Employee safety
The Board recognises the courage and professionalism shown by our employees operating in conflict zones. We regularly review our policies, training and procedures for employees, particularly for those working in dangerous places. We have reaffirmed the standing instructions to our employees to avoid risks wherever possible and we provide hostile environment training, protective equipment and post-trauma training programmes to all employees who may need them. We were deeply saddened by the deaths of two Reuters employees in Iraq in 2005. Photographer Rashid Khaled died following a car crash in Basra, Southern Iraq, in February and TV soundman Waleed Khaled was shot and killed in Western Baghdad. Four Reuters journalists were held in US military custody in Iraq, three of them for several months, during 2005. All were released without charge.

Equal opportunities and diversity
We have extensive fair employment practices in place and with the support of our Global Diversity Advisory Council, established in 2004, we are working to make Reuters an increasingly inclusive company. The Council is chaired by the CEO, and serves as an advisory board to the GMC on issues related to diversity.

Our policy is that the selection of employees, including for recruitment, 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. Our equal opportunities policy is designed, among other things, to ensure that people with disabilities, and other under-represented groups, are given the same consideration as others and enjoy the same training, development and prospects as other employees. In the UK, as well as being a member of the Employers Forum for Disability, we have made use of the services of both AbilityNet (which supplies technology for disabled users) and Employment Opportunities (a UK charity helping people with disabilities to find and retain work). We have successfully retained staff who have become disabled, as well as integrating those who are disabled when they join the company. This has been achieved by using technological solutions and re-designing the way jobs are handled, enabling individuals to contribute actively to meeting the needs of our business.

Our commitment to ethics and compliance
Since Reuters was founded in 1851, we have run our business with independence, freedom from bias, and integrity. We endeavour to do the right thing in all that we do, adhering to the values set out in the Trust Principles, our code of conduct, and the company’s policies, while we comply with the different laws and rules that apply to us in the countries where we operate. As part of this commitment, our efforts to maintain an environment at Reuters that promotes and protects these values is overseen by a global ethics and compliance steering group, chaired by the General Counsel and Company Secretary, which reports to the Audit Committee and periodically briefs senior management and the Board.

As part of this global programme, we train our employees on key ethics and compliance areas; provide an anonymous and confidential system for staff to report concerns without the threat of retaliation; investigate and take appropriate measures when compliance issues are raised; and periodically assess the efficacy of the programme as a whole. On an individual level, ethics and compliance aspects are incorporated into our performance management system as we understand that each of us at Reuters must uphold the values and principles that have served Reuters well for so long and are at the very core of what defines Reuters as a business.

Employee profile
At 31 December 2005, we had 15,300 employees (31 December 2004: 14,465) of 115 nationalities in 89 countries. 490 employees joined Reuters through acquisitions.

Remuneration
Detailed information on our remuneration policies can be found in the Remuneration report on pages 39 to 48.

06 Corporate responsibility
Corporate responsibility within Reuters is established as the way we carry out our business practices and conduct ourselves responsibly throughout our day-to-day activities, as determined by the Trust Principles.

We steer our corporate responsibility strategy through our Corporate Responsibility Advisory Board, established in 2003, which comprises customer, supplier, investor and employee representatives. The Advisory Board considers workplace, marketplace, environment and community issues of relevance to our business and our employees and it is chaired by the General Counsel and Company Secretary, who represents it on the GMC and to the Board. For 2006, we have set ourselves the objectives of developing a code for our suppliers to adhere to when working with us; rolling out a programme of mentoring of senior managers by employees on diversity issues; raising employee participation in our Community Events Week to 15% in 45 locations; and creating a system for recording Reuters impact on the environment.

Reuters is included in the Dow Jones Sustainability Index, the FTSE4Good Index, the Ethibel Sustainability Indices and the Ethibel Pioneer Investment Register.

For information about our employees, see ‘People’ on page 10 to 11. For information about creditor payment terms see the Directors’ Report on page 31. For information about charitable donations, see the Directors’ Report on page 31.

We also make extensive information available through our website www.about.reuters.com/csr.

07 Reuters in the community
We support a variety of community initiatives and charitable causes through the work of Reuters Foundation and the volunteering efforts of our employees around the world.

