標普全球 (SPGI) 2017 Q4 法說會逐字稿

Good morning, and welcome to S&P Global's Fourth Quarter and Full Year 2017 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. (Operator Instructions) To access the webcast and slides, go to investor.spglobal.com and click on the link for the quarterly earnings webcast. (Operator Instructions)

I would now like to introduce Mr. Chip Merritt, Vice President of Investor Relations for S&P Global. Sir, you may begin.

Thank you. Good morning. Thank you for joining the S&P Global earnings call. Presenting on this morning's call are Doug Peterson, President and CEO; and Ewout Steenbergen, Executive Vice President and Chief Financial Officer. This morning, we issued a news release with our fourth quarter and full year 2017 results. If you need a copy of this release and financial schedules, they can be downloaded at investor.spglobal.com.

In today's earnings release and during the conference call, we are providing adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the corporation's operating performance between periods and to view the corporation's business from the same perspective as management's. The earnings release contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with U.S. GAAP.

Before we begin, I need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in this teleconference may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our Form 10-Ks, 10-Qs and other periodic reports filed with the U.S. Securities and Exchange Commission.

I would also like to call your attention to a European regulation. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should give me a call to better understand the impact of this legislation on the investor and potentially the company. We're aware that we do have some media representatives with us on the call. However, this call is intended for investors and would ask that questions from the media be directed to Jason Feuchtwanger at (212) 438-1247.

At this time, I would like to turn the call over to Doug Peterson. Doug?

Good morning. Thank you, Chip. Welcome to the call today.

S&P Global completed an exceptional year with strong fourth quarter results, with every division delivering top line growth while investing in new products and enhancing productivity. I'm going to review our full year highlights and financial performance, and Ewout will review the fourth quarter results in a moment.

Let me begin with the full year highlights. Every division produced strong financial performance while investing in new products and productivity. We delivered impressive financial performance with 13% organic revenue growth and 29% adjusted EPS growth. We generated approximately $1.8 billion in free cash flow and returned $1.4 billion through share repurchases and dividends. We introduced a new capital management framework, which includes our commitment to returning capital to our investors. And late in the year, we realigned the company by installing a new integrated operating model designed to stimulate innovation and drive digital transformation. This should enable us to work together more efficiently, as all of the businesses will have access to shared digital infrastructure, data operations and engineering and technology.

We're fortunate to have so many iconic brands and products, but none are as widely recognized as the S&P 500, which celebrated its 60th anniversary in 2017, but we must continue to invest in new products and strategic partnerships to maintain a competitive edge. Some examples from 2017 include when S&P Dow Jones Indices launched the S&P Green Bond Select Index. ICE launched LNG derivative contracts, which are cash settled against the Platts LNG Gulf Coast marker. Ratings launched Green Evaluations, which aim to provide investors with a more comprehensive picture of the green impact and climate risk attributes of bonds. We introduced the first release of the new Market Intelligence platform to all SNL users and a beta release to our investment banking customers. And we advanced in fintech with investments in Algomi, a company that's created a bond information network; Kensho, a company that provides next-generation analytics, machine learning and data visualizations; Ursa Space Systems, a satellite imagery data and analytics provider; an acquisition by CRISIL of Pragmatix, a data analytics company for the banking, financial services and insurance industries.

Looking more closely at the full year 2017 financial results. The company reported 7% revenue growth and reached 13% growth on an organic basis. The company achieved a 420 basis point improvement in adjusted operating profit margin due to strong organic revenue growth, the sale of lower-margin businesses and productivity initiatives. We delivered exceptional earnings with adjusted diluted EPS of $6.89, 29% higher than in 2016. This figure includes $0.04 a share unfavorable impact from ForEx and $0.28 a share favorable tax benefit related to stock-based compensation, both of which Ewout will discuss in a moment.

The financial success in 2017 was not an isolated event. Over the last 4 years, we've produced a 7% compounded annual growth rate in revenue. In addition, over the same time frame, we've improved our adjusted operating profit margin by over 1,200 basis points. The company has consistently grown adjusted EPS with a 4-year CAGR of 20%. The multiyear growth in revenue, adjusted operating profit margin and adjusted EPS are noteworthy achievements. However, we're not done. We believe there is still plenty of opportunity to improve all of these metrics.

The strength of our portfolio is particularly evident on this slide, as every segment delivered strong gains in organic revenue and adjusted operating profit. Keep in mind that the Market and Commodities Intelligence reported results were negatively impacted by the sale of several businesses.

What I'd like to do now is provide color on some of the 2017 drivers of our Ratings business. This chart breaks down the components of full year 2017 global issuance, but instead of depicting financial and nonfinancial issuance, this shows the split between investment grade and high yield. Excluding sovereign issuance, which is not a major driver of our results, 2017 global issuance increased 7%. Because high-yield issuers are seldom part of the frequent issuer program, their issuance is more impactful to our revenues than other categories, so the 53% increase in high-yield issuance was a key factor in Ratings revenue growth in 2017. An 18% increase in structured finance issuance was also a strong contributor.

When tracking issuance data, we always try to point out that where issuance takes place, which type of issuance and the size of the deals makes a difference in the revenue we realize. Global issuance in the fourth quarter, excluding sovereign debt, increased 19%, with strength across all regions. Geographically, issuance in the United States increased 19% in the fourth quarter, with investment grade increasing 6%, high yield soaring 47%, public finance increasing 39% and structured finance increasing 12% due primarily to strengths in ABS and RMBS. In Europe, issuance increased 20% in the quarter, with investment grade increasing 15%, high yield vaulting 192% while structured finance dropped 7%. In Asia, issuance grew 15%. The vast majority of Asian issuance, however, is made up of local China debt that we don't rate.

Leveraged loan volumes have become increasingly important to our revenue based on 2 factors. First, the level of issuance has increased over time. And second, the percentage of loans rated has increased over time. This chart depicts both of these trends as they have played out in the U.S. and Europe. In the U.S., the percentage of loans rated increased from 57% in 2012 to 89% in 2017. In Europe, the figure increased from 48% in 2012 to 73% in 2017. For all of 2017, bank loan ratings revenue increased 39%, with exceptional growth earlier in the year. During the fourth quarter, bank loan revenue of $83 million contributed to the revenue growth in Ratings.

In a moment, Ewout will provide more information on our fourth quarter results, but first I want to turn to our outlook for 2018. And let's start with our global economic forecast.

Our current economic outlook calls for continued global growth. In fact, our expectation for 2018 is 3.8%, slightly ahead of our 2017 forecast of 3.7%. In the U.S., low unemployment continues to contribute to growth. In 2017, job gains averaged 171,000 per month. In addition, new tax cuts should accelerate business and consumer spending. After years of anemic growth, the eurozone is experiencing a strong cyclical rebound led by Germany, the Netherlands and Spain. In China, authorities are focusing on a sustainable macro credit path while pursuing growth-friendly policies. In Latin America, stable commodity prices and low long-term interest rates in advanced economies have increased capital flows. Many of our businesses benefit from stronger global growth, so the expectation for improved global GDP is very encouraging.

