UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______to________
Commission file number 0-13456
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Reuters Group PLC
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(Exact name of Registrant as specified in its charter)
England
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(Jurisdiction of incorporation or organization)
85 Fleet Street, London EC4P 4AJ, England
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the
Act: NONE.
Securities registered or to be registered pursuant to Section 12(g) of the
Act: ORDINARY SHARES OF 25P EACH.
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: NONE.
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.
Ordinary Shares of 25p each.......... 1,421,600,759
Founders Share of (pound)1........... 1
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark which financial statement item the registrant has
elected to follow
Item 17 ___ Item 18 _X_
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TABLE OF CONTENTS
Page
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PART I
ITEM 1. Description of Business.................................... 3
ITEM 2. Description of Property....................................10
ITEM 3. Legal Proceedings..........................................10
ITEM 4. Control of Registrant......................................10
ITEM 5. Nature of Trading Market...................................12
ITEM 6. Exchange Controls and Other Limitations Affecting
Security Holders.......................................13
ITEM 7. Taxation...................................................13
ITEM 8. Selected Financial Data....................................17
ITEM 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................21
ITEM 9A Quantitative and Qualitative Disclosures About
Market Risk............................................22
ITEM 10. Directors and Officers of Registrant.......................22
ITEM 11. Compensation of Directors and Officers.....................23
ITEM 12. Options to Purchase Securities from Registrant
or Subsidiaries........................................23
ITEM 13. Interest of Management in Certain Transactions.............25
PART II
ITEM 14. Description of Securities to be Registered.................25
PART III
ITEM 15. Defaults upon Senior Securities............................25
ITEM 16. Changes in Securities and Changes in Security
for Registered Securities..............................25
PART IV
ITEM 17. Financial Statements.......................................*
ITEM 18. Financial Statements.......................................26
ITEM 19. Financial Statements and Exhibits..........................26
SIGNATURES....................................................................27
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* The registrant has responded to Item 18 in lieu of responding to this Item.
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The Consolidated Financial Statements of Reuters Group PLC ("Reuters" or
"Reuters Group") incorporated herein by reference from Reuters 1998 Annual
Report to Shareholders (the "1998 Annual Report to Shareholders") are presented
in pounds sterling ("(pound)"). On December 31, 1998, the noon buying rate in
New York City for cable transfers in foreign currencies as announced for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") was
$1.66 per (pound) 1; on February 12, 1999 the Noon Buying Rate was $1.63 per
(pound) 1. For additional information on exchange rates between the pound
sterling and the US dollar, see "Exchange Rates" in Item 8 of this Report.
Reuters Consolidated Financial Statements are prepared in accordance with
accounting principles generally accepted in the United Kingdom ("UK GAAP"). UK
GAAP differ in certain respects from accounting principles generally accepted in
the United States ("US GAAP"). The principal differences between UK GAAP and US
GAAP relevant to Reuters are explained in "Summary of Differences Between UK and
US Generally Accepted Accounting Principles" included in the Consolidated
Financial Statements referred to above.
On February 18, 1998 Reuters Holdings PLC ("Reuters Holdings") consummated
a court approved capital reorganization (the "Capital Reorganization") in which
shares of Reuters Holdings were exchanged for a combination of cash and shares
of Reuters Group. As a result, Reuters Holdings became a subsidiary of Reuters
Group. In all other respects the business and assets of the Reuters group of
companies were not affected. For additional information concerning the Capital
Reorganization, see Note 1 of Notes on the Consolidated Profit and Loss Account,
incorporated herein by reference from the 1998 Annual Report to Shareholders.
As used in this Report, "Reuters" refers collectively to Reuters Group and
its consolidated subsidiaries except as the context otherwise requires.
PART I
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ITEM 1. DESCRIPTION OF BUSINESS
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Reuters supplies the global financial markets and the news media with a
wide range of information and news products including real-time financial data,
collective investment data, numerical, textual, historical and graphical
databases plus news, graphics, news video, and news pictures. Reuters designs
and installs enterprise-wide information management and risk management systems
for the financial markets as well as providing equity and foreign exchange
transaction systems. It extensively uses Internet technologies for wider
distribution of information and news.
Information is obtained from 267 exchanges and over-the-counter markets,
from some 4,900 subscribers who contribute data directly to Reuters, and from a
network of 2,072 journalists, photographers and camera operators. There are some
498,500 user accesses for Reuters products located in approximately 57,900
locations around the world, including accesses by clients using equipment not
owned by Reuters.
INFORMATION SOURCES
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Reuters gathers exchange and over-the-counter trading data, contributed
data, reference data and general, financial and business news.
Reuters obtains current trading information for securities, commodities,
options and futures from organized exchanges and over-the-counter markets. The
information is normally transmitted electronically to Reuters databases by a
direct feed from the computerized reporting system maintained by an exchange.
Dealers and brokers in foreign exchange and other financial markets contribute
their latest quotations to Reuters databases using Reuters terminals or their
own computer systems. Data contributed by one contributor is available to all
other subscribers to the same product except those the contributor directs
should be precluded. Reuters also has a number of long-term agreements with
certain brokers and specialist data vendors for the supply of key market data.
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Other numeric data such as corporate and economic statistics and textual
historical information is obtained from a wide range of publications and other
third party sources, including annual reports. Data is gathered in either
electronic or hard copy form and is edited by specialized Reuters staff.
Reuters staff also report and edit general and specialized news for
business and media subscribers in textual, video and audio form. At December 31,
1998, Reuters journalists, photographers and camera operators were based in
reporting bureaus located in 182 cities in 108 countries. Reuters reporting
staff are supported by part-time staff in almost every country. Many Reuters
text journalists are financial or other market specialists.
As it is received, data is automatically processed and stored on a
continually updated basis so that subscribers can retrieve it within seconds.
Reuters information databases range from real-time to over ten years old.
PRINCIPAL PRODUCTS
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Effective January 1, 1999 Reuters restructured its operations from a
horizontal business managed by area and country units to a vertical business
managed on a product line basis. The two main business divisions are Reuters
Information and Reuters Trading Systems. Reuters electronic equities broker
Instinet Corporation ("Instinet"), and TIBCO Software Inc. ("TIBCO Software"),
will continue to operate as autonomous subsidiaries. Reuters geographical units
have been brought together in the Global Sales and Operations ("GSO") group
responsible for the sale, installation, delivery and support of the Information
and Trading Systems divisions' products. An analysis of revenue by product
category under the previous structure is provided under the heading "Operating
and Financial Review" incorporated herein by reference from the 1998 Annual
Report to Shareholders. The external reporting of financial performance will be
revised with effect from the 1999 interim announcement to reflect the new
organizational structure.
REUTERS INFORMATION
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Reuters information products include real-time information and historical
information databases. These products are delivered to subscribers through
personal computer-based Reuters Terminals ("RTs"), through Reuters-supplied or
third-party information management systems or, in the case of real-time data,
via datafeeds. Reuters databases carry around two million individual
instruments. Reuters also supplies a software-only version of its standard RT,
which allows Reuters information products to be distributed over a subscriber's
own local area network and hardware. Reuters corporate and media information
business and the editorial function also form part of Reuters Information
division.
Reuters Information division focuses on four main markets: foreign exchange
and money; commodities (including energy); fixed income; and equities. Reuters
foreign exchange and money market products were its greatest source of revenue
in each of the last three years.
During 1998 Reuters continued the rollout of its new generation "3000"
range of information products. By year end approximately 48,000 accesses had
been installed. Reuters 3000 products combine the real-time features of its
existing "2000" series (described below) with access to historical data, a range
of analytics and graphing capabilities, textual and television news and Reuters
Mail, an electronic messaging facility. Subscribers to the 3000 series also
receive a continuous flow of market related news items as well as background
economic data and analyses. Non-real-time components of the 3000 series are
delivered to subscribers over a high speed proprietary network using industry
standard Internet protocols.
Reuters 2000 series of real-time international products and most domestic
services are carried on its Integrated Data Network ("IDN"). These products are
formed from a series of content "building blocks", each containing relevant
real-time prices and related data on a particular market. The 2000 range may be
supplemented with news stories and analytics. Both the 3000 series and the 2000
series of products are grouped in different combinations to allow subscribers to
select the product or products specific to their needs.
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In addition to the international products described above, Reuters offers
many domestic information products focused on the needs of individual countries.
In May 1998 Reuters launched Reuters Plus, an advanced equities trading and
analytics tool for US equities which includes real-time and historical data,
time and sales, charting and Reuters news. A range of optional products produced
by third parties to augment Reuters news and market data is also available to
subscribers. Reuters is increasingly using web technology and offers several
information products for password-protected Internet and intranet delivery.
Reuters recently acquired a number of businesses in the funds information,
shareholder and benchmarking analysis sector, including Harwick Stafford Wright
Limited in 1997; Lipper Analytical Services, Inc. ("Lipper"), BOPP ISB and
Citywatch in 1998; and CAMRA Consulting and the investment trust data business
of BT Alex. Brown in 1999. These businesses, which have been combined under the
Lipper brand, track 65,000 funds domiciled in 44 countries with assets in excess
of US$7.6 trillion. Historical performance data goes back to 1959 and includes
open-ended (mutual) funds, closed-ended funds and variable annuity (unit-linked)
funds.
Corporate and Media Information. Reuters corporate and media information
business includes textual news services for print media, broadcast and on-line
clients. These services cover politics, general news, finance, economics and
sports. Reuters supplies its news pictures and news graphics services to the
traditional and new media. Reuters news is supplied to most of the major portals
on the Internet. Reuters is also using the Internet to provide information about
Reuters itself, and its products, to existing and potential customers at its
website "http://www.reuters.com".
Reuters operates one of the world's largest international television news
agencies, Reuters Television News, which supplies unedited coverage to
broadcasters. It holds minority interests in Independent Television News (ITN)
in the UK and ANI in India, and has shareholdings in ventures operating 24-hour
radio networks in the UK and Switzerland.
In addition, Reuters provides a range of near real-time and historical
financial information news products and related technology to the corporate and
professional markets. Reuters Business Briefing, the principal product range in
this market, provides access to 10 years' business information from one of the
world's most comprehensive databases.
Editorial. The news content of all Reuters products is gathered by Reuters
editorial operations. Reuters delivers financial and media news worldwide,
producing more than 10,000 news reports a day in over twenty languages. In
addition to its textual news, Reuters provides television and news pictures
coverage and operates a global financial television news channel (RTV) for its
clients in the financial markets.
REUTERS TRADING SYSTEMS
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Reuters Trading Systems division groups together Reuters management
systems, transaction products (excluding Instinet), risk management products and
other applications. The primary purpose of the division is to supply an
enterprise-wide open framework with transactional and risk management facilities
of choice. The division is divided into several major sectors:
Financial Enterprise Systems. This area principally focuses on the design,
installation and maintenance of digital and video information management
systems. These systems allow access to Reuters real-time information,
information databases and transaction products, products of other data suppliers
and the customer's own in-house computer facilities. Reuters two main products
in this sector, Triarch 2000 and TIBCO Information Bus ("TIB"), are digital
systems offering a choice of operating systems and platforms using local area
networks to distribute the data.
TIB is the principal product of TIBCO Finance Technology Inc. ("TIBCO
Finance", formerly TIBCO Inc.), a US company acquired in 1994. In 1997 the
business of TIBCO Inc. was restructured. A new company, TIBCO Software, was
formed and is being managed as a non-integrated subsidiary (see below). TIBCO
Finance continues to focus on the financial sector in and beyond the trading
room.
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Risk Management Systems. Reuters offers a number of risk management
products which encompass front-end trading systems (deal capture, position
keeping, decision support tools, tactical risk management), local and global
credit and limit management, and firmwide risk analysis. These systems cover
cash and derivatives financial instruments in the areas of money and foreign
exchange, fixed income and equities and interest rates related markets.
Money and Foreign Exchange Transaction Systems. Reuters delivers desktop
software, specialized networks and customer support to enable dealers to trade
in the money and foreign exchange markets.
Dealing 2000-1 enables fast electronic communication among dealers to
negotiate and conclude trades in foreign exchange and other instruments. Dealing
2000-1 has become a leading conversational-based trading system for dealers
specializing in the interbank foreign exchange and deposits markets.
Through its UK subsidiary Reuters Transaction Services Limited ("RTSL"), a
regulated wholesale money market institution, Reuters operates Dealing 2000-2,
an electronic brokerage service for interbank spot and forward foreign exchange
dealers. This automatic, anonymous service matches bid and offer orders using a
central computer, verifying that the counterparties have sufficient and mutually
acceptable credit. During 1999 Reuters expects to commence the progressive
upgrade of customers to the next generation, Dealing 3000, platform.
Securities Transactions Systems. This is a new area which Reuters proposes
to develop, building from its present capability and adding new elements as
required, to accomplish a fully integrated package of order routing, order
management and execution capabilities for the securities markets. In 1998
Reuters acquired Liberty SA ("Liberty"), which provides securities order routing
and order management facilities on a global basis and will form the platform for
further product development. Reuters also owns a 34.2% interest in GL Trade, a
French company that provides order execution and exchange gateways for direct
connection to electronic exchanges.
NON-INTEGRATED SUBSIDIARIES
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INSTINET
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Through Instinet, a registered US securities broker, Reuters operates an
equity securities market information and trading system for investment
professionals (the "Instinet System"). The Instinet System provides anonymous
two-way computerized transactional capability and continuously updated market
information with respect to equity securities traded on US national and regional
stock exchanges and NASDAQ and with respect to certain non-US equity securities.
In addition to enabling customers to negotiate trades directly with each
other, the Instinet System automatically executes clients' matching buy and sell
orders. Instinet also offers a number of "crossing" services which operate
outside regular trading hours in the markets for the relevant securities, and a
research and analytics product which allows traders and portfolio managers to
monitor and analyze real-time and historical stock price data via traditional,
proprietary and customized technical indicators.
In February 1999 Instinet announced a new initiative to explore an
extension of its business into the fixed income market.
Affiliates of Instinet are members of the American Stock Exchange, the
Boston Stock Exchange, the Cincinnati Stock Exchange, the Chicago Stock
Exchange, the Philadelphia Stock Exchange, the Pacific Stock Exchange, the
Chicago Board Options Exchange, the Toronto Stock Exchange, the London Stock
Exchange, Tradepoint Stock Exchange, the Frankfurt Stock Exchange, the XETRA,
the SBF Paris Bourse, the Swiss Exchange, the Hong Kong Stock Exchange, the
Stockholm Stock Exchange and the Amsterdam Exchanges N.V. An Instinet affiliate
has a license from the Ministry of Finance in Japan to operate as a foreign
securities firm with a Tokyo branch.
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TIBCO SOFTWARE
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TIBCO Software was formed in 1997 to pursue opportunities for applying
TIBCO technology to sectors outside finance, including the Internet. At December
31, 1998, options amounting to 30% of the issued share capital of TIBCO Software
(on a fully diluted basis) had been granted to employees of TIBCO Finance and
TIBCO Software; of these, options representing 5% of the issued share capital
had vested and been exercised. In addition, TIBCO Software has issued
convertible preferred shares to two outside investors, CISCO Systems, Inc. and
Mayfield Venture Capital Fund, which at the end of 1998 owned 7% and 5%,
respectively, of the fully diluted share capital of TIBCO Software. TIBCO
Software's main product offering is the Active Enterprise suite which provides
the ability to integrate applications across an enterprise.
DATA AND COMMUNICATIONS NETWORKS
--------------------------------
Reuters operates a number of communications networks, employing various
technologies, for distribution of its products. Reuters is making increasing use
of Internet technology which is being incorporated into the Reuters Web
communications network.
Reuters has two global technical centers, two main technical centers and a
number of smaller local data centers. Reuters data centers are linked by
dedicated international communications circuits which rely on satellite links,
optical fiber cables and coaxial cables. These circuits are leased from various
governmental and private telecommunications operators.
Communications between data centers and Reuters subscribers are usually by
dedicated terrestrial circuits which are leased from telecommunications
operators and are supplemented by a variety of other transmission systems. These
include satellite-based networks for delivery of services to small dish
receivers on customer premises as an alternative to terrestrial lines.
PRINCIPAL GEOGRAPHIC MARKETS
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Reuters products are distributed to 157 countries. Prior to the January
1999 restructuring, operations were divided for financial reporting purposes
into three principal geographical areas: Europe, Middle East and Africa,
Asia/Pacific, and the Americas, with the world-wide operations of Instinet and
the TIBCO companies reported separately. An analysis of revenue, costs,
contribution and assets by these markets is provided under the heading
"Operating and Financial Review" and in Notes 2 and 15 of Notes on the
Consolidated Financial Statements, both incorporated herein by reference from
the 1998 Annual Report to Shareholders.
In connection with the 1999 restructuring, the GSO group was organized to
manage worldwide sales, customer support and technical operations for divisional
products.
SUBSCRIBERS AND MARKETING
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Reuters information products are billed by number of user accesses. User
accesses include terminals, accesses to datafeeds, slave screens, portable data
screens and pagers. The number of user accesses at the end of each of the last
three years (broken down into the product categories in effect under the
previous organizational structure) is set forth below.
At December 31,
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1998 1997 1996
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Information Products ................... 444,900 386,000 321,000
Transaction Products ................... 40,500 38,000 33,500
Professional Products .................. 13,100 11,000 7,500
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Total .................................. 498,500 435,000 362,000
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Information relating to user accesses and an analysis of subscribers by
type are provided under the heading "Operating and Financial Review" and in Note
14 of Notes on the Consolidated Cash Flow Statement, both incorporated herein by
reference from the 1998 Annual Report to Shareholders.
The majority of Reuters revenue is recurring and generally covered by
contracts of indefinite period, terminable on one or two years' notice.
Individual services within a contract may be cancelled on twelve, six or three
months' notice. Charges are based upon the particular products purchased by a
subscriber and the number of user accesses. Payment terms are generally in
advance. Charges for certain other Reuters products vary according to volume of
use. These include the Instinet System, Dealing 2000-2 and certain information
database products.
Under its agreements with Dealing 2000-2 subscribers, RTSL accepts
liability for direct net loss incurred by subscribers solely as a result of a
transmission or processing fault that is shown to be caused by the negligence or
wilful misconduct of Reuters. RTSL only accepts this liability in full for
trades with a value of up to $15 million; for trades above $15 million, RTSL
agreements with Dealing 2000-2 subscribers provide that RTSL's liability is
limited on a pro rata basis.
DEVELOPMENT ACTIVITIES
----------------------
Expenditures for development, which exclude costs associated with the
Millennium Programme, aggregated (pound) 200 million in 1998, (pound) 235
million in 1997 and (pound) 202 million in 1996. These expenditures principally
related to information products and transaction products (as defined under the
previous organizational structure), which respectively accounted for (pound) 131
million (1997 - (pound) 162 million) and (pound) 51 million (1997 - (pound) 60
million) of the total. Activities during 1998 included continuing the
development of the 3000 series products, development of domestic products such
as Reuters Plus for the US market, improvements to data collection systems,
further development by Instinet and of other transaction products and
development relating to TIBCO Software and Internet products.
During 1998, efforts to address the transition to the Euro as part of
European Monetary Union integration and issues associated with Millennium
deadlines necessitated diversion of development effort to upgrade certain
products and phase out others. For information relating to Reuters European
Monetary Union and Millennium Programmes see the discussion included in the
"Operating and Financial Review" incorporated herein by reference from the 1998
Annual Report to Shareholders.
Greenhouse Fund. Reuters has a number of small targeted investments in high
technology and selected content companies to which Reuters can bring expertise
and a diverse global customer base. In return Reuters gains access to
entrepreneurs who generate new ideas, technologies and products.
EQUIPMENT SUPPLY AND SERVICING
------------------------------
Reuters central computers are presently supplied by Compaq Computer
Corporation, with a smaller number of computers from International Business
Machines Corporation, NCR Corporation, Sun Microsystems Corporation and other
manufacturers. Reuters central computers are installed and normally maintained
by the supplier. Operation is carried out by Reuters personnel.
Reuters installs and provides first level maintenance for client site
equipment either directly or in some countries via sub-contractors. These
installations are usually based on equipment supplied either by Intel
Corporation or more recently by International Business Machines Corporation.
Some clients specify and supply such equipment themselves and may be responsible
for its maintenance. All Reuters application software on central computers and
client site systems is maintained by Reuters.
COMPETITION
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Reuters faces competition in all market sectors and geographical areas.
Some rival vendors compete across a range of markets and in most major financial
centers. Other vendors are more specialized, either in markets or location.
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REUTERS INFORMATION
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Competitors in the provision of information for the financial markets
include Bloomberg L.P. ("Bloomberg"); Bridge Information Systems ("Bridge"),
including the newly-acquired Telerate Inc. (formerly known as Dow Jones Markets)
and the ADP front office business of Automatic Data Processing Inc.; ICV
Datastream International Ltd. ("Datastream"), a subsidiary of Primark
Corporation; Quick Corporation of Japan; and Telekurs A.G. of Switzerland.
Competition to the Lipper funds information business comes from Morningstar, the
Standard & Poor's Micropal unit, Value Line and Thomson Corporation's CDA
Weisenberger.
Competition for the supply of news to the media comes from Associated
Press, Agence France Presse, Dow Jones Newswires and a number of other news
agencies and national newspapers which syndicate their news. Competition for the
supply of news pictures comes mainly from Associated Press, Agence France Presse
and the European Press Agency. The main competitor to Reuters Television is
Associated Press Television News.
The principal competitors for the supply of corporate products are
LEXIS-NEXIS, Financial Times Electronic Publishing, The Dialog Corporation and
Dow Jones News Retrieval.
REUTERS TRADING SYSTEMS
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The Electronic Broking Service ("EBS") competes with the foreign exchange
spot matching service provided by Reuters Dealing 2000-2 and, to a lesser
degree, with Dealing 2000-1. The EBS partnership comprises a number of leading
European, US and Japanese banks. Reuters money and foreign exchange transaction
products also compete with voice brokers in the relevant markets.
Competitors in the supply of financial enterprise systems include Misys plc
("Misys"), British Telecommunications plc, CSK Software, a subsidiary of CSK
Corporation, Bridge and a large number of other vendors. In the provision of
risk management systems on a global basis Reuters competes with SunGard Data
Systems, Inc., Misys and Algorithmics, Inc. Many other vendors offer these
systems locally.
INSTINET
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In the provision of equity transaction products, Instinet competes with,
among others, the SelectNet System of the National Association of Securities
Dealers, Inc. (the "NASD"), which enables NASD members to trade electronically
in OTC stocks, and other so-called "electronic communications networks"
("ECNs"), including Bloomberg Tradebook L.L.C., a subsidiary of Bloomberg, and
the Island System. In addition, the NASD is considering a number of changes to
the NASDAQ marketplace, some of which could put the NASD in direct competition
with Instinet (see "Operating and Financial Review - Cautionary Statements -
NASD Initiatives", incorporated herein by reference from the 1998 Annual Report
to Shareholders). In its capacity as a broker-dealer, Instinet competes with
other broker-dealers (including many of its own customers) for institutional
order flow. In addition, the securities exchanges (including the Tradepoint
Stock Exchange in the UK) and other broker-dealers offer competing crossing
services.
GOVERNMENT REGULATIONS
----------------------
REUTERS INFORMATION
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Reuters Limited is regulated as a service company by the UK Financial
Services Authority ("FSA") (the successor regulatory body to the UK Securities
and Investments Board) under the Financial Services Act 1986.
The use of communications links is subject to government regulation and/or
licensing in every country.
REUTERS TRADING SYSTEMS
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RTSL is subject to regulation by the FSA equivalent to that applied to
broking participants in the London foreign exchange market, including capital
adequacy requirements; this regulatory role was
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transferred from the Bank of England to the FSA on June 1, 1998. The operations
of RTSL's Singapore branch are regulated by the Monetary Authority of Singapore,
and on June 9, 1998 RTSL was approved as a money broker by the Hong Kong
Monetary Authority.
Liberty is regulated as a service company by the FSA under the Financial
Services Act 1986 and by the Luxembourg Monetary Institute.
INSTINET
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As registered broker-dealers and members of the NASD and various other
self-regulatory organizations in the US and other countries in which they
operate, Instinet and Instinet affiliates using the Instinet System are subject
to substantial regulation under the US securities laws and their equivalents in
other countries, including net capital requirements.
In December 1998 the US Securities and Exchange Commission ("SEC")
promulgated new rules overhauling the regulation of certain "alternative trading
systems". The rules expand the SEC's interpretation of the definition of
"exchange" under the US securities laws to encompass a broad range of electronic
brokerage activities, including those conducted by Instinet. The SEC has also
implemented rules governing market-maker and exchange specialist usage of
Instinet and other ECNs. See the discussion under the headings "Operating and
Financial Review - Cautionary Statements - SEC Rules for Alternative Trading
Systems" and "- SEC Rules on ECN Usage" incorporated herein by reference from
the 1998 Annual Report to Shareholders.
ITEM 2. DESCRIPTION OF PROPERTY
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Reuters principal properties are its corporate headquarters in London, its
two global technical centers in London and Geneva and its two other main
technical centers in New York and Singapore. The London and New York properties
are situated on land owned by Reuters, whereas the buildings in Geneva and
Singapore were built by Reuters on leased land. The leases, including periods
covered by options to extend, expire in 2095 and 2050, respectively.
For information concerning a joint venture to develop a building in the
Times Square section of New York City see "Operating and Financial Review" and
Note 18 of Notes on the Consolidated Balance Sheet, both incorporated herein by
reference from the 1998 Annual Report to Shareholders.
ITEM 3. LEGAL PROCEEDINGS
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For information concerning a grand jury investigation regarding Reuters
Analytics Inc., a US subsidiary based in Stamford, Connecticut, see "Operating
and Financial Review - Cautionary Statements - Reuters Analytics" and Note 29 of
Notes on the Consolidated Balance Sheet, both incorporated herein by reference
from the 1998 Annual Report to Shareholders.
Reuters and its subsidiaries are parties to legal proceedings that are
considered to be either ordinary routine litigation incidental to their business
or not material to Reuters consolidated financial position.
ITEM 4. CONTROL OF REGISTRANT
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The Memorandum and Articles of Association of Reuters Group (the
"Articles") contain two sets of restrictions relating to the ownership of
Reuters Group's shares that are intended to ensure continued compliance with the
following principles (the "Reuter Trust Principles") in a manner appropriate for
a public company:
I. that Reuters shall at no time pass into the hands of any one interest,
group or faction;
II. that the integrity, independence and freedom from bias of Reuters shall
at all times be fully preserved;
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III. that Reuters shall supply unbiased and reliable news services to
newspapers, news agencies, broadcasters and other media subscribers and
to businesses, governments, institutions, individuals, and others with
whom Reuters has or may have contracts;
IV. that Reuters shall pay due regard to the many interests which it serves
in addition to those of the media; and
V. that no effort shall be spared to expand, develop and adapt the news and
other services and products of Reuters so as to maintain its leading
position in the international news and information business.
For purposes of the Reuter Trust Principles, the term "Reuters" means
Reuters Group and every subsidiary of Reuters Group from time to time supplying
news services. Reuters believes that the observance of the Reuter Trust
Principles is compatible with its ability to achieve its financial objectives
and to operate its business in the interest of its shareholders generally.
The first set of restrictions contained in the Articles applies to persons
that become "interested" in 15% or more of Reuters Ordinary Shares of 25p each
("Ordinary Shares") outstanding at any time. The term "interested" is defined in
the Articles by reference to provisions of the Companies Act 1985 of Great
Britain, as amended (the "Companies Act"), which require persons to disclose to
public companies interests in voting shares in excess of a prescribed
percentage. (At present, material interests of 3% of the class and other
interests of 10% of the class must be disclosed.) Subject to certain exceptions,
all shares held by a person who reaches the 15% limit will be disenfranchised.
Moreover, Reuters Group is empowered to effect an involuntary disposition of the
number of shares by which a person exceeds the 15% limit if that person fails to
do so on demand (which involuntary disposition may be made, if appropriate, by
means of an instruction to effect an electronic transfer of uncertificated
shares).
Second, Reuters Group share capital includes the Founders Share which is
held by the Reuters Founders Share Company Limited (the "Founders Share
Company"), a company limited by guarantee consisting of individuals (the "Reuter
Trustees") who constitute both its members and directors. The Founders Share
empowers the Founders Share Company to cast such number of votes as will pass
any resolution supported by, and defeat any resolution opposed by, the Founders
Share Company if it believes that any person or persons have obtained, or are
seeking to obtain, control of Reuters. Control for these purposes is defined as
the ability to control the exercise of 30% or more of the votes that may be cast
on a poll at general meetings. The Founders Share also empowers the Founders
Share Company to cast such number of votes as will defeat any resolution opposed
by it that would alter any provision of the Articles relating to the Reuter
Trust Principles or to the rights of the Founders Share. See "Principal
Shareholders - The Founders Share" below.
The restrictions on "interests" in Ordinary Shares and the extraordinary
voting rights of the Founders Share may be characterized as "anti-takeover"
provisions to the extent they are intended to prevent a bid for control of
Reuters. Tender offers or other non-market acquisitions of shares are usually
made at prices above the prevailing market price of a company's shares.
Acquisitions of shares by persons attempting to acquire control through market
purchases may support the price of shares at market levels higher than otherwise
would be the case. The "anti-takeover" provisions applicable to Reuters may be
expected to preclude such offers.
PRINCIPAL SHAREHOLDERS
----------------------
ORDINARY SHARES
- ---------------
As of February 12, 1999, there were 1,410,099,869 Ordinary Shares
outstanding, excluding 12,275,400 Ordinary Shares owned by certain Employee
Share Ownership Trusts. See Note 18 of Notes on the Consolidated Balance Sheet,
incorporated herein by reference from the 1998 Annual Report to Shareholders.
Reuters has received notice from The Capital Group Companies, Inc. under section
198 of the Companies Act, that on February 12, 1999 it and its affiliates
together held in their capacity as investment
11
<PAGE>
managers 75,504,136 Ordinary Shares (representing 5.31% of Reuters share
capital). On that date, to Reuters knowledge, all directors and officers of
Reuters as a group (17 persons) had an interest in an aggregate of 1,196,068
Ordinary Shares, representing approximately 0.1% of the total outstanding,
excluding an aggregate of 1,168,849 Ordinary Shares that may be acquired by
directors and officers pursuant to the share option and restricted share and
share rights schemes referred to in Item 12 of this Report.
THE FOUNDERS SHARE
- ------------------
Reuter Trustees are nominated by a Nomination Committee which includes
certain serving Reuter Trustees, one person nominated by each of four news
associations and two persons appointed by the Chairman of Reuters. Reuter
Trustees may not be directors or employees of Reuters.
The Reuter Trustees currently in office are as follows:
Trustee
Since
-------
Leonard Terry Berkowitz ................................................ 1998
The Right Hon. the Lord Browne-Wilkinson ............................... 1989
Sir Michael Checkland .................................................. 1994
Claude Neville David Cole CBE, ......................................... 1984
John Elliott Christopher Dicks OBE ..................................... 1984
Pehr Gustaf Gyllenhammar ............................................... 1997
Sir Christopher Mallaby GCMG, GCVO ..................................... 1998
Dame Sheila Masters .................................................... 1998
Kenneth Morgan OBE ..................................................... 1984
Sir William Purves CBE, DSO ............................................ 1998
J. Michael Robson ...................................................... 1998
Sir Frank Jarvis Rogers (Chairman) ..................................... 1989
Arthur Ochs Sulzberger ................................................. 1994
Ernest James Lyle Turnbull AO .......................................... 1993
Richard John Winfrey ................................................... 1987
Each Reuter Trustee is normally required to retire at the Annual General
Meeting ("AGM") of the Founders Share Company following the fifth anniversary of
his or her nomination or last renomination and will be eligible for renomination
(unless he or she has reached the age of 75).
ITEM 5. NATURE OF TRADING MARKET
- ------- ------------------------
The Ordinary Shares are traded on the London Stock Exchange and American
Depositary Shares ("ADSs"), each representing six Ordinary Shares, are included
for trading in the NASDAQ National Market System. The ADSs are evidenced by
American Depositary Receipts ("ADRs") issued by Morgan Guaranty Trust Company of
New York, as Depositary under a Deposit Agreement, dated as of February 18, 1998
(the "Deposit Agreement"), among Reuters Group, the Depositary and the holders
from time to time of ADRs.
The table below sets forth, for the periods indicated, (i) the reported
high and low sales prices for the Ordinary Shares based on the Daily Official
List of the London Stock Exchange and (ii) the reported high and low sales
prices of the ADSs on NASDAQ, except that the price information included for
periods prior to the Capital Reorganization (January 1, 1997 to February 18,
1998) is for the ordinary shares of 2.5p each of Reuters Holdings and the
American Depositary Shares which represented them. The number of Ordinary Shares
and American Depositary Shares delivered in the Capital Reorganization was set
to, among other things, facilitate comparability of share price with the Reuters
Holdings shares and ADSs, respectively. Accordingly, the prices for prior
periods have not been restated. However, see Note (1) to the table of
Consolidated Income Statement Data, Amounts in Accordance with US GAAP in Item 8
of this Report, with respect to the US GAAP treatment of the Capital
Reorganization and its retroactive effect on the number of shares outstanding
and per share amounts.
12
<PAGE>
<TABLE>
<CAPTION>
The London
Stock Exchange NASDAQ
---------------- --------------------
Pounds Per Share US Dollars per ADS
---------------- --------------------
High Low High Low
------- ------- -------- ----------
<S> <C> <C> <C> <C>
1997
First Quarter.............................................. 7.57 5.98 76-3/4 58
Second Quarter............................................. 7.07 5.73 69-1/2 56
Third Quarter.............................................. 7.40 5.55 71-1/2 56-3/4
Fourth Quarter............................................. 7.82 5.90 75-5/8 60
1998
First Quarter ............................................. 6.94 5.18 67-1/8 50-1/4
Second Quarter............................................. 7.70 6.15 74-3/4 61-5/8
Third Quarter.............................................. 6.93 4.22 68-3/4 43-7/8
Fourth Quarter............................................. 6.54 4.12 63-15/16 42-1/8
1999
First Quarter (to February 12)............................. 9.71 6.13 94-3/8 62-1/16
</TABLE>
As of February 12, 1999, 459,518 Ordinary Shares and ADRs evidencing
31,944,534 ADSs (representing 191,667,204 Ordinary Shares) were held of record
in the US. These Ordinary Shares and ADRs were held by 106 record holders and
2,767 record holders, respectively, and represented 0.03% or evidenced ADSs
representing 13.5%, respectively, of the total number of Ordinary Shares
outstanding. Since certain of these Ordinary Shares and ADRs were held by
brokers or other nominees, the number of record holders in the US may not be
representative of the number of beneficial holders or of where the beneficial
holders are resident.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
- ------- ------------------------------------------------------------------
There are currently no UK foreign exchange control restrictions on
remittances of dividends on Ordinary Shares or on the conduct of Reuters
operations.
Under English Law and Reuters Articles persons who are neither residents
nor nationals of the UK may freely hold, vote and transfer their Ordinary Shares
in the same manner as UK residents or nationals.
ITEM 7. TAXATION
- ------- --------
The following discussion of taxation is intended only as a descriptive
summary and does not purport to be a complete technical analysis or listing of
all potential tax effects relevant to the Ordinary Shares or ADRs. The
statements of UK and US tax laws set forth below are based on the laws and the
UK Inland Revenue practice in force as of the date of this Report. The
statements herein are subject to any changes in UK or US law, and in any double
taxation convention between the US and the UK, occurring after the date of this
Report.
UK TAXATION OF DIVIDENDS - REFUND OF TAX CREDITS
- ------------------------------------------------
POSITION BEFORE APRIL 6, 1999
-----------------------------
General. When paying a dividend on Ordinary Shares before April 6, 1999,
Reuters will be liable to pay to the UK Inland Revenue advance corporation tax
("ACT") currently at a rate equal to 25% of the cash dividend paid. UK resident
individual shareholders are entitled to a tax credit equal to the ACT paid
against such individual shareholder's total income tax liability or, in
appropriate cases, a cash refund of the ACT paid.
Under the terms of the UK/US Double Taxation Convention 1975 (the
"Treaty"), which is being renegotiated, a US resident individual or corporate
portfolio holder of an Ordinary Share or ADR who is not also resident in the UK
for UK tax purposes (an "eligible US holder") generally will be entitled to
receive from
13
<PAGE>
the UK Inland Revenue payment of a refund ("Refund") of the tax credit available
to UK resident shareholders currently at a rate equal to 25% of the cash
dividend. A 15% withholding tax will be imposed on the sum of the dividend plus
the Refund (the "Gross Dividend"). For example, at current rates, an (pound) 80
dividend results in a (pound) 20 Refund. The Gross Dividend of (pound) 100
((pound) 80 plus (pound) 20) is subject to a UK withholding tax of (pound) 15.
Thus, the eligible US holder receives (pound) 85.
These provisions do not apply (i) to shareholders whose holding of Ordinary
Shares or ADRs is effectively connected with a permanent establishment or fixed
place of business in the UK, (ii) under certain circumstances, to an investment
or holding company, 25% or more of the capital of which is owned, directly or
indirectly, by persons that are neither individual residents nor citizens of the
US and (iii) under certain circumstances, to a corporation which, alone or
together with one or more associated corporations controls, directly or
indirectly, 10% or more of the voting stock of Reuters.
Arrangements for Payment of Refund. Subject to certain exceptions, the
Refund will (subject to the 15% withholding tax on the Gross Dividend) be paid
by Reuters to an eligible US holder together with the associated dividend. To
establish its entitlement to the Refund, the eligible US holder must complete
the declaration on the reverse of the dividend check and present the check for
payment within three months from the date of its issue. In the case of ADRs or
Ordinary Shares held through The Depository Trust Company ("DTC"), a declaration
as to the conditions entitling the beneficial eligible US holder to the Refund
should be completed by the broker-dealer or bank member of DTC which holds the
Ordinary Shares or ADRs on behalf of such eligible holder. These arrangements
can be terminated without notice by the UK Inland Revenue.
An eligible US holder who does not come within these arrangements may
obtain the Refund by filing a claim for refund directly with the UK Inland
Revenue, in the manner and at the time described in US Revenue Procedure 80-18,
1980-1 C.B. 623 and US Revenue Procedure 81-58, 1981-2 C.B. 678, summarized
below. Claims for payment must be made within six years of the UK year of
assessment (generally, the 12-month period ending April 5 in each year) in which
the related dividend was paid. The first claim by an eligible US holder for a
Refund must be made by sending the appropriate UK form in duplicate to the
Director of the US Internal Revenue Service Center with which the shareholder's
last federal income tax return was filed. Forms may be obtained by writing to
the US Internal Revenue Service, Assistant Commissioner International, 950
L'Enfant Plaza South, S.W., Washington, D.C. 20024, Attention: Taxpayers Service
Division. Because a Refund claim is not considered made until the UK tax
authorities receive the appropriate form from the US Internal Revenue Service,
forms should be sent to the US Internal Revenue Service well before the end of
the applicable limitation period. Any subsequent claims by an eligible US holder
for payment of a Refund should be filed directly with the UK Financial
Intermediaries and Claims Office, Fitz Roy House, PO Box 46, Nottingham NG2 1BD,
England.
Certain provisions of the UK Income and Corporation Taxes Act 1988 empower
the UK Government to deny the payment of tax credits in circumstances where (i)
a corporate shareholder which, either alone or together with one or more
associated corporations, controls, directly or indirectly, 10% or more of the
voting stock of the UK company and (ii) such shareholder or an associated
company has a qualifying presence in a jurisdiction which operates a unitary
system of corporate taxation. These provisions are only triggered if the UK
Treasury so determines by Statutory Instrument and no such Instrument has yet
been made. However, the UK Chancellor of the Exchequer announced in 1994 that
the UK will be retaining its retaliatory powers against the possibility of harm
to the interests of UK-owned companies in the future.
