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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 SUMMARYReported revenues declined 1% to £2,882 million in 1997 due to the strength of sterling against all major currencies. Stripping out the impact of currency movements, revenues grew 9% at comparable exchange rates, compared with 8% growth in 1996. Revenue at actual and comparable rates % change 
Fourth quarter revenue growth of 11% at comparable exchange rates was reduced to 3% at actual rates by the strength of sterling. Operating profit fell 8% to £592 million at actual exchange rates and grew 7% at comparable rates, compared with 8% underlying growth in 1996. Operating profit at actual and comparable rates % change 
The operating profit margin was 20.5% compared with 22.0% in 1996, and 20.4% in 1995. The decline in 1997 was due to the net impact of currency, incremental costs of £11 million associated with the Millennium Programme and costs of £8 million related to the capital reorganisation. Earnings before interest, tax, depreciation and amortisation (EBITDA) declined 2% at actual rates to £904 million. It grew 8% at comparable rates compared with 9% in 1996. As a result of the adoption of UK Financial Reporting Standard 10 (Goodwill and Intangible Assets), amortisation of £51 million has been charged to the 1997 profit and loss account in respect of goodwill arising on acquisitions. Prior period profits have been restated. On a portfolio basis there has been no diminution in the value of Reuters acquisitions compared to their original cost to the business. The amortisation charge does not, therefore, represent an economic cost. Accordingly, an adjusted earnings per share figure has been disclosed which excludes this accounting charge. As a consequence of the implementation of FRS 10, profits under UK and US generally accepted accounting principles (GAAP) are now more closely aligned. Net interest receivable increased by 32% in 1997 to £80 million following growth of 2% in 1996. This increase was due to higher net cash balances and yields. Interest income represented 2.8% of revenue in 1997 compared with 2.1% in 1996. On 19 January 1998, shareholders approved a capital reorganisation under which, subject to final court approval, £1.5 billion of surplus capital is to be returned to shareholders on 25 February 1998. This will result in the creation of a new holding company, Reuters Group PLC. Tax of £23 million and other costs of £8 million in respect of this reorganisation have been charged against 1997 earnings. Profit before tax of £626 million was 4% lower than 1996. Excluding goodwill amortisation, profit before tax at comparable exchange rates increased 11%. The effective rate of tax on profit before goodwill amortisation increased to 34.9% from 29.9% in 1996. The increase was primarily due to one-off costs relating to the capital reorganisation. If these were excluded, the underlying effective tax rate was 31% compared with 29.9% in 1996. Earnings per share declined 12% to 24.0p from 27.3p in 1996. Adjusted earnings per share, which excludes goodwill amortisation and the costs of the capital reorganisation, declined 4% to 29.1p from 30.4p in 1996. Earnings per share 
Dividends per share increased by 11% in 1997 to 13.0p after growth of 20% in 1996. The final dividend is based on the reduced number of shares expected to be in issue following the capital reorganisation. Earnings and dividends % change 
Dividend cover declined to 2.1 in 1997 from 2.3 in 1996. Had the capital reorganisation been effective at the start of 1997, dividend cover on a proforma basis would have been 1.9 in 1997. Free cash flow per share, which represents surplus cash generated after capital expenditure and tax payments, was 27.7p, down 9% from 30.5p in 1996 reflecting sterling's strength. Sterling continued to strengthen during 1997. If year end exchange rates had prevailed throughout the year, revenue would have been about £83 million lower and operating profit before currency hedging around £39 million lower. At year end exchange rates the value of the currency hedging book is £36 million in respect of 1998 and £3 million in respect of 1999. This compares with currency hedging gains of £56 million in 1997. If sterling's strength persists it will, therefore, continue to restrict prospects for reported revenue and earnings. Net funds at 31 December 1997 were £1,290 million, an increase of £240 million in the year. Investment in the business continued with £368 million spent on capital expenditure, £235 million on development and £29 million on acquisitions and investments. |
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