Rationalization Helps Boost Reuters'1988 Profit; Cancellations Are High, But New Orders Are Higher

Regional and product diversification helped Reuters Holdings PLC boost earnings per share by 23.3% in 1988 despite problems in the world financial markets. Although the EPS increase was shy of management's internal target of 25%, no one was complaining when results were announced Feb. 14 in London and Feb. 15 in New York. Profit after tax but before extraordinary item was $242.8 million, up 22.4% from $198.4 million in 1987. Earnings per American Depositary Share were $1.74, compared with $1.41. Revenue gained 15.7% to $1.8 billion from $1.6 billion. Money markets accounted for 54% of Reuters' revenues in 1988, securities for 20%, trading room systems 13%, commodities 7% and media 6%.

Reuters is a much "stronger and fitter company" as a result of last year's reorganization and rationalization, managing director and chief executive Glen Renfrew told a security analysts meeting in New York. This strength was demonstrated by an increase in the company's profit margin to 21.5% in 1988 from 20.6% in 1987. By reducing the number of geographic divisions from four to three, Reuters has been able to manage its operations using fewer people, Renfrew said.

Instead of Reuters Europe, Asia, North America and Overseas, the company now has Reuters America, Asia and another unit combining Europe, the Middle East and Africa. Renfrew got a laugh when he said Reuters America had decided to give Greenland back to Europe. Reuters Europe, Middle East and Africa accounted for $1.14 billion of Reuters revenues during 1988, a 13% increase over the $1 billion the region contributed in 1987. Reuters Asia provided $359.8 million in revenues, a 34% increase over the $268 million generated in 1987.

Reuters America came out with nearly the same amount of revenues in 1988 as Reuters Asia -- $358.9 million, but this marked only a 6% gain over the $337 million the region contributed the previous year. The deduction for intragroup revenues was the same in 1988 as it was in 1987 -- $40 million.

Rationalization moves cost Reuters $27.8 million in 1988. The $13.3 million charge to close down the IDR Inc. terminal manufacturing facility in Long Island was taken below the bottom line in accordance with U.K. accounting principles. Now that it has withdrawn from the terminal manufacturing business, Reuters will become a major buyer of PCs, Renfrew said. The company will continue to own equipment but customers will have the choice of buying their own PCs or leasing them from Reuters, he said.

Although he's decided to stop talking publicly about management targets, Renfrew expressed confidence for the "future of Reuters based on new order flow, the trend in margins and major new products this year." Cancellations remain high, but orders for new products are strong enough to generate good growth, Renfrew said. In percentage terms, he expects Asia to lead growth in 1989.

In response to a question about competition in the Asian market, Renfrew said that Reuters and the Japanese data vendor Quick have not "clashed in the Japanese domestic market, which is Quick's strength. When we look at our competition we don't rate the Nikkei group (Quick's main shareholder) as one that we have to be actively worried about." During 1989, Reuters will begin using the "full power" of its Integrated Data Network, he says, allowing the company to deliver a package of services to a single terminal via a single communications link. The number of terminals climbed 18.7% to 172,858 in 1988 from 145,623, but Renfrew says Reuters is less concerned with terminal growth now that it is putting more services onto a single terminal. Renfrew told analysts that Reuters will launch a new package of historical financial information in the second half of 1989, but he declined to provide details about the product.