Thomson Reuters Corp (TRI) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Thomson Reuters full-year and fourth-quarter 2010 earnings call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) Just a reminder, this conference is being recorded.

Now I would like to turn the conference over to Mr. Frank Golden, Senior Vice President, Investor Relations. Please go ahead.

Good morning and thank you for joining us as we report our fourth-quarter and our full-year 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; and I would ask that you please limit yourselves to one question each so we can get to as many as possible.

Throughout today's presentation, keep in mind that when we compare performance period-on-period we look at revenue growth rate before currency, as we believe this provides the best basis to measure the underlying performance of the business.

The Company announced today its intention to sell its BARBRI legal education business and its Scandinavian Legal and Tax & Accounting business, both of which are expected to close by midyear. Today's presentation and discussion includes the results of these disposals within ongoing businesses for comparability purposes, since we owned the business for the entire reporting period. Operating results, which exclude the results for these two businesses, are reflected in a supplemental schedule noted as Appendix A in today's release that I would draw your attention to.

The Company's 2011 outlook is based on the results reflected in Appendix A, which again excludes these disposals. Lastly, on our website you will find some supplemental information that provides additional details on the quarterly and full-year 2010 results excluding disposals.

Today's presentation contains forward-looking statements, and 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 Chief Executive Officer of Thomson Reuters, Tom Glocer.

Thank you, Frank, and thank you all for joining us this morning. I plan to cover three topics today.

First, I will discuss our full-year 2010 results and selected highlights for the year. Second, I will discuss our priorities as we enter 2011. And lastly, I will discuss our outlook for 2011, as we look forward to accelerating revenue growth and profitability.

Let me begin by saying that 2010 was a good transition year for us, in the sense that we achieved what we set out to accomplish; but it is by no means indicative of either our growth ambitions or what we are capable of. In 2010, the Company returned to growth, helped by new products that are gaining momentum and markets that are improving.

We released great new flagship products including WestlawNext, Thomson Reuters Eikon, and Thomson Reuters Elektron, which will accelerate our growth in 2011 and beyond. And we delivered on our efficiency initiatives which, along with higher revenue growth, will contribute to improving margins and growing free cash flow.

So let's take a look at the numbers. 2010 revenues came in a little bit stronger than we originally anticipated, and we ended the year with good momentum and growth of 4% in the fourth quarter. I would characterize the current economic environment for us as one of rising business optimism, although that optimism and the opportunity for growth is unevenly distributed across the globe.

We are encouraged by what we are seeing in the business -- revenue growth, positive net sales, and strong customer uptake of our new products. And conditions in the financial and legal services markets have improved. Headcount in financial services stabilized as layoffs slowed and hiring improved, especially in Asia. And at law firms, profits per partner were up as billings began to increase off of a reduced cost base.

For the full year, total revenues increased 1% for us, as compared to being unchanged in 2009. The Professional division's revenues rose 4%. Growth was good across each of Professional's business units, with Tax & Accounting and Healthcare & Science achieving particularly strong results. Legal revenues were up 2%, with good growth from subscription services, up 6%, offset by a decline in transaction revenues and print revenues.

The Markets division's 2010 revenues were down 1% as a result of the negative net sales in 2009 and early 2010. But they rose 2% in Q4 from positive net sales in the second half of the year. Performance of our Enterprise unit was particularly strong, with revenues up 7% for the year.

Underlying operating margin was 20% before the impact of acquisitions and currency, 19.6% after; and this is consistent with our outlook for the year. Underlying operating profit declined 7% for the firm as a whole, primarily due to ongoing product investment, product mix, the dilutive effect of acquisitions, and due to currency.

Importantly, our integration program remains on track and will conclude on December 31 of this year. At year-end 2010 we achieved run rate savings of $1.4 billion; in 2011 we expect to incur about $200 million of additional integration costs. Now, that is about $75 million higher than our previous target, but we expect to end 2011 with run rate savings of $1.7 billion, and that is $100 million above the corresponding previous target.

We again delivered excellent free cash flow, over $2 billion on an underlying basis, resulting from operating profit flow-through and effective working capital management.

Adjusted earnings per share for the year were $1.76 after currency and $1.78 before currency, compared to $1.85 in 2009. The decrease was attributable to new product investment and the dilutive effect of acquisitions.

Now, last year at this time I explained our focus for 2010 would be on growth and efficiency, with growth coming from both new products and improvement in market conditions. The launch of five new product platforms helped contribute to our return to growth and will help accelerate growth in 2011 and beyond.

We also made solid progress on efficiency initiatives, including shutting down legacy product platforms such as StockVal, Reuters Plus, Global Topic, EcoWin, and others; advancing the Markets division data consolidation and virtualization of data centers initiatives; a similar initiative in the data centers of the Professional division; and efforts aimed at delayering our management structures.

Last year I also said we expected to ramp up growth by allocating more resources to rapidly developing economies. In fact, 20% of our acquisitions in 2010 were dedicated to foundational assets in those regions, including acquiring Revista dos Tribunais in Brazil and Pangea3 in India. These acquisitions expand our offerings, solidify our competitive position, and will help accelerate growth.

For 2011, my priorities haven't changed -- they remain growth supported by efficiency -- but my ambitions are greater. We will sharpen our focus on accelerating revenue growth and expanding margins, as we work to deliver strong returns on our investments.

