Thomson Reuters Corporation (TRI) Q3 2009 Earnings Report, Transcript and Summary

Welcome to the Thomson Reuters third quarter 2009 earnings call. (Operator Instructions). As a reminder, today’s call is being recorded. I’d now like to turn the conference over to our host, Vice President, Investor Relations, Frank Golden. Please go ahead sir.

Good morning and thank you for joining us. We’ll begin today with Thomson Reuters’ CEO Tom Glocer, who will be followed by our CFO Bob Daleo. Following Tom and Bob’s presentations, we will open the call for questions. Before we begin, I am pleased to point out that for the first time since Reuters’ acquisition, we’re reporting actual growth rates for the quarter, not pro forma results, something I am sure will please you as much as it has our accounting group. 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 the regulatory agencies. You can access these documents on our website or by contacting our Investor Relations department. It is now my pleasure to introduce the Chief Executive Officer of Thomson Reuters, Tom Glocer.

Thank you, Frank, and thank you for joining us this morning. I plan to cover two topics today. First, I’ll discuss our results for the quarter and second, I’ll provide an update on current trading. Three-quarters of the way through the year we continue to perform well in what remains a challenging environment. Our tax and accounting and healthcare and science businesses continue to perform well, and the recurring subscription parts of our legal and market’s divisions held up well. Across the business, sequential quarterly net sales have improved, though they are still negative in markets. Now, although we believe that we’re past the bottom in terms of real economic activity, our reported year-over-year growth figures have gone negative, but we expect this dip to be shallow and limited to the next few quarters, and this is the direct result of the mathematics of the subscription model which I discussed on last quarter’s call and at our recent Investor Day in Toronto. Let’s now look at the results for the third quarter keeping in mind that when we compare our performance period-on-period, we look at revenue growth rates before currency as we believe this provides the best spaces to measure the underlying performance of the business. I am never pleased with performance when the numbers are preceded by a minus sign, but compared to our peers and the industry as a whole; I believe that Thomson Reuters performed well in the third quarter. Total revenues declined 2% with the professional division up 2% and the markets division down 4%. Market’s recurring subscription revenues excluding recoveries were down less than 1% and legal’s recurring subscription revenues grew 6%, and together these categories represent over 60% of total company revenues. The more resilient professional division performed well given the challenging economic environment and tough year-ago comps when revenues exceeded 10% that period. Our professional products remain in demand as evidenced by growth of 8% in each of tax and accounting and healthcare and science, and good growth in legal subscription revenues. Market’s revenues were down 4% for the quarter, again, against the tough third quarter ’08 comps when they were up 5%, and I’ll come back to this in a moment. On a consolidated basis, the whole company underlying profit was up 3% and the margin was up 140 basis points despite the decline in the top line growth, and this was driven by integration related savings, strong cost controls across the company, and the benefit of currency. The integration and legacy efficiency programs continue to go very well having achieved run rate savings of $975 million for the first nine months of the year, and we continue to expect run rate savings of at least $1 billion by year end 2009. Adjusted earnings per share for the quarter were $0.43 per share compared to $0.47, and this decline was due to higher integration costs which were planned for this period, and I should note here that we don’t adjust out integration costs from the EPS line. If we had, if we gave you EPS less integration costs, EPS for the quarter would have been $0.57; so $0.14 higher than the $0.43 reported. So, despite the flow-through into revenues of the weaker year-to-date net sales, we are again reaffirming our 2009 outlook. Now, over to the professional division. The resiliency and diversity of our professional businesses was again on display in the third quarter with strong performances from each of tax and accounting and healthcare and science driving divisional growth. While revenues declined overall in legal, subscription revenues were up 6% and our international legal units and fine law and the legal education business all performed well, and these helped to offset in part continuing weakness in print, ancillary, enterprise software, consulting services, and trademarks. So, these are no doubt challenging times for the legal group, but we believe that we’re continuing to take share and outperform the market. Turning now to the markets division; third quarter revenues declined 4% as negative year-to-date net sales began flowing through into reported revenues. The good news here is that we appear to have passed the bottom in markets as sequential quarterly net sales are improving. So, these negative net sales months should eventually work their way through the system. Recurring subscription revenues in the third quarter were essentially flat, down 7/10th of 1%, with transactional recoveries and outright revenues all down double digits. The transaction revenues are traditionally quite volatile. They’re quick to fall during difficult markets, but they bounce back rapidly as volumes increase, and in fact we’ve begun to see transaction revenues pick up in October. Now, the benefits associated with our geographic customer and product diversity cannot be underestimated in this environment. Revenue by geography showed that Asia was flat in the quarter and the Americas and EMEA declined. But drilling down we saw strong growth in China, India, Eastern Europe, the Middle East, and South America; not enough to offset losses in other geographies, but good business nonetheless with the ability to support growth when the other regions even turned flat. The enterprise segment again posted very strong revenue growth, driving revenues up 8% in the quarter with demand for the sophisticated plumbing and data that this unit provides being strong; and its fastest growing unit, enterprise information, grew 15% in the quarter, driven by customer’s need for pricing and reference data and low latency key to power trading systems. The sales and trading unit continued to see growth from commodities and energy and from the trade web portion of the business, but they were not enough to offset declines in recoveries, transactions, and desktops which were driven by headcount reductions. Investment and advisory achieved good growth in Asia, but cutbacks at buy side firms in the first half are now flowing through into second half results. Meanwhile trends within our investment banking segment continue to improve as revenues only declined 1% which was a substantial improvement from the double-digit declines earlier in the year. Let me also point out markets continuing strong performance on the bottom line; with 280 basis points of margin expansion to nearly 20%. I thought it would be helpful now to provide some context around the current market environment. With regard to the financial services market, it’s now clear that the environment is improving, but client remain cost conscious nonetheless. However, emerging markets do seem to be de-coupling again with our business in China up nearly double digits, Brazil growing 20% plus, transactions beginning to pick up, and layoffs beginning to subside, and demand for our enterprise services is still strong. So we really just need the cancellations to moderate in key centers for the good sales to drive positive growth over comps that will start getting easier for us. In the professional markets, both the tax and accounting and healthcare and science markets are performing very well all year, and we expect that this will continue into next year, and in the legal market while demand is down across all law firm practice areas except for bankruptcy, the legal market does appear to have hit bottom in the first half of the year and begun to recover with law firm billing rates up nearly 4% year over year in quarter three. So the resilience of our professional division and the depth and depth of our markets division have enabled us to perform well, and while we’d welcome a quick return to revenue growth, we understand how to operate in challenging markets, and we’re confident that we’re outperforming the competition. So despite our slowing growth, I’m pleased with our results for the first nine months of the year, and we continue to be prudent yet confident as we look to the fourth quarter. I want to conclude with reiterating our strategy that we set out for you at our investor day in Toronto last month. There is no question the challenges remain in the markets, but there are also substantial opportunities. We will continue to sharpen our focus on our core markets and remain faithful to operating in nondiscretionary professional markets. You’re not going to get any style creep from us. We’ll continue to invest through the downtrend in new products such as our Cobalt and Utah platform which we showed at investor day, and we believe that they’ll help us take share in down markets and accelerate our growth as markets recover, and we’ll continue to use our strong cash flow to execute on opportunities for profitable growth and maintain leading and scalable positions in our chosen market. We do need to traverse a few negative quarters as year to date weaker net sales flow through into year over year reported revenue figures, but we can already see our way clear to the other side, and on that note, let me turn over to Bob Daleo.

