Thomson Reuters Corporation
Q2 2010 Earnings Call Transcript

Published:

  • Operator:
    Ladies and gentlemen, thank you for standing by, and welcome to the Thomson Reuters Second Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Senior Vice President of Investor Relations, Frank Golden. Please go ahead, sir.
  • Frank Golden:
    Good morning, and thank you for joining us, as we report our second quarter 2010 results. We will begin today with Thomson Reuters CEO Tom Glocer, who'll be followed by our CFO, Bob Daleo. Following Tom's and Bob's presentations, we'll open the call for questions. Please limit yourselves to one question. Now as Tom and Bob discuss the quarter's results, keep in mind that when we compare performance period-on-period, we look at revenue growth rates before currency as we believe this provides the best basis to measure the underlying performance of the business. 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 regulatory agencies. You can access these documents on our website or by contacting our Investor Relations department. It's now my pleasure to introduce the CEO of Thomson Reuters, Tom Glocer.
  • Thomas Glocer:
    Thanks, Frank, and thanks to all of you for joining us today. I plan to cover four topics
  • Robert Daleo:
    Thank you, Tom, and good morning, and good afternoon, everyone. Today I'm going to discuss the results for the second quarter, provide a brief update on our integration initiatives, and review our outlook for the full year as Tom mentioned. And moving to this first slide, Tom did note, we are pleased with the performance in the second quarter and through the first half of this year. We're tracking to our expectations with few surprises and results, thus far, for us are consistent with the full year outlook we presented in February. While revenue in the quarter was negative, the trend continues to improve, which is clearly reflected in this slide. The encouraging net sales performance that Tom outlined and a more constructive environment in our markets, lead us to believe this trend is likely to continue and to have expectations to achieve revenue growth in the third quarter. Now I will speak to revenue before currency, as Frank noted. Reported revenues are also highlighted in each of these slides. In the second quarter, while foreign exchange had a small unfavorable impact on our revenues, it led to 120 basis point negative impact on our consolidated margin. Now I remind you that our business mix is such that we are long on euros, meaning we have more revenues than expense, and short on sterling, meaning we have the opposite. The current environment, with the weak euro and essentially strong pound, negatively impacts both revenues and costs. Now this is most significant in our Markets division. Consolidated revenues for the first quarter were $3.2 billion, down 1% versus the prior year, with 1% benefit from acquisitions. Underlying operating profit was $655 million in this quarter and the corresponding margin decreased, primarily due to the flow-through on lower revenues, product mix, the previously announced investment in new product launches and the aforementioned impact of currency. These factors more than offset integration savings, our continued tight cost controls and efficiency initiatives across the business. Now excluding currency, underlying operating profit declined 12%. On a year-to-date basis, revenues are down 2% with the 1% contribution from acquisitions. Underlying operating profit was down 12% and the corresponding margin is 19%, down about 50 basis points due to currency. Now I'd like to turn to the operating performances of the individual businesses. The Professional division's revenues in the quarter of $1.4 billion, up 2%, attributable to acquisitions. Organic revenue growth was essentially flat for the quarter. The operating profit declined 10% as we had expected, and the corresponding margin declined to 27.7%. Margins continue to be pressured by a combination of lower revenue growth, revenue mix, unfavorable acquisition accounting and the higher depreciation and amortization costs from new product launches and the acquisitions. Currency had a negligible impact on Professional's margins. On a year-to-date basis, revenues were up 1%, with organic growth down 1%. Operating profit at $675 million and the corresponding margin is 25.1%, as again with FX having negligible impact. We expect the Professional division's revenue growth to ramp up in the second half of the year, which will lead to strengthening margins. Now turning to this slide, which I think is a helpful way to look at the revenue performance and the dynamics for the second quarter. The Tax & Accounting, Legal Subscription and Healthcare & Science businesses continue to generate solid growth and to take market share. In fact, on a combined basis, these businesses grew 5%, while they represented 75% of the division's total revenues. Offsetting this performance was a continued decline in Legal's Print revenues, which were down 9% versus 17% in Q1, with both periods impacted by unfavorable timing. In addition, Legal Non-Subscription