Form 40-F

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 40-F

 

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

Commission File Number: 1-31349

 

 

THOMSON REUTERS CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

N/A

(Translation of Registrant’s name into English (if applicable))

Province of Ontario, Canada

(Province or other jurisdiction of incorporation or organization)

2741

(Primary Standard Industrial Classification Code Number (if applicable))

98-0176673

(I.R.S. Employer Identification Number (if applicable))

333 Bay Street, Suite 300

Toronto, Ontario M5H 2R2, Canada

Telephone: (647) 480-7000

(Address and telephone number of Registrant’s principal executive offices)

Thomson Reuters Holdings Inc.

Attn: Legal Department

3 Times Square

New York, New York 10036

Telephone: (646) 540-3000

(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common shares   TRI   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Debt Securities of Thomson Reuters Corporation and Guarantees of Debt Securities of TR Finance LLC

For annual reports, indicate by check mark the information filed with this Form:

 

  Annual information form     Audited annual financial statements

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

497,117,528 common shares, 6,000,000 Series II preference shares and 1 Thomson Reuters Founders Share

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒             No  ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes  ☒             No  ☐

Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.   

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.   

 

 

 


UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

a.    Undertaking.

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

b.    Consent to Service of Process.

 

  (1)

The Registrant has previously filed a Form F-X in connection with the class of securities in relation to which the obligation to file this report arises.

 

  (2)

Any change to the name or address of the Registrant’s agent for service shall be communicated promptly to the Commission by amendment to Form F-X referencing the file number of the Registrant.


SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

 

THOMSON REUTERS CORPORATION
By:  

/s/ Thomas Kim

Name:   Thomas Kim
Title:   Chief Legal Officer & Company Secretary

Date: March 10, 2021


EXHIBIT INDEX

 

Exhibit
Number

  

Description

99.1    Annual Report for the year ended December  31, 2020 (which constitutes an Annual Information Form and includes Management’s Discussion and Analysis and Audited Financial Statements for the year ended December  31, 2020), and includes a Form 40-F Cross Reference Table on page 196
99.2    Consent of PricewaterhouseCoopers LLP
99.3    Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
99.4    Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
99.5    Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.6    Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.7    Code of Business Conduct and Ethics (incorporated by reference to Exhibit 99.1 of Thomson Reuters Corporation’s Form  6-K dated June 18, 2020)
99.8    Audit Committee Charter
99.9    List of Subsidiary Issuers and Guarantors (incorporated by reference to Exhibit 22.1 of the joint Registration Statement on Form F-3 (File No. 333-239392) and Form F-10 (File No. 333-239390) filed on July 6, 2020 by Thomson Reuters Corporation and the subsidiary issuer and guarantors named therein)
101    Interactive Data File
   tri-20201231.xml
   tri-20201231.xsd
   tri-20201231_cal.xml
   tri-20201231_def.xml
   tri-20201231_lab.xml
   tri-20201231_pre.xml
EX-99.1 - ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2020
Table of Contents

Exhibit 99.1

LOGO

 

 

Annual Report 2020

March 10, 2021

 

 

 

 

 

 

LOGO


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Information in this annual report is provided as of March 3, 2021, unless otherwise indicated.

Certain statements in this annual report are forward-looking. These forward-looking statements are based on certain assumptions and reflect our current expectations. As a result, forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Some of the factors that could cause actual results to differ materially from current expectations are discussed in the “Risk Factors” section of this annual report as well as in materials that we from time to time file with, or furnish to, the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission. There is no assurance that any forward-looking statements will materialize. You are cautioned not to place undue reliance on forward-looking statements, which reflect expectations only as of the date of this annual report. Except as may be required by applicable law, we disclaim any intention or obligation to update or revise any forward-looking statements.

The following terms in this annual report have the following meanings, unless otherwise indicated:

 

·   

“LSEG” refers to London Stock Exchange Group plc;

 

·   

“Thomson Reuters,” “we,” “us” and “our” each refers to Thomson Reuters Corporation and its consolidated subsidiaries, unless the context otherwise requires;

 

·   

“Woodbridge” refers to The Woodbridge Company Limited and other companies affiliated with it; and

 

·   

“$,” “US$” or “dollars” are to U.S. dollars.

When we refer to our performance before the impact of foreign currency (or at “constant currency”), we mean that we apply the same foreign currency exchange rates to the financial results of the current and equivalent prior period. We believe this provides the best basis to measure the performance of our business as it allows better comparability of our business trends from period to period.

Non-International Financial Reporting Standards (IFRS) financial measures are defined and reconciled to the most directly comparable IFRS measures in the “Management’s Discussion and Analysis” section of this annual report.

For information regarding our disclosure requirements under applicable Canadian and U.S. laws and regulations, please see the “Cross Reference Tables” section of this annual report.

Information contained on our website or any other websites identified in this annual report is not part of this annual report. All website addresses listed in this annual report are intended to be inactive, textual references only. The Thomson Reuters logo and our other trademarks, trade names and service names mentioned in this annual report are the property of Thomson Reuters.

 

 

 


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Table of Contents

 

Business

     2  

Overview

     2  

Customer Segments

     7  

Legal Professionals

     7  

Corporates

     7  

Tax & Accounting Professionals

     8  

Reuters News

     8  

Global Print

     8  

Key Brands

     9  

Additional Business Information

     11  

Risk Factors

     16  

Management’s Discussion and Analysis

     31  

Consolidated Financial Statements

     98  

Executive Officers and Directors

     172  

Executive Officers

     172  

Directors

     175  

Audit Committee

     178  

Principal Accountant Fees and Services

     179  

Controlled Company

     180  

Independent Directors

     180  

Presiding Directors at Meetings of Non-Management and Independent Directors

     181  

Code of Business Conduct and Ethics

     182  

Additional Disclosures

     182  

Additional Information

     183  

Description of Capital Structure

     183  

Market for Securities

     184  

Dividends

     185  

Woodbridge

     186  

Transfer Agents and Registrars

     187  

Ratings of Debt Securities

     187  

LSEG Transaction

     188  

Material Contracts

     189  

Principal Subsidiaries

     192  

Interests of Experts

     193  

Further Information and Disclosures

     193  

Cross Reference Tables

     195  

Annual Information Form (Form 51-102F2) Cross Reference Table

     195  

Form 40-F Cross Reference Table

     196  

 

 

 

Page 1


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Business

Overview

Thomson Reuters is a leading provider of business information services. Our products include highly specialized information-enabled software and tools for legal, tax, accounting and compliance professionals combined with the world’s most global news service – Reuters. Thomson Reuters shares are listed on the Toronto Stock Exchange and New York Stock Exchange (symbol: TRI). Our website is www.tr.com.

We are organized in five reportable segments supported by a corporate center:

 

LOGO  

Legal Professionals

 

Serves law firms and governments with research and workflow products, focusing on intuitive legal research powered by emerging technologies and integrated legal workflow solutions that combine content, tools and analytics.

 

LOGO  

Corporates

 

Serves corporate customers from small businesses to multinational organizations, including the seven largest global accounting firms, with our full suite of content-enabled technology solutions for in-house legal, tax, regulatory, compliance and IT professionals.

 

LOGO

 

Tax & Accounting Professionals

 

Serves tax, accounting and audit professionals in accounting firms (other than the seven largest, which are served by our Corporates segment) with research and workflow products, focusing on intuitive tax offerings and automating tax workflows.

 

LOGO

 

Reuters News

 

Supplies business, financial, national and international news to professionals via desktop terminals, including through Refinitiv, the world’s media organizations, industry events and directly to consumers.

 

LOGO

 

Global Print

 

Provides legal and tax information primarily in print format to customers around the world.

Our corporate center centrally manages commercial and technology operations, including those around our sales capabilities, digital customer experience and product and content development. Our corporate center also centrally manages functions such as finance, legal and human resources.

Our Business Model and Key Operating Characteristics

We derive most of our revenues from selling information and software solutions, primarily electronically and on a recurring subscription basis. Our solutions blend deep domain knowledge with software and automation tools. We believe our workflow solutions make our customers more productive by streamlining how they operate, enabling them to focus on higher value activities. Many of our customers use our solutions as part of their workflows, which has led to strong customer retention. We believe that our customers trust us because of our history and dependability and our deep understanding of their businesses and industries, and they rely on our services for navigating a rapidly changing and increasingly complex digital world.

 

 

 

Page 2


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Over the years, our business model has proven to be capital efficient and cash flow generative, and it has enabled us to maintain leading and scalable positions in our chosen market segments. Some of our key business and operating characteristics are:

 

Attractive Industry

 

·   Currently our “Big 3” operate in an estimated $28 billion market segment expected to grow between 6% and 8% over the next 5 years

 

·   Legal, Tax & Government market segments prime for content-driven innovation

 

Balanced and Diversified Leadership

 

·   A leader in key Legal Professionals, Corporates and Tax & Accounting Professionals market segments

 

·   Resilient businesses, historically stable, which has been affirmed by our performance during the COVID-19 pandemic

 

·   Approximately 500,000 customers; largest customer is approximately 2% of revenues (excluding the news and editorial content contract with Refinitiv)

 

Attractive Business Model

 

·   80% of revenues are recurring

 

·   90% of revenues are from products delivered electronically or as software and services

 

·   Strong and consistent cash generation capabilities

 

Strong Competitive Positioning

 

·   Proprietary content plus data and human expertise combined with artificial intelligence and machine learning are key differentiators

 

·   Products deeply embedded in customers’ daily workflows

 

·   90% retention rate

 

Disciplined Financial Policies

 

·   Focused and incentivized on organic revenue growth and free cash flow growth

 

·   Balance investing in business and returning capital to shareholders

 

·   Committed to maintaining investment grade rating with stable capital structure

 

·   Significant potential capital capacity over the next four years affords significant optionality

All revenue information reflected above is based on our 2020 full-year results. Our “Big 3” segments refer to our Legal Professionals, Corporates and Tax & Accounting segments combined. The Refinitiv news and editorial contract represented approximately 6% of our 2020 revenues.

Three-Year History

 

·   

2018 – We sold a 55% interest in our F&R business (now the Refinitiv business of LSEG) to private equity funds affiliated with Blackstone for approximately $17 billion. We subsequently returned $10 billion of the proceeds to our shareholders. We set aside approximately $2 billion of the proceeds of the F&R transaction to fund strategic, targeted acquisitions to bolster our positions in key growth segments of our Legal Professionals, Corporates and Tax & Accounting Professionals businesses or for share repurchases. During 2018, we also transitioned from a product-focused structure to a customer-focused structure and remapped our business units into the new segments.

 

·   

2019 – 2019 was our first full year of operations after completing the F&R transaction and restructuring our company into customer-focused segments. Through the end of 2019, we spent over half of the $2 billion investment fund on acquisitions, including Confirmation, HighQ and FC Business Intelligence (now rebranded Reuters Events). In August 2019, we and private equity funds affiliated with Blackstone agreed to sell Refinitiv to LSEG for a total enterprise value of approximately $27 billion (at the time of announcement).

 

·   

2020 – We began 2020 with momentum, having completed our first full year re-positioned into our customer-focused segments after completing the F&R transaction in 2018. In March 2020, however, the global COVID-19 pandemic created

 

 

 

Page 3


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

 

unprecedented health risks to our employees, customers and suppliers, and containment measures intended to mitigate the impact of the pandemic resulted in a global economic crisis and ongoing uncertainty. In response to the pandemic, we immediately transitioned most of our staff to a virtual work environment. At the same time, we worked with our approximately 500,000 customers to ensure continued access to our products and services. Our 2020 performance reflected the resiliency of our markets and our business.

In January 2021, we and private equity funds affiliated with Blackstone closed the sale of Refinitiv to LSEG. For additional information about the transaction, please see the “Management’s Discussion and Analysis” section of this annual report.

2020 Performance Highlights

Below are financial highlights of our results for the year ended December 31, 2020. Please see the “Management’s Discussion and Analysis” section of this annual report for additional information about our recent performance.

 

    

 

Year ended December 31,

 

 
        

 

 

 

 

Change

 

 

 

 

  (millions of U.S. dollars, except per share amounts and margins)

 

    

 

2020

 

 

 

    

 

2019

 

 

 

    

 

Total

 

 

 

    

 

Constant
Currency

 

 
 

 

IFRS Financial Measures

 

           

Revenues

 

     5,984        5,906        1%     

Operating profit

 

     1,929        1,199        61%     

Diluted EPS

 

     $2.25        $3.11        (28%)     

Cash flow from operations

 

     1,745        702        148%     

Non-IFRS Financial Measures

 

           

Revenues

 

     5,984        5,906        1%       
2%
 

Organic revenue growth

 

              1%  

Adjusted EBITDA

 

     1,975        1,493        32%        32%  

Adjusted EBITDA margin

 

     33.0%        25.3%        770bp        760bp  

Adjusted EPS

 

     $1.85        $1.29        43%        43%  

Free cash flow

 

     1,330        159        735%           

Supplemental financial results – “Big 3” Segments—Legal Professionals, Corporates and Tax & Accounting Professionals Combined

 

    

 

Year ended December 31,

 

 
        

 

 

 

 

Change

 

 

 

 

  (millions of U.S. dollars, except margins)

 

    

 

2020

 

 

 

    

 

2019

 

 

 

    

 

Total

 

 

 

    

 

Constant
Currency

 

 
 

 

Non-IFRS Financial Measures

 

           

Revenues

 

     4,738        4,584        3%        4%  

Organic revenue growth

 

              4%  

Adjusted EBITDA

 

     1,791        1,625        10%        10%  

Adjusted EBITDA margin

 

     37.8%        35.4%        240bp        210bp  

We met or exceeded each of the performance metrics in our updated 2020 full-year business outlook communicated on November 3, 2020. Our full-year 2020 outlook assumed constant currency rates relative to 2019 and included the impact of closed acquisitions and dispositions. Some of the financial measures in the tables above as well as the outlook below are provided on a non-IFRS basis. Refer to Appendices A and B of the “Management’s Discussion and Analysis” section for additional information and reconciliations of our non-IFRS financial measures to the most directly comparable IFRS financial measures.

 

 

Page 4


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

The table below compares our actual performance (before currency) to the outlook:

 

2020 Full-Year Outlook
Total Thomson Reuters Outlook

 

     2020 Outlook    2020 Actual Performance        
    

Before currency and included
the impact of closed acquisitions/

dispositions

   Before currency(1)        

Revenue Growth

  

1.0% - 2.0%

  

2.1%

     LOGO       

Organic revenue growth

   0% - 1.0%    1.2%      LOGO       

Adjusted EBITDA margin

   Approximately 32.0%    32.9%      LOGO       

Corporate costs

   $140 million - $150 million    $125 million      LOGO       

Free cash flow

   Approximately $1.1 billion    $1.3 billion      LOGO       

Capital expenditures, as a percentage of revenues

   8.0% - 8.5%    8.4%      LOGO       

Depreciation and amortization of computer software

   $650 million - $675 million    $672 million      LOGO       

Interest expense

   $190 million - $215 million    $195 million      LOGO       

Effective tax rate on adjusted earnings

  

Approximately 17% - 19%

  

16.9%

     LOGO       

 

“Big 3” Segments Outlook  
     2020 Outlook    2020 Actual Performance        
    

Before currency and included
the impact of closed acquisitions/

dispositions

   Before currency(1)        

Revenue Growth

  

3.0% - 4.0%

  

4.2%

  
 

LOGO     

 

Organic revenue growth

   3.0% - 4.0%    3.8%      LOGO       

Adjusted EBITDA margin

  

37.0% - 38.0%

  

37.5%

  
 

LOGO     

 

(1) Our 2020 performance (before currency) was measured in constant currency rates relative to 2019, except for the 2020 free cash flow performance which was reflected at actual rates.

2021 Key Priorities – Our Change Program

While we have strong market segment positions and a loyal customer base, we must continue to evolve given the trends in our business. We have initiated a two-year Change Program that is intended to drive growth and efficiency by transitioning our company from a holding company into an operating company, and from a content provider into a content-driven technology company.

Our transition to an operating company means that our business segments will focus solely on understanding and serving their customers’ needs. They will be supported by central functions that will manage technology, product development, customer service and support across our company. These central functions can leverage scale and best practices, thereby improving efficiency and the speed at which we can develop new products. The objectives of our Change Program are to:

 

·   

Make it easier for our customers to do business with us;

 

·   

Significantly modernize and simplify our product portfolio and product development groups;

 

·   

Reduce complexity in our operations and technology organization; and

 

·   

Continue to simplify our organizational structure to enable a more innovative culture.

 

 

 

Page 5


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

While our content provides us with a significant competitive advantage, we believe that we can achieve greater success by transitioning from a content provider to a content-driven technology company. We intend to provide a more modern customer experience by enriching our content with artificial intelligence, machine learning and software that is delivered in a cloud environment, which we believe will enable us to reach more customers, particularly smaller and medium sized businesses.

The following further describes our 2021 focus areas and priorities related to the Change Program:

 

    

2021

4 Focus Areas

 

  

EXECUTION

Priority Work Streams

 

  

2023 – End Result Goals

Operating Company

 

LOGO   Reimagine the Customer Experience   

· Modern digital self-serve approach, enabling greater penetration of the small and medium size businesses (SMB) market segment

 

· Standardized commercial terms, billing process and customer support

 

· Data-driven and AI-powered sales and marketing

  

· Digital is a significant contributor to sales and renewals

 

· Improved customer experience and higher Net Promoter Score (NPS), which is a metric that we use to measure customer experience

 

LOGO   Optimize Products & Portfolio   

· Simplify product suite around main franchises and focus on a smaller number of higher growth product categories

 

· World class product proposition, development, pricing, delivery and management

 

· Omnichannel approach - channels aligned to meet customers’ needs

 

  

· More targeted, integrated set of products

 

· Modular entitlement and single customer ID that drive valuable outcomes for customers

LOGO   Simplify Operations & Leverage Technology   

· Create shared technology platforms that support agile product development and significantly enhance customer experience

 

· Scale up machine learning and re-engineer underlying processes

 

· Finish shift to the cloud in 2023 and support simplification across the company

  

· Secure, modernized and simplified technology architecture and operations

 

· 90% of revenue available on cloud

LOGO   Create Inclusive Culture of World Class Talent   

· Right roles in the right locations allowing us to attract and retain world-class talent

 

· Increase investment in training and development

 

· Foster inclusive purpose-driven culture that reflects our core values

  

· Self-replenishing pipeline of world-class internal talent

We are also targeting seven strategic growth priorities, which collectively had revenues of over $3.0 billion in 2020. We believe these priorities can drive further organic revenue growth reflecting their strong market segment positions, leveraging opportunities and potential to scale.

 

     Strategic Priorities   

2020 Revenues

(approx.)

 

Legal Professionals(1)   

    (1)  Practical Law

 

  

$400 million

 

  

    (2)  HighQ and Contract Express

 

  

$200 million

 

  

    (3)  Westlaw

 

  

$1.5 billion(4)

 

Government(2)   

    (4)  CLEAR, TRSS and Pondera

 

  

$400 million

 

Tax & Accounting Professionals   

    (5)  Onvio

 

  

$500 million

 

  

    (6)  Cloud Audit Suite and Confirmation(3)

 

  

$100 million

 

Corporate Tax & Trade   

    (7)  Direct Tax & Indirect Tax

 

 

  

$400 million

 

(1) Products reported in Legal Professionals and Corporates segments.

(2) Government (our Risk, Fraud and Compliance businesses) is reported in the Legal Professionals segment.

(3) Products reported in Tax & Accounting Professionals and Corporates segments.

(4) Includes $100 million of revenues reported in Government.

We believe our Change Program initiatives will be largely complete in 24 months and will require an investment of between $500 million and $600 million in 2021 and 2022. By 2023, we believe the financial benefits that will result from these initiatives include:

 

·   

Achieve organic revenue growth of 5% - 6%, including additional annual revenues of $100 million;

 

·   

Achieve an adjusted EBITDA margin of 38% - 40%;

 

 

 

Page 6


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

·   

Achieve free cash flow of $1.8 billion - $2.0 billion;

 

·   

Achieve annual operating expense savings of $600 million, of which $200 million is expected to be reinvested in growth initiatives; and

 

·   

Reduce capital expenditures as a percentage of revenue to between 6.0% and 6.5%.

Customer Segments

Our business is a customer-focused structure organized in five reportable customer segments: Legal Professionals, Corporates, Tax & Accounting Professionals, Reuters News and Global Print. This structure allows us to focus on the customer and partner with them to solve challenges that they face in their businesses. For additional information about the results of operations of our customer segments, please see the “Management’s Discussion and Analysis” section of this annual report.

Legal Professionals

Our Legal Professionals segment serves law firms and governments with research and workflow products, focusing on intuitive legal research powered by emerging technologies and integrated legal workflow solutions that combine content, tools and analytics. The following provides a summary of Legal Professionals’ 2020 revenues by type of customer.

 

LOGO

Legal Professionals’ primary global competitors are LexisNexis (which is owned by RELX Group) and Wolters Kluwer. Legal Professionals also competes with Bloomberg Industry Group and other companies that provide legal and regulatory information, as well as Aderant and other companies that provide practice and matter management software. Legal Professionals also competes with client development providers and other service providers and start-ups that support legal professionals.

Corporates

Our Corporates segment serves corporate customers from small businesses to multinational organizations, including the seven largest global accounting firms, with our full suite of content-enabled technology solutions for in-house legal, tax, regulatory, compliance and IT professionals. The following provides a summary of Corporates’ 2020 revenue by type of customer.

 

LOGO

Corporates’ primary global competitors are Wolters Kluwer, Bloomberg and LexisNexis. Corporates also competes with focused software providers such as Avalara, MitraTech, Vertex and Sovos and at times with large technology companies such as SAP, as well as the largest global accounting firms.