POSITION ON AND AFTER APRIL 6, 1999
-----------------------------------
Under provisions introduced in the UK Finance Act 1998 ACT will be
abolished with effect from April 6, 1999, so that no ACT will be payable by
Reuters on payment of a cash dividend on or after that date. The proposal,
however, envisages a system of "shadow ACT" to govern the rate at which
companies can utilise surplus ACT that they have on April 6, 1999 against their
corporation tax liability in later years.
14
<PAGE>
On and after April 6, 1999, the tax credit on cash dividends paid by
Reuters on Ordinary Shares will be reduced to one-ninth of the cash dividend (or
10% of the Gross Dividend). The tax credit may be set off against a UK resident
individual shareholder's total income tax liability, but no cash refund will be
available.
Accordingly, an eligible US holder will effectively cease to be entitled to
any Refund in respect of dividends, as the 15% withholding tax under the Treaty
will exceed (but will be limited to) the tax credit to which the Treaty
otherwise entitles him. Hence, using the example set out above, an (pound) 80
cash dividend would result in an eligible US holder receiving (pound) 80 after
deduction of withholding tax of (pound) 8.89 (being equal to the tax credit on
the cash dividend).
US TAXATION CONSEQUENCES
- ------------------------
The following is a summary of certain US federal income tax consequences of
the ownership of Ordinary Shares or ADRs by a US holder that holds the Ordinary
Shares or ADRs as capital assets, and does not take into account the specific
circumstances of any particular investors, some of which may be subject to
special rules. In addition, the summary is based in part upon the
representations of the Depositary and the assumption that each obligation in the
Deposit Agreement and any related agreement will be performed in accordance with
its terms.
For purposes of this discussion, a "US holder" is any beneficial owner of
Ordinary Shares or ADRs that is (i) a citizen or resident of the US, (ii) a
corporation organized under the laws of the US or any State, (iii) an estate the
income of which is subject to US federal income tax without regard to its
source, or (iv) a trust if a court within the US is able to exercise primary
supervision over the administration of the trust and one or more US persons have
the authority to control all substantial decisions of the trust.
TAXATION OF DIVIDENDS
---------------------
Subject to the passive foreign investment company ("PFIC") rules discussed
below, the Gross Dividend generally will be treated as dividend income for US
federal income tax purposes. Such dividend will not be eligible for the 70%
dividends received deduction allowed to US corporations. The amount of the
dividend distribution includible in income of a US holder will be the US dollar
value of the pound sterling payments made, determined at the spot pound
sterling/US dollar rate on the date such dividend distribution is includible in
the income of the US holder, regardless of whether the payment is in fact
converted into US dollars. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date the dividend payment is
includible in income to the date such payment is converted into US dollars will
be treated as ordinary income or loss. Such gain or loss will generally be
income from sources within the US for foreign tax credit limitation purposes.
The withholding tax will be eligible, subject to certain limitations, for
credit against the US holder's US federal income tax. However, a US holder will
be denied a foreign tax credit (and instead allowed a deduction) for foreign
taxes imposed on a dividend if the US holder has not held the Ordinary Shares or
ADRs for at least 16 days in the 30-day holding period beginning 15 days before
the ex-dividend date. Any days during which a US holder has substantially
diminished its risk of loss on the Ordinary Shares or ADRs are not counted
toward meeting the 16-day holding period required by the statute. A US holder
that is under an obligation to make related payments with respect to the
Ordinary Shares or ADRs (or substantially similar or related property) also is
not entitled to claim a foreign tax credit with respect to a foreign tax imposed
on a dividend. For foreign tax credit limitation purposes, the dividend will be
income from sources outside the US, but generally will be treated separately,
together with other items of "passive income" (or, in the case of certain
holders, "financial services income"). US holders should consult their tax
advisors as to the application of the foreign tax credit rules in their own
circumstances.
TAXATION OF CAPITAL GAINS
-------------------------
The following categories of persons may be liable for both UK and US tax in
respect of a gain on the sale of Ordinary Shares or ADRs: (i) US citizens
ordinarily resident in the UK, (ii) US corporations resident in the UK by reason
of their business being managed or controlled in the UK, and (iii) US citizens
or corporations
15
<PAGE>
which are trading or carrying on a profession or vocation in the UK through a
branch or agency which constitutes a permanent establishment or fixed base and
which have used, held or acquired the Ordinary Shares or ADRs for the purposes
of such trade, profession or vocation or such branch or agency. However, subject
to applicable limitations, such persons may be entitled to a tax credit against
their US federal income tax liability for the amount of UK capital gains tax or
UK corporation tax on chargeable gains (as the case may be) which is paid in
respect of such gain.
Subject to the PFIC rules discussed below, upon a sale or other disposition
of Ordinary Shares or ADRs, a US holder will recognize gain or loss for US
federal income tax purposes in an amount equal to the difference between the US
dollar value of the amount realized and the US holder's tax basis (determined in
US dollars) in such Ordinary Shares or ADRs. Generally, such gain or loss will
be capital gain or loss, will be long-term capital gain or loss if the US
holder's holding period for such Ordinary Shares or ADRs exceeds one year and
any such gain and loss generally will be income from sources within the US for
foreign tax credit limitation purposes. Long-term capital gain of a
non-corporate US holder is generally subject to a maximum tax rate of 20%.
PFIC
----
Reuters believes that its Ordinary Shares and ADRs should not be treated as
stock of a PFIC for US federal income tax purposes, but this conclusion is a
factual determination made annually and thus may be subject to change. If
Reuters were to be treated as a PFIC, unless a US holder elects to be taxed
annually on a mark-to-market basis with respect to the Ordinary Shares or ADRs,
a gain realized on the sale or other disposition of Ordinary Shares or ADRs
would, in general, not be treated as capital gain, and a US holder would be
treated as if such holder had realized such gain and certain "excess
distributions" ratably over the holder's holding period for the Ordinary Shares
or ADRs and would be taxed at the highest tax rate in effect for each such year
to which the gain was allocated, together with an interest charge in respect of
the tax attributable to each such year.
INFORMATION REPORTING AND BACKUP WITHHOLDING
--------------------------------------------
Payment of dividends and other proceeds with respect to the Ordinary Shares
or ADRs by a US paying agent or other US intermediary will be reported to the US
Internal Revenue Service and to the US holder as required under applicable
regulations. A US holder will not be subject to US backup withholding tax at the
rate of 31% with respect to dividends received or the proceeds of a sale,
exchange or redemption of such Ordinary Shares or ADRs if such holder (i) is a
corporation or other exempt recipient or (ii) the holder provides a US taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with any applicable backup withholding
requirements.
UK INHERITANCE TAX
- ------------------
An individual who is domiciled in the US for the purposes of the UK/US
estate and gift tax convention and who is not a national of the UK for the
purposes of that convention generally will not be subject to UK inheritance tax
in respect of the Ordinary Shares or ADRs on the individual's death or on a gift
of the Ordinary Shares or ADRs during the individual's lifetime. However, the
individual will be subject to UK inheritance tax if the Ordinary Shares or ADRs
are part of the business property of a permanent establishment of the individual
in the UK or pertain to a fixed base in the UK of an individual who performs
independent personal services. Special rules apply to Ordinary Shares or ADRs
held in trust. In the exceptional case where the disposition is subject both to
UK inheritance tax and to US federal gift or estate tax, the convention
generally provides for any tax paid in the UK to be credited against tax liable
to be paid in the US.
UK STAMP DUTY AND STAMP DUTY RESERVE TAX
- ----------------------------------------
No UK stamp duty will be payable on the transfer of an ADR provided that
the instrument of transfer is executed and remains outside the UK and does not
relate to any matter or thing done or to be done in the UK, nor will UK stamp
duty reserve tax ("SDRT") be imposed in respect of any agreement for such a
transfer of ADRs.
16
<PAGE>
Ad valorem stamp duty will be charged and payable by the purchaser on
conveyances or transfers of Ordinary Shares at the rate of 50p per (pound) 100
(or part thereof) of the consideration, if any, for the transfer.
SDRT will be imposed, at the rate of 0.5% of the consideration for the
transfer, if an agreement is made for the sale of Ordinary Shares, unless an
instrument of transfer of the Ordinary Shares in favor of the purchaser or its
nominee is executed and duly stamped within six years of the day that the
agreement is made (or, in a case where the agreement is conditional, the day
that the condition is satisfied) in which case the charge to SDRT will be repaid
or cancelled. SDRT is in general payable by the purchaser of Ordinary Shares,
but there are regulations which provide for collection from other persons in
certain circumstances.
Ad valorem stamp duty or SDRT will be imposed on any instrument
transferring Ordinary Shares to a nominee or agent for a depositary which issues
depositary receipts (such as the ADRs). In these circumstances, stamp duty or
SDRT will be charged at the higher rate of 1.5% of the consideration for a sale
or, otherwise, 1.5% of the market value of the security transferred. This rate
of duty can be reduced to 1% in the case of certain transfers effected by a
qualified dealer in securities (as defined in the UK Finance Act 1986).
Clearance services may elect, under certain conditions, for the normal rates of
stamp duty or SDRT to apply to transfers into or transactions within the service
instead of the higher rate applying to an issue or transfer into the clearance
service. The UK Finance Act 1997 contains provisions which will remove this
reduced rate of duty from the 'appointed day' (yet to be determined).
A transfer of Ordinary Shares from a depositary or its agent or nominee to
a transferee which results in the cancellation of the ADR, which cancellation is
liable to stamp duty as a "conveyance or transfer on sale" because it completes
a sale of such Ordinary Shares, will be liable to ad valorem stamp duty, payable
by the transferee, at the rate of 50p per (pound) 100 (or part thereof) of the
consideration, if any, for the transfer. A transfer of Ordinary Shares from a
depositary or its agent or nominee to the ADR holder which results in
cancellation of the ADR but where there is no transfer of beneficial ownership
is not liable to duty as a "conveyance or transfer on sale", but will be liable
to a fixed stamp duty of 50p.
ITEM 8. SELECTED FINANCIAL DATA
- ------- -----------------------
The selected financial information set forth below is derived, in part,
from the Consolidated Financial Statements incorporated by reference from the
1998 Annual Report to Shareholders, which is filed as an exhibit to this Report.
The selected data should be read in conjunction with the financial statements
and related notes, as well as the Operating and Financial Review incorporated
herein by reference from the 1998 Annual Report to Shareholders.
The Consolidated Financial Statements are prepared in accordance with UK
GAAP, which differ in certain respects from US GAAP. A summary of the principal
differences between UK and US GAAP, a reconciliation to US GAAP and a condensed
US GAAP balance sheet are set forth in the Consolidated Financial Statements,
appearing on pages 79 to 81 of the 1998 Annual Report to Shareholders, and are
incorporated herein by reference.
17
<PAGE>
<TABLE>
CONSOLIDATED INCOME STATEMENT DATA:
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------ ------------ ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
AMOUNTS IN ACCORDANCE WITH
UK GAAP:
Revenue .......................................... (pound)3,032 (pound)2,882 (pound)2,914 (pound)2,703 (pound)2,309
Operating profit before interest ................. 550 541 592 510 432
Profit on ordinary activities before taxation .... 580 626 652 558 481
Profit on ordinary activities after taxation ..... 384 390 442 373 319
PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS ..... 384 390 442 373 318
============= ============ ============ ============ ============
BASIC EARNINGS PER ORDINARY SHARE ................ 26.7p 24.0p 27.3p 23.2p 19.9p
============= ============ ============ ============ ============
FULLY DILUTED EARNINGS PER ORDINARY SHARE ........ 26.6p 23.8p 27.0p 22.9p 19.6p
============= ============ ============ ============ ============
BASIC EARNINGS PER ADS ........................... 160.3p 144.2p 164.0p 139.3p 119.4p
============= ============ ============ ============ ============
FULLY DILUTED EARNINGS PER ADS ................... 159.7p 143.1p 161.7p 137.3p 117.7p
============= ============ ============ ============ ============
Dividends declared per ordinary share
(including UK tax credit) ..................... 16.5p 16.3p 14.7p 12.3p 10.0p
============= ============ ============ ============ ============
Dividends declared per ADS (including
UK tax credit) ................................. 98.8p 97.5p 88.1p 73.5p 60.0p
============= ============ ============ ============ ============
Weighted average number of ordinary
shares (in millions) ........................... 1,438 1,623 1,616 1,605 1,602
============= ============ ============ ============ ============
</TABLE>
18
<PAGE>
<TABLE>
CONSOLIDATED INCOME STATEMENT DATA (CONTINUED):
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------ ------------ ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
AMOUNTS IN ACCORDANCE WITH
US GAAP
Revenue .......................................... (pound)3,032 (pound)2,882 (pound)2,914 (pound)2,703 (pound)2,309
Income before taxes on income .................... 572 618 645 544 463
NET INCOME ....................................... 392 386 440 366 303
============= ============ ============ ============ ============
BASIC EARNINGS PER ORDINARY SHARE(1) ............. 27.8p 27.4p 31.4p 26.3p 21.8p
============= ============ ============ ============ ============
Diluted earnings per ordinary share(1) ........... 27.7p 27.2p 31.0p 25.9p 21.5p
============= ============ ============ ============ ============
BASIC EARNINGS PER ADS(1) ........................ 166.6p 164.5p 188.3p 158.0p 130.8p
============= ============ ============ ============ ============
Diluted earnings per ADS(1) ...................... 166.0p 163.4p 185.8p 155.4p 128.7p
============= ============ ============ ============ ============
Dividends paid per ordinary share
(including UK tax credit)(1) .................. 121.2p 17.5p 14.8p 12.1p 9.9p
============= ============ ============ ============ ============
Dividends paid per ADS (including UK
tax credit)(1) ................................. 727.5p 104.7p 88.7p 72.7p 59.3p
============= ============ ============ ============ ============
Weighted average number of ordinary
shares (in millions)(1) ........................ 1,411 1,407 1,401 1,391 1,388
============= ============ ============ ============ ============
<FN>
- --------------------
(1) On February 18, 1998 Reuters Holdings consummated a court approved Capital Reorganization in which shares of Reuters Holdings
were exchanged for a combination of shares of Reuters Group and approximately (pound) 1.5 billion in cash. (See Note 1 of Notes
on Consolidated Profit and Loss Account incorporated herein by reference from the 1998 Annual Report to Shareholders.) Under US
GAAP this transaction was deemed a share consolidation combined with a special dividend and, accordingly, earnings per share
and per ADS and dividends per share and per ADS amounts have been retroactively restated. Under UK GAAP no restatement was
deemed appropriate as the cash payment was considered a repurchase of shares and the number of new shares in Reuters Group was
set to facilitate comparability of per share amounts with those of Reuters Holdings.
</FN>
</TABLE>
19
<PAGE>
<TABLE>
CONSOLIDATED BALANCE STATEMENT DATA:
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------ ------------ ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
AMOUNTS IN ACCORDANCE WITH UK GAAP:
Total assets ..................................... (pound) 2,705 (pound) 2,913 (pound) 2,575 (pound) 2,369 (pound) 1,882
Long-term debt and provisions for charges ........ 52 65 71 162 109
Capital employed before minority interest ........ 372 1,661 1,458 1,211 973
AMOUNTS IN ACCORDANCE WITH US GAAP:
Total assets ..................................... 2,722 2,907 2,562 2,288 1,828
Long-term debt. .................................. 75 86 84 105 68
Shareholders' equity ............................. 504 1,754 1,561 1,299 1,048
</TABLE>
DIVIDENDS
- ---------
The table below sets forth the amounts of interim, final and total
dividends (excluding any associated UK tax credit discussed in Item 7 of this
Report) paid in respect of each fiscal year indicated. Pound sterling amounts
per share have been translated into US cents per ADS (each representing six
Ordinary Shares) at the Noon Buying Rate on each of the respective payment dates
for such interim and final dividends. The first section of the table shows the
dividends paid as reported under UK GAAP. The second section of the table gives
the amounts restated for the Capital Reorganization and as reported under US
GAAP. See Note (1) to the table of Consolidated Income Statement Data, Amounts
in Accordance with US GAAP, above.
<TABLE>
<CAPTION>
PENCE PER SHARE CENTS PER ADS
-------------------------------------- ----------------------------------------------
FISCAL YEAR ENDED
DECEMBER 31, INTERIM FINAL TOTAL INTERIM FINAL TOTAL
- ----------------- ------- ----------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
DIVIDENDS IN ACCORDANCE
WITH UK GAAP:
1994 ...................... 1.90 6.10 8.00 17.80 58.56 76.36
1995 ...................... 2.30 7.50 9.80 21.39 67.92 89.31
1996 ...................... 2.75 9.00 11.75 25.71 87.56 113.27
1997 ...................... 3.10 9.90 13.00 29.92 99.05 128.97
1998(1) ................... 3.40 11.00 14.40 34.22
DIVIDENDS RETROACTIVELY
STATED IN ACCORDANCE
WITH US GAAP:
1994 ...................... 2.19 7.04 9.23 20.54 67.57 88.11
1995 ...................... 2.65 8.65 11.30 24.68 78.37 103.05
1996 ...................... 3.17 10.38 13.55 29.67 101.03 130.70
1997 ...................... 3.58 9.90 13.48 34.52 99.05 133.57
1998(1)(2) ................ 108.02 11.00 119.02 1,063.32
<FN>
- --------------------
(1) The final dividend in respect of 1998 is payable on April 26, 1999 to holders of Ordinary Shares on the register
at March 19, 1999 and on April 30, 1999 to holders of ADSs on the register at March 19, 1999, and will be
converted into US dollars from sterling at the rate prevailing on April 26, 1999.
(2) The 1998 interim dividend amount in accordance with US GAAP consists of the interim dividend of 3.40p per share
(34.22 cents per ADS) paid in September 1998 and the amount recorded as a dividend under the terms of the
Capital Reorganization consummated on February 18, 1998 of 104.62p per share (1,029.10 cents per ADS).
</FN>
</TABLE>
Any future dividends will be declared consistent with Reuters policy of
retaining a substantial portion of its earnings for use in its business, and
will be dependent upon Reuters earnings, financial condition and other factors.
20
<PAGE>
EXCHANGE RATES
--------------
The following table sets forth, for the periods and dates indicated, the
average, high, low and end of period Noon Buying Rates for pounds sterling in US
dollars per (pound) 1.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, AVERAGE* HIGH LOW PERIOD END
- ------------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1994 ............................... 1.54 1.64 1.46 1.57
1995 ............................... 1.58 1.64 1.53 1.55
1996 ............................... 1.57 1.71 1.49 1.71
1997 ............................... 1.65 1.70 1.58 1.64
1998................................ 1.66 1.72 1.61 1.66
1999 (through February 12, 1999) ... 1.64 1.66 1.62 1.63
<FN>
- --------------------
* The average of the exchange rates on the last trading day of each calendar month
during the period.
</FN>
</TABLE>
On February 12, 1999 the Noon Buying Rate was $1.63 per (pound) 1.
Fluctuations in the exchange rate between the pound sterling and the US
dollar will affect the US dollar amounts received by holders of the ADSs upon
conversion by the Depositary of cash dividends paid in pounds sterling on the
Ordinary Shares represented by the ADSs and may affect the relative market
prices of the ADSs in the US and the Ordinary Shares in the UK.
For the effect on Reuters results of operations of fluctuations in the
exchange rates between the pound sterling and the other major currencies
(including the US dollar) in which revenues are received and expenditures are
made by Reuters, see "Operating and Financial Review" incorporated herein by
reference from the 1998 Annual Report to Shareholders, which is filed as an
exhibit to this Annual Report on Form 20-F.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- RESULTS OF OPERATIONS
---------------------------------------------------------------
Reuters discussion and analysis of financial condition and results of
operations appears on pages 35 to 49 of Reuters 1998 Annual Report to
Shareholders under the heading "Operating and Financial Review", incorporated
herein by reference from the 1998 Annual Report to Shareholders. The discussion
is designed to comply with both the requirements of this Item 9 and the
recommendations of the July 1993 Statement, "Operating and Financial Review",
issued by the UK Accounting Standards Board.
The focus of Reuters discussion is on the financial statements included in
the 1998 Annual Report to Shareholders, which are prepared in accordance with UK
GAAP. A summary of differences between UK GAAP and US GAAP, a reconciliation to
US GAAP and a condensed US GAAP balance sheet are set forth in the Consolidated
Financial Statements, appearing on pages 79 to 81 of the 1998 Annual Report to
Shareholders, and are incorporated herein by reference.
CAUTIONARY STATEMENTS
---------------------
All statements other than statements of historical fact included in this
Report and the 1998 Annual Report to Shareholders incorporated by reference
herein are, or may be deemed to be, forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 31E of the
Securities Exchange Act of 1934. Certain important factors that could cause
actual results to differ materially from those discussed in such forward-looking
statements are described under "Cautionary Statements" and "Year 2000 Readiness
Disclosure" in the "Operating and Financial Review" incorporated herein by
reference from the 1998 Annual Report to Shareholders. All written and oral
forward-looking statements made on or after the date hereof and attributable to
Reuters are expressly qualified in their entirety by such Cautionary Statements.
21
<PAGE>
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------
Quantitative and qualitative disclosures about market risk are provided
under the sub-heading Treasury Management on pages 43 to 45 of the "Operating
and Financial Review", and in Note 13 of Notes on the Consolidated Cash Flow
Statement, both incorporated herein by reference from the 1998 Annual Report to
Shareholders.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
- -------- ------------------------------------
Reuters Articles provide for a Board of Directors consisting of not fewer
than five nor more than 15 directors. There are presently 14 directors in
office, including six executive directors.
The directors and executive officers of Reuters are as follows:
<TABLE>
<CAPTION>
POSITION HELD
NAME POSITION SINCE
- --------- ------------------- -------------
<S> <C> <C>
DIRECTORS:
Sir Christopher Anthony Hogg ......... Chairman; Director (1) 1985; 1984
Peter James Denton Job ............... Chief Executive; Director 1991; 1989
Robert Oscar Rowley .................. Finance Director 1990
Robert Patten Bauman ................. Director (1) 1994
Sir John Anthony Craven .............. Director (1) 1997
Michael Philip Green ................. Director (1) 1992
Jean-Claude Marchand ................. Chief Executive, GSO Group; Director 1999; 1996
Roberto G Mendoza .................... Director (1) 1998
Richard Lake Olver ................... Director (1) 1997
John Michael Coldwell Parcell ........ Chief Executive, Reuters Information; Director 1999; 1996
Charles James Francis Sinclair ....... Director (1) 1994
David Granger Ure .................... Chief Executive, Reuters Trading Systems; Director 1999; 1989
Andre-Francois Helier Villeneuve ..... Chairman of Instinet; Chairman of Strategic Planning; 1989; 1999
Director 1989
Sir David Alan Walker ................ Director (1) 1994
EXECUTIVE OFFICERS:
Stephen Francis Mitchell ............. General Counsel and Secretary 1998
Geoffrey Arthur Weetman .............. Director of Human Resources 1998
Philip Kenneth Wood .................. Deputy Finance Director 1994
<FN>
- --------------------
(1) Non-executive director.
</FN>
</TABLE>
The business address of the directors is 85 Fleet Street, London EC4P 4AJ,
England.
The Chairman and all non-executive directors, except Michael Green, served
on the Remuneration and Audit Committees of the Board in 1998 and all
non-executive directors served on the Nomination Committee in 1998. Summaries of
the functions of the Remuneration Committee and the Audit Committee appear on
pages 24 and 32, respectively, of the 1998 Annual Report to Shareholders which
is incorporated herein by reference. During 1998, Reuters maintained insurance
for the directors and certain employees against liabilities in relation to
Reuters.
The Articles require that, in performing their duties, the directors have
due regard for the Reuter Trust Principles insofar as, by the proper exercise of
their powers and in accordance with their other duties as directors, the
directors may do so. For additional information with respect to the Reuter Trust
Principles and the Reuter Trustees, who are charged with ensuring compliance
with them, see Item 4 of this Report.
The Articles contain provisions that require the Board of Directors to
include at least five non-executive directors before a new executive director
can be appointed.
22
<PAGE>
At each AGM of Reuters one-third of the directors (or, if their number is
not a multiple of three, the number nearest to but not greater than one-third)
shall retire from office by rotation. A retiring director shall be eligible for
re-election. For additional information see the Report on Remuneration and
Related Matters which appears on pages 24 to 31 of the 1998 Annual Report to
Shareholders referred to above.
No director is required to hold any shares of Reuters in order to qualify
as a director. A director not holding any shares may nevertheless attend and
speak at general meetings of Reuters.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
- -------- --------------------------------------
For the year ended December 31, 1998, the aggregate compensation paid or
accrued by Reuters and its subsidiaries to all directors and officers as a group
(24 persons) for services in all capacities was (pound) 8.8 million.
The aggregate compensation paid to all directors and officers as a group
included (pound) 1.7 million accrued as bonuses to the executive directors and
officers pursuant to a plan based upon the extent to which three targets were
met. The targets covered first, Reuters objectives for millennium compliance and
Euro conversion; second, the growth in operating profit at constant exchange
rates; and third, the growth in earnings per share. Many of the objectives were
achieved, some in full and some partially.
Also included in aggregate compensation was a (pound) 1.2 million
termination settlement with one officer relating to one year's salary, a
partially earned bonus and an accrual for his prorated interest in a rolling
four-year profit sharing plan operated by a subsidiary.
For further information relating to Reuters senior executive remuneration
policy and compensation, see the Report on Remuneration and Related Matters
which appears on pages 24 to 31 of the 1998 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
- -------- --------------------------------------------------------------
Reuters has established a number of employee share schemes. These include:
(i) a share option plan introduced in 1998 ("Plan 2000") under which employees
became entitled to a single award of non-transferable options to acquire up to
2,000 shares; (ii) a long term incentive plan, a performance related share plan
and an international Save As You Earn ("SAYE") plan ("International SAYE Plan")
introduced by Reuters Group in 1997, which have substantially the same terms as
Reuters Holdings' 1997 Long Term Incentive Plan, 1997 Performance Related Share
Scheme and 1994 SAYE Scheme, respectively, referred to below; and (iii) two
executive share plans of Reuters Group (one for use in the US and the other for
the rest of the world) which were used to provide replacement options to those
persons who surrendered options granted under Reuters Holdings' 1984 Executive
Schemes referred to below.
Reuters employee share schemes also include the following plans of Reuters
Holdings in respect of which no further grants of options or rights will be
made, but under which options remain outstanding: (1) a long-term incentive
scheme introduced in 1993 under which non-transferable awards of
performance-based restricted shares or rights exercisable for shares on a one
for one basis (share rights) were made annually to key senior executives (the
"1993 Long-Term Incentive Scheme"); (2) a long-term incentive plan introduced in
1997 under which non-transferable awards of performance-based share options were
made annually to key senior executives (the "1997 Long Term Incentive Plan");
(3) a long-term incentive scheme introduced in 1995 under which non-transferable
awards of performance-based share rights were made annually to executives (the
"1995 Performance Related Share Scheme"); (4) a long-term incentive scheme
introduced in 1997 under which non-transferable performance-based share options
were granted annually to executives (the "1997 Performance Related Share
Scheme"); (5) a SAYE share option scheme adopted in 1994 (the "1994 SAYE
Scheme"); (6) three SAYE share option schemes adopted in 1984 (the "1984 SAYE
Schemes"); and (7) two executive share option schemes adopted in 1984 (the "1984
Executive Schemes"). In connection with the Capital Reorganization, mechanisms
were introduced so that, upon exercise of options and rights outstanding under
these Reuters Holdings plans, the person exercising his option or right would
receive Ordinary Shares of Reuters Group.
23
<PAGE>
For additional information relating to Reuters employee share schemes, see
the Report on Remuneration and Related Matters which appears on pages 24 to 31
of the 1998 Annual Report to Shareholders and Note 30 of Notes on the
Consolidated Balance Sheet, both incorporated herein by reference from the 1998
Annual Report to Shareholders.
Reuters also offers an Employee Stock Purchase Plan for most US-based
employees, introduced in 1995, in which employees can elect to participate in
lieu of the International SAYE Plan. Under this plan, participating employees
authorize after-tax payroll deductions (subject to certain maximum amounts)
which, together with contributions from Reuters equal to 20% of the payroll
deductions, are transferred to a designated broker who, at the end of each pay
period, purchases ADSs at available market prices for the accounts of the
employees.
OUTSTANDING OPTIONS AND RESTRICTED SHARES
- -----------------------------------------
Information concerning options, restricted shares and share rights
outstanding under Reuters share option and restricted share schemes at February
12, 1999 is set forth below:
<TABLE>
<CAPTION>
NUMBER OF ORDINARY
SHARES ISSUABLE
UPON EXERCISE OF
OPTIONS OR SUBJECT
TO RESTRICTED SHARE RANGES OF EXERCISE
OR SHARE RIGHT PRICES PER ORDINARY RANGE OF
SCHEMES/PLANS AWARDS(1) SHARE (POUND) OR ADS ($) EXPIRATION DATES
- -------------------------- ------------------- ------------------------- ----------------
<S> <C> <C> <C>
OPTIONS:
1984 SAYE (2)................................... 3,901,860 (pound)3.94 11/99
$34.98 11/99
1994 SAYE (2)................................... 8,207,053 (pound)3.51 - (pound)6.01 4/00 - 10/02
International SAYE (2).......................... 4,790,119 (pound)4.78 10/01 - 10/03
$47.10 10/01 - 10/03
1984 Executive (3).............................. 1,262,930 (pound)1.50 - (pound)4.93 2/00 - 2/05
$15.94 - $43.72 2/00 - 2/05
Plan 2000....................................... 25,348,000 (pound)5.50 9/05
-------------------
TOTAL........................................... 43,509,962
===================
SHARES SUBJECT TO RESTRICTIONS OR RIGHTS:
1993 Long-Term Incentive (4).................... 927,228 Not applicable 2/99 - 12/02
1997 Long-Term Incentive (5).................... 518,290 (pound)0 - (pound)6.40 12/03
1995 Performance Related (6).................... 88,824 Not applicable 12/01
1997 Performance Related (5).................... 2,951,252 (pound)0 - (pound)6.40 12/03 - 12/04
-------------------
TOTAL 4,485,594
===================
</TABLE>
- --------------------
(1) Includes Ordinary Shares represented by ADSs.
(2) The exercise price of options granted under the 1984, 1994 and
International SAYE schemes is effectively fixed at 20% below the market
price at the start of either a three-year or a five-year savings period. In
general, these options become exercisable at the end of that period and
remain exercisable for six months thereafter.
(3) The exercise price of options granted under the 1984 Executive Schemes is
the market price either at or shortly before the date of grant. Under their
original terms, these options become exercisable during the period
commencing on the third anniversary of the date of grant (the second
anniversary in the case of options issued to US-based employees) and ending
on either the seventh or the tenth anniversary of the date of grant. As a
result of the Capital Reorganization all options expired on August 18,
1998, but holders could elect to replace their original options with
unapproved Reuters Group options that have the same exercise price but
generally lapse one year later.
24
<PAGE>
(4) Includes 510,184 restricted shares and 90,136 options relating to 1994 and
1995 awards respectively, which are vested.
(5) The 1997 long-term incentive and performance related awards granted in the
UK (a total of 417,688 shares and 1,423,147 shares, respectively) have an
exercise price equivalent to the market value of the underlying shares on
the date of the grant, and are linked with a cash bonus equal to such
exercise price. The share rights and linked cash bonus vest and are
exercisable only in tandem.
(6) All options outstanding under the 1995 Performance Related Share Scheme
have vested.
Of the total number of Ordinary Shares subject to outstanding options at
February 12, 1999, 85,272 Ordinary Shares were subject to options held by
directors and officers of Reuters, 27,272 of which were granted pursuant to
savings related schemes, 18,000 of which were granted pursuant to Plan 2000 and
40,000 of which were granted pursuant to the 1984 Executive Schemes. In
addition, Ordinary Shares subject to restrictions or rights held by directors
and officers at February 12, 1999 included 1,044,979 shares awarded under the
1993 and 1997 long-term incentive plans (435,831 vested) and 38,598 shares
awarded under the 1995 and 1997 performance related share plans (5,638 vested).
At February 12, 1999 options, restricted shares and/or share rights were
held by the Chairman and the executive directors as follows:
<TABLE>
<CAPTION>
SAVINGS LONG-TERM INCENTIVE
RELATED EXECUTIVE SCHEMES/PLANS
SCHEMES PLAN 2000 SCHEME VESTED NON-VESTED
------- ------------ ------------- ------- ----------
<S> <C> <C> <C> <C> <C>
Sir Christopher Hogg...... 2,065 -- -- -- --
P.J.D. Job................ 3,508 2,000 -- 98,579 130,030
J-C. Marchand............. 3,098 2,000 -- 41,385 87,799
J.M.C. Parcell............ 2,065 2,000 40,000 36,611 57,549
R.O. Rowley............... 3,508 2,000 -- 61,587 80,834
D.G. Ure.................. -- 2,000 -- 66,527 85,996
A-F.H. Villeneuve......... 3,508 2,000 -- 66,527 85,996
</TABLE>
For additional information concerning options, restricted shares and share
rights held by the executive directors, see the Report on Remuneration and
Related Matters, incorporated herein by reference from the 1998 Annual Report to
Shareholders.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
- -------- ----------------------------------------------
Not applicable.
PART II
-------
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
- -------- ------------------------------------------
Not applicable.
PART III
--------
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
- -------- -------------------------------
Not applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
- -------- SECURITIES
------------------------------------------------------------
Not applicable.
25
<PAGE>
PART IV
-------
ITEM 18. FINANCIAL STATEMENTS
- -------- --------------------
Reference is made to Item 19 for a list of all financial statements filed
as part of this Report.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
- -------- ---------------------------------
(a) FINANCIAL STATEMENTS:
---------------------
<TABLE>
<CAPTION>
Annual Report to
Shareholders
-----------------------
Related
Notes
Pages Pages
----------- ---------
<S> <C> <C>
Incorporated by reference from the 1998 Annual Report to Shareholders:
Report of the auditors ............................................................. 34
Consolidated profit and loss account for each of the three years in the period
ended December 31, 1998 ....................................................... 50 51 to 56
Consolidated cash flow statement for each of the three years in the period
ended December 31, 1998 ....................................................... 57 58 to 62
Consolidated balance sheet as of December 31, 1998, 1997 and 1996 ............... 63 64 to 74
Accounting policies ............................................................. 77 to 78
Summary of differences between UK and US GAAP ................................... 79 80 to 81
Report on Remuneration and Related Matters ...................................... 24 to 31
</TABLE>
The consolidated financial statements listed in the above index which are
included in the 1998 Annual Report to Shareholders are hereby incorporated by
reference. With the exception of the pages listed in the above index and the
items incorporated by reference in Items 1, 2, 3, 8, 9, 9A, 10, 11 and 12 of
this report, the 1998 Annual Report to Shareholders is not to be deemed filed as
part of this Report.
(b) EXHIBITS
--------
2.4 Consent of PricewaterhouseCoopers for incorporation by reference in Forms
S-8 of their report dated February 12, 1999.
2.5 Consent of PricewaterhouseCoopers for incorporation by reference in Forms
F-3 of their report dated February 12, 1999.
4. The 1998 Annual Report to Shareholders of Reuters Group PLC.
27 Financial Data Schedule
26
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned thereunto duly authorized.
REUTERS GROUP PLC
-----------------
(Registrant)
Dated: March 5, 1999 By /s/ Robert O. Rowley
-----------------------
Robert O. Rowley
Finance Director
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form F-3 (No. 33-69694 and
No. 333-7374) of Reuters Group PLC of our report dated February 12, 1999
appearing on page 34 of the 1998 Annual Report to Shareholders which is
incorporated in this Annual Report on Form 20-F.
By: /s/ PricewaterhouseCoopers
---------------------------
London, England Chartered Accountants
March 1, 1999 and Registered Auditors
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-16927, No. 33-90398 and No. 333-5998) of Reuters
Group PLC of our report dated February 12, 1999 appearing on page 34 of the 1998
Annual Report to Shareholders which is incorporated in this Annual Report on
Form 20-F.
By: /s/ PricewaterhouseCoopers
---------------------------
London, England Chartered Accountants
March 1, 1999 and Registered Auditors
(Front Cover)
Reuters Group PLC
Annual Report and Accounts 1998
- --((logo))--
Trust Reuters
(Inside Front Cover)
Contents
5 Financial highlights
6 Five year summary
8 Reuters today
How Reuters has become product focused
10 From the Chairman
Sir Christopher Hogg discusses how 1998 was a year of extraordinary
activity and change
12 From the Chief Executive
Peter Job writes on the values and skills which make Reuters distinctive
14 An interview with the Chief Executive
Peter Job answers the key questions facing Reuters
16 Board of Directors
18 Report of the directors
23 Financial review and statements contents
24 Report on remuneration and related matters
32 Audit committee
33 Statement of directors' responsibilities
34 Auditors' report to the members of Reuters Group PLC
35 Operating and financial review
50 Consolidated profit and loss account
50 Consolidated statement of total recognised gains and losses
57 Consolidated cash flow statement
63 Consolidated balance sheet
75 Balance sheet of Reuters Group PLC
77 Accounting policies
79 Summary of differences between UK and US Generally Accepted Accounting
Principles (GAAP)
82 Other information for shareholders
84 Financial diary for 1999
85 Preserving Reuters independence
86 The Reuter Trust Principles
87 Glossary
88 Eleven year consolidated financial summary
90 Where to find us
COVER IMAGE
Teamwork won the 1998 football World Cup for France. Teamwork and technology won
off the field for Reuters News Pictures Service. The latest digital cameras and
laptop computers enabled Reuters pictures to be delivered to customers within
minutes of the action, sweeping the play against our rivals in the most highly
competitive conditions. (Front cover) Zinedine Zidane of France (C) celebrates
scoring with teammates Emmanuel Petit (R) and Christian Karembeu during the
World Cup Final against Brazil 12 July.
Photo by Paulo Whitaker REUTERS
<PAGE>
...to innovate
Reuters is at the cutting edge of innovative technological solutions. In 1998,
among many other developments, Reuters launched the Reuters Plus specialised
U.S. equities service. In Japan, ReuterFirst, a new and similar product, serves
professional Japanese investors. To help business customers do their jobs
better, Reuters is committed to the qualities they value most: integrity,
international content and constant innovation.
Kevin Overland of Canada tucks into a corner as he competes in the first race of
the Olympics speed skating men's 500 metres at the M-Wave Stadium.
Photo by Blake Sell REUTERS
Page 1
<PAGE>
...to support high performance
Reuters operates the world's largest private network of communications and
linked computers, using satellites and high-speed land links to beam real-time
information and news around the planet to 498,500 users in nearly 58,000
locations.
Germany's Georg Hackl speeds down the track in the Winter Olympics luge
competition. Hackl made luge history when he became the first man to win the
men's singles title at three consecutive games.
Photo by Mark Baker REUTERS
Pages 2 & 3
<PAGE>
...to show fine judgement
Success often requires split-second timing. The launch of Europe's new single
currency, the euro, meant a total of one billion items in Reuters databases had
to be changed to be ready for the start of trading on 4 January 1999. From 31
December, when rates for the 11 euro currencies were fixed, 700 specialist staff
worked round the clock to amend information relating to a quarter of a million
financial instruments. The work was completed seven hours ahead of schedule,
giving Reuters customers extra time to view the converted data before the
markets opened.
Austria's Mario Stecher soars down the hill during the ski jumping of the
Olympic Nordic combined individual event.
