Thomson Reuters (NYSE:TRI)
Q4 2009 Earnings Call
February 24, 2010 8:30 am ET
Thomas Glocer – CEO
Robert Daleo – CFO
Frank Golden – SVP IR
Drew McReynolds - RBC Capital Markets
Phillip Huang – UBS Securities
William Bird – Bank of America
Vince Valentini - TD Newcrest
Thomas Singlehurst – Citigroup
Brian Karimzad – Goldman Sachs
Paul Steep – Scotia Capital
Paul Sullivan – Barclays Capital
Mark Braley – Deutsche Bank
Tim Casey – BMO Capital Markets
Colin Tennant – Nomura
Randal Rudniski – Credit Suisse
Welcome to the Thomson Reuters full year and fourth quarter 2009 earnings conference call. (Operator Instructions) We’ll now like to turn the call over to our host, Senior Vice President of Investor Relations, Mr. Frank Golden. Please go ahead.
Hello and thank you for joining us today as we review our fourth quarter and full year 2009 results and provide our outlook for 2010. We’ll begin today with Thomson Reuters’ CEO Thomas Glocer. Thomas will be followed by our CFO, Robert Daleo, who will discuss the fourth quarter results.
Today’s presentation contains forward-looking statements. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You can access these documents on our website or by contacting our Investor Relations department.
It is now my pleasure to introduce the Chief Executive Officer of Thomson Reuters, Thomas Glocer.
Thank you Frank, and thank you all for joining us. I plan to cover four topics today. First I’ll discuss our full year results. Second I’ll provide you with selected 2009 highlights. Third, I’ll discuss our market position as we enter 2010, including an update on the progress that we’ve made against my three key priorities. And lastly I’ll discuss our 2010 outlook and where I believe we can take this business over the next few years.
Now despite global markets sliding deeper into recession in 2009, Thomson Reuters recorded a solid performance thanks to our proven business model. For the full year we held revenues essentially flat, not a mean accomplishment given the challenging environment. As I stated last quarter and is even more clear today, we’re past the bottom in terms of real economic activity, what our sales teams experience every day.
Even though we’re likely to report negative year on year results for the first half of 2010. Now as I begin my discussion of 2009’s results keep in mind that when we compare performance period on period we look at revenue growth before currency as we believe this provides the best basis to measure the underlying performance of the business.
I’m pleased with the company’s full performance that hopefully you can see on the slide now if you’re watching on the screen. We were nimble, reallocating resources to higher growth opportunities and geographies, investing in new products, and continuing to make great progress with our integration program.
These steps enabled us to hold revenues, grow margins and adjusted EPS, and drive free cash flow. From a net sales standpoint we hit bottom in the second quarter with Q4 positive on a consolidated basis. For the full year total revenue was essentially unchanged against tough prior year comps when revenues were up 8%.
The professional division was up 3% and the market division was down 2%, what we believe is good performance compared to our peers and the industry as a whole. In the professional division growth was driven by the tax and accounting and healthcare and science businesses, up a combined 8%.
And the tax and accounting segment surpassed revenues of $1 billion for the first time, indicative of the expansion of its product suite and market share gains. The markets division performance was resilient given the challenging market and tough prior year comps when revenues rose 6%. Moreover the markets recurring subscription revenues which comprise about 75% of its total revenues grew 1% in the year. Really a remarkable achievement given the environment.
Good operating performance, integration related savings and the benefits of currency led to a 40 basis point increase in underlying operating profit margin and we again delivered excellent free cash flow, over $2 billion on a underlying basis.
Importantly we made significant progress with our integration program and have raised our savings target to $1.2 billion, nearly two and a half times greater than our original target. Lastly adjusted earnings per share this year was $1.85, up 2% from a year ago and that was after a $0.03 negative impact from higher integration related expenses.
It was a bit less than two years ago when we completed the acquisition of Reuters and since that time we’ve been able to accelerate and expand the level of integration savings while also staying focused on revenues, margins, and two critical product launches, WestLawNext and Utah. Outlined on this slide are some of the accomplishments worth highlighting in 2009 and I won’t read them all to you, but let me just point out a few.
Our tax and accounting business had another tremendous year in 2009 with revenues up nearly 10%, already the market leader in the US, this business will look to take that success internationally in 2010 with the launch of its global tax workstation. Further to that point you can see our increasing focus on global expansion as 16 of our 31 acquisitions in 2009 were made outside the US.
We built new and innovative products by utilizing components from across the company such as the incorporation of Reuters news into professional products. And on the financial side of the house, we’re in very good shape. We simplified our capital structure by unifying the DLC, ended the year with over $1 billion in cash on hand, and refinanced over $1 billion of debt at attractive rates extending our average maturities to over six years.
Let’s now take a look at our market position as we enter 2010, first given the improving sales figures off their Q2 lows, I’m confident that 2010 will be the bottom of the reporting cycle. Our fourth quarter total company net sales were positive, the best of the year, and given the subscription nature of our business model this will begin to flow through to revenues later in 2010.
We’re also well positioned as the global economy continues to strengthen. We’ve solidified our leadership positions, having invested through the cycle and this is beginning to show in our results. Q4 2009 was WestLaw’s best sales quarter in two years and that’s before the exciting launch of WestLawNext earlier this month.
December was Checkpoint’s best sales month in its history and January was the first positive net sales month for Markets in a year and was the best month for FX volumes since October, 2008. Our business model is powerful and resilient and we’re sticking to what we do best, operating in non-discretionary markets, and looking for opportunities that fit that description across markets, customers, and geographies.
The Great Recession of 2008 2009 was trying for most companies and a death experience for some. I feel good about how we’ve come through it and are sticking with and continuing to invest behind a strong business model. Selling electronic information and services to professionals, primarily on a subscription basis that is highly capital efficient and cash flow generative is a model that we like.
Integration, globalization, and scale economics, or making the whole greater than the sum of its parts, are the three key priorities I set out for you in April, 2008 and we’ve performed very well against them. They remain priorities for 2010, but this year I folded them into two over arching themes; growth and efficiency.
From an integration standpoint we’ve accomplished a lot, having rapidly integrated Thomson’s financial into Reuters and Reuters into Thomson. And this has already shown what the combination is capable of. A tangible measure of this is the growth in our pro forma margin from 18.7% in 2007 to 21.3% in 2009.
