FROM THE CHAIRMAN

"Reported operating profits fell by 8%,
the first actual decline since 1979,
whereas operating profit increased by 7%
on a comparable exchange rate basis."

1997 was a testing year for shareholders in Reuters, as it was for those managing the company. The share price, in marked contrast to the trend for many years past, declined absolutely and also lost a lot of ground relative to the market. The principal influencing factor was the strength of sterling, as demonstrated by the fact that reported operating profits actually fell by 8%, the first decline since 1979, whereas operating profit increased by 7% on a comparable exchange rate basis. Taking an overall view, the Board again decided on a rate of dividend increase well ahead of reported earnings. Also, the strength of the company's cash generation and financial position enabled us to propose towards the year end a Scheme of Arrangement whereby £1.5 billion of capital would be returned to shareholders. This sum incidentally is roughly equivalent in real terms to the total market capitalisation of the company on its flotation in 1984. Reported earnings per share in Reuters Group will be readily able to be compared with past figures but absolute profits will not be, as a result of the interest loss on the cash distributed.

The fundamental question, of course, is 'whither earnings?' What underlying rate of revenue growth can be achieved? Can percentage sales growth be translated into at least equivalent percentage earnings growth?

"The Board remains confident... in the growth
opportunities to be derived from exceptional
service to the global financial industry,
Reuters principal market."

The Board remains confident, notwithstanding the effects of industry consolidation, in the growth opportunities to be derived from exceptional service to the global financial industry, Reuters principal market. Over the years we have backed this confidence with substantial investment in improvement and innovation. The company's major assets are intangible, but real and competitive: the skills and loyalty of its people; its data bases and the organisation of them; the extraordinary geographical diversification of the business; and the Reuters brand, unswervingly underpinned by the Reuter Trust Principles. We believe, on the basis of thorough and regular research into the views of major investors, that there is broad consensus on the key elements of our strategy and that it will stand the test of time, if it is well implemented.

On the cost side of the business there are currently exceptional pressures on resources stemming from technological change, EMU and our Millennium Compliance Programme. For many years now, despite leaving prices substantially unchanged overall, we have been able to keep underlying revenue growth generally in line with or ahead of underlying cost growth and we have also made room for pursuit of market share and further sales growth. The Board is committed to these objectives.

In summary, therefore, we believe that we are steering a good course and we are determined not to be blown off it. We are aware, however, that what we regard as realism, others may view as excessive caution; and that a policy of exploiting our traditional strengths and markets may be seen by some as indicating a lack of ambition. So be it. As a Board, we try to ensure that, both in our own discussions and in the company as a whole, there is that degree of sensitivity to events and to relevant opinion which is fundamental to good corporate governance. But genuinely held differences of view are bound to arise - not just in strategic matters but also, for example, as between the Remuneration Committee and some institutional shareholders over one or two parameters of the long-term incentive scheme approved last April. The only remedy is persistent and high quality two-way communication; and on principle we strive for that, albeit laying no claims to perfection.

Pehr Gyllenhammar, a non-executive director since 1984, retired from the Board in October and has subsequently been appointed a trustee by the Board of the Reuters Founders Share Company. His service to Reuters was outstanding. New non-executive directors for re-election at the annual general meeting will be Dick Olver, Managing Director of BP's Exploration and Production, and Roberto Mendoza, a vice chairman and executive director of J. P. Morgan & Co Inc. The Board takes this opportunity to pay warm tribute to Lord McGregor, Chairman of the Founders Share Company from 1987 until his death last November, and to welcome his successor, Sir Frank Rogers. The guardianship of our objectivity, as enshrined in the Reuter Trust Principles, is in good hands.

Sir Christopher Hogg Chairman