Thomson Reuters Corporation
Q4 2011 Earnings Call Transcript

Published: 9 Feb 2012

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Thomson Reuters Full Year and Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Senior Vice President of Investor Relations, Mr. Frank Golden. Please go ahead, sir.

[Frank J. Golden:]

Good morning, and thank you for joining us as we report fourth quarter and full year 2011 results. We will begin today with our CEO, Jim Smith; followed by Stephane Bello, our CFO. Following Jim and Stephane's presentations, we will open the call for questions, but please limit yourselves to one question each. Throughout today's presentation, keep in mind that when we compare period -- 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. In addition, today's results are presented on an ongoing basis and exclude disposals announced in 2011, including our Healthcare business. Now today, we announced 3 disposals

[James C. Smith:]

Thank you, Frank, and I'd like to thank all of you for joining us for my first earnings call as CEO. If anything has been reaffirmed to me over the past several weeks, it's just how strong this business really is. Our future is bright. Our core Professional businesses continue to deliver. We are making real progress in fixing the execution issues in some critical areas of our Markets business, and we're getting our product pipeline, including Eikon, back on track. Most importantly, we're seeing a number of opportunities to grow in a dramatically changing market environment. My new team is off to a flying start. Today, I'll give you an overview of how we'll be managing the business. We will update you on the operational changes we've already put into place and we'll give you our outlook for 2012. But first, let me review our full year 2011 results. 2011 revenue grew by 5%, with particularly strong performance from our Professional businesses, Legal, Tax & Accounting, IP & Science. The Markets business grew 2% despite market headwinds and internal execution issues. EBITDA and operating profit margins were up nicely despite a $50 million charge in the fourth quarter, primarily related to the reorganization of the Markets business. Excluding that charge, the EBITDA margin was up over 300 basis points and operating margin was up nearly 100 basis points. I'm sure you will be pleased to hear, as I am to announce, that we have completed the Reuters integration program, having achieved aggregate savings of $1.7 billion. This is the last time you will hear us utter the word integration. Reported free cash flow was up slightly, but was impacted by a negative swing in working capital and the disposal of several cash-generative businesses last year. Free cash flow from ongoing businesses was up 7% for the year. Stephane will provide you with more detail during his presentation. Finally, adjusted earnings per share for the year were $1.98 or $2.03 before the reorganization charge I previously mentioned. Both figures exclude the impairment charge. Professional's full year revenues rose 9%, driven by solid growth across each business

[Stephane Bello:]

