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Thomson Reuters Puts Onus on Management to Improve Performance

Thomson Reuters is pinning hopes for growth in its Financial & Risk business on the management team formed early this year under the auspices of president David Craig, and a change in attitude to Eikon – no longer a strategy, instead one of many products.

The late 2011 shake-up and reorganisation of Thomson Reuters that eliminated the company’s Markets and Professional divisions, took its toll on financial results in the form of a $50 million charge in the fourth quarter. Most significantly, the company also took a $3.0 billion non-cash goodwill impairment charge related to its financial services business.

Reporting fourth quarter and full year 2011 financial results, Thomson Reuters CEO Jim Smith said “significant strides” had been taken to kickstart the growth engine in the former Markets division, now known as Financial & Risk. But looking at the results suggests there is work to do in specific areas of the business to improve its performance.

For both the full year to 31 December 2011 and the fourth quarter, Markets reported a 2% gain in revenue to $7.5 billion in the year and $1.9 billion in the quarter.

Breaking down the constituent parts of Markets, revenue for the year from Sales & Trading rose 2% to $3.5 billion, Investment & Advisory dropped 2% to $2.2 billion, Enterprise hit top performance with a 10% rise to $1.2 billion, and media was flat at $336 million. Markets’ operating profit over the year was up 5% at $1.4 billion, delivering an operating profit margin of 18.8%.

In total, Thomson Reuters recorded a 7% rise in operating profit and a 20% operating margin on revenue up 5% at $12.9 billion. As well as the contribution of Markets, the company’s Professional division, including Legal, Tax & Accounting, and Intellectual Property & Science, showed operating profit up 8% at $1.4 billon, on revenue up 9% at $5.4 billion.

Going forward and in the wake of the reorganisation, it said future results will be reported for its Financial & Risk, Legal, Tax & Accounting, and Intellectual Property & Science segments. Governance, Risk and Compliance (GRC), formerly part of the company’s legal business, moves into Financial & Risk.

On a companywide basis, Smith said the 2008 acquisition of Reuters had not lived up to expectations, but commented: “Our future is bright, our core businesses are delivering, we have a number of opportunities to grow and with a new management team we are off to a flying start.”

Turning to Financial & Risk he repeated the mantra on management, saying: “Revenue from the former Markets business was lower than we expected and negative sales in the second half of 2011 will spill into 2012. But we have changed the sales organisation, we have a new and energetic management team, the best content and range of solutions in the market, models that work for clients, a lead in regulatory products and the best information architecture to tie it all together.”

Forecasting 2012 Financial & Risk revenue in the mid-single digits, he explained: “Before the reorganisation our execution was inconsistent across the business. We are fixing that, organising around customers rather than products and looking at opportunities such as the scope of GRC.”

On the subject of Eikon, the display device introduced in September 2010 and positioned to become the company’s sole desktop offering replacing products such as 3000 Xtra, Smith said: “We made a mistake in thinking of Eikon as a strategy. It is not a strategy, but a basic product. We have increased its stability and performance and are slowly building confidence around it. There will be no big bang development, but a slow and continuous rollout of new functionality and capabilities on a sector-by-sector basis through 2012. Once Eikon technology is built, we can begin to sunset legacy systems and start building growth.”

In the meantime, he added: “We will slow down the withdrawal of old products and where legacy products are still used we will continue to add tools. We will make Eikon functionality ready for the end of 2012, but then we must consider the implications of migrating customers and the commercial issues behind that. We will lead not with hype, but with working products.”

On the outlook for 2012, Smith said: “We have a strong management team, an organisational structure centred around customers, a focus on key strategic priorities and clear lines of responsibility and accountability. We are confident we can ignite growth in Financial & Risk and confident that our strategy will provide new opportunities for growth.

Forecasting 2012 numbers, he suggested revenue growth in low, single digits, an adjusted earnings before interest, tax, depreciation and amortisation margin of 27-28%, and an operating profit margin of 18-19%. On the issue of acquisitions, he concluded: “We have discussed strategy on what to do with cash and we will continue to favour tactical acquisitions that strengthen the long-term growth engine of the company.”

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