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S&P Global Inc.  (NYSE:SPGI)
Q4 2018 Earnings Conference Call
Feb. 07, 2019, 8:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning, and welcome to S&P Global's Fourth Quarter 2018 Earnings Conference Call. I would like to inform you that this call is being recorded for broadcast. All participants are in a listen only mode. We will open the conference to questions and answers after the presentation and instructions will follow at that time. To access the webcast and slides go to investor.spglobal.com (Operator Instructions).

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

Chip Merritt -- Senior Vice President, Investor Relations

Good morning. Thank you for joining us for S&P Global's earnings call. Presenting on this morning's call are Doug Peterson, President and CEO and Ewout Steenbergen, Executive Vice President and Chief Financial Officer.

This morning we issued a news release with our fourth quarter 2018 results. If you need a copy of the release and financial schedules, they can be downloaded at investor.spglobal.com. In today's earnings release and during the conference call, we'll provide 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. This earnings release contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with US GAAP.

Before we begin, I need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in the teleconference may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our Form 10-Ks, 10-Qs and other periodic reports filed with the US 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 we would ask that questions from the media be delivered to Soogyung Jordan at 212-438-2297.

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

Douglas L. Peterson -- President and Chief Executive Officer

Thank you, Chip. Good morning, and welcome to today's earnings call. As S&P Global team focused on Powering the Markets of the Future, a volatility and uncertainty returned to the markets in 2018. The causes were numerous: rising interest rates, trade negotiations, Brexit, and the unwinding of global monetary stimulus. And during the fourth quarter, this volatility and uncertainty impacted debt issuance and therefore our Ratings business. Fortunately, our remaining three businesses performed well and the Company delivered strong financial results. I'm going to review our full year highlights and Ewout will review the fourth quarter results in a moment.

In 2018, we delivered 3% revenue growth and 23% adjusted diluted EPS growth. We generated significant margin improvement in every business. We reported $2 billion in free cash flow excluding certain items, an 8% increase year-over-year. We returned $2.2 billion through share repurchases and dividends. As you know, our target is return to at least 75% of free cash flow, excluding certain items to shareholders, but we returned more than 100% in 2018.

We initiated a new -- we're initiating a new $500 million ASR in the next few days, and we made great strides toward our Investor Day targets. But in the meantime, we always need to build for the future, both through organic projects and by adding new capabilities from outside the Company. To that end, we added leading-edge technology and unique data sets with the acquisitions of Kensho, Panjiva, and RateWatch.

Revenue for 2018 increased 3% despite a 4% decline in our Ratings segment. Our adjusted operating profit increased 8% and our adjusted operating profit margin increased 230 basis points to 48.8%. This marks great progress on our Investor Day adjusted operating profit margin target over the next three to four years of low 50s. In addition, we continued to reduce our shares outstanding. The 2% reduction achieved in 2018 helped us reduce shares by 10% over the past five years. Finally, our adjusted diluted EPS increased by 23%. While revenue growth, margin improvement and share count reduction played a role approximately one half of the increase in 2018 was the benefit US tax reform had on effective tax rate.

Revenue growth and productivity efforts propelled the adjusted operating profit margin in 2018. Revenue declined in Ratings due to reduced issuance. Despite this decline, Ratings delivered greater margin improvement than any other segment. I'm pleased with the efforts of our employees to continue to drive revenue growth and productivity gains across S&P Global. This performance extended our succession of solid revenue growth and adjusted operating margin growth. We've delivered a four-year CAGR for revenue of 6% and improved our adjusted operating profit margin by more than 1,200 basis points in the past four years. The results of these collective efforts has been a 21% compounded annual growth rate of adjusted diluted EPS over the past four years.

As we've delivered these results, we've continued to invest for future growth and productivity. In 2018, we continued to invest in technology and data. We acquired world-class artificial intelligence and machine learning technology with Kensho; unique technology and supply chain data with Panjiva; differentiated banking data with RateWatch; and in the fourth quarter certain index intellectual property rights. In addition to these acquisitions, we invested in companies pioneering new technologies. These included regtech solutions of FiscalNote, an energy production information with Xpansiv. We also licensed private company data from Crunchbase and through our other agreements licensed new data sets for companies in China and the UK.

Finally, we accelerated our ESG investments organically and through the full acquisition of the climate data pioneer Trucost. This has allowed us to expand Trucost's unique data across S&P Global and combine our data resources with our world-class data operations in Market Intelligence. In aggregate, during 2018 we invested more than $800 million in acquisitions. We made another $60 million in internal investments that were expensed for work associated with Kensho, Panjiva, RateWatch, ESG and China.

One of the highlights of 2019 so far has been our recent approval to enter the China domestic bond market. We're honored to receive the first approval for our wholly owned subsidiary of an international CRA to rate domestic Chinese bonds. We are now authorized to rate issuers and issuances from financial institutions, corporates, structured finance bonds and panda bonds or Renminbi denominated bonds from foreign issuers. Our new entity S&P Ratings China Ltd. will be headquartered in Beijing and has 36 employees, 31 of which are ratings analysts.

We are able to assemble an exceptional team made up of our existing Ratings employees as well as experts from the Chinese debt capital markets and local ratings agencies. It's important to understand that S&P Ratings China Ltd. and S&P Global Ratings are two independent entities each with their own methodologies and analytical autonomy. The methodologies in the new business have been developed with reference to and leveraged from S&P Global Ratings methodologies. This brings our total presence in Greater China for Ratings to more than 200 employees.

We plan to initiate coverage on the roughly 400 existing corporate clients that already issue cross-border bonds. Today issuance spreads within China's bond markets are virtually uncorrelated with domestic rating categories. We intend to offer a national scale rating for issuers in the Chinese market. We're well prepared and ready to issue Chinese domestic ratings.

Both our Ratings business and our indices business can be impacted by short-term market movements. I'd like to put some of these movements into perspective starting with 2018 issuance. Global issuance decreased 6% in the volatile market environment. In particular, high-yield issuance declined 40%. This category has a disproportionate impact on our revenues since few if any of these companies are in frequent issuer programs. We often talked about the correlation between spreads and issuance. This can be seen very clearly in the high yield market. Issuance levels have a strong negative correlation with spreads. So the spreads widened in 2018 progressed, especially in the fourth quarter issuance was impacted. Just for comparison purposes, you can see that the correlation between spreads and issuance is not nearly as strong in investment grade where GDP growth, business confidence and maturity pipeline are more highly correlated to issuance volumes.

While the impact from US tax reform has been positive for our bottom line, it has as we expected been a drag and issuance. In fact, the 50 US companies with the largest overseas cash balances at the end of 2017 issued $170 billion of debt in 2017 and only $42 billion in 2018. This drop is responsible for a 10% decline overall in investment-grade issuance. In aggregate over 2018, the global cash balances of these 50 companies have declined by $91 billion or 10%. While 18 of these companies have returned to the bond market, we expect more will return as cash balances continue to normalize. We'll continue to monitor this very closely.

During the fourth quarter, global issuance decreased 19% as the weakness in corporate issuance exceeded strength in some pockets of the structured market. In the US, issuance declined 36% as investment grade decreased 34%. High yield cratered 79%. In fact, December was the first month since LCD began tracking issuance in 2005 that there was no high-yield issuance. Public finance decreased 44% and structured finance declined 16% with gains in RMBS, offset by declines in ABS, CLOs and CMBS.

In Europe, issuance decreased 11% as investment grade decreased 25%, high-yield declined 73% and structured finance increased 59% almost entirely due to strength in covered bonds a category where we have very little presence. In Asia, issuance increased 8%. Since much of this is made up of local Chinese debt that we currently don't rate, this increase is not meaningful to our results. While these declines are very significant, let me put the fourth quarter global issuance into perspective. This slide depicts quarterly global issuance for the past six years. The fourth quarter of each year is highlighted in dark blue. As you can see the fourth quarter of 2018 was in line with historical fourth quarters. It's the exceptional issuance in the fourth quarter of 2017, which created a very difficult comparison.

There's another dynamic increasingly impacting high-yield issuance. This chart shows that US speculative-grade borrowers are increasingly turning to the bank loan market. The light and dark blue bars illustrate leveraged loans and the brown bars depict high-yield bonds. The movement from high-yield bonds to leveraged loans is not a concern for the company. These charts depict that in both the US and Europe leveraged loan volumes have increased and the percentage of these loans that we rate is also increasing. In fact, in 2018 we rated 92% of US leveraged loans and 84% of European leveraged loans. And so our bank loan ratings revenue continues to increase, reaching $380 million in 2018. Remember when doing your analysis leveraged loan activity is not included in bond issuance data.