However we have some heavy lifting remaining to be done this year with the launch of WestLawNext and Utah, other product platform and infrastructure work and the final year of heavy spend on the integration. It is our belief in our ability to return to growth and the promising sales data that have begun to bear this out, that gives us the confidence to continue to invest in 2010.
We’ve also made good progress on our globalization and scale economics priorities and have moved rapidly to expand the professional division’s proven businesses on the back of the former Reuters global presence, sales channels, and brand. To achieve scale economics we’ve launched joint product initiatives across the divisions, combined our significant purchasing power, co-located thousands of staff, and begun to work on shared infrastructure and capabilities.
This year we’ll intensify our focus on growth and efficiency. Growth opportunities come from both market and product while efficiency opportunities come from the further transformation of our cost base in particular our technology infrastructure. And we’re off to a very good start. WestLawNext launched earlier this month to very positive reviews.
WestLawNext is truly a transformative product for the legal professional and it represents the largest product launch from Thomson Reuters Legal in more than a decade. It offers a clean modern interface and powerful new search functionality that makes legal professionals significantly more efficient and gives them confidence that they’ve cast the widest possible research net but captured only the most relevant authorities. It was designed in close collaboration with our customers and geared to their unique needs.
I know because I was a legal customer and I’m extremely pleased with the initial response from clients which has put us well ahead of our sales plan already. Utah will be launched later this year and similar to WestLawNext will be a transformative product for the financial professional delivering the next generation user experience.
Utah will offer enhanced collaboration, advanced analytics, intuitive search and navigation, and significantly enhance multimedia capabilities. We’re confident Utah will also be well received by our customers and will lead to share gains over time. And I’ve already swapped my 3000 Extra that sits on my desk for the Utah Alpha addition.
I’m also focusing on how we can ramp up growth and allocate more resources to rapidly developing economies. I believe we are the best-positioned company in our industry to capture these opportunities. Lastly we’re intensifying our focus on achieving greater efficiencies across the company, or put another way, transforming our cost and technology base to leverage scale.
These initiatives include rationalizing and streamlining technology, including consolidating data centers and deploying virtualization technologies, maximizing our pooled purchasing power and sharing cost, core technology across units. This isn’t sexy stuff but its an integral part of what we need to accomplish as we work to get our margins to the mid 20’s range.
Let me now turn to 2010 and how I see the year ahead, first revenues, we’ll work tirelessly to try and achieve growth this year. But the conservative manager in me must admit that despite a good Q4 2009, and a strong start to the year, its more likely that revenues will be flat to slightly down and this is a direct result of 2009’s negative net sales, especially in the first half.
Second, given that revenue assumption we expect margins to be comparable to 2009 before the investments we plan to make in important new products and platforms that launched this year. These investments are expected to have an impact of about 100 basis points this year. Let me assure you that we continue to aggressively manage expenses across the organization and are holding expenses flat in corporate and markets for the full year.
Professionals expenses will only be up in its fastest growing businesses and as a result of 2009 acquisitions. Third, we expect underlying free cash flow to be strong but down slightly which Robert will address in a moment, and fourth, our strong balance sheet, highly cash generative business, and confidence in our ability to return to good growth enables us to increase our dividend by $0.04 per share to $1.16 per share, marking the 17th consecutive annual increase.
So, in conclusion, let me explain very clearly our strategy for 2010. We are confident that the bottom in our markets, financial and legal in particular, is behind us. We’re confident that we’re making the right investments to drive growth and capture efficiency and indeed the last few months of company wide positive sales as well as the first look at WestLawNext in action, support this.
Accordingly we’re not going to cut our strategic investments just to hold 2010 margins. We thought long and hard about this and concluded that the best thing we could do for our shareholders is to continue these investments. At Reuters I learned how to cut costs drastically to save the company, but it took us years and a big follow on investment program, [Cora Plus] for you historians, to restart growth.
At Thomson Reuters I know we can do this in a better way thanks to the strength of our business model, strong balance sheet, and cash flow. Over the long-term I firmly believe that as the company and the economy improve we can grow the top line in mid to high single-digits, achieve operating margins in the mid 20’s, and generate cash flow in excess of $3 billion.
And with that let me turn it over to Robert Daleo.
Thank you Thomas, and good morning everyone. Today I’m going to cover the following topics; our fourth quarter and full year results, an update of our integration programs, and I’ll discuss the dividend announcement and our cash flow.
But before I get into specific results for the corporation I’d like to show you an updated version of a slide we first introduced last year at this time. Now this chart illustrates the diversity and resiliency of our businesses and depicts why we successfully held revenues last year.
As Thomas noted 2009 was very challenging. However our diverse customer sets, product mix, and global footprint enabled our faster growing businesses to compensate for those businesses that were most impacted by the broader economic environment.
As the chart reflects over two thirds of our revenue base recorded growth in 2009. Additionally virtually every one of these segments are improving sales environment as we exited last year which will likely translate into revenue growth in the second half of this year given the subscription nature of our business model.
Now turning to the financials in particular, before I begin let me point out that the full year reported revenues were negatively impacted by currency, primarily a strengthening US dollar. However in the fourth quarter we did experience a positive benefit from currency, but throughout today’s presentation I will speak to growth before currency as we believe this is a more relevant metric in measuring the performance of the business.
Reported revenues are highlighted on each slide. Let me also note that currency had a muted impact on margins in the current quarter. Consolidated revenues in the fourth quarter were $3.3 billion, this is down 3% while acquisitions contributing 1%. Our underlying operating profit in the quarter was down 16%, and the operating profit margin decreased to 19.7%.
This is impacted by the flow through from lower revenues, a product mix, ongoing investments, and higher corporate costs, and I will talk about these shortly. The quarter’s results are very much in line with our expectations when viewed in the context of the full year. They are against a tough comparative to the quarter of a year ago, when organic revenue grew 5% and our margin expanded nearly 300 basis points.
On a full year basis revenues were flat with organic revenues down 1% and acquisitions contributing an offsetting 1%. This compares with full year organic revenue growth of a year ago of 6%. Underlying operating profit declined 1% and as expected margins were comparable to last year. In fact they rose by 40 basis points to 21.3%.
The increase in margin was attributable to integration savings, continued commitment to strong cross management, and the benefit of currency. The decline in underlying operating profit was partly attributable to higher corporate costs including an increase in noncash pension expense of $30 million resulting from the company’s conversion to IFRS last year which I previously noted.
Now I’d like to discuss the operating performance of the businesses, the professional division recorded fourth quarter revenues of $1.4 billion. This was up 1% against a prior year comp growth of 7%. Now this growth was driven by strong performance in tax and accounting, and the health and sciences businesses as well as our subscription legal products.
