Thomson Reuters Corp (TRI) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Thomson first-quarter results conference call. At this time all participant lines are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions being given at that time. (OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to the Vice President of Investor Relations, Frank Golden. Please go ahead, sir.

Good morning and thanks very much. I would like to welcome you to The Thomson Corporation's first-quarter 2005 earnings call. Those of you listening should have a copy of today's earnings release. If you do not have a copy, it is available at our website at www.Thomson.com. We will begin this morning with our President and CEO, Dick Harrington, who will provide you with an overview of the quarter's results. He will then address the Company's announcements today regarding our dividend increase and our issuer bid.

Dick will be followed by Bob Daleo, Thomson's CFO. Bob will discuss the financial results for Thomson in each of the market groups, and he will also provide an update on the Company's financial metrics. Following Dick and Bob's presentations, we will open the call for questions. We ask that you limit yourselves to one question each in order to enable us to get as many questions in as possible.

Before we begin, let me mention that the following discussion contains forward-looking statements that relate to future results and events, and are based on Thomson's current expectations. Actual results may differ materially from those currently expected due to a number of risks and uncertainties discussed in documents that we provide to the regulatory agencies. This presentation also contains disclosures of certain non-GAAP financial measures. As required by regulatory rules, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measures in the Investor Relations section of our website found at www.Thomson.com.

Let me now introduce the Company's President and CEO, Dick Harrington.

Good morning everyone. Thank you for joining us. I am pleased to report that we're off to a very good start for the year. Revenue and operating profit were up double digits. The solid growth was a combination of both organic and acquisition growth, as well as improved efficiencies across the Company. All four market groups performed well in the quarter. We continue to drive operating margins higher by leveraging our size and scale, and this will continue to be a major focus of the Company. The higher revenue and strong growth and operating profit enabled us to double earnings compared to the first quarter of last year.

Let me turn now to the results for the quarter. Revenue was up 10%, largely due to acquisitions made last year. Operating profit was up 16%, resulting in improvement in the operating profit margin compared to the prior year. Adjusted EPS was $0.08 versus $0.04 in the prior period. As you know, the first quarter is our smallest quarter of the year, due mainly to the seasonal nature of our higher education business.

Legal & Regulatory had a very good quarter as organic growth grew 4% and online revenues rose 10%, while margins continue to rise. Learning revenues are up 9%, reflecting acquisitions and also strength in higher education, including custom publishing and English language training. Financial posted strong results for the quarter from a combination of organic and acquisition-related growth. We continue to see good growth in the number of Thomson ONE desktops being deployed, which will continue throughout the year as we ramp up the rollout with Merrill Lynch.

Scientific & Healthcare rolled out the Thomson Pharma solution in January, and it is being well-received by existing as well as new customers. The integration of the IHI acquisition is proceeding well, and several IHI products are being integrated into the pharma product.

In terms of our priorities for 2005, as we have said to you previously, the Company is focused on driving organic revenue growth across each market group, pursuing tactical acquisitions, and moving into adjacent markets. We also continue to drive free cash flow which we believe our business model can sustain. Finally, we are focused on improving returns on each dollar of capital we deploy across the Company, and on delivering solid and sustainable earnings growth.

The Company is very focused on ways to improve returns and to return capital to shareholders. In keeping with this philosophy, we announced a $0.04 dividend increase, which will bring our dividend yield to 2.5%, further enhancing shareholder value. Our Board also authorized a normal course issuer bid, which gives us the flexibility to go into the market opportunistically to repurchase shares. It is a tool that a significant percentage of companies on the TSX utilize, and is another tool that will enable us to increase shareholder returns. These actions also reflect our confidence in the Company's ability to continue to generate strong, steady free cash flow growth.

You can see on this slide that we have been gradually increasing our annual dividend over the past five years, as our free cash flow has continued to rise. And during that period, we were focused on building the business and making sure we had the size and scale in each market group to compete successfully. The $0.04 per share dividend increase announced today represents a 5.3% rise over last year's level, and is the largest percentage increase since 1997.

As we previously discussed, Thomson has established a long-term dividend payout target of 40% of free cash flow, with annual increases in line with free cash flow growth, once the target payout ratio of 40% is achieved. We're currently at a 44% payout ratio.

Bob Daleo will now take you through the first quarter's results in more detail.

