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THOMSON REUTERS PLC /ADR/ 20-F 2007 Documents found in this filing:
UNITED STATES FORM 20-F (Mark One)
Commission file number 333-08354 Reuters Group PLC (Translation of Registrant’s name into English) England The Reuters Building, South
Colonnade, Canary Wharf, London E14 5EP, England Securities registered or to
be registered pursuant to Section 12(b) of the Act: Securities registered or to
be registered pursuant to Section 12(g) of the Act: Securities for which there
is a reporting obligation pursuant to Section 15(d) of the Act: Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark 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):
Indicate by check mark which financial statement item the registrant has elected to follow.
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).
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 Key
performance indicators 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 Forward-looking
statements
We run our business through
Reuters Group PLC Annual Report and Form 20-F 2006
Reuters Group PLC Annual Report and Form 20-F 2006
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 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 Group PLC Annual Report and Form 20-F 2006
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 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 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
Reuters Group PLC Annual Report and Form 20-F 2006
Reuters Group PLC Annual Report and Form 20-F 2006
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.
2007 outlook 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
Reuters Group PLC Annual Report and Form 20-F 2006
Over 90%
of our revenue comes from
Our markets 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.
Reuters Group PLC Annual Report and Form 20-F 2006
Our market share in financial
markets 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
Reuters Group PLC Annual Report and Form 20-F 2006
Our people, our
Employee engagement %
Distribution of employees by region
This page: Running
barefoot,
Our people 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 content 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.
Reuters Group PLC Annual Report and Form 20-F 2006
Our ‘risk radar’,
reviewed by the
Reuters Group PLC Annual Report and Form 20-F 2006
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
Reuters Group PLC Annual Report and Form 20-F 2006
Reuters Group PLC Annual Report and Form 20-F 2006
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.”
Reuters Group PLC Annual Report and Form 20-F 2006
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
Global markets, global talent 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 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 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.
Reuters Group PLC Annual Report and Form 20-F 2006
Operational shifts 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 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
Reuters Group PLC Annual Report and Form 20-F 2006
The strength
of the Group’s corporate values, its reputation and its ability to
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.
Reuters Group PLC Annual Report and Form 20-F 2006
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 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
From the Chairman’s note
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.
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.
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
Reuters Group PLC Annual Report and Form 20-F 2006
Reuters Group PLC Annual Report and Form 20-F 2006
Directors Niall FitzGerald, KBE
– Chairman Thomas (Tom) Glocer –
CEO David Grigson – CFO 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 Lawton Fitt – Non-executive
director
Reuters Group PLC Annual Report and Form 20-F 2006
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
– Edward (Ed) Kozel – Sir Deryck Maughan – Nandan Nilekani – 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 – Richard (Dick) Olver – Ian Strachan – Non-executive
director 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 John Alcantara – David Craig – Group
Strategy Director Lee Ann Daly – Chief
Marketing Officer
Reuters Group PLC Annual Report and Form 20-F 2006
Senior managers continued Stephen Dando – Joerg Floeck – Managing
Director, Christopher Hagman –
Alex Hungate – Managing
Director, Asia
David Lister – Chief Information
Officer Lybrand. He is a member of several IT professional bodies and consultative boards. Age 48.
Roy Lowrance –
Rosemary Martin – General
Counsel and Company Secretary Peter Moss –
Michael Peace – Global Head of Research & Asset
Management Mark Redwood – 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 David Schlesinger – Editor-in-Chief
Simon Walker – 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.
Reuters Group PLC Annual Report and Form 20-F 2006
Remuneration policy
This policy will apply in 2007 and is expected to continue in future years.
Remuneration Committee The Committee operates under formal terms of reference and under the powers delegated to it by the Board. The duties of the Committee include
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.
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 Salaries earned in 2006 are shown in the table below:
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
The 2006 bonus awards are shown in the table below:
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 plansOverview: 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:
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
Personal shareholding policy 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.
Reuters Group PLC Annual Report and Form 20-F 2006
Performance graph The calculations assume the reinvestment of dividends.
Pensions 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 Service contracts
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 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 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:
Reuters Group PLC Annual Report and Form 20-F 2006
Directors’ remuneration
for 2006 (audited)
Other senior managers’ remuneration
Reuters Group PLC Annual Report and Form 20-F 2006
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:
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)
Reuters Group PLC Annual Report and Form 20-F 2006
Senior managers’ interests in long-term plans (audited)
Reuters Group PLC Annual Report and Form 20-F 2006
Share options granted to directors (audited)
Reuters Group PLC Annual Report and Form 20-F 2006
Share options granted to senior managers (audited)
Reuters Group PLC Annual Report and Form 20-F 2006
Directors’ 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.
On behalf of the Board
Reuters Group PLC Annual Report and Form 20-F 2006
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 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 BoardComposition 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
Reuters Group PLC Annual Report and Form 20-F 2006
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 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
Niall FitzGerald attended 5 Remuneration Committee
meetings at the invitation of the Remuneration Committee chairman.
Reuters Group PLC Annual Report and Form 20-F 2006
Appointments to the Board 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 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 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 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 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 C. Accountability and audit: 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
Reuters Group PLC Annual Report and Form 20-F 2006
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 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:
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 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.
Reuters Group PLC Annual Report and Form 20-F 2006
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 Reuters adherence to this principle is described in the Audit Committee report below. Audit Committee reportMembers 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 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:
Activities 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:
Reuters Group PLC Annual Report and Form 20-F 2006
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 15 March 2007 Disclosure of information
to the auditors 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 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 15 March 2007
Reuters Group PLC Annual Report and Form 20-F 2006
This section of our Annual Report and Form 20-F provides more detailed information on
01 Strategy (See Business review on pages 6-7)
Grow revenues, both from our Core business and through our Core Plus initiatives 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
High-value content 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 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 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-
Reuters Group PLC Annual Report and Form 20-F 2006
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 investmentWe 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 Innovation programme 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
Changing the way our product development teams work
Simplifying our product delivery infrastructure and making it more robust
Transforming the way our content is created, collected and processed
Modernising our customer administration systems (See pages 10-11 in the ‘Business review’) Financial markets 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.
Reuters Group PLC Annual Report and Form 20-F 2006
Financial services industry
performance in 2006 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
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 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
Reuters Group PLC Annual Report and Form 20-F 2006
(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 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.
Reuters Group PLC Annual Report and Form 20-F 2006
Talent and performance management 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 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 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 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.
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,
Reuters Group PLC Annual Report and Form 20-F 2006
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:
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 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
Reuters Group PLC Annual Report and Form 20-F 2006
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 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:
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 In addition to producing content in-house, we aggregate and distribute data sourced from 250 exchanges and 6,000 contributors within our products. Our extensive global customer base and
Reuters Group PLC Annual Report and Form 20-F 2006
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 Supplier payment terms
Communications networks 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.
Reuters Group PLC Annual Report and Form 20-F 2006
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.
Reuters Group PLC Annual Report and Form 20-F 2006
Reuters Group PLC Annual Report and Form 20-F 2006
Financial review 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.
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