Performance was offset by continued decline in print revenues. The Q4 segment operating profit declined 8% and the margin was 29.3%. While we did realize benefits from several efficiency initiatives and cost controls across the division they were insufficient to offset lower revenue growth, the mix in that revenue, and the dilutive effect of acquisitions.
Now just to illustrate the impact of business mix, West Print in this quarter comprised 19% of legal’s revenues versus 22% of legal’s revenues last quarter. Given the high incremental margins on print revenues this has a meaningful impact on the quarterly margin.
Full year revenues of $5.4 billion were up 3%, 1% organic, and 2% from acquisitions. As I discussed this time last year, we expected full year profit margins to decline slightly due to the shift to higher growth software and service products which have lower margins but higher returns on invested capital and due to the impact of investments in our global expansion initiatives.
And as anticipated, the full year margin finished down 80 basis points and operating profit declined 1%, also the effect of acquisition accounting. For 2010 we expect professional’s margin to decline compared to 2009 particularly in the first and second quarters of the year. These traditionally smaller quarters are likely to see nominal revenue growth due to product mix and flow through from the weaker sales of 2009.
While the division also experienced some front and investment spending, we expect both revenues and margins to ramp up in the second half of the year. We expect margins to further rebound in 2011 as top line growth improves and heavy investments begin to taper off.
Now let me discuss the fourth quarter revenue mix which is shown on this slide and specific for the division. Its segregates legal’s print and non-subscription revenues which represent 20% of the divisions total and these were down 13% and 14% respectively. Excluding these two components the remaining 80% of professional division’s revenue base grew over 5%.
Legal subscriptions which include WestLaw, WestLaw Business and Fine Law as well as our healthcare and science segment both grew 4%, a solid performance. And our tax and accounting business continued to see very good growth, up 10% in the quarter demonstrating it is somewhat insulated from the broader economic environment [but] is also taking share.
The fall off in non-subscription revenues included double-digit declines in WestLaw ancillary revenues, enterprise software, and consulting services. Let me again point out that this change in revenue composition led to a decline in margin for the professional division and resulting in the company’s decline as well.
Tax and accounting and healthcare and science while fast growing segments, have lower although significant but lower margins than legal and within legal our print and non subscription products tend to have a higher flow through. The combination of these factors and our investments and recent acquisitions weighed on margins and as I’ve already noted this dynamic is likely to continue into 2010.
Looking at the revenue specifics by segment, legal declined 3% in the fourth quarter, its all organic. A 4% increase in subscription products led by Fine Law’s 9% growth, however this growth was more than offset by a decline in print and non-subscription products which I mentioned. For the full year legal’s revenues were $3.6 billion, unchanged from the prior year with acquisitions having contributed 1%.
This compares favorably with a number of our competitors. Tax and accounting revenues grew 10% in the quarter, 5% organic, and 5% from acquisitions. We continue to see strong demand across both customer segments, with corporate led our strong performance from one source and professional segment driven by solid UltraTax growth in the important fourth quarter.
Checkpoint grew 8% in the quarter and benefited from some real competitive wins. For the full year revenues exceeded $1billion for the first time, up 9% from the prior year and this was split evenly between organic growth and acquisitions and as with legal we continue to see good share gain in this market as well.
Healthcare and science revenues rose 4%, all organic driven by continued demand for our healthcare analytics with the payer segment which grew 10%. This performance was supplemented by good growth from our science business. Healthcare and science full year performance was absolutely terrific with revenues up 7% to $829 million, all of this was organic growth.
Let’s turn to the operating profits for the professional segment, as anticipated legal’s operating profit in the quarter declined 10% and the margin decreased. Lower revenues particularly from high flow through businesses, such as print and WestLaw ancillary services as well as the impact of foreign exchange more than offset the efficiency savings across the business.
For the full year operating profit was down 3% and the margin declined 60 basis points, largely due to the revenue factors I’ve mentioned as well as the investments in growth initiatives. Tax and accounting’s operating profit grew 3% in the quarter. The margin of 32.5% was significantly lower than last year. Flow through on revenue was offset by the impact of acquisition, a shift towards those higher growth but lower margin businesses, and technology related product investments.
The comparable year ago period included a $5 million timing benefit which was not repeated again this year. Now the EBITDA margin which is probably more representative of 39.2% which excludes software amortization was less impacted, about 100 basis points. For the full year profit was down 15 and the margin declined 200 basis points.
As I previously mentioned, these short-term margin trends are not indicative of the long-term track of this business. Organic revenue increases plus acquisitions have driven solid top line growth. However acquisition accounting has resulted in significant software amortization costs, negatively impacting margins.
In 2009 these costs were $15 million. Over the next three years the elimination of these noncash charges will increase operating margin by what we project to be 150 basis points. The EBITDA margin for the full year was 29%, down slightly from the prior year. Healthcare and science operating profit in the quarter decreased dramatically, 16%. Corresponding margin declining to 23.2% from the 29.1% a year ago.
Now this decline was attributable to technology costs and timing of expenses compared to last year. The significant change in quarterly margin is partly due simply to the loss small numbers here, where a $10 million change in profit has a really big impact on margin. And it should not be viewed as indicative of any trend.
In fact the full year operating profit was up 9% and the corresponding margin was up 70 basis points driven by good revenue flow through and the benefit of currency. And we expect to see full year margins expand again this year.
Now turning to markets, revenues declined 5% in the fourth quarter again against a very strong comparable of a year ago where we grew 4%. The revenue decline reflects the accumulated impact of net sales losses during the year as well as continued pressure on recoveries and tough comparables for outright sales and a decline in transaction revenues.
By region revenues in Asia were down a modest 1%, with Americas and EMEA both declining 6%. And I will discuss the components of this performance next. Operating profit declined 12% and the margin decreased 210 basis points. The benefits from integration savings were more than offset by the impact of lower revenues. Currency had a modest benefit on the margin in the quarter.
Let me note that while the quarterly change in margin is directionally much different than recent quarters it is in line with our previous expectation and was taken into account when we referred to the second and third quarter margins as high watermarks before the eventual return to growth in markets.
Full year 2009 revenues fell 2% to $7.5 billion, recurring revenues rose 1% but were offset by an 8% decline in recoveries, an 11% decline in transactions, and a 17% decline in outright. By geography, Asia was up 2%, EMEA down 1%, and the Americas were down 5%. Operating profit grew 3% and the corresponding margin grew 160 basis points.
