Thomson Reuters Corp (TRI) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Thomson Reuters second-quarter 2009 earnings call. For the conference, all the participants are in a listen-only mode. However, there is an opportunity for your questions. (Operator Instructions). As a reminder, today's call is being recorded.

I will now turn the conference over to Mr. Frank Golden, Senior Vice President, Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining us. We will begin today with our CEO, Tom Glocer, who will be followed by our CFO, Bob Daleo. Following their presentations, we will open the call for questions.

Before we begin, let me point out that this marks the first quarter Thomson Reuters is reporting under International Financial Reporting Standards, or IFRS.

For those of you who were unable to join our webcast last month when we described the changes to our financial statements resulting from converting to IFRS from Canadian GAAP, let me direct you to our website, where you will find that presentation, including the 2008 quarterly P&L on a consolidated basis, and for the Markets and Professional divisions also on a quarterly basis. Finally, you will also find our balance sheet for 2008 and first-quarter 2009 reflecting IFRS standards.

Today's presentation contains forward-looking statements. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You can access these documents on our website or by contacting our Investor Relations Department.

I would now like to introduce the Chief Executive Officer of Thomson Reuters, Tom Glocer.

Thanks for joining us today. I plan to cover three topics in our session. First, I will discuss our results for the quarter. Second, I will provide an update on current market conditions. And third, I will provide an update on our unification proposal.

So I am pleased to report that halfway through the year, we continue to perform well in what remains a challenging economic environment. The global economy is still fragile, but things are no longer getting worse, and the outlines of the post-crisis reset world can begin to be seen. Government interventions around the world have helped stabilize the financial system, and layoffs at large law firms are down significantly from levels seen in the first quarter.

Despite the challenges, our business has held up well over the past year. We've continued to grow and have further solidified our competitive position. Not surprisingly, our rate of growth has slowed compared to last year, but our strategy of continuing to invest in our businesses in good times and bad has enabled us to outperform the market through the cycle.

Let's now look at the results for the second quarter, keeping in mind that when we compare performance year-on-year, we look at revenue growth rates before currency, as we believe this provides the best basis to measure the performance of our business.

I am pleased with the performance of the Company for the second quarter, as total revenue rose 2%, with the Professional division up 4% and the Markets division just positive. Moreover, Markets' recurring revenue, which excludes recoveries, and core Westlaw revenue both grew 4%, and together, represent over 50% of total Company revenues. This performance is a testament not only to the balance of our businesses, but also the strength of our franchises in the challenging financial services and legal markets.

The resilient Professional division performed well, given the more challenging economic landscape and tough year-ago comps, when revenue increased 6% organically. Our Professional products remain in demand, as evidenced by growth of 9% in Tax & Accounting, 7% in Healthcare & Science and 2% in Legal. The performance in Legal is notable, given the wave of law firm layoffs in the first quarter, a continuing decline in ancillary revenues and softening demand for Print.

The Markets Division's organic revenue was up 2/10 of 1% for the quarter against tough Q2 '08 comps, when we grew 7% organically.

While massive government intervention literally saved the financial markets, and zero real interest rates are boosting profits and helping rebuild stretched balance sheets, the recovery is not evenly distributed. Consolidated underlying profit rose 11%, and the margin was up over 300 basis points, primarily due to integration-related savings, strong cost controls across the Company and the benefit of currency, which Bob will discuss in further detail in a moment.

The integration and legacy efficiency programs continue to go very well, with run rate savings totaling $925 million at quarter end. Given the progress we continue to make with these programs, we now expect run rate savings of at least $1 billion by year-end 2009, up from our previous target of $975 million. And adjusted earnings-per-share for the quarter was $0.58 compared to $0.39 a year ago, benefiting from higher underlying profit and lower integration-related costs.

Given our year-to-date results and our expectations for the remainder of the year, we are again affirming our 2009 outlook.

The resiliency and diversity of our Professional businesses was again on display in Q2. We continued to deliver above-market growth due to our balanced portfolio and leading franchises. In fact, Online Software & Services, which are 80% of the Division's revenues, grew 5%. Our deep understanding of our markets has allowed us to defend and grow our core business and gain share, while tightly managing cost to drive profitability.

We continued to face many of the same challenges we saw in the first quarter. While Legal grew 2% overall in the quarter, we saw a decline in Ancillary, Practice Management Software, which is Elite, and consulting-related revenues, as well as continued weakness in Print revenues. Large law firm revenues were flat, reflecting layoffs in the first quarter, but we are encouraged by the significance slowing in large law firm layoffs in Q2 as compared to Q1.

By customer segment, revenue growth was driven by small law firms and government units. And in addition, our International Legal business continued to do well, up some 4%. FindLaw rose 14%, and Bar Review revenue rose 4% again. So the bottom line is that these are challenging times for the Legal group, but its strong market position and the diversity of its portfolio is enabling us to continue to grow and outperform the market.

Our well-positioned and rapidly expanding Tax & Accounting business continues to take share and grow at above market rates, led by gains in core products, particularly Software & Services. Second-quarter revenue growth was 9%, 5% of which is organic and accelerating.

And finally, Healthcare & Science is operating in growing markets and recorded organic growth of 7% for the quarter, driven by our core analytics business, the Payer segment.