Now, let me turn to indices. The savings to investors from the lower fees associated with index investing has been dramatic. The bars on this chart depict the growth in total index assets invested in products linked to the S&P 500, S&P MidCap 400 and the S&P SmallCap 600. As the end of 2017, they totaled $3.6 trillion. The line on this chart depicts the fees saved by investors on these products, more than $150 billion in the last 10 years.

Turning to industry trends affecting our indices business. This chart depicts the continuing outflows from actively managed US mutual funds into index-based ETFs and mutual funds. A trend that has benefited us as we worked with the markets to provide indexed products and solutions. And much of the success arose from the visionary legend in the index investment world who passed away last month, Jack Bogle, the Father of Indexing. Jack wanted to help individual investors save and give them as he would say a fair shake, and we're grateful for his vision. In 1976, Jack introduced the first indexed mutual fund, now called the Vanguard 500 Index Fund. Today this fund based on the S&P 500 is one of the largest mutual funds in the world with more than $400 billion in AUM. Jack didn't just build a fund, he built an industry.

Specifically to ETF AUM associated with our indices, we saw a decline in 2018 due to year-end market correction. For the full year market declines led to a $125 billion reduction in year-end ETF AUM. Despite this decline, inflows continued adding $90 billion in ETF AUM.

I'd like to shift to our 2019 outlook. Our economists expect 2019 global GDP growth of 3.6%, slightly lower than the 2018 forecast of 3.8%. With lower growth in the US, Europe and China, our economists believe that there is only a 15% to 20% chance of a US recession in 2019. Last month, Ratings issued its annual global refinancing study. This yearly study shows debt maturities for the upcoming five years. The chart on the left illustrates data from the 2018 and 2019 studies. The five-year period in the 2019 study shows a $400 billion increase in the total debt maturing versus the 2018 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. Over the next five years, the level of high-yield debt maturing significantly increases each year, which is a potential source of revenue in the coming years.

The Company updated its 2019 bond issuance forecast in a report issued last week. Excluding international public finance, issuance is expected to decrease less than 1%.

During Investor Day, we introduced the framework Powering the Markets of the Future, including six foundational capabilities. We use this framework to set our goals and allocate resources. So in 2019, here are some of the top projects and initiatives we prioritized in line to this framework. Under global we believe that they are in a unique position to bring additional transparency and independent analytics to the capital markets in China. The ratings opportunity that I just discussed is one example. In addition, Market Intelligence will be expanding its private company and local content within rich data, risk analytics and models in China.

Platts will be extending its commercial presence in Asia and additional locations with a larger sales force. Under customer orientation, we continue to build out the Market Intelligence platform which will be rebranded as the S&P Global platform. We'll continue to migrate both Capital IQ content and Capital IQ users to the platform. In addition we will be adding Platts pricing and news content in the platform and expanding the Ratings 360 content. These efforts are intended to create an increasingly rich user experience for our customers.

Under innovation, we're ramping up our ESG data factory by centralizing data sets from across the Company as well as adding new data sets. We're also creating new data feeds for our customers. Our indices business will be expanding its offering at ESG and smart beta indices. Under technology, we're moving out of several data centers and into cloud operation. In addition as Ewout will review in a moment, we're implementing numerous Kensho-related projects.

Under operational excellence we'll continue our efforts to optimize the management of data ingestion and operation. We'll also be leveraging artificial intelligence and machine learning capabilities throughout our data operations. And while cybersecurity has already been an area of focus, it's important that we keep improving our capabilities as benchmarks against the NIFT framework. Under people, we'll extend the program that was initiated in 2018 to raise the technological acumen of all of our employees through a series of online and classroom training courses. We also maintain our commitment to diversity and inclusion.

And finally, I want to bring your attention to a campaign that we introduced at the World Economic Forum in Davos last month. It's entitled ChangePays. Within on our data and insights, we were able to demonstrate a greater workforce inclusivity leads to healthier, stronger economies. Our campaign illuminates the positive impact of women in the workforce on companies, organizations, economies and global communities.

Please take a look at our research and watch the ChangePays video. And while you're added, take a look at our 2018 corporate responsibility report for all we are doing in ESG. And now, I'd like to turn the call over to Ewout Steenbergen, who'll provide additional insights into our capital plans and financial performance. Ewout?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Thank you, Doug, and good morning to all of you on the call. Let me start with our fourth quarter financial results. Organic revenue decreased 4% as issuance-driven declines in Ratings exceeded growth in the other three segments. Adjusted corporate unallocated loss was improved by 24% due to lower incentive compensation as well as our productivity efforts to lower real estate costs and a reduction in professional fees. Adjusted total expense declined due to lower incentive compensation and success with our ongoing productivity efforts. This led to a 270 basis points improvement in our adjusted operating profit margin.

While US tax reform has substantially lowered our adjusted effective tax rate, this quarter it was unusually low, because new tax regulations related to US tax reform were issued in the fourth quarter, which altered our previous assumptions. When the stock declined in the fourth quarter, we initiated a new $500 million ASR. This program along with other share repurchases resulted in a 2% decline in our diluted weighted average shares outstanding. And finally, we achieved a 20% increase in our adjusted diluted EPS to $2.22 during the fourth quarter.

Because of the unusual level of stock option activity in the third quarter of 2017 the stock-based compensation tax benefit that we received in 2018 was $0.14 lower than in 2017. As the number of employee stock options continues to decline, we expect the stock-based compensation tax benefit to decline as well. For 2019, we estimate a positive EPS impact of $0.05 to $0.10. Changes in foreign exchange rates had a modest negative impact on revenue in the Ratings business and a positive $15 million impact on adjusted operating profit for the Company or about $0.05 of adjusted diluted EPS.

Our expenses were positively impacted by the weakening of the Indian rupee, British pound and Argentine peso. For the full year changes in foreign exchange rates had a favorable impact of $0.19 on adjusted diluted EPS. There were a number of non-GAAP adjustments to operating profit this quarter: $16 million in restructuring charges, in Ratings and Market Intelligence. We expect that this will result in $15 million in annual savings; a $5 million non-cash accounting adjustment associated with our UK pension plan; $9 million in Kensho retention-related expenses; and we had $31 million in deal-related amortization.

This is a slide that we shared at our Investor Day in May. It depicts the framework that we outlined to show the areas where we can most impact shareholder value. The first two require investments. We need to continue to invest to fuel revenue momentum by improving our products, introducing new technology, adding new data sets and entering new geographies. We've made great progress delivering EBITA enhancement, and we must continue to fund new organic opportunities to drive additional productivity gains.

Driving financial leverage involves optimizing interest costs, reducing shares outstanding and optimizing the tax rates. And finally, we want to return capital to shareholders, while maintaining flexible debt capacity. We are committed to returning at least 75% of annual free cash flow to shareholders each year. This quarter we recorded strong revenue growth in S&P Dow Jones Indices, Market Intelligence and Platts. Ratings declined due to lower debt issuance. With the exception of the revenue-driven shortfall in Ratings, revenue growth and productivity efforts resulted in substantial adjusted operating profit and adjusted operating profit margin improvement in every other business segment.

Here you see our headcount by business at the end of the last three years. The key takeaway is that over the past two years, headcount has increased 6% and revenue and adjusted diluted EPS have increased 11% and 59% respectively. The major additions have been from acquisitions and insourcing of contractors.

At Investor Day, we cited a new $100 million three-year cost-reduction plan. It was based on productivity improvements often through investments in support functions, real estate, technology, and digital infrastructure. I'm pleased to report that after our first year, we estimate that we have achieved run rate savings of approximately $60 million of which about $40 million was realized in our 2018 results. Examples include, reducing our real estate footprint by exiting space at our New York headquarters and at our London office, consolidating data centers and offshoring certain business services.

Now turning to the balance sheet. In 2018 our return of capital to shareholders exceeded 100% of 2018 free cash flow. This was accomplished by returning $1.66 billion to repurchase 8.4 million shares and paying $503 million in dividends. In addition we're actively working to fuel future revenue growth through acquisitions and organic investments. Collectively, these actions resulted in a $800 million decline in our cash balances versus the end of 2017. Our adjusted gross leverage to adjusted EBITDA is holding steady at 1.9x, well within our targeted range. While we have begun already, our 2019 share repurchases program with open market purchases of approximately $130 million in January, we'll initiate a new $500 million ASR in the next few days.

