Thomson Reuters Corp (TRI) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Thomson Reuters full-year and fourth-quarter 2016 earnings conference call.

(Operator Instructions)

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

Good morning and thank you for joining us as we report our financial results for the full year and the fourth quarter of 2016. Our CEO Jim Smith will start today's discussion followed by our CFO Stephane Bello. Following their presentations we will open the call for questions, and we would appreciate it if you would limit yourselves to one question each in order to enable us to get to as many questions as possible during the call.

I have two items to point out before we get started. First, a reminder that throughout today's presentation when we compare performance period on period we do look at revenue growth rate before currency as we believe this provides the best basis to measure the underlying performance of the business. Secondly, we closed the sale of our Ip & Science business on October 3, and its results were classified as discontinued operations and, therefore, are not included in either the fourth-quarter nor the full-year reported results except for free cash flow.

Now 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 I'll ask Jim Smith to take us through the results. Over to you, Jim.

Thank you, Frank, and thanks to those of you on the call for joining us today. 2016 was a year of continued progress executing against our operating and financial plans. I am encouraged about the underlying improvement in our business and the momentum we've built heading into 2017.

Specifically, we've continued to demonstrate traction in pursuing the core objectives we set out three years ago, including fixing our financial business and returning it to growth; operating at scale to improve profitability; and investing for organic growth, making fewer acquisitions and returning more cash to shareholders. Today's results reflect the clear progress we are making against each of these objectives, and I'm confident this progress will continue in 2017.

Total Company organic revenue growth was positive for the second consecutive year. And, importantly, the financial business returned to growth in the second half of the year, a foundation we expect to build upon in 2017.

Our core Legal and Tax subscription businesses continued to perform strongly. However, lower transactions revenues and continued challenges in our Government business and Tax had a dampening effect on revenue growth last year. We are forecasting improving revenue growth for all three businesses this year.

Improving productivity and profitability has been at the core of our strategy. I mentioned last quarter that our enterprise group now has clear visibility into a $3.3 billion cost base, enabling us to operate at scale. This is reflected in our higher margins and profitability for employee, both of which have improved significantly.

I remain confident of the opportunities that this group continues to uncover will lead to further productivity gains and greater savings again in 2017. And as we make further progress in growing our top line, we expect to increasingly benefit from the improving operating leverage as reflected in our margins.

We've also been very focused on our third objective, providing an attractive return to investors through improved operating performance, annual dividend increases and share repurchases. It's a financial strategy that's clear, compelling and attainable and one that we will continue to employ. Our business continues to deliver considerable free cash flow, and we are committed to strategically utilizing this cash to both invest in the business and to deliver value to our shareholders.

Before I discuss results for the fourth quarter, I think it's worth noting that 2016's performance marked the fifth consecutive year that we have met or exceeded each of our guidance metrics. We have accomplished this by focusing on our customers by instilling greater rigor and discipline across the business, by redirecting investment to our faster growing initiatives and by significantly simplifying the business and advancing our platform strategy. These achievements are leading to improving prospects for higher growth as well as continued improvement in profitability and earnings.

Now the results. Let me begin by reviewing our reported results for the fourth quarter, which include a $212 million charge related to the acceleration of our Transformation program.

Reported revenue declined 1% in the quarter. The improved performance of our financial business was offset by weaker-than-expected revenue growth in Legal and Tax in the 200 basis point negative impact on currency. The $212 million charge in the quarter led to a decline in EBITDA operating profit and earnings per share compared to the prior period. Reported EPS for the fourth quarter was $0.31 compared to $0.55 in the prior period.

Turning now to the quarter's results excluding the charge and the impact of currency, revenues grew 1% as our core Subscription businesses performed well for both the quarter and the full year. Transactions revenues were disappointing for both the quarter and the year and dampened revenue growth for both periods. Stephane will provide more color on this point in a moment.

From a profitability standpoint, revenue growth in savings from our Transformation program led to an increase in both EBITDA and operating profit margins in the quarter, up 120 basis points respectively. Finally, at actual rates excluding the charge, earnings per share were $0.60 for the quarter, a 9% increase from 2015 and for the full year EPS was $2.07, a 16% increase.

Now let me turn to the results for the fourth quarter by business. Financial's revenue was up 1%, resulting from higher recurring revenue and a 5% increase in transactions. Excluding the impact of recoveries revenue excluding the impact of recoveries revenue and commercial pricing adjustments, revenues rose approximately 2%.

Importantly all three geographies, EMEA, the Americas and Asia, recorded revenue growth excluding recoveries. And our business had another strong performance with revenue up -- our Risk business had another strong growth performance with revenue up 12%. For the full year revenue for our Financial business was unchanged from 2015.

Now for the first time in 11 quarters Financial's net sales were negative as cancellations from European sell-side banks outweighed positive sales in the Americas and Asia. As you will recall from prior discussions, the fourth quarter is usually the toughest quarter for us from a net sales perspective as it's the time when many of our customers make budget decisions for the coming year. Importantly, net sales were positive for the full year for the third consecutive year.

Turning to Legal, fourth-quarter revenue was unchanged versus the prior year due to a 9% decline in transactions revenues. Subscriptions grew a healthy 3% and represents about 75% of Legal's total revenue. For the full year, Legal grew 1%.

Tax & Accounting's revenue growth was 2%, negatively impacted by continuing challenges in its Government business. For the full year revenue increased 4%. Excluding Government, revenue grew 4% for the quarter and a strong 6% for the year. And, lastly, despite difficult macroeconomic conditions in several emerging markets, our Global Growth business achieved revenue growth of 2% and was up 6% excluding recoveries and pricing adjustments for the full year.