Now let’s look at some of the dynamics in play for market’s division in the quarter, recurring subscription revenues which represent 75% of our total revenues declined 3% as growth in enterprise was more than offset by desktop, cancellations, in sales and trading, and investment and advisory. Recoveries continued to be significantly impacted by tight customer budgets and they declined 12%.
As a reminder, recoveries are low margin revenues that we collect and forward to third party providers such as exchanges. Most of these revenues are in sales and trading and some is also in investment and advisory. Now transactions continued to be a drag on revenues in the quarter, however we did see sequential transaction revenue improvement in Q4 2009 from Q4 2003 and the year over year rate of decline slowed from 15% in the third quarter to 8% in the fourth quarter.
Transactions benefited from improved trading conditions and easier comparables and these trends have accelerated in the first quarter. Finally market’s outright revenues decreased 20% in what is historically its largest quarter of the year. While we did achieve good sales, we were not able to match last year’s record quarter, most of which was generated in the enterprise business.
Now let me turn to the market’s four business units, sales and trading fourth quarter revenues declined 7%. The decline was driven by continued pressure on recoveries revenues and reduction in desktops, in exchange traded instruments, and fixed income businesses. The decline in desktop revenues was due to the flow through of cancellations received earlier in the year as well as decisions we have made as part of our integration program to sunset certain low margin products.
Commodities and energies was flat in the quarter and treasury declined slightly. FX transactions continue to show an improving trend with January volumes reaching a 15-month high. Now for the full year S&T’s revenues declined 4%. Investment and advisory fourth quarter revenues declined 5% while the investment banking segment returned to growth in the fourth quarter, the investment management segment was impacted by cancellations stemming from customer closures and fewer assets under management.
And while retail management was impacted by lower recoveries as customers reduced their purchasing of exchange fees. I&A’s full year revenues declined 2% for the year. Enterprise fourth quarter revenue growth was 1%, against an extremely strong prior year comp when revenues grew 13% on very strong outright sales as I mentioned, primarily in information management system. The enterprise information segment grew 9% driven by demand for pricing information as customers looked to reduce costs, manage complexity, and add transparency.
This performance offset a 10% decline in outright revenues. Full year enterprise revenue growth was 6% led by a 17% growth in enterprise information. And finally media’s fourth quarter revenues declined 8% as we experienced continued pressure on the professional publishing and advertising driven consumer businesses. The agency business revenue declined 6% in the quarter due to consolidation in traditional media outlets and customer budget constraints.
And for the full year media revenues fell 8%. Now I’d like to take a moment to discuss the drivers of corporate expenses in the quarter and the year, fourth quarter costs in corporate were $281 million, including $163 million of integration related expense and $35 million in costs related to fair value adjustments of imbedded derivatives which I’ll remind you are noncash mark to market adjustments of certain customer contracts.
Removing these pieces core corporate costs were $83 million in the quarter, still up $49 million over the prior year comparable and this is primarily due to an increase in benefit expenses including the adoption of the IFRS pension accounting. For the full year core corporate costs were up by the same amount roughly $48 million and $30 million of which was related to this noncash pension expense resulting from our conversion to IFRS last year.
Now let me turn to adjusted earnings per share, earnings attributable to common shares were $177 million in the quarter. To that we made the following adjustments to arrive at adjusted earnings per share. We removed the cost of fair value adjustments which I mentioned previously which had negatively impacted operating profit by $35 million, again this has no cash impact.
We remove $178 million of other finance expense which in this instance is resulting accounting treatment almost entirely associated with the foreign exchange impact of the settlement of intercompany loans. Again this has no cash impact.
Next we remove $175 million of discrete tax benefits that are primarily related to the intercompany movement of an asset, a portion of which I highlighted last quarter. Again this has no cash impact.
And finally we remove $132 million of amortization of intangible related to the acquisitions. Again no cash impact.
The result is $363 million of adjusted earnings per share or $0.44 per diluted share. I would note excluding integration costs the run rate Q4 EPS was $0.61. Full year adjusted diluted earnings per share were $1.85 compared to $1.82 last year, and again excluding these integration costs our full year run rate EPS was $2.36.
Now turning to free cash flow which as you know we view as a very very important metric, 2009’s reported free cash flow was $1.6 billion, but is $2.1 billion on an underlying basis. This solid performance is a testament to our continued focus across the company on free cash flow and the strength of our business model.
Now underlying free cash flow excludes integration costs that we, and then we normalize or adjust, for $450 million of timing benefits in 2008 to make it more comparable. And those really are the benefit of interest income from Thomson Learning proceeds and we have interest this year from Reuters, and second it’s the absence of cash flows associated with Reuters business in Q1.
Now another comparable here is if you were to take our free cash flow adjusted and divide it by our shares, our free cash flow per share is $2.47 for the full year, and I’ll remind you what I said earlier that our run rate earnings per share excluding intangibles was $2.36. I think this points to the quality of the run rate of our business and the strength of our earnings capabilities.
Now I’d like to move on to the integration legacy programs, where we continue to make excellent progress. Through year end we’ve achieved a run rate savings of $1.1 billion and these savings were derived from reductions in product platforms and consolidation of content [sense], merging two corporate centers into one, which is now complete, rationalization of sales and customer service functions, real estate consolidation, and harmonizing of HR and benefit systems.
This success has enabled us to identify additional opportunities and today we raised our 2011 aggregate savings target by $200 million to $1.6 billion. This compares to our original target of $1 billion when we announced our Reuters acquisition and the $1.2 billion target we put forth when we closed the acquisition in April of 2008.
The additional savings will come from taking further advantage of our global infrastructure footprint across the company, and realizing greater savings from data center efficiencies. To achieve the additional $200 million in savings we expect to spend an additional $275 million for a total of $600 million in these one-time costs between now and the program completion at the end of next year.
The spend to savings ratio based on the revised number is 1.3x and this compares to our original expectation of 1.5x. Now our strong free cash flow performance and our opportunistic approach to capital management has further strengthened our financial position. We ended 2009 with over $1 billion of cash on hand. We have $1.4 billion of debt maturing in the next two years, with our next set of maturities not due until November of this year.
We have an untapped fully committed $2.5 billion credit facility that could be used to cover debt maturities if necessary. Our 2009 debt to EBITDA figure was 2x, on our stated long-term target. And last but not least our strong financial position enables us not only to continue to make substantial investments in the business, to drive growth and further solidify our position, but also enables us to increase our dividend by $0.04 again this year. As Thomas had noted this is the 17th consecutive year of dividend increases and I might note this is through two recessions.
