Mr. Jim Smith reports

THOMSON REUTERS REPORTS THIRD-QUARTER 2018 RESULTS

Thomson Reuters Corp. has released results for the third quarter ended Sept. 30, 2018. The company also reaffirmed and updated part of its outlook for 2018 as previously provided in May, 2018. All currency figures are in U.S. dollars.

"Our third quarter results continued to build on a solid first half," said Jim Smith, president and chief executive officer of Thomson Reuters. "Accelerating sales momentum and strong recurring revenue growth delivered our best top-line performance in more than two years. Achieving 3-per-cent organic growth is particularly encouraging and we view this as a base to build upon. Our year-to-date performance strengthens our confidence that we are on track to deliver a solid year and an even better 2019."

Consolidated financial highlights -- three months ended Sept. 30

Unless otherwise noted, all results are from continuing operations and exclude the results of the company's former financial and risk business unit (F&R), which is now known as Refinitiv. On Oct. 1, 2018, the company closed the sale of a 55-per-cent interest in F&R to private equity funds managed by Blackstone. For 2018 reporting purposes, F&R was classified as a discontinued operation for the third quarter and first nine months of the year, Reuters News is a reportable segment and prior-year results have been restated accordingly.

                                  FINANCIAL HIGHLIGHTS
             (millions of dollars, except for adjusted EBITDA margin and EPS)

                                                                    Three months ended Sept. 30,     
IFRS financial measures                                                        2018         2017

Revenues                                                                     $1,292       $1,272
Operating profit                                                               $162         $288
Diluted earnings per share (EPS) (includes discontinued operations)           $0.37        $0.46
Cash flow from operations (includes discontinued operations)                   $850         $808
Non-IFRS financial measures    
Revenues                                                                     $1,292       $1,272
Adjusted EBITDA                                                                $302         $388
Adjusted EBITDA margin                                                        23.4%        30.5%
Adjusted EPS                                                                  $0.11        $0.27
Free cash flow (includes discontinued operations)                              $599         $531

Revenues increased 2 per cent due to higher recurring revenues. Foreign currency had a negative-1-per-cent impact on revenue growth:

• At constant currency, revenues increased 3 per cent. Organic revenue growth was also 3 per cent, driven by 5-per-cent growth in recurring revenues, which comprised 76 per cent of total revenues.

Operating profit decreased 44 per cent due to investments to reposition Thomson Reuters in anticipation of separating F&R from the company, higher depreciation and compensation-related expenses within the business segments. The prior-year period also benefited from the sale of a portion of an investment:

• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) decreased 22 per cent and the margin decreased to 23.4 per cent, primarily reflecting investments to reposition Thomson Reuters and additional expenses within the business segments.

Diluted earnings per share (EPS) decreased 20 per cent as lower operating profit and higher income tax expense from continuing operations more than offset higher net earnings from discontinued operations, which increased primarily because F&R assets held for sale are not depreciated:

• Adjusted EPS, which excludes discontinued operations, was 11 cents and decreased 16 cents per share, or 59 per cent, primarily due to lower adjusted EBITDA.

Cash flow from operations increased $42-million, primarily due to favourable working capital movements within discontinued operations:

• Free cash flow increased $68-million, reflecting the same factor as well as lower capital expenditures.

Highlights by business unit -- three months ended Sept. 30

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 4 per cent to $883-million (organic revenue growth was 3 per cent):

• Recurring revenues grew 5 per cent (73 per cent of total).
• Global print revenues declined 4 per cent (18 per cent of total).
• Transactions revenues grew 7 per cent (9 per cent of total).

Adjusted EBITDA decreased 5 per cent to $327-million:

• The margin decreased to 37.0 per cent from 40.1 per cent primarily due to compensation-related costs, investments in Westlaw Edge, and a difficult prior-year period comparative margin. For the full year, legal's margin is expected to be comparable with the nine-month figure.

Tax and accounting

Revenues increased 3 per cent to $341-million and reflected a negative impact from the adoption of a new accounting standard, IFRS 15 (international financial reporting standards). Excluding the impact of IFRS 15, revenues increased 4 per cent organically. For the full year, IFRS 15 is expected to have a nominal impact on revenue growth. Currency had a 300-basis-point negative impact on reported revenue growth:

• Recurring revenues grew 5 per cent (80 per cent of total).
• Transactions revenues declined 5 per cent (16 per cent of total).
• Print revenues grew 8 per cent (4 per cent of total).

Adjusted EBITDA decreased 2 per cent to $93-million:

• The margin decreased slightly to 27.3 per cent from 27.9 per cent, primarily due to the impact of IFRS 15 and compensation-related costs.
• As a reminder, the tax and accounting unit is a seasonal business. Nearly 60 per cent of its full-year revenues are historically generated in the first and fourth quarters. As such, the margin performance of this business is generally weaker in the second and third quarters as costs are incurred in a more linear fashion throughout the year. The company expects tax and accounting's full-year 2018 margin to be in line with, or marginally higher than, the prior-year margin.

