Mr. James Smith reports
THOMSON REUTERS REPORTS FIRST-QUARTER 2013 RESULTS; FIRST-QUARTER PERFORMANCE CONSISTENT WITH FULL-YEAR EXPECTATIONS; REVENUES GREW 2% BEFORE CURRENCY; ADJUSTED EBITDA DECLINED 2% TO $757 MILLION WITH A MARGIN OF 24.4%; UNDERLYING OPERATING PROFIT DECLINED 7% TO $462 MILLION WITH A MARGIN OF 14.9%; SEVERANCE EXPENSE OF $78 MILLION INCURRED (AN $0.08 IMPACT TO ADJUSTED EPS); ADJUSTED EARNINGS PER SHARE WERE $0.38; 2013 OUTLOOK AFFIRMED
Thomson Reuters Corp. has released results for the first quarter ended March 31, 2013. The company reported revenues from continuing businesses of $3.1-billion, a 2-per-cent increase before currency. (All figures in U.S. dollars.) Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) declined 2 per cent and the corresponding margin was 24.4 per cent versus 25.1 per cent in the prior-year period. Underlying operating profit decreased 7 per cent and the corresponding margin was 14.9 per cent versus 16.2 per cent in the prior-year period. First-quarter adjusted earnings per share were 38 cents, down one cent from the prior-year period.
"The first-quarter performance was consistent with our full-year expectations and I am pleased with the positive trajectory of the business as we begin the year," said James C. Smith, chief executive officer of Thomson Reuters. "We are executing more effectively, launching better products, simplifying our systems and processes, and managing with more rigour and discipline, which is why our confidence continues to build and we can affirm our full-year 2013 outlook."
As Thomson Reuters simplifies and consolidates technology and content assets in order to achieve greater efficiencies, the company took a $235-million tax charge in the first quarter of 2013 which was the primary driver resulting in an international financial reporting standards loss of four cents per share in the quarter compared with 35 cents of EPS in the prior-year period.
For IFRS purposes, the entire charge was recorded in the first quarter. The charge will be amortized within the non-IFRS measure adjusted earnings on a straight-line basis over the seven-year period that the company expects to pay the tax.
- Revenues from continuing businesses were $3.1-billion, a 2-per-cent increase before currency.
- Adjusted EBITDA declined 2 per cent, and the corresponding margin was 24.4 per cent versus 25.1 per cent in the prior-year period. The decline was entirely due to severance expense.
- Underlying operating profit decreased 7 per cent and the corresponding margin was 14.9 per cent versus 16.2 per cent in the prior-year period primarily due to severance expense and an increase of $20-million in depreciation and amortization expense, which had a 60-basis-point impact on the margin.
- Adjusted EPS was 38 cents compared with 39 cents in the prior-year period. The impact of higher severance expense was partially offset by lower interest expense and a lower tax rate.
- Severance expense of $78-million was incurred in the quarter ($65-million of which was in financial and risk) compared with $28-million ($22-million in corporate, and $6-million in financial and risk) incurred in the first quarter of 2012.
- Excluding severance expense from both periods:
- Adjusted EBITDA was up 4 per cent and the related margin was up 100 basis points to 27.0 per cent (140 basis points before currency).
- Underlying operating profit was up 3 per cent and the related margin was up 30 basis points (90 basis points before currency).
- Adjusted EPS was 46 cents.
- Free cash flow was negative $231-million versus negative $4-million in the prior-year period. The decline was primarily due to timing of higher capital expenditures, loss of free cash flow from disposals and working capital requirements. For the full year, the company continues to expect to achieve free cash flow of between $1.7-billion and $1.8-billion.
First-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 and risk:
- Revenues were down 1 per cent as the benefit from acquisitions was more than offset by a 3-per-cent decline in organic growth due to the impact of negative net sales in 2012. Growth in governance, risk and compliance, and the transactions platforms of marketplaces was offset by a decline in trading desktop revenues. Investors revenues were essentially unchanged from the prior-year period.