 

 

 

Page 7


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Tax & Accounting Professionals

Our Tax & Accounting Professionals segment serves tax, accounting and audit professionals (other than professionals in the largest seven accounting firms, which are served by our Corporates segment) with software, content and services that help firms master their practices and provide better customer service in the areas of accounting and auditing, tax, payroll, firm management, marketing, advisory and staff training. The following provides a summary of Tax & Accounting Professionals’ 2020 revenues by type of customer.

 

LOGO

Tax & Accounting Professionals’ primary competitor is the CCH business of Wolters Kluwer. Other competitors include Bloomberg Industry Group in tax research, and Intuit, Drake Software, CaseWare and Sage in professional software and services. Tax & Accounting Professionals also competes with software start-ups that serve tax, accounting and audit professionals.

Reuters News

Reuters is the world’s largest international multimedia news provider, reaching billions of people every day. It provides trusted global news and intelligence through desktop terminals, the world’s media organizations, and directly to professionals via Thomson Reuters solutions, Reuters.com, the Reuters News app and Reuters Events. In 2020, Reuters delivered approximately 4 million unique news stories, 900,000 pictures and images and 130,000 video stories, alongside industry events.

Founded in 1851 and powered by 2,500 journalists around the world, Reuters News has a reputation for speed, impartiality and insight. It is dedicated to upholding the Thomson Reuters Trust Principles and preserving integrity, independence and freedom from bias in the gathering and dissemination of news. For more information on the Thomson Reuters Trust Principles, please see the “Additional Information – Material Contracts – Thomson Reuters Trust Principles and Thomson Reuters Founders Share Company” section of this annual report.

Reuters’ primary competitors include Bloomberg, the Associated Press, Agence France-Presse and Getty.

Global Print

Global Print is a leading provider of information, primarily in print format, to legal and tax professionals, government (including federal, state, and local government lawyers and judges), law schools and corporations. The business serves customers in the United States, Canada, the United Kingdom, Europe, Australia, Asia and Latin America. Global Print’s primary global competitors are LexisNexis and Wolters Kluwer.

 

 

 

Page 8


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Key Brands

Our customer-focused structure enables us to have broader conversations with our customers, with a more cohesive go-to-market approach. We believe that this focus will create opportunities to cross sell more of our products and services across their organizations, increase sales to existing customers, improve retention, and attract new customers. The following table provides information about our key brands and the target customer for each brand.

 

Brand

   Type of Product/Service    Legal
Professionals
   Corporates    Tax &
Accounting
Professionals

Westlaw

Westlaw Edge (U.S. & UK)

Sweet & Maxwell (UK)

Aranzadi (Spain)

La Ley (Argentina)

  

Legal, regulatory and compliance information-based products and services.

 

Westlaw is our primary online legal research delivery platform. Westlaw offers authoritative content, powerful search functionality and research organization, team collaboration features and navigation tools to find and share specific points of law and search for analytical commentary.

 

Localized versions of online legal research services are provided in Argentina, Australia, Brazil, Canada, Chile, China, France, India, Ireland, Japan, New Zealand, South Korea, Spain, the United Kingdom, Uruguay and other countries. Through Westlaw International, Westlaw Asia and Westlaw Middle East, we offer our online products and services to customers in markets where we do not offer a fully localized Westlaw service.

   LOGO    LOGO     

Practical Law

Practical Law Connect

   Legal know-how, current awareness and workflow tools with embedded guidance from expert practitioners. Practice notes, standard documents, checklists and What’s Market tools cover a wide variety of practice areas such as commercial, corporate, labor and employment, intellectual property, finance and litigation. Practical Law currently has offerings in the United Kingdom, United States, Canada, Australia and China.    LOGO    LOGO     

CLEAR

CLEAR Risk Inform

PeopleMap

   Public and proprietary records about individuals and companies with tools for immediately usable results.    LOGO    LOGO     

HighQ

   Cloud-based collaboration platform for the legal and regulatory market segment.   

 

LOGO

  

 

LOGO

    

Digital Evidence Center /CaseLines

   Cloud-based court exhibit and evidence sharing platform for sharing documents and multimedia between justice agencies and legal teams for case preparation and courtroom presentation.    LOGO          

Pondera Solutions

   A suite of data and analytics solutions to help analysts, investigators and managers detect financial fraud, waste and abuse in healthcare and large government programs.    LOGO    LOGO     

Checkpoint

Checkpoint Edge (US & Canada)

   Integrated tax and accounting information solution that addresses market disruption through integrated research, editorial insight, workflow productivity tools, online learning and news updates, along with intelligent links to related content and software.    LOGO    LOGO    LOGO

 

 

 

Page 9


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Brand

   Type of Product/Service    Legal
Professionals
   Corporates    Tax &
Accounting
Professionals

FindLaw

   Online legal directory, website creation and hosting services, law firm marketing solutions and peer rating services.    LOGO          

3E

ProLaw

Legal One

Firm Central

   Suites of integrated software applications that assist with business management functions, including financial and practice management, matter management, document and email management, accounting and billing, timekeeping and records management.    LOGO          

Legal Tracker

   Online spend and matter management, e-billing, legal analytics services, and document storage, search and retrieval.    LOGO    LOGO     

eDiscovery Point

   Electronic discovery software solution.    LOGO    LOGO     

Regulatory Intelligence

   Information and software products that provide a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges.         LOGO     

Compliance Learning

   Training programs that assist in changing behavior and supporting a culture of integrity and compliance.         LOGO     

ONESOURCE

ONESOURCE Global Trade

   Comprehensive global tax solution with local and country content focused on managing a company’s entire tax lifecycle, including direct and indirect tax compliance, indirect determination, tax accounting, transfer pricing documentation and calculations, trade and customs supporting global supply chain, trust taxation, tax information reporting, property tax, tax planning, and overall workflow and process management.         LOGO    LOGO

Confirmation

   Cloud-based platform to automate the workflow of the confirmations process of an audit. Used by a global network of audit firms, banks and law firms to increase efficiency and reduce risk.         LOGO    LOGO

CS Professional Suite

   Scalable, integrated suite of desktop and online software applications that encompass key aspects of a professional accounting firm’s operations, from collecting customer data and posting finished tax returns to the overall management of the accounting practice.              LOGO

Onvio

   International suite of cloud-based products that bring aspects of accounting firm operations - including document management, file sharing and collaboration, time and billing, workpaper management and project management - into a single, accessible online platform.              LOGO

 

 

 

Page 10


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Additional Business Information

Corporate

Our corporate center seeks to foster a group-wide approach to management while allowing our business segments sufficient operational flexibility to serve their customers effectively. Our corporate center centrally manages commercial and technology operations, including those around our sales capabilities, digital customer experience and product and content development. Our corporate center also centrally manages functions such as finance, legal and human resources.

Operations & Technology

Our Operations & Technology group unifies our core functions (most notably, our engineering and technology operations functions, security, sales support operations, real estate, and content development) into a single enterprise team. We believe that Operations & Technology continues to provide us with a greater opportunity to accelerate our progress on scale and growth initiatives and allows us to sharpen our focus on allocating resources to our growth priorities.

We believe we can make information more relevant, more personal and deliver it faster to our customers through the smart use of technology. By using shared technology and working across our businesses, we are making our data more accessible and valuable for our customers, no matter how they access it. We are increasingly shifting more of our software from being on-premise installations to software-as-a-service (SaaS) or cloud-based offerings that provide customers with access through the Internet.

We believe that we are continually transforming our content, products, services and company to better meet our customers’ needs. We also continue to focus on securing our customer data and global systems as we implement and enhance our security programs.

We operate a Technology Centre in Toronto which is dedicated to developing the next generation of products and capabilities for our global customers. We also continue to operate Thomson Reuters Labs facilities to provide us with greater proximity to our customers and partners and to collaborate on data-driven innovation and research. Our Thomson Reuters Lab in Switzerland includes an Incubator program that offers start-up companies a physical base and access to our solutions while providing us with greater insight into emerging technologies.

Research and Development

Innovation is essential to our success and is one of our primary bases of competition. Research & Development (R&D), part of Thomson Reuters Labs, performs computer science research and practical development in areas of cognitive computing, including machine learning and artificial intelligence (AI). This group leads our Centre for AI and Cognitive Computing in Toronto.

Our teams are at the driving edge of how emerging technologies like machine learning, big data, cloud and blockchain can be applied to the distinct challenges of the industries and customers that we serve. We believe that we are uniquely positioned to combine these technologies with the intelligence and human expertise that our customers need to find trusted answers.

Digital Transformation

We have been a pioneer of digital product development for decades. As part of our customer experience transformation, we are creating a more holistic online experience, making it easier for our customers to find, buy and get the most out of our products and interact with Thomson Reuters digitally. In 2020, we improved upon the digital capabilities for some customer renewals and customer service. We plan to continue investing in further improvements to our digital capabilities in 2021.

Intellectual Property

Many of our products and services are comprised of information delivered through a variety of media, including online, software-based applications, smartphones, tablets, books, journals and dedicated transmission lines. Our principal IP assets include patents, trademarks, trade secrets, databases and copyrights in our content. We believe that our IP is sufficient to permit us to carry on our business as presently conducted. We also rely on confidentiality agreements to protect our rights. We continue to apply for and receive patents for our innovative technologies. Additionally, we continue to acquire patents through the acquisition of companies. We also obtain significant content and data through third party licensing arrangements with content providers. We have registered a number of website domain names in connection with our online operations, and protect our trademarks and copyrights with registrations, where appropriate.

 

 

 

Page 11


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Sales and Marketing

We primarily sell our products and services directly to our customers. In addition, we sell some of our products and services online directly to customers. Focusing more of our marketing and sales efforts on digital propositions has allowed us to broaden our range of customers and reduce sales and marketing costs. Some of our products and services are also sold through partners and authorized resellers.

Acquisitions and Dispositions

Acquisitions - Acquired businesses can strengthen our offerings and enable us to extend our platform with new capabilities that we believe will provide opportunities to expand our positions, better serve our customers and supplement our organic growth. Generally, the businesses that we acquire initially have lower margins than our existing businesses, largely reflecting the costs of integration.

In March 2020, we acquired Pondera Solutions, a provider of technology and advanced analytics to combat fraud, waste and abuse in healthcare and large government programs and in August 2020, we acquired CaseLines, a provider of a cloud-based, evidence sharing platform that allows courts, law enforcement, prosecutors and legal practitioners to digitally collaborate, share and participate in virtual and physical court proceedings.

Dispositions - As part of our continuing strategy to optimize our portfolio of businesses and ensure that we are investing in parts of our business that offer the greatest opportunities to achieve growth and returns, we have sold a number of businesses during the last several years. In October 2018, we sold 55% of our former F&R business to private equity funds affiliated with Blackstone for approximately $17 billion and retained a 45% interest in Refinitiv. In January 2021, we and private equity funds affiliated with Blackstone sold Refinitiv to LSEG in an all share transaction for a total enterprise value of approximately $27 billion (at the time of announcement). For more information about the transaction, please see the “Executive Summary – Sale of Refinitiv to LSEG” section of the “Management’s Discussion and Analysis” and “Additional Information – LSEG Transaction” sections of this annual report. Over the last few years, we also sold several small businesses which were not compatible with our strategy.

For more information on acquisitions and dispositions that we made in the last two years, please see the “Management’s Discussion and Analysis” section of this annual report.

Social Impact

Thomson Reuters powers the world’s most informed professionals and our products are built on trust. We help create the backbone of legal and tax systems, providing information that supports objective and fair outcomes, and driving the wheels of commerce. Through our journalism, we seek to inform and empower people around the world to make better, balanced decisions. We believe that with our customers, our work helps to strengthen the foundations of the societies in which we operate.

We post a social impact report on our website, www.tr.com, which highlights our progress and performance related to environmental, social and governance (ESG).

Thomson Reuters understands that non-financial measures are important to our stakeholders and drive positive impact on global issues. We believe that conducting business in a principled manner, and transparently disclosing relevant targets and metrics related to our ESG programs will allow our stakeholders to be informed on our progress.

We are committed to strengthening institutions, managing our sustainability goals, fostering an inclusive workplace, and making a difference in our communities through our Social Impact programs. We plan to build on our ESG programs through continued partnership with our employees and customers through innovation, community investment, volunteerism and sustainability.

Our programming evolved in 2020. We put increased emphasis on directly addressing compounding issues affecting inclusion and health and wellbeing. We invested in the rebuilding of the Minneapolis-St. Paul community and provided our employees with various other resources.

Fostering an inclusive culture of world-class talent

Thomson Reuters has long recognized the need for organizations to shift from conversations about diversity and inclusion to action, leadership accountability and transparency.

 

 

 

Page 12


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

In 2020, we put increasing focus on our longstanding work in diversity and inclusion by setting clear representation goals for the company at the leadership level (director and above). As many companies have, we worked to form coalitions with our customers, denouncing racism publicly. We also extended our global diversity and inclusion strategy to embed this work in all we do.

As we strive for continued progress, we are proud to be recognized for our work in this space. In 2020, we scored 100% on the Human Rights Campaign’s Corporate Equality Index and were recognized as a Best Place to Work for LGBTQ Equity, ranked in the top 50 on Refinitiv’s Diversity and Inclusion Index, and were listed as one of America’s Best Employers for Diversity by Forbes, among an additional 16 workplace awards and recognitions.

Addressing wellbeing and mental health for our employees

Mental health is an important component to overall health, and our leadership recognized this by offering tools such as free access to a science-based meditation app, mindfulness discussions and eLearning sessions. In addition, in 2020, Thomson Reuters recognized Mental Health Day as a new company holiday.

Tackling misinformation and strengthening institutions

As international bodies declared a global “info-demic,” intensifying the rapidly accelerating global pandemic, we built on existing programs to foster media literacy among students, launching educational resources to help social media users identify misinformation on COVID-19, in partnership with the National Association of Media Literacy and Education.

We were the lead partner for National Media Literacy Week in the U.S. and redoubled efforts to build demand for unbiased, independent coverage. Reuters launched a commercial partnership with Facebook’s Fact-Checking Program in the U.S. and U.K. as part of its wider work to slow the spread of misinformation.

Our reputation as a trusted and objective broker of information was underscored when Thomson Reuters was selected by the United Nations Global Compact (UNGC) to host and facilitate a Consultation Workshops on the Action Platform for Peace, Justice and Strong Institutions (Sustainable Development Goal 16) for US-based companies including some of our valued customers. Our President and CEO, Steve Hasker, joined more than 1,000 company leaders committing to renewed global cooperation with the UN Global Compact.

Reaffirming our commitment to sustainability

The pandemic understandably drew attention away from significant momentum in the business community to address climate change. Even so, on Earth Day in April 2020, we announced our commitment to targeting net-zero emissions by 2050 and our decision to align to the 1.5 degree pathway, the most ambitious aim of the Science Based Targets Initiative.

We will continue to measure and manage our own emissions and environmental impacts and continue to identify ways to further assess, monitor and improve our carbon footprint. We officially sourced renewable energy for 100% of our global energy needs in 2020. Thomson Reuters is also working closely with our suppliers to drive lower emissions within our supply chain, helping fulfill the ambitions from our approved Science Based Targets.

Making a difference in our communities

In 2020, we doubled paid time off for volunteering from 16 to 32 hours per employee, created new virtual volunteering programs and our employees logged over 84,000 volunteer hours, despite the impact of the pandemic. From small acts of kindness to donating supplies to providing funds for relief, our colleagues showed their inner reserves of compassion and resilience. Employees found creative ways to volunteer by making masks for essential workers, creating a website showing COVID-19 statistics and designing an app to help people get necessary supplies during the pandemic. In addition, our Manila Global Volunteer Network was the recipient of an internal award, based on their volunteer efforts with the Voice of the Free organization to help end human trafficking, modern slavery and forced labor.

Our Thomson Reuters Foundation

The Thomson Reuters Foundation works to advance media freedom, foster more inclusive economies and raise awareness of human rights issues. Through news, media development, free legal assistance and convening initiatives, the Foundation combines its unique media and legal services to drive change. Its mission is to inspire collective leadership, empowering free, fair and informed societies. Additional information on the Foundation can be found at www.trust.org.

 

 

 

Page 13


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Built on Trust

This work is reinforced by our Trust Principles, Code of Business Conduct and Ethics, and values. More information about the Trust Principles can be found in this annual report.

Human Capital Management

Employees

The following table sets forth information about our employees as of December 31, 2020.

 

By Region

        

Americas

     15,300  

Asia Pacific

     5,100  

Europe, Middle East and Africa (EMEA)

     3,600  

By Unit

        

Legal Professionals

     1,900  

Corporates

     1,200  

Tax & Accounting Professionals

     700  

Global Print

     600  

Reuters News

     2,900  

Product & Editorial

     3,300  

Operations & Technology

     8,300  

Corporate Center (Enabling Functions)

     1,400  

Commercial Functions(1)

     800  

Other(2)

     2,900  

Thomson Reuters

     24,000  

(1) Reflects employees in Marketing, Commercial Excellence and Strategy.

(2) Reflects employees in our Latin America, Asia and Emerging Markets and Government businesses.

We believe that we generally have good relations with our employees, unions and work councils, although we have had disputes from time to time with the various unions that represent some of our employees. Our senior management team is committed to maintaining good relations with our employees, unions and works councils.

Overview

Our human capital practices and initiatives are designed to attract, motivate and retain high quality, talented and diverse employees across all of our businesses who feel valued, are provided with opportunities to grow, and are driven to succeed. Our Board of Directors and its HR Committee regularly engage with management on a variety of human capital topics that apply to our current workforce of approximately 24,000 employees, such as compensation and benefits, culture and employee engagement, talent acquisition/development, and diversity and inclusion. The Board and management engage in detailed succession planning discussions for all senior roles, and the principles employed at the senior-most levels of the organization are embraced by management throughout the entire organization.

In 2020, the Board, HR Committee and management had several discussions regarding our company’s response to COVID-19 which addressed the impact of the pandemic on our employees. Thomson Reuters has not experienced any significant disruptions to its business as a result of COVID-19 and continues to be fully operational. Most of our employees continue to work remotely from their homes, enabled by technology that allows them to collaborate with customers and each other. We are developing detailed plans for a gradual, safe re-opening of our offices around the world, though we currently expect that the number of people who return to our offices before July 2021 will be small and on a voluntary basis. Essential employees who cannot work from home, such as Reuters News journalists and those working in the company’s Global Print facilities, follow various health and

 

 

 

Page 14


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

safety standards. We continue to act and plan based on guidance from global health organizations, relevant governments and evolving best practices.

In January 2021, we introduced new Thomson Reuters Mindsets & Behaviors that all employees are expected to live and demonstrate. The new Mindsets & Behaviors are expected to help us accomplish our most critical objectives and are based on what is great about our culture today as well as the best of what we are becoming.

We expect that human capital management will continue to be an important focus area in the future for our management and the Board because it ensures solid stewardship of our organization, supports important societal objectives, and is key to ensuring strategic advantage in the marketplace.

Properties and Facilities

We own and lease office space and facilities around the world to support our businesses. We believe that our properties are in good condition and are adequate and suitable for our present purposes. The following table provides summary information about our principal properties as of December 31, 2020.

 

 

Facility

 

 

 

Approx. Sq. Ft.

 

 

 

Owned/Leased

 

 

 

Principal Use

 

610 Opperman Drive,

Eagan, Minnesota, United States

  2,792,000   Owned   Legal Professionals headquarters and operating facilities

2395 Midway Road,

Carrollton, Texas, United States

  409,150   Owned   Tax & Accounting Professionals and Corporates headquarters and operating facilities

6300 Interfirst Drive,

Ann Arbor, Michigan,

United States

  247,250   Owned   Tax & Accounting Professionals operating facility

5 Canada Square,

London, United Kingdom

  165,000   Subleased(1)   Legal Professionals, Tax & Accounting Professionals and Reuters News operating facility

3 Times Square,

New York, New York,

United States

  112,000   Owned/subleased(2)   Corporates and Reuters News operating facility

333 Bay Street,

Toronto, Ontario, Canada

  59,250(3)   Leased   Thomson Reuters headquarters and Legal Professionals operating facilities

Landis & Gyr 3,

Zug, Switzerland

  50,250   Leased   Enterprise Centre

 

(1)   The primary lease (which covers approximately 353,000 sq. ft.) is held by Refinitiv. We are utilizing approximately 165,000 sq. ft. from Refinitiv.
(2)   The landlord (3XSQ Associates) is an entity owned by one of our subsidiaries and Rudin Times Square Associates LLC. 3XSQ Associates was formed to build and operate the 3 Times Square property. The primary lease (which covers approximately 690,000 sq. ft.) was transferred to Refinitiv in 2018. We are utilizing approximately 112,000 sq. ft. from Refinitiv.
(3)   Represents our net occupied area. Our main lease is for 81,250 sq. ft. and we subleased 22,000 sq. ft. to Refinitiv.

 

 

 

Page 15


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Risk Factors

 

 

The risks and uncertainties below represent the risks that our management believes are material. If any of the events or developments discussed below actually occurs, our business, financial condition or results of operations could be adversely affected. Other factors not presently known to us or that we presently believe are not material could also affect our future business and operations. The risks below are organized by categories and are not necessarily listed in the order of priority to our company.

 

 

 

Risk Category   Page  
Industry and COVID-19 Risks     16  
Network Security, Technology and Intellectual Property Risks     18  
Operational and Business Risks     21  
Legal and Regulatory Risks     26  
Financial Market Risks     29  
Corporate Structure Risks     30  

Industry and COVID-19 Risks

We may be adversely affected by uncertainty, downturns and changes in the markets that we serve, in particular in the legal, tax and accounting industries. The COVID-19 pandemic has, and likely will continue to, adversely affect these industries as well as our business, financial condition and results of operations.

