Business News

Thomson Reuters Reports First-Quarter 2008 Results

Friday 02. May 2008 - The Thomson Corporation reports GAAP revenue growth of 10%; 7% organic Thomson Reuters pro forma revenues increase 12%; organic growth up 8% on strong customer demand Strong pro forma underlying operating profit Results reflect strong performance in both Markets and Professional Divisions Thomson Reuters expects 2008 pro forma revenue growth of 6% - 8%; nearly all organic Integration plan accelerated; targets raised

Thomson Reuters (NYSE: TRI; TSX: TRI; LSE: TRIL; Nasdaq: TRIN), the world’s leading source of intelligent information for businesses and professionals, today reported results for the first quarter ending March 31, 2008. As The Thomson Corporation’s acquisition of Reuters Group PLC was completed on April 17, 2008, first-quarter results reflect the performance of the two legacy companies reported under Canadian GAAP in U.S. dollars. Thomson had first-quarter revenues of $1.8 billion, an increase of 10% over the first quarter of 2007, while Reuters had revenues of $1.4 billion, a 13% increase.

Assuming that Thomson’s acquisition of Reuters had been completed on January 1, 2007, pro forma revenue for Thomson Reuters for the quarter would have been $3.3 billion, an increase of 12% over the prior year period. (1)

“Our combined first quarter results and guidance for the full year reflect the robustness of our business, even in turbulent markets. Our Markets Division holds leading positions in higher growth segments of the financial markets, including foreign exchange, commodities, energy and emerging markets. Our leading positions in the less cyclical Professional markets of legal, tax & accounting, scientific and healthcare information also grew strongly in the quarter. These are high quality businesses with attractive profit margins and strong cash flow characteristics,” said Thomas H. Glocer, chief executive officer of Thomson Reuters.

“Thomson Reuters is extremely well-positioned to capitalize on the growing demand across the world’s business and professional communities for intelligent information — insightful, high value content that can be used by human beings and machines. As an enlarged global business, Thomson Reuters will now also benefit from the value created by more diversified revenue streams, a larger capital base and synergies resulting from the combination of our businesses.”

Consolidated Pro Forma Financial Highlights for Thomson Reuters — First-Quarter 2008*

— Pro forma revenue increased 12%, and pro forma organic growth was 8%.
— Pro forma underlying operating profit grew 37% to $579 million.


Professional Division


Thomson Reuters Professional Division is made up of four business segments: Legal, Tax & Accounting, Scientific and Healthcare.

— Revenue for the Professional Division grew 11% to $1.3 billion, led by
strong growth in the Legal, Tax & Accounting and Scientific business
segments. Organic growth was 7% in the quarter with foreign exchange
adding 1%. Online, services and software comprised 80% of total revenue
and grew 13%. Print represented 20% of total revenue and grew 5%.
— Operating profit for the Professional Division was $299 million in the
first quarter, a 6% increase from the prior year period. Operating
profit margin for the first quarter was 23.5%, representing a 120 basis
point decline compared to the first quarter of 2007. The margin decline
was due to investments in certain growth initiatives, and the impact of
accounting adjustments associated with recent acquisitions.


Legal
— Revenues increased 9% in the first quarter to $809 million. Organic
revenue growth was 7% in the quarter with foreign exchange adding 2%.
— Organic revenue growth reflected strong performance for online
solutions in both the U.S. and internationally. Software and services
also contributed solidly in the first quarter, posting significant
double-digit revenue growth, led by FindLaw.
— Print revenue represented approximately 30% of total revenue for the
quarter and was up 7%, in part due to timing.
— First-quarter segment operating profit grew 9%, to $225 million.
Operating profit growth was driven by strong revenue. Corresponding
operating margin for the quarter was 27.8%, unchanged from the first
quarter of 2007.


Tax & Accounting
— Revenues increased 28% to $205 million. Organic revenues grew 13%,
with growth from acquisitions contributing 15%.
— Strong organic revenue growth was seen across all three businesses:
Research & Guidance, Professional Software & Services, and Corporate
Software & Services driven by core products including Checkpoint and
InSource.
— Acquisition revenue growth was driven by the successful integration of
the Property Tax Services and CrossBorder acquisitions, as well as the
acquisition of TaxStream in the first quarter.
— Operating profit increased 3% to $39 million for the quarter. The
operating margin was 19.0% compared to 23.8% in the prior year period,
due to lower initial margins for the above-mentioned acquisitions
related to purchase accounting adjustments. As the acquisition
accounting treatment normalizes throughout the year, the margin is
expected to return to historical averages for the full year.


Scientific
— Revenues grew 9% to $163 million. Organic growth contributed 4%,
acquisitions added 4%, and foreign exchange added an additional 1%.
— Information Solutions, which includes Web of Science, Thomson Pharma
and Corporate Solutions, contributed 62% of segment revenues and was
the driver of revenue growth in the quarter.
— ISI Web of Knowledge demonstrated continued momentum in the quarter on
the strength of a new release launched in the fourth quarter of 2007.
— Operating profit declined 6% to $32 million for the quarter. Operating
margin of 19.6% was 320 basis points lower than the prior year due to
investments associated with localization of content in certain Asian
markets, and acquisition-related items.