Thank you, Jim, and it's a pleasure to speak with all of you today. It is with a great deal of humility that I succeed Bob Daleo at the helm of the company's finance organization. Let me begin by assuring you that my intention is to provide you with the same level of transparency and granularity that you came to expect from Bob each quarter to enable you to gain a better understanding of the ins and outs of our businesses. Now on this slide are 5 key priorities that I shared with the finance organization at the beginning of the year. We are in the midst of a period of change and it is absolutely imperative that the finance organization provide the leadership and clarity of thought to support core businesses on the front lines each day. First, simplification. Consistent with Jim's earlier message, we need to set clear priorities, focus on a limited number of key growth initiatives and invest and execute behind them. Second, we must provide complete financial transparency to our business leaders and hold them accountable for their results, not just at the revenue level, but all the way to the operating profit level with all the costs required to run their businesses fully allocated. We do have this level of accountability and [indiscernible] transparency across the former Professional businesses and we are establishing the same principles in the Financial & Risk business. And third, collaboration. As Jim mentioned, we must work more effectively as a team and better leverage the many assets we have across the company to improve performance. Now our #1 priority is restarting the growth engine in Financial & Risk, which Jim discussed, so I won't elaborate any further on this importance. This will require investment, but we can do that within our current spending envelope. This is all about driving a more focused capital allocation and prioritization process. And last, but not least, we must maintain a relentless focus on growing free cash flow. In my mind, long-term free cash flow growth is the most important metric to measure the financial success of our strategy. Let me turn to the discussion of our 2011 results. As Jim mentioned, on January 1, we disbanded our divisional structure and replaced it with 5 business units. Starting with our first quarter results, we will break down the results both at the revenue and OI level for Financial & Risk, Legal, Tax & Accounting and IP & Science separately. The results of our fifth business, the Global Growth & Operations organization, will be incorporated within these 4 segments. This pie chart reflects the Legacy divisional structure. We are reporting our fourth quarter and full year results on that basis, given that we managed the business that way last year. Despite the challenges and reorganizations that we faced in 2011, our overall performance, though somewhat below our expectations, was still up for revenues, EBITDA and operating profit. And as you can see on this chart, 80% of our business grew in 2011, with about half growing more than 5%. This is not just our former Professional unit businesses, but also Enterprise, Fixed Income & Tradeweb in the former Markets division. So the key point of this slide is that it is important not to lose sight of the scale, balance and strength of our portfolio as a whole. Throughout today's presentation, I will speak to revenue growth before currency. Reported revenues are also highlighted on each slide. In addition, for consistency and comparability with our previously reported results and because we managed these businesses for the entire year, the 3 planned disposals we announced today are included in the results. These 3 businesses generated approximately $155 million in revenues, $45 million in operating profit, $40 million in free cash flow and they contributed about $0.03 to adjusted EPS in 2011. So turning to our fourth quarter performance. For the consolidated business, revenues in the fourth quarter were up 5% versus the prior year, with 3% benefit coming from acquisitions. Adjusted EBITDA was at 26% and underlying operating profit was up 8% in the quarter, reflecting the flow-through from higher revenues, as well as integration savings. And the underlying operating profit margin expanded by 50 basis points. Now for the full year. Revenues were up 5% to $12.9 billion, up 2% organic and 3% from acquisitions. Full year EBITDA increased 20%, with the EBITDA margin improving 280 basis points and full year operating profit increased 9%, with the corresponding margin of 20%. And again, adjusting for the $50 million charge incurred in the fourth quarter, the margin improvement would have been about 40 basis points higher, both at the EBITDA and OI level. Now let's turn to the results of both divisions, starting with Professional. The Professional division recorded 9% revenue growth in the fourth quarter, 3% organic and 6% from acquisitions. This was driven by steady performance from all 3 business units. EBITDA and operating profit both increased 8% compared to Q4 2010 and the corresponding margins were down slightly as flow-through from higher revenues was offset by the change in business mix in our Legal segment. For the full year, revenues rose 9% to $5.4 billion, up 4% organic and 5% from acquisitions. EBITDA and operating profit both increased 9% and the corresponding margins were also down slightly. So in aggregate, the Professional division generated EBITDA and operating profit growth of 9%, essentially in line with revenue growth. Not only did the business generate strong revenue growth, it also delivered equally strong growth in profits, which is really what matters in the end. Now I'll discuss the results of the segments within Professional, starting with Legal and some of the underlying dynamics in that segment. WestlawNext continues to capitalize on its position as the premier legal information service in the U.S. Despite the challenging U.S. legal research market, we converted over 50% of our revenue to WestlawNext, which was used by about 34,000 customers at year end. Attorneys clearly recognized the product's value from greater productivity and efficiency which has enabled us to substantially sustain our pricing structure. Nevertheless, the law firm market in the U.S. continues to be challenged with employment having declined 5% since its peak in mid-2007. And demand for legal services was up only very modestly last year. It's important to note that these challenges are primary impacting us in the U.S. Law Firm research market. Our U.S. legal research business is $1.4 billion or 4% of the $3.4 billion revenue generated by our overall Legal segment. The remaining $2 billion grew 16% in aggregate last year, with strong growth in Business of Law, GRC, Risk & Fraud and the RDEs, just to name a few. As Jim indicated, we began allocating capital to these higher growth sectors 3 years ago as part of our Big Ten strategy in Professional, and we are now seeing the benefit of this focused capital allocation process. For perspective, the orange section of the chart, which is the core legal research sold to U.S. Law Firm, represented almost 50% of the total Legal revenues in 2008 versus 40% today. Now examples of the investments we've made include the acquisition of Revista dos Tribunais in Brazil and the subsequent launch of Revista Online, and in GRC, the acquisitions of Complinet and World-Check and the launch of Accelus. We also have a beachhead in the Corporate market with our Serengeti matter management software and we are developing new solutions to better serve the General Counsel. So despite a challenging core legal research market, we continue to see strong growth opportunities across our Legal business. As you can see on this slide, Legal grew 8% in 2011, 3% organic despite the fact that the core legal research, both print and online, in the U.S. declined by 2%. Going forward, we will follow the same approach of identifying key growth opportunities and investing behind them in a very focused way in our Financial & Risk business. We are confident that this approach will enable us to turn around our organic growth performance in that segment as we have done in the Professional businesses. Now turning to the fourth quarter results for Legal. Revenues were up 5%, 1% on an organic basis with the balance coming from acquisitions. The sequential decline in the earning growth rate from 2% in Q3 to 1% in Q4 was in large part the result of softness in our U.S. legal research business and also lower print revenues. Excluding U.S. print, revenues