Thomson Reuters Corp (TRI) 2010 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Thomson Reuters second-quarter 2010 earnings conference call. At this time all participants are in a listen-only mode. Later there will be an opportunity for questions, and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference is being recorded.

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

Good morning and thank you for joining us as we report our second-quarter 2010 results. We will begin today with Thomson Reuters' CEO, Tom Glocer, who will be followed by our CFO, Bob Daleo.

Following Tom's and Bob's presentations, we will open the call for questions. Please limit yourself to one question.

Now as Tom and Bob discuss the quarter's results, keep in mind that when we compare performance period-on-period we look at revenue growth rates before currency, as we believe this provides the best basis to measure the underlying performance of the business.

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.

It is now my pleasure to introduce the CEO of Thomson Reuters, Tom Glocer.

Thanks, Frank, and thank all of you, to all of you for joining us today. I plan to cover four topics.

First, I will discuss obviously our second-quarter results. Second, I will give you a couple of highlights from my perspective for the quarter.

Third, I will update you on new product launches so far this year and remaining for the balance of the year. And fourth, I thought I would describe some of the additional near-term growth opportunities that we are pursuing.

The results that you see here on the screen again confirm that 2009 was the bottom of the cycle for us in terms of economic activity, and 2010 was the bottom in terms of reported results. I think it is a testament to the strength of our business and our leading market positions that during this cycle revenues never declined more than 3%, which occurred in the fourth quarter of 2009.

Behind this resilient performance, we've continued to invest in a powerful business model, enabling us to strengthen our competitive position while also positioning us for growth. While our markets are only slowly improving, we expected and have seen accelerated results in terms of revenues, net sales, and customer uptake of our new products.

So based on these encouraging trends we now expect a return to growth in the third quarter. You may recall that earlier in the year we had said we expect it to occur sometime in the first half -- in the second half of the year.

For the second quarter, revenues were down 1%, but sequential growth continued off of Q4 '09's 3% decline. Yes, we continue to feel the impact from last year's negative net sales. However, from a consolidated net sales standpoint, the second-quarter of 2009 was the bottom for net sales, and trends have continued to improve with each of the last three quarters having been positive in net sales.

The Professional division revenues rose 2%, which we believe to be a good performance compared to our peers and the industry as a whole. Growth was driven by the Tax & Accounting and Healthcare & Science businesses. Legal revenues were unchanged from the prior-year period, which is a marked improvement from the first quarter's 3% decline.

The Markets division 3% period-on-period decline was again due to last year's negative net sales. However, June -- the all-important end-of-quarter month -- net sales were very positive. And for us that is always an important milestone and gives us confidence that we will achieve positive net sales for the second half of the year.

As anticipated, underlying operating profit declined 17%, which was 12% on an excluding-currency basis, due to the anticipated revenue declines and the ongoing investments, including new product launches that I will get to in a moment.

We continue to make good progress with our integration program, with run-rate savings of $1.3 billion as of June 30. And we remain confident that we will achieve our total savings program's targeted of $1.6 billion by the end of 2011.

Adjusted earnings per share for the quarter were $0.47 compared to $0.58 in the prior period, primarily due to the lower underlying operating profit. Lastly, we are reaffirming our full-year 2010 outlook, given the first-half results and the favorable trends in the business. And Bob will go into a little bit greater detail on the outlook.

Now let me discuss some highlights for each division. Trends in the Legal business continued to improve. New sales were up double-digit in the second quarter, and it is our best performance in Legal in over two years, as the launch of WestlawNext really helped to drive growth and strengthen our competitive position.

For the quarter, Legal revenues were unchanged from the prior period, as a 5% increase in subscription revenues was offset by lower print and non-subscription revenues. Legal is expected to report good revenue growth for the balance of the year, improving sales, growth in subscription revenues, and lower print attrition, which is now back down near historical levels.

Tax & Accounting and Healthcare & Science continued to perform well as revenues grew 8% and 3%, respectively, for the quarter. We expect revenue growth rates for both businesses to accelerate in the second half of the year, based on flow-through from improved sales.

Turning to Markets, trends continue to be encouraging there as well. So net sales were the best in nearly two years, an indication that our customers are investing again and reacting positively to new offerings such as the Elektron low-latency data distribution platform, CreditViews, which is a fixed-income product, and new asset classes being traded on Tradeweb.

Another encouraging sign was the sequential revenue growth in the second quarter for Markets, led by strong growth in transaction revenues and an increase in recurring revenues. This was the second quarter of sequential revenue growth following the first-quarter improvement over Q4 2009.

So the trends are positive across the business, and they are playing out pretty much as we have discussed with you over the past year. And we think we are well positioned as we look forward to entering 2011.

Now let me stick with 2010 for just a little bit longer. It is very much a year of innovation and delivery for Thomson Reuters, and I am very excited about our new product launches. By year end, we will have five major new products in the market that will help drive growth in 2011 and well beyond.

So WestlawNext was the first to be launched, in February. We now have 5,700 customer contracts signed up, which is well ahead of our own initial expectations, and the feedback continues to be very positive.

Elektron, which is our next-generation data distribution platform in Markets, has done very well. It's attracting both existing and new customers onto the network. So for example, we announced just this week that we had signed a deal with BATS Europe, the alternative trading vehicle, building on an earlier contract we had with Chi-X Europe.