Healthcare
— Revenues increased 3% in the first quarter to $95 million. Organic
revenues grew 2%, with acquisitions contributing 1%.
— The Payer business (35% of total revenue) posted a revenue increase of
9%, reflecting strong renewals and new business from Medstat, and the
Provider business (62% of total revenue) was up 4% led by Solucient and
Micromedex. However, a decline in PDR (Physicians’ Desk Reference)
revenue offset the revenue growth in the aforementioned businesses.
Organic revenue growth was 6% excluding PDR.
— Operating profit was $3 million for the quarter, a decline of $1
million compared to the first quarter of last year. Operating margin
declined 110 basis points to 3.2%. Operating profit and margins were
impacted by the decline in PDR revenue. Healthcare is highly seasonal
with approximately 70% of operating profit historically generated in
the fourth quarter.


Markets Division


The Markets Division is made up of four businesses – Sales & Trading, Investment & Advisory, Enterprise and Media. With the acquisition of Reuters, Thomson Financial became part of the Markets Division. For the purpose of this release, first-quarter results are provided for the four legacy Reuters Group PLC businesses, as well as Thomson Financial.

Pro Forma First-Quarter 2008
— Markets Division revenue growth was 11%, 9% organic.
— Markets Division operating profit was $353 million, up 69%.


Reuters Legacy Business Segments – Actual First-Quarter 2008

Sales & Trading
— Sales & Trading revenue was $876 million in the first quarter, an
increase of 9% over the prior year, with 7% organic growth. A key
driver of organic revenue growth was usage revenue, which increased
22%, reflecting the strength of Reuters foreign exchange business.
Growth in Reuters premium desktop product 3000 Xtra was also strong.
— Revenue from the Trader family products declined 11% organically,
representing a significant improvement compared to the same period in
2007 when revenue declined 21%. The improvement in large part
reflected the absence of revenue attrition from Telerate migrations as
well as strong growth in next generation Trader products.


Investment & Advisory (Formerly Research & Asset Management)
— Revenue was $214 million, an increase of 27%, of which 20% was organic
growth. Revenue growth was driven by continued strength in Investment
Banking and Investment Management, with strong organic revenue growth
driven by demand for content feeds and sales of Reuters Knowledge
desktops.
— Revenue from Wealth Management grew 7% organically, mainly attributable
to demand for online feeds and web-based solutions, as well as growth
in Lipper funds’ information revenue.


Enterprise
— Enterprise revenue grew 18% to $239 million for the quarter, based on
continued strong performance across the product range. Organic growth
was 14% for the period.
— Revenues for the Pricing and Reference Data business grew strongly,
responding to a growing demand for independent pricing and valuations.
— Reuters Data Feed products continued to deliver double digit revenue
growth, driven by a strong demand from algorithmic trading engines and
other client applications.


Media
— Media revenue grew 12% to $91 million; organic revenue increased 9%.
Revenue from text and TV subscriptions experienced consistent growth.
Consumer Services revenue grew at double-digit rates, driven by online
syndication and advertising.


Thomson Financial – Actual First-Quarter 2008
— First-quarter revenues grew 7%, to $565 million, with organic revenue
up 6% and foreign exchange adding 1%.
— Organic revenue growth was driven by strong performance across multiple
customer segments, including Investment Management, Corporate Services,
Omgeo and Retail Wealth Management. Other areas contributing to organic
revenue growth included Tradeweb Markets and Enterprise solutions.
Continued good growth in Europe and Asia also contributed to the strong
increase in organic revenue.
— First-quarter segment operating profit increased 16%, to $110 million.
The related margin increased 150 basis points, to 19.5%, driven by
strong revenue growth and operating efficiency and savings attributable
to deferred spending due to the Reuters acquisition.


The Thomson Corporation – Actual First-Quarter 2008
— Revenues increased 10%, to $1.8 billion, led by strong growth in the
Legal, Financial and Tax & Accounting business segments. Organic
revenue growth was 7%.
— Operating profit was $216 million, a decline of 4% from the first
quarter of 2007, resulting in an operating margin of 11.8% compared to
13.5% in the prior year period. Operating profit includes costs
related to the Reuters transaction and THOMSONplus initiatives of $68
million and $13 million, respectively. Historically, approximately 17%
of operating profit is generated in the first quarter.
— Underlying operating profit, which excludes amortization of acquired
intangible assets, Reuters transaction costs in the first quarter and
THOMSONplus costs for both the first quarter of 2008 and 2007,
increased 12% to $359 million from $320 million a year ago. As a
result, underlying operating profit margin was 19.6% compared to 19.3%
in the first quarter of 2007.
— Corporate and Other expenses increased $40 million in the quarter, to
$131 million. The increase was primarily due to $68 million in costs
during the quarter related to the Reuters acquisition, offset by lower
spending on THOMSONplus.
— Earnings attributable to common shares were $192 million, or $0.30 per
share, compared to $223 million or $0.35 per share in the same period
in 2007.
— Adjusted earnings from continuing operations were $249 million or $0.39
per share, compared to $144 million or $0.22 per share in the first
quarter of 2007.
— Adjusted earnings from continuing operations, excluding
acquisition-related amortization expense of intangibles, was $311
million or $0.48 per share compared to $205 million or $0.32 per share
in the first quarter of 2007.
— Net cash provided by operations was $284 million compared to $287
million a year ago.
— Free cash flow was $155 million, up 13% from a year ago.


