Thomson Reuters Corp (TRI) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Thomson Reuters third-quarter earnings conference.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Frank Golden, Senior Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining us as we report our financial results for the third quarter of the year. Our CEO Jim Smith will start today's discussion followed by Stephane Bello, our CFO. Following their presentations we will open the call for questions. We'd appreciate it if you would limit yourselves to one question each in order to enable us to get to as many questions as possible.

Several items to point out before we get started. First, a reminder that throughout today's presentation 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. Second, we closed the sale of our IP & Science business on October 3 and its results are classified as discontinued operations and are not in either this quarter's results nor in our year-to-date reported results.

As a reminder, IP & Science was never included in our 2016 outlook with one exception, and that one exception was free cash flow which is in line with both our reported results and our 2016 outlook.

Finally, 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.

Now to the results for the quarter. And I turn it over to Jim Smith.

Thank you, Frank, and thanks to those of you on the call for joining us. I'm pleased to report our performance improved as compared to the prior quarter.

It's encouraging to see our continued progress flow through the third-quarter numbers. Our core subscription businesses are moving in the right direction. Our cost controls are working and we are increasingly confident in our execution capability.

That's why we are going to pick up the pace of our transformation efforts. The improved operating results were due to better performance in our Financial business and rebound in Tax & Accounting's growth. We said last quarter that we expected to see the Financial business report a stronger second half and that remains the case.

Reported revenue, though unchanged from the prior period, was up 1% before the negative impact of currency. Improving revenue growth contributed to higher profitability as margins expanded over 100 basis points on a reported basis. And, in fact, the 29.7% EBITDA margin for the quarter represents an historic high for the Company.

The profit improvement was also due to savings related to both the shutdown of the legacy platforms last year and cost savings from our Enterprise, Technology & Operations group. Based on this group's continued progress I have increasing confidence that there is significant room to capture further efficiencies and savings.

So revenue growth, cost controls and transformation-related savings contributed to adjusted earnings per share growth of 20% to $0.54 per share for the quarter. And despite a more challenging revenue environment than we had expected at the start of the year, we are on track to achieve our full-year guidance excluding the charge we plan to take in the fourth quarter, which I will discuss in a moment.

Now to the results for the quarter by business. Our core businesses remain resilient and we continue to make encouraging progress across a number of growth areas. Our Financial & Risk business grew 1% and was up about 2% excluding the impact of some temporary items, primarily the decline in recoveries revenues and the impact of the commercial pricing adjustments.

There were several encouraging achievements to note in the quarter. Net sales in Financial & Risk were positive for the 10th consecutive quarter and were positive in all regions. Our Risk business had its best sales quarter ever and delivered revenue growth of about 20% with strong performances across each of its product sets.

And we are seeing a growing pipeline as customers seek to reduce exposures and meet increasing regulatory requirements. And our Feeds business grew 9% as firms transition from humans to machines and continue to look for ways to lower their total cost of ownership.

Legal revenues were unchanged compared to a year ago and were below our expectations. This was due to weaker transaction in Print revenues, both declining 8%. Excluding Print, revenues grew 1%.

Now although Legal's revenues were flat subscription revenues, which represent about 75% of Legal's revenue base, grew 3%. So the core subscription base of the business continues to perform well.

Tax & Accounting's growth rebounded to 6% despite continued weakness in its Government business. And, lastly, despite difficult macroeconomic conditions in several emerging markets our GGO revenue grew 4% and was up 7% excluding recoveries and pricing adjustments.

Now this morning we announced we plan to take charge between $200 million and $250 million in the fourth quarter as we pick up the pace of our transformation efforts. When considering charges I have always said that to the extent there is an attractive payback we will take advantage of that opportunity.

This charge meets that criteria. We estimate run rate cash savings in 2017 to be about equal to the charge and will contribute to further margin improvement and earnings per share growth next year.

Now much of this charge will be taken within our Enterprise, Technology & Operations group. I think of this as the group that's building the platform for the long-term growth of the Company. Today's announcement is a result of the substantial progress we are making.

This new approach provides visibility into a $3.3 billion cost base that includes a myriad of platforms, data centers, products and real estate, all previously resident in silos across the Company. And the move will impact positions in 155 different locations across nearly 40 countries. This action allows us to significantly simplify the business and deliver more value to customers by bringing them the power of our entire enterprise and making it easier for customers to do business with us.

This simplified structure also enables more flexibility and fungibility of resources. It permits us to more effectively reallocate investment to strategic growth areas like Risk, Global Tax, Global Trade and Legal Solutions. And it facilitates a consistent process regarding investment decisions, workforce, location planning and strategic partnering.

And, lastly, this group is helping to shape our thinking around things like cloud, standardized platforms, security and data governance on a company-wide basis which will lead to improved productivity and even greater savings. So today's announcement is consistent with how we are managing the Company. We collaborate to set priorities, we continue to advance our platform strategy to drive organic growth and we build once and for the whole enterprise. The net result is leading to better products, faster time-to-market and greater efficiencies.