actually grew 2% organically in Q4 or about the same level as Q3. Fourth quarter EBITDA increased 4% compared to the prior year period and the corresponding margin was down 50 basis points. This is due to the business mix effect I referred to earlier. Our high-margin core legal research business declined by 3% while the rest of the portfolio, which has attractive margins but just not as high, is growing strongly. Operating profit increased 5% in Q4 and the margin increased by 10 basis points. Tax & Accounting had another strong quarter. Revenues were 19%, 6% organic, driven by the growth in income tax software sales, Checkpoint and acquisitions. Tax & Accounting continues to show strong EBITDA growth, up 10%. This was the sixth consecutive quarter of double-digit EBITDA growth. Fourth quarter operating profit increased 7% and the associated margin was down 350 basis points to 32%. Now EBITDA and operating profit margins were down primarily due to expense timing. And I'd like to remind you that small movement in the timing of expenses can have a meaningful impact on margins in any given quarter for both our Tax & Accounting business and our IP & Science business, that's due to the law of small numbers. The full year margins are much more reflective of the underlying performance, and in that regard, the full year EBITDA margin expanded 70 basis points and the operating profit margin expanded 50 basis points, reflecting my earlier comment that strong growth in revenues, 14% for the year, did translate in even stronger growth in profits. Now turning to IP & Science. Revenues grew 9%, of which 7% was organic. Growth was driven by IP Solutions, which was up 10%. The other units performed well also, with Scientific & Scholarly Research up 7% and Life Sciences up 12%, of which 5% was organic. EBITDA increased 23% compared to the prior year period and operating profit was up 21%. Once again, you should not focus on our quarterly margin performance for this business, but rather look at the full year margin. The full year EBITDA margin expanded 140 basis points and the operating profit margin expanded 130 basis points, translating in this case into a 13% rise in profits. Now let me turn to the former Markets division. In the fourth quarter, Markets revenues grew 2%, of which 1% was organic. Recurring revenues, which account for 75% of the division's revenues, grew 1% over the prior year. Transactions revenues grew 4%, mainly due to Tradeweb. Recoveries declined 2% and Outright revenues were 23%, primarily driven by strong onetime revenues in the Enterprise segment. Operating profit grew 4% in Q4 and the margin was up 40 basis points from the prior year period to 16.7%. For the full year, former Markets division revenues were up 2%, full year operating profit was up 10% and the margin grew 90 basis points to 18.8% due to integration savings and efficiency initiatives. Now I'll discuss the results for the individual segments within Markets. Sales & Trading fourth quarter revenues were up 2%, and excluding a 5% decline in recoveries, revenues rose 3%. Tradeweb grew 5% organically during the quarter. In Investment & Advisory, revenues declined 3%. Corporate revenues were up 1%, and Investment Banking revenues were flat in a very difficult market. Investment Management declined 4% despite improving but still negative sales. The 4% decline in Investment Management while still weaker than our aspirations was its best performance since Q2 of 2009 and represented a sequential improvement from an 8% decline in both the third and the second quarter. Enterprise again achieved a strong performance, growing 10% in the quarter, all organic. Growth was driven by demand for innovative data distribution platform, Elektron, which now has 14 hosting centers around the world. The Enterprise Content business grew 17% as new regulations and compliance requirements drove customers to invest in pricing and reference data. And finally, the Media revenues were up 1% in the quarter and were flat for the full year. Let's now turn to adjusted earnings per share, which exclude the impairment charge we announced today. Adjusted EPS for the full year was $1.98, and excluding the $50 million reorganization charge, EPS was $2.03. Currency had a $0.06 favorable impact on the full year EPS and no impact in the quarter. Of the 27% improvement in EPS, about half was driven by underlying profit improvement and the other half resulted from lower integration-related cost. The fourth quarter adjusted EPS was $0.54 a share, an increase of $0.17 versus the year ago period. Excluding reorganization charges, adjusted EPS was $0.59 per share. A complete reconciliation from net income to adjusted earnings is, of course, available in the press release issued this morning. Now turning to free cash flow. Typically, we have generated about 40% of our free cash flow in the fourth quarter, making it one of the more challenging metrics to forecast. For the full year, reported free cash flow was $1.6 billion, up $39 million or 2%, primarily due to lower integration costs. Free cash flow was below our expectations primarily due to 2 main factors. First, our DSO deteriorated by 3 days, with the biggest impact felt in our Markets business. This is essentially another reflection of the difficult market environment. Some of our customers are holding cash and taking a bit longer to pay their bills. Cash taxes were about $130 million year -- higher than last year and that was due to higher profits and also due to unexpected prior period tax settlements. One final cut on free cash flow for 2011 and our expectations for 2012. Divestitures negatively impacted free cash flow as we only received cash flow from these businesses during the first half of the year under our ownership. So if you exclude the free cash flow from all the divestitures we have either closed or announced to date, the free cash flow from ongoing businesses was at about $100 million, up 7% in 2011. I should point out that free cash flow will be negatively impacted in 2012 because of the various disposals we have announced over the past year. In total, these businesses generated $215 million of free cash flow in 2011. We expect to lose most of this free cash flow in 2012. The exact amount will, of course, depend on the exact timing on when these deals close. Let me stress that the divestitures are tied directly to our disciplined investment process. We are freeing up capital that can be redeployed in higher growth businesses. We continue to have a strong pipeline of small tactical opportunities which we will consider to supplement our organic revenue growth. For this reason, we expect free cash flow from ongoing operations to grow between 15% and 20% next year -- or this year, I’m sorry, while reported free cash flow, which includes disposal, is forecast to grow 5% to 10%. As I previously said, free cash flow is the most important metric for us to determine our ability to create value for our shareholders while also fueling reinvestment back into the business. We are not satisfied with our 2011 performance and we are redoubling our efforts across the organization to ramp up free cash flow growth in 2012 and beyond. But despite a disappointing 2011 free cash flow performance, this remains a highly cash-generative business with stable recurring revenue streams and a robust capital structure, which enables us to return significant amounts of cash to shareholders while reinvesting for growth. This morning, we increased the dividend by $0.04 and we remain committed to maintaining and growing dividends as an important component of shareholder return. Last year, we also repurchased 11 million shares for an aggregate purchase price of $326 million. We have returned approximately $7 billion to shareholders since 2005 through a combination of dividends and share repurchases. As we progress with our dispositions in 2012, we will continue to consider the best use of proceeds, including reinvesting in our businesses and share repurchases. Now let me finish where I started. The 5 points on this slide are what we are focusing on each day. It won't be a quick fix, but we are already making progress and, importantly, our customers want us to succeed. Yes, the environment will likely continue to be challenging, but the more dynamic and changing the environment, and the more complex the regulations, the more value we can provide to our customers. We know the challenges ahead, but we are confident we can meet them. And with that, let me turn it back over to Frank.