As a reminder again, throughout today’s presentation, I will speak to revenue before currency adjustments just as Tom did, and reported revenues are also highlighted on each slide. Consolidated revenues for the third quarter were $3.2 billion, down 2%. Underlying operating profit was up 3% to $711 million, and the corresponding margin rose 180 basis points. Margin expansion was driven by integration related savings, our tight cost controls, and the benefit of currency. Year to date revenues of $9.6 billion are up 1% and underlying operating profit is up 5% to $2.1 billion. The corresponding margin is up 180 basis points. Despite the improvement in margins year to date, I’ll remind you our full year margins are subject to the impact of timing and seasonality. As we reminded you last quarter, margins will trend downwards in the second half of the year relative to last year, largely attributable to slowing topline growth, but also revenue mix and increased corporate expenses primarily related to higher pension expense arising from our conversion to GAAP from GAAP to IFRS which we pointed out on that call. Nonetheless, we expect margins for the full year will be comparable to 2008. Now, I’d like to turn to the performance of the businesses. The professional division revenues were $1.4 billion, a 2% increase in the quarter—half from organic growth and half from acquisitions. Segment operating profit declined 2% and the margin decreased 70 basis points over the prior year. Efficiency initiatives and cost controls across division were insufficient to offset slowing revenue growth, changing business mix of that revenue, and the impact of dilution of acquisitions. Year to date revenues are $4 billion, up 4%--again half organic and half from acquisitions—and the year to date operating profit for the division is up 1% to $1.1 billion and the corresponding margin is flat. Now as I pointed out several times this year beginning with our Q4 ’08 earnings call, we expected full year operating margins for the professional division to decline slightly. Due to the shift to higher growth but lower margin software and service products due to acquisition dilution and some investments in global expansion initiatives. These items will also impact the fourth quarter margins. In addition to this fact, I’ll remind you that we do face from Q4 of last year some difficult comparables where revenue grew 6% organically and the margin expanded by 170 basis points. I think this next slide is a good way to think about revenue performance and the revenue mix for the professional division, and so we’re providing it for a better understanding of our underlying performance. This slide breaks up print and non-subscription services from our legal business which were down 5% and 15% respectively. Excluding these two components, the remaining 75% of the business actually grew 6%. Legal subscriptions which include Westlaw and Findlaw also rose 6%, and our healthcare and science and tax and accounting businesses continue to see good growth with both up 8%, and these businesses are well positioned in markets that are somewhat insulated from the broader economic environment. The two significant areas that impeded growth were print and non-subscription services within the legal business. We continue to expect print to be a drag on the business. The falloff in non-subscription revenues included double digit declines in Westlaw ancillary revenues, enterprise software, consulting services, and trademarks. So while we certainly are pleased by the resiliency of our core subscription business, we remain cautious about the prospects for print and non-subscription as they’re unlikely to rebound until the overall economy improves. Now, let me turn to talking about the specific segments. The legal segment declined 1% in the third quarter. It was a minus 2% organic decline offset by 1% positive from acquisitions. Within our subscription products, Findlaw was up 11% and Westlaw was up 3%. The global businesses continued to perform well, led by 9% growth in online services. This growth offset softness in our intellectual property solutions which were down 1%. By customer type, revenues from large law and medium-sized law firms declined, as they have been earlier in the year. Corporate and academic segments also saw some slight declines. Small law firms and our government units continue to perform solidly. Year to date legal revenues are up 1%. Tax and accounting revenues grew 8% in the quarter—half organic and half from acquisitions. Both corporate and professional software and services performed well, growing 10% and 8% respectively. Research and guidance declined 2% primarily resulting from a double digit decline in print revenues, and in tax and accounting the print revenues are entirely located in this segment. However Checkpoint continued to grow. It grew 7% in the quarter. Year to date revenues are $695 million, up 9% versus the prior year, split evenly between organic growth and acquisitions, and we continue to expect revenues to accelerate over the remainder of the year. Healthcare and science revenues rose 8%, all organic, driven by 19% growth in payer which as Tom mentioned continues to benefit from significant demand in both the federal and employer segments where our businesses are well positioned. Our scientific and scholar research business was up 6%, due to good growth from the ISI Web of Knowledge and life sciences which was up 8%. Year to date revenues were $627 million, up 8%, and it’s all organic. Now we do anticipate a slight step down in growth for healthcare and science in Q4 given the tough comps when revenue grew 7% organically last year. Now, let’s turn to the operating profit for the professional division. Legal operating profits for the quarter declined 5%. The margin decreased 100 basis points. Benefits from efficiency initiatives were offset by lower revenue from the highly profitable print business. Year to date operating profit is down 1% and the margins are up 30 basis points due to