Finally, these charges will be booked within the business unit where they are incurred, not in a central bucket in corporate. This will permit us and you to track and measure the resulting savings and margin improvement by business. The majority of the charges will be taken in Financial and the central technology group.

So as we look to end the year and toward 2017 we continue to execute against our strategic priorities. Our core subscription businesses continue perform well and it is encouraging to see our Financial business reporting positive organic revenue growth.

And fortunately the two largest factors that have impeded its growth rate for the last couple of years will soon be behind us, which should result in another positive quarter of growth in Q4. We also continue to improve profitability and earnings as we capitalize on operating efficiencies driven primarily by the technology group with more self-help to come given that we are still in the early innings. I also believe that the platforms we are building will help us dive deeper into our customers' workflows and enable us to expand our customer base as we bring the full power of our enterprise to market.

Finally, we are working hard to finish the year strong in advance of 2017. And we are very focused on achieving our 2017 targets. Improving revenue growth next year coupled with the self-help I just mentioned gives us increasing confidence in our ability to achieve our 2017 EPS target of approximately $2.35 as discussed last quarter.

If we are successful in achieving that target it will reflect double-digit EPS growth and will represent a breakout year for the Company defined by the highest earnings per share in our history. Now it is my pleasure to turn it over to Stephane.

Thank you, Jim, and good morning or good afternoon to you all. As I have done in recent quarters, I would like to cover a few housekeeping items before discussing the results for third quarter.

First, as Frank mentioned when discussing our performance against the prior year I will be comparing year-on-year results excluding IP & Science, which was classified as a discontinued operation through the closing date of the transaction. This will hold true for all metrics except free cash flow which includes IP & Science and is not restated in line with the way we have treated divestitures in the past.

Second, as always I will talk to revenue growth before currency as we believe this is the most appropriate way to judge the performance of the business. Finally, given our focus on driving organic revenue growth and delivering simplification, our recent acquisition activity has been far less significant than in previous years, meaning that growth rates discussed on this call are largely organic.

So on to our results. On a constant currency basis our third-quarter revenues were up 1% compared to the prior year. Financial & Risk was up 1%, our Legal business was unchanged and Tax & Accounting's growth rate rebounded to 6%. Adjusted EBITDA was up 4% with the margin up 120 basis points to 29.7% with currency having a 100 basis point favorable impact.

Now Jim just mentioned this represents the highest EBITDA margin we recorded for the Company in recent history. Underlying operating profit was up 7% with the margin up 130 basis points to 20.4%. Here again currency had a 100 basis point favorable impact.

Now let me provide some additional color on the performance of our individual segments starting with our Legal business. Demand for legal services in the US market as measured by Peer Monitor was down modestly in the third quarter. By contrast, law firm spending on technology and on marketing and business development both grew.

Turning to our results, Legal revenues were flat in the third quarter. The softer-than-expected performance was entirely related to lower transaction and print revenues which I will come back to in a moment. Despite flat revenues Legal continues to do a very good job managing expenses as demonstrated by the EBITDA margin which was 39.3%, up 10 basis points.

During the quarter currency had a modest 40 basis points positive impact on the margin. The operating profit margin was 31.6%, down 20 basis points with currency having a 20 basis points positive impact.

Here is a more detailed look at the revenue performance of the three main subsegments in our Legal business. US Online Legal Information, which represented 42% of total revenues in the third quarter, was up 2% and this marked the seventh consecutive quarter of growth for the segment. This continued positive growth trend in the traditional core of the franchise is reassuring, particularly since this segment is 95% subscription-based and generates strong free cash flow.

US Print comprised 13% of total revenue and was down 8% during the quarter. Finally, the Solutions businesses made up 45% of revenues and grew 1%. This weaker-than-expected performance in this segment was primarily attributable to lower transaction revenues, which I will discuss on this next slide.

Now the first two sets of columns on this slide show revenues for two subscription businesses: US Online Legal Information, which includes Westlaw and Practical Law, and Solutions, which includes businesses such as Elite or FindLaw. These two sets of columns make up about 75% of Legal's total revenue base and momentum here remains strong with Solutions subscriptions up about 5% in each of the last three quarters. More exposure to subscription revenue remains a key aspect of our business model and a continued strong performance is a good indicator of the underlying stability of the business.

Turning to Print revenues, the 8% decline in the quarter is toward the upper end of the range that we expect in any given quarter. It goes without saying that the large reduction this quarter added to the challenge of growing the overall business.

Finally, turning to the Solutions transactional revenues such as legal process outsourcing services and e-discovery technology. These revenues by their nature tend to be more uneven from quarter to quarter and whereas they have been supporting growth in 2015 they are having a negative impact on growth in 2016.

