TRIL Thomson Reuters

Thomson Reuters Reports First-Quarter 2018 Results

TORONTO, May 11, 2018 /PRNewswire/ -- Thomson Reuters (TSX/NYSE: TRI) today reported results for the first quarter ended March 31, 2018. The company also issued a full-year 2018 Outlook for its continuing operations and announced a new $500 million share repurchase program.

"We are encouraged by the best first-quarter performance in several years with each business having performed at or above our expectations," said Jim Smith, president and chief executive officer of Thomson Reuters. "The health of our Q1 results gives us even greater conviction in our ability to stay focused on the opportunities at hand, while simultaneously working quickly to close the proposed F&R/Blackstone partnership and prepare both companies for future success. We are excited about the potential to further strengthen our Legal and Tax businesses -- both organically and inorganically, with the financial wherewithal and flexibility to deliver for our customers and shareholders."

Consolidated Financial Highlights – First Quarter 2018

Unless otherwise noted, all results are from continuing operations and exclude the results of the company's Financial & Risk (F&R) business unit. F&R is now classified as a discontinued operation, Reuters News is now a reportable segment and prior-year results have been restated accordingly to reflect these changes. Please see the tables appended to this news release for additional information.

On January 30, 2018, Thomson Reuters announced that it signed a definitive agreement to sell a 55% majority stake in the F&R business and enter into a strategic partnership with private equity funds managed by Blackstone. Thomson Reuters will receive approximately $17 billion in gross proceeds at closing (subject to purchase price adjustments) and will retain a 45% interest in the partnership. The transaction is expected to close in the second half of 2018 and is subject to specified regulatory approvals and customary closing conditions.

Revenues increased 4% due to higher recurring revenues and a positive impact from foreign currency.

• At constant currency, revenues increased 3%.

Operating profit decreased 2% due to the unfavorable impact of a prior-year period gain on an investment.

• Adjusted EBITDA increased 4% and the margin was unchanged at 31.2%.

Diluted loss per share reflects an $844 million deferred tax charge associated with the proposed sale of a 55% interest in the company's Financial & Risk business. The tax charge is required to be recorded when a business is first considered held for sale, rather than when the sale is completed. The company estimates that a cash tax payment of approximately $300 million will arise in 2018 in connection with the closing of the transaction and the remainder deferred until such time as the company disposes of its 45% interest in the new partnership.

• Adjusted EPS, which excludes discontinued operations, was $0.28 and increased 12%, or $0.03 per share, due to higher adjusted EBITDA and lower interest expense.

Cash flow from operations increased $787 million primarily because the prior-year period included a $500 million pension contribution as well as severance payments. 

• Free cash flow increased $705 million reflecting similar factors.

Highlights by Business Unit – Three Months Ended March 31

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

Legal

Revenues increased 2% to $872 million.

• Recurring revenues grew 4% (73% of total)
• Print revenues declined 2% (18% of total)
• Transactions revenues declined 1% (9% of total)

Adjusted EBITDA increased 2% to $319 million.

• The margin decreased to 36.6% from 37.3% due to product and marketing investments. In constant currency, the margin decreased 50 basis points.

Tax & Accounting

Revenues increased 5% to $437 million.

• Recurring revenues grew 8% (71% of total)
• Transactions revenues declined 1% (26% of total)
• Print revenues declined 7% (3% of total)

Adjusted EBITDA increased 4% to $147 million.

• The margin decreased to 33.6% from 33.8%. In constant currency, the margin increased 10 basis points.

Reuters News

Revenues decreased 7% to $72 million due to a reduction in Agency spend, and a contractual payment received in the first quarter of 2017, which created a difficult year-on-year comparison.

When the F&R transaction closes, Reuters News and the new F&R partnership will enter into a 30-year agreement for Reuters News to supply news and editorial content to the partnership for a minimum amount of $325 million per year. Reuters News revenues will not reflect F&R payments until after the transaction closes.

• Recurring revenues declined 6% (86% of total)
• Transactions revenues declined 9% (14% of total)

Adjusted EBITDA decreased 38% to $8 million.

• The margin decreased to 11.1% from 17.6%. In constant currency, the margin decreased 590 basis points due to lower revenues.

