Annual Reports

  • 20-F (Mar 30, 2009)
  • 20-F (Apr 17, 2008)
  • 20-F (Mar 16, 2007)
  • 20-F (Mar 17, 2006)
  • 20-F (Feb 21, 2006)
  • 20-F (Jun 30, 2005)

 
Other

THOMSON REUTERS PLC /ADR/ 20-F 2007
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
   
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the fiscal year ended December 31, 2006
 
OR
   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from _________________ to ________________

Commission file number 333-08354

Reuters Group PLC
(Exact name of Registrant as specified in its charter)


(Translation of Registrant’s name into English)

England
(Jurisdiction of incorporation or organization)

The Reuters Building, South Colonnade, Canary Wharf, London E14 5EP, England
(Address of Principal Executive Offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
None

Securities registered or to be registered pursuant to Section 12(g) of the Act:
Ordinary Shares of 25p each

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

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.

  Ordinary Shares of 25p each 1,283,324,945  
  Founders Share of £1 1  

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes No

     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.

Yes No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer Accelerated filer Non-accelerated filer

     Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

 

 


 
 
Contents
 

 


Welcome to the Reuters Group PLC Annual Report and Form 20-F 2006.
You will find the Directors’ report for shareholders on pages 01–72. It includes:
Our business review, which gives a fast read about our business, our strategy, our performance, our markets, our resources and our challenges
Our company information, which provides additional detail to support our business review
Our OFR, which contains a detailed analysis of our financial performance and policies
An interview with our Chairman on corporate governance
Our directors’ and senior managers’ biographies
Our remuneration report
Our statements of directors’ responsibilities and compliance

This report comprises the annual report of Reuters Group PLC in accordance with the requirements of the United States Securities and Exchange Commission (SEC) for 2006. A cross-reference guide setting out the information in this annual report that corresponds to the Form 20-F items is provided on page 155.

Definitions of company
As used in this annual report, ‘the Group’ and ‘Reuters’ refer to Reuters Group PLC and its subsidiary undertakings, including joint ventures and associates. ‘The company’ refers to Reuters Group PLC.

Key performance indicators
Reuters uses a number of performance measures to manage its business. Those that it considers key, and to which management remuneration was linked in 2006,

are revenue, trading profit, free cash flow, adjusted EPS, adjusted profit before tax and customer satisfaction. For more information, see ‘Definition of Key financial performance measures’ on page 67.

Non-GAAP measures
A number of measures used in this document are ‘non-GAAP’ figures, which are performance measures used to manage the business, supplementing the IFRS-based measures. These include ‘underlying change’, ‘trading costs’, ‘trading profit’, ‘trading margin’, ‘adjusted EPS’, ‘free cash flow’, ‘trading cash flow’ and ‘net debt/net funds’. Detailed descriptions of these terms, including the rationale for using them and reconciliations to the most directly comparable IFRS indicator, are provided on pages 67–68.

Forward-looking statements
Under US law, all statements other than statements of historical fact included in this annual report are, or may be deemed to be, forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. Certain important factors that could cause actual results to differ materially from those discussed in such forward-looking statements are described under ‘Risk Factors’ on pages 65–67 as well as elsewhere in this annual report. All written and oral forward-looking statements made on or after the date of this annual report and attributable to the Group or any of its directors are expressly qualified in their entirety by such factors.




Back to Contents

   
   
02 Explaining Reuters
   


We run our business through
four divisions,
each meeting
a specific set of customer needs.

 

Reuters Group PLC Annual Report and Form 20-F 2006


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Business review 03
   


Total 2006 revenue    
     
£2,566m   For more information on our business
divisions see the ‘OFR’ on pages 54–72.

 

Reuters Group PLC Annual Report and Form 20-F 2006


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04 CEO’s review
   


Our goal is to accelerate the growth in revenues begun last year while bringing a greater proportion to the bottom line in profits.

         
   

 

2006 was a year of considerable achievement for Reuters. In last year’s annual report I stated that the key drivers for 2006 would be “to deliver on our Core Plus investments, to accelerate our revenue growth, to continue to really focus on customer service and to maintain the good cost control of the last few years”. I am very happy to say that we achieved each of these goals and more.

During 2006 we raised the pace of our Core Plus programme, and produced £32 million of new revenues from the four initiatives: electronic trading, high-value content, new enterprise services and new markets. This permitted us to exceed our 2006 target of one percentage point of additional revenue growth from Core Plus.

In terms of overall revenue growth, we exceeded market expectations by delivering 6.5% growth at actual rates (4.8% underlying), which was very gratifying to me personally.

It was not so long ago that many in the market, while acknowledging our ability to cut costs, doubted that we could re-start growth after a long period of retrenchment.

2006 was also a year in which our significant investments to transform and simplify the company began to take shape. These investments will continue through 2007 with a focus on making our services more resilient.

Finally, despite the increased investment in Core Plus growth and transformation activities, we continued to hold a tight line on cost.

Looking ahead to 2007
As I write this review we are already well into 2007 – a year that has begun strongly for Reuters. Our principal goal this year is to accelerate the growth in revenues begun last year while bringing a greater proportion down to the bottom line in profits. This will be achieved, in part, as revenues from Core Plus increase through the year. We’ll also continue

our focus on improving customer service through investment in Reuters infrastructure and through instilling a service culture at Reuters. Towards this goal, I am personally leading a drive to simplify our processes, our technology and our organisation.

In my recent meetings with customers around the world I have been encouraged both that general market conditions appear to be favourable and that the specific areas we are targeting under Core Plus are expected to be in high demand. In particular, the growth of electronic trading is now indisputable.

Serving both people and machines
Reuters has always served the needs of individual users in the financial community, as well as the machines that power their firms; however, this distinction is increasingly important. Reuters suite of trading room systems, risk management platforms, enterprise datafeeds and transaction services is perfectly aligned to the growth in machine-based activities such as algorithmic trading.


 

Reuters Group PLC Annual Report and Form 20-F 2006


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  Business review 05
     



 

At the same time the human beings who are active in the financial services industry require ever-more sophisticated and comprehensive sets of information and analytics as they seek to differentiate their performance. Reuters is uniquely skilled to serve this twin need.

Managing our portfolio
Capitalising on our strong position in the Treasury market, Reuters entered into a joint venture with the Chicago Mercantile Exchange (CME) in 2006 to launch a new electronic system to trade foreign currencies. The venture, called FXMarketSpace, is launching in March 2007 and will offer the market the ability to trade foreign exchange on a cleared, central counterparty basis (like an exchange) for the first time. I view this as a great example of Reuters innovative streak at work, as well as proof that we will not just complacently sit and milk our best assets, but seek to lead the market in new directions.

We also moved swiftly in 2006 to sell the majority of our 50% interest in the Factiva

joint venture to our partner Dow Jones. We concluded that we could achieve the most value for our shareholders by selling this deep online library of content before competition from free search engines eroded Factiva’s advantage.

Media and journalism
Our Media business performed very well in 2006 across both its agency and consumer units. In the agency business we benefited as Western publishers and broadcasters retrenched and continued to pull back their journalists to home base, and newspapers, in particular, scrambled to add video to their websites. Meanwhile, domestic demand in Asia and the Middle East grew strongly. Our direct-to-consumer unit, which mainly derives its revenues from advertising, carried on reuters.com and associated mobile and online properties, grew 39% in 2006.

At the core of what we do at Reuters is the work of our 2,400 journalists. We increased our editorial staff by over 130 in 2006 and

produced a slew of beats and exclusives from the ongoing war in Iraq, to the World Cup competition, to the Israel-Lebanon conflict. In my presentation to the Israel Business Conference, excerpted on Reuters corporate website, I discuss how Reuters responded to a serious breach of our news photography standards which occurred in Lebanon.

The bravery, quality and motivation of Reuters journalists around the world remain a great inspiration to me. More generally, it is the diversity, intelligence, compassion and determination of our people that make my job as CEO so personally rewarding.

 

Tom Glocer
CEO


 

Reuters Group PLC Annual Report and Form 20-F 2006


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06 Our strategy
   
Our mission is to make Reuters the leading
provider of content and transaction services,
trusted by customers from the individual to
the most sophisticated institution.
As we move from restructuring to growth, our
aim is to deliver the shareholder value that we
believe the company is capable of generating.
We are doing this in two ways:
               
1. Growth
We are growing our revenues faster, both within
our core business and through our Core Plus initiatives.
In the medium term we plan to deliver strong,
sustainable revenue growth, assuming continued
growth in the financial services industry.
               
               
               
Core
Steady improvement in our next-generation
products is helping us to attract new users,
particularly among institutional investors.
  Core Plus
We have started to see new revenues come through from the portfolio of Core Plus projects we put in place to capitalise on four high-growth market areas.
 

Revenue growth targets
We expect our core business to grow at least as fast as the market.

In addition, we have targeted new revenue from our Core Plus initiatives.

               
Core products   Market areas   Targets
Reuters 3000 Xtra   Electronic trading   1 percentage point of new revenue
              in 2006 (exceeded)
Reuters Knowledge   High-value content      
            2+ percentage points of new revenue
Reuters DataScope real-time    New enterprise services     in 2007
  and reference datafeeds            
 
  New markets   3 percentage points of new revenue
Reuters Trader           in 2008
               
Reuters Wealth Manager            
               
               
               
               
               
Reuters Group PLC Annual Report and Form 20-F 2006
 

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Business review 07
   


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2. Simplification
We are becoming stronger, more competitive
and more efficient
as we continue to simplify our
organisation. We are working hard to deliver better
products and better customer service.
 
 
 
 
 
 
 
 
           
We are doing this by   Customer satisfaction   Customer satisfaction
Changing the way our product   We measure customer satisfaction through  
  development teams work   a bi-annual survey of over 12,000 financial  
      markets customers. Satisfaction has  
Simplifying our product delivery   increased over the last three years, with  
  infrastructure and making it   customers seeing particular improvements in    
  more robust   the quality of our training, support and   Calculatd on a 100-point scale
      account management.    
Transforming the way our content        
  is created, collected and processed   Projected cost savings    
      As we continue to implement these    
Modernising our customer   initiatives, we expect them to deliver    
  administration systems   annualised cost savings reaching £150 million    
      by 2010.    
           
           
           
           
           
           
           
           
      For more information about our strategy, including details of our Core Plus initiatives, see ‘Company information’ on pages 44–51.    
           
          Reuters Group PLC Annual Report and Form 20-F 2006
           

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08 Our performance
   


 
In 2006 we achieved our immediate
goal of restarting revenue growth.
Our Core Plus initiatives outperformed
their target.
 
 
 
 
 
 
Revenue £m   Operating profit, trading profit
and margins
* £m
  Profit for the year £m
         
   
         
Our 2006 revenue grew by 6.5% to £2,566 million. Acquisitions, mainly Telerate, contributed 1.4 percentage points of growth. Exchange rate movements accounted for 0.3 percentage points. Excluding acquisitions, disposals and currency, revenue grew by 4.8% . 1.3 percentage points of this growth came from Core Plus, ahead of our target.   Our operating profit rose to £256 million in 2006 (operating margin 10%), an increase of £49 million over 2005 (operating margin 9%). Trading profit declined to £308 million (trading margin 12%), down £26 million over 2005 (trading margin 14%). This included £77 million of net new investment in Core Plus, partly offset by revenue growth.   Our 2006 profit was £305 million, a decrease of £177 million over the previous year. 2005 profit was boosted by profits of £191 million from the disposal of Instinet Group.
         

Earnings per share (EPS)
and adjusted EPS
* pence

  Dividend pence   Net cash flow from continuing operating
activities and free cash flow
* £m
         
   
         
         
Our reported EPS was 23.6p in 2006, down 9p from the previous year, reflecting lower profits on disposals than in 2005 (when we disposed of our Instinet stake). Adjusted EPS was 17.1p in 2006, up 3.3p from the previous year. This reflected lower restructuring charges and fewer shares in circulation due to our share buy-back programme.   We increased our total regular dividend by 10%, the first increase since 2000, reflecting our growing confidence in future business performance.   Our net cash flow from continuing operating activities increased by £8 million to £258 million. Free cash flow was £225 million, an increase of £137 million, as our cash restructuring charges fell and we improved our working capital management.
  * For definitions of trading profit, trading margin, adjusted EPS and free cash flow, see page 54.

 

Reuters Group PLC Annual Report and Form 20-F 2006


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Business review 09
   


Operating highlights
Revenues growing ahead of target
   
New Core Plus initiatives making good progress
   
FXMarketSpace joint venture underway
   
Opening of Beijing development centre
   
Sale of Factiva stake to Dow Jones completed
   
Application Networks acquired to broaden our risk management product line
   
First Innovation Programme projects launched

 

 

 

 

For more information about FXMarketSpace, our Beijing development centre, the sale of our Factiva stake and our Innovation programme, see ‘Company information’ on pages 44–51.

For more information about our acquisition of Application Networks and our financial performance, see ‘OFR’ on pages 54–72.

* Operating margins are expected to perform similarly but will be subject to additional impact from factors that cannot be predicted such as fair value movements in embedded derivatives. (See description of ‘trading margin’ on page 54.)

2007 outlook
We expect to deliver underlying revenue growth of 6% or better in 2007. This is in line with our plan to deliver strong, sustainable revenue growth in the medium term, assuming continued growth in the financial services industry. Trading margins are expected to increase to 13–14% in 2007, putting us on track to achieve our medium term trading margin target of 17–20%*. We will also keep capital expenditure in 2007 at similar levels to 2006.

We will actively manage our capital structure to maintain a strong investment grade rating of BBB+/Baa1 and, to the extent that we generate cash surplus to our needs, we will continue to seek to return that cash to shareholders. Based on current investment plans, we expect to increase our share buy-back during 2007 to £400–£425 million, which includes the £250 million remaining of the £1 billion buy-back announced in July 2005. In future, share buy-backs will be considered periodically, based on business performance, investment opportunities and the BBB+/Baa1 ratings target.

Shareholder returns
£661m
returned to shareholders in 2006 via buy-backs and dividends.


 

Reuters Group PLC Annual Report and Form 20-F 2006


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10 Our markets
   


Over 90% of our revenue comes from
serving the rapidly evolving financial services marketplace. Our news and information
reach one billion people every day.

 

Our markets
More than 90% of our revenue comes from serving the rapidly evolving financial services marketplace, which includes investment and commercial banks, broker-dealers, asset and wealth managers, and commodities and energy traders.

The innovative financial markets are experiencing rapid structural change. We are adapting to meet their increasingly complex and time-sensitive demands.

The media markets are also undergoing dramatic change. We are well-positioned to address these marketplace dynamics with our recent innovations in user-generated content, including blogs, and our work to reach the next-generation of media consumers through new digital platforms such as mobile phones, online video and interactive television.

Key market trends

Market structures are continuing to evolve: foreign exchange is set to shift towards an exchange-traded model; bank and exchange consolidation is ongoing.
   
The rise in electronic trading is set to continue in 2007 and beyond.
   
The financial services industry is developing increasingly complex, highly structured financial products.
   
The hedge fund industry is expected to continue its growth and remain important to the financial markets ecosystem.
   
Wealth management is the fastest- growing segment of the financial services marketplace.
   
Financial information technology spending is expected to continue rising in 2007.
New market regulations such as the Markets in Financial Instruments Directive (MiFID) in the EU and Regulation NMS in the US are creating requirements for more extensive disclosure of prices.
   
Traditional media companies are embracing user-generated content and online social networks as new ways of engaging with their audiences.
   
Online audiences and advertising revenues are growing rapidly, rivalling traditional media.

 

Reuters Group PLC Annual Report and Form 20-F 2006


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Business review 11
   


   

Our market share in financial markets
Each year, we publish findings from our market size and share study. This study looks at the £6 billion global market for financial information and services in which our business operates. 80% of our revenues are covered by the study.*

Our market share by revenue in this market increased by one percentage point in 2005 to 27%, level with Bloomberg, our main competitor in the desktop products business. This share gain was largely driven by the acquisition of Telerate in June 2005. Analysis of our market share for the full year 2006 is being finalised and will be published in April 2007.

As a result of our Core Plus strategy, which is taking us into new markets, our addressable market is expected to expand from £6 billion to £11 billion per year.

Our market share in consumer media markets
Over the last two years our reuters.com family of websites has attracted a growing number of users worldwide and now reaches 16.6 million visitors per month. Currently, our largest audiences are in the US and the UK. Our website ranking in the financial information category as measured by Nielsen//NetRatings in the US improved from 8th to 5th (based on the number of unique visitors) between 2005 and 2006. Our website ranking in the Business News/Research category as measured by comScore Media Metrix in the UK improved from 6th to 4th between 2005 and 2006.


 

 

* Excludes Media revenues, recoveries and some Enterprise revenues.   For more information about our markets, see ‘Company information’ on pages 44–51.    

 

Reuters Group PLC Annual Report and Form 20-F 2006


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12 Our resources
   


   

Our people, our
brand and our
content are key to
our ability to deliver
on our strategy.


 

Employee engagement %

Distribution of employees by region

 

 

 

This page: Running barefoot,
South Africa’s Dina Phakula
sprints ahead of the
competition at the 2006
Commonwealth Games.
(Photographer: Andy Clark)

Our people
We seek to attract and retain talented people who are knowledgeable about the markets we serve, customer focused, adaptable and committed to learning and development.

Our diverse employee base, comprising over 100 nationalities, reflects the different cultures and markets we operate in and contributes innovative ways to serve our wide range of customers.

As we have focused on making our products more competitive and extending our content, we have built up our development and content management centres in Bangkok, Beijing, Bangalore and Singapore. 30% of our employees are now based in Asia.

We carry out an annual employee engagement survey. The results of our most recent survey (November 2006) showed year-on-year improvements across all the categories that make up our employee engagement index (leadership, customer orientation, performance, employee commitment and career development). Employees are given objectives which are aligned to the company’s goals.

Performance against these objectives is rewarded through the performance-related elements of remuneration such as bonuses and equity in the company. Employee turnover for our highest performers remains below the 3.5% target we have set.

Our brand
Our brand is a powerful asset, ranked as a Top 100 Global Brand by Interbrand. The essence of our brand is Trust. Strong brands attract customers and help to drive financial performance. As an organisation and as a brand, we are aligned to deliver consistently on the Reuters Trust Principles of independence, integrity and freedom from bias. For more information on how these principles inform our approach to doing business, see ‘Our commitment to ethics and compliance’ and ‘Corporate responsibility’ on pages 48-50.

Our content
Reuters runs the world’s largest multimedia news operation, employing 2,400 journalists who produce 250,000 news stories in 19 languages, 40,000 pictures and over 4,000 video stories each month. We also supply the data that powers the financial markets. We offer insight into the markets by creating polls, analytics, indices and composite prices. We aggregate price information collected from contributors for many asset classes and we distribute trade data published by exchanges and other trading venues.

We add unique value to all this content by organising and labelling it within our data model, a framework which makes it easy for our customers to use the data within their own software applications.


  For more information about our people and
our content, see ‘Company information’
on pages 47–48 and ‘OFR’ on pages 58–59.

 

Reuters Group PLC Annual Report and Form 20-F 2006


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Our challenges Business review 13
     



Our ‘risk radar’, reviewed by the
Board, captures key external and
internal risks
that could affect Reuters
ability to reach its full potential and
the actions and plans in place to
mitigate them.

Risk   Impact   Action






Financial markets are cyclical.   Downturn in the financial markets could make it more difficult for us to achieve our financial goals.   Diversify revenues through emphasis on Core Plus.
    Prioritise initiatives that help customers achieve greater efficiency through business automation.
      See ‘Strategy’ on pages 44–45; ‘Enterprise division’ on page 61.






The financial services industry is undergoing rapid structural and regulatory evolution.   We need to keep pace with structural changes if we are to maintain a strong market position.   Continue to develop Core Plus electronic trading initiatives.
    Implement services which address MiFID and Reg NMS requirements.
    Monitor industry shifts closely.
    Engage with customers’ strategies and ensure our own strategy remains aligned with theirs.
    Launch FXMarketSpace with CME.
    Experiment with new business models within our Innovation portfolio.
      See ‘Markets’ on pages 45–47; ‘Divisional performance’ on pages 58–62; ‘Strategy’ on pages 44–45.






The integrity of our reputation is key to our ability to remain a trusted source of news and information.   We need to protect our brand in order to sustain our credibility as a neutral supplier of content.   Set appropriate ‘tone at the top’ from senior management.
    Provide training on ethics and Reuters Trust Principles.
    Enforce clear accountability.
    Ensure regular Board review.
      See ‘Corporate governance’ on pages 22–23; ‘Our commitment to ethics and compliance’ on pages 48–49; ‘People’ on pages 47–48.