revenues declined 5% versus 8% decline in Q1. Print attrition has significantly improved from the prior year and is now nearing normalized levels, a meaningful step towards stabilization. In fact, we do expect Print revenues to be flat to slightly up in the second half of the year, in part due to timing and favorable comparison. Non-subscription businesses achieve good growth from Elite and trademark. However, we continue to experience double-digit declines in the ancillary revenues as customers continue to monitor spending outside their base contracts. Given these trends we are seeing across Professional business, we expect to see a pick up in the division's revenue growth rates in Q3 and Q4. Now let's turn to the performance for the business units in the second quarter. Legal's revenues overall were unchanged from the prior year and down 1% on an organic basis. As mentioned, our Subscription revenues grew 5% in the quarter led by a 17% growth in FindLaw and a 12% growth in our Intellectual Property businesses. Our international businesses grew 2%. Corporate business grew 2%, and government-related revenues declined 4%, primarily on the backs of state spending. Tax & Accounting revenues grew 8%, which was 3% organic and 5% from acquisitions. Workflow Solutions represented nearly 2/3 of Tax & Accounting's revenues in the quarter and grew 12%, led by good growth in income tax products including InSource and our creative solutions suite of products and the Global Tax Technology segment. Business Compliance Solutions revenue were flat despite an 8% increase in Checkpoint revenues, which were not enough to offset declines in the remaining segments of the business including Print, which fell 5%. As I stated in the previous quarter, we expect growth for Tax & Accounting to continue to improve as the year progresses. Health & Science revenues grew 3% in the quarter. Organic revenues were actually flat. The Payer business grew 6%, on the strength of strong performance within the Health Plan segment. The Scientific & Scholarly Research business grew 10%, benefiting from the continued solid growth in our core information offering, the Web of Knowledge, Web of Science, and the benefit of Discovery Logic , a recent acquisition. Partially offsetting growth was an expected decline in the Provider business, which was down 6%. Growth in this segment was impacted by a series of timing issues. We always encourage measuring performance of our businesses on an annual basis, particularly when we're looking at the smaller SBUs like Health & Science. I'll point out that the year-to-date revenue was up 6%, including 3% organic. Now let's turn to the operating profit within the Professional division segments. In Legal, Q2 operating profit again as expected declined 10%. Margin was 32.7%. We estimate that the impact of product mix alone had impacted margins by approximately 200 basis points, effectively neutralizing the benefits of our efficiency initiatives. Lower revenue growth and continued investments in the business also contributed to the profit and margin declines. Over time, as we return to revenue growth, margins are expected to return to more historical levels in this segment. Year-to-date, our operating profit is down 11%, and the margin is 29.3%. Tax & Accounting operating profit decreased 11% for the quarter, and the corresponding margin declined to 13.2%. Now these were anticipated declines are largely due to the dilutive impact of last year's acquisitions, as well as incremental depreciation and amortization associated with the product investments that we've made. Year-to-date operating profit is down 13%. Margin is 13.3%. Now this is certainly not indicative of the full year, and I'll remind you that Tax & Accounting is historically a seasonal business, where nearly half of its operating profit is generated in the fourth quarter alone. Health & Science operating profit declined 8% to $48 million, and the related margin fell to 22.4% due to timing and some difficult prior year comparables. Now as I continue to mention, when discussing Health & Science revenues, quarterly figures are impacted by small timing shifts in the quarters. In this case, it's a loss of small numbers. And year-to-date, the operating profit is up 11% and the margin is up 100 basis points. Now turning to the Markets division, where revenues declined 3% in the quarter to $1.8 billion due to the impact of negative net sales from last year, and some onetime revenues in the period and the impact of revenue dis-synergies associated with the integration that I discussed actually last quarter. The year-on-year quarterly trend continues to improve, and the Q2 represented the second quarter of sequential revenue growth for Markets, and I'll talk about that in a moment. By revenue type, recurring subscription revenues declined 4%. Recovery has declined 7%. The revenue categories not subject to the lag effect of lower net sales, meaning transactions and outrights increased 4% and 15%, respectively. By geography, Asia revenues were down 1%, while EMEA and the Americas declined 3% and 4%, respectively. Operating profit