Free cash flow excluding certain items increased 8% in 2018 to $2 billion. This level is a bit lower than our 2018 forecast due to lower fourth quarter Ratings revenue and a longer renewal process associated with enterprisewide contracts in Market Intelligence. The latter is due to a timing issue that will reverse in 2019.

Now let's turn to the segment results, starting with Ratings. The decline in issuance particularly high-yield issuance that Doug discussed resulted in a 16% decline in Ratings revenue. Nevertheless, we reported a 16% decline in adjusted expenses, resulting in a 10 basis point increase in adjusted segment operating profit margin. Expense reductions were primarily from productivity programs, lower incentive compensation accruals and lower IT spend, as Ratings has established an IT center in India and has in-sourced much of its IT spend.

For 2018, Ratings delivered a 240 basis point improvement in adjusted segment operating profit margin to 56%. This is particularly notable in light of the 4% decline in revenue for the year. The Ratings cost structure is well positioned for a recovery in issuance.

Non-transaction revenue decreased primarily due to a $6 million impact from changes in foreign exchange. In addition, there were lower excess issuance fees associated with medium-term notes and lower Rating Evaluation Services activity. Transaction revenue decreased due to debt issuance reductions partially offset by increased bank loan rating activity. Non-transaction revenue has been a steady source of growth. This is because the majority of the revenue is subscription like. However, there is some volatility of certain components namely Rating Evaluation Services ebb and flow with M&A activity and changes in foreign exchange rates can always have an impact.

This slide depicts Ratings revenue by its end markets. The largest contributor to the decline in Ratings revenue was the 15% decline in corporates primarily as a result of US tax reform that Doug discussed earlier. Issuance declines associated with market volatility also drove the declining revenue. Financial services revenue decreased 22%, structured finance declined 14%, and governments decreased 33%. While the CRISIL and other categories decreased 2%, it included an increase in inter-segment royalties for Market Intelligence offset by a decline in CRISIL's dollar-denominated revenue.

Market Intelligence delivered a strong quarter with organic revenue, excluding revenue from Panjiva and RateWatch increasing 7% and active desktop user growth of 12%. With adjusted expenses down 1%, adjusted segment operating profit increased 27%. And the adjusted segment operating profit margin increased 570 basis points to 38.5%, a new high point. For the full year the adjusted segment operating profit margin increased 200 basis points to 34.1%. While we are thrilled with the fourth quarter of margin the full year margin is more representative of our current run rate.

Beginning this quarter, we began integrating Trucost into Market Intelligence. Market Intelligence has a lot of ESG activity under way, and we believe the business is better suited to be included here. Desktop, the largest category, grew 6%. Data management solutions realized 12% revenue growth, once again benefiting from expansion of the data feeds business. Risk services grew 6% with the RatingsXpress providing the greatest level of growth as we continued to expand the data feeds portion of risk services.

Turning to S&P Dow Jones Indices. The segment delivered 13% revenue growth, 7% adjusted expense growth and 17% adjusted segment operating profit growth. This led to an adjusted segment operating profit margin of 67.1% for the quarter and 68% for the full year, increases of 220 basis points and 160 basis points respectively.

Strong revenue growth during the quarter was driven by a 43% increase in exchange-traded derivatives from increased market volatility and a 19% increase in data and custom subscriptions. Data and custom subscriptions increased due to a catch-up in real-time reporting that we first discussed in the second quarter as well as from organic growth. Asset-linked fees increased 4% primarily due to increased average AUM in ETFs and mutual funds linked to our indices. It is important to understand that asset-linked fees include revenue associated with ETFs, mutual funds and certain over-the-counter derivatives. Investors frequently assume that all this revenue is related to ETFs.

Despite the market downturn at the end of 2018 inflows into to passive products continued in the fourth quarter both for the industry and for ETFs tied to our indices. For our indices business ETF net inflows were $22 billion in the fourth quarter and $90 billion for the full year. The average AUM in the fourth quarter increased 9% year-over-year. I want to make a clear distinction between average AUM and quarter-ending AUM.

Our contracts are based on average AUM. We disclose quarter-ending figures because flows and market gains and losses are best depicted using quarter-end figures as shown in the waterfall chart on the right. While average AUM increased, quarter-ending AUM declines versus the end of the fourth quarter 2017. A year ago there was $1.343 trillion in ETF AUM linked to our indices. At the end of 2018 there was $1.309 trillion. During 2018 we saw $90 billion of inflows and $125 billion in stock market declines. Industry inflows into exchange-traded funds were $168 billion in the fourth quarter and $499 billion in 2018. Clearly we are encouraged by the recovery in ETF AUM in January.

Key indicators for our exchange-traded derivatives volume were extremely strong during the quarter. S&P 500 index options activity increased 36%, VIX futures and options activity increased 2% and activity at the CME equity complex increased 71%. For the full year S&P 500 index options activity increased 26%, VIX futures and options activity decreased 6% and activity at the CME equity complex increased 34%.

And now turning to the last business segment, Platts delivered healthy revenue and margin growth. Revenue increased 7% as a result of a 7% increase in core subscriptions and 11% increase in Global Trading Services, partially offset by a decline in other revenue which is mostly from conferences. Adjusted expense declined 2%, due to reduced incentive accruals and a reduction in outside services. The fourth quarter adjusted segment operating profit margin increased 470 basis points to 48.2%. The full year adjusted segment operating profit margin increased 200 basis points to 49.1%. This chart depicts Global Trading Services revenue by quarter for the last three years. There's volatility from quarter-to-quarter as the underlying trading volume fluctuates. However, GTS does provide a constant revenue contribution to the Platts business.

During the fourth quarter revenue improved due mainly to increased trading volumes in certain Gas Oil and Fuel Oil markets. Platts revenue increased in the quarter as all four commodity groups delivered mid-single digits growth.

During Investor Day in May 2018, we introduced medium-term aspirational targets for the Company. We are pleased to use this morning's investor call to reiterate these targets and to share the great progress we have made in just the first year. We target to deliver organic revenue growth of mid- to-high single-digit each year. During 2018, we achieved the target in three of our four businesses. Unfortunately, Ratings fell short due to market factors.

We target low-double digit adjusted EPS growth. During 2018, we delivered 23%. We're committed to return at least 75% of our free cash flow each year. In 2018, we returned 108% through share repurchases and dividends. And we established adjusted operating profit margin levels that we target to achieve in next three to four years. In the first year, we made substantial progress with each of the businesses contributing to an overall 230 basis point improvement in the Company's adjusted operating profit margin. We're energized by our progress and confident as we begin the second year of this effort.

In 2019, we plan to invest $90 million to $110 million in new project to fuel additional future organic growth. This is an increase over the $60 million we invested in 2018. The first category for investment is global growth. With regulatory approvals now secured Ratings will continue to build its domestic ratings capability in China and Platts is working to expand its commercial operations in Asia. Market Intelligence has a China initiative that involves setting up digital infrastructure and domestic operations as well as adding additional global capability to the S&P Global platform.

The second category is innovation with plans to ramp up our ESG data factory as a central source to serve ESG offerings from various business segments, including new ESG analytics and data products that we will be piloting. Platts agriculture acceleration involves extending news and data offerings and expanding into additional commodities. We'll also expand the number of projects that are under way as part of our Kensho initiative.

The third category is in technology. We're adding investments to continue the deployment of data science, AI, cloud, machine learning and robotics tools. We also continue to raise the technology acumen of all employees through a multitude of training programs. All of these investments were aimed at either growing revenue or enhancing EBITDA (ph).

Next I would like to update you on Kensho. One of the greatest challenges we have had with Kensho is prioritizing the large number of projects that employees have identified. Projects generally can be grouped in three key areas: data ingestion, data processing, and data and document delivery. Within these categories, there are a number of projects that are under way. Omnisearch and entity linking are two we have cited in the past.

Omnisearch is the next generation of search capability for our Market Intelligence, Ratings360 and Platts LNG surface applications. It leverages advanced machine learning techniques to bring natural language search to our web and mobile platforms. We're also working to link user personas to more relevant responses as well as expanding the data sets that will be searchable.

The first release will be available in the first half of 2019 to a select group of clients for preview and feedback, and then released in a broader capacity later in 2019 or the first half of 2020. Entity linking involves using machine learning to link data from different sources to correct entities without errors and in a fraction of the time it would take our employees. It unlocks the ability to ingest data sets that are too large to be done with traditional methods.