Eikon, which will be our new desktop platform, is going to be launched in the second half of the year. The platform will integrate content and trading technologies from across the business and provide a common platform to achieve scalable and profitable growth. An extensive beta test involving thousands of users began on schedule in Q2, and feedback thus far has been very favorable.

The Reuters Insider multimedia news service, which will be included as part of Eikon, we actually launched on a stand-alone basis ahead. That is off to a very strong start, with 40,000 clients having signed up and are using the product.

They span some 8000 companies in more than 150 countries. Interestingly, over 50% of those 40,000 clients are new to Thomson Reuters, providing us an opportunity to sell in behind the new service once they get acquainted with the quality of our content and the innovativeness of the platform.

Later this year we are also going to launch ONESOURCE, which is Tax & Accounting's major new release for the year. It will be the first true global tax workstation for multinational corporations. We do expect that this new product will help accelerate Tax & Accounting's already good growth.

Finally, I'd flag from our Healthcare unit, they are going to launch Advantage Suite 5.0, which is a comprehensive set of decision support tools making the link between dollars spent and the quality of healthcare outcomes. That is obviously a super-timely area.

We already have products in that space, but again this is a sign of investment and renewing across the franchise. So it is newer, easier to use, better GUI, and a very impressive product.

I am confident that these new offerings will drive growth and further strengthen our competitive position. They will also enable us to reduce costs as we consolidate onto core global technology platforms that enable us to reach new international markets and serve multinationals as they in turn reach for further growth.

So, our performance thus far in 2010 is progressing well -- in fact, a little bit better than I had expected. The integration is nearing completion. And we have an abundance of new product launches this year, which are being well received by our customers and are driving new sales.

In addition to each of these important and positive developments, we are executing on the strategy that I have outlined to you before -- investing in higher growth professional information markets, and expanding globally where we can deploy our core competencies. So in this context I would like today to flag three of our recent initiatives.

The market which is known as governance risk and compliance, or GRC, is absolutely booming. Whether anti-money laundering and know-your-customer requirements in finance, or increasing regulation in energy and healthcare, there is no question that the increasing role of government in our business lives comes at a high price.

Our acquisition of Complinet in the second quarter builds on our already strong information assets in Westlaw and in Reuters news to put us in a leading position in this growing, but still fragmented, market. I may also be the only person who is looking forward to the 2,300 pages of the Dodd-Frank Bill turning into 23,000 pages or more of implementation regulations.

Switching gears, the world's demand for energy continues to increase. With the continued growth of China, demand for energy will only grow.

With demand comes opportunity, and we have enhanced our commodities and energy product offerings with the recent acquisition of Point Carbon. These assets strengthen our offerings through the combination of Point Carbon's critical insight, market fundamentals, and analytics of key price drivers, along with our leading news and pricing service and other data. So Point Carbon also brings us an important seat at the table in the emerging carbon trading markets, which could over time prove very valuable.

Lastly, we are expanding our presence in rapidly developing economies. The acquisition of Revista dos Tribunais, Brazil's most prestigious legal publisher, enables us to immediately enter a large and growing market where we will rapidly convert the product from print to digital by leveraging our technology, our infrastructure, and our market presence in South America. This will permit us to be the first in market in Brazil with a high-value legal online information service.

So, in conclusion, let me just say that I am pleased with how the year is shaping up. I also look forward to a second half of the year when we will now return to growth. And on that positive note, let me turn over to Bob Daleo.

Thank you, Tom. Good morning and good afternoon, everyone. Today I am going to discuss the results for the second quarter, provide a brief update on our integration initiatives, and review our outlook for the full year, as Tom mentioned.

Moving to this first slide, Tom did note we are pleased with our performance in the second quarter and through the first half of this year. We are tracking to our expectations with few surprises, and results thus far for us are consistent with the full-year outlook we presented in February.

While revenue in the quarter was negative, the trend continues to improve, which is clearly reflected in this slide. The encouraging net sales performance that Tom outlined and a more constructive environment in our markets lead us to believe this trend is likely to continue and to have expectations to achieve revenue growth in the third quarter.

Now, I will speak to revenue before currency as Frank noted. Reported revenues are also highlighted in each of these slides.

In the second quarter, while foreign exchange had a small unfavorable impact on our revenues, it led to a 120 basis point negative impact on our consolidated margin. Now, I'll remind you that our business mix is such that we are long on euros, meaning we have more revenues than expense, and short on sterling, meaning we have the opposite.

The current environment, with a weak euro and essentially strong pound, negatively impacts both revenues and costs. Now, this is most significant in our Markets division.

Consolidated revenues for the first quarter were $3.2 billion, down 1% versus the prior year, with 1% benefit from acquisitions. Underlying operating profit was $655 million in this quarter.

And the corresponding margin decreased, primarily due to the flow-through on lower were revenues; product mix; the previously announced investment in new product launches; and the aforementioned impact of currency. These factors more than offset integration savings, our continued tight cost controls, and efficiency initiatives across the businesses.

Now, excluding currency, underlying operating profit declined 12%.

On a year-to-date basis revenues are down 2%, with a 1% contribution from acquisitions. Underlying operating profit was down 12%; and the corresponding margin is 19%, down about 50 basis points due to currency.

Now I would like to turn to the operating performances of the individual businesses. The Professional division's revenues in the quarter were $1.4 billion, up 2% attributable to acquisitions. Organic revenue growth was essentially flat for the quarter.