2 weeks ago, Ratings issued its annual global refinancing study. This yearly study shows debt maturities for the upcoming 5 years. The chart on the left illustrates data from the 2017 and 2018 studies. The 5-year period in the 2018 study shows a $600 billion increase in the total debt maturing over the 2017 study. We use this study, along with other market-based data, to forecast issuance. Taking a closer look at data from the study reveals an important trend in high-yield maturities seen in the chart on the right-hand side of this slide. Over the next 5 years, the level of high-yield debt maturing significantly increases each year, which is a potential source of revenue in the coming years.

In January, Ratings published its 2018 issuance forecast. This forecast provides estimates for each of the major issuance categories. Importantly, we anticipate the impact of U.S. tax reform may produce a neutral to modestly negative impact on 2018 issuance. For 2018, excluding international public finance, which is not material to our results, we expect a median decrease of approximately 1% in 2018 in overall issuance. Our forecast of a 31% decline in U.S. public finance due to tax reform will likely be offset by increases in global structured finance and financial services. We expect a 2% decline among nonfinancial corporates due to some factors from the U.S. tax reform. While not depicted on this slide, 2018 U.S. leveraged loans are expected to be flat or possibly decline with fewer refinancings after completing the busiest year ever for leveraged loans. In Europe, 2017 leveraged loan volume was at its highest since 2007. Europe will likely also see refinancing in 2018, although both the U.S. and Europe could experience a pickup in funding for mergers and acquisitions, with private equity and corporate issuers looking to take advantage of improving economic conditions.

As we begin 2018, let me share some highlights of our enterprise goals. Creating shareholder value is always a top priority, and we'd like to add to our strong track record in 2018. We're introducing mid-single-digit organic revenue growth and adjusted diluted EPS guidance of $8.45 to $8.60. This EPS guidance includes more than $1 per share of expected benefit from a lower effective tax rate due to U.S. tax reform. Ewout will provide additional detail on our guidance in a moment. The core of our strategy and purpose revolves around serving markets and fulfilling the needs of our customers. Some key initiatives include: increasing investments in new technologies, alternative data and ESG; we've embraced data science and machine learning to drive product innovation and internal productivity; growing Ratings beyond the core through expansion of additional credit tools, including ESG, green evaluations and Ratings 360; releasing multiple versions of the new Market Intelligence platform and starting a methodical, thoughtful transition of S&P Capital IQ users to the new platform toward the end of the year; enhancing our Platts commercial model and simplifying our customer-facing and operating platforms for improved user experience; and expanding index product offerings in factors, smart beta, ESG and solution-based indices. And we want to continue to deliver excellence by funding productivity initiatives and process improvements. There are countless projects underway to optimize and standardize processes using lean methodologies and automation, executing our IT and data road map to enhance the quality of our offerings and drive productivity and protect our assets, data and operations. And importantly, we want to deliver these results while maintaining our commitment to compliance and risk management. Fortunately, we have a strong leadership team and committed and dedicated employees around the world who strive to learn, grow and serve every day.

Finally, we'll host an Investor Day in New York City on May 24. We'll issue a press release with details of the event, along with an invitation RSVP, as we get closer to the date.

Now let me turn the call over to Ewout to provide more specifics on both our business results during the quarter and our 2018 guidance. Ewout?

Thank you, Doug. And good morning to everyone on the call. This morning, I would like to discuss the fourth quarter results, the impact from U.S. tax reform on our results, and then provide specifics on our 2018 guidance.

The company finished the year with exceptional results in the fourth quarter. Revenue increased 14%, with growth in every segment. Adjusted unallocated expenses increased 19%, primarily due to performance-related incentive compensation cost and a company-wide IT project to replace our order-to-cash system. Adjusted operating profit increased 28%, and adjusted operating profit margin increased 530 basis points. Our adjusted effective tax rate declined to 28.5%, primarily due to the discrete tax benefits from stock option exercises, which I will review in a moment. Adjusted diluted EPS increased 44% to $1.85 per share.

We introduced this slide during the third quarter earnings call and have updated it today. A recent change in FASB guidance related to stock payments to employees results in a tax benefit when employee stock options are exercised. And this change also results in a tax benefit whenever employee stock grants vest and the fair market value of the stock exceeds the grant price. These impacts are recorded as reductions in tax expense. During the fourth quarter, we recorded a reduction in tax expense that improved fourth quarter adjusted EPS by $0.08. $0.06 was due to the vesting of restricted stock, which occurs each year in the fourth quarter, and $0.02 was due to the exercise of stock options. We estimate that there will be a beneficial impact to 2018 EPS of $0.10 to $0.20. This benefit is reflected in our 2018 effective tax rate guidance.

Net of hedges, foreign exchange rates had a $16 million positive impact on the company's revenue and a $3 million positive impact on adjusted operating profits or about $0.01 per share in the fourth quarter. The bulk of the impact was in the Ratings segment. Ratings adjusted operating profit was primarily impacted by the euro and the British pound.

Now let me turn to adjustments to earnings to help you better assess the underlying performance of the business.

Pretax adjustments to earnings totaled to a loss of $124 million in the quarter. And these included an increase in our legal settlement reserve; restructuring actions in Ratings, Market Intelligence and corporate. Despite strong results, we are continuously looking for opportunities to transition to leaner and more effective organizations. Lease exit charges associated with vacating double floors of office space in London and New York as we continue to try to minimize our footprint in high-cost locations. Together, these restructuring actions and lease exits will result in annual savings of approximately $40 million. $25 million in deal-related amortization expense; a charge associated with U.K. retirees who, due to a change in the law, chose to take a lump-sum payment from the defined benefit pension plan. These pretax items total $124 million. Because of U.S. tax reform, we're taking a net tax charge of $149 million, which I will review in a moment. In addition, we incurred a tax benefit from prior year divestitures of $21 million. These 2 after-tax items total $128 million.

In the fourth quarter, led by Ratings, every business segment contributed to gains in organic revenue, adjusted operating profit and adjusted operating profit margin. It's very gratifying to see strength in every segment and progress in every metric. Let me now turn to the individual segments performance and start with Ratings.

Ratings revenue increased 20%, or 18% excluding the favorable impact from ForEx. Adjusted operating profit increased 40%, while the adjusted operating margin increased 810 basis points to 55.6%. As we have said in the past, we manage the Ratings business on a rolling 4-quarters basis. And you can see on that basis, the adjusted operating margin increased 400 basis points to 53.8%. This marks the sixth consecutive year that the adjusted operating profit margin has improved by more than 100 basis points as the business continues to successfully grow revenue and identify and implement productivity initiatives.

Both transaction and non-transaction revenue recorded very strong growth. Non-transaction revenue increased 12% due primarily to growth in fees associated with surveillance; short-term debt, including commercial paper; and new entity ratings. Transaction revenue increased 29%, primarily from gains in U.S. corporate bonds, particularly high-yield bonds, global structured products, and a modest gain in bank loans.