Now let me turn to our expectations for 2017. After several years of righting the business top-line growth becomes a driver of our future success and is priority number one in 2017. I believe that we can accelerate revenue growth this year by continuing to execute on the key initiatives we have in process.

This includes investing behind our high-growth business in Risk, the Elektron data platform, Legal software and solutions and global tax. To that end, earlier this week we announced the tactical acquisition of Clarient and Avox, which will be integrated into our portfolio of risk management offerings. This move enhances our goal to be the leading provider and trusted source of KYC and legal entity information. We continue to build our footprint globally and this adds particular strength to our position in the Americas.

Starting this year, we will also begin to pivot our transformation machine that we've successfully deployed to drive efficiencies. That pivot will now target two specific initiatives to help improve our growth: customer experience and salesforce effectiveness. I see significant opportunities for improvement in each of these areas.

On the customer experience front we have made good progress over the last few years. However, we still have room to improve. By applying more rigor and discipline in the way we seek to systemically address and eliminate customer pain points I believe we can dramatically improve customer experience. We want to make it easier for our customers to do business with us.

With regard to sales effectiveness, we want to make our salesforce more productive by equipping them with better tools and technology and by simplifying our commercial policies. Here again we are implementing a number of specific initiatives in a more standardized way across the enterprise.

Last but not least, we plan to deliver on our financial commitments including achieving earnings per share of $2.35 this year, which would represent an approximate 15% increase over 2016. We will also continue to return cash to shareholders, and today we announced another $1 billion share buyback program and a $0.02 dividend increase to $1.38 per share. This is our 24th consecutive annual increase.

One final point worth mentioning, our strategy to focus on organic growth rather than acquisitions and profitability improvement has led to a noticeable increase in ROIC, which puts us on track to drive ROIC above our cost of capital this year for the first time since 2007.

Now before I turn to our 2017 guidance, let me provide some context concerning potential opportunities and pressures in the year ahead. First, the major geopolitical events that we saw last year certainly don't suggest that the world will become less complex or more certainty. Our customers look to us to make sense of that complexity to help them do their jobs better and to help reduce their total cost of ownership. In uncertain times customers lean more heavily on trusted partners like Thomson Reuters to help navigate a changing environment and we are ready to help them.

So what do we foresee for 2017? As for potential opportunities, the prospect of less regulation and higher interest rates should benefit banks and financial services companies. A more profitable financial services sector and changes to legislation across a broad spectrum of issues may increase demand for legal services.

Furthermore, changes to US tax code may present a heightened demand for tax products, all positives for our business. And the potential for a more favorable regulatory impairment in the US may lead to an overall strengthening economy.

That said, we are not counting on a tailwind. Instead to fuel our future growth we are executing against our priorities and focusing on our customers.

Potential pressures this year include the impact of more protectionist trade policies, foreign currency fluctuations, ever-present competitive dynamics and continued geopolitical uncertainty, particularly in Europe, each of which could impact our growth across markets and businesses. If these pressures occur they won't be specific to Thomson Reuters, and if they do materialize we will be better positioned than most to deal with them.

Let me conclude by highlighting our 2017 outlook. As I mentioned earlier, we are targeting an improvement in the growth performance of each of our businesses in 2017. Therefore, we would expect revenue growth to improve year on year at a consolidated level, as well.

Overall we expect revenue growth performance to improve gradually over the year and to be in the low single-digit range for the full year. In the long term, returning the Company to mid-single-digit revenue growth is the most certain path to sustainable growth in EPS and free cash flow per share. Based on our progress this year and what we see in our key markets, we feel increasingly confident that achieving mid-single-digit revenue growth is an objective within our reach.

Our EBITDA margin is expected to range between 28.8% and 29.8% as improving revenue growth and additional savings from our enterprise are expected to deliver healthy margin improvement, reflecting the improved operating leverage in our model. If we achieve our margin guidance it will represent a record high for the Company.

Free cash flow is forecast to range between $900 million and $1.2 billion. Stephane will discuss this strong 2016 free cash flow performance and the reasons for the lower 2017 forecast in more detail in just a moment. Finally, we are committed to deliver on our earnings per share target of $2.35 for the year.

So to conclude, 2016 was a year of solid progress against the goals we set coming into the year. While headwinds in some of our transaction businesses impacted our growth rate, we nevertheless met all our guidance targets. More importantly, 2017 will mark the year that all the benefits of working as a true enterprise really start to shine through our results, and I believe we are well-positioned to deliver on our 2017 commitments.

With that I will turn it over to Stephane to review the details for the quarter and the year.

Thank you, Jim. As always, I would like to first cover a few housekeeping items before discussing our financial results.

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 in 2016. 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 always treated divestitures in the past. And given our focus on driving organic revenue growth, our recent acquisition activity has been far less significant than in prior years, meaning that growth rates discussed in this presentation are largely organic.

This first slide provides a snapshot of our fourth-quarter and full-year results on a reported basis, which includes the impact of both currency and the charges incurred in the quarter. Both in the fourth quarter and for the full year, revenues were down 1%. Excluding currency revenues were up 1%.

As Jim mentioned, we recorded a charge of $212 million in the fourth quarter which negatively impacted both EBITDA and operating profit. This is consistent with what we announced last November when we predicted that the amount of the charge would range somewhere between $200 million and $250 million.

