Thomson Reuters Reports Third-Quarter 2015 Results

Third-quarter performance consistent with full-year expectations

NEW YORK – Thomson Reuters (TSX / NYSE: TRI) today reported results for the third quarter ended September 30, 2015. The company also reaffirmed its full-year 2015 outlook.

  • Reported revenues were down 4% as the negative impact of foreign currency reduced revenues by 5%
    • Revenues before currency grew 1%
      • Financial & Risk's organic revenues were unchanged from the prior-year period
      • Legal, Tax & Accounting and Intellectual Property & Science's revenues grew 3% in aggregate
  • Financial & Risk net sales were positive for the sixth consecutive quarter
  • Adjusted EBITDA grew 2% to $838 million
    • The margin increased to 28.1% vs. 26.5% in the prior-year period, up 160 basis points
    • Excluding the impact of currency, adjusted EBITDA grew 7% and the margin was 160 basis points higher than the prior-year period
  • Underlying operating profit increased 7% to $565 million
    • The margin increased to 19.0% vs. 17.1% in the prior-year period, up 190 basis points
    • Excluding the impact of currency, underlying operating profit grew 13% and the margin was 200 basis points higher than the prior-year period
  • Free cash flow increased 25% to $1.1 billion for the first nine months of the year
  • Adjusted EPS was up 16% to $0.52 vs. $0.45 in the prior-year period
    • Excluding the impact of currency, adjusted EPS was up 24% or $0.11 better than the prior-year period
  • Returned $1.25 billion to shareholders through the repurchase of 31.7 million shares in the first nine months of the year

“I am pleased to report another quarter of steady progress,” said James C. Smith, president and chief executive officer of Thomson Reuters. “I am encouraged by the way we continue to execute against our key priorities, by the progress towards our financial targets and especially by the underlying performance of our subscription revenues.”

Consolidated Financial Highlights – Third Quarter

Three Months Ended September 30,

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

IFRS Financial Measures 2015 2014 Change
Revenues $2,979 $3,107 -4%
Operating profit $419 $466 -10%
Diluted earnings per share (EPS) $0.36 $0.28 29%
Cash flow from operations $665 $585 14%

The decrease in operating profit was primarily due to lower favorable fair value adjustments largely associated with foreign currency embedded derivatives in certain customer contracts. The increase in diluted EPS resulted from lower finance costs associated with foreign currency fluctuations, which more than offset the decrease in operating profit.

Non-IFRS Financial Measures [1] 2015 2014 Change Change Before Currency
Revenues from ongoing businesses $2,979 $3,107 -4% 1%
Adjusted EBITDA $838 $822 2% 7%

Adjusted EBITDA margin

28.1% 26.5% 160bp 160bp

Underlying operating profit

$565 $530 7% 13%

Underlying operating profit margin

19.0% 17.1% 190bp 200bp

Adjusted earnings per share (adjusted EPS)

$0.52 $0.45 16% 24%

Free cash flow

$449 $358 25%  

[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 increased 1% (before currency) from the prior-year period driven by the Legal, Tax & Accounting and Intellectual Property & Science businesses, which grew 3% in aggregate.
  • Adjusted EBITDA increased 2% from the prior-year period and the margin increased 160 basis points to 28.1%. Excluding the impact of currency in the quarter, adjusted EBITDA increased 7% and the margin was 160 basis points higher than the prior-year period.
  • Underlying operating profit increased 7% from the prior-year period and the margin increased 190 basis points to 19.0%. Excluding the impact of currency, underlying operating profit increased 13% and the margin was 200 basis points higher than the prior-year period.
  • Adjusted EPS was $0.52, up $0.07 from the prior-year period despite foreign currency having had a $0.04 negative impact.