If you look at Ratings revenue by its various markets, you can see there were gains in every category, with the greatest gains in corporates and structured products. Corporates revenue was boosted by a large increase in high-yield issuance. Structured finance revenue increased with gains in every asset class.

Let me now turn to Market and Commodities Intelligence. This segment includes S&P Global Market Intelligence and S&P Global Platts. In the fourth quarter, reported revenue increased 7% and organic revenue increased 8%. Due primarily to divestitures, organic growth and synergies realization, adjusted operating profit improved 13% and adjusted operating margin improved 200 basis points to 36.5%. And full year adjusted operating segment margin increased 310 basis points to 37.2%.

Turning to Market Intelligence. Excluding recent divestitures, organic revenue grew 10%, with growth across all major categories. We continued to benefit from a diverse set of customer types, with commercial banks, insurance companies and private equities bolstering growth. At the beginning of 2017, Market Intelligence combined the former SNL and Capital IQ sales teams into one Market Intelligence sales force and transformed the commercial model into one offering that is priced on an enterprise-wide contract. This commercial process has contributed to the growth of Market Intelligence desktop users, which increased 15% versus the end of 2016. At the end of the third quarter, we told you that approximately 1/3 of RatingsDirect and Cap IQ desktop businesses had been converted to enterprise-wide commercial agreements. At the end of the fourth quarter, that figure reached approximately 55%. In addition, we have migrated nearly all former SNL users to the new Market Intelligence platform. As with any beta release, our customers have provided important feedback, and we're actively working to resolve all of the items on our punch list.

Looking more deeply at Market Intelligence revenue. All 3 components delivered strong organic revenue growth. Desktop products grew 9%. Data Management Solutions increased 12%. Risk Services grew 9%, with RatingsXpress and RatingsDirect providing low-teen and high single-digit growth, respectively. And finally, note that there was $5 million of revenue in the fourth quarter of 2016 from businesses that were divested.

When we announced the acquisition of SNL back in 2015, we established a $70 million synergy target through 2019. This target was later increased to $100 million. Over this period, we have delivered a significant improvement in the adjusted operating margin of this business. Today, we are announcing the successful completion of the $100 million synergy program. We estimate that approximately $50 million of savings were reflected in our 2016 results and that an additional $25 million of savings were reflected in our 2017 results. By the end of 2017, all projects had been launched. In total, this program will deliver $105 million in annual synergies, with $85 million of cost synergies and $20 million of revenue synergies.

In addition to delivering on our synergy commitment, we have created a fully integrated business with a powerful new platform. The Market Intelligence platform was built on the foundation of rich S&P Capital IQ financial data and deep SNL sector data combined with trusted analytics. The new Market Intelligence platform leverages the technology behind its predecessor, the SNL platform, to offer an intuitive interface with content and functionality that can be accessed on any device.

Turning to Platts. Revenue increased 5%, with the core subscription business growing mid-single digit. This was somewhat offset by Global Trading Services revenue which decreased mid-single digits, primarily due to weaker derivative trading in petroleum and metals. Beginning in 2018, Platts will be managed as a separate business and reported as a separate segment. To help you with modeling, Exhibit 10 in the press release has Platts pro forma 2017 data on that basis.

If you look at Platts' revenue by its 4 primary markets, you can see that petroleum and power and gas make up the majority of the business. Platts' growth this quarter came primarily from petroleum, which benefited from solid subscription growth, partially offset by weak global trading activity. In addition, petrochemicals contributed 10% growth, and metals and agriculture increased 8%.

Let me now turn to Indices. Revenue increased 12%, mostly due to continued growth in ETF assets under management. Adjusted operating profit increased 16%. Adjusted operating margin increased 210 basis points to 63.7%. For the full year, the adjusted operating margin declined 10 basis points, primarily due to the acquisition of Trucost.

Asset-linked fees, which are principally derived from ETFs, mutual funds and certain OTC derivatives, experienced the greatest growth in the fourth quarter, rising 17% driven by a 34% increase in average ETF AUM. Exchange-traded derivative revenue rose 12% with gains in S&P 500 index options and VIX futures and options activity. Subscription revenue decreased 3%, with modest organic growth offset primarily by the timing of customer reporting.

The trend of assets moving into passive investments shows no signs of letting up, with the exchange-traded products industry reaching net inflows of $174 billion in the fourth quarter and establishing a new annual record with yearly inflows of $633 billion. And this is an increase of about 67% over the prior record inflows in 2016. The year-ending ETF AUM tied to our indices totaled $1,343,000,000,000, up 31% versus the end of 2016. As the chart shows, this was the result of $146 billion of net inflows and $174 billion of market appreciation over the last 12 months. The $1,343,000,000,000 is a new record. The fourth quarter average AUM associated with our indices increased 34% year-over-year. This is a better proxy for revenue changes than the quarter-end figures. Exchange-traded derivative volume was mixed. Key contracts include increased S&P 500 index options and VIX futures and options, which experienced robust activity, and a decline in activity at the CME equity complex.

Now turning to our capital position. At the end of 2017, we had $2.8 billion of cash and $3.6 billion of short- and long-term debt. Approximately $2.1 billion of our cash was held outside the United States at the end of the year. Our debt coverage as measured by adjusted gross leverage to adjusted EBITDA declined slightly to 1.9x versus 2.1x at the end of 2016. 2017 free cash flow was approximately $1.85 billion, of which nearly $700 million was generated during the fourth quarter. Consistent with our capital management philosophy, we paid out approximately 75% of our free cash flow to shareholders in 2017. The company returned $1 billion to repurchase 6.8 million shares and $421 million in dividends, for a total of $1.4 billion.

As we look at U.S. tax reform, we are impacted in 3 principal areas. First, we have recorded a net charge to taxes of $149 million in the fourth quarter. This is composed of a $173 million tax on deemed repatriated foreign earnings. The cash tax payment will be made over the next 8 years. This expense is partially offset by a $24 million tax benefit from the revaluation of our net deferred tax liabilities. Second, tax reform will have a significant impact on our effective tax rate. We estimate that we will have an effective tax rate of between 21% and 22.5% in 2018, down considerably from the 28.9% adjusted effective tax rate in 2017. Third, the reduction in our effective tax rate will generate approximately $200 million of additional cash flow in 2018.

The U.S. tax reform will have an impact on cash availability and capital deployment. Our ability to generate free cash flow will substantially increase as a direct result of the lower effective tax rate. We now have access to offshore cash, and our first priority is to reinvest it in our businesses and to strengthen core capabilities, consistent with our strategic priorities and disciplined capital management philosophy. We will continue to return at least 75% of annual free cash flow generation through dividends and share repurchases. Today, we announced a large dividend increase of 22%, bringing the annualized dividend rate to $2 per share, supported by a significant increase in our net income and free cash flow and our desire to support the dividend yield. This marks the 45th consecutive year of dividend increases. Also, we are making a stepped-up investment in our communities through a $20 million contribution to the S&P Global Foundation in the first quarter of 2018. Note that this will impact our first quarter results.

