Thomson Reuters Corp (TRI)

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Thomson Reuters (TRI)

Q4 2010 Earnings Call

February 10, 2011 9:00 am ET

Executives

Frank Golden - Senior Vice President of Investor Relations

Thomas Glocer - Chief Executive Officer and Director

Robert Daleo - Chief Financial Officer and Executive Vice President

Analysts

Paul Steep - Scotia Capital Inc.

Patrick Wellington - Morgan Stanley

Phillip Huang - UBS Investment Bank

Mark Braley - Deutsche Bank AG

David Lewis - JP Morgan Chase & Co

Tim Casey - BMO Capital Markets Canada

Brian Karimzad - Goldman Sachs Group Inc.

Drew McReynolds - RBC Capital Markets, LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Thomson Reuters Full Year and Fourth Quarter 2010 Earnings Call. [Operator Instructions] Now I turn the conference over to Mr. Frank Golden, Senior Vice President, Investor Relations. Please go ahead.

Frank Golden

Good morning, and thank you for joining as we report our fourth quarter and our full year 2010 results. We'll begin today with Thomson Reuters CEO Tom Glocer, who will be followed by our CFO, Bob Daleo. Following Tom and Bob's presentations, we'll open the call for questions and I ask that you please limit yourself to one question each so we can get to as many as possible.

Now throughout today's presentation, keep in mind that when we compare performance period on period, we look at revenue growth rates before currency as we believe this provides the best basis to measure the underlying performance of the business.

The company announced today its intention to sell its BAR/BRI Legal Education business and its Scandinavian Legal and Tax Accounting business, both of which are expected to close by midyear. Today's presentation and discussion includes the results of these disposals within ongoing businesses for comparability purposes since we owned the businesses for the entire reporting period.

Operating results, which exclude the results for these two businesses, are reflected in the supplemental schedule noted as Appendix A in today's release that I would draw your attention to. The company's 2011 outlook is based on the results reflected in Appendix A, which again exclude these disposals.

Lastly, on our website, you'll find some supplemental information that provides additional details on the quarterly and full year 2010 results, excluding disposals.

Now today's presentation contains forward-looking statements and actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You can access these documents on our website or by contacting our Investor Relations department. It's now my pleasure to introduce the Chief Executive Officer of Thomson Reuters, Tom Glocer.

Thomas Glocer

Thank you, Frank. And thank you, all, for joining us this morning. I plan to cover three topics today. First, I'll discuss our full year 2010 results and selected highlights for the year. Second, I'll discuss our priorities as we enter 2011. And lastly, I'll discuss our outlook for 2011 as we look forward to accelerating revenue growth and profitability.

Let me begin by saying that 2010 was a good transition year for us in the sense that we achieved what we set out to accomplish. But it is by no means indicative of either our growth ambitions or what we're capable of.

In 2010, the company returned to growth helped by new products that are gaining momentum and markets that are improving. We released great new flagship products including WestlawNext, Thomson Reuters Eikon and Thomson Reuters Elektron, which will accelerate our growth in 2011 and beyond. And we delivered on our efficiency initiatives which, along with higher revenue growth, will contribute to improving margins and growing free cash flow. So let's take a look at the numbers.

2010 revenues came in a little bit stronger than we originally anticipated and we ended the year with good momentum and growth of 4% in the fourth quarter. I'd characterize the current economic environment for us as one of rising business optimism, although that optimism and the opportunity for growth is unevenly distributed across the globe. We're encouraged by what we're seeing in the business: revenue growth, positive net sales and strong customer uptake of our new products and conditions in the financial and legal services markets have improved.

Headcount in financial service has stabilized as layoffs slowed and hiring improved, especially in Asia. And at law firms, profits per partner were up as billings begun to increase off of a reduced cost base. For the full year, total revenues increased 1% for us as compared to being unchanged in 2009. The Professional division's revenues rose 4%. Growth was good across each of professionals business units with Tax & Accounting and Healthcare and Science achieving particularly strong results.

Legal revenues were up 2% with good growth from subscription services up 6%, offset by a decline in transaction revenues and print revenues. The Markets divisions' 2010 revenues were down 1% as a result of the negative net sales in 2009 and early 2010, but they rose 2% in Q4 from positive net sales in the second half of the year. Performance of our Enterprise unit was particularly strong with revenues up 7% for the year. Underlying operating margin was 20% before the impact of acquisitions and currency, 19.6% after, and this is consistent with our outlook for the year. Underlying operating profit declined 7% for the firm as a whole primarily due to ongoing product investment, product mix, the dilutive effect of acquisitions and due to currency.

Importantly, our integration program remains on track and will conclude on December 31 of this year. At year end 2010, we achieved run rate savings of $1.4 billion. In 2011 we expect to incur about $200 million of additional integration costs; that's about $75 million higher than our previous target. But we expect to end 2011 with run rate savings of $1.7 billion and that's $100 million above the corresponding previous target.

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