Business News

Thomson Reuters Reports Fourth-Quarter and Full-Year 2008 Results

Wednesday 25. February 2009 - Q4 pro forma revenues up 5% before currency; underlying operating profit up 13%; Full-year pro forma revenues up 8%; underlying operating profit up 19%; Integration savings target raised; Board approves $0.04 annual dividend increase

Thomson Reuters (NYSE: TRI; TSX: TRI; LSE: TRIL; Nasdaq: TRIN), the world’s leading source of intelligent information for businesses and professionals, today reported strong results for the fourth quarter and full year ended December 31, 2008. These results reflect balanced contributions across the company’s portfolio of businesses, despite very challenging market conditions.

— Pro forma fourth-quarter revenues of $3.4 billion, an increase of 5%
before currency (flat after the impact of currency).(1)
— Full-year pro forma revenues of $13.4 billion, an increase of 8%
(currency had no impact).
— GAAP revenues increased 68% for the fourth quarter and 60% for 2008,
primarily due to the Reuters acquisition, which was completed on April
17, 2008.
— Fourth-quarter diluted earnings per common share of $0.79 and pro
forma adjusted diluted earnings per share of $0.57.
— 2008 diluted earnings per share of $1.81 and pro forma adjusted
diluted earnings per share of $1.91.
— Fourth-quarter free cash flow of $694 million and underlying free cash
flow of $829 million.(2)
— 2008 free cash flow of $1.8 billion and underlying free cash flow of
$2.3 billion.(2)



(1) Pro forma financial information disclosed in this news release assumes that Thomson’s acquisition of Reuters closed on January 1, 2007. Thomson Reuters believes that pro forma financial information provides more meaningful period-to-period comparisons of its performance because Reuters results prior to the April 17, 2008 closing are not included in GAAP results. For more information, see the explanatory note on page 10.

(2) Underlying free cash flow for the fourth quarter and full year excludes one-time cash costs related to the Reuters acquisition and costs associated with integration and synergy programs.

“I am very pleased with the operating performance of Thomson Reuters in 2008, as well as the significant progress we achieved in integrating the acquired Reuters business,” said Thomas H. Glocer, chief executive officer of Thomson Reuters.

“As major economies slid into recession in 2008, we nonetheless continued to perform well, thanks to our proven business model of providing must-have content and services to professionals and our well-balanced set of businesses, both by market and geography.

“I am especially pleased we have been able to accelerate the Reuters integration, significantly increase the savings we expect to achieve, and reach our goal of becoming ‘one company in one year’. While considerable work remains to consolidate operations and migrate customers to the new strategic products we will launch this year, we are beginning to benefit from the advantages of increased scale.

“Based on the current environment in the markets we serve, we expect our revenues to grow in 2009,” said Mr. Glocer.

Consolidated Pro Forma Financial Highlights – Fourth-Quarter 2008
— Revenues were $3.4 billion, an increase of 5% before currency and flat
after currency.
— Underlying operating profit increased 13% to $833 million.(3)
— Underlying operating profit margin increased 280 basis points to
24.4%.
Consolidated Pro Forma Financial Highlights – Full-Year 2008
— Revenues increased 8% to $13.4 billion. There was no impact from
currency.
— In 2008, revenues were 58% from the Americas, 32% from Europe, the
Middle East and Africa, and 10% from Asia.
— Underlying operating profit increased 19% to $2.8 billion.(3)
— Underlying operating profit margin increased 190 basis points to
20.7%.



(3) Pro forma underlying operating profit excludes amortization of intangibles, fair value adjustments, costs associated with integration and synergy programs and other items affecting comparability.