Thank you, Dick, and good morning everyone. You'll notice in today's presentation that we are not reporting EBITDA results either on a consolidated basis or by market group. The primary reason for the change is that we believe operating income is a better measure of how we manage the business. Our management compensation is tied to operating income, not EBITDA. This will also bring our reporting more in line with GAAP measure. We will be reporting operating profit on a consolidated basis and an adjusted operating profit for each market group going forward. However, we have provided depreciation expense for each market group in the earnings release, and we will continue to do so.

One other change worth noting is that Dialog became two organizations during the first quarter in an effort to better serve our customers. Dialog NewsEdge will remain part of the Legal & Regulatory group, and Dialog DataStar is now part of Thomson Scientific & Healthcare. These first-quarter results reflect this new structure, and the 2004 results have been reclassified to reflect this reorganization.

Now, as Dick indicated, we are off to a very good start for the year. Allow me to remind you once again that as the smallest quarter, all comparisons are not necessarily indicative of full-year performance. However, we've achieved strong revenue growth from each market group. Margins have improved compared to the prior year, due to revenue growth and leverage in the business.

Now let me provide you with some of the specifics of the quarter. Revenue for the quarter was up 10%. This helped to drive a 16% increase in operating profit. An increase in revenues is comprised of 2% organic growth, which I will discuss in a little bit more detail on the next slide, and 7% from acquired businesses. Each of the market groups achieved good growth for the quarter, with Thomson Financial and Scientific & Healthcare recording very strong quarter-to-quarter growth, primarily due to the recent acquisitions.

The 16% increase in operating profit for the quarter resulted in a 30 basis point improvement in our margin compared to a year-ago. The margin improvement was somewhat tempered by about a $12 million increase in corporate expenses, due to outsourcing of certain reorganization -- costs associated with outsourcing of certain HR services, higher stock expense, and higher pension costs. The first-quarter's organic revenue growth is not indicative of what we are expecting for the full year. The quarter is small and, therefore, prior-year onetime items can have an inordinate impact on reported results.

Here are some of the items I will elaborate on when I get to the specific units. Thomson Financial and Thomson Scientific & Healthcare had timing and onetime revenue items in the quarter a year ago, which actually affected the year-to-year comparisons. Thomson Learning had good organic growth, but was offset by the termination of the UK drivers license contract in September of last year. You may recall we noted this on our fourth-quarter call. We expect the revenue growth rate to increase as the year progresses, due to new product deployments and further penetration in our adjacent markets.

Now I will turn to the individual market groups, beginning with Legal & Regulatory. Revenues in Legal & Regulatory increased 6%, with core revenue growth accounting for 4% of the increase, acquisitions contributed 1%, and foreign exchange the balance. Online revenue grew 10%. Software and services revenue was up 7%; print and CD revenue declined 3% for the quarter compared to the prior year. You'll note that margin improvement in the quarter reflects the flowthrough benefit of revenue growth from an efficient operation.

As a reminder, Thomson Learning's first-quarter results reflect the seasonal nature of the higher education business, in which most of the revenues and profits are realized in the latter half of the year. For the quarter, revenues increased 9%. Core revenue was essentially flat, primarily to that termination of that drivers license contract which we previously noted. The impact this quarter was $13 million from this termination. We expect to have similar impact throughout the year through the third quarter. Excluding this item, organic revenue increased 4%; acquisitions accounted for almost all of the 9% revenue growth.

Academic and related revenues increased 11% in the quarter, reflecting growth in higher ed, both domestic and international, of 9% due to strong growth from new copyrights, custom publishing, and increased English language training and vocational training sales. (indiscernible) reference revenues increased 4%, primarily due to sales of new electronic products. E-Testing and corporate e-Learning revenues increased 10% in the quarter due to the Capstar and KnowledgeNet acquisitions last year, and increased volume from the CPA exam which was launched in the second quarter of last year.

The group's operating loss improved 7% to $50 million, despite the impact of the contract termination, and $4 million in acquisition-related costs. In Thomson Financial, revenues rose 17% for the quarter. Organic revenues increased 3%. and 14% was related to acquisitions. Currency translation had nominal impact. Organic revenue was actually up 6%, excluding onetime consulting-based revenue, primarily related to large installations of Thomson ONE in the first quarter. It should be noted this quarter's results mark the fourth consecutive quarter of organic revenue growth for Thomson Financial.