In addition to the Crunchbase data, we previously discussed we have been working on certain data sets for private company data in China and the UK. For the UK data, we plan to make the first 100,000 companies available in the first quarter of this year with subsequent releases of coverage throughout 2019. Codex is a next-generation customer-oriented platform designed to ingest any document and provide the relevant data and information for a particular user's needs. A first version of the platform has been built and demonstrations are under way.

Proof-of-concept user case has been created for ratings analysts to alert them to new relevant information more quickly. We have numerous other projects under way in data processing and delivery. The first projects were initiated in just nine months since acquiring Kensho. We estimate the initial projects in Omnisearch, entity linking and Codex which are the most advanced, have the potential to generate a net present value equal to approximately one-third of the purchase price of Kensho. We have numerous other projects under way in data processing and data delivery and numerous others that have been identified, but not yet begun. We believe that this is a very positive start with much more value generation to be achieved during the next few years.

Now lastly, I would like to introduce our 2019 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. We have decided to record Kensho revenue in Market Intelligence going forward. Therefore, we are providing guidance on corporate unallocated expense, excluding any revenue of $155 million to $165 million. Deal-related amortization of $120 million to $125 million. Kensho retention plans of $20 million to $25 million, operating profit margin in the range of 48.8% to 49.8%, interest expense of $145 million to $150 million, a tax rate of 22.5% to 23.5%. This is an increase over 2018 because we expect to have a lower benefit from employee stock-based compensation as well as less discrete benefits from prior year tax adjustments, and diluted EPS which excludes deal-related amortization of $8.95 to $9.15.

In addition, we expect capital expenditures of approximately $120 million and free cash flow excluding certain items in the range of $2.2 billion to $2.3 billion. In 2019, we are increasing our organic investments in productivity programs and new revenue opportunities and we will continue to look for opportunities to add unique data, analytics and geographies. Despite so many pending global economic issues, this guidance reflects our expectation that we will continue to deliver solid financial performance again in 2019.

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

Chip Merritt -- Senior Vice President, Investor Relations

Thank you. Just a couple of instructions for our phone participants. (Operator Instructions) Operator, we'll now take our first question.

Questions and Answers:

Operator

Thank you. This question comes from Toni Kaplan from Morgan Stanley. You may ask your question.

Toni Kaplan -- Morgan Stanley -- Analyst

Thank you. Good morning. Transaction revenue this quarter was not surprisingly weak just given the issuance levels. And January issuance was maybe modestly better than 4Q, but still down double digits according to our sources. So can you give a bit more color on how you're thinking about the credit environment as we progress through the year? Thanks.

Douglas L. Peterson -- President and Chief Executive Officer

Hi, Toni, thank you. This is Doug. First of all, as you know, during the year last year we had a solid year during the year, but the fourth quarter in particular December ended up with very, very weak comparables from prior years. In particular there was a shift in the high-yield market where people started thinking differently about the type of covenants that were going out to the markets. We also had as you know the impact from tax reform from the largest cash holders, it started bringing their cash back and had not gone to the market.

We think that January is not necessarily indicative of the entire year. As you know, typically January is a pretty weak month. One of the things that was important in January is to see in the second half of January in the third and fourth week, the markets actually started rebounding. You saw more people coming back to the market. You saw spreads came down in the high-yield market. But as you know in our forecast overall, we have a forecast for total issuance which takes into account the pipeline that we see coming in from maturities. We speak with investment banks and with issuers. And right now we have projected that for the entire year that issuance would be down to about 0.6%, so call it down a little bit or flat.

We think that in the corporate sector that's going to be down about 4%, at financial services it is going to be down about 1.3%, structured finance basically flat and public finance up over the prior year of about 9%. So if you look across different categories, this is how we've calculated and this is what we've used to build into our plans for the year.

Toni Kaplan -- Morgan Stanley -- Analyst

Great. Thanks for that. And then, in Market Intelligence you expanded margin significantly this quarter. And I know you said that full year is probably more representative of run rate margins. But could you give some additional color on what I guess may be the onetime pieces were in 4Q and what's ongoing? And then are margins in Market Intelligence an area that you can flex when if there's a weak issuance environment? Thank you.

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Good morning, Toni. This is Ewout. So the strong margin improvement in Market Intelligence was driven on the one hand as you've seen by very healthy revenue growth. And then on the other hand by a small decline in expenses. If you look at the underlying components in the expense movements, there were a couple of items that were going in opposite directions and therefore showing the declines -- small decline, modest decline in expenses.

Compensation, base compensation was up, but then there was an offset in lower incentive compensation accruals. So the net was close to zero. Results strong sales in the fourth quarter, strong sales was driving up the cost of sales as well as inter-segment royalties. But then also strong sales leads to higher capitalization of acquisition cost under the new revenue accounting methods. So, those are also a bit offsetting. We saw FX having a positive impact on the expenses of Market Intelligence. Allocations were down, so corporate allocations were down. But then acquisitions that were down during the year most notably Panjiva and RateWatch were driving expenses up. So, a lot of moving pieces, but net-net a small decline in expenses and therefore a good improvement in margins. But we don't expect all of these items to recur in every quarter. So therefore, the full year margin is a better guidance for Market Intelligence going forward.

Toni Kaplan -- Morgan Stanley -- Analyst

Thank you.

Operator

Thank you. This question comes from Manav Patnaik with Barclays. You may ask your question.

Manav Patnaik -- Barclays -- Analyst

Thank you. Good morning. Just on the 2019 topline guidance, what's the FX impact you are assuming? And also you kind of gave us a framework for the Ratings business. I know you don't like to give specific guidance on the others, but is there anything to call out for next year for each of those businesses? Or can we just assume kind of the trends that we've seen so far?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Good morning, Manav. This is Ewout. First, in our guidance we assume current spot market ForEx rates. So that is what is the underlying assumption. If you look at our guidance with respect to topline for the Company as a whole, as you know we're not breaking out guidance for each of the segments. But what I can explain to you is some of the assumptions underneath. So, if you have to think about Ratings, as Doug already mentioned, our assumption is more or less flat issuance markets during 2019. Then we have some small adjustments in market shares, in short in segments. And then we also take into account price increases based on the new list price that we're using from the 1st of January of this year. So, that is the underlying assumption we have under our plan for 2019 for Ratings.

We have two subscription businesses, so those are -- I think, businesses that see growth based on the annualized contract value that we are increasing every year. And you have seen the good progress we are making with Platts and Market Intelligence. And then with respect to indices, as you know there is a natural hedge in our indices business. If stock markets will come down, we see exchange-traded derivatives volumes going up and the other way around. So you have to take that into account in your modeling to also reflect the growth of our indices business. But as we have said in the prepared remarks, we expect mid-single digit revenue growth for the Company as a whole and contributions by each of our segments to achieve that.

Manav Patnaik -- Barclays -- Analyst

Got it. Thank you. And then, I guess just thinking about China, you've talked about the Ratings opportunity there for some time. But I guess I was struck by -- it sounds like Market Intelligence is doing something new Platts, Kensho, I was just wondering if you could briefly address how we should think about the opportunity that those other areas present?

Douglas L. Peterson -- President and Chief Executive Officer

Let me take that one. Well, first of all, as you know the Chinese financial markets are still a very bank-centric market. In fact as we were doing the work to understand the opportunity for Ratings business we did a lot of macroanalysis of the market just to share with you a couple of the numbers. For instance in the bond market in China, 54% of the bonds are held by banks and 32% by mutual funds and wealth management projects, only 2% of the bonds in China are held by foreign investors.

And the issuers themselves are spread between corporate bonds such which actually quite low compared to the other markets, local governments, commercial banks, et cetera. But what's important is the Chinese market becomes more sophisticated as the bond market shifts to become a true bond market and not a commercial banking market as more foreign investors start going into the Chinese market.

We looked at the structured markets in the way they change over time as they become more developed. And what we believe is that there is -- our basic thesis is that there will be more and more demand for independent analytics. So, one of the first products is obviously the Ratings. And we think that that is a market which will develop pretty quickly especially because there's going to be demand not just from the domestic investors, but also over time from international investors. And along with that is in any market comes demand for other types of products and services, data products, information, more information about private companies that don't have -- that are not publicly traded. And this is where we are looking at the Market Intelligence offering to be able to provide more data and analytics at Cap IQ, SNL-like data service for the Chinese markets. And we've just started to mentioning that and we just started rolling it out. we have a team on the ground.

