Downturn is Tom Glocer's 'first real test'

The downturn is undoubtedly coming - but it doesn’t have to be as bad as last time round, the UK newspaper said.

“That, at least, is the mantra from the newly minted Thomson Reuters,” it said.

“After boarding a plane back to his native New York, from where he will run the company, Tom Glocer now faces his first real test. Thomson still believes it can grow revenues at its financial-markets division during 2009, although most analysts are much less bullish.

“Of course, the new Thomson was created by Glocer so that such a challenge wouldn’t matter as much as it used to. After six years at the helm of Reuters, getting it shipshape after Peter Job’s regime, he concluded that the best place for a company exposed to such a volatile sector as global finance was within another one. His verdict sounded eminently sensible.”

As part of Thomson, markets - which contains the old Reuters business - account for roughly 60 per cent of revenues and 40 per cent of operating profits. Smoothing it out is the more profitable legal, accounting and science information arm.

Thomson has some enviable assets with great defensive qualities. However, it is hard to divert attention from its financial-sector exposure, particularly as most of the £375 million merger cost savings will be squeezed from that division, The Sunday Times said.

“In this gloomy light, it looks as if Glocer has created a cyclical publisher, not a more resilient financial-markets supplier. It is no coincidence that Thomson’s closest rival in professional publishing, Reed Elsevier, is attempting to offload its business publishing arm - the last division keenly exposed to the economic cycle. In these markets, even that auction is unlikely to be hurried.

“Inroads on China and India leave Glocer thinking he is better placed than during the last downturn. In 2002 and 2003, when Reuters’ recurring revenues dropped by 4% and 10% respectively, foreign exchange and commodities were under pressure. This time it is the narrower markets of fixed income and credit that are under the cosh.”

However, the newspaper said it is impossible not to see the impact of the crunch spreading into other departments. Worst-case forecasts suggest 80,000 financial jobs could go globally in the next 18 months. Broker Collins Stewart believes that, despite a push for company-wide enterprise supply deals, 20 per cent of Thomson’s group revenues come from traders’ terminal sales in the United States and western Europe, which are vulnerable when jobs are being cut.

The Sunday Times added that Thomson Reuters shares in London have tumbled 16 per cent since their debut in April, opening up a valuation gap with the more expensive and less liquid stock trading in Toronto.

“A £250m share-buyback programme has been holding them back from greater falls here, but that is due to finish this week, suggesting they will drift further, even though Thomson is forecasting a healthy 6%-8% topline growth across the group this year.” ■