Revenue gains were driven by higher transaction volumes at TradeWeb, BETA, AutEx, and Omgeo, strength from the corporate group driven by strong outbound services, and continued strength from Thomson ONE for investment bankers. Thomson ONE workstations continue to gain traction and increased 9% in the quarter to 88,000 from 80,900 at the end of the year. We expect the rollout of Thomson ONE workstations to accelerate this year as they are deployed throughout the Merrill Lynch branch network across the United States. Thomson Financial's total workstation footprint includes now over 210,000 workstations worldwide. This figure encompasses workstations from Thomson ONE, TradeWeb, Starquote, and other legacy workstations.

European market conditions continue to trail the US. Thomson Financial's revenues grew 12% at constant currencies, but primarily due to the benefit from acquisitions. Adjusted operating profit increased 18% to 65 million, and the operating margin increased slightly to 14.2%. Margins improved in spite of a $5 million benefit related to the payment of insurance coverage related to the first quarter a year ago.

Thomson Scientific & Healthcare revenues increased 13%, primarily related to the acquisition of IHI last year. Organic revenue was essentially flat when you exclude currency effects of both transaction and translation. Revenue growth from existing businesses included higher subscriptions from the Web of Science and Web of Knowledge, which were up strongly compared to the prior year, and demand for Medstat's healthcare decision support products which continue to be strong, as well as demand from Micromedex electronic products. Revenues were negatively affected by the timing issues related to the PDR custom products that we distribute, and some softness in medical education business reflecting short-term spending entries, attributable to regulatory changes and some cost-management initiatives in pharmaceutical companies. Adjusted operating profit increased 56% to $28 million, and the operating profit margin rose to 12.3% from 8.9%, due to revenue growth, operating efficiencies, and the successful integration of several acquisitions.

Now let me update you on the financial metrics that we believe will drive our long-term business objectives. Revenue growth, taking advantage of our size and scale to drive margins; efficiently allocating and spending capital dollars; free cash flow growth; and driving earnings growth.

Turning to revenue, growth at constant currencies in the quarter totaled 9% compared to being up 6% a year-ago. Electronic solutions and services, which exclude print, comprise 76% of our revenue base versus 74% last year. And 72% of our revenue was recurring in nature in the quarter. We believe these metrics are a good indicator of our ability to build momentum for higher organic growth this year, while at the same time maintaining a consistent revenue stream and strong cash generation capability.

As you can see on this slide, regarding profit margin, we have had success in continuing to improve our operating profit margins over the past four years. The first-quarter margin was tempered by corporate expansion expenses that I mentioned earlier. While we expect a higher level of corporate costs, we also expect margins to improve slightly for the full year.

As Dick mentioned, we continue to leverage the size and scale of our Company across each of our market groups and expect to continue to see margin improvement grow (ph) at a more gradual rate of expansion.

Capital expenditures on a year-to-year basis declined 3% in the quarter, representing 6.2% of revenue, with book play (ph) comprising $25 million of the total spend. We continue to expect overall CapEx to be in the 7% range over the long term.

As Dick noted, free cash flow continues to be one of the most important metrics we track across the Company. As you would expect, the first quarter is the smallest in cash generation. Free cash flow in the first quarter declined compared to last year, due to working capital investments and timing this quarter. Reflected in the working capital is a change, is an unfavorable comparison to last year regarding a onetime $32 million cash tax receipt. The first quarter of cash flow is certainly not indicative of what we expect for the full year.

In the first quarter we made acquisitions totaling $70 million, almost entirely in Legal & Regulatory. Three acquisitions exceeded $10 million.

This slide gives you a more detailed reconciliation to adjusted earnings. The one thing I would like to point out is that our effective tax rate for the quarter was approximately 14% and includes some onetime tax related benefits. These were anticipated in arriving at our full-year estimate, which I will discuss on the following slide.

Now let me turn to some of the specifics regarding full-year 2005 metrics. Importantly, we will continue to expect to achieve revenue growth from core operations and acquisitions to be between 7 and 9% for the full year. As you have seen in this quarter, we had a higher level of corporate costs, which are likely representative full year. In spite of this we expect our profit margins to improve compared to 2004. We expect depreciation and amortization to be about 10% higher than a year ago, and we expect the full-year effective tax rate to be around 24%, including this first quarter's lower rate (ph). We expect to continue to generate strong free cash flow.

Let me finish by saying that we are very pleased with the start of the year. We continue to build momentum and are looking forward to continued good growth for the balance of this year. Now I would like to turn the call back over to Frank.