Two primary factors negatively impacted transactions revenues in the third quarter. First, our legal process outsourcing business declined 27% whereas it grew 25% in Q3 last year. This business is particularly sensitive to the demand for managed document review services that are driven in turn by the level of litigation and regulatory investigations from quarter to quarter.

Second, Elite, our enterprise software business for large law firms, declined 4% whereas it grew 7% in Q3 last year. The decline was primarily driven by slower market conditions impacting our new sales and corresponding transactional services revenue. So in summary we believe that the headline our reported gross performance for our Legal business this quarter is not reflective of the underlying performance of our core subscription revenue base in that segment.

Now turning to our Tax & Accounting business, we were pleased to see revenue growth rebound to 6% after a disappointing second quarter. Recurring revenues, which are 90% of the total, were up a healthy 11% while nonrecurring revenues decreased 24% primarily in the Government and Corporate spaces.

Profitability also rebounded in the third quarter with the EBITDA up 10% versus the prior year, which drove the margin up 120 basis points. Excluding the impact of currency, the margin was still up 70 basis points. Operating profit was up 18% with the margin up 200 basis point and 120 basis points before currency.

Turning to Tax & Accounting's results by subsegment, our Professional and Corporate businesses delivered another strong quarter, posting growth rates of 14% and 6% respectively. These two areas made up 65% of the revenues in the quarter. Revenues were also up 6% from Knowledge Solutions with a stronger-than-expected performance in part driven by timing benefits which we expect to unwind in the fourth quarter.

Tax & Accounting's smallest division, the Government business, saw revenues decline by 38% in the quarter due to delays in the go-live dates of two large contracts. We continue to work hard to get these contracts back on track.

Now turning to our Financial & Risk business, third-quarter revenues were up 1%. This represents the first quarter of positive revenue growth since Q2 2015.

In addition, all three regions, the Americas, Europe, Middle East and Africa and Asia, were net sales positive in the quarter, an encouraging performance. Our Risk business reported its highest net sales quarter ever and recorded revenue growth of about 20% which reflects growing momentum and increasing need for compliance products.

The return to growth was due in part to the lessening impact of the two temporary factors that have hindered Financial's reported growth rate for the last eight quarters. The first of these two factors is a continued decline in recoveries as they had a slowing rate as compared to the first half of the year.

This decline is driven by some of our partners choosing to move to a direct billing arrangement with customers. We stated on the last call that the impact of this transition would begin to recede in the second half and this is proving to be the case.

The second factor impacting revenues in Q3 was the ongoing commercial pricing adjustments from the remaining legacy foreign exchange products. The year-on-year impact continues to decline and these pricing adjustments should be largely completed by early next year. Excluding temporary factors such as these ones F&R's revenues would have increased by about 2% building upon similar performances in the previous four quarters.

Turning to Q3 profitability metrics it's very encouraging to see the continued improvement in F&R's EBITDA margin with hopefully more to come in 2017. EBITDA increased 10%, resulting in a margin of 30.3%, up 260 basis points. Excluding currency the margin was up 160 basis points, reflecting revenue flow-through, the benefit associated with last year's platform closures and effective cost management. Operating profit was up 15% with the reported margin increasing 270 basis points and 160 basis points before currency.

Looking at the Financial & Risk revenue in a bit more detail, you can see on this slide that Desktop-related revenue represented 38% of F&R's total and declined 4% during the third quarter. Excluding pricing adjustments desktop revenue was down about 2%. The decrease was entirely driven by sell side customers with buy side revenues up slightly.

The balance of recurring revenue is comprised of Fees, Risk & Other revenues which grew 9% in aggregate, a little above our expectations for the quarter, reflecting growing demand for fees and compliance products and also some timing benefits. These are two areas where banks and buy side firms both continue to spend as they seek to reduce risk and lower total cost of ownership.

Moving to Recoveries, these pass-through revenues made up 8% of the total and were down 12% in Q3. As we said earlier we expect this decline to be slightly lower again in Q4. As a reminder, the reduction in recoveries has almost no impact on EBITDA or operating profit.

Finally, Transactions revenues, which is 15% of the total, were up 4% in the third quarter. Foreign exchange volumes continue to be challenging, but this was more than offset by good performances in our BETA brokerage processing business, in Tradeweb as well as our transactional revenues in our Risk business.

Let me now update you on our free cash flow and earnings per share performance, and I will start with our earnings per share performance. As a reminder, this is the first time that we are reporting adjusted EPS based on the redefined methodology that we announced last quarter, which updates the way we adjust for two tax-related items.

The third-quarter and nine-months adjusted EPS results as well as the corresponding prior-year periods shown on this slide reflect these changes. For the third quarter, adjusted EPS increased $0.09 to $0.54 per share which represents a 20% increase compared to the prior year. You can see the components of the year-over-year improvement on this slide.

And year to date, adjusted EPS is up $0.23 or 19% with currency contributing about $0.04. So EPS is up 15% year to date excluding the impact of currency.

