THOMSON REUTERS PLC /ADR/ 20-F 2005
Documents found in this filing:
Commission file number 333-08354
Reuters Group PLC
(Translation of Registrant’s name into English)
85 Fleet Street, London EC4P 4AJ, England
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 Item 18
This Form 20-F/A hereby amends Items 17 and 19 of the Reuters Group PLC’s Annual Report on Form 20-F for the fiscal year ended 31 December 2004, which was filed on 9 March 2005. The purpose of this amendment is solely to include the 2004 Annual Financial Statements for Radianz Limited. Subsequent to filing of the original report, Reuters sold Radianz Limited to British Telecommunications plc. This amendment does not otherwise revise, update, amend or restate the information presented in the original report or reflect any events that have occurred after the original report was filed on 9 March 2005.
UNITED STATES OPINION
As discussed in the Accounting policies, the Group changed its method of accounting for employee share ownership trusts, employee share schemes and transaction-related regulatory fees in 2004, in accordance with accounting principles generally accepted in the United Kingdom. The change has been accounted for by restating comparative information at 31 December 2003 and 2002 and for the years then ended.
Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in the Summary of differences between UK and US generally accepted accounting principles, as restated in the consolidated financial statements.
PROFIT AND LOSS ACCOUNT
Consolidated revenue and operating profit derive from continuing operations in all material respects.
The result for the year has been computed on an unmodified historical cost basis.
2003 and 2002 have been restated following the adoption of UITF17 and UITF38, and the reclassification of transaction-related regulatory fees following recently issued SEC guidance (see Accounting Basis on page 72).
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
2003 and 2002 have been restated following the adoption of UITF17 and UITF38 (see Accounting Basis on page 72).
A detailed statement showing the movement in capital and reserves is set out in note 26.
NOTES ON THE CONSOLIDATED PROFIT AND LOSS ACCOUNT
The tables below show a segmental analysis of revenue, costs and results which reflect the way Reuters was managed during 2004 and the management of Instinet Group as a separate business within the Reuters Group. From 1 January 2004, management changed the structure of its Customer Segments to more closely reflect the communities they serve. This is explained in more detail on pages 7-8. Prior periods have been restated to reflect changes in the management of costs and revenues resulting from the change in segment structure, the adoption of UITF17 and UITF38, and the reclassification of transaction-related regulatory fees following recently issued SEC guidance (see Accounting Basis on page 72).
Reuters revenue is allocated to Customer Segments by reference to product families which map directly to only one Customer Segment with two exceptions. Reuters Xtra family and Reuters Trader family revenues are initially fully attributed to the Sales & Trading Customer Segment. Those revenues earned from Research & Asset Management customers are then re-allocated to that Customer Segment based on management judgement and by reference to the activities at particular customer sites. Recoveries revenues arise when Reuters recharges costs, primarily exchange fees and communication costs, to customers. The revenues received from customers almost exactly match the exchange fees and communication costs incurred within Channel costs.
Segmental revenue less direct Customer Segment costs does not purport to represent segmental profitability. Direct Customer Segment costs include the costs of global Customer Segment management, marketing, non-integrated businesses and specific revenue related activities. The majority of revenue related costs are included within the Channels, Operations & Technology, Content and Corporate Services.
Operating costs include amortisation and impairment of goodwill and other intangibles.
Revenue is normally invoiced in the geographical area in which the customer is located. Revenue earned, therefore, generally represents revenue both by origin and by destination.
The geographical analysis of performance reflects the revenues earned and operating costs incurred in each area excluding amortisation and impairment of goodwill and other intangibles and net currency gain.
United Kingdom and Ireland revenue was £380 million (2003: £428 million, 2002: £485 million). With the exception of Instinet Group, Reuters products are delivered and sold primarily through a common geographical infrastructure and delivered over a number of communications networks.
The impact of the Multex acquisition in 2003 and the Island acquisition in 2002 are reflected primarily in the Americas.
Recurring revenue is derived from the sale of subscription services, including maintenance contracts. Usage revenue is principally derived from Instinet Group, Dealing 2000-2, Dealing 3000 Spot Matching and Bridge Trading Company. Outright revenue comprises one-off sales including information and risk management solutions.
NOTES ON THE CONSOLIDATED PROFIT AND LOSS ACCOUNT
Prior periods have been restated following the adoption of UITF17 and UITF38, and the reclassification of transaction-related regulatory fees following recently issued SEC guidance (see Accounting Basis on page 72).
