If you want to know why Reuters’ share price has more than doubled since April, you have to look further than yesterday’s interim results. At face value, the media information group’s numbers readlike a disaster story: core revenues, which mainly means subscription fees, were down 12%; the pre-tax profit margin was a miserable 1%; and the dividend was merely held.
Yet that counts as progress at Reuters these days, for the simple reason that costs are falling faster than revenues. Tom Glocer, the chief executive, seems ready to chop another 500 or 1,000 jobs every time Reuters reports and such cuts add up to big numbers – the most under-publicised statistic in the annual report is the group’s average salary of an astonishing pounds 68,000 last year. Throw in social security and pension costs, and 1,000 job losses equal an annual saving of pounds 80m or so.
There is, though, a limit to how much fat any company can cut. At some point, Reuters has to show it can expand revenues again. There was precious little evidence of that yesterday: the US is relatively stable but Glocer sounded as gloomy as ever about Europe, which is 55% of the business. The investment banks and fund managers, who are the biggest customers, are not yet rehiring staff who require Reuters terminals.
Thus Glocer, despite beating most profits forecasts, was not able to deliver what the market really wanted – an upward revision of his forecast that underlying revenues will fall 11% this year. The punishment was an 8% fall in the share price to 200.75p as the hedge funds, which have had fun with the stock, called it a day.
It makes only marginal difference to those who had the foresight to buy in March when the price dipped under 100p, but it does demonstrate that Reuters is not a simple one-way bet on recovery as Wall Street and the City regain their stride.
Its problems – too many staff, too many products and poor customer service – became ingrained at the end of 1990s and will take years to unwind. Glocer is doing many of the right things, but top-to-toe overhauls of companies the size of Reuters rarely run entirely smoothly.