Corporate

Corporate costs at the adjusted EBITDA level were $44 million, compared to $53 million in the prior-year period, a decrease of 17%, largely timing related. Corporate costs are expected to increase over the balance of the year as the company expects to retain stranded costs (as previously announced) that will not be eliminated with the sale of the 55% interest in F&R. These stranded costs are expected to decline to $50 million or less by 2020.

The company also expects to incur cash costs and to make investments in 2018 and 2019 in the ongoing Thomson Reuters business resulting from the operational separation of F&R from the rest of the company. These cash costs and investments are expected to be incurred over the next two years starting in the second quarter of 2018 and will be reflected in Corporate costs.

Financial & Risk – Discontinued Operation

Revenues increased 3% to $1.6 billion. 

• Recurring revenues grew 1% (77% of total)
• Transactions revenues grew 14% (16% of total)
  • Growth was driven by increased market volatility in the quarter.
• Recoveries revenues decreased 5% (7% of total).

Adjusted EBITDA increased 14% to $526 million.

• The margin increased to 33.2% from 31.0%. In constant currency, the margin increased 200 basis points.

Cash flow from operations increased $140 million primarily due to higher earnings, excluding non-cash items, and severance payments in the prior-year period.

• Free cash flow increased $135 million reflecting similar factors.

Dividend & Share Repurchases; Financial & Risk Transaction Proceeds Update

In January 2018, the Thomson Reuters board of directors approved an annual dividend of $1.38 per common share for the year. A quarterly dividend of $0.345 per share is payable on June 15, 2018 to common shareholders of record as of May 17, 2018.

The company has not repurchased any shares to date in 2018. Today, the company announced that it may buy back up to $500 million of its shares prior to the closing of the proposed Financial & Risk transaction under its normal course issuer bid (NCIB). The company's current NCIB expires later this month and the company plans to renew its NCIB for a new 12 month period. Any repurchases under the NCIB prior to the closing of the proposed Financial & Risk transaction will reduce the size of a contemplated post-closing substantial issuer bid/tender offer made to all shareholders, which may be at a premium to the then-current market price of the company's shares. The company currently expects to use between $9 billion and $10 billion of the estimated $17 billion of gross proceeds of the transaction to return capital to its shareholders through a substantial issuer bid/tender offer. The company's principal shareholder (Woodbridge) is expected to participate pro rata in the substantial issuer bid/tender offer.

The price that Thomson Reuters will pay for shares in open market transactions under its NCIB will be the market price at the time of purchase or such other price as may be permitted by the Toronto Stock Exchange. The amount of shares that Thomson Reuters buys back under the new repurchase program will be dependent on the timing of the closing of the transaction and other factors, such as market conditions, share price and other opportunities to invest capital for growth. Thomson Reuters may elect to suspend or discontinue share repurchases at any time, in accordance with applicable laws.

The company now expects to use between $3.0 billion and $4.0 billion of the proceeds from the proposed Financial & Risk transaction to repay debt. Therefore, the company does not anticipate the need to establish a dividend reinvestment plan (DRIP).

As previously disclosed, the company intends to utilize the remaining $1.0 billion to $3.0 billion of proceeds to fund strategic, targeted acquisitions to bolster its positions in key growth segments of its Legal and Tax businesses.

The company also expects to use between $1.5 billion and $2.5 billion for: cash taxes, pension contributions, bond redemption costs, and other fees and outflows related to the transaction.  These funds include $500 million to $600 million of spend that the company views as necessary to eliminate stranded costs as well as investments to re-position the company following the separation of the businesses.

Business Outlook 2018 (At Constant Currency)

Thomson Reuters today provided its Outlook for 2018. The company's 2018 Outlook assumes constant currency rates compared to 2017 and does not factor in the impact of acquisitions or divestitures that may occur, except for the company's planned sale of a 55% interest in the F&R business. F&R is considered a discontinued operation for the full-year 2018 and is excluded from the company's 2018 Outlook.