Reuters Group PLC – Actual First-Quarter 2008**
— Reuters first-quarter revenue increased 13% to $1.4 billion driven by
continued customer demand for transaction and information products in
foreign exchange, commodities and energy markets; for enterprise
information products, and from growth in emerging markets.
— Organic revenue growth of 10% was aided by new features and products
developed in the Core Plus program, including the addition of high
value content to Reuters Knowledge, electronic trading initiatives such
as Prime Brokerage, and expanded enterprise solutions such as Reuters
Datascope.
— Operating profit was $335 million in the first quarter, representing a
242% increase compared to the same period in 2007. The corresponding
margin was 23.6% compared to 7.8% for the first quarter of 2007.
Operating profit includes a favorable accounting adjustment of
approximately $115 million associated with the re-measurement of the
assets and liabilities of a pension plan at March 31, 2008. Operating
profit and margins further benefited from operating leverage, as
revenue grew significantly.
— Underlying operating profit, which excludes amortization of acquired
intangible assets and other items affecting comparability, increased
88% to $248 million from $132 million in the prior year. Underlying
operating profit margin increased 700 basis points to 17.5%.
— During the first quarter, Reuters Group PLC had cash outflows of
approximately $500 million relating to its share buyback program and an
acquisition.


Savings Outlook
— Thomson Reuters estimates it will achieve run rate savings of $1.0
billion by December 31, 2010, earlier than originally anticipated, and
$1.2 billion by December 31, 2011.
— The aggregate savings through 2011 includes the benefits from:
THOMSONplus ($160 million), Core Plus ($300 million) and Thomson
Reuters integration-related savings ($750 million).
— At March 31, 2008, the THOMSONplus and Core Plus programs had achieved
combined run rate savings of $300 million, leaving an additional $900
million to be realized by December 31, 2011. The cost to achieve the
savings to date has been approximately $570 million.
— The estimated cash cost to achieve the remaining $900 million of
savings is $1.2 billion through 2011.
— Going forward, Thomson Reuters will track quarterly savings and costs
as a combined total.


2008 Business Outlook for Thomson Reuters


The following represents Thomson Reuters current business outlook for full-year 2008 on a pro forma basis (assumes Thomson acquired Reuters on January 1, 2007).

— Revenue growth (excluding currency effects) is estimated to be between
6%-8% – nearly all organic.
— Underlying operating profit margin is estimated to be between 19% and
21%.
— Free cash flow margin, excluding synergy and integration costs, is
estimated to be between 11% and 12% of revenue.


Share Buyback Program


On April 18, 2008, Thomson Reuters commenced its previously announced $500 million share repurchase program. Through April 30, 2008, Thomson Reuters has repurchased approximately 3.3 million ordinary shares of Thomson Reuters PLC, for a total cost of approximately $103 million. Thomson Reuters share repurchase activity underscores its financial strength and commitment to a strong capital structure. Thomson Reuters will manage its capital structure and set its cash distribution policy in order to maintain a strong and efficient balance sheet.

Decisions regarding the timing of future repurchases will be based on market conditions, share price and other factors. Thomson Reuters may elect to suspend or discontinue the program at any time. Shares repurchased will be cancelled.

Dividend

The first Thomson Reuters dividend will be paid on September 15, 2008 to shareholders of record as of August 21, 2008, in the amount of $0.22253 per share. This dividend is based on the 2008 quarterly dividend rate per share of $0.27 as adjusted for an interim dividend payment paid on May 1, 2008 in connection with the closing of the Reuters acquisition. Thomson Reuters will return to a normal quarterly dividend payment of $0.27 per share in December 2008.

Thomson Reuters declares dividends in U.S. dollars. Holders of Thomson Reuters Corporation common shares will receive their dividends in U.S. dollars, unless they elect to receive their dividends in Canadian dollars or British pounds sterling. Holders of Thomson Reuters PLC ordinary shares will receive their dividends in British pounds sterling, unless they elect to receive their dividends in U.S. dollars, Canadian dollars and certain other local currencies. Holders of Thomson Reuters PLC ADSs will receive their dividends in U.S. dollars. Information for Thomson Reuters shareholders who wish to elect to receive dividends in other currencies is provided in the Investor Relations section of www.thomsonreuters.com under “Dividend Timetable”.

Over the course of 2008, Thomson Reuters controlling shareholder, The Woodbridge Company Limited, plans to reinvest the equivalent of 50% of the dividends that it receives in the first three quarters of the year. Woodbridge’s dividend reinvestment in additional Thomson Reuters Corporation common shares will be in accordance with the terms of Thomson Reuters Corporation dividend reinvestment plan. Woodbridge’s reinvestment decision reinforces Thomson Reuters commitment to a strong capital structure and balance sheet.