London -- This statement refers to Reuters core revenues only. Instinet, the electronic brokerage firm in which Reuters has a 63% stake, will report its first quarter results on 22nd April, at which point Reuters will produce a consolidated Group revenue statement.
- Overall financial performance in Q1 in line with expectations
- Reuters core revenue declined 10% on an underlying basis to 670 million British pounds
- Recurring revenue fell 9.1% at underlying rates to 624 million British pounds
- Good progress on cost savings reinforced confidence in the 490 million British pounds savings target for 2003
- Fast Forward gained momentum, with progress on Multex integration, the pipeline for next generation products and the new product delivery architecture
- Reuters grew its market share as measured by revenues and user accesses by two percentage points in 2002 over 2001
- Underlying decline in second quarter recurring revenue expected to be approximately 11%, with the full year decline in the order of 10% - 12%
Tom Glocer, Reuters Group Chief Executive, said: "We are pleased with the progress we made this quarter in what continues to be a tough market. Revenues were in line with our expectations and we saw some good sales wins. Fast Forward is gaining momentum, and I personally am focused on creating a fast, accountable, service-oriented team at Reuters. Looking forward, we have firmed up, but not changed, our revenue guidance and are confident that we have set the right pace for Fast Forward."
Reuters core revenue, excluding Instinet and joint ventures, was 670 million British pounds. On an underlying basis, adjusting for exchange rate movements and the impact of acquisitions and disposals, this represents a 10% decline. On an actual basis, revenue was down 12%, reflecting the impact of a weaker US dollar.
Revenue by Type
Recurring revenue from subscription products, which made up 93% of Reuters core revenue in Q1, was £624 million, down 9.1% on an underlying basis compared with the first quarter of 2002.
User accesses stood at 469,000 at the end of the quarter and were down 17% year-on-year. The decline from the end of 2002 was 5%, reflecting the high level of cancellations in December 2002 cited in February's preliminary results. As anticipated, Reuters has experienced an improvement in the rate of net cancellations compared to the last quarter of 2002.
Outright revenue, which represents 3% of core revenue, was 21 million British pounds. This decline of 31% on an underlying basis is due to continuing pressure on customer IT budgets and the narrowing of focus of Reuters Solutions business as part of the Fast Forward programme. This overall decline in a historically volatile source of revenue masks encouraging progress in key areas of focus. In Risk Management, 700 positions of a new product, Reuters Kondor Global Limits, have been sold in the first two weeks since its launch. A new version of Reuters flagship risk product, Kondor +, will be launched ahead of schedule in the second half of this year.
Usage revenue was 25 million British pounds, down 16% on an underlying basis. A strong quarter in Treasury Broking Services and Media TV was more than offset by the effect of weak US equity markets on Bridge Trading.
Revenue by Customer Segment
Revenue from Treasury was 257 million British pounds, down 8% on an underlying basis. Strong quarter-on-quarter recurring revenue growth for Reuters 3000 Xtra was more than offset by declines in legacy information products and in conversational Dealing, which were hit by customer consolidation and branch closures. The Automated Dealing Technologies offering from AVT (acquired in December 2002) made a strong start to the year, with valuable sales including an agreement with HSBC to provide a global foreign exchange trading portal. Usage revenue in Treasury also had a good quarter, with strong growth in both spot and forwards matching driven by FX market volatility.
Revenue from Investment Banking was 178 million British pounds, down 16% on an underlying basis. Despite continuing headcount reductions, the recurring revenue fall of 13% reflected a marginal improvement in the quarter-on-quarter rate of decline. In Fixed Income, there were some encouraging sales wins from the North American Capital Markets product. In Equities, new versions of Reuters BridgeStation are being well received by customers in the US. However, declining US equity volumes and the continued retrenchment of the US buy side led to a tough first quarter for Bridge Trading.
Revenue from Asset Management was 160 million British pounds, down 9% on an underlying basis. Cost cutting and headcount reductions led to cancellations of legacy information products that were only partially offset by growth in revenue from Reuters 3000 Xtra. Nevertheless, there were good competitive wins with Reuters Market Monitor Xtreme (RMMx) and Reuters Plus at Credit Suisse and Fahnestock & Co.
Revenue from Corporates and Media was 75 million British pounds, down 6% on an underlying basis. Recurring media revenues fell as TV contracts were renewed at the beginning of this year at a lower total spend, and falling renewal rates also hit research revenues. However, in the course of the quarter there has been a significant pick-up in both recurring and usage based media sales, reflecting Reuters highly rated coverage of the war in Iraq.