I am confident that with higher top-line growth, efficiency initiatives gaining speed, integration spend ending this year, and CapEx declining, we are in position to achieve strongly expanding margins and increasing free cash flow.

Now let me be more specific regarding our outlook for 2011. First, we forecast that our revenues will grow in the mid single digits, as our newly launched products gain traction and markets continue to improve. Second, our adjusted EBITDA margin is forecast to increase at least 300 basis points, and underlying operating profit is forecast to increase at least 100 basis points -- and that is after already absorbing a 70 basis point impact from higher depreciation and amortization expense related to prior year's investments in our recently launched products.

Third, we expect to deliver 20% to 25% free cash flow growth to over $2 billion on a reported basis from strong EBITDA growth, the end of integration-related spend, and the start of a decline in CapEx. Fourth, given our strong capital position and our confidence in the cash-generating capacity of the Company, we announced this morning that we are increasing our dividend by $0.08 to $1.24 per share, marking the 18th consecutive annual increase.

So in conclusion, before I turn over to Bob, let me reaffirm our longer term goals. I believe that our Company reached the bottom of the economic cycle in 2010 and that we are now well launched into a sustainable recovery. While we still have competitive gaps in some market segments, our new product platforms position us to compete successfully and achieve returns from scale.

Our task for 2011 is to turn this momentum into revenue and profit growth in order to deliver attractive returns for shareholders. We are committed to improving our margin without sacrificing growth, and we are confident in our ability to deliver on both.

I firmly believe that as the economy continues to improve over the coming years, we can grow the top line in mid to high single digits, achieve operating margins in the mid-20%s, and generate free cash flow in excess of $3 billion a year. With that, let me now turn it over to Bob Daleo.

Thank you, Tom, and good day, everyone. I am going to cover the following topics with you. As usual, the fourth-quarter and full-year results for the Company; an update of our integration programs, which Tom touched on; and an update on our capital position and discussion of today's dividend announcement.

Now, as this slide shows, back in October we reported encouraging net sales performance; and a more constructive environment in our markets led to the first quarter of positive growth for us since the second quarter of 2009. As expected, this positive growth trend continued and accelerated in the fourth quarter.

Our performance has tracked to our expectations and is consistent with the revised full-year outlook that we presented to you in October. Following a year of investment in and the launch of five significant new product platforms and improving environments in our markets, we are now positioned to accelerate that growth into this year.

Now, as in prior quarters, I am going to speak to revenue growth before currency. Our reported revenues are highlighted in each of these slides. In addition, for consistency and comparability with our previous reported results and because we managed these businesses for the entire year, two planned disposals are included in the results that I will discuss with you today.

As Frank mentioned, appended to this presentation on our website are a set of slides which exclude these disposals and help you understand the ongoing business. The two disposals in Professional generated $158 million in revenue this year and provided $68 million in operating profit.

Now for the consolidated businesses, revenues in the fourth quarter were up 4% versus the prior period with a 2% benefit from acquisitions. Growth accelerated during the quarter, and both the Professional and Markets divisions, achieved organic revenue growth. For the full year, revenues were up 1% to $13.1 billion, with a 2% contribution from acquisitions.

Underlying operating profit was up 1% in the quarter. For the full year, underlying operating profit was down 7% as we expected, and the corresponding margin was 19.6%, down 170 basis points, which I will explain further on the next slide.

The new product launches -- new products which we launched in 2010 will strong provide a strong platform for growth in this year and beyond. However, they were a 90 basis point drag on margins in 2010. These investments will also drive efficiency as the Markets division consolidates onto two platforms from a myriad of platforms we are currently operating.

Margins were also impacted by business mix, primarily lower revenues from the highly profitable Legal print business. Excluding acquisitions and foreign exchange, our operating margin was 20%, nearly spot-on what we expected.

Now I will turn to the operating divisions, starting with Professional. The Professional division recorded fourth-quarter revenue growth of 7% -- 4% organic, 3% from acquisitions. This was driven by solid performance from our Legal subscriptions, Tax & Accounting, and Healthcare & Science products, as well as our acquisitions.

Fourth-quarter operating profit was flat compared to the prior year; however, the operating profit margin was down 200 basis points to 27.3%. There was a 90 basis point impact on Professional margins from strategic growth investments primarily in Legal. Acquisitions that have lower initial margins resulted in an additional 110 basis points of margin dilution in the quarter.

For the full year, revenues rose 4% to $5.6 billion. This is up 1% organic and 3% from acquisitions. Full-year operating profit declined 5% with a corresponding margin of 26.1%. Business mix, continued product investment, acquisitions, and currency more than offset savings from quite a number of efficiency initiatives.

Now for the segments, I'm going to limit my comments to the fourth quarter. In Legal, fourth-quarter revenues were up 3% on an organic basis and 8% including acquisitions. The corporate business grew well at 22%, aided by the acquisition of Serengeti; and government-related revenues increased 5%. Revenues from small and solo law firms were up 4%, aided by WestlawNext. Print also increased in the quarter, largely due to timing.

Tax & Accounting's fourth-quarter revenues grew 6%, with 4% organic growth, due to growth in income tax software products and property tax services. Healthcare & Science fourth-quarter revenues grew 8%, of which 5% was organic, driven by the Payer business, which was up double digits.