Now lastly, I will introduce our 2018 guidance. This slide depicts our GAAP guidance. Please keep in mind that our guidance reflects current spot market ForEx rates. This slide shows our adjusted guidance: an increase in revenue of mid-single digits, with contributions by every business segment; unallocated expense of $160 million to $170 million; pension benefit of $25 million to $30 million. In the past, most of these benefits or costs was included in unallocated expense. Deal-related amortization of $95 million; operating profit margin in a range of 70 -- excuse me, 47.5% to 48.5%; interest expense of $145 million to $150 million; a tax rate of 21% to 22.5%; and diluted EPS, which excludes deal-related amortization, of $8.45 to $8.60. In addition, we expect capital expenditures of approximately $125 million, and free cash flow, excluding certain items, of approximately $2.3 billion.

Overall, this guidance reflects our expectation that 2018, bolstered by continued performance improvements and by U.S. tax reform, will be a very strong year for the company.

With that, let me turn the call back over to Chip for your questions.

Thank you, Ewout. (Operator Instructions) Operator, we'll now take our first question.

This question comes from Hamzah Mazari, Macquarie Research.

The first question is just on U.S. tax reform. You mentioned it's a net neutral to slight negative. You also mentioned your global forecast for '18 down 1% on issuance. Could you maybe flesh out the puts and takes in terms of it being net neutral to slight negative? And then do -- can investors expect that carry-on effect in terms of U.S. tax reform as you look towards '19 issuance and beyond?

Well, Hamzah, first of all, when we look at tax reform, we look at all the different aspects that could be impacting corporates, financial institutions as well as public finance. First of all, we look at some of the positives to the tax reform or economic growth. There is also going to be an additional amount of potential accelerated depreciation, which would be leading to additional investment. So we see a lot of positives in the general economic conditions, which as you know, in the long run are what actually drive issuance. In terms of some headwinds to issuance, a repatriation of offshore cash could actually slow down issuance of companies that have been issuing what we called in the past deemed repatriations or synthetic repatriations. Interest rate deductibility might have some impact on the high-yield market. And then the public finance market had a very robust fourth quarter in anticipation of different conditions in the market as well. So that, as you saw, we expect would be down around 30%. But overall, we look at then -- in addition to what's the impact from tax reform, we look at general growth, as I already said. And we also look at maturities. And you saw on the slides that we showed that there is a very robust pipeline of maturities, especially starting in 2019 and going forward, in all different types of issuance, and in particular in high-yield issuance. So we've taken all of this into account as we've built our forecast for 2018. As you know, always the mix is -- could change at any one time. I just want to give you one factor, which is an interesting mix shift. We do think that there is going to be strong financial services issuance in 2018. Last year, in the United States, financial service issuance for the entire year was up around 9%, but it's actually down in the fourth quarter by over 13%. And in Europe, it was up 65% for financial institutions issuance in the fourth quarter. So as you know, there's always a lot of different pieces to the mix of how this comes through, but we go back to tax reform being a very positive impact for the economy overall. And even though it might have some headwinds on issuance from the point of view of repatriation and a couple of other factors, we do see that the economy is in a strong position.

Great. That's very helpful. Just a follow-up question, maybe for Ewout, and I'll turn it over. Your adjusted gross leverage to adjusted EBITDA is at 1.9x. You've given us a range of 2.25 on the high end. You've also said 75% of free cash flow goes back to share owners. We're also upping the dividend considerably on tax reform. Is it fair to say that you guys are out of the market for larger M&A assets and most of the deal flow you're looking at is tuck-ins? Or can we expect sort of you can issue equity to do a large deal, assuming valuation is right?

Hamzah, you're right. We have given guidance with respect to our adjusted gross leverage in a range of 1.75 on the low end and 2.25 on the high end. We are very comfortably within that range at this point in time. And as we have told you this morning, we have $2.8 billion of cash by year-end of 2017, which is now largely unconstrained after the tax reform. So the balance sheet of the company is very strong. We are in a very good, healthy financial position. We're obviously not commenting on any M&A opportunities, but what you should read out of the announcement this morning is we clearly have the intention to reinvest in the business according to our strategic priorities, strengthen our core capabilities with the cash balance we have on our balance sheet today. And that could be organic. It could be inorganic, but we would love, as a first priority, to reinvest that cash balance in our business.

Our next question comes from Mr. Alex Kramm from UBS.

Wanted to just come back to the Ratings forecast you put out there. I looked at the January piece you guys put out with a 1% decline, but obviously that's an overall number. So when you dig a little bit deeper and look at the commentary, I think pretty big declines. I think like 10% or so for high yields when you back into it, et cetera. So I guess when I put all this together, look at the mix of the business and maybe assume that 3% to 4% pricing bump that you usually take, now I guess it's something like 2% Ratings forecast revenue growth. Is that kind of like in the range of what you're thinking for the Ratings business for 2018?

Well, if you look at our total guidance overall, we've -- we put together for the entire company a guidance of the mid-single-digit range as well as an improvement of 100 basis points in our margin. That's our guidance for 2018. Included in that are, as you said, give-and-takes on what's going to happen in the markets. Our overall outlook is about a 2% decrease in overall corporates, industrials; about a 5% increase in financial services. Structured finance, we're expecting an increase of about 4% for the year. And then U.S. public finance is one of the areas we think is going to be the most impacted by tax reform and be down by about 31%. But as I've always said in the past, it's going to depend also on what's the mix of high yield and what sort of structured finance comes out. Just very quickly, January doesn't make a quarter. Issuance overall in January was down year-on-year, but on the other hand, noninvestment-grade spec-grade issuance was up very strong. It was up 20 -- 27% in the U.S., but 1 month doesn't make a quarter. We do think that a lot of where we're going to come out is going to depend also on leveraged buyouts, on what's going to happen with the M&A market. And -- but we do think with the overall robust growth around the globe that this actually bodes well, generally speaking, for issuance. But we do see some of these -- as you saw in our forecast, we did see lower issuance, in particular from the corporates, and -- but we've built that into our forecast, but I don't have a specific number related to the top line growth in Ratings.

Fair enough. I thought I'd try. And maybe just shifting on to -- on the margin side. Obviously, continued margin expansion, pretty impressive even given the, again as I said, like, softer outlook in Ratings, if I just paraphrase it, I guess. But looking at the Market Intelligence, now that you pulled out Platts, I think, last year, I think it was something like 33% operating margin for that segment. Now I think that compares pretty favorably relative to, like, some other desktop players, but when you look at some of the, like, pure-play data providers out there, I mean, some of those guys even have like 50% operating margins plus. So just thinking about -- can you give us an update on your -- what you're thinking the margin in that business could get to, what kind of self-help opportunities you still have in that segment. As you know, I think a lot of that segment is actually proprietary data that you think -- I think you have put pricing power on, et cetera.