Our customers demand high levels of service to help them perform effectively.   We need to anticipate and respond to our customers’ needs if we are to improve our competitiveness.   Measure and monitor service levels.
    Execute service improvement and content quality plans.
    Continue to promote a service-driven culture.
    Complete investments in data centre and capacity improvements.
      See ‘Strategy’ on pages 44–45; ‘People’ on pages 47–48.






We currently have both revenue growth and simplification programmes underway.   We must ensure that we can resource and complete both revenue growth and simplification initiatives so that we can achieve our financial targets.   Monitor progress closely at Board and Group Leadership Team level (GLT).
    Prioritise resources for strategic programmes.
    Monitor the changing nature of our business by using fewer, larger processing venues.
      See ‘Corporate governance’ on pages 22–23; see ‘People’ on pages 47–48.






Continuing to drive cultural change and attract and develop talented individuals is key to our success.   Without the necessary skills and a faster, more responsive company culture, we will find it difficult to achieve our corporate potential.   Keep the hiring and development plans in focus.
    Monitor our performance, employee demographics and turnover.
    Align achievement of organisational objectives more closely with remuneration.
      See ‘People’ on pages 47–48; ‘Corporate governance’ on pages 22–23; ‘Remuneration report’ on pages 29–34.






For more information about our approach to managing risk,
see ‘Statements of directors’ responsibilities and compliance’ on page 41.
     

 

Reuters Group PLC Annual Report and Form 20-F 2006


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14 Chairman’s statement
   


  The continuous and rapid evolution of our markets means we must become even more agile to sustain
a competitive edge
.
     

When change is a constant, adaptability carries a premium. A stronger Reuters has emerged from a period of fundamental change – in our products, in how we serve our customers and in how we are organised. But the continuous and rapid evolution of our markets means we must become even more agile to sustain a competitive edge. Greater focus and radical simplification are crucial objectives for 2007. I am confident that Tom Glocer and his team, in partnership with the Board, will address these challenges efficiently.

In the same way companies must evolve with their markets, business must evolve with society. Globalisation has driven unprecedented wealth creation, but not without a price. Political, economic, social and environmental imbalances threaten global stability, and the very conditions that have allowed global business to flourish.

Society expects business to assume greater responsibility towards people and the communities in which it operates. It is entitled to expect business leadership that combines optimum returns for shareholders with responsibility for social and environmental performance. Companies are unlikely to succeed if society fails.

The Board must bring an external perspective to the company. To do so, the Board must reflect the diversity of the society in which the business operates. I am proud of the range of experiences and backgrounds represented on the Reuters Board. In 2006 we announced that Nandan Nilekani, CEO of Infosys, would join the Reuters Board in January 2007.

Equally, the Board must continually scan the external horizons. In 2006, the Board and executive management met in Palo Alto, California to gain a first-hand understanding of new technology trends and evolving business models. High-performing boards need to evaluate their own performance. Last year we completed a comprehensive Board effectiveness review, and implementing the recommendations is an important objective for 2007.

The Reuters Trust Principles are at the heart of our responsibility to society. They commit us to independence, integrity and freedom from bias in the gathering and dissemination of news and information. Guided by these principles, I am confident we can provide the growth our shareholders expect, and fulfil the role society demands. They also attract and motivate the outstandingly talented people we need to build our future.

Niall FitzGerald
Chairman


 

Reuters Group PLC Annual Report and Form 20-F 2006


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16 Speed of change in the financial world
   


    13 July 2006  
         
Speed is the hallmark of today’s global financial markets. Driven by new trading technologies, new regulations and rapidly shifting market structures, markets are creating and consuming more information at an ever-increasing rate.   Rising tension in Middle East
The first rocket attacks on the Israeli city of Haifa heighten fears about global security and energy supply.
  Reuters is first with the news
The story spreads across our networks to trading rooms worldwide; markets react swiftly.
   
         


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Business review 17
   


   
         
Crude oil prices soar
Oil surges to a high of $78 a barrel
on worries about supply disruptions.
  Stocks fall while bonds rise
Stock markets around the world rapidly
begin to slide as ‘safe haven’ assets
such as US treasury bonds climb.
  Pump prices increase
Fuel prices in several European
countries are driven to record levels.
         
   
         


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18 Speed of change in the media world
   


               
   05.45 a Reuters journalist  
             
  by the earthquake that  
             
  Muzaffarabad,    
             
widespread destruction    
               
Reuters newsdesk  06.03 images of  
               
in India    06.30 an image appears on  
                   
 06.42   a Canadian blogger questions  
                   
  is reaching the  
             
  blogs appear  
             
  concerns over the  
             
  Kashmir 08.15 Reuters  
             
  minister asking  
                   
reconstruction costs a    
                 
08.45   the story is reported    
                   
    in newspapers and online, and  
                   
    is broadcast worldwide.  

 

Reuters Group PLC Annual Report and Form 20-F 2006


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Business review 19
   


 

takes photos of children orphaned
       
  devastated the city of
     
  demonstrating the
     
  05.51 the photos arrive at
     
  children appear on a website
       
  22 sites globally
     
the speed at which the aid
 
victims of the disaster 08.03 six more
     
  expressing their
   
  humanitarian crisis in
   
  quotes a Pakistani
     
for an extra $800 million to cover
     
year on from the earthquake

 

As the commingling of professional and amateur content re-shapes the media world, Reuters journalists continue to bring something extremely important to each story they cover. They sift through the facts, provide perspective and give context. They are committed to an editorial code and brand that stand for independence, integrity and freedom from bias.

“We can see that the pipe of news content is now flowing in both directions. It ought to be possible to integrate professional journalism with user-generated content in a valuable way for our audiences.”
Tom Glocer, CEO, Reuters


 

Reuters Group PLC Annual Report and Form 20-F 2006


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20 Speed of change in Reuters
   


 
And to keep ahead of the game
we have to transform ourselves
constantly
. This requires bold thinking
and smart execution.
 
 
 
 
 

Nandan M. Nilekani, CEO, Infosys and Non-executive director, Reuters, gives his perspective on the opportunities and challenges presented by globalisation.

Over the last few years, Reuters has simplified and refocused its business. It has opened content centres in Bangalore and Gdansk. It has shifted development to Bangkok and Beijing. And it has increased its focus on growth markets such as India, China, the Middle East and Eastern Europe.

 

 

 

 

 

 

 

 

Opposite page: A bird flies
past a giant globe-shaped
building in Shanghai, China.
(Photographer: Aly Song)

Global markets, global talent
Developing countries have become more credible players in the global economy, together contributing more than half the global gross domestic product. It is a much larger economic world, with more places to do business, and also more competition.

In addition to new customers, there is a new pool of skilled workers in emerging economies. Ten years ago, few of these groups were part of the global workforce. The global distribution of revenue (customers) and costs (talent) is changing, and companies have no choice but to hire a more diverse, global workforce. This will be easier because the world is increasingly wired.

Increases in technology and regulations
As the cost of technology has plunged dramatically, its usage has soared. Emerging nations are leaping past the 20th century and landing squarely in the 21st. In four years, China will have more broadband connections than there are US households.

As large new populations gravitate toward the information highway, there are new expectations for information security and privacy, cutting across geo-political boundaries and leading to a plethora of regulation. High-profile regulations such as Markets in Financial Instruments Directive (MiFID) in Europe and Regulation NMS in the US will bring about sweeping change in the way companies like Reuters look at their business models and revenue streams.

These changes will require bold thinking and smart execution to operate successfully in the years ahead.

Together, these trends – emerging economies, shifting demographics, increasing technology and proliferating regulations – are flattening the business landscape.

New challenges
Most companies now recognise the new challenges arising from these trends: in particular, the increasing competition, especially from industries and geographies previously considered insignificant.

Reuters trading business is facing challenges from competition and changes in business models. Exchanges are being ‘democratised’, with regulation levelling the playing field, making location almost irrelevant. In the US, market regulations are driving some investors to other continental exchanges, causing a structural shift in revenues. In addition, as the types of instruments traded on exchanges rise and transactions across countries and markets rise, there is a need for new kinds of information, tools and solutions.

Progressive, innovative companies are adopting new strategies to address such new opportunities and challenges. I believe that companies who want to win in this flattening world must shift their operational priorities to make the most of the new opportunities available to them.


 

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  Business review 21
     



     

Operational shifts
Reuters has already taken significant steps in this direction. It is moving software development to Bangkok and Beijing, working to consolidate data centres from 250 down to 10 by 2010, and planning to move to a common technology platform. It is increasing capacity and efficiency through new content management centres in Bangalore and Gdansk.

Further, by focusing on the needs of markets such as India, China, the Middle East and Eastern Europe, Reuters is ensuring that it stays relevant to these growth markets.

These operational shifts are positioning Reuters well for future growth and profitability. Reuters DataScope products, which enable computers to use real-time information for algorithmic trading, are an example of innovative use of technology to meet the needs of the more demanding financial services industry.

As its current IT-related initiatives evolve into comprehensive global sourcing capabilities, Reuters will benefit from improved cost and efficiency. With the increase in competitive intensity, the ability to respond quickly to changing customer behaviour will rise correspondingly. Companies have to focus on drawing market and operational insights from information collected from their operations and those of their partners.

Accessing the global talent pool
Equally important, its recent global initiatives also enable Reuters to access the global talent pool. This last point is especially important as industry after industry has shown that as global locations (such as Asia) become global operations centres for certain activities and functions, a greater proportion of the innovation comes from the same regions. Investment in global talent pools today paves the way for tapping them for product and process innovation in years to come.

As markets become increasingly price-driven, rapid innovation is the key to customer loyalty.

Reuters has made substantial strides in becoming more focused and efficient. The global trends driving the business world are still in full swing. Over the next few years, as these trends further affect the business landscape, only companies that shift their operational priorities will win in the flat world.

Rapid
innovation
is the key
to customer
loyalty.


 

Reuters Group PLC Annual Report and Form 20-F 2006


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22 Interview with the Chairman
   


The strength of the Group’s corporate values, its reputation and its ability to
deliver a successful business
depend in
part on the effectiveness of its corporate governance system.

 

The Role of the Board – Niall FitzGerald, Chairman, in discussion with Rosemary Martin, Reuters General Counsel and Company Secretary

Rosemary: Niall, when you became Chairman of Reuters in 2004 you proposed a set of principles to guide the Reuters Board. Why did you do that and what are they?

Niall: The Board needed to refine how it worked together. The company was in transition from survival to restructuring, and preparing for a new phase of growth. Board membership, style and focus needed to change to be responsive to the challenges ahead. We needed a dialogue around the Board table about our role and how we could work together more effectively. We agreed some working principles, such as limiting formal presentations and our desire for short and sharp Board papers. We needed our time and energy deployed on a few forward-looking issues of real substance.

Rosemary: You say the principles are not a strict set of rules and yet you are adamant that Board papers are kept concise and that Board time is not consumed by formal presentations. Why is this so important to you?

Niall: Board time is limited and we have to use our time smartly. Formal presentations constrict dialogue and put walls around an issue. The deal is that executives and advisers coming to a Board meeting can assume that the Directors have done their pre-reading and therefore there is no need

to go over the background and the facts. These are communicated in advance of the Board discussion. It is good discipline to be concise, distilling issues to their essence. No guff. Just the issues.

But we can do better, so this year we’ve been working on improving the quality of information that the Board receives, in part in response to comments in the 2005 Board effectiveness review. We’ve refined the monthly performance report to make it less dense, more sharply focused and forward-looking. We still have some way to go.

Rosemary: Looking back over 2006 what would you say were the main areas of attention for the Reuters Board?

Niall: In 2006, beyond ‘business as usual’ items such as monitoring financial and operational performance, succession planning and approving the budget and plan for the year ahead, we focused on a number of significant initiatives. These included the creation of FXMarketSpace, acquisition of Application Networks Inc, disposal of Reuters interest in Factiva and negotiations with the trustees of Reuters two UK final salary pension schemes to substantially fund the pension deficit. We also examined our preparedness for any significant interruption to business, such as a flu pandemic, and reviewed an incident in which Reuters inadvertently published a photograph that had been digitally manipulated by a freelance photographer working for us in Beirut.

The Audit Committee was very busy with Sarbanes-Oxley and preparations for compliance with section 404 of the Act. They briefed the full Board regularly.

In June the Board met in Palo Alto, California to discuss strategy. Stepping outside our norms gave us the chance to spend more time with the executive management team and together consider new developments in technology and business models. The visit reinforced the importance of continuous innovation and creative partnerships. As Asia is a growing source of technological innovation, and we are focused on growing our business across this region, the Board is planning to visit Asia during 2007.

Rosemary: This leads us to the question of how you ensure the Reuters Board has the right mix of Directors to lead Reuters in the first decade or so of the 21st century?

Niall: I chair the Nominations Committee which includes Dick Olver and Ian Strachan. We meet to review the structure, size and composition of the Board. We have a view as to the ideal blend of experience and expertise. These include financial services, technology, media, government and regulatory affairs, general commercial acumen, a mix of geographic experience, knowledge of Reuters industry sectors and an understanding of our customers.


 

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Governance 23
   


 

  Good governance should
be a powerful fuel for
growth. I want Reuters to
use the principles of good
governance in this way.”


Niall FitzGerald
 
 
 
 
 
 
 
 
 
 
 
   
   
   
   
     

We identify which specific skills and experiences individual directors have and we look for any gaps. In 2005 we agreed it would be advantageous to add a Director who is currently a chief executive and with extensive knowledge of business in Asia and of technology. We were delighted when Nandan Nilekani, one of the founders of Infosys, agreed to join Reuters Board from 1 January 2007.

In addition the Nominations Committee has to ensure there are robust succession plans for Board Committees. During the year Dick Olver said he wanted to step down from the chairmanship of the Audit Committee, a role he filled with distinction since 2000. I discussed with Board colleagues the appointment of Lawton Fitt as his successor and this was unanimously approved by the Board in October. Continuity will be provided as Dick will remain a member of the Audit Committee. He is also remaining Reuters Senior Independent Director.

Rosemary: What about succession planning for senior executive roles during 2006? There have been several changes in the senior executive team in the last year. What is the Board’s role in relation to this?

Niall: It’s the Chief Executive’s responsibility to ensure the best senior executives are appointed to help him manage the company’s business. For many roles the talent already exists within our ranks – for example, it was pleasing to see the promotion of Mark Redwood to become

Head of the Sales & Trading Division, Michael Peace to Head of the Research
& Asset Management Division and David Schlesinger to Editor-in-Chief. It is also important to bring in new talent to the firm.

Last year Stephen Dando joined as Group HR Director from the BBC, Roy Lowrance as Chief Technology Officer from Capital One, Gerry Campbell as Global Head of Search and Strategic Development from AOL, and Lee Ann Daly as Chief Marketing Officer from ESPN. In March, David Craig joined us from McKinsey as Group Strategy Director.

The Board’s role is to oversee the quality of management and the processes for finding and developing outstanding talent. We do that by meeting regularly with managers below Board level and by reviewing twice a year the succession plans and talent management process. In 2006 it was agreed that Board members would each mentor one or more high-potential executives.

Rosemary: One of the principles that you have articulated for the Board is the requirement to maintain “a governance framework that facilitates substance and not merely form”. What do you mean by this?

Niall: ‘Governance’ is much discussed but often poorly understood. The directors must act in the long-term interests of shareholders. We will not be serving our shareholders well if we become myopically focused on governance in a ‘box ticking’ way and fail to look at the wider picture of how to capture

and build sustained shareholder value. We need to use sound governance tools –proper internal controls and processes, a full understanding of risk, a rigorous approach to performance management, insistence on transparency and integrity – to help us create a high-performing company. Good governance should be a powerful fuel for growth. I want Reuters to use the principles of good governance in this way.

Rosemary: One final question: at the end of 2006 the new Companies Act was introduced in the UK. Although it will take a while for the new law to be implemented in full, do you see it as requiring any major changes to the way Reuters Board operates today?

Niall: I have no doubt a great deal will be written and spoken about the implications of the new Companies Act for UK companies. There has already been much discussion about the new requirement for directors to have regard in their decision making to such things as the impact on the environment and the interests of employees. All well-run companies focus on these and other issues which are key to sustainable business performance. The Companies Act is about codifying existing best practice into law. Provided it is applied sensibly, little will change inside the boardrooms of high-performance companies. But let’s see what happens – and please, no more boxes to tick!


 

Reuters Group PLC Annual Report and Form 20-F 2006


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24 Note to the Board
   


From the Chairman’s note
to the Board
20 September 2004

 

 

We must be clear and agreed on the role of the Board. It is a unitary Board with one group sharing common objectives and united in purpose. The Board does not run the business but reviews how the business is run.

It does this by:
Agreeing the strategic framework and keeping it under vigorous review
   
Monitoring the implementation of strategy through the operational plans
   
Focusing on long-term sustainable value creation
   
Safeguarding the longer-term values of the company, including the brand and corporate reputation
   
Overseeing the quality of management and how it is maintained at world class levels
   
Maintaining a governance framework that facilitates substance and not merely form
   
The over-riding theme of the Board should be profitable growth within an acceptable risk profile

The Chairman’s role is to lead the Board in a manner that allows the CEO to run the company effectively. This demands skilful motivation and management of the board to build a cohesive team. The Chairman must support and counsel the CEO and be the ultimate judge as to his effectiveness.

This requires the correct balance between detachment – thereby avoiding interference – and being sufficiently engaged and informed to know when to intervene. The Chairman and CEO must work on a basis of trust, mutual respect and understanding.

Content

The Board agenda must reflect its role. This will require at each meeting:

Report on operational and financial performance and progress against plan
   
Update on markets, competitors, customers and investors
   
Progress on strategic issues
   
Developments on important people issues
   
Review in depth one key strategic issue
   
Short presentation from one senior/high potential leader
   
Other matters that the CEO believes needs the engagement of the Board
   
Periodically the Board will discuss:
The strategic framework
   
The brand
   
The principles
   
People and succession plans
   
Longer-term scenario development
   
Reports from audit and remuneration committees
   
Assessment of its own performance
Information to the Board will be:
Timely – a week prior to the meeting
   
Concise – exceeding two pages by exception
   
Open and transparent

We will work on the assumption that all papers have been read and use our time for debate and discussion. Formal presentations to the Board will be rare and usually preceded by a background paper. At the end of each Board meeting we will spend five minutes to review the effectiveness of the meeting.

Style
Board members should not intrude on the management of the business but must ensure that they are adequately informed to judge when intervention may be needed. Our discussions should always be open, candid and trusting. We must be prepared to challenge, confront, disagree, and probe, but always in a way that is constructive and supportive of the business agenda. Nothing should be left unsaid within a team that is committed to team success. Consistent high quality communication between the Executive and the Board is essential.


 

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Board Governance 25
     



     

Reuters Group PLC Annual Report and Form 20-F 2006


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26 Directors and senior managers
   


The directors and senior managers of Reuters Group at 9 March 2007 are:
     
Name Position Position held since



Directors   



Niall FitzGerald, KBE Chairman, Director 2004; 2003



Thomas Glocer CEO; Director 2001; 2000



David Grigson CFO; Director 2000



Devin Wenig COO; Director 2006; 2003



Lawton Fitt Director 2004



Penelope Hughes Director 2004



Edward Kozel Director 2000



Sir Deryck Maughan Director 2005



Nandan Nilekani Director 2007



Kenneth Olisa Director 2004



Richard Olver Director 1997



Ian Strachan Director 2000



Senior managers (Group Leadership Team)   



Chris Ahearn President, Reuters Media 2002



John Alcantara Global Head of Service Operations 2005



David Craig Group Strategy Director 2007



Lee Ann Daly Chief Marketing Officer 2007



Stephen Dando Group Human Resources Director 2006



Joerg Floeck Managing Director – Europe, Middle East & Africa 2006



Christopher Hagman Managing Director, Global Sales & Service Operations 2001



Alex Hungate Managing Director, Asia 2006



David Lister Chief Information Officer 2004



Roy Lowrance Chief Technology Officer 2006



Rosemary Martin General Counsel and Company Secretary 2003; 1999



Peter Moss Global Head of Enterprise Solutions 2003



Michael Peace Global Head of Research & Asset Management 2006



Mark Redwood Global Head of Sales & Trading 2006



Jon Robson President, Focus Group Accounts and President, Americas 2006



David Schlesinger Editor-in-Chief 2007



Simon Walker Director of Corporate Affairs 2003



 

Directors

Niall FitzGerald, KBE – Chairman
Chairman of the Nominations Committee. He is Chairman of the Nelson Mandela Legacy Trust (UK) and Chairman of the Board of Trustees of the British Museum.Niall co-chairs the Investment Climate Facility (ICF) for Africa and is a Trustee of the Leverhulme Trust. Niall chairs the International Business Council of the World Economic Forum and is a Member of the World Economic Forum Foundation Board. He is a member of various advisory bodies, including the President of South Africa’s International Investment Advisory Council, the Advisory Board of Tsinghua University and the Advisory Board of Spencer Stuart. He is a Senior Advisor to Morgan Stanley International. His past appointments include: Chairman of the Conference Board (2003–2005) and Co-Chairman of the Transatlantic Business Dialogue (2004–2005), Non-executive director of Merck (2000–2003), Ericsson (2000–2002), Bank of Ireland (1990–1999) and the Prudential Corporation (1992–1999), President of the Advertising Association (2000–2005). Age 61.

