Thomson Reuters Reports First-Quarter 2017 Results
Author(s): City Air NewsTORONTO, April 28, 2017 – Thomson Reuters (TSX /NYSE: TRI) today reported results for the first quarter ended March 31, 2017. · Reported revenues were up 1%, compared to down 1% in the prior-year...
· Reported revenues were up 1%, compared to down
1% in the prior-year period
o Before currency, revenues were up 2%, compared
to up 1% in the prior-year period
· Operating profit increased 43%, from $310
million to $444 million
o Adjusted EBITDA increased 17%, with the margin
increasing 430 basis points to 31.1%
· Diluted earnings per share (EPS) was $0.41, an
increase of 21%, or $0.07 per share
o Adjusted EPS was $0.63, an increase of 37%, or
$0.17 per share
· The company repurchased 6.8 million shares at
a cost of $284 million
· The company re-affirmed its 2017 full-year
outlook
"Today’s
results demonstrate the progress we continue to make strengthening our
business,” said Jim Smith, president and chief executive officer of Thomson
Reuters. “It is particularly encouraging to see the investments we have made
behind our most promising growth opportunities beginning to shine through on
the revenue line. That growth, coupled with savings from our transformation
programs, led to a significant improvement in profitability and earnings per
share this quarter. We expect those trends to continue as we move through the
year.
Consolidated Financial Highlights –
First-Quarter 2017
Unless otherwise indicated, all amounts are from continuing
operations and exclude the results of the company's former IP & Science
business, which was sold in October 2016. IP & Science was classified as a
discontinued operation for 2016 reporting purposes.
Three Months Ended March 31,
(Millions of U.S. dollars, except earnings per share (EPS))
IFRS Financial Measures 1 |
2017 |
2016 |
Change |
Revenues |
$2,815 |
$2,793 |
1% |
Operating profit |
$444 |
$310 |
43% |
Diluted EPS (includes discontinued
operations) |
$0.41 |
$0.34 |
21% |
Cash flow from operations
(includes discontinued operations) |
$(368) |
$458 |
n/m2 |
1 Financial
results reported in accordance with International Financial Reporting Standards
2 n/m - not meaningful
· Revenues increased 1% as higher subscription
revenues and contributions from Financial & Risk’s acquisitions were partly
offset by the impact of foreign currency and a decline in Financial &
Risk’s recoveries revenues.
· Operating profit increased 43% due to higher
revenues, lower expenses (which reflected the impact of transformation
initiatives to simplify the business) and the favorable timing of certain
corporate costs.
· Diluted EPS, which includes discontinued
operations, increased 21% to $0.41 as higher operating profit more than offset
the loss of earnings from IP & Science following its sale.
· Cash flow from operations, which includes
discontinued operations, was negative $368 million in the quarter due to a $500
million pension plan contribution, $86 million of payments related to the
fourth-quarter 2016 severance charges, and the loss of cash flow from IP &
Science following its sale ($152 million year-on-year variance). In the fourth
quarter of 2016, the company incurred $212 million of severance charges. Cash
payments associated with the charges did not have a meaningful impact on the
company's cash flow from operations in 2016, as most of the payments are
expected to be made in 2017.
Three Months Ended March 31,
(Millions of U.S. dollars, except EPS and margins)
Non-IFRS Financial Measures1 |
2017 |
2016 |
Change |
Change Before Currency |
Revenues |
$2,815 |
$2,793 |
1% |
2% |
Adjusted EBITDA |
$876 |
$748 |
17% |
17% |
Adjusted EBITDA margin |
31.1% |
26.8% |
430bp |
400bp |
Adjusted EPS |
$0.63 |
$0.46 |
37% |
37% |
Free cash flow (includes
discontinued operations) |
$(585) |
$223 |
n/m2 |
|
1 In addition to
results reported in accordance with 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. Additional information is provided in the explanatory
footnotes to the appended tables.
2 n/m - not meaningful
· Revenues increased 1% to $2.8 billion.
o Before currency, revenues increased 2% as
higher subscription revenues and contributions from Financial & Risk's
acquisitions were partly offset by a decline in Financial & Risk's
recoveries revenues.
· Adjusted EBITDA increased 17% to $876 million
and the margin increased to 31.1% from 26.8%, primarily due to higher revenues
and lower expenses, which reflected savings from transformation initiatives to
simplify the business and favorable timing for certain corporate costs.
Currency had a 30 basis points positive impact on the margin.
· Adjusted EPS was $0.63, an increase of 37%, or
$0.17 per share. Currency had no impact.
· Free cash flow for the first quarter of 2017
was negative $585 million, primarily due to (1) a $500 million pension plan
contribution; (2) $86 million of payments related to fourth-quarter 2016
severance charges; and (3) the loss of the free cash flow from the company's
former IP & Science business ($152 million year-on-year variance).
o 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. The first quarter is historically the company’s weakest of the year
for free cash flow generation.
Recent Developments
$500 Million Pension Plan Contribution
As
previously disclosed, the company made a voluntary cash contribution of $500
million to its US defined benefit pension plan in January 2017, which impacted
first-quarter cash flow from operations and free cash flow.
