company to accelerate future growth and a part of that can flow to the bottom line. So in other words, we can grow our top line and still have an expense line that is growing 1% to 2% less than our top line and therefore seeing some margin expansion at the same time.
So therefore, our medium term outlook is that we can grow organically our revenues in mid to high single digits and at the same time be able to have a margin expansion in all of our businesses. So our new aspirational medium term, which is 3 to 4 years, medium term aspirational margin targets for the company are as follows. For Ratings, and that was the question that was asked earlier, we're setting high 50s. For Market Intelligence, mid- to high 30s. For Platts, low 50s.
And for indices, mid- to high 60s for the overall company, margin of low 50s. I do want to point out that the path to those aspirational margin targets won't be linear. There will be fluctuation over time, but we're clearly very committed to get to those aspirational margin targets over the next few years. So in conclusion, Dirk explained to you our new strategic framework, our 6 foundational capabilities, how we're going to develop that further in the future, how we're going to evolve and grow our core businesses and how we are going to expand into adjacencies. You heard from our business leaders, our technology leaders around our AI driven innovation, our plans with respect to new products, new markets.
You heard about cross enterprise opportunities and I explained to you some of our operational and financial leverage. And that all translates in our medium term new financial targets with respect to high to mid to high single digit revenue growth, low double digit EPS growth and a continued commitment to return at least 75% of our free cash flow to our shareholders in the future. Thank you so much for your attention. We're getting some of the chairs back on stage. And I would like to invite Doug and the Business President for the last Q and A session.
Thank you.
So, I think we've got a chance here to help the sell side. I keep reading that they're going to be under pressure in a post MiFID II environment. So, let's let them sweat for a minute and I'm going to take the first three questions from someone who's an investor on the buy side. So, first three questions, no sell side. After that, we'll open it back up.
Okay. So you guys step up your game here, you can't be quiet, we're here.
Hi, Colin Decharm with Sterling Capital. I'm sorry, John, I'll go back to China here just for one moment. Just wanted to generally understand the longer term prospect for that market and specifically just probe it along three dimensions. I'm curious based on your observation how issuance pricing compares versus developed markets today. Secondarily, I'm just curious in terms of the analytical kind of legwork that goes into creating those ratings.
How much of that information today is digitized and able to be automated? Can you achieve the automation that you currently have in the developed markets? And then finally, if you could just touch on the level of disintermediation there and the trends as you see them going forward? Thanks.
Yes. So the first thing to remind you of is that our cross border business is quite big and very profitable, right? And so in the domestic markets, you should expect we should see revenue growth, but we're not expecting profit growth for a while, right? It's slow build as we think about how to approach the market analytically. Some of the data is I mean, actually, the MI team probably could talk about a little bit of the data.
Data is a concern of ours in that we're not buying a domestic rating agency. And so we're going to have to find other ways to get that data other than what's publicly available on the ratings. And the thing that gives us confidence on the disintermediation in the market is China's stated policy of opening up the market. And we're seeing some of those trends. I don't have those numbers handy, but those would be my answers.
You guys have anything to add on the data side?
Yes. I want to add
something, which is that every one of us has been in China, including Martina, frequently over the last couple of years. And we're very excited about the Chinese financial markets, commodity markets generally and one of the best ways in is going in with this golden opportunity we have where we've been given an opportunity to own 100 percent of a rating agency. So, it's a fantastic way to get into the market, but all of us here are very excited about the entirety of the Chinese market, but it's going to be a slow build.
Laurie, right there in front of you in the pink.
Thank you. This is Bogdan Kosmachuk with Senator Investment Group. Question on maybe for Ewout on financial targets. So and thanks for providing that sensitivity to a potential slowdown or downturn. That's very helpful.
If that downturn, let's say, happens in the next 3, 4 years, so during this during your planning horizon, can you still hit those margin targets? Or are you basically thinking we're going to hit the low end of those targets? Can you hit the midpoint? In other words, do you need to see a continuation of the current economic environment throughout this planning cycle to hit those targets?