As a reminder, we took this charge as we saw an opportunity to accelerate our transformation initiatives. The charge was spread among all business units with the largest amount impacting our Financial business which bore about 80% of the total charge.

Fourth-quarter adjusted EBITDA margin declined to 22.2% due to the charge. And for the full year the adjusted EBITDA margin was 26.5%. Similarly, the underlying operating profit margin was 12.9% in the fourth quarter and 17.3% for the full year, both down from 2015 due to the Q4 charge.

Now for the remainder of the presentation I will be speaking to our revenue excluding currency and to profitability excluding the impact of the charge which is comparable to the way we presented our full-year 2016 outlook just one year ago. I will focus my discussion on this side on the consolidated results highlighted in the orange print box which excludes Q4 charges. Adjusted EBITDA for the fourth quarter was up 6% and the margin increased 180 basis points to 29.6%.

Currency had an 80 basis points positive impact with the remaining 100 basis points improvement driven by revenue growth and continued cost savings. Underlying operating profit for the quarter was up 4% and the margin was at 90 basis points to 20.3% with currency having a 70 basis points favorable impact. Free cash flow for the quarter was $794 million, up 12% from last year, and adjusted earnings per share was $0.60, a 9% increase from the $0.55 we reported for last year.

Now for the full year and, again, excluding the fourth-quarter charge adjusted EBITDA grew by 2% to $3.2 billion and the margin was up 100 basis points to 28.4%. Currency had an 80 basis points favorable impact.

Underlying operating profit increased 4% with the margin up 90 basis points to 19.2% with currency having a 70 basis points favorable impact. Free cash flow was very strong for the full year, coming in at $2.1 billion, a 14% increase compared to 2015. Now we'll come back on free cash flow in more detail later in the presentation.

Adjusted earnings per share for the full year was $2.07, a 16% increase. That increase was predominantly driven by improved operating results, lower taxes and the impact of share buybacks.

Now let me provide some additional color on the performance of our individual business segments starting with Legal. In line with what happened in the third quarter, demand for legal services in the US market as measured by Peer Monitor was down modestly in the fourth quarter. Demand at the AmLaw 100 was flat with a decline being driven by midsized firms.

Turning to our results, Legal revenues were flat in the fourth quarter compared to the prior year. This softer-than-expected performance was entirely related to lower transaction in print revenues which I will discuss in a moment.

Despite flat revenues, Legal continued to do a very good job managing expenses as demonstrated by the EBITDA margin which was 37.3% in Q4, up slightly versus the prior year, and currency had a 10 basis points negative impact. The operating profit margin was 30.2%, up 20 basis points, with currency having a 30 basis points negative impact.

Here's a more detailed look at the revenue performance of the three main subsegments in our Legal business during the fourth quarter. US Online Legal Information, which represented 41% of total revenues, was up 2%, marking the eighth consecutive quarter of growth for this segment. The continued positive growth performance in the traditional core the franchise provides a solid foundation for Legal, particularly given its high margins and very strong free cash flow characteristics.

US Print comprised 15% of total revenues and was down 7% during the quarter. And, finally, the Solutions Businesses made up 44% of revenues and grew just 1%. The weaker-than-expected performance in this segment was primarily attributable to lower transaction revenues which I will discuss on this next slide.

Now this slide details Legal's revenue performance by business type since 2013. Starting from the left, you can see the noticeable progress we have made turning around the performance of the core of the franchise US Online Information, which went from a 2% decline in 2013 to growth of 2% last year. The importance of this 400 basis points turnaround should not be underestimated given the level of free cash flow that the business generates.

This slide also shows four years of consistent mid-single-digit growth for the subscription part of our Solutions business. This part of the business has grown from 31% of total Legal revenues to 35%. And we expect that this will continue to fuel the future growth of the division.

Turning to transactions, you can clearly see that these revenue streams are obviously more volatile. Transaction revenues grew strongly in 2015 which made for a challenging comparison in 2016.

To some degree we are dependent on the level of activity in the marketplace to drive revenues. For example, our Legal Managed Services business had an excellent year in 2015 when there were a number of large financial services litigation matters that drove significant revenue, but those, obviously, did not present themselves again in 2016. Finally, you can see also the ongoing decline of our US Print revenues which we do expect to continue.

Now turning toward Tax & Accounting business, fourth-quarter revenues grew 2% which was somewhat disappointing. Revenue growth for the full year was 4%, better than the quarter but still lower than our expectations due to the ongoing issues in our Government business which I will discuss in a moment.

Recurring revenues which are about 90% of the total we're up 4% in the quarter and 8% for the full year. Transaction revenues decreased 14% in both time frames, primarily impacting the Government and Corporate businesses.

Profitability was similarly impacted with EBITDA down 7% versus the prior year and operating profit down 21%. These declines were due to increased investments and costs related to the Government business and also to higher depreciation and amortization.

Turning to Tax & Accounting's result by subsegment, our Professional business delivered another strong quarter, posting growth of 13% while Corporate grew 3%. Corporate lower growth performance was driven by a difficult year-on-year comparison as revenues were up 14% in the fourth quarter of last year.

For the full year Professional grew 8% and Corporate grew 7%. Knowledge Solutions was down 4% in the fourth quarter and the weaker performance was driven primarily by timing factors between the third and fourth quarters. Looking at the full year Knowledge Solutions grew 2%.