Reuters Foundation (www.foundation.reuters.com) continues to focus on areas where Reuters expertise in information gathering and communications can be put to use in ways which will benefit the communities in which we operate across the world.

During the year, the Foundation offered training opportunities to journalists from all over the world, providing short courses for 391 journalists from 86 countries. Amongst the courses was a workshop in New York on HIV/AIDS reporting. In February 2006, to build on our work in this area, Reuters became a member of the Global Business Coalition on HIV/AIDS, an organisation which aims to increase the range and quality of business sector AIDS programmes in the workplace and in the community.

The Reuters Institute for the Study of Journalism was launched in January 2006 (at the University of Oxford) with Reuters Foundation providing £1.75 million of funding over five years. The Institute builds on the Reuters Foundation Fellowship Programme at Green College, Oxford, and its reputation for engaging first class international journalists from across the world in serious research. It will focus on analysing the practice of journalism worldwide and examining the basis for reliable and accurate reporting in the digital age.

AlertNet (www.alertnet.org), established by Reuters Foundation in 1997, enables relief agencies and the public to share information about emergencies and associated relief efforts. In addition to carrying breaking news on emergencies, the site also helps to ensure that ‘forgotten emergencies’, those disasters long forgotten by the mainstream media, are kept in the headlines. We have seen traffic double over the past twelve months to an average 215,000 page views per day in December, as we add new content sources and as media recognition increases. The innovative Tsunami Aidwatch (www.alertnet.org/thefacts/aidtracker), set up by AlertNet to measure how much of the money pledged after the disaster was turned into actual funding for relief and reconstruction in the area, has helped position the service as an authority on humanitarian media issues.

Reuters Digital Vision Program (RDVP) (www.rdvp.org) is a fellowship programme at Stanford University, California, which develops innovative applications of information and communication technologies to address the needs of under-served communities. Its projects focus on three areas: advancing financial services, knowledge & empowerment and networked health & welfare. In 2005, Reuters invested in the development of Project Market Light, a project initiated by a 2004–2005 RDVP fellow. Its goal is to help Indian farmers to price their produce more accurately, thereby enhancing their incomes, by delivering affordable, relevant and up-to-date commodities information to them by SMS over mobile phones.

In response to the Asian tsunami disaster, we pledged a donation of $1 million to fund relief efforts in affected countries. To date, just over $435,000 (£235,809) has been awarded in grants to Thai and Indian charities working with victims. This figure includes a donation to the Surin Islands National Park as recognition for the support and assistance offered by Surin residents to employees from Reuters Software (Thailand) Ltd (RSTL), when they were caught on the island during the tsunami. Employees at RSTL have also volunteered their time to help restore the villagers’ livelihood. The remainder of the donation has been allocated to support house building programmes, with 64 Reuters volunteers travelling to Hikkaduwa in Sri Lanka to participate in rebuilding projects with Habitat for Humanity in 2005 and additional housebuilding team visits planned for 2006 and 2007.

Building on the enthusiasm shown by employees for housebuilding projects, we are looking at offering employees further opportunities to build in areas of New Orleans affected by Hurricane Katrina, and KwaZulu Natal, South Africa, as part of a programme to provide housing to families devastated by AIDS.

All employees may take one day of company time each year to engage in community activities. We focus on these activities during our annual Community Events Week programme. In 2005, 1,856 employees from 42 countries (12% of employees, 2004: 12%) participated in the scheme, undertaking a range of challenges. We encourage employees to use this opportunity to share their skills on projects ranging from hosted school visits, children’s events and fundraising to conservation work. We recognise that employees benefit from practising their professional and personal skills whilst team-building with their colleagues and providing valuable support to our communities.

In addition, we operate programmes in the US and UK which match donations and fundraising efforts of our employees. Under these schemes we matched gifts of time and money amounting to £26,581 in the UK and just over $175,000 in the year. 2006 will see the launch of a similar scheme for employees across Asia.

Further information on Reuters volunteering programmes can be found at www.about.reuters.com/csr.

08 Environmental impact
The Ethical Investment Research Service classifies our business activities as having a low environmental impact and electronic publishing creates scope to reduce paper-based distribution of information. However, we recognise that our employees and facilities have an impact, both at work and at home. We therefore held our first Reuters Green Week exhibition in London in November, during which we set out to provide information to employees around the world on the subjects of Reuse, Reduce and Recycle. With a variety of online materials, web-based debates and informal presentations, we were able to increase the awareness of our employees as to how their behaviours can impact the environment. During 2006, we intend to run additional Green Week exhibitions, focusing on other major office locations around the world.