In summary, we achieved what we set out to accomplish in 2009 despite a very difficult environment. We understand our business extremely well, which helps us to anticipate performance. We continue to focus on our integration programs which will strengthen our business infrastructure. And on the backs of these past investments we were able to sustain and enhance our leadership positions in most of our markets.
From a sales perspective we have begun to see some tangible evidence that 2009 will likely see the bottom of our sales cycle. However as Thomas has noted, 2010 will present some challenges from a reporting perspective as we work our way through the net sales losses realized in the first three quarters of last year.
The first half of this year in particular we’ll likely see reported revenues down quarter on quarter and result in a softening and temporary decline in operating margins. However given the current sales projections and our market position we expect a reversal in this trend as the year evolves and we anticipate we will return to growth in 2011.
I remind you by the way that historically the first quarter is our smallest quarter of the year, a quarter where we generate only about 20% of our full year operating profit. Nevertheless in 2010 we will maintain our investments in new products and platforms, such as WestLawNext and Utah, and we will continue to drive our integration and synergy programs.
Remember it is this very philosophy that sustained up through the current downturn, and has put a little blue water between us and many of our competitors. We’re confident the benefits of these investments, our strengthening economic environment, and improving net sales will drive growth momentum later this year, into 2011 and beyond.
Let me turn it back over to Frank, who will open up for questions.
Thanks Robert, just a couple of housekeeping items before we open it for Q&A, first let me direct you to two supplemental appendix slides that we’ve included on our website. The first slide are some additional financial metrics for 2010 including estimates for depreciation and amortization, interest expense, and again an estimated tax rate.
The second slide you’ll find is a pie chart that reflects revenue and expenses by major currency for 2009. And the last item I’d like to direct you to on our Investor Relations website is we’ve posted a link for WestLawNext, which includes a product demonstration, the WestLawNext launch video, and several customer testimonials.
I believe you’ll find the presentation helpful and it will provide you with a better understanding as to why we’re all so excited about this new product offering. So with that we will open the call for questions.
(Operator Instructions) Your first question comes from the line of Drew McReynolds - RBC Capital Markets
Drew McReynolds - RBC Capital Markets
My one question for you and it’s a big picture question, it appears as if certainly the visibility on your business has certainly improved quite dramatically sequentially in the quarter, it does sound just by the tone of your comments that net sales are certainly building nicely, the big picture question is when you look at coming out now of the bottom, has the environment permanently changed as a result of the last couple of years in terms of your end markets, and then a follow-up would be when you look at your targeted, medium term or sustainable top line organic revenue growth rate, do you remain confident that that is mid single-digit going forward.
It’s a great question and its one we spend a lot of time as a management group and as a Board, I think the most honest answer I can give you is we don’t fully know yet. And I think the big variable for everyone is the impact and the nature of global regulatory change is not yet known. And it waivers between let’s start with financial services, some days or weeks when it looks like, hey, things are headed back to the way they were and people acting certainly like that in the markets.
And then other weeks where governments are saying, hey haven’t you learned anything, we’re going to have to come in with a big stick. So if I try and look across all our businesses, it’s a probably net positive in legal, a net positive in tax and accounting, in financial services at the moment I would call it neutral. Developments that we’re seeing like the instability in Greece while threatening to the Euro, has actually been fantastic for our FX dealing services.
So I think the bottom line is we’re well balance, we’re adjusting along with the markets and in terms of the composite overall picture, I still think this is a business that can and should be capable of mid to high single-digit growth rates and that’s what we’re planning for but I would agree with you there’s a little bit of regulatory uncertainty that hangs through this year.
Your next question comes from the line of Phillip Huang – UBS Securities
Phillip Huang – UBS Securities
Just on WestLawNext, I know you’ve only launched it at the beginning of the month, but just wondering if you might be able to give us a little bit more color on the initial feedback, I understand its positioned as a premium service and provides significant time savings benefits to customers. How soon can we start to notice the benefit of this product in the numbers. Do you think we need to see law firms being done with cost cutting and return to growing headcount or do you expect to see the benefits show up earlier as a result of market share gains, etc.
Well I guess the first thing to observe is and we’ve now seen the numbers come out of let’s say our competitors, our established competitors in the legal space, its pretty clear by a wide margin that the existing WestLaw which by the way is a very good product, has already opened up very significant blue water.
WestLawNext is sort of oil on that fire if I can mix metaphors. Maybe the best thing I can recommend you do is go do a search into the bloggers sphere, beyond the realm of official superlatives coming out of us, take a look at the law librarian blogs, a Google or [technoraty] search of the blogs will pull up some pretty interesting stuff.
I’m not sure if we have the links to it in what we put up on our website, if not Frank can get it to you, but the initial reaction from the sort of skeptical law librarian legal community is very strong. I’ve been playing with it for months. I used the old product, it is a significant world of difference. It is a pleasure to use the product.
And then in terms of how do we expect to see the benefit I think it exists on several bases, one is don’t underestimate especially in a market like this the benefit to a sales force of having something new to show. It was a tough year last year across the board. The reaction in our own inside the company at our sales force presentation, is huge and the success stories are running right across the firm.
I think we’re up to something like 400 new sales of WestLawNext in less than a month. Externally I think you will see it in terms of a further shift in market share and some uplift in essentially the achieved pricing across the firm and the initial sales bear that out. But its still early days so we don’t want to blow our horn too much but other people seem to be blowing it for us.
Your next question comes from the line of William Bird – Bank of America
William Bird – Bank of America
I was just wondering if you could just discuss the scale of the net sales improvement and just your point of view on markets improvement in January and the sustainability of that improvement.
So I think the, we’ve given you a sort of directional indication in that the progression last year quarter to quarter was by the time you got to the fourth quarter markets was still negative but on a far less negative than say the second quarter. Down some 75% and that’s after a 50% improvement in the third quarter.
The only thing that we’ve completed so far this year is January. It is very unusual for us and don’t expect we’re going to go to a month basis, Robert and I really look at average net monthly sales across a quarter because there is a certain lumpiness. We chose to flag it only because I think there’s a natural focus on when do you cross that zero line.