Fourth-Quarter and Full-Year Business Segment Highlights
Professional Division
— Fourth-quarter revenues were $1.5 billion, an increase of 6% before
currency (up 3% after currency) driven by online, software and
services revenue growth of 10% slightly offset by a 1% decline in
print and CD revenues.
— Fourth-quarter operating profit was $511 million, an 8% increase from
the prior-year period. Operating profit margin was 34.4%, compared to
32.7% in the fourth quarter of 2007, with all segments of the
Professional Division demonstrating margin expansion. Operating
profit growth and margin expansion were due to strong revenue
flow-through.
— Full-year revenues grew 8% to $5.5 billion (currency had no impact).
Growth was driven by online, software and services product offerings
which grew 8% and included strength from key products like FindLaw and
Elite in Legal, Checkpoint in Tax & Accounting, ISI Web of Knowledge /
Web of Science in Scientific and Medstat Advantage Suite in
Healthcare.
— Full-year 2008 operating profit increased 9% to $1.6 billion.
Operating profit margin was 29.5%, representing a 20 basis point
improvement.
Legal
— Fourth-quarter revenues were $887 million, up 6% before currency (up
1% after currency) primarily due to continued strength in
international online products, and growth in Westlaw and within
software and services led by FindLaw.
— Fourth-quarter operating profit was $282 million, a 4% increase. The
corresponding margin of 31.8% represented a 70 basis point improvement
from a year ago. Margin expansion was due to strong revenue
flow-through and efficiency savings.
— For the full year, revenues increased 6% to $3.5 billion driven by
continued strong performance from Westlaw, and double-digit growth
from international online products. FindLaw and Elite helped more
than offset slowing ancillary (additional services above base
subscription) revenues. Print and CD revenues were up 1% for the
year.
— Full-year operating profit increased 9% to $1.1 billion, with the
related margin increasing 60 basis points to 32.1%.

Tax & Accounting

— Fourth-quarter revenues increased 13% to $281 million. Growth was
driven by core products Checkpoint, UltraTax, and the acquisition of
Property Tax Services. Checkpoint has now recorded 24 consecutive
quarters of double-digit revenue growth.
— Fourth-quarter operating profit increased 27% to $113 million, while
the related margin increased 430 basis points to 40.2%. Operating
profit and margin growth primarily reflected strong revenue
flow-through, benefits of efficiency initiatives and the impact of
purchase accounting adjustments compared to the prior year period. As
in past years, about 50% of the unit’s operating profit was generated
in the fourth quarter.
— Full-year revenues rose 22% to $861 million. Growth was driven by
strong performance in core products such as Checkpoint, which grew 18%
for the year.
— Full-year operating profit increased 19% to $219 million, while the
operating profit margin decreased 70 basis points to 25.4%. Margins
were lower due to the impact of acquisition accounting and an increase
in revenues from faster growing services businesses, which have had
lower margins to date.
Scientific
— Fourth-quarter revenues were $159 million, up 6% before currency (flat
after currency). Growth was driven by strength in ISI Web of Knowledge
/ Web of Science subscriptions. Results for Scientific exclude the
impact of Dialog, which was sold in July 2008.
— Fourth-quarter operating profit was $54 million, representing a 2%
increase. The related margin increased 70 basis points to 34.0%,
primarily due to solid cost controls and favorable currency trends,
offset by investments in growth initiatives, primarily in Asia.
— Full-year revenues were $604 million, up 8% before currency (up 7%
after currency). Growth was led by a double-digit increase from ISI
Web of Knowledge / Web of Science. These gains helped to offset
softening in one-time revenues.
— Full-year operating profit grew 4% to $171 million with the related
margin decreasing 70 basis points to 28.3%, primarily due to
incremental investments in Asia.

Healthcare
— Fourth-quarter revenues were $160 million, a 1% increase. Growth was
driven by the Payer business which demonstrated strength across all
segments, led by the Medstat Advantage Suite. Excluding the results
for PDR (Physicians Desk Reference), which we intend to sell, revenues
were up 6%.
— Fourth-quarter operating profit increased 9% to $62 million, and the
related margin increased 270 basis points to 38.8%. As in past years,
about 70% of Healthcare’s operating profit was generated in the fourth
quarter.
— Full-year revenues increased 4% to $468 million. Revenue growth in
2008 was impacted by a decline in PDR revenues. Double-digit growth
in the Payer segment offset continued declines from PDR. Excluding
PDR, full-year revenue growth was 7%.
— Full-year operating profit was $85 million, unchanged compared to
2007. The related margin decreased 60 basis points to 18.2%, with
operating profit and margin affected in part by the decline in PDR
revenues.