We operate in a dynamic external environment that is rapidly shifting due to innovation in technology, evolving and increasing global regulation, information proliferation and a generation of new users. Uncertainty, downturns and changes that impact our business can also arise as a result of conditions in global financial markets, changes in laws and regulations, political conditions and election outcomes, terrorist acts, natural disasters and public health crises (such as epidemics and pandemics, including COVID-19, as discussed below).

Our performance depends on the financial health and strength of our customers, which in turn is primarily dependent on the general economy in the United States (79% of our 2020 revenues) and secondarily on the general economies in Europe, Asia Pacific, Canada and Latin America. The global economy continues to experience substantial disruption and uncertainty due to concerns regarding the spread of COVID-19, as well as from the measures intended to mitigate its impact. COVID-19 and related containment measures have already caused a global economic downturn and the continued spread of COVID-19 could cause a global recession. We are unable to predict the extent and duration of any such downturn, whether there will be such a recession or the ultimate impact of the pandemic on demand for our products and services due to various uncertainties, such as the availability, pace and effectiveness of vaccination efforts, the duration and severity of the outbreak and any resurgences/new strains, actions that may be taken by governmental authorities, businesses and individuals in response to the pandemic, and the effect on our customers. While we have implemented measures and plans designed to mitigate the effects of COVID-19, our efforts may prove to be inadequate.

In 2020, we derived 79% of our revenues from our Legal Professionals, Corporates and Tax & Accounting Professionals businesses, which primarily serve professionals in the legal, tax and accounting industries. Global uncertainty and changing economic conditions can impact these industries.

 

·   

Cost-cutting, reduced spending or reduced activity by customers (as a result of COVID-19 or other reasons) may decrease demand for, and usage of, some of our products and services. This could adversely affect our financial results by reducing our revenues, which could in turn reduce the profitability of some of our products and services. Cost-cutting by customers has also caused us to further simplify our organization and take additional steps beyond those we might otherwise take to optimize our own cost structure as a means to maintain or improve profitability.

 

·   

Some of our customers may also slow down decision-making or delay planned renewals or implementations as a result of economic conditions (including those related to the COVID-19 pandemic), which may disrupt historical spending patterns.

 

 

 

Page 16


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

·   

Slowdowns in work for law or tax and accounting firms may result in reduced demand for some of our products and services. While we expect that a limited number of our customers will be unable to pay us or will seek financial accommodations or alternative payment terms due to their financial condition, if a greater number of customers or some of our larger customers are unable or unwilling to pay us, it could adversely impact our revenues and financial condition.

 

·   

In 2020, law firms and accounting firms experienced unprecedented disruption to their operations and were forced to adapt rapidly to dramatic market changes. Virtually all law firms and accounting firms imposed aggressive cost control measures, including significant reductions in discretionary spending.

 

  ·   

Law firms also continue to be challenged in their efforts to increase revenue growth as corporate counsels keep more work in-house in an effort to deliver greater business value and insights internally, limit increases in billing rates and hours, and insist on increased transparency and efficiency from law firms. Law firms have also been impacted by COVID-19 and related containment measures which have caused many courts to cancel or postpone legal proceedings and work has slowed in various practice areas.

 

  ·   

Accounting firms are also adapting their business models related to service offerings, technology and pricing to address their clients’ evolving needs, priorities and expectations. In particular, accounting firms continue to experience commoditization in audit and tax compliance and are looking to expand into more profitable advisory services and identify more areas to use automation.

 

·   

As expected, Global Print (10% of our 2020 revenues) experienced a 10% revenue decline (in constant currency) in 2020, as customers continued to migrate from traditional print formats to digital solutions and also due to COVID-19. While our manufacturing plant in Minnesota has remained open as an “essential business”, we experienced significant customer requests in 2020 to delay print shipments as some customers experienced budget challenges and many of our customers were not working in their offices due to government and company mandated office shutdowns in the U.S. and many other countries. An accelerated decline in Global Print revenues could adversely affect our profitability (as Global Print has higher margins than our overall business) as well as our cash flows.

 

·   

Relative to our Reuters News business, the media sector continues to transform, with the traditional news agency business declining. While demand in the financial professional segment is growing, Reuters News is limited in its ability to participate in a number of sectors due to its exclusive agreement with Refinitiv. COVID-19 has also impacted our Reuters News business. Our Reuters Events business cancelled or postponed nearly all in-person conferences in response to COVID-19 in 2020. We are unable to predict when Reuters Events will be able to resume in-person conferences.

COVID-19 has caused us to modify several of our business practices and operations and we may take further actions as may be required by government authorities or that we believe are in the best interests of our employees, customers, partners, suppliers and other stakeholders. Most of our employees are currently working from home, which can introduce additional operational risks, including cybersecurity risks. Working from home arrangements have impacted the way that we conduct our product development, customer support, sales and other activities, which could have an adverse effect on our operations. While our sales force is pursuing new sales and renewals while working from home, prolonged restrictions or limitations on the ability of our sales force to travel to meet prospective or existing customers in person may adversely affect our ability to generate future revenues. In certain countries, such as India, we have a large number of employees performing and supporting critical operations. An extended closure of any facilities performing critical operations could in the future disrupt our ability to provide our services and solutions. Illness and workforce disruptions could also lead to the unavailability of senior management or other key personnel and adversely impact our ability to perform critical functions. We cannot provide any assurance that our measures will be sufficient to mitigate the risks posed by COVID-19.

Many of the risks discussed in this “Risk Factors” section and the “Management’s Discussion and Analysis” section of this annual report are, and could be, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. Developments related to COVID-19 have been rapidly changing, and additional impacts and risks may arise that we may not currently be aware of or able to appropriately respond to, including if the pandemic is prolonged or expands more widely around the world. While we are closely monitoring the impact of COVID-19, the future impact of the pandemic is highly uncertain and cannot be predicted and there is no assurance that the pandemic will not have a material adverse impact in the future on our business, financial condition or results of operations. The extent of the impact, individually or in the aggregate, will depend on future developments, including actions taken to contain the financial and economic impact of the pandemic. Even after the pandemic and related containment measures subside, we may continue to experience adverse impacts to our business, financial condition and results of operations, the extent of which may be material.

 

 

 

Page 17


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Network Security, Technology and Intellectual Property Risks

Fraudulent or unpermitted data access or other cyber-security or privacy breaches may cause some of our customers and the public to lose confidence in our security measures and could result in decreased sales and increased costs for our company.

Similar to other global multinational companies that provide online software and solutions and also due to the prominence of our Reuters News business, we experience cyber-threats and cyber-attacks that could negatively impact our systems. Cyber-threats vary in technique and sources, are persistent, frequently change and are increasingly more sophisticated, targeted and difficult to detect and prevent. We are also dependent on security measures that some of our third-party suppliers and customers are taking to protect their own systems, infrastructures and cloud-based applications and services.

We have a dedicated team who is continually evaluating our security posture and mitigating risks as part of our information security program. While we have dedicated resources at our company who are responsible for maintaining appropriate levels of cyber-security and protecting our customers’ data and our internal data, our services and underlying infrastructure may in the future be compromised or breached, including by:

 

·   

Third party “phishing” attempts to induce employees or suppliers into disclosing sensitive information or other information to gain access to sensitive data;

 

·   

Cyber-attacks on our internally built infrastructure on which many of our service offerings function;

 

·   

Vulnerabilities existing in our products, new technologies or newly acquired or integrated businesses (which may arise in software that we have developed or licensed/acquired from third parties), some of which may be undetected and only discovered after an extended period of time and after installation or integration by our company or our customers;

 

·   

Actions by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states;

 

·   

Attacks on, or vulnerabilities in underlying networks and services that power the Internet, most of which are not under our control or the control of our vendors, partners or customers; and

 

·   

Human errors by employees, contractors or customers or intentional acts that compromise our security solutions.

As a third-party supplier, we are sometimes provided with a trusted connection to a customer’s systems or networks. If malicious parties compromise our systems and networks and embed malicious hardware, components or software, they could gain access to our or our customers’ systems and information. In addition, any vulnerabilities in our software installed within a customer’s environments, if exploited, could potentially expose that customer’s systems and networks to risk.

None of these threats and related incidents to date have resulted in a material adverse impact for our business. We seek to mitigate these risks through our ability to escalate and respond to known and potential risks through our Enterprise Security Incident Management processes. While we maintain what we believe is sufficient insurance coverage that may (subject to certain policy terms and conditions including self-insured deductibles) cover certain aspects of third party security and cyber-risks and business interruption, our insurance coverage may not always cover all costs or losses and it does not extend to any reputational damage or costs incurred to improve systems as a result of these types of incidents.

Many of our third-party suppliers, including certain hosted software applications that we use for confidential data storage, employ cloud computing technology for storage and service delivery. These providers’ cloud computing systems may be susceptible to cyber-incidents, such as intentional cyber-attacks to access or obtain sensitive data or inadvertent cyber-security compromises, some of which are outside of our control. Additionally, our outsourcing of certain functions requires us to sometimes grant network access to third party suppliers. If our third party suppliers do not maintain adequate security measures, do not require their sub-contractors to maintain adequate security measures or do not perform as anticipated and in accordance with contractual requirements, personal data of customers, employees or other individuals could be compromised and we may experience operational difficulties, loss of intellectual property or other sensitive data, loss of customer trust and increased costs, regulatory penalties, fines, actions or litigation, all of which could adversely impact our brand and reputation and materially

 

 

 

Page 18


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

impact our business and results of operations. In addition, if a customer experiences a data security breach that results in the misappropriation of some of our proprietary business information, our company’s reputation could be harmed, even if we were not responsible for the breach.

We collect, store, use and transmit sensitive data, including public records, intellectual property, our proprietary business information and personal data of our customers, employees, business partners and other individuals on our networks. A number of our customers and suppliers also entrust us with storing and securing their own confidential data and information. Our businesses include certain subscription-based screening products which we sell to institutional customers and governments to enable them to satisfy various regulatory obligations. Any fraudulent, malicious or accidental breach of our data security could result in unintentional disclosure of, or unauthorized access to, third party, customer, vendor, employee or other confidential or sensitive data or information, which could potentially result in additional costs to our company to enhance security or to respond to occurrences, lost sales, violations of privacy or other laws, penalties, fines, regulatory action or litigation. In addition, media or other reports of perceived security vulnerabilities to our systems or those of our third-party suppliers, even if no breach has been attempted or occurred, could adversely impact our brand and reputation and materially impact our business and results of operations.

Misappropriation, improper modification, destruction, corruption or unavailability of data and information, or ransom demands due to cyber-attacks or other security breaches, could damage our brand and reputation. Customers and the public could lose confidence in our security measures and reliability, which would harm our ability to retain customers and gain new ones. We could also face litigation or other claims from impacted individuals as well as substantial regulatory sanctions or fines. If any of these were to occur, it could have a material adverse effect on our business and results of operations.

We rely heavily on our own and third-party data centers, network systems, telecommunications and the Internet and any failures or disruptions may adversely affect our ability to serve our customers and could negatively impact our revenues and reputation.

Most of our products and services are delivered electronically and our customers depend on our ability to receive, store, process, transmit and otherwise rapidly handle very substantial quantities of data and transactions on computer-based networks. Our customers also depend on the continued capacity, reliability and security of our data centers, networks, telecommunications and other electronic delivery systems, including websites and the Internet. Our employees also depend on these systems for our internal use. We are increasingly shifting more of our software from being on-premise installations to SaaS or cloud-based offerings that provide customers with access through the Internet.

Under a transition services agreement, Refinitiv (which is now part of LSEG) previously provided our company with various data center and network services. Migration away from all of those services was substantially completed as of March 3, 2021. As part of our company’s separation from Refinitiv, we deployed a new global network and continued to implement various new enterprise systems during 2020, which are expected to be completed this year. These changes could result in unforeseen network or system failures or breaches.

Any significant failure, compromise, cyber-breach or interruption of our systems, including operational services, loss of service from third parties, sabotage, break-ins, war, terrorist activities, human error, natural disaster, power or coding loss and computer viruses, could cause our systems to operate slowly or could interrupt service for periods of time. While we have (and Refinitiv has) disaster recovery and business continuity plans that utilize industry standards and best practices, including back-up facilities for primary data centers, a testing program and staff training, the systems are not always fully redundant and disaster recovery and business continuity plans may not always be sufficient or effective. To the extent that our telecommunications, information technology systems, cloud-based service providers or other networks are managed or hosted by third parties, we would need to coordinate with these third parties to resolve any issues. In the past when we have experienced slow operation of our systems or service interruptions, some of our products, services or websites have been unavailable for a limited period of time, but none of these occurrences have been material to our business.

Our ability to effectively use the Internet may also be impaired due to infrastructure failures, service outages at third party Internet providers or increased government regulation. In addition, we are facing significant increases in our use of power and data storage. We may experience shortage of capacity and increased costs associated with such usage. These events may affect our ability to store, process and transmit data and services to our customers.

 

 

 

Page 19


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

If we are unable to keep pace with rapid technological developments to provide new products, services, applications and functionalities to meet our customers’ needs, attract new customers and retain existing ones, expand into new geographic markets and identify areas of higher growth, our ability to generate revenues or achieve higher levels of revenue growth in the future may be adversely affected.

Our growth strategy involves developing new products, services, applications and functionalities in a timely and cost-effective manner to meet our customers’ needs, anticipating and responding to industry trends and technological changes, and maintaining a strong position in the sectors that we serve. We are currently prioritizing investments to drive organic investments to expand in software, and selectively use acquisitions that we expect to contribute to the accelerated execution of our strategy. We are also seeking to further improve customer and digital experiences and our sales and marketing expertise, while continuing to simplify the organization.

 

·   

We continue to allocate more resources and increasing investments in opportunities in our portfolio of businesses that we believe have the highest potential for strategic growth. While we are confident that this focus will lead to increased revenues, there is no assurance that we will be successful in increasing our company’s overall revenue growth in the future.

 

·   

Disruptive and new technologies such as AI, machine learning, data synthesis, blockchain and user-generated capabilities are creating a need to adapt rapidly to the shifting landscape. Customers are also seeking more cloud-based solutions. While we are focused on these changes to the technological landscape, if we fail to adapt, or do not adapt quickly enough, our financial condition and results of operations could be adversely impacted.

 

·   

Growth in today’s business environment has required us to explore different business models than we have in the past. We have been increasing our focus on driving growth through more collaboration and stronger relationships with both established and emerging companies and incubators. Some of these initiatives combine another company’s technology, data or other capabilities with our products and services. All of these initiatives involve a number of risks, including the risk that the expected synergies will not be realized, that the expected results will not be achieved, that a new initiative may conflict or detract from our existing businesses or that security measures may not be adequate. While we believe these initiatives will be attractive to our customers, allow us to innovate more quickly and build sales channels in segments that we could not have reached as quickly on our own, we are unable to provide any assurances that these initiatives will increase our revenue growth.

Over the last few years, we have made significant investments designed to improve and enhance the functionality and performance of a number of our key products, such as Westlaw Edge, Checkpoint Edge, Elite 3E, Practical Law, Onvio and ONESOURCE. We have also successfully migrated customers from legacy offerings to our current propositions and continued to enhance the reliability and resiliency of the technology infrastructure that we use to deliver products and services. However, if our customers’ adoption rates for existing and new products and services are lower than our expectations, our revenues may be lower and our results of operations may be adversely affected.

Our “Big 3” businesses (Legal Professionals, Corporates and Tax & Accounting Professionals) continue to evolve towards becoming content-driven technology businesses which are greater providers of software and solutions to our customers as part of an ongoing transformation from focusing primarily on providing content, data and information. Solutions often are designed to integrate our core content, data and information with software and workflow tools. While we believe that transitioning a greater part of our business to content-driven software and solutions will help us increase customer value, create growth, diversify business mix and differentiate us from competitors, operating a business with a greater percentage of software and solutions may result in lower profit margins.

As we focus on organic revenue growth, it may take us a longer period of time and we may need to incur greater costs to develop new products, services, applications and functionalities to meet needs of customers, attract new customers or expand into these markets. If we are unable to do so, our ability to increase our revenues may be adversely affected.

Historically, our customers accessed our web-based products and services primarily through desktop computers and laptops. Over the last few years, Internet use through smartphones, tablets, wearables, voice-activated speakers and television streaming devices has increased significantly. Applications or “apps” have also experienced significant growth and popularity. As a result of this shift, we have been focused on developing, supporting and maintaining various products and services on different platforms

 

 

 

Page 20


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

and devices (some of which complement traditional forms of delivery). If our competitors are able to release alternative device products, services or apps more quickly than we are able to, or if our customers do not adopt our offerings in this area, our revenues and retention rates could be adversely affected.

Our intellectual property rights are valuable and may not be adequately protected, which may adversely affect our financial results.

Many of our products and services are based on information delivered through a variety of media, including online, software-based applications, smartphones, tablets, books, journals and dedicated transmission lines. We rely on agreements with our customers, employees, consultants, advisors and other third parties to protect our confidential proprietary information, know-how and technology. We also rely on patent, trademark, copyright and other intellectual property laws to establish and protect our proprietary rights in our products and services. Third parties may be able to copy, infringe or otherwise profit from our proprietary rights without authorization and the Internet may facilitate these activities. We also seek to maintain certain intellectual property rights, and third parties or our employees could intentionally or accidentally compromise the intellectual property rights that we maintain. We also conduct business in some countries where the extent of legal protection for intellectual property rights is uncertain or may be ineffective. Although we have taken measures to protect our intellectual property, we cannot assure you that we have adequate protection of our rights. If we are not able to protect our intellectual property rights, our financial results may be adversely affected.

The intellectual property of an acquired business may also be an important component of the value that we agree to pay for such a business. However, such acquisitions are subject to the risks that the acquired business may not own the intellectual property that we believe we are acquiring, that the intellectual property is dependent upon licenses from third parties, that the acquired business infringes upon the intellectual property rights of others or that the technology does not have the acceptance in the marketplace that we anticipated. If we are not able to successfully integrate acquired businesses’ intellectual property rights, our financial results may be adversely affected.

Some of our competitors may also be able to develop new products or services that are similar to ours without infringing our intellectual property rights, which could adversely affect our financial condition and results of operations.

Operational and Business Risks

We operate in highly competitive markets and may be adversely affected by this competition.

The markets for our information, software, services and news are highly competitive and are subject to rapid technological changes and evolving customer demands and needs. Our customers increasingly look to us for solutions to help them adapt, improve efficiency and demonstrate value. They increasingly want to leverage technology to maintain a competitive edge, by delivering a differentiated work product faster and by managing their firm or department more efficiently.

 

·   

Many of our principal competitors are established companies and firms that have substantial financial resources, recognized brands, technological expertise and market experience and these competitors sometimes have more established positions in certain product segments and geographic regions than we do. Some firms which compete with us have traditionally been our customers as well as go-to-market partners. Some larger companies that compete with us, such as enterprise resource planning (ERPs) companies, have large installed customer bases.

 

·   

We also compete with smaller and sometimes newer companies, some of which seek to differentiate themselves from the breadth of our offerings by being specialized, with a narrower focus than our company. As a result, they may be able to adopt new or emerging technologies, including AI and analytic capabilities, or address customer requirements more quickly than we can. New and emerging technologies can also have the impact of allowing start-up companies to enter the market more quickly than they would have been able to in the past.

 

·   

Public sources of free or relatively inexpensive information are available online and more of this information is expected to be available in the future. Some governmental and regulatory agencies have increased the amount of information they make publicly available at no cost. Several companies and organizations have made certain legal and tax information publicly available at no cost. “Open source” software that is available for free may also provide some functionality similar to that in some of our products.

 

 

 

Page 21


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

·   

We may also face increased competition from search providers that could pose a threat to some of our businesses by providing more in-depth offerings, adapting their products and services to meet the demands of their customers or combining with one of their traditional competitors to enhance their products and services.

To better serve the needs of their existing customers and to attract new customers, our competitors continue to:

 

·   

Enhance and improve their products and services (such as by adding new content, analytics and software);

 

·   

Develop new products and services;

 

·   

Invest in technology, including more software-as-a-service (SaaS) or cloud-based offerings; and

 

·   

Acquire additional businesses and partner with other businesses in key sectors that will allow them to offer a broader array of products and services.

Some of our competitors are also aggressively marketing their products as a lower cost alternative and offering price incentives to acquire new business, although we believe that many of our customers continue to see the value and enhancements reflected in our content, software, services and other offerings that sometimes results in a higher price. As some of our competitors are able to offer products and services that may be viewed as more cost effective than ours or which may be seen as having greater functionality or performance than ours, the relative value of some of our products or services could be diminished. Public sources of free or relatively inexpensive information may reduce demand for our products and services if certain customers choose to use these public sources as a substitute for our products or services.

Competition may require us to reduce the price of some of our products and services (which may result in lower revenues) or make additional capital investments (which might result in lower profit margins). If we are unable or unwilling to reduce prices or make additional investments for some of our products and services in the future, we may lose customers and our financial results may be adversely affected. Some of our current or future products or services could also be rendered obsolete as a result of competitive offerings and new technologies.

In addition, some of our customers have in the past and may decide again to develop independently certain products and services that they obtain from us, including through the formation of partnerships or consortia. If more of our customers become self-sufficient, demand for our products and services may be reduced. If we fail to compete effectively, our revenues, profitability and cash flows could be adversely affected.

If we are unable to successfully adapt to organizational changes and effectively implement strategic initiatives, our reputation and results of operations could be impacted.

We have experienced, and are in the midst of experiencing, significant organizational changes.

 

·   

In 2018, we split our workforce between Thomson Reuters and the Refinitiv partnership in connection with selling a majority interest in our former F&R business. In 2019, we restructured our company into customer-focused segments.

 

·   

In March 2020, Steve Hasker became our new CEO and Mike Eastwood became our new CFO. Throughout 2020, we also hired a number of new leaders from leading organizations, including our Chief Product Officer (David Wong), Chief Operations & Technology Officer (Kirsty Roth) and the President of our Corporates Segment (Sunil Pandita). For additional information, please see the “Executive Officers and Directors” section of this annual report.