- Recurring subscription-related revenues decreased 3 per cent as a result of negative net sales in 2012. Transactions-related revenues increased 17 per cent (2 per cent organic) primarily due to the acquisition of FXall. Recoveries revenues were down 4 per cent and outright revenues increased 4 per cent.
- By geography, revenues in Europe, Middle East and Africa were down 3 per cent, revenues in the Americas were up 2 per cent (down 3 per cent organic), while revenues in Asia declined 2 per cent.
- EBITDA was $360-million, down 15 per cent, with a related margin of 21.5 per cent. The EBITDA margin decreased 320 basis points from the prior-year period primarily due to the impact of severance expense of $65-million (compared with $6-million in first quarter of 2012). Excluding severance expense from both periods, the margin rose 40 basis points from the prior-year period. Operating profit was $200-million, down 26 per cent, with a related margin of 11.9 per cent.
- Operating profit margin decreased 390 basis points due to severance expense and higher depreciation and amortization expense ($7-million). Excluding severance expenses from both periods, the margin declined 30 basis points from the prior-year period. Currency had a negative impact of approximately 100 basis points on operating profit margin for the quarter (negative 110 basis points excluding severance expense).
- Eikon desktops totalled nearly 47,000 at the end of the first quarter, up 38 per cent from Dec. 31, 2012.
Trading:
- Revenues decreased 6 per cent with growth in feeds and analytics, and Elektron Managed Services offset by legacy desktop cancellations primarily in equities and fixed income.
- Recoveries revenues were down 6 per cent.
Investors:
- Revenues were essentially unchanged versus the prior-year period. Enterprise content increased 6 per cent, while asset management (Investment Management, Lipper and Datafeeds) declined 1 per cent, including a 3-per-cent decline in investment management (versus a 10-per-cent decline in the first quarter of 2012).
- Banking and research declined 3 per cent and wealth management was flat.
Marketplaces:
- Revenues increased 4 per cent driven by the acquisition of FXall. Tradeweb was up 1 per cent, impacted by a difficult prior-year period comparable when revenues grew 32 per cent (11 per cent organic).
Governance, risk and compliance:
- Revenues grew 8 per cent to $55-million driven by new sales and continued strong demand across all risk and compliance segments.
Legal:
- Revenues increased 4 per cent (flat organic). U.S. law firm solutions declined 1 per cent as a 6-per-cent increase in business of law (FindLaw and Elite) was offset by a 3-per-cent decline in research-related revenues. Corporate, government and academic revenues increased 4 per cent. Global businesses grew 17 per cent (1 per cent organic).
- U.S. print revenues declined 2 per cent as firms continued to control discretionary spending. Excluding U.S. print, revenues grew 5 per cent (1 per cent organic).
- EBITDA increased 2 per cent and the corresponding margin was 34.8 per cent compared with 35.0 per cent in the prior-year period.
- Operating profit was flat and the corresponding margin was 25.3 per cent compared with 26.1 per cent in the prior-year period.
- Depreciation and amortization expense increased $6-million related to recent acquisitions.
- Around 78 per cent of Westlaw revenue has been converted to WestlawNext as of the end of the first quarter.
Tax and accounting:
- Revenues increased 7 per cent (5 per cent organic) driven by 11-per-cent growth in subscription revenues and greater than 4-per-cent organic growth across all business segments except government.
- EBITDA increased 8 per cent and the related margin increased 50 basis points to 30.9 per cent, driven by flow-through of higher revenues.
- Operating profit increased 10 per cent and the related margin increased 70 basis points to 21.8 per cent.
- Small movements in the timing of revenues and expenses can impact margins in any given quarter for the tax and accounting business. Full-year margins are more reflective of the segment's underlying performance.