We did it as a firm in the fourth quarter which is why we flagged consolidated net sales turning positive. The fact that markets is coming up is also I think really important and that goes to the issue I guess Drew had pointed out in our clarity on forward looking data which is we’re not trying to predict whether the whole economy is V or U or L shaped, what we’re able to say is, look we know what the trend line is. If the trend line continues our net positive sales will turn into net positive period on period reported revenues in the second half.
We’d have to go off of that trend which of course is entirely possible, double dip or some other factors for it not to be true and that’s how we sort of give you the composite view of what we think the rest of the year shapes like. A U shape for us with improvement right through the year.
William Bird – Bank of America
And I guess what’s your point of view on the sustainability of growth in markets without job growth.
Well that’s the real focus that the work Devon has been doing in markets and together we did at old Reuters which was we were very badly hurt I think a cumulative 20% fall in revenues from a much milder recession and we were very exposed to headcount and we have progressively reshaped that business to have, its still obviously heads are important, we have some 440, 450,000 terminals in front of people.
But we have another 50% plus of revenue which is non headcount dependent, either because its enterprise data feeds and valuation systems, or because its transactions and the recent activity with the volatility in the Euro is a good example, people haven’t laid on a huge number of heads in January but volumes are almost double a year ago.
And that’s because obviously of the stresses in the FX market. We participate in that and benefit from that even in a headless recovery. So I guess what I’d say coming back to pull it together is if you were to tell me that banks were now going to go on another 20% headcount purge, that’s clearly negative for our business. If its essentially flat and only minor growth in Latin America, Asia, etc., but continued strength in non headcount markets, we can grow in that environment.
Your next question comes from the line of Vince Valentini - TD Newcrest
Vince Valentini - TD Newcrest
The integration seems to be going quite well, I’m wondering if from your perspective the organization and specifically the market segment is ready for the integration of another reasonably large acquisition and maybe as a follow-up to that if there is no large acquisition that occurs this year, is there any chance of using some of that $10.1 billion in cash for further share buybacks.
I’m going to let Robert since we’re talking balance sheet in part here, I’ll just start with the, markets has a lot on their plate. Very positively, starting with the launch of Utah which is the desktop platform but they’re also really hard at work on the transaction systems, on their low latency data feed efforts. There are a ton of really good things going on in markets.
Could they technically do something more, well they’re doing interesting bolt-ons all the time. We just announced a small acquisition called [Agisoft] which adds direct market access capabilities in markets. They can do that, but put it this way, if they have nothing else to do, if we add nothing else to their plate, they’re fully occupied for the year.
I’ll let Robert comment on the use of cash.
You’re right to point out and we’re very pleased to have a nice cash cushion going into the year. Last year at this time we had about $850 million roughly. So we are up a bit. And certainly we’re always working to strengthen our businesses and this past year I think we reported about $400 million of acquisitions, many of those small, the largest one being about $100 million I think. And so those are the kind of acquisitions that are really low risk and propel growth and certainly we’re continuing to do that and I think we’re in a good position to do an equal or more of that this year.
And that’s what we’ll think about and remember that we do have a dividend commitment and management has always thought that its important, (a) it’s a real value creation for our shareholders so we do dividends rather than stock buybacks at this point, and secondly, we do have some debt coming up for renewal at the end of the year.
I think the way to view it is that we’re in a strong position and we can do virtually what we need to do to continue to drive this business and everything we’re doing we’re thinking more about 2011, 2012 and 2013 and how we can position ourselves to take advantage of the return to growth. So we are in a position to do things but I would suspect they would tend to be, they could tend to be smaller and certainly the kind that propel growth for us just as well.
Your next question comes from the line of Thomas Singlehurst – Citigroup
Thomas Singlehurst – Citigroup
I had two questions, just about some the cost in 2010, you talked about the additional 100 basis points of investment, is that a permanent increase in investment levels or does it fall away in short order. And then linked to that, I know you’ve got the flat underlying margin pre investment, but just on the specifics of the corporate costs, is that going to jump up again in 2010. And then the final question was actually back on the larger acquisition side and maybe turning it around, specifically we have IDC and risk metric both with a strategic review under way, is there any threat to your business if they are acquired by any of your major competitors.
We obviously look at everything that’s out there. We’re very familiar with those assets. I feel very good about the cards we have in our hand. Our businesses are very competitive, thanks to the way we’ve built them. Neither of those assets in and of themselves dramatically change the playing field no matter who’s hands they go to or whether they stay where they are.
They’re both well run businesses as they are so we don’t see a dramatic shift there.
In terms of your questions on investments I would view the investments that are effecting the margin as part temporary and part run rate because some of them are as we launch these new products we actually start incurring amortization of investment and other costs that are [inaudible] run rate and the reason why it’s a negative impact is because we don’t see all, the full benefit of the revenues and I think WestLawNext is a great example of that and certainly Utah later in the year.
So I think the majority of it would probably be run rate which will be overtaken quickly by revenues and then the other part on corporate costs, we have a really managed corporate costs, the core corporate costs very tightly and kept them flat now for I think certainly 2008 and 2009 and reduced them in 2008 and kept them flat in 2009, and I think in 2010 we will see those costs continue to be flat, the core.
Where we had increases, been in pension and benefits and right now we may see some increase in that again in 2010. It may be along the line of what we talked about, but maybe not quite as much as this year but it won’t be essentially flat.
Your next question comes from the line of Brian Karimzad – Goldman Sachs
Brian Karimzad – Goldman Sachs
On project Utah, so last year on this call it was kind of flagged that it might be a back half 2009 release, now it looks like it will be sometime later this year, you have an alpha release on your desktop which is good although its not a beta, just as you look at this project, first how are you managing customer reaction to some of the delays and then second as you run it through more paces on the veritable [bondable] flats out there what kind of feedback are you incorporating and what are some of the things that you are adding to it with this extra time you’re spending.
Well the single biggest thing we’re doing now is making sure that the quality is as good as we can possibly make it before we officially declare it released. I’m running an alpha but it’s a very stable load. Its an alpha because several times a week there are significant changes going through it. One of the best things that this platform, because its really a platform more than a product, allows us to do is to transition to a much quicker response to market.
The ability to incorporate not only new data but new analytics as the market evolves so quickly it is a significant step up. It doesn’t require a site visit, it doesn’t require golden disks or customers to open up their systems and do rollouts. So we’ll be going to a very broad beta this spring which probably under the way we used to handle releases, we would have already released by now, but the key issue for us in the marketplace is we don’t feel a gun to our heads.