This next slide reflects our free cash flow performance for the first nine months of the year, which we are presenting with and without the contribution of IP & Science. Starting from the bottom of the slide, you can see free cash flow for the first three quarters was $1.3 billion compared to $1.1 billion in the prior year. The key drivers of this increase were improved EBITDA performance, lower capital spend and lower interest payments.

Now the IP & Science contribution to free cash flow was $145 million for this period, which was a $63 million decline from the prior year. So excluding IP & Science the free cash flow generated by continuing operations was $1.1 billion, an improvement of about 27% from the prior-year period which represents the very strong nine-months performance.

As we have consistently stated, we remain committed to returning capital to our shareholders. And over the past three-plus years we have returned about $8 billion in the form of dividends and share buybacks. In the third quarter we repurchased just over 13 million shares for a total of $540 million and we have now bought back shares totaling about $1.1 billion under our current $1.5 billion buyback program.

On October 3 we announced the closing of the sale of the IP & Science business and we did realize net proceeds of about $3.2 billion. So far we have used some of these proceeds to pay down $1.7 billion of commercial paper during October. As we have stated previously, we expect to use the balance of the proceeds primarily to continue to buy back shares under current program, further pay down debt and to invest in the business.

Now given the charge we plan to take in the fourth quarter and which Jim earlier, we've updated our full-year 2016 outlook which is reflected on this slide. Based on our year-to-date performance we would expect to end up around the low end of the revenue growth guidance for the full year.

We also expect to be within our margin guidance excluding the impact of the charge we plan to take in Q4 to accelerate some of our transformation initiatives. And we have now provided an estimate of our full-year margins including the charge.

With that let me now turn it back over to Jim.

Thank you, Stephane. So, to wrap up, I would say that despite pockets of challenge we are executing well against our strategic priorities and we are pleased with our results for the quarter. We are working hard to close out the year on a strong footing as we enter 2017.

It's encouraging to see the strong profit and earnings growth which reflects the benefit of improving revenue growth coupled with improving efficiencies across the Company. I'm confident that this trend will continue next year as our ET&O group continues to make further progress. All of this positions us well for continued improvement as we maintain our focus on achieving our 2017 targets.

I will now turn it back over to Frank.

Thanks very much Jim and Stephane. And that concludes our formal remarks. So we would now like to open the call for questions, so if we can have the first question, please.

Drew McReynolds.

Thanks very much. And good morning.

I guess Jim or Stephane, Jim you walked through the restructuring plan for Q4 and just thematically can you comment on how much of that is offense in terms of seeing the underlying cost savings that you've identified and how much of it is defense with respect to that softer revenue environment that you have relative to what you expected earlier this year? And specifically on that, just what's your visibility on organic revenue growth in 2017? Thanks.

Sure. This is primarily an offensive move and it comes from our increasing visibility that we are getting from our ET&O center, which we established in January of this year, and our increasing confidence in our ability to execute.

I think as we mentioned earlier, for the first time we've pulled together $3.3 billion of spend in where and how we make things. And when you look at an organization like ours it's important to remember we were built with hundreds of acquisitions over decades and we found lots of duplication and lots of room to continue to take out layers of management, to take out bureaucracy and to simplify the organization. This is all about simplifying the organization, making it easier for our customers to do business with us, making it easier for our front-line employees to navigate internally to deliver for customers.

So I would classify these moves as offensive not defensive. I wouldn't hazard guidance on 2017 yet. We are just pulling together our plans right now as you might expect, but we will update you on that next quarter.

Thank you.

Toni Kaplan.

Hi, good morning. You mentioned the net sales were positive in all regions which seemed like an improvement in EMEA. I just wanted to ask about the environment there post-Brexit.

And 4Q tends to be a large quarter in terms of renewals for you, so I just wanted to save see how discussions are going so far. And I think you just mentioned that you'd expect to be at the low end of the revenue growth guidance, so is that an indication that maybe it's not going as well? But I just want to hear color on that, thanks so much.

Well I will add some color. Stephane can please add any detail. I think the revenue environment in Europe and particularly at the large European banks remains challenged.

And we expect it's going to be tough from some time. We've also, if you think back on prior calls what we've pointed out is that we were very near the positive line in a number of quarters and the way it works because of the nature of those large banking contracts, any one contract landing favorably in a quarter or any one contract that gets cut in a quarter can make the difference of whether or not you are above the line or below the line. So I would say I expect continued pressure on the European banking sector, but the truth is we are executing better in a tougher environment and we will just see how that flows.

And on your question about our comments regarding the outlook, our guidance for the year was to be somewhere between 2% and 3% excluding Recoveries. If you look at our growth rate year to date on that basis we just above or just under 2%. So since we've got nine months in the bank it should come as no surprise and pretty logical that we would end up the year around the low end of the range rather than the top end of the range.