Alex, this is Ewout. You're right. Now we have provided you the details of the split of the margins between Platts and Market Intelligence. You see 33% margins for Market Intelligence both in the fourth quarter and for the full year 2017, and that is up approximately 260 basis points compared to 2016. We have indicated to you that we expect margin improvements for S&P Global as a whole in 2018. We haven't given you a breakdown for each of the segments. And what we should do is -- we realize with respect to the margins for some of our segments, we're more or less at the point of our aspirational margin targets that we have provided for the midterm. So we will come back during the course of this year with new mid-term aspirational targets for each of our segments. Most likely we will do that at the Investor Day late May. So I cannot give you any specific guidance with respect to the Market Intelligence margin going forward from here, but what you may expect is we will drive operational performance for each of our businesses. We expect positive top line growth for each of our businesses. We look at operating leverages. We look at efficiency opportunities and so on and so forth. So ultimately, as Doug said in his prepared remarks, we are clearly believing that we can make S&P Global perform better also in the future.

This question comes from Ms. Toni Kaplan from Morgan Stanley.

I was -- I wanted to ask about the margins as well. So in Ratings, a very strong quarter also mainly driven, I think, by just the top line as well, but are there other factors that drove the strong Ratings margins this quarter? Was it the flow-through from growth or some of the continued initiatives with regard to, like, pricing and simplification that you've been implementing over the last couple of quarters?

Toni, this is Ewout. We were especially pleased, if we look at the performance of Ratings this quarter, that despite a very strong top line growth, expenses were more or less flat and even slightly down if you take into consideration the FX impact. So the combination of such a strong top line growth and expenses flat and very disciplined drove the margin up by 810 basis points. What you have seen is announcements of restructuring actions both in the third quarter and the fourth quarter. Those actions are applicable to several of our segments, but certainly also on Ratings. So we are looking continuously in transforming our organization to become more effective. So certainly we will continue to look at the margins of Ratings and look at opportunities to improve those margins in the future as well.

Okay, great. And then just on Market and Commodities Intelligence, I think the margins there sequentially declined a little bit this quarter. Was there anything in particular that drove that? And how should we look at margins in 2018 in that business?

Yes, I think that's mostly driven by the Platts margins. So if you look at the details in Exhibit 10, you should see that the Platts margins were a bit lower at the second half of '17 compared to the beginning of 2017. The main reason behind that is timing of certain expense categories. We saw commissions, incentives, compensation as well as certain marketing expenses more back-end loaded during 2017. We expect that to be more equally divided during 2018. So I would expect that -- I would explain that more that it is more timing of those expense categories in Platts that drove the slightly lower margin in Market and Commodities Intelligence at the end of 2017.

Our next question comes from the line of Manav Patnaik from Barclays.

My question is around in the Market Intelligence. So you showed 15% increase in the user growth, and so the first part of that question is just more around what's driving that, particularly in the context of all the other challenges the industry is facing, like MiFID and so forth, that's gone in. And also just the disconnect on that 15% growth with the 9% revenue growth number you said for Desktop.

Manav, this is Doug. Well, as you know, we've been moving towards an approach where we provide enterprise-wide licensing to our customers in Market Intelligence. And what -- we've always talked about how this leads to more users signing up. When you see an organization that is now given basically free access across the entire organization for all people to sign up and use the product, we see that the user increases, and it's a good forward-looking measure for us and our ability to then talk to our customers in the future about the value of the contracts and the value that we're providing. As you know, we have a very important discussion with customers that's a value creation and value approach to how we think about the long-term relationship. And this is for us one of the benefits of the enterprise-wide pricing, and this is one of the ways we can see it actually coming into effect.

And I guess, just the question on if you're seeing any impacts like with MiFID and so forth.

Yes, on MiFID, we haven't seen any immediate impact on MiFID. Related to MiFID generally, as you know, we're not a sell-side research firm. We've always been a data and analytics provider. The way -- the approach to our products and services is that they're already paid for in hard dollars. One interesting thing of note: During December, we saw over 90,000 of our users go in and look at their entitlements or change their entitlements. And we believe that was driven by MiFID, where people had to ensure that they have the right sort of entitlement in the system. We also, though, know that we have the ability to deliver research and be able to monitor and track usage and monitor and track how many people are downloading it as well as find ways that we can help a sell-side firm paid -- get paid for the research. I guess the risk that we've got is that on the buy side, if buy side start getting squeezed on their budgets overall because they are looking at how they're going to pay for research, it could be that there could -- we could have a negative impact from total research budgets under strain, but we have not seen any of that so far.

Okay. And then just your thoughts on the acquisition of Thomson Reuters. Just maybe competitively do you see that changing your approach here?

We don't see any major change to our approach. We do think that Thomson Reuters is a very formidable competitor. We think that the competitive landscape is getting tougher all the time, not just with people like Thomson Reuters taking an approach at how they're going to be going towards the markets, but there is also a very large number of additional fintechs and other types of company coming into the markets. You also have companies like ours and others looking at ways to apply artificial intelligence and natural language processing and different ways of serving the market. So we think that the Thomson Reuters transaction is going to make the markets more competitive, but we welcome that competition. And we're investing also to transform our business so that we can be more competitive as well.

This question comes from the line of Craig Huber from Huber Research.

Look, 2 questions, please. One, can you just give us a little bit better your outlook for speculative-grade bank loans this upcoming year? Obviously, it was very strong last year just given the -- what seems like a rising interest rate environment. What's your guys' outlook here for bank loans, I guess, in the U.S. and Europe, if you could?

Our general expectation is that bank loans are going to be flat to potentially down a little bit. Last year was such a robust year. And the first quarter, fourth quarter were both very strong. Throughout the year, we saw the issuance. But it's going to depend a lot on what happens with high-yield financing, high-yield refinancing. It's going to also be driven by interest rates. We do see a market in Europe, which has been incredibly robust. Over the last few years, you've seen more and more financing taking place through the bank markets as well as ratings rate -- the loans beings themselves rated, but our general expectation is that the bank loan market is going to be weaker than it was last year.

And then also, if we switch over to China for a minute here, can you just update us, if you would, on changes at the government level in China to allow foreign rating agencies like yourselves and your competitors to rate underneath your own brand name in that jurisdiction there? And how impactful that could potentially be? Can you maybe size it for us potentially?

Yes, Craig. We are very interested and very excited about the opportunity that has come up in China. Let me elaborate on that a little bit. So today, the domestic Chinese bond market is about the third largest bond market in the world. We are not active in that market today, but we do rate international bond issuance by Chinese companies. So if Chinese companies want to tap the international bond markets, those are being rated and mostly out of our office in Hong Kong. The Chinese domestic bond market in the past had some foreign ownership restrictions, so up to the mid of last year, we could not own an entity, a domestic ratings agency by more than 49%. And that was the reason why S&P Global Ratings never decided to enter that market. But those foreign ownership restrictions have been lifted since the mid of last year, so we are actively looking at opportunities to enter that market at some point in time. There's still a lot of regulation that has to be issued, so there's still a lot of uncertainty how this ultimately will play out, but we are very actively following this and actively looking at the best way to enter the Chinese domestic bond market at some point in time.

Our next question comes from the line of Vincent Hung from Autonomous.

So just on adjusted unallocated expense. The $160 million to $170 million guidance looks to be up from the $141 million (sic) [$140 million] figure from last year, but you're also including that $25 million to $30 million pension benefit as well. The actual increase is higher. Can you just talk about what's driving that?