Thank you.
Yes. My answer on that would be very much depends on the type of market downturn situation. If it is a relatively shorter downturn situation, that is mostly where we have done a lot of stresses. Those are more the short term moderate to severe stresses. And I would say that we are clearly still being able with respect to impact deal with that and continue with those financial targets.
If you're looking at a long term downturn, where at some point, for example, in the subscription business, we will see an impact on renewal rates over a longer period of time, I think then those targets would probably shift a bit further out in the future.
Great. And one more buy side question right here.
This is Himanshu Bindhal from Rothschild Wealth Management in London. My question is for Doug and for John. And I think you've got some really powerful businesses here, especially the ratings business, but then Platts and Index as well. Where you can really increase prices and do basically, it's hard for customers to let go of sort of those businesses as suppliers. How do you make sure that the culture stays culture in those businesses stays in such a way that they are still customer oriented, that the quality of the ratings is at the highest level and so on and so forth, so that the business is not managed just for this year or the next year, but the health of the business is maximized for next 5, 10, 15 years?
Well, first of all, it's fortunate that at the core of our culture is values. And we have values around integrity, around how we think about excellence, how we think about relevance. And we actually have a lot of dialogue about relevance and how we can ensure that what we provide to the markets is relevant and it also creates and drives value. And the culture that you talk about is one that we've spent a lot of time collectively thinking about the last few years, how we ensure that we provide the value, we're relevant in the markets and we do it in a way that we don't have a toxic culture where we are always driving towards a higher performance. But I think that any one of us here would for all of the businesses, the risk that you talked about is something that could happen.
On the customer aspect, as you saw very briefly in my opening slides, last year, we took a step back and we visited over 150 customers as part of our strategic planning and we listened to what they felt and I put some of those some of the themes that we heard back about transparency, about trust in addition to technology, other changes going on And we've reflected that in how we operate. But I think some other people and John, he asked you, I think you could also respond.
Yes. I think the number one input into our strategic plan was to compete on quality. People write about moats around this business, and I think that's a very dangerous attitude to have. So we our number one input to our strat plan was we compete on quality. And we and you mentioned pricing.
The way to extend the value you extract from the market is to how we're not staying complacent, but driving forward to add more value to the clients we serve. And if we do those two things, we don't get complacent because we recognize we compete on quality and we're innovative on data content and look for ways to extend value, I think that's what we want, a high performance place that does things the right way, but is ambitious in its quest.
Thank you.
Okay. Let's Peter, welcome back.
Thank you. Peter Harper
from Piper. So Doug, I was hoping you'd talk a bit about M and A strategy and how it fits with the 75% capital return benchmark. It seems like that, just off the top of my head, might have precluded the S and L deal. So are you putting yourselves in a little bit of box with that, even acknowledging that I'm sure there's some year to year flexibility? And then just really quickly for Alex, I was hoping he could talk for a sec about self indexing and how big that is in the market now, how big a threat that is?
Thanks.
Thank you, Peter. On the first part of the question, when you think about how we have the kind of capacity we have, clearly, we have capacity in our debt. If we wanted to do a large transaction, we could always increase the amount of debt we have on our balance sheet. We also have some excess cash right now, some excess capital. So, we don't feel like we should be constrained by financial in terms of size of a transaction just because we are have the target of 75%.
We really believe that we have to look at potential acquisitions based on the quality of the asset, how it fits into the overall portfolio, what it's going to drive for growth, what it's going to drive for value, how it's going to impact our approach to our shareholders. And so we look at this on very clear parameters on how acquisitions could fit our portfolio. We don't want to do anything that's outside of what the businesses we are already in. We have looked at international opportunities. We have looked at new product expansions.
We have looked at certain technology opportunities. But we don't feel constrained by that 75%. We think we have flexibility that will allow us to do almost anything that we'd want.