One thing I want to remind you, which we discussed in our formal remarks, is obviously the impact of Transaction revenues in particular this year and, quite frankly, also impact in our Legal segment where the underlying subscription growth rate remains very stable and very encouraging but Transactions for the first nine months essentially were looking at a decline of 4% for Legal whereas if you look at the first nine months of last year they were healthy and growing by 9%. So that's a big shift from one year to the other. And as I said Transactions are a bit harder to predict and I think that's really what has a fairly meaningful impact over these first nine months.

Paul Steep.

Good morning. Jim, maybe you could just talk a little bit, you outlined three areas of growth.

What's the largest opportunity set to drive organic growth that could become a meaningful contributor to the business by 2018? And then I've got a quick clarification for Stephane.

Sure, I think there are a number of attractive growth sectors all of which fall at that intersection of regulation and commerce. And so that's things like our Risk business, our ability to help our customers navigate the increasingly complex regulatory environment that they face and the WorkFlow tools that we're building for our Professional customers to do their jobs better.

So it's right dead at that center intersection of regulation and commerce and we have a number of businesses now that are serving professionals in that area and they are contributing growth right now. I think we noted in the press release that our Risk business had its best quarter ever with growth of 20%, and if you think about as well away from that intersection slightly even things like the shift from desktops to feeds it has been one that we think can benefit us. Our Feeds business grew 9% in quarter.

Great. And the quick clarification was Stephane, last quarter we talked about Tax & Accounting, I think a couple of Government projects were delayed, you were pushing extra resources there. Can you give us more of an update?

You've alluded to it in the comments but just clean up the picture as to when we think that project will be on track and if the investment is done? Thanks guys.

We continue to make investments, our priority that we seek to deliver on the contracts that we committed to deliver to our customers. As we said in the last quarter, this is a fairly new area for us, so they are learning, experience a lot of learnings that we are going through at this point in time.

And they impact, the number from quarter to quarter, and the good news is that the Government business from a revenue perspective is a fairly small portion of our total Tax & Accounting business. But clearly it has proven more challenging for us than we would have expected and hoped at the beginning of the year. So we are just going through this and look at it quarter by quarter.

Andre Benjamin.

Hi, good morning. My first question was about the trends when you are sitting down and negotiating with customers.

Clearly there's some headwinds for them as far as the (technical difficulty) environment. So I'm wondering outside of headcount reduction are financially trying to maintain (technical difficulty) huge costs in other ways, are you seeing them in any way talk about swarming (technical difficulty) on desktops or anything else in terms of them not necessarily pushing them in subscriptions but still reducing the amount that they would spend [with you]?

Andre, I will try that one. The connection was a little muffled there so (multiple speakers) so if I don't answer the question follow up. From what I determined you are asking about the pressures and negotiations and are they headcount related or otherwise related.

I don't think there's a singular focus from our clients on reducing headcount. I think there's a singular focus from particularly our biggest clients on reducing their total cost of ownership and operation.

So we do see continued pressure on seat-based businesses where there are fewer people sitting at the end of terminals. But we also see continued pressure on how they can, our clients can reduce their overall cost and many of them are looking at ways to perhaps federate things that each of them used to do individually, looking really hard at the activities that they need to have inside the firm to do that's their unique value add, and thinking about outsourcing in one way or another some other things that they view as not necessarily making the real value drivers for their business better.

So we actually see increased opportunity to help our customers reduce their cost base in a number of ways whether that's through a better value proposition in the terminal, a better value proposition in a feed or by doing things that they've all done themselves and building it once and using it many times. That's particularly true in areas like KYC, anti-money laundering, customer onboarding or, in fact, managing data centers. And if you look at our enterprise managed services business that's a very attractive offering in an environment that we see today.

I will try to be a little more clear here. I guess in terms of disruptive voices, clearly chat has been something that the environment has been very focused on trying to open up. Are there any other forces that you are seeing as you're talking to customers that you think could drive a more material shift in market share whether it's the way that people are using mobile or feeds or across asset or compliance, something that's more than maybe just a point issue but can really drive a major shift in market share amongst the top players?

I think you are dead on to something and that is that there are incredible disruptive forces in all markets these days but there's never been as much innovation around the FinTech sector as there has been today. You mentioned chat. There's certainly a lot of activity around chat.

We all heard about new entrants into the market. We know what everybody is trying to do. We've seen in our own chat business Eikon Messenger is now up over 300,000 users, that's a 9% increase in the course of this year.

So lots of folks are experimenting with lots of things around messaging. We are doing a lot of work, some in labs and some in incubators with our customers around things like blockchain technology working with a number of FinTech startups.

So I do think -- and clearly you mentioned mobile, I think everyone knows that mobile has already changed the game in many industries and in many ways is changing things in financial services as well, particularly in consumer banking. So we have a mobile group that's looking at all kinds of mobile technologies and possible applications there.