Scientific & Scholarly Research grew 4%. And life sciences was up 5% in the quarter, of which 3% was organic.

Now in Legal the fourth-quarter operating profit, as expected, declined 5% and the margin was 26.3%. This margin decline in the fourth quarter is representative of the full-year performance. I'm going to spend a few minutes discussing the transition of Legal's margin and the broader expectations for the Professional division over the next few slides.

Now Tax & Accounting's operating profit increased 9% for the quarter, and the corresponding margin was up 80 basis points to 33.3%. Importantly, EBITDA increased 11% in the quarter, and the related margin increased 170 basis to 40.9%. This was the second consecutive quarter of significant double-digit EBITDA growth, as 2008 and 2009 acquisitions and organic investments translate into strong profit growth.

Healthcare & Science's operating profit was up 8% for the quarter, and the related margin increased 20 basis points to 23.4%.

Now this slide shows the major items impacting the Legal margins this past year. There was a 150 basis point impact on margins from strategic growth investments, including the launch of WestlawNext and the higher related depreciation and amortization expense. This impact was anticipated in our 2010 outlook where we expected a 100 basis point decline for the Company as a whole.

Now the next point, business mix, refers to a slight shift in sources of revenue growth which have different profitability profiles. The recent slowdown in the core business, which was compounded by the 6% decline in print, has partly been compensated by growth in areas like FindLaw, Elite, and our international businesses.

These businesses all have very good margins, but they are lower than those of the US Legal research business. Consequently, we experienced margin erosion of some 120 basis points from this shift in revenue sources.

Before acquisitions, as you can see, the operating profit margin for core Legal business was 29.5%. Acquisitions accounted for 70 basis points of margin dilution and resulted in reported operating profit margin of 28.8%.

Now over the next few years as the market continues to improve, as WestlawNext reaches maturity, and as our newly acquired businesses fill out, we fully expect gradual but consistent margin improvement. Over the longer term this segment's margin will remain a leader for us and for the industry it serves, with margins probably in the low 30%s.

Now let's take a moment to discuss the growth and margin dynamics in the Professional division as a whole. For the past few years, the division has been executing a strategy of expansion into higher growth markets and businesses.

This strategy is reflected in the recent acquisitions in Legal, such as the Revista dos Tribunais, giving us a strong position in the rapidly growing Brazilian legal market. We acquired Complinet in the UK to expand our presence in the global risk, governance, and compliance market. And the acquisitions of Pangea3 and Serengeti improve our reach in the corporate legal space.

Now while we view the profit potential of new growth opportunities to be consistent with our long-term objectives, they do not initially come with 30% margins. However, they do permit us to reasonably set our sights on a Legal segment with mid to high single digit growth potential. And as margins for these newer businesses improve over time, we expect to see Legal margins improve as I discussed on the previous slide.

Equally important, expanding margins in our Tax & Accounting and Healthcare & Science units, which we began to see in 2010, will complement Legal's expected margin rebound and drive overall Professional margin improvement. As a consequence, we do expect the division as a whole will return to its historic high margins of around the high 20%s.

Perhaps most importantly, Thomson Reuters' midterm outlook for overall operating margins that Tom and I talk about, in the mid-20% range, is based on the Legal and Professional scenarios which I have just outlined.

Now turning to the Markets division, in the fourth quarter the Markets division revenues grew 2%, 1% organic, continuing an improved trend from both the prior year and the prior quarter. This improvement was driven by a 1% growth in recurring revenues, which account for 74% of the Markets division revenues; 5% growth in outright; and 13% growth in transaction -- this more than offsetting a 3% decline in recoverings. As a reminder, these recoveries are low-margin pass-through revenues generated by third parties, largely exchanges.

The segment operating profit in the quarter grew 4%, and the margin rose 60 basis points from the prior period to 17.5%.

For the full year, Market division revenues were down 1%, primarily due to negative net sales in 2009 and in the first quarter of 2010. Full-year operating profit declined 8%, as expected; and the margin decreased 130 basis points due to a decline in revenues and investments in new product initiatives, which more than offset integration savings and tight cost controls.

Now let's turn to the individual segments within Markets. Sales & Trading revenues were up 2% in the quarter. You will recall that the third-quarter revenues were flat, so there was significant sequential improvement in growth rates in this segment. Transaction revenues were up 27%, driven by higher volumes at Tradeweb.

The Commodities & Energy segment was up 12%, 4% organic. And the Treasury business grew 1% as the flow-through from our 2009 subscription cancellations offset a 5% increase in transaction revenues driven by growing foreign exchange volumes.

Investment & Advisory revenues declined 3% in the quarter as a 2% increase in both Wealth Management and Corporates business was not sufficient to offset weak performance in Investment Management. Investment Management's performance has been affected by competitive pressure, but has seen an improvement in its sales performance since September of last year.

Enterprise continued to perform extremely well, growing 8% in the quarter, all organic, driven by continued strong customer demand for its innovative data distribution platform, Elektron. Elektron now has 11 hosting centers around the world.

Finally, Media's revenues increased 2% in the quarter, driven by strong new sales. Reuters America was launched in December, helping to better position the Reuters News Agency as a one-stop shop for content and capabilities.