Relocation to our new corporate headquarters in London’s Canary Wharf created an opportunity to introduce facilities which have a positive environmental impact. These include the use of fewer waste bins and plastic liners, movement sensitive lighting, default double-sided photocopying and piloting the use of recycled paper. Our entire UK property portfolio is now supplied with CCL-exempt green energy. Practices designed to reduce our environmental impact are also being rolled out in other centres in 2006.

We also have a role to play in the effective communication of environmental issues. Reuters has 80 journalists providing environment news and we are expanding our coverage of environmental markets such as the carbon emissions markets. Through the Reuters Foundation, in 2005 we delivered six training workshops to over 100 non-Reuters journalists in Mexico, Germany, America, Kenya and Morocco in conjunction with funding partners.

09 Government regulation
We are regulated by several bodies in the various jurisdictions in which we operate.

Under the provisions of the Financial Services and Markets Act 2000, Reuters Limited is regulated and authorised as a service company by the UK Financial Services Authority (FSA).

Reuters Transaction Services Limited (RTSL), through which we offer Dealing 3000, equities order routing and our new suite of next generation transaction products such as RTFI, is also subject to regulation by the FSA. Since 1 April 2004 RTSL has been classified by the FSA as an Alternative Trading System (ATS). In accordance with the passporting provisions of the EU Investment Services Directive, RTSL provides its services through the European Economic Area (EEA). RTSL is also subject to regulatory approval in Singapore, Hong Kong and Australia, where it is approved by the Monetary Authority of Singapore, the Hong Kong Monetary Authority and by the Australian Securities and Investments Commission, respectively. Since late 2005 RTSL has also become subject to regulatory oversight by the Hong Kong Securities and Futures Commission.

RTSL’s sister company in the United States, Reuters Transaction Services LLC (RTS LLC), is responsible for an equity order routing and indications of interest network. RTS LLC is subject to regulation by the National Association of Securities Dealers, Inc. (NASD). RTS LLC has been seeking additional approvals in the US to allow for the trading of other financial instruments such as derivatives.

In order to comply with anti-money laundering regulations and to reduce the opportunity for Reuters transactions products to be used as a conduit for money laundering operations, all our regulated subsidiaries have put in place appropriate ‘know your customer’ systems and controls.

Financial review

Non-GAAP measures
A number of measures used in the following commentary are ‘non-GAAP’ figures, which are business performance measures used to manage the business, which supplement the IFRS based headline numbers. These include ‘underlying change’, ‘trading costs’, ‘trading profit’, ‘adjusted EPS’, ‘free cash flow’ and ‘net debt/net funds’. Brief descriptions of these terms are provided below. A more detailed discussion of these non-GAAP measures, including the rationale for using them and reconciliations to the most directly comparable IFRS indicator, is provided in sections 19 and 20 on pages 25 to 30.

Underlying change is calculated by excluding the impact of currency fluctuations and the results of acquisitions and disposals.

Trading costs are calculated by excluding the following from operating costs from continuing operations: restructuring charges associated with Fast Forward and acquisitions, impairments and amortisation of intangibles acquired via business combinations, and fair value movements included in operating costs; and adding back foreign currency gains and other income (both of which are included in other operating income).

Trading profit is calculated by excluding the following from operating profit from continuing operations: restructuring charges associated with Fast Forward and acquisitions, impairments and amortisation of intangibles acquired via business combinations, investment income, profits from disposals of subsidiaries and fair value movements.

Adjusted EPS is calculated as basic EPS from continuing operations before impairments and amortisation of intangibles acquired via business combinations, investment income, fair value movements, disposal profits/losses and related tax effects.

Free cash flow measures cash flows from continuing operations, other than those which are both discretionary in nature and unrelated to ongoing recurring operating activities such as the purchase of shares by the Employee Share Ownership Trusts (ESOTs), loans with associates and joint ventures and dividends paid out by Reuters.

Net debt/net funds represents cash, cash equivalents and short-term investments, net of bank overdrafts and other borrowings.