the benefit of currency. Tax and accounting’s operating profit declined 10% for the quarter, and margins decreased 300 basis points. Flow-through on revenue was offset by dilution from acquisitions, a shift towards higher growth but lower margin businesses, and technology related product investments. Year to date operating profit is down is 4% and the margin declined 200 basis points. However, I want you to note that the EBITDA margin for this business is actually flat year to year suggesting that the growth in revenues is translating before amortization increased profits. And this is a growing business, and we continue to make significant investments to build share and market position globally. Understandably the margin in the short term is not indicative of what we believe is the long-term potential for this business. Healthcare and science operating profit increased 32%, with the corresponding margin increasing 450 basis points. Margin gains were attributable to strong flow-through on revenues, synergies realized from combining several business units, and the timing of certain expenses. About 100 basis points of the increase was due to benefits of currency. Year to date operating profit is up 23% and the margins are 300 basis points. Now turning to our markets division where revenues declined 4% in the third quarter, impacted by weaker year to date net sales as well as continued softness in areas such as recoveries and transactions as Tom has mentioned. I will discuss these factors in a bit more detail later, but excluding one-time sales and pass-through revenues, our core subscription business declined only modestly, down less than 1%. By region, organic revenues in Asia were flat; however, Americas and AMEA declined 6% and 3% respectively. Operating profit rose 10% to $369 million and the margin increased 280 basis points. Half of the increase reflects the benefits coming from integration related savings and effective cost management, with the balance coming from currency. On a year to date basis, operating profit grew 9% and the margins also expanded by 280 basis points. Approximately 160 basis points of the improvement was due to cost savings and efficiency with the balance from currency. Given the decline in topline that we experienced in the quarter, we are pleased to be able to protect and grow the bottomline margin. This achievement is the result of delivering on integration savings and tightly managing costs, whole continuing to make prudent investments in the future of our business, and I mentioned last quarter, I’ll remind you we really are probably at the high point on margins in this business cycle; however, when growth eventually returns we believe margins will have even more room to expand. Now I want to discuss the drivers of market division results in a bit more detail. As I previously mentioned, core subscription revenues declined less than 1% in the quarter led by the growth in enterprise which was offset by declines in sales and trading and investment advisory. This is a really remarkable performance given the challenging markets. However, our revenues were dragged down by one-time sales and certain, I’d call them, more volatile services. First we experienced an 11% decline in recoveries. I’ll remind you recoveries are low margin revenues that we collect and forward to third party provides such as exchanges. This decline has been driven by cost control among users and certain exchanges moving toward direct billing of their customers. Most of these revenues are in sales and training. Second, a 15% decline in transaction revenues. This trend should be familiar to you and is primarily drive by declines in revenues from our spot foreign exchange transactions against very tough year ago comparables. 2008 was a record year for foreign exchange trading volumes, and the third quarter was particularly strong last year. The volume of foreign exchange transacted over the platforms is down 17% from last year, but is beginning to rebound from the lows of the first half of year and average daily volume in October marked a high for the year. Third, a decline in outright revenues of 19%. While small in context to the division as a whole, these one-off sales tend to be quite lumpy. So we’re pleased by the resiliency of our core subscription business, and we expect transactional and one-time sales to improve as our markets recover. Now, let me review the performance of the markets for our business units. Sales and trading third quarter revenues declined 6% in the quarter. Half of this decline was driven by lower recovery revenues with the balance due to weakness in foreign exchange transactions as I discussed previously and declines in desktop products. The decline in desktop revenues was due to the flow-through of cancellations received earlier in the year as well as decisions we have made on our part of our integration to sunset certain low margin products, and I’ll remind you that in this environment we are in the midst lest you forget other important business integration, and some of these products which certainly have the right move is to sunset that contributed to the decline. I’ll just remind you these things like Ridge and Global Topic, and ILX which we have been systematically trying to move many of our customers to more efficient and more effective platforms. However, in sales and trading, we also saw encouraging pockets of growth, from commodities and energy. Investment advisory’s third quarter revenue declined 5% organically. The buy side customer phase continues to be impacted by fee pressure resulting in cost management and headcount reductions. As a result, investment management and wealth management both saw revenue declines. Despite this tough environment, we made good progress with sales of high-value analytics. Cost containment on the part of customers also impacted the corporate segment which declined 4% in the quarter. The trend within our investment banking segment continues to improve. Although revenues declined in the 