Tax & Accounting's smallest division, the Government business, saw revenues decline by 63% as we took further charges and rolled out certain assets. Now we do expect the need for continuing investment in this business throughout 2017, and we have reflected such investments in our guidance for the full year. But we are hopeful that the actions we took in Q4 will mitigate the need for additional large charges similar to the ones we incurred in 2016.

Now turning to our Financial & Risk business, fourth-quarter revenues were up 1%, and this represents the second consecutive quarter of revenue growth as we had expected. Net sales were negative for the first time after 10 consecutive positive quarters. Positive net sales in the Americas and Asia were not enough to offset the decline in Europe driven by desktop cancellations at large European banks.

As Jim indicated earlier, Q4 is traditionally the most challenging sales quarter of the year as many customers look to reset their spend for the next calendar year. That said, net sales were positive for the full year for the third consecutive year.

Now returning to revenues, as was the case in the third quarter, the return to growth was due in part to the lessening impact of two temporary factors that we have highlighted in the past and that have hindered Financial's reported growth rate. The first of these two factors is a decline in recoveries, which had a less significant impact than in the first half of the year. As stated previously do not expect recoveries to be a major factor in 2017.

The second factor was the ongoing commercial pricing adjustments on our remaining legacy foreign exchange products. The year-on-year impact continues to diminish and these pricing adjustments should be largely completed in the first half of 2017. Excluding these temporary factors, F&R's revenues would have increased by about 2% in line with similar performances in the previous five quarters.

Turning to the Q4 profitability metrics, EBITDA increased 1%, resulting in a margin of 30.2%, up 70 basis points. Currency had a 110 basis points positive impact. The decline in the EBITDA margin was driven by an outsourcing contract completed in the fourth quarter, which is actually expected to drive further efficiencies in 2017.

Operating profit was down 4% with a reported margin decreasing 50 basis points or 170 basis points before currency. The margin decline was primarily due to the outsourcing contract I just referred to as well as a $25 million increase in depreciation and amortization expense that was primarily timing related. On a full-year basis the operating profit margin was up a healthy 120 basis points.

Looking at the Financial & Risk revenue breakdown in a bit more detail, you can see on this slide that desktop-related revenues represented 38% of F&R's total and declined 4% during the fourth quarter. As was the case in Q3 the decrease was entirely driven by sell side customers with buy side revenues up slightly. For the full year excluding pricing adjustments desktop revenues were down 1%.

The balance of recurring revenues is comprised of Elektron data platform which primarily encompasses our feed business and Risk where revenues grew 8% in aggregate. For the second consecutive quarter this subsegment now makes up the greater percentage of F&R's revenues than desktops, showing the positive evolving mix of the business into higher growth areas.

Moving to recoveries, these pass-through revenues made up 8% of the total and were down 8% in the fourth quarter. As a reminder, the reduction in recoveries has almost no impact on EBITDA or operating profit.

Finally, transaction revenues which make 15% of the total were up 5% in the fourth quarter. Foreign exchange spot volumes continued to be challenging, but this was more than offset by a strong performance in Tradeweb which was up 17%.

Now this slide provides a window into Financial & Risk's evolving business mix. On the left-hand side you can see that since 2012 all reliance on desktop revenues have declined significantly from 46% to 39% at the end of 2016.

Over that time period revenues from a faster growing Elektron data platform and Risk segment have grown from 31% to 38%. This should position us for better growth going forward and it is a trend that we expect to continue.

I will also note on this chart that transaction revenues which generally have the highest margins in this business increased as a proportion of the total while recoveries, which are very low margin, have declined. Again, symbolic of the positive change in revenue mix.

Moving to the center of the chart, you can also see that our reliance on revenues from the sell side community have declined over time while buy side revenues now make up 44% of the total, up from 37% in 2012. With the migration of buy side users to Eikon and the opportunities that this presents as well as the buy side's increased reliance on feeds and Risk products we continue to see opportunity to improve our footprint in the buy side segment.

Lastly, turning to the regional mix of our revenues, you can see that we have a fairly balanced and global presence, although we are still more exposed to Europe which continues to be more challenged than other regions.

Now before discussing our earnings per share and free cash flow performance, we wanted to provide a bit more insight into the evolution of our revenue base over the last couple of years, and this is at the consolidated level. As this slide shows, the large majority of our revenue base, almost 80% last year, is subscription based. This is the core of our franchise and it provides stability and consistency in our revenue and free cash flow performance. As you can see this portion of our revenue base continues to perform strongly with growth up 0.5% last year from 2.2% in 2015 to 2.8% last year.

The other three components of our revenue base all negatively impacted growth last year. Transaction revenues, which is about 14% of the total, were down 2% in 2016 whereas they were up 3% in 2015. This, obviously, is the portion of our revenue base which is the hardest one to predict and arguably the most volatile. Recoveries in our Financial business declined 13% which was very much expected and was a significant decline compared to what we incurred in 2015.

Finally, Print revenues in our US legal business were down 7%, in line with the 6% to 7% decline we expect for this business every year. Importantly, you can see that US Print revenues represent an increasingly small portion of our overall revenue base, just 4% in 2016. Therefore, its impact on our overall revenue performance will continue to gradually diminish over time.

So in summary, the headline decline in our reported revenue growth in 2016 really masks a solid performance from our core Subscription revenue base and was due to the declines in the other three components. And that is the reason why we do expect our revenue growth to improve in 2017 as Jim mentioned earlier.

Now let me update you on our earnings per share and free cash flow performance. I will start with earnings per share.