The operating profit declined 10% as we had expected, and the corresponding margin declined to 27.7%. Margins continue to be pressured by a combination of lower revenue growth, revenue mix, unfavorable acquisition accounting, and higher depreciation and amortization costs from new product launches and the acquisitions. Currency had a negligible impact on Professional's margins.

On a year-to-date basis, revenues were up 1%, with organic growth down 1%, operating profit at $675 million. And the corresponding margin is 25.1%, again with FX having negligible impact.

We expect the Professional division's revenue growth to ramp up in the second half of the year, which will lead to strengthening margins.

Now turning to this slide, which I think is a helpful way to look at the revenue performance and the dynamics for the second quarter, the Tax & Accounting legal subscription and Healthcare & Science businesses continue to generate solid growth and to take market share. In fact, on a combined basis, these businesses grew 5% while they represented 75% of the division's total revenues.

Offsetting this performance was a continued decline in Legal's print revenues, which were down 9% versus 17% in Q1, with both periods impacted by unfavorable timing. In addition, Legal nonsubscription revenues declined 5% versus 8% decline in Q1.

Print attrition has significantly improved from the prior year and is now nearing normalized levels, a meaningful step toward stabilization. In fact, we do expect print revenues to be flat to slightly up in the second half of the year, in part due to timing and favorable comparisons.

Nonsubscription businesses achieved good growth from Elite and trademark. However, we continued to experience double-digit declines in ancillary revenues, as customers continued to monitor spending outside their base contracts.

Given these trends we are seeing across the Professional business, we expect to see a pickup in the division's revenue growth rates in Q3 and Q4.

Now let's turn to the performance for the business units in the second quarter.

Legal's revenues overall were unchanged from the prior year and down 1% on an organic basis. As mentioned, our subscription revenues grew 5% in the quarter, led by a 17% growth in FindLaw and a 12% growth in our intellectual property businesses. Our international businesses grew 2%; corporate business grew 2%; and government-related revenues declined 4% primarily on the backs of state spending.

Tax & Accounting revenues grew 8%, which was 3% organic and 5% from acquisitions. Workflow Solutions represented nearly two-thirds of Tax & Accounting's revenues in the quarter and grew 12%, led by good growth in income tax products including InSource and our Creative Solutions suite of products, and the global tax technology segment.

Business compliance solutions revenue were flat, despite an 8% increase in Checkpoint revenues, which were not enough to offset declines in the remaining segments of the business, including print, which fell 5%. As I stated in the previous quarter, we expect growth for Tax & Accounting to continue to improve as the year progresses.

Health & Science revenues grew 3% in the quarter. Organic revenues were actually flat.

The Payer business grew 6% on the strength of strong performance within the health plan segment. The scientific and scholarly research business grew 10%, benefiting from the continued solid growth in our core informational offering, the Web of Knowledge Web of Science and the benefit of Discovery Logic, a recent acquisition.

Partially offsetting growth was an expected decline in the Provider business, which was down 6%. Growth in this segment was impacted by a series of timing issues.

We always encourage measuring performance of our businesses on an annual basis, particularly when we are looking at the smaller SBUs like Health & Science. I will point out that the year-to-date revenue was up 6%, including 3% organic.

Now let's turn to the operating profit within the Professional division segments. In Legal, Q2 operating profit again as expected declined 10%. The margin was 32.7%.

We estimate that the impact of product mix alone had impacted margins by approximately 200 basis points, effectively neutralizing the benefits of our efficiency initiatives. Lower revenue growth and continued investments in the business also contributed to the profit and margin declines. Over time as we return to revenue growth, margins are expected to return to more historical levels in this segment.

Year-to-date our operating profit is down 11%, and the margin is 29.3%.

Tax & Accounting operating profit decreased 11% for the quarter. The corresponding margin declined to 13.2%.

Now, these were anticipated declines, are largely due to the dilutive impact of last year's acquisitions as well as incremental depreciation and amortization associated with the product investments that we have made.

Year-to-date operating profit is down 13%. Margin is 13.3%. Now this is certainly not indicative of the full year, and I will remind you that Tax & Accounting is historically a seasonal business, where nearly half of its operating profit is generated in the fourth quarter alone.

Health & Science operating profit declined 8% to $48 million. The related margin fell to 22.4% due to timing and some difficult prior-year comparables.

Now, as I continue to mention when discussing Health & Science revenues, quarterly figures are impacted by small timing shifts in the quarters. In this case, it's the Law of Small Numbers; and year to date the operating profit is up 11% and the margin is up 100 basis points.

Now turning to the Markets division, where revenues declined 3% in the quarter to $1.8 billion due to the impact of negative net sales from last year, and some one-time revenues in the period, and the impact of revenue dis-synergies associated with the integration that I discussed actually last quarter.

The year-on-year quarterly trend continues to improve, and the Q2 represented the second quarter of sequential revenue growth for Markets. I will talk about that in a moment.

By revenue type, recurring subscription revenues declined 4% and recoveries declined 7%. The revenue category is not subject to the lag effect of lower net sales, meaning transactions and outrights increased 4% and 15% respectively.

By geography, Asia revenues were down 1%, while EMEA and the Americas declined 3% and 4%, respectively.

Operating profit was $319 million and the corresponding margin declined to 17.5% due to the lower revenues and a 200-point negative impact from currency. Excluding currency, operating profit declined 15%.

In the quarter, we also faced particularly difficult margin comparisons versus the prior year, when we identified the quarter's margin as a high-water mark in this business cycle. I will remind you that that quarter the margin increased over 400 basis points from the prior year.