 

·   

As part of our simplification and transformation initiatives, we have reduced staff, consolidated various technology platforms and content assets, standardized internal processes, outsourced various activities, and consolidated various offices/real estate around the world. Over the last two years, we also created a flatter organization by reducing our management layers.

In the first quarter of 2021, we announced a new Change Program. This program is a multi-year initiative to transform our company into a leading content driven technology company by making it easier for our customers to do business with us, modernizing and reducing complexity in our operations and technology organization and simplifying our product portfolio. We believe that our Change Program initiatives will be largely complete in 24 months and will require an investment of between $500 million and $600 million in 2021 and 2022.

 

 

 

 

Page 22


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Our ability to successfully manage organizational changes is important for our future business success. In particular, our reputation and results of operations could be harmed if employee morale, engagement or productivity decline as a result of organizational or simplification changes.

Furthermore, we may not realize cost savings and synergies that we expect to achieve from our Change Program and other strategic initiatives due to a variety of risks, including, but not limited to, operational challenges across impacted business segments, difficulties in integrating shared services with our business, higher than expected employee severance or retention costs, higher than expected overhead expenses, delays in the anticipated timing of activities related to our initiatives and other unexpected costs associated with operating our business. If we are unable to achieve the cost savings or synergies that we expect to achieve from our Change Program and other strategic initiatives, it could adversely affect our profitability and related margins.

If we do not continue to attract, motivate and retain high quality, talented and diverse management and key employees, we may not be able to execute our strategies.

The completion and execution of our strategies depends on our ability to continue to attract, motivate and retain high quality, talented and diverse management and employees across all of our businesses. We compete with many businesses that are seeking skilled individuals, particularly those with experience in technology, cybersecurity, data science, digital marketing, cognitive computing and AI. Competition for professionals in our Legal Professionals, Corporates and Tax & Accounting Professionals segments in particular can also be intense as other companies seek to enhance their positions in our market segments. Future organizational changes could also cause our employee attrition rate to increase. If we are unable to continue to identify or be successful in attracting, motivating and retaining the appropriate qualified personnel for our businesses, it could adversely affect our ability to execute our strategies.

We may be unable to derive fully the anticipated benefits from our existing or future acquisitions, joint ventures, investments or dispositions.

While we are focused on growing our businesses organically, acquisitions remain an important part of our growth strategy to expand and enhance our products, services and customer base and to enter new geographic areas. In 2020, we acquired Pondera Solutions and CaseLines and in 2019, our acquisitions included Confirmation, HighQ and FC Business Intelligence (now known as Reuters Events). In 2020, Reuters Events cancelled in-person conferences in response to COVID-19. While the business was able to convert many of these conferences to virtual events, it was not able to recoup all of the lost revenue from the cancellations.

In the future, we may not be able to successfully identify attractive acquisition opportunities or make acquisitions on terms that are satisfactory to our company from a commercial perspective. In addition, competition for acquisitions in the industries in which we operate during recent years has escalated, and may increase the purchase prices of acquisitions, which could cause us to refrain from making certain acquisitions. We may also be subject to increasing regulatory scrutiny from competition and antitrust authorities in connection with acquisitions. Achieving the expected returns and synergies from existing and future acquisitions will depend in part upon our ability to integrate the products and services, technology, administrative functions and personnel of these businesses into our segments in an efficient and effective manner. We cannot assure you that we will be able to do so, or that our acquired businesses will perform at anticipated levels or that we will be able to obtain these synergies. Management resources may also be diverted from operating our existing businesses to certain acquisition integration challenges. If we are unable to successfully integrate acquired businesses, our anticipated revenues and profits may be lower. Our profit margins may also be lower, or diluted, following the acquisition of companies whose profit margins are less than those of our existing businesses. Certain acquisitions may initially incur losses which would reduce our earnings per share in certain periods.

We have also historically decided from time to time to dispose of assets or businesses that are no longer aligned with strategic objectives or our current business portfolio (notably, our former F&R business which is now the Refinitiv business of LSEG). These transactions may involve challenges and risks. There can be no assurance that future divestitures will occur, or if a transaction does occur, there can be no assurance as to the potential value created by the transaction. The process of exploring strategic alternatives or selling a business could also negatively impact customer decision-making and cause uncertainty and negatively impact our ability to attract, retain and motivate key employees. Any failures or delays in completing divestitures could have an adverse effect on our financial results and on our ability to execute our strategy. Although we have established procedures and processes to mitigate these risks, there is no assurance that these transactions will be successful. In addition, we expend costs and

 

 

 

Page 23


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

management resources to complete divestitures and manage post-closing arrangements. Completed divestitures may also result in continued financial involvement in the divested business, such as through guarantees, indemnifications, transition services arrangements or other financial arrangements, following the transaction.

The value of our LSEG shares, which are publicly traded, is subject to fluctuation and volatility in global markets. A significant decline in the LSEG share price or significant deterioration in the British pound sterling and U.S. dollar foreign exchange rate would decrease the value of our investment. As discussed later in this annual report, subject to certain exceptions, we are subject to a lock-up for our LSEG shares until January 29, 2023. In each of the three and four years following the closing (starting on January 30, 2023 and January 30, 2024, respectively), our company and Blackstone’s consortium will become entitled to sell in aggregate one-third of the LSEG shares issued to us. The lock-up arrangement will terminate on January 29, 2025. As of the January 29, 2021 closing date, we indirectly owned approximately 82.5 million LSEG shares, which had a market value of approximately $9.8 billion, based on LSEG’s closing share price on January 28, 2021.

Operating globally involves challenges that we may not be able to meet and that may adversely affect our ability to grow.

In 2020, we earned 79% of our revenues in the U.S. However, as part of our globalization efforts, we operate regional teams, particularly in emerging markets, that work across our segments to combine local expertise with global capabilities to address specific customer needs. We sometimes modify existing products and services for local markets, but we also develop specifically for local markets. As of December 31, 2020, approximately 53% of our employees were located outside of the United States.

We believe that there are advantages to operating globally, including a proportionately reduced exposure to the market developments of a single country or region. However, there are certain risks inherent in doing business globally which may adversely affect our business and ability to grow. These risks include:

 

·   

Difficulties in penetrating new markets due to established and entrenched competitors;

 

·   

Difficulties in developing products and services that are tailored to the needs of local customers;

 

·   

Lack of local acceptance or knowledge of our products and services;

 

·   

Lack of recognition of our brands;

 

·   

Economic slowdowns, instability and volatility in local markets and political instability of governments;

 

·   

Unavailability of local companies for acquisition or joint venture partners;

 

·   

Exposure to possibly adverse governmental or regulatory actions in countries where we operate or conduct business;

 

·   

Higher inflation rates in the countries in which we do business;

 

·   

The impact of foreign currency fluctuations on prices charged to local customers, notably when there is strengthening of the U.S. dollar;

 

·   

Changes in laws and policies affecting trade and investment in other jurisdictions; and

 

·   

Managing compliance with varying and sometimes conflicting laws and regulations across the countries in which we do business.

Adverse developments in any of these areas could cause our actual results to differ materially from expected results. Challenges associated with operating globally may increase for our company as we continue to expand into geographic areas that we believe present the highest growth opportunities.

 

 

 

Page 24


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

We generate a significant percentage of our revenues from recurring, subscription-based arrangements, and our ability to maintain existing revenues and generate higher revenues is dependent in part on maintaining a high renewal rate.

In 2020, 80% of our revenues were derived from subscriptions or similar contractual arrangements, which result in recurring revenues. Our revenues are supported by a relatively fixed cost base that is generally not impacted by fluctuations in revenues. Because a high proportion of our revenues are recurring, we believe that our revenue patterns are generally more stable compared to other business models that primarily involve the sale of products in discrete or one-off arrangements. However, there is often a lag in realizing the impact of current sales or cancellations in our reported revenues, as we recognize revenues over the term of the arrangement. Because of this lag effect, our revenues are typically slower to decline when economic conditions worsen, but are also often slower to return to growth when economic activity improves, as compared to other businesses that are not subscription-based. Our transactions revenues (10% of our 2020 revenues), which include volume-based fees related to online searches, fees from software licenses and professional fees from service and consulting arrangements, fluctuate when economic conditions worsen, such as during the COVID-19 pandemic.

Our subscription and similar contractual arrangements typically have terms ranging from one to five years, which most customers renew at the end of each term. Renewal dates are spread over the course of the year. Many of our customer agreements have automatic renewal provisions, but customers are often able to terminate these types of agreements prior to automatic renewal of a new term by providing appropriate notice to us within a specified time period. In order to maintain existing revenues and to generate higher revenues, we are dependent on a significant number of our customers to renew their arrangements with us. Our revenues could be lower if a significant number of our customers renewed their arrangements with us, but reduced the amount of their spending.

We are dependent on third parties for data, information and other services.

We obtain significant data and information through licensing arrangements with content providers, some of which may be viewed as competitors. Some providers may seek to increase fees for providing their proprietary content or services and others may not offer our company an opportunity to renew existing agreements. We also depend on public sources for certain data and information.

In addition, we rely on third party service providers for telecommunications and other services that we have outsourced, such as certain human resources administrative functions, facilities management and IT services.

If we are unable to maintain or renegotiate commercially acceptable arrangements with these content or service providers or find substitutes or alternative sources of equivalent content or service, our business could be adversely affected. Our revenues and margins could also be reduced if some of our competitors obtained exclusive rights to provide or distribute certain types of data or information that was viewed as critical by our customers.

Our brands and reputation are important company assets and are key to our ability to remain a trusted source of information and news.

The integrity of our brands and reputation is key to our ability to remain a trusted source of information and news and to attract and retain customers. Negative publicity regarding our company or actual, alleged or perceived issues regarding one of our products or services could harm our relationship with customers.

We granted Refinitiv a license to permit it to brand its products/services and company name with the “Reuters” mark, subject to applicable limitations and restrictions in the trademark license agreement intended to protect the “Reuters” mark. While we understand that Refinitiv does not plan to brand its products/services or company name with the “Reuters” mark as part of its longer-term strategy, any actions taken by Refinitiv under the Reuters name could potentially have a negative impact on our company’s reputation, despite the protective provisions of the license agreement. The license remains in effect following the sale of Refinitiv to LSEG.

Failure to protect our brands or a failure by our company to uphold the Thomson Reuters Trust Principles may also adversely impact our credibility as a trusted supplier of content and may have a negative impact on our information and news business.

 

 

 

Page 25


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

We may be required to take future impairment charges that would reduce our reported assets and earnings.

Goodwill and other identifiable intangible assets comprise a substantial portion of our total assets. We are required under IFRS to test our goodwill and identifiable intangible assets with indefinite lives for impairment on an annual basis. We also are required by IFRS to perform an interim or periodic review of our goodwill and all identifiable intangible assets if events or changes in circumstances indicate that impairment may have occurred. Impairment testing requires our company to make significant estimates about our future performance and cash flows, as well as other assumptions. Economic, legal, regulatory, competitive, contractual and other factors as well as changes in our company’s share price and market capitalization may affect these assumptions. If our testing indicates that impairment has occurred relative to current fair values, we may be required to record an impairment charge in the period the determination is made. Recognition of an impairment would reduce our reported assets and earnings.

Legal and Regulatory Risks

We may be adversely affected by changes in legislation and regulation related to privacy, data security, data protection and other areas, which may impact how we provide products and services and how we collect and use information.

Legislative and regulatory changes that impact our customers’ industries also impact how we provide products and services to our customers. The evolving regulatory landscape is also enabling new types of services, which can benefit our Legal Professionals, Corporates and Tax & Accounting Professionals segments. However, some types of legal or regulatory changes could also result in reduced demand for certain products or services.

There are a significant number of laws relating to privacy, data security, data protection, anti-money laundering, electronic and mobile communications, e-commerce, direct marketing, digital advertising and the use of public records which have become more prevalent and developed in recent years. The share of the world population whose data is protected by baseline security requirements is expected to increase and enforcement capabilities of regulators are also expected to increase.

In the ordinary course of business, we collect, store, use and transmit certain types of information that are subject to an increasing number of different laws and regulations. In particular, data security, data protection and privacy laws and regulations that we are subject to often vary by jurisdiction and include, without limitation, the General Data Protection Regulation (GDPR) and various U.S. state and federal laws and regulations. These laws and regulations are continuously evolving and complying with applicable laws and regulations involves significant costs and time.

 

·   

GDPR provides data protection requirements and related compliance obligations in the E.U. Serious breaches of the GDPR can result in administrative fines of up to 4% of annual worldwide revenues and fines up to 2% of annual worldwide revenues can be imposed for other types of violations. Following the U.K.’s recent exit from the European Union and the expiration of a transition period, we will also be subject to UK data protection law, which imposes obligations and penalties similar to GDPR.

 

·   

In 2020, the California Consumer Privacy Act (CCPA) came into effect, resulting in new requirements for the handling of personal data and providing consumers with new data privacy rights. Violations of the CCPA can result in civil penalties and provide consumers with a private right of action for data breaches, which may increase data breach litigation. Other U.S. state and federal legislative and regulatory bodies have implemented or are considering similar legislation, which, if passed, could create more risks, compliance complexity and potential costs for us.

 

·   

In the European Union, proposed legislation known as the Regulation on Privacy and Electronic Communications, or ePrivacy Regulation, would replace an E.U. regulation known as the ePrivacy Directive, which we are currently subject to. The ePrivacy Regulation is focused on privacy regarding electronic communications services and data processed by electronic communications services. The ePrivacy Regulation is still under development and in draft form and the timeline for adoption and effectiveness is unclear. The ePrivacy Regulation may require us to further modify some of our data practices and compliance could result in additional costs for our company. In addition, the proposed EU Digital Services Act (DSA) and Digital Markets Act (DMA) will add further complexity and increased consumer protection and technology regulation.

 

·   

Proposed and existing legislation in other countries and regions around the world related to privacy, data security, data protection and other related areas may also impact how we provide products and services and how we collect and use information.

 

 

 

Page 26


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Some of these laws and regulations include a “right to be forgotten,” a right for individuals to opt out or object to having their data shared with third parties and a right to be informed about what data about them is being shared. The viability and perceived value of some of our screening products could be adversely impacted through the exercise of these rights.

We are also subject to data localization laws in certain countries, which require us to store and process certain types of data within a particular country. We are also subject to various data transfer restrictions, including, without limitation, in light of court cases in the European Union and the exit of the United Kingdom from the European Union, which either limits our ability to transfer, or requires us to guarantee a certain level of protection when transferring, data from one country to another. The regulatory landscape in various countries where we operate continues to evolve and sometimes includes strict local rules regarding the use (or restrictions on use) of encryption technologies as well as broad governmental rights related to Internet monitoring and regulation of Internet transmissions.

Existing, new and proposed legislation and regulations, including changes in the manner in which such legislation and regulations are interpreted by courts, may:

 

·   

Impose limits on our collection and use of certain kinds of information and our ability to communicate such information effectively to our customers;

 

·   

Impose restrictions on the collection and use of product and user data analytics;

 

·   

Increase our cost of doing business or require us to change some of our existing business practices; and

 

·   

Conflict on a global basis (such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar laws).

Governmental action (including laws or economic or political policies that restrict the use of specific companies, equipment or services deemed to be sensitive to national interests) can also create some legal uncertainties. It is difficult to predict in what form laws and regulations will be adopted, changed or repealed, how they will be construed by the relevant courts, or the extent to which any changes might adversely affect us.

Although we have implemented policies and procedures that are designed to ensure compliance with applicable laws, rules and regulations, we could be subject to penalties as well as reputational harm for any violations.

Tax matters, including changes to tax laws, regulations and treaties, could impact our effective tax rate and our results of operations.

We operate in many countries worldwide and our earnings are subject to taxation in many different jurisdictions and at different rates. We seek to organize our affairs in a tax efficient manner, taking account of the jurisdictions in which we operate. In 2020, our effective tax rate was lower than the Canadian corporate income tax rate due significantly to lower tax rates and differing tax rules applicable to certain of our operating and financing subsidiaries outside Canada. Our effective tax rate has fluctuated in the past and is likely to fluctuate in the future, reflecting the mix of taxing jurisdictions in which pre-tax profits and losses are recognized. Our effective tax rate and our cash tax cost in the future will depend on the laws of numerous countries and the provisions of multiple income tax treaties between various countries in which we operate. Changes in tax laws and regulations (including the possible increase in the U.S. federal corporate income tax rate and other changes in tax policy proposed by the Biden administration), international treaties and tax accounting standards and/or uncertainty over their application and interpretation as well as changes in the geographic mix of our profits may adversely affect our results (notably our income tax expense) and our effective tax rate. Tax-related changes or tax rulings may also require adjustments to our previously filed tax returns, which if unfavorable, may adversely affect our results. Tax laws and regulations that apply to our company may also be amended by the relevant authorities due to changes in fiscal circumstances or priorities. These types of amendments, or their application to our company, may adversely affect our results. In addition, we are subject to regular audits and reviews by tax authorities in Canada and other jurisdictions during the ordinary course of business. While we believe the positions that we take on our tax filings are sustainable, certain positions taken may be challenged by the applicable tax authorities. If any such challenge results in an adverse outcome, this could negatively affect our financial results and operations for the period at issue and on an ongoing basis.

 

 

 

Page 27


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Many governments in jurisdictions where we operate are facing budget deficits and challenges and as a result, may look to increase their tax revenues through increased audit activity and tax reform. Various tax-related legislative initiatives have been proposed or are being discussed that if enacted, could adversely affect our tax positions and/or our tax liabilities. The Organization for Economic Co-operation and Development (OECD), which is comprised of member countries that encompass many of the jurisdictions where we operate, has been working on a coordinated, multi-jurisdictional approach to address issues in existing tax systems associated with “base erosion and profit shifting” (BEPS) and the digitalization of the economy that the OECD believes may lead to tax avoidance by global companies. The OECD’s recent proposals to address the tax challenges of the digitalization of the economy, if finalized and adopted by the associated countries, will likely increase tax uncertainty and may adversely affect our financial results.

Various countries have enacted or are considering digital service taxes, which could result in multinational companies such as Thomson Reuters being subject to tax in additional jurisdictions or subject to increased taxes in jurisdictions in which they already have a taxable presence.

The U.S. Tax Cuts and Jobs Act (Tax Act) requires complex computations and significant judgments and estimates. The Tax Act includes a number of provisions that may offset future benefits associated with the reduced tax rate. These provisions include (but are not limited to) further limitations on deductions for interest expense and the introduction of a minimum tax under which certain payments to foreign affiliates are non-deductible. The U.S. Treasury Department, the Internal Revenue Service and other standard-setting bodies may issue further regulations or guidance on how the provisions of the Tax Act will be applied or otherwise administered that is different from our interpretations and certain aspects of the Tax Act could be repealed or modified in future legislation. As we conduct additional analyses and collect additional information, and as any further regulatory guidance is issued, we may need to make adjustments to our financial statements that could materially affect our U.S. federal income tax position and our financial condition and results of operations in the period in which the adjustments are made.

We expect our company will remain resident only in Canada for tax purposes. However, if our company were to cease to be resident solely in Canada for tax purposes (including as a result of changes in applicable laws or in Canadian regulatory practice), this could cause us adverse tax consequences.

We operate in a litigious environment which may adversely affect our financial results.

We may become involved in legal actions and claims arising in the ordinary course of business, including employment matters, commercial matters, libel/defamation/privacy claims and intellectual property infringement claims. Regardless of the merit of legal actions and claims, such matters can be expensive, time consuming, or harmful to our reputation and in recognition of these considerations, we may engage in arrangements to settle litigation. While we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as caps on amounts recoverable. Due to the inherent uncertainty in the litigation process, the resolution of any particular legal proceeding could result in changes to our products and business practices and could have a material adverse effect on our financial position and results of operations.

We are significantly dependent on technology and the rights related to it. From time to time, we have been sued by other companies for allegedly violating their patents. Our company and other companies have experienced alleged claims from third parties whose sole or primary business is to monetize patents. If an infringement suit against our company is successful, we may be required to compensate the third party bringing the suit either by paying a lump sum or ongoing license fees to be able to continue selling a particular product or service. This type of compensation could be significant, in addition to legal fees and other costs that we would incur defending such a claim.

We might also be prevented or enjoined by a court from continuing to provide the affected product or service. We may also be required to defend or indemnify any customers who have been sued for allegedly infringing a third party’s patent in connection with using one of our products or services. Responding to intellectual property claims, regardless of the validity, can be time consuming for our technology personnel and management.

 

 

 

Page 28


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Antitrust/competition-related claims or investigations could result in changes to how we do business and could be costly.

We are subject to applicable antitrust and competition laws and regulations in the countries where we have operations. These laws and regulations seek to prevent and prohibit anti-competitive activity. From time to time, we may be subject to antitrust/competition-related claims and investigations. Following such a claim or investigation, we may be required to change the way that we offer a particular product or service and if we are found to have violated antitrust or competition laws or regulations, we may be subject to fines or penalties. Any antitrust or competition-related claim or investigation could be costly for our company in terms of time and expense and could have an adverse effect on our financial condition and results of operations.

Financial Market Risks

Currency and interest rate fluctuations and volatility in global markets may have a significant impact on our reported revenues and earnings.

Our financial statements are expressed in U.S. dollars and are, therefore, subject to movements in exchange rates on the translation of the financial information of businesses whose functional currencies are not U.S. dollars. We receive revenues and incur expenses in many currencies and are thereby exposed to the impact of fluctuations in various currency rates. We monitor the financial stability of the foreign countries in which we operate. Volatility and uncertainty in global markets in the future could adversely affect our results.