Turning now to the Markets division, we continued to see difficult trading conditions in the second quarter, as we expected. Against a very strong Q2 '08 comp of 7% plus organic growth rate, revenue was up slightly on a constant currency basis. Recurring subscription revenues, including recoveries, were up a healthy 2%, but transactional revenues were down 9%, and outright revenues also declined.

As I mentioned last quarter, we focus on this because transaction revenues are traditionally quite volatile. They are quick to fall during difficult markets, but they bounce back rapidly as volumes increase. Q2 '08 was a very strong quarter for transactional volumes and revenues.

Our geographic, customer and product diversity is paying off in enhanced market share and retained revenues. Revenue by geography showed both Asia and EMEA were again positive in Q2, although the Americas did decline. The Enterprise segment again posted strong revenue growth, as increased regulation and reporting requirements led to demand for risk, pricing and valuation tools. The breadth of our Enterprise information offerings continues to create significant business opportunities and helps us retain customers even as heads disappear at large firms.

Sales & Trading declined slightly, with commodities in Energy and TradeWeb performing well, helping to offset declines in recoveries, transactions and desktops.

Investment & Advisory was flat, with a good growth from Asia, up 8%, and EMEA, up 4%. However, Corporates and Investment Management felt the impact of tightened budgets at corporations and buy-side firms.

Of particular note this quarter is the extraordinary performance Markets put in on the bottom line, with 430 basis points of margin expansion to over 22%.

So let me say that I am very pleased with our first-half performance and continue to be prudent, yet confident, about our prospects for the balance of the year. Despite the difficult environment, there is no need to reinvent the vision for our Company. Our existing mission remains perfectly fit for purpose. We serve a variety of markets with a unitary business model. It is the same business model in the Markets Division as in the Professional Division, the same in Asia as in North America. And it is powerful because it is based on the sale of electronic information and services to professionals on primarily a subscription basis.

As such, it is highly capital-efficient and cash-flow generative, enabling us to maintain leading and scalable positions in our chosen markets.

While we boast an attractive business model, we can't be complacent. We are managing the firm tightly given the current environment, continuing to make solid progress on our integration programs and closely monitoring costs, while concentrating our investments on our customers and new products that will grow revenues as markets improve.

While this environment is not an easy one for us or for other global leaders, on a relative basis I believe we can take share and outperform our competitors. Our market-leading positions are the direct result of the investments we've made year in and year out to meet our customers' needs. Furthermore, we have the financial wherewithal to continue to invest in key projects across the Company, including Project Utah in Markets and Project Cobalt in Legal, which will propel our growth as the economy does improve. So I feel very good about where we are as a Company.

Lastly, let me turn to the unification. As I mentioned when we announced our intention to unify the DLC in June, the transaction offers a number of benefits to shareholders. First, it consolidates our trading liquidity into one deep global pool. This should make our shares more attractive to many large investors, who found the current defragmented liquidity and four trading markets a reason not to build a position.

Second, it simplifies our corporate and capital structure. And third, it eliminates the share price differential.

For these reasons, we believe that unification is in the best interest of our shareholders. You will recall that the unification involves issuing one Thomson Reuters Corp share for each Thomson Reuters PLC share. Following the unification, Thomson Reuters' shares will trade on the Toronto and New York stock exchanges.

I am pleased that we've heard from a number of UK-based investors who've expressed their intention to continue to maintain an investment in our North American listing, and a number of UK analysts, several on this call, who plan to continue coverage.

As to timing, tomorrow we will host shareholder meetings in London and Toronto to approve the unification proposal. And we'd then seek UK court approval on August 25 and complete the transaction on September 10.

Let me now turn it over to Bob.

Thank you, Tom, and good day to everyone. Today, I am going to discuss the results for the second quarter, I am going to briefly provide an update on our integration initiatives and finish with an update on our 2009 outlook.

Now, growth was sustained in the second quarter despite the weak economy and its impact on our customers. Across the Company, recurring revenues from our core products continued to underpin this growth, while Print, Ancillary and transaction-related revenues continued to lag their strong 2008 performance.

Our geographic market and product diversity are helping to sustain growth and give us confidence that we will achieve our 2009 objectives. And we continue to push forward and make progress with our integration and legacy savings programs, having now accelerated 2009 year-end target to at least $1 billion of combined run rate savings.

Now to the results for the second quarter. During the quarter, the strengthening US dollar had a negative impact on reported revenue growth. However, that same strengthening had a favorable impact on margins, given that we have a large component of our core space in Sterling, against which the dollar saw significant appreciation.

Now as Tom has noted, and throughout the presentation, I will speak to revenue growth before currency. Reported revenues are also highlighted on each of the slides, and let me also point out that organic revenue growth is reflected on the P&L, in the earnings release at the consolidated, divisional and segment level.

Now, consolidated revenues in the second quarter of $3.3 billion were up 2%, 1% organic and 1% from acquisitions. Underlying operating profit was up 11%, and the corresponding margin increased 330 basis points. Now, approximately two thirds of this increase came from synergy savings and tight cost controls across the Company, with the one third coming from favorable currency.

Year-to-date revenues are $6.4 billion, up 2%, and with the same split, 1% organic and 1% from acquisitions. Year-to-date underlying operating profit is up 6% to $1.4 billion, and the corresponding margin is up 200 basis points, of which half is attributable to currency.

