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July 24, 1990

NOTE OF CAUTION CAUSES AN EXAGGERATED BLOODBATH IN REUTERS’ SHARE PRICE

By CBR Staff Writer

Interim results including a 26% increase in revenue and pre-tax profits up 23% were not enough to stop news and information agency Reuters Holdings Plc’s share price crashing 66 pence to 1,163 pence yesterday afternoon. Despite claiming that underlying growth rates remained at a healthy 18.8%, managing director and chief executive Glen Renfew issued the warning that revenue growth rates for the second half would not match those reported in the first six months to June 30. A decrease in the growth of new orders, an increasing number of cancellations of the Reuters service and a fall in US sales of trading room systems were all responsible for what Renfrew described as the note of caution; worryingly, phase two of Reuters’ Dealing 2000 automated dealing system, seen by Renfrew as very important for Reuters’ future had experienced a little slippage and no revenues were now expected before the end of the third quarter. Deputy finance director Rob Rowley indicated that expenses associated with the satellite element of Reuters’ new integrated digital network, development of the 80386 chip-based Reuters terminal, and higher editorial costs resulting from moving more into the capital markets and East Europe had meant that total costs, at UKP536.7m, had risen ahead of revenue – Renfrew interjected that costs for the remainder of the year had been trimmed. Globex, Reuters’ planned futures trading service, was also behind schedule due to protracted negotiations with the original Globex partner, Chicago Mercantile Exchange, and particularly with the Chicago Board of Trade, which recently announced its interest in the project. Renfrew confirmed that Reuters had put a lot of money into developing automated trading facilities – of which Dealer 2000 is one – but had to report that all but the Instinet equities system had generated costs but no revenue. On the plus side, currency fluctuations had generally worked on Reuters side, and revenue growth had been good in Europe and Asia despite a weak yen. Meanwhile, the general trend towards tax reductions across the world had allowed tax charges to fall to 35% of pre-tax profits from 37% last time. For the future, Reuters recognises that it has to put more investment into analytics and historical information – perhaps bucked by the US success of the Blumberg service that has a strong analytical bent – and will be adding more customised news services aimed at large corporate customers. The shares still look to be a buy on weakness, as they say.

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