Thomas (Tom) Glocer – CEO
Previously CEO of Reuters Information (2000) and President and Senior Company Officer, Reuters America (1998–2000). Appointed CEO, Reuters Latin America in 1997 after serving in Reuters legal department from 1993. Formerly practised law in New York, Paris and Tokyo with Davis Polk & Wardwell. Member of the Corporate Council of the Whitney Museum, The Madison Council of the Library of Congress, the Leadership Champions Group (Education) of Business in the Community, The Advisory Board of the Judge Institute of Cambridge University and The Corporate Advisory Board of the Tate. Former Non-executive director of Instinet Group. Age 47.

David Grigson – CFO
Joined Reuters in August 2000 from Emap PLC where he was Group Finance Director and Chairman of Emap Digital. He is a qualified chartered accountant. David sits on the Implementation Board and Culture Board of Legacy 2020. Formerly held senior finance roles in the UK and US at Saatchi and Saatchi PLC (1984–1989). Held a

number of financial positions at Esso UK (1980–1984). Former Non-executive director of Instinet Group and former Chairman of Radianz. Age 52.

Devin Wenig – COO
Previously President, Business Divisions (2003–2006). President, Investment Banking & Brokerage Services (2001–2003). Joined Reuters in 1993 as corporate counsel, Reuters America and held a number of senior management positions before being appointed President, Investment Banking & Brokerage Services in January 2001. Also a Non-executive director of Nastech Pharmaceutical Company and a former Non-executive director of Instinet Group. Age 40.

Lawton Fitt – Non-executive director
Chairman of the Audit Committee. Non-executive director of CIENA Corporation and Citizen Communications. Senior Adviser and Member of the Board of Advisers at GSC Partners. Director and Trustee of Reuters Foundation. Previously a Partner and Managing Director of Goldman Sachs Group Inc. Trustee of several not-for-


 

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Governance 27
   


   

profit organisations including contemporary arts centres in New York and Berlin. Former Secretary (Chief Executive) of the Royal Academy of Arts. Age 53.

Penelope (Penny) Hughes –
Non-executive director

Member of the Remuneration Committee. Non-executive director of The GAP Inc., Skandinaviska Enskilda Banken, Home Retail Group PLC, Molton Brown Limited and a Member of the Advisory Board of Bridgepoint Capital. Former President, Coca Cola Great Britain and Ireland. Former Non-executive director of Bodyshop International PLC (1994–2000), Enodis PLC (1996–2001), SC Johnson (2002–2004), web-angel (2000–2003), Trinity Mirror PLC (1999–2005) and Vodafone PLC (1998–2006). Age 47.

Edward (Ed) Kozel –
Non-executive director

Member of the Remuneration Committee. Chief Executive of Skyrider. Also a Non-executive director of Yahoo and NeTwork Appliance. Former Non-executive director of Cisco Systems Inc. (2000–2001), where he worked from 1989–2000 in a number of roles, including Chief Technology Officer and Senior Vice President for business development. Also a former Non-executive director of Tibco Software Inc. (2000–2001) and Narus Inc. (1999–2003). Prior to 1989 he worked with SRI International in California. Age 51.

Sir Deryck Maughan –
Non-executive director

Managing Director of Kohlberg Kravis Roberts & Co. and Chairman of KKR Asia. He was formerly Chairman and CEO of Citigroup International and Salomon Brothers Inc. He is a Non-executive director of GlaxoSmithKline plc and BlackRock Inc as well as serving on the Boards of Directors of Carnegie Hall, Lincoln Center and NYU Medical Center. He served as Vice Chairman of the New York Stock Exchange from 1996 to 2000. Age 59.

Nandan Nilekani –
Non-executive director

Member of the Audit Committee. Chief Executive of Infosys, a world leading provider of IT consulting and services, since March 2002. Nandan was one of the founders of Infosys and has served as a director of the company since 1981. He is a Member of the World Economic Forum Foundation Board, Vice-Chairman of The Conference Board, member of the National

Knowledge Commission (India), member of National Advisory Group on e-commerce, Co-Chairman of the IIT Bombay Heritage Fund and a Member of the Board of Governors of IIT Bombay. Former Chairman of the Government of India’s IT Task Force for the Power Sector, former Member of the sub-committee of the Securities and Exchange Board of India and former member of the Reserve Bank of India’s Advisory Committee on Corporate Governance. Age 51.

Kenneth (Ken) Olisa –
Non-executive director

Member of the Audit Committee. Founder and Chairman of Restoration Partners Limited and a Non-executive director of BioWisdom and Open Text Corporation. Former Chairman (2000–2006) and CEO of Interregnum plc, which he founded in 1992. He worked for Wang Laboratories (1981–1992) and was General Manager of Wang Europe, Africa and the Middle East (1990–1992). His career began at IBM (1974–1981). Former Non-executive director of various information technology companies and former Postal Services Commissioner. He is a Liveryman of the Worshipful Company of Information Technologists, a Fellow of the British Computer Society, Chairman of homeless charity, Thames Reach, a Governor of the Peabody Trust and a Director and Trustee of Reuters Foundation. Age 55.

Richard (Dick) Olver –
Non-executive director

Member of the Audit Committee; Member of the Nominations Committee and Senior Independent Director. Chairman of BAE Systems PLC since July 2004. He worked for BP PLC and was Deputy Group Chief Executive (2003–2004) and CEO of BP Exploration & Production Division (1998–2002) and former Deputy Chairman of TNK-BP in Russia. A Fellow of the Royal Academy of Engineering and a Member of the Trilateral Commission. A Guardian of New Hall School. Age 60.

Ian Strachan – Non-executive director
Chairman of the Remuneration Committee; Member of the Nominations Committee. Non-executive director of Transocean Inc., Johnson Matthey PLC, Xstrata PLC and Rolls Royce Group PLC. Former Chairman of Instinet Group, former Non-executive director of Harsco Corporation, Deputy Chairman of Invensys PLC (1999–2000) and

Chief Executive Officer of BTR PLC (1996–1999). Former Deputy Chief Executive Officer (1991–1995) and Chief Financial Officer of Rio Tinto PLC (1987–1991). Also a former Non-executive director of Commercial Union PLC (1991–1995). Age 63.

Senior managers

Chris Ahearn – President, Reuters Media
Chris joined Reuters in 2001 as Executive Vice President in charge of the Research & Advisory business. He was appointed to his current position in 2002. Prior to joining Reuters, Chris worked in investment banking at J.P. Morgan and Credit Suisse First Boston. He sits on the board of directors of Times Global Broadcasting Co. Limited, Pluck Corporation and The Kitchen. Age 40.

John Alcantara –
Global Head of Service Operations
John joined Reuters in 1986 after ten years at Cable & Wireless. John has held a number of product management and business management roles in Reuters. He was the Managing Director of Reuters Iberia and later Managing Director for Reuters UK and Ireland until 2005, when he took up his current role. Age 52.

David Craig – Group Strategy Director
David joined Reuters in March 2007 from McKinsey and Company, where he was both a Partner in the Global Business Technology Office and worked in the media team. He has extensive experience of working with clients across many industries, in particular wholesale and corporate banks and trading institutions, on strategy, information technology and operational performance improvement. Prior to joining McKinsey, David was a Senior Principal at AMS where he developed risk and trading systems. Age 37.

Lee Ann Daly – Chief Marketing Officer
Lee Ann joined Reuters in January 2007. She was previously Executive Vice President, Marketing for ESPN, Inc. Prior to joining ESPN, Lee Ann served in various management and planning roles at Ammirati, Puris/Lintas and Grey Advertising. She was co-founder and executive producer of an award-winning humour-based radio production company which directly serviced top brands and agencies. She was a Director and President of the Board of the American Marketing Association in New York. Age 45.


 

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28 Directors and senior managers continued
   


   

Senior managers continued

Stephen Dando –
Group Human Resources Director
Stephen joined Reuters in 2006 in his current role. Prior to joining Reuters, Stephen was Director, BBC People and a member of the BBC’s Executive Committee and Executive Board for five years. He held various appointments at Diageo over a 12 year period including Global HR Director, Guinness. Age 45.

Joerg Floeck – Managing Director,
Europe, Middle East & Africa
Joerg joined Reuters in 1990 and is based in Geneva. He has held various senior sales and general business management positions in Germany, Austria, Italy, United States and the UK before being appointed to his current post in June 2006. Prior to joining Reuters, Joerg worked in the financial industry, specialising in IT. Age 45.

Christopher Hagman –
Managing Director, Global Sales
& Service Operations
Christopher joined Reuters in 1987, based in Sweden, and held various senior sales and general business management positions in Sweden, the Netherlands and the UK before being appointed to his current post in April 2001. Christopher was appointed as a Member of the Executive Board of the Community of European Management Schools and International Companies in December 2005. Age 48.

Alex Hungate – Managing Director, Asia
Alex joined Reuters in a business development role in 1993. He started and managed New Media businesses in the early days of the World Wide Web. He went on to become co-CEO Reuters America, then President, Focus Group Accounts and most recently Chief Marketing Officer for Reuters. He took up his current role in January 2006. Prior to Reuters, Alex worked as a Media Analyst at Booz Allen & Hamilton. He graduated with High Distinction from Harvard Business School in 1993. He was a Board Director of Factiva until Reuters stake was sold to Dow Jones on 15 December 2006. Age 40.

David Lister – Chief Information Officer
David joined Reuters in 2004. Prior to joining Reuters, David held senior IT leadership roles at Boots Group, Glaxo Wellcome and Diageo after a period of management consultancy with Coopers &

Lybrand. He is a member of several IT professional bodies and consultative boards. Age 48.

Roy Lowrance –
Chief Technology Officer
Roy joined Reuters in 2006 as Chief Technology Officer, a role focused on developing competitive technology strategies that help to drive and support the company’s business strategies. Prior to joining the company, he held technology management positions at Capital One and Fleet Financial Group and was a partner at the Boston Consulting Group. Age 56.

Rosemary Martin – General Counsel and Company Secretary
Rosemary joined Reuters in 1997 as Deputy Company Secretary and became Company Secretary in 1999. Appointed General Counsel in 2003. Rosemary has been the Director of Reuters Foundation since 2000. Former Partner at Mayer, Brown, Rowe & Maw for nine years. Non-executive director of HSBC Bank PLC. Member of the UK Listing Authority Advisory Committee. Age 46.

Peter Moss –
Global Head of Enterprise Solutions
Peter joined Reuters in 1989, based in the UK, and held various product management, marketing, sales management, strategy and business management positions across Reuters before being appointed to his current post in September 2003. Before joining Reuters Peter worked in the information technology industry. Age 47.

Michael Peace – Global Head of Research & Asset Management
Michael joined Reuters in 1987 on the Management Graduate Development scheme and held a variety of sales, marketing and management positions in the UK, Europe, Asia and the US before being appointed to his current position in September 2006. Michael was Chief Executive of Lipper, a Reuters company, from 2001. Prior to joining Reuters, Michael held positions with Lloyds International Bank in Spain and as a sponsored undergraduate with Shell. Age 43.

Mark Redwood –
Global Head of Sales & Trading
Mark joined Reuters in December 2002 following the acquisition of AVT Technologies Limited, a specialist in FX trading technologies, where he was CEO. Prior to his current appointment, Mark was

responsible for Reuters transactions services across all asset classes. Before founding AVT, Mark worked for JP Morgan in London from 1983 to 1989, where he held a number of trading positions in fixed income and exchange traded derivatives. Age 46.

Jon Robson – President, Focus Group Accounts and President, Americas
Jon leads Reuters business in the United States, South America and Canada, and has global business responsibility for Reuters largest clients worldwide. Before joining Reuters Jon worked at BIS Banking Systems (now Misys), Telerate and Dow Jones Markets. In 1997, Jon founded MoneyLine which acquired Telerate in 2001 to form MoneyLine Telerate, which was subsequently acquired by Reuters. Age 48.

David Schlesinger – Editor-in-Chief
David joined Reuters in 1987 as a journalist in Hong Kong after working as a teacher and a reporter for other publications. He ran Reuters editorial operations in Taiwan, China, the Greater China region and the Americas before becoming Global Managing Editor & Head of Editorial Operations in 2003. He took up his current role in January 2007. Age 46.

Simon Walker –
Director of Corporate Affairs
Simon joined Reuters in 2003. Prior to joining Reuters, Simon was Communications Secretary at Buckingham Palace, Director of Communications at British Airways PLC and special adviser to the Prime Minister in the Downing Street Policy Unit. Simon is a Trustee of the charity, UK-NZ Link Foundation, the UK Jamestown Foundation and a Member of the European Policy Forum’s Advisory Committee. He is a Director and Trustee of Reuters Foundation and a Member of the Better Regulation Commission. Age 53.

Susan Taylor-Martin stepped down as a member of the Group Leadership Team (GLT) at the end of 2006 to take up her new role as Managing Director and Senior Company Officer for UK & Ireland from 1 January 2007. Geert Linnebank also stepped down from GLT to take up his new role as Senior Adviser to the CEO with effect from 1 January 2007. David Craig joined Reuters as Group Strategy Director and a member of GLT in March 2007.


 

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Remuneration report
Governance 29
     



     

Remuneration policy
The Remuneration Committee believes that Reuters remuneration policy should be market-competitive, business performance-related and supportive of shareholders’ interests. With these considerations in mind

The reward structure for executive directors is designed to attract, motivate and retain high-calibre individuals capable of successful leadership.
   
The Committee aims to ensure that the majority of executive remuneration is variable and performance-related with a significant portion linked to share price performance and delivered in shares.

This policy will apply in 2007 and is expected to continue in future years.

Remuneration Committee
The Committee is chaired by Ian Strachan and the other members are Ed Kozel and Penny Hughes. All members of the Remuneration Committee have been determined by the Board to be independent. The Company Secretary is secretary to the Remuneration Committee. The Committee met six times in 2006. All members were present at each meeting except Penny Hughes and Ed Kozel who were each absent from one meeting.

The Committee operates under formal terms of reference and under the powers delegated to it by the Board. The duties of the Committee include

determining the company’s framework of executive remuneration and its cost, having a pragmatic regard to the company’s position with respect to other companies;
   
determining, on the Board’s behalf, specific remuneration packages for each of the executive directors, the Chairman and such other members of the GLT as it is designated to consider;
   
recommending on the Board’s behalf, the ordinary remuneration of the non-executive directors (in respect of remuneration permitted to be set by the directors by the company’s articles of association) to be approved by the shareholders at the AGM;
   
determining, on the Board’s behalf, any other remuneration issues which affect the interests of shareholders, in particular remuneration or option plans using shares; determining the targets for incentives plans; determining the provision of benefits and settlement of other provisions under the terms of the service agreements or otherwise of executive directors where these are stated as being at the discretion of the Board; and
   
keeping apprised of and advising the Board of key changes in employee benefit structures with the Group.

The Committee’s terms of reference can be found at about.reuters.com/csr/corporategovernance/committees.asp

The Chairman ensures that the company’s principal shareholders are kept informed as to remuneration matters, as appropriate.

The Committee has appointed Towers Perrin to provide it with independent advice. Towers Perrin also provides industry and comparative salary data to Reuters management. The Committee has also consulted with the company’s Chairman and CEO (neither of whom has been present at any meeting to decide matters relating to their own compensation or contracts), and with the Group Human Resources Director and the Global Head of Performance and Reward.

Executive directors
There are four key elements of executive compensation.
   
Basic salary
Annual bonus
Awards under equity incentive plans
Pension and other benefits

The following bar chart shows the relative weight of basic salary, annual bonus and the expected value of equity incentive plans for each executive director in 2006.

As shown in the chart above, approximately three quarters of executive reward package is performance-related.

Basic salary
The main reference point in setting executive directors’ salaries is companies in the FTSE100 other than the five largest companies in this group and the five smallest. These companies have been selected to provide a stable comparator group which is relevant to the company’s position in the market. This group is reviewed annually to confirm its appropriateness.

Salaries earned in 2006 are shown in the table below:

    2006  
    Salary  
    £000s  

 

Tom Glocer   842  

 

David Grigson   469  

 

Devin Wenig   454  

 

       
Annual bonus
The Committee sets performance targets annually. Tom Glocer is entitled to a maximum bonus of 150% of base salary and David Grigson and Devin Wenig are each entitled to a maximum bonus of 125% of base salary. The executive directors’ annual bonus potential will remain the same in 2007.

For 2006, the performance targets were focused 80% on financial performance (trading profit1, revenue and free cash flow) and 20% on customer satisfaction measures. In February 2007, the Committee reviewed 2006 performance against the specified targets and determined that the executive directors had earned bonuses of 91% of bonus potential.

1 Trading profit is calculated by excluding the following from operating profit from continuing operations: restructuring charges associated with Fast Forward and acquisitions, impairments and amortisation of intangibles acquired via business combinations, investment income, profits from disposals of subsidiaries and fair value movements. Trading margin is trading profit expressed as a percentage of revenue.

 


 

Reuters Group PLC Annual Report and Form 20-F 2006


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30 Remuneration report continued
   


   

The 2006 bonus awards are shown in the table below:

    2006  
    Bonus  
    £000’s  

 

Tom Glocer 1,149  

 

David Grigson 534  

 

Devin Wenig 516  

 

For 2007, the performance targets will be focused solely on financial performance (trading profit, revenue and free cash flow). There is a profit threshold, based on trading profit, below which no bonuses will be paid. The Remuneration Committee reviews the business plan and establishes this threshold each year.

Equity incentive plans
Overview: Executive directors and other senior managers are entitled to participate in the share-related incentive schemes operated by the company as detailed below. The Committee reviews the schemes annually to ensure that they reflect best practice and are aligned to the company’s business plan.

The Committee has reconfirmed its 2005 decision to continue to operate the Long Term Incentive Plan (LTIP) and the Discretionary Share Option Plan (DSOP) for executive directors. Awards are subject to specific performance conditions. In 2006, the Committee decided to increase the proportion of performance shares and to reduce the number of share options awarded.

LTIP: Reuters has operated the current long-term incentive plan since 1998. Contingent share awards are made annually to executive directors and to those senior managers most accountable for corporate performance. Before 2006, the vesting of awards was based wholly upon Reuters Total Shareholder Return (TSR) relative to other FTSE100 companies.

Since 2006 half of the award has been based on Reuters TSR relative to other companies in the FTSE100 and half is based on the aggregate level of adjusted profit before tax (PBT)1 achieved over the three year performance period. These measures were selected because growth in profit is in itself a key element of the company’s long term strategy and relative TSR provides a market measure of the company’s success in delivering against its strategy.

TSR performance is measured independently prior to review by the Committee and the Committee annually reviews the comparator group. Whilst endorsing relative TSR as a measure, the Remuneration Committee recognises that Reuters does not fall naturally into any one of the existing FTSE industrial sectors. The Committee continues to believe that the FTSE100, rather than one individual sector or a bespoke peer group remains the most appropriate peer group for comparison.

In respect of the TSR performance test, no shares vest if Reuters TSR is below the median of the comparator group. At median, one third of the shares vest and for upper quartile performance all shares vest. There is proportionate vesting of awards if Reuters TSR falls between the median and the upper quartile.

Vesting of 50% of the LTIP awards is subject to the PBT test and depends upon the level of PBT achieved by Reuters over the whole of the performance period. The Remuneration Committee sets a range of PBT performance at the beginning of each performance period, taking into account the plans and prospects for the business and shareholder expectations. The minimum level, at which one third of the awards will vest, will be at least equal to the level which would be achieved with an 8% compound annual growth rate over the performance period.