Exchange rate movements in our foreign currency exposures may cause fluctuations in our consolidated financial statements. If our operations outside of the U.S. expand, we would expect this exposure to grow. We monitor foreign currency exposures on a regular basis and some of our largest foreign currency exposures are currently the British pound sterling, the Canadian dollar, the Euro, the Brazilian real, the Australian dollar, the Swiss franc and the Indian rupee. We have historically, and may in the future, hedge some of our foreign currency exposure if we believe that it may be material to our financial results.

In 2020, we issued C$1.4 billion of notes due in 2025, which we hedged into U.S. dollars. We may continue to issue non-U.S. dollar-denominated debt in the future and would expect to hedge any such debt into U.S. dollars, as has been our practice. In addition, an increase in interest rates from current levels could adversely affect our results in future periods.

Our credit ratings may be downgraded, which may impede our access to the debt markets or raise our borrowing rates.

Our access to financing depends on, among other things, suitable market conditions and the maintenance of suitable long-term credit ratings. Our credit ratings may be adversely affected by various factors, including increased debt levels, decreased earnings, declines in customer demands, increased competition, a further deterioration in general economic and business conditions and adverse publicity. Any future downgrades in our credit ratings may impede our access to the debt markets or raise our borrowing rates. For additional information on our current credit ratings, please see the “Management’s Discussion and Analysis” and “Additional Information – Ratings of Debt Securities” sections of this annual report.

We have significant funding obligations for pension arrangements that are affected by factors outside of our control.

We have significant funding obligations for various pension arrangements that are affected by factors outside of our control, including market factors and changes in legislation. In the past, we also have contributed to our pension plans to pre-fund certain obligations. We may be required or we may agree to make additional contributions to some pension plans in the future and the amounts of any such contributions may be material. In 2020, we amended our U.S. pension plan to freeze service accruals effective on January 1, 2023.

The valuations of obligations for material plans are determined by independent actuaries and require assumptions in respect of future compensation levels, expected mortality, inflation and medical cost trends, along with the discount rate to measure obligations. These assumptions are reviewed annually. While we believe that these assumptions are appropriate given current economic conditions, significant differences in actual experience or significant changes in assumptions may materially affect our valuations of pension obligations and related future expenses. In addition, the performance of equity and fixed income markets, which may be influenced by general economic conditions, including interest rates, inflation and currency exchange rates, may impact the funding level of our funded plans and required contributions.

 

 

 

Page 29


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Corporate Structure Risks

Woodbridge controls our company and is in a position to affect our governance and operations.

Woodbridge beneficially owned approximately 66% of our common shares as of March 3, 2021. For so long as Woodbridge maintains its controlling interest in our company, it will generally be able to approve matters submitted to a majority vote of our shareholders without the consent of other shareholders, including, among other things, the election of our Board. In addition, Woodbridge may be able to exercise a controlling influence over our business and affairs, the selection of our senior management, the acquisition or disposition of our assets, our access to capital markets, the payment of dividends and any change of control of our company, such as a merger or take-over. The effect of this control may be to limit the price that investors are willing to pay for our shares. In addition, a sale of shares by Woodbridge or the perception of the market that a sale may occur may adversely affect the market price of our shares. For additional information, please see the “Additional Information – Woodbridge” section of this annual report.

Thomson Reuters Founders Share Company holds a Thomson Reuters Founders Share in our company and may be in a position to affect our governance and management.

Thomson Reuters Founders Share Company was established to safeguard the Thomson Reuters Trust Principles, including the integrity, independence and freedom from bias in the gathering and dissemination of information and news. The Thomson Reuters Founders Share Company holds a Thomson Reuters Founders Share in our company. The interest of the Thomson Reuters Founders Share Company in safeguarding the Trust Principles may conflict with our other business objectives, impose additional costs or burdens on us or otherwise affect our management and governance. In addition, the Founders Share enables the Thomson Reuters Founders Share Company to exercise extraordinary voting power to safeguard the Trust Principles and to thwart those whose holdings of voting shares of Thomson Reuters threaten the Trust Principles. As a result, the Thomson Reuters Founders Share Company may prevent a change of control (including by way of a take-over bid or similar transaction) of our company in the future. We have agreed not to effect a sale (or similar transactions) of Reuters News to an unrelated third party or to effect or permit material acquisitions by, or material dispositions from, Reuters News unless we have received Thomson Reuters Founders Share Company’s prior written consent. The effect of the rights of the Thomson Reuters Founders Share Company may be to limit the price that investors are willing to pay for our shares. For additional information, please see the “Additional Information –Material Contracts” section of this annual report.

 

 

 

Page 30


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Management’s Discussion and Analysis

This management’s discussion and analysis is designed to provide you with a narrative explanation through the eyes of our management of how we performed in the last two years, as well as information about our financial condition and future prospects. As the management’s discussion and analysis is intended to supplement and complement our financial statements, we recommend that you read this in conjunction with our 2020 and 2019 annual consolidated financial statements. This management’s discussion and analysis contains forward-looking statements, which are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. Forward-looking statements include, but are not limited to, our three-year outlook, including the description of our new Change Program, and our expectations related to general economic conditions (including the impact of the COVID-19 pandemic on the U.S. and global economies) and market trends and their anticipated effects on our business segments. For additional information related to forward-looking statements, material assumptions and material risks associated with them, please see the “Outlook” and “Additional Information—Cautionary Note Concerning Factors That May Affect Future Results” sections of this management’s discussion and analysis. This management’s discussion and analysis is dated as of March 3, 2021.

 

We have organized our management’s discussion and analysis in the following key sections:  
Executive Summary – an overview of our business and key financial highlights     34  
Results of Operations – a comparison of our current and prior-year results     41  
Liquidity and Capital Resources – a discussion of our cash flow and debt     54  
Outlook – trends, priorities (including a discussion of our new Change Program) and our three-year financial outlook, including material assumptions and material risks     63  
Related Party Transactions – a discussion of transactions with our principal and controlling shareholder, The Woodbridge Company Limited (Woodbridge), and our former Refinitiv investment     67  
Subsequent Events – a discussion of material events occurring after December  31, 2020 and through the date of this management’s discussion and analysis     68  
Changes in Accounting Policies – a discussion of changes in our accounting policies     69  
Critical Accounting Estimates and Judgments – a discussion of critical estimates and judgments made by our management in applying accounting policies     69  
Additional Information – other required disclosures     69  
Appendix – supplemental information, including regarding Refinitiv’s performance     72  

Unless otherwise indicated or the context otherwise requires, references in this discussion to “we,” “our,” “us”, the “company” and “Thomson Reuters” are to Thomson Reuters Corporation and our subsidiaries.

 

 

 

Page 31


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Basis of Presentation

We prepare our consolidated financial statements in U.S. dollars and in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). See the “Additional Information” section of this management’s discussion and analysis for information regarding adjustments to prior-period segment results.

Other than EPS, we report our results in millions of U.S. dollars, but we compute percentage changes and margins using whole dollars to be more precise. As a result, percentages and margins calculated from reported amounts may differ from those presented, and growth components may not total due to rounding.

Use of Non-IFRS Financial Measures

In this management’s discussion and analysis, we discuss our results on an IFRS and non-IFRS basis. We use non-IFRS financial measures as supplemental indicators of our operating performance and financial position as well as for internal planning purposes and our business outlook. We believe non-IFRS financial measures provide more insight into our performance. Non-IFRS financial measures do not have standardized meanings prescribed by IFRS and therefore are unlikely to be comparable to the calculation of similar measures used by other companies, and should not be viewed as alternatives to measures of financial performance calculated in accordance with IFRS.

Our non-IFRS financial measures include:

 

·   

Adjusted EBITDA and the related margin;

 

·   

Adjusted EBITDA less capital expenditures and the related margin;

 

·   

Adjusted earnings and adjusted earnings per share (EPS);

 

·   

Net debt and our leverage ratio of net debt to adjusted EBITDA;

 

·   

Free cash flow; and

 

·   

Return on invested capital (ROIC).

We also report changes in our revenues, operating expenses, adjusted EBITDA and the related margin, and adjusted EPS before the impact of foreign currency or at “constant currency”. These measures remove the impacts from changes in foreign currency exchange rates to provide better comparability of our business trends from period to period. To provide greater insight into the revenue growth of our existing businesses on a constant currency basis, we report organic revenue growth (as defined in the glossary below and in Appendix A).

See Appendix A of this management’s discussion and analysis for a description of our non-IFRS financial measures, including an explanation of why we believe they are useful measures of our performance, including our ability to generate cash flow. Refer to the “Liquidity and Capital Resources” section of this management’s discussion and analysis and Appendices B and D for reconciliations of our non-IFRS financial measures to the most directly comparable IFRS measures.

 

 

 

Page 32


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Glossary of Key Terms

We use the following terms in this management’s discussion and analysis.

 

  Term

  

Definition

  “Big 3” segments

   Our combined Legal Professionals, Corporates and Tax & Accounting Professionals segments

  Blackstone

   The Blackstone Group and its subsidiaries

  bp

   Basis points – one basis point is equal to 1/100th of 1%, “100bp” is equivalent to 1%

  Change Program

   A multi-year initiative focused on transforming our company from a holding company to an operating company and into a leading content-driven technology company.

  constant currency

   A non-IFRS measure derived by applying the same foreign currency exchange rates to the financial results of the current and equivalent prior-year period

COVID-19

   A novel strain of coronavirus that was characterized a pandemic by the World Health Organization during March 2020

  EPS

   Earnings per share

  F&R

   Our former Financial & Risk business, now the Refinitiv business of LSEG
  F&R sale or F&R   transaction    Our sale of a 55% interest in F&R to private equity funds affiliated with Blackstone, which closed on October 1, 2018

  LSEG

   London Stock Exchange Group plc

  n/a

   Not applicable

  n/m

   Not meaningful

  organic or organically

   A non-IFRS measure that represents changes in revenues of our existing businesses at constant currency. The metric excludes the distortive impacts of acquisitions and dispositions from not owning the business in both comparable periods

LSEG/Refinitiv transaction

   Our agreement with private equity funds affiliated with Blackstone to sell Refinitiv to LSEG

  Refinitiv (now the   Refinitiv business of   LSEG)

   The name of our former F&R business as of the closing of the F&R transaction. We owned 45% of Refinitiv from October 1, 2018 through January 29, 2021

  $ and US$

   U.S. dollars

 

 

 

Page 33


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Executive Summary

Our Company

Thomson Reuters is a leading provider of business information services. Our products include highly specialized information-enabled software and tools for legal, tax, accounting and compliance professionals combined with the world’s most global news service – Reuters.

We are organized in five reportable segments supported by a corporate center:

 

LOGO

 

  

Legal Professionals

 

Serves law firms and governments with research and workflow products, focusing on intuitive legal research powered by emerging technologies and integrated legal workflow solutions that combine content, tools and analytics.

 

  

LOGO

LOGO

 

  

Corporates

 

Serves corporate customers from small businesses to multinational organizations, including the seven largest global accounting firms, with our full suite of content-enabled technology solutions for in-house legal, tax, regulatory, compliance and IT professionals.

 

LOGO

 

  

Tax & Accounting Professionals

 

Serves tax, accounting and audit professionals in accounting firms (other than the seven largest, which are served by our Corporates segment) with research and workflow products, focusing on intuitive tax offerings and automating tax workflows.

 

LOGO

 

  

Reuters News

 

Supplies business, financial, national and international news to professionals via desktop terminals, including through Refinitiv, the world’s media organizations, industry events and directly to consumers.

 

LOGO   

Global Print

 

Provides legal and tax information, primarily in print format, to customers around the world.

Our corporate center centrally manages commercial and technology operations, including those around our sales capabilities, digital customer experience and product and content development. Our corporate center also centrally manages functions such as finance, legal and human resources.

 

 

 

Page 34


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Our Business Model and Key Operating Characteristics

We derive most of our revenues from selling information and software solutions, primarily electronically and on a recurring subscription basis. Our solutions blend deep domain knowledge with software and automation tools. We believe our workflow solutions make our customers more productive by streamlining how they operate, enabling them to focus on higher value activities. Many of our customers use our solutions as part of their workflows, which has led to strong customer retention. We believe that our customers trust us because of our history and dependability and our deep understanding of their businesses and industries, and they rely on our services for navigating a rapidly changing and increasingly complex digital world.

Over the years, our business model has proven to be capital efficient and cash flow generative, and it has enabled us to maintain leading and scalable positions in our chosen market segments. Some of our key business and operating characteristics are:

 

Attractive Industry

 

·   Currently our “Big 3” operate in an estimated $28 billion market segment expected to grow between 6% and 8% over the next 5 years

 

·   Legal, Tax & Government market segments prime for content-driven innovation

 

Balanced and Diversified Leadership

 

·   A leader in key Legal Professionals, Corporates and Tax & Accounting Professionals market segments

 

·   Resilient businesses, historically stable, which has been affirmed by our performance during the COVID-19 pandemic

 

·   Approximately 500,000 customers; largest customer is approximately 2% of revenues (excluding the news and editorial content contract with Refinitiv*)

 

Attractive Business Model

 

·   80% of revenues are recurring

 

·   90% of revenues are from products delivered electronically, or as software and services

 

·   Strong and consistent cash generation capabilities

 

Strong Competitive Positioning

 

·   Proprietary content plus data and human expertise combined with artificial intelligence and machine learning are key differentiators

 

·   Products deeply embedded in customers’ daily workflows

 

·   90% retention rate

 

Disciplined Financial Policies

 

·   Focused and incentivized on organic revenue growth and free cash flow growth

 

·   Balance investing in business and returning capital to shareholders

 

·   Committed to maintaining investment grade rating with stable capital structure

 

·   Significant potential capital capacity over the next four years affords optionality

All revenue information reflected above is based on our 2020 full-year results.

 

*

The Refinitiv news and editorial contract represented approximately 6% of our 2020 revenues.

Revenues by type

 

LOGO

  

Recurring revenues primarily consist of fees to access products or services delivered electronically over time, such as Westlaw and Checkpoint. These products are generally provided under subscription arrangements that have terms ranging from one to five years, which most customers renew at the end of each term. Because most of our revenues are recurring, we believe that our revenue patterns are generally more stable compared to other businesses that primarily sell products in discrete or one-off arrangements. However, as we generally recognize recurring revenues ratably over the contract term, there is a lag in realizing the impact of current sales or cancellations in our reported revenues. As a result, our revenues are typically slower to decline when economic conditions worsen, but slower to return to growth when economic activity improves, compared to other businesses that are not subscription-based.

 

Transactions revenues include volume-based fees related to online searches, fees from software licenses and professional fees from service and consulting arrangements. Transaction revenues are recognized primarily at a point in time and, based on their type, can fluctuate significantly from period to period.

 

 

 

Page 35


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

  

Global Print revenues consist of fees for content that is delivered primarily in traditional paper format. While revenues from our print business are meaningful, we expect them to continue to decline each year, as more customers increasingly prefer online products. Print revenues are recognized at the point of shipment or, if sold under a subscription arrangement, ratably over the contract term.

 

 

LOGO

  

Revenues by geography

 

In 2020, we earned 79% of our revenues in the U.S. We also operate regional teams outside of the U.S., including in emerging markets, where we serve regional customers by either modifying existing products and services for their needs or developing specific products for the local market. Changes in foreign currency exchange rates relative to our business outside the U.S. may cause variation in our revenue performance from period to period. In 2020, changes in foreign exchange rates decreased our revenues by 1% compared to the prior year.

 

 

LOGO

  

 

Expenses

 

Most of our operating expenses are fixed. As a result, when our revenues increase, we become more profitable and our adjusted EBITDA margin increases. Likewise, when our revenues decline, we become less profitable and our adjusted EBITDA margin decreases. However, the full impact of incremental revenues is not always reflected in our profitability as we reinvest in our business. In 2020, staff costs, which are largely comprised of salaries, bonuses, commissions, benefits and share-based compensation, comprised 62% of our total expenses. Approximately 70% of our 2020 operating expenses were denominated in U.S. dollars with the balance denominated in currencies other than the U.S. dollar. In 2020, changes in foreign exchange rates decreased our expenses by 1% compared to the prior year.

Seasonality

Our revenues and operating profit on a consolidated basis do not tend to be significantly impacted by seasonality as we record a large portion of our revenues ratably over the contract term and our costs are generally incurred evenly throughout the year. However, our revenues from quarter to consecutive quarter can be impacted by the release of certain tax products, which tend to be concentrated in the fourth quarter and, to a lesser extent, in the first quarter of the year. The seasonality of our revenues and expenses was impacted by COVID-19 in 2020 and by significant costs to reposition our business in 2019 following the sale of a majority interest in F&R.

 

 

 

Page 36


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Acquisitions and Dispositions

Acquisitions. We have been focused on driving organic growth. However, we make tactical acquisitions from time to time that we believe will strengthen our positions in key growth segments. These businesses strengthen our offerings and enable us to extend our platform with new capabilities that we believe will provide opportunities to expand our positions, better serve our customers and supplement our organic growth. Generally, the businesses we acquire initially have lower margins than our existing businesses, largely reflecting the costs of integration.

The following describes some of the acquisitions we completed during 2020 and 2019:

 

  Date

 

Company

 

Acquiring Segments

 

Description

 

  March 2020

 

 

 

Pondera Solutions

 

 

 

Legal Professionals

 

 

 

A provider of technology and advanced analytics to combat fraud, waste and abuse in healthcare and large government programs.

 

 

  August 2020

 

 

 

CaseLines

 

 

 

Legal Professionals

 

 

 

A provider of a cloud-based, evidence sharing platform that allows courts, law enforcement, prosecutors and legal practitioners to digitally collaborate, share and participate in virtual and physical court proceedings.

 

 

  July 2019

 

 

 

Confirmation

 

 

 

Tax & Accounting Professionals/Corporates

 

 

 

A provider of digital audit confirmation services to accounting firms, banks and law firms.

 

 

  July 2019

 

 

 

HighQ

 

 

 

Legal Professionals/Corporates

 

 

 

A provider of collaboration tools to the legal and regulatory market segments.

 

 

  October 2019

 

 

 

FC Business Intelligence

 

 

 

Reuters News

 

 

 

A global business-to-business events specialist that was rebranded as Reuters Events.

 

Dispositions. To ensure that we are investing in parts of our business that offer the greatest opportunities to achieve growth and returns, we may sell businesses or investments from time to time. Our company and private equity funds affiliated with Blackstone closed the sale of Refinitiv to LSEG on January 29, 2021. See the “Executive Summary – Sale of Refinitiv to LSEG” section of this management’s discussion and analysis for more information. In 2020, we sold an investment for proceeds of $367 million, net of taxes paid. In 2019, we sold several small businesses that were not compatible with our strategy and some small investments for total proceeds of $74 million, net of taxes paid.

2020 Financial Highlights and Key Accomplishments

We began 2020 with momentum, having completed our first full year re-positioned into our customer-focused segments after completing the F&R transaction in 2018. In March 2020, however, the global COVID-19 pandemic created unprecedented health risks to our employees, customers and suppliers, and containment measures intended to mitigate the impact of the pandemic resulted in a global economic crisis and ongoing uncertainty.

In response to the pandemic, we immediately transitioned most of our staff to a virtual work environment. At the same time, we worked with our approximately 500,000 customers to ensure continued access to our products and services. To mitigate the expected reduction in our revenues due to the economic crisis, we implemented a cost savings program. Our 2020 performance reflected the resiliency of our markets and our business. We achieved 1% organic revenue growth, increased adjusted EBITDA by 32%, expanded adjusted EBITDA margin to 33%, and achieved free cash flow of $1.3 billion. Each of these metrics met or exceeded the updated outlook that we provided in November 2020 in conjunction with our third quarter report.

On January 29, 2021, we and private equity funds affiliated with Blackstone closed the sale of Refinitiv to LSEG in an all share transaction. As of the closing date, we indirectly owned approximately 82.5 million LSEG shares, which had a market value of approximately $9.8 billion based on LSEG’s closing share price on January 28, 2021.

On February 23, 2021, we announced a $0.10 per share annualized increase in our dividend to $1.62 per common share, representing the 28th consecutive year of dividend increases.

 

 

 

Page 37


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Change Program and Three-Year Business Outlook

On February 23, 2021, we announced a new Change Program to transition from a holding company to an operating company and from a content provider to a content-driven technology company. The program is expected to take 24 months (2021 - 2022) to largely complete and is projected to require an investment of between $500 million and $600 million over that period. In 2023, the program is forecast to:

 

·   

Achieve organic revenue growth of 5% - 6% including additional annual revenues of $100 million;

 

·   

Achieve an adjusted EBITDA margin of 38% - 40%;

 

·   

Achieve free cash flow of $1.8 billion - $2.0 billion;

 

·   

Achieve annual operating expense savings of $600 million, of which $200 million is expected to be reinvested in growth initiatives; and

 

·   

Reduce capital expenditures as a percentage of revenue to between 6.0% and 6.5%.

The company’s outlook for 2021, 2022 and 2023 incorporates the forecasted impacts associated with the Change Program. Please see the “Outlook” section of this management’s discussion and analysis for our three-year business outlook and a discussion of the Change Program. Additional information regarding the Change Program is also set forth in the “Business” section of this annual report.

