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July 30, 2014

Thomson Reuters Reports Second-Quarter 2014 Results

NEW YORK – Thomson Reuters (TSX / NYSE: TRI) today reported results for the second quarter ended June 30, 2014.

  • Revenues from ongoing businesses grew 1% before currency to $3.2 billion
  • Adjusted EBITDA grew 2% to $877 million with a margin of 27.8%, up 20 basis points from the prior-year period
    • Excluding charges from both periods, adjusted EBITDA margin was 28.7%, up 80 basis points from the prior-year period
  • Underlying operating profit grew 2% to $581 million with a margin of 18.4%, up 10 basis points from the prior-year period
    • Excluding charges from both periods, underlying operating profit margin was 19.3%, up 70 basis points from the prior-year period
  • Adjusted earnings per share were $0.51 versus $0.48 in the prior-year period
  • Financial & Risk Q2 net sales positive
  • Company completed $1.0 billion share buyback program announced last October and plans to repurchase up to an additional $1.0 billion of its shares by the end of 2015
  • 2014 Outlook affirmed

"Our second-quarter results build upon the good start to the year and are consistent with our full-year expectations," said James C. Smith, chief executive officer of Thomson Reuters. "The actions we are taking are building a platform for sustainable growth, and we will continue to simplify our organization and position resources behind the most promising growth opportunities."

Consolidated Financial Highlights – Second Quarter

Three Months Ended June 30,

(Millions of U.S. dollars, except EPS and margins)

IFRS Financial Measures 2014 2013 Change
Revenues $3,159 $3,163 0%
Operating profit $381 $597 -36%
Diluted earnings per share (EPS) $0.31 $0.30 3%
Cash flow from operations $876 $904 -3%

Second-quarter 2013 results were impacted by two offsetting items: operating profit benefited from a $140 million gain realized on the sale of the company’s Corporate Services business; and the company also recorded a $161 million tax charge associated with the consolidation of its technology and content assets. No similar items impacted second-quarter 2014 results.

 
Non-IFRS Financial Measures(1) 2014 2013 Change
Revenues from ongoing businesses $3,158 $3,108 2%
Adjusted EBITDA $877 $858 2%
Adjusted EBITDA margin 27.8% 27.6% 20bp
Underlying operating profit $581 $569 2%
Underlying operating profit margin 18.4% 18.3% 10bp
Adjusted earnings per share (EPS) $0.51 $0.48 6%
Free cash flow $652 $732 -11%

(1) These and other non-IFRS financial measures are defined and reconciled to the most directly comparable IFRS measures in the tables appended to this news release. Additional information is provided in the explanatory footnotes to the appended tables.

  • Revenues from ongoing businesses were $3.2 billion, a 1% increase before currency, reflecting 5% combined growth from the company’s Legal, Tax & Accounting and Intellectual Property & Science businesses, which was offset by a 2% decline in Financial & Risk.
  • Adjusted EBITDA increased 2%, and the corresponding margin was 27.8% versus 27.6% in the prior-year period. The increase was primarily due to cost savings generated in the Financial & Risk business from the company’s simplification program announced in October 2013, which were partially offset by $30 million of charges incurred in the quarter. Excluding charges from both periods, adjusted EBITDA margin was 28.7%, up 80 basis points from the prior-year period.
  • Underlying operating profit increased 2%, and the corresponding margin was 18.4% versus 18.3% in the prior-year period. The increase was primarily due to the same factors that impacted adjusted EBITDA. Excluding charges from both periods, underlying operating profit margin was 19.3%, up 70 basis points from the prior-year period.
  • Adjusted EPS was $0.51 compared to $0.48 in the prior-year period, up 6%.

Second-Quarter Business Segment Highlights

Unless otherwise noted, all revenue growth comparisons in this news release are before the impact of foreign currency as Thomson Reuters believes this provides the best basis to measure the performance of its business.