The maximum PBT level at which all shares will vest, represents a challenging but potentially achievable target for the business. Shares vest on a proportionate basis if actual PBT falls between the minimum and maximum of the pre-set range.

The 2006 awards, which are subject to the performance conditions detailed above, for Tom Glocer, David Grigson and Devin Wenig were 500,000 shares, 200,000 shares and 250,000 shares respectively.

In 2007, the awards for Tom Glocer, David Grigson and Devin Wenig, which are also subject to the performance conditions detailed above, will be 500,000 shares, 200,000 shares and 300,000 shares respectively.

DSOP: A global discretionary stock option plan was adopted by the Committee in October 2000 and approved by shareholders in April 2001. It aims to reward growth in earnings and in the share price. Since 2004 participation has been confined to executive directors and members of the senior management team.

The Committee divides participants’ annual entitlements into two awards, normally made following the announcement of preliminary annual and half-yearly results.

As a result of changes made in 2006 (which apply to 2006 and future awards) options only vest to the extent that the following conditions are met over the three years following grant:

minimum 6% a year growth in adjusted EPS2 will be required for 50% of options to vest;
   
9% a year growth will be required for 100% of options to vest;
   
between 6% and 9% growth options will vest on a proportionate basis.

Executive directors are only allowed to exercise 50% of the vested options after the initial three year period. The remaining options will only be exercisable, in two equal tranches, one and two years later.

The 2006 share option awards for Tom Glocer, David Grigson and Devin Wenig were 1,250,000 options, 500,000 options and 650,000 options respectively.

In 2007, the share option awards for Tom Glocer, David Grigson and Devin Wenig will be 1,250,000 options, 500,000 options and 750,000 options respectively.

All employee savings plans
Executive directors, in common with other employees, may participate in the company’s savings-related share option arrangements. For UK- and US-based employees this takes the form of a Save As You Earn plan. For the 2006 offer the fixed monthly saving amount was set at a maximum of £100 per month with a three year savings period.

Personal shareholding policy
The company’s personal shareholding policy requires each executive director to build and maintain a personal equity stake, worth twice his basic salary, within five years. All executive directors are above or are approaching this level of personal shareholding.

1 Adjusted profit before tax is calculated as profit before tax from continuing operations before impairments and amortisation of business combination intangibles, investment income, profit on disposals and fair value movements.
2 Adjusted EPS is calculated as basic EPS from continuing operations before impairments and amortisation of intangibles acquired via business combinations, investment income, fair value movements, disposal profits/losses and related tax effects.


 

Reuters Group PLC Annual Report and Form 20-F 2006


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Governance 31
   


   

Performance graph
Reuters TSR for the five years to 31 December 2006 compared with the return achieved by the FTSE100 index of companies is shown below. As Reuters is a member of the FTSE100, the Committee believes it is the most appropriate market index for comparison.

The calculations assume the reinvestment of dividends.

Pensions
All executive directors participate in defined contribution pension arrangements.

Tom Glocer participates in Reuters US pension arrangements and is entitled to a pension allowance of 25% of his base salary. He is entitled to a lump sum death-in-service benefit whilst in service of four times basic salary.

David Grigson is a member of the Reuters Retirement Plan in the UK and is entitled to a contribution in respect of pension benefits equal to 24% of salary up to a cap of £108,600. He is entitled to a lump sum death-in-service benefit whilst in service of four times basic salary.

Devin Wenig participates in Reuters US pension arrangements and is entitled to a pension allowance of 6% of his base salary. He is entitled to a lump sum death-in-service benefit of $1 million.

Other benefits
Market practice non-cash benefits are provided to executive directors and the Chairman as shown on page 32. All executive directors receive a company car or an allowance and private healthcare benefits. Disability benefits are also provided to each executive director. Niall FitzGerald does not receive any death, disability or other benefits. Under the terms of Tom Glocer’s relocation agreement, Reuters provides accommodation in the UK and pays home leave expenses for him and his family.

Service contracts
The company’s policy is for executive directors to have service contracts with notice periods of not more than one year.

    Notice to be given Date of service contract  

 


Tom Glocer   By Tom Glocer: 23 July 2001  
    90 days without cause    
    30 days with cause    

 


    By the company:    
    30 days without cause    
    Immediately with cause    

 


Devin Wenig   12 months 17 February 2003  

 


David Grigson   12 months 21 June 2001  

 


In each case the unexpired term of the contract is equivalent to the notice period.

In the event of company-instigated termination, amounts up to a maximum of 12 months’ salary, annual bonus and 12 months’ pension contributions are payable. In addition, in the event of a non-fault termination, Tom Glocer retains the benefit of any outstanding share plan awards as if his employment had not ceased. Tom Glocer and his family also retain the life assurance and private healthcare benefits provided by Reuters for one year following termination.

On a change of control of the company, all the executive directors are entitled to terminate their contracts on one month’s notice unless the acquiring party has, within three months of the change of control, agreed to adopt and uphold the Reuters Trust Principles (see page 146).

All executive directors have contractual terms that limit the ability of an executive director to work for a defined list of competitor companies for a period of time. These provisions are in place to protect intellectual property and commercially sensitive information.

Policy on external appointments
Reuters recognises that executive directors may be invited to become non-executive directors of other companies or to become involved in charitable or public service organisations and that these appointments can broaden the knowledge and experience of directors to the benefit of the company. Accordingly, it is Reuters policy to approve such appointments, provided there is no conflict of interest and the commitment required is not excessive.

Devin Wenig was the only executive director who received fees for an external directorship during 2006. He received fees of $20,250, 4,500 shares of restricted stock and 9,500 options in his capacity as director of Nastech Pharmaceutical Company.

Chairman and non-executive directors
The Chairman’s and the non-executive directors’ ordinary remuneration is proposed by the Board and approved by the shareholders at the annual general meeting (AGM). In determining appropriate fee levels, the Board has regard to the remuneration arrangements of chairmen and non-executive directors of other UK listed companies of a similar size and complexity.

As Chairman, Niall FitzGerald receives an annual fee of £500,000. This fee is fixed until 1 October 2007. The company does not provide a pension contribution to him.

Non-executive director appointments are detailed on page 38. Niall FitzGerald and the non-executive directors have letters of engagement rather than service contracts. None is eligible to participate in executive share plans.

Current annual fee levels in respect of the non-executive directors are shown in the table below:

    2006    
    Fees    
    £000’s    

 


Basic 50    

 


Senior Independent Director 5    

 


Chairing the Audit Committee 15    

 


Chairing the Remuneration Committee 10    

 


Chairing the Nominations Committee 5 1  

 


   
1 Niall FitzGerald has waived his £5,000 Nominations Committee chairman fee.

 

Reuters Group PLC Annual Report and Form 20-F 2006


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32 Remuneration report continued
   


Directors’ remuneration for 2006 (audited)
The disclosures required by Part 3 of schedule 7A to the Companies Act 1985 (‘the auditable part’) are contained within the following sections of The Remuneration report.

                        2006   2005  
   













                    Compensation          
    Salary/               for Loss          
    Fees   Bonus   Benefits 1 Allowance 2 of Office   Total   Total  
    £000   £000   £000   £000   £000   £000   £000  

 













Niall FitzGerald, KBE3&4 500 3 503 523  

 













Lawton Fitt 53  6 35  5 88 75  

 













Penny Hughes 50 50 50  

 













Ed Kozel 50 35  5 85 80  

 













Sir Deryck Maughan 50 20  5 70 14  

 













Ken Olisa16 50 50 51  

 













Dick Olver 68 7 68 70  

 













Charles Sinclair15 N/A N/A 55  

 













Ian Strachan 60  8 60 246  13

 













Tom Glocer14 842 1,149 274  9 2,265 1,966  

 













David Grigson 469 534 4  10 80  10 1,087 839  

 













Devin Wenig 454 516 20  11 11  11 1,001 639  

 













Total emoluments of directors12 2,646 2,199 301 181 5,327 4,608  

 













 
Notes:
   
All amounts have been rounded up to the nearest thousand.
   
The following conversion rate was used: US$1.82: £1. This was the average rate in effect during 2006.
   
1 Items included under Benefits are those provided as goods and services received during the year.
 
2 Items included under Allowances are contractual benefits, which are paid in cash rather than as goods and services during the year.
 
3 Non-cash benefits received by Niall FitzGerald consist of chauffeur benefits of £2,120.
 
4 Niall FitzGerald has waived his £5,000 Nominations Committee chairman fee.
 
5 The £35,000 paid to Lawton Fitt and Ed Kozel and £20,000 to Sir Deryck Maughan represent travel allowances to attend UK board meetings.
 
6 Fees paid to Lawton Fitt include £2,154 in respect of her position as Chairman of the Audit Committee from 9 November 2006.
 
7 Fees paid to Dick Olver include £12,829 in respect of his position as Chairman of the Audit Committee until 9 November 2006, and his fee of £5,000 in respect of his position as the Senior Independent Director.
 
8 Fees paid to Ian Strachan include £10,000 in respect of his position as Chairman of the Remuneration Committee.
 
9 Non-cash benefits received by Tom Glocer included accommodation costs of £210,085, company car and healthcare benefits totalling £29,217, long-term disability insurance of £2,500, and family travel of £31,219.
 
10 Non-cash benefits received by David Grigson included healthcare benefits of £1,935 and long-term disability insurance of £1,400. Cash allowances consisted of a car allowance of £7,420 and a retirement allowance of £72,180.
 
11 Non-cash benefits received by Devin Wenig consisted of healthcare benefits of £19,757. Cash allowances consisted of a car allowance of £10,549. Devin Wenig’s salary is paid in US dollars and the total amount reflected in the table is contractually split between his role as executive director and Chief Operating Officer.
 
12 The total aggregate emoluments for the directors for the period 1 January 2006 to 30 December 2006 were £5.3m. The total emoluments for 2005 were £4.6m.
 
13 In 2005 the fees paid to Ian Strachan included $350,000 in respect of his position as a non-executive director (Chairman) of Instinet Group, £50,000 in respect of his position as non-executive director and £4,489 as Chairman of the Remuneration Committee from 20 July 2005.
 
14 During the year a group company settled certain personal expenses on behalf of Tom Glocer. The amount due from Tom Glocer at 31 December 2006, which was the maximum outstanding during the year was £3,720. No interest was charged. Tom Glocer repaid the amount after year end.
 
15 Charles Sinclair resigned as a director on 6 December 2005.
 
16 £8,333 of Ken Olisa’s non-executive director fee was paid directly to Interregnum plc.

Other senior managers’ remuneration

                        2006   2005  
   













                    Compensation          
    Salary/               for Loss          
    Fees   Bonus   Benefits   Allowance   of Office   Total   Total  
    £000   £000   £000   £000   £000   £000   £000  

 













Other senior managers as a group (17 persons) (2005: 6 persons) 3,247 3,304 212 256 7,019 4,616  

 













 
Notes:
 
All amounts have been rounded up to the nearest thousand.
 
The following conversion rates were used: US$ 1.82: £1, Swiss Franc 2.3: £1, Hong Kong $14.18: £1. These were the average rates in effect during 2006.

 

Reuters Group PLC Annual Report and Form 20-F 2006


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Governance 33
   


   
Directors’ pensions (audited)
Tom Glocer, David Grigson and Devin Wenig participate in defined contribution pension arrangements. Tom Glocer participates in Reuters US pension arrangements and is entitled to a pension allowance of 25% of his base salary during 2006 and 2007. He is entitled to a lump sum death-in-service benefit of four times basic salary.

David Grigson is a member of the Reuters Retirement Plan in the UK and is entitled to a contribution in respect of pension benefits equal to

24% of salary up to a salary cap of £108,600. He is entitled to a lump sum death-in-service benefit of four times basic salary.

Devin Wenig participates in Reuters US pension arrangements and is entitled to a pension allowance of 6% of his base salary. He is entitled to a lump sum death-in-service benefit of $1 million.

Contributions and allocations (including the cost of life cover) in respect of these directors in 2006 were:


 

        Company  
        contribution  
        in respect  
        of period  
    Age   £000  

 



Tom Glocer   47 214  

 



David Grigson   52 30  

 



Devin Wenig   40 28  

 



 

The information shown complies with requirements under both the UK Listing Authority and the Directors’ Remuneration Report Regulations 2002.

The total amount of contributions or accruals made in 2006 to provide pension and similar benefits for the directors was £395,854 (2005: £307,310) and for the executive directors and the other senior managers as a group was £1,178,386 (2005: £847,251).

These aggregate figures also include an accrual of £124,000 and £139,000 respectively for the investment returns within the US executive pension arrangements. These investment returns are calculated based on each individual’s notional fund choices made by reference to actual investment funds and the actual investment returns achieved on these funds.


 

Directors’ interests in long-term plans (audited)

            Number at                     Number at        
            1 January       Market   Market         31 December        
            2006   Number   price per Number price per Number   Number   2006        
            (or later   granted   share at vested share at (released)   (lapsed)   (or earlier   End of    
        Date of   date of   during   grant during vesting during   during   date of   qualifying Expiry  
    Plan   award   appointment)   period   (pounds) period date period 4 period   departure)   period date  

 



















Tom Glocer   LTIP1&2   25/06/2001   174,451     (174,451 )   31-Dec-05 01-Jan-06  

 



















        20/02/2002   234,974       234,974   31-Dec-06 01-Jan-07  

 



















        24/02/2003   1,731,277       1,731,277   31-Dec-07 01-Jan-08  

 



















        23/02/2004   544,094       544,094   31-Dec-06 01-Jan-07  

 



















        11/03/2005   417,228       417,228   31-Dec-07 01-Jan-08  

 



















        15/03/2006  3   500,000   £3.93     500,000   31-Dec-08 01-Jan-09  

 



















Total           3,102,024   500,000   (174,451 ) 3,427,573        

 



















Devin Wenig   PRSP1&2   29/03/2001   20,704     (20,704 )   31-Dec-05 01-Jan-06  

 



















    LTIP1&2   25/06/2001   2,295     (2,295 )   31-Dec-05 01-Jan-06  

 



















        20/02/2002   22,047       22,047   31-Dec-06 01-Jan-07  

 



















        24/02/2003   200,000       200,000   31-Dec-07 01-Jan-08  

 



















        23/02/2004   200,000       200,000   31-Dec-06 01-Jan-07  

 



















        11/03/2005   163,468       163,468   31-Dec-07 01-Jan-08  

 



















        15/03/2006  3   250,000   £3.93     250,000   31-Dec-08 01-Jan-09  

 



















Total           608,514   250,000   (22,999 ) 835,515        

 



















David Grigson   LTIP1&2   25/06/2001   26,294     (26,294 )   31-Dec-05 01-Jan-06  

 



















        20/02/2002   37,205       37,205   31-Dec-06 01-Jan-07  

 



















        24/02/2003   200,000       200,000   31-Dec-07 01-Jan-08  

 



















        23/02/2004   200,000       200,000   31-Dec-06 01-Jan-07  

 



















        11/03/2005   163,468       163,468   31-Dec-07 01-Jan-08  

 



















        15/03/2006  3   200,000   £3.93     200,000   31-Dec-08 01-Jan-09  

 



















Total           626,967   200,000   (26,294 ) 800,673        

 



















   
Notes:
   
1 See performance conditions attached to LTIP awards, as described on page 30.
 
  The PRSP plan operated from 1995 to 2001 and targeted senior executives not participating in the LTIP. Devin Wenig held awards granted before he became an executive director. All outstanding awards have now lapsed. The performance condition was the same as for LTIP, although vested shares could be released three years after grant.
 
2 LTIP 2001 and PRSP 2001 awards are available for exercise immediately on vesting. The qualifying period may be extended by up to two years where vesting does not occur or is only partial after the initial three-year period. LTIP awards to executive directors prior to 2004 are subject to a retention period of two years from vesting, save that this is reduced to one year where the performance period has been extended to five years. For awards made in or prior to 2003, the plan permits the measurement period to be extended by up to two years under a re-testing provision. For LTIP awards made from 2004 onwards no re-testing is permitted.
 
  LTIP 2001 and PRSP 2001 did not meet performance conditions and therefore lapsed. Had they vested they would have been exercisable from 1 January 2006.
 
3 2006 awards are described on page 30.
 
4 Subject to performance conditions being met, share awards are due for release as soon as possible after vesting (subject to any restricted period).

 

Reuters Group PLC Annual Report and Form 20-F 2006


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34 Remuneration report continued
   


Senior managers’ interests in long-term plans (audited)

            Number at               Market           Number at          
            1 January       Market       price per           31 December          
            2006   Number   price per   Number   share at   Number   Number   2006          
            (or later   granted   share at   vested   vesting   (released)   (lapsed)   (or earlier   End of      
        Date of   date of   during   grant   during   date   during   during   date of   qualifying   Expiry  
    Plan   award   appointment)   period   (pounds)   period   (pounds)   period5   period   departure)   period   date  

 























Other senior                                          
managers as a                                          
group (17 persons)                                          
(2005: 6 persons) 6   PRSP1&2   29/03/2001   13,884         (13,884 )   31-Dec-05   01-Jan-06  

 























    LTIP1&2   25/06/2001   2,602         (2,602 )   31-Dec-05   01-Jan-06  

 























        20/02/2002   97,369           97,369   31-Dec-06   01-Jan-07  

 























        24/02/2003   807,463           807,463   31-Dec-07   01-Jan-08  

 























        23/02/2004   407,814           407,814   31-Dec-06   01-Jan-07  

 























        03/12/2004   92,368           92,368   31-Dec-06   01-Jan-07  

 























        11/03/2005   461,472           461,472   31-Dec-07   01-Jan-08  

 























        15/03/2006   268,146   368,208   £3.93         636,354   31-Dec-08   01-Jan-09  

 























        02/08/2006     64,000   £3.93         64,000   31-Dec-08   01-Jan-09  

 























    RSP3   27/08/2004   70,647     £3.21   21,507   £3.95   (21,507 )   49,140   27-Aug-06   27-Aug-08  

 























        03/12/2004   25,857     £3.89   8,619   £4.50   (8,619 )   17,238   03-Dec-06   03-Dec-08  

 























        11/03/2005   159,347     £4.19   1,838   £3.92   (1,838 )   157,509   11-Mar-06   11-Mar-09  

 























        02/08/2005   19,632     £3.89   4,908   £3.87   (4,908 )   14,724   02-Aug-06   02-Aug-09  

 























        15/03/2006   264,855   11,648   £3.93         276,503   15-Mar-07   15-Mar-10  

 























    ABPSP4   11/03/2005   417     £4.19   417   £3.92   (417 )     11-Mar-06   11-Mar-06  

 























Total           2,691,873   443,856   37,289     (37,289 ) (16,486 ) 3,081,954          

 























   
Notes:
   
1 See performance conditions attached to LTIP awards, as described on page 30 above.
 
  The PRSP plan operated from 1995 to 2001 and targeted senior executives not participating in the LTIP. All outstanding awards have now lapsed. The performance condition was the same as for LTIP, although vested shares could be released three years after grant.
   
2 LTIP 2001 and PRSP 2001 awards are available for exercise immediately on vesting. The qualifying period may be extended by up to two years where vesting does not occur or is only partial after the initial three-year period. For awards made in or prior to 2003, the plan permits the measurement period to be extended by up to two years under a re-testing provision. For LTIP awards made from 2004 onwards no re-testing is permitted.
   
  LTIP 2001 and PRSP 2001 did not meet performance conditions and therefore lapsed. Had they vested they would have been exercisable from 1 January 2006.
   
3 The restricted share plan was introduced in 2004. Restricted shares will not normally be granted for long-term incentive purposes to executive directors or members of the GLT. The indicated awards were made prior to the appointment of the relevant individuals as GLT members. Awards are normally granted with a four year vesting period, vesting 25% each year. Therefore, 25% vested in 2006 on the anniversary of the date of grant. If this date fell on a non-trading date, the shares vested at the next available trading date.
 
4 The annual bonus profit sharing plan was introduced in 2004 to focus employees on reward for profit growth. From 2005, any payments under the plan are made in cash to simplify the operation of the plan. GLT members did not participate in this plan in 2006.
 
5 Subject to performance conditions being met, share awards are due for release as soon as possible after vesting (subject to any restricted period).
 
6 Other senior managers as a group were 6 persons at 1 January 2006 and were 16 persons at 31 December 2006 following the creation of the GLT in June 2006, which replaced the Group Management Committee (GMC).