1% quarter, this represents a substantial improvement from the double digit declines that we saw at the start of the year. We are particularly encouraged by sales of our product [inaudible] which continues to perform extremely well. Enterprise once again delivered excellent growth of 8%, all organic. We continue to enjoy health customer demand for data feeds and our suite of solutions. And enterprise information grew double digits driven by demand for pricing information from front, middle, and back office solutions as customers look to reduce cost and manage complexity, and within information management systems we saw good sales of our hosted solutions particularly in Asia. The trade and risk management business revenues grew double digits. Finally, media third quarter revenues declined 10%. Our agency business was down 6% in the quarter, driven by consolidation in traditional media outlets and softness in transactions. We continue to see declines in our professional publishing segment and weakness in our advertising-driven consumer businesses; however, these two advertising-driven niches are small relative to our business as a whole. Now let me turn to our adjusted earnings per share. Within the quarter, we initiated the move of an intercompany asset from one legal entity to another. While there is absolutely no cash impact from this transaction, there are two recorded accounting impacts. First, since this will be a tax-free transaction, we are required under IFRS to recognize the benefits of certain existing tax losses via the tax line on our income statement. Second, since the tax loss we were using was acquired in the latest acquisition but not established as an asset at that time, we had to reduce an equal amount of goodwill which appears under the non-operating expense line. Since these two entries cancel out, the result has no impact on reported earnings. As you can see on this schedule, we removed both entries from adjusted earnings. Additional adjustments to our reported earnings in the quarter include the removal of fair value adjustments of embedded derivatives which negatively impacted operating profit by $47 million in the quarter. I’ll remind you this has no cash impact. The normalization of our reported tax figure in conjunction with our expected full year rate is roughly 22%. Finally, the removal of amortization of intangible assets related to acquisition—the result is $359 million of adjusted earnings in the quarter, or $0.43 per diluted share versus $0.47 per share last year. This decline was entirely due to an incremental $52 million of integration related costs. Year to date adjusted diluted earnings per share are $1.41 versus last year’s $1.31. Now moving on to cash flow, year to date reported free cash flow is $1 billion, slightly less than the prior year; however, excluding the one-time integration of legacy program costs, underlying free cash flow is $1.4 billion. I’ll remind you again that the 2008 free cash flow figures are not pro forma, and that these headline numbers mask a very strong performance for two reasons. First, the 2008 figures did not include the first quarter cash outflow of approximately $100 million from the legacy Reuters business, and second, net interest payments were $300 million higher in the first nine months of this year as compared to last year, primarily due to the interest payments on the incremental $3 billion of the Reuters’ acquisition, and at the same time last year, we had interest income from Thomson Learning proceeds. Excluding these two items, normalized free cash flow is tracking well ahead of the prior year due to higher operating profits and our lower cash tax payments. Now let me just also stop and say that during the quarter the company continued to strengthen its capital structure, with the redemption of $600 million of outstanding debt financed through cash on hand and the issuance of $500 million of 4.7% notes due in 2019. Year to date the company has refinanced $1.1 billion of long-term debt, reflecting its continued ability to access and take advantage of favorable capital markets. Turning now to out integration and synergy programs, as of the third quarter we have achieved a combined run rate savings of $975 million. Given this progress, the company continues to make on its integration programs, we expect to achieve at least $1 billion of run rate savings by this year end. Savings were principally achieved through elimination of redundant positions and the retirement of some legacy products as I mentioned. We spent $148 million on integration and synergy costs in the quarter, bringing the year to date total to $343 million. The majority of these costs relate to people and technology. As Tom mentioned, we’re affirming our full year outlook. Nine-month revenues are up 1% and expected to grow for the full year. Our reported margin is currency running ahead of last year by 180 basis points, of which 100 basis points is due to the benefits of currency. For the reasons I outlined earlier in this presentation, the full year underlying operating profit margin is still expected to be comparable to last year, and we remain on track this year to deliver free cash flow comparable to last year. To summarize, before I turn it over to questions, we feel quite good about the current positioning of the business. We’re also encouraged by the early indicators suggesting that sales and volume are improving. Nevertheless, we recognize the difficult sales environment we’ve faced all year will have an impact on our revenues in the near term as our core subscription slowed down and our non-subscription services await the broader economic recovery. I will remind you that the quality of our business reflects in the quality of the earnings which have always been underpinned by strong cash generation. As we expected, the strength of our business model and our balance sheet are providing strategic and tactical advantages in this challenging environment. With that, now let me turn it back over to Frank for questions.