Now turning to the overall consolidated results, I will start with adjusted earnings. Our underlying profit for the fourth quarter was $669 million. To arrive at adjusted earnings we make the following adjustments.

We deduct $173 million for integration program expenses. We deduct $96 million in interest expense, and we deduct $34 million in interest income. Our tax rate in the quarter was 13.4% versus 15.4% last year; but I want to remind you that the rate that is set is the full-year rate, and we back into the quarter; and the full-year rate was 19%.

The net result is $364 million of adjusted earnings or $0.43 per diluted share in the quarter, a decrease of $0.01 versus a year ago. This decrease is due to higher integration costs and higher interest expense, which offset the increase in underlying operating profit I discussed earlier. A complete reconciliation from net income to adjusted earnings is available in the press release which you have this morning.

On this slide you will note that, excluding currency, our adjusted EPS -- and including the disposals which we have mentioned before -- for the full year was $1.78. Foreign exchange had a $0.02 negative impact; and so on a reported basis, adjusted EPS was $1.76.

BARBRI and Scandinavia for the full year generated $0.06 of EPS. So excluding disposals our adjusted EPS was $1.70.

2010's underlying free cash flow, as Tom noted, was a strong $2 billion. It was $1.6 billion on a reported basis after integration costs. In the year we saw some very good benefits, one-time benefits, from working capital of about $100 million as we continued to aggressively manage this important asset.

Now, as I mentioned, a brief update on our integration and synergy programs. We continue to make progress on our synergy project and achieved run rate savings of $1.4 billion at the end of 2010. An incremental $70 million in savings in Q4 was largely attributable to the retirement of legacy products such as Reuters Plus and the execution of our sales and customer service transformation programs in the Markets.

In the fourth quarter we incurred $173 million of integration expense, primarily related to severance costs, consulting fees, and technology costs. For the full year we incurred $463 million of costs, a bit less than we anticipated at the beginning of the year.

As Tom mentioned, we expect to save an additional $100 million in run rate savings by the end of this year, resulting in final full synergy savings of about $1.7 billion. We also expect to spend about $200 million on integration programs this year, which is about $75 million above our previous estimate. I will remind you, as Tom and I have said previously, that the integration program does end at the end of this year.

From a capital structure perspective we continue to strengthen our position. We took advantage of favorable capital markets to refinance $2 billion of debt over the past 15 months, resulting in an average interest rate below 6% and an average duration of maturity of eight years.

We have untapped credit lines totaling $2.5 billion, and our net debt-to-EBITDA ratio is at 2.1 times. We continue to have a solid liquidity position, with $850 million of cash on hand after having spent $850 million on acquisitions and paid down $200 million in debt.

Now, given this strong capital structure and our ability to generate significant levels of free cash flow, the Board today approved an $0.08 per share dividend increase for 2011, raising the annual dividend to $1.24 per share. I mark proudly, this marks the 18th consecutive annual dividend increase for the Company.

Over the past two years as we integrated the two companies and continued to invest in new products such as Eikon and WestlawNext, our capital expenditures, as you know, have increased in relative terms, as a percentage of revenue, and in absolute dollar terms. 2010 we believe should represent the high-water mark for this investment, with capital of $1.1 billion and 8.4% of revenues.

We do expect our capital expenditures will decline over the next several years. However, we will see higher depreciation and amortization charges through the P&L resulting from the flow-through of our investments.

Therefore, we believe it is useful to also look at EBITDA as a leading indicator of our improving profitability and cash-generation capabilities. We expect EBITDA growth and margin expansion will exceed that of operating income; and this is reflected in our 2011 outlook.

As Tom has already discussed, we certainly look forward to accelerating growth this year. This is based on our new products gaining momentum, our markets recovering, and we expect our revenues will grow in the mid single digit range.

We expect EBITDA margins to increase by at least 300 basis points this year as we return to growth and as the integration programs wind down. We expect our underlying operating profit margin, which excludes the impact of integration, to increase by at least 100 basis points this year; and this increase comes after absorbing a 70 basis point impact from higher depreciation and amortization related to the prior year's investments in these launches and from -- after a 30 basis point impact of dilution from acquisitions.

We also expect that strong EBITDA growth will contribute to 20% to 25% growth in free cash flow.

Now I just want to mention two other things which aren't on a slide but are certainly of interest to you. First is I want to mention that in this past year our core corporate costs came in at about $250 million, which is right on the guidance that we provided at the beginning of the year. As a result of higher healthcare and insurance costs, we expect core corporate costs to increase to around $290 million this year. These higher costs are reflected in our above-margin guidance.

Also on a positive side, our full-year 2000 (sic) tax rate, as I said, was around 19%. Going forward we expect the tax rate to be sustainable between 20% to 22%, down from -- as you know, our previous expectations and guidance was always in the 20% to 24% range. This will translate to long-term, sustainable cash generation and earnings benefit.

Just to wrap up, I would add that 2010 was a year which was marked by us returning to growth; by our markets beginning to improve; by the products that we launched and how they have gained momentum; and we have made several foundational acquisitions in high-growth segments and high-growth markets. I think it has also marked the end of a heavy investment period where we -- with a high CapEx and integration.