So we are trying to stay very actively engaged with all of those disruptive technologies and, in fact, the disruptors. And if you think about how we've approached it, which is to build a network of labs from Zurich to Cape Town to make certain that we are plugged in to the latest thinking and the latest developments remains to be seen where the biggest and most dramatic breakthroughs will happen.

But I'm confident that we are going to be -- we will be near the scene of the crime when it happens. And always what we've tried to do is not be on the bleeding edge of technology but to be near the leading edge and then to adapt technological change to our customers' uses and for us to be able to apply modern technology to the problems in a way that makes our customers' jobs easier.

Vince Valentini.

Yes, thanks very much. Hopefully you don't mind a quick clarification and then my real question, but I'm not sure I heard the answer previously on the volume of contract renewals you could be seeing in F&R in your European division in Q4, if that's unusually heavy for some reason.

And then my real question, probably for Stephane. The $200 million to $250 million charge and expected savings, can you just clarify is that part of the former plan to get $400 million in savings from the transformation program by 2017 or is this entirely incremental to that?

Sure, good morning, thanks for your two questions. On the first question, you had Q4 is, as you know, seasonally always a very important quarter for us from an (inaudible) perspective. This Q4 is not heavier than in prior years in terms of specific contract renewals, but it just so happened in Q4 a lot of our major customers are looking at their budgets, their plans for next year and that's where they usually make a lot of their decisions.

So it's, obviously, going to be really important to see the performance, benefit the performance in the fourth quarter in order to derive from that what the growth trajectory for Financial & Risk business will be next year. But there's nothing unusual or larger than usual that we anticipate at this point in time in Q4.

Now with regard to the charge we're taking in Q4, as Jim said it's really an acceleration of the transformation program. So it will lead us to essentially realize savings from the program that eventually are going to be greater than what we originally expected. The charges, as Jim said it's all about simplifying the Company, taking out layers and trying to make us quicker to market and easier to do business with, which over time will, we believe, help us to drive revenue growth.

Now some of the charge will also help us, frankly, do two things: make sure that we meet our target in terms of EPS commitment next year and also at the same time make sure that we've got the resources to continue to invest in these key growth initiatives that we described a little bit earlier in the call. So that's why in answer to the very first question we had it's obviously very much taken from an offensive perspective more than a defensive perspective here.

Manav Patnaik.

Yes, thank you, good morning gentlemen. The first question, I guess both my questions are on the F&R business. The first one, can you just remind us again how you define the net sales number?

And my question is you talk about positive net sales for ten quarters in a row. Obviously the environment has been getting tougher, so maybe some extra color on whether that positive number has accelerated or decelerated just to get some context there?

And then just on the strategy at F&R you guys just made the acquisition already and I think it was your first acquisition in some time. So just wondering if you guys are at a place where maybe you have the capabilities or appetite to acquire and integrate better now with the new platforms?

I will take your first question and then Jim will take your second question. The way we define net sales, as a reminder, for Financial & Risk essentially is primarily a volume measure. So it does not include the annual price increase that we generally push through at the beginning of every year.

So it's primarily a volumetric. So what it means as we always said is that if net sales are positive or say at least zero or greater than zero is that you would expect that the underlying growth rate of the business should be at least equivalent to the pricing increase that we push every year, which are very much in line with inflation, so call it like 1.5% to maybe 2%. So that's essentially how net sales are calculated.

And I will turn to Jim for the answer to your question on the REDI acquisition.

We were delighted to have the opportunity to acquire REDI. And it adds a really interesting execution management capability to our offerings, to our Desktop offerings, which gives us a one-stop shop and gives us the ability to more deeply integrate execution management right into our desktop.

And it's a terrific business. It also brings with it a very established customer base that we are pleased to take on and we think that's a big win for our operation, as well.

I think as you probably know, as well, with recent regulatory changes requiring proof of best execution capability, one of the ways you have to do that is by having access to real-time pricing and the trade flow and that fills a gap in our offerings. And so it's for us a real win-win acquisition. We will continue to invest behind our businesses when we see an opportunity that we think clearly makes sense.

We are still, however, I just want to point out, in a period where we are deemphasizing acquisitions. We will look for those that are tactical fold-ins that support positions we are in. We will look for those that can make a meaningful difference in our businesses and I think REDI is a good example of that.

But acquisitions are not the top of our list to spur growth. At the moment we are focused on organic growth.

If I could just quickly follow up, so on that net sales number, just to my question on trajectory, has that positive number been accelerating, decelerating, more or less the same?

Look, we said on the call that the net sales were positive in all regions. So they vary from quarter to quarter. But to be positive in all regions that means that the Q3 net sales were a bit better than they were in Q2 and Q1.

David Chu.

Good morning. Thank you. I know it's a bit early but why shouldn't 2017 be above $2.35 if you are now expecting higher cost take-outs for the year?

Well, it is a number of reasons why we are not changing our EPS guidance at this point in time for next year. The first one is as we said earlier we continue to make investments in our key growth area. And we just want to make sure that meeting that EPS target doesn't come at the cost of having to cut back on these investments, which we feel are absolutely critical in order to ensure an improving growth rate in 2018 and beyond obviously.