Reuters News

Revenues declined 4 per cent to $71-million due to lower recurring revenues.

The 30-year agreement for Reuters News to supply news and editorial content to the new Refinitiv partnership for a minimum of $325-million per year took effect at the Oct. 1, 2018, closing of the F&R transaction. Reuters News revenues will begin to reflect Refinitiv payments in the fourth quarter:

• Recurring revenues declined 5 per cent (83 per cent of total).
• Transactions revenues were unchanged (17 per cent of total).

Adjusted EBITDA was $6-million, down $1-million from the prior-year period:

• The margin decreased to 8.5 per cent from 9.6 per cent.

Corporate

Corporate costs at the adjusted EBITDA level were $124-million compared with $59-million in the prior-year period. As previously disclosed, this was due to higher costs, which included investments to reposition Thomson Reuters following the separation of the F&R business and formation of the new Refinitiv partnership. These cash investments are expected to be incurred in 2018 and 2019.

Financial and risk -- discontinued operation

Revenues increased 2 per cent to $1.5-billion:

• Recurring revenues grew 2 per cent (77 per cent of total).
• Transactions revenues grew 5 per cent (15 per cent of total), including a 100-basis-point positive impact from the adoption of a new accounting standard, IFRS 15.
• Recoveries revenues were unchanged (8 per cent of total).

Adjusted EBITDA increased 5 per cent to $482-million:

• The margin increased to 31.3 per cent from 30.2 per cent.
• Adjusted EBITDA included $39-million of costs related to the separation of the business. Excluding these costs, adjusted EBITDA increased 13 per cent and the margin increased 360 basis points, primarily due to higher revenues and technology cost savings.

Cash flow from operations increased 41 per cent due to favourable working capital movements:

• Free cash flow increased 49 per cent to $442-million, reflecting the same factors.

Consolidated financial highlights -- nine months ended Sept. 30

Revenues increased 3 per cent due to higher recurring revenues, with no impact from foreign currency.

Operating profit decreased 19 per cent due to higher costs, which included investments to reposition Thomson Reuters in anticipation of separating the F&R business from the company, higher depreciation and additional expenses within the business segments. The prior-year period also benefited from the sale of a portion of an investment:

• Adjusted EBITDA decreased 9 per cent and the margin decreased to 27.1 per cent, primarily reflecting investments to reposition Thomson Reuters and additional expenses within the business segments.

Diluted EPS decreased 32 per cent due to lower operating profit and higher income tax expense from continuing operations, as well as lower net earnings from discontinued operations, which included an $850-million deferred tax charge (most of which was recorded in the first quarter of 2018) associated with the sale of a 55-per-cent interest in the F&R business. The tax charge was required to be recorded when the business was first considered held for sale, rather than when the sale was completed:

• Adjusted EPS, which excludes discontinued operations, was 55 cents, and decreased 16 cents per share, or 23 per cent, primarily due to lower adjusted EBITDA.

Cash flow from operations increased $798-million primarily because the prior-year period included a $500-million pension contribution, as well as favourable movements in working capital within discontinued operations:

• Free cash flow increased $748-million, reflecting the same factors.

New organizational structure

In July, 2018, the company began transitioning from a product-centric structure to a customer-centric structure. Thomson Reuters is organizing its legal and tax and accounting business units into three customer segments: legal professionals, tax professionals and corporates. Global print will be reported as a separate segment, reflecting the way that the company manages the business. Reuters News will continue to be reported as a segment.

This new structure is intended to move decision making closer to the customer and allow the company to serve customers better with its full suite of offerings. The company plans to begin reporting under the new organizational structure with its fourth quarter 2018 results.

Business outlook 2018 (at constant currency)

Thomson Reuters today reaffirmed its outlook for 2018 as previously provided on May 11, 2018, except for an update to its full-year 2018 adjusted EBITDA and estimated effective tax rate (see below).

The company's 2018 outlook assumes constant currency rates compared with 2017 and does not factor in the impact of acquisitions or divestitures that may occur, except for the F&R transaction, which closed on Oct. 1, 2018. F&R was considered a discontinued operation for the first three quarters of 2018 and is excluded from the company's 2018 outlook.

For the full year 2018, the company currently expects:

• Low single-digit revenue growth (excludes any fourth quarter 2018 payments to Reuters News from Refinitiv following the closing of the transaction);
• Adjusted EBITDA of approximately $1.3-billion -- including the costs referred to below (previously $1.2-billion to $1.3-billion);
• 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 per cent of revenues;
• Effective tax rate on adjusted earnings between 17 per cent and 19 per cent (previously 14 per cent to 16 per cent).

Dividend

In October, 2018, Thomson Reuters announced a two-cent-per-share annualized increase in the dividend to $1.40 per common share. A quarterly dividend of 35 cents per share is payable on Dec. 17, 2018, to common shareholders of record as of Nov. 15, 2018. Thomson Reuters has increased its common share dividend for 25 consecutive years.

