Thomson Reuters Reports Third-Quarter 2017 Results
Author(s): City Air NewsTORONTO, November 01, 2017 – Thomson Reuters (TSX/NYSE: TRI) today reported results for the third quarter ended September 30, 2017. Based on its results for the first nine months of the year, the company reaffirmed...
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Nov 1, 2017 09:30
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“It is gratifying to see that the progress we have made over the last several years is continuing to pay off,” said Jim Smith, president and chief executive officer of Thomson Reuters. “And, despite lower than expected revenue growth for the quarter, margins continue to improve and our most promising growth initiatives are performing well. We will continue to manage the things within our control with the same rigor and discipline that has turned around our organization, in order to build maximum sustainable long-term profit growth. Our transformation efforts should continue to generate bottom-line growth and provide the added fuel we need to accelerate top-line growth in the future."
Consolidated Financial Highlights
Three Months Ended September 30
(Millions of U.S. dollars, except for adjusted EBITDA margin and EPS)
(unaudited)
| IFRS Financial Measures 1 | 2017 | 2016 | Change | Change at Constant Currency |
| Revenues | $2,792 | $2,744 | 2% | |
| Operating profit | $467 | $385 | 21% | |
| Diluted EPS (includes discontinued operations) | $0.46 | $0.36 | 28% | |
| Cash flow from operations (includes discontinued operations) | $808 | $758 | 7% | |
| Non-IFRS Financial Measures 1 | ||||
| Revenues | $2,792 | $2,744 | 2% | 1% |
| Adjusted EBITDA | $849 | $814 | 4% | 4% |
| Adjusted EBITDA margin | 30.4% | 29.7% | 70bp | 70bp |
| Adjusted EPS | $0.68 | $0.54 | 26% | 24% |
| Free cash flow (includes discontinued operations) | $531 | $519 | 2% |
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 increased 2% due to higher recurring revenues and a positive impact from foreign currency.
- At constant currency, revenues increased 1%.
- Adjusted EBITDA increased 4% to $849 million and the margin increased 70 basis points to 30.4% from 29.7%.
Diluted EPS, which includes discontinued operations, increased 28% to $0.46 primarily due to higher operating profit, despite the loss of earnings from IP & Science following its sale in the fourth quarter of 2016. Lower interest and tax expense were offset by higher expenses from non-cash foreign currency fluctuations on intercompany loans.
- Adjusted EPS was $0.68, an increase of 26%, or $0.14 per share primarily due to higher adjusted EBITDA, and lower interest and tax expense.
- Free cash flow increased 2% to $531 million as higher adjusted EBITDA was partly offset by higher capital expenditures.
Highlights by Business Unit
Three Months Ended September 30
(Millions of U.S. dollars, except for adjusted EBITDA margins)
(unaudited)
| Three Months Ended September 30, | Change | ||||
| 2017 | 2016 | Total | Foreign Currency | Constant Currency | |
| Revenues | |||||
| Financial & Risk | $1,542 | $1,516 | 2% | 1% | 1% |
| Legal | 843 | 835 | 1% | 0% | 1% |
| Tax & Accounting | 341 | 323 | 6% | 1% | 5% |
| Corporate & Other (Reuters News) | 73 | 73 | 0% | 1% | -1% |
| Eliminations | (7) | (3) | |||
| Revenues | $2,792 | $2,744 | 2% | 1% | 1% |
| Adjusted EBITDA | |||||
| Financial & Risk | $495 | $460 | 8% | 2% | 6% |
| Legal | 338 | 328 | 3% | 1% | 2% |
| Tax & Accounting | 95 | 87 | 9% | 1% | 8% |
| Corporate & Other (includes Reuters News) | (79) | (61) | n/a | n/a | n/a |
| Adjusted EBITDA | $849 | $814 | 4% | 0% | 4% |
| Adjusted EBITDA Margin | |||||
| Financial & Risk | 32.1% | 30.3% | 180bp | 30bp | 150bp |
| Legal | 40.1% | 39.3% | 80bp | 10bp | 70bp |
| Tax & Accounting | 27.9% | 26.9% | 100bp | 30bp | 70bp |
| Corporate & Other (includes Reuters News) | n/a | n/a | n/a | n/a | n/a |
| Adjusted EBITDA margin | 30.4% | 29.7% | 70bp | 0bp | 70bp |
| 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 1% to $1.5 billion. Organic revenues were unchanged and acquisitions contributed 1%.
- Revenues by type:
- Recurring revenues grew 1% (77% of total)
- Transactions revenues grew 7% (15% of total) due to increased revenue from Tradeweb and contributions from acquisitions.
- Recoveries revenues decreased 4% (8% of total).
- Revenues by geography:
- Revenues were up 3% in the Americas, up 2% in Asia, and decreased 1% in Europe, Middle East and Africa (EMEA).