was $319 million, and the corresponding margin declined to 17.5% due to lower revenues and a 200-point negative impact from currency. Excluding currency, operating profit declined 15%. In the quarter, we also faced particularly difficult margin comparisons versus the prior year, when we identified the quarter's margin as a high watermark in this business cycle. And I'll remind you that, that quarter, the margin increased over 400 basis points from the prior year. Year-to-date revenues are down 4%. Operating profit is $642 million, and the related margin is 17.5%. On a year-to-date basis, currency had a 50 basis point impact. Now let's review the performance of the Markets division's four segments. Sales & Trading revenues declined 5% organically. The decline was driven by a 9% decrease in revenues from recoveries and a 5% decline in recurring revenues, primarily desktops in the ETI and Fixed Income businesses, where revenues have been impacted by the strategic decision to sunset some low-margin products. We did see growth from our Commodities and Energy segment, which was up 3%. Tradeweb delivered 4% growth on the heels of stronger treasury volumes. The Treasury segment declined 1% in the quarter due to weaker 2009 net sales despite a significant increase in FX volumes, which led to a 6% growth in Sales & Trading's overall transactions. Investment & Advisory revenues declined 6%, 7% organic with the benefit of 1% from acquisitions. The Corporate business grew 9% in the quarter, primarily on the strength of the Hugin acquisition. The remainder of the business was impacted by late-cycle impact of negative net sales in 2009. Investment Management revenues declined 10% resulting from the 2009 buy-side cost-cutting initiatives, and Wealth Management fell 7% due to a onetime revenue benefits last year and fewer desktops resulting from product closures including ReutersPlus and ILX. It's worth noting that we are seeing positive momentum in this business segment in June net sales, with being the best since the fall of 2008. Enterprise overall grew 6% in the quarter, and this was all organic. The Enterprise Information segment, which represents 60% of the business, grew 9% on strong performance in both realtime and historic data fees. Risk Management, which represent another 15%, grew 6% on strong outright software sales, and our Platform business also grew 6% on sales of recurring products. Omgeo was flat in the quarter. Now finally, Media's revenue declined 3%. 4% was organic, and we had an increased benefit of 1% from acquisitions. The Agency business was down 6%, as it continues to be impacted by tight customer budgets. However, a major contract win in the quarter with CNN propelled sales into the positive territory. The smaller Consumer segment grew 19% in the quarter and successfully launch several new mobile applications, including News Pro for the iPad. Now last quarter, we showed a chart, this chart, that highlighted sequential revenue growth for the Markets division in Q1 as the means to provide a more, what we will call, realtime performance metric. This view effectively removes the inherent lag effect from year-over-year results. And the trend we saw in the first quarter continues into the second quarter. Recurring subscription revenues grew 0.2% in the quarter, and this is fairly consistent with the first quarter, which also had the benefit of a price increase contributing about 1.5% of growth. Recoveries revenues declined slightly versus last quarter, and I'll remind you that these revenues are low margin pass-through revenues, which were generated actually by third-party vendors, primarily exchanges. Transaction revenues continue to accelerate growing 6% versus the prior quarter on the heels of strong foreign exchange volumes, primarily related to the eurozone credit concerns. Now you'll note that we've excluded outright revenues. Despite its strong performance in the quarter, since they're extremely seasonable, with over 40% of the annual revenues recorded in the fourth quarter. Now let's move on to some of the corporate areas. Our corporate costs totaled $104 million in the quarter. Our core corporate costs were $50 million, down $11 million versus the prior period due to tight cost controls. Overall corporate costs in the quarter were down $151 million. It's primarily due to $123 million favorable swing in fair value adjustments, which I'll remind you are noncash foreign exchange accounting adjustments made quarterly, when we mark-to-market certain customer contracts. Integration costs were also down $17 million in the quarter, and I'll speak a bit more about this in a moment. Year-to-date, our core corporate costs are down $14 million through the above noted reasons. Now let me turn to adjusted earnings per share. Earnings attributable to common shares were $290 million in the quarter. To arrive at adjusted earnings, we make the following adjustments
  • Frank Golden:
    Thanks very much, Bob. We would now like to, operator, open the call for questions. And again, if I could ask you to ask one question each, so we can get to as many as possible, please.