Thanks, Bob. That concludes our formal remarks, and we will now open the lines for questions.

(OPERATOR INSTRUCTIONS) Lauren Fine, Merrill Lynch.

I am wondering if you get help me. This is related under one question. On Scientific & Healthcare, if you could give the breakdown again of organic, foreign exchange, and acquisition contributions there. Then I was confused on Thomson Financial, when you were saying that the organic growth would have been 6%. Was that item that you were noting in the current quarter or the year ago in making for a difficult comparison? I guess I'm trying to understand if the organic growth rate there is being maintained or slowing?

I will answer the last one first. The comparison, the onetime item, was a year ago. The underlying core organic growth of the recurring revenues and transaction mix of the business is about 6%. It was about 6% in the quarter when you adjust for these onetime items that were in the first quarter of 2004.

So you are maintaining your organic growth (multiple speakers).

Absolutely, yes we are. In Scientific & Healthcare, I said that the organic growth was essentially flat, and that the growth came primarily from acquisitions and foreign exchange.

What was the breakdown between foreign exchange and acquisitions?

Acquisitions were about 12%; and foreign exchange was about 1%.

Great, thank you.

Could I just add on that, on the Thomson Scientific & Healthcare. I'm sorry, the healthcare businesses. The businesses that deal with electronic products and services were actually up, were offset with some custom -- with some changes in some delays in some custom products in the print side under the PDR; and some rules changes in the medical education business. Those are the ones that were actually down a little bit. But we would expect them to get back to normal growth in the next quarter.

Can I just sneak in I guess a related question? Which is, as you mentioned that you expect the organic growth to improve for the year, just if you were looking at the full year or sort of even what you think your best quarter will be, what kind of a gap are you looking for relative to the first quarter organic growth, in terms of improved momentum as the year progresses?

One way to answer that is that last year our full-year organic growth for the Company was about 3%; and we have maintained that we would grow at a faster rate than that. So it certainly would be more than 3%. I don't want to be more specific than that, but certainly the 2% growth in the quarter is in no way representative of what we expect for the full year.

Okay, thanks.

Peter Appert from Goldman Sachs.

Could you share with us your thinking about the share repurchase program? Specifically I am wondering if it implies that you expect to be less active from an acquisition standpoint? Also, just how you put it in the context of what is a fairly small float for the stock currently?

First of all, as you know, the normal course issuer bid -- it is a tool that, as I said earlier, that a significant number of Canadian companies already use. We have probably been a little late in the game in actually using it. I mentioned that obviously the flexibility; it is another way to increase shareholder returns.

First of all there is no way it says that there will be less activity in our acquisitions. There is always -- we always have highs and lows in acquisitions based on how much we acquire one year; we usually slow down the next just so that we can integrate those successfully. So this is no means of saying that there is going to be a slowdown in our acquisition activity. Because we feel that tactical acquisitions allow us to continue to develop our existing products and services, and allow us to enter new adjacent markets within our core markets.

There was a third piece to it; one was the --?

I was just wondering, in the context of having a relatively small float, why you would choose to buy back stock, basically?

I think the key is we just want to make sure -- the important thing is we want to make sure we have the ability to go into the market to buy back shares at an opportunistic basis, if it is necessary.

So you're not necessarily therefore firm in your commitment to buy back the 15 million over the course of the 12 months.

Normal course issuer bids are a common practice in large Canadian companies. We haven't availed ourselves of that. The opportunity as we have said in the release, that first of all it is a decision of the Board to make -- to exercise that. So our strategy is at this point that we want to file this. Our thinking is that we will do it opportunistically as the Board decides and management decides when to do it.

Okay.

Vince Valentini from TD Newcrest.

First is just to clarify on the buyback. Is the family or Woodbridge allowed to participate? Are there any parameters around that?

The second (indiscernible) question, maybe more for Dick, is on the dividend. Would you consider this to be sort of an annual review process? I think you had said in the past you would look to the dividend after the second quarter. You have now made this increase after the first quarter. Will the Board or you continue to look at this every quarter? Or should we not expect any further movement until next year after Q1?

On the dividend, we would look at that as an annual process. On the family's participation in the issuer bid, first of all as you know the family can sell stock in the open market as they choose. As a technical matter, which is only a technical matter, if we are in buying stock the family cannot sell the day we are buying. But that is a technical issue. But they can obviously sell if they elect to do so under the normal course of trading, the days that we're not in there with a normal course issuer bid.