The directors believe that the nature of Reuters Groups business is such that the format of the analysis of operating costs required by the Companies Act 1985 is not appropriate. The format has been adopted in a manner consistent with Reuters Groups activities. Services include equipment hire and bought-in services, including consultancy and contractors, advertising and publicity, professional fees and staff-related expenses. Other operating income primarily comprises amounts received from joint ventures in respect of costs incurred by Reuters on their behalf.
Fees payable to PricewaterhouseCoopers LLP were as follows:
The statutory audit fee includes £10,000 (2003: £10,000, 2002: £10,000) in respect of the parent company audit.
Also included above are fees paid to PricewaterhouseCoopers LLP in respect of non-audit services in the UK of £1.4 million (2003: £0.9 million, 2002: £4.9 million).
Further assurance services include assistance with Sarbanes-Oxley S404 compliance (including the attest work in relation to Instinet Groups 2004 reporting requirements under the Act) and conversion to International Financial Reporting Standards (IFRS) as well as due diligence activities related to acquisitions and disposals. Tax compliance services include assistance with corporation and other tax returns. Tax advisory services relate to tax planning and employee-related issues.
Management consultancy fees include amounts earned in 2002 by PwC Consulting, which ceased to be part of PricewaterhouseCoopers LLP on 1 October 2002.
The directors consider it important that Reuters Group has access to a broad range of external advice, including from PricewaterhouseCoopers LLP. Where appropriate, work is put out to competitive tender. The Audit Committee monitors the relationship with PricewaterhouseCoopers LLP, including the level of non-audit fees.
ON THE CONSOLIDATED PROFIT AND LOSS ACCOUNT
A reconciliation of the current tax charge on ordinary activities for the period reported in the profit and loss account is set out below.
The other differences are primarily due to overseas profits taxed at rates differing from those in the UK and the geographical mix of profits.
Tax paid in the period on disposals was £9 million (2003: £1 million, 2002: £nil). No tax is expected to fall due in respect of the proposed disposal of Radianz.
£10 million of UK corporation tax in respect of unrealised translation differences arising in 2004 is recognised in the Statement of Total Recognised Gains and Losses (2003 and 2002: £nil).
Basic and diluted earnings per ordinary share are based on the results attributable to ordinary shareholders and on the weighted average number of those shares in issue during the year. The weighted average number of shares in issue may be reconciled to the number used in the basic and diluted earnings per ordinary share calculations as follows:
Section 9 of the Remuneration Report on pages 36-40 includes details of directors emoluments, pension arrangements, long-term incentive plans and stock option plans, and forms part of these financial statements.
The average number of employees during the year was as follows:
The average number of employees during 2004 included 181 temporary staff (2003: 211, 2002: 281). Staff cost information is included in note 2. Prior periods have been restated to reflect changes in the management of the business, as explained in note 1 on page 44.
CASH FLOW STATEMENT
NOTES ON THE CONSOLIDATED CASH FLOW STATEMENT
Operating profit is reconciled to net cash inflow from operating activities as follows:
ON THE CONSOLIDATED CASH FLOW STATEMENT
Discussion of the Groups objectives and policies for the management of financial instruments and associated risks together with information relating to hedging activities is included under Treasury policies, financing and foreign exchange in the Operating and Financial Review on pages 21-22.
A substantial portion of Reuters Group revenue is receivable in foreign currencies with terms of payment up to three months in advance. As such, Reuters Group is subject to currency exposure from committed revenue and, additionally, to interest rate risk from borrowing and the investment of cash balances. Reuters Group seeks to limit these risks by entering into a mix of derivative financial instruments.
If the derivative financial instruments were considered separately from the underlying future revenue and interest, Reuters Group would be subject to market risk on these financial instruments from fluctuations in currency and interest rates. Reuters Group only enters into such derivative financial instruments to hedge (or reduce) the underlying exposure described above. There is, therefore, no net market risk on such derivative financial instruments and only a credit risk from the potential non-performance by counterparties. The amount of this credit risk is generally restricted to any hedging gain and not the principal amount hedged.Derivative instruments held at 31 December were:
The fair values of foreign currency and interest rate management instruments are estimated on the basis of market quotes, discounted to current value using market-quoted interest rates.
The following table provides an analysis by currency of derivative contracts held for currency hedging purposes as at 31 December. Comparatives have been restated to reflect the inclusion of Swiss franc in the analysis.
Foreign exchange forward contracts mature at dates up to February 2005; currency swaps and interest rate swaps both mature at various dates through to November 2010.
The results of currency and interest rate hedging activities for the three years to December 2004 are as summarised below:
Recognised currency hedging gains in 2004 were favourable mainly due to the effect of the weaker US dollar on hedges of the net investment in overseas subsidiaries.