Markets Division Pro Forma Results
— Fourth-quarter 2008 revenues were $1.9 billion, up 4% before currency
(down 2% after currency). The Markets Division continued to
demonstrate solid performance, despite extreme volatility in the
financial sector due to competitive wins, a broad global customer mix,
and a breadth of offerings. Growth was led by continued momentum in
the Enterprise, Investment & Advisory, and Sales & Trading businesses.
In the fourth quarter, 7% revenue growth in the Europe, Middle East
and Africa region led all geographic areas, while Asia grew 4% and the
Americas declined 1%.
— Fourth-quarter operating profit increased 7% to $365 million and the
related margin increased 160 basis points to 19.0%, reflecting the
continued benefits of synergies, efficiency initiatives and tight cost
management.
— Full-year revenues were $7.9 billion, up 6% before currency (up 7%
after currency). Growth was spread across the division and was driven
by strong performance from Enterprise solutions, Investment
Management, Corporate Services, Commodities & Energy and Treasury
units.
— Full-year operating profit increased 26% to $1.4 billion, with the
corresponding margin increasing 260 basis points to 17.7%. The margin
expansion was driven by revenue growth and the benefits of the
integration and savings programs.

Sales & Trading
— Fourth-quarter revenues were $888 million, up 2% before currency (down
4% after currency). Sales & Trading generates revenue from the sale of
desktop products, as well as trading systems. Growth was generated by
transaction volumes driven by volatile markets, offset by headcount
reductions in the industry.
— Full-year revenues were $3.8 billion, up 4% before currency (up 5%
after currency). Growth was driven by double-digit increases in
Commodities & Energy and Tradeweb, as well as good performance in
Treasury and foreign exchange transaction products. Growth was
particularly strong outside North America.
Investment & Advisory
— Fourth-quarter revenues were $582 million, up 5% before currency (down
1% after currency). Investment Management, Wealth Management and
Corporate Services all contributed solidly to the quarter’s results.
Despite large reductions in client assets under management from weak
performance and redemptions, Investment Management continued to
perform well with an 8% growth in revenues, as demand grew for
datafeeds and analytics products, such as QAI and Starmine. Retail
Wealth Management and Corporate Services grew 7% and 9%, respectively.
Wealth Management revenues were driven by strong sales of ThomsonONE
and from strength in the transaction processing business, BETA, which
benefited from high market volumes. The Corporate Services business
continued to drive growth through geographic expansion and cross
selling. As anticipated, Investment Banking revenues declined for the
quarter as the economic environment continued to have an adverse
impact on its customer base.
— Full-year revenues were $2.4 billion, up 8% before currency (up 7%
after currency). Growth was driven by strong demand for datafeeds and
analytics products in the Investment Management segment. The
Corporate Services business grew revenues in double-digits, and Retail
Wealth Management grew 5%, led by BETA. These segments helped to
offset a challenging year for the Investment Banking unit.
Enterprise
— Fourth-quarter revenues were $350 million, up 13% before currency (up
5% after currency). Growth was driven by the increasing demand for
automated information and management solutions, including pricing and
reference datafeeds and risk and information management systems.
— Full-year revenues were $1.3 billion, up 13% before currency (up 14%
after currency). Growth was driven by strong performance in the
Enterprise and Information Management System segments as customers
continue to seek ways to reduce risk, drive efficiencies and increase
returns.
Media
— Fourth-quarter revenues were $106 million, down 5% before currency
(down 11% after currency). The decline in the quarter was
attributable to modest weakness in the Agency business and marked
slowdowns in the advertising-driven Consumer and Professional
Publishing segments.
— Full-year revenues were $450 million, comparable to last year before
currency (up 4% after currency). Increases within Agency and Consumer
segments were offset by a decline in Professional Publishing revenues.
Advertising spending in Consumer and Professional Publishing segments
slowed towards the end of 2008.
Corporate and Other Pro Forma Results
— Fourth-quarter Corporate and Other expenses increased $34 million to
$140 million, primarily due to $123 million of integration and
synergy related costs, which were $55 million higher than the
integration and synergy costs in the fourth quarter of 2007. These
expenses were partially offset by favorable non-cash fair value
currency related adjustments. Core Corporate and Other costs were $43
million compared to $76 million in the prior period, reflecting the
benefits of the integration program.
— Full-year Corporate and Other expenses increased $78 million to $502
million, primarily due to $362 million of integration and
synergy-related costs which increased $209 million compared to the
prior year. These expenses were partially offset by favorable
non-cash fair value currency related adjustments. Core Corporate and
Other costs were $243 million compared to $257 million in 2007.
Integration Programs
— As Thomson Reuters progressed with the execution of its Reuters
integration plan, the company identified significant additional
opportunities for cost savings. Thomson Reuters now expects $1 billion
in annualized cost savings from integration programs by the end of
2011, up from $750 million of savings projected in May 2008. This
raises the overall savings target (including legacy efficiency
programs) to $1.4 billion.
— Across all integration and legacy efficiency programs, Thomson Reuters
achieved combined run-rate savings of $750 million as of December 31,
2008. The 2008 cost required to achieve these savings through
December 31 was approximately $362 million.
— Thomson Reuters is now beginning the second phase of the acquisition
integration, which includes retiring legacy products and systems to
simplify the business and help make it more agile, responsive and
profitable. In 2009, Thomson Reuters will roll out new strategic
products, consolidate data centers and capture revenue synergies.