Okay, thanks.

Andrew Mitchell from Scotia Capital.

I am also interested in a little bit of color on the dividend share buyback program. Just to boil down, how aggressive do you expect to be? Have you set any minimum number of shares that you are targeting for the program? It doesn't sound like you have.

Were you looking at this as a mix of dividend increase and share buyback; or are you looking at the share buyback program as completely separate?

Then finally, can you just talk about -- I think historically you have indicated a 40 to 45% dividend payout ratio as it relates to free cash flow. Your comments seem to point to a 40% target versus the current run rate of 44. So you're expecting to drift back to 40%, or are you expecting to stay in the 40 to 45% range?

This is Bob. First of all, since I am the one who would be quoted most times saying this, I would say that we have said, and the Board has set for us, a target of 40% -- not 45% -- of free cash flow. With this dividend announcement we're at 44%. We have said that once we get to 40% we would look to tie dividend increases more closely to free cash flow.

It doesn't mean that at the Board's discretion we may choose to vary from that from year-to-year, but generally that is the premise around which management has been operating.

In terms of the normal course issuer bid and the dividend, first of all, our dividend policy is something consistent we have done over time. I think that in our announcement for a normal course issuer bid, what we have said is that this is something that a large number of Canadian companies -- as you know even better than I -- have in their arsenal in a way to help support and value return, drive returns back to shareholders. We look at this as simply another method to do that with.

They are not related. They are very much, though, part of a broader strategy that we have in making sure that we provide returns to shareholders and increase those returns over time.

Okay, thank you.

Frederick Searby of J.P. Morgan. We will move on to the next questioner, Megan Anderson from RBC.

I had a question on margins. Two points, one on financial and the other on science and health. In terms of the improvement in science and health, 380 basis points, can you tell us how much of that might have been due to the reclassification of some of the Legal & Regulatory business?

And on the financial margins, it looks like you reclassified something there as well. Because as you reported Q1 last year, the margin was 26%, I believe, and now it is restated at 25.1. So can you just clarify that?

I will answer the second question first. Last year at this time we had a separate line of disposals, where we were capturing activity (indiscernible) disposals at the corporate level. We have moved that into -- folded that back into the business as you will notice that that -- well, you wouldn't notice it, because it's not there -- but that line is not there this year.

Last year in the quarter we had about 3 or $4 million related to disposals that were actually tied to Thomson Financial. So we moved them that. So that is what accounts for that change at Thomson Financial.

So is there 3 to 4 million in EBITDA?

In EBITDA, yes. It was locked (ph). And in Scientific & Healthcare, the improvements, very little if any of it relates to the transfer of the businesses. In fact it relates to the core businesses, the acquisitions, and just the improvement in operating performance of the business.

Is there any one item amongst those three that you just mentioned that would be disproportionally accounting for the change?

The one that would be perhaps most significant would be that we have been successful in integrating these acquisitions; and we have been successful in taking costs out.

Okay, thanks very much.

Guy Lamming from Cazenove.

For the financial business, could you give us a little more color please on the state of the underlying markets by geography? Any thoughts you have on change in market share between the three main participants? And also over a full business cycle, give your view as to what the growth in the underlying market worldwide in financial might be.

I will start off and say that the growth in the -- first of all, the growth in the global markets are probably going to be somewhere in the, my guess is 4 to 5% range. There's as good an estimate as any.

When I look at the growth by -- I'm sorry. When you look at the market share, obviously, we think Bloomberg is improving market share. We think we are improving market share. Which means that probably Reuters is flat or slightly down, which I think reflects in their numbers. I think I will let Bob go to the geography because he has those numbers.

For us specifically, in the Americas, we were up about 19%, of which about 3% was organic. Again I temper that by saying the core underlying organic growth was more than double that.

In Europe we grew about 14%; but the bulk of that was acquisitions and exchange. Organic growth was flat. But here again there was a positive to this, because last year as you recall we were reporting continued decline in business organically in Europe. So we're starting to see a begin of a turnaround there.

Significantly -- although it is off of a very small base, so I caution -- in the rest of the world, particularly Asia, we had good organic growth of about 12%. But again, it is a very small business.

So again we seem the U.S. continuing to perform well, Europe beginning to turn around, and significant improvements in Asia which represents a small part of our business today.