Consolidated Results

 

    

Year ended December 31,

 
                  

Change

 
  (millions of U.S. dollars, except per share amounts and margins)    2020      2019      Total      Constant
Currency
 

  IFRS Financial Measures

           

  Revenues

  

 

5,984

 

  

 

5,906

 

  

 

1%

 

  

  Operating profit

  

 

1,929

 

  

 

1,199

 

  

 

61%

 

  

  Diluted EPS

  

 

$2.25

 

  

 

$3.11

 

  

 

(28%)

 

  

  Cash flow from operations

  

 

1,745

 

  

 

702

 

  

 

148%

 

  

  Non-IFRS Financial Measures(1)

           

  Revenues

  

 

5,984

 

  

 

5,906

 

  

 

1%

 

  

 

2%

 

  Organic revenue growth

           

 

1%

 

  Adjusted EBITDA

  

 

1,975

 

  

 

1,493

 

  

 

32%

 

  

 

32%

 

  Adjusted EBITDA margin

  

 

33.0%

 

  

 

25.3%

 

  

 

770bp

 

  

 

760bp

 

  Adjusted EPS

  

 

$1.85

 

  

 

$1.29

 

  

 

43%

 

  

 

43%

 

  Free cash flow

  

 

1,330

 

  

 

159

 

  

 

735%

 

        

 

 

 

Page 38


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Supplemental financial results – “Big 3” Segments – Legal Professionals, Corporates and Tax & Accounting Professionals Combined

 

    

Year ended December 31,

 
                  

Change

 
  (millions of U.S. dollars, except margins)    2020      2019      Total      Constant
Currency
 

  Non-IFRS Financial Measures(1)

           

  Revenues

  

 

4,738

 

  

 

4,584

 

  

 

3%

 

  

 

4%

 

  Organic revenue growth

           

 

4%

 

  Adjusted EBITDA

  

 

1,791

 

  

 

1,625

 

  

 

10%

 

  

 

10%

 

  Adjusted EBITDA margin

  

 

37.8%

 

  

 

35.4%

 

  

 

240bp

 

  

 

210bp

 

(1) Refer to Appendices A and B of this management’s discussion and analysis for additional information and reconciliations of our non-IFRS financial measures to the most directly comparable IFRS financial measures.

Revenues increased 1% in total and 2% in constant currency. On an organic basis, revenues increased 1%, as 4% growth in recurring revenues (80% of total revenues) more than offset declines in transactions and Global Print revenues.

Revenues for our “Big 3” segments (79% of total revenues) grew 3% in total and 4% on both a constant currency and organic basis. The organic increase was driven by 5% growth in recurring revenues (88% of “Big 3” revenues), which more than offset a decline in transactions revenues.

Operating profit increased 61% reflecting lower costs, a significant gain from the sale of an investment and a gain from an amendment to a pension plan. These items more than offset higher depreciation and amortization and a lower benefit from the revaluation of warrants that we held in Refinitiv prior to its sale to LSEG. Higher revenues also contributed. Adjusted EBITDA and the related margin, which excludes the gain on sale of the investment, the impact of the warrant revaluation, and the gain from the pension plan amendment among other items, also increased reflecting lower costs and higher revenues. Lower costs reflected the completion of the repositioning of our company in 2019 following the separation from Refinitiv as well as lower expenses from our COVID-19 related cost mitigation efforts.

Diluted EPS of $2.25 declined from $3.11 in the prior year despite higher operating profit because the prior year included a $1.2 billion non-cash deferred tax benefit associated with the reorganization of certain foreign operations. Adjusted EPS, which excludes the tax benefit as well as other adjustments, increased to $1.85 per share from $1.29 per share due to higher adjusted EBITDA, which more than offset higher depreciation and amortization of computer software and higher income tax expense.

Cash flow from operations increased primarily because the prior year included a $167 million pension contribution as well as significantly higher costs and investments to reposition our company following the separation from Refinitiv. 2020 included savings from our COVID-19 related cost mitigation efforts and lower tax payments. Free cash flow increased for the same reasons, as well as from proceeds from the sale of real estate.

We met or exceeded each of the performance metrics in our updated 2020 full-year business outlook communicated on November 3, 2020. Our full-year 2020 outlook assumed constant currency rates relative to 2019 and included the impact of closed acquisitions and dispositions. Some of the financial measures in the outlook below are provided on a non-IFRS basis. Refer to Appendices A and B of this management’s discussion and analysis for additional information and reconciliations of our non-IFRS financial measures to the most directly comparable IFRS financial measures.

 

 

 

Page 39


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

The table below compares our actual performance (before currency) to the outlook:

 

2020 Full-Year Outlook  
Total Thomson Reuters Outlook  
    

2020 Outlook

  

2020 Actual Performance

       
    

Before currency and including
the impact of closed acquisitions/

dispositions

   Before currency(1)        

  Revenue Growth

  

1.0% - 2.0%

  

2.1%

     LOGO       

  Organic revenue growth

   0% - 1.0%    1.2%      LOGO       

  Adjusted EBITDA margin

  

Approximately 32.0%

  

32.9%

     LOGO       

  Corporate costs

  

$140 million - $150 million

  

$125 million

     LOGO       

  Free cash flow

  

Approximately $1.1 billion

  

$1.3 billion

     LOGO       

  Capital expenditures, as a percentage of revenues

  

8.0% - 8.5%

  

8.4%

     LOGO       

  Depreciation and amortization of computer software

  

$650 million - $675 million

  

$672 million

     LOGO       

  Interest expense

  

$190 million - $215 million

  

$195 million

     LOGO       

  Effective tax rate on adjusted earnings

  

Approximately 17% - 19%

  

16.9%

     LOGO       

 

“Big 3” Segments Outlook  
     2020 Outlook    2020 Actual Performance        
    

Before currency and including
the impact of closed acquisitions/

dispositions

   Before currency(1)        

  Revenue Growth

  

3.0% - 4.0%

  

4.2%

     LOGO       

  Organic revenue growth

   3.0% - 4.0%    3.8%      LOGO       

  Adjusted EBITDA margin

  

37.0% - 38.0%

  

37.5%

     LOGO       

(1) Our 2020 performance (before currency) was measured in constant currency rates relative to 2019, except for the 2020 free cash flow performance which was reflected at actual rates.

Sale of Refinitiv to LSEG

At December 31, 2020, our company owned a 45% interest in Refinitiv, which was formerly our wholly owned F&R business. 55% of Refinitiv was owned by private equity funds affiliated with Blackstone. On January 29, 2021, our company and private equity funds affiliated with Blackstone closed the sale of Refinitiv to LSEG in an all share transaction. The transaction brought together two highly complementary businesses to create a leading global financial markets infrastructure provider.

As of the closing date, our company indirectly owned approximately 82.5 million LSEG shares, which had a market value of approximately $9.8 billion based on LSEG’s closing share price on January 28, 2021. Our interest in LSEG shares is held through an entity jointly owned with Blackstone’s consortium. Our company and Blackstone’s consortium hold a combination of LSEG ordinary shares and LSEG limited-voting ordinary shares (with the shares carrying, in aggregate, less than 30% of the total voting rights in LSEG). Blackstone’s consortium separately was issued additional LSEG shares as part of the transaction related to its Refinitiv preferred stock.

While we expect that the LSEG transaction will be predominantly tax deferred, approximately $700 million of tax became payable when the deal closed. As permitted under a transaction agreement, we plan to sell approximately $1 billion of our LSEG shares to generate approximately $750 million of total net proceeds. Subject to certain exceptions, our company and Blackstone’s consortium have otherwise agreed to be subject to a lock-up for our LSEG shares through January 29, 2023. In each of years three and four following closing (starting on January 30, 2023 and January 30, 2024, respectively), we and Blackstone’s consortium will become entitled to sell in aggregate one-third of the LSEG shares issued to us. The lock-up arrangement will terminate on January 29, 2025.

 

 

 

Page 40


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Reuters News’ 30-year agreement to supply news and editorial content to Refinitiv continues under the same terms and conditions after the closing and is scheduled to run to 2048.

Governance

The Blackstone/Thomson Reuters ownership entity is entitled to nominate three non-executive LSEG directors for as long as it holds at least 25% of LSEG, two LSEG directors for as long as it holds at least 17.5% but less than 25% of LSEG and one LSEG director for as long as it holds at least 10% but less than 17.5% of LSEG. For so long as the Blackstone/Thomson Reuters ownership entity is entitled to nominate three directors, one nominee will be a Thomson Reuters representative.

Once the Blackstone/Thomson Reuters ownership entity is released from the lock-up agreement described above, any disposals of LSEG shares will be subject to orderly marketing restrictions. A standstill restriction also applies to the Blackstone/Thomson Reuters ownership entity under which it (and the underlying investors) have agreed not to, among other matters, acquire further LSEG shares, or make a takeover offer for LSEG for designated time periods. The Blackstone/Thomson Reuters ownership entity has also committed to vote its LSEG shares in line with the LSEG Board’s recommendation.

Future Accounting

We expect to record a pre-tax gain on the transaction of approximately $8.5 billion in the first quarter of 2021. In the future, we will account for our investment in LSEG at fair value, based on the share price of LSEG. The change in value of the investment will be recorded through the consolidated income statement line item entitled “Share of post-tax earnings or loss in equity method investments”, because our company holds its LSEG shares through an entity that is jointly owned by Blackstone’s consortium and the company, over which the company has significant influence. As the joint entity owns only the financial investment in LSEG shares, which the parties intend to sell over time, and is not involved in operating LSEG or the Refinitiv business, the investment may be accounted for by the joint entity at fair value. Thomson Reuters’ free cash flow will benefit from any future dividends paid by LSEG to its shareholders. If we sell LSEG shares in the future, we will generate cash which we would decide at the time how to best deploy.

Results of Operations

Consolidated Results

 

    

Year ended December 31,

 
           

Change

 
  (millions of U.S. dollars, except per share amounts and margins)    2020      2019      Total      Constant
Currency
 

  IFRS Financial Measures

           

  Revenues

  

 

5,984

 

  

 

5,906

 

  

 

1%

 

  

  Operating profit

  

 

1,929

 

  

 

1,199

 

  

 

61%

 

  

  Diluted EPS

  

 

$2.25

 

  

 

$3.11

 

  

 

(28%)

 

    

 

 

 

 

 

  Non-IFRS Financial Measures(1)

           

  Revenues

  

 

5,984

 

  

 

5,906

 

  

 

1%

 

  

 

2%

 

  Organic revenue growth

           

 

1%

 

  Adjusted EBITDA

  

 

1,975

 

  

 

1,493

 

  

 

32%

 

  

 

32%

 

  Adjusted EBITDA margin

  

 

33.0%

 

  

 

25.3%

 

  

 

770bp

 

  

 

760bp

 

  Adjusted EBITDA less capital expenditures

  

 

1,471

 

  

 

988

 

  

 

49%

 

  

  Adjusted EBITDA less capital expenditures margin

  

 

24.6%

 

  

 

16.7%

 

  

 

790bp

 

  

  Adjusted EPS

  

 

$1.85

 

  

 

$1.29

 

  

 

43%

 

  

 

43%

 

 

 

 

Page 41


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Supplemental financial results – “Big 3” Segments – Legal Professionals, Corporates and Tax & Accounting Professionals Combined

 

    

Year ended December 31,

 
           

Change

 
  (millions of U.S. dollars, except margins)    2020      2019      Total      Constant
Currency
 

  Non-IFRS Financial Measures(1)

           

  Revenues

  

 

4,738

 

  

 

4,584

 

  

 

3%

 

  

 

4%

 

  Organic revenue growth

           

 

4%

 

  Adjusted EBITDA

  

 

1,791

 

  

 

1,625

 

  

 

10%

 

  

 

10%

 

  Adjusted EBITDA margin

  

 

37.8%

 

  

 

35.4%

 

  

 

240bp

 

  

 

210bp

 

(1) Refer to Appendices A and B of this management’s discussion and analysis for additional information and reconciliations of our non-IFRS financial measures to the most directly comparable IFRS financial measures.

Revenues

 

    

Year ended December 31,

 
           

Change

 
  (millions of U.S. dollars)    2020      2019      Total      Constant
Currency
     Organic  

  Recurring revenues

     4,758        4,604        3%        4%        4%  

  Transactions revenues

     608        610        -        -        (7%)  

  Global Print revenues

     620        693        (11%)        (10%)        (10%)  

  Eliminations/Rounding

     (2)        (1)                             

  Revenues

     5,984        5,906        1%        2%        1%  

Revenues increased 1% in total and 2% in constant currency driven by growth in recurring revenues (80% of total revenues), which more than offset a decline in Global Print revenues. Our Global Print revenues have been consistently declining as professionals migrate to online products, however, in 2020 print revenues were also impacted by customers who could not accept shipments because they were working remotely due to COVID-19. Transactions revenues were slightly lower despite a benefit from acquisitions.

On an organic basis, revenues increased 1% due to growth in recurring revenues, which more than offset declines in transactions and Global Print revenues.

Revenues for our “Big 3” segments (79% of total revenues) grew 3% in total and 4% on both a constant currency and organic basis. The organic increase was driven by 5% growth in recurring revenues (88% of “Big 3” revenues), which was partly offset by a decline in transactions revenues.

Foreign currency negatively impacted revenue growth primarily due to the strengthening of the U.S. dollar against the Brazilian real and Argentine peso compared to the prior year.

Operating profit, adjusted EBITDA and adjusted EBITDA less capital expenditures

Operating profit increased 61% reflecting lower costs, a significant gain from the sale of an investment and a gain from an amendment to a pension plan. These items more than offset higher depreciation and amortization and a lower benefit from the revaluation of warrants that we held in Refinitiv prior to its sale to LSEG. Higher revenues also contributed. Lower costs reflected the completion of the repositioning of our company in 2019 following the separation from Refinitiv, as well as lower expenses from our COVID-19 related cost mitigation efforts.

 

 

 

Page 42


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Adjusted EBITDA and the related margin, which excludes the gain on sale of the investment, the impact of the warrant revaluation, and the gain from the pension plan amendment among other items, increased in total and in constant currency due to lower costs and higher revenues. The improvement in our adjusted EBITDA and the related margin reflected a significant benefit because the prior year included costs to complete the repositioning of our company following the separation from Refinitiv. Excluding this benefit, our adjusted EBITDA margin increased 150bp with improvements reflecting our COVID-19 related cost reductions. Foreign currency benefited adjusted EBITDA margin by 10bp, compared to the prior year.

Adjusted EBITDA less capital expenditures and the related margin increased due to higher adjusted EBITDA, as capital expenditures were essentially unchanged.

Operating expenses

 

    

Year ended December 31,

 
                  

Change

 
  (millions of U.S. dollars)    2020      2019      Total      Constant  
Currency  
 

  Operating expenses

  

 

3,999

 

  

 

4,413

 

  

 

(9%)

 

  

 

(8%)

 

Operating expenses decreased in total and in constant currency primarily reflecting the completion of the repositioning of our company in 2019 following the separation from Refinitiv. Lower expenses also reflected approximately $100 million of benefits from our COVID-19 related efforts to reduce spending on consulting and advisory services, travel and entertainment, certain development projects and other discretionary items in response to the economic crisis. We expect the savings from our COVID-19 related cost mitigation efforts will be permanent.

Depreciation and amortization

 

    

Year ended December 31,

 

  (millions of U.S. dollars)

  

2020

    

2019

    

Change

 

  Depreciation

  

 

184

 

  

 

154

 

  

 

20%

 

  Amortization of computer software

  

 

485

 

  

 

449

 

  

 

8%

 

  Subtotal

  

 

669

 

  

 

603

 

  

 

11%

 

  Amortization of other identifiable intangible assets

  

 

123

 

  

 

114

 

  

 

8%

 

 

·   

Depreciation and amortization of computer software on a combined basis increased due to the write-down of certain software we are no longer using as well as the write-down of assets associated with real estate leases we have vacated in connection with transitioning a small portion of our employees to working remotely on a permanent basis. Increases also reflected higher expenses from newly acquired assets, including those associated with recently acquired businesses, which more than offset benefits from the completion of depreciation and amortization for certain assets acquired in previous years.

 

·   

Amortization of other identifiable intangible assets increased as expenses associated with recent acquisitions more than offset the completion of amortization of assets acquired in previous years.

Other operating gains, net

 

      

Year ended December 31,        

 

  (millions of U.S. dollars)

    

2020

      

2019    

 

  Other operating gains, net

    

 

  736

 

    

 

423    

 

 

 

 

Page 43


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

In 2020, other operating gains, net, included a gain of $472 million related to the sale of an equity method investment and a $119 million gain from an amendment to our U.S. pension plan. Both periods included a benefit from the revaluation of warrants that we held in Refinitiv, prior to its sale to LSEG in January 2021, due to an increase in the share price of LSEG. In 2020, other operating gains, net, included $82 million (2019 – $419 million) related to the warrants. Both periods also included income related to a license that allows Refinitiv to use the “Reuters” mark to brand its products and services (see the “Related Party Transactions” section of this management’s discussion and analysis for additional information) and acquisition costs associated with acquired businesses.

Net interest expense

 

    

Year ended December 31,

 

  (millions of U.S. dollars)

  

2020

    

2019

    

Change

 

  Net interest expense

  

 

195

 

  

 

163

 

  

 

20%

 

The increase in net interest expense was due to lower interest income, as 2019 included interest income on proceeds from the F&R transaction that had been set aside to fund acquisitions.

Other finance (income) costs

 

    

Year ended December 31,

  (millions of U.S. dollars)

  

2020

    

2019    

  Other finance (income) costs

  

 

(30)

 

  

65    

In 2020, other finance (income) primarily included gains on forward exchange contracts and the ineffective portion of cash flow hedges. In 2019, other finance costs primarily reflected losses from fluctuations of foreign currency exchange rates on certain intercompany funding arrangements and premiums for the early redemption of debt securities.

Share of post-tax (losses) earnings in equity method investments

 

    

Year ended December 31,

 

  (millions of U.S. dollars)

  

2020

    

2019

 

  Refinitiv

     (554)        (609)  

  Other equity method investments

     10        10  

  Share of post-tax (losses) in equity method investments

     (544)        (599)  

In both years, our share of the post-tax losses from our former 45% interest in Refinitiv reflected interest expense for Refinitiv’s debt, as well as expenses to scale its business related to its annual cost savings target. Refinitiv achieved its targeted run-rate cost savings of $650 million as of December 31, 2020. The lower loss in 2020 compared to the prior year reflected improved operating performance, including higher revenues, and charges in the prior year to revalue preferred equity securities in connection with the LSEG transaction.

We provide additional information about the performance of Refinitiv in Appendix C of this management’s discussion and analysis. On January 29, 2021, we and Blackstone’s consortium sold Refinitiv to LSEG.

 

 

 

Page 44


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Tax expense (benefit)

 

    

Year ended December 31,

 

  (millions of U.S. dollars)

  

2020

    

2019

 

  Tax expense (benefit)

     71        (1,198)  

Our effective income tax rate on earnings from continuing operations was 5.8%, compared to a benefit of 322.0% in 2019.

We assess the recoverability of deferred tax assets at the end of each reporting period. In 2020, we recorded $138 million of tax benefits to recognize deferred tax assets that arose in prior years in various subsidiaries outside the U.S. The deferred tax assets recognized were almost entirely related to tax losses and other tax attributes in subsidiaries that have experienced improved profitability within the past year and have projected future taxable profits sufficient to utilize these deferred tax assets. These tax losses and other tax attributes can be carried forward indefinitely.

In December 2019, we reorganized the operations of certain foreign affiliates that were subject to different tax rates, which resulted in an increase in the tax basis of the reorganized business to the acquiror and a related tax benefit of $1.2 billion. We recognized a $1.2 billion deferred tax asset, which we expect to realize in subsequent periods, based on the historical and expected future profitability of the reorganized business. We also recorded a $58 million tax charge in 2019 related to the enactment of foreign tax reform. The charge reflected our estimate of the deferred taxes required on temporary differences between the book and tax basis of certain assets, which we expect to reverse during periods that will be subject to the applicable new foreign tax rates.                

The comparability of our tax expense (benefit) was further impacted by various transactions and accounting adjustments during each year. In each year, the tax expense (benefit) reflected the mix of taxing jurisdictions in which pre-tax profits and losses were recognized. The following table sets forth certain components within income tax expense (benefit) that impact comparability from year to year, including tax expense (benefit) associated with items that are removed from adjusted earnings:

 

    

        Year ended December 31,         

 

  (millions of U.S. dollars)

  

2020

    

2019

 

  Tax expense (benefit)

     

  Tax items impacting comparability:

     

  Reorganization of certain foreign affiliate operations(1)

  

 

-

 

  

 

(1,197)

 

  Corporate tax laws and rates(2)

  

 

-

 

  

 

52

 

  Discrete changes to uncertain tax positions(3)

  

 

-

 

  

 

(23)

 

  Deferred tax adjustments(4)

  

 

(136)

 

  

 

(36)

 

  Subtotal

     (136)        (1,204)  

  Tax related to:

     

  Amortization of other identifiable intangible assets

  

 

(23)

 

  

 

(24)

 

  Share of post-tax losses in equity method investments

  

 

(134)

 

  

 

(150)

 

  Other operating gains, net(5)

  

 

175

 

  

 

102

 

  Other items

  

 

1

 

  

 

-

 

  Subtotal

     19        (72)  

  Total

  

 

(117)

 

  

 

(1,276)

 

(1) Tax benefit from reorganization of the operations of certain foreign affiliates that were subject to different tax rates.

(2) Amount includes changes in deferred tax liabilities due to changes in tax laws and rates, and changes to U.S. state deferred tax liabilities resulting from changes in apportionment factors.

(3) Relates to the release of tax reserves that are no longer required due to the expiration of statute of limitations. We released $22 million of reserves in 2020, which are not highlighted in the table above, because we did not remove the benefit from adjusted tax expense in 2020 as we believe the likely recurrence of these items will reduce distortion to the comparability of our effective tax rate in future periods.

(4) In 2020, relates to the recognition of deferred tax assets due to improved profitability. In 2019, relates primarily to requirements associated with disposals and acquisitions.

(5) In 2020, primarily relates to a taxable gain that arose on the sale of a non-strategic equity investment, as well as deferred tax related to a pension revaluation gain. In both years, the amount includes deferred tax on the revaluation of Refinitiv warrants.