- The margin increased to 32.1% from 30.3%. In constant currency, the margin increased 150 basis points primarily due to savings from the company’s simplification initiatives, including 2016 severance charges, and higher revenues.
Legal
Revenues increased 1% to $843 million.
- Recurring revenues grew 3% (76% of total)
- US Print revenues declined 7% (13% of total)
- Transactions revenues declined 8% (11% of total)
- The margin increased to 40.1% from 39.3%. In constant currency, the margin increased 70 basis points due to higher revenues and savings related to fourth-quarter 2016 severance charges and ongoing simplification initiatives.
Tax & Accounting
Revenues increased 5% to $341 million.
- Recurring revenues grew 2% (87% of total)
- Transactions revenues grew 33% (13% of total)
- The margin increased to 27.9% from 26.9%. In constant currency, the margin increased 70 basis points due to higher revenues.
Corporate & Other (Including Reuters News)
Reuters News revenues were $73 million, down 1%.
Corporate & Other costs at the adjusted EBITDA level were $79 million compared to $61 million in the prior-year period. The increase was primarily due to investments relating to improving customer experience and costs related to real estate consolidation initiatives.
- Including depreciation and amortization of software, Corporate & Other costs were $85 million compared to $77 million in the prior-year period. On this basis, the company expects full-year Corporate & Other costs will be approximately $290 million.
Consolidated Financial Highlights
Nine Months Ended September 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 | $8,389 | $8,306 | 1% | |
| Operating profit | $1,310 | $1,096 | 20% | |
| Diluted EPS (includes discontinued operations) | $$1.13 | $1.15 | -2% | |
| Cash flow from operations (includes discontinued operations) | $1,274 | $1,986 | -36% | |
| Non-IFRS Financial Measures | ||||
| Revenues | $8,389 | $8,306 | 1% | 2% |
| Adjusted EBITDA | $2,563 | $2,319 | 11% | 10% |
| Adjusted EBITDA margin | 30.6% | 27.9% | 270bp | 240bp |
| Adjusted EPS | $1.91 | $1.47 | 30% | 29% |
| Free cash flow (includes discontinued operations) | $526 | $1,267 | -58% | |
Revenues increased 1% as higher recurring revenues and contributions from acquisitions were partly offset by the impact of foreign currency.
- At constant currency, revenues increased 2%.
- Adjusted EBITDA increased 11% to $2.6 billion and the margin increased to 30.6% from 27.9%, reflecting the same factors.
- Adjusted EPS was $1.91, an increase of 30%, or $0.44 per share, primarily due to higher adjusted EBITDA, as well as lower interest expense.
- Free cash flow decreased 58% to $526 million reflecting similar factors as noted above.
Highlights by Business Unit
Nine Months Ended September 30
(Millions of U.S. dollars, except for adjusted EBITDA margins)
(unaudited)
| Nine Months Ended September 30, | Change | ||||
| 2017 | 2016 | Total | Foreign Currency | Constant Currency | |
| Revenues | |||||
| Financial & Risk | $4,561 | $4,549 | 0% | -1% | 1% |
| Legal | 2,509 | 2,503 | 0% | -1% | 1% |
| Tax & Accounting | 1,108 | 1,036 | 7% | 1% | 6% |
| Corporate & Other (Reuters News) | 221 | 227 | -3% | -1% | -2% |
| Eliminations | (10) | (9) | |||
| Revenues | $8,389 | $8,306 | 1% | -1% | 2% |
| Adjusted EBITDA | |||||
| Financial & Risk | $1,435 | $1,340 | 7% | 0% | 7% |
| Legal | 965 | 936 | 3% | 0% | 3% |
| Tax & Accounting | 339 | 283 | 20% | 1% | 19% |
| Corporate & Other (includes Reuters News) | (176) | (240) | n/a | n/a | n/a |
| Adjusted EBITDA | $2,563 | $2,319 | 11% | 1% | 10% |
| Adjusted EBITDA Margin | |||||
| Financial & Risk | 31.5% | 29.5% | 200bp | 40bp | 160bp |
| Legal | 38.5% | 37.4% | 110bp | 20bp | 90bp |
| Tax & Accounting | 30.6% | 27.3% | 330bp | 0bp | 330bp |
| Corporate & Other (includes Reuters News) | n/a | n/a | n/a | n/a | n/a |
| Adjusted EBITDA margin | 30.6% | 27.9% | 270bp | 30bp | 240bp |
| 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 December 15, 2017 to common shareholders of record as of November 16, 2017.
Business Outlook 2017 (At Constant Currency)
Based on the results of the first nine months of the year, the company reaffirmed its full-year outlook, as communicated in August 2017:
- Low single-digit revenue growth
- Adjusted EBITDA margin to range between 29.3% - 30.3%
- Free cash flow to range between $0.9 billion and $1.2 billion, which reflects cash payments in 2017 relating to fourth-quarter 2016 severance 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, which is now forecast to be at the top of this range.
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.”
