Thomson Reuters Corp (TRI) 2005 Q2 法說會逐字稿

Welcome to the Thomson Corporation's second-quarter earnings call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session; instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder, today's call is being recorded. I would now like to turn the conference over to Mr. Frank Golden, Vice President Investor Relations. Please go ahead.

Thank you and good morning. I would like to welcome you to the Thomson Corporation's second-quarter 2005 earnings call. Those of you listening should have a copy of today's earnings release. However, if you do not it is available on our website at www.thomson.com.

We will begin this morning's call with an overview of the Company's results provided our President and CEO Dick Harrington. Dick will be followed by Bob Daleo, Thomson's CFO. Bob will discuss the consolidated financial results and the results for each of the market groups. He will then also provide an update on the Company's financial metrics and some further visibility into our expectations for the full year.

We will open the call for questions following Dick and Bob's presentations. But please limit yourself to one question each to enable to us to get to as many questions 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 measure in the Investor Relations section of Thomson's website. Let me now introduce the Company's President and CEO, Dick Harrington.

Good morning; thank you for joining us as we report our midyear and second-quarter results. Our results for the first half of the year include double-digit revenue and operating profit growth and, importantly, organic revenue growth has continued to strengthen. For the second quarter it doubled the growth rate of the first quarter.

Growth is being driven by our continuing ability to expand and enhance our product offering and services to our customers. The early success of our information solutions such as Thomson ONE, Westlaw Litigator, and Thomson Pharma gives us confidence that this will continue to grow profitably by providing workflow tools for knowledge workers that help them be more productive.

We see tangible results from this strategy. For the first six months revenue from online products, software, and services rose 13%; and print was up only slightly as we continue to evolve our business model from a content provider to an integrated information solutions company. As a result, adjusted EPS growth exceeded 20% for the first half of the year. One of the key metrics we track, free cash flow, was up a healthy 16%. Tactical acquisitions totaled 96 million in the first half of the year.

For the second quarter revenue growth was up double digits, and we achieved organic revenue growth in all four market groups. The solid growth was a combination of both organic and acquisitions, with organic revenue up 4%. Operating profit rose 8%, reflecting growth in each market group, offset by higher amortization expense. Excluding the $14 million insurance recovery in the second quarter of 2004, operating profit was up 14%.

Acquisitions we made last year contributed to the strong revenue growth in the quarter, although they were slightly dilutive to earnings. Importantly, TradeWeb, CCBN, IHI, Capstar, and KnowledgeNet have enabled us to provide more robust products to our customers.

EPS growth in the quarter was affected by the insurance recovery gain in 2004 as well as a higher tax rate and amortization expense in 2005. Bob will provide more details on this in a moment.

Thomson Legal & Regulatory had another good quarter with organic revenue growth of 5% driven by strong growth in online revenues. Thomson Learning's revenues were up over 10%. TL's growth reflects the benefits from last year's acquisition and good growth in global higher education, including new textbooks, custom publishing, and English language training products. Thomson Financial posted strong results again this quarter, including organic revenue growth of 6%. Thomson ONE workstations are up 19% this year, and we continue to see good growth in corporate services and TradeWeb. In Thomson Scientific & Healthcare, the rollout of Thomson Pharma continues to proceed well, and we continue to do a good job of integrating acquisitions, which has enabled Thomson Scientific & Healthcare to achieve strong operating profit growth and higher margins.

As we look to the balance of the year, our priorities have not changed. The market groups will continue to focus on driving organic revenue growth through new product launches and adjacent market opportunities. They will also pursue tactical acquisitions that fill in their portfolios and enhance their product offerings.

We continue to drive efficiencies across the Company as we take advantage of our size and scale. This, coupled with revenue growth, should lead to continued strong free cash flow. Improving return is a priority across the Company, and we are confident that returns will continue to improve as we deliver solid and sustainable earnings growth.

In summary, this year is progressing well, with strong underlying business performance through the first six months. Organic revenues are coming back to more historic levels. However, operating profit and EPS comparisons with last year are skewed by some onetime items that Bob will discuss more fully. Overall, we are on track for another year of solid financial performance in 2005. With that, let me turn the call over to Bob.