Year-to-date revenues are down 4%. Operating profit is $642 million, and the related margin is 17.5%. On a year-to-date basis, currency had a 50 basis point impact.

Now, let's review the performance of the Markets division's four segments.

Sales & Trading revenues declined 5% organically. The decline was driven by a 9% increase in revenues from -- a 9% decrease in revenues from recoveries and a 5% decline in recurring revenues, primarily desktops in the ETI and Fixed Income businesses, where revenues have been impacted by the strategic decision to sunset some low-margin products.

We did see growth from our Commodities & Energy segment which was up 3%. Tradeweb delivered 4% growth on the heels of stronger treasury volumes. The Treasury segment declined 1% in the quarter due to weaker 2009 net sales, despite a significant increase in FX volumes which led to a 6% growth in Sales & Trading's overall transactions.

Investment & Advisory revenues declined 6%; 7% organic, with the benefit of 1% from acquisitions.

The Corporate business grew 9% in the quarter, primarily on the strength of the Hugin acquisition. The remainder of the business was impacted by late-cycle impact of negative net sales in 2009.

Investment Management revenues declined 10%, resulting from the 2009 buy-side cost-cutting initiatives.

Wealth Management fell 7% due to one-time revenue benefits last year and fewer desktops, resulting from product closures including Reuters Plus and ILX. It is worth noting that we are seeing positive momentum in this business segment in June net sales, with being the best since the fall of 2008.

Enterprise overall grew 6% in the quarter, and this was all organic. The Enterprise Information segment, which represents 60% of the business, grew 9% on strong performance in both real-time and historic data feeds.

Risk Management, which represents another 15%, grew 6% on strong outright software sales, and the platform business also grew 6% on sales of recurring products. Omgeo was flat in the quarter.

Now finally, Media's revenue declined 3%. 4% was organic, and we had an increase, a benefit of 1% from acquisitions.

The Agency business was down 6%, as it continues to be impacted by tight customer budgets. However, a major contract win in the quarter with CNN propelled sales into the positive territory.

The smaller Consumer segment grew 19% in the quarter and successfully launched several new mobile applications including News Pro for the iPad.

Now last quarter, we showed a chart, this chart, that highlighted sequential revenue growth for the Markets division in Q1 as a means to provide a more -- what we will call real-time performance metric. This view effectively removes the inherent lag effect from year-over-year results.

Now the trend we saw in the first quarter continues into the second quarter. Recurring subscription revenues grew 2/10 of 1% in the quarter. And this is fairly consistent with the first quarter, which also had the benefit of a price increase contributing about 1.5 points of growth.

Recoveries revenues declined slightly versus last quarter. I will remind you that these revenues are low-margin pass-through revenues which are generated actually by third-party vendors, primarily exchanges.

Transaction revenues continue to accelerate, growing 6% versus the prior quarter on the heels of strong foreign exchange volumes primarily related to the Euro Zone credit concerns.

Now you will note that we have excluded outright revenues despite their strong performance in the quarter, since they are extremely seasonable with over 40% of the annual revenues recorded in the fourth quarter.

Now let's move on to some of the Corporate areas. Our Corporate costs totaled $104 million in the quarter. Our core Corporate costs were $50 million, down $11 million versus the prior period due to tight cost controls.

Overall Corporate costs in the quarter were down $151 million. It's primarily due to a $123 million favorable swing in fair value adjustments, which I will remind you are non-cash foreign exchange accounting adjustments made quarterly when we mark-to-market certain customer contracts. Integration costs were also down $17 million in the quarter, and I will speak a bit more about this in a moment.

Year-to-date our core Corporate costs are down $14 million for the above noted reasons.

Now let me turn to adjusted earnings per share. Earnings attributable to common shares were $290 million in the quarter. To arrive at adjusted earnings we make the following adjustments.

We deduct $39 million of income listed as Other Finance income, which in 2010 refers to the foreign exchange impact on hedging instruments; this is a non-cash item. Remove the amortization of intangibles, another non-cash item. And we normalize for our anticipated full-year tax rate, which we have estimated to be between 20% to 24% for the full year. This results in a $7 million adjusted -- addition to adjusted earnings in the quarter.

The net result is $395 million of adjusted earnings or $0.47 per diluted share. This is a decline of $0.11 versus a year ago. This decline is largely due to the decline in underlying operating profit which we have been talking about.

Year-to-date our adjusted EPS figure is $0.84 per share versus $0.98 a year ago. Now let me remind you, there is a complete reconciliation of adjusted earnings in the press release which we issued this morning.

Turning to cash flow, our year-to-date reported free cash flow is $637 million. Underlying free cash flow, which removes the integration-related spending, is $858 million.

Declines relative to the prior year were driven by the lower operating profit and some higher cash taxes. For the full year we again expect to generate strong levels of free cash flow.

Now let's turn briefly to an update on the integration synergy programs. We continue to make progress on our synergy projects and have currently achieved run-rate savings of $1.3 billion.

The incremental $75 million in savings in Q2 was related to communication expense savings, and content and data center consolidations within the Markets division. We remain on track to achieve our target of $1.6 billion by the end of next year.

In the quarter, we incurred $90 million of integration-related expense primarily related to severance costs, consulting fees, and technology costs. Year-to-date we have recorded $187 million of one-time costs.