  • Operator:
    [Operator Instructions] Drew McReynolds from RBC Capital Markets.
  • Drew McReynolds:
    One question for you, Tom, just on your commentary on net sales. I'm just wondering if you could just provide a little bit more perspective on the breadth of net sales across specifically the Markets division and maybe going back two or three quarters on that. And if I can squeeze and kind of a drill down on that, just looking at the Investment & Advisory business, could you just provide a comment on the competitive dynamic, obviously, versus your main competitor coming out of recession, given still some budget pressure? Obviously, June was pretty positive. And also in that segment, just wondering kind of your expectations on how Eikon begins to feed in there?
  • Thomas Glocer:
    Sure. I mean, we were very pleased with June because as you know, the quarter ends in particularly half year full year, is the time when to the extent there are going to be large movements or people are planning significant cost cuts reorganizations. That's when they tend to hit. And on the way down, when we've had substantial downs, the surprises have come at quarters end. So for all of those reasons, the June was positive. One factor that we don't, for instance, talk about in the press releases, and we don't make a big deal in our presentations but is a factor in particular in I&A, is the work that's going on in the integration where we, in fact, are having the discipline to turn off old revenue. So as we have shut down one piece of infrastructure after another, whether it's the old ReutersPlus network combining on to ThomsonONE or some of the other platforms in I&A in particular, regional versions of Reuters Trader, for example, you're seeing it come out of there. At a certain point, I think we just need to give you the number if the trends are good, but we're not for that self-imposed headwind if we were stretching to grab on and keep every $0.01 of revenue, we could show better numbers in particular in I&A. But I know the right longer-term solution is to prepare the way and in Markets achieve really Devin's vision of a two-platform company with Elektron for the Enterprise offering and Eikon as the ultimate flagship on the desktop. Eikon itself is very strong. I've been running it. It's my main platform. I'm now running it mobile as well, and we're in a very broad beta test. Pretty much anyone who's wanted to take a look at it has it. I've seen a good amount of the raw feedback, and it's really encouraging. In terms of when you'll see or feel the impact, it's obviously an important milestone for us to say it's ready for revenue generation and start actually converting trials to paying customers, and we do expect we'll be converting people over who are existing say 3,000 extra clients. But I really wouldn't look for much in the way of revenues that fall in are captured in this year. That's really part of the 2011 story and what our entry rate looks like there. I guess the only other thing maybe I'd flag is we've been doing very well the whole time in Enterprise. That picked up steam. Transactions are picking up steam. I think that chart that Bob puts up that shows the complexion, the breakdown of the individual components of revenues and how -- what turns positive first. And now you see even the Terminal business coming around and going positive. That's more important for what it says about 2011 than really what it says in terms of 2010 for us.
  • Operator:
    Our next question will come from the line of Vince Valentini with TD Newcrest.
  • Vince Valentini:
    We all ask about the margin hit this year from the new product development, the 100 basis points you expect. Can you give us some sense of how much of that is going to be hit in the first half of the year? We've already seen it versus how much is still to come in the second half. And then also, is there a risk that some of that margin drag spills over into 2011, especially on the depreciation front where I assume you start depreciating these new products once they launch and then they flow through for a full 12 months?