Thank you, Dick. Good morning, everyone. There are several items I want to highlight for the quarter as we begin this morning. First, revenue growth was strong with three of the four market groups posting double-digit increases. The growth came from a combination of both organic and acquisitions, with Legal & Regulatory and Financial both posting organic revenue growth of plus 5%.

Second, we are very pleased to see that organic revenue growth accelerated from the first quarter. And third, although we achieved good operating profit growth at the market group level, adjusted earnings were negatively impacted by higher interest and amortization expense related to acquisitions; a higher than anticipated effective tax rate in the quarter; and, as Dick mentioned, the $14 million insurance recovery which occurred at Thomson Financial last year at this time.

Now let's turn to some specifics on the quarter's results. Revenue for the quarter, as we reported, was up 10% with improving organic growth across all segments. Operating profit increased 8%. The increase in revenues was comprised of 4% organic growth, 5% from acquired businesses, and 1% in foreign exchange. The 8% increase in operating profit for the quarter was tempered by a 17% increase in amortization, an increase in corporate expenses led by higher pension costs. The operating profit margin of 13.5% compares to 13.8% in the prior period. But again, adjusting for this insurance recovery, operating profit increased 14%; and the margin actually increased by 50 basis points.

Now this slide provides more detailed reconciliation to adjusted earnings and is taken directly from the supplemental earnings information provided to you in the release. It is important to note here that earnings were adjusted by $137 million this quarter, to exclude a benefit from the release of contingent income tax liabilities resulting from a favorable outcome of recently completed tax audits.

This next slide provides a perspective on operating income and adjusted earnings reported as compared to last year. It's important to note that core operating income growth was 11% for the quarter, and this contributed $0.05 to earnings per share, a 22% increase which translates to $0.28 per share. (indiscernible) comparison of operating income was impacted by the $14 million of insurance last year. And while acquisitions contributed further on a net basis to operating income, they were dilutive to earnings due to related interest expense.

Lastly, our higher tax rate for the quarter had a 1-penny impact on earnings. We still expect to be down for the full year from 2004's rate, and I will discuss this in more detail shortly.

Now let's turn to the specific market group performance, starting with Legal & Regulatory. Revenues increased 8% with organic growth accounting for 5% of the increase and acquisitions contributing 2%. The growth was driven by a 10% increase on in online revenue, with strong growth in Westlaw U.S., international, and our tax product Checkpoint. Software and services revenue was up 28%, led by Findlaw, hence (ph) the impact of some recent tactical acquisitions. Print and CD revenue declined 3% for the quarter, as expected. The operating margin was essentially unchanged at slightly over 28%.

Moving on to Thomson Learning, let me remind you that for Learning's first-half results are not indicative of the full year, due to the seasonal nature of the higher education business. Now for the quarter, revenues increased 10%. The termination of the UK drivers' license contract last year, which had a 12 million negative revenue impact this year, impacted the quarter. We expect similar impact in the third quarter, but no year-over-year effect in Q4. Excluding this item, organic revenue actually increased 4%. Acquisitions accounted for 8% of the revenue growth.

In the academic, related revenues increased 9% in the quarter. Growth in global higher education was 14% due to higher textbooks sales, custom publishing products, and higher English language training sales. Library reference revenues increased 1%, hampered by softness in international sales. Domestic revenue was up 6% due to sales of new electronic products and print sales. E-testing and corporate e-Learning revenues increased 18% in the quarter, primarily due to the Capstar and KnowledgeNet acquisitions last year. We expect to see further operational improvements within Thomson Learning resulting from synergies being achieved from these acquisitions.

The group's operating profit improved 9% in the quarter to $12 million despite the impact of the drivers' license contract. And included in that is $2 million of acquisition-related expenses.

Thomson Financial's revenues were up 13% for the quarter. Organic and acquisition-related revenues each increased 6%, with the balance related to foreign exchange. Revenue gains were driven by higher transaction volumes at TradeWeb, data, AutEx, and Omgeo, strength from the corporate group, and continued strength from the Thomson ONE suite of solutions. Thomson ONE workstations continued to gain traction, increasing 19% from the beginning of the year to 96,000 and reflect new sales in the migration of legacy workstations to the new platform.