We could potentially see about a $25 million shift of these costs into 2011. This is strictly timing related.

Before I wrap up I want to briefly discuss our 2010 outlook, which we continue to affirm. On a year-to-date basis, revenues are down 2% before currency. As we have discussed, we believe that revenues will turn positive in the third quarter and ultimately end the year to flat to down only slightly.

Our year-to-date margin before currency, and that is at last year's rates, is 19.4%. This is behind last year's mark by about 2.2%. However, Q2's underlying margin was actually 21.6% before currency.

As we return to revenue growth, we expect to see improved margin performance in the second half. As previously stated, we expect the full-year margins to fall short of last year's 21.3% but remain above the 20% mark.

Free cash flow generation for the full year will continue to be strong, but it will be slightly lower than last year's.

Finally, I would like to conclude by saying our performance is tracking to our expectations. Based on the investments we have made, the positive trends we have seen in net sales, and the improving economic environment in our markets, we believe the business is on a path to return to revenue growth in the third quarter and beyond.

This growth will provide a tailwind for margin improvement and continued strong free cash flow generation. That, combined with our strong capital structure, will continue to allow us to invest for growth while providing good returns for our shareholders.

With these points in mind and as Tom mentioned, we are reaffirming our 2010 outlook. Now let me turn it over to Frank for your questions.

Thanks very much, Bob. We would now like to, operator, open the call for questions. And again, if I could ask you to ask one question each so we can get to as many as possible, please.

(Operator Instructions) Drew McReynolds, RBC Capital Markets.

One question for you, Tom, just on your commentary on net sales. I am just wondering if you could just provide a little bit more perspective on the breadth of net sales across specifically the Markets division and maybe going back two or three quarters on that.

And if I could squeeze in a drill-down on that, just looking at the Investment & Advisory business, could you just provide a comment on the competitive dynamic, obviously versus your main competitor, coming out of recession, given still some budget pressure. Obviously, June was pretty positive.

And also in that segment, just wondering your expectations on how Eikon begins to feed in there. Thank you.

Sure. We were very pleased with June because, as you know, the quarter ends -- and particularly half year, full year -- is a time when to the extent there are going to be large movements or people are planning significant cost cuts, reorganizations, that is when they tend to hit. And on the way down when we have had substantial downs, the surprises have come at the end, at quarter's end. So for all of those reasons the June was positive.

One factor that we don't, for instance, talk about in the press releases and we don't make a big deal in our presentations, but is a factor in particular in I&A, is the work that is going on in the integration where we in fact are having the discipline to turn off old revenue. So as we have shut down one piece of infrastructure after another -- whether it is the old Reuters Plus network combining onto Thomson ONE, or some of the other platforms in I&A in particular, regional versions of Reuters Trader, for example -- you are seeing it come out of there.

At a certain point I think we just need to give you the number. The trends are good. But were it not for that self-imposed headwind, if we were stretching to grab on and keep every penny of revenue, we could show better numbers -- in particular in I&A.

But I know the right longer-term solution is to prepare the way and in Markets achieve really Devin's vision of a two-platform Company, with Elektron for the Enterprise offering and Eikon as the ultimate flagship on the desktop.

Eikon itself is very strong. I have been running it; it is my main platform. I am now running it mobile as well.

We are in a very broad beta test. Pretty much anyone who has wanted to take a look at it has it. I have seen a good amount of the raw feedback, and it is really encouraging.

In terms of when you will see or feel the impact, it's obviously an important milestone for us to say it is ready for revenue generation and start actually converting trials to paying customers. And we do expect we will be converting people over who are existing, say, 3000 Xtra clients.

But I really wouldn't look for much in the way of revenues that fall and are captured in this year. That is really part of the 2011 story and what our entry rate looks like there.

I guess the only other thing maybe I'd flag is we have been doing very well the whole time in Enterprise. That picked up steam. Transactions are picking up steam.

I think that chart that Bob puts up that shows the complexion, the breakdown, of the individual components of revenues and how -- what turns positive first. And now you see even the terminal business coming around and going positive. That is more important for what it says about 2011 than really what it says in terms of 2010 for us.

Okay.

Happy if you have any specific other follow-up.

No, that's great, Tom. Thank you.

Vince Valentini, TD Newcrest.

Yes, thanks very much. Maybe I will ask about the margin hit this year from the new product development, the 100 basis points you expect. Can you give us some sense of how much of that is going to be -- hit in the first half of the year and we have already seen it, versus how much is still to come in the second half?

Then also is there a risk that some of that margin drag spills over into 2011? Especially on the depreciation front, where I assume you started depreciating these new products once they launch, and then they flow through for a full 12 months. Thanks.

Vince, this is Bob. I think that you will continue to see, when we launch new products, there are a couple of things that happen. First of all, you don't get significant amount of revenues. I mean, WestlawNext is a good example of that.

But you begin to -- first of all you do have some additional costs of the launch itself, which are a portion of that margin, but it's not a significant portion. And the biggest you have is in amortization of the software, of the costs of development, and in the run-rate efforts that you use to sustain that product.

So the answer is that we will see additional increase in costs in the second half primarily related to products that will be launched in the second half. So they would be some of the things that Tom mentioned. Eikon is probably the largest one of that; the tax platform is the second one; and so on.

However, we feel fairly comfortable that the revenue growth that we are going to have in the second half of the year -- I mean, we are continuing the cost management -- will certainly help us through the balance of this year. As a consequence, that is why we feel even though the margin is lower than our target now, given the expectations for second half of the year we will see an improvement in our margins as the year progresses.