  • Robert Daleo:
    Vince, this is Bob. I think that you will continue to see when we launch new products, there are a couple of things that happen. First of all, you don't get significant amount of revenues. I mean, WestlawNext is a good example of that. But you begin to -- first of all, you do have some additional cost of the launch itself, which are a portion of that margin but it's not a significant portion. And the biggest that you have is in amortization of the cost of development and in the run rate efforts that you use to sustain that product. So the answer is that we will see additional increase in cost in the second half primarily related to products that will be launched in the second half. So they would be some of the things that Tom mentioned. Eikon is probably the largest one of that but tax platform is the second one and so on. However, we feel very comfortable that the revenue growth that we're going to have in the second half of the year. I mean, we're continuing the cost management, will certainly help us through the balance of this year and as a consequence that's why we feel even though the margin is lower than our target now, given the expectations for the second half of the year, we will see an improvement in our margins as the year progresses. I think in terms of 2011, it's all about comparative, right? Because a lot of this stuff is done throughout the year, it will be embedded in the run rate cost and should not have as a significant impact in 2011 as it did have in 2010. And ultimately, we'll also see in 2011, we're counting on, is the revenue benefit start to accelerate from these product launches. Now I mean, honestly, it takes a while for that all to happen. So really the real impact of significant growth will probably happen in 2012, but we certainly will see benefit of revenue from these products in 2011.
  • Operator:
    Our next question will come from the line of Michael Meltz with JPMorgan.
  • Michael Meltz:
    Tom, you said, I know you already got a couple of questions about Markets and the exit rate in June. Just to clarify though, you said, I think your term was it was very positive in June. Can you put it in a ballpark for us? Is that up 1%? Is it up 5%? How should we think about it? And then for Bob, your guidance for the year is margin down up to 100 bps versus last year before currency. Sitting where we are today, what do you expect the ForEx impact on EBIT to be, please?
  • Thomas Glocer:
    I'll let Bob take that one for a sec. So just to be clear in terms of net sales versus exit rates, et cetera, so what was very positive, in fact, the best level we've seen in Markets since before the financial meltdown was the net sales in June. And for that matter, add May was positive as well, a little bit less positive than June but positive. We've tried to move away. I understand the interest in quantification as you pass sort of from negative to positive, et cetera, but we're now looking, we do look and manage, at Bob and my level, the company as a whole. So the very positive thing in Markets is their forward indicator of what their revenues will be in the core Subscription business is positive and accelerating, and their transaction revenues are good and improving. So that means we'll see it flow through not only into the second half but importantly 2011. When we use the term sort of exit rate, what we really think of our run rate revenues and run rate costs in the last month, and then we look at in effect, backlog, which is what's the net sales momentum coming into the year. And that's what we're building up now, that net sales momentum, and that's good.
  • Robert Daleo:
    Michael, if I really honestly knew the answer to your question, I wouldn't be sitting here talking to you, I'd be trading on with my laptop on a beach in Tahiti. But the reality is that we don't know. But if you think about what happened in the first half, the impact in the second quarter was more pronounced than in the first quarter, due primarily to a softening of the euro. If you were to say these trends continue through the year, then you'd pick the second quarter impact that's probably more representative. If you think the second quarter was peak, then you'd probably take the second half as representative.
  • Michael Meltz:
    I'm not asking you to model out rates. If rates sat where they are at the end of June, what would be...
  • Robert Daleo:
    Then I would say that it could be just similar to what we've seen in the second quarter, which was 120 basis points.
  • Michael Meltz:
    For the full year?
  • Robert Daleo:
    For the full year.
  • Operator:
    Our next question will come from the line of Paul Steep with Scotia Capital.
  • Paul Steep:
    Maybe I could ask two quick questions just related to new product and setting expectations maybe at the right level. You gave us out your perspective already a little bit on Eikon. But if we looked at Eikon and Elektron, can you give us some perspective as to what you think the customer migration would be from ballpark in those first three quarters, recognizing revenues will likely lag a year beyond that? What would be sort of success that we shall be looking for in those launches?