One of the other elements which is for us is actually quite exciting of the launch of the Chinese market is that we're also doing this is a team. We're doing it as S&P Global. Even though the rating agency has its own license and it has it's own staff, we're also going in with one effort when it comes to hiring in our human resources and people policies. One legal and compliance team, so we can actually leverage our sources on the ground. So we're able to go to the market. But overall, our thesis is that as the market becomes more sophisticated, more connected, there's going to be a whole set of data and analytics and financial products which are going to be necessary in the market and we want to be on the ground floor as they become more important.

Operator

Thank you. This question comes from Hamzah Mazari from Macquarie Capital. You may ask your question.

Hamzah Mazari -- Macquarie Capital -- Analyst

Good morning. You talked about the shift from high-yield to leveraged loans in the US. Could you maybe remind us what the margin difference is in your business between loan ratings and high yield? And then whether you're seeing the same trend in Europe, because secular thesis a while back on Ratings was European bank dis-intermediation. So, wondering if that has sort of reversed. Any color there?

Douglas L. Peterson -- President and Chief Executive Officer

Thanks, Hamzah. This is Doug. First of all on the pricing it's basically about the same. It's not -- there's not a material difference between the pricing, between the two different products. In Europe, we continue to see Europe -- the capital markets are continuing to develop, but you have one major impact, which has in a sense slowed down what we thought was going to be the ultimate development and that is the ECB is continuing to provide a lot of liquidity for the markets. But in the last quarter, up until you had the slowdown of the leveraged loan market, the European markets were actually moving quite fast. So there was a lot of issuance.

And, in the last two weeks of January, the European leveraged markets actually came back to life. And there was issuance back in the European market. So, we do think in the long run the European markets will continue to move toward capital markets more quickly. Obviously, compared to, we just talked about in the prior questions about China, Europe is a much more developed capital market than what we see it's one that just starting out. But it's not quite still at the level of US when it comes to participation of traditional capital market entities like insurance companies and pension funds and asset managers, but we're seeing continued move in that direction.

Hamzah Mazari -- Macquarie Capital -- Analyst

Okay. And just a follow-up question. On Ratings margins you talked about up 10 bps on a 16% revenue drop and highlighted various reasons. If Ratings revenue does come back, how quickly do costs come back in that segment? Just any comments on operating leverage in that segment being structurally much higher? Or any thoughts on sort of how costs come back to that segment if you see revenue come back?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Good morning, Hamzah. This is Ewout. A couple of thoughts that hopefully are helpful. On the one hand, Ratings is working on very active programs to think about how to redesign its operations, its business model, its processes, its systems, is introducing new technologies in order to make the life of (inaudible) analysts, more effective to take away some of the lower value-added work, the spreadsheet work and updating of the models and to replace that with new technologies and to get that done in a more efficient way. So, we expect operating leverage for Ratings to continue. You saw that we took another restructuring charge for Ratings as well. So, those are benefits in the programs where we will continue to see improvements in overall productivity in the Ratings organization.

The other element that you have to take into account is incentive compensation. And we had some expense benefit during the quarter from the incentive compensation accruals. For the full year, the way how to dimensionalize that is the following. So, first Ratings had a very good year in 2017, as had some other businesses in the Company as you will recall. So we had very good payout. So we will see a reduction just every year a reset to a 100% of the accrual levels.

And then this year, particularly in the fourth quarter, the performance was of course lower. So now you have a reflection of lower payout from that 100% level. So if you look at the overall expense reduction year-over-year for Ratings which was approximately $120 million, the majority of that came from incentive accruals. A little over half of that was just a reset year-over-year to the 100% level. And a little bit less than half of that reduction came from the lower accruals that we established in 2018. That of course, will come back up to the 100% level in 2019. So that is an automatic increase in the costs that we will see in 2019 from 2018. But again, we expect also at the same time continued improvement of the productivity programs that we are implementing in Ratings.

Hamzah Mazari -- Macquarie Capital -- Analyst

Very helpful. Thank you.

Operator

Thank you. This question comes from Alex Kramm from UBS. You may ask your question.

Alex Kramm -- UBS -- Analyst

Yeah. Hi. Good morning, everyone. Just hoping you can expand on the conversation about China that was asked about earlier and in your prepared remarks. You gave some nice data points, I think 35 employees in that new entity, but 200 in the other parts. Like, how quickly are you ramping people here? And what cost is tied to it at an end? Secondarily, you said 400 companies already rated out of the other entities, so that can come pretty quickly. So maybe just talk about the next few quarters, few years in terms of how quickly that business can ramp? And then in terms of pricing like, how do you think -- envision the pricing structures are very comparable to the rest of the world or is there something we should be thinking about differently in terms of basis points? Thank you.

Douglas L. Peterson -- President and Chief Executive Officer

Okay. Thanks, Alex. Well just to give you a little bit more of the ramp up plan. As you have heard we have 36 employees in the entity, 31 of those are analysts. Of those analysts, about 10 of them are employees from S&P Global that transferred in from other parts of the world who are bringing their core knowledge and expertise of how S&P Global works everywhere else. They are native Mandarin speakers that have come in from other offices. And then we've hired 21 more analysts from the market.

Being a first mover was an advantage to us, because we were able to go out in the market and attract a very large pool of candidates and hire a really highly qualified set of people. And because we were there first we already have started hiring, we think that we can ramp up very quickly if the demand comes in. Right now in China, there's about 4,000 issuers that are rated across the markets by the domestic rating agencies. We rate about 400 of those offshore. We've already developed plans to go out and meet with all of those different 400 that we're working with already as well as the others as many as possible the other issuers that are rated.

I can't -- I don't want to give you any kind of financial projections on this. But I can tell you that the pricing that we're looking at over time will develop to a similar level as around the globe. It's likely to start out where you need to enter the market at a level of pricing that's going to be able to get us close the transactions and get out into the markets. But we expect over time that the pricing is going to be similar to the rest of the world. As you know, pricing on bond ratings is actually a very low amortized cost compared to the cost of actual bond issuance. And so that's why we think we can -- over time we can develop to that level of pricing.

When we look at the different kinds of bond markets is as you saw in our prepared remarks, there's four different categories of bonds that we're able to rate that we've been approved for. We think that the financial institutions and the corporates are really the core area that we will start rating right away, because that's where we have the relationships with the 400 issuers. We do -- as you know we have a very long-term thinking about this, this is something that developed over the long term, this didn't just come about over one quarter. We've been working on this for years. John Berisford, Ewout, and myself have been visiting China for years to build the relationships and to understand the markets. And with that kind of a long-term commitment to the way we've approached to this is the same way we think about building out the business and ensuring that we build it with a really strong foundation and a really strong team on the ground.

Alex Kramm -- UBS -- Analyst

Excellent. Super helpful color. Thank you. And then secondly, maybe also coming back to a prior question, but if you think about the issuance forecast, I know it's another team that does it. But if I think about last few quarters I think that it was revised lower every quarter. And obviously they're difficult to forecast, but if you think about it from a bigger picture perspective, what are the big puts and takes that you're thinking about as you look at that forecast and where things could do a lot better or do worse? And a couple of things to maybe highlight is like -- you said the loans businesses has been an area of strength, but I think people are getting increasingly more worried about what's going on in that market. And then we're hearing increasingly CFOs talking about the leverage -- de-leveraging the balance sheet. So, what are the kind of puts and takes I guess you would be watching out for? Thank you.

Douglas L. Peterson -- President and Chief Executive Officer

Yeah. So let me give you a few of the thoughts on that. And let me start with a leverage market. And it's -- as you have seen in the numbers we presented the leverage market has the component of the financial -- the corporation's a good leverage market, can go either to the bond market or the loan market. They have increasingly been going to the loan market for various reasons based on the kinds of borrowers -- the kinds of lenders and investors that have gone in the market. the attraction of a floating rate versus fixed rate, the attraction of the kinds of covenants and other aspects of the loan market that they could get.

We saw a correction in that market in December. And there's a lot of people, including myself that think that some of the aspects of that were probably healthy. Leverage had gotten quite high. You saw leverage in some deals going over 6 times, 7 times, sometimes even 8 times. And so, since the market has opened up, even though there's a lot of investors going back to the market, there's been some correction in terms of leverage. Not so much in covenants so far, but much more in total leverage amount. So, we see that as one of the factors which will be driving our forecasts going forward.