I think that in terms of 2011, it is all about comparative, right? So because a lot of this stuff is done throughout the year, it will be embedded in the run-rate costs and should not have as a significant impact in 2011 as it did have in 2010.

Ultimately, we will also see in 2011, we are counting on, is the revenue benefits start to accelerate from these product launches. Now, obviously it takes a while for that all to happen, so really the real impact of significant growth will probably happen in 2012. But we certainly will see benefit of revenue from these products in 2011.

Good, that's great. Thanks.

Michael Meltz, JPMorgan.

Great, thank you. Two questions for you. Tom, you said -- I know you already got a couple questions about Markets and the exit rate in June. Just to clarify though, you said -- I think your term was it was very positive in June.

Is that -- can you put it in a ballpark for us? Is that up 1%, is it up 5%? How should we think about it?

Then for Bob, your guidance for the year is margin down up to 100 bps versus last year before currency. Sitting where we are today, what do you expect the ForEx impact on EBIT to be, please?

I will let Bob think about that one for a sec.

Oh, my gosh.

So just to be clear in terms of net sales versus exit rates etc., so what was very positive -- in fact, the best level we have seen in Markets since before the financial meltdown -- was the net sales in June. And for that matter, I add May was positive as well; a little bit less positive than June, but positive.

You know, we have tried to move away. I understand the interest in quantification as you pass from negative to positive, etc. But we are now looking -- we do look and manage at Bob and my level of the Company as a whole.

So the very positive thing in Markets is their forward indicator of what their revenues will be in the core subscription business is positive and accelerating. And their transaction revenues are good and improving. So that means we will see it flow through not only into the second half but, importantly, 2011.

When we use the term exit rate, what we really think of are run-rate revenues and run-rate costs in the last months. And then we look at, in effect, backlog which is -- what is the net sales momentum coming into the year? And that is what we are building up now, that net sales momentum; and that is good.

Michael, if I really honestly knew the answer to your question I wouldn't be sitting here talking to you. I would be trading with my laptop on a beach in Tahiti.

But the reality is that we don't know. But if you think about what happened in the first half, the impact in the second quarter was more pronounced than in the first quarter due primarily to a softening of the euro.

If you were to say these trends continued through the year, then you would pick the second quarter impact as probably more representative. If you think the second quarter was peak, then you'd probably take the second half as representative.

I am not asking you to model out rates. If rates sat where they are at the end of June, what would be --?

Then I would say that it could be similar to what we have seen in the second quarter.

Which --?

Which was 120 basis points.

For the full year?

For the full year.

Okay, thank you.

Paul Steep, Scotia Capital.

Hi, morning, Tom. Maybe I could ask two quick questions just related to new product and setting expectations maybe at the right levels. You gave us your perspective already a little bit on Eikon.

But if we looked at Eikon and Elektron, can you give some perspective as to what you think the customer migration would be from ballpark in those first three quarters? Recognizing revenues will likely lag a year beyond that. What would be success that we should all be looking for in those launches?

Well, Elektron is trickier because it -- in effect it is a -- and this is its strength -- it is a range of services and solutions. Anything from you just want to take one big fat pipe of aggregated data, to direct feed solutions, trading room solutions, tie-ins to risk management. And then in the more novel components, co-location and hosting arrangements which we have announced for a set of core financial centers.

So people continue to come on that platform. I mentioned BATS Trading and Chi-X.

But it is less that we are going to see conversion to that en masse. It is just a combination of new clients -- and you see that in the good performance of Enterprise -- upgrades at existing clients.

And a lot of the work gets done behind the scenes as we in effect are changing over the plumbing of distribution, which lowers our own costs and improves the quality of the service to customers. So it would be very hard to come up with a metric.

In terms of Eikon it is more straightforward. Right? Because you have got -- it really is the terminal world. That half of our business which is about terminals.

We do, obviously, have our own rollout and migration plan, and plan for essentially new-new sales, capturing business that isn't migration.

I would rather not share it just at this point, because the challenge very much is -- installing new is relatively straightforward. But when we get to large institutions who have indicated to us that they -- I will give you an example with no name.

A very large, prominent institution which is in our global accounts program said -- their feedback is, we love the service; we think it is going to improve your market share at our firm; and we are really looking forward to it. But based on our plans for our trading room, we're -- the right time for us to do this upgrade is sometime first half of 2011.

So for the larger sites that can bring hundreds and thousands of positions, we are somewhat at the mercy of the institution. And that is a sensible thing for them to want to do, because these are major integrated systems.

But the onesies and twosies, yes, I think that is something that you will see play out even through the remainder of this year.

Great. Thanks, guys.

Phillip Huang, UBS.

Morning. Thanks for taking my question. My question is on WestlawNext. I guess based on everything I've seen, WestlawNext launch appears to be pretty much everything you had hoped for.

Are there any areas that you would say were less than perfect? Or what are some of the potential risk factors to see it continue to ramp up the way it has been? Thanks.

I mean I have to search pretty hard for the down side. I think the team did an extraordinary job, not only first capturing customer need, then building a product, but the way in which they handled launch, commercial policy. Recognizing that this has all played out at quite a difficult time in the Legal market.

So if I were going to bend over backwards to find a set of challenges, to me they would all be around the macro environment in Legal, the relative profitability. What firm -- some firms did disappear in this recession. And although they are quite stable, they are not cutting heads anymore, we have yet to see a strong recovery in Legal, which I think will be slow.