  • Thomas Glocer:
    Well, Elektron's trickier because in effect, it is a -- and this is its strength, it's a range of services and solutions. Anything from you just want to take one big, fast type of aggregated data to direct feed solutions, trading room solutions, tie-ins to risk management, and then in the more novel components, co-location and hosting arrangements, which we've announced for a set of core financial centers. So people continue to come on that platform. I mentioned that's trading in Triax. But it's less that we're going to see conversion to that en masse. It's just a combination of new clients, and you see that in the good performance of Enterprise, upgrades at existing clients and a lot of the work gets done behind the scenes as we, in effect, are changing over the plumbing of distribution, which lowers our own costs and improves the quality of the service to customers. So it would be very hard to come up with a metric. In terms of Eikon, it's more straightforward, right? Because it really is the terminal world that half of our business, which is about terminals. We do, obviously, have our own rollout and migration plan and plan for essentially new news sales, capturing business that isn't migration. I'd rather not share it just at this point because the challenge very much is installing new is relatively straightforward. But when we get to large institutions who have indicated to us that they -- I'll give you an example with no name. A very large prominent institution, which is in our global accounts program, said their feedback is, we love the service. We think it's going to improve your market share at our firm, and we're really looking forward to it. But based on our plans for our trading room, the right time for us to do this upgrade is sometime first half of 2011. So for the larger sites that can bring hundreds and thousands of positions, we're somewhat at the mercy of the institution, and that's a sensible thing for them to do, because these are major integrated systems. But the onesies and twosies, yes, I think that's something that you will see play out even through the remainder of this year.
  • Operator:
    Our next question will now come from the line of Phillip Huang with UBS.
  • Phillip Huang:
    My question is on WestlawNext. I guess, based on everything I've seen, WestlawNext launch appears to be pretty much everything you had hoped for. Are there any areas that you'd say were less than perfect or -- and what are some of the potential risk factors to see it continue to kind of ramp up the way it has been?
  • Thomas Glocer:
    I mean, I have to search pretty hard for the downside. I think the team did an extraordinary job. Not only, first, capturing customer need, then building a product, but the way in which they handled launch, commercial policy, recognizing that this is all played out at a quite a difficult time in the legal market. So if I were going to bend over backwards to find a set of challenges, to me, they would all be around the macroenvironment in legal, the relative profitability. What firm -- some firms did disappear in this recession. And although they're quite stable, they're not cutting heads anymore. We've yet to see a strong recovery in legal, which I think will be slow. The reason why we're doing well, I think, has everything to do with the competitive attraction of WestlawNext and a very motivated sales force that has something to sell at the moment, not against any comparable offering that's out there. So the U.S. legal position is strong.
  • Operator:
    We now have a question from the line of Brian Karimzad with Goldman Sachs.
  • Brian Karimzad:
    You commented on May-June net sales and not to harp too much on it, but if you can give any sense on how July may be closed out there for the company as a whole and maybe Markets color? And then on Reuters Insider, seems like those getting some good trial, good curiosity factor there. Any sense at all on how the usage is with that product, more people focusing on it? How much time they're spending on it, and how that's kind of conveying versus your expectations?
  • Thomas Glocer:
    On the latter point, I saw a stat. Maybe one of my colleagues here has it to mind, which was on -- it's clip-oriented as opposed to linear broadcast. And the stat I saw was a number of clips consumed well into the hundred thousands, which is significant usage. So we released it. It was never really intended as a sort of stand-alone service, but it was ready and of high quality. So we said, "Let's go out with it and start building the community." Ultimately, the commercial policy is it's included as one of the attractiveness factors in Eikon. I think it will encourage people to migrate because of the way in which data and other content that's in Eikon gets integrated and referenced in Insider. So the utilization, people are spending time on it, but I don't have that data to hand. In terms of the other question, sorry, just remind me, July. I actually haven't seen July sales. The feeling, though, among the sales force who I've spent a good amount of time with, is positive. And I'd note that there's still time for Goldman to place a large order and help us on there, if you'd like, Brian.
  • Operator:
    Our question now will come from the line of Colin Tennant with Nomura.