Now I will turn to the operating performance of the businesses. The Professional Division revenues rose 4% in the quarter to $1.4 billion, 2% organic and 2% from acquisitions. Segment operating profit rose 3%, and the margin increased 80 basis points over the prior period, primarily due to the benefit of currency and efficiency initiatives, but these initiatives were probably offset by both revenue mix and the dilution from recent acquisitions in Tax & Accounting.

Year-to-date revenues were up $2.7 billion, or 4%, versus last year, 3% organic and 1% from acquisitions. The operating profit rose 3% to $743 million, and the corresponding margin increased 40 basis points, all attributable to currency.

Now as we had mentioned on our Q4 call, which was in February of this year, we expect Professional margins to decline slightly this year due to the shift to a higher-growth but lower-margin Software & Services products, the impact of acquisition dilution and investments in technology infrastructure and global expansion initiatives.

Now, the Legal segment grew 2% in the second quarter, 1% organic and 1% from acquisitions. Online Solutions grew 5% with US Westlaw up 2%. Westlaw ancillary revenue remained under pressure in the quarter, falling 17% on the heels of a similar decline in the first quarter, as law firms continue to closely monitor their spend.

International Online revenues continued to grow strongly. They were up 16%. Software & Services revenues declined 3%, as a 14% growth in FindLaw and a 4% increase in Bar Review revenue was offset by sizable declines in Practice Management Software, which is our Elite business, and our Consulting revenues.

Print and CD revenue was down 1% in the quarter despite some timing benefits. We expect Print to decline over the balance of the year. Revenue from small and solo law firms grew 4% in the quarter, and revenue from government units was up 7%, helping to offset the softness at large law firms.

(Inaudible) our Intellectual Property businesses declined 1%, as a 9% growth in our Managed Services business, which really is our IP monitoring, was more than offset by a 12% decline in Trademark Search volumes.

Year-to-date revenue was up 3% for Legal, 1% organic and 2% acquisitions. Tax & Accounting revenues grew 9% in the quarter, 5% organic and 4% from acquisitions. The Corporate Software & Services segment grew 11% organically, driven by our Property Tax Service offering. This more than offset a 4% decline in our Research & Guidance business, primarily resulting from a $5 million decline in Print revenue. While Print represents only 10% of this segment's revenue, it had a significant impact in the quarter.

I should note that Checkpoint's revenue grew in line with the segment's organic growth, as the recession has brought both down from prior quarters' double-digit rates.

The Professional Software & Services business grew 6% organically. Year-to-date revenue in Tax & Accounting is $470 million, up 10% versus the prior year, half of which was organic and half acquisitions. And we continue to expect revenue growth to accelerate over the remainder of the year.

Healthcare & Science revenues rose 7%, all organic, driven by a 20% growth in the Payer segment, which experienced significant demand in both the federal and employer segments, where our business is extremely well-positioned. Year-to-date revenue is $414 million, up 7%, again, all organic.

Now let's turn to the operating profit for the Professional segment. In Legal, operating profit for the quarter was flat, but the margin improved 70 basis points, half from efficiency initiatives begun earlier this year and half from favorable currency. Year-to-date operating profit is up 2%, and the margins were up 90 basis points, nearly all attributable to currency. We continue to expect second-half margins in Legal will decline versus prior year due to revenue mix, incremental investments in growth initiatives, like Cobalt, that we discussed in February, and the slower top-line growth.

Tax & Accounting's operating profit grew 6% for the quarter, and margins declined 30 basis points. Flow-through on revenue was more than offset by higher software amortization, resulting from acquisition accounting and also the decline in Print revenues. Year-to-date operating profit is down 1%, and the margin is down 150 basis points. The impact of revenue mix and acquisitions is expected to continue to negatively impact Tax & Accounting margins for the remainder of the year.

Now I will remind you that this is a growing business in which we continue to make significant investments to build share and market position. Understandably, the margin in the short-term is not indicative of the long-term potential.

Healthcare & Science operating profit increased 26%, with the corresponding margin increasing 400 basis points. Over half the margin increase is attributable to flow-through on revenues, with the remainder resulting from the benefits of currency. Year-to-date operating profit is up 18%, and the margins are up 230 basis points.

Turning to the Markets Division, as Tom noted, we are pleased with the performance of Markets through the first half of the year. Revenue was up slightly in the second quarter despite challenging trading conditions and the difficult year-ago comps already mentioned, which are 7% growth. Recurring Subscription revenue grew by 2% despite a decline in Recoveries revenue. Now these recoveries are low-margin revenue that we collect and forward to third-party providers, such as exchange fees.

Nonrecurring transactional revenues fell 9% due to lower foreign exchange volumes -- again, there were tough year-ago comparables -- and also the lower volumes at Omgeo. If current market conditions persist, we will continue to face tough comparables through the third quarter. Transaction revenue growth will resume as markets recover and will have an immediate impact on the top line. Outright revenues, or one-time sales, also declined, as client purchases of large software systems slowed.

By region, organic revenue for Asia and EMEA grew 2% each, while Americas was down 2%. I should note in the quarter we benefited from some one-time revenues that contributed to growth.

Operating profit was up 16% to $424 million, a 430 basis point improvement in the margin, resulting from integration savings, tight cost controls and about 100 basis points from favorable currency. On a year-to-date basis, operating profit grew 8%, and the margin expanded by 270 basis points.