Dividend and Share Repurchases
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 June 15, 2017 to
common shareholders of record as of May 18, 2017.
In
February 2017, the company announced that it planned to repurchase up to an
additional $1.0 billion of its shares after completing its previous buyback
program. In the first quarter of 2017, the company repurchased 6.8 million
shares at a cost of $284 million.
Business Outlook 2017 (Before Currency)
Thomson
Reuters today reaffirmed its Outlook for 2017. The company’s 2017 Outlook
assumes constant currency rates compared to 2016 and does not factor in the
impact of acquisitions or divestitures that may occur during the year.
For
the full year 2017, the company expects:
· Low single-digit revenue growth
· Adjusted EBITDA margin to range between 28.8%
to 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 charge, the $500 million contribution to the US defined
benefit pension plan made earlier in the first quarter and the loss of free
cash flow from the divestiture of the IP & Science business)
· Adjusted EPS target of $2.35
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.”
Highlights by Business Unit
Unless otherwise noted, all revenue growth comparisons in this
news release are before the impact of foreign currency (constant
currency) as Thomson Reuters believes this provides the best basis to
measure the performance of its business.
The impact of currency on profitability metrics in the first
quarter was not material to either the consolidated results or to the business
units and therefore only reported profitability is discussed below.
Financial & Risk
· Revenues increased 1% to $1.5 billion.
Acquisitions contributed approximately 1% to the first-quarter revenue growth.
Organic revenues grew approximately 2% excluding the impact of lower recoveries
revenues and commercial pricing adjustments related to the migration of certain
customers to new platforms. The company expects these two factors to have a
lesser impact on reported revenue growth in the second quarter and to have no
material impact in the second half of the year.
o Recurring revenues (77% of the segment’s
revenues in the quarter) were up 2%, primarily due to an annual price increase
and positive net sales. Growth was partly offset by the commercial pricing
adjustments described above.
o Transactions revenues (15% of the segment’s
revenues in the quarter) were up 4% due to increased revenue from Tradeweb and
the BETA brokerage processing business, as well as contributions from
acquisitions. This increase was offset by the impact of lower foreign exchange
trading and outright revenues.
o Low-margin recoveries revenues (8% of the
segment’s revenues in the quarter) decreased 9%, partially due to third parties
continuing to move to direct billing with their customers. Recoveries revenues
are expected to be only marginally lower for the full-year 2017 compared to
2016.
§ Recoveries represent revenues for content or
services provided by third parties and distributed through or in conjunction
with Financial & Risk’s platform. Reductions in recoveries revenue have no
material impact on the unit's adjusted EBITDA.
· By geography, revenues in the Americas were up
3%, Europe, Middle East and Africa (EMEA) and Asia were unchanged. Excluding
the impact of lower recoveries and commercial pricing adjustments, all regions
reported revenue growth.
· Adjusted EBITDA increased 6% to $463 million
and the margin increased to 30.8% from 29.0% due to savings related to the
fourth-quarter 2016 charges and higher revenues.
· Net sales were positive, driven by sales in
EMEA and Asia. This was partially offset by the Americas, where negative net
sales were impacted by the migration of legacy asset management products to
Eikon, which is expected to be largely complete by the end of the second
quarter.
Legal
· Revenues increased 1% to $824 million.
Excluding US print, revenues grew 2%.
o Solutions businesses (44% of the segment’s
revenues in the quarter) grew 2% resulting from subscription revenue growth of
5%, partially offset by a 9% reduction in transactional revenues.
o US Online Legal Information (43% of the
segment’s revenues in the quarter) grew 2%.
o US Print (13% of the segment’s revenues in the
quarter) declined 4%.
· Subscription revenues (76% of the segment’s
revenues in the quarter) grew 4%. However, transactional revenues (11% of the
segment’s revenues in the quarter) declined 8%. US Print (13% of the segment’s
revenues in the quarter) declined 4%.
· Adjusted EBITDA increased 3% to $307 million
and the margin increased to 37.3% from 36.3% primarily due to the impact of
higher revenues. Expenses were slightly lower than the prior-year period,
reflecting transformation and cost-management initiatives.
Tax & Accounting
· Revenues increased 6% to $417 million, driven
by the Corporate and Professional businesses. Growth was partially offset by
declines in the Knowledge Solutions and Government businesses.
· Adjusted EBITDA increased 24% to $141 million
and the margin increased to 33.8% from 29.3% due to higher revenues, savings
related to the fourth-quarter 2016 charges and the absence of severance costs
incurred in the first quarter of 2016 that did not repeat in the first quarter
of 2017.
Corporate & Other (Including Reuters News)
· Reuters News revenues were $74 million, up 1%.
· Corporate & Other costs at the adjusted
EBITDA level were $35 million compared to $101 million in the prior-year
period. Including depreciation and amortization of software, Corporate &
Other costs were $46 million compared to $118 million in the prior-year period.
The reduction on both bases was driven by savings generated by the company’s
Enterprise, Technology & Operations group, the elimination of certain
retained costs relating to the sale of IP & Science, increased allocation
of costs to the business units and the timing of spend within 2017.
o For the full year, the company expects
Corporate costs, inclusive of depreciation and amortization of software, to be
approximately $300 million.