European and Asian revenues were up 12% and 9% respectively. Each achieved organic revenue growth of 5%. Adjusted operating profit increased 10% to $75 million, and the margin decreased slightly to 16% from 16.3% a year ago. But excluding the second-quarter 2004 insurance recovery, operating profit in this group actually increased 39% and the ORN (ph) margin improved by 300 basis points.

Finally, Thomson Scientific & Healthcare revenues increased 13%, primarily related to the acquisition of IHI. Excluding currency translation and transaction effects, organic revenue rose 2%. Revenue growth from existing businesses included higher electronic subscriptions for the Web of Science, which were up strongly compared to the prior year, and continued strong demand for healthcare decision support solutions and hospital database products. Softness in the continuing medical education business partly offset this growth. Adjusted operating profit increased 29% to $54 million, and the margin rose 250 basis points to 21.3% from 18.8% due to revenue growth and the effective benefit of integrating acquisitions.

Now let's look at several metrics that we believe measure the success of our long-term business strategies. This first schedule addresses the important revenue metrics. Now, growth at constant currencies for the quarter totaled 9%; this compared to 7% in the second quarter of a year ago. Electronic products and services, which exclude print, comprise 72% of our revenue base versus 70% last year, reflecting this 13% year-to-year growth. 68% of our revenue is recurring in nature. We continue to look to electronic solutions and services to achieve our long-term goal.

Now we have had success and continue to improve our operating profit margins over the past four years. Margins in the first half of the year were dampened by the items I mentioned earlier. While we expect a higher level of corporate and amortization expense to continue this year, we also expect margin to improve slightly for the full year.

Capital expenditures declined 4% in the first half of the year, compared to the prior year, primarily due to timing. For the first half of the year CapEx represented 6.6% of revenue, 1% less than a year ago. We do expect CapEx in total (ph) to be in the 7% range this year.

Free cash flow continues to be closely tracked across the Company and for the first half of the year was up 16% to 385 million, compared to the prior year, partly attributable to some of the timing previously mentioned. Strong free cash flow is the hall mark of our business model, providing Thomson with the capacity to fund growth and consistently return value to our shareholders in dividends. Since our cost base is comprised of significant non-cash items, free cash flow per share is substantially higher than earnings.

During the second quarter we announced an annual dividend increase of $0.04 per share, bringing our yield to 2.5%. Our current payout ratio per share is 44%, pretty much in line with our 40% long-term target.

Let me now provide you with a bit more visibility for the full year. First and importantly, we continue to expect to achieve our long-term targeted revenue growth of between 7% and 9%. We expect our profit margin to improve slightly compared to last year. Depreciation and amortization is expected to be about 10% higher than a year ago. We expect the full-year effective tax rate to be slightly lower than in 2004, but somewhat higher than originally anticipated, which was 24%, I would remind you, first quarter. And we expect to continue to generate strong free cash flow.

Let me just finish by saying that we are pleased with the underlying strength of our businesses and look forward to continued growth for the balance of the year. I would now like to turn the call back to Frank.

Thanks very much, Bob. And now we would like to open the call for questions.

(OPERATOR INSTRUCTIONS) Peter Salkowski, Goldman Sachs.

Just a quick question on the Learning side in terms of your visibility into the second half of the year, what you are expecting there. If you can kind of give us some thoughts with regards to how orders are going on the higher ed side.

Yes, Peter, I think we had a robust -- you know, we had a good first half. But as you know it's off a small base. But we would be -- we expect the market to improve over last year. So we would expect it to maybe not continue at the same pace, but we would expect it to be an up market.

So the expectations for the market being up for '05, or for the second half of the year, however you want to look at that, is what? Sort of 5% range?

Yes, probably around 5, maybe slightly higher. Last year was probably at the 4% range, so it is probably -- hopefully it is somewhere between the 4% to 6% range.

And you guys expect to do a little better than that, or what do you think?