Now we are now at more than 15 months into the merger, a year plus into the financial crisis, and we feel our relative position continues to improve. We have grown and are making large investments in the future of our business, and at the same time have been very disciplined about managing cost. And while we are very pleased with the margin improvement that Markets delivered in the first six months of this year, this probably represents a high point or way station until revenues pick up later in the recovery. When growth returns, we believe margins in Markets will have further room to expand.

Now let me review the performance of Markets' four business units. Sales & Trading revenue declined 1% organically in the quarter due to lower foreign exchange transactional volumes, a 6% decline in recoveries and declines in desktops, partially offset by growth in Commodities & Energy and TradeWeb.

Investment & Advisory's revenue was flat on an organic basis in the quarter. Buy-side customers continue to be impacted by lower fee income, which is resulting in headcount reductions and cost-cutting. Despite these challenges, we continue to make good progress, with sales of high-value analytics, content and data feed form and business intelligence products.

Within our Investment Banking segment, we have enjoyed success among boutique advisers, which have helped limit the revenue decline to 3% this quarter, which is a substantial improvement from the double-digit decline we saw in the first quarter. We also made progress on cost reductions, shutting down legacy products such as ILX and migrating customers to Thomson ONE Advisor.

Enterprise once again delivered excellent growth in the quarter, 7%, all organic, and this is against a 14% organic growth in the prior year's quarter. The Enterprise segment continued to see healthy customer demand for data feeds, driven by increased regulatory and reporting requirements and the need to cut costs through automation of front, middle and back office processes. We also saw a good growth in Enterprise Information, which is benefiting from demand from reference data and our independent, high-quality pricing services.

Finally, Media's second-quarter revenue declined 6%. Our Agency business experienced a modest decline of 4% in the quarter, driven by consolidation of traditional media outlets. We continued to see sharp declines in our Professional Publishing segment, and weakness in our advertising-driven Consumer business. However, I will remind you these two advertising-driven niches are relatively small relative to our business as a whole.

Let me turn to our adjusted earnings per share calculation, which is shown on this chart. Earnings attributable to common shares and ordinary shares was $315 million in the second quarter. Now, to arrive at adjusted earnings, we make the following adjustments. First, we remove fair value adjustments, which negatively impacted operating profits by $87 million in the quarter. You will recall that this item relates to contracts that are priced in a currency other than the normal operating currency of either party, and therefore must be marked to market on a quarterly basis. This has no cash impact whatsoever.

Second, we remove the negative impact of other finance income and expense, which in the second quarter relates to foreign exchange losses realized on intercompany funding. Again, this has no cash impact.

Third, we remove the positive impact of the tax on these items I just mentioned. An additional tax adjustment is also included within Other on this chart, where we normalize our tax rate to the rate expected for the full year to account for some really wide seasonality impact based upon the source income in a given quarter.

Now, it's important that we note we are now normalizing to a full-year tax rate that we believe will be in the 20% to 22% range, down from our previous assumption of guidance of 24% to 26%.

Finally, we remove the amortization of intangible assets related to acquisitions. The result is $485 million of adjusted earnings in the quarter, which is $0.58 per diluted share versus $0.39 per share last year, representing an increase of some 49%.

Year-to-date adjusted diluted earnings per share are $0.98 versus last year's $0.84, representing a 17% increase.

Free cash flow is $789 million compared with $791 million of a year ago. Excluding one-time integration and legacy program costs, underlying free cash flow is $988 million. Now let me remind you that the 2008 free cash flow figures are not pro forma, and these headline numbers mask a very strong performance for two reasons.

First, the 2008 figures did not include a Q1 cash outflow from the legacy Reuters business, which approximates seasonality of about $100 million. And second, interest payments were over $200 million lower in the first half of last year than this year as we benefited from having only a partial year of interest related to the Reuters acquisition debt, and also had the benefits of the Thomson Learning proceeds sitting in investments. Excluding these two items, normalized free cash flow is tracking well ahead of the prior year, driven by higher operating profit and lower cash tax payments.

Now within the cash flows, year-to-date capital expenditures increased approximately $110 million to $466 million. And this reflects the investments we continue to make in new platforms in both Legal and Markets, as well as other growth and product development initiatives across the Company. I will remind you this increased level of spending is consistent with our guidance we gave, where CapEx would run between 8.5% to 9% of revenue for this year. The underlying strength and cash-generative nature of our businesses allows us to fund these important investments that will position us for growth on the upswing of the cycle.

Our integration programs are proceeding in an accelerated fashion, and as such, we have increased our 2009 year-end run rate projection from $975 million to at least $1 billion. The second-quarter run rate of savings has increased by $75 million from Q1 to $925 million. This represents over $400 million of incremental run rate savings over the last four quarters. The increase is attributable to the elimination of redundant positions, as well as the sunsetting of some legacy products. This overall performance is certainly reflected in the first-half results.

The most significant portion of savings to date is related to headcount, and the vast majority of the initiatives have now been completed. The remaining synergy savings are largely centered on technology and product rationalization. Since these projects tend to be longer term, we expect our remaining run rate [segment] growth of figures to slow relative to those achieved since the close of the acquisition. That said, we remain confident in our ability to achieve the targeted savings figure of $1.4 billion by the end of 2011.

Now, the associated costs in the quarter for these segments was $107 million and a total of $195 million year to date.