 

Reuters Group PLC Annual Report and Form 20-F 2006


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Governance 35
   


Share options granted to directors (audited)

                Number at                   Number at          
                1 January                   31 December          
                2006   Number   Number   Number   Number   2006          
            Exercise   (or later   granted   vested   (exercised)   (lapsed)   (or earlier   Earliest      
        Date of   price   date of   during   during   during   during   date of   exercise   Expiry  
    Plan   grant   (pounds)   appointment)   period   period   period 6 period   departure)   date   date  

 





















Tom Glocer 6   DSOP3   25/06/2001   £8.62   565,113         (565,113 )   25-Jun-06   25-Jun-11  

 





















        20/02/2002   £5.28   461,295           461,295   20-Feb-07   20-Feb-12  

 





















        02/08/2002   £2.66   915,654           915,654   02-Aug-07   02-Aug-12  

 





















        24/02/2003   £1.35   1,307,514     1,307,514       1,307,514   24-Feb-06   24-Feb-13  

 





















        04/08/2003   £2.45   706,594     706,594       706,594   04-Aug-06   04-Aug-13  

 





















        23/02/2004   £4.07   789,430           789,430   23-Feb-07   23-Feb-14  

 





















        27/08/2004   £3.21   1,000,928           1,000,928   27-Aug-07   27-Aug-14  

 





















        11/03/2005   £4.19   719,473           719,473   11-Mar-08   11-Mar-15  

 





















        02/08/2005   £3.89   774,959           774,959   02-Aug-08   02-Aug-15  

 





















        15/03/2006 5 £3.93     625,000         625,000   15-Mar-09   15-Mar-16  

 





















        02/08/2006 5 £3.93     625,000         625,000   02-Aug-09   02-Aug-16  

 





















    SAYE4   16/04/2003   £0.90   4,200     4,200   (4,200 )     01-Jun-06   01-Dec-06  

 





















        07/04/2004   £3.14   1,200           1,200   01-Jun-07   01-Dec-07  

 





















        14/04/2005   £3.33   569           569   01-Jun-08   01-Dec-08  

 





















        10/04/2006 5 £3.14     1,191         1,191   01-Jun-09   01-Dec-09  

 





















Total             7,246,929   1,251,191   2,018,308   (4,200 ) (565,113 ) 7,928,807          

 





















Devin Wenig 6   DSOP3   27/12/2000 2&3 £11.39   6,913           6,913   27-Dec-01   27-Dec-07  

 





















        25/06/2001 2&3 £8.62   9,135           9,135   25-Jun-02   25-Jun-11  

 





















        20/02/2002 2&3 £5.28   25,936     6,484       25,936   20-Feb-03   20-Feb-12  

 





















        02/08/2002 2&3 £2.66   200,000     50,000       200,000   02-Aug-03   02-Aug-12  

 





















        24/02/2003   £1.35   200,000     200,000       200,000   24-Feb-06   24-Feb-13  

 





















        04/08/2003   £2.45   200,000     200,000       200,000   04-Aug-06   04-Aug-13  

 





















        23/02/2004   £4.07   122,950           122,950   23-Feb-07   23-Feb-14  

 





















        27/08/2004   £3.21   155,892           155,892   27-Aug-07   27-Aug-14  

 





















        11/03/2005   £4.19   281,886           281,886   11-Mar-08   11-Mar-15  

 





















        02/08/2005   £3.89   303,625           303,625   02-Aug-08   02-Aug-15  

 





















        15/03/2006 5 £3.93     325,000         325,000   15-Mar-09   15-Mar-16  

 





















        02/08/2006 5 £3.93     325,000         325,000   02-Aug-09   02-Aug-16  

 





















    SAYE4   07/04/2004 1 $7.27   1,200           1,200   01-Jun-07   01-Dec-07  

 




















 
        14/04/2005 1 $7.93   1,134           1,134   01-Jun-08   01-Dec-08  

 





















Total             1,508,671   650,000   456,484       2,158,671          

 





















David Grigson6   DSOP3   25/06/2001   £8.62   92,807         (92,807 )   25-Jun-06   25-Jun-11  

 





















        20/02/2002   £5.28   75,757           75,757   20-Feb-07   20-Feb-12  

 





















        02/08/2002   £2.66   150,375           150,375   02-Aug-07   02-Aug-12  

 





















        24/02/2003   £1.35   200,000     200,000       200,000   24-Feb-06   24-Feb-13  

 





















        04/08/2003   £2.45   200,000     200,000       200,000   04-Aug-06   04-Aug-13  

 





















        23/02/2004   £4.07   122,950           122,950   23-Feb-07   23-Feb-14  

 





















        27/08/2004   £3.21   155,892           155,892   27-Aug-07   27-Aug-14  

 





















        11/03/2005   £4.19   281,886           281,886   11-Mar-08   11-Mar-15  

 





















        02/08/2005   £3.89   303,625           303,625   02-Aug-08   02-Aug-15  

 





















        15/03/2006 5 £3.93     250,000         250,000   15-Mar-09   15-Mar-16  

 





















        02/08/2006 5 £3.93     250,000         250,000   02-Aug-09   02-Aug-16  

 





















    SAYE4   16/04/2003   £0.90   4,200     4,200   (4,200 )     01-Jun-06   01-Dec-06  

 





















        07/04/2004   £3.14   1,200           1,200   01-Jun-07   01-Dec-07  

 





















        14/04/2005   £3.33   569           569   01-Jun-08   01-Dec-08  

 





















Total             1,589,261   500,000   404,200   (4,200 ) (92,807 ) 1,992,254          

 





















   
Notes:
   
1 The options indicated are over American Depositary Shares (ADSs). Each ADS represents six ordinary shares, is denominated in US dollars and trades on NASDAQ. For the purposes of this disclosure, ADSs have been converted into the equivalent number of ordinary shares and an equivalent option price.
 
2 The indicated awards were made prior to the appointment of the relevant individual as an executive director. The DSOP options granted prior to the appointment as an executive director have no performance condition.
 
3 Save as disclosed in note 2 above, exercise of each DSOP award is conditional on the performance criteria described on page 30. Performance conditions were varied during 2006 as described on page 30.
 
4 Options granted under the SAYE Plan have no performance conditions.
 
5 2006 awards are described on page 30.
 
6 There were total gains of £27,384 on the exercise of share options in 2006 (2005: £nil). The market price of the shares at the dates of exercise on 1 June 2006 and 8 November 2006 were £3.78 and £4.55 respectively.
 
  At 29 December 2006, the market price of our shares was 445.25 pence per share and $52.24 per ADS. The highest prices during the year were 475 pence per share and $54.25 per ADS and the lowest were 348.50 pence per share and $38.51 per ADS.

 

Reuters Group PLC Annual Report and Form 20-F 2006


Back to Contents

   
   
36 Remuneration report continued
   


Share options granted to senior managers (audited)

                Number at                   Number at          
                1 January                   31 December          
                2006   Number   Number   Number   Number   2006          
            Exercise   (or later   granted   vested   (exercised)   (lapsed)   (or earlier   Earliest      
        Date of   price   date of   during   during   during   during   date of   exercise   Expiry  
    Plan   grant   (pounds)   appointment)   period   period   period   period   departure)   date   date  

 





















Other senior managers                                      
as a group (17 persons)                                      
(2005: 6 persons)3   DSOP2   27/12/2000   £11.39   37,858           37,858   27-Dec-01   27-Dec-07  

 





















        25/06/2001   £8.62   5,800         (5,800 )   25-Jun-02   25-Jun-06  

 





















        25/06/2001   £8.62   76,243           76,243   25-Jun-02   25-Jun-11  

 





















        21/12/2001   £6.92   13,549           13,549   21-Dec-02   21-Dec-11  

 





















        20/02/2002   £5.28   5,697     1,424       5,697   20-Feb-03   20-Feb-07  

 





















        20/02/2002   £5.28   117,111     13,843       117,111   20-Feb-03   20-Feb-12  

 





















        02/08/2002   £2.66   150,000     37,500   (150,000 )     02-Aug-03   02-Aug-07  

 





















        02/08/2002   £2.66   736,954     198,813       736,954   02-Aug-03   02-Aug-12  

 





















        24/02/2003   £1.35   488,108     98,579   (81,829 )   406,279   24-Feb-04   24-Feb-13  

 





















        01/04/2003   £1.08   56,250       (37,500 )   18,750   01-Apr-04   01-Apr-13  

 





















        04/08/2003   £2.45   901,365     238,788   (112,500 )   788,865   04-Aug-04   04-Aug-13  

 





















        23/02/2004   £4.07   377,713     59,834       377,713   23-Feb-05   23-Feb-14  

 





















        27/08/2004   £3.21   343,608     85,902       343,608   27-Aug-05   27-Aug-14  

 





















        11/03/2005   £4.19   224,648     56,162       224,648   11-Mar-06   11-Mar-15  

 





















        02/08/2005   £3.89   241,968     60,492       241,968   02-Aug-06   02-Aug-15  

 





















        15/03/2006   £3.93   36,000   234,000         270,000   15-Mar-07   15-Mar-16  

 





















        02/08/2006   £3.93     355,000         355,000   02-Aug-07   02-Aug-16  

 





















    SAYE1   11/04/2002   £4.48   4,022           4,022   01-Jun-05   01-Dec-05  

 





















        16/04/2003   £0.90   16,800     8,400   (12,600 )   4,200   01-Jun-06   01-Dec-06  

 





















        07/04/2004   £3.14   10,800           10,800   01-Jun-07   01-Dec-07  

 





















        14/04/2005   £3.33   4,779           4,779   01-Jun-08   01-Dec-08  

 





















        10/04/2006   £3.14   3,551   1,786         5,337   01-Jun-09   01-Dec-09  

 





















Total             3,852,824   590,786   859,737   (394,429 ) (5,800 ) 4,043,381          

 





















   
Notes:
   
1 Options granted under the SAYE Plan have no performance conditions.
 
2 The DSOP was approved by the shareholders in April 2001. Awards are normally granted with a four year vesting period, vesting 25% each year. Therefore, 25% vested in 2006 on the anniversary of the date of grant. If this date fell on a non-trading date, the shares vested at the next available trading date.
 
3 Other senior managers as a group were 6 persons at 1 January 2006 and were 16 persons at 31 December 2006 following the creation of the GLT in June 2006, which replaced the GMC.
 
  At 29 December 2006, the market price of our shares was 445.25 pence per share and $52.24 per ADS. The highest prices during the year were 475 pence per share and $54.25 per ADS and the lowest were 348.50 pence per share and $38.51 per ADS.

 

Reuters Group PLC Annual Report and Form 20-F 2006


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Governance 37
   


   

Directors’ interests in ordinary shares
The total interests of the current directors in issued share capital and in shares underlying options and incentive plans are shown below as at 9 March 2007. No director or senior manager beneficially owns 1% or more of Reuters issued share capital. Interests in ordinary shares

(excluding options and interests in long-term incentive plans disclosed above) held at 1 January 2006 and 31 December 2006 are also shown for directors in office at 31 December 2006. Directors were the beneficial owners of all shares except for 16,875 shares held by David Grigson’s family members and 52,451 shares held by a trust of which Tom Glocer and his family are beneficiaries.


                       
    Interests at   Interests at   Interests at 9 March 2007  
    1 January   31 December  





    2006   2006       Long-term      
    Shares1   Shares   Shares   incentives   Options  

 









Niall FitzGerald, KBE   50,000   80,000   80,000      

 









Tom Glocer   372,145   401,345   401,345   3,192,599   6,551,858  

 









David Grigson   63,430   67,630   67,630   763,468   1,766,122  

 









Devin Wenig   105,843   105,843   105,843   813,468   2,158,671  

 









Lawton Fitt   25,000   25,000   25,000      

 









Penny Hughes     2,392   2,392      

 









Ed Kozel   7,500   7,500   7,500      

 









Sir Deryck Maughan            

 









Nandan Nilekani3   n/a   n/a        

 









Ken Olisa   2,550   2,550   2,550      

 









Dick Olver   10,000   10,000   10,000      

 









Ian Strachan   15,500   15,500   15,500      

 









Other senior managers as a group (17 persons)2   327,718   415,678   394,611   2,704,925   3,108,040  

 









 
None of the directors has notified the company of an interest in any other shares, or other transactions or arrangements which require disclosure.
1 Or date of appointment if later than 1 January 2006.
2 Other senior managers as a group were 16 persons at 31 December 2006 and 17 persons at 9 March 2007. On 15 June 2006 the GLT was created and replaced the GMC. On 31 December 2006, Julie Holland, Geert Linnebank and Susan Taylor-Martin stepped down from the GLT and John Alcantara, LeeAnn Daly and David Schlesinger were appointed on 1 January 2007, David Craig was appointed to the GLT on 1 March 2007.
3 Nandan Nilekani joined the Board as Non-executive director on 1 January 2007.
  On 13 March 2007 awards of 500,000, 300,000 and 200,000 shares under the LTIP were made to Tom Glocer, Devin Wenig and David Grigson respectively. On the same day, share options awards of 625,000, 375,000 and 250,000 were made to Tom Glocer, Devin Wenig and David Grigson respectively.
  On 13 March 2007 aggregate awards of 1,177,680 shares under the LTIP and RSP and 731,032 share options were made to other senior managers as a group.
  On 12 March 2007 awards under the 2004 LTIP were released to the executive directors and senior managers. On 12 March 2007, shares were released to senior managers from the March 2005 RSP and on 15 March 2007 shares were released to senior managers from the March 2006 RSP.

 

On behalf of the Board
Ian Strachan
Chairman of the Remuneration Committee, 15 March 2007

 

Reuters Group PLC Annual Report and Form 20-F 2006


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38 Statements of directors’ responsibilities and compliance
   


   

Corporate governance

The following sections of this report deal with Reuters corporate governance and how the company complies with the requirements of the UK’s Companies Act 1985 (the ‘Companies Act’) and Combined Code, the NASDAQ listing rules and the SEC’s rules under the Sarbanes-Oxley Act.

Compliance with the UK and US rules on governance
The listing rules of the UK Listing Authority of the FSA require UK-listed companies to report on their governance practices and on the extent to which they comply with the provisions set out in the Combined Code on Corporate Governance. As Reuters shares are also traded on NASDAQ we are required to comply with NASDAQ’s listing rules and the SEC’s governance rules. In this section of the report we describe how we comply with these requirements and where we do not comply, we explain why not.

Throughout 2006, Reuters has complied with the Combined Code on Corporate Governance, save that no individual member of the Audit Committee has been identified by the Board as having ‘recent and relevant financial experience’ (code principle C3.1). However, in common with all the non-executive directors, the members of the Audit Committee are experienced and influential individuals, having the skills described in their biographies in ‘Directors and senior managers’ (see pages 26–28) and the Board considers that, collectively, the members have the attributes required to discharge properly the Committee’s responsibilities.

Reuters also complies with all SEC and NASDAQ governance requirements, with the exception of two provisions of the NASDAQ governance rules. The company has received waivers from NASDAQ to both exceptions on the basis that compliance with the rules would be contrary to standard UK business practice. Since 1988, Reuters has operated under a waiver of NASDAQ’s requirement that all shareholder meetings require a quorum of at least one-third of

outstanding voting shares; instead, the company’s Articles of Association (Articles) provide, as is typical for English public companies, that a quorum shall consist of any two shareholders. In 2004 the company also received a waiver from NASDAQ’s provisions requiring shareholder approval of employee share-based incentive schemes. Reuters seeks and has received shareholder approval of its employee share-based incentive schemes to the extent required by UK regulation, including the Listing Rules.

While the company’s auditors, PricewaterhouseCoopers LLP, are not required to form an opinion on the effectiveness of the company’s corporate governance procedures, they are required to review whether this corporate governance statement reflects the company’s compliance with nine of the Combined Code’s provisions as specified by the Listing Rules. These provisions are contained within section C of the Combined Code, which relates to Accountability and Audit. Having conducted a review, PricewaterhouseCoopers LLP are obliged to report if they consider that this statement does not reflect such compliance. No such report has been made.

A. The Board
Composition of the Board
Every company should be headed by an effective board, which is collectively responsible for the success of the company.” (Combined Code – Main Principle A.1)

The board should include a balance of executive and non-executive directors (and in particular independent non-executive directors) such that no individual or small group of individuals dominate the board’s decision taking.” (Combined Code – Main Principle A.3)

The Board comprises a non-executive Chairman, 8 non-executive directors and 3 executive directors. Further details of the Board’s composition and the company’s assessment of the independence of its directors are set out in the table below. Biographies of the directors and details of their other commitments are set out on pages 26–27. Biographies of Reuters senior managers are set out on pages 27–28.


Composition of the Board

          Independent              
      No. of years   (as determined   Audit   Nominations   Remuneration  
Name Position   on Board   by the Board)   Committee   Committee   Committee  


 









L Fitt Non-executive Director and Chairman of Audit Committee   2   Yes   Yes (Chairman ) No   No  


 









N FitzGerald Chairman and Chairman of Nominations Committee   4   Yes   No   Yes (Chairman ) No  


 









T Glocer CEO   5   No   No   No   No  


 









D Grigson CFO   6   No   No   No   No  


 









P Hughes Non-executive Director   2   Yes   No   No   Yes  


 









E Kozel5 Non-executive Director   6   Yes   No   No   Yes  


 









D Maughan6 Non-executive Director   1   Yes   No   No   see note 6  


 









N Nilekani4 Non-executive Director   In first year   Yes   Yes   No   No  


 









K Olisa Non executive Director   2   Yes   Yes   No   No  


 









D Olver1 Non-executive Director and Senior Independent Director   9   Yes   Yes   Yes   No  


 









I Strachan2 Non-executive Director and Chairman of Remuneration Committee   6   Yes   No   Yes   Yes (Chairman )


 









D Wenig3 COO   3   No   No   No   No  


 









Notes:
1 Dick Olver was chairman of the Audit Committee until 9 November 2006 when he was succeeded by Lawton Fitt.
2 Ian Strachan was appointed to the Nominations Committee on 24 January 2006.
3 Devin Wenig was appointed as Chief Operating Officer on 15 June 2006.
4 Nandan Nilekani was appointed as a non-executive director and a member of the Audit Committee with effect from 1 January 2007.
5 Ed Kozel is retiring from the Board and the Remuneration Committee on 26 April 2007.
6 Sir Deryck Maughan is joining the Remuneration Committee on 26 April 2007.

 

Reuters Group PLC Annual Report and Form 20-F 2006


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Governance 39
   


   

The quality of the individual directors, the balance of the Board’s composition and the dynamics of the Board as a group, ensure both the Board’s effectiveness and the inability of an individual or small group to dominate the Board’s decision making.

The Board has determined that each of the non-executive directors is independent in character and judgement by reason of his or her personal qualities, and that each of the non-executive directors is ‘independent’ as that term is defined in NASDAQ and SEC governance requirements. Particular consideration was given to the assessment of Dick Olver’s independence since he has now been on the Reuters Board for more than nine years. Dick was asked by the Chairman to remain on the Board because of his experience, wisdom and his effectiveness as a non-executive director.

Board responsibilities and process
There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for running the company’s business. No one individual should have unfettered powers of decision.” (Combined Code – Main Principle A.2)

There is a clear division of responsibilities between the running of the Board, which is the Chairman’s responsibility, and the running of Reuters business, which is the CEO’s responsibility, with the Board having oversight. The division of responsibilities is set out in a document approved by the Board. The Board is responsible for the success of the Group within a framework of controls which enables risk to be assessed and managed. Its aim is for the Group to achieve profitable growth within an acceptable risk profile.

All directors are equally accountable for the proper stewardship of the company and share responsibility for maintaining the company’s high standards of ethics and integrity. The non-executive directors contribute particularly by challenging constructively the company’s strategy and performance, management’s assessment of risk, the integrity of internal controls and by ensuring appropriate remuneration and succession planning arrangements are in place.

The Senior Independent Director, Dick Olver, is responsible for undertaking the annual review of the Chairman’s performance and he chairs the Nominations Committee when considering the role of

Chairman. The Senior Independent Director also makes himself available to shareholders to discuss any matters.

The CEO is assisted by the GLT in managing the business. It comprises the three executive directors and the senior managers listed on page 26. A Disclosure Committee, chaired by the CEO, reviews the Group’s trading statements and financial results and considers the effectiveness of the Group’s disclosure controls and procedures. Its members comprise the CEO, the CFO, the Director of Corporate Affairs, the General Counsel and Company Secretary, the Global Head of Internal Audit, the Global Head of Finance, the Head of External Reporting, the General Counsel for the Americas, the Global Head of Investor Relations and the Global Head of External Communications. A sub-committee meets on an ad hoc basis to address disclosure matters arising between reporting periods.

