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Last Updated: Tuesday, 26 July, 2005, 16:25 GMT 17:25 UK
Investment to hit Reuters profits
Tom Glocer, Reuters chief executive
Reuters' Tom Glocer says the company is healthier than before
Shares in Reuters, the financial data and media group, fell more than 7% after it said profits would be hit by substantial investment in new products.

The company is developing new systems to cater for the growth in electronic share trading as well as targeting emerging markets like China and India.

The investment will reduce the firm's trading profit by about 50m ($86m) next year and a further 20m in 2007.

Reuters said the initiative would deliver stronger long-term growth.

Restructuring costs

Reuters shares closed down 30.5 pence, or 7.4%, at 381.75p, having initially fallen more than 8%.

The company, which sells stock market data and trading systems to the financial community, is to spend an additional 40m on product development and restructuring in the second half of 2005.

I have every reason to believe we have the long-term support of investors
Tom Glocer, chief executive

Further restructuring costs of about 145m are expected up to 2008.

Reuters, which recently moved its London headquarters from Fleet Street to the Docklands, said the measures would boost sales by an extra 1% next year, rising to 3% in 2008.

The initiative is also expected to deliver substantial cost savings, totalling about 150m by 2010.

These come on top of efficiencies from other programmes amounting to 360m in 2005 and 440m in 2006.

Long-term gains

Reuters insisted that it was moving in the right direction despite suffering a fall in profits in its most recent trading period.

Pre-tax profits fell from 300m to 147m in the six months to 30 June.

Reuters said it was encouraged by the fact that recurring revenue - sales from businesses which have not since been sold - was higher in the second quarter of 2005 than the same period last year.

We expect downgrades to forecasts for 2005, 2006 and 2007
Patrick Gordon, Killik & Co

This was the first year-on-year quarterly rise since 2001.

Chief executive Tom Glocer said he hoped that investors would understand that the investment would reap long-term benefits.

"I have every reason to believe we have the long-term support of investors who are looking for the same thing we are, which is sustainable growth in operating profit," he said.

Analysts said Reuters' earnings were likely to be affected over the next two to three years.

"We expect downgrades to forecasts for 2005, 2006 and 2007, but possible upgrades to forecasts in the longer term." said Patrick Gordon, of stockbrokers Killik & Co.

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