Can I just follow-up on a related point, which is you said that Reuters might be flat or slightly down. Are you seeing them coming back or do you expect them to come back after what Glocer has done? Or do you -- could you show us -- clarify that, please?

Well I think, you ask, we have a slightly different strategy than Reuters. So we're confident in our strategy and what we're able to accomplish. I think in some cases we hit head-to-head; other cases we don't. So we're very confident in our strategy, and we think that our strategy will provide the appropriate growth that we think we will be able to achieve out of our Thomson Financial unit. So I'm not necessarily going to comment on whether Reuters is -- whether their strategy is working or not working. We feel ours is working.

Thanks a lot, guys.

Jeff Fan from UBS.

My question is regarding acquisitions. Dick, you mentioned in the past that this year you are looking at acquisitions in the neighborhood of, I think, 200 to 500 million. In Q1 so far you've done 70. How do you think about the 200 to 500 at this point in time?

That probably is still a good range. That would still be the range we would use for this year. Mainly because there is just not a lot of activity out there, to be honest with you, so we would expect to stay within that range.

Do you think when you look at range, given that you've done only 70, do you feel that you need to be in that range? Or is it more opportunistic? And how do you see that? Are you saying there's not, doesn't seem to be a lot of potential?

I think I may have missed the question a little bit. When we say do we think we have to be in that range, that is kind of our normal course, if I -- that has been our normal course. When we have always had our -- largely we have always stayed within that 2 to 500. The next (ph).

I think I mentioned one of the calls before, for the last either nine or 10 years we probably had five years over 1 billion, five years under -- I'm sorry; like four years under 500 million. We would expect those, one of those years, we would be under 5.

I think acquisitions pop-up at funny times. So it's difficult just to take the first quarter and say that is going to be an average. We obviously have acquisitions. We always have acquisitions in our pipeline, and that is why we are comfortable with the 2 to $500 million range.

Okay, just a quick one on financial. TradeWeb has obviously been doing well in terms of volume. Can you just comment a little bit on how that volume translates into revenue performance? And also whether that volume is contributing to EBITDA or operating profit?

This is Bob. Obviously it does. We are compensated a number of ways, and one of them is volume related in TradeWeb. There is no doubt that that volume, because it is a highly fixed-cost business, and because as we move out to different -- take on, first of all, expand our platforms, but also expand the kind of instruments we cover, those work their way right through to the bottom line because of the fact the incremental cost of serving those markets is very small.

Without getting into specifics, I would tell you that when we acquired TradeWeb we had very high expectations for it; and it has exceeded even our expectations. So we're very happy with performance of the business.

Is the TradeWeb margin currently above your overall Thomson Financial margins, or is it still below?

I would say it is comparable to or a little bit better.

Okay, thank you.

Randal Rudniski from Credit Suisse First Boston.

A couple questions on the legal and regulatory business. First of all I just wanted to confirm that I heard correctly regarding the software revenue growth. Did you say it was up 7% year-over-year?

Yes.

So that represents a fairly sizable deceleration in the revenue profile there. Can you discuss that a little bit?

First of all, we have had elite now for a full year, so you have some of that working through. In terms of our Fin-Law business we continue to do quite well with that, and we have had good growth there on the services side.

The growth in elite was a little bit slower in the period. It just was a slower -- because it is a software business there's a lot of timing and installations that drive revenue. And we have had a little bit of a delay in some of those installations. We still expect good growth for the business in 2005. But do remember that part of that acceleration that we reported a year ago had to do with some of the timing of the acquisition.

Terrific. Just following up, I think in previous quarters, you had talked about the timing of product revenues relating to greater electronic sales, which has helped the first-half revenue results at the expense of the second half. Did that play any factor in this quarter?

I think that what we see is that this business, like many of our businesses, continues to go through this transition from print to electronic. We did see -- you're absolutely right -- some more dramatic impacts in prior years. What I would say is it is lessening. That we are starting to see more consistency in this business. I don't want to say that it is completely behind us, but definitely we do see a lessening in that regard.

That's great, thank you.

Douglas Arthur from Morgan Stanley.

Bob, I just wanted to drill down on your comments on learning. You said that the organic, I believe, core was flat; but it was up 4% adjusted for the UK license termination. But then you listed a number of groups like academic library and testing, all up pretty strongly. So I guess my question is, what brought the adjusted organic growth down to 4% given the growth in those other items you detailed?