Now, as Tom mentioned, we are again affirming our full-year outlook. Our performance is tracking to our outlook. We expect revenue growth to slow in the second half of the year, and we continue to expect full-year margin performance will be comparable to last year in spite of the fact that we are a bit ahead at the present time.

There are several factors weighing on the second-half margins, which I mentioned, in both Professional and Market results, including certain timing benefits and investments and slow revenue growth. In addition, we do expect higher corporate costs related to higher pension expense -- we discussed that in our IFRS conference call last month -- and some higher benefit costs which will hit in the second half of the year.

Now in closing, I would like to say that we remain absolutely confident that our investments in new products and services and the actions we have taken and continue to take to integrate and streamline our operations will position us for accelerated growth and increase profitability over the longer term.

With that, let me turn it over to Frank for your questions.

Thanks very much, Bob. And now we would like to take your questions. So if we could have the first question, please.

(Operator Instructions) Drew McReynolds, RBC Capital Markets.

Thanks very much, and good morning. Maybe just I'll leave it at a couple questions. Just with respect to the expansion in Markets year-over-year, between looking at Q1, you had EBITDA margin expansion about 200 basis points and this quarter 400 basis points. Just wondering if you can kind of break that down, maybe -- didn't see it in the presentation -- what the FX contribution was and if there is anything else we should kind of take into account there.

Bob, do you want to hit the FX as a percentage? I would make the general point. equally true for both quarters and markets, that like anyone else, because of the difficulty in the environment, Devin Wenig really rode cost management tightly, concentrated investments primarily in Project Utah, the Common Platform and in Customer Service, but really was tough on the other costs.

So when in fact the revenues, as you've seen, have held up better than others might expect, that has flown down to the bottom line in margin expansion and additional operating profit. Bob?

Drew, the foreign exchange impact actually for the quarter and the year is about 100 basis points in each period.

Okay. No, those two answers are fine on that one.

Just maybe for Bob, the Corporate and Other costs, excluding integration, obviously were a little higher. There is some IFRS impact in there. How are we supposed to, I guess model, this going forward? I think you were run rating on a quarterly basis at about $60 million in core Corporate costs. Is this just going to be a volatile line segment going forward? And if not, maybe just a little bit of guidance on how we should be modeling this.

I think you could take the core Corporate costs -- and I would model them at around a $250 million, you would be fine.

Okay, okay, that's great. And maybe just a last question, with respect to the Legal Division, you alluded to pretty soft Print in the quarter. And I know Print has a commensurately higher contribution in the back half of the year. Just wondering if that Print is still in line with what you would have expected at this point in the cycle, or should we see some, I guess, more difficult revenue and margin pressure, particularly in Q4?

I'll take this one, Drew. You know, I think it is generally in line. The experience the last time there was a significant recession in Legal was quite bearish. But at that point, Print constituted a much larger percentage of overall Legal revenue. Now that it is really quite contained and that transfer of revenue from Print to electronic continues, we are sensitive to it, but the absolute amounts aren't so great that we don't expect that to have a particularly dramatic effect in the second half of the year.

Okay, I'll leave it there. Thanks very much.

Operator, if I could -- just before we take the next question, if I could ask everyone to hold yourself to one question and one follow-up so we can get to as many as possible, please.

Colin Tennant, Nomura.

Hi, everybody. I've got a question about the Markets Division. You have given us, obviously, the Q2 numbers. I just wondered, looking at the results that some of the banks have posted, which have been, I think, above expectations, I wondered if you could give us an idea of where you think the investment cycle is headed as far as the banks are concerned. Are they -- the customers you are talking to, are they beginning to think about spending money on market data, systems, headcount, etc., again, or is it still too early?

And I guess related to that, I wonder if you could update us a little bit on the progress with the Project Utah. I think the last time we spoke, you were indicating Q1 of 2010 would be the likely launch date for that. I wonder if that is still on track.

Sure. I've been in London all week, and I've seen a number of our clients here, and I've been seeing them in North America on and off through the quarter, as well. Somewhere in my remarks, I referred to the recovery as not being evenly distributed.

I certainly didn't believe that when we, let's say, did our annual results in February, that we would be sitting here at mid-year and there would be people talking about hiring with multiyear guaranteed bonuses. There are folks who have obviously been doing really well off their trading franchises, perhaps not surprisingly, since cost of funds is near zero. And I've heard quite a few say, look, we actually took too much cost out of the platform. We are finding we need to hire a bit to really handle the amount of business.

Now that is really a capital markets and trading perspective, but the good news is that obviously lines up with both our Sales & Trading and Enterprise Division.

Enterprise, you can see, has remained strong right through. So 7% growth again in the quarter. I've been talking to the sales guys here. They continue to sell well. They are happy we made the small acquisition of Vhayu that has high-velocity tick capture engines. It is just another part of that Enterprise plumbing, and that has been selling very well.

The caution I guess I would give is that it is not at all uniform. M&A has not significantly picked up. There are parts of the franchise that are still quite calm. So I'd put it this way -- the environment feels much better for our banking clients. Early this afternoon, when the Bank of England left interest rates where they were, they referred to improving conditions in the banking sector but that the recovery remains fragile. If you added an unevenly distributed to that, I think you would see the pattern that we are.

But look, I am always encouraged -- when our customers do well, then it is just an issue of timing before that translates into good things for us.

