Thomson Reuters Corp. showed glimpses of faster growth in its first-quarter financial results, as the news and information giant began the work to spin out its largest division in a joint venture with private equity giant Blackstone Group LP.
Revenue from ongoing operations climbed 4 per cent to US$1.38-billion, driven by higher recurring revenues from subscription products, which the company prefers because they renew annually and are less prone to fluctuations. The company expects revenue to grow by low-single-digits in percentage terms through the rest of 2018.
In late January, Thomson Reuters struck a US$17-billion deal to spin off its financial and risk business – which accounted for a majority of revenue – in partnership with Blackstone, which will take a 55-per-cent stake in the new company and steer a plan to speed up its growth through aggressive cost-cutting and reinvestments.
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The deal is expected to close in the second half of the year, pending regulatory approvals. Until then, Thomson Reuters is reporting the financial and risk results as a discontinued business.
Because Thomson Reuters hived off a large share of its previous earnings from the quarterly results, the company reported a loss of US$311-million, or 48 cents per share, for the first quarter. But when adjusted to account for a number of special items, profit was US$197-million, or 28 cents per share – an improvement of 3 cents per share compared with a year earlier.
Analysts had expected earnings of 27 cents a share, according to data from Thomson Reuters I/B/E/S. Though earnings largely met expectations, Thomson Reuters’s share price closed 3.7 per cent lower on the Toronto Stock Exchange on Friday.
“That first quarter performance was the strongest we’ve had in a number of years,” said Jim Smith, chief executive officer of Thomson Reuters, in an interview. “I am really encouraged … that that performance was driven by the core recurring subscription businesses on both sides.”
Mr. Smith recently recovered from a medical issue that caused him to be hospitalized in mid-February.
Thomson Reuters also announced it may buy back as much as US$500-million in shares before the deal with Blackstone closes, which would reduce the size of a planned tender offer to all shareholders after closing, for which the company could spend as much as US$10-billion. At that time, the company’s controlling shareholder, Woodbridge Co. Ltd., is expected to take part “on a pro rata basis, so their ownership would stay about the same,” Mr. Smith said.
“I think they’ve also expressed a commitment to watching how that develops, and make certain that we have an attractive and successful result for all shareholders,” he said.
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Woodbridge is the holding company for Canada’s Thomson family, and also owns The Globe and Mail.
Thomson Reuters expects to have between US$1-billion and US$3-billion to spend on acquisitions to bolster the legal and tax and accounting divisions, which make up its remaining business. Mr. Smith said the company will “maintain the same disciplined approach” seen over the last few years.
“But we do have our eye on a couple of interesting opportunities, and if they should play out, we would take advantage of those opportunities,” he said, adding: “We’ll do the right thing, and we’re certainly not going to let the money burn a hole in our pocket.”
As it begins to transition to new ownership, the financial and risk division grew revenue by 7 per cent to US$1.58-billion in the first quarter – or 3 per cent when excluding the impact of foreign currency. One main driver was the recent volatility in global markets, which pushed revenue from transactions 17 per cent higher.
Legal revenue rose 4 per cent from a year ago to US$872-million, or 2 per cent excluding foreign currency effects, despite continued softness in demand from law firms. And revenue from the tax and accounting arm grew 5 per cent year over year to US$437-million, in spite of persistent declines in its print business.
Most notably, recurring revenues – which make up 73 per cent and 71 per cent of revenue to those divisions, respectively – increased by 4 per cent in legal and 8 per cent in tax and accounting.
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“What you saw in the first quarter was a continuation of trends that we’ve been talking about for several quarters in the past,” Mr. Smith said. “We think those trends will continue to accelerate.”