Third-Quarter Business Segment Highlights

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

Financial & Risk

  • Revenues were unchanged compared to the prior-year period. Revenue growth exceeded 2% before the impact of lower recoveries revenues and pricing adjustments related to the migration of remaining legacy foreign exchange and buy-side customers onto Financial & Risk's unified platform.
    • Recurring revenues (77% of the segment's revenues) increased 1% as an annual price increase and the impact of positive net sales more than offset the price adjustments related to the legacy product migration described above.
    • Transactions-related revenues (13% of the segment's revenues) were unchanged.
    • Recoveries revenues (10% of the segment's revenues) were down 7% and are low-margin revenues. Recoveries revenues are expected to continue to decline in the fourth quarter and throughout 2016 as more third-party partners move to direct billing with our customers.
  • By geography, revenues in the Americas and Asia were up 2%, while revenues in Europe, Middle East and Africa (EMEA) were down 2%.
  • Net sales were positive overall and were positive in all regions, except for EMEA. This marked the sixth consecutive quarter of positive net sales. However, net sales were lower than the third quarter of last year due to a difficult quarterly comparison, as the third quarter of 2014 was the strongest net sales quarter of the year.
  • EBITDA increased 3% primarily due to savings related to efficiency initiatives, which were partially offset by the impact of foreign currency.
    • The margin was 27.7%, up 260 basis points from the prior-year period due to efficiency initiatives undertaken in 2014.
    • Excluding the impact of currency from both periods and the impact of $18 million of charges taken by the company in the third quarter of 2014, the margin was up 260 basis points to 28.8% compared to the prior-year period.
    • Foreign currency had a 110 basis point negative impact on the margin.
  • Operating profit increased 8% compared to the prior-year period, primarily due to the same factors that impacted EBITDA.
    • The margin was 17.9%, up 240 basis points from the prior-year period.
    • Before currency and one-time charges, the margin was up 280 basis points from the prior-year period.
    • Foreign currency had a 150 basis point negative impact on the margin.

Legal

  • Revenues increased 1%. Excluding US print, revenues grew 3%.
  • Solutions businesses (46% of the segment's revenues) grew 4%, slightly lower than the first half of the year due to timing factors. Revenue growth was driven by Elite, Serengeti, Pangea3 legal managed services, and the Investigations and Public Records business. Solutions businesses represent all of Legal's revenues excluding US print and US online legal information.
  • US online legal information (40% of the segment's revenues) grew 2%, reflecting growth for the third consecutive quarter.
  • US print (14% of the segment's revenues) declined 8%, as expected.
  • EBITDA was unchanged and the margin increased 90 basis points to 38.8% compared to 37.9% in the prior-year period. Excluding the benefit of currency, the margin increased 30 basis points.
  • Operating profit increased 4% and the margin increased 200 basis points to 31.7% compared to 29.7% in the prior-year period. Excluding the benefit of currency, the margin increased 130 basis points due to lower depreciation and amortization expense.

Tax & Accounting

  • Revenues increased 8% driven by the Corporate, Professional and Knowledge Solutions businesses, partially offset by a decline in the Government business. Recurring revenues were up 9% organically.
  • EBITDA increased 10% and the margin increased 180 basis points to 25.7% compared to 23.9% in the prior-year period. Excluding the benefit of currency, the margin was up 110 basis points.
  • Operating profit increased 16% and the margin increased 200 basis points to 16.3% compared to 14.3% in the prior-year period. Excluding the benefit of currency, the margin was up 120 basis points.
  • 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 were up 2% as subscription revenue (approximately 80% of the segment's revenues) growth of 4% was partially offset by a 7% decline in transactions revenues as fewer one-time deals affected the growth rate in the quarter.
  • Both EBITDA and operating profit margins were affected by the 7% decline in transactions revenues, which are highly profitable.
    • EBITDA was relatively unchanged with a margin of 30.9% compared to 30.6% in the prior-year period. Excluding the benefit of currency, the margin declined 90 basis points compared to the prior-year period.
    • Operating profit decreased 2% with a margin of 21.5% compared to 21.8% in the prior-year period. Excluding the benefit of currency, the margin declined 120 basis points compared to the prior-year period.
  • 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 were $74 million, up 3% compared to the prior-year period.
  • Corporate & Other costs were $74 million compared to $73 million in the prior-year period.