First of all, when we talk about -- the $13 million first of all has a significant impact, and that is what brings it down to a flat. The organic growth, in terms of -- we had library reference was only about 4%; and corporate and e-testing and e-learning were up 10%, but that was primarily due to acquisitions of both KnowledgeNet and Capstar. So the e-testing and corporate learning were flat. So that is part of it.

So you have got a significant part of the revenue base flat. Library and reference was only up 4%; and global higher education was up about 8%. So in all of those, when you did the math, it worked out to be about 4% for the total group.

That's perfect. Thanks.

Mr. Arthur, are you done with your questions, sir?

Yes, I am. That was perfect, thank you.

Mark Braley from Deutsche Bank.

Just a question on Thomson Financial, if I can. You gave us the number for the total terminal accounts including TradeWeb, and the Starquote and the lexi (ph) products at 210,000. Can you just tell us what that number was at the start of the quarter? If you have got the numbers -- I know you didn't own TradeWeb at the time -- but if you got the numbers, what the number was for March 2004 on a pro forma basis?

I certainly don't have the pro forma basis, but I can tell you that we ended the year with about 190,000 terminals. I am trying to look -- I am looking at the spread. We are now up to about 210. Is that right? So we ended the year with about 190,000 terminals in total, and now we're up to 210, so.

Okay, so you had growth of about 10,000 terminals, outside of Thomson ONE. The other question is, within that 210, how much of that do you classify as legacy and what is the sort of (multiple speakers) for killing off those products?

I just closed the books, and now I've got to go back to the same page. The legacy in the quarter is about 105,000; and last year -- at the end of the year it was 110,000. They went backwards about 5,000. Now keep in mind, a lot of that legacy we're not losing customers; we're converting them to our other products. So the intention is to convert as many as it makes sense for our customers, to move them to a higher value product for them. If you will, I like to use the term annuitizing the relationship for us.

Sure, but what is your timescale (inaudible) competitors will use those (inaudible) migrations as they will be targeting those customers in particular at that time.

A lot depends upon the customers. First of all, some of those legacy products called heritage products we probably would expect not to completely convert. Second of all, it is really up to the customer. The customer needs to drive that, not our time frame.

Where we get the opportunity to go in and demonstrate our products, and where customers feel that our products meet their needs, we are able to make those sales. In most cases where we have come up against competitors on our existing legacy products, invariable we have been more successful than not in converting them to our new products.

Okay, thank you.

Tim Casey from Nesbitt Burns.

A couple things. Just back to TradeWeb, you mentioned that the performance has been outstanding. Can you put your finger at all, Bob, on what is driving that. Is it conditions in the market? Or is it the ability or synergies you have seen, I guess, integrating with other products within the TF suite? Or is it just a better business than you thought?

I guess a question for Dick, is there anything positive, Dick, you're seeing as far as acquisition potential within the TLRG group on the continent? I know most of the attractive candidates are private family held companies. Any change there that you can tell us about? Thanks.

Yes, first of all I will answer Bob's question also; save him the trouble. On TradeWeb, first of all, we had great -- when we acquired TradeWeb, we felt this business had an awful lot of opportunity to grow. And that we, based on our knowledge of the industry, based on the support we could give them, etc., that we could basically drive this business higher (ph). So although they are slightly above our board-paper (ph) we had great expectations for them, and they are achieving it.

The way they are growing is by moving it to new asset classes as quickly as possible. We are also moving global as quickly as possible, which they had not done at the same tempo prior to our ownership. So that is why TradeWeb is doing what we thought it should do. It is also utilizing some of our own -- there is some synergies between some of our other Thomson products. But it is really driving TradeWeb, again, new asset class and globally.

As far as acquisitions for Legal & Regulatory in Europe and in Asia Pacific, we obviously continue to look at them. When they came up we take a look at them. But most of the ones -- first of all the three major players over there would be Wolters Kluwer number one; Reed Elsevier number two; we're number three.

After that, they are all singly owned, in most cases family-owned businesses, and been in the family for many, many years and in some cases a couple hundred years. So those family businesses are tough to pry out. But as they become available, we do look at those to see if we can take advantage of the opportunities as they come about.

I think the important thing I just want to mention, TLR we feel actually TLR has an awful lot of opportunity left in North America. So although it is not difficult -- it is somewhat difficult to launch out these acquisitions or fund these acquisitions in Europe and Asia Pacific -- we do see areas of additional expansion in the United States. So we are pushing hard to grow their business in the United States and take advantage of the opportunities we see here.