In terms of Utah, the timing there is unchanged. Q1 remains a good date. Product is looking really good. It is in integration testing and scale testing now. Many parts of it -- versions have been out with clients. So that is all shaping up well for next year.

Okay, that's great. Thanks very much.

Vince Valentini, TD Newcrest.

Thanks very much. Sticking with Markets, I was a little surprised that your subscription recurring revenues didn't decelerate at all in Q2. You reported the same 2% growth rate that you said in Q1. Does that suggest that sort of headcount-based reductions have now leveled off for you, and we should still see this 2%, or is there still some sort of flow-through of the lag effect that you'll see in the back half of the year?

I guess I'd make a couple of observations there, Vince. First, we are obviously happy. It fits the theme that Bob and I were talking about in the first quarter, that the underlying engine, the recurring subscription engine of our business, whether you are talking Legal with Westlaw core or whether in Markets you are talking about recurring subscriptions, those are holding up much better than people expected. And what has been dragging things down are either Ancillary in Print or Consulting in Legal, or transactions in outright in Markets.

That said, the two points I'd make are, one, the curves are never perfectly smooth. So given the absolute amounts involved, you can see them bounce around, so it won't be a perfectly smooth plot. Second quarter may be a little bit better in that respect. It came in a little stronger than I had personally expected. But I'm happy about that.

In terms of second half of the year, there are fewer heads coming out now. But just in terms of the way in which revenues lag sales activity in a subscription model, I don't think you should just assume that, let's say, recurring subscription stays flat at two and that is as low as it ever goes and comes back up. I don't want to get into the exactly where does it fall. Let me characterize it generally as far more shallow than anyone expected going into this year, and that is a very good thing.

Thanks.

Thomas Singlehurst, Citigroup.

I've got one question with two parts. The first -- both on Legal, actually. The first thing that was quite surprising was the FindLaw trend, that it's growing as strongly it is, given it looks like competitors are struggling, whether you had any comment on that.

And then the second part of the question is I don't know whether you have a sort of underlying revenue for US Legal pre-bad stuff, which Lexis sort of gave -- whether we can get a sense of what it would have been if we exclude the ancillary revenues and the Print and such like.

Sure. And one thing -- I'll speak to Bob and then turn over to Bob. One thing Bob and I care a lot about -- and this is more internally focused than necessarily out to the city or the street -- is basically to present the numbers as they are. We manage this entire business, you buy a share of stock in the entire Company. And I could only count Enterprise sales in China on Wednesday and blow you away with a big number, but the truth of the matter is we've chosen the parts of Legal to be in. The overall number is 2%. We think that is a good number, and we think you should look, if you are so inclined, look at other people's businesses on their all-in number, because it is not like they got stuck with their businesses as an accident; there is a conscious management decision there.

As for FindLaw -- and I will let Bob chime in on both points -- as for FindLaw, it is a good business, and what we are finding is, not surprisingly, that at a time like this, the one thing law firms -- and remember these are many small- and medium-sized law firms -- the one thing they don't want to do is cut -- tamper with the shingle at the front door that attracts them the very business they know they need. And on a relative basis, FindLaw is very efficient. It doesn't cost that much, and they can see the results it brings in the door, because it is all online. Bob, do you want to jump in on either of those?

I think, Tom, you've answered them both more than adequately. I don't have anything to add.

One very quick follow-up. The new front end for Westlaw, when does that come out, and when is it likely to get revenue?

Also Q1 of next year. And so, again, in all of these cases, the introduction isn't one big bang where you throw a switch. It will be phased in, but we expect to see revenues on these new platforms in both markets and Legal next year.

Marvelous. Thank you.

Paul Steep, Scotia Capital.

Great. Actually, Tom, just to follow on that last point, that was where I was going. With Cobalt, maybe we could talk a little bit about what it actually means for the business beyond just a front end in terms of new product functionality or expanding or growing Legal or sort of heading Legal in a new direction, if it does at all.

Sure. Well, I guess I'd start with the -- take it as my personal view -- that the existing generation of Westlaw is an excellent product. I grew up -- I used to be a practicing lawyer; I learned on the original generations of Westlaw on the Wall terminal. And this is a great product that exists today.

The one thing I would say, and this is generically true of our products, and frankly, true in the financial world as well, is that the consumer world has introduced a level of ease of use, search, navigation, mobility, that has trailed in the professional world. And there have been at various times folks that have tried to come into any markets with more modern, call it the Google generation approach.

One of the most important strategic things that Cobalt does in the Legal business is marry up an incomparably deep and rich and professional set of content and tools with an interface which a young generation coming out of law school, as I did 25 years ago, won't look at and say, boy, that is your uncle's Army, your dad's Army. So I think that will long-term end up being strategically and structurally an important protection from the business from anyone who might use innovation as a wedge to, let's say, come in and compete.

Fair enough. And Tom, on -- Bob, actually, on that, the levels investment, it sounds like that is going to tail over the end of this year. Is that effectively the end of sort of Cobalt, or does that carry into '10, as well, on CapEx? Thanks.

I think the most significant portion of the expenditure will occur in 2009, but as you might expect, there are always modifications that one does when you launch a product, and we would anticipate there would be some spending related to that in 2010.

Thanks.

Sami Kassab, Exane BNP Paribas.