That concludes our presentation. I would like to ask the operator open this portion of the session for Q&A.

(Operator Instructions) Your first question comes from the line of Paul Steep – Scotia Capital. Paul Steep – Scotia Capital: A big picture question, firs for Tom and then maybe a clarification for Bob. Tom, you can maybe talk a little bit about Cobalt, what the opportunity is beyond price inflation in terms of cross-selling and clients to get more involved in the platform. It looked like that was the highlight of the investor day.

It’s a very innovative platform, and what we’ve seen in our legal business is the more touch points we have, the more of our various services that we can deliver into a given law firm, the greater the reported growth we get from that firm. So the very positive thing is we’re not taking anything away in the existing very successful competitive Westlaw product. It’s not bad to have something that’s going up at 6% in terms of subscription sales, in terms of the carnage we see now, and also because of the sophistication of really the analytics and the search that are in Cobalt, I think we will be able to extend our share leads in the current market, as you mentioned, improve on pricing, although it ends up being a very close working with the customer to make sure that they’re valuing from the additional efficiency and we’re participating in the value that the platform brings, but, yes, it’s a very positive exciting thing for us, and it’ll be coming at a very appropriate time in 2010. Paul Steep – Scotia Capital: The clarification for Bob is, Tom talked a lot about the subscription. I think he handled that. The recoveries is the bit that I think I’d love some clarification on in terms of what’s the amount of the headwind we face into the next couple of quarters from these sort of pass-through changes that are happening?