Recurring revenue by product
Premium tier revenue, which includes Reuters 3000 Xtra, BridgeStation and Dealing, was 172 million British pounds, up 11% on an underlying basis year-on-year and up very slightly from the previous quarter. Revenue from 3000 Xtra was up 37% year-on-year while the installed base grew 7% over the quarter to 55,000 accesses. By quarter end, installations represented 88% of firm sales, up from 87% at the end of 2002. Average monthly revenue per access for all premium products fell 3% from the last quarter of 2002, mainly due to the changing mix of premium products.
Recurring revenue from 2000/3000 series products was 106 million British pounds, down 32% on an underlying basis year-on-year and 12% on the previous quarter, driven by cancellations and migrations to 3000 Xtra. Reuters Trader for European Capital Markets, due for launch this quarter, will provide a next generation alternative to the 2000/3000 series.
Recurring revenue from mid and low tier products was 74 million British pounds, down 3% on an underlying basis year-on year and down 7% on the previous quarter. Revenue declines masked good competitive sales wins, with some 5,000 new positions sold in the US, mostly of Reuters Plus, and encouraging progress on RMMx in Europe. Revenue per access was up 22% year-on-year, in part reflecting unit price increases and lower volume discounts.
Fast Forward
Since the announcement of Fast Forward, the programme to accelerate its transformation into a focused information company, Reuters has made good progress on each of its key initiatives.
The integration of Multex is under way and will give Reuters customers a compelling combination of indispensable information - news, pricing, fundamental data, earnings estimates and research. Next week will see the launch of the first new product since Multex and Reuters joined forces, a research and analysis offering targeted at buy side analysts and portfolio managers with access to historic, real time and forecast information.
Initial discussions with customers about Reuters single product distribution architecture have proved positive, with customers focusing on the potential to reduce total cost of ownership and match information distribution to user needs.
Simplification of the product line is proceeding well, with 200 products due to be removed this year and an additional 250 already withdrawn from sale. The pipeline of new, segmented products is strong, with a number of major new products and significant enhancements to existing products either launched or due for launch soon.
* Multex 360 - Q2
* "Thin client" version of 3000 Xtra - Q2
* Reuters BridgeStation 8.0 (integrating Instinet) - Q2
* Reuters Trader for European Capital Markets - Q2
* Reuters Knowledge - Q2
* Reuters Intelligent Advisor - H2
* Kondor + 2.6 - H2
In Solutions, there is progress on building partnerships with systems integrators, the first of which is an alliance with IBM to provide a hosted Risk Management service for customers in the Asia Pacific region. Reuters sales teams are now focused on the three key areas announced in February - Risk Management, Trading Room Systems and Treasury Solutions.
The total cost savings target for 2003 of 490 million British pounds, of which 45 million British pounds will result from Fast Forward initiatives, is on track, with the cost run rate for the quarter significantly lower than in the first quarter of 2002. The first quarter saw the departure of 300 employees as a result of the restructuring of sales operations in Europe and marketing resources in the customer segments. Staff costs for the quarter were down 13% year-on-year at underlying rates. Nevertheless, the drive for customer service continues with more recruitment into key areas such as customer support and training.
Impact of currency movements
While currency movements, most notably the weakness of the US dollar partially offset by a strengthening of the Euro, contributed 2% to the 12% decline in Reuters first quarter revenues, the same currency movements have had a small positive effect on Reuters operating profits over the same period. This is because Reuters profits (as opposed to revenues) are more heavily biased towards Europe and the stronger Euro.
Market share
Reuters has created a comprehensive system for analysing market size and share, by aggregating data for the last two years from over 50 independent sources and proprietary interviews covering thousands of end-users.
The Reuters survey, which covers approximately 60% of Reuters recurring revenue base (i.e. end user access driven revenue from its three financial services customer segments), provides management with detailed information on Reuters competitive position and underlying market dynamics.
At headline level, the survey shows that in 2002 Reuters share of revenue increased by two percentage points to 39%.
At 40% (up two percentage points from 2001), Reuters has the largest share of end user accesses worldwide, confirming the strength of its position as the only vendor with products tailored to the workflows of premium, mid and low tier users. As a trusted enterprise-wide supplier, Reuters is uniquely placed to deliver the right products at the right price.
Prospects
As anticipated, Reuters net sales performance in the first quarter of 2003 has shown some improvement on the fourth quarter of 2002, although market conditions remain difficult. Looking ahead, Reuters expects the underlying decline in second quarter recurring revenue to be approximately 11% and, assuming no step change in existing market conditions, for the full year decline to be in the order of 10% - 12%.
End
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