A little bit more specifically on the forecast and you mentioned that since our October outlook or December outlook and our January outlook, we've seen actually a moderation of that. When we first did our 2019 forecast in October, we expected that it was going to be up about 0.6%; December about the same up 0.6%; and now we see it going down 0.6%. So just to give you some of the sentiment in some of the areas that we see those changes, we did drop a little bit on the corporates. We dropped it by about another 1%, down from the prior forecast just based on the pipelines that we've seen from the market participants.

But financial services is the one that we saw the largest shift between the end of the year and now the beginning of the year. And that is originally been expected to go up 5% and now we're expected to only go up about 1.3%. And the main difference there is based on what we expect financial institutions are going to be issuing related to reserve requirements and some of them by speaking with them a lot of them are not going to be growing their balance sheets as much as we had originally expected. So, this goes back to policies -- capital policies at the Fed as well as capital policies of the banks themselves.

And that's probably the largest difference overall that drove that. So a little bit in the corporates, a lot more from financial institutions and then our outlook for the leverage market is come back, not necessarily with the same level of leverage that we saw in the middle of the year last year. But it actually has come back pretty healthy. The last couple weeks of January, the markets were back, they were open again after 45 days of being closed.

Alex Kramm -- UBS -- Analyst

Excellent. Thanks again.

Douglas L. Peterson -- President and Chief Executive Officer

Thank you.

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Thanks, Alex.

Operator

Thank you. This question comes from Tim McHugh from William Blair and Company. You may ask your question.

Tim McHugh -- William Blair and Company -- Analyst

Thanks. I just want to ask about how you would characterize, you talked about the incremental $100 million of investments. I guess you're always investing somewhat in the business. So, is this a stepped up level of investment that's different than other years? Are you just trying to highlight to us I guess what you -- what the focus is for the year? Just trying to understand the context of what you're saying with that.

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Good morning, Tim. Yes, we are just trying to highlight and to make this transparent to you and also show you the specific areas where we are investing. To give you a little bit broader perspective. We're of course always investing in our businesses and business as usual to keep our benchmarks relevant in systems, in processes, in new designs of the organization. So there is always a lot of level of business as usual investments.

What we are trying to highlight here is investments specifically in new initiatives, new products and new markets. As we showed you in 2018, those investments were at the level of $60 million. And that will go up by approximately $40 million to $50 million to that new number for 2019 in those areas like China. And I think everyone would agree with me that the Chinese Ratings opportunity for the Company is very large and it makes a lot of sense to make this investment. And the Company will see hopefully a lot of benefit out of that in the mid- and long-term.

So obviously, we are self-funding those initiatives. You see that we have productivity programs going on where we have savings on one hand and capturing the operating leverage and then reinvesting it. And also you see the margin still going up for the Company. So another indication that we are self-funding those initiatives. So we hope it's overall helpful that we give this clarity and you have a feel of where the Company is making the large investments in new initiatives going forward to expect huge revenue growth for the Company on top of our current business activities.

Tim McHugh -- William Blair and Company -- Analyst

Okay. That's helpful. And then, just want to follow up. I think it was -- when you're talking about the cash flow, there was quick comment you made about longer renewal cycles for some of the enterprise deals in Market Intelligence. I guess, can you elaborate on what that was? And I guess just you said I think you thought it was a timing issue. So why do you think that necessarily?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Sure, Tim. What is happening is, as you know, we are going through the process to move all Market Intelligence customers to enterprisewide contracts. So this is purely an administrative process where we are changing the contracts. You have discussions about the new language of the new contracts. Those contracts then need to be signed, new invoices needs to be issued and then there needs to be a cash collection on those new invoices.

So going through this process right now, the change in time lines have shifted from about 10 days to 52 days in terms of cash collection. So this is purely a delay in the process. We expect a catch-up of that during 2019. So therefore, you see a free cash flow number guidance for 2019, which is up 10% to 15% over the free cash flow we generated in 2018.

Tim McHugh -- William Blair and Company -- Analyst

Okay. So the comment about the delay is more about the collection process and not necessarily the sale or negotiation of the agreement?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

It's just going through the whole process of new contract, legal documentation, signing, processing, invoicing and so on. It's purely the administrative renewal process itself.

Tim McHugh -- William Blair and Company -- Analyst

Okay. Thank you.

Operator

Thank you. This question comes from Jeff Silber from BMO Capital Markets. You may ask your question.

Jeff Silber -- BMO Capital Markets -- Analyst

Thank you so much. I know it's late obviously, I'll ask a couple of quick ones. You mentioned when talking about the outlook for the Ratings segment, the price increases you instituted at the beginning of the year. Can you give us some order of framework roughly what that was and how that compared to prior years?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

The list price that has been issued is 6.95. You see it was up from approximately 6.75, so about 3% increase year-over-year. That is just the headline list price, of course, there's a lot of differentiation by type of customer, type of arrangements, and so on. But that would be the headline number.

Jeff Silber -- BMO Capital Markets -- Analyst

And what was the headline increase in 2018?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

More or less the same. So that is the usual increase that we see over the past few years.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay. Great. And again, I know you don't give quarterly guidance, but beside potentially Ratings being more back-end loaded, is there anything you want to point out for the quarters for 2019?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

No there's nothing else that we can point out at this time.

Jeff Silber -- BMO Capital Markets -- Analyst

Great. Thank you so much.

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Thank you. This question comes from Craig Huber from Huber Research Partners. You may ask your question.

Craig Huber -- Huber Research Partners -- Analyst

Thank you. Doug, I just want to get back to China for a second. Here you mentioned about 31 analysts in that market you've hired or switched over there. I guess, roughly 2% of analysts on a global basis. How quickly do you think this market to be in perspective from a Ratings revenue standpoint can pick up here in the coming years (inaudible) maybe we'll see it in the numbers? I mean, it's a long-term play obviously, but do you expect any material positive impact on revenues and profits in the first two years say? Is there any big pent up demand, we get a big bump upfront in your revenue boost with the Ratings being in that market? Or just you take a real long time to play out?

Douglas L. Peterson -- President and Chief Executive Officer

My expectation is that this will take a little bit to play out. What I'd like to do is, give you numbers as we start looking at this over quarter-by-quarter. We'll figure it how often and how much we're going to -- we will give you about our progress. But just a couple of more -- couple more statistics about the market. Overall in China the total lending market, including everything is about $20.6 trillion. Of that, about $13 trillion is corporate. So it's -- little bit more than half of the market is corporate loans. And of that about $2 trillion more or less are bonds of which $1 trillion are bonds outstanding of corporates. So think about it's a $1 trillion corporate bond market, about 4,000 issuers.

We think that we've got 400 where you have relationships that we can tap as the first companies that we go to. We also as you know the panda bond markets where foreign issuers going to the Chinese market is one that it's very small right now, but we think that's another area that will bring specific expertise as well as interest from foreign issuers to go into the Chinese market using S&P as the company that can do the rating.

So I don't want to give you any projections or numbers on the revenues over time. As I've said, we see this is a market which is going to transform to more of a global capital market much more connected. As I mentioned earlier, it's only 2% of the bonds in China are held by foreign investors so you see that growing. And so let us come back to you to give you updates on our progress. So we can really understand how fast this is going to move once we're starting to see volume coming through the door.

Craig Huber -- Huber Research Partners -- Analyst

And then on second. Doug, you mentioned, I guess in a global basis expecting debt issuance down zero to 1% call it, if you could just segment for just US part of that, I'd be curious for your thoughts, how you think that might play out the debt issuance for investment-grade and high-yield? And then also maybe with -- how you maybe see bank loan issuance for this year playing out those three segments within this country?

Douglas L. Peterson -- President and Chief Executive Officer

Well, the two pieces which are the most significant that I mentioned a couple of minutes ago, the corporates which are down 4.8% more or less what we're projecting that's mostly the US. And that's mostly the US and it's partially because of tax reform and what our projections are as to what will be the issuance level for the companies that have very cash rich balance sheet. So then the other which is probably the most significant as I said financial services, that's also US. And that's the US financial institutions that are ones that are projecting to have smaller balance sheets or less growth on their balance sheets than we had expected three and four months ago. So, that's the color that I can give you based on the analysis that our team has done. Thanks, Craig.

Craig Huber -- Huber Research Partners -- Analyst

Thanks. Thank you.

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Thanks, Craig.