So, self indexing is not something that we really worry too much about and I'll give you a couple of reasons. First of all, the big branded indices, right, the things that really drive usage are not something that's really replaceable, right? You can't replace the S and P 500. You can't replace a lot of these core indices. Where you see more price competition would be more in that kind of, I would call it, the fringe indices, things that are brand means a little bit less.
And there, we tend to be very competitive on price. So we've got this more of a 2 tiered pricing where the premium indices are what you pay for. But when you get to, as an example, a thematic narrowly based thematic index, that sort of stuff, it's really not worth it for most people to try to do that on their own. The new wrinkle nowadays is actually regulation, because to meet the regulatory standards is going to start raising the barriers for a lot of people. And the regulation in Europe is pretty far reaching and a lot of asset managers haven't really focused on it yet and what falls into that.
And so again, I think that's going to be a cost of doing business for a lot of people. The big players will meet those costs. The smaller players may not be able to, certainly not worth it for them.
Okay. Let's
go to, let's see, Ulymanov.
Here, I'm sorry. Yes, second, Rob, keep your hand up, please. Thank you.
Hi. So first question is for Alex. Just in terms of the margins that Ewout set out, the mid- to high-60s, I guess. I guess my question is why can't it be more, especially when we're looking at your competitors? And then Martin, for you, now that Platts is finally broken out as a separate segment, thank you for that, Ewout.
How does that change your approach in managing the business discipline? Like is there a change with that breakout accounts for us at least?
So, I'll take the in terms of our competitor, I know who you're talking about. Their business is a different business model. They're focused on just equities. They have a much simpler index structure. They don't have the fixed income business.
They're not in commodities. They're not doing partnerships with exchanges where we effectively have a revenue share model approach with them. So again, it's just different businesses. The other factor I think in terms of where our margins can go, if you look at like what happened in the Q1, when trading volumes shoot up, that's 100% margin business. And so there's a revenue mix element that's unique to our business compared to other index providers.
So as far as Platts is concerned and the reporting, I mean, before we were reporting, we were held to a strong financial discipline. So in that sense, I think we were probably following best practice beforehand. But transparency obviously brings greater accountability. So the types of things that we are thinking about are just on the expense side, particularly managing expenses over the calendar year, the types of things where in the past, maybe we might have lumpy periods of expenses. We're thinking about those things to smooth, if you like, during the course of the year.
But otherwise, it doesn't make a major impact.
Okay. Laurie, down here in the front. Alex?
Alex Kramm, UBS again. I guess for Ewout and maybe Doug. I think Doug, you just actually mentioned that you still have a lot of excess cash, and I think about $1,000,000,000 a lot of that sitting overseas collecting dust given where rates are overseas. So now it sounds to me like maybe M and A is something you're earmarked in that for, but at what point do you actually say like, all right, it's just sitting around here, we need to return this to shareholders, is there a timeline Or how are you thinking about that excess cash? And then just maybe secondly, and I think John answered some of this already, but terms of the guidance, how much is China actually in the guidance?
I mean, is some of the cost build out in the margin guidance for Ratings? Or are you assuming any sort of revenues over the next few years? Like how could China impact the guidance that you just laid out?
Alex, on your first question, at the end of the Q1, we had €1,800,000,000 of cash on the balance sheet, came down from €2,800,000,000 at year end, but that was because of the €1,000,000,000 ASR. And our Q1 is always the lowest in terms of cash, net cash generation. So the $1,800,000 everything else taken not intake into account that should be built up again over the next few quarters. So very significant cash balance. You make a distinction between in the U.
S. And outside of the U. S. In fact, we don't make that distinction anymore. For us, it's irrelevant because all of the cash is now largely unconstrained.
It can be today in Europe, it can be tomorrow in Asia, it can be the day after in the U. S. And back again because of the new tax legislation that is now all unconstrained. So for us, we're not thinking about anymore in the sense of foreign cash versus U. S.