Photo by Juergen Schwarz REUTERS
Page 4
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
1998 1997 %
(pound)m (pound)m change
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue 3,032 2,882 5
Earnings before interest, tax, depreciation and amortisation 927 904 2
Operating profit 550 541 2
Interest 2 80 (98)
Profit before tax 580 626 (7)
Pre-tax profit margin 19.1% 21.7%
Taxation 196 236 (17)
Profit after tax 384 390 (1)
Post-tax profit margin 12.7% 13.5%
Return on tangible fixed assets 48.2% 49.0%
Return on equity 78.5% 25.6%
Free cash flow 490 449 9
Net (debt)/funds (3) 1,290 -
- ------------------------------------------------------------------------------------------------------
1998 1997 % change
- ------------------------------------------------------------------------------------------------------
Basic earnings per ordinary share 26.7p 24.0p 11
Earnings per ADS*++ $2.66 $2.39 11
Dividends per ordinary share 14.4p 13.0p 11
Dividends per ADS* (see page 83) 87.7p 82.9p 11
- ------------------------------------------------------------------------------------------------------
<FN>
*Each ADS represents six ordinary shares.
++A nominal exchange rate of US$1.66=(pound)1 has been used for convenience.
</FN>
</TABLE>
The following supplementary information is provided for those who track Reuters
performance on a pre-goodwill basis:
<TABLE>
<CAPTION>
1998 1997 % change
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-tax profit excluding goodwill (pound)631m (pound)677m (7)
Adjusted earnings per ordinary share excluding goodwill 30.3p 27.1p 12
- --------------------------------------------------------------------------------------------------------
</TABLE>
Page 5
<PAGE>
FIVE YEAR SUMMARY
Revenue
(pound)million
98 97 96 95 94
3,032 2,882 2,914 2,703 2,309
Grew 5% at actual exchange rates and 9% at comparable exchange rates
- ----------------------------------------------------------------------
Profit before taxation
(pound)million
98 97 96 95 94
580 626 652 558 481
Down 7% at actual exchange rates but up 2% at comparable exchange rates, despite
the fall in interest income
- ----------------------------------------------------------------------
Earnings before interest, tax, depreciation and amortisation (EBITDA)
(pound)million
98 97 96 95 94
927 904 924 801 681
Grew 2% at actual exchange rates and 10% at comparable rates
- ----------------------------------------------------------------------
Basic earnings per ordinary share
pence
98 97 96 95 94
26.7 24.0 27.3 23.2 21.7
Increased 11% in 1998
- ----------------------------------------------------------------------
Dividends per ordinary share
pence
98 97 96 95 94
14.40 13.00 11.75 9.80 8.00
Increased by 11% in 1998. Dividend cover decreased to 1.9 in 1998 from
2.1 in 1997
- ----------------------------------------------------------------------
Cash flow per ordinary share
pence
98 97 96 95 94
67.9 61.0 60.7 52.7 45.6
Increased by 11% in 1998. The ratio is defined on page 89
- ----------------------------------------------------------------------
Financial information products revenue
(pound)million
98 97 96 95 94
1,949 1,852 1,892 1,841 1,617
Revenue grew 5% and accounted for 64% of the total
- ----------------------------------------------------------------------
Transaction products revenue
(pound)million
98 97 96 95 94
882 828 813 671 527
Revenue grew 6% and accounted for 29% of the total
- ----------------------------------------------------------------------
Media and professional products revenue
(pound)million
98 97 96 95 94
201 202 209 191 165
Revenue declined 1% and accounted for 7% of the total
Page 6
<PAGE>
REUTERS PRODUCTS
User accesses 498,500
Customer locations 57,900
Countries served 157
Languages in which news services created 22
INFRASTRUCTURE
Staff 16,938
Countries with Reuters offices 96
Cities with Reuters offices 218
INFORMATION SOURCES
Data contributors 4,982
Markets reported in real time 267
Journalistic staff 2,072
Editorial bureaux 182
Page includes picture showing computer screen with Reuters share price over a
10-year period relative to Financial Times Stock Exchange 100 index.
REUTERS SHARE PRICE RELATIVE TO THE FTSE 100 INDEX
<TABLE>
<CAPTION>
Relative Relative Relative Relative
Performance Performance Performance Performance
Against the Against the Against the Against the
Date FTSE 100 Date FTSE 100 Date FTSE 100 Date FTSE 100
- --------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
31-Jan-99 2.117804
31-Dec-98 1.450328 31-Dec-95 2.162292 31-Dec-92 1.672006 31-Dec-89 1.425649
30-Nov-98 1.378245 30-Nov-95 2.276672 30-Nov-92 1.625158 30-Nov-89 1.40447
31-Oct-98 1.52901 31-Oct-95 2.252785 31-Oct-92 1.503003 31-Oct-89 1.432488
30-Sep-98 1.31888 30-Sep-95 2.154437 30-Sep-92 1.583532 30-Sep-89 1.367146
31-Aug-98 1.285278 31-Aug-95 2.177157 31-Aug-92 1.533279 31-Aug-89 1.377346
31-Jul-98 1.410698 31-Jul-95 2.04963 31-Jul-92 1.457967 31-Jul-89 1.258205
30-Jun-98 1.58797 30-Jun-95 2.137502 30-Jun-92 1.552557 30-Jun-89 1.239889
31-May-98 1.617941 31-May-95 1.918526 31-May-92 1.484375 31-May-89 1.294924
30-Apr-98 1.477921 30-Apr-95 1.986084 30-Apr-92 1.502325 30-Apr-89 1.161855
31-Mar-98 1.467832 31-Mar-95 2.05104 31-Mar-92 1.551933 31-Mar-89 1.127287
28-Feb-98 1.433608 28-Feb-95 1.992666 29-Feb-92 1.544001 28-Feb-89 1.097258
31-Jan-98 1.362372 31-Jan-95 1.975078 31-Jan-92 1.483058 31-Jan-89 1
31-Dec-97 1.76005 31-Dec-94 2.06199 31-Dec-91 1.400306
30-Nov-97 1.869278 30-Nov-94 2.154467 30-Nov-91 1.26399
31-Oct-97 1.806587 31-Oct-94 2.086589 31-Oct-91 1.267257
30-Sep-97 1.895023 30-Sep-94 2.124442 30-Sep-91 1.228729
31-Aug-97 1.756948 31-Aug-94 2.125055 31-Aug-91 1.13837
31-Jul-97 1.812892 31-Jul-94 2.041779 31-Jul-91 1.011928
30-Jun-97 1.858738 30-Jun-94 1.984693 30-Jun-91 1.070845
31-May-97 2.007088 31-May-94 2.089245 31-May-91 1.140042
30-Apr-97 1.933955 30-Apr-94 2.299418 30-Apr-91 1.102633
31-Mar-97 1.940562 31-Mar-94 2.146596 31-Mar-91 1.205407
28-Feb-97 2.061891 28-Feb-94 2.061797 28-Feb-91 1.138622
31-Jan-97 2.074401 31-Jan-94 1.930288 31-Jan-91 1.199271
31-Dec-96 2.467154 31-Dec-93 1.767047 31-Dec-90 1.108608
30-Nov-96 2.407311 30-Nov-93 1.794237 30-Nov-90 0.951447
31-Oct-96 2.59776 31-Oct-93 1.741816 31-Oct-90 0.928191
30-Sep-96 2.525533 30-Sep-93 1.688168 30-Sep-90 1.263638
31-Aug-96 2.607976 31-Aug-93 1.678121 31-Aug-90 1.309707
31-Jul-96 2.460872 31-Jul-93 1.665571 31-Jul-90 1.539282
30-Jun-96 2.838264 30-Jun-93 1.61202 30-Jun-90 1.769404
31-May-96 2.707576 31-May-93 1.604024 31-May-90 1.725069
30-Apr-96 2.663175 30-Apr-93 1.512819 30-Apr-90 1.672277
31-Mar-96 2.59842 31-Mar-93 1.549972 31-Mar-90 1.668086
29-Feb-96 2.539072 28-Feb-93 1.630007 28-Feb-90 1.568868
31-Jan-96 2.229929 31-Jan-93 1.678556 31-Jan-90 1.430303
</TABLE>
Page 7
<PAGE>
REUTERS TODAY
In 1998 Reuters set out to engineer one of the biggest organisational changes in
its 150-year history. We decided to transform ourselves from a horizontal
structure managed by areas and country units to become a vertical organisation
driven by our main businesses and measured by their profitability.
The growing globalisation and integration of financial markets made the new
structure essential to develop global customer relationships, since many of our
clients already manage themselves this way.
There will be two main business divisions, Reuters Information and Reuters
Trading Systems. They will distribute products through the Global Sales and
Operations Group. Our third large business, Instinet, continues to operate as an
autonomous subsidiary. The company's Corporate and Media Information business is
managed separately.
The structure includes specified functions which run across all businesses,
including Strategic Planning and the post of Chief Technical Officer, who takes
the lead in establishing a unified and cost-effective technical infrastructure.
Our new structure is explained in more detail on the opposite page.
Page 8
<PAGE>
REUTERS INFORMATION DIVISION
Reuters Information division operates in four main markets: foreign
exchange/money; commodities; fixed income; and equities. It provides a
comprehensive service of up-to-the-second and historical pricing along with
associated analysis. News is a vital part of its activity.
Customers
The world's leading financial institutions. Traders, brokers, dealers, analysts,
investors and corporate treasurers use information products.
Competitors
Reuters is a market leader in these sectors. Its principal competitors are
Bloomberg L.P. and Bridge Information Systems.
Outlook
Management is confident that there is good potential for growth in the longer
term, through upgrading existing users, exploiting adjacent market segments,
maintaining pricing power through high-quality performance and close integration
with customers' activities, and through obtaining margin improvement via
efficiency gains.
REUTERS TRADING SYSTEMS DIVISION
Reuters Trading Systems groups several world-leading businesses designed to
cater to the financial markets. They include transactions systems for the
foreign exchange and money markets (Dealing 2000-1 and Dealing 2000-2) as well
as sophisticated software for the distribution of real-time information within
customer organisations (sold under the brand names TIBCO and Triarch). The
division has an important risk management business and is pioneering products
which facilitate straight through processing of equity orders in a manner
designed to improve cost effectiveness.
Customers
The world's leading financial institutions, including trading and brokerage
personnel and risk managers.
Competitors
The Electronic Broking Service is the principal competitor for money and foreign
exchange transactions. In other areas, competition is fragmented between
individual and conglomerated software and systems companies.
Outlook
Foreign exchange dealing looks flat due to the consolidation of European
currencies into the euro. There are good growth prospects for systems generally
pending our ability to provide generic solutions to replace in-house spending
which our customers are anxious to reduce.
INSTINET
Instinet Corporation is a major force in the world's equities markets. It is a
member of 17 exchanges around the world with offices in eight international
financial centres. Instinet competes with other brokers for equities order flow.
It specialises, as an agency broker, in using technology and automation to
obtain best execution for its clients and the institutional investors they
represent. Instinet was founded in 1969 and was acquired by Reuters in 1987.
Customers
Instinet provides its equity transaction and research services to a global base
of institutional fund managers and plan sponsors, other brokers, dealers and
exchange specialists.
Competitors
Instinet competes daily with other institutional brokerage firms for global
order flow.
Outlook
Instinet continues its global expansion, aiding in capital formation. It is
increasingly clear that its business model, rooted in technology, makes markets
more efficient and liquid, and increases client performance through the
reduction of transaction costs.
GLOBAL SALES AND OPERATIONS
The Global Sales and Operations (GSO) Group acts as the distribution arm for the
company's businesses. It handles sales, customer support and technical
operations worldwide. It is responsible for delivering financial performance in
line with business plans agreed with the divisions. The GSO seeks to enhance
profitability and customer satisfaction by implementing global standards and
processes. It acts as the eyes and ears of the organisation in ensuring that no
attractive market opportunity goes unexplored. It is the custodian of the
Reuters Group brand.
CORPORATE AND MEDIA INFORMATION
Reuters is the principal international supplier of news in the form of text,
video and still pictures to media all over the world. It is a leading news brand
on the Internet and makes its services available through the principal and most
popular servers. It maintains a very large database, including up to 18 years of
Reuters news and more than 4,000 other publications, which are offered to
corporate clients under the label of Reuters Business Briefing. The media market
is quite static but the outlook for growth in other segments is good.
Page 9
<PAGE>
FROM THE CHAIRMAN
For several years now I have in my statements focused initially on the results
of the year and then have gone on to reiterate in various ways the Board's deep
commitment to the Reuter Trust Principles and to a long-term perspective. In
reviewing 1998, which has been a year of even more extraordinary activity and
change in Reuters than usual, it would for once be more appropriate to comment
on longer-term issues before dealing with the all important topic of the year's
financial results.
The cornerstone of the Reuter Trust Principles (see page 86) is that Reuters
should be dedicated to preserving integrity in its gathering and dissemination
of news and information. It should be the essence of our business to be
independent, unbiased, open, honest and objective and to deliver relevant
information, spin-free and with all speed, to our customers worldwide.
The Reuter Trust Principles were first drafted in 1941 and were firmly
entrenched as part of the Reuters constitution at the time of the company's
flotation in 1984. For nearly 60 years, therefore, they have represented the
basic values of the Reuters brand and they remain a touchstone for our strategy
and one to which the Board is firmly committed. They have stood the test of time
and in no way do we find them either restricting desirable enterprise or
marginal to our central purposes.
Our other commitment, that to a long-term perspective, is difficult to maintain
at the best of times. It is doubly difficult for a publicly quoted market leader
in an era of huge and rapid technology and market change, when share price
volatility and media comment are daily reminders of how variable investment
judgements can be. However, just as 1998 has deepened our confidence in the
basic values of Reuters business, so it has also increased our belief in the
long-term growth opportunities to be derived from exceptional and innovative
service to Reuters current markets. We have devoted much Board time in 1998 to
the company's ability to spot and exploit those opportunities. From this point
of view the reorganisation embarked on in mid-1998 will be particularly
influential.
As a result of this reorganisation, two important changes are now taking place
in the conduct of Reuters business. The first is a change of emphasis from a
geographical focus to a product line one. The second is a change of emphasis
from market share to profitability. Both shifts are relative, not absolute: that
is to say, the company has always been concerned, as its record demonstrates,
with product line and profitability; but they will now become even more
important in determining our priorities and measuring our performance. In this
way, we shall be going with the grain of our customers' and shareholders'
requirements and will cater better to Reuters long-term earnings growth.
Page 10
<PAGE>
Reorganisation may enable better use of resources. It counts for little unless
the resources themselves are of high quality and kept so. Reuters key assets, as
I said last year, though intangible from a balance sheet point of view, are
real, formidable and competitive: the skills and loyalty of its people; its
databases and the organising of them; its extraordinary geographical
diversification; and the Reuters brand itself. The development of all these has
long been a high and continuous priority for the Board and it is ongoing.
As to the specifics of 1998, (pound)1.5 billion was returned to shareholders
early in the year (which means that financial comparisons with 1997 must be
handled with caution); earnings per share, which are comparable, were up by 11%;
and the dividend per share was similarly increased. The year ended, and the new
one began, with a successful culmination to the hundreds of man-years of effort
we had put into preparing for the introduction of the euro (an event which
several years back was seen as likely to be terminal for Reuters). So another
milestone has been passed. One down and many to go, but we have a lot of
momentum.
- --((signature))--
Sir Christopher Hogg
Company objectives
Reuters aims to grow its value for shareholders, and outperform its peers. It
will devote itself to the business of information and related systems
technology, enabling professional communities to enhance their work performance
in the fields of finance and commerce.
Reuters brand offers customers innovative use of well-supported technology, as
well as swift and easy access to essential content, accurately compiled without
bias. We will capitalise on Reuters media businesses which are profitable to
build our brand worldwide in newspapers, broadcasting and on the Internet.
The company aims to attract and retain good people through its unique
international culture, the important values embodied in the Reuter Trust
Principles, and the interesting opportunities it offers in terms of career
development and participation in the success of the enterprise.
Page 11
<PAGE>
FROM THE CHIEF EXECUTIVE
Trust Reuters
1998 was the year of Internet stocks. Who knows, in the short time it takes for
this message to go from my screen to publication in our annual report, where
their values will have gone? It has also been the year of a major reorganisation
in Reuters. Though conducted in a low key manner, it is probably the most
extensive change the company has seen in its nigh-on 150 years of history.
These topical issues are my subjects for this letter to shareholders:
...to innovate
What distinguishes popular Internet stocks from Reuters? There are important
similarities to mention first. Like the "portal" companies, Reuters aggregates a
great deal of text and numbers from other sources, such as exchanges, newspapers
or published research. In both cases, there are gateways to transactions or
E-commerce. Reuters uses cheap and efficient Internet technology standards, and
is gradually making increasing use of the Internet as a low-cost delivery
mechanism.
...to support high performance
The differences are also instructive. Firstly, as well as being an aggregator,
Reuters owns massive slabs of text, numbers, pictures and video. It applies fine
judgement to the production of this material in its own particular factual,
non-opinionated way. We apply the same selectivity to the high level of coding
and presentation of material we offer, including sources that we do not own. In
this we differ from the portal companies, which are not very selective because
they are targeting a much broader consumer segment. Reuters elects to
concentrate on professionals who are willing to pay for high-specification,
trustworthy material which helps them in their work.
Those who analyse the industry have gone, perhaps too rapidly, from the maxim
"content is king" to the portal theory, with the allied suggestion that, on the
Internet, "high-price" information will become available free of charge. We
believe possession of content, and the difficult skills needed to generate
quality material, is a vital part of value creation. The production of
value-added content demands continuous innovation too. On the day of the euro
launch, we were proud to show seven hours of continuous live programming - our
biggest-ever daily figure - to customers of our specialised TV service for
dealing rooms.
...to show fine judgement
We do not rely on dissemination through portals owned by others who exact tolls
from us. Nor do we see an economic model emerging which will
Page 12
<PAGE>
make branded information worthless. We can see reasons why the wide availability
of free information will enlarge the market for paid information. Due to the
self-imposed pricing restraint we exercised, we believe wisely, throughout this
decade, we do not think that our information is that expensive any more. We now
plan for modest increases in 1999.
...to get at results
Finally, the message of the Internet companies is frequently one of
disintermediation (although it often seems to mean the creation of a new class
of intermediaries). Here again, we differ in that we would rather avoid
disintermediation and actually help our clients - surely one of the most
blue-chip lists that any global company can assemble - to reach their own
customers with information and transaction software. This message of partnership
has been well received and is bringing us business.
In short, there are more subtle growth messages in the new technologies than
bloody revolution overturning all that went before. This encourages us, but we
also know that technology faces its own special millennium challenge. We
approach the Year 2000 with increased confidence following our handling of the
massive euro conversion exercise. But we have to anticipate possible disruption
of buying patterns as our customers divert resources to Y2K problems of their
own.
...to win
Against this background, improved management techniques can clearly be used to
safeguard and grow profit. Our reorganisation is designed to throw a spotlight
on the profitability of our different activities. This harsher glare is exposing
many a need for change. In tightening strategy and objectives, and controlling
the expansion of staff and capital resources, we hope to earn the trust of our
shareholders in our ability to grow the value of the company.
- --((signature))--
Peter Job
Page 13
<PAGE>
AN INTERVIEW WITH THE CHIEF EXECUTIVE
1998 saw a growing trend of mergers and acquisitions among banks, finance houses
and exchanges and there are predictions this could accelerate in 1999. What
effect does this have for Reuters?
Mergers have been going on for just about as long as I can remember now. The bad
effects for us are to reduce the pool of liquidity and trading and to reduce the
number of dealing stations. The good effects are to provide us with systems
sales opportunities and a more healthy and aggressive client base. People tend
to exaggerate the effect of merger activity since many of the people who analyse
our stock are themselves involved in one way or another and they get to see
things out of proportion sometimes. An example: Reuters serves something like
60,000 client locations around the world. If you were to take say a leading
investment bank or broker it might only account for 50 or 100 of those
locations. We really are a diversified company.
The New Year saw the launch of a new international currency, the euro, in 11
European Union states. Where is Reuters positioned with regard to trading in the
euro and what does the whole question of a common currency mean for Reuters?
The euro has three main effects for us. We will lose some foreign exchange
business in the reduction in currency pairs available. Quite a lot of this has
probably already been discounted by our clients running down their foreign
exchange activities. Secondly, it should give a boost to securities trading in
Euroland which is right at the heart of our business and should bring
significant benefits over time. Thirdly, we need to harmonise on pricing because
our pricing in the different euro countries has constantly drifted apart due to
exchange movements among other things. We have been planning the convergence of
tariffs for quite some time and I think we will manage it perfectly ok with an
attendant gain in the simplicity of administration.
The economic crises in Japan and the rest of Asia sent shudders through the
global economy. Do you see any prospect of an upturn in Asia and how has this
affected Reuters business in the region?
What you believe about Japan is more an act of faith than anything else. There
is a set of economic problems, but these may only start to be overcome when the
society agrees on new strategies and finds the will to pursue them. Personally,
I see signs that this is now happening. Our business is certainly benefiting
from the new set of circumstances. We have thoroughly 'Japanised' our products
and are getting into domestic market sectors where we were previously not
present. The rest of Asia remains somewhat problematic. We do not expect to lose
very much, but equally it may be over-optimistic to see an immediate upturn in
places like Hong Kong and Indonesia. Our businesses in China, Taiwan and India
have managed to continue reasonably stable growth and we have also observed that
South Korea is putting itself together again relatively fast. Singapore, which
is a major centre for us, is stable in itself but surrounded by regional
problems. The balance should be one of gentle improvement.
Instinet is a major revenue contributor to Reuters. Could you tell us why the
new rules introduced progressively by the US Securities and Exchange Commission
are not favourable to Instinet?
The general effect of the rule changes made or announced by the SEC in the last
couple of years has been to expose widely outside the Instinet system the
proprietary liquidity pool previously only visible to brokers and institutions
with Instinet screens. This has enabled competition to flourish and is just one
of those penalties for getting bigger and bigger. From time to time we have
argued against certain aspects of the changes, but our main concern is to look
for ways in which we can add further value to our vast Instinet network either
through improvements to our present activities or through totally new projects.
You can expect both things to happen. We still feel Instinet is a hot property
and it has much potential for further
Page 14
<PAGE>
development. It is a company we want to invest more in, but we don't
particularly want to give our competitors notice of our plans in these columns
today.
In what areas are you looking to grow the company and how will your new
structure help you to achieve this?
The watchword is "grow profit" and the new structure is all about making sure
that market share is translated into profit. We have been through a big
investment phase, particularly in the 3000 series, and these investments have to
produce results now. Looking at the top line, there is an overall concern that
the millennium will defer purchases by customers, particularly if they conclude
that they should freeze their technical configurations as early as mid-1999.
This would tend to mean deferred growth rather than permanent loss of business.
Underlying growth in our businesses is better in some cases than others - risk
management, systems sales, database sales to corporations and electronic
equities brokerage are all well up at the moment. Whereas the duller information
sectors like foreign exchange are not contributing that much to growth. We think
the balance is that this will not be a spectacular year for revenue growth at
constant exchange rates. But we should have an opportunity to grow profit faster
than revenue if we succeed as we intend in tightening management control over
the cost base.
How did your investments in Internet start-up companies fare in 1998?
After four years' experience, or thereabouts, we feel we are accumulating the
right skills to pick good investments in companies with technology or
information solutions from which we can learn something for the future. We have
the dual aim of making capital gains and learning from people smaller than
ourselves. The people we invest with like that too because it means we are
willing to try out their technologies in our mainstream business. This partly
accounts for our profitable record to date by investing in several companies
which have gone on to IPOs. We are ploughing back our profits into new
investments but we have switched our focus in recent times to Europe as
valuations in Silicon Valley have risen so astronomically. Maybe some of the
extremes of the market will be seen as tulip-mania later on but we still think
there will be a series of solid opportunities to invest in new start-ups in 1999
and onwards. We call it a greenhouse fund. The idea is that it should be
self-financing and make regular contributions to our results as it has done in
1998.
After the return to shareholders of (pound)1.5 billion in 1998, what do you see
as the future capital structure of the company?
Acquisitions made in 1998 have soaked up our spare cash, so we don't have any
surplus at the moment. But we are squeezing capital expenditure and costs
generally so we expect to remain in a healthy cash flow position. There is
something to be said for launching a share buyback programme, but we are still
studying the pros and cons at this stage.
Reuters has made a major investment to deal with the impending millennium
computer bug. How confident are you that your products and services will be able
to cope with this threat when Year 2000 dawns?
We have taken this matter very seriously, starting our formal Millennium
Programme in 1996 and having an executive director specifically focusing on the
issue. Nobody can be sure in the millennium that they won't be let down by
somebody else but we at Reuters have invested a considerable amount to try to
reduce the risks posed for us by the millennium. Further details of our
Millennium Programme are given on pages 45 to 47 of the annual report. In the
case of both converting for the euro (which was also a massive task which we did
exactly on time on 4 January) and the millennium we have been working closely
with customers and we are getting a lot of relationship value from that.
Page 15
<PAGE>
BOARD OF DIRECTORS
NON-EXECUTIVE DIRECTORS
(pictured left to right)
Sir Christopher Hogg
(1984, Chairman 1985)
Chairman of Allied Domecq since April 1996. Director of SmithKline Beecham,
member of the International Council of J.P. Morgan and a Ford Foundation
Trustee. Former Chairman of Courtaulds 1980-1996 (Chief Executive 1979-1991);
director of the Bank of England 1992-1996. Age 62.
Robert (Bob) Bauman (1994)
Former Chairman of BTR plc (May 1998-February 1999) and former Chairman of
British Aerospace plc (1994-May 1998). Chief Executive of SmithKline Beecham plc
(1989-1994) Director of BTR Plc, Union Pacific Corporation, CIGNA Corporation,
Hathaway Holdings, Inc, Morgan Stanley Dean Witter and Russell Reynolds
Associates, Inc. Age 67.
Sir John Craven (1997)
Former member of the Board of Managing Directors of Deutsche Bank AG and
Chairman of Deutsche Morgan Grenfell plc; Chairman of Lonrho Plc; non-executive
director of Rothmans International B.V. Age 58.
Michael Green (1992)
Chairman of Carlton Communications Plc and
ONdigital. Non-executive director of ITN. Age 51.
Roberto Mendoza (1998)
Vice Chairman and a Director of J.P. Morgan & Co Inc. He joined J.P. Morgan in
1967 and was assigned to London early in his career. He left in 1972 to pursue
graduate studies, returning to the firm's New York office in 1975 to work in
international corporate finance. From 1980 to 1985 he headed the capital market
services group and then became head of the Mergers and Acquisitions group. Age
53.
Richard (Dick) Olver (1997)
A group managing director of BP Amoco plc and EVP, Exploration and Production.
Member of the Institution of Civil Engineers. A Governor of New Hall School. Age
51.
Charles Sinclair (1994)
Group Chief Executive of Daily Mail and General Trust plc. A director of
Euromoney Publications PLC and Schroders PLC. Age 50.
Sir David Walker (1994)
Chairman of Morgan Stanley International Inc., and a member of the Management
Committee of the Board of Morgan Stanley Dean Witter in New York. Former Deputy
Chairman of Lloyds Bank plc, Chairman of the Securities and Investments Board
and Director of the Bank of England. Age 59.
STRATEGY REVIEW COMMITTEE
Peter Job (Chair), Jean-Claude Marchand, John Parcell, Rob Rowley, David Ure,
Andre Villeneuve
Doug Atkin, 46, President and Chief Executive Officer, Instinet Corporation.
Tom Glocer, 39, President, Reuters Information, the Americas and President of
Reuters America Inc.
Julie Holland, 47, MD, Reuters Information, and Senior Company Officer, UK &
Ireland.
Marion King, 40, MD, Money & FX Transaction Systems.
Greg Meekings, 45, MD, Global Sales & Operations, Reuters Trading Systems.
David Morgan, 47, Chief Information Officer.
Page 16
<PAGE>
EXECUTIVE DIRECTORS
(pictured left to right)
Peter Job (1988)
Chief Executive since 1991. Joined Reuters as a journalist in 1963. From 1971 he
worked to develop the company's business in Latin America, Africa, Asia and the
Middle East. From 1978 until 1991 he headed the company's business in Asia.
Non-executive director Diageo Plc and Glaxo Wellcome plc. Age 57.
Jean-Claude Marchand (1996)
Executive Director and Chief Executive, Global Sales and Operations. Managing
Director, Continental Europe since 1989, with Middle East and Africa since 1995.
Joined Reuters in 1971 as a sales executive and became Sales and Marketing
Manager, Asia in 1978. A Swiss national, he has held senior management positions
in Europe since 1979. Age 52.
John Parcell (1996)
Executive Director of Reuters Group PLC and Chief Executive of Reuters
Information, the largest of the Group's new product-based divisions. Joined
Reuters in 1969 as a journalist, working in Asia and Latin America, then became
a marketing and product manager. Assistant Managing Director, Europe, Middle
East and Africa 1988 -1990. Managing Director, UK and Ireland 1990-1996. Age 52.
Robert (Rob) Rowley (1989)
Finance Director since 1990. Joined Reuters in 1978, taking financial
responsibility for Europe in 1981. He became Joint Company Secretary in 1988,
Group Financial Controller in 1989, and Company Secretary from 1991 to 1993.
Responsible for new business information products, media and new business
ventures since 1996. Age 49.
David Ure (1988)
Executive Director responsible for Reuters Trading Systems Division and Group
technical strategy. From 1992 to 1998, Ure was responsible for Group marketing
and technical policy. Before that he headed Reuters operations in Europe, Middle
East and Africa. He joined the company in 1968 as a trainee journalist.
Non-executive Director of Woolwich PLC from 1998. Age 51.
Andre Villeneuve (1988)
Executive Director Strategic Planning and Chairman Instinet Inc. He headed
Reuters geographical operating units 1992 to 1998. He managed the company's
business in North America from 1983 to 1991, taking charge of Latin America as
well in 1989. He joined as a journalist in 1967. Independent (non-executive)
director CGU plc and non-executive director of United Technologies Corporation.
Age 54.
STRATEGY REVIEW COMMITTEE (continued)
Jeremy Penn, 39, MD, Reuters Asia.
Maurizio Pescosolido, 56, MD, Global Sales & Operations, Reuters Information.
Mike Sayers, 45, Chief Technology Officer.
Geoff Weetman, 52, Director of Human Resources.
Ros Wilton, 47, MD, FX/Money & Commodities, Reuters Information.
Mark Wood, 46, Editor-in-Chief.
Philip Wood, 43, Deputy Finance Director.
Simon Yencken, 43, Chief Operating Officer, TIBCO Finance and MD of Financial
Enterprise Systems.
Page 17
<PAGE>
REPORT OF THE DIRECTORS
The directors submit their annual report and audited financial statements for
the year ended 31 December 1998.
ACTIVITIES
Reuters activities are set out on page 9.
A detailed review of Reuters activities during 1998 and likely future
developments is given in the messages from the Chairman and the Chief Executive
(pages 10-13) and the financial review appearing on pages 35-49. The directors
consider that these reviews, taken together, comply with the statement issued by
the UK Accounting Standards Board on the Operating and Financial Review and with
the requirements of the US Securities and Exchange Commission (SEC) for a
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
FINANCIAL STATEMENTS AND INTERNAL CONTROL
Separate statements about the Audit Committee and about directors'
responsibilities in respect of the financial statements which include details of
internal financial control are set out on pages 32-33
The consolidated profit and loss account is set out on page 50.
AUDITORS
In accordance with the Companies Act 1985 a resolution to reappoint
PricewaterhouseCoopers as auditors at a remuneration to be agreed by the
directors will be placed before the annual general meeting of the company on 20
April 1999.
CORPORATE GOVERNANCE
Reuters has always recognised the importance of high standards of corporate
governance. It supports and has complied throughout 1998 with the majority of
the principles of corporate governance recommended in the Combined Code. The
ways in which Reuters applies these principles, and the few principles with
which Reuters does not consider it appropriate to comply at present, are
described in the appropriate parts of this annual report. Thus the application
of corporate governance principles to Board matters is described on pages 18-19,
to internal controls on page 19, to relations with shareholders on page 21, to
directors' remuneration on page 24 and to financial reporting on page 33.
PricewaterhouseCoopers have reviewed Reuters statements as to compliance with
the Combined Code to the extent required by the Listing Rules of the London
Stock Exchange. The results of their review are set out on page 34.
COMPANY ORGANISATION
The Board currently comprises six executive directors including Peter Job, the
Chief Executive, and eight independent non-executive directors including Sir
Christopher Hogg who is the Chairman and who thus has responsibility for running
the Board. Michael Green, who joined the Board as a non-executive director in
July 1992 and who has served two three-year terms, has decided not to stand for
re-election at the forthcoming annual general meeting. The directors record
their warm appreciation for his contribution to the Board. The Board has not
identified a senior independent non-executive director because it considers such
an appointment to be unnecessary at present.
The Board carries the ultimate responsibility for the conduct of Reuters
business. Its regular meetings take place every two months and, in addition, it
has an annual strategy review meeting. Each year the directors, other than the
Chairman, meet to review the role and performance of the Chairman and once a
year the Chairman and the non-executive directors meet to consider the
performance of the executive directors. In 1998 the Board also introduced a
formal self-assessment of its effectiveness. It intends to undertake these
self-assessments regularly and to include in them consideration of whether the
directors have any training requirements. The executive directors present the
annual budget to the Board for its approval. Actual results are reported to each
scheduled meeting of the Board with appropriate trend analysis. Regular and ad
hoc reports and presentations to the Board ensure it is supplied, in a timely
fashion, with the information it needs. Non-executive directors receive a series
of briefings about Reuters when they join the Board and they periodically visit
Reuters offices throughout the world where they are briefed on various aspects
of the company's operations. All the directors have access to the company
secretary and a procedure exists for directors in the furtherance of their
duties to take independent professional advice if necessary at the company's
expense.
Page 18
<PAGE>
The Executive Committee, chaired by the Chief Executive, was responsible for the
management of the business until the end of 1998. It met five times during the
year. With effect from 1 January 1999 the company was reorganised into two
business divisions, Reuters Information and Reuters Trading Systems and the
geographical units of the company were brought together into a global sales and
operations group responsible for the sale, installation, delivery and support of
divisional products. Instinet continues to operate as an autonomous subsidiary.
As part of the reorganisation a new committee structure was introduced and the
Executive Committee was dissolved. The senior corporate management group, the
Group Executive, now comprises the executive directors, Geoffrey Weetman
(Director of Human Resources) and Stephen Mitchell (General Counsel and Company
Secretary). It will normally meet 11 times a year. Amongst other senior
management committees, there are the Strategy Review Committee, which has taken
over from the Executive Committee the task of reviewing corporate strategy,
plans and performance, and the Operations Committee, which has assumed operating
responsibilities previously handled by the Executive Committee. The functions of
the 20 Members of the Strategy Review Committee are set out on pages 16-17.
The three principal committees of the Board are the Remuneration Committee (see
pages 24-31), the Audit Committee (see page 32) and the Nomination Committee.
The Board sets the terms of reference of these committees. The members of the
Remuneration Committee and the Audit Committee are Bob Bauman, Sir John Craven,
Sir Christopher Hogg, Roberto Mendoza, Dick Olver, Charles Sinclair and Sir
David Walker. These directors, together with Michael Green and Peter Job, are
the members of the Nomination Committee which is chaired by Sir Christopher Hogg
and which makes recommendations to the Board on the appointment of directors.
The schedule of matters reserved for the Board's decision includes treasury
investment, borrowing and hedging policies, significant capital expenditure or
disposals of assets, and all investments, acquisitions or disposals which are
not in line with strategies previously adopted by the Board.
Also reserved for Board decision is any transaction by a group company likely to
require listing particulars or a tender offer to be filed with the London Stock
Exchange or to require a filing under the US federal securities laws with the
SEC.
The Board must approve any agreement with any other party that entails or may
involve the assumption of ongoing business risks, liabilities or commitments
equal to or exceeding (pound)50 million in aggregate during the life of the
contract.
Non-financial risks, including possible damage to Reuters reputation as a
leading news provider, or threats to the reliability of its computer systems,
are examined by a Business Risks Steering Group which periodically reports to
the Board on the management of risks throughout the group. There is also a
dedicated risk management function at Instinet.
In 1997, Reuters established a compliance programme to consolidate and extend
company compliance activities. During 1998, the programme was extended and
refocused in a number of ways. A Compliance Overview Group has been established,
chaired by the Finance Director. Its members include the heads of the compliance
group, business risks, the legal department and the internal audit department.
Its terms of reference require it to ensure that Reuters has an efficient and
effective system for ensuring compliance, and that it harmonises the efforts of
the various activities represented by its members.
The directors are bound by the company's Articles to pay due regard to the
Reuter Trust Principles. The Board views these principles as central to the
company's standing and commercial success and works closely with the Reuters
Founders Share Company Limited to safeguard them. The Trust Principles and other
relevant information are set out on page 86.
Company technical policies provide standards for the integrity, confidentiality
and availability of internal and external information services and the systems
on which they operate. These policies, together with the company's Code of
Conduct which sets out the standards of behaviour and integrity which all
employees are expected to observe, are readily available on the company's
internal information database.
SHARE CAPITAL AND DIVIDENDS
Details of the changes in the authorised and called-up share capital are set out
Page 19
<PAGE>
in notes 26 and 28 on pages 70-71.
For details of proposed resolutions, see the explanatory notes attached to the
notice of the annual general meeting.
The company has received notice from The Capital Group Companies, Inc., under
section 198 of the Companies Act 1985, that on 31 December 1998 it and its
affiliates together held in their capacity as investment managers 76.4 million
ordinary shares in Reuters (5.7% of the issued share capital) and on 12 February
1999 their holding was 75.5 million ordinary shares (5.3%).
Reuters Founders Share Company Limited has held the Founders Share since it was
issued on 18 February 1998 (and held the Founders Share in Reuters Holdings PLC
from 9 May 1984 until 18 February 1998).
The company is not a close company within the meaning of the Income and
Corporation Taxes Act 1988.
An interim dividend of 3.4p per ordinary share was paid on 8 September 1998. The
directors recommend a final dividend of 11.0p per ordinary share giving a total
of 14.4p per ordinary share for the year (1997 - 13.0p). Subject to
shareholders' approval at the annual general meeting, the final dividend will be
paid on 26 April 1999 to members on its register at the close of business on 19
March 1999.
EMPLOYEES
The total number of employees at 31 December 1998 was 16,938 (31 December 1997 -
16,119). For further details see page 56.
Reuters aims to offer a wide range of experience to employees. The group offers
competitive rates of pay and a commitment to training. This enables staff to
respond to rapid change in a fast changing technology and market and to take
advantage of opportunities to develop their careers around the world.
It is Reuters policy that selection of employees including for entry to the
company, for training, development and promotion should be determined solely on
their skills, abilities and other requirements which are relevant to the job and
in accordance with the laws in the country concerned.
The Board values the courage and professionalism shown by employees operating in
zones of conflict. Reuters aims to cover news wherever it breaks but instructs
staff to avoid risks wherever possible.
THE ENVIRONMENT
Reuters activities have marginal direct impact on the environment and contribute
minimally to pollution. The group's information products help to spread global
awareness of the environment. One of them, Reuters Business Briefing, offers a
wealth of information on many topics, including the environment. Its search
facilities enable customers to keep abreast of events and issues with minimal
use of paper and other resources. They need only print out what they want to
keep.
Reuters seeks to ensure its major international equipment suppliers avoid using
environmentally harmful materials or processes.
Reuters contributes to public awareness and understanding of environmental
issues through the educational work of the Reuter Foundation. In 1998, the
Foundation ran two practical training courses for journalists to study
environmental issues, one in London for journalists from a dozen countries and
one in Brazil for journalists in Sao Paulo. Journalists from developing
countries wishing to study environmental issues in greater depth can apply for
fully-funded fellowships in the Reuter Foundation Fellowship Programme at Green
College, Oxford University. The Foundation also reached agreement in 1998 with
the Geneva-based World Conservation Union (IUCN) to launch an annual series of
media awards for excellence in environmental reporting.