Consolidated GAAP Financial Highlights – Fourth-Quarter 2008 (GAAP financial information does not include the results of Reuters prior to the closing date of April 17, 2008.)

— Revenues were $3.4 billion, a 68% increase, primarily due to the
acquisition of Reuters.
— Operating profit was $689 million, an increase of 68%. The increase
was due to both additional profit from existing businesses and the
Reuters acquisition, which offset costs associated with the
acquisition as well as integration programs.
— Earnings attributable to common and ordinary shares were $656 million,
or $0.79 per share, compared to $432 million, or $0.67 per share, in
the same period in 2007. Earnings in the fourth quarter of 2007
included $123 million related to discontinued operations.
— Net cash provided by operations in the fourth quarter was $1 billion
compared to $659 million a year ago. Free cash flow was $694 million.
After adjusting for one-time cash costs related to the Reuters
acquisition and costs associated with integration and synergy
programs, underlying free cash flow was $829 million.


Consolidated GAAP Financial Highlights – Full-Year 2008 (GAAP financial information does not include the results of Reuters prior to the closing date of April 17, 2008.)

— Revenues were $11.7 billion, an increase of 60%, primarily due to the
acquisition of Reuters.
— Operating profit was $1.7 billion, a 31% increase, as additional
profit from existing businesses and the Reuters acquisition offset
costs associated with the acquisition as well as integration programs.
— Earnings attributable to common and ordinary shares were $1.4 billion,
or $1.81 per share on a diluted basis, compared to $4 billion, or
$6.20 per share on a diluted basis in 2007. Earnings for 2007
included $2.9 billion related to discontinued operations, net of tax,
primarily related to the gain from the sale of Thomson Learning’s
higher education assets.
— Net cash provided by operations in 2008 was $2.8 billion compared to
$1.8 billion a year ago. Free cash flow was $1.8 billion and, after
adjusting for one-time cash costs related to the Reuters acquisition
and costs associated with integration and synergy programs, underlying
free cash flow was $2.3 billion.
2009 Business Outlook (Before Currency)



Based on the current environment in the markets we serve, Thomson Reuters expects its revenues to grow in 2009. We also expect underlying operating margin to be comparable to 2008, supported by revenue growth and the expected savings from integration and synergy programs. Underlying free cash flow is expected to be comparable to 2008, adjusted for certain timing related items.

Dividend

The Board of Directors approved an increase in the quarterly dividend. On an annualized basis, 2009 dividends will increase $0.04 per share. The quarterly dividend of $0.28 per share is payable on March 26, 2009 to shareholders of record as of March 6, 2009.