Thank you.

Paul Bradley with Fraser Mackenzie.

I just wanted to pick up on the acquisition questions that were asked earlier. Looking across the four market groups, and tying back to your comments about getting return on invested capital, where would those acquisitions be best deployed in terms of getting the highest rates of return for you?

That would be TLR and there would be Scientific & Healthcare.

Do you have a target figure in mind overall for the business that you would want to show as a return on invested capital?

First of all I want to get going in the right direction, number one. But technically, yes, we would like to achieve a 12% ROIC. That is not going to be done as quickly as we would like. But we want to make sure we're going in the right direction. We do know that we do have some leverage in our businesses; and so I would expect Thomson Financial and Thomson Learning to start to see improvement in those businesses over the next few years.

Okay. So if I look to that as a three to five-year time frame, is that sort of realistic?

Well, the 12% is probably a little more, probably more the five-year time frame. But we expect to start showing some progress over the next three years.

okay, perfect. Thank you.

Michael Meltz from Bear Stearns.

A couple quick questions for you. In terms of trade out can you remind us the parameters of the earnout? When would that be paid? Secondly, what were integration costs at TSH for Information Holdings in the quarter? And lastly can you just differentiate between Gale’s growth, what was print and what was electronic? Thank you.

Okay, in terms of the earnout with TradeWeb it is a three-year earnout. So it would be three years from the date we executed. So it's not calendar years; it's fiscal year from that forward.

In terms of TSH.

What were the integration costs?

There were integration costs, but because of the nature of them, most of them were actually not incurred on the P&L but taken to the balance sheet in acquisition-related cost. So there would not be anything of note that would be in the financials in the quarter.

In terms of Gale, I mentioned -- I didn't mention, but in fact I think I did -- that the overall growth was about 4%, but it was driven by higher -- electronic product growth was about 8%, and the electronic products today are approaching 50% of the business. So by deduction that would say that, if you did the math, I think, that the other business, the print products with be up slightly or flat.

Thank you.

Andrea Horan from Genuity.

If you can just return to Learning for a second, can you talk about where you think we are in the cycle with respect to corporate training and e-testing? You said it was flat, essentially flat core growth. Is it a big U that you think we're in? Or is there still -- I'm sorry; I don't need to describe different options there for you. If you can describe where we are in the cycle there.

Then on the return on invested capital, your 12% target, I think one of the things that's going to prevent you from achieving it is the 9 billion of goodwill that you have got on your balance sheet. Do you see any possibility of writing any of that down?

Let me answer the Learning question. First of all, our e-testing business is actually doing well, and has -- even though it is flat this year, it is growing over the loss -- I should say the termination of the UK drivers license contract. So that business has actually done well despite the issues it had with the IT environment.

On the e-learning side, that is just a function of the market beginning to basically turn around. We think that we are expecting that market to turn around gradually this year, and then hopefully continue to accelerate in the years ahead. e-learning has not been accepted quite as fast as we all anticipated, but we do still think it is a good business. The tipping point will come, it just hasn't arrived yet.

In terms of return on invested capital, we really expect to drive it by improving the numerator, not reducing the denominator. We go through, as you know, and with the way we account for goodwill, we on an annual basis go through and evaluate the value of our businesses and the carrying value of the goodwill. We just completed that at the end of last year.

So today, where we stand we believe that our businesses are fairly valued, and that the investment that we have made and that our shareholders and Board supported is justified. So from our view, we believe that we will improve it not by incurring write-offs -- which by the way, if you really interpreted the methodology you would use, you would simply add that back, because the write-off doesn't really change the amount of cash that you invest in the business; it just changes the carrying value.

But we are very focused on driving the top line, or the numerator, rather, in improving it. It would be different when you sell assets that (ph) when you can remove them; but not simply a write-down.

Thank you.

Dave Lewis (ph) from J.P. Morgan.

Solid quarter. This is Dave in for Fred Searby. One quick follow-up. Not to beat the share purchase to death, but is there a preference in terms of exchange, Toronto versus New York?

The likelihood is we would purchase where the most liquid market is; and today that is on the Toronto exchange.

Okay, thank you.

That's it. If there are no further questions that will conclude our call, and we would like to thank you all for joining us for our first-quarter earnings call.

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