  • Colin Tennant:
    I had a question on Legal. I'm looking at the spread of growth rates across that division. It's pretty wide, everything from plus 17% at FindLaw to minus 9% in some of the print products. So I just wondered what that's telling us about where we are in the Legal cycle in terms of demand because obviously, the subscription stuff, I guess, holds up well. And then the more one-off stuff is what's being hit. And also maybe just in that detail, FindLaw has a fantastic performance there. What's driven that 17%?
  • Thomas Glocer:
    Bob and I will probably tag team on this one. I think it does tell an interesting story of recovery, right? So one thing that Thomson Corp. and now Thomson Reuters has been very good at, and I call this out a lot, is managing the transition from analog to digital, from print to electronic in a variety of businesses
  • Robert Daleo:
    And Colin, just to add another dimension, think about the varying performance of the businesses. We really have products in the Legal segment that address the practice of law and the business of law, right? And the products that we are doing well like FindLaw and Elite are in the business of Law segment, meaning that while law firms, while they certainly may consume less of our research products, they certainly have a business that they need to manage and find ways to grow. Finally, it's right in that sweet spot. It helps law firms of various sizes market their services, actually to, ultimately consumers, but also to other law firms, particularly those law firms that specialize, right? And so that is an important part of what drives that, and Elite is a Software business of infrastructure where over the past couple of years, they very much have deferred making investments and that now have to make investments in their back-office operation. And I would also add that a little bit of FindLaw's growth portion of it in the quarter has come from an acquisition, a small acquisition of a business called Super Lawyers, which is an Evaluation business and Editorial business that we recently acquired.
  • Operator:
    We now have a question from the line of Patrick Wellington with Morgan Stanley.
  • Patrick Wellington:
    A couple of hopefully related issues. The first one is, Tom, I think at the end of the first quarter, you were very optimistic about going positive in Markets. Net new sales in the second quarter in the end, in both quarters, you seemed to have two positive months and one presumably quite negative month just tipping you the wrong way. So in a similar start, Colin, what is that sort of fluctuating demand level tell you about the sort of underlying condition of those financial customers and how they're feeling? And then I just wanted to check on one other issue, I thought as this call was going on, I was being softened up slightly for maybe a recovering 2011, but not a strongly recovering 2011, and that my hope was being, if you like, deferred a bit into 2012. We had a bit of that maybe on the creep of restructuring cost into 2011, and I think one of the remarks about new products really contributing a bit more in 2012. So is that true? Are you really looking for a sort of more tentative recovery in 2011 than a stronger one in 2012?
  • Thomas Glocer:
    Patrick, I got to hand it to you. That is the most subtle way and most effective way to draw us into commenting on '11 and even '12 that I've heard, but it is a fair question. So let me just say that neither Bob nor I were attempting to either soften you up because we know that's an impossible task, or more importantly, send you any signal. You know how our business in the subscription model works, and so we're looking for a good recovery in 2011 because you see how the net sales will play out. And on the cost side, we're being tough, and you have extra benefit, obviously, as we ramp up towards $1.6 billion run rate savings and the cost to achieve coming down significantly. So I don't want to say more about 2011 other than to say I hope 2012 will be even stronger. But we're not going beyond just what the current trends are this year. Now I can give you a little more information on the second quarter. And there's a factor, which I'll now mention, that makes the recovery in Markets less lumpy or less unpredictable. So the entire second quarter would have been very positive as a whole. And you are right, April happened to be negative but not horribly so, but that was due to running through our sales and cancel numbers. One of the large mergers that occurred in the connection with the financial bailout in 2009, we ran through our sales numbers in April. Without that, actually, Markets would have been quite strong. And in terms of trend, although we go back on this point and we do expect mergers are part of life, we don't expect the sort of shotgun mergers that occurred in the second half of 2008 into '09 to be regular course. So there will be some lumpiness, there always is, but actually the trend is quite a good one in the net sales of Markets across the second quarter.
  • Operator:
    The next question will come from the line of Claudio Aspesi with Sanford Bernstein.