MILLENNIUM PROGRAMME
Reuters established its Millennium Programme in 1996 to assess the issues
arising as a result of the change of millennium. The programme is led by an
Executive Director supported by a full time Programme Director. The programme
consists of six key parts, namely awareness, product strategy, inventory,
development, testing and implementation. Much of the work under these phases has
been completed. Some work will continue in 1999 including product assurance,
industry based testing, development work for corporate systems and residual
client site implementation. Reuters will also
Page 20
<PAGE>
continue to verify the efforts of its suppliers. Reuters is currently preparing
a comprehensive business continuity plan specifically designed for the
millennium. For further details of the programme see pages 45-47.
CHARITABLE CONTRIBUTIONS
The Reuter Foundation, the group's charitable trust, remains the main vehicle
for cash grants and for direct action in educational and humanitarian
programmes. Its spending rose to (pound)3.2 million in 1998, from (pound)3
million in 1997. In addition, Reuters area management units made direct
charitable grants of (pound)0.9 million in cash and (pound)11.1 million in kind
in 1998, including the value of Reuters services, equipment and employees' time
donated to educational and charitable causes. This total of (pound)15.2 million
in overall charitable donations amounted to 2.6% of the group's pre-tax profit
in 1998.
The Reuter Foundation offers university fellowships, scholarships, research
grants and training courses in sectors where Reuters itself is involved:
financial markets, information technology, journalism and medical information.
In emerging financial markets, the Foundation ran training courses and seminars
in 1998 in Belarus, Cuba, Georgia, Russia, Uganda and Ukraine. In journalism
training for the developing world, courses were held in 20 countries, including
Iran for the first time.
The Reuter Foundation's AlertNet, launched on the Internet at the end of 1997,
established itself as a serious professional service to the international
disaster relief community. By the end of 1998, it had 71 members, including the
Red Cross movement and voluntary organisations in 16 countries. The service,
funded by the Reuter Foundation, is provided free to the members in return for
information which they contribute about their own relief operations.
General charitable giving by the Foundation increased in 1998, largely in
response to the concerns of Reuters employees around the world. The focus is
mainly on local community and healthcare projects. Some support is also given to
environmental and cultural causes, particularly where there is an educational
dimension. The Foundation usually limits its grants to causes which are actively
backed by Reuters employees through voluntary work or fund-raising.
More information on the work of the Reuter Foundation is contained in a separate
annual review, available on request from the Director, Reuter Foundation, 85
Fleet Street, London EC4P 4AJ, or on the Foundation's website:
http://www.foundation.reuters.com.
No political contributions are made.
CREDITOR PAYMENT TERMS
It is Reuters normal procedure to agree terms of transactions, including payment
terms, with suppliers in advance. Payment terms vary, reflecting local practice
throughout the world. It is Reuters policy that payment is made on time,
provided suppliers perform in accordance with the agreed terms. Group trade
creditors at 31 December 1998 were equivalent to 31 days purchases during the
year.
INVESTOR RELATIONS
The directors regularly meet with institutional shareholders and analysts.
Investor Relations departments in London, New York and Geneva are dedicated to
improving communications between the company and its shareholders. The company's
annual general meeting is used as an opportunity to communicate with private
investors. Since it held its 1998 shareholders' meetings before the Combined
Code was issued, Reuters did not comply at those meetings with the
recommendation that at shareholders' meetings the level of proxies lodged on
each resolution should be announced after the show of hands for the resolution.
However, it is now studying the most effective way of complying with this
recommendation in future.
DIRECTORS
On 18 February 1998 Roberto Mendoza was appointed a director. All other
directors mentioned on pages 16-17 served throughout the year.
The group maintained insurance for directors and certain employees against
liabilities in relation to the group throughout the year.
By order of the Board
- -((signature))-
Stephen Mitchell,
Company Secretary
12 February 1999
Page 21
<PAGE>
TRUST REUTERS TO GET RESULTS
Financial markets in 1998 took a battering for the second successive year, with
turmoil in Asia, devaluation in Russia and slower growth in the West. During the
turbulence, our customers saw that Reuters can be relied upon at times of great
change to deliver the information they need to trade and report with confidence.
A lone South Korean investor watches a trading board at a securities house
during the first day of 1998 trading in Seoul on 3 January.
Photo by Paul Barker REUTERS
Page 22
<PAGE>
FINANCIAL REVIEW CONTENTS
24 Report on remuneration and related matters
32 Audit Committee
33 Statement of directors' responsibilities
34 Auditors' report to the members of Reuters Group PLC
35 Operating and financial review
FINANCIAL STATEMENTS CONTENTS
50 Consolidated profit and loss account
50 Consolidated statement of total recognised gains and losses
51 Notes on the consolidated profit and loss account
57 Consolidated cash flow statement
58 Notes on the consolidated cash flow statement
63 Consolidated balance sheet
63 Reconciliation of movements in shareholders' funds
64 Notes on the consolidated balance sheet
75 Balance sheet of Reuters Group PLC
76 Notes on the balance sheet of Reuters Group PLC
77 Accounting policies
79 Summary of differences between UK and US Generally Accepted Accounting
Principles (GAAP)
80 Notes on summary of differences between UK and US GAAP
82 Other information for shareholders
84 Financial diary for 1999
85 Preserving Reuters independence
86 The Reuter Trust Principles
87 Glossary
88 Eleven year consolidated financial summary
90 Where to find us
Page 23
<PAGE>
REPORT ON REMUNERATION AND RELATED MATTERS
This report on remuneration and related matters covers issues which are the
concern of the Board as a whole in addition to those which are dealt with by the
Remuneration Committee.
THE REMUNERATION COMMITTEE
The Remuneration Committee deals with the remuneration of senior executive
management on behalf of the Board and shareholders. During 1998 the members of
the Remuneration Committee were Sir Christopher Hogg, Bob Bauman, Sir John
Craven, Roberto Mendoza, Dick Olver, Charles Sinclair and Sir David Walker. On 9
February 1998 Bob Bauman took over the chairmanship of the Remuneration
Committee from Sir Christopher Hogg.
REMUNERATION POLICIES
The Remuneration Committee has agreed a framework of policies within which it
sets the remuneration package for each executive director. The committee also
agrees the principles underlying remuneration for other senior executives.
The basic objectives of these policies are that executives, including executive
directors, should receive compensation which is appropriate to their scale of
responsibility and performance, and which will attract, motivate and retain
executives of the necessary calibre. Reuters believes that basic salary should
be competitive in the relevant market and if performance exceeds the targets set
total compensation should rise to an appropriate level. The Remuneration
Committee aims to balance the entire compensation package so as to help the
director attain, and encourage him to retain, a long-term interest in the share
capital of the company.
SUMMARY OF REMUNERATION
The remuneration packages of executive directors consist of annual salary,
health and car benefits, prolonged disability insurance, an annual cash bonus
plan, pension contributions and participation in a performance-linked share plan
described below and all-employee share schemes. Performance targets are
established to achieve consistency with the interests of shareholders, with an
appropriate balance between long- and short-term goals.
EXECUTIVE DIRECTORS' SALARIES
In setting annual salary levels the committee has been assisted by reports from
independent professional consultants. It compares Reuters remuneration packages
with those for jobs of similar type and seniority in relevant national and
international companies. For the purpose of each year's comparison the committee
has used large international companies from the Financial Times Stock Exchange
100 index (FTSE 100). The comparisons consider the relative size of each company
in terms of sales, profits and number of employees, its market capitalisation,
the complexity of its operations and the international spread of its business.
It also considers, inter alia, the company's operating performance in the
previous year and the UK inflation rate over the same period. During its
deliberations the committee has had regard to salary levels in other countries
where this is relevant for any non-UK director or senior manager.
EXECUTIVE DIRECTORS' BONUSES
The company sets annual bonus targets which are relevant to the objectives of
the year. In 1997 the company did not succeed in meeting the targets set for the
directors and no directors' bonuses were paid.
For 1998 the directors' bonuses depended on the extent to which three key
targets were met. The targets were designed to align directors' interests with
shareholders and covered first, the company's objectives for millennium
compliance and euro conversion, second, the growth in operating profit at
constant exchange rates and third, the growth in earnings per share. Many of the
objectives were achieved in 1998, some in full and some partially and the
resulting bonus awards for the executive directors are reported in the table
opposite. Maximum bonus earnings were capped at 50% of salary for executive
directors in 1998. Directors' bonuses amounted to 2.1% of total cash bonuses
paid to all employees of the group.
EXECUTIVE DIRECTORS' SERVICE CONTRACTS
The service contracts of the executive directors are terminable by the company
on two years' notice (except for Jean-Claude Marchand whose contract is
terminable by the company on one year's notice). The committee considers these
notice periods appropriate, having regard, amongst other things, to the length
of the executive directors' service to the company, collectively and
individually, and to the substantial knowledge gained thereby of the company and
its business.
If an executive director's contract is terminated by the company, the benefits
for which the company is liable may vary depending on his age and length of
service. Any termination payment will not exceed twice his salary and benefits,
plus retention of long-term incentive plan awards held for more than 18 months,
entitlement under the rules of the share option plans and enhanced early retire-
ment benefits under the company's pension plans. Jean-Claude Marchand's service
contract is written under Swiss law. If the contract is terminated under normal
circumstances, he will be entitled to two years salary plus all other benefits.
It is the Board's policy that executive directors, in the interests of their
development to the benefit of Reuters, may serve as non-executive directors on
the boards of other companies and may each, as a general rule, retain
remuneration from such appointments.
Page 24
<PAGE>
REMUNERATION OF THE NON-EXECUTIVE DIRECTORS
The Chairman's remuneration comprises salary, life assurance, prolonged
disability insurance and pension. These are amongst the matters discussed at an
annual meeting of the Board to review the Chairmanship. Sir Christopher Hogg is
not present at this meeting.
The remuneration of the other non-executive directors is determined by ordinary
resolution of the shareholders in general meeting. At the 1998 annual general
meeting the shareholders agreed to increase such remuneration from (pound)30,000
per annum to (pound)33,000 per annum with effect from 1 January 1998. No
increase is being proposed for 1999. The Board has power to pay additional
remuneration for services outside the scope of the ordinary duties of a non-
executive director.
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------- ------------
SALARY/FEES REMUNERATION
SALARY/FEES INCREASE BONUS BENEFITS TOTAL TOTAL
(POUND)000 % (POUND)000 (POUND)000 (POUND)000 (POUND)000
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chairman:
Sir Christopher Hogg 193 4.5% - 10 203 195
- ------------------------------------------------------------------------------------------------------------------------------------
Non-executive directors:
R P Bauman 42 40.0% - - 42 30
Sir John Craven (appointed 19 February 1997) 33 10.0% - - 33 26
M P Green 33 10.0% - - 33 30
P G Gyllenhammar (resigned 15 October 1997) - - - - - 25
R Mendoza (appointed 18 February 1998) 29 - - - 29 -
R L Olver (appointed 1 December 1997) 33 10.0% - - 33 3
C J F Sinclair 43 7.5% - - 43 40
Sir David Walker 33 10.0% - - 33 30
- ------------------------------------------------------------------------------------------------------------------------------------
Total for non-executive directors (excluding Chairman) 246 - - 246 184
- ------------------------------------------------------------------------------------------------------------------------------------
Executive directors:
P Job, Chief Executive 522 4.5% 255 14 791 513
J-C Marchand 1 338 4.5% 173 19 530 347
J M C Parcell 246 4.7% 120 11 377 246
R O Rowley 324 4.5% 158 10 492 320
D G Ure 340 4.6% 166 12 518 337
A-F H Villeneuve 340 4.6% 166 18 524 343
- ------------------------------------------------------------------------------------------------------------------------------------
Total for executive directors 2,110 1,038 84 3,232 2,106
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EMOLUMENTS 2,549 1,038 94 3,681 2,485
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 A substantial part of Jean-Claude Marchand's remuneration is paid in Swiss
francs and is converted to sterling at the year's average rate of SF2.42 to the
(pound). The bonus is converted at the year end rate of SF2.29 to the (pound).
</FN>
</TABLE>
DIRECTORS' PENSION ARRANGEMENTS
Executive directors are entitled to a pension of two-thirds of basic salary on
retirement from Reuters at the normal retirement age of 60. Post-retirement
increases are expected to be in line with inflation (guaranteed up to the level
of 5% and discretionary above that level).
In the event of death before retirement, a spouse's pension of four-ninths of
the executive's basic salary is payable, together with a capital sum equal to
four times the aggregate of basic salary and taxable health and car benefits and
a refund with interest of the executive director's own contributions. On death
in retirement, the executive director's spouse will receive a pension equal to
two-thirds of that payable to the executive director. In addition, on death
within the first five years of retirement, a lump sum is payable equal to the
balance outstanding of the first five years' pension instalments.
Provision for the above benefits is made through the Reuters Pension Fund, a
contributory plan, the Reuters Supplementary Pension Scheme, a non-contributory
plan, and in the case of Jean-Claude Marchand, a Swiss pension plan, also a
contributory plan. None of the executive directors has pension arrangements that
are subject to the Inland Revenue earnings cap.
Pension contributions paid by the company in respect of the six executive
directors participating in the plans are assessed according to long-term funding
arrangements and are expressed as an average contribution rate, which for 1998
was 21.025%, of basic salaries.
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<PAGE>
Under an unfunded pension arrangement the Chairman is entitled to a pension of
2.5% of his annual fee times the number of years of service, from the date of
his appointment as Chairman in May 1985 to the date his office terminates. In
addition the Chairman has been admitted as a member of the Reuters Pension Fund
for the purpose only of providing a fixed lump sum benefit of (pound)300,000 for
his dependants in the event of his death in service.
Pensions benefits earned by directors are as follows:
<TABLE>
<CAPTION>
AT 31 DECEMBER 1998 ACCRUED PENSION ENTITLEMENT
------------------- -------------------------------
DIRECTORS' TOTAL AT
CONTRIBUTIONS INCREASE 31 DECEMBER
YEARS OF DURING YEAR DURING YEAR 1998
AGE SERVICE (POUND)000 (POUND)000 (POUND)000
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sir Christopher Hogg 62 13 - 5 66
P Job 57 34 31 3 348
J-C Marchand 52 27 24 8 188
J M C Parcell 52 29 15 6 130
R O Rowley 49 20 19 9 131
D G Ure 51 30 20 8 170
A-F H Villeneuve 54 31 20 9 184
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accrued pension entitlement shown is that which would be paid annually,
commencing at normal retirement age, based on service to 31 December 1998. The
increase in accrued pension during 1998 excludes any increase for inflation.
Neither the contributions nor the accrued entitlement reflect any additional
voluntary contributions made by the directors.
SHARE PLANS
Under the terms of the capital reorganisation which became effective on 18
February 1998 (see page 51), rights and options vesting under the former Reuters
Holdings PLC plans entitle the holders to shares in Reuters Group PLC on a
one-for-one basis.
Long-term incentive plan
Since 1993, Reuters has operated a long-term incentive plan under which annual
awards of restricted shares or, commencing in 1995, rights exercisable for
shares on a one-for-one basis (share rights), are made to executive directors
and certain key executives. Vesting of the awards depends on performance in
terms of total return to shareholders over a defined period. Awards vesting
under the plan which covers the executive directors are not released until at
least five years from the date of grant.
Under the terms of the plan the number of share rights awarded to each senior
executive is determined by dividing each executive's annual salary by the
average of the daily closing price of Reuters shares for the previous year.
Commencing with the 1997 awards, the share rights granted in the UK (which
include those granted to the executive directors) are at an exercise price
equivalent to the market value of the underlying shares on the date of grant,
and are linked with a cash bonus equal to such exercise price. The share rights
and linked cash bonus vest and are exercisable only in tandem. No awards were
made under the plan during 1998.
Page 26
<PAGE>
The table below shows the number of shares underlying awards to each executive
director:
<TABLE>
<CAPTION>
VALUE AT
NO. OF AWARDS 31 DECEMBER 1998
------------------------------------------------ ----------------------
GAINS DATE OF RELEASE
YEAR AT 31 RELEASED LAPSED AT 31 ON NON-VESTED OR EXERCISABLE
OF DECEMBER DURING DURING DECEMBER RELEASE VESTED RANGE PERIOD IF
GRANT 1997 YEAR YEAR 1998 (POUND)000 (POUND)000 (POUND)000 VESTING OCCURS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
P Job
Restricted shares 1993 77,920 77,920 - - 464 - - Feb 1998
Restricted shares 1994 82,056 - - 82,056 - 518 - Feb 1999
Share rights 1995 66,092 - 49,569 16,523 - 104 - Feb 2000-Dec 2001
Share rights 1996 61,218 - - 61,218 - - 0-386 Feb 2001-Dec 2002
Share rights 1997 68,812 - - 68,812 - - 0-434 Feb 2002-Dec 2003
- ----------------------------------------------------------------------------------------------------------------------------------
356,098 77,920 49,569 228,609 464 622
- ----------------------------------------------------------------------------------------------------------------------------------
J-C Marchand
Restricted shares 1993 41,216 41,216 - - 245 - - Feb 1998
Restricted shares 1994 34,464 - - 34,464 - 217 - Feb 1999
Share rights 1995 27,681 - 20,760 6,921 - 44 - Feb 2000-Dec 2001
Share rights 1996 38,805 - - 38,805 - - 0-245 Feb 2001-Dec 2002
Share rights 1997 48,994 - - 48,994 - - 0-309 Feb 2002-Dec 2003
- ----------------------------------------------------------------------------------------------------------------------------------
191,160 41,216 20,760 129,184 245 261
- ----------------------------------------------------------------------------------------------------------------------------------
J M C Parcell
Restricted shares 1993 36,064 36,064 - - 215 - - Feb 1998
Restricted shares 1994 30,176 - - 30,176 - 190 - Feb 1999
Share rights 1995 25,737 - 19,302 6,435 - 41 - Feb 2000-Dec 2001
Share rights 1996 25,207 - - 25,207 - - 0-159 Feb 2001-Dec 2002
Share rights 1997 32,342 - - 32,342 - - 0-204 Feb 2002-Dec 2003
- ----------------------------------------------------------------------------------------------------------------------------------
149,526 36,064 19,302 94,160 215 231
- ----------------------------------------------------------------------------------------------------------------------------------
R O Rowley
Restricted shares 1993 47,652 47,652 - - 284 - - Feb 1998
Restricted shares 1994 51,284 - - 51,284 - 324 - Feb 1999
Share rights 1995 41,211 - 30,908 10,303 - 65 - Feb 2000-Dec 2001
Share rights 1996 38,171 - - 38,171 - - 0-241 Feb 2001-Dec 2002
Share rights 1997 42,663 - - 42,663 - - 0-269 Feb 2002-Dec 2003
- ----------------------------------------------------------------------------------------------------------------------------------
220,981 47,652 30,908 142,421 284 389
- ----------------------------------------------------------------------------------------------------------------------------------
D G Ure
Restricted shares 1993 54,092 54,092 - - 322 - - Feb 1998
Restricted shares 1994 55,388 - - 55,388 - 349 - Feb 1999
Share rights 1995 44,554 - 33,415 11,139 - 70 - Feb 2000-Dec 2001
Share rights 1996 41,268 - - 41,268 - - 0-260 Feb 2001-Dec 2002
Share rights 1997 44,728 - - 44,728 - - 0-282 Feb 2002-Dec 2003
- ----------------------------------------------------------------------------------------------------------------------------------
240,030 54,092 33,415 152,523 322 419
- ----------------------------------------------------------------------------------------------------------------------------------
A-F H Villeneuve
Restricted shares 1993 54,092 54,092 - - 322 - - Feb 1998
Restricted shares 1994 55,388 - - 55,388 - 349 - Feb 1999
Share rights 1995 44,554 - 33,415 11,139 - 70 - Feb 2000-Dec 2001
Share rights 1996 41,268 - - 41,268 - - 0-260 Feb 2001-Dec 2002
Share rights 1997 44,728 - - 44,728 - - 0-282 Feb 2002-Dec 2003
- ----------------------------------------------------------------------------------------------------------------------------------
240,030 54,092 33,415 152,523 322 419
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The gains on release are calculated at the quarter up share price of 595.25p on
the date of release used to determine each director's tax liability on that
date. The value of the awards at 31 December 1998 has been based on the closing
mid-market share price of Reuters ordinary shares of 631p per share from the
Daily Official List for 30 December 1998.
Page 27
<PAGE>
Performance under the long-term incentive plan is measured over a three- to
five-year period by comparing the total shareholder return (TSR) of Reuters with
that of other companies comprising the FTSE 100 at the beginning of the period.
Awards vest only after the expiration of this period. The TSR for each company
is determined based on the internal rate of return from cash flows of an
investor who bought a share at the beginning of the period, sold it at the end
and received dividends and benefited from capital changes during the period. The
average of the daily closing prices for the prior calendar year are used as the
initial and ending share prices.
The companies comprising the comparator group are ranked according to each
company's TSR for the measurement period with the company having the highest, or
best, TSR ranked first. Reuters' position on the list determines the extent to
which plan awards will vest. The preset vesting criteria for awards are shown in
the table below together with the actual ranking for each award as at either the
date of vesting or, if not yet vested, at 31 December 1998. Between the two
vesting extremes awards vest on a graduated scale. Rankings can change
materially during a measurement period.
<TABLE>
<CAPTION>
PRESET VESTING CRITERIA
--------------------------------
DATE MEASUREMENT RANKINGS FOR RANKINGS FOR RANKING AT RANKING AT
PERIOD COMMENCED 100% VESTING ZERO VESTING DATE OF VESTING 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 January 1993 1 to 40 75 to 100 18 -
1 January 1994 1 to 40 75 to 100 7 -
1 January 1995 1 to 30 70 to 100 60 -
1 January 1996 1 to 25 75 to 100 - 79
1 January 1997 1 to 26 66 to 100 - 95
1 January 1998 1 to 26 66 to 100 - 84
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Under the plan rules, if awards do not vest 100%, each participant is permitted
either to let the lesser number of shares vest or to elect to extend the
measurement period for the entire award for a fourth year without a change to
the preset vesting criteria. A similar election may be made at the end of year
four. The 1993 and 1994 awards of restricted shares vested 100% at the end of
their initial three year vesting periods. The 1993 awards were released in
February 1998 and the 1994 awards are due for release in February 1999. The 1995
awards vested 25% based on the 31 December 1997 ranking and the rights become
exercisable in February 2000. The three year measurement period for the 1996
awards ended on 31 December 1998 with a zero vesting.
The obligations under the plan, and those of the performance-related share
plan discussed below, will be met from shares held by Reuters employee share
ownership trusts (ESOTs). The costs charged to profit for these plans are based
on the cost of shares purchased by the ESOTs. In 1998 the charge for the
long-term incentive plan amounted to (pound)1.3 million (1997 - (pound)1.9
million, 1996 - (pound)1.9 million).
Performance-related share plan
Reuters has another performance-related share plan for senior executives not
participating in the long-term incentive plan. Under this plan, the
performance-related share plan, awards have been made to up to 600 executives
each year. The rules for vesting are substantially the same as those currently
operating for the long-term incentive plan, except that prior to the 1998 award,
share rights become exercisable immediately upon crystallisation at the end of
three years. Accordingly, rights to 452,363 shares (25% of the total grant)
relating to the 1995 award vested on 1 January 1998 and are exercisable through
the end of 2001, when they expire. No rights vested on 1 January 1999 in
relation to the 1996 award. Commencing with the 1998 award, the rules for this
plan have been changed to permit participants to extend the measurement period
for each award through to the end of year five.
Participants in the 1998 award received rights to a total of 1.9 million shares
(1997 - 1.3 million, 1996 - 1.6 million) and the costs charged against 1998
profit amounted to (pound)1.0 million (1997 - (pound)1.7 million, 1996 -
(pound)5.6 million). The 1998 charge is net of a credit of (pound)8.1 million
relating to lapsed 1996 awards. Costs are based on the total cost of shares
purchased by the ESOTs to match awards.
Subsidiaries' long-term plans
Certain subsidiaries in the group operate profit-sharing, deferred bonus,
various share plans or earn-out arrangements which have generally evolved from
acquisition negotiations. The most significant plans are those operated by TIBCO
Finance Technology Inc. (TIBCO) and Instinet.
As part of the agreement to acquire TIBCO in 1994, stock appreciation rights
plans for employees/former shareholders were negotiated to be paid on the basis
of superior performance. In 1998, 78 TIBCO employees were paid (pound)3.6
million under these plans.
Page 28
<PAGE>
Following the creation, in late 1996, of a new subsidiary, TIBCO Software Inc.,
to market middleware products outside the finance industry, option plans have
been established over TIBCO Software shares for both TIBCO and TIBCO Software
employees. These options will be satisfied in part by issuing new TIBCO Software
shares and in part through existing TIBCO Software shares owned by Reuters. As
at 31 December 1998 options had been granted equivalent to approximately 30% of
TIBCO Software on a fully diluted basis.
The Instinet plan began in 1993 and is a rolling four-year profit sharing plan
now covering approximately 700 employees. During 1998, (pound)6.2 million was
paid to 150 employees and a further (pound)14.6 million had been reserved as at
31 December 1998. Of the total sum reserved (pound)7.2 million relates to the
1995 plan and will be payable in early 1999.
Plan 2000
At the April 1998 extraordinary general meeting the shareholders approved a new,
all-employee, option plan introduced to help retain and motivate staff
worldwide at a time of unprecedented adjustments to be made for the euro and the
Millennium. Under the terms of the plan a substantial majority of employees of
the group became entitled to apply for a single award of options to acquire
2,000 shares, at the exercise price of 550p per share, exercisable in September
2001, and generally expiring in September 2005. At 31 December 1998 options to
acquire a total of 25,738,000 shares had been granted to 12,869 employees,
including the executive directors. In early 1999 further options will be granted
to employees who joined Reuters after the initial qualification date and before
31 December 1998, but no further options will be awarded under this plan after
30 June 1999.
Save-as-you-earn (SAYE) and stock purchase plans
Employees are eligible to save a fixed sum each month and to use these funds to
exercise options over Reuters shares. Generally, the exercise price is fixed at
20% below the market price at the start of the savings period.The maximum
monthly savings is (pound)250 (or equivalent) and participants can choose
between plans having either a five year or a three year savings period.
In the US, Reuters also offers an employee stock purchase plan in which
employees can elect to participate in lieu of a SAYE plan. Under the employee
stock purchase plan the monthly savings, plus 20% contributed by Reuters, are
transferred to a designated broker for the purchase of ADSs for the accounts of
the participants.
Executive options
At 31 December 1998 Reuters had vested but unexercised options relating to
1,183,830 shares outstanding to 125 employees under executive option plans.
These plans have been replaced by the performance based plans described above.
Page 29
<PAGE>
Vested options on shares held by directors during 1998, including SAYE options,
were all in respect of Reuters Group PLC and were as follows:
<TABLE>
<CAPTION>
NO. OF OPTIONS
--------------------------------------------
NET VALUE
EXERCISED/ AT 31
AT GRANTED LAPSED AT 31 EXERCISE DECEMBER DATE FROM
DATE OF 31 DECEMBER DURING DURING DECEMBER PRICE 1998 WHICH EXPIRY
GRANT 1997 YEAR YEAR 1998 PENCE (POUND)000 EXERCISABLE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sir Christopher Hogg
SAYE Mar 1997 2,065 - - 2,065 501.0 3 Apr 2002 Oct 2002
- ------------------------------------------------------------------------------------------------------------------------------------
2,065 - - 2,065 3
- ------------------------------------------------------------------------------------------------------------------------------------
P Job
SAYE Mar 1997 2,065 - - 2,065 501.0 3 Apr 2002 Oct 2002
Mar 1998 - 1,443 - 1,443 478.0 2 Apr 2003 Oct 2003
Plan 2000 Sept 1998 - 2,000 - 2,000 550.0 2 Sept 2001 Sept 2005
- ------------------------------------------------------------------------------------------------------------------------------------
2,065 3,443 - 5,508 7
- ------------------------------------------------------------------------------------------------------------------------------------
J-C Marchand
SAYE Sept 1996 1,721 - - 1,721 601.2 1 Oct 2001 Apr 2002
Mar 1997 1,377 - - 1,377 501.0 1 Apr 2002 Oct 2002
Plan 2000 Sept 1998 - 2,000 - 2,000 550.0 2 Sept 2001 Sept 2005
- ------------------------------------------------------------------------------------------------------------------------------------
3,098 2,000 - 5,098 4
- ------------------------------------------------------------------------------------------------------------------------------------
J M C Parcell
Executive Mar 1991 60,000 - 60,000 - 192.2 - Mar 1994 Mar 1998
Aug 1992 40,000 - - 40,000 253.5 151 Aug 1995 Aug 1999
SAYE Mar 1997 2,065 - - 2,065 501.0 3 Apr 2002 Oct 2002
Plan 2000 Sept 1998 - 2,000 - 2,000 550.0 2 Sept 2001 Sept 2005
- ------------------------------------------------------------------------------------------------------------------------------------
102,065 2,000 60,000 44,065 156
- ------------------------------------------------------------------------------------------------------------------------------------
R O Rowley
SAYE Sept 1996 860 - 860 - 601.2 - Oct 2001 Apr 2002
Mar 1997 2,065 - - 2,065 501.0 3 Apr 2002 Oct 2002
Mar 1998 - 1,443 - 1,443 478.0 2 Apr 2003 Oct 2003
Plan 2000 Sept 1998 - 2,000 - 2,000 550.0 2 Sept 2001 Sept 2005
- ------------------------------------------------------------------------------------------------------------------------------------
2,925 3,443 860 5,508 7
- ------------------------------------------------------------------------------------------------------------------------------------
D G Ure
Plan 2000 Sept 1998 - 2,000 - 2,000 550.0 2 Sept 2001 Sept 2005
- ------------------------------------------------------------------------------------------------------------------------------------
- 2,000 - 2,000 2
- ------------------------------------------------------------------------------------------------------------------------------------
A-F H Villeneuve
SAYE Mar 1997 2,065 - - 2,065 501.0 3 Apr 2002 Oct 2002
Mar 1998 - 1,443 - 1,443 478.0 2 Apr 2003 Oct 2003
Plan 2000 Sept 1998 - 2,000 - 2,000 550.0 2 Sept 2001 Sept 2005
- ------------------------------------------------------------------------------------------------------------------------------------
2,065 3,443 - 5,508 7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The only gain made by directors on the exercise of share options during 1998 was
(pound)251,850 made by John Parcell, who exercised certain executive options
immediately prior to their expiry date. In 1997 the aggregate gain made by
directors was (pound)163,134 and the gain made by Peter Job, the highest paid
director, was (pound)15,341. Gains on the exercise of options are calculated as
at the dates of exercise even though the directors may have retained their
shares. The net value at 31 December 1998 is the difference between the day's
closing mid market price of Reuters ordinary shares of 631p per share and the
exercise price of the options. During 1998 the price for Reuters ordinary shares
ranged between 412p and 770p.
The number of options outstanding under all option plans at 31 December 1998
related to 44,443,659 shares. The number of shares issued under share options
granted over the 10 years to 31 December 1998, combined with the total options
outstanding at 31 December 1998 relating to the same grants, was approximately
6.5% of issued share capital at that date. This compares with a maximum
authorised level of 10%. Also at 31 December 1998 the ESOTs held 12,149,866
shares of Reuters Group PLC, approximately 0.9% of issued share capital. The
authorised limit is 5%.
Page 30
<PAGE>
DIRECTORS' INTERESTS
The interests of directors in the issued share capital of group companies at 31
December 1998 were as follows:
1998 1997
------- ---------------------------
PROFORMA
REUTERS REUTERS REUTERS
GROUP GROUP HOLDINGS
PLC PLC PLC
- ---------------------------------------------------------------------------
R P Bauman 8,666 8,666 10,000
Sir John Craven 6,846 10,746 12,400
M P Green 6,933 6,933 8,000
Sir Christopher Hogg 26,693 26,693 30,800
P Job 158,411 111,438 128,584
J-C Marchand 44,159 2,943 3,396
J M C Parcell 81,638 - -
R O Rowley 151,691 122,957 141,876
C J F Sinclair 10,062 10,062 11,611
D G Ure 344,099 311,644 359,590
A-F H Villeneuve 135,839 103,223 119,106
Sir David Walker 2,600 2,600 3,000
- ---------------------------------------------------------------------------
977,637 717,905 828,363
- ---------------------------------------------------------------------------
The 1997 proforma Reuters Group PLC column indicates the directors' interests in
shares of Reuters Holdings PLC at 31 December 1997 adjusted for the effect of
the subsequent capital reorganisation.
Directors were the beneficial holders of all shares listed, except certain
shares held by, or in trust for the benefit of, family members. These were Peter
Job 483 shares (1997 - 404); Rob Rowley 4,606 shares (1997 - 4,606) and Andre
Villeneuve 120,687 shares (1997 - 88,147). (The 1997 numbers have been adjusted
for the effect of the reorganisation).
There have been no movements in the interests of directors in the share capital
of group companies since 31 December 1998.
None of the directors has notified the company of an interest in any other
shares, transactions or arrangements which require disclosure.
DIRECTORS RETIRING AND STANDING FOR RE-ELECTION
As mentioned in the report of the directors, Michael Green has decided not to
stand for re-election at the 1999 annual general meeting.
Directors proposed for re-election at the forthcoming annual general meeting are
Sir Christopher Hogg, Rob Rowley and Charles Sinclair. As an executive director,
Rob Rowley has a service contract terminable by the company on two years'
notice. As non-executive directors, Sir Christopher Hogg and Charles Sinclair do
not have service contracts.
On behalf of the Board
- -- ((signature))--
Sir Christopher Hogg
Chairman
12 February 1999
Page 31
<PAGE>
AUDIT COMMITTEE
The members of the Audit Committee are Charles Sinclair (Chairman), Bob Bauman,
Sir John Craven, Sir Christopher Hogg, Roberto Mendoza, Dick Olver and Sir David
Walker. The Finance Director and the Deputy Finance Director attend its
meetings. All executive directors are invited to attend. The Audit Committee
meets regularly twice a year, with further meetings as required.
The Audit Committee reviews the half year and annual financial results before
they are approved by the Board. In doing so it focuses on any changes in
accounting practice, major areas of judgement, the going concern assumption and
compliance with accounting principles and regulatory requirements, and it
ensures that the annual report presents a balanced and understandable assessment
of the company's financial position and prospects.
The Committee may examine whatever aspects it deems appropriate of the group's
financial affairs, its internal and external audits and its exposure to risks of
a regulatory or legal nature. It keeps under review the effectiveness of Reuters
system of accounting and internal financial controls, for which the directors
are responsible (see page 33).
The Audit Committee reviews the plans and findings of the internal and external
auditors with them each year. The auditors have unrestricted access to the Audit
Committee. The Audit Committee recommends the appointment of the company's
external auditors.
Page 32
<PAGE>
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Reuters directors are required by UK company law to prepare financial statements
for each financial year which give a true and fair view of the state of affairs
of the company and group as at the end of the financial year, and of the profit
and cashflows of the group for the period. Reuters is also required to prepare
financial statements in accordance with the requirements of the SEC.
Reuters has complied with both UK and US disclosure requirements in this report
in order to present a consistent picture to all shareholders. In preparing the
financial statements, applicable accounting standards have been followed,
suitable accounting policies have been used and applied consistently and
reasonable and prudent judgements and estimates have been made.
The directors have reviewed the group's budget and cashflow forecast for the
year to 31 December 1999 and outline projections for the subsequent year in the
light of the sound financial position and borrowing facilities at 31 December
1998. On the basis of this review the directors are satisfied that Reuters is a
going concern and have continued to adopt the going concern basis in preparing
the financial statements.
The Board has decided that until the working party convened by the Institute of
Chartered Accountants in England and Wales has produced guidance on the scope,
extent, nature and review of internal control to which the Combined Code refers,
the Board will report on internal financial control pursuant to the guidance for
directors on internal control and financial reporting that was issued by the
Rutteman Working Group in December 1994.
The directors acknowledge their responsibility for the group's system of
internal financial control and confirm that they have reviewed its
effectiveness. They consider that it is appropriately designed to provide
reasonable but not absolute assurance that assets are safeguarded against
material loss or unauthorised use and that transactions are properly authorised
and recorded. The concept of reasonable assurance recognises that the cost of a
control procedure should not exceed the expected benefits. The control system
includes written accounting and control policies and procedures, clearly drawn
lines of accountability and delegation of authority and comprehensive financial
reporting and analysis against approved budgets. In a growing group of the size,
complexity and geographical diversity of Reuters it should be expected that
breakdowns in established control procedures may occur. During 1998 the
directors were not aware of any such breakdowns which resulted in a material
loss.
The group monitors its internal financial control system through management
reviews, detailed representation letters on compliance signed by the Chief
Executive and Chief Financial Officer of each significant business unit and a
programme of internal audits. The group's external auditors,
PricewaterhouseCoopers, have audited the financial statements and have reviewed
the work of the internal auditors and the internal financial control systems to
the extent they considered necessary to support their audit report. The Audit
Committee has met the internal auditors and PricewaterhouseCoopers to discuss
the results of their work. Further information on the group's monitoring
processes is set out in the report of the directors on pages 18-19.
By order of the Board
- --((signature))--
Stephen Mitchell,
Company Secretary
12 February 1999
Page 33
<PAGE>
AUDITORS' REPORT TO THE MEMBERS OF REUTERS GROUP PLC
AUDIT REPORT
We have audited the financial statements on pages 50-78 incorporating pages
24-31 which have been prepared under the historical cost convention and the
accounting policies set out on pages 77-78 and the summary of differences
between UK and US Generally Accepted Accounting Principles on pages 79-81.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the annual report including, as
described on page 33, the financial statements. Our responsibilities, as
independent auditors, are established by statute, the Auditing Practices Board,
the Listing Rules of the London Stock Exchange and our profession's ethical
guidance.
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act
1985. We also report to you if, in our opinion, the directors' report is not
consistent with the financial statements, if the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law or the Listing
Rules regarding directors' remuneration and transactions is not disclosed.
We read the other information contained in the annual report and consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements.
We review whether the statement on page 18 reflects the company's compliance
with those provisions of the Combined Code specified for our review by the
London Stock Exchange and we report if it does not. We are not required to form
an opinion on the effectiveness of the group's corporate governance procedures
or its internal controls.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board and with Auditing Standards generally accepted in the
United States. An audit includes examination, on a test basis, of evidence
relevant to the amounts and disclosures in the financial statements. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the financial statements and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
United Kingdom opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the company and the group as at 31 December 1998 and of the profit
and cash flows of the group for the year then ended and have been properly
prepared in accordance with the Companies Act 1985.
United States opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the group at 31 December 1998, 1997 and 1996
and the results of its operations and cash flows for each of the three years in
the period ended 31 December 1998 all expressed in pounds sterling in conformity
with accounting principles generally accepted in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
consolidated net income for each of the three years in the period ended 31
December 1998 and consolidated shareholders' equity all expressed in pounds
sterling at 31 December 1998, 1997 and 1996 as shown in the summary of
differences between UK and US generally accepted accounting principles set out
on pages 79-81.
-- ((signature)) --
PricewaterhouseCoopers
Chartered Accountants
and Registered Auditors
London
12 February 1999
- -- ((logo)) --
Page 34
<PAGE>
OPERATING AND FINANCIAL REVIEW
The following review has been prepared in accordance with both the
recommendations of the UK Accounting Standards Board in their statement entitled
'Operating and Financial Review', and the US requirement for a Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Under US law all statements other than statements of historical fact included in
this review are, or may be deemed to be, forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Certain important factors that could cause
actual results to differ materially from those discussed in such forward-looking
statements are described under "Cautionary Statements" as well as elsewhere in
this review. All written and oral forward-looking statements made on or after
the date hereof and attributable to Reuters are expressly qualified in their
entirety by such Cautionary Statements.
FINANCIAL SUMMARY
Revenue increased 5% to (pound)3,032 million in 1998. Excluding the impact of
currency movements, revenue grew 9%, in line with growth at comparable rates in
1997.