Gains and losses on instruments used for hedging are not recognised until the exposure that is being hedged is itself recognised. Unrecognised gains and losses on instruments used for hedging, and the movements, are set out below:
Net unrecognised gains on derivatives used for hedging were £10 million at 31 December 2004 compared to £1 million at 31 December 2003 and £nil at 31 December 2002.
The weighted average variable rate payable on the interest rate swaps used to alter the currency and interest rate profile of debt issued at 31 December 2004 was 3% (2003: 3%, 2002: 4%). The weighted average variable rate is based on the rate implied in the yield curve at the balance sheet date.
All derivative instruments are unsecured. However, Reuters Group does not anticipate non-performance by the counterparties who are all banks with recognised long-term credit ratings of A3/A- or higher.
Carrying and fair values of Group financial assets and liabilities at 31 December were:
The fair value of fixed asset investments and investments held for sale is the carrying value unless the investment has a readily determinable market value which is higher.
The fair value of listed short-term investments was based on quoted market prices for those investments. The carrying amount of the other short-term deposits and investments approximated to their fair values due to the short maturity of the instruments held.
The fair value of short-term borrowings approximated to the carrying value due to the short maturity of the investments.
Short-term debtors and creditors have been excluded from the above analysis and all other disclosures in this note, other than the currency risk disclosures.
ON THE CONSOLIDATED CASH FLOW STATEMENT
instrument sensitivity analysis
The estimated adverse changes in the fair value of financial instruments are based on an instantaneous:
i) 1% increase in the specific rate of interest from the levels effective at 31 December 2004 with all other variables remaining constant; and
ii) 10% weakening in the value of sterling against all other currencies from the levels applicable at 31 December 2004 with all other variables remaining constant.
Monetary assets and liabilities by currency, after cross-currency swaps, excluding the functional currency of each operation at 31 December 2004, were:
Exchange differences that arise as a consequence of trading transactions and the translation of monetary assets and liabilities are taken to the profit and loss account. In accordance with the Groups accounting policy, exchange differences attributable to long-term foreign currency borrowings used to finance the Groups foreign currency investments are taken directly to reserves. Consequently, long-term foreign currency borrowings have been excluded from the above table.
The currency and interest rate profile of the Groups financial assets at 31 December 2004 was:
Interest on floating rate investments is earned at rates based on local money market rates. Floating rate investments include £370 million (2003: £303 million, 2002: £135 million) of money market deposits which mature within three months of the balance sheet date.
Fixed rate investments are those investments which have an interest rate fixed for a period of greater than one year.
The currency and interest rate profile of the Groups financial liabilities, after allowing for interest rate and cross-currency swaps, at 31 December 2004 was:
The floating rate borrowings comprise bank loans and overdrafts bearing interest at rates based on local money market rates, commercial paper and medium-term notes. The weighted average interest rate on borrowings at 31 December 2004 was 4% (2003: 4%, 2002: 4%). The above analysis excludes creditors falling due within one year which are of a non-financial nature.
Total financial liabilities are repayable as follows:
In April 2003, Reuters entered into a committed syndicated credit facility for £1.0 billion. £520 million of the facility either expired or was voluntarily cancelled in 2004. At 31 December 2004, Reuters had £480 million available under the facility. The facility was undrawn during 2004. The commitment expires and final repayment is due in April 2008.
At the same time as the syndicated credit facility was arranged, committed bilateral facilities of £90 million were also put in place on similar terms. During 2004, £66 million of the facilities either expired or were voluntarily cancelled. At 31 December 2004, Reuters had £24 million available, all of which was undrawn. No loans were outstanding under this facility during 2004.
In addition, at 31 December 2004, the Group had unused, short-term, uncommitted bank borrowing facilities denominated in various currencies, the sterling equivalent of which was approximately £200 million, at money market rates varying principally between 2% and 6%, depending on the currency.
Restated following the adoption of UITF17 and UITF38 (see Accounting Basis on page 72).
The balance sheet of Reuters Group PLC is shown on page 71.
The financial statements on pages 43-73 and the Summary of differences between UK and US generally accepted accounting principles on pages 74-80 were approved by the directors on 7 March 2005.
OF MOVEMENTS IN SHAREHOLDERS FUNDS
NOTES ON THE CONSOLIDATED BALANCE SHEET
The tables below show total assets and non-interest bearing net assets by Customer Segment and by location on a basis consistent with the segmental analysis of profit in note 1. For the reasons discussed in that note, the assets in any location are not matched with the revenue earned in that location.
Central total assets by customer segment consist principally of Reuters cash and short-term investments.
Central total assets by location consist principally of those assets held by head office operations together with unamortised goodwill and other intangibles.