The 3000 Extra that I switched off in favor of Utah is a very competitive product so the issue really is when do we get to take our game up rather than a burning, oh my God, we’ve got to get this thing out because we’ve got a problem today.
Your next question comes from the line of Paul Steep – Scotia Capital
Paul Steep – Scotia Capital
Maybe we could talk about things that are within your control excluding employment so if we look at those 2011 integration synergies and what you need to do to hit those numbers that are cost related or working with customers, what are the top three things on the critical path that would at this point maybe derail or so you get to those numbers sooner.
You’re right, we look at it the same way that we focus on the things that we can control the most, I’m trying to think about what would most derail us. So we’re, there’s a certain amount of product migration and frankly shutting off product next year so the issue there would really be, if Utah didn’t ship until 2011, that would probably delay us a bit.
That’s probably the single largest factor this year otherwise, the plans are very well advanced.
Your next question comes from the line of Paul Sullivan – Barclays Capital
Paul Sullivan – Barclays Capital
Just a question on the legal business, can you just maybe talk about the broader customer spending patterns you’re seeing in legal and how that’s evolving and in terms of buying patterns, etc. And then specifically on print in legal, how should we view the acceleration in the decline as we went through the second half. Are you seeing, is that part of the unused structural shift there and I don’t know if you can size for us but what proportion of the print business within legal would you regard as nice to have as opposed to must have which will give us a better sense as to the levels which we should start to see stabilization there.
I don’t have a good answer for you on must versus sort of nice to have in print, but I think I can add a little bit of color. Each time there’s a recession you see a real focus on cost more than just the day in day out and a sort of ratchet down in print and some of that is generational. I’m 50 years old. If I’m going to read 100 page case, I’m going to read it in print rather than the screen.
I use the screen for the things it does best, which is search and [citator] etc. I think what Thomson has done remarkably well and not just in legal is manage the transition from print to electronic without sort of having these huge [casyms] where the profit drops out, the revenue growth drops out. If you do the read across to say Lexis Nexis these days in legal they’re overwhelmingly electronic. They have far less of a print component last time I looked in the US.
But yet their revenue growth rates are significantly down suggesting that not only are we taking share on the macro level but if you were actually going to compare the electronic to electronic, it would be off the charts. I think a certain amount of that print, a good amount of that print, does stay. Go to the US Supreme Court, they’re not going to throw out the Supreme Court reports, nor will the United States Code Annotated disappear from law libraries.
But solo small firms I think over time just don’t have a library at all or if they have one its more to show the clients than it is for the actual work they do. I’m pretty comfortable with the shift. The obvious issue is that print is very profitable, it’s the mix effect that Robert has pointed to and what we’re doing is as the electronic gets scale, then it begins to move up towards those sort of margins but in the interim you see a bit of a mix effect.
And all in all I think we’re managing the transition better than any other industry I see.
I’d just like to add some historical perspective, that the decline of print does not necessarily herald the decline of margins in legal group because if you think about the longer term, when Thomson acquired West in 1996 roughly 60% of the revenues were print and only 405 were electronic. In that transition from print to electronic, the margins of the legal group expanded, expanded dramatically I think by almost 10 points.
So, during that period, so the challenge that you have is in a short-term period like now where you have dramatic shifts and in fact we don’t have the return to growth and kind of robust growth in online that we are used to enjoying that you would see this effect on the bottom line. I think over the longer term we continue to manage it and we don’t see the longer term issues of margin as dramatic as they are in this short-term period.
Paul Sullivan – Barclays Capital
And in terms of the change in customer buying patterns, any changes or anything to report there.
Well I think the most significant change is really something that WestLawNext is really focused on which is there is pressure on law firms certainly on both sides of the Atlantic to do all in, fixed price deals let’s say you’re doing a bond offering or there is such a thing as a plain vanilla litigation, pressure from general counsels to do flat fees.
This is where and people have questioned whether a shift from hourly rates is negative for this business, the really dramatic thing that WestLawNext does is increase the efficiency and so suddenly if you’re a law firm and you’ve agreed to a fixed price to do a deal, you care and your interests are very aligned with your clients, you care deeply about the efficiency so I think we’ve gotten that trick right.
In terms of buying patterns, people are under a lot of stress. Law firms are very cash oriented. The lease tends to be the biggest financial purchase or decision they make. I think our guys have been very successful in working with clients. Some of that pressure is easing a little bit but I think 2010 will continue to be a challenging year in the legal market overall and that’s why its so good that we have exciting product to go out with.
Your next question comes from the line of Mark Braley – Deutsche Bank
Mark Braley – Deutsche Bank
I guess just one question, on the margin guidance you’ve got quite a big year on year increment coming from the cost savings particularly after increasing the target there, and yet you’re steering us towards margins down 100 basis points inclusive of the extra investment, are you really telling us the normalized cost inflation is starting to come back into the business, you’re having to give salary increases again and second, is there any element of care of taking extra cost to fix problems in the completion of Utah in particular. Are we far enough behind plan that you’re having to do things that you didn’t want to do to get that product ready for market.
First the answer is absolutely not, that’s not the reason why the cost trajectory for Utah is geared somewhat to what it was when we first started out and we don’t expect to see any changes. I think what you need to think about is first of all when you say are we starting to see normal cost inflation I think we’ve always had cost inflation.
And we’ve been able to cover that. What you have to remember is that this is a very, very leveraged business. And when you have revenue slow down and we haven’t had robust revenue growth, we talked about over the past two years since we’ve come together, we’ve taken the margin from 18.7 to 21.3, that’s 260 basis points of margin improvement.
That hasn’t been done in a robust revenue environment. So we have been taking significant costs out both within the integration and outside of it just in normal response to the environment. But in any business of our size and scale you have many cost components that drive the business and so it’s a bit of a challenge to just steady state and say well where are these particular costs. I think the one thing that is true and we’ve said this all along, that this $1.6 billion and $1.2 billion of costs are permanent efficiencies that we will have in the business.
And that will allow us when we return to a normal growth environment, to see the flow through and have a restoration and indeed continued improvement in the margins. We have said in the past that our target longer term is 25%, mid 20’s operating margin. We see no reason why we can’t attain that and we see these, and we’ve couched these margin impacts as temporary. And so I think that’s an important point.
The other point not to be lost is that you tend to think about margin flow through for all businesses as equal, and I think that as we’ve talked about we’ve had in the short-term some really crimping of print revenues which have a very high flow through, and the growth that we have seen has come from areas that by and large don’t quite have the same margin flow through.