Thank you very much. Good morning, everybody. Two questions, if I may. First of all, regarding the competitive landscape in the Legal market, you interestingly reported that growth was driven by the government unit. LEXIS-NEXIS reported they had seen declining revenues in the government unit. Can you discuss competitive movements within that government unit? Do you think you are taking share on LEXIS-NEXIS, or is the product mix not strictly comparable maybe?

And secondly, regarding the Tax & Accounting margins, I understand they are lower than historically. They reflect the acquisitions. Can you comment as to when you expect the margins to normalize back again? Do you expect the synergy factor through next year or will it take longer? Thank you.

Sure. I'll push the tax margin question to Bob and tackle the first one about sort of relative share in government. You know, we -- when we try and really analyze market share and competitive position, we do it as rigorously as we can in all of our businesses with real grounded data. And those have generally come back showing that we are taking share across these various segments.

It is difficult even for us to lay our results against Reed or anyone else's and compare sort of apples to apples. It is true that on the face of what each company is reporting that we seem to be doing government as a driver of growth, and it's no great surprise -- every business I know, from General Electric to JPMorgan, says that government is an important market now for them.

The only other thing I guess I'd caution vis-a-vis Reed is that after their sizable ChoicePoint acquisition, their results may begin over time to be less and less comparable to ours. There is a large government public records element to ChoicePoint that may be showing up in those numbers. So we have good -- we have a lot of respect for our competitors, and we are just happy our business is growing.

sorry. Just before you're going to the Tax & Accounting, do you see clients canceling duplicate subscriptions, or is that not really happening across the US market?

You mean where, let's say, a given law firm or government unit has both LEXIS-NEXIS and Westlaw?

Exactly, Tom,.

There are isolated cases going in both directions. But in general, every large law firm I know of really takes both services. And the issue is one of what is the user preference, what is the commercial policy and overall, who's got the right tool for what the clients need to do.

So the short answer is what you have to really watch is utilization rate of the two services within each firm and the relative pricing power, which again, comes back to functionality and quality of product. So it is not easy to just look at one-on-one bakeoffs.

Very clear, very helpful. A word on Tax, maybe.

I'll take that. I'll also just mention that in the government world, that most government units only take one service. They don't take two. So there are bakeoffs that go on there all the time, and we win some and lose some and vice versa. But we seem to be doing reasonably well at this point overall.

In terms of Tax & Accounting, the answer is that we absolutely expect these margins, particularly as we get into 2010 and 2011, to start, I would say, bouncing back to what would be more traditional for us would be the mid-20% margins. I think that one of the things you should look at, we don't talk about EBITDA, because in fact we drive the business on operating income.

But if you look at the EBITDA margins, you get a very, very different story. On a year-to-date basis, Tax & Accounting EBITDA is 24.5% compared to a year ago, it was 24.1%. So it actually showed continued increase. One of the things that drags it down, obviously, is the fact that we are amortizing software costs from software acquisitions that we make, which are in the line below EBITDA.

The other thing I would mention to you is that one of the reasons why you see some of the shift is that this business has a couple of different business models. The content business, traditional content business here represents only about 30% of the revenue base. And the balance is Software & Services, which while they are growing faster, have lower margins. And I think I've said this to you before, that doesn't discourage us, because unlike content businesses, the Software & Service businesses, while they may have lower operating margins, they have lower capital requirements. And so from a return on investment basis, they are very, very high.

So when you manage your portfolio, you seek to balance all of those, and we are very happy to have these kind of businesses in our portfolio to drive growth and improve return on investment. And at the same time, we have content businesses that also drive the margin improvement, as well.

That's very clear, gentlemen. I thank you very much.

Patrick Wellington, Morgan Stanley.

Afternoon, everybody. A couple questions on timing. Tom, if I remember correctly, you had a negative sales quarter in the first quarter in Markets. Didn't result in negative organic revenue growth in Q2. But can you give us some idea of what your sales quarter has been like in Q2?

And related to these sort of timing issues, you said that the environment in legal employment has picked up a bit in the second quarter in terms of the rate of decline. How quickly might one expect to see the positive benefits of that in your Legal Subscription model?

Good questions, both. First, let's do Markets. Q2, probably no great surprise, was also negative on an average monthly sales basis, which is, again, what I look at, as I've mentioned before. The good news in that, I suppose, for Markets is things did not get worse. They were roughly comparable, maybe a little bit better in the second quarter, but the trend is flat. But that is two negative quarters, and you know enough of the mathematics of the Subscription model to where that leads you.

In terms of legal, the thing we were pointing to is that the first quarter saw a ton of layoffs, an unusual number relative to how law firms typically run. Those dropped off very markedly in the second quarter. There was a sense that law firms -- law firms, unlike banks, it is painful, obviously, for any institution and for every human being that loses a job -- but law firms have a social contract where it is particularly hard to fire your lifelong partners. And so they try and get it done and do one wave rather than sort of wave after wave. And it looks like that was the first quarter.

They are not charitable institutions, so it is not that they wouldn't do more if things didn't get much worse. But in general, when I speak to lots of the managing partners around in London and New York and some of the midsize firms elsewhere, business has started to pick up just a little bit in the second quarter for them. So they are feeling a little bit better.