For the fourth quarter, excluding the charges, adjusted earnings per share increased $0.05 to $0.60 per share, a 9% increase compared to the prior year. That improvement was driven by improved operating results and lower share count.

For the full year, again excluding the charges, adjusted EPS was up $0.29, or 16% with currency contributing approximately $0.07. Excluding the impact of currency adjusted EPS increased 12% compared to 2015, largely driven by improved operating results, lower taxes and share count reductions.

This next slide reflects our free cash flow performance for the year with and without the contribution of IP & Science. As you can see, we delivered a strong performance in 2016 with our total free cash flow exceeding $2 billion for the first time, up 12% for the year. Now that very strong performance was helped by a $200 million tax benefit which we received in the fourth quarter in connection with a $500 million contribution we just made to our pension plan.

There were a few other special items which impacted free cash flow in Q4, but these other items largely offset one another. So on a normalized basis are free cash flow was $1.8 billion.

The IP & Science contribution to free cash flow was $46 million for the year, about $200 million less than the prior year driven by the loss of fourth quarter operating cash flow and by deal-related costs. Excluding these items, IP & Science's performance would have been broadly in line with the prior year. Finally, excluding IP & Science the free cash flow generated from continuing operations was just shy of $2 billion, an improvement of 27% compared to 2015.

As you will see on 2017 outlook in a moment we do forecast free cash flow this year to range somewhere between $900 million and $1.2 billion. The expected decline from 2016 is due to a number of factors, including the $500 million pension contribution I just mentioned, the 2017 cash impact of the Q4 charges which will be about $200 million and also the loss of the IP & Science free cash flow.

In addition, we are projecting a modest increase in both CapEx and cash taxes. So the aggregate negative impact of all these factors combined should range somewhere between $800 million and $900 million this year.

As stated earlier the two largest of these factors, namely the pension contribution and the cash impact of the charge are clearly temporary. And, therefore, we do expect a return to stronger free cash flow performance in 2018.

As you can see from this next slide we remain very committed to returning capital to our shareholders. In 2016 we returned $2.7 billion in the form of dividends and share buybacks, and over the last four years we've returned $8.7 billion.

In the fourth quarter we repurchased 10.7 million shares for a total cash outlay of $441 million. And this completed the $1.5 billion buyback program that we had announced at the start of 2016. As Jim mentioned, we are planning to execute a new $1 billion buyback program over the course of this year.

Turning to our dividend policy, we also announced a $0.02 annualized dividend increase to $1.38 per share this year. This marks the 24th consecutive year of dividend increases and this speaks both to the solidity and the free cash flow generative nature of our business.

Turning to our debt profile, we closed the total debt position of $7.8 billion which was all term debt as we paid down our commercial paper using the proceeds from the sale of IP & Science. As you can see on this slide, our debt portfolio continues to be fairly well-balanced with an average maturity of about eight years and the average rate below 5%.

Our net debt position was $5.4 billion at year-end with an net debt to EBITDA ratio of 1.8 times, which is well within our 2.5 times leverage target. As we have stated previously, maintaining a strong and stable capital structure remains a key tenet of our overall capital strategy.

Let me now turn to our guidance for 2017. Jim has already presented our key metrics for our 2017 outlook, so I will speak to those he did not cover. But before I do this I just wanted to provide some context with regard to the margin performance we are projecting for 2017 based on our guidance.

As you can see on the slide, the 28.8% to 29.8% EBITDA margin range we are projecting would represent an improvement of 300 to 400 basis points from the margin levels we generated in 2013. This represents a meaningful uplift over a four-year period, particularly in light of the fairly modest revenue growth performance we experienced over that time.

Now to the balance of our guidance. First, we expect our depreciation and amortization expense to range between $950 million and $1.050 billion. We also expect a capital expenditures to remain at approximately 8.5% of revenue. Both these figures are fairly similar to what we experienced in 2016.

Interest expense is expected to range somewhere between $400 million and $425 million. We do not forecast a significant decrease compared to 2016 despite the sale of IP & Science since most of the debt reduction related to the sale was low-cost commercial paper. In addition, we do expect our net debt position to rise over the course of this year given the lower free cash flow generation due to the Q4 charges and the pension contribution I discussed earlier.

We also forecast that our effective tax rate will range between 10% and 13% in 2017, which represents a modest increase when compared to 2016. I'd like to remind you that we historically pay more in cash taxes than our effective tax rate may imply. For instance, excluding the $200 million tax benefit associated with the pension contribution our cash taxes in 2016 were about $300 million, significantly more than the $135 million book tax expense we reported last year.

Lastly, we forecast core Corporate costs this year to range between $300 million and $325 million, which is substantially below 2016's number of $380 million. There are two primary reasons for this decline: first, with the sale of our IP & Science business we took the opportunity to reduce Corporate costs to better align it with the (inaudible) side of the business; second, in connection with the divestiture and given the increased visibility we have from our enterprise group we also took the opportunity to review our location methodology and determine that about $40 million to $50 million should be pushed down to the business. These changes will have no impact upon the total Company margin, will have a very, very minor impact on Financial and Legal's margin but it will be more impacted for Tax & Accounting which will see a negative effect on margins as a result of these allocation changes.

Now with that let me turn it over to Jim for a brief conclusion before opening the call for your questions.

Thank you. The slide Stephane just discussed regarding our margin improvement over the last four years really speaks to what we can achieve as an organization when we channel our focus and energy on simplifying our business. As I mentioned earlier, we are now pivoting our focus squarely on improving customer experience to accelerate our revenue growth.