I believe we are well positioned to accelerate growth, deliver strong returns on the investments, and deliver strong free cash flow. Now let me turn you back over to Frank to open up the Q&A.

Thanks very much, Bob. Just before we get started with Q&A, let me direct you to two additional supplemental schedules that we have on our website. One of which is the additional financial metrics for 2011, including our estimates for depreciation and amortization, interest expense, and tax rate that Bob had touched on. And we also provide you with a pie chart that reflects revenue and expenses by major currency for 2010, which I know is of interest to many of you.

So with that, let me open the call for questions, please.

(Operator Instructions) Drew McReynolds, RBC Capital Markets.

Yes, thanks very much and good morning. My one question will I guess focus on margins and margins outlook. Just a couple of sub-questions in that margin question.

First, in terms of the acquisition impact, Bob, you talked in the past about the initial accounting impact of making some of these acquisitions versus just the underlying lower margins that these businesses have. Can you break out the two and whether you get a little catch-up in margin from an accounting perspective?

Then secondly perhaps you can comment on the timing of when we should see the Eikon efficiencies come through.

Then just last part of margins, on the 2011 outlook, I just want to make sure I have all the ins and outs right. An acquisition impact of negative 30 basis points is in there. On a year-over-year basis the divestitures, another negative 50 basis points. And then higher amortization, another negative 70 basis points. And those three items presumably are factored in. Is that correct? Thank you.

Let me answer the last one first. Yes, all those factors -- all those items are factored into the guidance that we have provided you.

When you say -- the other thing I would remind you is that guidance is off of the ongoing business, which would be excluding the announced disposals that we just made. So those would have an impact in lowering the margin for the Company and the division. But on a comparable basis, the year-to-year increase would be the same.

In terms of the acquisitions impact, there are a couple of things that I think you have to speak to. A lot depends on the nature of the acquisitions. Some of them that are easy fold-ins, where there is content to them, they become accretive immediately.

But there are a number of acquisitions that we have made, some of which I outlined in my talk, which really are so foundational to the long-term growth of the Legal segment and Professional segment in particular -- and also, by the way, I'd say in Markets as well, where we made a number -- that these actually will take a while before they get up to the kind of margins that are in the core business.

So it's a couple of things. It's, first of all, these businesses on a stand-alone basis generally have lower margins than we do. I mean there are very few companies that can rival the margins that we have to begin with, right? So they have lower margins to begin with.

Second of all, you do have some accounting basis that goes into that. Because some of these are software businesses, and when you acquire a software business you have to take a portion of the purchase price and amortize that over -- and our amortization is pretty, I think conservative. We amortize over three years, generally speaking.

Then third is, in some of these businesses we are actually making investments in them to position them for their growth. Because one of the reasons that these businesses are -- we acquire them and they want to be acquired is because they don't have the resource or capability.

So building up the right kind of sales organization -- or a great example is the acquisition in Brazil. What did we do, the very first thing? It's an ongoing business. We invested in launching an online product.

So those things are what drive it. And as a consequence, many times when we report acquisition revenues as part of our growth, they tend not only not to -- they tend -- some of them actually are dilutive from a loss perspective. But all of them, all of them are dilutive from a margin perspective even without a loss.

So that is a challenge. But I think that we have always had a history in Thomson Reuters of investing strategically for the longer term. And our objective here and the guidance we have given is it is our responsibility. We have to grow over these.

We have to find a way to generate profits and margin improvement in our core businesses to help fund the development for the future. And that is what 2011 represents. I think that is the balance we are trying to seek here that Tom talked about.

I can jump in, Drew, and answer I guess your second question about Eikon and its effect on margins. You know, we will begin in 2011, this year, to see the beneficial effect of Eikon rolling out, on the cost side as well. But there is no one large step-function this year. It rolls out ratably and as we simplify the architecture, deploy less CapEx as well.

The really larger impact comes in future years, and that is part of the story of how Markets expects to get their margin up to the low to mid 20%s as well.

Thank you very much.

Paul Steep, Scotia Capital.

Okay, thanks. Tom, maybe we will take one for you, just in a completely different direction. Get your feedback on what the impact might be.

Lots of exchange mergers happening out there. Obviously they are a data supplier. Is there any competitive pressure or threat on either Enterprise or an opportunity out of a bunch of the combinations that would be happening out here? Thanks.

I was teasing the head of the London Stock Exchange yesterday that they missed our dual-listed London-Toronto structure so much that they have gone to re-create it by merging the exchanges. Xavier was slightly amused by that.

Look, I think it's a very -- if you understand the economics of exchanges, the consolidation wave is very logical. They have been faced by -- with fragmentation of liquidity as rival trading venues like BATS etc. get set up. Therefore they don't get enough scale on their platform, and these are very, very highly operationally geared enterprises. So it makes sense to get the maximum amount of trading and at a low cost per trade.

In terms of the impact on our business, unless the entire world moved to one single trading venue, which I think is very unlikely, it is largely neutral. We have complex relationships with all the exchanges -- very good ones, in fact. And we remain the largest partner of the exchanges in distributing their information out to end-users.

But it is very interesting to watch, and I think we will see a bit more consolidation as well.

Great. Thanks, guys.

Michael Meltz, JPMorgan.