It is tough to say at this particular time, Peter, because it just -- as you know, the first half of the year is so small, and so much of the business comes in the last quarter. It is difficult for us to really sit down and nail that down at this point.

So you don't have a lot of visibility into that at this point.

We have our own expectations, but not necessarily -- but I am not sure our visibility is a lot better than anybody else's. But we have our own expectations

Okay.

We feel good about the market. We feel good about that, that there is some improvement coming back into the market.

Great, great. Then on the Science, one other quick one, real quick. On the Science & Healthcare, the 200 basis improvement in the operating margin, is that sustainable for the rest of the year? Or should we not be quite that optimistic going forward?

This is Bob. Yes, we do expect that as a result of -- remember we did acquire IHI, and we're building more scale in the business, and we would expect margin improvement to go along with the scale.

Great, thank you very much.

Lauren Fine with Merrill Lynch.

I just would like to talk about the long-term revenue growth rate for your businesses, if you could sort of review your expectations. I'm really focused on organic growth. I'm trying to understand if the 4% organic growth that you posted this quarter is really sort of the expectation we should have going forward; and what would it take for each of the businesses to really meaningfully accelerate?

Then I suppose related to that, if you can give us a sense of what you think currency will do in the second half of the year.

What we think currency will do in the second half of the year?

In terms of its impact on your revenues. Will it start to, you know -- is going to start to flatten out in terms of the strengthening of the dollar and maybe actually detract from the fourth-quarter reported results? I don't know if you have looked at that at all.

We have not looked at what the forecast for exchange is and the strength of the dollar. But we would expect, as indeed we've seen so far this year, that the strength in the dollar, with the rebound, that the effect won't be as great. It is hard for us to really look at that. What we focus on is the things that we can control, which is our own core growth and the impact of acquisitions.

I really don't have a view on that Lauren. I think it would be -- yours would be as good as mine in terms of where you think it's going to go.

Well, I guess then back to the other, which is what would get you above the 4% organic growth? Maybe you could touch on it by business unit, in terms of where you would see potentially some acceleration prospectively?

Lauren, this is Dick. First of all we would expect TLI to continue to drive at, I think, at roughly a 5% level this year. I think you can look at it, (ph) they are going to be somewhere between that 4% to 6% level; hopefully stay at 5, maybe slightly above.

Obviously Financial has been at a 6% growth level this quarter, and hopefully we can sustain that. For the first quarter as you remember it was 3%, due to some offsets in the first part of last year. So we'd like to continue that run rate, continue to drive that. By the way, that organic growth in Financial has been very good not only in the United States, which I think has been 7%, but also Europe and also Asia Pacific, I think, have all been up about 5% each. So we feel comfortable that there is some strength coming back into the market.

TL, (indiscernible) I will stick to my 4% to 6% because it is just so early in the year to determine where the higher end is going to go. But we would expect hopefully things will come in slightly higher than that.

TSH, we look at a 5% to 7% growth market in the -- although we've been, although there has been some changes in the CME (ph) market which has basically flattened that market out. We had (ph) flattened that market out a little bit. We also have Dialog in that market, which is a low-growth business but highly profitable for us, because it vends (ph) a lot of our databases. So that might dampen a little bit. But if you go back, 5 to 7 TLR, TL 4 to 6, I am looking TSH 5 to 7, and hopefully Financial is somewhere at 5 to 7.

On the Thomson Learning, the 4 to 6, I understood you to mean it to be the higher ed business. Would you include the e-testing and everything else and say, again, that the whole unit is capable really you think of 4 to 6?

Yes, maybe slightly higher. But don't forget, to be honest with you, organically our testing unit is growing well, but it has to overcome the drivers' license contract from last year. So that has a negative impact, I think, about close to -- I think in the first three periods about 40, $45 million. So the growth there, if you take that contract out, the organic growth is doing actually quite well. The trouble is that drags us down significantly.

Okay. Great, thank you.

Vince Valentini with TD Newcrest.

Bob, can you talk a bit more about the tax rate? What has caused it to go up from 24 to 26 from last quarter? Maybe can you look a bit forward to next year? Is this 26 sort of the range you expect to be at for the foreseeable future?