[Frank J. Golden:]

Thank you, Stephane, and that concludes our formal remarks. And now we would like to open it up for questions, so if I could ask the operator to give us the first question, please.

[Operator:]

[Operator Instructions] We'll go to the line of Michael Meltz of JPMorgan.

[Michael A. Meltz:]

I have one clarification on the guidance and then a question for you. Just the revenue guidance for 2012, does that anticipate -- does that just assume acquisitions already done or is there some other expectation of acquisitions to come in there?

[Stephane Bello:]

That essentially is the projection for total revenues, so it does include the acquisitions that we've already completed today.

[Michael A. Meltz:]

Okay. And then, Jim, just a bigger picture question on free cash flow priorities. What's your view on acquisitions going forward relative to what the company's done the past few years in terms of just general free cash flow priorities?

[James C. Smith:]

I think we have had a very disciplined strategy around what we're going to do with our cash and we look for all opportunities to create the greatest long-term value for shareholders. I think we will continue to favor the kind of tactical acquisitions that we've made over the past couple of years that strengthen the long-term growth engine of the company. I think you can see we've continued to maintain our faith in the cash-generative ability of the company. We believe that the dividend is an important part of the value for our shareholders, and we're committed to that as well. And we're going to keep all options open and all tools available to make the smartest decision at that point in time.

[Michael A. Meltz:]

Okay. And should we expect continued portfolio repositioning in terms of other divestitures?

[James C. Smith:]

I think we've announced the significant things that we can see. There will always be some tweaking around the edges of our portfolio. I think that's just a fact of life. I do not anticipate major portfolio shifts at this time.

[Operator:]

Our next question will come from the line of Suzi Stein at Morgan Stanley.

[Suzanne E. Stein:]

Could you talk about what you're seeing competitively in Markets? And if you can distinguish what you're seeing by region, that would be kind of helpful. And also, can you just update us on your plans to divest the Healthcare business?

[James C. Smith:]

Sure. Why don't we tag team that, and I'll talk about what we’re seeing competitively and then I’ll ask Stephane to provide an update on where we stand with the Healthcare divestiture. I think we're seeing a very, very competitive environment out there. I think we're seeing customers, really, the large banks around the world, and then particularly everyone in Europe right now, rethinking their businesses and re-evaluating what the competitive landscape looks like. I think that makes for product-by-product, real hand-to-hand combat, in terms of the selling process. But I also think that as our customers are thinking through major structural changes in their environment, that the kinds of conversations that they're now entertaining are pretty encouraging to me and the level of conversations that we're having about providing a variety of solutions are encouraging. So to the extent that we can be part of the solution in a changing environment, the more encouraged that I am. So there's a great deal of change out there, no question, but that change also produces opportunity. I have to say, I particularly like our position on the regulatory front and all the work we've been doing the past few years to strengthen our regulatory content and tools. And as you all know, the one place the big banks are spending more money and the one place they're still hiring is around regulation and compliance. Stephane?

[Stephane Bello:]

Yes. And Suzi, in answer to your question regarding the Healthcare divestiture. We did announce that we were suspending the process a few weeks ago and that really was a reflection of the fact that the market conditions have changed dramatically from the time we announced the divestiture of that business. Interestingly, the business has performed quite well last year, actually, exceeding the projections we had included in the offering memorandum. So you have kind of a big variance between the way the business was performing and the way the market conditions were evolving and we were simply not ready to dispose the business at a fire sale. We absolutely intend to reinitiate that same process as soon as market conditions allow us to do that.

[Operator:]

Next to the line of Tim Casey at BMO.

[Tim Casey:]

A couple of things. Just a clarification, the contributions from Healthcare, are they included in your guidance?

[Stephane Bello:]

Tim, we provided guidance on free cash flow on 2 bases. One is the reported free cash flow which does assume a small amount of contribution from the businesses that are announced for disposals, and one on the ongoing businesses which excludes it. All the other items in the guidance do not include Healthcare because they only cover ongoing businesses.

[Tim Casey:]

I understand. Jim, could you provide a little more color on Eikon? You've talked about how it's -- you're thinking about it more as a product. Are there -- should we anticipate any rollouts this year? Or how should we think about that product and how it's going to be positioned in the portfolio?