First of all, they do represent a small part of the business, and a very small part of profits. It’s a very low margin business, so while it certainly affects the headline revenue growth, it has little if any impact on the profitability or cost structure of the business, and we have seen recoveries challenged all year long. They represent 10% of the market’s overall revenues. It’s hard for us to predict that. What you’re seeing in recoveries is the revenue challenges of some of the best exchanges, and also some of these exchanges are simply moving to direct billing, which is fine with us too. It’s something that we report on. I think you should know about it, but you should also know that of all the issues that we have this certainly isn’t one that significant, but I think it could last certainly throughout the balance of this year and maybe into 2010, but I really don’t have a window on that.

I’d just jump into to say I totally agree with Bob. The thing that I’ve always looked at and take as a healthy sign is when we compare our growth rate, or in this case, the decline of 4% versus the double digit decline in recoveries, what that tells me is our share of wallet is increasing, and in the day to day work by the salesforce with customers, there is a substitution effect because it’s exchange fees and it’s certain third party data, and we’re doing exactly what I’d expect us to do which is in making sure that when there are reductions we keep more of whatever budget is available at a given client.

Your next question comes from the line of Vince Valentini - TD Newcrest.

I wanted to make sure I understand your outlook on the legal segment completely. You said that the subscription revenues were up 6%, and you’ve now told us that net sales have turned back to being positive in the third quarter. Should we read through into that 6% as being a sustainable type of number? I would have there’s still some lag effect to come from all the headcount reduction earlier in the year. As contracts come up for renewal, would you expect to see some pain on that 6% subscription number before it turns back up again?

I feel good about the subscription number of 6%. You’re right, every quarter there are new contracts coming up. The legal market seems to really have bottomed earlier in the year, more in the first quarter, and we’ve been seeing improvement. The overall environment isn’t brilliant in the legal world. I think it’ll be a long slow improvement, but then again that’s why I’m really pleased that we haven’t been sitting still and we have Cobalt coming on stream next year, so I feel real good about the core of our business, the electronic subscription business. I think we will continue to see attrition in print, and we have that baked into our numbers going forward, but this is a really good business, and strategically and structurally that market remains sound.

Your next question comes from the line of Patrick Wellington - Morgan Stanley.

Tim, could you give us a bit more feel for the scale of markets net new sales? How is that going between the first couple of quarters? We know that we were down in Q1 and Q2, but can you give us a bit more color about the direction there? Secondly, you made a few references as we went through that it’ll be a few more quarters before revenues for the group pick up, and I think you said that the calculation is mathematical, so for those of us weak with our math, exactly how many quarters are you showing as negative revenue growth on your forecast at the moment?

Patrick, I’ve never thought you were weak on your math, though I think your impression was right on in the market when you wrote about the shallow dip several quarters ago as I remember. Let me try and help a bit. There are obviously two factors that impact the timing of what does a few mean. One is what I’ve been calling the mathematics of the subscription model. You understand well, everyone on this call understands well, which is just what happens when you get full year effect, let’s say next year, on sales activity that’s been spread or cancellation activity that’s been spread through 2009, and were that the only factor at all, it would be relatively straight forward. There tends to be a three quarter lag and you can figure out what that means. The complicating factor is obviously the environment as a whole isn’t constant, and what underlies our outlook and the discussion Bob and I have is in our businesses we’re not trying to predict what the overall economy does, whether it is U, V, or W. We’re basically saying we’ve reasonably good visibility because of the nature of our business, and therefore we have seen a market improvement in the sales activity in the second half of the year versus the first half of the year, and unless the overall economy lurches down badly or there is some terrible event, that should result in let’s say a stronger reported set of revenues in the second half of 2010 than in the first half, so a better exit rate than an entry rate, but calling the exact quarter is difficult, and I think we were gutsy earlier in the year when we went out with guidance in this most difficult year. We are trying to give you as good a sense of where the business is. We feel it’s under good control and we understand the trends, but neither Bob nor I can control the underlying macroeconomies we operate in. And in terms of the game I used to enjoy playing with you and Reuters which is exactly what is the net sales month on month. I would describe it in words as a significant improvement in Q3 versus Q2 in terms of market’s net sales. They are still negative, but they’re much less negative, and all other things being equal, I would expect that trend to continue, but again subject to no guarantees on the macroenvironment.