I believe we have a large opportunity ahead of us and we are now using the very same framework and infrastructure which we successfully deployed to execute on our Transformation program and we focus it on improving customer experience and sales effectiveness. We expect to deliver solid improvements in our revenue and margin performance in 2017 through revenue growth and further productivity improvements. We are also committed to deliver a record EPS performance in 2017 in line with the target we've communicated previously.

But more importantly we are also taking the steps necessary to improve our revenue growth trajectory beyond 2017. As I stated before, our ultimate financial goal is to maximize earnings and free cash flow per share performance over time. The Transformation program helped do this through the first years of our Transformation journey. Improving our revenue growth trajectory will enable us to carry the subject of much further into the future.

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

Thanks very much, Jim and Stephane. And that concludes our formal remarks regarding the performance for the quarter and year. So now, operator, I'd like to open the call for questions, please.

(Operator Instructions) Paul Steep, Scotia Capital.

Great, thanks. Jim, could you maybe talk a little bit on slide 10 in the presentation you talk about the core investment highlights that you're aimed to put money behind this year.

Can you talk first in the context of the contribution from these/ and it looks like you've re-stack ranked them I guess from a year ago where Risk and Elektron have floated to the top. Then maybe the magnitude of investment in those?

Sure. And I think that we are always calibrating the relative priority and relative weighting and we do that collectively as a team. And I think this would reflect the view of all of our senior team as to where the most attractive growth opportunities present themselves, and I think they also represent where we think we can get the most meaningful acceleration and growth rate that will move the whole needle.

I think all of those initiatives that we've called out are, in fact, still attractive growth initiatives, but we re-ranked them based upon those that can we think be the biggest opportunities and could move the overall needle. So I think you could expect a proportionate shifting of our resources in a very dynamic way, but all of which will be dealt with within the spending envelope that we have developed.

On against in the context of how large, are these consuming a significant or material amount of the CapEx investment this year? Or is it these are just growth investments and should we really think of them in 2018 as helping drive meaningful growth? Thanks.

Stephane, yes.

Yes, so in terms of the revenue base of this business that in aggregate represent a little bit over 50% of our total revenue base, they get a disproportionate amount of our product development capital. I would say, if I recall correctly, the percentage grew to [17%] of our CapEx for product development. So we really are allocating a much higher percentage of product development dollars to these four initiatives than anywhere else.

And I think adding to that, that's probably been one of the biggest benefits that we've seen from having the central enterprise group with clear visibility into all of that spend we are able to direct that in a more dynamic fashion towards those opportunities.

Ato Garrett, Deutsche Bank.

Hi, good morning, gents. So just looking at the Legal segment a little bit, you gave the context that you have seen US demand in the fourth quarter was down slightly with steady gains in AmLaw 100 and softness in the smaller markets. When we look forward to 2018 can you give a little context about what you see turning around given your expectation for improving revenue growth in the segment?

Look, I think if you look at how the episodic nature of those engagements, particularly around our Legal Managed Services business work, that's going to be choppy. And in 2016 we had a year in which we went against a year in which there were a number of class-action suits and regulatory enforcements against financial services agencies. And that generated a lot of work for us that didn't repeat in 2016.

But if you look underlying that what we've seen is a steady improvement in our core businesses. And that, I just came from our legal sales conference earlier this week and I can tell you we have a salesforce that's got a very attractive pipeline and coming off a strong finish to the year. So we think the core business is going to carry us forward.

There will always be years in which we are going to have spikes and valleys in terms of some of those transactional businesses. But we will take those revenues when they come and look at the stability of the underlying base of that business. If you think about it more than 80% of that business comes from the stable subscription-based products, and those all of quite attractive going into the future as do some of our software products, as well.

The only thing I would add, which is a very secondary point what Jim just said, is that if you look at our transaction, the growth in our transaction revenues this year, the comparison should get easier and easier as we go through the year. Which I mean, obviously, as we said these are more volatile revenue, but all things being equal it should make the comparison more simple as we go through the ramp of the year.

If I could sneak in one more, just looking at the net sales within Europe you said that was the area that drove the decline in net sales in the fourth quarter. Can you talk about whether that was a change in -- whether that was mainly driven by headcount changes in the sell side, or if that was more of a competitive dynamic shift with some of your clients switching providers?

It was not a competitive dynamic shift. It is driven exclusively by cutbacks in sell side banks in Europe and to a lesser extent Russia and Brazil, as well, which was just a function of macroeconomic events. We do not sense of changing competitive position there. In fact, if you look at our gross sales performance, and I don't want to get in the habit of reporting gross net all that on a regular quarterly basis, underlying our gross sales performance was actually quite good across the board.

Vince Valentini, TD Securities.

Yes, thanks very much. I'll try to package to questions into one here, but following up on the European sales environment we saw pretty nice uptick in the last stats in terms of employment levels, which were for the third quarter so still a lagged. But by our count there was 3.6% increase in employment levels in financial services in the main European countries.

So are you seeing that in your outlook for 2017? So Q4 net sales were negative but that was really a lag effect from headcount reductions early in the year, whereas the real forward-looking demand environment may be finally starting to stabilize and get a bit better? And if I can package with that when you look forward to 2018 the recoveries are no longer an issue, the commercial pricing adjustments are no longer an issue, your net sales keep ticking forward. Do you have some level of confidence that this more mid-single-digit-type growth for F&R may be at least 3% 4% is possible in 2018?

