Moody’s Corporation (MCO)
Goldman Sachs U.S. Financial Services Conference December 7, 2011, 2:00 p.m. ET Executives Linda Huber – Executive Vice President and CFO. Presentation Operator
Moody’s long term revenue growth remains in the double digit percent range, and our long term operating margin for the next few years, is above 40%. So we started to be the world’s most respected authority, serving credit sensitive markets. And in order to do that, we are really trying to do two things, to defend and enhance our core business, and then to invest in growth.So, we find that our growth opportunities are quite good, right now, given what’s going in the global bond markets and then also we’ve been able to acquire some businesses, particularly for Moody’s Analytics. And we feel that we have done that pretty successfully. So, given the combination of our ability to work on our pricing, and to increase our penetration in the emerging markets, and to buy new businesses, particularly for Moody’s Analytics, we do feel that it is possible to achieve that double digit topline growth. Here’s an interesting chart, that shows how our business, the revenues were distributed for the third quarter. You can see on the left hand side, the orange part of the graph there, is Moody’s Analytics, which is just about as large in revenue as the corporate finance business, which sits on top of it. The three other parts of the rating agency, financial institutions public project and infrastructure and structured finance, are each about equally sized at this point for the third quarter. And by geography on the right hand side, you can see that our business is about 50:50 US and International, which is very helpful, when each of the parts of the global economy are moving at different paces. So, to quickly focus on macroeconomics, this chart comes from Mark Zandi at economy.com. And he’s comparing the 2011, GDP growth forecast to 2012. So you can see the US, he was calling for 1.8% growth for this year, looking for that to go to 2.6 next year. The UK, he sees moving down a bit from 0.9 to 0.6. The Eurozone from 1.6 this year to 0.1 next year and obviously other forecasters have some other views on the Eurosone. And China moving down from 9.2 to 8.7 and Japan moving up from -0.3 to 2.1% next year.
In some of the other Asian markets, I would note that Korea’s growth is expected to be 4% next year, so again Asia looks considerably better than other parts of the world. Now, we are well aware of the two charts that you see here, on the left hand side, 10-year government bond yield, have hit some pretty interesting levels, in some of the various parts of Europe. And similarly European bank CDS spreads have also moved up, quite a bit in recent months. However, the Federal Reserve has said recently, that it will help the European central banks on swap rates, and we remain to see what happens tomorrow, and the next day with the various EU summits. But what is interesting is that this trend of the financial difficulties in Europe, it’s actually helpful to Moody’s. This chart shows over the past 10 or so years, about a trillion dollars of bond issuance coming out of the European markets, and the pink or red line, shows what’s happened with bank loans. So if you do a compound annual growth rate on this chart, you’ll see that bonds have grown at 18%, while loans have just grown at 6, and in fact loans have flattened out. So what you’re seeing is more financing moving through, the bond market in Europe as compared to the loan market.Read the rest of this transcript for free on seekingalpha.com