10 Group performance

Revenue
Reuters full year revenue grew 3% to £2,409 million (2004: £2,339 million). This was our first full year of revenue growth since 2001. On an underlying basis, adjusting for exchange rate movements and the impact of acquisitions and disposals, revenue was approximately the same as in 2004. Acquisitions, particularly of Telerate, accounted for most of the difference between actual and underlying increases, with the remainder due to currency movements. In the newly integrated Telerate business, sales focus on revenue retention post-acquisition drove better than expected revenue performance.

Recurring revenue, which represented 93% of our revenue in 2005, was £2,242 million (2004: £2,164 million). This represented an increase of 4% on an actual basis (1% underlying) compared to 2004, and was the first time underlying recurring revenue had grown since 2001.

Usage revenues, 4% of our revenue in 2005, grew by 13% to £97 million (2004: £86 million). This was driven by strong performance from Reuters transaction services as well as higher advertising revenue from reuters.com.

Outright revenue, 3% of our revenue in 2005, totalled £70 million (2004: £89 million), a decline of 22% compared to 2004. This decline was mainly due to our continued withdrawal from technology consulting as part of the Fast Forward programme, a process which is nearing completion.

Desktop accesses totalled 346,000 at the end of 2005, up 18,000 from the end of 2004. This increase was driven by our acquisition of Telerate. Average revenue per access (ARPA) for the fourth quarter of 2005 was up 2% to £309 compared to the same period in 2004, driven by price increases and a shift in the product mix to higher value accesses.

Operating costs and trading costs
Total operating costs were £2,251 million, an increase of 3% from 2004. The drivers of the increase are largely explained in the context of the movement in trading costs (as defined above). Additionally, Fast Forward restructuring costs of £94 million were £26 million lower than the previous year, bringing to an end this important transformation programme. We also incurred £18 million of acquisition related integration costs, principally relating to Telerate.

Trading costs totalled £2,075 million in 2005 (2004: £2,013 million), up 3% on an actual basis (flat on an underlying basis), demonstrating our continued cost discipline. The differences between the underlying and actual increases are mostly related to acquisitions, principally Telerate, with the remainder due to currency movements.

A change to the accounting treatment of the RPF, which is now recognised as a defined benefit plan rather than a defined contribution plan, resulted in an additional 2005 charge of £7 million. At the 2005 year end, a deficit of £223 million in the RPF was recorded on Reuters balance sheet. Further details on pension charges can be found in note 25 in the financial statements on page 84.

We invested £41 million in the second half of 2005 in Core Plus transformation projects and growth initiatives. These included investment in new electronic trading products and rationalising data centres and product development units.

The Fast Forward business transformation programme is now complete and we remain on track to achieve annualised cost savings of £440 million from the programme by the end of 2006, contributing to a total reduction from all transformation programmes of £900 million since 2001. In 2005, we delivered a further £126 million of annualised savings taking the total to £360 million under Fast Forward. These resulted largely from outsourcing our communications network to BT/Radianz in April 2005 (for more information on BT/Radianz, please refer to page 16), from further headcount reductions and from expanding our content and development facilities in Bangalore and Bangkok.

Operating profit and trading profit
Our operating profit totalled £207 million in 2005 (2004: £194 million) reflecting improved trading performance.

Trading profit was £334 million in 2005 (2004: £326 million). Trading margin was 14% (2004: 14%), after expenditure on investments in the Core Plus programme. The net effect of currency movements on trading profit was neutral with the small positive effect on revenue offset by a small negative effect in the cost base (please refer to ‘foreign exchange’ on page 22).

Profit for the year from continuing operations
Profit for the year from continuing operations was £229 million (2004: £356 million). The year-on-year decline was almost entirely driven by a reduction in profits from asset disposals. In 2004, continuing operations contained the profits from the sale of a 39% stake in TSI and our holding in GL TRADE, whereas the £38 million of disposal profits in 2005 came largely from further sales of our smaller remaining stake in TSI.

Net finance costs of £12 million were comparable to 2004, due to a broadly similar net debt position throughout the year, prior to completion of the Instinet Group disposal. Income from our associates and joint ventures in 2005 generated a net profit of £5 million, compared to £11 million in 2004. TSI and GL TRADE account for £5 million of this reduction as they contributed a net profit in 2004, prior to disposal.