Your next question comes from the line of Drew McReynolds - RBC Capital Markets.

Tom, that was good color on the underlying trend. When you talk about needing cancellations in key centers to obviously improve, can you just maybe give us a little bit more color on what conditions out there are really required to be put in place specifically within markets division in order for that to happen, and again strictly talking about cancellations in the key centers?

Obviously one of the great benefits of this business and why it has performed well is that in fact it isn’t just one center or one type of business. It’s nicely diversified by geography and product, but I’ll try nonetheless to tackle it. I’ve been impressed through this entire year with how the market scene has been able to continue to sell, so their gross sales are very good, and not only in places like China and India where the whole world recognizes it’s more of a V shape, but if you look at the enterprise group that they could right through this year be growing their revenue 8% and plus in earlier quarters is a testament to how valuable what they do is because I can tell you having been with a ton of clients over the last 18 months, no one is spending a penny on anything that they don’t absolutely need. So now back to answer your question in that context, Drew, what I’m looking for is the cancellation activity to abate to allow the strong trend in gross sales to pull up the overall results, and what would be required? Well, I think we’re already beginning to see a stabilization in terms of headcount reduction. People have continued to trim a bit through the year, but not like they were year end last year and into the first two quarters, so that’s a trend that I’d expect to continue, and I think we also need to see a little bit more clarity on the regulatory picture. Legislation in the US—it looks like Obama will get some form of financial reform legislation changes going through. It’s the same in the UK as well. Once that’s clear, people will be able to sort of longer term plans, and I think that will feed through to greater confidence in the market as well, but beyond that it’s obviously very difficult to have clear visibility on the timing of when that’ll happen.

Your next question comes from the line of Thomas Singlehurst – Citigroup.

I have one general and then one relatively specific one. Bob, you mentioned when talking about the markets revenue that the 3Q would mark the high point in terms of margin disappointments in the cycle. Could you just confirm that, and would that comment apply to the group as a whole, and going into next year should we be how should we be thinking about margins? The second question was actually very specifically on investment advisory. The recent purchase of Hugin, although it is very small, but does this signal more of a direct attempt to get into the newswire distribution market?

In terms of margins, I was very specific to certainly the markets division, simply in the sense that obviously we operate highly leveraged businesses, and so that when revenue softens you’ll see some decline. We’ve done a great job. They’ve done a terrific job of pulling costs out and doing integration, but it is likely that that kind of a margin will be the high point for them, without a doubt, and the implications for the company as a whole is that markets represent substantial amount of the business. We also signaled that we thought professional would see some bit of margin erosion. We’ve been talking about that all year. So by implication that’s why we’ve come back even though we’re ahead through three quarters, we’ll be losing some of that in the fourth quarter, and it will be comparable to 2008. As far as 2010, I think that there is a lot of work that need to be done between now and then. We’re very good, as Tom said, at managing these businesses, and so certainly everything we will do will be to try to minimize any of the impact on soft revenues in terms of the bottomline, but I think there is more to stay tuned, because we’ll talk specifically about 2010 when we release our results at the end of the fourth quarter.

Just to pick up on Hugin, it certainly wasn’t a large business. We purchased it in the corporates segment of investment and advisory, and I think it’s a European based and focused business that does connect let’s say issuers of securities out with the audiences for their communication which is very much part and parcel of the existing corporates strategy, and I think the way you should see it is it’s the next logical step in what our corporates business can do. We understand the workflow of the Frank Golden position around the world, and it also represents what has been to date a successful strategy in corporate, which is to globalize and bring some of the same services we have so we can cross-sell into their existing client base, and we can take their capabilities global. It’s one of those middle of the fairway acquisitions, and so far it looks good.

The next question comes from the line of Randal Rudniski with Credit Suisse. Randal Rudniski – Credit Suisse: I had a question on the outlook for the legal division because in the outlook statement it seems to, maybe it’s my reading, tie a shallow dip in legal to negative net sales in legal subscription revenues, but your subscription revenues look like they have been quite strong all year, and even in the performance review of legal you indicate subscription revenues grew, so is there an inconsistence there?