Even within the markets division, transactions for us are usually profitable and they have suffered more dramatically than recurring. So its not a simple answer but there is a simple response to the impact of our integration program and that is they are real savings, with real benefits and we are positioning ourselves for when growth returns to achieve the targets that we’ve set out in terms of operating profits and more importantly cash generation.
Mark Braley – Deutsche Bank
I just ask on this salary point because [inaudible] this morning on that goal did specifically say that there was some more sort of normal inflationary cost pressure coming back into the business as employees got a bit more comfortable, standing up for their rights. Would it be fair to assume that you’re seeing that too.
I think through this year, through 2010 I think we’ll see that strength. Asia for example, we’ve seen this right through so while London and New York haven’t made a lot of noise about labor cost growth given the fact that prices if anything were going backwards, India price wage inflation has been running 10%, 15% right through this and we have a significantly number of our staff in Asia.
I’d say coming back to Robert’s themes, I think of this in sort of two very simple ways. One is we need about 2% to 3% revenue growth to see the large costs we’re taking out of the business actually fall to the bottom line. Below that we are eating up some of that margin improvement in temporary reduction in revenue and we have every reason to believe we’re obviously targeting well north of that, but we have every reason to believe we can get back up to that rate.
With respect to 2010 in particular, there’s a bunching of spend so its not just Utah, Utah is pretty much on where its cost projections have been all along and now the costs are really in Q&A. Its WestLawNext, was a large dollop of cost, we have the global tax workstation in tax, a new version of Micro Medics, we’re doing a lot of things precisely because we think we can open up competitive strength and you were around at the time you’ll remember, I think Reuters got hurt very badly and got taken out of the market because I had no choice but to cut costs horribly deeply and then had to come back a couple of years later with the big core plus program to restart growth from zero.
And that eventually worked but it took a lot longer and was very painful and I remember many of the folks on this call said well your X growth, you’ll never restart growth. We can do it a better way. That does involve a certain bunching of spend because you’ve got to spend to get the growth but we feel its managed in a way that makes 2011, 2012 and 2013 look very good in our model.
Your next question comes from the line of Tim Casey – BMO Capital Markets
Tim Casey – BMO Capital Markets
Just on Utah, how should we think about it flowing through the P&L, should we assume, you were expecting an acceleration in top line or an acceleration in margin as you’re able to over the course of three years shut down some of the legacy systems and thereby see an improved cost structure.
I think the way we think about it Utah is really a significant platform and infrastructure opportunity for markets that gives them new product capability, so its both ends. It is the revenue side of it and the cost side of it. The revenue side has a bit of a tail to it because part of it is getting customers to convert off of current platforms to Utah.
Some of that we think will be easy because it will be so compelling and then the other side of it is that what Utah does from a platform perspective in terms of uniting various and sundry functions and capabilities is that we will see cost savings. And so really it is, the way to look at it is is over the longer term we look at it as a growth play in terms of top line and as a margin play in terms of cost. And that’s the way we’d play it out.
I think as far as specifics to that its very, very hard for us to even discuss those at this point.
Tim Casey – BMO Capital Markets
Is it fair to think though that the costs fall away late stage because you can’t shut down legacy networks until everybody is off them.
Its not just, that part is true, you can’t, all the way in the back end you can’t do that, but there are significant amount of cost going on middle and front end. So for example you were not doing a huge amount of development right now on legacy services that we know we’re sunseting so we’re going to see run rate cost advantages even before we shut off the last server.
We’ve begun migrating and closing down entire systems including heading towards Reuters Plus shut down in the US and we’ve done it in the UK with Equity Topic as well so there are some savings along the way.
I’d just like to add one point for clarity, is that while we expect to see improvements in the operating performance of markets and part of that is reflected in some of our outward thinking, that by and large the cost of Utah are not in integration. There’s some in there, the vast majority of them are development costs which are on the balance sheet and will be amortized when we launch the product. So we’re not using integration as a way to fund, primarily fund Utah.
Your next question comes from the line of Colin Tennant – Nomura
Colin Tennant – Nomura
Just a quick one on the regional performance, if I can, I wonder if you could give us a bit more detail on how particularly some of those faster growing markets like Asia might be doing, have done in 2009 and how you see the geographical diversity of revenue growth going into 2010.
So what we’ve seen through the year is its really thanks to that geographic balance that we have been able to hold revenues as well, let’s go to markets in particular which along with scientific are the most international of the businesses.
So Asia has been the most resilient area and has held up quite well. Brazil although it’s a small base numbers I looked at recently was growing double-digit for us. The Gulf is still good so as we’ve come through the year, and as the early negative net sales have worn through, all of the regions have come down but the pattern is still pretty much the same with Asia in the last quarter sort of just turning negative and in terms of reported results and the Americas and EMEA more negative.
Colin Tennant – Nomura
And just as a follow-up, you talked a little bit about how you were relocating people, integrating offices etc. around the world and I remember one of the attractions of the merger was that you would be able to leverage the Reuters global footprint for helping to sell and establish the professional businesses, is there any sort of concrete progress on that to date.
Well in the property integrations, yes very much so, so in New York we’ve early on we got it done really the quickest. We’ve moved to a principally two locations sort of A, B site three times square and 195 Broadway. In London we’ve been moving to a similar strategy of Canary Warf plus the city. We’ve moved in Tokyo and a bunch of other places and every time we do it we try and co-locate both for cost sharing and savings but also very much for the ability to cross fertilize products.
One area where probably more than any other we’ve seen it already turn into very tangible product and revenue is the Gulf where we’ve had a really group from professional parachuted into the Dubai old Reuters office and together have launched not only the Islamic Finance Center out of WestLaw business but in 3000 Extra the Islamic Finance Center is beginning to benefit from some of those things coming out of the professional division and that trend will continue.
Your final question comes from the line of Randal Rudniski – Credit Suisse
Randal Rudniski – Credit Suisse
I just wanted to ask again on margins, did the development of West Next have any impact on Q4 legal margins and in terms of the 100 basis point impact to 2010 margins from investment, that impact occurs because of higher amortization or is there also an OpEx element.
Q4 was not impacted by West Next. We officially launched the product in the first quarter of this year and have begun the sales process so we will see amortization this year. In terms of the margins part of it is certainly amortization of product but there are other operating expenses as well in it. As you roll out a new product, some of them are marketing costs, which will continue and some are obviously marketing sales and there now are some production costs as well related to supporting the product.
That will conclude our call. We’d like to thank you very much for joining us today.