The reason why we are doing well I think has everything to do with the competitive attraction of WestlawNext and a very motivated sales force that has something to sell at the moment, not against any comparable offering that is out there. So the US Legal position is strong.

Great. Thanks very much.

Brian Karimzad, Goldman Sachs.

Morning. You commented on May/June net sales and not to harp too much on it, but if you can give any sense on how July maybe closed out there for the Company as a whole, and maybe Markets color.

Then on Reuters Insider, this looks like it's getting some good trials, good curiosity factor there. Any sense at all on how the usage is with that product? Were people focusing on it, how much time they are spending on it, and how that's conveying versus your expectations?

On the latter point, I saw a stat -- maybe one of my colleagues here has it to mind -- which was on, it is clip-oriented as opposed to linear broadcast. And the stat I saw was a number of clips consumed, well into the hundred thousands, which is significant usage.

So we released it -- it was never really intended as a sort of stand-alone service. But it was ready and of high quality, so we said, let's go out with it and start building the community.

Ultimately, the commercial policy is it is included as one of the attractiveness factors in Eikon. I think it will encourage people to migrate because of the way in which data and other content that's in Eikon gets integrated and referenced in Insider.

So the utilization? People are spending time on it, but I don't have that data to hand.

In terms of the other question -- sorry, just remind me. Oh, July. I actually haven't seen July sales.

The feeling, though, in among the sales force, who I have spent a good amount of time with, is positive. I would note that there is still time for Goldman to place a large order and help us on there if you would like, Brian.

We will see [how well Eikon does].

Does that answer your question, sir?

Fine, thank you.

Colin Tennant, Nomura.

Hi, morning, everybody. I had a question on Legal. Looking at the spread of growth rates across that division, it is pretty wide. Everything from plus 17% at FindLaw to minus 9% in some of the print products.

I just wondered where that -- what that is telling us about where we are in the Legal cycle in terms of demand. Because obviously the subscription stuff I guess holds up well and then the -- but the more one-off stuff is what is being hit.

Also, maybe just in that detail, FindLaw is a fantastic performance there. What has driven that 17%?

Okay, Bob and I will probably tag team on this one. And Colin, sorry for the tortured pronunciation of firm and name.

You know, I think it does tell an interesting story of recovery. Right? One thing that Thomson Corp and now Thomson Reuters has been very good at -- and I call this out a lot -- is managing the transition from analog to digital, from print to electronic, in a variety of businesses, Legal, Tax & Accounting, Healthcare, etc.

What you see playing out in print, people sometimes ask, well why don't we just jettison print? Because for example, when you look at the Reed Elsevier Lexis numbers in the US, that is ex-print, where our comparable would be a growth of say 5% in the subscription of the Westlaw service.

But print as you know is a profitable business. You have been out to Eagan and see it yourself. And to us it is just another output device, and we should allow our users to determine the pace of change -- prompted by us, by making really attractive electronic services.

And particularly when you get out of the US, there are markets where, like Latin America, where print is still very strong.

So now on to the trend issue, the most positive trend data other than the strength of WestlawNext sales to me is that attrition in print has come down from 20% levels down essentially cut in half. What that tells me is every generation there is, or every recession, there is a step down in print.

Because recessions cause people to be tougher with the senior partner at the law firm and really ask -- do you need that set of books? It is all available on WestlawNext, or much of it is.

And so people take those harder positions. It is a bit the canary in the coal mine.

The fact that print seems to be stabilizing around historical levels tells me that we are through the worst period. And we can show very nice growth in Legal as a whole through the mix of those different revenue sources, even if print, as we expect, will stay negative -- but not sort of fall-out-of-bed negative.

Colin, I'd just add another dimension. Think about the varying performance of the businesses. We really have products in the Legal segment that address the practice of law and the business of law. Right?

The products that you -- are doing well, like FindLaw and Elite, are in the business of law segment. Meaning that while law firms, while they certainly may consume less of our research products, they certainly have a business that they need to manage and find ways to grow.

FindLaw is right in that sweet spot. It helps law firms of various sizes market their services actually to ultimate consumers, but also to other law firms, particularly those law firms that specialize. Right?

So that is what -- that is an important part of what drives that. And Elite is a software business of infrastructure, where over the past couple years they very much have deferred making investments and now have to make investments in their back-office operations.

I would also add that a little bit of FindLaw's growth, a portion of it in the quarter, has come from an acquisition, a small acquisition, of a business called Super Lawyers, which is an evaluation business, an editorial business that we recently acquired.

Okay. That's great. Thanks very much.

Patrick Wellington, Morgan Stanley.

Good afternoon. A couple of hopefully related issues. The first one is, Tom, I think at the end of the first quarter you were very optimistic about going positive in Markets' net new sales in the second quarter. In the end, in both quarters you seem to have had two positive months and one presumably quite negative month, just tipping you the wrong way.

So in a similar style to Colin, what does that fluctuating demand level tell you about the underlying condition of those financial customers and how they are feeling?

And then I just wanted to check on one other issue. I felt as this call was going on that I was being softened up slightly for maybe a recovering 2011, but not a strongly recovering 2011, and that my hope was being, if you like, deferred a bit into 2012. We had a bit of that maybe on the creep of restructuring costs into 2011, and I think one of the remarks about new products really contributing a bit more in 2012.