The short answer to the latter is yes. We like the trajectories that we see. The earlier question is it will be a bit more nuanced based upon my experience and my contacts with our customers this year, and I think you have a bit of a different picture in the US versus Europe and the rest of the world.

So I will start by clarifying that. I think collectively what I see in the financial services sector is a very cautious optimism that things could turn. And in the US it's driven largely by the expectation that some of the regulatory challenges that have been put in front of financial services institutions will be taken away and that they will be free to prosecute all lines of their historic business. So I see some, again, cautious optimism on that regard.

Then I see in Europe and also shared in the United States a cautious optimism looking forward to what could be a return to a normalized interest rate environment which, of course, is very important to the bank's profitability. So I would say there is a cautious optimism. But it's different, you asked versus rest of the world and particularly US versus Europe, but on both sides of the Atlantic there is a cautious optimism.

Toni Kaplan, Morgan Stanley.

Hi, good morning. I wanted to ask about the Tax & Accounting that business. It looked like the Government part of it continues to be under pressure.

And you had some increased investment in expenses related there in the quarter. Can you explain really what you are doing in those contracts with the government and how we should think about future growth and margins for that business overall?

Sure, let me try to take that one. First, let's make sure we keep things in perspective. The Government business is a very, very small proportion of the overall Tax & Accounting business.

It accounts for I think less than 3% of the total revenue base of the business. We are in the process of implementing a few very large and very complex contracts with several municipalities. And the implementation of these contracts is taking longer than we thought, and that, obviously, has negatively impacted both revenues and EBITDA for us.

During the fourth quarter what we also did, we took a very close look at the assets we have got on our books as they relate to the business. And as a result of that review we decided to write up some assets which, obviously, had a further impact on revenue EBITDA and EPS.

Now looking for to 2017 as I said on the call, we do expect that we are going to continue to need investments in that business so that investments will essentially continue to exceed revenues in that business. But given the balance sheet adjustments we've made throughout 2016 and in particular in the fourth quarter, I would say we are cautiously optimistic that the need to make such large one-time investment balance sheet adjustments should be much lesser than was the case in 2016.

So it's a small business. It's proving to be much harder to implement these large contracts than we ever anticipated. But we are working diligently on it, and that's really what our focus is at this point in time.

Great. I just wanted to ask a broader question on margins. So outside of the cost savings from the Transformation plan you have, how should we think about which segments should contribute the most margin expansion both next year and beyond and just the key initiatives that should drive that margin expansion aside from scale? Thanks a lot.

I would say primarily our Financial business. And it's because the point that you mentioned. The bulk of the charge we took in the fourth quarter, about 80%, was very much in that business, so they should see the largest benefit coming from that business.

But also most importantly we also speak about the operating leverage that we get in the business once we start getting back into growth territory. And where you are seeing the bigger shift going from negative to positive revenue growth is also in our Financial business. So given the global nature of that business, given its scale and given the positive revenue dynamics I try to describe in one of the slides I would expect that's where you would see the biggest improvement.

Peter Appert, Piper Jaffray.

Thanks. Stephane, just staying on the Tax & Accounting for a second, the growth has slowed meaningfully I think relative to the trajectory historically in that business. Would you say competitive issues is a factor there?

No, I don't think so. And actually if you exclude the impact of the Government the revenue growth of that business is still pretty solid. It's definitely still in mid-single digit in 2016, and that's pretty much what we would expect to see in 2017 also.

And, Peter, if I could add just a little color there and it's only because I was within the last five days I've been with their sales team at the year kickoff. I echo what Stephane says, I think the enthusiasm there is good.

If you look at that business in 2016 versus 2015 there are a couple of really big Corporate contracts. As we move into the Corporate space, a lot of growth being driven in the Corporate space and there were a couple of big contracts that we signed in 2015 that didn't repeat in 2016.

And if you look at over the course of the year what we saw particularly in the Corporate space was a tough first half-year comparison, but actually good solid performance over the latter half of the year and they exited on a strong run rate. So I think there's a lot of confidence in that business, and I really believe that's going to be a strong part of growth story going forward and will continue to lead the growth parade for us.

Great, thank you. Jim, on the acquisition front with the Clarient and Avox deal, are acquisitions may be a little bit more backend focused at this point?

There has been absolutely no change in our strategy there. We've pivoted hard towards organic growth. We have always had our eye open for those tactical fold-in acquisitions that would support our organic with initiatives.

And that's exactly what Clarient and Avox are. As you will see we had another tactical acquisition that we announced of the Ready business which provided execution management capability into our desktop products which we needed nice tuck-in and really an important added functionality. Clarient and Avox, those two businesses, again it's a relatively small tuck-in individual business, but what it represents is a strengthening of our position in the KYC client onboarding space.

And even more than the acquisition of those businesses we are delighted that they support the strategic initiative that we have been advancing for the last five years. And particularly that one of those businesses was really a consortium of some of the largest banks and the DTCC and have that blue-chip client list trust us to be part of the industry-wide solution was a validation I think of the strategy we are on and something we are very flattered by.

So we very much like our position in that space and we think we are going to continue to build out there. But that is the kind of acquisitions that you could expect to see from us, and that's just what we've done over the last five years. But we are not out looking for the big home run acquisition, we have always got our eyes open and almost every case it's a build buy capability discussion.

David Chu, Bank of America.

Good morning, thank you. So it sounds like gross sales in F&R remain largely consistent. So can you quantify how much the retention was down in the quarter?

Retention was I think just in the high 80s, a little bit below the 90% we were targeting. So around 89% or so.