[James C. Smith:]

Yes, we're thinking about it as a product and it's an important part of our product strategy. I don't want to minimize it either. I think it's not the whole strategy, but it is a gold standard product for us and you should anticipate continued rollouts of Eikon this year. The way we're approaching it is on a sector-by-sector basis as opposed to broad universal desktop basis. So we're going to continue to develop Eikon and develop new functionality throughout the year. In fact, we have a robust pipeline of developments that we will add to Eikon and capabilities that we will add to Eikon. And we will introduce it kind of sector by sector where we have a functionality that will really compete strongly and compete most strongly. So you will see Eikon rollouts throughout the year. I do anticipate we'll see increasing number of users and we'll see increasing activity on the Eikon platform. I think we'll largely have functionality built out by the end of the year and then we'll begin migrating customers and rolling out -- concurrently, we'll be rolling out throughout the year in certain sectors and then we'll complete that rollout of products in 2013. So you should think about Eikon as a really important part of the product strategy. But we're not waiting until we get everything right for Eikon to put that out into the market. We came through the door at the end of last year. We realized that we needed to make certain we were providing our sales people with everything that they could have and our customers with everything they needed, and we re-prioritized a bit of our new product development spend to make sure we had not only Eikon in the bag but also other tools in the bag that we could sell like a new and more robust version of Datastream, the new Datastream Pro project that's coming out, like iPad apps for -- built on the Thomson ONE backbone for investment bankers, like new compliance instruments in exchange-traded instruments, like a whole manner of specific products that build off of other platforms and sell into other sectors. So where we're strong enough on the Eikon platform to lead with Eikon, we'll lead. And where our Legacy products still have advantages and where we can still build new features and functionalities into those Legacy products, we'll continue to do that to make certain we have a broad array of products to sell.

[Operator:]

We'll go next to the line of Paul Steep at Deutsche Bank.

[Paul Steep:]

Great. Actually, it’s Scotiabank. But I guess, we'll -- Jim, maybe you could talk about, with Eikon, the product launch date. What's the, I guess, the critical element here? If Eikon was to move out or at all, does that impact the outlook for the year or is it pretty much neutralized in the numbers?

[James C. Smith:]

No, I think that -- I don't think there's anything to watch for. I think the numbers and the guidance that we've given reflects our current expectations for what the Eikon rollout will look like. I can tell you that we have done a very good job of getting the product stabilized, the customer feedback that I've heard myself has been very, very positive as to the stability and the functionality. That is a major improvement over where we were. So I don't think you should sit back and expect that there's going to be some big bang of, “Aha, the major next new version of Eikon is out.” In fact, you'll see exactly the opposite. We're going to have a kind of continuous, slow improvement and rollout of Eikon sector by sector as it's fit for purpose. And if anything, we will go more slowly behind our marketing efforts, right? We're not going to lead with marketing. We're not going to lead with hype. We're going to lead with beta releases into customers, make sure we're ready, make sure we're fit for purpose and then follow it up with the marketing and sales efforts behind it in that order as opposed to the other way around.

[Paul Steep:]

Great. And just to clarify as well, anything near term on the sales changes in terms of any implementation risk related to just timing of getting the teams back up to speed?

[James C. Smith:]

I don't see it. And as I say, I have been with more salespeople over the past 2 and a half weeks than I have ever been with in the regional meetings as well. And I think the sales team -- the energy is really solid in the sales team. I think that, in many ways, what we did was to undo some of the issues that we had in the execution of the last reorganization and we put people who have been closer to customers and for whom those relationships are pretty strong, kind of back into position to represent the company. So I feel very, very good about where we are in the sales organization right now. I feel particularly good about the leadership that we've got in that sales organization. We have salespeople leading our sales teams again and they're down to basic blocking and tackling. And always, as a general manager, you have to temper your enthusiasm when you come back from the rah-rah sales conferences. But I tell you, it's really good to feel that rah-rah spirit again in the troops because that's not the way we were executing last year.

[Operator:]

We'll go next to the line of Brian Karimzad at Goldman Sachs.

[Brian Karimzad:]

I guess, the first one would be, can you give us some color on some of the dynamics in U.S. Legal that you think are lean deceleration given you had a good WestlawNext rollout and it sounds like you've been getting pricing on that. So aside from print, curious if there’s been some competitive dynamics going on. And then on the parts that you can't control in Markets, can you give us a sense for how net sales have been shaping up over the last couple of months and some of the conversations you're having and kind of conservatism that you've baked in, all those factors you can't control in the revenue outlook?

