Reuters to buy back 'at least pounds 500m' of its shares

TOM STEVENSON

City Editor

Reuters is planning its second share buy-back in three years to reduce a fast-growing cash pile, worth pounds 850m at the end of December and forecast to rise to more than pounds 1bn this year. The news and information company would not be drawn on the timing or size of the proposed deal, but analysts expected it to spend at least pounds 500m buying about 5 per cent of its shares.

The deal, which follows a pounds 350m buy-back in 1993, is currently being tested against various tax and regulatory authorities. It is understood that the company will only go ahead if it can persuade the Inland Revenue to allow a tax credit on the distribution.

News of the possible buy-back combined with better-than-expected second- half figures and strong growth in the dividend to boost Reuters' already strong shares.

They closed 31p higher at 675p, at which level they have risen more than a quarter over the past six months, outperforming the buoyant stock market by almost one-fifth.

Reuters said it was actively looking at ways of returning surplus cash to shareholders and expected to have concluded representations to British authorities on the tax and legal implications of share repurchases by the end of the year. The shares were also boosted by an unexpectedly large increase in the full-year dividend, which rose 23 per cent to 9.8p per share.

Peter Job, chief executive, said: "Market conditions were better than we anticipated in the fourth quarter but the full impact of continued lower demand for recurring revenue products will be felt in 1996.

"Reuters maintained its record of good revenue and profit growth in 1995 without receiving any benefit from price increases - the fourth year in which prices have been held stable overall."

He confirmed the veiled warning of six months ago that Reuters can no longer be assured of double-digit revenue growth. But for the first time analysts were given a broad hint that, despite slower growth in sales, earnings would continue growing at more than 10 per cent a year.

That prompted a rash of upgraded forecasts, with expectations rising to about pounds 680m this year and pounds 750m for 1997.

Asked why Reuters could not reduce its cash pile by investing more heavily in its existing businesses or by making acquisitions, Mr Job said: "We are investing just about as fast as we can in this company. My judgement is we are running at full stretch with projects we have in hand."

He said Reuters did not favour expansion through acquisition as that usually involved paying a premium to acquire already mature assets. During the year, however, 1994's purchases - the software supplier Teknekron and the equity quote supplier Quotron - chipped in sales of pounds 150m, just over 5 per cent of the group's pounds 2.7bn revenues.

During the 12 months to December, Reuters' pre-tax profits grew 17 per cent to pounds 599m, at the top end of analysts' expectations. The improvement was driven by record volumes traded on the company's equities and foreign exchange transaction systems, particularly in the final quarter of the year, which made up for the effects of bank mergers on recurring revenues from information services.

The high growth of transaction products such as Instinet and Dealing 2000 continued in 1995, with sales 27 per cent higher at pounds 671m. The growth of information products, however, slipped from 15 per cent in the first half to 9 per cent in the second six months. Overheads grew more slowly than revenues and research and development costs grew less quickly, resulting in a slight improvement in operating margin from 19.9 per cent to 20.4 per cent. Cash flow remained strong, with the cash pile pounds 316m higher than a year ago, and pounds 400m up on the end-1993 level.

Investment Column, page 26