THOMSON REUTERS PLC /ADR/ 6-K 2009
Documents found in this filing:
TO OUR SHAREHOLDERS
If one set out to design the ideal information company for the 21st century from scratch, we think it would look like Thomson Reuters. Must-have content and software delivered electronically by a trusted source to demanding professionals around the world. With offices in 300 cities, operations in 140 countries and customers in every commercial center, Thomson Reuters is in tune with a world which is professionalizing. United by a powerful and consistent business model, our businesses have the ability to achieve long-term sustainable growth at attractive margins while generating large, dependable free cash flows to reinvest for growth and provide returns to shareholders.
In April 2008, The Thomson Corporation acquired Reuters Group PLC and created the largest professional information company in the world. The fit and complementarity between the two businesses, cultures and staffs were tailor-made, and we were able to start leveraging our scale almost immediately – for example, by incorporating Reuters News into products from our Legal and Science units. What was new was the Thomson Reuters brand, which was soon ranked 44th among BusinessWeek’s 100 Best Global Brands.
Although some may think of Thomson Reuters as a new company, our move to the leading position in the industry lies on an arc of strategic intent that has been decades in the making...the result of foresight, diligent acquisition and expansion, careful growth and a patient capital strategy.
Thomson’s acquisition of Reuters, like the acquisition of West a dozen years earlier, was an important step along a strategic continuum. It combined Thomson’s leading positions in legal, finance, tax, accounting, healthcare and science in North America with Reuters strength in financial services and media in Europe, the Middle East and Asia to produce a company that is strong and balanced, both by geography and market.
Thomson Reuters global footprint is a critical element of our growth strategy. It helps us appeal to and meet the needs of an increasingly global class of customers, and positions us to tap into the higher growth rates available in emerging and professionalizing markets. To each market we bring in-depth understanding of our customers’ needs, agile technology platforms, proprietary content and scale.
Our customers are professionals in key sectors of the global economy. We supply them with the intelligent information they need to succeed in fields that are vital to developed and emerging economies alike.
Our customers rely on our information because we hold it to the same standards of accuracy, objectivity and independence that have long been exemplified by Reuters News coverage. These standards are codified in the Reuters Trust Principles, which we have adopted across the company.
The intelligent information we provide to these professionals is “must have,” not discretionary. It is central to their ability to do their jobs, and a source of competitive advantage. Intelligent information is a synthesis of highly relevant content and software which derives its competitive value from human intelligence, industry expertise and innovative technology. It helps our clients add value to their own enterprises by enabling them to make better decisions faster. It is knowledge to act.
We serve a wide variety of customers with a single, tested business model. It is the same business model in our Markets division as in our Professional division, and the same in Asia as in North America. Its power comes from its basis in the sale of electronic content and services to professionals, primarily on a subscription basis. Over the years it has proven to be capital-efficient and cash-flow generative, and it has enabled us to maintain leading and scalable positions in our chosen markets.
While our business model is unified, our portfolio is diverse. Even in a recession as deep and widespread as the one we are experiencing today, there are parts of our business, such as Healthcare and Tax & Accounting, which can continue to grow at attractive rates while we invest for an eventual recovery in financial services. Similarly, our Asian businesses continued to grow in the second half of 2008 as markets in the U.S. and U.K. began to falter.
Woodbridge, as our principal shareholder, provides Thomson Reuters with another, very real competitive advantage. The investment company of the Thomson family for many years, Woodbridge is committed to building sustainable value for all shareholders. With billions of dollars invested in Thomson Reuters, it is highly focused on core issues such as strategic direction, capital strategy, performance metrics and governance, and it brings to these issues a stable, long-term view that is completely aligned with the type of shareholder Thomson Reuters seeks to attract and retain.
We were very pleased with the performance of Thomson Reuters in 2008. Despite the most challenging economic environment in decades, the company grew revenues 8% – at the top of the 6–8% growth range that we had forecast in calmer markets when we completed the Reuters acquisition. Both divisions contributed strongly to this growth, with the Professional division growing revenues 8% and the Markets division up 7%. Our 2008 revenues reflected global balance as well, with 58% coming from the Americas; 32% from Europe, the Middle East and Africa; and 10% from Asia.
Good flow-through from topline growth, enhanced by integrationrelated savings, led to a 19% increase in underlying operating profit for the year. And the strength of our business model was certainly in evidence as we delivered $2.3 billion in underlying free cash flow.
We made excellent progress on integrating Reuters and Thomson Financial as our new Markets division, improving service to our customers and continuing positive net sales. In executing our integration plan we also found new opportunities for savings, raising our target from $750 million to $1 billion in annualized cost savings by the end of 2011.
We have now begun the second phase of the acquisition integration: retiring legacy products and systems to simplify the business and help make it more agile, responsive and profitable. This year we are starting to roll out new strategic products, consolidate data centers and capture revenue synergies. We continuously review and adjust our organizational structure to better leverage resources and align our operations with global opportunities. At the beginning of the year we combined our five former operating units in the Professional division into three global businesses: Legal, Tax & Accounting, and Healthcare and Science. We also created a new unit within Legal to pursue an attractive global opportunity in information and services for professionals who create, manage and transact in all forms of intellectual property.
While we anticipate that market conditions will remain very challenging in 2009, we are confident that our strong balance sheet, proven business model and well balanced portfolio will continue to perform through the current economic cycle.
A year like the one we experienced in 2008 – our first as Thomson Reuters – requires the grit and grace of many. We owe gratitude to our more than 50,000 employees around the world, from our innovative product development teams to our energetic sales force to the courageous journalists who bring the great stories of our time to Thomson Reuters customers. Many of our employees have been working two jobs – their own and the task of becoming one company in one year. That they have succeeded is a testament to their extraordinary commitment and ability.
We are also indebted to our customers, for their loyalty to our products and their patience with our progress, for being both the reason for our performance and the standard to which we must continuously rise.
When the acquisition closed last April, six directors from Reuters joined our board. We are grateful both to those members of the Thomson and Reuters boards who took the opportunity of a mission accomplished to retire and to the current members of our board for their guidance and vigilance through this extraordinary period.
In closing, we would like to invite all our stakeholders to visit www.thomsonreuters.com and view the online version of this document.
Millions of U.S. dollars except per share amounts.
For additional financial information, please see pages 28–35.
WHAT MAKES INFORMATION INTELLIGENT?
INVESTMENT PROFILE AND FINANCIAL PRIORITIES
INTEGRATION AND SAVINGS PROGRAMS
As we progressed with the execution of our integration plan for the acquired Reuters businesses, we identified significant additional opportunities for cost savings. We now expect $1 billion in annualized cost savings from integration programs by the end of 2011, up from $750 million of savings projected in May 2008. This raises the overall savings target (including legacy efficiency programs) to $1.4 billion.
Across all integration and legacy efficiency programs, we achieved combined run-rate savings of $750 million as of December 31, 2008. The 2008 pro forma cost required to achieve these savings through December 31 was approximately $362 million.
While cost savings were generated by a variety of functions across our entire organization, the following six areas currently contribute the majority of expected savings:
We are now beginning the second phase of the acquisition integration, which includes retiring legacy products and systems to simplify the business and help make it more agile, responsive and profitable. In 2009, we will roll out new strategic products, consolidate data centers and capture revenue synergies.
A key strategic goal of the Reuters integration was to create one company in one year. This means one team, one combined management structure, one mission, one set of values and one way of doing business across our organization. The adaptability, flexibility and focus demonstrated by our staff to meet this goal have allowed the company to perform strongly through this period.
As a knowledge business, our professional workforce is a major strategic asset. We have a highly talented and diverse employee base, with more than 110 nationalities represented in more than 90 countries. We have a unique perspective across multiple customer segments and geographic areas, reflecting the different markets, cultures and countries in which we operate. This also allows us to apply a range of different approaches to best meet our customers’ needs.
In 2008, we focused on maintaining a high degree of employee commitment and ensuring that our employees were energized about our purpose and strategy. Results of the first joint Thomson Reuters employee survey were very positive, despite the major changes resulting from the integration and the external backdrop of extraordinary economic turmoil. Employee engagement has improved significantly (see graphic below). Additionally, the survey results show powerful assets for the company, including a very high degree of discretionary effort by employees and a high level of passion among our staff for the work that they do. We will continue to benchmark these results against a high-performing company norm.
Improved Level of Engagement
During periods of major change, companies often see engagement scores dip, but the level of engagement across
our employee base increased by 5% compared to 2007.
More Global Workforce
A substantially changed geographic footprint means that Thomson Reuters now has a significantly more international presence, with nearly half of the workforce outside the Americas. 2008 also saw our workforce balance tip toward Asia – we now have more people in Asia than in Europe.
BOARD OF DIRECTORS
At Thomson Reuters, Corporate Responsibility (CR) is an integral part of the way we do business. As we integrate the Reuters businesses, we draw upon the heritage of both The Thomson Corporation and Reuters Group PLC to define our CR efforts.
Our executive committee approved our CR policy in 2008, establishing how we will manage our relationships with stakeholders in four areas: our workplace (employees), the community (the places and societies in which we operate), the marketplace (customers, suppliers and investors) and the environment. By articulating focus areas, we are able to define our response to global standards and charters in ways that are meaningful and relevant to our business.
Our immediate CR priorities are diversity, community impact, responsible sourcing and the environment. Additionally, in 2008 we launched our new Code of Business Conduct and Ethics to all staff.
During 2009, we will launch our implementation plans for these priorities, including measurement, reporting and governance. Against each commitment, we will assign a business owner and a performance target in order to meet legislative requirements, specific quantitative goals or our own CR ambitions. Our targets will be reviewed at least annually.
Our CR program is embedded in the way we do business, and thus we do not produce a stand-alone report. The following discussion highlights two of our priority areas.
We are committed to using our specialized knowledge, information, technology and other resources to develop great programs to help individuals, families and communities reach their full potential. These programs will be delivered through our more than 50,000 employees and by the Thomson Reuters Foundation, our U.K. and U.S. registered charity.
In 2008, our executive committee approved a community support policy, which sets out key programs that include volunteering and matched funding, as well as our approach to causes that we do and do not support. We also introduced the Thomson Reuters Community Champions Award program across the organization, through which 50 grants totaling $150,000 were awarded to staff-nominated not-for-profit organizations. A global volunteering policy for employees will be implemented as a way of supporting the communities in which we work, allowing each of our employees to spend a minimum of one paid day each year volunteering time to a local charity or community initiative. The Markets division and Legal employees, for example, each contributed approximately 1,800 volunteer days in 2008 to not-for-profit organizations and educational institutions in their communities.
Also in 2008, Thomson Reuters gave $1.7 million in general funding to the Thomson Reuters Foundation, and an additional $200,000 to the Foundation’s AIDFund program to support local relief efforts in the wake of the Myanmar cyclone and the earthquake in southwest China.
Consistent with our business model, our strategy is to move paper information to digital, which saves trees in printing and fossil fuel in shipping, and to run central data centers as efficiently as possible using the latest technologies. We have installed videoconference units in our largest locations to reduce travel. We use 100% recycled paper for our annual review and are offering our shareholders the option to receive information online.
However, our data centers, properties and staff have environmental impacts. In 2009, we will create a new data-gathering system to provide a more comprehensive understanding of our global resource consumption baseline, concentrating on relevant indicators such as energy, water, waste and paper consumption. This system will help us to track the progress of resource-saving initiatives as well as to prepare for the U.K. Carbon Reduction Commitment.
One additional way we address global environmental challenges is through the information we provide to customers and the public. Through Reuters Media we provide news on these topics, and encourage debate and increased awareness via dedicated environment-focused blogs and video channels.
Our Eagan, Minn., campus has been a member of Minnesota Waste Wise since the early 1990s, collaborating with other member companies on ways to reduce waste, conserve energy and adopt sustainable practices that save money and protect the environment. Additionally, the Eagan team applied for and won the Minnesota Waste Wise Leader Award in 2008, the third time we have been so recognized.
More than 11,200 tons of waste were recycled internally at the Eagan campus last year. We estimate that approximately 50% of all paper used in our manufacturing has recycled content, and all paper suppliers used by this location are Forest Stewardship Council certified.
The Trust Principles
Thomson Reuters is dedicated to upholding the Reuters Trust Principles and to preserving our independence, integrity and freedom from bias in the gathering and dissemination of information and news.
THE REUTERS TRUST PRINCIPLES ARE:
That Thomson Reuters shall at no time pass into the hands of any one interest, group or faction;
That the integrity, independence and freedom from bias of Thomson Reuters shall at all times be fully preserved;
That Thomson Reuters shall supply unbiased and reliable news services to newspapers, news agencies, broadcasters and other media subscribers and to businesses, governments, institutions, individuals and others with whom Thomson Reuters has or may have contracts;
That Thomson Reuters shall pay due regard to the many interests which it serves in addition to those of the media; and
That no effort shall be spared to expand, develop and adapt the news and other services and products of Thomson Reuters so as to maintain its leading position in the international news and information business.
The Reuters Founders Share Company (RFSC) exists to safeguard the Reuters Trust Principles. The directors of the RFSC have a duty to ensure, insofar as they are able to do, that the Reuters Trust Principles are complied with.
PRO FORMA DIVISION AND BUSINESS SEGMENT INFORMATION
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF CASH FLOW
In 2008, free cash flow was affected by certain unusual items. The following analysis removes these items to derive our underlying free cash flow:
Pro Forma Revenue Profiles
Revenue by Media
Revenue by Region
Revenue by Type
Thomson Reuters is comprised of two divisions.