Fourth quarter revenue grew 8% at actual rates, and 9% at comparable exchange
rates.
Operating profit, which includes the amortisation of goodwill, grew 2% to
(pound)550 million at actual exchange rates and 14% at comparable rates. This
compares with an 8% decline at actual rates in 1997 which principally reflected
the impact of currency, and 8% growth at comparable rates. Operating margin in
1998 was 18.2%, compared to 18.8% in 1997. However, excluding the impact of
currency movements, operating margin improved by 0.9%.
External costs related to the Millennium and Euro Programmes increased to
(pound)37 million in 1998, compared with (pound)11 million in 1997. Further
details of these programmes are disclosed on pages 45-47.
Goodwill amortisation remained constant at (pound)51 million. Of this, (pound)5
million related to investments in associates during the year which was charged
against the group's share of associates' profits.
Earnings before interest, tax, depreciation and amortisation (EBITDA) grew 2% at
actual rates to (pound)927 million, and 10% at comparable rates compared with 8%
in 1997.
The sale of a number of investments in high technology companies held in the
Reuters Greenhouse Fund resulted in an exceptional profit of (pound)26 million
in 1998.
Net interest receivable was (pound)2 million compared with (pound)80 million in
1997 reflecting ten months' worth of net borrowings in 1998 following the return
of (pound)1.5 billion to shareholders in February. Net interest income in the
first half of 1998 was (pound)11 million, offset in part by a net interest
charge of (pound)9 million in the second half of the year. Net debt at the end
of 1998 was (pound)3 million.
Profit before tax of (pound)580 million was down 7% at actual exchange rates but
up 2% at comparable exchange rates, despite the fall in interest income.
The effective rate of tax for 1998 was 33.8% compared with 37.7% in 1997.
Excluding goodwill amortisation and costs charged in 1997 relating to the return
of capital to shareholders, the effective tax rate for both years was unchanged.
(BEGINNING OF SIDEBAR)
REVENUE AT ACTUAL AND COMPARABLE RATES
% CHANGE
1998 1997 1996
- ----------------------------------------------
Actual 5% (1)% 8%
Comparable 9% 9% 8%
OPERATING PROFIT AT ACTUAL AND COMPARABLE RATES
% CHANGE
1998 1997 1996
- ----------------------------------------------
Actual 2% (8)% 16%
Comparable 14% 8% 7%
(END OF SIDEBAR)
Page 35
<PAGE>
(BEGINNING OF SIDEBAR)
EARNINGS AND DIVIDENDS PER SHARE
% CHANGE
1998 1997 1996
- -------------------------------------------------------
Earnings per share growth 11% (12)% 18%
Dividends per share growth 11% 11% 20%
1998 REVENUE BY TYPE
- -------------------------------------------------------
Recurring 72%
Usage 20%
Outright Sales 8%
(END OF SIDEBAR)
Earnings per share increased 11% in 1998 to 26.7p from 24.0p in 1997. 1997
earnings per share fell 12% from 27.3p in 1996, principally reflecting the
decline in operating profit due to currency and once-off tax costs related to
the return of capital to shareholders.
The final dividend per share has been increased by 11% to 11.0p resulting in a
total dividend for the year of 14.4p, also up 11% on 1997. Dividend cover
decreased to 1.9 in 1998 from 2.1 in 1997.
Investment in the business continued with (pound)296 million spent on capital
expenditure, (pound)200 million on development and (pound)157 million on
acquisitions and investments.
Free cash flow increased 9% to (pound)490 million. Free cash flow per share was
34.1p, up 23% from 27.7p in 1997, reflecting the lower number of shares in issue
following the capital reorganisation.
Operating profit in the second half of 1998 at (pound)272 million decreased by
(pound)6 million compared with the first half of the year.
Phasing of costs associated with the Millennium Programme, new initiatives
following the acquisition of Lipper Analytical Services Inc. and Liberty SA, new
investment at Instinet and costs in connection with the reorganisation of the
company offset the impact of stronger revenue growth in the second half of the
year. Costs associated with these initiatives and investments will continue
through 1999. Benefits from the reorganisation are expected to flow through in
the second half of the year.
Sterling remained strong during the first three quarters but weakened in the
fourth quarter. The sterling trade weighted index was 99.7 at the end of 1998
compared to 104.4 at the end of 1997. If 1998 year end exchange rates had
prevailed throughout 1998, (pound)31 million would have been added to operating
profit before currency hedging.
Currency hedging gains were (pound)45 million for the full year compared to
(pound)56 million in 1997. At the end of 1998, the currency hedging book had an
unrealised loss of (pound)3 million in respect of 1999.
Revenue growth in the fourth quarter was 9% at comparable exchange rates.
Instinet grew 19% at underlying rates helped by record volumes in the US market
and very strong growth outside the US. Other transaction products revenue
decreased 2%, reflecting a small decline in the number of accesses to our
foreign exchange dealing services. Revenue from information products grew 9% in
the quarter. Outright revenue was up 17%, helped by good sales of Risk
Management and TIBCO products.
Price increases taking effect in January 1999 will be offset by a decline in new
orders for subscription products in the last quarter of 1998, as clients reacted
to the sudden emerging markets crisis at the onset of autumn. The sale of
Information Management Systems and Risk Management products was not affected but
our business in Russia suffered a sharp though not unexpected setback. Demand in
Asia continues to be weak but this is offset by an encouraging performance in
Japan, where we are making progress in penetrating domestic markets. We continue
to make steady progress in rolling out the 3000 product line and the Reuters
Plus domestic equities product in the United States. The disposal of Reuters
Health Information practice management systems and Reuters Voice Systems will
have some impact on revenue growth this year.
Page 36
<PAGE>
REVENUE BY TYPE
Year to 31 December
------------------------
((pound)m) 1998 1997 1996
- ---------------------------------------------------
Recurring 2,170 2,147 2,232
Usage 621 511 478
Outright sales 241 224 204
- ---------------------------------------------------
Total 3,032 2,882 2,914
Recurring revenue, which is principally derived from the sale of subscription
services, represented 72% of group revenue in 1998, compared with 74% in 1997.
Usage-based revenue, principally derived from Instinet and Dealing 2000-2,
represented 20% of total revenue compared to 18% in 1997. Outright revenue,
which comprises once-off sales of information management systems and risk
management software, represented 8% of group revenue in both 1997 and 1998.
REVENUE BY PRODUCT
Year to 31 December
------------------------
((pound)m) 1998 1997 1996
- ---------------------------------------------------
Financial information 1,949 1,852 1,892
Transaction 882 828 813
Media/Professional 201 202 209
- ---------------------------------------------------
Total 3,032 2,882 2,914
The proportion of revenue derived from each product group was at similar levels
in each of the last three years.
FINANCIAL INFORMATION PRODUCTS
REVENUE
Year to 31 December
------------------------
((pound)m) 1998 1997 1996
- ---------------------------------------------------
Europe, Middle
East and Africa 1,164 1,087 1,145
Asia/Pacific 342 359 365
The Americas 343 324 322
TIBCO 100 82 60
- ---------------------------------------------------
Total 1,949 1,852 1,892
% change
actual 5% (2%)
comparable 9% 8%
Financial information products revenue grew 5% at actual rates and 9% at
comparable rates. This reflects growth in both recurring and outright revenue.
1998 revenue included (pound)7 million of revenue related to the acquisitions of
Lipper Analytical Services Inc. and Liberty SA during the year, and (pound)15
million of revenue related to Reuters Voice Systems which was sold in December
1998.
RECURRING REVENUE
Year to 31 December
-------------------------
1998 1997 1996
- -----------------------------------------------------
REVENUE ((pound)m) 1,716 1,640 1,703
% change
actual 5% (4%)
comparable 9% 7%
- -----------------------------------------------------
ACCESSES (000s)
3000 products 48 28 1
Off-trading floor products 87 49 21
Other products 310 309 299
- -----------------------------------------------------
Total 445 386 321
- -----------------------------------------------------
REVENUE PER
ACCESS ((pound)000) 4.1 4.7 5.6
% change
actual (11%) (16%)
comparable (8%) (7%)
Accesses grew 15% year on year to 445,000 at 31 December 1998. This compares to
growth of 20% in 1997. Installed 3000 accesses increased from 28,000 at the end
of 1997 to 48,000 at the end of 1998. Approximately 30% of all 3000
installations relate to new users, of which nearly 7,000 were installed during
1998. New products aimed at the Japanese and US domestic markets were introduced
during the year.
There were 87,000 installed off-trading floor accesses at 31 December 1998.
These products are aimed at users of financial information outside the dealing
room. Web-based products accounted for most of the growth and represented
approximately 50,000 of the installed base at the end of the year.
Revenue per access at comparable rates continued to fall, as the proportion of
lower priced off-trading floor products increased. Excluding these accesses, the
(BEGINNING OF SIDEBAR)
FINANCIAL INFORMATION PRODUCTS deliver real-time and historical news and
financial data to customers within the financial markets and provide the
software tools to analyse data. Reuters main offerings are the series 2000 and
3000 product lines.
Information management systems offer customers the means to integrate and
analyse data from a variety of sources for financial trading rooms. Risk
management, order handling products and customised solutions from TIBCO offer
customers the means of managing their own information flows and exposure to
risk.
1998 REVENUE BY PRODUCT
- -----------------------------------
Transactions 29%
Media/Professional 7%
Financial Information 64%
- -----------------------------------
FINANCIAL INFORMATION PRODUCTS (pound)m
1998 1997 1996
- ---------------------------------------------
Recurring revenue 1,716 1,640 1,703
Outright revenue 233 212 189
- ---------------------------------------------
1,949 1,852 1,892
- ---------------------------------------------
(END OF SIDEBAR)
Page 37
<PAGE>
(BEGINNING OF SIDEBAR)
TRANSACTION PRODUCTS principally comprise Dealing 2000-1, Dealing 2000-2 and
Instinet. Dealing 2000 products enable foreign exchange professionals to
converse electronically with chosen trading partners using Reuters Dealing
2000-1 or the Dealing 2000-2 automated matching system. Instinet provides agency
brokerage services in global equities to securities industry professionals in
more than 26 countries.
TRANSACTION PRODUCTS (pound)m
1998 1997 1996
- ---------------------------------------------
Instinet 436 445 467
Dealing 446 383 346
- ---------------------------------------------
882 828 813
- ---------------------------------------------
MEDIA PRODUCTS comprise textual news, television services, pictures and graphics
for republication by media customers and also the repackaging and sale of
content for online services.
PROFESSIONAL PRODUCTS provide a range of near real-time and historical financial
information news products and related technology to the corporate and
professional markets. Reuters Business Briefing provides access to 10 years'
business information from one of the world's most comprehensive databases.
MEDIA AND PROFESSIONAL PRODUCTS (pound)m
1998 1997 1996
- ---------------------------------------------
Media 127 138 155
Professional 74 64 54
- ---------------------------------------------
201 202 209
- ---------------------------------------------
(END OF SIDEBAR)
revenue per access at comparable exchange rates was stable.
Selective price rises taking effect in January 1999 will increase 1999 recurring
revenue by approximately 1%.
OUTRIGHT REVENUE
Year to 31 December
-------------------------
1998 1997 1996
- ----------------------------------------------------
REVENUE ((pound)m) 233 212 189
% change
actual 10% 12%
comparable 13% 22%
Revenue growth at comparable rates in 1998 reflected strong demand for risk
management products, particularly in Europe, and information management systems
from TIBCO.
TRANSACTION PRODUCTS
REVENUE
Year to 31 December
-------------------------
(pound)m 1998 1997 1996
- ----------------------------------------------------
Europe, Middle
East and Africa 266 266 286
Asia/Pacific 97 107 108
The Americas 73 72 73
Instinet 446 383 346
- ----------------------------------------------------
Total 882 828 813
% change
actual 6% 2%
comparable 9% 10%
ACCESSES (000s)
Dealing 24 25 24
Instinet 16 13 9
- ----------------------------------------------------
Total 40 38 33
- ----------------------------------------------------
REVENUE PER
ACCESS ((pound)000) 22.5 23.4 25.5
% change
actual (3%) (8%)
comparable - (1%)
Revenue growth of 9% at comparable rates included growth of 18% at Instinet,
discussed further on page 39, and slower growth of 2% from Dealing products.
Revenue per access at comparable rates was stable.
MEDIA AND PROFESSIONAL PRODUCTS
REVENUE
Year to 31 December
-------------------------
(pound)m 1998 1997 1996
- ----------------------------------------------------
Europe, Middle
East and Africa 136 131 133
Asia/Pacific 27 30 31
The Americas 38 41 45
Total 201 202 209
% change
actual (1%) (3%)
comparable 1% 3%
MEDIA PRODUCTS
Year to 31 December
-------------------------
1998 1997 1996
- ----------------------------------------------------
REVENUE ((pound)m) 127 138 155
% change
actual (8%) (11%)
comparable (6%) (4%)
Media revenue fell 6% at comparable exchange rates, reflecting the full year
impact of the disposal of the satellite services business in 1997 and fewer TV
location specials.
PROFESSIONAL PRODUCTS
Year to 31 December
-------------------------
1998 1997 1996
- ----------------------------------------------------
REVENUE ((pound)m) 74 64 54
% change
actual 14% 19%
comparable 16% 25%
Strong growth from professional products reflected the continued success of the
Reuters Business Briefing product range. Password accesses to Reuters Business
Briefing increased by nearly 20% to 13,100 at the year end and revenues
increased over 30% at comparable rates.
Included with professional products revenue was (pound)19 million related to
Reuters Health Information practice management systems which was sold in
December 1998.
Page 38
<PAGE>
SEGMENTAL ANALYSIS OF REVENUE AND CONTRIBUTION
EUROPE, MIDDLE EAST & AFRICA
Year to 31 December
-------------------------
1998 1997 1996
- ----------------------------------------------------
REVENUE ((pound)m) 1,566 1,484 1,564
% change
actual 6% (5%)
comparable 8% 6%
- ----------------------------------------------------
CONTRIBUTION ((pound)m) 538 498 588
% change
actual 8% (15%)
comparable 13% 2%
- ----------------------------------------------------
Actual operating margin 34% 34%
Revenue growth at comparable rates in the more mature European markets was in
the range of 5%-10%, with 7% growth in the UK and Ireland and 6% growth in
Germany.
Revenue from the emerging markets in central and eastern Europe continued to
grow strongly, up 13% at comparable rates, despite the deteriorating economic
environment in Russia.
Contribution growth at comparable rates of 13%, ahead of revenue growth of 8%,
reflected the impact of tight cost control across the region.
ASIA/PACIFIC
Year to 31 December
-------------------------
1998 1997 1996
- ----------------------------------------------------
REVENUE ((pound)m) 466 496 504
% change
actual (6%) (2%)
comparable 3% 9%
- ----------------------------------------------------
CONTRIBUTION ((pound)m) 177 184 193
% change
actual (4%) (5%)
comparable 7% 9%
- -----------------------------------------------------
Actual operating margin 38% 37%
Revenue growth at comparable rates of 3% was depressed by the impact of the
Asian financial crisis on the region's economy. Revenue growth in Japan was 8%
at comparable rates.
Tight cost control resulted in contribution growth of 7% at comparable rates
despite the low level of revenue growth.
THE AMERICAS
Year to 31 December
-------------------------
1998 1997 1996
- ----------------------------------------------------
REVENUE ((pound)m) 454 437 440
% change
actual 4% (1%)
comparable 5% 6%
- ----------------------------------------------------
CONTRIBUTION ((pound)m) 25 37 26
% change
actual (33%) 45%
comparable (36%) 76%
- ----------------------------------------------------
Actual operating margin 5% 8%
Revenue from the Americas, which excludes Instinet and TIBCO, grew 4% at actual
rates and 5% at comparable rates in 1998.
North American revenue grew 5% at comparable rates reflecting continuing demand
for information products. Revenue grew 11% at comparable rates in Latin America.
The decline in contribution reflected development and infrastructure costs to
support new domestic products.
INSTINET
Year to 31 December
-------------------------
1998 1997 1996
- ----------------------------------------------------
REVENUE ((pound)m) 446 383 346
% change
actual 16% 11%
comparable 18% 17%
- ----------------------------------------------------
Contribution ((pound)m) 155 149 135
% change
actual 3% 11%
comparable 6% 18%
- ----------------------------------------------------
Actual operating margin 35% 39%
Instinet's 1998 revenue growth of 18% at comparable rates reflected growth in
the second half of the year of 23%, compared to 13% in the first half, as a
result of higher levels of activity.
At comparable rates, Instinet revenues in the US grew 10% compared with 15%
growth
(BEGINNING OF SIDEBAR)
EUROPE, MIDDLE EAST AND AFRICA
(pound)m
1998 1997 1996
- ------------------------------------------------
Revenue 1,566 1,484 1,564
Contribution 538 498 588
- ------------------------------------------------
ASIA/PACIFIC
(pound)m
1998 1997 1996
- ------------------------------------------------
Revenue 466 496 504
Contribution 177 184 193
- ------------------------------------------------
THE AMERICAS
(pound)m
1998 1997 1996
- ------------------------------------------------
Revenue 454 437 440
Contribution 25 37 26
- ------------------------------------------------
(END OF SIDEBAR)
Page 39
<PAGE>
(BEGINNING OF SIDEBAR)
INSTINET
(pound)m
1998 1997 1996
- -----------------------------------------------
Revenue 446 383 346
Contribution 155 149 135
- -----------------------------------------------
TIBCO
(pound)m
1998 1997 1996
- -----------------------------------------------
Revenue 100 82 60
Contribution 13 15 12
- -----------------------------------------------
(END OF SIDEBAR)
in 1997. Revenue growth in the second half of the year was 17% compared with 3%
in the first half of 1998.
Revenue growth from activities outside the US was 70%. Revenues from this
segment now represent nearly 20% of total Instinet revenues. Growth was driven
principally by increased trading in European equities.
The lower level of contribution growth compared to revenue growth resulted in a
decline in margin to 35% from 39% in 1997. This reflected additional costs
associated with capacity requirements and product development during 1998.
For information concerning certain rules that could affect Instinet's business
see Cautionary Statements: 'SEC rules on ECN usage', 'SEC rules for Alternative
Trading Systems', and 'NASD initiatives' on pages 48-49.
TIBCO
Year to 31 December
-------------------------
1998 1997 1996
- ----------------------------------------------------
REVENUE ((pound)m) 100 82 60
% change
actual 23% 37%
comparable 24% 45%
- ----------------------------------------------------
CONTRIBUTION ((pound)m) 13 15 12
% change
actual (13%) 23%
comparable (14%) 30%
- ----------------------------------------------------
Actual operating margin 13% 18%
TIBCO comprises two units, TIBCO Finance Technology, which focuses on the
finance sector and TIBCO Software, which pursues opportunities outside the
finance sector. Minority shareholdings in TIBCO Software are held by Cisco
Systems Inc and Mayfield Venture Capital.
Revenue continued to grow at double digit levels in both businesses. However,
overall operating margin and profit overall declined due to continuing
investment in product development and increased sales support costs.
EMERGING MARKETS
Revenue from emerging markets (eastern Europe, Latin America, South East and
East Asia, excluding Hong Kong and Singapore) grew 1% to (pound)275 million in
1998 or 6% at comparable rates, compared with 15% growth at comparable rates in
1997.
Revenues in the CIS grew 2% at comparable rates although this does not fully
reflect the impact of client cancellations in the last quarter of 1998.
The decline in revenue growth in Asia reflected increased levels of client
cancellations during 1997 and 1998. The group's revenues from Malaysia, Thailand
and Indonesia, the three Asian markets with the greatest economic difficulties
in 1998, totalled less than 1.5% of group revenue.
CENTRAL COSTS
Central costs which comprise corporate costs and central development, marketing
and technical operations grew 1% in 1998 at actual exchange rates to (pound)351
million.
Development expenditure, which excluded costs associated with the Millennium
Programme, fell 15% to (pound)200 million in 1998, and represented approximately
7% of group revenue. In 1997 development expenditure increased 17% to (pound)235
million.
<PAGE>
OPERATING PROFIT
Operating profit grew 2% at actual rates and 14% at comparable rates. Operating
profit of (pound)272 million in the second half of 1998 decreased by (pound)6
million, compared with the first half of the year.
TOTAL COSTS
Total costs grew 8% in 1998 at comparable exchange rates, compared with revenue
growth of 9%. In 1997 both revenue and costs grew by 9%.
Page 40
<PAGE>
COSTS BY TYPE
Year to 31 December
--------------------------
(pound)m 1998 1997 1996
- -------------------------------------------------------------------------------
Staff 928 835 856
Services 586 585 539
Depreciation 331 312 283
Data 242 207 195
Communications 207 201 202
Space 129 142 150
Cost of sales and other 52 64 59
Goodwill amortisation 46 51 49
Currency hedging activities - net gain (45) (56) (5)
Foreign currency translation - net loss/(gain) 6 - (6)
- -------------------------------------------------------------------------------
Total 2,482 2,341 2,322
- -------------------------------------------------------------------------------
% change
actual 6% 1%
comparable 8% 9%
Year to 31 December
-------------------------
Staff 1998 1997 1996
- -------------------------------------------------------------------------------
COST ((pound)m) 928 835 856
% change
actual 11% (2%)
comparable 14% 5%
Total staff costs increased 14% at comparable rates, reflecting growth in staff
numbers, the impact of inflationary increases, and costs related to the company
reorganisation.
Total staff numbers grew by 5% in the year to 16,938 at 31 December 1998.
Approximately half of this growth related to Instinet and TIBCO. The net effect
of acquisitions and disposals was not material. In 1997, staff numbers grew 4%
to 16,119.
Year to 31 December
-------------------------
Services 1998 1997 1996
- -------------------------------------------------------------------------------
COST ((pound)m) 586 585 539
% change
actual - 9%
comparable 2% 17%
Cost containment initiatives continued to restrict services spending, although
there was an increase in consultancy and contractor costs to support the
millennium and euro projects.
Year to 31 December
-------------------------
Depreciation 1998 1997 1996
- -------------------------------------------------------------------------------
COST ((pound)m) 331 312 283
% change
actual 6% 10%
comparable 7% 11%
The depreciation charge grew at a slower rate in 1998 reflecting a reduction in
the level of capital expenditure.
Year to 31 December
--------------------------
Data 1998 1997 1996
- -------------------------------------------------------------------------------
COST ((pound)m) 242 207 195
% change
actual 17% 6%
comparable 20% 12%
Growth in data costs was principally due to the continuing increase in
recoverable exchange fees on equity products and increased demands for
specialist data.
Year to 31 December
-------------------------
Communications 1998 1997 1996
- -------------------------------------------------------------------------------
COST ((pound)m) 207 201 202
% change
actual 3% -
comparable 7% 7%
Volumes of data delivered over Reuters products continued to increase. The
associated increase in costs was partially offset by savings from the sale of
the satellite services business in 1997 and tariff reductions. The most
significant growth was in local distribution costs, which are largely
recoverable from clients.
Year to 31 December
-------------------------
Space 1998 1997 1996
- -------------------------------------------------------------------------------
COST ((pound)m) 129 142 150
% change
actual (9%) (6%)
comparable (7%) 1%
No significant expansion or refurbishment costs were incurred in 1998.
GOODWILL
The total goodwill amortisation charge of (pound)51 million was unchanged
compared with 1997. Of the 1998 charge, (pound)5 million related to associated
undertakings and
(BEGINNING OF SIDEBAR)
TOTAL 1998 GROWTH IN REVENUE, COSTS AND OPERATING PROFIT
Growth at Growth at
Actual Rates Comparable Rates
- --------------------------------------------------------
Revenue 5% 9%
Costs 6% 8%
Operating Profit 2% 14%
- --------------------------------------------------------
TOTAL 1998 COSTS BY TYPE
- --------------------------------
Depreciation 13%
Data 10%
Space 5%
Services 24%
Staff 37%
Communications 8%
Other 3%
- --------------------------------
(END OF SIDEBAR)
Page 41
<PAGE>
(BEGINNING OF SIDEBAR)
REUTERS TSR RANKING IN FTSE 100
Completed Ongoing
Periods Periods
- -----------------------------------
94-96 7
95-97 60
96-98 79
97-98 95
98 84
- -----------------------------------
(END OF SIDEBAR)
was charged against the group's share of income from associates.
COSTS BY FUNCTION
Selling, marketing and administrative expenses increased 8% at actual rates in
1998 to (pound)714 million compared with a 2% decline in 1997.
Production and communication costs grew 6% at actual rates in 1998 to
(pound)1,722 million compared with growth of 2% in 1997.
INCOME FROM FIXED ASSET INVESTMENTS AND ASSOCIATES
During 1998, a number of investments in high technology companies, held within
the Reuters Greenhouse Fund, were sold resulting in an exceptional profit of
(pound)26 million. The sales related principally to investments in Yahoo!,
Infoseek and Sportsline.
Income of (pound)3 million from fixed asset investments comprised distributions
from a US venture capital fund specialising in high technology companies.
The group's shares of losses from associates of (pound)1 million in 1998
included Reuters share of the profit of Independent Television News (ITN) less
goodwill amortisation of (pound)5 million related to investments in associates
in the second half of 1998.
SHAREHOLDER VALUE
Reuters aims to grow its value and outperform its peers. Reuters believes that
its mix of assets, some of which are unique to the company, will help it to meet
this aim. These assets, some of which are not included in the consolidated
balance sheet, include:
o Reuters independence, as enshrined in the Reuter Trust Principles;
o Goodwill attached to the Reuters name;
o Software and other intellectual property;
o Global databases of financial and other information;
o An integrated global organisation including a skilled workforce.
Reuters uses a model for measuring and ranking its total shareholder return
(TSR) compared with that of the other 99 companies in the FTSE 100 index at the
start of each measurement period. This model is used to determine vesting of
awards under performance-linked share plans. Reuters rankings over both
completed three year periods, and ongoing two and one year measurement periods
are set out opposite.
RETURN OF CAPITAL TO SHAREHOLDERS
On 18 February 1998 Reuters implemented a capital reorganisation which returned
(pound)1.5 billion of surplus capital to shareholders. The reorganisation
involved the creation of a new holding company, Reuters Group PLC, which became
the ultimate parent company of Reuters Holdings PLC in a court approved scheme
of arrangement.
Ordinary shareholders received 13 shares in Reuters Group PLC plus (pound)13.60
in cash for every 15 shares held. Holders of American Depositary Shares (ADSs),
each representing six ordinary shares, received 13 new ADSs plus the US dollar
equivalent of (pound)81.60 in cash for every 15 ADSs held.
The capital reorganisation has been accounted for as a group reconstruction and
merger accounting principles have been applied.
FINANCIAL NEEDS AND RESOURCES
Excluding the (pound)1.5 billion return of capital to shareholders, net funds
increased by (pound)189 million during 1998. Total net debt at 31 December 1998
amounted to (pound)3 million and comprised cash and short term investments of
(pound)1,006 million offset by (pound)1,009 million of debt.
Page 42
<PAGE>
"Free cash flow" which comprises operating cash flow plus net interest and other
investment income received less tax paid and expenditure on tangible fixed
assets was (pound)490 million, compared with (pound)449 million in 1997. This
reflects higher cashflow from operations and reduced capital expenditure, offset
by increased tax payments arising from timing differences between the payment
and recovery of advance corporation tax and reduced net interest income
following the return of surplus capital to shareholders.
Additions to fixed assets were (pound)296 million, (pound)65 million lower than
1997. Subscriber equipment expenditure fell (pound)13 million to (pound)119
million and other equipment additions fell (pound)52 million to (pound)177
million due principally to lower levels of infrastructure spending following the
heavy investment in capacity in 1997. Reuters spent (pound)157 million on
acquisitions and investments compared to (pound)29 million in 1997, principally
in the areas of funds measurement and automated entry of stock orders.
Dividends paid were (pound)188 million, (pound)8 million down from 1997,
reflecting the reduced number of shares in issue following the capital
reorganisation, offset by an increase in dividends per share.
Reuters expects to be able to finance its current business plans from existing
resources and facilities. In February 1998 Reuters Group PLC put in place
syndicated loan facilities with a total commitment of (pound)1.5 billion, of
which (pound)1.0 billion expired in December 1998 and (pound)500 million expires
in December 2002.
A Euro Commercial Paper Programme was established in March 1998 providing access
to (pound)1.5 billion in uncommitted finance, subject to market conditions. In
December 1998 Reuters established a Euro Medium Term Note Programme which will
provide access to up to (pound)1.0 billion of uncommitted facilities, subject to
market conditions. In addition, at 31 December 1998 Reuters had unused,
short-term uncommitted bank borrowing facilities denominated in various
currencies, the sterling equivalent of which was approximately (pound)230
million, at money market rates varying principally between 2% and 13% depending
on the currency.
In February 1998 Reuters entered into a joint venture with Rudin Times Square
Associates, LLC to develop an 855,000 square foot building in the Times Square
section of New York City, to be known as "The Reuters Building". Each party will
invest approximately US$45 million of equity, with other costs to be funded
through a loan. The total cost of the project is estimated to be approximately
US$360 million.
TREASURY MANAGEMENT
A substantial portion of Reuters revenue is committed under one- and two-year
contracts and approximately 80% is denominated in non-sterling currencies.
Reuters also has significant costs denominated in foreign currencies with a
different mix from revenue. Reuters profits are, therefore, exposed to currency
fluctuations. The approximate proportion of operating profit excluding goodwill
amortisation and currency gains attributable to each key currency group was as
follows:
OPERATING PROFIT BY CURRENCY
1998 1997
- --------------------------------------------------------
Continental Europe
- - euro currencies 80% 74%
- - other 19% 16%
US dollar 54% 55%
Japanese yen 13% 14%
Sterling
- - depreciation (59%) (52%)
- - other (22%) (23%)
Other 15% 16%
- --------------------------------------------------------
Total 100% 100%
(BEGINNING OF SIDEBAR)
STERLING TRADE WEIGHTED EXCHANGE RATE INDEX
INDEX ON LAST DAY OF MONTH
------------------------------
MONTH 1998 1997 1996
Jan 105.0 94.4 83.3
Feb 105.1 98.3 83.3
Mar 108.8 98.0 83.4
Apr 106.3 100.1 83.8
May 103.6 90.3 86.3
Jun 107.0 102.1 86.3
Jul 104.2 104.6 84.6
Aug 106.0 102.2 85.3
Sep 103.3 100.4 87.0
Oct 100.0 102.3 90.2
Nov 100.5 105.0 94.0
Dec 99.7 104.4 96.1
(END OF SIDEBAR)
Page 43
<PAGE>
(BEGINNING OF SIDEBAR)
OPERATING PROFIT SENSITIVITY TO CURRENCY FLUCTUATIONS BASED ON VAR ANALYSIS
Change in profit ((pound)m)
Probability
Profit (pound) Without Hedging With Hedging
- -------------- --------------- ------------
- -170.0124796 3.14872E-06 6.33421E-15
- -165.7621676 4.6739E-06 2.608E-14
- -161.5118556 6.86884E-06 1.03601E-13
- -157.2615436 9.9941E-06 3.97063E-13
- -153.0112316 1.43966E-05 1.46823E-12
- -148.7609196 2.05322E-05 5.23806E-12
- -144.5106076 2.89913E-05 1.80296E-11
- -140.2602956 4.05281E-05 5.98746E-11
- -136.0099836 5.60921E-05 1.9184E-10
- -131.7596717 7.68607E-05 5.93028E-10
- -127.5093597 0.000104271 1.76869E-09
- -123.2590477 0.000140049 5.08942E-09
- -119.0087357 0.000186232 1.41295E-08
- -114.7584237 0.00024518 3.78462E-08
- -110.5081117 0.000319576 9.78046E-08
- -106.2577997 0.0004124 2.43858E-07
- -102.0074877 0.000526891 5.86615E-07
- -97.75717574 0.00066647 1.36148E-06
- -93.50686375 0.000834635 3.04865E-06
- -89.25655176 0.001034832 6.58636E-06
- -85.00623978 0.001270282 1.37285E-05
- -80.75592779 0.001543788 2.76084E-05
-76.5056158 0.001857514 5.35672E-05
- -72.25530381 0.002212757 0.000100276
- -68.00499182 0.00260971 0.000181107
- -63.75467983 0.003047249 0.000315583
- -59.50436784 0.003522741 0.000530556
- -55.25405585 0.004031906 0.000860578
- -51.00374387 0.004568748 0.001346755
- -46.75343188 0.005125557 0.002033421
- -42.50311989 0.005693011 0.002962143
-38.2528079 0.00626037 0.004163178
- -34.00249591 0.006815771 0.00564526
- -29.75218392 0.007346612 0.007385555
- -25.50187193 0.007840003 0.009322285
- -21.25155994 0.008283282 0.011352767
- -17.00124796 0.008664544 0.013338937
- -12.75093597 0.008973172 0.01512101
- -8.500623978 0.009200329 0.016537906
- -4.250311989 0.009339374 0.017451001
0 0.009386188 0.017766435
4,250311989 0.009339374 0.017451001
8.500623978 0.009200329 0.016537906
12.75093597 0.008973172 0.01512101
17.00124796 0.008664544 0.013338937
21.25155994 0.008283282 0.011352767
25.50187193 0.007840003 0.009322285
29.75218392 0.007346612 0.007385555
34.00249591 0.006815771 0.00564526
38.2528079 0.00626037 0.004163178
42.50311989 0.005693011 0.002962143
46.75343188 0.005125557 0.002033421
51.00374387 0.004568748 0.001346755
55.25405585 0.004031906 0.000860578
59.50436784 0.003522741 0.000530556
63.75467983 0.003047249 0.000315583
68.00499182 0.00260971 0.000181107
72.25530381 0.002212757 0.000100276
76.5056158 0.001857514 5.35672E-05
80.75592779 0.001543788 2.76084E-05
85.00623978 0.001270282 1.37285E-05
89.25655176 0.001034832 6.58636E-06
93.50686375 0.000834635 3.04865E-06
97.75717574 0.00066647 1.36148E-06
102.0074877 0.000526891 5.86615E-07
106.2577997 0.0004124 2.43858E-07
110-5081117 0.000319576 9.78046E-08
114.7584237 0.00024518 3.76462E-08
119.0087357 0.000186232 1.41295E-08
123.2590477 0.000140049 5.08942E-09
127.5093597 0.000104271 1.76869E-09
131.7596717 7.68607E-05 5.93028E-10
136.0099836 5.60921E-05 1.9184E-10
140.2602956 4.05281E-05 5.98746E-11
144.5106076 2.89913E-05 1.80296E-11
148.7609196 2.05322E-05 5.23806E-12
153.0112316 1.43966E-05 1,46823E-12
157.2615436 9.9941E-06 3.97063E-13
161.5118556 6.86884E-06 1.03601E-13
165.7621676 4.6739E-06 2.608E-14
170.0124796 3.14872E-06 6.33421E-15
<PAGE>
(END OF SIDEBAR)
Sterling costs exceeded sterling revenues due to the level of UK-based
marketing, development, operational and central management costs, and
depreciation which, with the exceptions of Instinet and TIBCO, is largely
accounted for in sterling once an asset has been acquired.
In broad terms using the 1998 mix of profits, the impact of an additional
unilateral 1% strengthening of sterling would have been a reduction of
approximately (pound)9 million in 1998 operating profits before hedging (1997:
(pound)9 million).
Sterling strengthened significantly over 1997 and the first nine months of 1998,
although it weakened in the last quarter of 1998. As a result, 1997 and 1998
operating profits were adversely affected.
The risk that sterling might strengthen against foreign currencies is hedged
within parameters laid down by the Board. The priority in treasury policy is to
reduce the risk of earnings volatility to acceptable levels while allowing a
degree of flexibility to take advantage of market movements.
The main principles underlying currency hedging policies are as follows:
o Committed hedging cannot exceed the underlying cash flow exposure;
o Options may only be written against an underlying exposure;
o Levels of cover for currency hedging cannot exceed 90% of underlying
exposure for the first 12 months and 70% for the following 12 months.
The company has adopted value at risk (VAR) analysis as a means of quantifying
the potential impact of exchange rate volatility on reported earnings. VAR is a
measure of the potential loss on a portfolio within a specified time horizon, at
a specified confidence interval. Loss is defined, in this instance, as the
diminution in value of rolling 12 month forecast group profits denominated in
sterling. Due to the approximations used in determining VAR, the theory provides
order of magnitude estimates only but these are useful for comparison purposes.
Reuters estimates that there is currently a 5% chance that profits forecast for
the coming 12 months will deteriorate by more than (pound)70 million as a result
of currency fluctuations before hedging and (pound)37 million after taking into
account hedging at 31 December 1998 (1997: (pound)74 million before hedging and
(pound)42 million after hedging). These figures represent the value at risk and
are illustrated graphically opposite.
During 1998 the average value at risk before hedging on forecast profits for the
coming 12 months varied between (pound)55 million and (pound)76 million and
averaged (pound)64 million (1997: (pound)72 million) and after hedging varied
between (pound)30 million and (pound)43 million, averaging (pound)35 million
(1997: (pound)36 million).
The gains on currency hedging activities for the three years to December 1998
and the fair value of the unrecognised (losses)/gains on the hedging book at the
end of 1998 are summarised below:
CURRENCY HEDGING GAINS/(LOSSES)
((pound)m) 1998 1997 1996
- --------------------------------------------------------------------------------
Recognised gains in the year 45 56 5
Unrecognised (losses)/gains at 31 December (6) 39 39
- --------------------------------------------------------------------------------
The unrecognised (losses)/gains are based on fair values at the end of each year
and include certain realised items which have been deferred because they relate
to future periods.
Recognised currency hedging gains were lower in 1998 compared with 1997 due
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<PAGE>
to the relative strength of sterling when hedging for 1998 was undertaken. Of
the currency gains recognised in 1998, (pound)43 million related to contracts in
place at the end of 1997. Unrecognised losses of (pound)6 million at 31 December
1998 compare with unrecognised gains of (pound)39 million at 31 December 1997.
The fall reflects the strength of sterling during most of 1998, when the
majority of cover was arranged, and the impact of sterling's subsequent weakness
at the end of 1998.
Of the unrecognised currency hedging loss at 31 December 1998, (pound)3 million
relates to 1999 (31 December 1997 - (pound)36 million gain related to 1998).
Net cash flows are mainly converted into sterling and either applied to reduce
debt or invested in money market instruments with financial institutions holding
strong credit ratings. The use of sterling instruments avoids any currency
exposure. Interest rates are hedged using a mix of financial instruments which
commence and mature at various dates through to April 2000. The maturity of
investments and debt are matched to minimise interest rate risk.
In broad terms, using the average net funds position, adjusted on a proforma
basis for the return of capital to shareholders as if it had taken place at the
beginning of the year, a 1% increase in global interest rates would have reduced
proforma profit before tax in 1998 by approximately (pound)1 million (1997:
(pound)3 million) excluding the impact of hedging.
US GAAP
Reconciliations of net income and shareholders' equity under UK and US GAAP are
set out on pages 80-81. A discussion of the relevant US accounting policies
which differ materially from UK GAAP is given on page 79. Two additional
accounting adjustments were made in 1998.
Firstly, a deduction of (pound)2 million before tax was made in respect of the
recognition of revenue from sales of software subject to millennium warranties.
Under UK GAAP, revenue and related direct costs from contracts for the outright
sale of software systems are recognised at the time of client acceptance. Under
US GAAP, specific rules were introduced with effect from January 1998 for the
determination of client acceptance in cases where future significant
modifications or upgrades to the software are considered to be part of the
client's overall acceptance of the product. Under these rules, an amount of
revenue is required to be deferred until these software upgrades have been
delivered and accepted by the client.
The adjustment made for 1998 of (pound)2 million compares with a (pound)22
million adjustment required in the first half of 1998. The fall reflects the
progress in the second half of 1998 in the delivery and installation of
millennium compliant software.