Good morning, guys. This is David Lewis for Michael Meltz. Bob, what is the implied organic ex-currency revenue growth expectation in the mid single digit guidance?

Well, first of all, here is what we -- all of our guidance is excluding currency. Second of all, we provide guidance for the -- since we don't know -- since we don't really want to share that at this point, we just talk -- we always talk about the overall revenue growth. And I would like to leave it at that, although I would say that the vast preponderance of that growth is organic.

But there is some acquisition growth in there; obviously, the carryover from the prior year as well.

Thank you.

Philip Huang, UBS.

Good morning. Thanks for taking my question. I want to go back to the Legal side of the business. Looks like the US legal market finally saw I guess litigation activities return to growth in Q4 and the trends into the new year seem pretty encouraging. But legal firms continue to I guess cut costs, even though it is at a moderate -- although it is still at a moderating pace.

Can you maybe give us a sense to what extent your business is already benefiting from that recovery in the litigation activities?

And based on your current visibility, do you expect Legal growth to really accelerate now as we finally start to see solid signs of cyclical recovery in the legal markets?

And then, what is the net effect on margins after I guess taking into consideration the offsetting dilutive impact of acquisitions and investments?

Got it. So the short answer is, yes; fourth-quarter net sales in the Legal segment were the strongest they have been in several years, certainly back to precrisis times. With a bit more color anecdotally, the pipelines are filling up nicely at firms. Just think about the exchange mergers we are talking about, the private equity activity, the capital markets, and IPO calendar.

And the good news, and you flagged it in your comment, is litigation -- which we were surprised actually in the downturn that litigation didn't trend up as much as had typically occurred. Litigation is coming back, perhaps as companies are willing to fund their general counsels to pursue a bit more of it.

Certainly a lot of white collar work, all the insider-trading defense work that is going on at the moment in New York and in London. So Legal is looking strong with momentum going into the year.

In terms of the rest of your question around margin, I think Bob was very specific guiding you to what the expectations should be short-term in Legal as a result of the mix effect. But we really do think we've hit the bottom in terms of Legal margin, that they will be improving slowly from here on out.

Really it is down to mix effect. I think we will see greater stability in print, and that will be helpful. But I don't want to really go beyond the guidance Bob has already given.

No, that is very helpful. Maybe just a quick clarification on your integration program. Where is the higher savings coming from?

I understand the program ends at the end of the year. But are you accelerating the shutdown of some legacy infrastructure? Or was it that you are seeing more opportunities for savings than before?

Then could we see potentially some lumpiness in the Markets revenues as a result of revenue dissynergies from this? Thanks.

Not really. Bob will join me on this one. You are looking at an extra $100 million on top of a $1.6 billion program.

More of it is really down to -- as we have gotten a couple of years into the third year at this, wherever people see opportunity they come back and say -- hey, you know, actually I could do a little bit more. We are getting greater efficiency than we thought in data centers. Or maybe I need fewer people than I originally thought to do this process, because we can automate it.

It is going to cost me a little bit of money, Bob; but I have got a really good -- in fact in this case, in essence, a return of -- give me $75 million more this year, I can give you $100 million this year and $100 million thereafter.

So the good news is that it's not coming from any one big lumpy thing. There are, as I mentioned earlier in my comments, in particular in Markets, as you get out a couple of years and we really have migration over to Eikon and the two-platform strategy at full bore, there are additional savings out there, which will all just show up in margin improvement over the years.

Great. Thanks very much.

Patrick Wellington, Morgan Stanley.

Yes, good afternoon, Tom and Bob. A question really about the underlying potential in the markets of both Legal and indeed your Markets division, and to what extent your optimism about 2011 relates to the markets themselves, and to what extent it relates to the impact of the new products. And if you can give us any detail on how much incremental revenue you think the new products may have contributed thus far, that would be very helpful.

Then, Tom, I have to say that after three years or so of integration expenses and processes at Thomson Reuters and a decade of integration at Reuters with over GBP 1 billion pounds of cost -- not all of it yours -- that is quite a lot of integration.

After sort of 13 years, it all comes to an end on December 31? How can one be so confident? To what extent do you have a self-denying ordinance that this doesn't -- the integration doesn't start up a year or two later? Can you give us your thoughts around that?

Okay, I will jump on the latter. It's a Wellington-worthy question from a close watcher for years.

Look, I think of it this way, which is -- in the end, cost isn't something that sort of happens to us by cosmic accident. It is something that is in our control.

One of the challenges when you run a company like ours is there are lots of attractive investment opportunities. That is a good thing. There have also been lots of efficiency opportunities, where we knew we could invest some money and get a return.

I think what has been unusual about the last three years is that while we were making, we think, sensible and high-returning investments in efficiency, you also had in parallel obviously huge financial crisis and knock-on recession. And therefore the fruits of restructuring, much of it has gone to, in effect, replacing revenue.

As we get into a more normalized revenue environment, and I will leave to Bob the comment about -- on your first question, then we are going to see the fruits of that amount of restructuring.

Finally the question of how at the end of the year do we magically turn it on or turn it off, the answer is -- it doesn't all magically go away, but we essentially consume it into the ongoing margin of the business.

So there will always be -- and that is a good thing -- opportunities for us to invest. What we will do is balance them against letting through to the bottom line continued margin investment. And because we expect revenues to be growing, we think we can do that, show margin improvement, and continue to essentially self-finance what we have done in larger lumps at various times over the last few years.