Consolidated Financial Highlights – Nine Months

Nine Months Ended September 30,

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

IFRS Financial Measures 2015 2014 Change
Revenues $9,061 $9,396 -4%
Operating profit $1,231 $1,206 2%
Diluted earnings per share (EPS) $1.07 $0.93 15%
Cash flow from operations $1,833 $1,574 16%

 

Non-IFRS Financial Measures [1] 2015 2014 Change Change Before Currency
Revenues from ongoing businesses $9,061 $9,394 -4% 1%

Adjusted EBITDA

$2,497 $2,519 -1% 5%

Adjusted EBITDA margin

27.6% 26.8% 80bp 80bp

Underlying operating profit

$1,656 $1,639 1% 8%

Underlying operating profit margin

18.3% 17.4% 90bp 120bp

Adjusted earnings per share (adjusted EPS)

$1.48 $1.41 5% 16%

Free cash flow

$1,093 $875 25%  

[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 increased 1% (before currency) from the prior-year period driven by the Legal, Tax & Accounting and Intellectual Property & Science businesses, which grew 3% in aggregate.
  • Adjusted EBITDA decreased 1% from the prior-year period and the margin increased 80 basis points to 27.6%. Excluding the impact of currency, adjusted EBITDA increased 5% and the margin was 80 basis points higher than the prior-year period.
  • Underlying operating profit increased 1% from the prior-year period and the margin increased 90 basis points to 18.3%. Excluding the impact of currency, underlying operating profit increased 8% and the margin was 120 basis points higher than the prior-year period.
  • Adjusted EPS was $1.48 compared to $1.41 in the prior-year period.
    • Excluding the impact of currency, adjusted EPS was up 16%, $0.22 better than the prior-year period.
    • Currency had a negative impact of $0.15 on adjusted EPS.
  • Free cash flow for the first nine months of the year was $1.1 billion compared to $875 million in the prior-year period, primarily due to lower severance payments than in the prior-year period.

Business Outlook (Before Currency)

Thomson Reuters today re-affirmed its full-year Business Outlook for 2015, which was previously communicated in February 2015. The company's 2015 Outlook assumes constant currency rates compared to 2014 and is based on the expected performance of the company's existing businesses and does not factor in the impact of any acquisitions or divestitures that may occur during the year. In light of the increased volatility recently seen in the foreign currency markets, the company continues to believe that currency is likely to have a higher-than-usual impact on its results in 2015.

The company continues to expect:

  • Positive organic revenue growth;
  • Adjusted EBITDA margin to range between 27.5% and 28.5%;
  • Underlying operating profit margin to range between 18.5% and 19.5%; and
  • Free cash flow to range between $1.550 billion and $1.750 billion in 2015.

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

In February 2015, Thomson Reuters board of directors approved a $0.02 per share annualized increase in the dividend to $1.34 per share. A quarterly dividend of $0.335 per share is payable on December 15, 2015 to common shareholders of record as of November 19, 2015.

From January 1, 2015 through September 30, 2015, the company repurchased approximately 31.7 million shares at a cost of approximately $1.25 billion. Of this amount, 14.4 million shares were repurchased in the third quarter at a cost of approximately $550 million.

Under the current $1.0 billion share repurchase program announced in May 2015, the company has returned approximately $650 million to shareholders through the repurchase of approximately 16.9 million shares.

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, such as revenues from ongoing businesses, adjusted EBITDA and the related margin, underlying operating profit and the related margin, free cash flow, adjusted EPS, and selected measures before the impact of foreign currency. 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. 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 2015. 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 2015 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; failures or disruptions of telecommunications, network systems or the Internet; fraudulent or unpermitted data access or other cyber-security or privacy breaches; increased accessibility to free or relatively inexpensive information sources; 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; tax matters, including changes to tax laws, regulations and treaties; fluctuations in foreign currency exchange and interest rates; 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; 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 third-quarter 2015 results today beginning at 8:30 a.m. Eastern Time (ET). 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