Secondly, a different accounting treatment is required under US GAAP to reflect
the impact of the capital reorganisation in February 1998. Under US GAAP this
transaction was deemed to be a share consolidation combined with a special
dividend and requires retroactive restatement of earnings per share and per ADS
and dividends per share and per ADS. Under UK GAAP no restatement of earnings
per share was deemed necessary as the return of capital was considered to be
equivalent to a repurchase of shares at market value and the number of new
shares in Reuters Group PLC was set to facilitate comparability with those of
Reuters Holdings PLC.
REPORTING UNDER THE NEW ORGANISATION STRUCTURE
With effect from 1 January 1999 the group has been reorganised into two business
divisions - Reuters Information (RI) and Reuters Trading Systems (RTS). Instinet
continues to operate as an autonomous subsidiary. A Global Sales and Operations
group (GSO) has been established to co-ordinate the activities of the
geographical units responsible for the sale, installation, delivery and support
of divisional products.
The external reporting of financial performance will be revised with effect from
the 1999 interim announcement to reflect this new organisation structure.
EUROPEAN MONETARY UNION
The Reuters Euro Programme established to handle the product-related issues
arising from European monetary union was completed successfully.
The programme addressed changes to Reuters systems and products required to meet
the demands of the single European currency. Product revisions to address euro
issues were completed and tested on time.
Conversion and testing of approximately 1 billion pieces of information held on
Reuters historical databases took place over the four days prior to the opening
of the markets on 4 January 1999.
The incremental external costs incurred on the Euro Programme amounted to
(pound)6 million in 1998. Some additional expenditure will be incurred in 1999,
principally related to the additional client support required in the first few
weeks of the year.
YEAR 2000 READINESS DISCLOSURE
Millennium Programme
Reuters established its Millennium Programme in 1996 to address the issues
arising as a result of the change of millennium. Many computer systems, as well
as equipment that uses embedded chips, store or process date information
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<PAGE>
using only the last two digits of the year. From 1 January 2000 these systems
may be unable to distinguish between 1900 and 2000. This is complicated by the
fact that the year 2000 is also a leap year. If not overcome these problems
could disrupt the normal business operations of companies, including Reuters.
Reuters Millennium Programme is led by an executive director, supported by a
full time programme director, and both central and locally based millennium
staff. The Programme consists of six key parts:
1. Awareness - making Reuters customers, suppliers and employees aware of
its Millennium Programme and its progress through a series of brochures
and a comprehensive public Internet Millennium web-site.
2. Product Strategy - determining which Reuters products would be included in
the Reuters Millennium Programme and which older products would be
declared obsolete and replaced by newer products in accordance with the
normal business cycle.
3. Inventory - identifying and recording all aspects of Reuters business that
are date sensitive. The inventory details both third party and proprietary
software used in Reuters, hardware from desktop PCs to main frame
computers, third party datafeeds whether they be from an exchange or a
single institution, telecommunication and building services and other
equipment that is utilised for business operations.
4. Development - assessment of date sensitivity, and rectification or
replacement of date sensitive products. To date, over 1,500 of Reuters
proprietary software applications have been renovated.
5. Testing - verification of rectification. Testing is carried out at three
levels:
o Unit testing of individual software applications
o Integration testing of groups of related applications
o Product testing to give assurance of end to end operation
6. Implementation - installation of tested products and systems. To date,
over 85% of client site applications have been upgraded.
Much of the work under the six phases of the Millennium Programme has been
completed. Some work will continue in 1999, including product assurance,
industry based testing, development work for certain corporate systems and
residual client site implementation. Reuters will also continue to verify the
efforts of its suppliers.
As part of the Millennium Programme, Reuters actively participates in a number
of national and international year 2000 groups which include representation from
customers, suppliers, infrastructure suppliers, regulatory and government
authorities, and other organisations with a significant interest in year 2000
issues.
Millennium Programme costs
The effort associated with the Millennium Programme falls into two main
categories:
1) The diversion of existing internal resources. This includes
development staff who would otherwise be deployed on other projects and
operational staff involved in the implementation at customer sites.
2) Incremental external resources, largely contractors and consultants, who will
not remain following the completion of the programme.
Details of the costs incurred in 1998 and budgeted for 1999 are set out below.
1999
Costs ((pound)m) 1998 budget
- -----------------------------------------
Internal effort
- - Development 10 6
- - Implementation 14 8
External effort
- - Development 18 7
- - Implementation 13 7
- -----------------------------------------
Total 55 28
Internal and external costs for 1998 were in line with expectations. Incremental
capital expenditure arising as a direct result of the programme was (pound)33
million in 1998. No estimation of the cost of assets replaced in the normal
business cycle has been made.
The 1998 internal development effort of (pound)10 million represented 5% of
total group development expenditure. The (pound)14 million of implementation
activity represented 8% of client site activity. Accordingly, Reuters believes
that the Millennium Programme has not resulted in any material deferrals of
product developments or decreases in service quality at client sites. As
internal resource plans have considered Millennium Programme requirements since
1996, it is not possible to assess whether forthcoming product development might
have occurred sooner in the absence of this programme.
No material costs are currently projected for the year 2000 or beyond. However,
due to the number of variables and dependencies involved, Reuters does not
consider it possible to identify, avoid or quantify the damage that could result
from all possible millennium-related problems.
Reuters has used, and expects to continue to use, internally generated funds to
cover the cost of the Millennium Programme.
Business risks from year 2000 issues
The production of Reuters services and Reuters internal operations rely on third
party suppliers of data, hardware,
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<PAGE>
software, telecommunications utilities, buildings and building services. A
failure of a third party supplier represents a business risk to Reuters. Third
party suppliers of date sensitive products and services have been included in
the millennium inventory. These suppliers have been surveyed by Reuters about
the nature and progress of their millennium work, and may be requested to
provide additional information, including regular updates of the progress of
their work.
Testing to verify Reuters use of certain third party products and services is
also carried out to gain further assurance. However, in the case of
telecommunications and utility suppliers, testing has not been possible, and
generally it has been difficult to obtain full assurances of millennium
compliance from them. Failure of a telecommunications or utility provider is
therefore a business risk for Reuters.
Through existing disaster recovery plans, Reuters already has the capability to
manage certain telecommunications and utilities failures. These plans will be
refined during the business continuity planning process described below.
Reuters products make use of software running in Reuters technical centres and
software at customer sites. Both types of software are tested and certified as
part of the Reuters Millennium Programme. A risk is posed to the effective
delivery of Reuters products if a problem is experienced with client site
software which requires site visits by Reuters engineers to overcome, due to the
time required to visit all customers. Remote support techniques such as direct
downloading and delivery via the Internet will form part of the business
continuity plan to minimise this risk.
Although Reuters will continue to devote substantial resources to address its
millennium issues, there can be no assurance that its products will not contain
undetected year 2000 problems. Moreover, while Reuters business continuity plan
will require that there is enhanced staff coverage at the beginning of the year
2000 and thereafter when needed, there can be no assurance that an unexpected
level of millennium problems will not result in a shortage of qualified
personnel to deal with them or in a diversion of personnel from other
operations.
In addition, many commentators believe that there will be a significant amount
of litigation arising out of millennium-related issues. The unprecedented nature
of any such litigation makes it impossible for Reuters to predict the impact
that any such litigation would have on Reuters.
Reuters expects that the development of its business continuity plan will
further refine its understanding of the relevant business risks arising from the
change of millennium, and there may be additional risks of which Reuters is not
now aware.
Reuters continuity plan
Reuters is currently preparing a comprehensive business continuity plan
specifically designed for the millennium. The continuity plan is a key component
of Reuters preparation for the millennium and will be the primary focus of the
programme during 1999.
Reuters already has as part of its day to day operations plans that can be
executed in the event of certain service failures. These range from failure of a
single computer or software application to the failure of a key global technical
centre. These operational plans will form the basis of the millennium continuity
plan after being checked for applicability and enhanced as appropriate.
Continuity planning focuses on three areas in Reuters - production,
infrastructure, and customer environment. Potential incidents in each area are
being identified, assessed and, where possible, plans put in place to handle the
incident. Continuity plans will include additional staff coverage globally for
key parts of the Reuters business. This ranges, for example, from enhanced help
desks, field support, software support and operational support to incident
monitoring and decision making.
CAUTIONARY STATEMENTS
Impact of currency movements
Reuters receives revenue and incurs expenses in more than 60 currencies and is
thereby exposed to the impact of fluctuations in currency rates. Sterling's
strength in the first three quarters of 1998 has restricted revenue and earnings
growth. A resumption of sterling's strength could further restrict reported
revenue and earnings in 1999. Reuters currency exposure is actively hedged. For
additional information concerning currency fluctuations see "Treasury
Management" on pages 43-45.
State of financial markets
Reuters business is dependent upon the health of the financial markets and the
participants in those markets. Recent events in the financial sector in Asia,
Russia and Latin America have created uncertainty in these and other markets and
the full impact of these events has not yet been reflected in revenue. Reuters
business could also be adversely affected by consolidations
and rationalisations among clients in the banking and other industries.
Reuters transactions business is particularly dependent upon the level of
activity in the foreign exchange and equity markets.
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<PAGE>
Product development
Products in the information technology industry are becoming increasingly
sophisticated. As a result, Reuters, like other information vendors, may
encounter difficulties or delays in the development, production, testing,
marketing, installation and market acceptance of new products.
European economic and monetary union
The introduction of a single currency in Europe in January 1999 has initially
resulted in a reduction in the volume of foreign exchange trading. At this time
Reuters is unable to predict whether this will have a long-term effect on the
company's foreign exchange information and transaction services.
Millennium issues
Reuters is exposed to various risks arising out of the change of millennium and
the impact which this may have on its products and the development and
production processes upon which they depend. A risk is posed to the effective
delivery of Reuters products if a problem is experienced with client site
software which requires site visits by Reuters engineers to overcome, due to the
time required to visit all customers. Also, Reuters services and internal
operations rely on third party suppliers of data, hardware, software,
telecommunications, utilities and building services. For further information
concerning Reuters Millennium Programme, see "Millennium Programme" on pages
45-47. Additional risks are described under the heading "Business Risks from
Year 2000 issues" on pages 46-47.
Broker activities
Certain Reuters subsidiaries act as brokers in the financial markets but do not
undertake trading on their own account. Instinet Corporation is an agency broker
in the equities markets and Reuters Transaction Services Limited (RTSL) operates
the Dealing 2000-2 electronic brokerage services for the foreign exchange
market. These brokers could incur losses from broken trades and, in respect of
equities, the failure of a counterparty. Reuters seeks to mitigate these risks
by computerised systems, procedural controls and contractual agreements with
customers.
SEC rules for alternative trading systems
In December 1998 the US Securities and Exchange Commission (SEC) promulgated new
rules overhauling the regulation of certain "alternative trading systems" (ATS).
The rules expand the SEC's interpretation of the definition of "exchange" under
the US securities laws to encompass a broad range of electronic brokerage
activities, including those conducted by Instinet Corporation.
The rules permit alternative trading systems to choose to be regulated either as
a national securities exchange or as a broker-dealer, provided that they comply
with certain additional requirements imposed by a new Regulation ATS. The
requirements include, among others, mandatory public display of, and public
access to, best-priced orders displayed within the system and the establishment
and application of fair access and capacity, integrity and security standards.
The new rules were promulgated with an effective date of 21 April 1999, subject
to a phase-in provision for the public display requirement (with 50% of covered
securities required to be displayed on 21 April 1999 and the remaining 50%
required to be displayed on 30 August 1999).
Implementation of Regulation ATS may have a significant impact on Instinet's
business. Mandatory order display may result in an increased volume of message
traffic, with resulting additional costs associated with increasing network
capacity. Implementation of the Regulation is also expected to require
functional modifications to Instinet Corporation's systems and its customers'
interfaces.
Instinet Corporation has commenced discussions with the staff of the SEC
Division of Market Regulation regarding implementation of Regulation ATS in a
manner that would minimise or avoid disruption to Instinet's business. Reuters
is unable to predict the outcome of these discussions, although they may have a
significant impact on the extent to which Instinet's business is affected by
Regulation ATS.
SEC rules on ECN usage
Reuters and Instinet Corporation continue to monitor the operation of SEC rules
governing market-maker and exchange specialist usage of electronic
communications networks (ECNs).
Most recently, by letter dated 18 December 1998, the SEC Division of Market
Regulation issued an extension, until 19 February 1999, of the Division's
no-action position verifying Instinet Corporation's status as an ECN. The
Division continues to condition its position upon, among other things, Instinet
Corporation's representation that it has sufficient capacity to handle the
volume of trading reasonably anticipated. Reuters has no reason at this time to
believe that Instinet Corporation will not be able to continue to meet its
obligations as an ECN under currently applicable SEC rules, although Instinet's
status could be adversely affected by the implementation of Regulation ATS, as
described below.
NASD initiatives
The US National Association of Securities Dealers, Inc. (NASD), which oversees
the activities of US broker-dealers and also operates and regulates the primary
market
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for the trading of over-the-counter securities (Nasdaq), is considering a
number of changes to the Nasdaq marketplace.
Some of these changes could put the NASD into direct competition with Instinet
or otherwise have a significant impact on Instinet's business. Each of the
NASD's proposals must be approved by the SEC. At this time Reuters is unable to
predict whether, when or in what form any of the NASD's proposals will be
approved or implemented, or the impact that any such implementation would have
on Instinet Corporation's business.
Further regulation of transaction products
The increasing use of electronic systems as alternatives to traditional exchange
and over-the- counter trading has led authorities in several jurisdictions to
explore various methods of regulating such systems, including the SEC rules
described below, implementation of which could impact Instinet and other
transaction products offered by Reuters from time to time.
Key suppliers
Reuters is reasonably dependent on certain hardware and software suppliers,
although alternative sources could be found if the need arose. The main
suppliers are Intel Corporation, Microsoft Corporation, Compaq Computer
Corporation and NCR Corporation.
Networks and systems
Reuters networks and systems risk being impacted by a catastrophic failure of
long or short duration due to factors beyond its control. Reuters seeks over
time to minimise these risks as far as it can by, inter alia, security controls,
systems and communications redundancy and elimination of single points of
failure where feasible.
Internet
The availability of the public Internet and Internet technology may, over time,
reduce barriers to entry for new information providers, creating additional
competition and new price/cost dynamics in the industry. It may also increase
the availability of commoditised data in cheaper forms and the loss of control
over intellectual property. As a new publishing medium, it will also create new
outlets for content providers.
Geographical operations
Reuters may suffer discriminatory tariffs or other forms of government
intervention due to the nature of its editorial and other reporting activities.
Reuters Analytics
In January 1998 Reuters was notified that Reuters Analytics Inc. ("Reuters
Analytics"), one of its US subsidiaries, is the subject of a grand jury
investigation in New York arising out of an arrangement that Reuters Analytics
had with a New York-based consultant. The consultant subscribed to Bloomberg
L.P.'s service, which included the associated data and analytics.
Reuters is co-operating with the investigation and has engaged external legal
counsel to conduct a thorough internal inquiry. At this time Reuters is unable
to predict the impact the investigation or related events may have on its
business or financial condition.
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<PAGE>
CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 December
<TABLE>
<CAPTION>
1998 1997 1996*
Notes (pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE 2 3,032 2,882 2,914
Operating costs 3 (2,482) (2,341) (2,322)
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 550 541 592
Profit on disposal of fixed asset investments 26 -- --
Loss from associates (1) (1) (7)
Income from fixed asset investments 3 6 6
Net interest receivable 4 2 80 61
- -----------------------------------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 580 626 652
Taxation on profit on ordinary activities 5 (196) (236) (210)
- -----------------------------------------------------------------------------------------------------------------------------------
PROFIT AFTER TAXATION ATTRIBUTABLE TO ORDINARY SHAREHOLDERS 384 390 442
Dividends 6 (203) (190) (190)
- -----------------------------------------------------------------------------------------------------------------------------------
RETAINED PROFIT 26 181 200 252
- -----------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER ORDINARY SHARE 7 26.7p 24.0p 27.3p
Fully diluted earnings per ordinary share 7 26.6p 23.8p 27.0p
</TABLE>
Consolidated revenue and operating profit derive from continuing operations in
all material respects
The profit for the year has been computed on an unmodified historical cost
basis.
Accounting policies are set out on pages 77-78
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 31 December
<TABLE>
<CAPTION>
1998 1997 1996*
(pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Profit attributable to ordinary shareholders 384 390 442
Translation differences (debited)/credited directly to reserves (1) 2 (28)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RECOGNISED GAINS AND LOSSES RELATING TO THE YEAR 383 392 414
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The detailed statement showing the movement in capital and reserves is set out
in note 26.
*31 December 1996 figures restated following implementation in 1997
of UK Financial Reporting Standard 10 Goodwill and Intangible Assets (FRS 10).
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<PAGE>
NOTES ON THE CONSOLIDATED PROFIT AND LOSS ACCOUNT
1. CAPITAL REORGANISATION
Reuters Group PLC was incorporated on 24 December 1996 as Nayatronics Limited
and was re-registered as a public limited company on 12 December 1997. On 2
December 1997, the authorised share capital of Reuters Group PLC was increased
from (pound)100 to (pound)50,000 by the creation of 49,900 redeemable preference
shares of (pound)1 each and on 12 December 1997 was further increased to
(pound)525,000,001 by the creation of 2,099,800,000 ordinary shares of 25p each
and one Founders Share of (pound)1.
On 18 February 1998, Reuters Group PLC issued and credited as fully paid
1,417,331,693 ordinary shares of 25p each and paid cash of (pound)1,482 million
to acquire the majority of the issued share capital of Reuters Holdings PLC
following the approval of a High Court Scheme of Arrangement. In exchange for
every 15 ordinary shares in Reuters Holdings PLC shareholders received 13
ordinary shares in Reuters Group PLC plus (pound)13.60 in cash.
As the cash consideration exceeded 10% of the nominal value of the new shares
issued, compliance with the detailed accounting requirements of the UK Companies
Act 1985 would have required the capital reorganisation to be accounted for as
an acquisition. This would have resulted in all of the separable assets and
liabilities of the group at the date of the reorganisation being recorded at
their fair values, substantial goodwill and goodwill amortisation charges
arising and only post reorganisation results being reported in the group profit
and loss account. The directors do not believe this would have given a true and
fair view of the state of affairs of the group and of its results as in
substance the capital reorganisation represented a change in the identity of the
holding company rather than an acquisition of a business. Consequently, the
capital reorganisation has been accounted for using merger accounting principles
as the directors consider this necessary in order to meet the overriding
requirement of the Companies Act 1985 to show a true and fair view. The
directors consider that it is not practicable to quantify the effect of this
departure from the detailed accounting requirements.
Share capital and reserves in the prior year consolidated balance sheets have
been restated on a proforma basis. The proforma share capital as at 31 December
1997 and 31 December 1996 represents the proforma nominal value of shares in
issue of Reuters Group PLC immediately prior to the reorganisation. Differences
between this amount and the previously reported capital and reserves, excluding
the profit and loss reserve, represent the merger difference and have been
reflected in other reserves.
The cash payment and the reduction in the number of ordinary shares was
considered to represent a repurchase of two shares in every fifteen at market
value. Consequently, prior year earnings per share figures have not been
adjusted.
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2. SEGMENTAL ANALYSIS
The tables below are a segmental analysis of revenue, costs and contribution.
Central costs comprise the costs of corporate administration and the centrally
controlled elements of development, marketing and technical operations. The
table does not purport to show geographical profitability but reflects how
Reuters controls costs and monitors contribution including the worldwide
activities of Instinet and TIBCO which are managed separately. Because of the
interactive nature of the worldwide operations of Reuters, Instinet and TIBCO
costs incurred in one location often relate to revenues earned in other
locations.
<TABLE>
<CAPTION>
RESTATED
1998 % 1997 % 1996
(pound)m CHANGE (pound)m CHANGE (pound)m
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE
Europe, Middle East and Africa (see note below) 1,566 6% 1,484 (5%) 1,564
Asia/Pacific 466 (6%) 496 (2%) 504
The Americas 454 4% 437 (1%) 440
- ------------------------------------------------------------------------------------------------------------------------------
2,486 3% 2,417 (4%) 2,508
Instinet 446 16% 383 11% 346
TIBCO 100 23% 82 37% 60
- ------------------------------------------------------------------------------------------------------------------------------
3,032 5% 2,882 (1%) 2,914
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS WHERE INCURRED
Europe, Middle East and Africa (1,028) 4% (986) 1% (976)
Asia/Pacific (289) (7%) (312) -- (311)
The Americas (429) 7% (400) (3%) (414)
- ------------------------------------------------------------------------------------------------------------------------------
(1,746) 3% (1,698) -- (1,701)
Instinet (291) 25% (234) 11% (211)
TIBCO (87) 31% (67) 40% (48)
- ------------------------------------------------------------------------------------------------------------------------------
(2,124) 6% (1,999) 2% (1,960)
- ------------------------------------------------------------------------------------------------------------------------------
CONTRIBUTION
Europe, Middle East and Africa 538 8% 498 (15%) 588
Asia/Pacific 177 (4%) 184 (5%) 193
The Americas 25 (33%) 37 45% 26
- ------------------------------------------------------------------------------------------------------------------------------
740 3% 719 (11%) 807
Instinet 155 3% 149 11% 135
TIBCO 13 (13%) 15 23% 12
- ------------------------------------------------------------------------------------------------------------------------------
908 3% 883 (7%) 954
Central costs (351) 1% (347) 7% (324)
Net currency gain 39 (29%) 56 -- 11
Goodwill amortisation (46) (9%) (51) 2% (49)
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 550 2% 541 (8%) 592
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
United Kingdom and Ireland revenue was (pound)542 million (1997 - (pound)509
million, 1996 - (pound)477 million). Instinet's and TIBCO's operations are
predominantly based in the Americas.
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2. SEGMENTAL ANALYSIS continued
Revenue is normally invoiced in the same geographical area in which the customer
is located. Revenue earned, therefore, generally represents revenue both by
origin and by destination. The main exception is TIBCO, where a substantial
proportion of revenue billed by the Americas is from customers located
elsewhere. In 1998, 38% (1997 - 42%, 1996 - 42%) of TIBCO's revenue was
generated from customers in the Americas, 47% (1997 - 43%, 1996 - 39%) from
customers located in Europe, Middle East and Africa and 15% (1997 - 15%, 1996 -
19%) from customers in Asia/Pacific.
<TABLE>
<CAPTION>
1998 % 1997 % 1996
REVENUE BY PRODUCT CATEGORY (pound)m CHANGE (pound)m CHANGE (pound)m
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INFORMATION PRODUCTS
Europe, Middle East and Africa 1,164 7% 1,087 (5%) 1,145
Asia/Pacific 342 (5%) 359 (2%) 365
The Americas 343 6% 324 1% 322
TIBCO 100 23% 82 37% 60
- --------------------------------------------------------------------------------------------------------------
1,949 5% 1,852 (2%) 1,892
- --------------------------------------------------------------------------------------------------------------
TRANSACTION PRODUCTS
Europe, Middle East and Africa 266 -- 266 (7%) 286
Asia/Pacific 97 (9%) 107 (1%) 108
The Americas 73 1% 72 (1%) 73
Instinet 446 16% 383 11% 346
- --------------------------------------------------------------------------------------------------------------
882 6% 828 2% 813
- --------------------------------------------------------------------------------------------------------------
MEDIA AND PROFESSIONAL PRODUCTS
Europe, Middle East and Africa 136 3% 131 (1%) 133
Asia/Pacific 27 (9%) 30 (3%) 31
The Americas 38 (8%) 41 (9%) 45
- --------------------------------------------------------------------------------------------------------------
201 (1%) 202 (3%) 209
- --------------------------------------------------------------------------------------------------------------
3,032 5% 2,882 (1%) 2,914
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Reuters operates in a single class of business: the provision of news and
financial information and related services. With the exception of Instinet and
TIBCO, Reuters products are delivered and sold through a common network and
geographical infrastructure.
<TABLE>
<CAPTION>
1998 % 1997 % 1996
REVENUE BY TYPE (pound)m CHANGE (pound)m CHANGE (pound)m
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Recurring 2,170 1% 2,147 (4%) 2,232
Usage 621 22% 511 7% 478
Outright sales 241 8% 224 10% 204
- --------------------------------------------------------------------------------------------------------------
3,032 5% 2,882 (1%) 2,914
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Recurring revenue is derived from the sale of subscription services, including
maintenance contracts. Usage revenue is based on volume and primarily relates to
transaction products, including Instinet and certain activities of Reuters
Television. Outright sales mainly represents once-off sales of information and
risk management systems.
Page 53
<PAGE>
3. OPERATING COSTS
<TABLE>
<CAPTION>
RESTATED
1998 % 1997 % 1996
COSTS BY TYPE (pound)m CHANGE (pound)m CHANGE (pound)m
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wages, salaries, commission and allowances 805 9% 729 (2%) 748
Social security costs 73 15% 62 (3%) 64
Other pension costs (see note 24) 50 10% 44 1% 44
- -----------------------------------------------------------------------------------------------------------------------------
Staff costs 928 11% 835 (2%) 856
Services 586 -- 585 9% 539
Depreciation 331 6% 312 10% 283
Goodwill amortisation 46 (9%) 51 2% 49
Communications 207 3% 201 -- 202
Space 129 (9%) 142 (6%) 150
Data 242 17% 207 6% 195
Cost of sales and other 52 (18%) 64 9% 59
Currency hedging activities - net gain (45) (20%) (56) -- (5)
Foreign currency translation - net loss/(gain) 6 -- -- -- (6)
- -----------------------------------------------------------------------------------------------------------------------------
2,482 6% 2,341 1% 2,322
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Services costs include equipment hire and bought-in services, including
consultancy and contractors, advertising and publicity, professional fees and
staff-related expenses.
<TABLE>
<CAPTION>
RESTATED
1998 % 1997 % 1996
COSTS BY FUNCTION (pound)m CHANGE (pound)m CHANGE (pound)m
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Production and communications costs 1,722 6% 1,626 2% 1,597
Selling, marketing and administrative expenses 714 8% 664 (2%) 676
Goodwill amortisation 46 (9%) 51 2% 49
- -----------------------------------------------------------------------------------------------------------------------------
2,482 6% 2,341 1% 2,322
- -----------------------------------------------------------------------------------------------------------------------------
COSTS INCLUDE:
Development expenditure 200 (15%) 235 17% 202
Operating lease expenditure:
Hire of equipment 11 (27%) 14 (4%) 14
Other, principally property 73 1% 72 (4%) 75
Advertising costs 24 38% 17 (15%) 21
- ----------------------------------------------------------------------------------------------------------------------------
FEES PAYABLE TO PRICEWATERHOUSECOOPERS
(FORMERLY PRICE WATERHOUSE) WERE AS FOLLOWS:
Audit Fees:
United Kingdom 0.9 - 0.9 - 0.9
Overseas 0.9 (11%) 1.0 (9%) 1.1
- -----------------------------------------------------------------------------------------------------------------------------
1.8 (5%) 1.9 (5%) 2.0
- ----------------------------------------------------------------------------------------------------------------------------
Non-Audit Services:
United Kingdom 3.8 - 0.9 - 0.9
Overseas 6.1 15% 5.3 10% 4.8
- ----------------------------------------------------------------------------------------------------------------------------
9.9 60% 6.2 9% 5.7
- -----------------------------------------------------------------------------------------------------------------------------
11.7 44% 8.1 5% 7.7
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The United Kingdom audit fee of (pound)0.9 million includes (pound)10,000 in
respect of the parent company audit.
Non-audit services were as follows:
<TABLE>
<CAPTION>
1998 % 1997 % 1996
(pound)m CHANGE (pound)m CHANGE (pound)m
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Litigation support, due diligence and other audit related work 3.9 - 3.9 5% 3.7
Management consultancy 3.6 - 0.6 100% 0.3
Taxation advice 2.4 43% 1.7 - 1.7
- -----------------------------------------------------------------------------------------------------------------------------
9.9 60% 6.2 9% 5.7
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 54
<PAGE>
3. OPERATING COSTS continued
Non-audit fees of (pound)9.9 million for PricewaterhouseCoopers in 1998 includes
(pound)3.7 million paid to Price Waterhouse and (pound)1.6 million paid to
Coopers and Lybrand prior to the date of appointment of PricewaterhouseCoopers
as auditors. Non-audit fees in 1997 and 1996 comprise solely amounts paid to the
previous auditors Price Waterhouse.
Non-audit fees paid to Coopers and Lybrand in 1997 not included in the above
figures amounted to (pound)2.6 million.
The directors consider it important that the company has access to a broad range
of external advice, including from PricewaterhouseCoopers. Where appropriate,
work is put out to competitive tender. The Audit Committee monitors the
relationship with PricewaterhouseCoopers, including the level of non-audit fees.
4. NET INTEREST RECEIVABLE
<TABLE>
<CAPTION>
1998 1997 1996
(pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest receivable:
Listed investments 14 14 5
Unlisted investments 60 68 59
- -------------------------------------------------------------------------------------------------------------------------
74 82 64
- -------------------------------------------------------------------------------------------------------------------------
Interest payable:
Short-term borrowings (72) (2) (3)
- -------------------------------------------------------------------------------------------------------------------------
2 80 61
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
5. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998 1997 1996
(pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UK corporation tax 56 97 146
Credit for overseas taxation (10) (9) (16)
Overseas taxation 143 135 61
Taxes on return of capital to shar eholders -- 23 --
- -------------------------------------------------------------------------------------------------------------------------
189 246 191
Deferred taxation 7 (10) 19
- -------------------------------------------------------------------------------------------------------------------------
196 236 210
- -------------------------------------------------------------------------------------------------------------------------
RECONCILIATION TO THE UK NOMINAL TAX RATE:
Effective tax rate 33.8% 37.7% 32.2%
UK nominal tax rate 31.0% 31.5% 33.0%
Taxes as shown in these financial statements 196 236 210
Corporation tax on pre-tax profit at UK nominal rate 180 197 215
- -------------------------------------------------------------------------------------------------------------------------
Difference 16 39 (5)
- -------------------------------------------------------------------------------------------------------------------------
The difference is principally due to:
Non-tax deductible amortisation of goodwill 16 16 16
Taxes on return of capital to shareholders -- 23 --
Other differences -- -- (21)
- -------------------------------------------------------------------------------------------------------------------------
16 39 (5)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The other differences are primarily due to overseas profits taxed at rates
differing from those in the UK and the geographical mix of profits.
Page 55
<PAGE>
6. DIVIDENDS
<TABLE>
<CAPTION>
1998 1997 1996
(pound)m pound)m (pound)m
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interim 48 50 45
Final (1998 proposed) 155 140 145
- ----------------------------------------------------------------------------------------------------------------------------
203 190 190
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
Per ordinary share pence pence pence
- ----------------------------------------------------------------------------------------------------------------------------
Interim 3.4 3.1 2.75
Final (1998 proposed) 11.0 9.9 9.0
- ----------------------------------------------------------------------------------------------------------------------------
14.4 13.0 11.75
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
7. EARNINGS PER ORDINARY SHARE
Basic earnings per ordinary share are based on the profit attributable to
ordinary shareholders and on the weighted average number of those shares in
issue during the year. The weighted average number of shares in issue may be
reconciled to the number used in the basic and fully diluted earnings per
ordinary share calculations as follows:
<TABLE>
<CAPTION>
Weighted average number in millions 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ordinary shares in issue 1,449 1,692 1,684
Ordinary shares held by group undertakings -- (59) (59)
Non vested shares held by employee share ownership trusts (11) (10) (9)
- ----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share denominator 1,438 1,623 1,616
- ----------------------------------------------------------------------------------------------------------------------------
Issuable on conversion of options 5 13 22
- ----------------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share denominator 1,443 1,636 1,638
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
8. REMUNERATION OF DIRECTORS
The report of the Remuneration Committee on pages 24-31 includes details of
directors' emoluments and forms part of these financial statements
9. EMPLOYEE INFORMATION
The average number of employees during the year was as follows:
<TABLE>
<CAPTION>
SEGMENTAL ANALYSIS 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe, Middle East and Africa 6,906 6,708 6,432
Asia/Pacific 2,499 2,547 2,088
The Americas 2,761 2,737 2,790
Instinet 1,181 1,086 906
TIBCO 649 473 390
Central 2,694 2,454 2,311
- ----------------------------------------------------------------------------------------------------------------------------
16,690 16,005 14,917
- ----------------------------------------------------------------------------------------------------------------------------
ANALYSIS BY FUNCTION
- ----------------------------------------------------------------------------------------------------------------------------
Production and communications 10,021 9,347 8,636
Selling, marketing and administration 6,669 6,658 6,281
- ----------------------------------------------------------------------------------------------------------------------------
16,690 16,005 14,917
- ----------------------------------------------------------------------------------------------------------------------------
The above include:
Development staff 2,426 2,510 2,340
Journalists 2,048 1,990 1,920
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 56
<PAGE>
CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December
<TABLE>
<CAPTION>
1998 1997 1996
NOTES (pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 10 998 936 995
DIVIDENDS RECEIVED FROM ASSOCIATES 9 -- --
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 76 79 65
Interest paid (72) (3) (3)
Income from fixed asset investments 3 1 6
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH INFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 7 77 68
TAXATION PAID (219) (196) (197)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (307) (369) (374)
Sale of tangible fixed assets 2 1 2
Purchase of fixed asset investments (22) (21) (23)
Sale of fixed asset investments 34 11 --
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH OUTFLOW ON CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (293) (378) (395)
ACQUISITIONS AND DISPOSALS (INCLUDING ASSOCIATES) 11 (138) (22) (106)
EQUITY DIVIDENDS PAID (188) (196) (166)
- -----------------------------------------------------------------------------------------------------------------------------
CASH INFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING 176 221 199
MANAGEMENT OF LIQUID RESOURCES
Net decrease/(increase) in short-term investments 11 313 (255) (172)
FINANCING
Return of surplus capital (see note 1) (1,482) -- --
Proceeds from issue of shares 13 22 23
Proceeds from issue of non-equity shares in TIBCO Software Inc. 27 -- 17 --
Shares repurchased -- (21) --
Net increase/(decrease) in borrowings 11 972 (15) 2
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING (497) 3 25
- -----------------------------------------------------------------------------------------------------------------------------
(DECREASE)/INCREASE IN CASH 12 (8) (31) 52
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS (pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------------------------
(Decrease)/increase in cash (8) (31) 52
Cash (inflow)/outflow from movement in borrowings (972) 15 (2)
Cash (inflow)/outflow from movement in liquid resources (313) 255 172
- -----------------------------------------------------------------------------------------------------------------------------
Change in net cash resulting from cash flows (1,293) 239 222
Translation differences - 1 (22)
- -----------------------------------------------------------------------------------------------------------------------------
Movement in net (debt)/funds (1,293) 240 200
Opening net funds 1,290 1,050 850
- -----------------------------------------------------------------------------------------------------------------------------
CLOSING NET (DEBT)/FUNDS 12 (3) 1,290 1,050
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 57
<PAGE>
10. NET CASH INFLOW FROM OPERATING ACTIVITIES
Operating profit is reconciled to net cash inflow from operating activities as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
(pound)m (pound)m (pound)m
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating profit 550 541 592
Depreciation 331 312 283
Goodwill amortisation 46 51 49
Decrease/(increase) in stocks 3 10 (1)
Increase in debtors (103) (73) (40)
Increase in creditors 171 81 96
Profit on disposal of subsidiaries (5) -- --
Loss on disposal of fixed assets 3 10 8
Amortisation of interests in own shares 3 4 8
Miscellaneous, principally translation difference (1) -- --
- ------------------------------------------------------------------------------------------------------------------------
NET CASH INFLOW FROM OPERATING ACTIVITIES 998 936 995
- ------------------------------------------------------------------------------------------------------------------------
11. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT
1998 1997 1996
ACQUISITIONS AND DISPOSALS (INCLUDING ASSOCIATES) (pound)m (pound)m (pound)m
- ------------------------------------------------------------------------------------------------------------------------
Cash consideration:
Subsidiary undertakings (see note 32) (90) (17) (17)
Associated undertakings (see note 32) (46) (3) (7)
Deferred payments for acquisitions in prior years (7) (3) (82)
- ------------------------------------------------------------------------------------------------------------------------
(143) (23) (106)
Less cash acquired 1 1 --
- ------------------------------------------------------------------------------------------------------------------------
(142) (22) (106)
Cash received from disposals:
Subsidiary undertakings 4 -- --
- ------------------------------------------------------------------------------------------------------------------------
(138) (22) (106)
- ------------------------------------------------------------------------------------------------------------------------
MANAGEMENT OF LIQUID RESOURCES
Increase in term deposits (7,145) (5,826) (6,110)
Decrease in term deposits 7,250 5,739 5,982
Purchase of certificates of deposit (580) (842) (433)
Sale of certificates of deposit 597 940 432
Purchase of listed/unlisted securities (465) (771) (74)
Sale of listed/unlisted securities 656 505 31
- ------------------------------------------------------------------------------------------------------------------------
313 (255) (172)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING
Increase/(decrease) in short-term borrowings 986 (12) 6
Decrease in long-term borrowings (14) (3) (4)
- ------------------------------------------------------------------------------------------------------------------------
972 (15) 2
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 58
<PAGE>
12. ANALYSIS OF NET FUNDS
<TABLE>
<CAPTION>
BANK BORROWINGS
--------------------------
FALLING
CASH AT TOTAL FALLING DUE AFTER
BANK AND CASH AND SHORT-TERM DUE WITHIN MORE THAN
IN HAND OVERDRAFTS OVERDRAFTS INVESTMENTS ONE YEAR ONE YEAR TOTAL
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31 December 1996 77 (6) 71 1,019 (18) (22) 1,050
Cash flow 7 (38) (31) 255 12 3 239
Exchange movements (3) 2 (1) 1 -- 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
31 December 1997 81 (42) 39 1,275 (6) (18) 1,290
Cash flow (38) 30 (8) (313) (986) 14 (1,293)
Exchange movements 1 (1) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
31 DECEMBER 1998 44 (13) 31 962 (992) (4) (3)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
A substantial portion of Reuters revenue is receivable in foreign currencies and
committed under one- and two-year contracts with terms of payment up to six
months in advance. As such, Reuters is subject to currency exposure from
committed revenue. In addition, Reuters is subject to interest rate risk from
the investment of cash balances. Reuters seeks to limit these risks by entering
into a mix of derivative financial instruments which include forward contracts,
options (including cylinders), swaps and forward rate agreements. A more
detailed discussion on Reuters Treasury Management can be found in the operating
and financial review (see pages 43-45).
If the derivative financial instruments were considered separately from the
underlying future revenue and interest income, Reuters would be subject to
market risk on these financial instruments from fluctuations in currency and
interest rates. Reuters only enters into such derivative financial instruments
to hedge (or reduce) the underlying exposure described above. There is,
therefore, no net market risk on such derivative financial instruments and only
a credit risk from the potential non-performance by counterparties. The amount
of this credit risk is generally restricted to any hedging gain and not the
principal amount hedged.
Reuters may also purchase options to hedge translation exposure arising on the
conversion of the results of subsidiaries whose functional currency is not
sterling - principally Instinet and TIBCO. In such cases the maximum cash
outflow from this activity is the cost of the option premia.
Derivative instruments held at 31 December were:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- --------------------------- --------------------------------
GROSS GROSS GROSS
CONTRACT CARRYING FAIR CONTRACT CARRYING FAIR CONTRACT CARRYING FAIR
AMOUNTS VALUE VALUE AMOUNTS VALUE VALUE AMOUNTS VALUE VALUE
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENCY MANAGEMENT
Foreign exchange forward contracts:
Contracts in profit 97 -- 5 324 -- 39 531 -- 29
Contracts in loss 257 -- (10) 59 -- -- 7 -- --
Foreign currency options 399 -- (1) 53 2 2 166 3 13
- -----------------------------------------------------------------------------------------------------------------------------------
753 -- (6) 436 2 41 704 3 42
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE MANAGEMENT
Interest rate swaps 100 -- (1) 140 1 3 250 2 8
Forward rate agreements -- -- -- 50 -- -- 450 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
100 -- (1) 190 1 3 700 2 8
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 59
<PAGE>
13. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS continued
Carrying values are amounts recorded in the balance sheet and comprise deferred
option premia, which are recognised over the period to which the option relates,
and certain locked in profits on swap contracts which have been recognised for
accounting purposes but where settlement in cash has not yet occurred. Fair
values represent the mark to market value of contracts at the balance sheet
date.
