DBRS Confirms Thomson Reuters Corporation at BBB (high) and R-2 (high) with Stable Trends

DBRS Limited (DBRS) has confirmed Thomson Reuters Corporation’s (Thomson Reuters or the Company) Issuer Rating as well as its Unsecured Medium-Term Notes and Unsecured Debentures ratings at BBB (high). DBRS has also confirmed Thomson Reuters’ Commercial Paper rating at R-2 (high) and its Preferred Shares rating at Pfd-3 (high). All trends are Stable. The ratings continue to reflect the Company’s well-entrenched market position, the diverse nature of its customer base and its strong free cash flow-generating capacity. The rating confirmations also consider intensifying competition, the need for constant innovation and the risks associated with the Company’s ongoing acquisitions and divestitures.

Thomson Reuters’ revenues declined 1% to 12.6 billion in 2014 over the previous year as growth in its Legal, Tax & Accounting and Intellectual Property & Science segments was eroded by a decline in the Financial & Risk segment and negative impact (1%) of currency fluctuations. EBITDA, however, improved in 2014 because of cost reductions related to the Company’s simplification program initiatives.

The Company’s cash flow from operations in 2014 was $2.8 billion compared with $2.0 billion in 2013. Capital expenditure (capex) in 2014 was $968 million (modestly lower than capex in 2013) primarily used for upgrades and expansion of existing products, developing new products and investments in technology infrastructure. Dividends payout in 2014 remained steady at $1.0 billion. As such, free cash flow before working capital in 2014 improved to $794 million versus a neutral position in 2013.

Going forward, DBRS expects that revenue growth will be flat in 2015 as continued weakness in the Financial & Risk segment is likely to offset modest growth across all other divisions. DBRS expects the Company to complete its legacy product and platform migrations in 2015 that are likely to position Financial & Risk to return to a positive growth path in 2016. EBITDA margins are expected to be constrained (around 27%) in 2015 as the Company’s revenue growth from migration of key products and platforms in Financial & Risk is likely to be temporarily curbed by the pricing dynamics of new offerings.

Cash flow from operations in 2015 should increase to between $2.7 billion and $3.0 billion based on growth in operating income. Capex requirements are expected to remain stable at about $1.0 billion with the funding directed toward technology infrastructure improvements and continued product upgrades. Cash dividends are also expected to remain steady at approximately $1.0 billion in 2015. As such, DBRS forecasts that the Company should generate between $700 million to $900 million of free cash flow (before working capital changes) in 2015. DBRS believes that Thomson Reuters will use free cash flow and additional debt to fund any tactical acquisitions and to return value to shareholders in the form of repurchases (which DBRS expects will total $1.0 billion in 2015) while maintaining financial leverage within the Company’s stated guidelines (net debt-to-EBITDA up to 2.5 times).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Companies in the Publishing Industry (May 2015), which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related
Research at the right of the screen or by contacting us at info@dbrs.com.