OREANDA-NEWS. Thomson Reuters (TSX/NYSE: TRI) today reported results for the second quarter ended June 30, 2017. Based on its first-half results, the company raised its full-year 2017 outlook for several metrics, as reflected on page 5.

“It is encouraging to see the continued improvement in underlying operating performance,” said Jim Smith, president and chief executive officer of Thomson Reuters. “Based on the solid start to the year, we are increasing full-year EPS guidance. Our execution focus is paying off, and we believe efforts to improve customer experience will keep the trend lines moving in the right direction.”

Consolidated Financial Highlights

Three Months Ended June 30
(Millions of U.S. dollars, except for adjusted EBITDA margin and earnings per share (EPS) (unaudited)

IFRS Financial Measures 1 2017 2016 Change Change at Constant Currency
Revenues $2,782 $2,769 0%  
Operating profit $399 $401 0%  
Diluted EPS (includes discontinued operations) $0.27 $0.45 -40%  
Cash flow from operations (includes discontinued operations) $834 $770 8%  
Non-IFRS Financial Measures 1        
Revenues $2,782 $2,769 0% 2%
Adjusted EBITDA $838 $757 11% 11%
Adjusted EBITDA margin 30.1% 27.3% 280bp 230bp
Adjusted EPS $0.60 $0.47 28% 28%
Free cash flow (includes discontinued operations) $580 $525 10%  


1 In addition to results reported in accordance with International Financial Reporting Standards (IFRS), the company uses certain non-IFRS financial measures as supplemental indicators of its operating performance and financial position. 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.

Revenues were slightly higher compared to the prior-year period as higher recurring revenues and contributions from acquisitions were mostly offset by the impact of foreign currency.

  • At constant currency, revenues increased 2%.
Operating profit was essentially unchanged as slightly higher revenues and lower expenses, which reflected savings from the company’s simplification initiatives, were offset by the unfavorable impact of fair value adjustments associated with foreign currency derivatives embedded in certain customer contracts.
  • Adjusted EBITDA increased 11% to $838 million and the margin increased 280 basis points to 30.1% from 27.3% primarily due to higher revenues and simplification initiatives which resulted in lower expenses.
Diluted EPS, which includes discontinued operations, decreased 40% to $0.27 due to the same factors that impacted operating profit, as well as non-cash foreign currency fluctuations on intercompany loans and the loss of earnings from IP & Science following its sale in the fourth quarter of 2016.
  • Adjusted EPS was $0.60, an increase of 28%, or $0.13 per share, primarily due to higher adjusted EBITDA.
Cash flow from operations increased 8%, despite the loss of cash flow from IP & Science following its sale, due to higher operating profit before the impact of non-cash items, such as fair value adjustments.
  • Free cash flow increased 10% to $580 million, primarily reflecting stronger adjusted EBITDA performance, partly offset by the loss of cash flow from IP & Science following its sale.
The company repurchased 6.7 million shares during the second quarter at a cost of $294 million and repurchased 13.5 million shares during the first six months of the year at a cost of $578 million under its $1.0 billion share buyback program.

 

Highlights by Business Unit

Three Months Ended June 30
(Millions of U.S. dollars, except for adjusted EBITDA margins) (unaudited)

  Three Months Ended June 30, Change
  2017 2016 Total Foreign Currency Constant Currency
Revenues          
Financial & Risk $1,517 $1,524 0% -2% 2%
Legal 842 846 0% -1% 1%
Tax & Accounting 350 324 8% 0% 8%
Corporate & Other (Reuters News) 74 79 -6% -1% -5%
Eliminations  (1)  (4)      
Revenues $2,782 $2,769 0% -2% 2%
           
Adjusted EBITDA          
Financial & Risk $477 $443 8% 0% 8%
Legal 320 310 3% -1% 4%
Tax & Accounting 103 82 26% 2% 24%
Corporate & Other (includes Reuters News) (62) (78) n/a n/a n/a
Adjusted EBITDA $838 $757 11% 0% 11%
           
Adjusted EBITDA Margin          
Financial & Risk 31.4% 29.1% 230bp 50bp 180bp
Legal 38.0% 36.6% 140bp 30bp 110bp
Tax & Accounting 29.4% 25.3% 410bp 20bp 390bp
Corporate & Other (includes Reuters News) n/a n/a n/a n/a n/a
Adjusted EBITDA margin 30.1% 27.3% 280bp 50bp 230bp
n/a – not applicable          


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.