Financial & Risk

  • Revenues were down 2% (down 3% organic) due to the impact of negative net sales over the prior 12 months and a decline in transactions-related revenues.
  • Recurring subscription-related revenues decreased 2% (down 3% organic) due to the impact of negative net sales over the prior 12 months.
  • Transactions-related revenues decreased 4% (down 11% organic) due to lower trading volumes related to lower volatility in the equity, foreign exchange and fixed income markets. Recoveries revenues were flat.
  • By geography, revenues in Europe, Middle East and Africa (EMEA) were down 4%, revenues in the Americas were down 1% and revenues in Asia were up 1%.
  • Net sales were positive for the quarter and were better than both the prior-year period and the first quarter of 2014. Net sales were positive for the Americas and Asia and remained negative in Europe. However, all three regions showed year-on-year improvements in their respective net sales performance.
  • EBITDA increased 1%, primarily due to simplification program savings, despite $30 million of charges incurred in the quarter compared to $3 million in the prior-year period. The margin was 25.7% compared to 25.3% in the prior-year period.
    • Excluding charges from both periods, EBITDA increased 8% with a margin of 27.6% compared to a margin of 25.5% in the prior-year period.
  • Operating profit increased 2%. The margin was 16.1% compared to 15.7% in the prior-year period.
    • Excluding charges from both periods, operating profit increased 13% with a margin of 17.9% compared to a margin of 15.8% in the prior-year period.

Legal

  • Revenues increased 1% (flat organic). Excluding US print, revenues grew 3% (2% organic).
  • Solutions businesses (45% of Legal revenues) grew 6% (5% organic), driven by strong growth from Elite, Practical Law and FindLaw. Solutions businesses represent all of Legal’s revenue excluding US print and US online legal information.
  • US online legal information (39% of Legal revenues) declined 1%.
  • US print (16% of Legal revenues) declined 9%.
  • EBITDA increased 2% primarily from savings programs. The margin was 38.9% compared to 38.5% in the prior-year period.
  • Operating profit increased 2% with a margin of 30.7% versus 30.1% in the prior-year period.

Tax & Accounting

  • Revenues increased 14% (10% organic) driven by growth across the business.
  • EBITDA increased 13% with a margin of 30.2%, flat compared to the prior-year period due to acquisition dilution and reinvestment in the business.
  • Operating profit increased 14% and the margin was 20.1% compared to 19.8% in the prior-year period.
  • Small movements in the timing of revenues and expenses can impact margins in any given quarter for the Tax & Accounting business. Full-year margins are more reflective of the segment’s underlying performance.

Intellectual Property & Science

  • Revenues increased 7% (5% organic), driven by recurring revenue growth of 10% (8% organic) partially offset by a 1% decline (down 3% organic) in transactions-related revenues.
  • EBITDA increased 8% due to revenue flow-through. The margin was 33.9%, up 10 basis points compared to the prior-year period.
  • Operating profit increased 5%. The margin was 24.7% compared to 25.2% in the prior-year period, down 50 basis points due to the dilutive impact of acquisitions in 2013.
  • Small movements in the timing of revenues and expenses can impact margins in any given quarter for the Intellectual Property & Science business. Full-year margins are more reflective of the segment’s underlying performance.

Corporate & Other (Including Reuters News)

Reuters News revenues for the second quarter of 2014 were $82 million, down 1% from the prior-year period. Corporate & Other costs for the second quarter of 2014 were $73 million, compared to $62 million in the prior-year period. The increase was primarily related to costs associated with the company’s transformation program.

Consolidated Financial Highlights – Six Months

Six Months Ended June 30,

(Millions of U.S. dollars, except EPS and margins)

IFRS Financial Measures 2014 2013 Change
Revenues $6,289 $6,338 -1%
Operating profit $740 $987 -25%
Diluted earnings per share (EPS) $0.65 $0.26 150%
Cash flow from operations $989 $1,020 -3%

Results for the first six months of 2013 were impacted by the following significant items: operating profit benefited from a $140 million gain realized on the sale of the company’s Corporate Services business; and the company also recorded a $396 million tax charge associated with the consolidation of its technology and content assets. No similar items impacted results in the first six months of 2014.