The way you explain it, it does sound like an inconsistency, but I’ll try to make it not. You have to remember something: When you look at the legal business of all the segments, I believe that only 60 something percent of that business is actually subscription revenues. The rest of that is print, which we really don’t count as subscription, and I’d call them transaction and slurry, whatever you want to call non-subscription services, and so what’s happening is the growth in subscription in the early part of the year was sufficient to offset what has been a real challenging market in these other areas, and what we are saying is that as growth moderates because our subscription sales, while positive, have not been as positive as they were in prior years, so as that positive growth of subscriptions starts to wean a bit, the decline in the non-subscription areas and particularly print will really drag the business and has dragged the business to date, and that’s what we expect when we talk about the longer term. Randal Rudniski – Credit Suisse: So when it comes to some of these ancillary businesses which were down, I think, 15% year over year in this quarter, and I think that’s pretty consistent with the pace of decline in the first half, can you describe where you’re seeing the pressure there?

It’s a couple of areas. For example, we are the largest provider of back office software to law firms through Elite. In this environment, you can imagine that that no one is doing much of that, and the declines in Elite have been 20% plus. We have a consulting business that provides consulting services to law firms, and that has been significantly impacted, so those really are the kinds of areas. They tend to be, I would say, certainly important services, but in challenging times can be viewed as discretionary, and those are the areas where we have seen the greatest decline, and obviously print is one of those areas where we have done, as we have talked about, such a very good job of transitioning from print to electronic that we have made print a little bit less essential to our customers in many areas, and that’s where we’ve seen the decline.

The next question comes from the line of Mark O'Donnell with J.P. Morgan. Mark O'Donnell – J.P. Morgan: You’ve got your free cash flow growing, and you’ve done a lot of the Cobalt and Utah investments and perhaps seeing the worst of the net sales. What is the thinking then on the dividend than use of cash going into next year?

That’s a fair question. We’ll talk about the dividend with our board in early next year once we have actually closed the books and seen the cash, and we make a decision at that time. I would remind you that our philosophy has always been that we view dividends as an important part of value creation for shareholders, and we’ve consistently stuck to that, and I think earlier this when a lot of other companies were obviously cutting their dividends tremendously, we came out with another increase consistently, and to signal not only the fact that we have a strong company but we have a very strong business model, and we recognize the linkage between that and creating value for our shareholders, so I really don’t want to comment on that. That’s the board’s purview about dividend increases, but I think as I said in my remarks, we have a very strong business model, a very strong balance sheet, and we will use those to our advantage during this period.

The next question comes from the line of Mark Braley with Deutsche Bank Securities. Mark Braley – Deutsche Bank Securities: On the subject of the full year margin guidance, I’m afraid this is one of those analyst questions where I ask you whether you’re being ridiculously conservative for the full year. Your margin 3-9 months is actually quite considerably ahead, so you’re building in enough room for the fourth quarter margin to be down a long way, something like a profit swing of about $150 million. You have given us just a few reasons around that—pensions, phasing, timing of investments, etc. I just want to clarify those issues you have identified could potentially impact profit year on year by as much as $150 million in the fourth quarter.

You need to remember that our guidance has always been excluding currency, and a substantial part of the improvement year to date has been in currency, and so while we may show an end of year improvement year to year, we believe a substantial part of that will be currency, so you do that math, I don’t know if you calculated that into it. I’ll remind you the fourth quarter is a big quarter for Thomason Reuters. We have a lot of moving parts. A number of corporate expenses get booked in that quarter, which haven’t shown yet, and a large portion of our revenues in the fourth quarter and a large portion of our margin comes from the fourth quarter, and last year as I said, in the fourth quarter we saw 170 basis point improvement year over year, fourth quarter ’08 to ’07, and so there are a lot of moving parts in this, and frankly that’s why we continue to stick with our guidance that we will be comparable and leave it at that. Mark Braley – Deutsche Bank Securities: On two of the issues, the pensions and other corporate cost, just what’s coming through on pensions this year? Does that get you to where you need to be in terms of funding levels? Are you allowing if market stays where they are that wouldn’t be either a contributor or a drag into next year, and the corporate costs, are we basically there talking about is incentivization because of what share price has done over the last 12 months?

The answer to the second question is yes, and the first question, the pension costs have very little to do if anything with our pension. Our pensions are fully funded. We don’t have an issue. I’ll remind you the difference here is that in US GAAP or Canadian GAAP, you’re able to take gains or losses. You take them to the balance sheet and smooth them over time. In IFRS, you take them to the P&L, and so what we are seeing here is the substantial full year, over $30 million, impact of this effect of move in investment asset values taken directly to the P&L, and so that’s what we have seen, that’s what we will see again in the fourth quarter.

That concludes our call. We appreciate you joining us, and we’ll speak to you again in February on the fourth quarter results.