Bob, do you want to hit the first part?

Before I do if you could just indulge me on the second part of that question, just to answer it from I guess a financial discipline perspective. When we embarked on this integration program three years ago, we felt it would take three years and we developed very specific targets and very specific programs. The line of sight of these expenditures tie back to that original thought process.

So we haven't just magically set December 31. We have said -- look. And I have to say, since that time, while we have may have added a few things around the edges, we have been very true to the execution of those core things that we identified previously.

Patrick, to your point, businesses are always in the process of integrating or doing things like that. And our businesses I am sure will continue to do that -- I hope they continue to do that after December 31, 2011. But they will be in their own P&Ls and will be part of our ongoing operations, as it needs to be.

So I do think that there is an absolute logic to this as opposed to just an automatic, by edict, cut at the end of the year.

In terms of the revenue environment, I think that we have seen improving environments, as Tom has said so well. It has been a little bit inconsistent across some of our markets.

I think that as a consequence, I think that our guidance for overall revenue growth is certainly short of what we would like to see as long-term potential. It is tempered by that mixed environment.

In terms of new products, I think that the revenues that we get from these particularly -- I know you are talking about the two ones here, WestlawNext and Eikon in particular.

Well clearly in the case of Eikon, we have a very specific strategy of doing platform replacement. As a consequence, we want our customers to move to this far more robust and better product; so there is no revenue gain to be had. We have sold a number of new customers as a result of that, and that revenue is certainly nice but not significant in the overall scheme of the business.

In the terms of WestlawNext, we have seen improvements. We have talked about, for example, a small law firm saw 4% revenue growth. I think that -- we have been very successful with WestlawNext there.

But again, as relates to the larger Westlaw business, the core large to medium law firm, it is a platform play that will allow us to get better growth over time.

So I wouldn't expect there'd be very much of revenue from either of these businesses, the products, reflected in the growth rate of the overall business of the Company. So I hope I answered your question.

Very fulsomely. Thanks very much, both.

Brian Karimzad, Goldman Sachs.

Good morning, gentlemen. Just wanted to dig in a little bit on the I&A business within Markets. I know Eikon formally launched last fall; but at least on the I&A side that product hasn't fully rolled out.

Can you walk us through, one, objectively where you think the current offering is falling short competitively? Then, two, what you think is going to be addressed once Eikon is full rolled out? Then third, when do you think this year it will hit the market?

Sure, Brian. It's Tom. I will take that one. Look, there is a short answer to this, which is we're just not doing well enough in Investment Management right now.

I will come to the Eikon bit in a second, but from my point of view one of the nice things about having a real handle across our various businesses and geographies are that we've got some really good businesses, including good businesses in Markets -- like Enterprise, like Commodities & Energy, etc. And within the I&A group, our Corporates business, our investment banking product is excellent. But Investment Management is a competitive gap for us right now.

Eikon first release came out in the fall. I use, I think you use it as well. It is a great product; was never intended out of the box to be the specific fit-for-purpose of workflow, of portfolio manager, or buy-sider.

It is more, in its first instance, more of the treasury, S&T world. I think you begin to see the positive effects in our S&T numbers.

Now the good news is we are not just sitting around in I&A. Devin Wenig has a really good plan around it, focus on it. So during the course of 2011 what you will see is a rolling series of content and functionality additions through the year. And that's the benefit of having the Eikon platform, which means we don't have to do these large big-bang releases and go to every site.

Number two, he's already put through a comprehensive reorganization of our frontline, which is intended to in essence increase the specialization. So that really buy-side knowledgeable sales folks and trainers are in those institutions. That occurred October into November.

Then there are a series of other tactical plans in place. It seems to beginning to bear fruit. I think Bob may have mentioned that the sales picture in Investment Management has slowly begun to improve.

But I want to be really straight about this. This is not going to be an overnight, January, suddenly an overwhelmingly competitive advantage has occurred. This is probably our weakest unit right now, and it is getting a lot of attention. But I am confident that we can fix it and strategically we think it is an important place for us to play, otherwise we wouldn't be investing in it.

All right, thank you.

Tim Casey, BMO.

Thanks, good morning. Can you talk a little bit more about your confidence on Legal margins? It seems some of the -- you rolled through some very specific issues on mix and whatnot. But one thing you didn't talk about is competition, and you didn't talk about price.

Are those dynamics factoring in at all? Can you just reiterate or flesh out why you are confident you can get margins back to where they once were?

Second, on Eikon, I understand it is not a revenue play. But how should we think about it from a cost side? When should we as investors think about margin -- tangible and noticeable margin improvement on the Markets group, as you do consolidate the platforms? I don't know how specific you can get in terms of time or quantity, but is there any direction you can give us there? Thanks.

Sure. Well, let me start. Again, simply -- the direction is up. First, although I totally understood the direction of your question, I would feel bad if I didn't jump in and say Eikon is very much about revenue, about increasing customer satisfaction, and about really putting a great product in front of our customers that only gets better.

Bob totally correctly referred to the fact that we are not -- we didn't put a gating function on the rollout, so we are not asking people to step up to an immediate price increase, because we want to move quickly in migration. But we are selling lots of new users as part of the migration program, and that will be positive for our revenue and for revenue growth.