 
Non-IFRS Financial Measures(1) 2014 2013 Change
Revenues from ongoing businesses $6,287 $6,205 1%
Adjusted EBITDA $1,697 $1,615 5%
Adjusted EBITDA margin 27.0% 26.0% 100bp
Underlying operating profit $1,109 $1,031 8%
Underlying operating profit margin 17.6% 16.6% 100bp
Adjusted earnings per share (EPS) $0.97 $0.86 13%
Free cash flow $517 $501 3%

(1) These and other non-IFRS financial measures are defined and reconciled to the most directly comparable IFRS measures in the tables appended to this news release. Additional information is provided in the explanatory footnotes to the appended tables.

  • Revenues from ongoing businesses were $6.3 billion, a 1% increase before currency.
  • Adjusted EBITDA increased 5% and the corresponding margin was 27.0% versus 26.0% in the prior-year period. The increase was primarily due to simplification program savings in the Financial & Risk business and lower charges compared to the prior-year period. Charges for the six-month period were $40 million versus $87 million in the prior-year period.
    • Excluding charges from both periods, adjusted EBITDA increased 2% and the related margin was 27.6% versus 27.4% in the prior-year period.
  • Underlying operating profit increased 8% and the corresponding margin was 17.6% versus 16.6% in the prior-year period. The increase was primarily due to the same factors that impacted adjusted EBITDA.
    • Excluding charges from both periods, underlying operating profit increased 3% and the related margin was 18.3% versus 18.0% in the prior-year period.
  • Adjusted EPS was $0.97 compared to $0.86 in the prior-year period.
  • Free cash flow was $517 million versus $501 million in the prior-year period. The increase was primarily due to the timing of capital expenditures partially offset by payments related to simplification program charges and a loss of free cash flow from disposals. For the full year, the company continues to expect to achieve free cash flow between $1.3 billion and $1.5 billion.

Business Outlook (Before Currency)

Thomson Reuters today reaffirmed its full-year business outlook for 2014 which was previously communicated in February 2014. The company continues to expect:

  • revenues to be comparable to 2013;
  • adjusted EBITDA margin to range between 26% and 27%;
  • underlying operating profit margin to range between 17.0% and 18.0%; and
  • free cash flow to range between $1.3 billion and $1.5 billion in 2014.

The company's 2014 outlook includes the impact of $120 million of previously announced charges expected to be incurred this year. The estimated aggregate amount of these charges is $395 million, $275 million of which was incurred in 2013. The free cash flow outlook for 2014 reflects the estimated cash impact of the charges incurred in 2013 and 2014 as well as the impact of the loss of free cash flow from disposals (approximately $375 million in aggregate).

The information in this section is forward-looking and should be read in conjunction with the section below entitled "Special Note Regarding Forward-Looking Statements, Material Assumptions and Material Risks."

Dividend and Share Repurchases

As previously announced in February 2014, Thomson Reuters board of directors approved a $0.02 per share annualized increase in the dividend to $1.32 per share. A quarterly dividend of $0.33 per share is payable on September 15, 2014, to common shareholders of record as of August 21, 2014.

Through July 29, 2014, the company had repurchased approximately 26.6 million shares at an aggregate cost of approximately $960 million under its $1.0 billion share buyback program announced in October 2013. In the second quarter of 2014, the company returned approximately $353 million to shareholders through the repurchase of approximately 10 million shares.

Today, the company announced that its board of directors approved plans to repurchase up to an additional $1.0 billion of its shares through the end of 2015.

Thomson Reuters

Thomson Reuters is the world's leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial and risk, legal, tax and accounting, intellectual property and science and media markets, powered by the world's most trusted news organization. Thomson Reuters shares are listed on the Toronto and New York Stock Exchanges (symbol: TRI). For more information, go to www.thomsonreuters.com.