Operator

Thank you. This question comes from Joseph Foresi from Cantor Fitzgerald. You may ask your question.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Hi. My first question is just on China. Can you give us a little bit of a better understanding or maybe what the risks are of having Ratings in that region? Is there sufficient accounting standards there? Do you feel like you're more exposed? I'm just trying to get a sense of how the market works from risk perspective.

Douglas L. Peterson -- President and Chief Executive Officer

Well, thanks, Joseph, for the question. As we've gone into the Chinese market as I've mentioned earlier, this is something that we've been looking at for years. This isn't just something that cropped up in the last quarter. And we've also already had a business on the ground for over 10 years with ratings analysts on the ground in China who have been rating Chinese corporations on offshore issuance or dim sum bonds that are issued offshore. And as I mentioned, we have 400 of those that we've already rated.

So we know that there's at least 400 companies that already audited by global auditing firms. They have transparency in their financials. They've been going offshore to raise funds. So there's already a core group of corporations and financial institutions in China that are rated and are already issuing bonds at global standards. But clearly you're raising what for us are very important points. And how do we roll out a Ratings business in the market which is developing? We're using our knowledge and experience of how we've gone into other markets like India through CRISIL or Mexico, which we did an acquisition many years ago to go into that market.

Both India and Mexico are markets where we issue with local rating scales where we do not have rating scales that are linked to the global scales. They are based on local market conditions. And so, one of the reasons that we're rolling out our China rating agency as a local independently scaled rating agency is that we want to be able to meet and understand all the local conditions of what are the conditions of bankruptcy laws? What are the conditions of workouts? What are the conditions of companies that could potentially have any kind of a default or payment issue? And this is why it's important for us to go in that market independently with a locally managed rating agency.

We've been working closely with the regulators to ensure that they understand the rating agency model as we roll it out. It's critical that they understand that we are independent and that our ratings are going to be issued with an independent opinion that we've got the right kind of analysts that are well trained. So we've looked at what are the kind of risks. Do we get the right kind of disclosure from companies? Do you have the ability to understand if there's been a payment issue? Do we have the right kind of regulatory environment which we think is being developed in a way that's very professional? And understanding what are the other environments around the globe for rating regimes etcetera. So, we've gone with this over many, many years of analysis, many, many years of building relationships and we think that some of those risks that you've mentioned are things that we have good ways to mitigate or manage.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Got it. And then just to switch gears. Anyway to start to quantify the impact of the increase in your focus on data? I'm thinking more on the Kensho side. And I'm just trying to get a sense of you know we're early stages sort of building the foundation, but clearly it's a focus, clearly it's something that I would agree is going to be an important part of the future. But I'm wondering how internally you're starting to think about quantifying that? And any anecdotes you could provide? Thanks.

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Yeah. Let me give you a couple of thoughts on that. First, we are looking at more and more data sets, ideally proprietary data sets that are unique and only can be found on our platform, but there could also be other data sets that we license and therefore incorporate. As we mentioned during the prepared remarks with data sets, it's very important that those data sets are linked to our existing master database. So that is an automatic link between entities, between individuals, between a lot of different other data sets because data is only valuable if it is put in perspective of all the other data, rich data that we have already today on our platform.

Therefore, it's so important that we are working on that new search engine, the Omnisearch with Kensho. Because, the more data we put on our platform, the more important it will be for our customers to find the right data and use that data in the future hence the investments we are doing with Kensho on the Omnisearch.

Moreover, we are having a lot of data intake elements within the organization. And we're thinking now about a design of the overall data factory to make data more a commodity within the firm based on the same definitions, the same data architecture, have an efficient data intake, which is based on a lot of technology tools and to take the benefit of the enterprise as a whole. So data is core to our strategy, core to our business growth, core to the commercial propositions that are being developed by our businesses. And we make a lot of investments in this area, but ultimately this will be the main driver of revenue growth for the Company in the future.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Thank you.

Operator

Thank you. This question comes from the Dan Dolev from Nomura Securities. You may ask your question.

Dan Dolev -- Nomura Securities -- Analyst

Hi. Thank you for taking my question. Just from a housekeeping item, is the Kensho $20 million to $25 million expense embedded in the guidance for retention? Is that the main difference between the '18 unallocated expense and what you're guiding for '19?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

No. If you look at the unallocated what we are doing is moving the Kensho revenue to the Market Intelligence revenue. And the reason why we are doing that is more and more the Kensho contracts with Kensho customers are being forward into overall Market Intelligence relationships with the same customers. And therefore, it's more difficult to separately identify Kensho revenue in the future. So, that's why it's being integrated with revenue of Market Intelligence.

So, if you look purely at unallocated expenses, unallocated expenses were $171 million for 2018, which is then excluding the $15 million Kensho revenue. That included $20 million of funding for the foundation that happened last year and Kensho expenses. But Kensho expenses you have to realize those were Kensho expenses over a nine-month period. So now we are of course are having Kensho expenses for the full year 2019.

So if you look at those to all those elements, we will continue to see a nice reduction in unallocated expenses to that range of $155 million to $165 million in 2019, which is ultimately done based on the productivity programs we are introducing within the Company.

Dan Dolev -- Nomura Securities -- Analyst

Yeah. That's helpful. So the Kensho retention plans, I believe they were excluded from the adjusted number right, the $34 million in '18? They were not in the non-GAAP number?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

If you look at Kensho expenses, we have Kensho expenses that are being included from a performance basis. And then we have excess Kensho expenses that are based on the rollover equity as part of the consideration for the acquisitions. So what we have done is we looked at what is market compensation for employees of Kensho. Everything that is market level is being included on the non-GAAP basis. And everything's that's over and above what would be normalized market levels, which is based on that rollover equity that is being stripped out as the Kensho retention-related expenses. That number you should see coming down over time. And the reason is just purely the accounting, it's an accelerated accounting method. So every year you see that number coming down very quickly the excess expenses for Kensho that are being pulled out on a non-GAAP basis.

Dan Dolev -- Nomura Securities -- Analyst

Got it. Thank you. And then just my follow-up is on the overall headcount. I see some nice growth in the headcount in the year-over-year. If you have to sort of think about the different segment, it looks like the corporate headcount increased dramatically, yet same Ratings headcount declined. If you had to sort of normalize that in terms of the centers of excellence like how would that roughly look like? Would you be expecting Ratings headcount to grow up as well, if you didn't allocate it into corporate? That's sort of the question.

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Yeah. That's really a great question. So there's always going to be some movements in headcount. So when we do acquisitions of course headcount will go up. So for example, in corporate headcount went up for example based on the Kensho acquisition. But also headcount in Market Intelligence is up and that's based on the acquisitions of Panjiva, RateWatch, but also new content sets that MI is introducing. So we will have a reductions of headcount based on productivity on existing data sets in Market Intelligence and then headcount additions for the new data sets that are being introduced.

Corporate headcounts might go up a bit over time, because when we are centralizing certain activities in centers of excellence, it might mean a shift from headcount in the divisions to corporate. So that could be another shift. Also, when we are insourcing certain activities, for example the IT and engineering activities in Ratings will ultimately be an increase headcount for Ratings, but that is an offset on external services that will be eliminated going forward. So that's a shift in headcount numbers, but not so much a shift in expenses or actually that is a decline in expenses that we will realize as a Company.

Douglas L. Peterson -- President and Chief Executive Officer

And just to add one thing. One of the things that John's trying to do in Ratings is he aspires to try to be able to handle more and more and more credit each year with the same number of analysts. So we're not really looking to reduce. They were looking to try to make the more and more efficient with all the technology that we're trying to deploy.

Dan Dolev -- Nomura Securities -- Analyst

Makes sense. Thank you so much.

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Thanks, Dan.

Operator

Thank you. This question comes from George Tong from Goldman Sachs. You may ask your question.

George Tong -- Goldman Sachs -- Analyst

Hi. Thanks. Good morning. Your non-transaction revenues took a step back in the Ratings business in part because of tougher comps. Were there specific items that weighed on non-transaction revenues this quarter? And how do you see non-transaction revenues performing next year?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Hi, George. Good morning. FX had a negative impact on non-transaction revenue. If you strip that element out, it was more or less flat. The other element that impacted non-transaction revenue was Rating Evaluation Services. We've always called out that that could go up or down by quarter. That's very much driven by the M&A environment. So, we'll have quarters where the rest of revenues will be a little higher or a little lower. But overall we look at non-transaction revenue as a very stable source of revenues and we expect that to continue to be a very steady source for the Ratings business in the future.