A second, more technical point is that a large portion of the charge that we are taking is going to be in our technology area, as we said. And so while we expect to achieve cash savings that will be equivalent to the size of the charge, they may not immediately translate into EBITDA or EPS improvement but rather lower CapEx due to the fact that we capitalize some of the expense base that we are eliminating.

So that's as I said a more technical issue. And the last point I would make is that if you compare our EPS target of $2.35 to what the analyst consensus is for this year, which is at about $2, that is a pretty meaningful improvement in EPS that we are committing to and that we are very committed to achieve, obviously. So let's not lose sight of the as I said the magnitude of the overall improvement that we are targeting with that $2.35 target.

That's very fair. And did some Corporate cost shift into 4Q? I guess did Corporate cost shift from 3Q into 4Q?

Maybe a little bit. I would say for the full year terms of Corporate expense we gave the guidance originally that we would be somewhere between 370 and 400. That's still where we expect to be overall, probably closer to the 400 range. So that gives you a sense of what we expect in the fourth quarter.

Okay, and just, lastly, curious on why the Corporate costs keep getting restated for 2015?

That's related to our discontinued operation and how this is treated in our numbers.

Okay, thank you.

It's related to the IP & Science, the sale of IP & Science.

Aravinda Galappatthige.

Good morning, thanks for taking my question. Just go back to the F&R division and the divergence that we continue to see in the Feeds business growing nicely at 9% in the Desktop business, can you just talk to the differences in the competitive environment there?

There's probably some commonality between the competitors that you come across. But I was wondering if you can touch on the level of competition that your face in each of those markets and how that differs? Thank you.

You are exactly right, if you look historically you know who the players are the Desktop side and I think that competitive position has been well-established. On the Feed side I think we are seeing more competition these days. We are seeing more folks being interested in feeds and feeds offerings.

What we have found in Feeds, though, is that overall feeds have been very sticky for us. And, frankly, we were early to feeds and if you go back to the days of establishing the RIC codes long before I became involved or anyone at Thomson became involved with the Reuters business, that was a very fundamental focus of the old Reuters business and it is one that has proven to be a good franchise and a fortunate place to be.

So I'd say we have a strong and, in fact, leading position in Feeds. It, like everything else, is getting more competitive and many of our competitors are trying to increase their feeds offerings. But, obviously, with 9% growth in Feeds we're continuing to have success there.

Ato Garrett.

Good morning, thanks for taking my question. I just wanted to get a little bit of comments on your unchanged margin guidance for the full year given that you did have a good beat this quarter.

I know that was benefited from that did benefit from FX. Could you just talk about why guidance would remain unchanged just given the margin trends so far?

I think, again, the guidance is changing because we will include the charge in our numbers as we always do, so we gave you numbers both including and excluding the charge. If you exclude the charge you are exactly right, we are not changing the guidance. And that implies essentially a margin decreasing by anywhere between zero and 100 basis points year on year and that, frankly, is still very much where we expect to land for the full year.

Tim Casey.

Thanks, good morning. Can you talk a little bit about the charge from the perspective of redundancies? Through most of this efficiency initiative you've had you've talked about reducing headcount through attrition.

The last time you took a charge there was some very specific redundancies when you transferred everything to Elektron. I'm just wondering if this is similar analogy here, are there a specific redundancies or is it more that you have more clarity on the attrition and feel is the right time to take a charge? Thanks.

I think we do prefer to manage within the envelope of our annual operating plan. But every once in a while if we see an opportunity to move faster we are going to take it. And in this case what we've done is at the beginning of the year pulling that $3.3 billion cost base on our technology and platforms together, our real estate footprint together, gave us a lot more visibility into where the redundancy opportunities lie.

It's more than that, it was where we were duplicating activities and much more clarity around what we needed to create in more fungible resources. So it really was a sense of the opportunity that we saw.

We've also in some areas, particularly in our Financial business, we've done a grounds-up activity review of who does what and who builds what and who sells what. And we found lots of opportunity there to really simplify the organization.

And really, if you think about it, it's our history as a decentralized organization that provides the opportunity we see today: again, hundreds of acquisitions over decades that we're now knitting together. So what we are primarily targeting is layers of management, silos that do everything soup to nuts, sharing more common tools and platforms across the organization and really simplifying the organization and looking hard at any layer where you have, as one of my colleagues said in a review earlier this summer, we are working to have fewer managers managing managers.

Is it safe to say that silos you are removing are within F&R as opposed to silos that exist in F&R versus Legal and Tax?

No, I think they are across the board. We are working collaboratively across the board to build platforms that will support the entire business and that we can build once and deploy many times. Obviously, there is not one platform that will be deployed across the organization but we are building common tools and we need fewer platforms than we have today.

Peter Appert.

