Source: Thomson Reuters
Thomson Reuters (TSX / NYSE: TRI), the world's leading source of intelligent information for businesses and professionals, today reported results for the third quarter ended September 30, 2011.
The company reported ongoing revenues of $3.3 billion, a 5% increase before currency (8% including currency), and underlying operating profit of $717 million, up 12%.
Adjusted earnings per share (EPS) were $0.56 compared to $0.45 in the prior-year period.
"I am pleased with the performance of our business in the third quarter, a period during which we continued to grow revenues and expand margins," said Thomas H. Glocer, chief executive officer of Thomson Reuters.
"In the quarter we also initiated a set of strategic, product and organizational changes to address those parts of our current Markets division that are not performing up to our expectations. We expect the benefit of these changes will improve sales performance in 2012 and benefit 2013 revenue growth."
Consolidated financial highlights
* Revenues from ongoing businesses were $3.3 billion, a 5% increase before currency. Strong growth across the Professional division, up 10%, and a 1% increase in Markets division revenues drove the overall increase.
* Adjusted EBITDA increased 23% and the corresponding margin was 28.9% versus 25.3% in the prior-year period. Excluding currency, adjusted EBITDA increased 20% and the corresponding margin increased 370 basis points.
* Underlying operating profit increased 12% and the corresponding margin was 22.0% versus 21.2% in the same period in 2010. Excluding currency, underlying operating profit increased 10% and the corresponding margin increased 90 basis points.
* Adjusted EBITDA growth and underlying operating profit growth across both divisions were due to flow-through from higher revenues, integration savings and the benefit of currency.
* Adjusted EPS was $0.56 compared to $0.45 in the prior-year period. The increase was largely attributable to higher underlying operating profit and lower integration costs.
Third-Quarter Business Segment Highlights
Unless otherwise noted, all revenue growth comparisons in this news release are before
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. All revenue growth and operating profit comparisons are based upon results from ongoing businesses and exclude the results of businesses that have been or are expected to be sold or closed.
* Revenues were up 10%, driven by solid growth across all businesses. Legal grew 8%, Tax & Accounting increased 20% and Intellectual Property & Science was up 10%.
* EBITDA increased 12% compared to the prior-year period. The corresponding margin was 36.1%, an increase of 20 basis points as flow-through from higher revenues was partly offset by the negative impact of the revenue mix in the Legal segment and the dilutive effect of acquisitions.
* Operating profit was up 12% compared to the prior-year period. The corresponding margin was 27.8%, 20 basis points higher than the prior-year period. Acquisitions negatively impacted the margin by 110 basis points.
* Revenues increased 8% compared to the prior-year period. US Law Firm Solutions grew 3% as a 17% increase in Business of Law (FindLaw and Elite) was offset by a 3% decline in research-related revenues. Corporate, Government & Academic and Risk & Compliance revenues increased 13% (3% organic and 10% from acquisitions). Global businesses grew 10% (4% organic and 6% from acquisitions) with strong growth in Latin America and Canada.
* EBITDA increased 7% and the associated margin was 38.3% compared to 38.9% in the prior-year period.
* Operating profit increased 7% and the associated margin was 30.1% compared to 30.5% in the prior-year period. The margin decrease was primarily due to a change in business mix and the dilutive effect of acquisitions.
* WestlawNext has been sold to over 29,000 customers since its launch in February 2010 - representing 46% of Westlaw's revenue base.
Tax & Accounting
* Revenues were up 20% compared to the prior-year period, led by growth in income tax software sales and electronic filing of tax returns, strong growth in Checkpoint and acquisitions.
* EBITDA increased 24% and the related margin increased 90 basis points to 28.3% primarily driven by strong flow-through from revenues and the result of efficiency initiatives.
* Operating profit increased 22% and the related margin increased 30 basis points to 18.4%. The increase was due to strong flow-through from revenues and efficiency initiatives, partly offset by the dilutive effect of acquisitions.
Intellectual Property & Science
* Revenues were up 10% compared to the prior-year period. Growth was driven by IP Solutions, which was up 12%, led by IP Management Services. Scientific & Scholarly Research grew 8% due to timing benefits related to significant backfile sales and growth in core information offerings. Life Sciences increased 9% due to continued demand for biology and disease analytics products and acquisitions.
* EBITDA was up 23% with the corresponding margin increasing 350 basis points to 36.7%.
* Operating profit was up 28% with the corresponding margin increasing to 29.8%. The increase in EBITDA and operating profit margins was primarily due to revenue flow-through and included timing benefits. The year-to-date operating profit margin of 27.6% is believed to be more reflective of the business segment's full-year performance.
Three Months Ended September 30,
* Revenues increased 1%. Strong revenue growth in Enterprise and Tradeweb was partly offset by weakness in Investment Management and Exchange Traded Instruments. Revenue growth would have been 2% excluding a 5% decline in recoveries (pass-through revenues from third-party services such as exchange fees).
* Recurring subscription-related revenues were flat. Transactions-related revenues increased 15% due to the increase in the company's ownership in Tradeweb and higher transaction volumes. Outright revenues declined 9%.
* By geography, revenues in Asia increased 2%; revenues in Europe, Middle East and Africa (EMEA) were flat while revenues in the Americas increased 1%.