For the full-year 2018, the company expects:

• Low single-digit revenue growth (excludes 2018 payment to Reuters News from F&R following the closing of the transaction)
• Adjusted EBITDA to range between $1.2 billion - $1.3 billion (including the costs referred to below)
• Total Corporate costs between $500 million and $600 million (including stranded costs and investments to reposition the company following the separation of the businesses)
• Depreciation and Amortization of computer software between $500 million and $525 million
• Capital expenditures of approximately 10% of revenues
• Interest expense of approximately $165 million for the first half of the year. The company plans to provide an outlook for its second half interest expense at a later date as those expenses are based on the closing date of the F&R transaction
• Effective tax rate on adjusted earnings between 14% - 16%

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

Thomson Reuters is the world's leading source of news and information for professional markets. Our customers rely on us to deliver the intelligence, technology and expertise they need to find trusted answers. The business has operated in more than 100 countries for more than 100 years. Thomson Reuters shares are listed on the Toronto and New York Stock Exchanges (symbol: TRI). For more information, visit http://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 adjusted EBITDA and the related margin (other than at the business unit or segment level), free cash flow, adjusted EPS, and selected measures excluding 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. The term "organic" refers to Thomson Reuters' existing businesses before the impact of acquisitions.

The company's business outlook contains various non-IFRS financial measures. For outlook purposes only, the company is unable to reconcile these non-IFRS measures to the most comparable IFRS measures because it cannot predict, with reasonable certainty, the 2018 impact of changes in foreign exchange rates which impact (i) the translation of its results reported at average foreign currency rates for the year, and (ii) other finance income or expense related to foreign exchange contracts and intercompany financing arrangements. Additionally, the company cannot reasonably predict the occurrence or amount of other operating gains and losses, which generally arise from business transactions that it does not anticipate.

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 2018 (At Constant Currency)" section, Mr. Smith's comments and statements regarding the proposed strategic partnership with Blackstone involving the Financial & Risk business and the new share repurchase program 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 a transaction involving all or part of the F&R business will be completed or that the events described in any other forward-looking statement will materialize. A business outlook is provided for the purpose of presenting information about current expectations for 2018. 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 2018 business outlook is based on various external and internal assumptions. Economic and market assumptions include, but are not limited to, GDP growth in most of the countries where Thomson Reuters operates, a continued increase in demand for high quality information and workflow solutions and a continued need for trusted products and services that help customers navigate changing geopolitical, economic and regulatory environments. Internal financial and operational assumptions include, but are not limited to, the successful execution of sales initiatives, ongoing product release programs, our 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 and retain existing ones, or expand into new geographic markets and identify areas of higher growth; fraudulent or unpermitted data access or other cyber-security or privacy breaches; failures or disruptions of telecommunications, data centers, network systems or the Internet; increased accessibility to free or relatively inexpensive information sources; failure to meet the challenges involved in operating globally; failure to maintain a high renewal rate for recurring, subscription-based services; dependency on third parties for data, information and other services; changes to law and regulations; tax matters, including changes to tax laws, regulations and treaties; fluctuations in foreign currency exchange and interest rates; failure to adapt to organizational changes and effectively implement strategic initiatives; failure to attract, motivate and retain high quality management and key employees; failure to protect the brands and reputation of Thomson Reuters; inadequate protection of intellectual property rights; threat of legal actions and claims; downgrading of credit ratings and adverse conditions in the credit markets; failure to derive fully the anticipated benefits from existing or future acquisitions, joint ventures, investments or dispositions; the effect of factors outside of the control of Thomson Reuters on funding obligations in respect of pension and post-retirement benefit arrangements, risk of antitrust/competition-related claims or investigations; impairment of goodwill and other identifiable intangible assets; actions or potential actions that could be taken by the company's principal shareholder, The Woodbridge Company Limited; failure to complete the proposed Financial & Risk transaction; difficulties separating Financial & Risk from the company; and failure to realize the benefits of the strategic Financial & Risk partnership. 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 http://www.thomsonreuters.com/.

Thomson Reuters will webcast a discussion of its first-quarter 2018 results today beginning at 8:30 a.m. Eastern Daylight Time (EDT).  You can access the webcast by visiting ir.thomsonreuters.com.  An archive of the webcast will be available following the presentation.