What we try to do every year is give our best guess of where we think taxes are going. It is a very complex area for us and other large global companies, where your income is sourced from every place in the globe and the tax rates vary. The reason why the quarter is a little higher, and the reason is we took some NOLs in that we couldn't realize, we couldn't get the benefit from. And we did an assessment of where our income was coming from, and the source of it for the full year.

Now that we are into the half year, and realize that we would pay a slightly higher tax rate, it looks like it will be higher. As far as next year goes, I think it is too early for me to comment on that visibility. It is just we tend to wait specifically until we complete the full year and really start the year, so that we can give at least a reasonable expectation.

We work very hard at maintaining or at lowering our tax rate. So we would, I would say optimistically, we would expect that the tax rate would be lower next year than this year. But to the extent and the amount, I would not want to characterize it at this time.

Okay. I just need a quick follow-up. Share buybacks, it looks like you bought back 1.3 million or so shares in the quarter. Is it expected to stay active in Q3?

Well, we have a file (ph) that is normal course issuer bid; and our plan is that right now we have the approval to continue to purchase shares in the marketplace. But that really is always subject to the Board's approval. So I would say, yes, we have purchased in the past; it is likely we will continue to do in the future; but I would not want to make a commitment to speak for the Board on that.

Okay, thanks.

Megan Anderson with RBC Capital Markets.

My question relates to the announcement that Reuters put out yesterday concerning a strategic plan. What they have indicated is an intent to launch a multi-asset trading platform in the electronic space, and as well provide, I guess, content and analytics to sell side research. So I guess these are sort of new areas. I'm wondering if you can comment on what you see your competitive position being as vis-a-vis this news.

I think, first of all, we have other competitors out there that are also launching. We’re all launching something. So we are someone else's competitor. Also I think in the case of Reuters, the ES (ph) they are going to launch in that particular area, we have launched on our Thomsen ONE platform. We continue to build on it. We continue to look at multi-assets. We continue to grow into multi-asset classes (ph).

When we look at our (indiscernible) trading platform, we have been able to take TradeWeb and significantly grow that since we have owned it by moving it into different instruments. We are looking at some other internal trading platforms in some other areas.

So we are pretty confident that we've got the skills to compete with Reuters, or -- obviously there's other strong competitors out there -- with other strong competitors in the areas that we have the expertise in. And we have expertise in the areas that we're going to go into. But we are prepared to -- obviously as a corporation we not only look at the opportunities in the marketplace, but we also look at the competitive threats. And we feel we are well positioned to deal with both.

So you don't feel TradeWeb is particularly vulnerable?

At its growth rate, what it has to do -- don't forget there is an advantage of first moving. There is such a thing as first moving, first mover advantage. It is a very good system. It has been well accepted by both the buy and sell side. More importantly we've grown it significantly since we have owned it. So I think that is a testament to the quality of the product, the service, and the recognition it is getting. Just because someone is going to come up with another service, when we -- so be it. We will -- if someone comes out with (ph) another service, that is fine. But we feel very confident that our product is delivering what our customers want.

Great, thank you.

Frederick Searby, J.P. Morgan.

A couple, questions, first I wonder if you could talk about the dynamic right now in the university. There seems on the education side to be a real uptick or increase there, and what is driving it and how sustainable it is.

Second, just a question on your free cash flow. If you look at it, that other net in the operating cash flow that was a big reversal, can you just tell me what that is? I didn't see it disclosed in the press release, and it is fairly substantial year-on-year.

Then finally, you know, TradeWeb we see great numbers. Congratulations. But can you give me some idea of how material or how much it represents of revenues, so we can -- how we think of this in terms of its importance to you?

This is Bob. I will take the last two; maybe I'll let Dick talk about the higher education market space. First of all, in terms of the TradeWeb, represents about 10% of Thomson Financial. So while we talk about it, we recognize it is not -- it is a significant part of the business, but only 10% of it.