Yes, that's a great question, Vincent. So let me explain that a bit. Because if you take all the pieces into consideration, in fact, in unallocated our expenses are coming down year-over-year. So look at $160 million to $170 million. Then what is included in that number is the $20 million contribution to the S&P Global Foundation, so you have to take that out. And then in the past, the pension benefits, the pension income was netted in the corporate unallocated expenses, and now it's broken out due to a new accounting rule. So what we have indicated is $25 million to $30 million of benefit that now is broken out but in the past was netted on that line. So if you look at those 2 elements and take those into consideration, in fact year-over-year corporate unallocated expenses are down.

And on the non-transaction revenues in Ratings. There's been an acceleration in revenue growth there in the last few quarters, so can you just give us some color here in terms of how much relates to the pricing changes to frequent issuer programs and whether this run rate continues into '18?

First of all, on the -- this is Doug. On the non-transaction revenues, if you look at what the components are, they're a combination of frequent issuer fees. It's rating evaluation services. It includes some of the revenue from CRISIL. It also includes short-term issuance under 1 year, for instance, like commercial paper. And it's really a combination of all of those factors that is driving that growth. As you know, there's been a lot of mergers and acquisitions activity. That's been increasing in the ratings evaluation services with the very, very attractive financial markets in the last year. There have been a lot of shorter-term issuance in the commercial paper market. That's been part of it. And then net-net, we've also increased the number of new issuers. And the number of new issuers coming to the market also has helped to increase that, so there is not any one specific factor. It's a combination of all of those together.

This question comes from Patrick O'Shaughnessy from Raymond James.

Just one from me. In early, I guess it was maybe mid-January, ESMA put out a report to kind of complain a little bit about lack of fee schedule clarity from you and your competition on the Ratings business. Any thoughts on implications of ESMA's views and any potential adjustment you might have to make going forward?

Patrick, this is Doug. We looked at that report with ESMA. We've been working very closely with ESMA as well as with the parliament in Brussels to understand the implementation of the rules for CRA 3, which were put in place about 5 or 6 years ago. One of the provisions had a -- basically instructed ESMA to review the pricing markets and look at the cost structure of the rating agencies to see how that would be related to price -- fees and prices. We think this is very, very early stages of what ESMA is going to be working on. We're working closely with them to tell them what we disagree with in their analysis. We do think that the overall structure of fees relates to many, many different factors. It's not just costs alone. And so we're working closely with ESMA to give them our viewpoint, and as of right now, we don't see any impact to the markets. This is probably going to be a very long game in how we work with ESMA and Brussels on the ratings market in Europe.

This next question comes from the line of Joe Foresi from Cantor Fitzgerald.

This is Drew Kootman on for Joe. I was wondering if you could discuss some of the progression from the index business outside of the equities.

When you say progression, what do you mean by progression?

Or what's going on with fixed income or ESG, any of the other opportunities?

Well, first of all, was -- is your name Drew? I didn't -- don't know if I got it right.

Yes.

Yes.

Drew, well, first of all, as you know, we have a combination of different approaches to revenues in the index business. We have our AUM fees, we have our data fees, and then we have other data -- other services, so ETM and ETD fees. So we're looking at how we can continue to diversify our revenue streams, plus also how we can diversify and grow our -- the economic impact of new opportunities like ESG. What you see is that we've made a lot of progress in fixed indices with new issues going out of ETFs using fixed indices. We're seeing a lot of take-up of ESG, different types of ESG indices which use either some sort of a carbon, low-carbon and particular environmental approach. None of those have any major impact, so far, or material impact on our revenues. The way we see the evolution of these types of products is we have to invest up front. We have to build relationships with the channel partners. We have to be responsive to what are the demands coming from asset owners and asset managers and come up with new indices that are responsive to those needs. And as we build them and as we set the new products out, they start getting take-up, and then that's when you start seeing the revenues. So in terms of our total revenues in the index business, none of these are creating any major, material lift so far, but in terms of volumes and growth, we believe over time all of these are going to have more and more impact. And it's going to be important to us that we also do have this innovation and this market relevance for what are the demands coming from the asset owners.

And we broke out, I believe it was in our second quarter earnings call, the year-over-year gains in fixed income and ESG. And from a percentage standpoint, they were up significantly. To Doug's point, from a total standpoint they didn't really move the needle in that business. And we'll likely put those out again in -- probably in the second quarter of next year because this is based on an annual survey that goes out.

These questions come from Jeffrey Silber from BMO Capital Markets.

It's Henry Chien calling in for Jeff. I just wanted to go back to the guidance for organic growth for 2018. Just thinking, for 2017 there was a number of, I should say, special items that sort of drove pretty high growth rates in both Ratings and the Market Intelligence. So just trying to understand how should we think about the mid-single-digit growth rate. Is that driven by sort of the new markets and new initiatives that you outlined early in the presentation? And just in light of issuance, it looks like it's just going to be down a bit this year as well.

And just to clarify the question: When you say special items for revenue growth in Ratings and MI this year, what are alluding to there?

Yes -- no, not -- special items is the wrong term. I just meant that there meant -- there seem to be a number of strong growth headwinds in the year, whether it's the pickup in issuance, which was a record year, and then the markets intelligence side shifting over to the enterprise. It was just thinking of those, which don't sound like they would recur this year, so I'm just trying to understand the -- what will be driving growth this year.

Thank you.

Henry, this is Ewout. You are right. We see a lot of positive momentum and positive drivers around our business. I can point at bank loans. I can point at corporate issuance in Ratings, below investment grades, structured finance. I can point at the user growth in Market Intelligence. I can point at commodity pricing going up for our Platts business. I can point at the move from active to passive investments in the Indices business. So all of those drivers are very favorable and have really helped the company to be positioned well for the future. And therefore, you saw a 13% organic revenue growth for the company as a whole during 2017. We have guided to mid-single digits growth in revenue for 2018. That's mostly because we are now starting from a much higher base than where we were a year ago, so you have to take that into account. But if you look at some of those drivers, we are confident that those will continue and will be continuing positive drivers for the company going forward because we think those are not all market related. Those are largely also related to matters where management can have some influence going forward. So therefore, we think mid-single-digit growth is a reasonable expectation for revenue growth during 2018.

I just want to add one thing which is maybe a little bit philosophical. It was embedded in the comments I made at the end about our 2018 enterprise goals. And you've heard me talk about this for the last few years, that we are driving towards having much higher-quality customer experience, much -- commercial organizations that are out there, customer focused, building products, providing service that's relevant and responsive to our customers' needs. And we think this is critical. In a very competitive world, we have to be out there that -- in a way that we're serving our customer needs and anticipating their needs in the future. And we believe that this is actually one of the most important and necessary components to our top line growth, is to have that approach to customers and not be complacent in very, very competitive markets.

This question comes from Peter Appert from Piper Jaffray.

Ewout, buybacks versus dividends. The big dividend increase, I assume, doesn't suggest any shift in how you're thinking about the allocation between the two. And can you also, related to that, talk about the -- how we should think about the timing of buybacks in 2018?