Intellectual property and science:
- Revenues were up 13 per cent (4 per cent organic), driven by 18-per-cent subscription growth (5 per cent organic). IP Solutions grew 22 per cent (3 per cent organic) driven by MarkMonitor, life sciences increased 2 per cent, and scientific and scholarly research increased 5 per cent. Transaction revenues (25 per cent of total) were flat for the quarter.
- EBITDA decreased 3 per cent with the corresponding margin declining 440 basis points to 30.0 per cent with half of the decline related to the dilutive impact of the MarkMonitor acquisition and approximately 100 basis points of the decline due to $3-million of severance expense.
- Operating profit decreased 7 per cent with the corresponding margin declining 440 basis points to 21.9 per cent. The decline in the margin reflected the same items that impacted the EBITDA margin.
- The MarkMonitor acquisition is expected to be about 100 basis points dilutive to intellectual property and science's operating margin in 2013.
- Small movements in the timing of revenues and expenses can impact margins in any given quarter for the intellectual property and science business. Full-year margins are more reflective of the segment's underlying performance.
Corporate and other (including Reuters News)
Reuters News revenues for the first quarter were $81-million, up 1 per cent from the prior-year period. Corporate and other costs for the quarter were $59-million, down $33-million compared with the prior-year period, driven mainly by lower severance expense ($22-million in the first quarter of 2012). For the full year 2013, the company expects corporate and other costs to be roughly in line with the previous year.
Business outlook (before currency)
Thomson Reuters today reaffirmed its business outlook for 2013. The company expects:
- Revenues to grow low single digits;
- Adjusted EBITDA margin to range between 26 per cent and 27 per cent;
- Underlying operating profit margin to range between 16.5 per cent and 17.5 per cent;
- Free cash flow to range between $1.7-billion and $1.8-billion in 2013.
The company's 2013 outlook includes the impact of an expected $100-million of severance expense in 2013, $78-million of which was incurred in the first quarter. The outlook is based on expectations including adjustments for two new accounting pronouncements as well as the reclassification of certain businesses into disposals. To facilitate comparison with the company's 2013 outlook, revised 2012 actual results prepared on a comparable basis to that used in 2013 are available in the investor relations section of the company's website.
Dividend and share repurchases
As previously announced, Thomson Reuters increased its 2013 annual dividend by two cents per share to $1.30 per share. A quarterly dividend of 32.5 cents per share is payable on June 17, 2013, to common shareholders of record as of May 23, 2013. The company did not repurchase any shares in the first quarter of 2013. As of April 29, 2013, the company has repurchased 4.3 million shares pursuant to its normal course issuer bid. The current NCIB program authorizes the company to purchase up to 15 million shares.
Thomson Reuters will webcast a discussion of its first-quarter 2013 results today beginning at 8:30 a.m. Eastern Daylight Time. You can access the webcast by visiting the investor relations section of the company's website. An archive of the webcast will be available following the presentation.
CONSOLIDATED INCOME STATEMENT
(millions of U.S. dollars, except per share data)
Three months ended March 31,
2013 2012
Revenues $ 3,175 $ 3,315
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Operating expenses (2,324) (2,540)
Depreciation (107) (109)
Amortization of computer software (188) (172)
Amortization of other identifiable intangible assets (160) (152)
Other operating (losses) gains, net (6) 22
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Operating profit 390 364
Finance costs, net:
Net interest expense (115) (129)
Other finance (costs) income (55) 30
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Income before tax and equity method investments 220 265
Share of posttax earnings in equity method investments 10 3
Tax (expense) benefit (247) 40
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(Loss) earnings from continuing operations (17) 308
Loss from discontinued operations, net of tax - (2)
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Net (loss) earnings $ (17) $ 306
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(Loss) earnings attributable to
Common shareholders (31) 294
Non-controlling interests 14 12
Basic and diluted (loss) earnings per share $ (0.04) $ 0.35
We seek Safe Harbor.
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