The tax charge for the year was £9 million, compared to £40 million in 2004. The reduction was mainly due to the benefit of settling prior year taxation matters. A reconciliation of the actual taxation charge to the taxation charge expected by applying the standard 30% UK rate of corporation tax to the reported profits is provided in note 6 of the financial statements on pages 61 to 62.

Profit for the year from discontinued operations
Profit from discontinued operations was £253 million (2004: £19 million). This was largely made up of the post-taxation profit of £191 million on the disposal of Instinet Group and £68 million profit after taxation from Instinet Group’s business operations prior to its sale in December 2005. This was partly offset by losses on sale of Radianz Limited (Radianz) to BT Group PLC (BT), and on the partial disposal of the Group’s interest in the Bridge Trading Company (BTC) to Instinet Group.

Note: Refer to section 20 on page 30 for reconciliation to Group cash flows.

Note: Refer to section 20 on page 30 for reconciliation to statutory cash flow.

Cash generated from continuing operations was £268 million. Free cash flow was £88 million in 2005 (2004: £208 million). The year-on-year decline was driven by increases both in capital investment and restructuring charges. Higher capital investment resulted from our move to our new London headquarters at Canary Wharf, stepped-up investment in data centres and the capitalisation of product development and software costs. 2005 cash restructuring costs were £147 million (2004: £100 million), of which £132 million represented the peak year for Fast Forward cash charges and the remainder related mainly to the integration of Telerate. Cash flow in 2004 also benefited from £49 million of proceeds from the sale of property, plant and equipment disposals which did not recur in 2005.

Net funds were £253 million (2004: £326 million). The 2004 amount included £507 million of net funds at Instinet Group, reduced by £181 million of net debt in Reuters. Excluding Instinet Group, the year-on-year improvement in net debt to net funds is largely due to cash flow from operations of £268 million and net cash proceeds from disposals/acquisitions (largely Instinet Group) of £710 million. These inflows were partly offset by net purchases of assets of £182 million, dividend payments to Reuters shareholders of £140 million, and payments made as part of the share buyback programme of £223 million.

Dividends
Dividends paid in 2005 totalled £140 million. The final dividend proposed for 2005 is 6.15p per share, in line with the prior year.

Balance sheet
The net assets of the Group, at £570 million, are unchanged from 2004.

The main movements in the Group balance sheet are:

Our largest acquisition during the year was that of Telerate for £122 million, which completed in June 2005. Other smaller acquisitions included Action Images (September 2005) and EcoWin (November 2005).

Disposal activity for the year included our 62% stake in Instinet Group to NASDAQ for gross proceeds of £612 million (we realised a gain on sale of £191 million), along with the dividend received from Instinet Group in July 2005 of £37 million following the sale of its Lynch, Jones & Ryan (LJR) to the Bank of New York for £96 million. The net proceeds from these transactions (including our March 2005 sale of BTC to Instinet Group) totalled approximately £630 million.

Other disposals included our sale of 16 million shares in TSI for £63 million, realising a profit of £33 million, and the sale of Radianz to BT in April 2005 for £115 million cash, resulting in a loss of £4 million.

2006 Outlook
In 2006, we expect to accelerate revenue growth through our Core Plus investment programme against a backdrop of favourable market conditions. We are targeting total revenue growth of around 5%. This includes 2005 acquisitions and a percentage point of growth from Core Plus and excludes currency effects.

Within operating profit and trading profit, we expect 2006 to benefit from the final £80 million of Fast Forward savings, taking the total to £440 million of annualised savings which we committed to in February 2003. In line with our guidance in July 2005, operating profit and trading profit in 2006 are expected to reduce by £120 million due to investments to drive Core Plus growth and transformation.

In cash flow, we expect to spend £220 million on capital investment in 2006, up from £178 million in 2005, as we continue to invest in new data centres and step up the level of product development under Core Plus, as well as continuing enhancements to our core services and infrastructure. As part of the £220 million, we expect to capitalise around £80 million of software and development expenditure. This increase will be more than offset by an expected £90 million fall in restructuring spend relating to Fast Forward and Telerate integration.

11 Divisional performance
Overview
We operate through four business divisions, which are responsible for defining, building and managing products. They are closely aligned with the user communities they serve.