Yes, Peter, you're right. And if you look at the growth in dividends as such, if you look at the underlying growth in net income and free cash flow, this is very much supported by those factors. Just look at the free cash flow in 2017, $1.85 billion, going to $2.3 billion in 2018. If you look at that $2.3 billion and you will take into consideration our commitment to return 75% of the $2.3 billion to our shareholders, then a 22% dividend increase is really in line with those underlying growth percentages. So I don't think you should read anything out of this that it is a shift in the mix. What you should read out of it is that the underlying fundamentals in terms of net income and free cash flow are really very strong. And we expect to -- also that to continue during 2018.

Got it. And how about on timing?

Yes, timing, obviously we are not commenting specifically on that. Management has a philosophy, as you know, that we are not market timers. We believe in dollar cost average. There might be sometimes tactical decisions why we scale up or down in certain periods, but otherwise we'd like to be as much in the market as possible during the year. So I cannot give, for obvious reasons, further specifics on that, but we would like to be as much in the market as possible because these are significant numbers in terms of return of capital to shareholders. And like I said, management doesn't believe that we should be market timers ourselves.

Got it, understood. And Doug, your comment -- your prepared comments might have suggested that you're seeing a little bit of pushback from Capital IQ users on the model change. Am I hearing that correctly? And maybe if you can just expand on that.

No, no. I'm sorry if I gave you that impression. Not at all. We're -- it's just that we have a very large number of clients we're going to have to go out to, to look at the approach to how their -- what their current contracts are. In some cases it's a combination of shifting from a per-seat contract to an enterprise-wide contract, but also in some cases we have multiple contracts. It's an opportunity to go out and simplify our approach to a customer. In some cases we have 5, 6 different contracts across different divisions of an organization. It gives us a way to unify those contracts into 1, to move them, shift them to an enterprise-wide contract. My point isn't the difficulty. My point is that this is -- still has another year, maybe even till the end of 2019, before we complete the final approach to all of the Cap IQ accounts on the conversion. But it's going very well. I'm sorry I gave you a different impression.

And we use the word "punch list." What we're trying to deal with there is just that anytime you have any sort of release, there is going to be bugs. There is going to be things that need to be resolved. And in fact, the MI just had a new release over the weekend to deal with usability feedback and application performance and things like that. So just one trivial fact for you: If you're out there on an old Internet browser, your speeds can seem slow. And well, most people don't use that browser, but now we're fixing that. So that's the kind of thing that we work on.

This question comes from Conor Fitzgerald from Goldman Sachs.

Just looking for a little more color. When you mentioned on reinvesting back in the business, some of the benefits of tax reform, where is your marginal reinvestment dollar going?

Conor, so we are looking at all of the opportunities to grow our businesses, to reinvest and to strengthen our core capabilities. When we announced our capital philosophy and targets in the mid of last year, we have indicated some areas that are for us strategically important. Think about growing Ratings in some of the emerging markets and looking at domestic ratings businesses. Think about indices for fixed income, ESG, international, smart beta. Think about, in Market Intelligence, our risk analytics and services business. So those are areas that are strategically important. And then for Platts, some of additional commodity price reporting where there are certain benchmarks or supply-demand analytics. So those are the areas for the businesses itself. We're also looking at some core capabilities of the company, investing in technology, specific talents, and other areas that are important in terms of core capabilities for the company. We are looking at this investing on an organic basis, inorganic basis, but please be assured we apply very disciplined capital management philosophy metrics and look at a valuation perspective. So the company is very critical with respect to those opportunities, that they hit certain hurdle rates that we think are important going forward.

That's helpful color. And then just looking for your thoughts. There has been a lot of more conversations recently about the potential for an infrastructure bill. Obviously, there is a lot of ways such a bill could be structured, if it did pass, but as we start to hear more about that over the coming months, what are the key things you're focused on that could potentially drive a positive impact for your business if we do see an infrastructure bill make its way through Congress?

Thanks, Conor. This is Doug. Well, as you know, we've been looking at infrastructure now for over 5 years. We've bolstered our infrastructure practices across the businesses. In particular, in Ratings we brought in a team of people that are able to be very responsive to infrastructure. And that's not just in the United States. It's a global team. We've included additional data and analytics in Market Intelligence. We also have some infrastructure indices that we have through the index business. And then obviously Platts benefits from infrastructure investments in energy and oil and gas. But the bill coming through Washington is going to have a few key elements that we'll watch carefully. One of them is permitting. Permitting is one of the areas which is quite slow in the United States compared to countries like Australia and Canada that have very robust approaches to infrastructure investments that also bring a lot of private capital. Permitting can be done a lot faster, literally in a couple years, instead of in some cases in the United States 9 or 10 years. So we think that permitting is one of the critical factors that will get investment moving a lot faster in infrastructure. Second will be the approach towards support or leveraging capital coming from Washington into the states and local communities, where most of the real infrastructure takes place. It's at that level, it's at the state and municipal level where much of the -- most of that takes place. And one of the factors on that is going to be an openness to seeing more private -- public-private partnerships, as I said, also very important in Canada and Australia. So the more we see private capital coming into infrastructure, the more we see it coming in a lot faster, when we see other fixes to the federal programs that are used for transportation and ports and airports, those will also stimulate more investment. So our overall view is the faster that this starts getting into the markets, the more comprehensive the approach is, and then particularly if it -- you see it reach out to the states and municipalities, we'll see a robust infrastructure investment which will benefit growth. It will benefit jobs. And part of that will be then more investment activity, which we will be supporting through all of our different divisions.

These questions come from Tim McHugh from William Blair.

I just want to follow up the comment on some additional restructuring in the Ratings business. I guess, can you elaborate on what type of activities that you're doing at this point? Is this still kind of trying to automate some of the roles? Any color there would be helpful. And then secondly, and I apologize if I missed this, but given exchange rate movements, have you assumed a lift much to revenue and as you think about the 2018 guidance here?

Tim, let me first take the restructuring question about Ratings, and then I will make a few comments on your FX question. On the Ratings restructuring, we are looking at many areas where we would find opportunities to make the organization more effective. I can give you 2 examples. One example is in our commercial organization. Until recently, we had 2 commercial organizations in Ratings. We have moved those together. We created 1 commercial organization. And based on that restructuring, we are able to reduce the run rate, particularly in more senior management positions, going forward. Another example is the ongoing Project Simplify, which is putting technology tools in place, workflow support and more standardization in the work of the ratings analysts. And that will help with also efficiency. Think about population of mobiles, data intake and so on. That will be more automated so that our analysts can focus on more the higher-value-added work going forward. So those are clear areas where we see opportunities in Ratings going forward. With respect to foreign exchange rates, let me give you a couple of perspectives. The company's exposure is what we call a negative exposure on Indian rupees, British pounds and the Australian dollars. A negative exposure means we have higher expenses in those currencies than revenues. And we have positive exposure on euro, which means we have higher revenues in euro than our expense based in euro denomination. We have an FX program to offset to a large extent those exposures in order to make sure that the company's impact on an economic basis is mitigated to some extent. So overall, if you look at our guidance we have provided to you, that is based on the most recent spot market rates with respect to ForEx. And where currencies are today, we are confident that, that is properly reflected in the guidance we are providing you this morning.