 

 

 

Page 45


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Because the items described above impact the comparability of our tax expense or benefit for each year, we remove them from our calculation of adjusted earnings, along with the pre-tax items to which they relate. The computation of our adjusted tax expense is set forth below:

 

    

        Year ended December 31,         

 

  (millions of U.S. dollars)

  

2020

    

2019

 

  Tax expense (benefit)

  

 

71

 

  

 

(1,198)

 

  Remove: Items from above impacting comparability

  

 

117

 

  

 

1,276

 

  Total tax expense on adjusted earnings

  

 

188

 

  

 

78

 

Our 2020 effective tax rate on adjusted earnings was 16.9% (2019 – 10.7%). On an adjusted earnings basis, our effective income tax rates in both years were lower than the Canadian corporate income tax rate of 26.5%. The difference is primarily attributable to lower tax rates and differing tax rules applicable to certain of our operating and financing subsidiaries outside of Canada. As a global company, our income taxes depend on the laws of numerous countries and the provisions of multiple income tax conventions between various countries in which we operate.

Because of the requirements of income tax accounting under IFRS, income tax expense can differ significantly from taxes paid in any reporting period. We paid income taxes from net earnings on our worldwide business as follows:

 

    

Year ended December 31,

 

  Taxes paid (received) (millions of U.S. dollars)

  

2020

    

2019

 

  Taxes paid related to continuing operations

  

 

52

 

  

 

268

 

  Taxes (received) paid related to discontinued operations

  

 

(2)

 

  

 

45

 

  Taxes paid on disposals

  

 

114

 

  

 

1

 

  Total taxes paid

  

 

164

 

  

 

314

 

Our effective tax rate and our cash tax cost in the future will depend on the laws of numerous countries and the provisions of multiple income tax conventions between various countries in which we operate. Our effective tax rate will be dependent upon tax laws and conventions remaining unchanged or favorable to our company, as well as the geographic mix of our profits. See the “Liquidity and Capital Resources—Contingencies” section of this management’s discussion and analysis for further discussion of income tax liabilities.

Results of Discontinued Operations

(Loss) from discontinued operations, net of tax, included the following:

 

    

Year ended December 31,

 

  (millions of U.S. dollars)

  

2020

    

2019

 

  (Loss) from discontinued operations, net of tax

     (27)        (6)  

(Loss) from discontinued operations, net of tax, included residual expenses borne by our company following the sales of F&R and Intellectual Property & Science, both of which were previously classified as discontinued operations. In both years, the expenses were partially offset by tax benefits of $15 million in 2020 and $31 million in 2019 related to the reversal of tax reserves no longer required due to changes in tax laws and the expiration of statutes of limitation.

Net earnings and diluted EPS

 

    

Year ended December 31,

 

  (millions of U.S. dollars, except per share amounts)

  

2020

    

2019

    

Change

 

  Net earnings

  

 

1,122

 

  

 

1,564

 

  

 

(28%)

 

  Diluted EPS

  

 

$2.25

 

  

 

$3.11

 

  

 

(28%)

 

Net earnings and diluted EPS decreased despite higher operating profit because the prior year included a $1.2 billion deferred tax benefit associated with the reorganization of certain foreign operations.

 

 

 

Page 46


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Adjusted earnings and adjusted EPS

 

    

Year ended December 31,

 

  (millions of U.S. dollars, except per share amounts)

  

2020

    

2019

    

Change

 

  Adjusted earnings

  

 

921

 

  

 

646

 

  

 

42%

 

  Adjusted EPS

  

$

1.85

 

  

$

1.29

 

  

 

43%

 

Adjusted earnings and the related per share amount increased due to higher adjusted EBITDA, which more than offset higher depreciation and amortization of computer software and higher income tax expense.

Segment Results

The following is a discussion of our five reportable segments and our Corporate costs. We assess revenue growth for each segment, as well as the businesses within each segment, in constant currency. See Appendix A of this management’s discussion and analysis for additional information.

Legal Professionals

 

    

Year ended December 31,

 
                  

Change

 
  (millions of U.S. dollars, except margins)    2020      2019      Total      Constant
Currency
     Organic  

  Recurring revenues

  

 

2,367

 

     2,249        5%        6%        4%  

  Transactions revenues

  

 

168

 

     184        (9%)        (9%)        (9%)  

  Revenues

     2,535        2,433        4%        4%        3%  

  Segment adjusted EBITDA

  

 

1,001

 

     895        12%        12%     

  Segment adjusted EBITDA margin

  

 

39.5%

 

     36.8%        270bp        250bp           

Revenues increased in total and in constant currency. The increase in constant currency was driven by growth in recurring revenues (93% of the Legal Professionals segment), which more than offset a decline in transactions revenues (7% of the Legal Professionals segment). Revenue growth included benefits from HighQ and Pondera Solutions, which were acquired in July 2019 and March 2020, respectively. Revenues from law firms, which includes revenues from large global law firms and represented just over two-thirds of the segment’s revenues, increased 3%, and the segment’s Global business, representing smaller law firms outside the U.S., increased 4%. U.S. Government revenues grew 12% and included the benefits from contracts signed in the fourth quarter of 2019 with the U.S. Department of Justice and the Administrative Office of the U.S. Courts.

Organic revenues increased driven by growth in recurring revenues led by Westlaw Edge, Practical Law, and the segment’s businesses in Europe and Canada, and Government. Transactions revenues decreased due to lower revenues from Elite and certain international businesses. The Government business grew 9% organically. We expect the Government business to grow at a similar rate in 2021.

Segment adjusted EBITDA and the related margin increased primarily due to higher revenues and the benefits from COVID-19 related cost mitigation efforts, which more than offset higher bad debt expense related to customers who may become financially distressed due to COVID-19. Foreign currency benefited the year-over-year change in segment adjusted EBITDA margin by 20bp.

 

 

 

Page 47


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Corporates

 

    

Year ended December 31,

 
                  

Change

 
  (millions of U.S. dollars, except margins)    2020      2019      Total      Constant
Currency
     Organic  

  Recurring revenues

     1,143        1,079        6%        7%        6%  

  Transactions revenues

     224        229        (2%)        (1%)        (4%)  

  Revenues

     1,367        1,308        5%        5%        5%  

  Segment adjusted EBITDA

     460        412        12%        11%     

  Segment adjusted EBITDA margin

     33.7%        31.5%        220bp        180bp           

Revenues increased in total and in constant currency. The increase in constant currency was due to growth in recurring revenues (84% of the Corporates segment). Transactions revenues (16% of the Corporates segment) declined, despite benefits from the July 2019 acquisitions of Confirmation and HighQ, due to lower software implementation revenues and the loss of revenues from the sale of the Pangea 3/Legal Managed Services business in May 2019.

On an organic basis, revenue growth reflected higher recurring revenues driven by the segment’s legal and tax products, which more than offset a decline in transactions revenues from lower software implementation services.

Segment adjusted EBITDA and the related margin increased as higher revenues more than offset higher expenses. Expenses increased as higher bad debt, technology, marketing and content costs more than offset benefits from COVID-19 related cost mitigation efforts. Foreign currency benefited the year-over-year change in segment adjusted EBITDA margin by 40bp.

Tax & Accounting Professionals

 

    

Year ended December 31,

 
                  

Change

 
  (millions of U.S. dollars, except margins)    2020      2019      Total      Constant
Currency
     Organic  

  Recurring revenues

     682        703        (3%)        -        5%  

  Transactions revenues

     154        140        10%        11%        2%  

  Revenues

     836        843        (1%)        2%        4%  

  Segment adjusted EBITDA

     330        318        4%        6%     

  Segment adjusted EBITDA margin

     39.5%        37.6%        190bp        160bp           

Revenues decreased in total but increased in constant currency, primarily due to acquisition-related growth in transactions revenues (18% of the Tax & Accounting Professionals segment) from the July 2019 acquisition of the Confirmation business. Recurring revenues (82% of the Tax & Accounting Professionals segment) were essentially unchanged in constant currency due to the loss of revenues from the sale of the Aumentum government business in November 2019.    

On an organic basis, revenues increased due to higher recurring and transactions revenues. The increase in recurring revenues reflected strong demand for the segment’s products, as well as a benefit from permanently accelerating the release date of the remaining portion of the segment’s UltraTax state tax software from January 2021 to December 2020 to align with the traditional December release of its U.S. federal tax software. The segment had realigned much of the UltraTax state tax software in this manner in 2019. On a comparable basis, which excludes the impact of the accelerated release dates from both periods, total and recurring organic revenue growth would have been 5% and 6%, respectively.

Segment adjusted EBITDA and the related margin increased primarily due to benefits from COVID-19 related cost mitigation efforts, as well as from the sale of the lower margin Aumentum government business in November 2019. Foreign currency benefited the year-over-year change in segment adjusted EBITDA margin by 30bp.

 

 

 

Page 48


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Reuters News

 

    

Year ended December 31,

 
                  

Change

 
  (millions of U.S. dollars, except margins)    2020      2019      Total      Constant
Currency
     Organic  

  Recurring revenues

     566        573        (1%)        (2%)        (2%)  

  Transactions revenues

     62        57        9%        12%        (29%)  

  Revenues

     628        630        -        -        (5%)  

  Segment adjusted EBITDA

     73        68        7%        (1%)     

  Segment adjusted EBITDA margin

     11.7%        10.9%        80bp        (10)bp           

Revenues were essentially unchanged in total and in constant currency. On an organic basis, revenues declined due to lower revenues in the news agency business and the cancellation of in-person conferences, in response to COVID-19, in the segment’s Reuters Events business, which was acquired in the fourth quarter of 2019. While the segment was able to convert many of these conferences to virtual events, it was not able to recoup all of the lost revenue from the cancellations. The loss of in-person events revenues did not materially impact the segment’s comparison of the current and prior-period actual results, as it did not own the Reuters Events business for most of the prior-year period. However, the loss of revenues caused a decline in organic revenues because the segment includes the organic impact from recently acquired businesses in its computation of organic growth, as though it had owned the Reuters Events business in both periods.

The Reuters Events business continues to assess if and when in-person conferences can resume in 2021. As a result, the business is preparing a hybrid events strategy for 2021 that can accommodate both in-person and virtual options. In 2021, we expect Reuters News revenues to grow in the low-single digit range driven by improvements in the Reuters Professional business, which includes news, analysis and events for decision makers.

Reuters News and Refinitiv have an agreement pursuant to which Reuters News supplies news and editorial content to Refinitiv for a minimum amount of revenue through October 1, 2048. In 2020 and 2019, we recorded $336 million of revenues under this agreement, which represent the current minimum annual value. However, these revenues may increase further as the contract requires adjustments related to changes in the consumer price index and foreign exchange rates.

Segment adjusted EBITDA and the related margin increased due to the impact of foreign currency as the benefits from COVID-19 related cost mitigation efforts were offset by higher expenses associated with the Reuters Events business, higher investment and severance charges. Foreign currency benefited the year-over-year change in segment adjusted EBITDA margin by 90bp.    

Global Print

 

    

Year ended December 31,

 
                  

Change

 
  (millions of U.S. dollars, except margins)    2020      2019      Total      Constant
Currency
     Organic  

  Revenues

     620        693        (11%)        (10%)        (10%)  

  Segment adjusted EBITDA

     242        294        (18%)        (18%)     

  Segment adjusted EBITDA margin

     39.0%        42.5%        (350)bp        (390)bp           

Revenues decreased in total, in constant currency, and on an organic basis. While the revenues in our print business have been consistently declining as customers migrate to online delivery, the 2020 performance was further impacted by the global economic crisis as some customers experienced budget challenges and others could not accept shipments due to office closures. In 2021, Global Print revenues are expected to decline between 4% and 7%.

Segment adjusted EBITDA and the related margin decreased due to lower revenues. Foreign currency benefited the year-over-year change in segment adjusted EBITDA margin by 40bp.

 

 

 

Page 49


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Corporate costs

 

    

Year ended December 31,

 

  (millions of U.S. dollars)

  

2020

    

2019

 

  Corporate costs

     131        494  

Corporate costs decreased primarily because 2019 included costs and investments to reposition our business following the separation of Refinitiv from the rest of our company, including acceleration of digital strategies, replication of capabilities that we lost with the separation from Refinitiv and severance.

Review of Fourth-Quarter Results

Consolidated Results

 

    

Three months ended December 31,

 
                  

Change

 
  (millions of U.S. dollars, except per share amounts and margins)    2020      2019      Total      Constant
Currency
 

  IFRS Financial Measures

           

  Revenues

     1,616        1,583        2%     

  Operating profit

     956        216        343%     

  Net earnings

     562        1,324        (58%)     

  Diluted EPS

     $1.13        $2.64        (57%)     

  Net cash provided by operating activities

     566        355        60%     

  Net cash provided by (used in) investing activities

     266        (294)        n/m     

  Net cash used in financing activities

     (201)        (390)        48%           

  Non-IFRS Financial Measures(1)

           

  Revenues

     1,616        1,583        2%        2%  

  Organic revenue growth

              2%  

  Adjusted EBITDA

     525        396        33%        32%  

  Adjusted EBITDA margin

     32.5%        25.0%        750bp        730bp  

  Adjusted EBITDA less capital expenditures

     425        256        66%     

  Adjusted EBITDA less capital expenditures margin

     26.3%        16.1%        1020bp     

  Adjusted earnings

     269        185        44%     

  Adjusted EPS

     $0.54        $0.37        46%        43%       

  Free cash flow

     449        209        114%           

(1) Refer to Appendices A and B of this management’s discussion and analysis for additional information and reconciliations of our non-IFRS financial measures to the most directly comparable IFRS financial measures.

Revenues

Revenues increased 2% in total, in constant currency and on an organic basis. The increase in revenues on an organic basis was driven by 5% growth in recurring revenues (80% of total revenues), which more than offset declines in transactions and Global Print revenues of 7% and 10%, respectively.

Revenues for our “Big 3” segments grew 4% in total and 5% on both a constant currency and organic basis. The increase in organic revenues was driven by 6% growth in recurring revenues (91% of “Big 3” revenues), which more than offset a 7% decline in transactions revenues.

 

 

 

Page 50


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Operating profit, adjusted EBITDA and adjusted EBITDA less capital expenditures

Operating profit increased, driven by a significant gain from the sale of an investment, a gain from an amendment to our U.S. pension plan and lower costs, in addition to higher revenues. The increase in adjusted EBITDA and the related margin, which excludes the gains on sale of the investment and on the U.S. pension plan amendment, among other items, increased due to lower costs and higher revenues. Lower costs were due to the completion of the repositioning of our company in 2019 following the separation from Refinitiv.

Adjusted EBITDA less capital expenditures and the related margin increased due to higher adjusted EBITDA and lower capital expenditures.

Net earnings and diluted EPS

Net earnings and diluted EPS decreased despite higher operating profit because the prior-year period included a $1.2 billion deferred tax benefit associated with the reorganization of certain foreign operations.

Adjusted earnings and adjusted EPS

Adjusted earnings and the related per share amount, which excludes the deferred tax benefit as well as other adjustments, increased due to higher adjusted EBITDA, which was partly offset by higher income tax expense.

Cash flow from operating activities

Net cash provided by operating activities increased primarily because the prior-year period included significantly higher costs and investments to reposition our company following the separation from Refinitiv and higher tax payments. In the fourth quarter of 2020, we continued to defer the employer’s portion of payroll-related taxes, as allowed under the CARES Act in the U.S.

Cash flow from investing activities

In 2020, net cash provided by investing activities included proceeds of $367 million, net of tax paid, from the sale of an investment. Capital expenditures were $100 million. In 2019, net cash used in investing activities primarily included acquisition spending of $177 million and capital expenditures of $140 million.

Cash flow from financing activities

In both periods, net cash used in financing activities primarily comprised returns to our common shareholders through dividends and, in 2019, share repurchases.

Free cash flow

Free cash flow increased primarily due to the same factors that increased cash flows from operating activities.

 

 

 

Page 51


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Segment Results

 

    

Three months ended December 31,

 
        

 

Change

 

  (millions of U.S. dollars, except margins)    2020      2019      Total      Constant
Currency
     Organic  

  Revenues

              

  Legal Professionals

     653        621        5%        5%             4%       

  Corporates

     338        328        3%        4%             3%  

  Tax & Accounting Professionals

     285        274        4%        6%             8%  

  “Big 3” Segments Combined

     1,276        1,223        4%        5%             5%  

  Reuters News

     164        164               (1%)             (3%)  

  Global Print

     177        196        (10%)        (10%)             (10%)  

  Eliminations/ Rounding

     (1)                                    

  Consolidated revenues

  

 

1,616

 

  

 

1,583

 

  

 

2%

 

  

 

2%

 

  

 

     2%

 

              

  Adjusted EBITDA

              

  Legal Professionals

     245        215        14%        13%     

  Corporates

     105        98        7%        6%     

  Tax & Accounting Professionals

     145        134        9%        10%           

  “Big 3” Segments Combined

     495        447        11%        11%     

  Reuters News

     6        10        (41%)        (34%)     

  Global Print

     61        77        (21%)        (22%)     

  Corporate costs

     (37)        (138)        n/a        n/a           

  Consolidated adjusted EBITDA

  

 

525

 

  

 

396

 

  

 

33%

 

  

 

32%

 

        
              

  Adjusted EBITDA margin

              

  Legal Professionals

     37.5%        34.5%        300bp        270bp     

  Corporates

     31.1%        30.0%        110bp        70bp     

  Tax & Accounting Professionals

     51.1%        48.7%        240bp        200bp           

  “Big 3” Segments Combined

     38.8%        36.5%        230bp        210bp     

  Reuters News

     3.9%        6.5%        (260)bp        (240)bp     

  Global Print

     34.6%        39.4%        (480)bp        (530)bp     

  Corporate costs

     n/a        n/a        n/a        n/a           

  Consolidated adjusted EBITDA margin

  

 

32.5%

 

  

 

25.0%

 

  

 

750bp

 

  

 

730bp

 

        

Legal Professionals

Revenues increased in total and in constant currency. The increase in constant currency was driven by 6% growth in recurring revenues (93% of the Legal Professionals segment), which more than offset a 5% decline in transactions revenues (7% of the Legal Professionals segment). The acquisition of Pondera Solutions in March 2020 and CaseLines in August 2020 contributed to revenue growth. Revenues from law firms and the Global businesses each grew 3%, while revenues from the U.S. government business grew 14%.

Organic revenues increased driven by growth in recurring revenues led by Westlaw Edge, Practical Law, the segment’s businesses in Europe and Canada, and the Government business, which grew 10%. Transactions revenues decreased primarily due to lower revenues from Elite.

Segment adjusted EBITDA and the related margin increased primarily due to higher revenues. Foreign currency benefited the year-over-year change in segment adjusted EBITDA margin by 30bp.

 

 

 

Page 52


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Corporates

Revenues increased in total and in constant currency. The increase in constant currency was driven by 6% growth in recurring revenues (87% of the Corporates segment), which more than offset an 11% decline in transactions revenues (13% of the Corporates segment).

On an organic basis, revenue growth also reflected higher recurring revenues driven by the segment’s legal and tax products, which more than offset a decline in transactions revenues resulting from lower software implementation services.

Segment adjusted EBITDA and the related margin increased due to higher revenues. Foreign currency benefited the year-over-year change in segment adjusted EBITDA margin by 40bp.

Tax & Accounting Professionals

Revenues increased in total and in constant currency, despite the loss of revenues from the sale of the Aumentum government business in November 2019. The increase in constant currency was driven by 7% growth in recurring revenues (89% of the Tax & Accounting Professionals segment), which more than offset a 4% decline in transactions revenues (11% of the Tax & Accounting Professionals segment).

On an organic basis, revenues increased 8% due to 9% growth in recurring revenues that reflected the strong demand for the segment’s products, as well as a benefit from the permanent acceleration of the release date of the remaining portion of its UltraTax state tax software from January 2021 to December 2020 to align with the traditional December release of its federal software. The segment had realigned much of the UltraTax state tax software in this manner in 2019. Total and recurring organic revenue growth would have been 5% and 6%, respectively, without this impact. Transactions revenues declined 1% organically in the quarter.

Segment adjusted EBITDA and the related margin increased primarily due to higher revenues. Foreign currency benefited the year-over-year change in segment adjusted EBITDA margin by 40bp.

Tax & Accounting Professionals is a more seasonal business relative to our other businesses, with a higher percentage of its segment adjusted EBITDA historically generated in the fourth quarter and to a slightly lesser extent, the first quarter, due to the release of certain tax products. Small movements in the timing of revenues and expenses can impact quarterly margins. Full-year margins are more reflective of the segment’s performance.

Reuters News

Revenues were essentially unchanged in total, but declined in constant currency and on an organic basis. Revenues declined 3% organically primarily due to lower revenues in the news agency business and the cancellation of in-person conferences at the Reuters Events business due to COVID-19. The decline was lower than expected due to the segment’s ability to convert in-person conferences to virtual events.

Segment adjusted EBITDA and the related margin decreased primarily due to higher expenses, which included severance charges Foreign currency negatively impacted the year-over-year change in segment adjusted EBITDA margin by 20bp.

Global Print

Revenues decreased in total, in constant currency, and on an organic basis. While the revenues in our print business have been consistently declining as customers migrate to online delivery, the 2020 performance was further impacted by the global economic crisis as some customers experienced budget challenges and others could not accept shipments due to office closures.

Segment adjusted EBITDA and the related margin decreased due to the revenue decline. Foreign currency benefited the year-over-year change in segment adjusted EBITDA margin by 50bp.

Corporate costs

Corporate costs decreased primarily because the 2019 period included costs and investments to reposition our business following the separation of Refinitiv from the rest of our company, including acceleration of digital strategies, replication of capabilities that we lost with the separation from Refinitiv and severance.

 

 

 

Page 53


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Liquidity and Capital Resources

Capital Strategy

We have historically maintained a disciplined capital strategy that balances growth, long-term financial leverage, credit ratings and returns to shareholders. We are focused on having the investment capacity to drive revenue growth, both organically and through acquisitions, while also maintaining our long-term financial leverage and credit ratings and continuing to provide returns to shareholders. Our principal sources of liquidity are cash on hand, cash provided by our operations, our commercial paper program and credit facility. From time to time, we also issue debt securities. Our principal uses of cash are for debt repayments, debt servicing costs, dividend payments, capital expenditures, share repurchases and acquisitions.