A schedule of matters reserved for the Board’s decision identifies those matters that the Board does not delegate to management. It includes the approval of corporate objectives, strategy and the budget, significant transactions and matters relating to share capital.

The Board delegates specific responsibilities to the Audit, Remuneration and Nominations Committees. Each Committee has its own terms of reference set by the Board. These are available on request from the Company Secretary or at www.about.reuters.com/csr/corporategovernance. Reports of the Audit and Remuneration Committee are set out on pages 29 and 42 and the activities of the Nominations Committee are described in the interview with Niall FitzGerald on pages 22–23.

All directors have access to the services of the Company Secretary who is appointed by, and can only be removed by, the Board. The directors may take independent professional advice at the company’s expense. None of the directors sought such advice during 2006. Reuters provides insurance cover and indemnities for its directors and officers.

The Board met eight times in 2006 and held a two-day strategy meeting with senior management in Palo Alto, California. The Chairman routinely meets with non-executive directors, without the executive directors present, after each Board meeting. Attendance by individual directors at Board and Committee meetings during 2006 is set out in the table below.


Attendance at meetings

    Attendance at       Attendance   Attendance  
    Board meetings   Attendance at Audit   at Remuneration   at Nominations  
    (8 meetings +   Committee meetings   Committee meetings   Committee meetings  
Name   Awayday in 2006)   (6 meetings in 2006)   (5 meetings in 2006)   (1 meeting in 2006)  

 







L Fitt   Full attendance   Full attendance   n/a   n/a  

 







N FitzGerald   Full attendance   n/a   n/a   Full attendance  

 







T Glocer   Full attendance   n/a   n/a   n/a  

 







D Grigson   Full attendance   n/a   n/a   n/a  

 







P Hughes   Full attendance   n/a   Absent 1   n/a  

 







E Kozel   Absent 2   n/a   Absent 1   n/a  

 







D Maughan   Absent 2   n/a   n/a   n/a  

 







K Olisa   Absent 1   Full attendance   n/a   n/a  

 







D Olver   Absent 1   Absent 1   n/a   Full attendance  

 







I Strachan   Absent 1   n/a   Full attendance   Full attendance  

 







D Wenig   Full attendance   n/a   n/a   n/a  

 







Niall FitzGerald attended 5 Remuneration Committee meetings at the invitation of the Remuneration Committee chairman.
The CEO attended 5 Remuneration Committee meetings at the invitation of the Remuneration Committee chairman and 3 Audit Committee meetings at the invitation of the Audit Committee chairman.

 

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Appointments to the Board
“There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board.” (Combined Code – Main Principle A.4)

The Nominations Committee leads the process for Board appointments and makes recommendations to the Board. Its work in 2006 is summarised above in the interview with Niall FitzGerald (see pages 22–23). A director may not be involved in any decision concerning him or his successor. The Committee has appointed an external adviser to assist it in its work in identifying potential candidates for non-executive directorships.

Information and directors’ induction and training
The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.” (Combined Code – Main Principle A.5)

Nandan Nilekani, who joined Reuters Board on 1 January 2007, received a directors’ manual which provides information about Reuters and the operation of the Board and its committees. During 2007 he will receive a series of induction briefings to gain insights into the company. Nandan, like the other directors, is being supplied with Reuters products.

Ongoing training for directors is available as appropriate. The company’s legal advisers and auditors provide briefings to the directors from time to time. In the twelve months to March 2007 the directors received information from the company’s lawyers and auditors on aspects of Sarbanes-Oxley Act, the new UK Companies Act 2006, and on new legislation concerning disclosures to be made to the auditors. Guest speakers are occasionally invited to join Board dinners to discuss topics of interest with the directors and opportunities are provided for non-executive directors to meet with shareholders, customers and others involved in Reuters business.

The Chairman is responsible for ensuring that directors receive accurate, timely and clear information. Regular and ad hoc reports and presentations are prepared and circulated to the directors a week in advance of Board meetings, together with minutes and papers relating to the Board’s committees. The directors also receive a monthly Performance report which summarises financial and operational performance and provides updates on key programmes within the business.

Board performance evaluation
The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.” (Combined Code – Main Principle A.6)

In response to the findings of the 2005 Board effectiveness review, during the year the Board made some changes to the way it operates. It introduced time at the end of each meeting for the Chairman and non-executive directors to meet on their own; it improved the flow of information about aspects of the business which might be of general interest to the directors; and it created an opportunity at its annual strategy meeting for the Board and senior management to spend time together outside the usual environment of a Board meeting.

The 2006 Board effectiveness review was similar in format to the 2005 review in that:

the Chairman reviewed the performance of the CEO and each individual director;
the CEO reviewed the performance of the CFO and the COO;
   
Dick Olver, the senior independent non-executive director, led a review of the performance of the Chairman;
   
Dr Annie McKee of the Teleos Leadership Institute facilitated a Board effectiveness review in which the performance of the Board as a whole and of the Chairman and the CEO was considered;
   
Dr McKee also facilitated reviews of the effectiveness of the Audit Committee and the Remuneration Committee; and
   
the Board discussed and agreed the Nominations Committee’s approach to identifying and recruiting potential future Board members.

The format of the reviews was interviews with the directors and others involved in the work of the Board and its committees, the output from which was thematically analysed and discussed with the person or group being reviewed, the Board as a whole, as well as with the Chairman. In addition to agreeing actions relating to individual and collective effectiveness, the Board has decided to change the frequency and length of Board meetings to have six rather than eight meetings each year but to extend each meeting over two days to allow the directors to become more deeply immersed in consideration of strategic issues.

Re-election of directors
All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. The board should ensure planned and progressive refreshing of the board.” (Combined Code – Main Principle A.7)

The Articles provide that at each AGM any director appointed since the last AGM shall stand for election by the shareholders and one third of the directors shall retire from office by rotation and be eligible for re-election by the shareholders. However, to recognise that some shareholders prefer all the directors to stand for re-election each year, once again at the 2007 AGM each of the directors will retire from office and offer himself or herself for re-election, save for Ed Kozel who will retire from the Board with effect from the end of the AGM.

B. Remuneration of directors
The Combined Code has a section covering remuneration principles. Reuters compliance with those principles is described in the directors’ Remuneration report on pages 29 to 37.

C. Accountability and audit:
Directors’ statement of responsibility
The board should present a balanced and understandable assessment of the company’s position and prospects.” (Combined Code – Main Principle C.1)

The directors are responsible for ensuring that the Directors’ report and the consolidated financial statements of the company and its subsidiaries (the Group) and parent company financial statements for Reuters Group PLC are prepared in accordance with applicable laws and regulations. The financial statements for each financial year must give a true and fair view of the state of affairs of the Group as at the end of the financial year and of the profit and cash flows of the Group for the period. The company is also required to prepare financial statements in accordance with the requirements of the SEC.

The company has complied with both UK and US disclosure requirements in this report in order to present a true and fair view to


 

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all shareholders. In preparing the financial statements, applicable accounting standards have been followed, suitable accounting policies have been used and applied consistently, and reasonable and prudent judgements and estimates have been made where appropriate.

The directors have reviewed the budget and cash flow forecasts for the Group for the year to 31 December 2007 and outline projections for the subsequent year in the light of the financial position and borrowing facilities at 31 December 2006. On the basis of this review, the directors are satisfied that Reuters Group is a going concern and have continued to adopt the going concern basis in preparing the financial statements.

Internal control
The board should maintain a sound system of internal control to safeguard shareholders’ investment and the company’s assets.” (Combined Code – Main Principle C.2)

The directors acknowledge their responsibility for the company’s system of internal control and confirm they have reviewed its effectiveness. In doing so, the Board has taken note of the Guidance on Internal Control (the Turnbull Guidance) contained in the Combined Code. The Board confirms that it has a process for identifying, evaluating and managing significant risks faced by the company. This process, which accords with the Turnbull Guidance, has been in place for the full financial year and is ongoing. The control system includes:

objective setting, risk assessment and monitoring of performance at both strategic and business unit levels though a process known within the company as ‘mission analysis’;
   
the use of ‘balanced scorecards’ to track performance against targets relating to the financial, business, people and customer aspects of the company’s business;
   
written policies and control procedures;
   
monthly reporting to the Board and senior management which, amongst other things, tracks performance against the annual budget;
   
systems to communicate rapidly to appropriate managers incidents requiring immediate attention; and
   
review meetings by the CEO and CFO or COO with each GLT member which cover the performance, risks and controls for which the GLT member is responsible.

In a group of the size, complexity and geographical diversity of Reuters it should be expected that breakdowns in established control procedures might occur. There are supporting policies and procedures for reporting and management of control breakdowns. The Board considers that the control system is appropriately designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The concept of reasonable assurance recognises that the cost of a control procedure should not exceed the expected benefits.

Using a common risk management framework throughout Reuters, each of the principal business and functional units summarises the risks that could impede the achievement of its objectives. For each significant risk, line managers document an overview of the risk, how it is managed and any improvement actions required. A document

called a ‘risk radar’ is created which sets out the main strategic and operational risks that have been identified. This document is reviewed by the GLT and the Board.

At the year end, before producing the above statement on internal control in the annual report and Form 20-F, the CEO and CFO meet with members of the GLT and others to consider formally the operation and effectiveness of the company’s risk management and financial, operational and compliance internal control systems as well as its disclosure controls and procedures. This review includes consideration of compliance self-assessment reports from line management and covers each of the most significant risks the company faces and how well these are controlled and managed. The CEO and the CFO report on the results of this review to the Audit Committee and to the Board. The Disclosure Committee (described on page 39) supports the process by reviewing disclosure controls and procedures.

In addition to the management review procedures, the Group monitors its internal financial control system through a programme of internal audits. Internal auditors independently review the controls in place to manage significant risks and report to the Audit Committee twice a year. The Audit Committee reviews the assurance procedures annually, including compliance controls, and reports its findings to the Board. The Group’s external auditors, PricewaterhouseCoopers LLP, have audited the financial statements and have reviewed the work of internal auditors and the internal control systems to the extent they consider necessary to support their audit report. In 2006 management commissioned a report on Reuters internal control environment from Independent Audit Limited, an independent consultancy. The Audit Committee was satisfied with the report’s findings. The Audit Committee also met the internal auditors and PricewaterhouseCoopers LLP to discuss the results of their work.

Reuters management carried out an evaluation of the effectiveness of the design and operation of the Group’s disclosure controls and procedures. These are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, summarised and reported within specific time periods. Based on this evaluation, the CEO and the CFO concluded that the design and operation of these disclosure controls and procedures were effective as at 31 December 2006 to a reasonable assurance level (within the meaning of the US federal securities laws). No changes were made in the Group’s internal controls over financial reporting during the period covered by this report that materially affected, or are reasonably likely to affect materially, the Group’s internal control over financial reporting.

Management’s report on internal control over financial reporting
In accordance with section 404 of the Sarbanes-Oxley Act, the following report is provided by management in respect of the company’s internal control over financial reporting (as defined in Rules 13(a) – 15(f) and 15d – 15f of the US Securities Exchange Act of 1934).

The management of the Group is responsible for establishing and maintaining adequate internal control over financial reporting for the company. The company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the company’s financial statements for external purposes in accordance with generally accepted accounting principles.


 

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The Group’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Group; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Group are being made only in accordance with authorisations of management and directors of the Group; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the Group’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Group’s internal control over financial reporting as of 31 December 2006, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment, management concluded that, as of 31 December 2006, the Group’s internal control over financial reporting was effective.

PricewaterhouseCoopers LLP, which has audited the consolidated financial statements of the Group for the financial year ended 31 December 2006, has also audited management’s assessment of the effectiveness of the Group’s internal control over financial reporting and the effectiveness of the Group’s internal controls over financial reporting; their report is included herein.

Audit Committee and auditors
The board should establish formal and transparent arrangements for considering how they apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company’s auditors” (Combined Code – Main Principle C.3)

Reuters adherence to this principle is described in the Audit Committee report below.

Audit Committee report
Members
Members of the Committee during 2006 were Dick Olver (Chairman until 9 November 2006), Lawton Fitt (Chairman from 9 November 2006) and Ken Olisa. Nandan Nilekani joined the Committee on 1 January 2007. The Board has determined that the Audit Committee does not at present include a member who is a ‘financial expert’, as defined in the Sarbanes-Oxley Act and related SEC rules because the Board considers that none of the members clearly meets all the criteria set out in the relevant definitions nor has the Board identified a member of the Committee as having recent and relevant financial experience. However, the Board considers that collectively the members have the requisite skills and attributes to enable the Committee properly to discharge its responsibilities. The Company Secretary is secretary to the committee.

Responsibilities
Each year, the Audit Committee reviews and, as appropriate, actively engages in the processes for financial reporting, internal control, risk

assessment, audit and compliance assurance, the independence of the company’s internal and external auditors and the effectiveness of the company’s system of accounting, its internal financial controls and the internal and external audit functions.

The Audit Committee’s remit, which is set out in its terms of reference, includes responsibility for:

the oversight responsibilities described in the above paragraph and for reviewing compliance with laws, regulations, the company’s code of conduct and policies;
   
approving related party transactions to the extent required under NASDAQ rules;
   
monitoring the integrity of the company’s financial statements and any announcements relating to the company’s financial performance and reviewing significant financial reporting judgments contained in them;
   
monitoring and reviewing the effectiveness of the company’s internal audit function;
   
making recommendations to the Board, for it to put to the shareholders for their approval, regarding the appointment, re-appointment and removal of the external auditor and approving the remuneration and terms of engagement of the external auditor;
   
reviewing and monitoring the external auditor’s independence and the effectiveness of the audit process and developing and implementing policy on the engagement of the external auditor to supply non-audit services; and
   
overseeing the receipt, review and treatment of complaints received regarding accounting, internal accounting controls, auditing and compliance matters, whether through the company’s ‘whistleblower’ confidential helpline or otherwise.

Activities
The Committee met five times in 2006 with the CEO, the CFO, other officers and the auditors attending as required. The auditors have unrestricted access to the Audit Committee and met after five of the 2006 Committee meetings privately with the Committee members, as did the Global Head of Internal Audit.

The Chairman of the Audit Committee meets with the Global Head of Internal Audit and with the external auditors before each Audit Committee meeting. All members of the Audit Committee attended every Committee meeting during the year, except for Dick Olver, who was absent from one meeting. The Committee reports its activities and makes recommendations to the Board. During 2006 the Committee discharged the responsibilities set out in its terms of reference. Its activities included:

formally reviewing the draft annual report and interim statement, respectively, and associated announcements, focusing on the main areas of judgement and critical accounting policies;
   
reviewing the findings of the external auditors and the report of the Global Head of Internal Audit on internal audit activities;
   
reviewing the effectiveness of internal control systems and the risk management process and considering how those were changing as a result of the introduction of centralised back-office functions;

 

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paying particular attention throughout the year to the work being undertaken in connection with section 404 of the Sarbanes-Oxley Act;
   
receiving the report of the CEO and the CFO on the processes followed prior to certification being given by them in connection with sections 302 and 404 of the Sarbanes-Oxley Act;
   
reviewing the external audit strategy and the external auditors’ report to the Committee in respect of the annual report and interim statement;
   
considering the directors’ duties under Section 234ZA of the Companies Act 1985, regarding disclosure of information to the company’s auditors;
   
keeping under review the proportion of non-audit fees to audit fees paid to the auditors and giving pre-approval to non-audit work undertaken by the auditors;
   
reviewing the effectiveness of the internal and external auditors;
   
reviewing the compliance programme, including the whistleblower programme; and
   
reviewing a report on the company’s corporate responsibility activities.

The Board adopted a code of ethics for the company’s CEO and senior financial officers in 2003 (revised in 2005), in addition to the company’s general code of conduct. No material amendments to, or waivers in respect of, either code were made during 2006. Copies of the codes are available on request from the Company Secretary and can be viewed at www.about.reuters.com.

The Committee monitors adherence to the company’s auditor independence policy, which prohibits Group entities from engaging the auditors in activities prohibited by the SEC or the US Public Company Accounting Oversight Board. The policy permits the auditors to be engaged for other services provided the engagement is specifically approved in advance by the Committee or is approved by the CFO and meets the detailed criteria of specific pre-approved activities and is notified to the Committee. However, any services where the expected level of fees is greater than £150,000 or the expected term is longer than one year, must be approved in advance by the Committee.

For details regarding fees paid to the Group’s auditors, see note 3 to the financial statements on page 85 and note 5 to the summary of differences on page 133.

The Committee may engage, at the company’s expense, independent counsel and other advisers as it deems necessary to carry out its duties. None was engaged during the year.

Lawton Fitt
Chairman, Audit Committee

15 March 2007

Disclosure of information to the auditors
So far as each director is aware, there is no relevant audit information of which the auditors are unaware; and each director has taken all

steps that he ought to have taken as a director to make himself or herself aware of any relevant audit information and to establish that the auditors are aware of that information. This confirmation is given pursuant to section 234ZA Companies Act 1985.

D. Relations with shareholders
There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place” (Combined Code – Main Principle D.1)

The executive directors meet regularly with institutional shareholders and analysts. Non-executive directors are offered the opportunity to attend meetings with major shareholders and from time to time some attend the presentations of the annual results to analysts. Niall FitzGerald met with various investors during the year. No shareholders asked to meet with Dick Olver, the Senior Independent Director, during the year.

An investor relations department is dedicated to facilitating communications between the company and its shareholders. In the last three years, Reuters has received several awards for investor relations, including the IR Magazine award in each of those years for best investor relations in the media sector. It provides a regular report on investor relations as part of the routine Board report materials. The company’s AGM is used as an opportunity to communicate with private investors. The chairmen of each of the Board committees are available to answer questions at the AGM, and all directors are expected to attend the AGM. At the AGM the level of proxies lodged on each resolution and the balance for and against the resolution and the number of votes withheld are announced after the resolution has been voted on. At the 2005 AGM, voting using a poll for all resolutions was introduced to replace voting by a show of hands as the Board considers poll voting gives a better representation of shareholders’ views. The results of voting at the AGM in 2007 will be available at www.about.reuters.com.

By order of the Board

Rosemary Martin
General Counsel & Company Secretary

15 March 2007


 

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This section of our Annual Report and Form 20-F provides more detailed information on

Strategy
Markets
People
Ethics and compliance
Corporate responsibility
Supply chain
Governmental regulation
Supplementary information

01 Strategy

(See Business review on pages 6-7)

Grow revenues, both from our Core business and through our Core Plus initiatives
Our Core business serves a £6 billion per annum market for financial information and related services, with an estimated growth rate of 2–4%.

We are continuing to improve our product line by delivering regular upgrades to content and functionality. For example, in 2006 we extended our coverage of the credit derivatives markets. This approach of continuous product enhancement is justifying increased prices and helping us to attract new users, particularly in the institutional investment community and at our largest clients. We are also evolving our commercial model to align pricing more closely with customers’ use of our data, which is trending upwards. We believe that by continuing to develop our product line we can continue to grow our business at least as fast as the market.

With Core Plus, we are aiming to become market leaders in electronic trading, new and hard-to-obtain information (what we call high value content), advanced technology solutions for financial services companies and services for new markets. We are creating neutral, scaleable, open trading platforms to be used by both people and machines and we are seeking to be a recognised innovator in new asset classes, consumer media and high growth economies.

Electronic trading
Reuters has an established track record of providing electronic transaction services for the financial markets, such as our foreign exchange conversational dealing system, Reuters Dealing 3000, and our electronic bid-and-offer matching service, Reuters Dealing Matching. We believe that the electronic trading trend is accelerating and as a result we have invested in electronic trading services by building a multi-asset trading platform. Reuters Trading for Foreign Exchange and Reuters Trading for Fixed Income were the first services to be delivered over the platform, joined in October 2006 by Reuters Trading for Exchanges, which provides equity order routing facilities for institutions wanting to trade. In January 2007 we announced that this service would be distributing trading algorithms and routing orders on behalf of the BNY ConvergEX Group (an affiliate of The Bank of New York), a leading agency broker. We believe this has the potential to drive additional sales of our premium desktop products. Reuters Trade Notification Service, which helps customers streamline their trade confirmation operations, was launched in the second half of 2006 and has seen rapid growth in the number of messages carried.