[James C. Smith:]

Well, perhaps we should tag team that, because I think Stephane will have some more granular observations. But let me start generally with Legal. I don't think we've seen any material change in the broad dynamics in the Legal sector. I think the fourth quarter was surprisingly soft across the board. If you look at what Legal demand -- what was happening with Legal demand, I think everybody was a bit surprised. But it just reflects, I think, the level of economic activity that we're seeing across lots of sectors of the economy in the fourth quarter of last year. For us, it manifested itself, as Stephane pointed out, in that core legal research, particularly on the print side, particularly in U.S., state and local governments who are big consumers of print. It manifested itself in a weak core research environment in the U.K., in difficulties in Spain, which are not surprising. We did not see massive swings in the competitive dynamic. However, it's playing out as it has played in the last couple of years and I think it really just continues to encourage us to pursue the strategy we've been pursuing for the past several years, which is to broaden the value proposition that we bring at the law firms and to bring our legal and regulatory solutions toward the buy side of this market into general counsels, into corporations and into other areas and consumers of legal and regulatory information. So no big dramatic dynamic changes there. We expect, going forward, that our growth will be led by that 60% of our business that's not core legal research that Stephane was referring to earlier. Stephane?

[Stephane Bello:]

Yes. And let me then cover the other question you had, Brian, which was about net sales in the financial services industry. And as Jim mentioned, net sales were clearly negative in the second half of last year and that obviously creates a negative momentum for revenues as we enter in 2012. I think what's going to be quite important is to look at the momentum and the trend of net sales over the course of 2012. And what will be critically important, it's not so much what the overall average level of net sales will be in the year, but more what the run rate is as we exit the year, because that's what's going to be critical as we enter in 2013. And what we are expecting is a gradual improvement in net sales over the course of the year.

[Operator:]

We'll go next to the line of Matt Chesler at Deutsche Bank.

[Matthew Chesler:]

A quick question on free cash flow, just to get my arms around the trends you're seeing there. So it sounds like the markets declined, DSOs. What was the impact on the fourth quarter? Do you think that those recover along with net sales? Or is there anything you could do operationally to accelerate and stabilize those?

[Stephane Bello:]

Okay. Matt, it's Stephane. I'm going to try to address this. There were several factors that impacted free cash flow negatively last year, and most of them were really concentrated in the working capital category, which in aggregate, ended up dragging free cash flow down by about $240 million. As I mentioned, the first point that we experienced was about 3-day deterioration in our DSO. And the biggest impact was in Markets. And frankly, in previous years, we have managed to achieve progressive improvements in our DSO, but 2011 went the other way. And that's a reflection both of the fact that there is a difficult market environment, also a reflection of the fact that we are actually introducing some new order-to-cash systems across the businesses. And that always has a temporary negative impact on DSO. Now I certainly would not want you to think that we will be able to reverse that trend in a major way because there's further introduction of this order-to-cash process across the business coming over the next couple of years, but it's an impact that we're obviously going to try to mitigate very, very closely. The second point I mentioned is higher cash taxes, and this was, as I said, largely attributable to higher taxable income in '11 but also to the settlement of prior tax issues. And finally, the last big item was the impact of the disposals, and that's why we've tried to provide you with guidance on free cash flow, both on an ongoing basis and also on a reporting basis to try to help you measure us on both metrics.

[Matthew Chesler:]

Okay. And then just in terms of -- Jim, I think you had talked about your corporate goals for Eikon by year end. It sounds like you're leading more operationally than with sales but you're also expecting a significant increase in active users. What's the baseline that you've got in your mind? And kind of what are the ranges you’d consider a success for you if you've accomplished at the end of the year?

[James C. Smith:]

I'm not doing it based on seats. It's hard for me to sit here and say to you that I want to go from our baseline of roughly 15,000 users today to x thousand users at the end of the year. I think that number will be materially higher, significantly higher. But we're not targeting just the number of seats. What we're targeting is sector by sector where we can add real functionality and go in and make a real difference for customers and not just be in this race of terminal to terminal to terminal but how do we incorporate that into the total value proposition that we give to our customers. We are expecting to see material improvement in the number of terminals out there and in the levels of usage and also in our customer satisfaction. But at this point, I'm not comfortable sharing kind of terminal-based targets, rather we're going at it sector by sector.

[Operator:]

We'll go next to the line of Drew McReynolds at RBC Capital Markets.

[Drew McReynolds:]

I just hopped on the call, so I apologize if you've covered this one off. Just, Jim, a little bit of an obscure one for you. Obviously, there's a lot of noise out there on kind of the RIC codes, and obviously, with the EC investigation around that. Just wanted to kind of get from you how important or relevant is this issue, how important is it to keep this proprietary to yourselves. And we obviously know competitors are trying to muscle in. Just get a lot of questions on this, so I just wanted to get the right perspective from you, guys, in terms of the relative importance of maintaining these codes as proprietary.

[James C. Smith:]

Well, the RIC codes are important to us. There's no question about that. They're an important part of the fabric of the symbology that we’ve built and that tie us into all of our kind of underlying infrastructure. My hands are a little tied at this point about how deep I can go. As you know, we have proposed a solution to the regulators. They have concluded their market testing and they have not gotten back to us as to the conclusion of that market testing. So I sure don't want to say anything today that's going to be obviated by our ongoing discussions or that's going to put us in a position where we are telling you something that's different from where we are. So I just have to be in a bit of a quiet period about this. I'll just say they're very, very important. We think we’ve proposed a reasonable solution that would allow us to license those out in a very fair way and more to come when we hear the ultimate resolution of that case.

