Despite an 19% rise in net profits, a 17% rise in pre-tax profits and 8% growth in revenue for fiscal 1996, Reuters Holdings Plc has warned that forthcoming changes to its pricing structure may slow down the revenue growth rate in 1997, and that was enough to send the shares into a blue funk. They shed 26.5 pence at 615.5 pence early in the day. Company chairman Peter Job, also referred to the recent sharp rise in the pound sterling and predicted that a strong pound would severely restrict prospects for reported revenue and earnings growth. This is in spite of the fact that by the end of 1996, the London-based news and information company could attribute hedging currency gains of 35m pounds, to an increase in the pound’s trade-weighted index to 96.1 from 83.1. The limitation of hedging is that while it can even out lumpiness in foreign exchange markets, its benefits only last for a relatively short time before they run out, and so are of limited use in a medium term trend. The company is rebalancing its Dealing prices to encourage a move to the new 3000 series from the firm’s Dealing 2000 range of financial products. This will make it difficult for the group to better the underlying revenue growth rate achieved in 1996, Job said.
Record number of trades
Job mentioned that the firm had so far received more orders for the 3000 range, which combine real-time and historic data, than expected at 14,700 but that actual installations were much slower, at just 2,500. These are part of the transactions products division whose revenue grew 21% from 671m pounds last time, spurred on by good performance from its Instinet unit. Reuter’s foreign exchange dealing products made little progess last year due to flat markets, the company said, but a record number of trades for its Dealing 20002 and 20001 foreign exchange products occurred in January this year. The Globex automated matching system for futures contracts for the Chicago Mercantile Exchange is not likely to continue beyond 1998. The decline in information products revenues last period (CI No 2,851) leveled out to a 2.8% rise to 1.89bn pounds this time around, despite a drop in the Tibco Inc unit’s earnings of 22% to 60m pounds. This was put down partly to product expansion beyond the finance industry into the Internet arena. Reuters spent $202m, some 7% of revenue, on research and development last year. Revenue for the media and professional products arm rose 9% at 209m pounds. The company began to seek ways of returning surplus cash to shareholders this time last year (CI No 2,851) but the approach it came up with was blocked by the UK government towards the year end, and so it is still searching for a suitable method. In the meantime, it will pay a final dividend of 9.0 pence, and expects to maintain double digit dividend growth in 1997.