High-value content
We see increasing demand from customers, especially from hedge

funds, for content which gives them not just facts but insight. We are investing in the creation of this high-value content by expanding our specialist editorial and data teams and also through acquisition and distribution agreements such as our arrangement to distribute the highly regarded University of Michigan Surveys of Consumers which are a lead indicator of US consumer confidence (a closely watched financial markets statistic). Our global coverage of company fundamentals and the breadth and depth of our estimates helped to strengthen our products in 2006. In 2007 we are planning to launch a primary research product which will offer high-value proprietary content, both from Reuters sector specialists and respected third party content providers. The first sectors will be healthcare and technology.

New enterprise services
In a highly competitive market, our customers are turning to computer-driven trading and increasingly complex financial products in order to differentiate themselves from their competitors. Our Enterprise business helps banks and other financial organisations to automate their businesses by managing the flow of information and transactions both internally and with their institutional customers. Demand for structured information and data management services is increasing, driven by growth in program and algorithmic trading. The need for greater transparency in order to satisfy regulatory compliance requirements is also a factor in the growing demand for data.

We have a wide range of assets such as high-speed streams of machine-readable trading data, historical price data and risk management and position-keeping systems. Using these tools, we have built long-term partnerships with many of our largest clients to help them develop their information and trading infrastructures. We are making our products more compelling to our customers by offering tools such as Reuters Tick History, which is used to back-test clients’ algorithmic trading strategies, Reuters Tick Capture Engine, which stores details of price movements as they happen, and Reuters Wireless Delivery Network, which enables our customers to distribute content to their employees’ mobile devices. Reuters NewsScope, launched in 2006, is an innovative service for financial institutions that want to use algorithms to drive automated trading from news reports. It categorises news events so that machines can ‘read the news’ and the information can then be used to generate inputs to trading algorithms and inform trading decisions. In 2007 we are planning to launch a Counterparty Data service, which will help banks to improve the efficiency of their trading and settlement operations and reduce risk by verifying details of their trading counterparties.

New markets
We are increasing our presence in high-growth geographic markets. In India in January 2006 TIMES NOW, a 24-hour English-language news television channel was launched. The venture is owned jointly with Bennett, Coleman & Co, India’s largest publishers of English language news, and is helping us to build our consumer media presence in India. In China, we are sourcing content from our new Beijing centre to meet growing local demand, adding data from a range of Chinese brokers [and providing coverage of local pension fund indices]. We are extending our coverage of financial markets in the Middle East, focusing on news, company fundamental data, funds information and broker research. We also see opportunities to serve the growing market for Shari’ah-compliant finance products.

We have identified emerging asset classes with the potential to become liquid markets. These include real estate, environmental markets (including the rapidly growing emissions trading market) and freight derivatives (an asset class tied directly to growth in China and India). In 2006, we appointed lead correspondents to focus and co-


 

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ordinate our editorial coverage for each of these markets, and enhanced it with content from key third-party sources. This coverage is now included in our premium desktop products and in our new web-based services such as ReutersRealEstate.com.

We are also continuing to target new types of customer such as a consumer media audience. We are building a fast-growing presence around the world with our reuters.com family of websites and our content services for mobile devices and internet-delivered TV.

Core Plus investment
We are now halfway through an investment programme started in 2005 to drive revenue growth and have started to see Core Plus revenues coming through ahead of target.

Creating future growth opportunities
FXMarketSpace
In addition to our Core and Core Plus trading products, we are also investing in an innovative new foreign exchange (FX) trading system, FXMarketSpace, which we established with the Chicago Mercantile Exchange (CME) as a 50/50 joint venture. FXMarketSpace, to be launched in March 2007, is helping to lead changes in FX market structure by offering the world’s first centrally-cleared, global FX marketplace. It will provide broader access to the FX market by making it possible for non-bank financial institutions to participate, creating potential for further growth in electronic trading volumes. FXMarketSpace will be accounted for as a joint venture. For more information, see note 15 on page 96.

Innovation programme
In December 2005 we launched our Innovation Programme. Its aim is to identify opportunities to use our content and technology expertise in projects which have the potential to fuel our medium to long-term growth. The programme looks for transformational business ideas that represent a ‘step out’ from or challenge to our existing activities.

During 2006 we developed a portfolio of projects and a pipeline of ideas and were pleased to see one project, Reuters NewsScope (see ‘New enterprise services’, on page 44 above), start to deliver revenue. Initiatives expected to contribute revenue in 2007/2008 include Reuters Market Light and Reuters Insight. Reuters Market Light takes us into an entirely new market, serving rural farming communities. Via their mobile phones, farmers receive accurate local pricing for their goods, together with weather information that directly influences their choices of when to harvest and to which market town to take their crops. An early version of the service is currently being piloted in northern India. Reuters Insight is aimed at mid-size companies looking to develop and sustain their international operations. It provides personalised content, together with access to relevant communities able to share expertise, which can help them to assess the political, environmental and social risks they may face. The service is currently in client testing.

Simplify our organisation in order to become stronger, more competitive and more efficient
We are working to deliver further improvements in our products and our customer service through a series of simplification initiatives and, through these, we are aiming to deliver £150 million in annualised cost savings by 2010. This is in addition to the £885 million of cost savings already delivered since 2001.

Changing the way our product development teams work
In 2006 we completed the integration of our development organisation into the business divisions to bring it closer to our customers. We are also streamlining our software development as we move to a smaller number of larger sites. By the end of 2006 over 40% of our development resource was in our centres in Bangkok and Beijing.

Simplifying our product delivery infrastructure and making it more robust
We aim to consolidate our data centres from 250 to 10 by 2010 as we move our customers and our products to a modern IP telecommunications network. In 2007 we are also working to consolidate our product delivery infrastructures into a common platform from which to deliver our products. We are aiming to deliver the first products over the new platform in 2008.

Transforming the way our content is created, collected and processed
We are investing in extensive automation of our content production and in content quality improvements. In 2006, our content quality programme focused on improving the timeliness and accuracy of fixed income data. In 2007, we will extend the programme to other asset classes.

Modernising our customer administration systems
We are modernising our administration systems in order to make it faster and easier for us to provide customers with access to our products and to simplify our ordering and billing processes.

02 Markets

(See pages 10-11 in the ‘Business review’)

Financial markets
We and our customers are affected by global economic trends and by developments in the financial services markets. In this section, we provide a high level macro-economic overview of 2006 as the backdrop to our performance during the year and highlight the key market trends we believe will influence our ability to achieve our goals in 2007.

The global economy
The global economy saw good growth in 2006, showing solid levels of employment and consumer optimism during the year. In the US, concerns over inflation and consequent interest rate increases tempered growth, but to a lesser extent than many market watchers had predicted. Asia continued to thrive as China and India fuelled the region’s economic expansion and Japan showed steady, moderate growth. Economic growth in the Euro Zone accelerated at its fastest rate since 2000.

The global macroeconomic outlook for 2007 is relatively strong, with the International Monetary Fund (IMF) projecting global economic growth of around 5%. However, concerns persist about geopolitical risks, including intensifying inflationary pressures, a rebound in oil prices due to geopolitical uncertainty in the Middle East and elsewhere and the risk of a slowdown of the US economy.


 

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Financial services industry performance in 2006
2006 was a record year for investment banks whose revenues benefited from buoyant initial public offering and mergers & acquisitions markets, as well as from proprietary trading activities and increased services to hedge funds and private equity. However, financial services industry consolidation continued in Europe. Financial markets rebounded globally in the second half of the year after their earlier energy-driven sell-offs.

Shares indices

FX volumes continued to increase, driven by hedge and pension funds. Celent has estimated that average FX daily trading volumes will reach $4 trillion by 2010, up from $1.9 trillion in 2004.

Average daily turnover in traditional foreign
exchange markets
US$ trillion

Trading in derivative financial instruments such as options and credit derivatives grew faster than any other asset class, and commodity and energy prices remained volatile.

Hedge funds continued to gain influence in the financial markets, now controlling more than $1 trillion in assets globally, and were some of the most active traders, accounting for up to half of total revenues at big equity brokers. The private equity industry also grew at an unprecedented rate.

Market outlook for 2007
Continued consolidation in Europe, together with the increasing automation of trading floors, is likely to put some pressure on front office jobs. US securities industry and UK ‘City’ employment is expected by commentators to level out over the next two years.

However, 2007 is still expected to be a good year for the financial markets. Commodity markets are likely to remain strong and volatile, and there seems to be no let-up in sight in the record growth of

derivatives and structured products. Global uncertainty will drive continued FX volatility and volume, and proprietary trading is expected to show double-digit growth in assets like credit.

Key market trends
Market structures are continuing to evolve
FX markets are preparing for the shift towards an exchange-traded model as demonstrated by the willingness of banks and prime brokers to trade on FXMarketSpace.
   
Exchange consolidation is ongoing: CME announced a merger with CBOT; London Stock Exchange may still face the possibility of a takeover.
   
Continuing banking consolidation could increase the number of European banks big enough to compete directly with the largest US institutions.
   
The rise in electronic trading is set to continue in 2007 and beyond
Algorithmic trading, a key driver in the growth in electronic trading, is being more broadly adopted across asset classes and geographies.
   
By 2010 algorithmic trading is expected to account for more than half of all equities trading volume in the US.
   
Increasing automation of trading by investment banks and hedge funds is driving the demand for high speed, structured information and data management services.
   
The financial services industry is developing increasingly complex, highly structured financial products
Trading in instruments such as property derivatives and freight derivatives is increasing.
   
New types of instruments, such as longevity risk, are being conceived and launched.
   
The need to tackle climate change is driving growth in emissions trading – the European Climate Exchange launched the first emissions options contract in 2006.
   
A Shari’ah-compliant derivatives market is under development, with the potential to transform the financial landscape in the Middle East.
   
The hedge fund industry is expected to continue its growth and its importance to the financial markets ecosystem
Large funds are growing their assets much more rapidly than their smaller competitors.
   
Investment banks are likely to continue taking stakes in hedge funds as the distinction blurs between hedge funds and more traditional asset management firms.
   
Hedge funds are particularly active in driving demand for high-value content, including sources of market and company insight, as they look for trading advantage.
   

The information needs of investment managers are changing as the investment profile of funds becomes increasingly polarised

Investment funds appear to be polarising, with demand for absolute return/alternative investment strategies at one end of the spectrum, and large passive index portfolios on the other.

 

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Independent analysts are gaining market share as mutual funds seek more independent research.
   
Wealth management is the fastest-growing segment of the financial services marketplace
Growing life expectancy and intensifying pressure on pension provision reform is underpinning demand for wealth management services.
   
New market regulations are creating requirements for greater price transparency
Particular focus on the Markets in Financial Instruments Directive (MiFID) in the EU and Regulation NMS in the US: Reg NMS is expected to drive annual growth of over 70% in the number of trades routed inter-market.
   
Growing regulatory oversight across the world is likely to fuel demand for analytics, risk management, pricing, valuation, and data management tools.
   
Financial information technology spending is expected to continue rising in 2007
Banks in the Asia Pacific region are expected to increase their investments faster than elsewhere, according to Celent.
   
Hedge funds are beginning to demand improved service levels from their prime brokers, which is likely to trigger prime brokers’ IT spending.
   
Risk management systems are increasingly in demand
Recent hedge fund failures and concerns about systemic credit derivative risk have raised fears of market disruptions.
   
In media, user-generated content and social networks are increasing in popularity
Harnessing these trends will be key to building and sustaining online communities, audiences and brands.
   
Online advertising is growing rapidly
Online advertising is expected to grow seven times faster than traditional advertising in 2007, creating opportunities for brands with a strong online presence.
   
Use of broadband connectivity, mobiles and smart phones is growing
Rapid consumer adoption of new technologies is facilitating greater use of multimedia news, information and entertainment.
   
03 People

(See ‘Business review’ on page 12)

During 2006 our employees once more showed their adaptability, commitment and professionalism as the company continued to implement its growth and simplification plans. This has been demonstrated in several ways, including acquisition of new skills and experience, further improvements in customer satisfaction and the enduring focus on high standards to uphold our Trust Principles.

With our business, markets and customers continuing to experience rapid change, we seek to employ people who are highly talented, knowledgeable about the markets we serve, customer focused, adaptable and committed to learning and development. Our diverse employee base comprises over 100 nationalities, reflecting the different cultures and markets we operate in and bringing a range of

perspectives that allow us to develop fresh and innovative ways to serve our diverse customers. This customer focus is also demonstrated in the improvement in our customer satisfaction scores which reflects the daily efforts of all our people.

As we continue to focus on making our products more competitive and extending our content, we have continued to expand our Bangalore content centre and Bangkok development centre. During the year we also established two more strategic centres. By the end of the year, the number of people working in our content centre in Gdansk, Poland and our software development and content operations centre in Beijing grew to almost 400. Overall, these four centres accounted for around half of the growth in our employee numbers during the year, balanced with targeted recruitment in our longer-established centres. New hires into sales and service and into roles to help us deliver our growth strategies accounted for the other half. Reflecting our drive to recruit new talent, over 50% of our employees have joined us in the last five years.

Employee communications
We use a variety of methods, including our intranet, to communicate with our geographically diverse workforce about the company’s strategy and priorities. Our ‘Daily Briefing’ provides an online multimedia information service covering news and events about the company and about our people. The CEO hosts webcasts, teleconference briefings and question & answer sessions for employees, and also meets informally with groups of Reuters employees around the world. At the start of the year, the CEO’s overall mission for the year ahead is explained. Through the performance management process, objectives in support of that mission are set for everyone. Regular meetings are also held between management, employees’ union representatives and other groups of employees so that employees’ views can be taken into account when making decisions which may affect their interests. Reuters European Employee Forum operates as a pan-European works council and the CEO and other executive directors meet with the Forum regularly.

Employee survey
We carry out annual employee surveys to identify issues that need to be addressed and areas to build on; the findings are communicated to employees. This year we have changed the external benchmarks against which we measure ourselves: instead of comparing ourselves to companies in transition, we now measure ourselves against the norms of high-performing companies. Although we have some way to go, we are closing the gap against this more challenging benchmark. The results of our most recent survey (November 2006) again showed year on year improvements across all the groupings that make up our employee engagement index (leadership, customer orientation, performance, employee commitment and career development). There were also improvements in every category covered by the survey. See the ‘Business review’ on page 12 for more information.

We have very strong scores on items related to the company brand and values – the three highest-scoring statements were: “I fully support the values for which Reuters stands” (90% favourable response), “I am proud to be associated with Reuters” and “Reuters provides a working environment that is accepting of ethnic differences” (both 89% favourable response). Highlighting areas for improvement, employees reinforced the need for further organisation simplification and improvements in performance management. The GLT has put in place a range of initiatives to continue to address these issues in 2007.


 

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Talent and performance management
We remain committed to retaining and developing our talent. Our company-wide talent review process, updated in 2006, involves management teams openly reviewing their people. This enables us to identify our highest performers and strongest talent and to create tailored plans to develop them. These processes covered nearly 6,000 people worldwide in 2006. We report regularly to the Board on these activities and the Board also reviews our succession plans for our most critical roles, to ensure that we have sufficient depth and breadth in our most senior talent pools (see pages 22–23 for further information).

Challenging ourselves to higher performance as a company has been mirrored by a renewed focus on the importance of performance management for individuals. New training has been made available to managers and in the lead up to annual performance reviews, training on how to give effective feedback was made available to all employees.

Employee development
We are making increasing use of technology to deliver globally consistent and constantly available learning for employees. Increasing amounts of our training for front-line employees focuses on our customers, their workflows and their needs rather than simply our products – and certification programmes ensure that the product and market knowledge of our customer-facing employees is kept up-to-date and tested on a regular basis.

We recognise that employees benefit from developing their team-building and leadership skills through participation in activities that strengthen Reuters relationships with the communities in which it is involved. For more information, see ‘Reuters in the community’ on page 49-50.

In 2006, we substantially increased the amount of development for our managers with new programmes aimed at middle and emerging managers to complement the first level manager programme that was rolled out in 2005. In addition, during the year we introduced a suite of eLearning modules that support managers new to Reuters, regardless of their level.

Our Innovation Programme, launched in December 2005, (see page 45 for more information), provides opportunities for talented and ambitious employees to develop their entrepreneurial skills by taking on challenging roles as members and leaders of Innovation project teams.

Employee safety
We recognise the courage and professionalism shown by our employees operating in conflict zones. We regularly review our policies, training and procedures for all employees. We have reaffirmed the standing instructions to our employees to avoid risks wherever possible and we provide hostile environment training, protective equipment and post trauma training programmes to all employees who may need them.

We have also reviewed and upgraded our readiness to protect employee safety in the event of a range of situations from terrorist activities to a potential avian flu pandemic.

Equal opportunities and diversity
We have extensive fair employment practices in place and, with the support of our Global Diversity Advisory Council, we are working to

make Reuters an increasingly inclusive company. The Council is chaired by the CEO, and serves as an advisory board to the GLT on issues related to diversity.

In 2006, we initiated a global reverse mentoring programme in which GLT members were paired with more junior diverse employees with the aim of increasing their awareness of diversity issues. A regional version of this programme has just completed its fourth cycle in the US.

Our policy is that the selection of employees, including for recruitment, training, development and promotion, should be determined solely on their skills, abilities and other requirements which are relevant to the job and in accordance with the laws in the country concerned. Our equal opportunities policy is designed, among other things, to ensure that people with disabilities, and other under-represented groups, are given the same consideration as others and enjoy the same training, development and prospects as other employees. We have successfully retained staff who have become disabled, as well as integrating those who are disabled when they join the company. This has been achieved by using technological solutions and re-designing the way jobs are handled, enabling individuals to contribute actively to meeting the needs of our business.

Our commitment to diversity has been formally recognised in several countries. For example, in the UK, we have been awarded the Two Ticks Disability Symbol User status, which recognises our good practice in employing disabled people and reinforces our commitment to creating a more diverse workforce. Reuters is also a member of the Employers Forum for Disability, and we have made use of the services of both AbilityNet (which supplies technology for disabled users) and Employment Opportunities (a UK charity helping people with disabilities to find and retain work). At our Bangalore Business Service Centre we have started to work with Enable India, an organisation which helps people with disabilities to find jobs.

We support the principles incorporated in South Africa’s Broad-Based Black Economic Empowerment (B-BBEE) Act of 2003 and recognise our responsibilities as an employer to comply with both the spirit and the letter of all relevant B-BBEE legislation and development initiatives. We have a plan in place to achieve full compliance with the Act, including employment equity, skills development, preferential procurement, enterprise development and corporate social investment.

04 Our commitment to ethics
and compliance

We run our business with independence, freedom from bias, and integrity. We endeavour to do the right thing in all that we do, adhering to the values set out in the Trust Principles, our code of conduct, and the company’s policies, while we comply with the different laws and rules that apply to us in the countries where we operate. The company’s policies cover a wide range of subjects and include policies which give guidance to our employees in fair dealings with customers, suppliers, governments, competitors and each other. The policies are made available to employees through a ‘policy gateway’ which is a centralised online depositary of the policies and guidance on how to apply them.

Our efforts to maintain an environment at Reuters that promotes and protects our values is overseen by a global ethics and compliance steering group, chaired by the General Counsel and Company Secretary, which reports to the Audit Committee and periodically briefs senior management and the Board. As part of this global programme,


 

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we train our employees on key ethics and compliance areas through online training programmes and face-to-face sessions; provide an anonymous and confidential system for staff to report concerns without the threat of retaliation; investigate and take appropriate measures when compliance issues are raised; and periodically assess the efficacy of the programme as a whole. On an individual level, ethics and compliance aspects are incorporated into our performance management system as we understand that each of us at Reuters must uphold the values and principles that have served Reuters well for so long.

05 Corporate responsibility

In our reporting on corporate responsibility we have sought to comply with the Association of British Insurers’ Guidelines on Responsible Investment Disclosure. In this Annual Report environmental matters are covered in the ‘Environmental impact’ section (see page 50), social matters are reported under ‘People’ (see page 47) and ‘Reuters in the community’ (see page 49), and governance matters are covered in the Governance section (see pages 38–43).

Corporate responsibility within Reuters is established as the way we carry out our business practices and conduct ourselves responsibly throughout our day-to-day activities, as determined by the Trust Principles. We steer our corporate responsibility strategy through our Corporate Responsibility Advisory Board, established in 2003, which comprises customer, supplier, investor and employee representatives. The Advisory Board considers workplace, marketplace, environment and community issues of relevance to our business and our employees and it is chaired by the General Counsel and Company Secretary, who represents it on the GLT and to the Board. As part of the risk management process which operates throughout the company, when relevant, environmental, social and governance risks are identified and mitigation plans are put in place. However, given the non-industrial nature of our business, we have just begun to collect base data about our environmental impact to assess the risks and opportunities presented. We have more work to do, including implementing an environmental impact recording system, to acquire this information. Further information about Reuters risk management processes is set out on page 41.