So that is -- when you put that all together, I wouldn't yet want to talk about our revenues on percentage basis. But speaking sort out on behalf of our clients, our markets, it looks like the client base that we've served has hit their bottom and the client base is coming back up a little bit. And that is very much what we hoped for, for their benefit and, frankly, for ours. And then the issue just becomes a timing one of how does that play out given our subscription model.

That's great. And if I could ask another trend one, you raised the rationalization cost guidance to $500 million, I think, in the last results, saying that there was some fallover from the previous year. Yet you are running behind that $500 million schedule after a half year. Are we necessarily going to hit that $500 million total?

You mean this is the cost to achieve synergy as opposed to --?

The cost to achieve synergy, yes.

Yes, we are running a little bit ahead of that. There is a good amount of cost in the second half. I don't know, Bob, do you want to tackle the issue of where we stand vis-a-vis cost to achieve?

I think, Patrick, our guidance obviously is we are still sticking with that. Obviously, our objective is not to spend as much money as we can to achieve these savings. So -- but right now, I think -- I've said this before -- to appreciate the level of complexity in driving an integration like this, we are aggregating performance of literally dozens and dozens and dozens of complex projects. And each of those has a manager involved, a leader and lays out not only what the benefits are going to be, but the cost.

To date, of those managers are coming back to us and saying they are still going to spend this money, and we are relying on them to provide that advice to you, is our expectation is that we will spend it. The question is whether does it all fall into 2009 or does some of it flow over. I'm not sure -- we are not sure at this point. That's why we've left the guidance exactly where it is.

Obviously, as the year progresses and we refine our thinking, we will certainly share that with you, just as we've done on the benefits side.

Thanks very much.

Tim Casey, BMO Capital Markets.

Thanks. Tom, just wanted to go back to your comments that you believe you are outperforming the market in the Markets Group, once again, implying you are capturing share. I'm just wondering how you arrive at that conclusion, what touch points are giving you confidence to say that? And what areas, if any, you feel are better opportunities to capture more share, and conversely, any areas you think you are at risk.

Sure. Well, I look at sort of three principal things. The first is the granular market share data, market by market, that we look at internally to guide our strategic decision-making, our allocation of capital decisions, etc. And those are telling us that we've been picking up share, and I'll explain in a moment why that shouldn't really surprise us, although it is pleasant.

The second is some third-party data that is out there. There is a study running around from Mitchell Madison Group that suggests we are picking up a couple of points.

And then the third element really is -- and this is the harder one -- but it is attempting to read-across from whatever information is available publicly. So take a look at our Enterprise Group that had another good quarter, 7% growth. There, we really benchmark against a bunch of smaller tech providers.

But the biggest one on the information side is IDC, and you can do a pretty straight read-across. They are the principal competition for the information. And they were growing -- I can't remember the exact number -- about half the rate of Enterprise.

And then there has been some data -- in fact, there was even an article in the FT today -- and I've seen the number bandied about -- that Bloomberg lost 4% of their terminals call at November to the present. And if you -- it's no secret what they cost. The model is pretty straightforward. You do the math, it is somewhere around $200 million to $250 million of revenue. And you compare that to the performance in Markets.

And I'm not saying that we are -- let's say our terminal product is better in every single niche across the board, but coming back to the reasons why we shouldn't be surprised, let's say, vis-a-vis Bloomberg, the markets that we participate in and that happen to be markets we are very good in have been doing relatively better, starting with the banks on the trading floor, the rates business. Our TradeWeb business was up about 7% in the quarter, benefiting from good utilization there. Energy & Commodities was up. Emerging Markets was up. Enterprise, as I've mentioned.

So those are businesses that are doing relatively well, and those are businesses where conveniently we have a leadership position. So I put all of that together and say with some confidence that we are taking share in this market.

Very helpful. Thank you.

Operator, we would like to take one final question, please.

Richard Jones, Goldman Sachs.

I've got a question on the Legal margin, if that's okay. I think you said that the Legal margin is likely -- it is more likely to be down rather than up year-on-year in the second half rather than the first half. But just wonder if you could run through again what the dynamics between the margin being up in the first half and then likely to be down slightly in the second half are.

Bob, do you have the two half comparisons to hand?

Sure. Well, in the first half, our margins were up about 90 basis points, but the bulk of that was primarily FX. And certainly. when we think about performance of the business, we don't ever anticipate favorable trends in foreign exchange. So we are just talking core operations. And what you are really seeing when you strip out foreign exchange is in the fact that there has been no -- very nominal improvement in Legal margin.

And as we have talked about and discussed, obviously with the softening sales to large law firms, where we have seen improvement in revenues in the Legal segment, they are in areas that have a lower margin than what we would get out of normal core Westlaw business. So that is one factor. And we also said that we expect the sales growth to not improve materially in the second half.

In addition to that, we have anticipated making investments in certain infrastructure, right? And also, we've also said that we do expect Print to continue to decline, and Print is a little bit more slanted to the back half of the year than the first half of the year. So with the decline in Print, obviously you lose profitability.

But again, we are talking about basis points here. We are not talking about huge margin movement. We are just providing some guidance, because traditionally we -- this is a wonderful business and we've always seen traditionally slight margin gains (technical difficulty) year in and year out. We are just cautioning that this is not going to happen in 2009.

So just to clarify, it is the full-year margin you think will be down slightly, not just the second half?

Absolutely.

Okay, that's great. Thank you.

With that, that will be our final question, and we would like to thank you all very much for joining us today.

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