DBRS Confirms Thomson Reuters Corporation

DBRS Limited (DBRS) confirmed Thomson Reuters Corporation’s (Thomson Reuters or the Company) Issuer Rating as well as its Unsecured Medium-Term Notes and Unsecured Debentures ratings at BBB (high). DBRS has also confirmed Thomson Reuters’ Commercial Paper rating at R-2 (high) and its Preferred Shares rating at Pfd-3 (high). All trends are Stable. The confirmations incorporate the benefits of the Intellectual Property & Science (IP&S) divestiture and the Company’s practice of allocating divestiture proceeds and free cash flow in a balanced manner.

Thomson Reuters’ profitability has improved primarily as a result of sound execution of its transformation program, including the divestiture of IP&S and efficiency improvement initiatives. The Company’s constant currency revenue increased modestly in 2016 and H1 2017, as a result of improved customer experience and investment in higher growth businesses. Free cash flow for 2016 of approximately $1.0 billion was roughly flat year over year. Thomson Reuters received $3.55 billion from the divestiture of IP&S, which it allocated prudently between debt repayment and share repurchases. This, combined with improved earnings, has modestly strengthened the Company’ position within the current rating category. Gross debt-to-EBITDA for 2016 improved to 2.79 times (x) (vs. 2.97x), free cash flow to debt improved to 13.4% (vs. 11.8%) and EBITDA interest coverage declined modestly to 7.32x (vs. 7.65x).

Going forward, DBRS expects that the Company’s earnings will continue to grow steadily over the near to medium term based on low single-digit revenue growth and continued margin expansion reflecting an improving product mix, ongoing efficiency improvements and the benefits of operating leverage. Growth in the Financial & Risk (F&R) and Legal segments resulting primarily from an increase in subscription sales should more than offset continued declines in F&R recoveries and Legal print revenues. As such, DBRS expects 2017 consolidated revenues of ~$11.3 billion to increase modestly in 2018. DBRS expects EBITDA margins to improve to roughly 29% in 2017, and expand a further 50 basis points (bps) to 100bps in 2018, largely driven by ongoing cost saving initiatives and the benefit of staff reduction taken in 2016. As a result, DBRS forecasts consolidated EBITDA will increase towards ~$3.5 billion in 2018. In terms of financial profile, DBRS expects cash flow from operations to track operating income and capital expenditure and dividend outlays to remain relatively steady. As such, DBRS forecasts that Thomson Reuters will generate free cash flow in the range of $450 million to $500 million in 2017, and a range of $850 million to $900 million in 2018. In addition, DBRS anticipates that Thomson Reuters will allocate its free cash flow and use incremental debt toward share repurchase, reinvestment in higher growth businesses and opportunistic acquisitions such that the Company maintains lease adjusted debt-to-EBITDA in the range of 2.0x to 2.5x. DBRS believes that a leverage ratio in the aforementioned range, supported by sound interest coverage and cash flow generation should enable the Company to remain well-placed within the current rating category.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The principal methodology is Rating Companies in Publishing Industry, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.