ON THE CONSOLIDATED BALANCE SHEET
Prior to the adoption by the Group of UITF38 Accounting for ESOP Trusts, the shares held in Reuters Group PLC by the Reuters ESOTs were held as a fixed asset investment. In accordance with the requirements of UITF38, these shares have been deducted from shareholders equity. This change has been accounted for as a prior period adjustment and previously reported figures have been restated accordingly (see note 26 on page 66).
Fixed asset other investments consist principally of small equity investments. Impairment write downs have been made when, based on directors valuations, a permanent diminution in the carrying value of the investment has occurred.
The reclassification of investments from interests in associates within fixed asset investments to other investments within current asset investments arises from the part-disposal of Reuters interest in TSI (see note 31 on page 69), and reflects managements intention to dispose of its remaining shareholding.
NOTES ON THE CONSOLIDATED BALANCE SHEET
On 16 November 2004, Reuters purchased the 49% of the voting shares of Radianz that it did not already own from Equant, thereby increasing its shareholding from 51% to 100% of voting shares. The acquisition of the additional 49% stake is included within current asset investments. The 49% was acquired with a view to resale, and the stake has not been previously consolidated in the Group financial statements. As permitted by the Companies Act, Radianz has not been consolidated at 31 December 2004. The original investment has continued to be equity accounted in accordance with FRS 9 Associates and Joint Ventures, as shown in the table above. The aggregated capital and reserves of Radianz as at 31 December 2004 were £96 million and the loss for the year was £7 million. Balances between Reuters and Radianz as at 31 December 2004 and details of the nature and extent of transactions between the two parties during the year are given in note 29 Related Party Transactions. During 2004, Reuters wrote down the carrying value of its investment in Radianz by £3 million.
Had all listed investments been disposed of on 31 December 2004, no tax would have been payable on the assumption that none of the earnings would be repatriated. 1.0 million TSI shares subject to in-the-money options held by Reuters employees who worked at TIBCO Finance Technology Inc., a former Reuters subsidiary which was incorporated into other Reuters businesses in 2001, have been included in the market value of current asset investments at the value of the option proceeds.
The maturity profile of all bank overdrafts, bank loans and other borrowings is given in note 12.
Reuters Group is exposed to concentrations of credit risk. Reuters Group invests in UK and US government securities and with high credit quality financial institutions. Reuters Group limits the amount of credit exposure to any one financial institution. The Group is also exposed to credit risk from its trade debtors, which are concentrated in the financial community. Reuters Group estimates that approximately 72% of its subscribers are financial institutions, 17% are corporations in other sectors of the business community, 4% are from the news media and 7% are government institutions and individuals worldwide (2003: 70%, 16%, 6% and 8% respectively, 2002: 68%, 19%, 6% and 7% respectively).
In addition, Instinet Group is exposed to the possibility of trades between its counterparties failing to settle. Due to the settlement mechanisms employed, the maximum exposure is generally limited to the market movement between the trade date and the settlement date. There are no material unprovided off-balance sheet exposures or positions in respect of trades undertaken on or prior to 31 December 2004.
Reuters Group has established various pension arrangements covering the majority of its employees. In all plans, except those which are internally funded, the assets are held separately from those of the Group and are independently administered.
Defined contribution plans
NOTES ON THE CONSOLIDATED BALANCE SHEET
Defined benefit plans
Funding policy is set in accordance with local requirements.
The largest defined benefit plans are the UK Supplementary Pension Scheme (SPS) and those in Switzerland, Japan and Hong Kong. The charges in respect of these plans in 2004 were £2 million, £3 million, £2 million and £1 million respectively (2003: £2 million, £5 million, £3 million and £2 million respectively). Details of the SSAP 24 valuation results in respect of these plans are given below.
Post-retirement medical benefits
£40 million of the £49 million closing balance relates to schemes valued in accordance with SSAP 24 (2003: £52 million, 2002: £47 million).
FRS 17: Fourth year transitional disclosures
The following amounts at 31 December were measured in accordance with the requirements of FRS 17:
The assets and liabilities reported under UK plans cover a small UK scheme with 35 active members together with unfunded early retirement and retirement benefit schemes, the liabilities of which are covered through book reserves. The figures do not include Reuters Pension Fund, as this is a defined contribution plan and its assets and liabilities are not required to be disclosed under FRS 17.
If the above amounts had been recognised in the financial statements, the Groups net assets and profit and loss reserve at 31 December would be as follows:
Under the requirements of FRS 17, the following amounts would have been recognised in the performance statements in the year to 31 December:
ON THE CONSOLIDATED BALANCE SHEET
Amounts that would have been recognised in performance statements under FRS 17 (continued):