In terms of free cash flow, that item, that adjustment, that negative, that is actually the offset to the tax reversal that is in the earnings number. So you would net that out because it is a non-cash item. That is all that is. That is what is embedded in that and underlying increase.

(indiscernible) the University I think is a couple oddity (ph). You still have the student population increasing by about 1% a year. So the demographics are still favorable. You have an awful lot of people -- obviously the community college system has picked up a little bit. If you remember, a couple years ago the community colleges and to a lesser degree the state universities took a beating with some of the funding, etc. So they are starting to come back a little bit.

I think with both ourselves, Fearson, and McGraw-Hill, it is like anything else. It's also timing of new titles and what new titles come out in what particular year make a difference also. So I think it is a combination of those three there that are helping the market out this year.

So is it sustainable? Are we going to continue to see this kind of growth?

I think it's -- again, first of all, a part of it is -- the sustainability is based on the economic front. Now demographics should be good for a few years, and obviously more and more people are going back to school to get their degrees, whether it is nights or whether it is in the community college system, etc. So as long as that, as long those demographics continue to grow, then the market will be a good solid -- it will be a good, solid market. It is never going to be -- I don't think it is going to be a double-digit growth market, but it will be a good, solid market.

Okay, thank you.

Andrew Mitchell with Scotia Capital.

Really a follow-up just on the Learning. You have been peppered with questions there. I'm interested on that area as well. The inflation on U.S. college tuitions is expected to drop back into single digit from the looks of it for 2005. You have been seeing a double-digit pace in that market over the past two years, and it appeared to constrain the pricing power for the book publishers. So I am wondering if this bodes well for rebuilding pricing power and potentially sustaining the growth profile; or maybe even seeing it tick a little higher as you go forward.

Andrew, I would turn it around and say that it's the ability to get -- to free up some pricing power over time. If it happens, I think all of the publishers will take advantage of it. I'm not sure at this particular point in time we would -- I don't think we have enough visibility in that. There's still a lot of cost pressures because of the increases in all these schools over the past five, seven, 10 years.

Even though they are lightening, even though they are coming down to high single digits, the universities or some of these universities will be struggling to try to maintain their revenue cost basis to be able to still deliver the outgoing. So whether we get the pricing capability of that, I think it is just too early to tell. There may be some, but it is too hard.

I think the real long-term opportunity will be going forward, I think, as we move to less of the textbook, where the textbook becomes supplemental, and more of the digital solution, the hybrid solution between digital and print. I think when that happens, I think that will increase some flexibility and also increase some opportunities for all the publishers in higher ed.

Thank you very much.

Michael Meltz with Bear Stearns.

I think I missed when you went through the organic growth of the segments. I was wondering if you could walk us through the organic, the M&A, and then the ForEx breakdown? That is my first question.

The second question, at TL can you talk about at Gale what you are seeing on the print versus electronic side? As well as on lifelong learning, I think you gave a reported number; how is that business performing organically?

And then last question, you said $96 million was spent on acquisitions year to date. I think I know the answer to this, but can you discuss your current interest, if any, in IMS Health? Thank you.

That is a fairly long question. I will start with the organic growth. Just as a summary, that in Legal & Regulatory for the quarter it's 5%. In Thomson Learning it was -- well if I adjust it for the UK drivers' license -- 4%. In Thomson Financial it's 6%. And in Thomson Scientific & Healthcare it is about 2%.

And all the other components of the question were, in terms of Gale, that business, we did have stronger print growth this quarter. But what has been happening over the past several years is that electronic has been outstripping print. It's getting to the point where it is almost 50-50 now. Half electronic, half print.

In terms of acquisitions of IMS, the answer is that we don't comment on acquisitions one way or the other. So that is the only thing I'd say on that subject. I don't know if I got all those questions.

The Gale one, Bob, I think it was the Gale in total. I think Gale itself, the domestic business, (indiscernible) electronic about 6%, (multiple speakers) 4%; but internationally it was somewhat flat, which lowered the overall growth. But the core business in Gale, we have got 6% electronic and about 4%.

And that would be organic, because we didn't -- there are no acquisitions at Gale.