In 2006 we set the following corporate responsibility objectives:

Employees: increase employee satisfaction and develop mentoring programmes and affinity groups to raise awareness of diversity & inclusion issues;
   
Marketplace: develop an ethical code for our suppliers to adhere to when working with us;
   
Community: increase employee participation in our community volunteering programme to 18% of employees (2005: 12%);
   
Environment: raise awareness on environmental issues with customers (through our reporting from around the world on environmental matters), and with employees (through a Green Week to inform employees about how individual behaviours at work affect the environment); and
   
Governance: implement changes prompted by the 2005 Board effectiveness review and refresh the governance framework at below-Board level.
   
During the year we met each of these objectives.
For 2007, our objectives include:
   
Embedding our supply chain ethical code into our day-to-day sourcing activities (for information on the code, see Supply chain on page 50);
   
Raising employee participation in community engagement programmes to 20% worldwide by focusing on staff development opportunities and involvement with environmental causes;
   
Extending best practice in health and safety and family friendly policies to our operations worldwide;
   
Implementing an environmental management system for recording Reuters impact on the environment;
   
Publishing a document explaining and positioning Reuters corporate responsibility programme to employees and external audiences.

We are conscious that our system for measuring the impact of our corporate responsibility initiatives can be further developed. In 2006 we used the London Benchmarking Group reporting model for the first time to calculate our contributions to good causes. This model provides a standardised way of managing and measuring a company’s community involvement.

Reuters is included in the Dow Jones Sustainability Index, the FTSE4Good Index, the Ethibel Sustainability Indices and the Ethibel Pioneer Investment Register. Reuters Hong Kong has been accredited with ‘Caring Company’ status for the third year running by the Hong Kong Council of Social Service.

We make extensive information about our corporate responsibility programme available through our website.

Reuters in the community
We support a variety of community initiatives and charitable causes through the work of Reuters Foundation and the volunteering efforts of our employees around the world. Reuters Foundation (www.foundation.reuters.com) continues to focus on areas where Reuters expertise in information gathering and communications can be put to use in ways which will benefit the communities in which we operate across the world.

During the year, the Foundation offered training opportunities to journalists and humanitarian workers from all over the world, providing journalism courses for over 750 journalists and media & communications skills courses for over 550 aid workers from UN agencies. In February 2006 Reuters became a member of the Global Business Coalition on HIV/AIDS, an organisation which aims to increase the range and quality of business sector AIDS programmes in the workplace and in the community. To build on our work in this area, Reuters Foundation ran its fourth annual workshop on HIV/AIDS reporting and hosted a panel debate in London on ‘Keeping the Spotlight on HIV-AIDS’, looking at the role of the media.

The Reuters Institute for the Study of Journalism was officially launched by Lord Patten, Chancellor of Oxford University, in November 2006. The institute will be a meeting point between academia and practising journalism and will provide a detached and informed perspective on the practice and impact of journalism. Sponsored by Reuters Foundation, the Institute builds on the partnership created by the Reuters Foundation Journalists Fellowship Programme at Green College, Oxford. Reuters Foundation will provide £1.75 million over five years to fund the international research

 

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centre. Its activities will include both short and long-term research, seminars, conferences and debates; its aim is to identify and understand the issues that journalism raises worldwide.

Reuters AlertNet, established by the Foundation in 1997, enables relief agencies and the public to share information about emergencies and associated relief efforts. In addition to carrying breaking news on emergencies, the site also helps to ensure that disasters forgotten by the mainstream media are kept in the headlines.

MediaBridge, a project designed to improve news coverage by providing online training for reporters and detailed briefings on countries and issues was launched in July 2006. It is jointly funded by Reuters and the UK Department for International Development.

Reuters Foundation also sponsors the Reuters Foundation Digital Vision Program at Stanford University which enables technologists and other social entrepreneurs to work at Stanford and in the field for an academic year on projects designed to use technology to address issues in the developing world.

All employees may take one day of company time each year to engage in community activities. We focus on these activities during our annual Community Events Week programme. In 2006, over 3,000 employees from 58 locations participated, sharing their skills on projects ranging from hosted school visits, training workshops for community groups and fundraising work.

Reuters volunteers also continued to work on house building projects run by Habitat for Humanity. In the twelve months to March 2007 volunteers worked on projects in Sri Lanka, India, New Orleans, and South Africa.

We also operate programmes in the US and UK which match the charitable donations and fundraising efforts of our employees. Under these schemes we matched gifts of time and money amounting to £30,000 in the UK and just over $171,000 in the US. A similar scheme for employees across Asia was also launched in 2006.

Charitable cash donations totalled £1.8 million during 2006 (2005: £1.7 million).

It is the Group’s policy not to make political contributions and none were made in 2006.

Environmental impact
We are classified by Ethical Investment Research Services (EIRIS) as belonging to a sector with low environmental impact.

We recognise that our business has a role to play in the effective dissemination of environmental information. We have a network of around 50 Reuters journalists who are an authoritative resource on environmental issues, with a special focus on issues such as global warming, fossil fuel use and population growth. We also share our skills in the communication of environmental issues through the work of Reuters Foundation. Working with Com+ Alliance, a group of international organisations that embraces and supports sustainable development projects, in 2006 and 2007 we are providing nine courses for journalists on environmental topics and a programme to prepare journalists for coverage of the G8+ Climate Change Dialogue.

We recognise we have a responsibility to seek to reduce our impact on the environment by managing our facilities efficiently and by raising employee awareness of environmentally friendly choices at work, at home and when travelling. We have signed up to the new

global 3c (Combating Climate Change) initiative led by Swedish energy company Vattenfall so that by engaging with thought leaders in this area we can increase our understanding of alternative resource-efficient technologies. There may be a role for these in the operation of our data centres which account for a significant proportion of our overall energy consumption.

During 2006 we worked with Bureau Veritas, an independent environmental consultancy, to identify the indicators we should track in order to measure our environmental impact. These are:

Energy: Total electricity consumption; percentage of green tariff electricity purchased;
   
Greenhouse gas emissions (CO2): Total volume of carbon dioxide equivalent produced;
   
Water: Total consumption;
   
Waste: Total waste produced, total waste recycled, waste recycled as a percentage of total produced;
   
Paper: Total quantity of paper purchased and percentage of which containing recycled content.

In 2006, we purchased a web-based environmental management system which we will implement in 2007, enabling us to collect data for the metrics identified above for our key office and data centre locations and to report the consolidated data periodically. This will help us assess our environmental impact and set targets to reduce it.

We recognise our business air travel has an impact on the environment. In 2006 we reduced it by 10% and wherever possible, we use alternatives to business travel, including video- and-teleconferencing. In 2007 we will pilot the use of carbon offsets for air travel by some of our global groups.

We continue to hold our annual staff awareness-raising event, Green Week, delivering information to staff in a variety of ways including films, visits, blogs, fundraising events, intranet briefings, exhibitions and competitions. Over 15% of staff from 18 locations took part in the 2006 Week. Changes arising from Green Week 2006 included improvements to waste streaming in our New York office and a programme of printer and fax machine reduction in our London offices. The initiative will be expanded in 2007 to deliver a 12-month rolling programme of Green Weeks around the world.

06 Supply chain

Sourcing
As a global company, we source goods and services from an extensive range of suppliers. Over the last 4 years we have reduced our supplier list, despite increasing the range of services we outsource. In 2006 3% of vendors accounted for 85% of our third party spend. The functions we outsource currently include telecommunications and network services, travel, print services, IT support and elements of back office administration. In 2006 we streamlined our sourcing operations into one global function (excluding content sourcing, which is managed by our Content group). During the year we received Chartered Institute of Purchasing & Supply certification for excellence in our sourcing processes.

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distribution network make us an attractive distribution partner for content providers. We are implementing a content supplier management programme to raise the standard of contributed content to a level which meets our customers’ high expectations.

For more information, see ‘Overview of divisional performance’ on page 58.

Supply chain ethical code
As a company we are committed to developing relationships with suppliers whose standards are as high as our own. In September 2006 we launched our supply chain ethical code which forms the basis of our agreement with suppliers. Based on the recognised and well-regarded Ethical Trading Initiative Base Code, our code endorses expected standards of behaviour and gives us an opportunity to drive our commitment to ethical and environmental improvements and demonstrate a reduction of risk through our supply chain on a global basis. Suppliers will be required to confirm their adherence to the Code when selected as a supplier of goods and services to Reuters. If a supplier is found to be non-compliant, we will require it to achieve compliance within a reasonable time frame and we will work with it to assist this process.

Supplier payment terms
We agree terms of transactions, including payment terms, with suppliers in advance. Payment terms reflect country or regional norms throughout the world. In 2006 we focused on cash management, clarifying our terms with suppliers. Our policy is to make payments in accordance with the agreed terms, provided that suppliers have also acted in accordance with them. In the UK, we have signed up to the Better Payment Practice Code. Group trade creditors at 31 December 2006 were equivalent to 13 days’ purchases during the year (2005: 2 days). The company had no trade creditors at 31 December 2006 or 31 December 2005.

Communications networks
Our financial and media products are mainly delivered to customers over private secure high-speed communications networks. However, the public internet is becoming more accepted in many parts of the world and we use it extensively for our consumer content and for other content that does not require ultra-low latency. During 2005, we sold our network services/financial extranet subsidiary Radianz, a former joint venture with Equant NV, to BT. At the same time we entered into an eight and a half year outsourcing deal with BT, as a result of which BT provides the majority of our networks. This outsourcing deal will result in the migration of all products to IP-based services. It will enable us to deliver greater resilience, capability and flexibility through the use of industry standards. We have major technical centres in the Asian, European and American time zones, supported by smaller local data centres. The data centres are linked by communications services provided principally by BT/Radianz (see above) and SAVVIS, Inc. (Savvis). The services agreements with BT/Radianz and with Savvis are important to our ability to deliver products and services to customers. Summaries of these network services agreements and the Radianz purchase and sale agreements are given on page 152.

07 Governmental regulation

We are regulated by several bodies in the various jurisdictions in which we operate.

Under the provisions of the Financial Services and Markets Act 2000, Reuters Limited is regulated and authorised as a service company by the UK Financial Services Authority (FSA). Reuters Transaction Services Limited (RTSL), through which we offer our foreign exchange Matching products, equities order routing and our new suite of next generation transaction products such as Reuters Trading for Fixed Income and Reuters Trading for Exchanges, is also subject to regulation by the FSA. Since 1 April 2004 RTSL has been classified by the FSA as an Alternative Trading System (ATS). In accordance with the passporting provisions of the EU Investment Services Directive, RTSL provides its services throughout all member countries of the European Economic Area. RTSL is also subject to similar regulatory approvals in Australia, Hong Kong and Singapore, where it is approved by the Australian Securities and Investments Commission, the Hong Kong Monetary Authority and Securities and Futures Commission respectively, and by the Monetary Authority of Singapore.

FXMarketSpace Limited, our 50/50 joint venture with the CME, is regulated by the FSA as an ATS.

RTSL’s sister company in the United States, Reuters Transaction Services LLC (RTS LLC), is responsible for an equity order routing and indications of interest network. It is also licensed to offer trading in other instruments such as interest rate swaps. RTS LLC is subject to regulation by the National Association of Securities Dealers, Inc. (NASD). For its equity derivatives products as offered through Reuters Trading for Exchanges, RTS LLC has also been approved by the National Futures Association and is a member of the Commodity Futures Trading Commission.

To comply with anti-money laundering regulations and to reduce the opportunity for Reuters transactions products to be used as a conduit for money laundering operations, all our regulated subsidiaries operate appropriate ‘know your customer’ systems and controls.

08 Supplementary information

Details of our registered office and headquarters can be found on page 146.

Details of substantial shareholdings can be found on page 144.

Details of the waiver of dividends can be found in note 32 on page 119.

Details of our share buy-back can be found on page 149.

Details of our research and development activity and expenditure can be found on pages 79, 85 and 93–94.

The Auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and a resolution that they be reappointed will be proposed at the AGM to be held on 26 April 2007.


 

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The selected financial information set out below is derived from the consolidated financial statements. The selected financial data should be read in conjunction with the financial statements and related notes (pages 75–128), as well as the OFR on pages 54–72.

Prior to 2005, the Group prepared its audited annual financial statements under UK Generally Accepted Accounting Principles (UK GAAP). From 1 January 2005, the Group has been required to prepare its annual consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union (EU) and those parts of the UK Companies Act 1985 applicable to companies reporting under IFRS. The financial statements take account of the requirements and options in IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ as those requirements relate to the 2004 comparatives included in the financial statements.

IFRS differs in certain respects from accounting principles generally accepted in the United States (US GAAP). The material differences between IFRS and US GAAP relevant to the Group are explained on pages 129–133.

The consolidated financial statements of the Group included in this annual report are presented in pounds sterling (£). On 31 December 2006, the Noon Buying Rate in New York City for cable transfers in foreign currencies as announced for customs purposes by the Federal Reserve Bank of New York was $1.96 = £1; on 9 March 2007 the Noon Buying Rate was $1.93 = £1. Additional information on exchange rates between the pound sterling and the US dollar is provided, on page 149.


 

Consolidated income statement data  
for the year ended 31 December  
£m (except per share data)   Notes   2006   2005   2004  

 







Amounts in accordance with IFRS          

 







Continuing activities:          

 







   Revenue       2,566   2,409   2,339  

 







   Operating profit       256   207   194  

 







   Profit before tax       313   238   396  

 







   Profit after tax       293   229   356  

 







Profit from discontinued activities       12   253   19  

 







Profit for the year       305   482   375  

 







Basic earnings per ordinary share       23.6p   32.6p   26.0p  

 







Basic earnings per ordinary share – continuing activities       22.6p   16.3p   25.4p  

 







Diluted earnings per ordinary share       23.1p   31.7p   25.4p  

 







Diluted earnings per ordinary share – continuing activities       22.2p   15.9p   24.8p  

 







Basic earnings per ADS   1   141.9p   195.8p   156.1p  

 







Basic earnings per ADS – continuing activities   1   135.6p   97.8p   152.7p  

 







Diluted earnings per ADS   1   138.7p   190.3p   152.2p  

 







Diluted earnings per ADS – continuing activities   1   133.1p   95.4p   148.8p  

 







Dividends declared per ordinary share   2   10.25p   10.0p   10.0p  

 







Dividends declared per ADS   2      

 







   Expressed in UK currency       61.5p   60.0p   60.0p  

 







   Expressed in US currency       115.1c   111.4c   105.8c  

 







Weighted average number of ordinary shares (in millions)       1,297   1,396   1,400  

 







 

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Consolidated income statement data continued

 

for the year ended 31 December

 
£m (except per share data)   Notes   2006   2005   2004   2003   2002  

 











Amounts in accordance with US GAAP              

 











Continuing activities:              

 











   Revenue       2,566   2,503   2,370   2,669   2,955  

 











   Income/(loss) before taxes on income       343   207   501   (8 ) 198  

 











   Income after taxes on income       294   211   395   23   168  

 











Income/(loss) after taxes (including minority interest) from discontinued activities       12   185   44   (51 ) (273 )

 











Net income/(loss)       306   396   439   (28 ) (105 )

 











Basic earnings/(loss) per ordinary share       23.6   28.4p   31.4p   (2.0p ) (7.5p )

 











Basic earnings per ordinary share – continuing activities       22.7   15.1p   28.1p   1.6p   12.0p  

 











Diluted earnings/(loss) per ordinary share       23.2   27.6p   30.5p   (2.0p ) (7.5p )

 











Diluted earnings per ordinary share – continuing activities       22.3   14.7p   27.4p   1.6p   12.0p  

 











Basic earnings/(loss) per ADS   1   141.8p   170.2p   188.2p   (12.0p ) (44.8p )

 











Basic earnings per ADS – continuing activities   1   136.0p   90.8p   168.5p   9.8p   72.1p  

 











Diluted earnings/(loss) per ADS   1   139.3p   165.4p   183.2p   (12.0p ) (44.8p )

 











Diluted earnings per ADS – continuing activities   1   133.6p   88.2p   164.3p   9.7p   72.1  

 











Dividends declared per ordinary share   2   10.25p   10.0p   10.0p   10.0p   11.1p  

 











Dividends declared per ADS:   2          

 











   Expressed in UK currency       61.5p   60.0p   60.0p   60.0p   66.7p  

 











   Expressed in US currency       115.1c   111.4c   105.8c   105.1c   99.6c  

 











Weighted average number of ordinary shares (in millions)       1,297   1,396   1,400   1,396   1,395  

 











   
Consolidated balance sheet data  
at 31 December  
        Restated 3    
£m   2006   2005   2004  

 





Amounts in accordance with IFRS              

 





Total assets   1,920   2,137   2,580  

 





Net assets   172   511   570  

 





Shareholders’ equity (attributable to the parent)   172   511   371  

 





Share capital   496   467   455  

 





                       
£m   2006    2005   2004   2003   2002  

 









Amounts in accordance with US GAAP                      

 









Total assets   2,022   2,326   2,743   3,280   3,789  

 









Shareholders’ equity   281   705   568   514   804  

 









 
Notes:
   
1 Each ADS (American Depositary Share) represents six ordinary shares.
   
2 Dividends declared for 2002 include UK tax credits. Dividends declared for 2003–2006 exclude UK tax credits. Amounts receivable could be higher for US shareholders who have elected to retain benefits of the old US/UK tax treaty. For further information relating to dividends and the UK taxation of dividends see page 145.
   
3 The 2005 IFRS balance sheet has been restated to recognise irrevocable commitments to repurchase shares during close periods as a liability (see ‘Basis of accounting’ on page 78). The impact of recognising these commitments is to increase current liabilities and to decrease shareholders’ equity in accordance with IFRS at 31 December 2005 by £59 million.

 

Reuters Group PLC Annual Report and Form 20-F 2006


Back to Contents

   
   
54 Operating and financial review
   


Financial review
Non-GAAP measures
A number of measures used in the following commentary and elsewhere in this report are ‘non-GAAP’ figures, which are business performance measures used to manage the business, that supplement the IFRS-based headline numbers. These include ‘underlying change’, ‘trading costs’, ‘trading profit’, ‘trading cash flow’, ‘adjusted EPS’, ‘free cash flow’ and ‘net debt/net funds’. Brief descriptions of these terms are provided below. A more detailed discussion of these non-GAAP measures, including the rationale for using them and reconciliations to the most directly comparable IFRS indicator, is provided on pages 67–72.

Underlying change is calculated by excluding the impact of currency fluctuations and the results of acquisitions and disposals.

Constant currency change is calculated by excluding the impact of currency fluctuations.

Trading costs are calculated by excluding the following from operating costs from continuing operations: restructuring charges associated with Reuters completed business transformation plans, which include Fast Forward (a three year business transformation programme completed in December 2005) and acquisitions, impairments and amortisation of intangibles acquired via business combinations, and fair value movements included in operating costs; and adding back foreign currency gains and other income (both of which are included in other operating income).

Trading profit is calculated by excluding the following from operating profit from continuing operations: restructuring charges associated with Fast Forward and acquisitions, impairments and amortisation of intangibles acquired via business combinations, investment income, profits from disposals of subsidiaries and fair value movements. Trading margin is trading profit expressed as a percentage of revenue.

Trading cash flow is calculated by including capital expenditure and excluding the following from cash generated from continuing operations: restructuring cash flows associated with completed business transformation plans, which include Fast Forward and acquisitions, cash effect of derivatives used for hedging purposes and cash flows which are either discretionary in nature or unrelated to ongoing recurring operating activities such as special contributions toward funding defined benefit pension deficits, acquisitions and disposals and dividends paid out by Reuters.

Adjusted EPS is calculated as basic EPS from continuing operations before impairments and amortisation of intangibles acquired via business combinations, investment income, fair value movements, disposal profits/losses and related tax effects.

Free cash flow measures cash flows from continuing operations, other than those which are either discretionary in nature or unrelated to ongoing recurring operating activities such as special contributions toward funding defined benefit pension deficits, acquisitions and disposals and dividends paid out by Reuters.

Net debt/net funds represents cash, cash equivalents and short-term deposits, net of bank overdrafts and other borrowings.

Group performance  
Summary results   2006   2005   2004  
Year to 31 December   £m   £m   £m  

 





Continuing operations        

 





Revenue   2,566   2,409   2,339  

 





Operating costs   (2,351 )  (2,251 ) (2,187 )

 





Other operating income   41   49   42  

 





Operating profit   256   207   <