The foreign exchange forward contracts are held 52% in continental European
currencies (1997 - 56%, 1996 - 74%). The remaining contracts were principally in
Japanese yen and US dollars.
Foreign exchange forward contracts and options mature at dates up to 22 months
from the balance sheet date. Interest forward rate agreements, swaps and options
on swaps commence and mature at various dates through April 2000.
The fair value of foreign currency and interest rate management instruments is
estimated on the basis of market quotes, discounted to current value using
market-quoted interest rates.
The weighted average fixed rate receivable on the interest rate swaps at 31
December 1998 was 7% (1997 - 8%, 1996 - 9%) and the weighted average variable
rate payable was 6% (1997 - 7%, 1996 - 7%). The weighted average variable rate
is based on the rate implied in the yield curve at the balance sheet date.
All derivative instruments are unsecured. However, Reuters does not anticipate
non-performance by the counterparties who are all banks with recognised credit
ratings of 'A' or higher.
Carrying and fair values of group financial assets and liabilities at 31
December were:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- -------------------- ------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Derivative instruments - (7) 3 44 5 50
Other assets:
Interests in own shares 45 77 39 79 28 73
Other fixed asset investments 25 67 19 33 22 46
Debtors 463 463 344 344 269 269
Short-term investments and cash 1,006 1,006 1,356 1,356 1,096 1,096
Liabilities:
Current liabilities (1,507) (1,507) (436) (436) (360) (360)
Long-term liabilities (4) (4) (18) (18) (22) (22)
- -----------------------------------------------------------------------------------------------------
</TABLE>
Financial instruments exclude prepayments and accrued income and taxation
classified with debtors and accruals, deferred income and taxation classified
within creditors.
Monetary assets and liabilities by currency, excluding the
functional currency of each operation at 31 December 1998, were:
<TABLE>
<CAPTION>
NET FOREIGN CURRENCY MONETARY ASSETS/(LIABILITIES) (POUND)M
-------------------------------------------------------------------------------------
US SWISS FRENCH SINGAPORE HONG KONG
STERLING DOLLAR FRANC FRANC DOLLAR DOLLAR OTHER TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Functional currency of operation
Sterling - 16 (21) 9 (10) (26) 48 16
US dollar 32 - 8 - - 21 9 70
- --------------------------------------------------------------------------------------------------------------------------
Total 32 16 (13) 9 (10) (5) 57 86
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net currency gains and losses arising from monetary assets/(liabilities) not in
the functional currency of an operation are recognised in its profit and loss
account. Those arising from the translation of US dollar functional currency
financial statements into sterling (principally Instinet and TIBCO) are
recognised in the statement of recognised gains and losses.
Page 60
<PAGE>
The currency and interest rate profile of the group's short-term investments at
31 December 1998 was:
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS FIXED RATE INVESTMENTS
--------------------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
FLOATING INTEREST TIME FOR
RATE FIXED RATE RATE AT WHICH RATE
TOTAL INVESTMENTS INVESTMENTS 31 DECEMBER IS FIXED
(pound)m (pound)m (pound)m % YEARS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sterling 620 615 5 7 2
US dollar 267 171 96 6 2
Other 75 71 4 4 5
- ------------------------------------------------------------------------------------------------------
Total short-term investments
- ------------------------------------------------------------------------------------------------------
31 December 1998 962 857 105 6 2
- ------------------------------------------------------------------------------------------------------
31 December 1997 1,275 1,212 63 7 2
31 December 1996 1,019 979 40 7 2
- ------------------------------------------------------------------------------------------------------
</TABLE>
Sterling and US dollar floating rate investments include (pound)623 million
(1997 - (pound)789 million) of money market deposits and nil (1997 - (pound)265
million) of equity based investments which mature within three months of the
balance sheet date.
Fixed rate investments are those investments which have an interest rate fixed
for a period of greater than one year.
The currency and interest rate profile of the group's total borrowings at 31
December 1998 was:
<TABLE>
<CAPTION>
BORROWINGS FIXED RATE BORROWINGS
--------------------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
FLOATING INTEREST TIME FOR
RATE FIXED RATE RATE AT WHICH RATE
TOTAL BORROWINGS BORROWINGS 31 DECEMBER IS FIXED
(pound)m (pound)m (pound)m % YEARS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sterling 994 990 4 9 1
Other 15 15 -- -- --
- ------------------------------------------------------------------------------------------------------
Total borrowings
- ------------------------------------------------------------------------------------------------------
31 December 1998 1,009 1,005 4 9 1
- ------------------------------------------------------------------------------------------------------
31 December 1997 66 58 8 9 2
31 December 1996 46 35 11 9 3
- -----------------------------------------------------------------------------------------------------
</TABLE>
The floating rate borrowings comprise bank loans and overdrafts bearing interest
at rates based on local money market rates and commercial paper with a maturity
of less than 12 months. The weighted average interest rate on bank borrowings at
31 December 1998 was 4% (1997 - 4%, 1996 - 4%).
Total borrowings are repayable as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(pound)m (pound)m (pound)m
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Within one year 1,005 48 24
Between one and two years 4 18 4
Between two and five years -- -- 18
- ------------------------------------------------------------------------------------------
1,009 66 46
- ------------------------------------------------------------------------------------------
Bank borrowings secured against freehold property 3 15 19
- ------------------------------------------------------------------------------------------
</TABLE>
Bank borrowings at 31 December 1998 included a short-term loan denominated in
sterling, secured on freehold property held at a cost of (pound)93 million. The
interest rate payable on this loan was 8.8%.
Page 61
<PAGE>
13. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS continued
In December 1997, Reuters Group PLC entered into syndicated credit facilities
for (pound)1.5 billion to cover payments due to shareholders under the capital
reorganisation. A facility of (pound)1.0 billion expired on 2 December 1998. The
remaining (pound)0.5 billion which is at variable interest rates based on LIBOR,
the London Interbank Offer Rate, may be drawn and redrawn up to one month prior
to its maturity in December 2002.
In March 1998 Reuters established a Euro Commercial Paper Programme. This
provides access to (pound)1.5 billion of uncommitted finance of which (pound)511
million was unused at 31 December 1998. In December 1998 Reuters established a
(pound)1.0 billion Euro Medium Term Note Programme.
In addition, at 31 December 1998 Reuters had unused, short-term, uncommitted
bank borrowing facilities denominated in various currencies, the sterling
equivalent of which was approximately (pound)230 million, at money market rates
varying principally between 2% and 13%, depending on the currency.
14. CONCENTRATION OF CREDIT RISK
Reuters is exposed to concentrations of credit risk. Reuters invests in UK and
US government securities and with high credit quality financial institutions.
Reuters limits the amount of credit exposure to any one financial institution.
Reuters is also exposed to credit risk from its trade debtors which are
concentrated in the financial community. Reuters estimates that approximately
57% of its subscribers are financial institutions, 29% are corporations in other
sectors of the business community, 5% are from the news media and 9% are
government institutions and individuals worldwide (1997 - 58%, 28%, 5% and 9%
respectively).
Instinet is exposed to the possibility of trades between its counterparties
failing to settle. Due to the settlement mechanisms employed the maximum
exposure is generally limited to the market movement between the trade date and
the settlement date. There are no material unprovided off balance sheet
exposures or positions in respect of trades undertaken on or prior to 31
December 1998.
Page 62
<PAGE>
CONSOLIDATED BALANCE SHEET at 31 December
<TABLE>
<CAPTION>
PROFORMA
-----------------------
1998 1997 1996*
notes (pound)m (pound)m pound)m
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed assets
Intangible assets: Goodwill 16 234 157 198
Tangible assets 17 779 816 775
Investments 18 85 73 53
- ----------------------------------------------------------------------------------------------------------------
1,098 1,046 1,026
- ----------------------------------------------------------------------------------------------------------------
Current assets
Stocks 19 6 13 22
Debtors (see note below) 20 595 498 431
Short-term investments 21 962 1,275 1,019
Cash at bank and in hand 44 81 77
- ----------------------------------------------------------------------------------------------------------------
1,607 1,867 1,549
Creditors: Amounts falling due within one year 22 (2,250) (1,153) (1,024)
- ----------------------------------------------------------------------------------------------------------------
Net current (liabilities)/assets (643) 714 525
- ----------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 455 1,760 1,551
Creditors: Amounts falling due after more than one year 23 (16) (37) (41)
Provisions for liabilities and charges:
Pensions and similar obligations 24 (36) (28) (30)
Deferred taxation 25 (14) (16) (21)
- ----------------------------------------------------------------------------------------------------------------
Net assets 389 1,679 1,459
- ----------------------------------------------------------------------------------------------------------------
Capital and reserves 26
Called-up share capital 354 408 408
Share premium account 16 -- --
Other reserve (1,717) (290) (325)
Profit and loss account reserve 1,719 1,543 1,375
- ----------------------------------------------------------------------------------------------------------------
Shareholders' equity 372 1,661 1,458
Minority interests - equity -- 1 1
- non-equity 27 17 17 --
- ----------------------------------------------------------------------------------------------------------------
Capital employed 389 1,679 1,459
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Debtors and net current assets include amounts due after more than one year of
(pound)40 million (1997 - (pound)57 million, 1996 - (pound)39 million). 1997 and
1996 capital and reserves are shown on a proforma basis (see note 1).
*1996 figures restated following implementation of UK Financial Reporting
Standard 10 (FRS 10).
The balance sheet of Reuters Group PLC is shown on page 75.
The financial statements on pages 50-78 were approved by the directors on 12
February 1999.
- --((signature))-- --((signature))--
Peter Job, Chief Executive Rob Rowley, Finance Director
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997 1996
for the year ended 31 December (pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retained profit 181 200 252
Translation differences (debited)/credited directly to reserves (1) 2 (28)
Return of surplus capital to shareholders (1,482) -- --
Shares issued during the year 13 22 23
Shares repurchased during the year -- (21) --
- -----------------------------------------------------------------------------------------------------------------
Net (reduction)/addition to shareholders' equity (1,289) 203 247
Opening shareholders' equity 1,661 1,458 1,211
- -----------------------------------------------------------------------------------------------------------------
Closing shareholders' equity 372 1,661 1,458
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 63
<PAGE>
NOTES ON THE CONSOLIDATED BALANCE SHEET
15. SEGMENTAL ANALYSIS
The tables below show net assets and total assets by location on a basis
consistent with the segmental analysis of profit in note 2. For the reasons
discussed in that note, the assets in any location are not matched with the
revenue earned in that location.
RESTATED
1998 1997 1996
LOCATION OF NET ASSETS (pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------
Non-interest bearing assets/(liabilities):
Europe, Middle East and Africa 253 301 295
Asia/Pacific 96 101 98
The Americas 4 53 80
Instinet 84 114 37
TIBCO 28 6 4
Central (70) (180) (98)
- -------------------------------------------------------------------------------
Non-interest bearing net assets 395 395 416
Interest bearing net (liabilities)/assets (6) 1,284 1,043
- -------------------------------------------------------------------------------
389 1,679 1,459
- -------------------------------------------------------------------------------
Central non-interest bearing liabilities consist principally of dividend and
taxation liabilities partially offset by unamortised goodwill. Interest bearing
net assets are stated after deducting deferred consideration which has been
discounted for accounting purposes.
RESTATED
1998 1997 1996
LOCATION OF TOTAL ASSETS (pound)m pound)m (pound)m
- -------------------------------------------------------------------------------
Europe, Middle East and Africa 584 644 584
Asia/Pacific 213 224 206
The Americas 158 178 195
Instinet 686 500 355
TIBCO 64 56 33
Central 1,000 1,311 1,202
- -------------------------------------------------------------------------------
2,705 2,913 2,575
- -------------------------------------------------------------------------------
Fixed assets 1,098 1,046 1,026
Current assets 1,607 1,867 1,549
- -------------------------------------------------------------------------------
2,705 2,913 2,575
- --------------------------------------------------------------------------------
Central assets consist principally of purchased goodwill net of accumulated
amortisation, short-term investments and cash.
16. INTANGIBLE ASSETS: GOODWILL
<TABLE>
<CAPTION>
NET BOOK
COST AMORTISATION AMOUNT
(pound)m (pound)m (pound)m
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
31 December 1997 474 (317) 157
Additions (see note 32) 128 - 128
Amortisation charged in year - subsidiaries - (46) (46)
- associates - (5) (5)
Written back (38) 38 -
- --------------------------------------------------------------------------------------------------
31 December 1998 564 (330) 234
- --------------------------------------------------------------------------------------------------
</TABLE>
Amounts written back comprise goodwill which was originally capitalised on the
acquisition of Reuters Health Information practice management and Reuters Voice
Systems businesses which were disposed of in December 1998.
Page 64
<PAGE>
17. TANGIBLE ASSETS
<TABLE>
<CAPTION>
OFFICE
COMPUTER EQUIPMENT
FREEHOLD LEASEHOLD SYSTEMS AND MOTOR
PROPERTY PROPERTY EQUIPMENT VEHICLES TOTAL
(pound)m (pound)m (pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COST
31 December 1997 176 137 1,623 208 2,144
Translation differences - - (1) - (1)
Additions 5 18 231 42 296
Owned by subsidiaries acquired - 1 4 2 7
Disposals - (14) (159) (25) (198)
- -----------------------------------------------------------------------------------------------------------------------
31 December 1998 181 142 1,698 227 2,248
- -----------------------------------------------------------------------------------------------------------------------
Depreciation
31 December 1997 58 68 1,071 131 1,328
Charged in the year 8 13 269 41 331
Owned by subsidiaries acquired - - 3 1 4
On disposals - (13) (159) (22) (194)
- -----------------------------------------------------------------------------------------------------------------------
31 December 1998 66 68 1,184 151 1,469
- -----------------------------------------------------------------------------------------------------------------------
Net book amount
- -----------------------------------------------------------------------------------------------------------------------
31 December 1998 115 74 514 76 779
- -----------------------------------------------------------------------------------------------------------------------
31 December 1997 118 69 552 77 816
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1998 1997 1996
NET BOOK AMOUNT OF LEASEHOLD PROPERTY (pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------
Long-term leaseholds 14 16 15
Short-term leaseholds 60 53 44
- -------------------------------------------------------------------------------
74 69 59
- -------------------------------------------------------------------------------
CAPITAL COMMITMENTS
- -------------------------------------------------------------------------------
Contracted for 35 47 52
- -------------------------------------------------------------------------------
18. INVESTMENTS
<TABLE>
<CAPTION>
INTERESTS IN INTERESTS IN OTHER
OWN SHARES ASSOCIATES INVESTMENTS TOTAL
(pound)m (pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COST LESS AMOUNTS WRITTEN OFF
31 December 1997 39 22 19 80
Net additions 6 6 14 26
Disposals - - (8) (8)
Reclassification (see note below) - (4) - (4)
- -----------------------------------------------------------------------------------------------------------------------
31 December 1998 45 24 25 94
- -----------------------------------------------------------------------------------------------------------------------
SHARE OF POST-ACQUISITION LOSSES
31 December 1997 - (7) - (7)
Profits arising in the year (see note below) - 4 - 4
Reclassification (see note below) - 3 - 3
Dividends received - (9) - (9)
- ------------------------------------------------------------------------------------------------------------------------
31 December 1998 - (9) - (9)
- ------------------------------------------------------------------------------------------------------------------------
45 15 25 85
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Profits arising in the year of (pound)4 million are shown net of (pound)5
million goodwill amortisation in the consolidated profit and loss account.
Page 65
<PAGE>
18. INVESTMENTS continued
The reclassification reflects the purchase of the remaining 50% of Adways S.A.
which is now treated as a wholly owned subsidiary undertaking.
Interests in own shares represents the cost less amounts written off of 12.1
million ordinary shares held by employee share ownership trusts (ESOTs). These
were acquired in the open market using funds provided by Reuters. The write-off
reflects employee interests under incentive plans which are charged against
profit over the vesting period of the awards (see pages 26-28). The market value
of these shares at 31 December 1998 was (pound)77 million. The ESOTs have waived
dividend and voting rights on these shares. This presentation accords with that
required by the Urgent Issues Task Force abstracts 13 and 17. Should the shares
held by the ESOTs become material this treatment may be reviewed.
During 1998 Reuters entered into a joint venture with Rudin Times Square
Associates, LLC. At 31 December 1998 Reuters had invested a nominal amount and
had guaranteed the future injection of approximately US$45 million (see page
43).
During 1998 transactions between Reuters and its associates totalled (pound)2
million (1997 - (pound)4 million, 1996 - (pound)3 million).
Other investments consist principally of US technology stocks, a number of which
are listed with a market value of (pound)48 million, and Stock Exchange seats.
19. STOCKS
1998 1997 1996
(pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------
Contract work in progress 10 15 22
Less progress payments (9) (11) (13)
- -------------------------------------------------------------------------------
1 4 9
Equipment stocks 5 9 13
- -------------------------------------------------------------------------------
6 13 22
- -------------------------------------------------------------------------------
20. DEBTORS
1998 1997 1996
(pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------
Trade debtors 197 176 166
Less allowance for doubtful accounts (28) (27) (24)
- -------------------------------------------------------------------------------
169 149 142
Instinet counterparty debtors 204 122 63
Other debtors 90 73 69
Prepayments and accrued income 67 73 65
Deferred taxation (see note 25) 65 74 69
Advance corporation tax recoverable - 7 23
- -------------------------------------------------------------------------------
595 498 431
- -------------------------------------------------------------------------------
Amounts falling due after more than one year
(included in the above):
Other debtors 16 15 15
Deferred taxation 24 42 24
- -------------------------------------------------------------------------------
40 57 39
- --------------------------------------------------------------------------------
Page 66
<PAGE>
21. SHORT-TERM INVESTMENTS
1998 1997 1996
(pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------
Listed
Government securities: UK 2 2 -
Overseas 115 83 54
Other investments: Overseas - 265 -
- -------------------------------------------------------------------------------
117 350 54
- -------------------------------------------------------------------------------
Unlisted
Certificates of deposit 127 144 242
Term deposits: UK 511 647 594
Overseas 103 73 39
Other investments: UK 3 - -
Overseas 101 61 90
- -------------------------------------------------------------------------------
845 925 965
- -------------------------------------------------------------------------------
962 1,275 1,019
- -------------------------------------------------------------------------------
22. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
1998 1997 1996
(pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------
Trade creditors 126 135 122
Accruals 435 374 362
Instinet counterparty creditors 186 77 39
Deferred income 43 38 43
Other creditors 35 36 30
Other taxation and social security 33 36 25
- -------------------------------------------------------------------------------
858 696 621
Bank overdrafts 13 42 6
Bank loans 3 6 18
Commercial paper 989 - -
Current UK corporation and overseas taxation 232 269 234
Proposed dividend 155 140 145
- --------------------------------------------------------------------------------
2,250 1,153 1,024
- --------------------------------------------------------------------------------
Current UK corporation and overseas taxation comprises:
1998 1997 1996
(pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------
UK corporation tax:
Advance corporation tax - 47 22
Mainstream corporation tax 105 134 163
Overseas taxes 127 88 49
- -------------------------------------------------------------------------------
232 269 234
- -------------------------------------------------------------------------------
23. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
1998 1997 1996
(pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------
Bank borrowings 4 18 22
Other creditors 12 19 19
- --------------------------------------------------------------------------------
16 37 41
- --------------------------------------------------------------------------------
Page 67
<PAGE>
24. PENSIONS AND SIMILAR OBLIGATIONS
Reuters has established various pension arrangements covering the majority of
its employees. In all plans, except those which are internally funded, the
assets are held separately from those of the company and are independently
administered.
Defined contribution plans
Reuters operates 31 defined contribution plans covering approximately 68% of its
employees, of which the largest plan, the Reuters Pension Fund, covers
approximately 26% of employees. Members of this plan contribute 6% of basic
salaries and Reuters is required to make an annual contribution of 9.525% of
members' basic salaries regardless of the funding status of the plan. Reuters
does not have the ability to recover assets held by the plan, nor can it be
required to make additional payments to the plan over and above the annual
contributions referred to above. Custodial responsibility for the assets of the
plan rests with two substantial and independent UK investment managers.
Defined benefit plans
Reuters also operates 33 defined benefit plans covering approximately 16% of
employees. Individually, these plans are of a relatively minor nature. They are
subject to regular valuations based on the accepted actuarial practice and
standards within the country in which the plan is established. The largest plans
are directly invested and others are invested in insurance contracts. The
remainder are internally funded in accordance with local practice with
provisions in the subsidiary undertakings to recognise the pension obligations.
Where necessary, additional provisions have been established for the group's
plans in accordance with UK Statement of Standard Accounting Practice 24 based
on independent actuarial advice.
Post-retirement medical benefits
In the US, Reuters provides unfunded post-retirement medical benefits to certain
US employees. The principal assumptions used in the most recent actuarial
valuation undertaken at 31 December 1998 were that health care costs would
increase by 8% per annum per head over the next year decreasing to 6% over the
following two years and remain at 6% thereafter.
The movement on pension provisions and similar obligations was as follows:
1998 1997 1996
(pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------
Opening balance 28 30 27
Profit and loss account (see note 3):
Defined contribution plans 35 32 29
Defined benefit plans 14 11 14
Post-retirement medical benefits 1 1 1
- -------------------------------------------------------------------------------
50 44 44
Utilised in the year (42) (46) (41)
- -------------------------------------------------------------------------------
Closing balance 36 28 30
- -------------------------------------------------------------------------------
Page 68
<PAGE>
25. DEFERRED TAXATION LIABILITIES/(ASSETS)
1998 1997 1996
(pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------
Opening balance (58) (48) (85)
Arising on acquisitions - - 18
Profit and loss account 7 (10) 19
- -------------------------------------------------------------------------------
Closing balance (51) (58) (48)
- -------------------------------------------------------------------------------
The closing balance is analysed below:
- -------------------------------------------------------------------------------
Timing differences:
Fixed asset related 7 (1) 13
Other (58) (57) (61)
- -------------------------------------------------------------------------------
(51) (58) (48)
- -------------------------------------------------------------------------------
Reuters has provided for all potential deferred tax liabilities in respect of
timing differences and has provided for deferred UK income and foreign
withholding taxes that will be triggered by the expected future remittance of
earnings by overseas subsidiary undertakings. Reuters has not provided for
deferred UK income and foreign withholding taxes relating to unremitted earnings
where remittance of these earnings is not currently anticipated in the
foreseeable future. Reuters estimates that these unrecognised taxes would total
approximately (pound)117 million at 31 December 1998.
<TABLE>
<CAPTION>
VALUATION
ASSETS ALLOWANCE LIABILITIES NET
Total timing differences at 31 December 1998 (pound)m (pound)m (pound)m (pound)m
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed asset related (46) 32 21 7
Unrecognised tax losses (16) 14 -- (2)
Other (85) 19 10 (56)
- ----------------------------------------------------------------------------------------------
(147) 65 31 (51)
- ----------------------------------------------------------------------------------------------
</TABLE>
The valuation allowance increased by (pound)21 million during 1998. Where
appropriate deferred tax assets and liabilities are netted for balance sheet
presentation purposes. The net deferred tax balance has been analysed as:
<TABLE>
<CAPTION>
1998 1997 1996
(pound)m (pound)m (pound)m
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax debtor (included in debtors - see note 20) (65) (74) (69)
Deferred tax liability (included in provisions for liabilities and charges) 14 16 21
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 69
<PAGE>
26. CAPITAL AND RESERVES
<TABLE>
<CAPTION>
PROFIT AND
CALLED-UP SHARE LOSS SHARE-
SHARE PREMIUM OTHER ACCOUNT HOLDERS'
CAPITAL ACCOUNT RESERVE RESERVE EQUITY
(pound)m (pound)m (pound)m (pound)m (pound)m
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
31 December 1995 (proforma - see note 1) 408 -- (370) 1,173 1,211
Shares issued during the year -- -- 45 (22) 23
Translation differences -- -- -- (28) (28)
Retained earnings for the year (restated) -- -- -- 252 252
- --------------------------------------------------------------------------------------------------------------------
31 December 1996 (proforma - see note 1) 408 -- (325) 1,375 1,458
Shares issued during the year -- -- 35 (13) 22
Shares repurchased during the year -- -- -- (21) (21)
Translation differences -- -- -- 2 2
Retained earnings for the year -- -- -- 200 200
- --------------------------------------------------------------------------------------------------------------------
31 December 1997 (proforma - see note 1) 408 -- (290) 1,543 1,661
Capital reorganisation (see note 1) (55) -- (1,427) -- (1,482)
Shares issued during the year 1 16 -- (4) 13
Retained earnings for the year -- -- -- 181 181
Translation differences -- -- -- (1) (1)
- --------------------------------------------------------------------------------------------------------------------
31 December 1998 354 16 (1,717) 1,719 372
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Cumulative translation losses at 31 December 1998 totalled (pound)28 million
(1997 - (pound)27 million, 1996 - (pound)29 million).
During 1998 (pound)17 million was received by Reuters Group PLC on the issue of
shares in respect of the exercise of options awarded under various share option
plans. Employees paid (pound)13 million to the group for the issue of these
shares and the balance of (pound)4 million comprised contributions to the
qualifying employee share trust (QUEST) from subsidiary undertakings.
27. NON-EQUITY MINORITY INTERESTS
Non-equity minority interests comprise convertible preferred stock issued by
TIBCO Software Inc., a US subsidiary. The holders of these securities, which are
non-redeemable, have no rights against group undertakings other than the issuing
entity. Dividends on the preferred stock are only payable when declared.
Page 70
<PAGE>
28. SHARE CAPITAL
<TABLE>
<CAPTION>
PROFORMA
-----------------------
1998 1997 1996
(pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUTHORISED
One Founders Share of (pound)1 -- -- --
49,998 redeemable preference shares of (pound)1 (see note 35) -- -- --
2,100 million ordinary shares of 25p each 525 525 525
- -----------------------------------------------------------------------------------------------------
525 525 525
- -----------------------------------------------------------------------------------------------------
ALLOTTED AND CALLED-UP
One Founders Share of (pound)1 -- -- --
Redeemable preference shares of (pound)1 (see note 35) -- -- --
Ordinary shares of 25p each 354 408 408
- -----------------------------------------------------------------------------------------------------
354 408 408
- -----------------------------------------------------------------------------------------------------
Number of ordinary shares of 25p each (millions) 1,421.6 1,635.4 1,635.4
- -----------------------------------------------------------------------------------------------------
SHARES ALLOTTED/(REPURCHASED) DURING THE YEAR IN MILLIONS 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Capital reorganisation (218.1) -- --
Shares in Reuters Group PLC issued for cash under employee
share schemes at prices ranging from 118p to 601p per share
since 18 February 1998 4.3 -- --
- -----------------------------------------------------------------------------------------------------
(213.8) -- --
- -----------------------------------------------------------------------------------------------------
</TABLE>
Proforma ordinary shares allotted and called-up at 31 December 1997 and 31
December 1996 represents the nominal value of shares in issue of Reuters Group
PLC immediately prior to the capital reorganisation on 18 February 1998.
Consequently, there are no share movements shown for 1996 and 1997.
29. CONTINGENT LIABILITY
In January 1998 Reuters was notified that Reuters Analytics Inc. ("Reuters
Analytics"), one of its US subsidiaries, is the subject of a grand jury
investigation in New York arising out of an arrangement that Reuters Analytics
had with a New York-based consultant. The consultant subscribed to Bloomberg
L.P.'s service, which included the associated data and analytics.
Reuters is co-operating with the investigation and has engaged external legal
counsel to conduct a thorough internal inquiry. At this time Reuters is unable
to predict the impact the investigation or related events may have on its
business or financial condition.
Page 71
<PAGE>
30. EMPLOYEE SHARE OPTION PLANS
Reuters operates share plans for the benefit of employees as explained in the
report on remuneration. Since the flotation of Reuters Holdings PLC in 1984,
Reuters has issued 89 million shares under these plans.
Share option activity for the two years ended 31 December 1998 was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SAVE AS YOU EXECUTIVE PLAN PRICE
EARN PLANS PLANS 2000 TOTAL (POUND)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ordinary shares under option in millions (including ADSs):
31 December 1996 21.7 6.4 -- 28.1 3.52
Granted 4.8 -- -- 4.8 5.01
Exercised (5.9) (2.7) -- (8.6) 2.57
Expired, cancelled or lapsed (3.4) (0.3) -- (3.7) 4.86
- -----------------------------------------------------------------------------------------------------------------------------
31 December 1997 17.2 3.4 -- 20.6 4.05
Granted 5.1 -- 25.7 30.8 5.43
Exercised (3.0) (1.7) -- (4.7) 2.88
Expired, cancelled or lapsed (2.2) (0.1) -- (2.3) 4.70
- -----------------------------------------------------------------------------------------------------------------------------
31 December 1998 17.1 1.6 25.7 44.4 5.10
- -----------------------------------------------------------------------------------------------------------------------------
Number of participants at 31 December 1998 8,285 125 12,869
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarises information relating to the number of shares
under option and those which were exercisable at 31 December 1998.
<TABLE>
<CAPTION>
WEIGHTED SHARES
AVERAGE EXERCISABLE
PERIOD WEIGHTED AT WEIGHTED
TOTAL SHARES REMAINING TO AVERAGE 1 DECEMBER AVERAGE
UNDER OPTION FULL VESTING EXERCISE 1998 EXERCISE
RANGE OF EXERCISE PRICES (MILLIONS) (MONTHS) PRICE (MILLIONS) PRICE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ordinary shares
(pound)1.00 - (pound)3.00 0.2 - (pound)2.54 0.2 (pound)2.54
(pound)3.01 - (pound)5.00 10.7 18 (pound)4.13 1.0 (pound)4.32
(pound)5.01 - (pound)7.00 30.9 32 (pound)5.46 - -
ADSs
$20.01 - $40.00 0.2 - $29.55 0.2 $29.55
$40.01 - $60.00 2.4 24 $51.85 0.2 $43.72
- -----------------------------------------------------------------------------------------------------------
44.4 1.6
- -----------------------------------------------------------------------------------------------------------
</TABLE>
In August 1990 and January 1994, Reuters established employee share ownership
trusts with the power to acquire shares in the open market. The trustee of both
trusts, an off-shore subsidiary of Reuters, is being managed under contract by
an independent management company. Shares purchased by the trusts will be used
to meet obligations under the company's restricted share plans described in the
report on remuneration on pages 26-28. Shares may also be used to satisfy the
exercise of options granted, or to be granted, under the employee share option
plans. Alternatively, new shares may be issued to satisfy these option
obligations.
Page 72
<PAGE>
31. OPERATING LEASES
Minimum payments for non-cancellable operating leases for terms in excess of one
year from 31 December are as follows:
1998 1997 1996
(pound)m (pound)m (pound)m
- ----------------------------------------------------------------------
Year ended 31 December
1997 - - 62
1998 - 62 58
1999 70 60 47
2000 64 51 42
2001 61 45 35
2002 54 38 30
2003 46 30 27
Thereafter 295 119 117
- ----------------------------------------------------------------------
Total minimum lease payments 590 405 418
- ----------------------------------------------------------------------
At 31 December Reuters had commitments to make payments during the following
year under non-cancellable operating leases as follows:
<TABLE>
<CAPTION>
LAND AND BUILDINGS OTHER
---------------------------- ----------------------------
1998 1997 1996 1998 1997 1996
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating leases which expire:
Within one year 7 5 5 1 1 5
In the second to fifth years 36 26 27 8 8 7
Over five years 26 28 28 -- -- --
- ----------------------------------------------------------------------------------------------
</TABLE>
32. ACQUISITIONS
During 1998 Reuters acquired a number of subsidiary undertakings including 100%
shareholdings in Lipper Analytical Services Inc., Liberty SA, Agence de Presse
Medicale and Citywatch Limited. Investments in associated undertakings included
a 33.5% shareholding in GL Trade, 27.5% shareholding in Datamonitor Plc and 42%
of The Riskmetrics Group, LLC. The cost, consolidated net assets and goodwill
arising was as follows:
SUBSIDIARY ASSOCIATED
UNDERTAKINGS UNDERTAKINGS TOTAL
(pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------
Paid in the year 89 47 136
Deferred 1 - 1
- -------------------------------------------------------------------------------
90 47 137
Net assets acquired 3 6 9
- -------------------------------------------------------------------------------
Goodwill 87 41 128
- -------------------------------------------------------------------------------
Contribution to group revenue of acquisitions made during 1998 was immaterial.
Had these companies been acquired on 1 January 1998, their impact on the group's
results would have been immaterial.
Page 73
<PAGE>
33. SUBSIDIARY UNDERTAKINGS
The principal subsidiary undertakings at 31 December 1998, all of which are
included in the consolidated financial statements, are shown below. The shares
in Reuters Investments Limited are held by Reuters Group PLC. The shares in the
other companies are held by Reuters Investments Limited or its wholly-owned
subsidiaries.
<TABLE>
<CAPTION>
COUNTRY PRINCIPAL PERCENTAGE
OF AREA OF OF EQUITY
SUBSIDIARY UNDERTAKINGS INCORPORATION OPERATION SHARES HELD
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Instinet Corporation USA USA 100
Reuters AG Germany Germany 100
Reuters America Inc. USA USA 100
Reuters Asia Pte Limited Singapore Asia/Pacific 100
Reuters Australia Pty Limited Australia Australia 100
Reuters Eastern Europe Limited Great Britain Russia 100
Reuters Espana SA Spain Spain 100
Reuters Hong Kong Limited Cook Islands Hong Kong 100
Reuters Investments Limited Great Britain Great Britain 100
Reuters Italia SpA Italy Italy 100
Reuters Japan Kabushiki Kaisha Japan Japan 100
Reuters Limited Great Britain Worldwide 100
Reuters Nederland BV Netherlands Netherlands 100
Reuters SA Switzerland Continental Europe 100
Reuters Services SARL France France 100
Reuters Singapore Pte Limited Singapore Singapore 100
Reuters Transaction Services Limited Great Britain Worldwide 100
TIBCO Finance Technology Inc. USA Worldwide 100
TIBCO Software Inc. USA Worldwide 95*
- -------------------------------------------------------------------------------------------------
</TABLE>
The activities of the subsidiary undertakings listed above are set out on page
9. The financial years for the above subsidiary undertakings end on 31 December.
Associated undertakings are not listed as their carrying value is only (pound)15
million.
*Excludes the impact of non-equity stock (see note 27).
Page 74
<PAGE>
BALANCE SHEET OF REUTERS GROUP PLC at 31 December
<TABLE>
<CAPTION>
1998 1997 1996
notes (pound)m (pound)m (pound)m
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed asset investment 34 8,640 -- --
Amounts owed by group undertakings 1,144 -- --
Other borrowings (989) -- --
Proposed dividends (155) -- --
- ---------------------------------------------------------------------------------------------
Net assets 8,640 -- --
- ---------------------------------------------------------------------------------------------
Capital and reserves: 35
Called-up share capital 354 -- --
Share premium 16 -- --
Merger reserve 6,788 -- --
Profit and loss account reserve 1,482 -- --
- ---------------------------------------------------------------------------------------------
Capital employed 8,640 -- --
- ---------------------------------------------------------------------------------------------
Profit attributable to ordinary shareholders -- 343 -- --
</TABLE>
This balance sheet was approved by the directors on 12 February 1999.
- --((signature))-- --((signature))--
Peter Job, Chief Executive Rob Rowley, Finance Director
Advantage has been taken of the provisions of section 230(3) of the Companies
Act 1985 not to produce a separate profit and loss account for Reuters Group
PLC.
Page 75
<PAGE>
NOTES ON THE BALANCE SHEET OF REUTERS GROUP PLC
34. FIXED ASSET INVESTMENT
The investment represents the shareholding of Reuters Group PLC in Reuters
Investments Limited.
35. CAPITAL AND RESERVES
<TABLE>
<CAPTION>
PROFIT AND
CALLED-UP SHARE LOSS
SHARE PREMIUM MERGER ACCOUNT
CAPITAL ACCOUNT RESERVE RESERVE TOTAL
(pound)m (pound)m (pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
31 December 1997 - - - - -
Shares issued during the year 354 16 8,270 - 8,640
Transfer arising on receipt of pre-acquisition dividend - - (1,482) 1,482 -
Retained profit for the year - - - - -
- -------------------------------------------------------------------------------------------------------------------------
31 December 1998 354 16 6,788 1,482 8,640
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Reuters Group PLC was incorporated on 24 December 1996 as Nayatronics Limited
and was reregistered as a public limited company on 12 December 1997. On 2
December 1997, the authorised share capital of Reuters Group PLC was increased
from (pound)100 to (pound)50,000 by the creation of 49,900 redeemable preference
shares of (pound)1 each and on 12 December 1997 was further increased to
(pound)525,000,001 by the creation of 2,099,800,000 ordinary shares of 25p each
and one Founders Share of (pound)1.
On 18 February 1998, 1,417,331,693 ordinary shares of 25p each (together with
cash of (pound)1,482 million) were issued and credited as fully paid, following
the approval of a High Court Scheme of Arrangement to acquire the majority of
the issued share capital of Reuters Holdings PLC. For further detail see note 1.
The merger reserve and profit and loss account reserve of (pound)1,482 million
arose as a result of this transaction.
On 28 February 1998 the 49,998 redeemable preference shares were redeemed and
converted into 199,992 ordinary shares of 25p each.
Dividend distributions of (pound)343 million charged through the profit and loss
account of Reuters Group PLC in 1998 comprise a first interim dividend paid in
April 1998, a second interim dividend paid in September 1998 and the recommended
final 1998 dividend payable in April 1999. The first interim dividend represents
the final dividend charged through the 1997 group profit and loss account of
Reuters Holdings PLC prior to the capital reorganisation.
Page 76
<PAGE>
ACCOUNTING POLICIES
ACCOUNTING BASIS
The financial statements are prepared under the historical cost convention and
in accordance with applicable accounting standards. As set out in note 1, the
capital reorganisation has been accounted for using merger accounting principles
in order to show a true and fair view.
BASIS OF CONSOLIDATION
The consolidated financial statements include:
a. The financial statements of Reuters Group PLC and its subsidiaries to
31 December. The results of subsidiaries are included for the period
during which they are a member of the group.
b. Reuters share of the post-acquisition results of associated
undertakings. Investments in associated undertakings are included at
Reuters share of the tangible net assets at the dates of acquisition
plus the group's share of post-acquisition reserves.
FOREIGN CURRENCY TRANSLATION
Where it is considered that the functional currency of an operation is sterling
the financial statements are expressed in sterling on the following basis:
a. Fixed assets are translated into sterling at the rates ruling on the
date of acquisition as adjusted for any profits or losses from related
financial instruments.
b. Monetary assets and liabilities denominated in a foreign currency are
translated into sterling at the foreign exchange rates ruling at the
balance sheet date.
c. Revenue and expenses in foreign currencies are recorded in sterling
at the rates ruling for the month of the transactions.
d. Any gains or losses arising on translation are reported as part of
profit.
For other operations and associated undertakings, assets and liabilities are
translated into sterling at the rates ruling at the balance sheet date. Revenue
and expenses in foreign currencies are recorded in sterling at the rates ruling
for the month of the transactions and gains or losses arising on translation are
dealt with through reserves.
