Reuters Unveils Net Strategy, Shares Soar, Instinet to Issue shares
By Ben Hirschler
LONDON (Reuters) - News and information company Reuters Group Plc on Tuesday laid out a strategy to tap millions of new customers using Internet technology, sending its shares soaring 23 percent to a record finish.
The company, criticised in the past by analysts for being too slow to embrace new media, announced a 500 million pound ($802 million) plan to move its core business to the Net, a board shake-up and a nine percent rise in 1999 pre-tax profit to 632 million pounds.
Chief Executive Peter Job said there were more than 60 million people around the world who were targets for buying shares on the Internet while another 150 million were potential consumers of Reuters news and data.
But the group warned that a 300 million pound reorganization charge, half to be taken this year, would hit 2000 profits.
Reuters said it was preparing for a partial flotation of its Greenhouse Fund, which had quoted investments in Internet start-ups worth 438 million pounds at the end of 1999, plus millions more in unlisted firms.
An IPO for U.S.-based electronic brokerage Instinet -- which aims to launch a fixed income product in the second quarter and a retail offering mid-year -- is under consideration.
The shares surged 23 percent or 2.32 pounds to end at 12.39 pounds, shaking off a brief initial wobble as the market digested the news.
``Like a phoenix out of the ashes, Reuters has successfully reinvented itself as an Internet stock,' said Simon Baker, media analyst at stockbroker Teather & Greenwood, who is assessing his position on the stock.
Anthony de Larrinaga of SG Securities, who has a ``buy' on Reuters, said: ``It's jam tomorrow, pain today...analysts will be cutting back their 2000 forecasts to take into account the Internet investments. But they'll pay off in 2001 and 2002.'
HEAVY INTERNET INVESTMENT
Reuters said it would spend 500 million pounds over the next four years migrating its services to Internet technology, giving it access to a vast new customer base.
``The Internet has...enabled us for the first time to start serving an infinitely wider market, including individuals making financial decisions at home and at work,' Job said.
``You can really now talk about delivering for less than $100 (a month)...that is the new price point that intranets and the Internet is opening up to us.'
Job predicted this low-tier information market would be worth $1 billion within three years, offsetting pedestrian growth of 5-10 percent in professional trading rooms.
Stewart Methven of Edinburgh Fund Managers, who holds Reuters, said institutional investors were relieved at the decisive steps after uncertainty about strategy last year.
``At the end of last year the market was looking at a glass that was half empty -- now it is half full. The share price reflects relief that they are on the right path,' he said.
``Reuters has the experience of delivering value to shareholders, which is an untested area for a lot of the new technology stocks.'
Reuters said the reorganization, and investment of 50 million pounds a year to develop e-architecture, would provide cost savings of 150 million a year by 2002.
The company also unveiled plans for a new consumer finance portal, to be launched mid-year, and a 50-50 joint venture with U.S.-based Multex.com Inc offering broker research aimed at European private investors.
Another new company, to be formed with wireless data technology firm Aether Systems Inc, will service the European wireless application market.
These new initiatives followed last week's announcement that Reuters was putting some of its global network assets into a joint venture with data firm Equant NV to offer financial firms a secure global Internet-standard network.
There had also been speculation that Reuters might announce a further sale of its stake in TIBCO Software Inc but Job said there were no plans to cut the 63 percent holding.
TRADING SYSTEMS WEIGH ON RESULTS
Reuters said its 1999 results were held back by a fall in contribution from Trading Systems, hit by lower foreign exchange volumes and customer system freezes ahead of the millennium.
Group pre-tax earnings rose nine percent at actual exchange rates to 632 million pounds and earnings per share grew 13 percent to 30.2 pence. Disposals, mainly from Greenhouse Fund investments, contributed 50 million pounds, against 26 million in 1998. Last year's successful IPO of a stake in TIBCO resulted in an accounting profit of 52 million, Reuters said.
The results were broadly in line with analyst expectations, after taking account of amortization and disposals.
The company is shaking up its organization, merging its Global Sales and Operations unit into its core financial Information unit and grouping this together with its Trading Systems Division under the umbrella Reuters Financial.
Reuters Financial will take a reorganization charge of 300 million pounds over the next two years, of which half will come this year. It will invest an extra 50 million pounds a year to develop its e-architecture.
Both measures are expected to deliver cost savings of 150 million pounds per year by 2002 but Reuters Financial profit will be ``significantly lower' this year because of the charges.
Instinet continues as a standalone business, while the company's businesses outside the financial markets -- including traditional and new media -- will be renamed Reuterspace.
Two long-time senior executives, Andre Villeneuve and David Ure, are to leave Reuters board and Philip Green, the former DHL International executive recruited last year to run Trading Systems, joins the board.
Those moves followed the surprise departure from the company last month of veteran John Parcell, a board member who ran the core Information division. Tom Glocer, president Reuters America, becomes chief executive of the Information business.
Reuters underlying revenue for 1999, excluding two businesses spun off last year, rose four percent at actual rates and two percent at comparable rates to 3.08 billion pounds.
Contribution from the core financial information business rocketed 52 percent at comparable rates of exchange to 253 million pounds, helped by a one-off improvement in data costs and savings associated with a restructuring last year.
Trading Systems contribution fell 21 percent at comparable rates of exchange to 230 million pounds and contribution at Instinet declined 18 percent at comparable rates to 129 million.
Reuters Ventures, which groups traditional and new media business as well as other ventures outside the core financial markets, cut its losses to 15 million pounds from 27 million. ($1-.6233 Pound) Reut11:47 02-08-00 |