To date, we have not experienced any significant adverse impacts to our liquidity from the economic crisis caused by COVID-19. We continue to believe that we can weather the periods of volatility that are likely to occur as the world recovers from the ongoing crisis, as our capital strategy approach has provided us with a strong capital structure and liquidity position. At December 31, 2020, we had $1.8 billion of cash on hand.

We expect that the operating leverage of our business will increase our free cash flow if we increase revenues as contemplated by our outlook. We target a maximum leverage ratio of 2.5x net debt to adjusted EBITDA and have set a target to pay out 50% to 60% of our expected free cash flow as dividends to our shareholders. We expect to continue a modest share repurchase program to offset the dilution associated with our dividend reinvestment and equity incentive plans, and we plan to maintain our outstanding shares at about 500 million. In the future, we expect that proceeds from sales of LSEG shares after the expiration of the applicable contractual lock-up provisions, as discussed in the “Executive Summary – Sale of Refinitiv to LSEG” section of this management’s discussion and analysis, will provide us with further options for investment and returns to shareholders.

Our net debt to adjusted EBITDA leverage ratio as of December 31, 2020 was approximately 1.1:1, which is lower than our target of 2.5:1. As calculated under our credit facility covenant, our net debt to adjusted EBITDA leverage ratio at the end of 2020 was 1.0:1, which is well below the maximum leverage ratio allowed under the credit facility of 4.5:1. None of our debt securities are scheduled to mature until 2023.

We believe that our existing sources of liquidity will be sufficient to fund our expected 2021 cash requirements in the normal course of business.

The information above in this section is forward-looking and should be read in conjunction with the section entitled “Additional Information – Cautionary Note Concerning Factors That May Affect Future Results”.

Cash Flow

Summary of Consolidated Statement of Cash Flow

 

    

Year ended December 31,

  (millions of U.S. dollars)

  

2020    

    

2019    

  

$ Change    

  Net cash provided by operating activities

     1,745          702        1,043    

  Net cash used in investing activities

     (138)          (1,384)        1,246    

  Net cash used in financing activities

     (644)          (1,201)        557    

  Increase (decrease) in cash and bank overdrafts

     963          (1,883)        2,846    

  Translation adjustments

     (1)          5        (6)    

  Cash and bank overdrafts at beginning of period

     825          2,703        (1,878)    

  Cash and bank overdrafts at end of period

  

 

1,787    

 

  

825    

  

962    

  Non-IFRS Financial Measures(1)

             

  Free cash flow

     1,330          159        1,171    

(1) Refer to Appendices A and B of this management’s discussion and analysis for additional information and reconciliations of our non-IFRS financial measures to the most directly comparable IFRS financial measures.

 

 

 

Page 54


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

Operating activities. Cash flow from operations increased primarily because the prior year included (i) significantly higher costs and investments to reposition our company following the separation of Refinitiv, (ii) residual employee-related costs and tax expenditures related to the operations of our former F&R business, and (iii) a $167 million contribution to a pension plan. In 2020, cash flow from operations benefited from savings from our COVID-19 related cost mitigation efforts, lower tax payments, and deferrals of the employer’s portion of payroll-related taxes as allowed under the CARES Act in the U.S. These deferrals, which amounted to $48 million, are interest free, but 50% must be repaid by December 31, 2021, with the remainder repaid by December 31, 2022.

Investing activities. In 2020, net cash used in investing activities included $504 million of capital expenditures and $167 million of acquisition spending, primarily for Pondera and CaseLines, which were partly offset by proceeds from the sales of an investment ($367 million, net of taxes paid), and certain real estate. In 2019, net cash used in investing activities included $998 million of acquisition spending, primarily for the Confirmation, HighQ and FC Business Intelligence businesses, and $505 million of capital expenditures, which were slightly offset by $74 million in proceeds from the sales of several small businesses.

Financing activities. Net cash used in financing activities in both years was primarily comprised of returns to our common shareholders through dividends and share repurchases. 2020 also included $372 million of proceeds from net borrowings of debt. Refer to the “Long-term debt” and “Share repurchases” subsections below for additional information regarding our debt repayments and share repurchases.

Cash and bank overdrafts. The increase in cash and cash equivalents reflected $367 million in net proceeds from the sale of an investment in December 2020 and cash flows from our operating activities, which included savings from our COVID-19 related cost mitigation efforts.

Free cash flow. The increase in free cash flow reflected the same factors as cash from operating activities and proceeds from the sale of real estate.

Additional information about our debt, dividends and share repurchases is as follows:

 

  ·   

Commercial paper program. Our $1.8 billion commercial paper program provides cost-effective and flexible short-term funding. There was no outstanding commercial paper at December 31, 2020 and 2019. In January 2020, we issued $630 million of commercial paper, the proceeds of which were used to redeem debt obligations ahead of their maturity. Our commercial paper borrowings were repaid later in the year, primarily from funds borrowed under our credit facility, as discussed below. We did not issue commercial paper in 2019.

 

  ·   

Credit facilities. We have a $1.8 billion syndicated credit facility agreement which matures in December 2024 and may be used to provide liquidity for general corporate purposes (including acquisitions or support for our commercial paper program). There were no outstanding borrowings under the credit facility at December 31, 2020 and 2019. We borrowed $1.0 billion under this facility in the first quarter of 2020, which was repaid later in the year. Based on our current credit ratings, the cost of borrowing under the facility is priced at LIBOR/EURIBOR plus 112.5 basis points. We have the option to request an increase, subject to approval by applicable lenders, in the lenders’ commitments in an aggregate amount of $600 million for a maximum credit facility commitment of $2.4 billion.

The U.K. Financial Conduct Authority, which regulates LIBOR, intends to phase out LIBOR by the end of 2021. Key alternative reference rates have been established and progress continues to be made in establishing better liquidity and term structures required to efficiently replace the existing LIBOR structures. With the exception of the LIBOR-based benchmarks within our external credit facility, we have no material agreements with third parties that use or reference LIBOR as a benchmark rate which require amendment.

If our debt rating is downgraded by Moody’s or S&P, our facility fees and borrowing costs may increase, although availability would be unaffected. Conversely, an upgrade in our ratings may reduce our facility fees and borrowing costs. We also monitor the lenders that are party to our facility and believe they continue to be able to lend to us.

 

 

 

Page 55


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

We guarantee borrowings by our subsidiaries under the credit facility. We must also maintain a ratio of net debt as defined in the credit agreement (total debt after swaps less cash and cash equivalents) as of the last day of each fiscal quarter to EBITDA as defined in the credit agreement (earnings before interest, income taxes, depreciation and amortization and other modifications described in the credit agreement) for the last four quarters ended of not more than 4.5:1. If we complete an acquisition with a purchase price of over $500 million, the ratio of net debt to EBITDA would temporarily increase to 5.0:1 for three quarters after completion, at which time the ratio would revert to 4.5:1. As of December 31, 2020, we were in compliance with this covenant as our ratio of net debt to EBITDA, as calculated under the terms of our syndicated credit facility, was 1.0:1.

 

  ·   

Long-term debt. The following table provides information regarding notes that we issued and repaid in 2020. We did not issue notes or repay debt in 2019.

 

     
Month/Year    Transaction    Principal Amount (in millions)
     Notes issued     

May 2020

   2.239% Notes, due 2025    C$1,400
     Notes repaid     

January 2020

   3.309% Notes, due 2021    C$550

January 2020

   3.95% Notes, due 2021    US$139

The notes issued in May 2020 were immediately swapped into U.S. dollars and we used the $999 million of net proceeds for general corporate purposes, which included repayment of borrowings under our credit facility.

In January 2020, we repaid notes prior to their scheduled maturity dates for $640 million. This amount included early redemption premiums and the settlement of cross-currency swaps. The repayments were funded with commercial paper borrowings.

In July 2020, we filed a new base shelf prospectus pursuant to which Thomson Reuters Corporation and one of its U.S. subsidiaries, TR Finance LLC, may collectively issue up to $3.0 billion of unsecured debt securities from time to time through August 6, 2022. Any debt securities issued by TR Finance LLC will be fully and unconditionally guaranteed on an unsecured basis by Thomson Reuters Corporation and three U.S. subsidiary guarantors, which are also indirect 100%-owned and consolidated subsidiaries of Thomson Reuters Corporation. Except for TR Finance LLC and the subsidiary guarantors, none of Thomson Reuters Corporation’s other subsidiaries have guaranteed or would otherwise become obligated with respect to any issued TR Finance LLC debt securities. As of March 3, 2021, neither Thomson Reuters Corporation nor TR Finance LLC has issued any debt securities under the prospectus.

TR Finance LLC is an indirect 100%-owned subsidiary of Thomson Reuters Corporation and was formed with the sole purpose of issuing debt securities. TR Finance LLC has no significant assets or liabilities, as well as no subsidiaries or ongoing business operations of its own. The ability of TR Finance LLC to pay interest, premiums, operating expenses and to meet its debt obligations will depend upon the credit support of Thomson Reuters Corporation and the subsidiary guarantors. Please refer to Appendix H of this management’s discussion and analysis for condensed consolidating financial information about TR Finance LLC and the subsidiary guarantors.

 

  ·   

Credit ratings. Our access to financing depends on, among other things, suitable market conditions and the maintenance of suitable long-term credit ratings. Our credit ratings may be adversely affected by various factors, including increased debt levels, decreased earnings, declines in customer demand, increased competition, a deterioration in general economic and business conditions and adverse publicity. Any downgrades in our credit ratings may impede our access to the debt markets or result in higher borrowing rates.

 

 

 

Page 56


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

The following table sets forth the credit ratings from rating agencies in respect of our outstanding securities as of the date of this management’s discussion and analysis:

 

 

Moody’s

S&P Global Ratings

DBRS Limited

Fitch            

  Long-term debt

Baa2

BBB

                             BBB (high)

BBB+            

  Commercial paper

P-2

A-2

                             R-2 (high)

F1            

  Trend/Outlook

Stable

Stable

                             Stable

Stable            

These credit ratings are not recommendations to purchase, hold, or sell securities and do not address the market price or suitability of a specific security for a particular investor. Credit ratings may not reflect the potential impact of all risks on the value of securities. We cannot assure you that our credit ratings will not be lowered in the future or that rating agencies will not issue adverse commentaries regarding our securities.

 

  ·   

Dividends. Dividends on our common shares are declared in U.S. dollars. In February 2020, we announced a $0.08 per share increase in the annualized dividend to $1.52 per common share (beginning with the common share dividend that we paid in March 2020). In our consolidated statement of cash flow, dividends paid on common shares are shown net of amounts reinvested in our company under our dividend reinvestment plan (DRIP). Registered holders of common shares may participate in our DRIP, under which cash dividends are automatically reinvested in new common shares. Common shares are valued at the weighted-average price at which the shares traded on the Toronto Stock Exchange (TSX) during the five trading days immediately preceding the record date for the dividend.

Details of dividends declared per common share and dividends paid on common shares are as follows:

 

    

Year ended December 31,

 

  (millions of U.S. dollars, except per share amounts)

  

2020

    

2019

 

  Dividends declared per common share

  

 

$1.52

 

  

 

$1.44

 

  Dividends declared

  

 

753

 

  

 

721

 

  Dividends reinvested

  

 

(23)

 

  

 

(23)

 

  Dividends paid

  

 

730

 

  

 

698

 

In February 2021, we announced a $0.10 per share increase in the annualized dividend rate to $1.62 per common share (beginning with the common share dividend that we plan to pay in March 2021). See the “Subsequent Events” section of this management’s discussion and analysis for additional information.

 

  ·   

Share repurchases – Normal Course Issuer Bid (NCIB). We may buy back shares (and subsequently cancel them) from time to time as part of our capital strategy. Share repurchases are typically executed under a NCIB. Under our current NCIB, we may repurchase up to 5 million common shares between January 4, 2021 and January 3, 2022 in open market transactions on the TSX, the NYSE and/or other exchanges and alternative trading systems, if eligible, or by such other means as may be permitted by the TSX and/or NYSE or under applicable law, including private agreement purchases if we receive an issuer bid exemption order from applicable securities regulatory authorities in Canada for such purchases. The price that our company will pay for shares in open market transactions under the NCIB will be the market price at the time of purchases or such other price as may be permitted by TSX.

Details of share repurchases were as follows:

 

    

Year ended December 31,

 
     

2020

    

2019

 

  Share repurchases (millions of U.S. dollars)

     200        488  

  Shares repurchased (number in millions)

     2.6        7.8  

  Share repurchases – average price per share in U.S. dollars

     $78.37        $62.33  

 

 

 

Page 57


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

In February 2021, we completed the repurchase of an additional $200 million of our common shares under a buyback program that began in January 2021. We do not intend to repurchase additional shares in 2021. Decisions regarding any future repurchases will depend on factors such as market conditions, share price and other opportunities to invest capital for growth. We may elect to suspend or discontinue our share repurchases at any time, in accordance with applicable laws. From time to time when we do not possess material nonpublic information about ourselves or our securities, we may enter into a pre-defined plan with our broker to allow for the repurchase of shares at times when we ordinarily would not be active in the market due to our own internal trading blackout periods, insider trading rules or otherwise. Any such plans entered with our broker will be adopted in accordance with applicable Canadian securities laws and the requirements of Rule 10b5-1 under the U.S. Securities Exchange Act of 1934, as amended. We entered such a plan with our broker on December 29, 2020 related to the shares that we repurchased earlier this year. As a result, we recorded a $200 million liability and a corresponding amount in equity in the consolidated statement of financial position (2019 – $200 million).

Financial Position

Our total assets were $17.9 billion at December 31, 2020, compared to $17.3 billion at December 31, 2019. The increase was primarily due to an increase in cash and cash equivalents, which included the proceeds from the sale of an investment (refer to the “Cash Flow” subsection above for additional information).

At December 31, 2020, the carrying amounts of our total current assets exceeded total current liabilities by $1.3 billion. From time to time, our current liabilities may exceed our current assets because current liabilities include a significant amount of deferred revenue, which arises from the sale of subscription-based products and services that many customers pay for in advance. The cash received from these advance payments is used to currently fund the operating, investing and financing activities of our business. However, for accounting purposes, these advance payments must be deferred and recognized over the term of the subscription. As such, we may reflect a negative working capital position in our consolidated statement of financial position. In the ordinary course of business, deferred revenue does not represent a cash obligation, but rather an obligation to perform services or deliver products, and therefore when we are in that situation we do not believe it is indicative of a liquidity issue, but rather an outcome of the required accounting for our business model.

Net debt and leverage ratio of net debt to adjusted EBITDA

 

    

    December 31,    

 

  (millions of U.S. dollars)

  

2020

    

2019

 

  Current indebtedness

  

 

 

  

 

579

 

  Long-term indebtedness

  

 

3,772

 

  

 

2,676

 

  Total debt

  

 

3,772

 

  

 

3,255

 

  Swaps

  

 

(100)

 

  

 

62

 

  Total debt after swaps

  

 

3,672

 

  

 

3,317

 

  Remove fair value adjustments for hedges(1)

  

 

1

 

  

 

 

  Total debt after currency hedging arrangements

  

 

3,673

 

  

 

3,317

 

  Remove transaction costs, premiums or discounts included in the carrying value of debt

  

 

38

 

  

 

36

 

  Add: Lease liabilities (current and non-current)

  

 

306

 

  

 

322

 

  Less: cash and cash equivalents(2)

  

 

(1,787)

 

  

 

(825)

 

  Net debt(3)

  

 

2,230

 

  

 

2,850

 

  Leverage ratio of net debt to adjusted EBITDA

     

  Adjusted EBITDA(3)

  

 

1,975

 

  

 

1,493

 

  Net debt/adjusted EBITDA(3)

  

 

1.1:1

 

  

 

1.9:1

 

(1) Represents the interest-related fair value component of hedging instruments that are removed to reflect net cash outflow upon maturity.

(2) Includes cash and cash equivalents of $43 million and $34 million at December 31, 2020 and 2019, respectively, held in subsidiaries which have regulatory restrictions and are therefore not available for general use by our company.

(3) Amounts represent non-IFRS measures. For additional information about our liquidity, we provide our leverage ratio of net debt to adjusted EBITDA. Refer to Appendix A of this management’s discussion and analysis for additional information of our non-IFRS financial measures.

 

 

 

Page 58


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

At December 31, 2020, our total debt position (after swaps) was $3.7 billion. The maturity dates for our term debt are well balanced with no significant concentration in any one year. At December 31, 2020, the average maturity of our term debt was approximately 10 years at an average interest rate (after swaps) of less than 5%, all of which is fixed. Our leverage ratio of net debt to adjusted EBITDA was below our target ratio of 2.5:1. The decrease in our net debt is primarily due to the increase in our cash and cash equivalents.

The following table illustrates our expected term debt maturities (after swaps) at December 31, 2020.

 

LOGO

Financial Risk Management

Our global operations expose us to a variety of financial risks including market risk (primarily currency risk and interest rate risk), credit risk and liquidity risk. The section entitled “Financial Risk Management” in note 19 of our 2020 annual consolidated financial statements provides a discussion of the material financial risks we believe we are exposed to and our approach to mitigating the potential adverse effects on our financial performance. Under the oversight of our Chief Financial Officer, our centralized corporate treasury group is responsible for our financial risk management strategy and execution and operates under strict guidelines and internal control processes. We strive to minimize the potential adverse economic effects associated with financial risks on our financial performance and to ensure we have sufficient liquidity to fund our operations, reinvest in our business, pay dividends and service our debt obligations.

Most of our business is conducted in U.S. dollars. However, 18% of our 2020 revenues and 30% of our 2020 operating expenses were denominated in currencies other than the U.S. dollar, the most significant of which is the British pound sterling with the balance spread over several currencies, including the Canadian dollar, Euro and the Brazilian real. Changes in foreign exchange rates typically impact the growth in our expenses more than our revenues, because a higher percentage of our expenses are denominated in foreign currency. In 2020, foreign currency decreased revenues and operating expenses each by 1% compared to the prior year. We routinely monitor our currency exposures and may enter derivative financial instruments to mitigate our foreign exchange risk. Refer to note 19 of our 2020 annual consolidated financial statements for additional information. Our indirect investment in LSEG is subject to variability based on changes in the price of LSEG shares and changes in the British pound sterling and U.S. dollar foreign exchange rate.

 

 

 

Page 59


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

The following charts outline the currency profile of our revenues and operating expenses included in the calculation of adjusted EBITDA for 2020:

 

 

LOGO

We monitor the financial stability of the foreign countries in which we operate. To mitigate risk of loss, we monitor the creditworthiness of our customers and have policies and procedures for trade receivables collection and global cash management to ensure adequate liquidity is available to us.

We also monitor the financial strength of financial institutions with which we have banking and other commercial relationships, including those that hold our cash and cash equivalents, as well as those which are counterparties to derivative financial instruments and other arrangements.

Approximately 47% of our cash and cash equivalents at December 31, 2020 were held by subsidiaries outside the U.S. We have historically accessed such funds in a tax efficient manner to meet our liquidity requirements. Due to our legal entity structure, we continue to expect to have access to our funds held by subsidiaries outside the U.S. in a tax efficient manner.

Off-Balance Sheet Arrangements, Commitments and Contractual Obligations

The following table summarizes our debt, leases and off-balance sheet contractual obligations:

 

  (millions of U.S. dollars)

  

2021

    

2022

    

2023

    

2024

    

2025

    

Thereafter

    

Total

 

  Long-term debt(1)

     -        -        600        242        1,099        1,869        3,810  

  Interest payable(1)

     153        153        153        127        105        1,103        1,794  

  Debt-related hedges outflows

     22        22        22        22        1,010        -        1,098  

  Debt-related hedges inflows(1)

     (25)        (25)        (25)        (25)        (1,110)        -        (1,210)  

  Lease obligations(2)

     97        86        61        45        33        151        473  

  Unconditional purchase obligations

     316        277        242        71        13        -        919  

  Defined benefit obligations

     39        -        -        -        -        -        39  

  Total

     602        513        1,053        482        1,150        3,123        6,923  

(1) Represents contractual cash flows calculated using spot foreign exchange rates at December 31, 2020.

(2) Includes leases with a term of 12 months or less, certain low value assets and lease commitments, which have not yet commenced, all of which are not recognized in the consolidated statement of financial position.

We provide further information about certain of our obligations below:

 

·   

Subsidiary guarantees – For certain property leases, banking arrangements and commercial contracts, we guarantee the obligations of some of our subsidiaries. We also guarantee borrowings by our subsidiaries under our credit agreement.

 

·   

Unconditional purchase obligations – We have various obligations for materials, supplies, outsourcing and other services contracted in the ordinary course of business. In the table above, certain commitments have been estimated over the contractual period.

 

 

 

Page 60


Table of Contents

Thomson Reuters Annual Report 2020

 

 

 


 

·   

Defined benefit obligations – We sponsor defined benefit plans that provide pension and other post-employment benefits to covered employees. As of December 31, 2020, the fair value of plan assets for our material funded pension plans was 99% of the plan obligations. In 2020, we contributed $33 million to our material defined benefit plans. In 2021, we expect to contribute approximately $39 million to our material defined benefit plans, $6 million in accordance with the normal funding policy of funded plans and $33 million for claims expected to arise under unfunded and retiree medical plans.

The amount and timing of any future required contributions to pension plans could differ significantly from our estimates at December 31, 2020. We cannot estimate contributions beyond 2021 because they depend on future economic conditions, plan performance and potential future government legislation. For certain plans, the trustees have the right to call for special valuations, which could subsequently result in us having to make an unexpected contribution. Additionally, from time to time, we may elect to make voluntary contributions to improve the funded status of the plans.