The business divisions have profit and loss responsibility. Revenues and trading profit for the two years to 31 December 2005 are analysed by business division in the following sections.

We have equipped our managers to take on greater accountability for divisional performance by introducing Profitability Insight, an activity-based costing (ABC) tool which enables us to allocate and monitor costs by business division, by product, by region and by major customer (see Critical Accounting Policies on page 22). Further information on revenue by division and by geography is included in note 1 of the financial statements on pages 58 to 59.

The software development teams who build and support our products and delivery platforms were integrated into the business divisions in 2005. They work closely with the product management teams and market experts responsible for identifying opportunities and defining product strategy. Shared infrastructure design is provided by an infrastructure team tasked with providing technical coherence, scale efficiencies and compliance with standards.

We face competition in all the market sectors and geographical areas in which we operate. We monitor the competitive landscape actively in order to be able to respond to market developments.

Global Sales and Service Operations (GSSO)
The business divisions serve customers through our GSSO which is split into geographic regions: the Americas, Asia, and Europe, Middle East and Africa. In addition, we run our Focus Group Accounts team as a global sales and support channel for our largest customers.

Locally, members of our sales and service teams work with customers to build relationships and to identify the correct Reuters products to meet customer needs and to feed back customer needs to the business divisions. Through regular training visits, our customer training specialists work with end-users to ensure they get full value from our products. In addition we provide product, content and technical support by telephone and email from three regional hubs, one based in each principal time zone. We also offer proactive telephone support and remote learning to help users of our premium products get the most out of their service. To increase awareness of the latest developments in our product range, we have a ‘brightspot’ travelling showcase for Reuters products, visited by over 7,000 customers in 35 cities around the world in 2005.

Content
The Content group brings together all of Reuters news and data. Within the Content group, the role of editorial is to cover and edit the news to the highest standards of accuracy, insight and timeliness. Our 2,300 journalists and photographers in 189 bureaux file more than two-and-a-half million news items a year to customers in the form of text, pictures, TV, video and graphics and we publish news in 19 languages.

Our Data group is responsible for collecting, producing, packaging and delivering an extensive range of financial information from an array of sources such as exchanges, over-the-counter markets, research services and other contributors such as energy and fixed income data providers, as well as from our own news, research and data operations. Our coverage includes data from over 300 exchanges, more than 1.2 million bonds, 250,000 foreign exchange and money market instruments and award-winning commodities and energy content. This is further complemented by data from around 4,000 financial services contributors. In addition, our fundamentals and estimates data is recognised as a leading source of high quality financial information covering over 43,000 companies worldwide. Our acquisition of Telerate brought us additional key content for the fixed income, money, foreign exchange and over-the-counter derivatives markets.

We have content operations in the UK and the US and in 2004 we opened a content operation in Bangalore, India. This now has almost 1,200 employees, most in highly skilled jobs, and continues to grow, enabling us to expand our content coverage to meet growing customer needs as well as achieving operating efficiencies.

Communications networks
Our high-tier financial and media products are mainly delivered to customers over secure high-speed communications networks, with internet delivery options for lower tier products and for consumer services. During 2005, we sold our network services/financial extranet subsidiary Radianz, a former joint venture with Equant NV, to BT. At the same time we entered into an eight and a half year outsourcing deal with BT, as a result of which BT will provide the majority of our networks. This outsourcing deal will result in the migration of all products to IP-based services. It will enable us to deliver greater resilience, capability and flexibility through the use of industry standards.

We have major technical centres in the Asian, European and American time zones, supported by many smaller local data centres. The data centres are linked by communications services provided principally by BT/Radianz (see above) and SAVVIS, Inc. (Savvis).

The services agreements with BT/Radianz and with Savvis are important to our ability to deliver products and services to customers. Summaries of these network services agreements and the Radianz purchase and sale agreements are given on pages 123 and 125.

Our products
Products are grouped into ‘families’, each of which is managed primarily by one of the business divisions.

11.1 Sales & Trading division
Overview
The Sales & Trading division focuses on salespeople and traders who deal in the FX, fixed income, equities, commodities and energy and related markets.

The Sales & Trading division is responsible for the Reuters Xtra and Reuters Trader families of products: