Thomson Reuters Reports Fourth-Quarter and Full-Year 2015 Results

The company expects:

• Low single digit revenue growth
  • 2% to 3% revenue growth excluding Financial & Risk’s recoveries revenues, which are low margin revenues and are expected to decline as partners move to direct billing with their customers
• Adjusted EBITDA margin to range between 27.3% and 28.3%
  • Comparable 2015 EBITDA margin (excluding IP & Science business) was 27.3%
• Underlying operating profit margin to range between 18.4% and 19.4%
  • Comparable 2015 underlying operating profit margin (excluding IP & Science business) was 18.1%
• Free cash flow to range between $1.7 billion and $1.9 billion in 2016

To facilitate comparison with our 2016 Outlook, Appendix A presents the company’s 2015 actual results on a comparable basis excluding the Intellectual Property & Science business.

The information in this section is forward-looking and should be read in conjunction with the section below entitled “Special Note Regarding Forward-Looking Statements, Material Assumptions and Material Risks.”

Dividend and Share Repurchases                                                                               

The Thomson Reuters board of directors approved a $0.02 per share annualized increase in the dividend to $1.36 per common share. A quarterly dividend of $0.34 per share is payable on March 15, 2016 to common shareholders of record as of February 23, 2016. This dividend increase marks the 23^rd consecutive annual dividend increase by the company.

In 2015, the company repurchased approximately 35.9 million shares at a cost of approximately $1.42 billion. Of this amount, 4.3 million shares were repurchased in the fourth quarter at a cost of approximately $167 million.

Today, the company announced that it plans to repurchase up to an additional $1.5 billion of its shares as it has essentially completed its third $1 billion program announced in May 2015.

Highlights by Business Unit

Unless otherwise noted, all revenue growth comparisons in this news release are before the impact of foreign currency (constant currency) as Thomson Reuters believes this provides the best basis to measure the performance of its business. 

Financial & Risk

Fourth Quarter

• Revenues were unchanged compared to the prior-year period. Revenue growth exceeded 2% before the impact of expected lower recoveries revenues and commercial pricing adjustments related to the migration of remaining legacy foreign exchange and buy-side customers onto the segment’s unified platform.
  • Recurring revenues (77% of the segment’s revenues in the quarter) increased 2% as an annual price increase and the impact of positive net sales more than offset lower revenues resulting from the price adjustments described above.
  • Transactions revenues (14% of the segment’s revenues in the quarter) decreased 1% due to lower foreign exchange volumes.
  • Recoveries revenues (9% of the segment’s revenues in the quarter) were down 14% (as expected) as some third-party partners move to direct billing with their customers. 
    • Recoveries revenues are expected to decline approximately $100 million in 2016. Recoveries represent low-margin revenues in our Financial segment for content or services provided by third parties and distributed through our platform. This projected reduction in recoveries revenue has no economic impact (i.e., no impact on EBITDA or Operating profit).
• By geography, revenues in Asia were up 3% and the Americas up 2%, while revenues in Europe, Middle East and Africa (EMEA) were down 3%.
• Net sales were positive overall and were positive in all regions, except for EMEA. This marked the seventh consecutive quarter of positive net sales.
• EBITDA increased 26% as savings related to efficiency initiatives and the impact of $70 million of charges taken in the prior-year period were partially offset by the impact of currency.
  • The margin was 29.5%, up 710 basis points from the prior-year period due to efficiency initiatives undertaken in 2014. 
  • Excluding the impact of currency, the margin was 30.0% and excluding the impact of $70 million of charges taken in the fourth quarter of 2014, the margin was up 320 basis points from the prior-year period. Currency had a 50 basis point negative impact on the margin.
• Operating profit increased 65% compared to the prior-year period, primarily due to the same factors that impacted EBITDA.
  • The margin was 20.8%, up 870 basis points from the prior-year period.
  • Excluding the impact of currency and one-time charges taken in the fourth quarter of 2014, the margin was up 510 basis points from the prior-year period. Currency had an 80 basis point negative impact on the margin.

Full Year

• Revenues were unchanged compared to the prior year. Revenue growth was greater than 2% before the impact of expected lower recoveries revenues and the commercial pricing adjustments described above.
  • Recurring revenues (76% of the segment’s revenues for the year) increased 1% as an annual price increase and the impact of positive net sales more than offset the lower pricing adjustments.
  • Transactions revenues (14% of the segment’s revenues for the year) increased 1%.
  • Low-margin recoveries revenues (10% of the segment’s revenues for the year) were down 5%.
• By geography, revenues in the Americas were up 2%, Asia up 1%, while revenues in EMEA were down 2%.
• Net sales were positive overall and were positive in all regions except for EMEA, which was slightly negative. This marked the first time in seven years that net sales were positive in all four quarters in a calendar year.
• EBITDA increased 7% as savings related to efficiency initiatives and the impact of $130 million of charges taken in the prior year were partially offset by the impact of currency.
  • The margin was 27.7%, up 340 basis points from the prior year due to the efficiency initiatives mentioned above. 
  • Excluding the impact of currency and the impact of $130 million of charges taken in 2014, the margin was up 220 basis points. Currency had an 80 basis point negative impact on the margin.
• Operating profit increased 16% compared to the prior year, primarily due to the same factors that impacted EBITDA.
  • The margin was 18.0%, up 350 basis points from the prior year.
  • Before currency and charges from the prior year, the margin was up 270 basis points. Currency had a 120 basis point negative impact on the margin.