Financial & Risk

Revenues increased 2% to $1.5 billion. Organic revenues grew 1% and acquisitions contributed 1%.

  • Revenues by type:
    • Recurring revenues grew 1% (77% of total)
      • The increase was primarily due to an annual price increase and positive net sales.
    • Transactions revenues grew 8% (15% of total)
      • Growth was due to increased revenue from Tradeweb and the BETA brokerage processing business, as well as contributions from acquisitions. These increases were partially offset by the impact of lower foreign exchange trading revenues.
    • Recoveries revenues decreased 5% (8% of total). The company does not expect recoveries to have a significant impact on Financial & Risk's revenue growth in the second half of the year.
  • Revenues by geography:
    • Revenues were up 3% in the Americas, up 1% in Europe, Middle East and Africa (EMEA) and were up slightly in Asia Pacific, despite the impact of lower recoveries revenues in each region.
Adjusted EBITDA increased 8% to $477 million.
  • The margin increased to 31.4% from 29.1%. In constant currency, the margin increased 180 basis points primarily due to savings from the company’s simplification initiatives, including the 2016 severance charges, and higher revenues.
Net sales were positive in the quarter.

 


Legal

Revenues increased 1% to $842 million.

  • Recurring revenues grew 4% (76% of total)
  • US Print revenues declined 8% (14% of total)
  • Transactions revenues declined 8% (10% of total)
Adjusted EBITDA increased 3% to $320 million.
  • The margin increased to 38.0% from 36.6%. In constant currency, the margin increased 110 basis points due to higher revenues, savings related to the fourth-quarter 2016 severance charges and ongoing simplification initiatives.

 


Tax & Accounting

Revenues increased 8% to $350 million primarily due to higher recurring revenues and improved transactions revenues. Revenue growth also benefited from a favorable year-over-year comparison, as the Government business reported lower revenues in the prior-year period due to delays on certain contracts.

  • Recurring revenues grew 4% (84% of total)
  • Transactions revenues grew 36% (16% of total)
Adjusted EBITDA increased 26% to $103 million.
  • The margin increased to 29.4% from 25.3%. In constant currency, the margin increased 390 basis points due to higher revenues and savings related to the fourth-quarter 2016 severance charges.

 


Corporate & Other (Including Reuters News)

Reuters News revenues were $74 million, down 5%.

Corporate & Other costs at the adjusted EBITDA level were $62 million compared to $78 million in the prior-year period.

  • The reduction was driven by savings generated by the company’s simplification initiatives and the elimination of certain costs following the sale of IP & Science.
  • Including depreciation and amortization of software, Corporate & Other costs were $74 million compared to $94 million in the prior-year period. On this basis, the company expects full-year Corporate & Other costs to be approximately $280 million.

 

Consolidated Financial Highlights

Six Months Ended June 30
(Millions of U.S. dollars, except for adjusted EBITDA margin and EPS) (unaudited)

IFRS Financial Measures 2017 2016 Change Change at Constant Currency
Revenues $5,597 $5,562 1%  
Operating profit $843 $711 19%  
Diluted EPS (includes discontinued operations) $0.67 $0.79 -15%  
Cash flow from operations (includes discontinued operations) $466 $1,228 -62%  
Non-IFRS Financial Measures        
Revenues $5,597 $5,562 1% 2%
Adjusted EBITDA $1,714 $1,505 14% 14%
Adjusted EBITDA margin 30.6% 27.1% 350bp 310bp
Adjusted EPS $1.23 $0.93 32% 32%
Free cash flow (includes discontinued operations) ($5) $748 n/m  
n/m – not meaningful        


Revenues increased 1% as higher recurring revenues and contributions from acquisitions were partly offset by the impact of foreign currency and a decline in Financial & Risk’s recoveries revenues.