* EBITDA was $525 million, up 11%, with a related margin of 28.0%. Excluding currency, EBITDA increased 8% and the related margin rose 170 basis points.
* Operating profit was $382 million, up 8%, with a related margin of 20.3%. Excluding currency, operating profit increased 4% and the related margin rose 60 basis points due to flow-through of integration savings.
* Markets has sold or migrated more than 32,000 Thomson Reuters Eikon desktops since the launch of the new desktop offering in September 2010.
* A number of operational and organizational changes were made during the quarter that are intended to drive growth and capture operating efficiencies, including reorganizing the sales force, flattening the management structure and reprioritizing the product development roadmap.
Sales & Trading
* Revenues were up 2% driven by 11% organic growth at Tradeweb and an increase in Thomson Reuters ownership in the business. Revenue growth was partly offset by a 9% decline in recoveries. Excluding recoveries, revenues grew 4%.
* The Treasury business was up 1% in the quarter.
* Exchange Traded Instruments declined 6% due to planned shutdowns of low-margin products and the continued reduction of recoveries revenues as exchanges move to direct billing.
Investment & Advisory
* Revenues declined 3%. A 4% increase in Corporates revenues and flat revenues in Investment Banking were offset by weak performance in Investment Management which declined 8%.
* Improving performance in Investment Management is a key objective of the recent reorganization of the Markets division.
* Revenues grew 8% driven by the continuing trend among customers to invest in pricing and reference data, low-latency data feeds and hosting solutions.
* The Enterprise Content business grew 16%, driven by growth in pricing and reference data. Omgeo's revenues grew 12% due to higher equity volumes.
* Thomson Reuters Elektron continued to gain momentum as customers in established and emerging markets adopted its combination of hosted and deployed information and trading solutions. In total, 14 data hosting centers are up and running.
* Revenues were flat with a decline in the News Agency business offset by growth in the Consumer business.
* The News Agency business decreased 1% due to the planned shutdown of the Agency's studio business. The Consumer business was up 5% due to higher advertising sales in the Americas.
Financial highlights - Nine months
* Revenues from ongoing businesses were $9.6 billion, a 4% increase before currency. Strong growth across the Professional division, up 9%, and a 2% increase in the Markets division revenues contributed to the overall increase.
* Adjusted EBITDA increased 18%, and the corresponding margin was 26.6% versus 24.3% in the prior-year period primarily due to flow-through from higher revenues, integration savings and the benefit of currency. Excluding currency, EBITDA increased 14% and the corresponding margin increased 230 basis points.
* Underlying operating profit increased 10% and the corresponding margin was 20.1%, versus 19.6% in the same period in 2010. Excluding currency, underlying operating profit increased 7% and the corresponding margin increased 40 basis points.
* Adjusted EPS was $1.44 compared to $1.19 in the prior-year period. The increase was largely attributable to higher underlying operating profit and lower integration costs.
* Free cash flow was $933 million, up 10% compared to the prior-year period. Corporate expenses were $186 million versus $161 million in the prior-year period.
At the end of the third quarter of 2011, Thomson Reuters had achieved combined run-rate savings of $1.6 billion from the Reuters integration and legacy savings programs. An incremental $65 million in run-rate-savings was achieved during the third quarter of 2011.
Integration-related costs totaled $39 million in the third quarter and are forecast to be approximately $200 million for the full-year 2011.
Business Outlook (Before Currency)
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."
Thomson Reuters today reaffirmed its business outlook for 2011 that was previously communicated in February. The business outlook is provided for ongoing businesses and is based on 2010 results that have been restated to remove the results of the Healthcare business as well as other disposals.
Thomson Reuters expects revenues to grow mid-single digits in 2011.
Thomson Reuters expects adjusted EBITDA margin to increase by at least 300 basis points in 2011 reflecting revenue growth and the completion of integration programs.
Thomson Reuters expects underlying operating profit margin to increase by at least 100 basis points in 2011.
The company expects that strong adjusted EBITDA growth in 2011 will contribute to a 20% - 25% increase in reported free cash flow.
Dividend and Share Repurchases
As previously announced, Thomson Reuters increased its 2011 annual dividend by $0.08 per share to $1.24 per share. A quarterly dividend of $0.31 per share is payable on December 15, 2011 to shareholders of record as of November 17, 2011.
As of October 31, 2011 the company has repurchased 10.8 million shares for an aggregate purchase price of $325 million pursuant to its Normal Course Issuer Bid (NCIB). The NCIB program which was renewed on May 6, 2011, authorizes the company to purchase up to 15 million shares.
The company announced on September 28, 2011 that James C. Smith, former chief executive officer of the Professional division, was named chief operating officer of Thomson Reuters. In connection with the creation of this new role, the company announced that it will disband its current divisional structure (Markets and Professional divisions) and transition to a set of focused business units. For the balance of the year, the company will maintain its current financial reporting structure.
Separately, Robert D. Daleo, chief financial officer, informed the Board of his intention to retire in July 2012 when he turns 63 years old. Mr. Daleo has served as CFO since 1998. The company announced that Stephane Bello, currently chief financial officer of the Professional division, will succeed him as chief financial officer of Thomson Reuters, effective January 1, 2012, and Mr. Daleo will then serve as vice chairman of the company until his retirement.