[Operator:]

We'll go next to the line of Sara Gubins at Bank of America.

[Sara Gubins:]

I'm hoping that we could get some more details about your expectations for 2012 across the segments. I'm guessing that you're expecting Professional to continue to grow and perhaps for Markets to shrink given the negative net sales. And any commentary you can give around margin expectations by segment?

[Stephane Bello:]

Sara, as you know, we don't really provide like segment-related guidance. We prefer to do that at the corporation's level. And -- but I think that you can deduct from the guidance that we've provided and the recent performance that we do, in general, I can say, we do expect the Professional, the x Professional businesses to continue to do well. And we do expect that in the Financial & Risk business, we're going to see a gradual improvement in net sales, but that improvement in net sales is not going to translate immediately in revenue growth in 2012. That's something that's obviously going to have a lag because of the subscription nature of the business. And so we have modest expectations for Financial & Risk in terms of revenue growth in 2012.

[Sara Gubins:]

And perhaps any color on the margin front, particularly on the Markets side?

[Stephane Bello:]

I would give you the same comment. I mean, the -- what we’re going to try to do in Financial & Risk, as Jim stated, the #1 priority is to reignite the growth in Financial & Risk. This will require some investments in order to do that. But as we said also, we absolutely think that we can do that within the spending envelope that we have today. So we are not projecting or expecting a bump in our CapEx spending or anything of the like, but we will need to make some investments in the business in order to restart the growth engines because that's really, at the end of the day, what will ultimately drive growth in free cash flow and expansion in margins.

[Operator:]

We'll go to the line of William Bird at Lazard.

[William G. Bird:]

I was wondering if you could talk about any factors that could increment margins in 2012 that aren't in guidance.

[Stephane Bello:]

William, I think -- it's Stephane again. I think if you look at margin movements in 2012, and you're trying to look at the company's margin performance this year, there's a number of factors to take into consideration. Now obviously, on the positive side, we have, as Jim said, officially completed the Reuters integration program in '11. And since that spend was about $215 million in 2011, you should expect that to flow through margins in 2012. We'll also see the positive impact of the various restructuring actions that we took last year both in the first quarter and the fourth quarter. But all these benefits will be offset by a number of factors. The first one is the one that I think Bob used to remind you, which is that until we reach an organic revenue growth rate of 3% or 4%, it's going to be difficult to expect much growth on EBITDA or high margin level. The second one are the investments I mentioned we need to make in the businesses. But again, I don't want to scare you in making you believe that there will be a significant impact on capital expenditure or margins because of the investments. That's not the case. I mentioned also the negative revenue mix in Legal, which is about 40 or 50 basis points on the margins of Legal. That's just the fact that I just said that their most profitable business, which is core legal research, is not growing. And the other 60% is growing fast. It has attractive margins but simply not margins that are as high as the core legal research business. So you've got, by definition, a negative mix impact. And last but not least, the most important factor, I think, to account for on margins for 2012 is what Jim referred to. And that's why you see, I think, a dichotomy between the way the EBITDA margin’s evolving and the way OI margin’s evolving, it's essentially the fact that there's going to be a marked increase in depreciation and amortization expense next year. This is obviously noncash, but it is a reflection of the investment that we've made in the past. So hopefully, that helps you a little bit.

[William G. Bird:]

Yes, very helpful. And on the revenue guidance, I know you don't want to drill down by divisions. Can you tell us what, on a consolidated basis, what do you expect for organic constant currency revenue growth for 2012?

[Stephane Bello:]

I think, we provided guidance that we're going to grow low-single digit, and that includes a very modest impact from acquisitions that we've made last year.

[Operator:]

We'll go next to the line of Vince Valentini at TD Securities.

[Vince Valentini:]

I just wanted to make sure I'm clear on the free cash flow and on the disposals. So did I hear you correct, Stephane, is it $250 million loss of free cash flow from all the disposals that were announced last year plus the new 3 ones today?

[Stephane Bello:]

This must be my French accent, I apologize, Vince. I meant $215 million, not $250 million.

[Vince Valentini:]

2-1-5, okay.

[Stephane Bello:]

2-1-5, yes. And that includes essentially -- that's the entire contribution to free cash flow from all the disposals either that we've closed today or that we have announced and that are still to be closed.

[Vince Valentini:]

Sorry, is Healthcare in that when you...

[Stephane Bello:]

Yes.

[Vince Valentini:]

That does include Healthcare, okay.

[Stephane Bello:]

It does include Healthcare.

[Vince Valentini:]

But you still get the free cash flow from Healthcare throughout the year until you sell it?

[Stephane Bello:]

Absolutely.

[Vince Valentini:]

Okay. And then on the terms of the guidance, the base for a 5% to 10% growth would be the $1,602 figure from 2011, that's correct?

[Stephane Bello:]

That's correct.

[Vince Valentini:]

And then your underlying free cash flow last year if you've taken out the integration costs which will now be 0 going forward, was actually $1,888, so the 5% to 10% on top of the $1,602, you're still going to end up below what your underlying free cash flow was this year. And I guess that's largely related to the disposals. Is that the way to think about it?