NON-IFRS FINANCIAL MEASURES

Thomson Reuters prepares its financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

This news release includes certain non-IFRS financial measures. Thomson Reuters uses these non-IFRS financial measures as supplemental indicators of its operating performance and financial position. These measures do not have any standardized meanings prescribed by IFRS and therefore are unlikely to be comparable to the calculation of similar measures used by other companies, and should not be viewed as alternatives to measures of financial performance calculated in accordance with IFRS. Non-IFRS financial measures are defined and reconciled to the most directly comparable IFRS measures in the appended tables.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS, MATERIAL ASSUMPTIONS AND MATERIAL RISKS

Certain statements in this news release, including, but not limited to, statements in the "Business Outlook (Before Currency)" section and Mr. Smith’s comments, are forward-looking. Forward-looking statements also include expectations regarding the 2014 charges. As a result, forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. There is no assurance that the events described in any forward-looking statement will materialize. A business outlook is provided for the purpose of presenting information about current expectations for 2014. This information may not be appropriate for other purposes. You are cautioned not to place undue reliance on forward-looking statements which reflect expectations only as of the date of this news release. Except as may be required by applicable law, Thomson Reuters disclaims any obligation to update or revise any forward-looking statements.

The company's 2014 business outlook is based on various external and internal assumptions. Economic and market assumptions include, but are not limited to, GDP growth in the countries where Thomson Reuters operates. Internal financial and operational assumptions include, but are not limited to, continuing operational improvement in the Financial & Risk business and the successful execution of new sales initiatives, ongoing product release programs, globalization strategy and other growth and efficiency initiatives.

Some of the material risk factors that could cause actual results or events to differ materially from those expressed in or implied by forward-looking statements in this news release include, but are not limited to, changes in the general economy; actions of competitors; failure to develop new products, services, applications and functionalities to meet customers' needs, attract new customers or expand into new geographic markets and identify areas of higher growth; increased accessibility to free or relatively inexpensive information sources; failures or disruptions of network systems or the Internet; failure to maintain a high renewal rate for subscription-based services; dependency on third parties for data, information and other services; changes to law and regulations, including the impact of the Dodd-Frank legislation and similar financial services laws around the world; failure to adapt to recent organizational changes and effectively implement strategic initiatives; failure to recruit, motivate and retain high quality management and key employees; failure to meet the challenges involved in operating globally; failure to derive fully the anticipated benefits from existing or future acquisitions, joint ventures, investments or dispositions; failure to protect the brands and reputation of Thomson Reuters; impairment of goodwill and identifiable intangible assets; inadequate protection of intellectual property rights; threat of legal actions and claims; risk of antitrust/competition-related claims or investigations; downgrading of credit ratings and adverse conditions in the credit markets; fluctuations in foreign currency exchange and interest rates; the effect of factors outside of the control of Thomson Reuters on funding obligations in respect of pension and post-retirement benefit arrangements; and actions or potential actions that could be taken by the company’s principal shareholder, The Woodbridge Company Limited. These and other factors are discussed in materials that Thomson Reuters from time to time files with, or furnishes to, the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission. Thomson Reuters annual and quarterly reports are also available in the "Investor Relations" section of www.thomsonreuters.com.

Thomson Reuters will webcast a discussion of its second-quarter 2014 results today beginning at 8:30 a.m. Eastern Daylight Time (EDT). You can access the webcast by visiting the "Investor Relations" section of www.thomsonreuters.com. An archive of the webcast will be available following the presentation.

 

CONTACT

Media
David Crundwell

Senior Vice President, Corporate Affairs
Tel: +1 646 223 5285
Email: david.crundwell@tr.com

Investors
Frank J. Golden

Senior Vice President, Investor Relations
Tel: +1 646 223 5288
Email: frank.golden@tr.com