So is that true? Are you really looking for a more tentative recovery in 2011 and a stronger one in 2012?

Patrick, I have got to hand it to you. That is the most subtle way and most effective way to draw us into commenting on '11 and even '12 that I have heard. But it is a fair question.

So let me just say that neither Bob nor I were attempting to either soften you up -- because we know that is an impossible task -- but, more importantly, send you any signal.

You know how our business and the subscription model works. So we are looking for a good recovery in 2011, because you see how the net sales will play out.

And on the cost side we are being tough. And you have extra benefit obviously as we ramp up towards $1.6 billion run-rate savings and the cost to achieve coming down significantly.

So I don't want to say more about 2011 other than to say we -- I hope 2012 will be even stronger; but we're not going beyond just what the current trends are this year.

Now, I can give you a little more information on the second quarter. There is a factor which I will not now mention that makes the recovery in Markets less lumpy or less unpredictable.

So, the entire second quarter would have been very positive as a whole. And you are right, April happened to be negative, but not horribly so.

But that was due to running through our sales and cancel numbers a -- one of the larger mergers that occurred in the connection with the financial bailout in 2009 we ran through our sales numbers in April. Without that, actually Markets would have been quite strong.

And in terms of trend, although we go back on this point and we do expect mergers are part of life, we don't expect the sort of shotgun mergers that occurred in the second half of 2008 into '09 to be regular course.

So there will be some lumpiness; there always is. But actually the trend is quite a good one in the net sales of Markets across the second quarter.

Great. That's fine. Thanks very much.

Claudio Aspesi, Sanford Bernstein.

Good morning. One question. This morning, Erik Engstrom at Reed Elsevier indicated that Reed is not seeing at the moment any impact yet from the rollout of WestlawNext. They don't think they're losing share or losing sales because of it.

In a somewhat similar fashion yesterday, Nancy McKinstry indicated that outside of corporate tax they believe they are gaining share in Tax & Accounting.

From your point of view, how do you view the competitive position? In particular when do you think that WestlawNext will start to contribute to market share gains? When should we expect to get some results from the new technology?

Sure. I have been told that some of our competitors are sensitive to remarks we make on these calls. I try to just stick to the facts as we have them.

And actually both Wolters Kluwer and Reed Elsevier are good companies with good franchises and good management teams. So all I am trying to do is -- I sometimes get a bit excited about the quality of our products.

I am quite close to the numbers in these businesses and the actual customers, so sometimes the issue of -- we don't see any effect is one of, look and you shall find.

What we do see is, of the 5,700 signed contracts for WestlawNext, there is an appreciable number in the hundreds to thousand level who were small customers who switched from one of the other providers to us. How that breaks down as to whether it was a CCH or a Lexis, I don't know.

But I am quite comfortable than on a net basis the share trends have continued. We continue to take some share.

It is very hard now to look apple-to apples-at the number, right? So you would have to look at our US performance of subscription Westlaw, which is running at around 5%-plus, versus whatever the comparable number -- and I haven't had a chance to dig into the Reed Elsevier numbers this morning -- is. Because I don't believe they have any print, which as we have just been talking about goes the other way.

Now, these are markets we are in by choice. And I always think it's a bit unfair for management groups to say -- well, exclude this, exclude that, it was very good.

But the one area where I think one has to do that is if you are talking head-to-head market share. Because obviously an electronic service only marginally competes with a print service. Some people just want the book.

So that is the best I can give you. Which is I think -- well, I know our US electronic services grew in Legal 5%-plus; and I know what we're doing with the early sales of WestlawNext.

The only other thing to mention is they continue to be at an uplift over the existing price. And because of the subscription effect, what we sell now is a bigger revenue story next year than it is this year, because of the half-year effect.

Thank you.

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

Tim Casey, BMO Capital Markets.

Hi, thanks. Could you talk a little bit about acquisitions? A big number in the quarter.

Could you just give us some, I guess, relative scale on how much of the $415 million was Complinet versus Point Carbon?

And then looking forward, how should we look at acquisitions? You are always pruning your portfolio. There's usually a few hundred million dollars worth of net acquisitions. Is that still the case? And is there any areas that you are more -- you expect to be more active on the M&A side? Thanks.

Tim, this is Bob. First of all, in terms of the overall aggregate spending that we've had through the first half, I would say that Point Carbon is the largest of them. We haven't really released individual spend on it, for particular reasons.

We are tracking right now at -- well, we spent about $470 million; so we are tracking certainly ahead of what our original expectations were. But certainly well within our ability to fund these effectively.

You've heard me say many times that, while acquisitions fill tactical needs, they tend to be opportunistic. What we have seen is the benefit of some really good assets that have come on the marketplace that really fit, as Tom has talked about, our strategic imperatives. He went through them, so I won't repeat them.

I think -- and there are also some things that have driven that. So for example in the UK in particular, there is a change in tax law which will take capital gains tax up substantially. I think perhaps even ordinary income. And there are a number of people who own businesses who are thinking, well now is perhaps the time to look into it.

So as a result, some businesses that we thought were not achievable to acquire came on the market, and we have to act accordingly. We will continue to do that over the balance of the year.

We feel, as I say, that we can comfortably accommodate these. And again they are all about driving growth in -- certainly in 2011 and beyond.

Thank you.

Okay. That will be our final question. That will conclude our call, and we would like to thank you for joining us for the second-quarter results. Thanks.

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