Thanks. So Jim, you guys have made impressive progress in the margin improvement initiatives over the last couple of years, particularly in the F&R unit.

You are getting close to the 30% target that you outlined a few years ago. Can you talk about how you see the next objective then after this? And then maybe related to that, the move to Toronto, how much of that is cost driven in terms of motivation?

So in F&R we are making encouraging progress there and I would hope we could continue to make progress in out-years. But I would prefer to see that the margin expansion in our Financial business come from increased revenues. And the encouraging thing about this quarter is that this is the first time in a long time that we've seen that happen, that there's been underlying revenue growth has made a meaningful contribution to the margin progress.

So we are focused on growth in our Financial business and the margin in our Financial business. And hopefully they will continue to go together in the future.

The move to Toronto was not at all cost based. The move to Toronto was all about access to talent. And we thought we had a real opportunity there to create a technology center and have access to talent in what is a very attractive market for technology talent.

Are you willing to share anything specific in terms of the next benchmark you are looking for in F&R from a margin perspective?

We don't have necessarily aspirational targets there long term. We'd like to see continued improvement and what we will do is we will build a grounds-up plan for 2017 and then look out the next couple of years to think about what the trendlines might look like. And we will update you on that at our next quarter when we give guidance for 2017.

Thanks, Jim.

Doug Arthur.

Yes, Stephane, just a point of clarification on Tax & Accounting. Recurring revenues you said were 90%, up 11%. Did you say the transaction component was down 24%, was that your number?

Yes.

Okay. And to follow up Jim, I guess on the existing $1.5 billion share repurchase program you are almost done on that. I think you have 400,000 left as you repurchase aggressively in 2016.

With the proceeds from IP&S, obviously, you've delineated how you expect to use that. Would it be safe to assume that once you are through the $1.5 billion that you will -- there will be a follow-up reauthorization of something in that range for 2017?

Well, thank you for that Doug. That's a timely question. We have a Board meeting next week, and November is the time when we discuss with our Board what our capital strategy is going to be for the coming year.

We will have, I'm sure, an active discussion and dialogue about that next week and then at the appropriate time we will make an announcement of what we're going to do. So we will take it under very careful consideration, we will evaluate all of our options as we always do and look for the most effective way to deploy our resources there and update you when we get through those discussions with our Board.

Okay, great. Thank you.

Operator, we'd like to take one final question, please.

Giasone Salati.

Hi, good morning. Just one question about the reinvestments of the savings in 2017. Can you tell us how you're going to think about that, if that is going to depend on revenue outlook, on how much savings you actually manage to realize, $200 million or $250 million, or the new product development pipeline, please?

I think we want to make sure that we reinvest sufficiently to meet the opportunity that we see in the market. The investments we make next year is probably not going to have a massive impact on growth in 2017. We are more looking at the impact in 2018 and beyond in terms of what growth it can drive.

So as we said earlier we continue to see improving growth rate as our number one priority, so these actions that we are announcing today are squarely in line with that priority. As we said it's about simplifying the organization, which eventually will make us easier to do business with as a Company, and it's about also ensuring that we free up funding in order to fund these growth opportunities that we see in the business. So we just want to make sure, as I said, we drive attractive EPS growth and at the same time continue to invest in the business.

And as a follow-up, just in terms of the mix because new investments may come in as OpEx or CapEx and savings might come in mostly on CapEx. Can you confirm that there is no scenario in which you might have a negative impact on the current EPS guidance of $2.35 from these reinvestments?

Right, and just to clarify something. I didn't want to imply that most of the savings will come in the form of CapEx. As I said, a portion of the savings will come in the form of CapEx.

We still expect most of the savings will come in the form of OpEx. And I would say that as Jim and I both said on the call we are very committed about meeting this target of EPS. And I think that like what we announced today if anything reinforces our confidence level in achieving that target.

I think that's right. If I could just add in my words, you can never guarantee what's going to happen six quarters out. And there are unforeseen events that could take place.

As we sit here today we have clear visibility to delivering 2017. And we can deliver 2017 and intend to deliver 2017 because that's our commitment. The investments we want to make, though, are focused on 2018 and beyond.

And I've said before I don't want to gasp across the finish line in 2017. We promised a meaningful increase in EPS in 2017 and we are determined to deliver that. But I want to deliver that with an accelerating revenue line and increasing confidence on what the revenue line is going to look like in 2018 and 2019 and 2020.

Thank you.

So that will conclude our call. We'd like to thank you all for joining us for the third-quarter call and we look forward to speaking to you again when we report the fourth quarter in February. Have a good day.

Ladies and gentlemen, this conference will be available for replay after 10:30 a.m. today going through November 8 at midnight. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 402545. For international participants the number to call is 1-320-365-3844. Again those numbers are 1-800-475-6701 and 320-365-3844 with an access code of 402545.

That does conclude your conference for today. Thank you for using AT&T executive teleconference service. You may now disconnect.