  • At constant currency, revenues increased 2%.
Operating profit increased 19% as higher revenues and lower expenses were partly offset by unfavorable fair value adjustments associated with foreign currency derivatives embedded in certain customer contracts. Lower expenses reflected continued simplification initiatives.
  • Adjusted EBITDA increased 14% to $1.7 billion and the margin increased to 30.6% from 27.1%, primarily reflecting higher revenues and the positive impact of the company’s simplification initiatives.
Diluted EPS, which includes discontinued operations, decreased 15% to $0.67 as higher operating profit was more than offset by non-cash foreign currency fluctuations on intercompany loans and the loss of earnings from IP & Science following its sale.
  • Adjusted EPS was $1.23, an increase of 32%, or $0.30 per share, primarily due to higher adjusted EBITDA.
Cash flow from operations declined 62% primarily due to a $500 million pension plan contribution, $116 million of payments related to 2016 severance charges, and the loss of cash flow from IP & Science following its sale ($243 million year-on-year variance).
  • Free cash flow was negative $5 million reflecting similar factors as noted above.
  • Free cash flow for the full year is expected to be between $0.9 billion and $1.2 billion, as reflected in the company's outlook.

 

Highlights by Business Unit

Six Months Ended June 30
(Millions of U.S. dollars, except for adjusted EBITDA margins) (unaudited)

  Six Months Ended June 30, Change
  2017 2016 Total Foreign Currency Constant Currency
Revenues          
Financial & Risk $3,019 $3,033 0% -1% 1%
Legal 1,666 1,668 0% -1% 1%
Tax & Accounting 767 713 8% 1% 7%
Corporate & Other (Reuters News) 148 154 -4% -2% -2%
Eliminations (3) (6)      
Revenues $5,597 $5,562 1% -1% 2%
           
Adjusted EBITDA          
Financial & Risk $940 $880 7% 0% 7%
Legal 627 608 3% -1% 4%
Tax & Accounting 244 196 24% 0% 24%
Corporate & Other (includes Reuters News) (97) (179) n/a n/a n/a
Adjusted EBITDA $1,714 $1,505 14% 0% 14%
           
Adjusted EBITDA Margin          
Financial & Risk 31.1% 29.0% 210bp 40bp 170bp
Legal 37.6% 36.5% 110bp 0bp 110bp
Tax & Accounting 31.8% 27.5% 430bp -10bp 440bp
Corporate & Other (includes Reuters News) n/a n/a n/a n/a n/a
Adjusted EBITDA margin 30.6% 27.1% 350bp 40bp 310bp
n/a – not applicable          


Dividend

In February 2017, the Thomson Reuters board of directors approved a $0.02 per share annualized increase in the dividend to $1.38 per common share. A quarterly dividend of $0.345 per share is payable on September 15, 2017 to common shareholders of record as of August 17, 2017.

Business Outlook 2017 (At Constant Currency)

Based on the results of the first half of the year, the company raised its full-year outlook for adjusted EBITDA margin and adjusted EPS. The company reaffirmed its full-year outlook for revenue growth and free cash flow. For the full-year 2017, the company currently expects:

  • Low single-digit revenue growth
  • Adjusted EBITDA margin to range between 29.3% - 30.3% - up from previous guidance of 28.8% - 29.8%
  • Free cash flow to range between $0.9 billion and $1.2 billion, which reflects cash payments in 2017 relating to the fourth-quarter 2016 charges, the $500 million pension plan contribution made in the first quarter of 2017 and the loss of free cash flow from the sale of the IP & Science business
  • Adjusted EPS target of $2.40 - $2.45 – up from previous guidance of $2.35
The company’s 2017 outlook does not factor in the impact of acquisitions or divestitures that may occur during the year.

 

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).