Cash. This is all cash that we have available. Our first priority is to reinvest those cash balances into our business. So again, a little bit of the flip side of the question of Peter, 75% of what we generate per year, we will return to our shareholders. And by the way, Peter, that means 25%, so still EUR 600,000,000 that's available annually to reinvest in tuck in acquisitions or in other ways.
And then we have the existing cash on the balance sheet that we would like to reinvest over time as well. I'm not going to give you a particular deadline with respect to the time before we would like to spend that. Clearly, we hope that we have a lot of conviction, a lot of confidence from our shareholders that we are going to do the right thing without the cash balance. I think we have proven a lot in the way how we think about acquisitions, about investments, our valuation models and the discipline we apply around it. But of course, over time, we're not going to sit on lazy cash.
If it really takes a very long period of time, then we have to think about other plans as well.
The China part?
Go ahead. You answered.
With respect to the China plan, you should think about China and how it will impact the numbers over a longer period of time. So the domestic greenfield start up that John was explaining will be incurring costs for the next few years that is probably higher than the revenues. Because we are building a new standard in the market, the revenues will grow slowly over time. But I see it really as an optionality we are creating for ourselves. And then hopefully over time when the market gets more mature, it's moving more to a higher quality direction and then we will take the benefit of it.
So you have to think about this that the first time you see really significant impact in terms of our financial reporting will be multiple years out in the future. I think that it would be a fair be
accretive to our results. Okay. And
then, be accretive to our results.
Let's go down here in the front. Saad?
Saad from Edgewood Management. A question for you, Doug. We talk a lot about financial resilience, but I'd love to hear you talk about cultural resilience. And so under your stewardship, the team and the organization has basically been built anew since the last financial crisis, which is amazing because it's manifested an incredible operating performance. Conversely, do you wonder worry that the organization has lost some of the muscle memory of sort of withstanding that crisis?
And how do you retain that given there's so much newness in the organization?
Well, first of all, I believe that we have done a really good job of building a team and building a culture in this organization. If you go back about 2 plus years ago when we rebuilt our brand, we renamed the company S&P Global. We had a we took an opportunity to spend a lot of time as an operating committee and as a leadership team to talk about our history, to talk about our legacy, what were those strengths of our culture that had allowed us to be so successful and to deliver such strong performance. And we've built a management system in the company that starts with a vision. You've seen it today, powering the markets of the future.
We have a purpose around essential intelligence and delivering that so people can make decisions and that guides how we run the company and when you saw the framework today, that's really a management system. Our management system is built around monthly business reviews and financial reviews that AVOUT does. We have a quarterly business review process, not just for the businesses also with the functions. We do that as an operating committee. And so we've built this into the management system, into our culture that we're going to have this vision, we're going to have values and then we have a system that keeps us accountable on how we measure and manage that.
I would just add, in the top two layers of our analytical practices and ratings, I can only think of one leader that wasn't here during the financial crisis. So while we have made change in the data and IT organizations, we have tremendous continuity in our analytical organizations and therefore a lot of institutional knowledge.
Great. Trish, way in the back there, Teddy, middle? Teddy, yes, right down that row.
It's Teddy Moulson from Edurchin Capital. I have two questions. First is for Doug. We've heard a lot about the importance of the brand. Given the importance of the brand, why or how are you confident that the risk of a local ratings agency in China doesn't overwhelm that?
And then my second question is you talked a lot about capacity creation in the business. Is there any way to quantify just how much capacity over the next 5 years you're going to create to invest? And do you have a feeling that this capacity should lead to a higher rate of organic revenue growth going forward?
Well, first of all, in terms of the brand in China, our brand in China is very strong today. There is a we have a lot of credibility. We've been we're already embedded in the global investors. So if you go meet with any of the Chinese investors that look at global markets, they are already using our products and services, whether it's Cap IQ, it's our ratings business, they are benchmarking to the index business, commodities companies that are using Platts prices. So we are already very embedded in the Chinese financial and markets culture.