Now I know, turning now to the cost side on Eikon and margin more generally in Markets, you will see a very appreciable increase this year, 2011, in Markets' margins. Some of that is a result of stopping the dual running of systems. We have already obsoleted quite a few in 2010.

Ongoing efficiency in Markets, some efficiency coming from the front-line reorganization as well that I mentioned. But I suppose the good news from the point of view of how good a business can Markets become, is that it is going to take several years to profile all of Eikon; and there are large savings that come really back-end loaded when you really do finally turn off systems. That is to come, and that is in years '12 and '13.

On Legal margins, maybe Bob wants to comments as well. I am not sure I can come at it too many more ways, other than as we roll out electronic platforms the marginal cost of the Nth user is pretty low.

So as we scale up and get more people on electronic systems -- let's take Brazil, since Bob mentioned it. There are 600,000 lawyers in Brazil. It's a tremendous market we will have totally to our own. No one else will have an electronic platform.

The first 1,000 users will be reasonably low margin, because there is a lot of money associated with the startup. Over time, that margin builds nicely.

In the short term, 2011, an important factor is going to be what is the attrition rate on print, because we won't have yet that many people on the scaled electronic platforms around the world. But the good news there is print attrition seems to have calmed down and is just about at historical levels. Bob, do you want to comment anymore?

Yes, I would add that I have tremendous confidence in Legal and Professional getting -- seeing significant improvement in their margins over the next several years. I think that if you put it in context and look at the 2010 erosion, it was about 1 basis point that was this mix. A large part of that had to do with print, and the business has done a very good job, as you might expect, of driving different efficiencies.

In terms of pricing, yes, we have had some challenges of pricing in 2010. Our customers had a very tough year, 2009 and 2010. It's been challenging across virtually all of our markets in terms of pricing. But we have gotten some price increase.

And the good news is, as Tom reported, we have started to see a rebound in the Legal marketplace in terms of our customers' revenue potential increasing as M&A and bankruptcy work increases. In that environment with our product, and we have -- there is no way to say it except we put a lot of blue water between ourselves and our competitors in terms of the capabilities of our product. We really do have the ability to distinguish ourselves and over time make sure that we do get -- recoup that pricing capability.

So when you look at the erosion that has happened because of the investments in these new products like WestlawNext, when you look at the erosion from the acquisitions I have talked about, those are all going to come back.

Just to give you a little context here, the Legal margins right before the economic downturn, 2008, reached a high-water mark of 32.8%. For probably five years before that they were between the high 20%s, maybe the 30%. Now I don't know whether we'll get back to the 32.8%. But I know that we will get to 30% and maybe the other side of 30% on it.

So you're not talking about -- and I think that difference will be more about the components of revenue when you look at the overall business and size of it. Because like I said, we'll have businesses across the globe that will have good margins, 25%, 28% margins; but they won't be 30%. So that is what will cause that over time.

I have absolute confidence in our ability to deliver on that over the time we're talking about. That is why we feel confident about the margin that Tom talked about for the longer term for us as a Company. It is key to the performance, as you might expect, with Legal and Markets and also the remaining businesses.

Thank you.

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

Mark Braley, Deutsche Bank.

Good afternoon. Just one question, or one and a half. In terms of organic growth for next year, do you want to give us a feel whether the net sales trends indicate you would expect that to be better in Markets or in Legal?

Then my second half of a question, because it is an observation, is -- you have delivered $1.4 million of integration savings, which must largely have come in the Markets business; and the business is making about $1.4 billion of operating profit. Obviously there has been some organic revenue decline, some reinvestment.

How confident should we feel about the next $300 million of savings actually dropping through to margin in the Markets business?

I think you should be confident. In a way, this is all wrapped up into our outlook for the year. So, I said this I think on last year's call and it remains true, which is -- if our $13 billion revenue Company is flat or growing zero to 1%, absent very large restructuring programs it is difficult to improve margins. But as soon as we get the machine running 3%-plus, we can bring attractive profits down to the bottom line and you get a nice scissors effect.

Over -- it's always hard before the dawn to imagine that the sun will come up. But we see that playing through our net sales numbers; therefore, it gives us confidence that we are going to achieve the sort of escape velocity of growth, which for us is over 3%, to have it drop down, that $300 million, to the bottom line.

In terms of the relative organic growth rates of Markets and Legal, they are both positive, within the mid single digit total organic growth. I don't want to take hairs between the one and the other; it is not chalk and cheese between them, but we think on balance both businesses should be growing at about the overall Company level as we head through the year. But we've got a lot of work to do before we get there.

Okay, thanks. And one final one. Do you see anything of Bloomberg Law in your markets?

They are obviously out there. What -- their current offering seems to be more geared to the sort of current awareness and BGOV part of the offering. So partly in answer to the question that came before, are we seeing pricing pressures in the market from competitors. Bob is right, that the stronger the pressure isn't competitive. It is from the budgets of our clients themselves.

But Bloomberg seems to be focused on a longer-term strategy here, and we are ready for them.

Okay, great. Thanks.

Okay. Mark's question will conclude the call. I would like to thank you all for joining us today, and please feel free to contact us if you have any follow-up questions. Have a good day.

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