[Stephane Bello:]

Yes.

[Vince Valentini:]

Okay. I guess another big point. I mean, somebody asked about working capital. It sounds like you don't think you'll reverse it, but do you think it actually gets worse? Is that what your guidance implies that there'll be even a further increase in the DSOs this year or some other working capital item?

[Stephane Bello:]

No. I would certainly not put it like that. We will, obviously -- as I mentioned, Vince, free cash flow is really a key metric for us, so I will tell you we will absolutely redouble our focus on free cash flow. And in the near term, this will mean following a very disciplined capital allocation process just to make sure that we direct our capital to the best opportunities that we have, not simply adding up on the amount that we spend on capital in order to pursue these opportunities. It's really redeploying in the right places more than spending more. And on working capital, I actually don't expect any major worsening trend next year. That's certainly not the intent I wanted to give. I mean, ultimately, what's going to drive free cash flow, as I said once again, is going to be top line growth. And that's really what we're focused on and that's going to be the ultimate driver of free cash flow.

[Vince Valentini:]

Okay. Sorry for the multiple questions, but depreciation and amortization, can you just clarify there, is there anything temporary about the -- what seems like a pretty large spike in 2012, like do WestlawNext and Eikon have some sort of sunset to it where you have accelerated depreciation upfront and then it starts to roll off in '13 or '14 or is this just a new baseline number that we should extrapolate forward?

[Stephane Bello:]

I think that depreciation and amortization, as a percentage of revenue, will remain high for the next 2 or 3 years. And it will be higher than CapEx as a percentage of revenue. What we're really focusing on, because that's what we can influence today, is CapEx as a percentage of revenue. And you've seen, Vince, that [indiscernible] has been that essentially it’s going to remain pretty much flat. Depreciation and amortization will remain higher than CapEx for the next 2, 3 years until that essentially reflects the amortization of the big spending we've done on these large portions that you mentioned, in the last couple of years.

[Frank J. Golden:]

Operator, I'd like to take one final question, please.

[Operator:]

And that will come from the line of Claudio Aspesi at Sanford Bernstein.

[Claudio Aspesi:]

A couple of questions. In investor meeting in March of 2011, the old manager of Markets indicated they do not expect -- does not expect at the time the rollout of Eikon to materially improve the market share of the terminal business. Is this changed in any way going forward? Do you have a view? Have you now looked into the business whether those goals were not aspirational enough? And the second question is related also to the Markets division. And considering the uncertainty in the employment in the financial institutions with the significant restructurings announced, are you comfortable with the cost structure of the businesses that are driven by headcount?

[James C. Smith:]

Okay, I'll try to address both of those. And if I miss something, I'll ask Stephane to jump in and correct me or support me. Obviously, the March call and guidance on markets is not something with which I'm intimately familiar other than listening to it. I can tell you that I have pretty solid aspirations about what we're going to do going forward, Claudio. And I think that I don't really look at it as terminal to terminal and product to product and share that way. I look at it as, what are we able to provide in terms of broad solutions into various sectors and into various customer groups. And I think one of the great advantages for us is that we can sell total solutions from desktops to feeds to middleware, front office, back office. We have a broad array of products, of services, of solutions in multiple price points across the whole range of solutions we can provide. So I do have pretty solid aspirations about our ability to tie that together. How much of that is terminals and how much of that is feeds? I can't say at this point. Our customers will determine what is more valuable. And while I don't want to talk largely about market share, because it depends upon how you define the market and you kind of go down a rat hole there, I do think about our competitive position, and I think about our competitive position by sector, not by product. And I think about improving our competitive position in the sectors that make the most sense for us, right. If that's an all-encompassing-enough answer for you, that's the way I look at it. We're pretty ambitious about what we're biting off, and we're pretty optimistic about what our chances are.

[Claudio Aspesi:]

On the cost structure?

[James C. Smith:]

On the cost structure, I think we're always looking at the cost structure. And I also think we have very solid opportunity to improve our cost structure over time. Two things to remember

[Claudio Aspesi:]

Just a follow-up question. Did I understand correctly when you mentioned earlier, however, that in the replacement cycle of the old platforms, you may actually go slower than you thought originally in order to make sure that the product fits what the customers need?

[James C. Smith:]

Yes.

[Claudio Aspesi:]

Okay. So actually, what is the realistic time frame for the completion now of the sunsetting?

[James C. Smith:]

I'll give you that time line when we have a better picture as to what it is. I feel confident that features and functionality on Eikon, the product, will be largely built out by the end of this year. There are still some significant decisions we need to make about customer migrations off of underlying platforms and the commercial implications of those that we've yet to work our way through. We're working on them right now. And when we have a better picture of that and we understand it, we'll be happy to share that with you at that time.

[Frank J. Golden:]

So that will be our last question. And I'd like to thank all of you for joining us today.

[Stephane Bello:]

Thank you.

[Operator:]

Thank you, ladies and gentlemen. This conference will be available for replay after 10