We are starting off with a strong brand there. When you think about Greenfield, Greenfield gives us an opportunity to start building planting seeds and planting trees in the market, planting flags around China. It's a way that we can start slowly, start building our brand, hire the right people, have the right approach to serving the market. And we are not getting then in a company that already has a rating system that we have to live with, we have to try to change. We had a lot of discussion about this Greenfield versus going with an acquisition and the Greenfield gives us an opportunity to build a business but also protect our brand.
In terms of capacity, I think it would be good if maybe Mike gave us some thoughts because he is running a couple of the big operational services where a lot of that capacity is going to be coming from.
Sure. I think certainly capacity building is something we're all focused on. John mentioned in his presentation leveraging data gathering assets so that it frees up capacity and allows people to do higher level work. I guess for me, I would think across all of the divisions that kind of capacity building will be reinvested in a few ways. One is in higher quality and everything that we do.
I think certainly in our business, John has already mentioned it, these guys may feel the same way. There's always room to do just better work and provide greater insights, some of it should manifest itself there. Certainly, freeing up capacity and retiring some technical debt and some legacy systems should allow us to reinvest technology and software engineering horsepower into things that over the long term hopefully drive great organic growth. I think that's a fair expectation.
And John, just to clarify, you're not starting from scratch in China, you've got people on the ground there already.
Yes, we do. We don't operate in the domestic market, but we're showing we're not flat footed either. We have a presence in China. And in Greater China, we actually have a lot of presence in Greater China. So it is not a white sheet of paper.
We actually have a view. Hamzah
in the back.
Hamzah Mazari from Macquarie. My question is for Doug. Doug, just on adjacencies, maybe frame for us how broad is your definition of adjacencies And where do you see the most opportunity in the portfolio in your segments? And you don't have to pick your favorite child, I'm asking you to pick your favorite segment.
Well, this theme of adjacency was is something that's really being driven by 2 things. 1 is the way that we're working together now as a team and as a company where we have the ability to cross fertilize and move opportunities across all the divisions as well as fertilize and grow them. And then second, it comes back from the markets. When we listen to customers and we observe markets and we see what are those gaps that are being filled. When I think about adjacencies, we talked today about ESG, which is a combination of that that's coming from outside and what we can do internally.
Supply chain analytics and SME credit is another one that over time, we're going to start doing a lot more work on. Another one, which Mike alluded to today is how are we going to serve the market with our platform. So these are 3 that right off the top of my head, we've started working on. When we did our strategic work
last year, we actually
identified many more than that, another 5 or 6 that we probably felt were either not realistic or they were too expensive to get into or they'd require a complex acquisition. So there is definitely 3 or 4 that we've started working on. In terms of the portfolio itself, I don't know how you could look at a company that has 4 stronger businesses. Just the envy that people should have for the kind of a portfolio that we've constructed and going back 4 years ago, 5 years ago, when we thought about these core concepts of being global, of building scale, of having strong brands, of being in the data and analytics in the markets business, this is how we built the portfolio. And so we've taken businesses that started out that were excellent and they're all better and they're all getting better all the time and we're even stronger now because we can work together as a group across the entire portfolio.
Great. Let's go way over here and I'll get you next.
Vincent from Autonomous. So Avak, a question for you. I think you've talked before about how there's maybe like 7,000 folks offshore entering in data, cleansing data, and that's clearly expensive and inefficient. So is that something that's being attacked within the $100,000,000 cost saving plan? Or is that something you can address in the future?
Thank you for that question, Vincent. I think it's very important to say today that the EUR 100,000,000 expense reduction program is not the only efficiency program we have running in the company. There's many more initiatives outside of that. And by the way, a part of the EUR 65,000,000 was announced in the 3rd Q4 of 2017, but not all of that is in the run rate today. So there's many other areas where we can look for efficiencies, particularly based on the new technologies as Daniel and Nick have explained.