TREASURY
Reuters receives revenue and incurs expenses in more than 60 currencies and uses
financial instruments to hedge a portion of its net cash flow and operating
profit. Profits and losses from hedging activities are matched with the
underlying cash flows and profits being hedged. Those relating to trading cash
flows are reported as part of profit and those relating to Reuters capital
expenditure programme are adjusted against the cost of the assets to which they
relate.
Reuters uses financial instruments to hedge a portion of its interest exposure.
Profits and losses on financial instruments are reported as part of profit for
the period to which they relate.
Financial instruments hedging the risk on foreign currency assets are revalued
at the balance sheet date and the resulting gain or loss offset against that
arising from the translation of the underlying asset into sterling.
REVENUE
Revenue represents the turnover, net of discounts, derived from services
provided to subscribers and sales of equipment applicable to the year.
Short-term contracts are accounted for on a completed contract basis.
INSTINET TRANSACTIONS
Securities transactions between Instinet counterparties which pass through
Instinet in its role as an agency broker are recorded on a settlement date basis
and, therefore, are only reflected in the balance sheet if there is a failure to
settle.
Revenues and related expenses arising from such securities transactions are
accrued from the date of the transaction.
DEVELOPMENT
Development expenditure is charged against profit in the year in which it is
incurred.
<PAGE>
PENSIONS AND SIMILAR OBLIGATIONS
The expected cost of pensions and other post-retirement benefits is charged
against profit so as to spread the cost over the service lives of the employees
affected.
RESTRICTED SHARE AND INSTINET LONG-TERM INCENTIVE PLANS
Costs of the restricted share and Instinet long-term incentive plans are charged
to profit over the vesting period of the awards.
TANGIBLE FIXED ASSETS
Depreciation is calculated on a straight line basis so as to write down the
assets to their residual values over their expected useful lives:
Freehold land......................................Not depreciated
Freehold buildings.................................Normally 50 years
Leasehold property.................................Over the term of the lease
Computer systems equipment, office equipment
and motor vehicles...............................3 to 5 years
STOCKS
Stocks and contract work in progress are valued at the lower of cost and net
realisable value less progress payments received and receivable from clients.
Progress payments in excess of the value of work carried out are included within
creditors.
Cost is calculated on a first in first out basis by reference to the invoiced
value of supplies and attributable costs of bringing stocks to their present
location and condition.
Page 77
<PAGE>
Net realisable value is the estimated market value less selling costs.
SHORT-TERM INVESTMENTS
Government securities are stated in the balance sheet at the lower of cost plus
accrued capital appreciation and market value. Income from these securities and
any adjustment for changes in their market value during the year are reported as
part of profit.
Interest on certificates of deposit is calculated at the yield at which the
certificate was purchased and is reported as part of profit over the life of the
certificate. Certificates of deposit are stated in the balance sheet at the
lower of cost plus accrued interest and market value.
Movements in short-term investments are reported under the heading of management
of liquid resources in the cash flow statement.
LEASING
Assets acquired under a finance lease are recorded in the balance sheet as
tangible fixed assets with corresponding obligations to pay future rentals. The
assets are valued at the present value of the minimum lease payments at the rate
implicit in the lease.
Rentals payable are apportioned between a finance charge and a reduction of the
outstanding obligation for future amounts payable. The total finance charge is
allocated to accounting periods during the lease term so as to produce a
constant periodic rate of charge on the outstanding obligation throughout the
lease.
Operating lease rentals are charged against profit on a straight line basis over
the period of the lease.
DEFERRED TAXATION
Tax deferred or accelerated by the effect of timing differences is accounted for
to the extent that it is considered probable that a liability or asset will
crystallise in the foreseeable future. The only exception to this is in respect
of deferred tax assets relating to provisions for pensions and other
post-retirement benefits which are recognised in full.
GOODWILL AND INTANGIBLE ASSETS
Purchased goodwill and intangible assets are capitalised and amortised through
the profit and loss account over their estimated lives which are between five
and 20 years.
INTEREST IN SHARES OF REUTERS GROUP PLC
Shares held by the employee share ownership trusts are recorded in the balance
sheet within fixed asset investments at cost including expenses less amounts
written off.
Page 78
<PAGE>
SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance with UK
GAAP, which differ in certain significant respects from US GAAP. A description
of the relevant accounting principles which differ materially is given below:
SOFTWARE REVENUE RECOGNITION
Under UK GAAP, revenue and related direct costs from contracts for the outright
sale of software systems are recognised at the time of client acceptance. Under
US GAAP, specific rules were introduced from January 1998 for the determination
of client acceptance in cases where future significant modifications or upgrades
to the software are considered to be part of the client's overall acceptance of
the product. Under these rules, an amount of revenue is required to be deferred
until these software upgrades have been delivered and accepted by the client.
Warranties provided by Reuters in connection with the delivery of millennium
versions of software fall within these rules and consequently an element of
revenue and related direct cost has been deferred under US GAAP. This policy has
not been adopted under UK GAAP.
GOODWILL AND OTHER ACQUISITION ACCOUNTING ADJUSTMENTS
UK GAAP require purchased goodwill to include an estimate of the fair value of
any deferred consideration. Under US GAAP, contingent consideration is
recognised as a component of goodwill when the contingency is resolved.
SOFTWARE DEVELOPMENT COSTS
Under UK GAAP, costs of developing computer software products are expensed in
the year in which they are incurred. Under US GAAP, the costs of developing
computer software products subsequent to establishing technical feasibility are
capitalised. The amortisation of the capitalised costs is based on the estimated
future revenues or remaining estimated useful economic lives of the products
involved.
EMPLOYEE COSTS
Options under Reuters save-as-you-earn plans are granted at a 20% discount.
Under UK GAAP, the share issues are recorded at their discounted price when the
options are exercised. Under US GAAP, the discount is regarded as employee
compensation and is accrued over the vesting period of the grants.
TAXES ON INCOME
Under UK GAAP, deferred taxes are accounted for to the extent that it is
considered probable that a liability or asset will crystallise in the
foreseeable future. Under US GAAP, deferred taxes are accounted for on all
timing differences and a valuation allowance is established in respect of those
deferred tax assets where it is more likely than not that some portion will
remain unrealised. Deferred tax also arises in relation to the tax effect of the
other US GAAP adjustments.
DIVIDENDS
Under UK GAAP, dividends are provided for in the year in respect of which they
are declared or proposed. Under US GAAP, dividends and the related advance
corporation tax are given effect only in the period in which dividends are
formally declared.
SHARES HELD BY EMPLOYEE SHARE OWNERSHIP TRUSTS (ESOTS)
Under UK GAAP, shares held by the ESOTs are recorded as fixed asset investments
at cost less amounts written off. Under US GAAP, those shares not fully vested
are regarded as treasury stock and recorded at cost as a deduction from
shareholders' equity.
FIXED ASSET INVESTMENTS
Under UK GAAP, fixed asset investments are held in the balance sheet at the
lower of cost or net realisable value. Under US GAAP, fixed asset investments
which are available for sale are stated at fair value with unrealised gains or
losses included in shareholders' equity.
The effects of these differing accounting principles are shown in notes 36-39.
<PAGE>
CASH FLOW STATEMENTS
The cash flow statement set out on pages 57-59 has been prepared in conformity
with UK Financial Reporting Standard 1 (Revised) "Cash Flow Statements". The
principal differences between this statement and cash flow statements presented
in accordance with US Financial Accounting Standard number 95 are as follows:
1. Under UK GAAP net cash flow from operating activities is determined
before considering cash flows from (a) returns on investments and
servicing of finance and (b) taxes paid. Under US GAAP, net cash flow
from operating activities is determined after these items.
2. Under UK GAAP, capital expenditure is classified separately while
under US GAAP, it is classified as an investing activity.
3. Under UK GAAP, dividends are classified separately while under US
GAAP, dividends are classified as financing activities.
4. Under UK GAAP movements in short-term investments are not included in
cash but classified as management of liquid resources. Under US GAAP,
short-term investments with a maturity of three months or less at the
date of acquisition are included in cash.
5. Under UK GAAP movements in bank overdrafts are classified as movements
in cash while under US GAAP they are classified as a financing
activity.
Set out below is a summary consolidated cash flow statement under US GAAP:
<TABLE>
<CAPTION>
1998 1997 1996
(pound)m (pound)m (pound)m
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash inflow from operating activities 795 817 866
Net cash outflow from investing activities (431) (400) (501)
Net cash outflow from financing activities (764) (85) (5)
- ----------------------------------------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents under US GAAP (400) 332 360
Net (decrease)/increase in cash under UK GAAP (see notes 4 and 5 above) (8) (31) 52
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 79
<PAGE>
NOTES ON SUMMARY OF DIFFERENCES BETWEEN UK AND US GAAP
36. ADJUSTMENTS TO NET INCOME
<TABLE>
<CAPTION>
1998 1997 1996
(pound)m (pound)m (pound)m
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Profit attributable to ordinary shareholders in accordance with UK GAAP (restated) 384 390 442
US GAAP adjustments:
Software revenue recognition (2) - -
Acquisition accounting adjustments (see note below) (3) (3) 2
Software development costs (2) (2) (2)
Employee costs (1) (3) (7)
Taxes 16 4 5
- ----------------------------------------------------------------------------------------------------------------------
Approximate net income in accordance with US GAAP 392 386 440
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
pence pence pence
- ----------------------------------------------------------------------------------------------------------------------
Earnings and dividends (see note (ii) below)
Basic earnings per ADS in accordance with US GAAP 166.6 164.5 188.3
Diluted earnings per ADS in accordance with US GAAP 166.0 163.4 185.8
- ----------------------------------------------------------------------------------------------------------------------
Dividend paid per ADS (including UK advance corporation tax credit) 99.8 104.7 88.7
Deemed special dividend paid per ADS 627.7 - -
- ----------------------------------------------------------------------------------------------------------------------
Total dividend paid per ADS 727.5 104.7 88.7
- ----------------------------------------------------------------------------------------------------------------------
Weighted average number of shares used in basic EPS calculation (millions) 1,411 1,407 1,401
Issuable on conversion of options 5 10 19
- ----------------------------------------------------------------------------------------------------------------------
Used in diluted EPS calculation 1,416 1,417 1,420
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(i) Employee costs
The company has complied with Financial Accounting Standard No. 123, Accounting
for Stock-Based Compensation (FAS 123). Reuters has continued to apply the
methodologies set out in APB Opinion 25, Accounting for Stock Issued to
Employees, and other US GAAP literature in calculating its US GAAP adjustments
for share option plans and awards of share rights. Had Reuters elected to
recognise compensation expense based upon the fair value at grant date for
awards made in 1995 to 1998 under these plans consistent with the alternative
methodology set out in FAS 123, net income and earnings per ADS in accordance
with US GAAP would not have been materially different from those shown above.
This position may not be representative of future disclosures since the
estimated fair value of share options is amortised to expense over the vesting
period and additional options may be granted in future years.
(ii) Capital reorganisation
As explained in note 1, Reuters Holdings PLC completed a capital reorganisation
in February 1998. Under US GAAP this transaction was deemed a share
consolidation combined with a special dividend and, accordingly, earnings per
share and per ADS and dividends per share and per ADS have been retroactively
restated. Under UK GAAP no restatement of earnings per share was deemed
necessary as the cash payment was considered to be equivalent to a repurchase of
shares at market value and the number of new shares in Reuters Group PLC was set
to facilitate comparability of earnings with those of Reuters Holdings PLC.
Page 80
<PAGE>
37. ADJUSTMENTS TO SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997 1996
(pound)m (pound)m pound)m
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital employed before minority interest in accordance with UK GAAP 372 1,661 1,458
US GAAP adjustments:
Software revenue recognition (2) -- --
Goodwill and other acquisition accounting adjustments 14 11 8
Capitalised software development costs net of amortisation 6 8 10
Fixed asset investments 42 14 --
Shares held by employee share ownership trusts (45) (39) (28)
Liabilities (28) (25) (19)
Taxes (10) (16) (13)
Dividends not formally declared or paid during the year 155 140 145
- -----------------------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with US GAAP 504 1,754 1,561
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
38. STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
1998 1997 1996
(pound)m (pound)m pound)m
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Approximate net income in accordance with US GAAP 392 386 440
Other comprehensive income, net of tax:
Unrealised gains on certain fixed asset investments:
Arising during year 37 8 --
Less gains in net income (19) -- --
Foreign currency translation differences (1) 2 (28)
- -----------------------------------------------------------------------------------------------------------------
Approximate net income in accordance with US GAAP 409 396 412
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
39. SUMMARISED BALANCE SHEET (US GAAP BASIS)
<TABLE>
<CAPTION>
1998 1997 1996
(pound)m (pound)m pound)m
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Fixed tangible assets 859 858 800
Current assets 1,565 1,809 1,506
Other assets 42 58 40
Software development costs 6 8 10
Goodwill and other intangibles 250 174 206
- -----------------------------------------------------------------------------------------------------------------
Total assets 2,722 2,907 2,562
- -----------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities 2,102 1,017 884
Long-term liabilities 75 86 84
Deferred taxes 24 32 32
Minority interest 17 18 1
Shareholders' equity before deductions 562 1,889 1,684
Treasury stock - (82) (82)
Shares held by employee share ownership trusts (58) (53) (41)
- -----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 504 1,754 1,561
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 2,722 2,907 2,562
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Goodwill and other intangibles are net of accumulated amortisation of (pound)337
million (1997 - (pound)322 million, 1996 - (pound)270 million). Software
development costs are net of accumulated amortisation of (pound)13 million (1997
- - (pound)11 million, 1996 - (pound)9 million).
Page 81
<PAGE>
OTHER INFORMATION FOR SHAREHOLDERS
ORDINARY SHARES
A register of shareholders' interests is kept at the company's head office and
is available for inspection on request. The register includes information on
nominee accounts and their beneficial owners.
A newspaper for investors, 'News from Reuters', is published several times a
year. To obtain copies, contact the Investor Relations department in London or
New York (addresses on page 90).
Hoare Govett and Cazenove & Co. offer low cost share dealing services for
existing and potential Reuters shareholders. Further information can be obtained
from Hoare Govett Limited's Low Cost Dealing Department, 4 Broadgate, London
EC2M 7LE (tel: 0171 601 0101) and Mrs Nancy Young, Postal Dealing Department,
Cazenove & Co., 12 Tokenhouse Yard, London EC2R 7AN (tel: 0171 606 1768).
Reuters offers a single company Personal Equity Plan (PEP) and a general PEP for
UK residents wishing to hold Reuters shares in such plans. However, PEPs will be
replaced by the new Individual Savings Account (ISA) from 6 April 1999. Further
information on PEPs and deadline dates for opening new PEPs can be obtained from
Bank of Scotland, PEP Unit, 101 George Street, Edinburgh EH2 3JH (tel: 0131 243
8053). Bank of Scotland is regulated in the conduct of PEP business by the
Investment Management Regulatory Organisation (IMRO).
REGISTRAR
On 28 January 1999 Bank of Scotland and Lloyds TSB Group announced that they had
reached an agreement for Lloyds TSB Registrars to acquire Bank of Scotland's
Registrar Services business. The transaction is expected to be completed during
the first quarter of 1999.
Reuters expects to transfer the administration of its share register to Lloyds
TSB Registrars sometime during the second quarter. Shareholders should continue
to contact the registrar at the address and telephone number listed on page 90.
Following the transfer, telephone calls and mail will be forwarded automatically
to Lloyds TSB Registrars.
DIVIDENDS AND EARNINGS
Ordinary shareholders have received the following dividends in respect of each
financial year:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interim 3.4p 3.1p 2.75p 2.3p 1.9p
Final (1998 proposed) 11.0p 9.9p 9.0p 7.5p 6.1p
- ---------------------------------------------------------------------------------------
14.4p 13.0p 11.75p 9.8p 8.0p
- ---------------------------------------------------------------------------------------
Basic earnings per ordinary share 26.7p 24.0p 27.3p 23.2p 19.9p
</TABLE>
Ordinary shareholders living in selected countries outside the United Kingdom
can have their dividends paid directly into their bank accounts in local
currency. Any shareholders interested in this service, for which there is a
small charge, should contact the registrar (address on page 90).
ANALYSIS OF SHAREHOLDINGS AT 31 DECEMBER 1998
Excluding Reuters ordinary shares held by employee share ownership trusts, there
were 1,409 million shares in issue, analysed as in the chart opposite. There
were 24,395 shareholders on the ordinary share register.
Note 1: Includes UK unit trusts and US mutual funds
Note 2: Includes all holdings below 100,000 shares, except for individuals,
whose holdings are analysed below this level.
[CHART]
Pension funds 32%
Insurance companies 17%
American Depositary Shares 15%
Investment funds and trusts (note 1) 13%
Individuals 5%
Corporate holdings 2%
Foreign governments 1%
Non-profit organisations 1%
Others (note 2) 14%
Page 82
<PAGE>
AMERICAN DEPOSITARY SHARES (ADSS)
Each ADS represents six ordinary shares.
ADS holders receive the annual and half-yearly reports issued by Reuters Group
PLC.
Reuters Group PLC is subject to the informational requirements of the US
securities laws applicable to foreign companies and in accordance therewith
files an annual report on Form 20-F and other information with the US Securities
and Exchange Commission. The Form 20-F is also available from the Investor
Relations departments in London or New York.
ADS DIVIDENDS
ADS holders are eligible for all stock dividends or other entitlements accruing
on the underlying Reuters Group PLC shares and receive all cash dividends in US
dollars. These are normally paid twice a year.
Dividend cheques are mailed directly to the ADS holder on the payment date if
ADSs are registered with Reuters US depositary. Dividends on ADSs that are
registered with brokers are sent to the brokers, who forward them to ADS
holders. Reuters US depositary is Morgan Guaranty Trust Company of New York
(address on page 90).
Dividends per ADS, including any UK tax refunds but before US tax credits, in
respect of each financial year are set out below.
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
IN STERLING
Interim 21.7p 19.8p 17.5p 14.7p 12.1p
Final (1998 proposed) 66.0p 63.1p 57.4p 47.8p 38.9p
- -------------------------------------------------------------------------------
87.7p 82.9p 74.9p 62.5p 51.0p
- -------------------------------------------------------------------------------
IN DOLLARS
Interim 36.1c 31.2c 27.3c 22.7c 18.9c
Final (1998 proposed) * 104.2c 93.1c 72.2c 62.6c
*Final 1998 dividend will be converted to US dollars from sterling at the rate
prevailing on 26 April 1999.
The figures above which have not been restated for the capital reorganisation,
include any refund of UK tax, less a withholding tax on the total dividend and
tax credit. Following the abolition of UK advance corporation tax credits from 6
April 1999, the amount of the refund of UK tax is restricted to one-ninth of the
dividend paid. Dividends will continue to be subject to a UK withholding tax.
This will either be 15% on the total of the dividend and the tax refund or the
value of the tax refund, whichever is the lower.
For the 1998 final dividend which is payable on 30 April 1999, the total of the
declared dividend per ADS is 66.0p, the related tax credit per ADS is 7.3p and
the withholding tax per ADS is 7.3p, giving no net tax refund per ADS and a
total cash payment of 66.0p per ADS.
For dividends paid to qualifying US residents before 6 April 1999, the tax
credit was one-quarter of the amount of dividend on the ordinary shares. For the
1998 interim dividend, which was paid in September 1998, the total of the
declared dividend per ADS was 20.4p, the related tax credit per ADS was 5.1p and
the 15% withholding tax per ADS was 3.8p, giving a net tax refund of 1.3p per
ADS and a total cash payment of 21.7p per ADS.
ADS holders who are US residents for tax purposes may normally credit the
withholding tax against their federal income tax liabilities.
Dollar amounts paid to ADS holders depend on the sterling/dollar exchange rate
at the time of payment.
Page 83
<PAGE>
<TABLE>
FINANCIAL DIARY FOR 1999
<S> <C>
Tuesday 9 February Results for year 1998 announced
Friday 5 March Annual report posted to shareholders
Monday 15 March Ordinary shares go ex-dividend
Wednesday 17 March ADSs go ex-dividend
Tuesday 20 April First quarter trading statement issued
Annual general meeting at One Whitehall Place, Westminster, London SW1A 2HD
Monday 26 April Final dividend for 1998 payable to ordinary shareholders on the register as at 19 March 1999
Friday 30 April Final dividend for 1998 payable to ADS holders on the register as at 19 March 1999
Tuesday 20 July Results for the first six months of 1999 announced
Monday 2 August Ordinary shares go ex-dividend
Wednesday 4 August ADSs go ex-dividend
Tuesday 7 September Interim dividend for 1999 payable to ordinary shareholders on the register as at 6 August 1999
Monday 13 September Interim dividend payable to ADS holders on the register as at 6 August 1999
Thursday 21 October Third quarter trading statement issued
</TABLE>
Page 84
<PAGE>
PRESERVING REUTERS INDEPENDENCE
CUSTOMERS IN ALL PARTS OF THE WORLD DEPEND ON REUTERS TO PROVIDE THEM WITH
RELIABLE AND OBJECTIVE NEWS AND INFORMATION.
REUTERS THEREFORE HAS A SPECIAL NEED TO SAFEGUARD ITS INDEPENDENCE AND INTEGRITY
AND AVOID ANY BIAS WHICH MAY STEM FROM CONTROL BY ANY PARTICULAR INDIVIDUALS OR
INTERESTS. REUTERS SHARE STRUCTURE INCLUDES TWO MECHANISMS SPECIFICALLY DESIGNED
TO PREVENT THIS HAPPENING:
NO SHAREHOLDER MAY OWN 15% OR MORE SHARES.
THERE IS A SINGLE FOUNDERS SHARE, IN ADDITION TO THE PUBLICLY TRADED ORDINARY
SHARES. THIS MAY BE USED TO OUTVOTE ALL ORDINARY SHARES IF OTHER SAFEGUARDS FAIL
AND THERE IS AN ATTEMPT TO SEIZE CONTROL OF THE COMPANY. "CONTROL", FOR THIS
PURPOSE, MEANS 30% OF THE SHARES.
THE REUTERS TRUST PRINCIPLES, WHICH ARE PROTECTED BY THE FOUNDERS SHARE, ALSO
IMPOSE FURTHER OBLIGATIONS. THE PRINCIPLES AND A LIST OF THE TRUSTEES ARE
PRINTED ON PAGE 86.
- --((picture))--
From Sir Frank Rogers, Chairman of the Reuter Trustees
In 1941 amid the upheavals of wartime and following wide-ranging parliamentary
and public discussions, the then controlling shareholders of Reuters: The Press
Association Limited and The Newspaper Publishers Association Limited, entered
into an Agreement of Trust.
The Australian Associated Press and the New Zealand Press Association joined in
the Reuter Trust Agreement after the two agencies became shareholders of Reuters
in 1947.
In 1984 the Trustees approved the proposals for a corporate reorganisation of
the company into Reuters Holdings, clearing the way for its flotation as a
public limited company.
The Trustees carry out their responsibilities and obligations by discussion,
usually in London, of the general administration of the Trustees.
In addition, I, and my colleagues, regularly visit Reuters establishments to
meet with journalists for a discussion on the role of the Trustees. Also, we
meet with Reuters managers and senior editorial staff wherever in the world we
are visiting, to answer any questions we may be asked about the purposes of the
Trustees and the way we operate.
In summary, the Trustees are the custodians of the Reuter Trust Principles.
Page 85
<PAGE>
THE REUTER TRUST PRINCIPLES
Reuters is dedicated to preserving its independence, integrity and freedom from
bias in the gathering and dissemination of news and information. The Reuters
Founders Share Company Limited, of which all Reuter trustees are directors, was
established to safeguard those qualities. The trustees have a duty to ensure
that, as far as they are able by the proper exercise of the powers vested in
them, the Reuter Trust Principles are observed. These are:
o That Reuters shall at no time pass into the hands of any one interest,
group or faction;
o That the integrity, independence and freedom from bias of Reuters shall at
all times be fully preserved;
o That Reuters shall supply unbiased and reliable news services to
newspapers, news agencies, broadcasters and other media subscribers and to
businesses, governments, institutions, individuals and others with whom
Reuters has or may have contracts;
o That Reuters shall pay due regard to the many interests which it serves in
addition to those of the media; and
o That no effort shall be spared to expand, develop and adapt the news and
other services and products of Reuters so as to maintain its leading
position in the international news and information business.
If the trustees believe that any person, together with any associates, is
seeking to obtain or has obtained control of Reuters Group PLC, a majority of
the Reuter trustees may require the votes attaching to the Founders Share to be
exercised. "Control" means the ability to control the exercise of 30% or more of
the votes which may be cast on a poll at general meetings of Reuters Group PLC.
In such circumstances, the Founders Share Company has the right at any general
meeting of Reuters Group PLC to cast sufficient votes to pass any resolution
supported by, and to defeat any resolution opposed by, the Founders Share
Company.
Any two Reuter trustees may require the votes attaching to the Founders Share to
be cast against any resolution which would alter any of the articles of
association of Reuters Group PLC relating to the Reuter Trust Principles and the
rights of the Founders Share. In such circumstances, the Founders Share confers
upon the Founders Share Company the right to cast sufficient votes to defeat
that resolution.
The Reuter trustees are: Sir Frank Rogers (Chairman); Len Berkowitz; The Rt Hon
the Lord Browne-Wilkinson; Sir Michael Checkland; David Cole CBE; Christopher
Dicks OBE; Pehr Gyllenhammar; Sir Christopher Mallaby; Dame Sheila Masters;
Kenneth Morgan OBE; Sir William Purves CBE DSO; Michael Robson; Arthur Ochs
Sulzberger; Lyle Turnbull AO; Richard Winfrey.
Following the capital reorganisation the Founders Share in Reuters Holdings PLC
has been cancelled and a Founders Share with like rights has been issued by
Reuters Group PLC to the Reuters Founders Share Company Limited.
Page 86
<PAGE>
GLOSSARY
TERM USED IN ANNUAL REPORT US EQUIVALENT OR BRIEF DESCRIPTION
Advance corporation tax No direct US equivalent. Taxpaid on
company distributions recoverable from
UK taxes due on income
Allotted Issued
Associated undertakings Affiliates accounted for under the
equity method
Called-up share capital Ordinary shares, issued and fully paid
Capital allowances Tax term equivalent to US tax
depreciation allowances
Cash at bank and in hand Cash
Class of business Industry segment
Combined Code A set of corporate governance principles
and detailed code of practice
Creditors Accounts payable
Creditors: Amounts falling due
after more than one year Long-term debt
Creditors: Amounts falling due
within one year Current liabilities
Debtors Accounts receivable
Destination (of revenue) The geographical area to which goods or
services are supplied
Finance lease Capital lease
Freehold Ownership with absolute rights in
perpetuity
Interest receivable Interest income
Interest in shares of Reuters
Group PLC Treasury stock
Origin (of revenue) The geographical area from which goods
or services are supplied to a third party
or another geographical area
Profit Income
Profit and loss account
(statement) Income statement
Profit and loss account reserve
(under 'capital and reserves') Retained earnings
Profit attributable to
ordinary shareholder Net income
Proposed dividend Dividend declared by directors but not
yet approved by shareholders
Share capital Ordinary shares, capital stock or common
stock issued and fully paid
Share premium account Additional paid-in capital or paid-in
surplus (not distributable)
Shares in issue Shares outstanding
Stocks Inventories
Tangible fixed assets Property and equipment
Page 87
<PAGE>
ELEVEN YEAR CONSOLIDATED FINANCIAL SUMMARY for the year ended 31 December
<TABLE>
ORDINARY SHARES HIGHS/LOWS 1998
pence
<CAPTION>
J F M A M J J A S O N D
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
low 549 520 608.5 634.5 625.5 674.5 609 499 437 418.5 584 523.5
high 682 631 663 679 707.5 765 688 608 542 616 629.5 635
<FN>
The highest price in 1998 was 770p, the lowest 412p.
</FN>
</TABLE>
<TABLE>
ADSS HIGHS/LOWS 1998
(US dollars)
<CAPTION>
J F M A M J J A S O N D
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
low 53.375 50.6875 60.5 63.563 61.625 67.5 58.5 47.625 44.875 43.125 57.5 52.125
high 66.25 61.75 65.25 68.438 68.938 74.625 68.313 58.625 56 61.313 62.5 63.75
<FN>
The highest price in 1998 was $74-3/4, the lowest $42-1/8.
</FN>
</TABLE>
<TABLE>
REVENUE PER EMPLOYEE
(pound)000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
98 97 96 95 94 93 92 91 90 89 88
182 180 195 191 182 173 151 136 129 118 101
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS
Revenue 3,032 2,882 2,914 2,703 2,309 1,874 1,568 1,467 1,369 1,187 1,003
Net interest receivable 2 80 61 60 51 60 66 49 30 19 9
Profit before tax 580 626 652 558 510 440 383 340 320 283 208
Taxation 196 236 210 185 162 140 123 110 112 102 81
Profit attributable to
ordinary shareholders 384 390 442 373 347 299 236 230 207 181 126
NET ASSETS
Fixed assets 1,098 1,046 1,026 999 687 571 499 488 531 484 408
Net current (liabilities)
/assets (643) 714 525 387 176 151 419 289 81 (33) (46)
Long term creditors (16) (37) (41) (135) (87) (32) (26) (30) (27) (22) (77)
Provisions (50) (44) (51) (39) (36) (32) (23) (25) (30) (20) (11)
- ------------------------------------------------------------------------------------------------------------------------------------
389 1,679 1,459 1,212 740 658 869 722 555 409 274
- ------------------------------------------------------------------------------------------------------------------------------------
TANGIBLE FIXED ASSETS
Additions 296 361 372 304 319 268 199 159 196 193 229
Depreciation 331 312 283 250 221 204 186 193 140 110 95
DEVELOPMENT EXPENDITURE 200 235 202 191 159 110 79 67 62 60 55
FREE CASH FLOW 490 449 494 455 321 224 276 339 227 54 30
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS
Basic earnings per ordinary
share 26.7p 24.0p 27.3p 23.2p 21.7p 18.0p 14.0p 13.7p 12.4p 10.9p 7.6p
Adjusted earnings per
ordinary share share(1) 30.3p 29.1p 30.4p 25.8p 21.7p 18.0p 14.0p 13.7p 12.4p 10.9p 7.6p
Dividends per ordinary share 14.4p 13.0p 11.75p 9.8p 8.0p 6.5p 5.3p 4.25p 3.75p 3.25p 2.25p
Cash flow per ordinary
share(2) 67.9p 61.0p 60.7p 52.7p 45.6p 40.3p 33.6p 31.7p 27.4p 23.6p 18.3p
Book value per ordinary
share(3) 23.3p 99.9p 88.3p 73.7p 44.7p 40.6p 51.2p 42.7p 32.9p 24.5p 16.4p
Cash flow/book value(4) 292.0% 61.0% 68.8% 71.5% 102.0% 99.2% 65.7% 74.2% 83.5% 96.2% 111.4%
Profit before tax as a
percentage of revenue 19.1% 21.7% 22.4% 20.6% 22.1% 23.5% 24.4% 23.2% 23.4% 23.8% 20.7%
Return on tangible
fixed assets(5) 48.2% 49.0% 60.0% 55.2% 57.6% 57.2% 53.2% 45.4% 41.3% 40.9% 37.2%
Return on equity(6) 78.5% 25.6% 33.7% 34.8% 50.8% 39.5% 29.9% 36.2% 43.2% 53.6% 51.8%
UK corporation tax rate 31.0% 31.5% 33.0% 33.0% 33.0% 33.0% 33.0% 33.25% 34.25% 35.0% 35.0%
INFRASTRUCTURE
shares issued (millions) 1,422 1,694 1,689 1,677 1,668 1,662 1,753 1,743 1,735 1,724 1,686
Employees 16,938 16,119 15,478 14,348 13,548 11,306 10,393 10,450 10,731 10,071 10,064
User accesses 498,500 435,000 362,000 327,100 296,700 227,400 200,800 201,800 200,900 194,800 169,100
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES.
1995 and 1996 have been restated to reflect the effect of FRS 10 issued in 1997
which required purchased goodwill and intangible assets to be capitalised and
amortised through the profit and loss account.
1988 to 1994 have not been restated for FRS 10.
1988 has not been restated to reflect the effects of the prior year adjustment
for pensions made in 1989.
1988 to 1991 have not been restated to reflect the effects of the prior year
adjustment for post-retirement medical benefits made in 1992.
1988 to 1991 have not been restated to reflect the change to reporting user
accesses in 1994.
1988 to 1993 have been restated for the subdivision of every ordinary share of
10 pence each into four new ordinary shares of 2.5 pence each in April 1994.
1988 has been restated to reflect the cost of discontinuing operations at IDR
Inc. as an exceptional item rather than an extraordinary item.
1990 to 1994 fixed assets have been restated to reflect the effect of UITF
abstract 13 issued in 1995.
Free cash flow is defined as net cash inflow from operating activities plus net
interest received less tax paid and expenditure on tangible fixed assets.
Page 88
<PAGE>
RATIOS.
(1) Adjusted earnings per share are based on profit attributable to ordinary
shareholders excluding capital reorganisation costs and goodwill amortisation.
(2) Cash flow per ordinary share represents profit before taxation, goodwill
amortisation and depreciation divided by the number of shares in issue after
deducting shares held by employee share ownership trusts. In 1998 to 1997 shares
in Reuters Holdings PLC held by group companies are also deducted.
(3) Book value per ordinary share represents adjusted shareholders' equity
divided by the number of shares in issue after deducting shares held by employee
share ownership trusts. In 1988 to 1997 shares in Reuters Holdings PLC held by
group companies are also deducted from shares in issue.
(4) Cash flow/book value represents profit before taxation, goodwill
amortisation and depreciation as a percentage of adjusted shareholders' equity.
(5) Return on tangible fixed assets represents profit after taxation as a
percentage of average tangible fixed assets. The average is calculated by adding
tangible fixed assets at the start and the end of each year and dividing by two.
(6) Return on equity represents profit attributable to ordinary shareholders
divided by the average adjusted shareholders' equity. The average is calculated
by adding adjusted shareholders' equity at the start and the end of each year
and dividing by two. In 1998 a weighted average has been used to reflect the
capital reorganisation.
Page 89
<PAGE>
WHERE TO FIND US
CORPORATE HEADQUARTERS:
85 Fleet Street
London EC4P 4AJ
Tel: 44 (0171) 250 1122
Registered in England No: 1796065
http://www.reuters.com/
OTHER PRINCIPAL ADDRESSES:
1700 Broadway
New York NY 10019
USA
Tel: 1 (212) 603 3300
1 Rue de Jargonnant
1207 Geneva
Switzerland
Tel: 41 (022) 718 2828
3rd Floor
Shuwa Kamiyacho Building
4-3-13 Toranomon
Minato-ku, Tokyo 105
Japan
Tel: 81 (03) 3432 4141
18 Science Park Drive
Singapore 118229
Republic of Singapore
Tel: 65 775 5088
INVESTOR RELATIONS:
Geoff Wicks
London
Tel: 44 (0171) 542 8666
Fax: 44 (0171) 353 3002
e-mail:
[email protected]
Nancy Bobrowitz
New York
Tel: 1 (212) 603 3345
Fax: 1 (212) 247 0346
e-mail:
[email protected]
Marcus Ferrar
Geneva
Tel: 41 (022) 718 2405
Fax: 41 (022) 718 2697
e-mail:
[email protected]
MEDIA QUERIES:
Peter V. Thomas
London
Tel: 44 (0171) 542 4890
Fax: 44 (0171) 542 5458
e-mail:
[email protected]
Robert Crooke
New York
Tel: 1 (212) 603 3587
Fax: 1 (212) 247 0346
e-mail:
[email protected]
Marcus Ferrar
Geneva
Tel: 41 (022) 718 2405
Fax: 41 (022) 718 2697
e-mail:
[email protected]
Liam Hwee Tay
Singapore
Tel: 65 870 3028
Fax: 65 870 3456
e-mail:
[email protected]
<PAGE>
REGISTRAR/DEPOSITARY: FOR DIVIDEND QUERIES, DUPLICATE MAILINGS
AND ADDRESS CHANGES
ORDINARY SHARES*:
Bank of Scotland
Apex House
9 Haddington Place
Edinburgh EH7 4AL
Tel: 44 0870 601 5366
AMERICAN DEPOSITARY SHARES:
Morgan Guaranty Trust
Company of New York
PO Box 8205
Boston MA 02266-8205
Tel: 1 (781) 575 4328
Fax: 1 (781) 575 4088
LISTINGS:
London Stock Exchange and NASDAQ Washington D.C. (American Depositary Share
Symbol RTRSY)
Options on ordinary shares are traded on the London Traded Options Market. The
American Stock Exchange in New York and the Chicago Board Options Exchange list
options on American Depositary Shares of Reuters.
SHARE PRICE INFORMATION:
Share price information about Reuters Group PLC is available on the Reuters
Securities 3000, Securities 2000, Equity Focus products. The Reuters Instrument
Codes (RICs) and Reuters Plus/Quotron codes are as follows (additional Equity
Focus codes in brackets):
Equity Focus Reuters Plus
Securities 2000 Quotron
Securities 3000
Ordinary shares RTRS.L(RTR.L) RTRU.EU
ADSs traded on NASDAQ RTRSY.O RTRSY
ADSs traded on the London Stock Exchange RTRSy.L(RTRy.L) RTRAU.EU
Within the UK, information on ordinary shares is available by telephone. Dial
0906 2500 233 for the mid-market price quoted on the London Stock Exchange.
There is a charge of 13p per call (correct as at 12 February 1999).
This annual report is available on the Internet at
http://www.reuters.com/ar1998/
FORM 20-F:
This document is filed with the US Securities and Exchange Commission (SEC) and
corresponds to the Form 10-K filed by US-based companies. Hard copies are
available from the Investor Relations departments in London and New York.
Electronic copies can be accessed through the Internet on Reuters Internet page
(http://www.reuters.com/) or from the SEC's EDGAR Database via the SEC's Home
page (http://www.sec.gov).
*see page 82
Ric Gemmell took the photographs on pages 11, 13, 16 and 17.
(C) Reuters Group PLC 1999. Design by CGI. Typesetting by Real Time Studio.
Printing by Litho-Tech. The paper used in this annual report is from fully
sustainable forests. It was produced without the use of any chlorine compounds.
Instinet is a registered trade mark of Instinet Corporation. Quotron is a
registered trade mark of Quotron Systems, Inc. Reuters is a registered trademark
in more than 25 countries.
Page 90
<PAGE>
TRUST REUTERS.COM TO GIVE YOU MORE
For information on the full range of
Reuters services and products, world
news headlines, the latest share
price, investor news, a downloadable
version of this annual report and
other aspects of the Company, visit
Reuters real-time Web site @
HTTP://WWW.REUTERS.COM/
[INSIDE BACK COVER]
<PAGE>
PICTURE
The World Cup trophy is held aloft by the
hand of team captain Didier Deschamps.
France beat Brazil 3-0 to become World
Champions.
Photo by Charles Platiau REUTERS.
... to win.
[BACK COVER]
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
FINANCIAL DATA SCHEDULE
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED
IN THE BODY OF THE ACCOMPANYING FORM 20-F AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> UK STERLING
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 44
<SECURITIES> 962
<RECEIVABLES> 197
<ALLOWANCES> 28
<INVENTORY> 6
<CURRENT-ASSETS> 1,607
<PP&E> 2,248
<DEPRECIATION> 1,469
<TOTAL-ASSETS> 2,705
<CURRENT-LIABILITIES> 2,250
<BONDS> 0
0
0
<COMMON> 354
<OTHER-SE> 18
<TOTAL-LIABILITY-AND-EQUITY> 2,705
<SALES> 0
<TOTAL-REVENUES> 3,032
<CGS> 0
<TOTAL-COSTS> 2,482
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> 580
<INCOME-TAX> 196
<INCOME-CONTINUING> 384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384
<EPS-PRIMARY> pence 26.7
<EPS-DILUTED> pence 26.6
</TABLE>