  • Claudio Aspesi:
    This morning, Erik Engstrom results of you indicated that Reed is not seeing at the moment any impact yet from the rollout of WestlawNext. They don't think they are losing share or losing sales because of it. And in a somewhat similar fashion yesterday, Nancy Mckinstry indicated that outside of corporate tax, they believe they're gaining share in Tax & Accounting. From your point of view, how do you view the competitive position? And in particular, when do you think the WestlawNext will start to contribute to market share gain? When should we expect to get some results from the new technology?
  • Thomas Glocer:
    Sure. I mean, I've been told that some of our competitors are sensitive to remarks we make on these calls. I try to just stick to the facts as we have them and actually both Wolters Kluwer and Reed Elsevier are good companies with good franchises and good management teams. So all I'm trying to do is, I sometimes get a bit excited about the quality of our products, I'm quite close to the numbers in these businesses and the actual customers. So sometimes, the issue of we don't see any effect is one of look and you shall find. What we do see is of the 5,700 signed contracts for WestlawNext, there is a appreciable number in the hundreds to thousand level who were small customers who switched from one of the other providers to us. How that breaks down as to whether it was the CCH or a Lexis, I don't know. But I'm quite comfortable that on a net basis, the share trends have continued. We continue to take some share. It's very hard now to look apples to apples at the number, right? So you'd have to look at our U.S. performance of subscription Westlaw, which is running at around 5%-plus, versus whatever the comparable number, and I haven't had a chance to dig into the Reed Elsevier numbers this morning is because I don't believe they have any Print, which is we've just been talking about it goes the other way. Now these are markets we're in by choice, and I always think it's a bit unfair for management groups to say, well, exclude this, exclude that, it was very good. But the one area where I think one has to do that is if you're talking head-to-head market share, because obviously, in electronic service, only marginally competes with the Print service. Some people just want the book. So that's the best I can give you, which is I think -- well, I know our U.S. electronic services grew in Legal 5%-plus, and I know what we're doing with the early sales of WestlawNext. The only other thing to mention is they continue to be at an uplift over the existing price. And because of the subscription effect, what we sell now is a bigger revenue story next year than it is this year because of the half-year effect.
  • Operator:
    Our last question will now come from the line of Tim Casey with BMO Capital Markets.
  • Tim Casey:
    Could you talk a little bit about acquisitions? Big number in the quarter. Could you just give us some, I guess, relative scale on how much of the $415 million was complement versus Point Carbon? And then looking forward, how should we look at acquisitions? You're always pruning your portfolio. There's usually a few hundred million dollars worth of net acquisitions. Is that still the case? And is there any areas that you're more -- you expect to be more active on the M&A side?
  • Robert Daleo:
    Tim, this is Bob. First of all, in terms of the overall aggregate spending that we've had through the first half, I would say that Point Carbon is the largest of them. We haven't really released individual spend on it for particular reasons, and we are tracking right now. We've spent about $470 million. So we are tracking certainly ahead of what our original expectations were, but certainly, well within our ability to fund these effectively. You've heard me say many times that while acquisitions fill tactical needs, they tend to be opportunistic. And what we have seen is the benefit of some really good assets that have come on the marketplace that really fit, as Tom has talked about, our strategic imperatives, and he we went through them so I won't repeat them. And there are also some things that have given that. So for example, in the U.K. in particular, there is a change in tax flow, which will take capital gains tax up substantially, I think perhaps even ordinary income. And there are a number of people who own businesses who are thinking, well, now is perhaps the time to look into it. And so as a result, some businesses that we thought were not achievable to acquire came on the market and we had to act accordingly. And we'll continue to do that over the balance of the year, and we feel as I say, that we can comfortably accommodate these. And again, they're all about driving growth certainly in 2011 and beyond.
  • Thomas Glocer:
    Okay. That will be our final question, and that will conclude our call. We'd like to thank you for joining us for the second quarter results. Thanks.
  • Operator:
    Ladies and gentlemen, that does conclude your conference for today. Your conference is available for replay beginning at 10