I'm sorry, so print --

Print was up. Print was -- in the U.S. both print and online were both up 6%. International was down. And the overall business was up only 1%.

Okay. In the aggregate, though, print was up?

In the aggregate print would be up. They both were up in the aggregate.

And Lifelong Learning, what was the organic growth?

In Lifelong Learning the organic growth would have been -- I don't really think I have that in front of me here. Let's see. (multiple speakers) It would have been offset by the impact of the UK drivers' license contract. So it would have been probably in the 5% range.

Okay. The answer you gave us to the first question, you gave us the organic. Can you walk us down the ForEx contribution?

About 1% in every division as I go across it, about 1% in every group.

Okay. It thank you.

Andrea Horan, Genuity Capital Markets.

Thanks. I am wondering if you can talk a little bit about the drivers of the margin improvement in the Financial, and elaborate a little bit on your outlook for corporate costs for the rest of the year?

In terms of Thomson Financial, I think what we have said all along was that, if you recall in the past several years, as we launched Thomson ONE and integrated the business we saw significant margin improvement. What we said going forward was that future margin improvement would be totally keyed to revenue growth. What you are seeing is exactly that. That this business is 98% electronic and the bulk the costs are fixed in that regard. So as we drive top line we will see substantial improvement.

And it is across all the businesses. TradeWeb has a good margin. Our transactions business all have good margins. So I think that is really what is driving across all of our businesses.

A while ago you had mentioned that you saw financial margins having the potential to get up into the high 20s, up closer to 30%. Do you still see that? Do you have a target for when you think you can accomplish it?

I think we see that these businesses have similar characteristics, and there is no reason why they all couldn't be in that same range. Our target is to continue to drive the business. We don't have a specific target in mind, except to say that we continue to drive efficiency and effectiveness, and drive the top line, and we will take the profits as they come.

Okay, fair enough. On the pension, I guess, was the second question, and corporate cost outlook.

Our corporate costs, as we said earlier, we expect them to continue to be higher through the balance of this year, associated with pensions. We also have a number of projects we are working on right now. We announced earlier at the end of last year that we were outsourcing some of our HR, and doing some consolidation, and there are costs associated with that. Those are coming in the balance of the year.

So we would continue to see the rate of corporate expenditures running pretty much where they are right now through the balance of the year, and perhaps even increasing a bit.

Thanks a lot.

Jeff Fan with UBS.

Just a couple of questions regarding your free cash flow and the use of free cash. You made about 100 million in acquisitions in the first half of this year. I guess the first part to that question is, where do see acquisitions ending up for the balance of this year? Does the 200 million to 500 million range still stand for this year? And how does that look for next year? And maybe just some color on where you think, even within that range, where you end up.

The second part to that is more bigger picture. If we look at your free cash flow probably in the 1.2, 1.3 billion range, payout on dividend is about 40%; so even at the high end of the acquisition range of 500 million that is about 40%. Can you just revisit, is there a potential here for the payout ratio to increase going forward, especially given the kind of free cash flow that we see over the next couple of years? Thanks.

First as relates to acquisitions, what we have said in the past is we thought we would do about 2 to $500 million; and frankly $100 million is certainly on track for that range.

As far as the following year, acquisitions are totally opportunistic. It depends upon the opportunities available and where they fit with our strategy. So it is driven by the businesses and what we see. So it is hard to forecast what we would do a year from now.

In terms of our free cash flow, we have said in the past that our dividend payout at 40%, and the balance we would use for acquisitions, or if there were not suitable acquisitions available we would look at other ways to return capital to shareholders. In fact that is one of the reasons why we started this normal course issuer bid, as one of the ways to do that.

Would we consider raising that payout ratio? I think that that is something that would be speculative at this point. But I know that one thing that we would be focused on is how we can be effectively in returning cash to shareholders. It could be through buybacks. It could be through a higher dividend rate. But to say which one it would be at this point I don't think would serve any purpose.

Okay, thanks.

Speakers, I will turn it back to you for closing remarks.

That concludes our second-quarter earnings call. We would like to thank you for joining us this morning, and please feel free to contact me with any follow-up questions you may have.

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