So what was it in the third quarter roughly?

It's probably, as I said, it's probably in that range, around between 89% and 90%.

I think that I would add this as color. We did not see a dramatic change in retention in the fourth quarter over prior years or over prior quarters or over the run rate that we've had for the past few years.

As we've said in this relatively low growth environment we are operating in right now, in any given quarter one or two contracts can and one or two customers can determine whether or not we are above the line positive or below the line negative, and I would this last quarter fell into that bucket and that's just where we were. There wasn't some dramatic shift. It was just cutback at a couple of the big European sell side banks, general softness across Europe and then Russia and Brazil.

Okay, that's helpful. And also Jim as you suggested there's some cautious optimism for the financial industry in the US. Can you discuss what you saw in the US during the renegotiation season?

I like our position with our clients. I think we worked really hard in the last five years to restore credibility with our clients, to be a trusted provider and to be someone that at the table when we are having bigger, broader discussions about what we are able to do and how we are able to help our clients reduce their overall cost of operation and how we can provide alternatives to other competitors and indeed to internal spend within the banks in many instances.

So I think we've had really solid and productive conversations actually across the board. So I'm quite encouraged about where we ended the year.

And when you think about the optimism that comes over perhaps some rollback of regulations that will allow a return to some more offensive activities in the US banking sector, no one expects we are going to go to a Wild West world of no regulations nor that the regulatory environment is going to get any less difficult to navigate. I think all of us realize we live in a world where regulatory scrutiny is going to be very, very high and, frankly, we have an opportunity to help our clients navigate that.

Giasone Salati, Macquarie.

Hi, good morning. Just one question on the Financial & Risk. What is your assumption in terms of method to impact on headcount in Europe 2017 or 2018? (multiple speakers)

Headcount for 2017 and 2018?

For Financial & Risk.

It's probably a loaded question given I seem to be the only analyst based in Europe.

You mean the headcount of the banks in general?

If there is any relationship still between the cancellation of desktop in Q4 in EMEA and the headcount in the financial industry in Europe, and MiFID 2 is one of the biggest drivers of these trends in 2017 and 2018, what is your assumption behind the impact of MiFID 2 in Europe, European financial headcounts behind the general currency given for the F&R division of an improvement in organic growth?

I would say generally speaking we do expect continued pressures on desktop revenues for the reason that you mentioned. It's very much linked to headcount.

And so what we've tried to do, as you've seen one of the slides represented, is really try to shift our revenue mix away to have less reliance on desktop revenues. And our desktop revenues represent less than 40% of total revenue. It's still in pretty meaningful proportion, but it's much less than it used to be.

So we are not counting on desktop revenues to start growing going forward. That is not the basis of our plan in Q1.

Okay, maybe if I can follow up, just go at it a different way. Can you split up what kind of volume and pricing growth you expect in F&R for 2017?

Well, we would expect, again net sales is primarily a measure of volume. And I would say from where we sit today we would expect net sales to be positive in 2017. And pricing is generally in line with inflation, but we would expect certainly a modest uplift from pricing.

Tim Casey, BMO.

Thanks, good morning. Can you talk about how your discussions are evolving on the topic of Brexit with your major customers and what assumptions you've made in your guidance with respect to any Brexit implications?

Sure. I think it's still too soon to say what's going to happen with Brexit. We are beginning to see some clarity in thinking. But people are largely reevaluating where they want to do certain activities, thinking about how they think of the regulation might evolve.

In our discussions what we've emphasized, and we feel quite confident actually that we will be able to respond, in any scenario we've discussed with our clients we do have operations on the ground in more than 100 countries and any place that our clients would consider moving any of their economic activity we already have operations on the ground and we are really well-positioned to serve our clients regardless of where they go. I think that while you are seeing some early indications that people are giving a hard look at what they want to do and where they want to do it, there is still very much a wait-and-see attitude because we are in the very early days of this and there is not a lot of clarity as to what the ultimate result is going to be of negotiations that haven't even really begun yet.

So I think there's a great deal of uncertainty about Brexit as there is a great deal of uncertainty about a lot of stuff in the world today. And we are just concentrating on making certain that we are going to be able to serve our clients regardless of the individual decisions that they make.

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

Drew McReynolds, RBC Capital Markets.

Thanks very much for squeezing me in. Just two quick follow-ups.

First, back to Tax & Accounting maybe for you Stephane, on the EBITDA margin side we are bumping around quite a bit and we've had that reallocation go into the segment. Can you just give us some margin parameters to look for 2017 and maybe longer term?

Secondly, can you just give us a cash tax number for 2017 so we can work that through our models? Thanks.

Sure, let me try to get these two questions. On the EBITDA margin for Tax & Accounting you are right, there are a lot of factors to take into consideration. Last year we had the negative impact of all the adjustments or charges we had to take in our Government business.

Next year we are looking at these changes in allocations. I would say at a high level one largely offsets the other. So if you look at the margins for Tax & Accounting this year, excluding the impact of the Q4 charge if you look at the underlying margin, it probably is reflective of what you should expect next year. I think it's just around 30% also.

On your question regarding cash taxes, we would expect these to go up a little bit. I mean to the extent our profitability goes up our cash taxes will go up. So order of magnitude it's not massive, but it's probably about maybe $250 million or something like that.

Okay, thank you.

That will be our final question. So we'd like to thank you all for joining us on our fourth-quarter and year-end call. And we look forward to speaking you when we report Q1 in April.

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