Financial and risk transaction proceeds update

On Oct. 1, 2018, Thomson Reuters closed the sale of a 55-per-cent interest in the company's F&R business to private equity funds managed by Blackstone. An affiliate of Canada Pension Plan Investment Board and an affiliate of GIC invested alongside Blackstone. The F&R business is now known as Refinitiv. Thomson Reuters received approximately $17-billion in gross cash proceeds at the closing and retained a 45-per-cent interest in the business. Beginning with its results for the fourth quarter of 2018, Thomson Reuters IFRS results will include the company's 45-per-cent share of Refinitiv's results reported in a single line item on the company's income statement titled share of posttax earnings in equity method investments. Thomson Reuters's non-IFRS measures, including adjusted earnings, will exclude its share of posttax earnings in equity method investments.

The company is in the process of returning $10-billion of the F&R transaction proceeds to its shareholders.

In October, 2018, Thomson Reuters returned approximately $6.5-billion to shareholders pursuant to a substantial issuer bid/tender offer. The company's principal shareholder (Woodbridge) participated pro rata in the substantial issuer bid/tender offer. Since announcing the F&R transaction on Jan. 30, 2018, the company has returned approximately $1-billion to shareholders through open market share repurchases under its normal course issuer bid (NCIB). As of Oct. 31, 2018, the company repurchased 23.3 million shares at an average share price of $42.96 through its NCIB. The company plans to return approximately $2.5-billion to shareholders through a return of capital transaction, which was announced on Oct. 8, 2018, and is expected to be completed by the end of November. Additional information about the proposed return of capital transaction is set forth below.

Thomson Reuters used approximately $4-billion of the F&R transaction cash proceeds to repay debt, enabling it to remain substantially below its target leverage ratio (net debt/adjusted EBITDA) of 2.5:1.

As previously disclosed, the company intends to utilize $2-billion of the proceeds to finance strategic, targeted acquisitions to bolster its positions in key growth segments of its legal professionals, tax professionals and corporates businesses. The company expects to use the remaining $1-billion to cover 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 spending that the company views as necessary to eliminate stranded costs as well as investments to reposition the company following the separation of the businesses.

Return of capital transaction

A special meeting of Thomson Reuters shareholders will be held on Monday, Nov. 19, 2018. Shareholders will be asked to approve the distribution of $4.45 in cash per common share (approximately $2.5-billion) to holders of common shares and a consolidation of outstanding common shares (or reverse stock split) on a basis that is proportional to the cash distribution. The transaction is expected to be tax-free for Canadian tax purposes. Certain shareholders who are taxable in a jurisdiction outside of Canada will be able to opt out of the transaction. For shareholders who are subject to income tax outside of Canada, opting out of the transaction may be preferable to participating in the transaction. As such, the company strongly recommends that non-Canadian resident shareholders consult with their tax or other professional adviser about the opt out right for the transaction prior to Nov. 14, 2018. Full details of the proposed transaction are described in the company's management proxy circular and other related materials dated Oct. 23, 2018, and can be found on the Thomson Reuters investor relations website.

About Thomson Reuters Corp.

Thomson Reuters is the world's leading provider of news and information-based tools to professionals. Its worldwide network of journalists and specialist editors keeps customers up to speed on global developments, with a particular focus on legal, regulatory and tax changes.

                                        CONSOLIDATED INCOME STATEMENT  
                              (millions of U.S. dollars, except per share data)  

                                                              Three months ended       Nine months ended 
                                                                       Sept. 30,               Sept. 30,  
                                                                2018        2017        2018        2017
Continuing operations
Revenues                                                      $1,292      $1,272      $3,982      $3,883
Operating (expenses)                                            (985)       (888)     (2,901)     (2,698)
Depreciation (loss)                                              (24)        (23)        (83)        (85)
Amortization of computer software (loss)                         (96)        (76)       (294)       (265)
Amortization of other 
identifiable intangible assets (loss)                            (26)        (33)        (83)       (103)
Other operating gains, net                                         1          36          13          48
Operating profit                                                 162         288         634         780
Finance costs, net
Net interest (expense)                                           (82)        (89)       (241)       (270)
Other finance (costs) income                                     (11)        (57)         10        (145)
Income before tax and equity method investments                   69         142         403         365
Share of posttax earnings
(losses) in equity method investments                              1           1           5          (4)
Tax (expense)                                                   (128)          -        (152)        (26)
(Loss) earnings from continuing operations                       (58)        143         256         335
Earnings from discontinued operations, net of tax                349         205         381         533
Net earnings                                                    $291        $348        $637        $868
Earnings attributable to
common shareholders                                              261         330         547         819
Earnings attributable to
non-controlling interests                                         30          18          90          49
Earnings per share
Basic and diluted earnings (loss) per share
From continuing operations (loss)                              (0.08)       0.20        0.36        0.46
From discontinued operations                                    0.45        0.26        0.41        0.67
Basic and diluted earnings per share                            0.37        0.46        0.77        1.13
 

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