Legal

Fourth Quarter

• Revenues increased 2%. Excluding US print, revenues grew 3% organically.
• Solutions businesses (46% of the segment’s revenues in the quarter) grew 5%. Revenue growth was driven by Legal Enterprise Solutions and businesses in the United Kingdom/Ireland (UKI) and Latin America. Solutions businesses represent all of Legal’s revenues excluding US print and US online legal information.
• US online legal information (38% of the segment’s revenues in the quarter) grew 2%, reflecting growth for the fourth consecutive quarter.
• US print (16% of the segment’s revenues in the quarter) declined 6%.
• EBITDA increased 7% and the margin increased 260 basis points to 36.9% compared to 34.3% in the prior-year period. Excluding the impact of currency, the margin increased 200 basis points driven by revenue growth, close management of discretionary costs, and the timing of investment initiatives.
• Operating profit increased 12% and the margin increased 340 basis points to 29.5% compared to 26.1% in the prior-year period. Excluding the impact of currency, the margin increased 300 basis points for the same reasons that drove EBITDA margin growth.

Full Year

• Revenues increased 2%. Excluding US print, revenues grew 3% organically.
• Solutions businesses (46% of the segment’s revenues for the year) grew 6%. Revenue growth was driven by Legal Managed Services, Legal Enterprise Solutions and businesses in UKI and Latin America. Solutions businesses represent all of Legal’s revenues excluding US print and US online legal information.
• US online legal information (39% of the segment’s revenues for the year) grew 1%, reflecting growth in all quarters of the year and the first full year of growth since 2009.
• US print (15% of the segment’s revenues for the year) declined 6%.
• EBITDA remained unchanged and the margin increased 30 basis points to 36.9% compared to 36.6% in the prior year. Excluding the impact of currency, the margin decreased 30 basis points.
• Operating profit increased 3% and the margin increased 100 basis points to 29.4% compared to 28.4% in the prior year. Excluding the impact of currency, the margin increased 50 basis points.

Tax & Accounting

Fourth Quarter

• Revenues increased 7% driven by the Corporate, Professional and Government businesses, partially offset by a decline in the Knowledge Solutions business which was driven by the timing of revenues. Recurring revenues (86% of the segment’s revenues in the quarter) were up 8%.
• EBITDA increased 22% and the margin increased 610 basis points to 39.3% compared to 33.2% in the prior-year period. Excluding the impact of currency, the margin was up 440 basis points primarily due to revenue growth.
• Operating profit increased 28% and the margin increased 630 basis points to 32.2% compared to 25.9% in the prior-year period. Excluding the impact of currency, the margin was up 490 basis points for similar reasons that drove EBITDA margin growth.
• Small movements in the timing of revenues and expenses can impact margins in any given quarter for the Tax & Accounting business. Full-year margins are more reflective of the segment’s underlying performance.

Full Year

• Revenues increased 8% driven by the Corporate and Professional businesses. Recurring revenues (83% of the segment’s revenue for the year) were up 8% organically.
• EBITDA increased 9% and the margin increased 180 basis points to 32.2% compared to 30.4% in the prior year. Excluding the impact of currency, the margin was up 80 basis points.
• Operating profit increased 16% and the margin increased 270 basis points to 24.2% compared to 21.5% in the prior year. Excluding the impact of currency, the margin was up 170 basis points.

Intellectual Property & Science

Fourth Quarter

• Revenues were up 3%, subscription revenue (74% of the segment’s revenue in the quarter) grew 1% and transactions revenues grew 8% driven by Web of Science.
• EBITDA increased 1% and the margin declined 30 basis points to 35.0% compared to 35.3% in the prior-year period. Excluding the impact of currency, the margin declined 130 basis points compared to the prior-year period.
• Operating profit was unchanged, and the margin declined 50 basis points to 26.3% compared to 26.8% in the prior-year period. Excluding the impact of currency, the margin declined 110 basis points from the prior-year period.
• Small movements in the timing of revenues and expenses can impact margins in any given quarter for the Intellectual Property & Science business. Full-year margins are more reflective of the segment’s underlying performance.

Full Year

• Revenues were up 1% as subscription revenue (78% of the segment’s revenue for the year) growth of 3% was partially offset by a 4% decline in transactions revenues.
• Both EBITDA and operating profit margins were affected by the 4% decline in transactions revenues, which are highly profitable.
  • EBITDA decreased 5% and the margin declined 130 basis points to 31.1% compared to 32.4% in the prior year. Excluding the impact of currency, the margin declined 220 basis points compared to the prior year.
  • Operating profit decreased 8% and the margin declined 160 basis points to 22.0% compared to 23.6% in the prior year. Excluding the impact of currency, the margin declined 240 basis points as compared to the prior year.

Corporate & Other (Including Reuters News)

Fourth Quarter

• Reuters News revenues were $74 million, unchanged from the prior-year period.
• Corporate & Other costs were $141 million compared to $97 million in the prior-year period. The increase was largely comprised of costs incurred by the consolidation of technology operations (severance related), higher healthcare costs and higher media-related expenses.

Full Year

• Reuters News revenues were $296 million, up 1% from the prior year.
• Corporate & Other costs were $360 million compared to $305 million in the prior year. The increase was largely comprised of costs incurred by the consolidation of technology operations (severance related), higher healthcare costs and higher media-related expenses.

Thomson Reuters

Thomson Reuters is the world’s leading source of news and information for professional markets. Our customers rely on us to deliver the intelligence, technology and expertise they need to find trusted answers. The business has operated in more than 100 countries for more than 100 years. Thomson Reuters shares are listed on the Toronto and New York Stock Exchanges (symbol: TRI).