UPDATE 3-Thomson Reuters "challenged" but reaffirms outlook
(Adds detail on divisions, fresh analyst comment)
LONDON, Oct 2 (Reuters) - News and information publisher Thomson Reuters TRIL.L(TRI.TO) reaffirmed its 2008 outlook on Thursday, although it said the financial crisis hitting many customer banks would hurt the company in the short term.
Chief Executive Tom Glocer said that while the credit crunch gripping world financial markets would affect the company in the short to medium term, it represented a long-term opportunity as banks would need the company's products as they consolidated.
Thomson Reuters, whose markets division is exposed to financial services and brings in 59 percent of group sales, said it expected 2008 revenue growth of 6 to 8 percent, almost all organic, and an underlying profit margin of 19 to 21 percent.
The company reiterated its target to generate free cash flow of 11 to 12 percent of sales and its plan for capital expenditure of 8 to 9 percent of revenue.
"You've got to say this is a negative short to middle term," Glocer said of the financial crisis at a London investor day, but added that banking consolidation would present a chance.
"There's a lot of compensating work that needs to be done now to stitch together all these trading operations," he said, adding that the company's legal and health professional product businesses would help the company weather the storm.
Thomson Reuters shares fell 1.7 percent in London by 1508 GMT, underperforming a 3.2 percent rise in the DJ European media index .SXMP. They rose 0.6 percent to $27.26 in New York.
The stock trades at similar multiples as fellow professional publishers Reed Elsevier (REL.L) and Pearson (PSON.L) and is more expensive than Wolters Kluwer (WLSNc.AS), despite its greater exposure to financial services customers.
"We continue to view Thomson Reuters as a world-class group, though we recognise that sentiment will remain challenging given current uncertainty in financial markets," Numis analysts wrote in a note, reiterating their "add" recommendation.
CHALLENGED
The company said it had completed its refinancing needs for Thomson's acquisition of Reuters earlier this year through long-term debt offerings in June, and said it had a $2.5 billion credit facility on which it had not drawn.
Thomson Reuters said it targeted a ratio of 2 for net debt to earnings before interest, tax, depreciation and amortisation, down from a trailing ratio of 2.4 as of June.
Devin Wenig, CEO of the markets division, said the company's foreign exchange business had its best month ever in September but admitted he could not predict how long it would take until conditions for the division as a whole would improve.
"We certainly are not viewing this through rose-coloured glasses. We've never seen a market like this," he said. "There are parts of our business that are really challenged right now."
But Glocer said Thomson Reuters was diversified enough, even in the markets division, to have a chance to grow in hard times, and Chief Financial Officer Bob Daleo said sales at the division would not necessarily decline next year.
Jim Smith, CEO of the professional division which brings in 41 percent of group sales, said most clients were now on contracts of at least two years and added that a heavy bias towards North America left scope for geographical expansion.
"We are not immune to economic cycles but we have traditionally been far less cyclical," he said of the division, which sells products to help lawyers, accountants, scientists and healthcare professionals run their businesses.
"We don't see anything that changes that underlying dynamic," he added.
Glocer said: "We're not in a raging bull market." But he added: "You can't look at the London sell-side dealing room and extrapolate. I do believe (2009) will be better than the market is fearing."
(Editing by Andrew Callus)