George Tong -- Goldman Sachs -- Analyst

Got it. That's helpful. You've achieved $60 million in cost savings through year-end 2018 out of your $100 million of cost reductions planned in your Analyst Day over the intermediate term. Can you talk about the pacing of when you expect to achieve the remainder of your cost savings and what the principal drivers of savings will be going forward?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Yeah. We are very encouraged by progress we have made during the first year $60 million in run rate and $40 million of that in our annual results for 2018. We will continue on the same pace what you have seen toward our targets. And the main areas where we find those opportunities are in our functions. So, we are trying to create new operating models for our functions across the enterprise both in the businesses as well as in the corporate center.

We are looking at opportunities in our digital infrastructure area, for example consolidation of some of our data centers moving to the cloud, other outsourcing arrangements etcetera and we are taking care of real estate costs. We are reducing excess real estate we have in the Company and are significantly driving down real estate expenses. And we will continue with all of those levers over the next few years. Of course, we will let you know once we have achieved these targets and at that point announce you a new target. But at this moment we are very encouraged by the progress we're making with all of those programs.

George Tong -- Goldman Sachs -- Analyst

Very helpful. Thank you.

Operator

We will now take our final question from Bill Warmington from Wells Fargo. You may ask your question.

Bill Warmington -- Wells Fargo -- Analyst

Good morning, everyone. The final question here it is. Actually two right. So first on Kensho, you mentioned the entity linking work you're doing with Kensho, Crunchbase, the private company databases in China and the UK. Can you frame that opportunity for us? That's commercial credit information space is typically in the area we associated with DNB and BBD and it sounds like you're moving increasingly into that space.

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

This is an area where we are very pleased with some of the first results of the Kensho collaboration. We have talked to you about Crunchbase. But in the meantime, we have done the same with the algorithms that have been developed on other private company data sets. And the benefit of entity linking is the following, it's not only a expense-reduction opportunity. Of course, in the past, we could do the same entity linking but by asking a lot of teams and a lot of employees to work on that. And that will take a lot of time to achieve data linking with the right quality of data. Is it the same entity, the name is spelled at a slightly different way, slightly different abbreviation? Is it a subholding? Is it in another jurisdiction? So a lot of work has to be done to make sure that entity linking is correct and accurate.

So, by doing this now based on algorithms, of course we find efficiency opportunities, but the larger benefit is in fact in the revenue opportunity why? Because of speed to market. We can significantly increase speed to market of new data sets. The quality of the products we bring out because in the end with the algorithms we can achieve a higher quality and less errors going forward. And we can think about new products that we could never bring to the market in the past. Certain data sets are so large that this is almost impossible to achieve any ingestion of that by humans, but we can do that now in a fraction of the time by our algorithms. And therefore, we can now introduce products, we could never think of in the past. So in the end we always look at this as a larger revenue opportunity than an efficiency opportunity. And again, we are very pleased with the results so far we have been able to achieve.

Bill Warmington -- Wells Fargo -- Analyst

And then, for the second and final question. The $8.95 to $9.15 EPS guidance for 2019, just wanted to ask about the level of share repurchases built into that number? I know you announced the $500 million ASR today. I would assume that was built into that guidance. But then if you assume about $550 million in dividends that would leave about $600 million in excess cash you're going to return. Is that $600 million built in as well as the $500 million ASR?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Yeah. Obviously, we cannot give you a very precise answer on that question. But let me give you some of the components. We have provided guidance with respect to free cash flow generation for this year. You know that we are committed to return at least 75% of that number. You are aware of the dividend payout level, we will do this year. So, it's not too difficult to assume what is the remainder in share repurchases that will be achieved. If we are going to exceed that number or not is to be seen. That depends very much on opportunities we will have this year. We always look first in investments in organic opportunities, because we think those are the most valuable as long as those make sense strategically and we can achieve the right returns.

Inorganic opportunities, if those are not available then we can always return more it than the 75% commitment that we have to the market. So those are the components and I think that probably helps you Bill with what you were looking for in terms of the question.

Bill Warmington -- Wells Fargo -- Analyst

All right. Thank you very much.

Chip Merritt -- Senior Vice President, Investor Relations

Bill, you asked a great final question, but the operator saying we do have one more in the queue. (Multiple Speakers) almost though out there.

Peter -- -- Analyst

Did it wrap or am I on?

Douglas L. Peterson -- President and Chief Executive Officer

You're on Peter.

Peter -- -- Analyst

Okay. So much for Bill Warmington. Doug, I was just interested in a quick thoughts you have on market share trends in the Ratings business. Your revenue in the first part of year lagged a little bit about some of your competitors. We don't know the second half numbers obviously relatively. But wondering if that's a red flag at all for you? Maybe does it suggest that some of that cost-cutting initiatives perhaps are hurting you a little bit from a share perspective? Just your thoughts on that. Thanks.

Douglas L. Peterson -- President and Chief Executive Officer

Yeah. Well, first of all, thank you, Peter, that you've been able to get on the call. And when it comes to the Ratings business when we look at the market share globally, we continue to have a very strong market share. There's a couple of areas where we see weaknesses. One of them is in CLOs. As you know, there is a couple of other businesses like covered bonds that we are not really active in it all. So if there's any place where we have seen areas that we will put some additional concentration on looking at our penetration, it's all in the structured finance area.

Peter -- -- Analyst

Okay. Great. Thanks so much.

Douglas L. Peterson -- President and Chief Executive Officer

You have a second question?

Peter -- -- Analyst

I do. Actually on Market Intelligence, the migration...

Douglas L. Peterson -- President and Chief Executive Officer

(inaudible) Bill's question.

Peter -- -- Analyst

Okay. Probably not as good as Bill's. He is way more intellectual than I. In Market Intelligence, the migration to enterprise contracts how far along are we in that? Has that had measurable implications in terms of profitability for the segment?

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Peter, the progress we have made over the last quarter is moving from 76% to 81% of Cap IQ customers moving to enterprisewide agreements. So a nice 5% step up. What we're seeing now is what we call the long-tail. We are now making those changes for a large group of smaller customers. We're not planning to really call out those numbers anymore in the future will continue over the next period to drive this to 100% level over the next year or so, but we will continue to make progress to ultimately have 100% of our customers on enterprisewide agreements. So good progress. And I think, basically for us the last final number of customers we'll deal with over the remainder of this year.

Peter -- -- Analyst

Thank you.

Douglas L. Peterson -- President and Chief Executive Officer

Great. Well, thanks everyone for joining the call this morning. I'm sure you can hear how enthusiastic we are about the Company, about our prospects for the future. As you can see we have a lot of initiatives to look at our topline growth and our productivity. We're committed to continue to manage to of course productivity, but also very importantly to growth. And you heard about some of our plans for our data operations for technology in particular around artificial intelligence and machine learning and the kind of impact that can have on us.

And also I want to thank all of you for the questions about China and our international operations. We're very enthusiastic about the opportunity we have going forward in China. And we'll keep bringing you updates on that as we go forward. And on top of that, I want to thank our great Board of Directors, our management team, our global workforce the commitment they have as well to power the markets in the future and the framework that we'll continue to show you new going forward as to how we're allocating capital where we're growing. And again, I want to thank all of you and we look forward to even more success in 2019. Thank you very much.

Operator

That concludes this morning's call. A PDF version of the presenter slides is available now for downloading from investor.spglobal.com. A replay of this call including the Q&A session will be available in about two hours. The replay will be maintained on S&P Global's website for 12 months from today, and by telephone for one month from today. On behalf of S&P Global, we thank you for participating and wish you have a good day.

Duration: 102 minutes

Call participants:

Chip Merritt -- Senior Vice President, Investor Relations

Douglas L. Peterson -- President and Chief Executive Officer

Ewout Steenbergen -- Executive Vice President and Chief Financial Officer

Toni Kaplan -- Morgan Stanley -- Analyst

Manav Patnaik -- Barclays -- Analyst

Hamzah Mazari -- Macquarie Capital -- Analyst

Alex Kramm -- UBS -- Analyst

Tim McHugh -- William Blair and Company -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Craig Huber -- Huber Research Partners -- Analyst

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Dan Dolev -- Nomura Securities -- Analyst

George Tong -- Goldman Sachs -- Analyst

Bill Warmington -- Wells Fargo -- Analyst

Peter -- -- Analyst

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