Okay. And just one other follow-up in terms of numbers. The pension benefit that you're counting on for 2018, how does that compare to the last -- I guess, last year and the last couple years? Is that kind of a normal level, I guess, now that it's being broken out...

Yes. It's more or less on a similar level of -- if you compare it to previous years. And the background there is that we have a well-funded pension plan. So in particular, the asset assumption on our plan is helpful to create this pension income, but more or less similar compared to what we have been reporting in previous years.

This question comes from Shlomo Rosenbaum from Stifel, Nicolaus.

Just first question is how is the tax deductibility of interest expenses treated by the recent legislation? How does that impact the forecast you have for leveraged finance and some of the deals that will come from P/E funds?

This is Doug. Welcome, Shlomo, to the call. We've been looking at this. We're trying to model it out. We see a very minor impact from this and for a few reasons. One is that a lot of the companies that could be potentially impacted by the leverage rules are not paying taxes, anyway. And even though there has always been a theoretical tax shield to leverage-type organizations, just given their overall operating procedures and operating profits, they're not necessarily really paying taxes. We also think that there is a level of profitability which is about a 6x leverage. That's more or less where we've modeled it out that will still allow you to have deductibility of your interest expense. So we're not quite sure exactly what the impact is going to be, but our initial modeling doesn't show that it's going to have that big of an impact because leverage is a very, very legitimate way to use for corporate financing for different types of organizations. And we've seen a little bit of fishing around for some other opportunities from the investment bankers looking at whether securitizations or other types of tools that aren't necessarily directly financial tools or leverage. So we don't think that we're going to see much of an impact.

Okay. And then just in terms of the enterprise migrations with SNL Capital IQ, is the increase in seat count largely from displacement of competitors? Or are you just seeing people just put a lot of the organization on there that might not necessarily have had access to this kind of information beforehand? I'm trying to see basically competitively if this is enabling you guys to displace competitors.

I don't think you're seeing any meaningful displacement at this time. You might have someone who has access to a competitive product, and they've been using that competitive product. And now their firm gives them the opportunity to use our product, so they might use them in conjunction, in tandem for a while. So I don't think anything happens right away, but over time I think that certainly (inaudible).

What I'd add is that a lot of the penetration that we have is new users. So you -- as you mentioned, when you get a new -- a firm which has maybe 10 or 15 or 20 seats, whatever it is, and we open it up for a firm-wide, enterprise-wide contract, you see new users coming in. And then we've also been able to get some new customers. So customer growth itself is also important to us, and that's another thing that we measure carefully.

We will now take our final question from Bill Warmington from Wells Fargo.

Under the wire. Here we go. So a quick question for you on the Capital IQ business. You'd mentioned that sell side is not a big part of what you do in -- but my question is, given the fact that the sell side is under a lot of cost pressure and likely facing more with MiFID II, what kind of an opportunity does that create for Capital IQ, specifically since it's a lower-cost option versus Bloomberg and FactSet?

Well, first of all, let me just point out -- and I don't have the figures in front of me. Chip might have them at his fingertips, but one of -- we believe one of the advantages of our business model is that we are very diversified across different types of industries: investment banks, sell side, buy side. We've got insurance companies, banks, other types of financial institutions, regulators, academics that -- et cetera. So we believe that it's a model that allows us to have diversification across different kinds of users between the SNL content and the Cap IQ content, which is coming together; and other types of data services that we're adding, especially alternative data services, et cetera, that we can provide multiple types of users with good experience as well as the data they need. So we're not as dependent on any one type of industry. But in terms of overall, your point of your question is will we see an opportunity to displace other, more expensive products. We believe that, that is one of the areas where we can be more competitive.

Yes. And then a follow-up question on the index business. How big is smart beta and ESG within the index business these days? And then how long does it take to get to a point where it starts to move the needle?

Bill, this is Ewout. I think in absolute numbers it's still relatively modest, certainly if you look at it from a revenue perspective, but this is the nature of benchmarking business. You have to invest early. You have to put a lot of effort in trying to become the standard in the market. And once you are the standard and you're being picked up, then it can take off and your revenue streams in the future can be very large. So those kinds of investments can be over multiple years. Think about the VIX. That was an investment that was done over a very long period of time, together with CBOE. And at some point, it took off. And it is a very successful product at this point in time. So relative modest today, but that is exactly why we are making those investments. We're taking the benefit of the margin of the larger benchmark indices, invest back into the new indices. And over time, that will be revenue drivers for the company.

And Bill, as I recall, if you go back to our second quarter slides, we gave the exact number. That is not -- I don't remember the number exactly.

Got it.

And addition, it's also part of the custom indices business. This is one of the areas where it's not necessarily just ETFs. We also see a lot of interest from structuring [desks and] investment banks, which are using these types of products for their family offices and other sovereign wealth funds, other types of direct investors, where we provide the structuring of the index itself that's responsive to their needs.

Bill, I have the number for you. At the end of 2016, smart beta accounted for $184 billion in assets tied to it.

Got it. And then okay, so end of '17 -- well, that's the reference point. We don't have a '17 number.

That was the end of '16, okay? So I don't have a new end-of-'17 number for you yet.

Okay, I look forward to seeing it.

Thank you. This is Doug. Let me just make a couple of closing comments. I do want to comment very briefly on the market drop yesterday, 1,175 points in Dow Jones. It was the largest drop in history in index point terms, but it actually doesn't even make the list of the top 10 drops in percentage terms. Given that we've been managing this since -- over 125 years, we've got all the data. And it's actually the 100th largest single drop in percentage terms. So it's way down there, it's only #100 in overall percentage terms. So we think we should put that in context.

We've built our plan, our approach to the markets looking at the economies right now, which are growing. Inflation is still low. Rates are still low. Banks have very strong liquidity and very strong capital around the world. Tax reform, we think, is a tailwind for the U.S. economy. And so we do believe that overall economic conditions, putting aside some volatility in the markets, and all of the transformation taking place in technology around us are going to be very positive aspects to how we're going to grow the business going forward. We're very pleased that we concluded 2017 with strong momentum and very strong performance, our top line growth for the entire year of organic growth of 13%, the margin improvement that we've been carrying through for the last 5 years. We are starting off the year also benefiting from U.S. tax reform, with a strong position in cash and capital, with a very good leadership team and what we think are very promising approaches to how we're going to work with the markets in the future.

So we appreciate all of you listening on the call. We look forward to working with you during the year. We will be on a first quarter call in between now and the time we see you at our Investor Day.

Thank you very much.

That concludes this morning's call.

A PDF version of the presenters' slides is available for downloading from investor.spglobal.com. A replay of this call, including the question-and-answer session, will be available in about 2 hours. The replay will be maintained on S&P Global's website for 12 months from today and for 1 month from today by telephone.

On behalf of S&P Global, we thank you for participating and wish you a good day.