So Dorsen certainly, if you look at the 7,000 people in Market Intelligence in terms of the data intake ingestion and linking, there's a lot of opportunities for efficiencies there as well. But at the same time, as we are also focused on commercial growth and revenue growth, there will be offsets to that in terms of growing the business as a whole. And hopefully, we can repurpose a lot of that capacity in the sense of additional work that we will generate in the future. And there are several examples of that already taking place today. But you for the question, because it's important to point out that there are far more efficiency opportunities in the company than only that EUR 100,000,000 program.
The EUR 100,000,000 is for the support functions, for real estate and for our digital infrastructure areas.
Okay. And Conor, final question.
Hey, Ewad. It's Connor Pritchard from Goldman Sachs. Just one more for you on your valuation model. Just trying to get your understanding of if you really think there's a 5x benefit from growing revenue versus driving some operating leverage, why put out higher margin targets at all? Why not reinvest every marginal dollar back into the business?
Should we think about that as even if you did, you don't think you drive more growth? Just trying to get a sense because the 5x is a pretty low trade off.
Yes. Well, that's really a great question. Actually, a question we are discussing a lot as a team, because if we have those opportunities and we can make those investments, of course, we will do it. But we would also like to invest in those opportunities where there is a real business case to grow and where there is real metrics we can measure that the growth is really happening. It doesn't mean if you make the investment this year, there should be a return on investment capital next year.
It could be longer out in the future. It could be a leading indicator, but we are looking for business cases where we can invest in growth. And actually, we have established a new committee and we're all members of that new committee that is now coming together every quarter where we're looking at very specific cases where we can invest more in future growth in the company. And if the business case is healthy, then we will make an investment in that. And we haven't set a specific budget.
If there are more business cases that we can find, we will make those investments as well. But the reality is there is a certain limit in terms of what we can do all at the same time. So therefore, what I said is there's a very large efficiency opportunity. The intention is to reinvest, but realistically a part will flow through the bottom line. So therefore and revenue growth and margin expansion at the same time.
I don't believe that we will be in a situation longer term where we always can do both. There will be moments several years out where we have to make very explicit trade off decisions between 1 versus the other. But we are in the fortune situation that we can do both at the same time in our view over the next few years.
Thanks, Ewout. So Doug's going to close out. Let me just remind you that after Doug closes out, where you saw the showcase will be reopened, the showcase will be available, our executives will be there and so will a cold drink. So Doug?
Thank you, Chip. Well, I wanted to, 1st of all, thank all of you for either listening in or joining us today for our Investor Conference. As we started off, we've had a very strong run the last few years. Our performance has allowed us to return capital to our shareholders. We've improved our margins, our top line growth.
We've built a very strong management team. Our strategy has been one that was sound. But over the last couple of years and especially the last year, we saw changes going on around us, which required us to take a step back and decide that we weren't going to be complacent. We weren't going to let ourselves be disrupted and we had to try to become part of the disruptive culture that we are seeing changing business models everywhere around us. So we are very pleased today that we were able to share with you the framework that we are using for managing our strategy for implementing it.
We're using that framework for allocating resources, for allocating capital, for defining how we're going to grow our business to expand into new geographies, into new product sets, how we're going to be acquiring for the future. And I'm really pleased that all of you are here today. We enjoy the interactions with the sell side and the buy side. It makes us stronger. You ask us tough questions, the tougher the better because when we come back from meetings with you, it allows us to think about how we're going to be better.
And so thank you for joining us. Thank you for being investors in our company. And I also want to end by thanking all of the people that are here in the room that made this possible. The people back here from Fusion, Celeste, Papia, all of those that made this a successful day. So again, please come join us for a drink, go to the showcases and we really appreciate your interest.
Thank you.