REUTERS GROUP PLC - THIRD QUARTER RESULTS
for the three months to 30 September 2003
 
 
27 October 2003                                                     11/03
 
 
REUTERS THIRD QUARTER REVENUE STATEMENT - DELIVERING ACCORDING TO PLAN
 
Business performance
 
 
Reuters Group
 
   •Group revenue for the three months to 30 September was £789 million
    (2002: £855 million), down 8% on an actual basis.
 
 
Reuters
 
   •Reuters revenue was £658 million (2002: £716 million), down 12% on an
    underlying basis.
   •Reuters recurring revenue was £609 million (2002: £654 million), down
    10.9% on an underlying basis, slightly ahead of Reuters forecast decline of
    11-12%.
 
 
Tom Glocer, Reuters Group Chief Executive, said: 'Trading performance this
quarter was a little better than expected, driven by a reduction in the overall
rate of net cancellations for the third consecutive quarter. We continued to
gain traction in the US market and saw a seventh big competitive win this year
for Reuters Plus, which was chosen by Fidelity's National Financial to replace
5,000 positions of its in-house system. We now expect the full year decline in
recurring revenue to be 11% or slightly better.
 
 
'Fast Forward is now in full swing, so the pace of change has accelerated this
quarter. I was particularly pleased to be able to announce that we have
negotiated an advantageous new commercial deal and stock repurchase agreement
with TIBCO; that Reuters is to become the first company to let its customers
connect with AOL, MSN and other widely used instant messaging networks; and that
we have concluded a financially attractive property deal to bring most of our
London staff under one roof in Canary Wharf.
 
 
'At a time when so much of the Reuters story depends on our ability to deliver,
it is particularly encouraging to be able to report that we are executing
according to plan.'
 
 
Statutory results
 
                           Three months to                             Year to
                              30 September       % Change          31 December
                           2003     2002    Actual    Underlying          2002
Revenue                      £m       £m                                    £m
--------------------      -------  -------    ------      --------    ----------
Reuters                     658      716        (8%)         (12%)       2,992
Instinet                    132      141        (6%)          (2%)         592
--------------------      -------  -------    ------      --------    ----------
                            790      857        (8%)         (10%)       3,584
Share of joint ventures      25       28       (12%)          (3%)         107
revenue
Intra-group revenue          (1)      (2)      (25%)         (26%)          (9)
--------------------      -------  -------    ------      --------    ----------
Gross revenue               814      883        (8%)         (10%)       3,682
--------------------      -------  -------    ------      --------    ----------
Less share of joint
ventures revenue
                            (25)     (28)      (12%)          (3%)        (107)
--------------------      -------  -------    ------      --------    ----------
Group revenue               789      855        (8%)         (10%)       3,575
--------------------      -------  -------    ------      --------    ----------
 
 
Underlying percentage change excludes acquisitions and disposals since 1 January
2002 and is stated at constant exchange rates. The only exception is the Island
acquisition, which has been fully integrated within Instinet.
 
 
This release includes certain non GAAP figures which are performance measures
used to manage the business. Reconciliations to equivalent UK GAAP figures can
be found at 

www.about.reuters.com,

 in the Investors section under Financial
Data.
 
 
Reuters Group
 
 
Reuters Group (RTR.L; RTRSY.O) revenue for the three months to 30 September 2003
was £789 million, a decline of 8% on an actual basis and 10% on an underlying
basis on the same period last year.
 
 
As reported on 22 October, revenue for Instinet Group Incorporated (INGP.O), the
electronic brokerage in which Reuters has a 63% stake, was £132 million for the
third quarter under UK GAAP, a decline of 6% on an actual basis and 2% on an
underlying basis on the same period last year.
 
Reuters
 
Reuters core revenue, excluding Instinet and joint ventures, for the three
months to 30 September 2003 was £658 million, down 8% on an actual basis. On an
underlying basis, adjusting for the impact of acquisitions (Multex and AVT),
disposals (Wall Street On Demand) and exchange rate movements, this represents a
12% decline on the same period last year. Movements in exchange rates and a
change in currency mix since the third quarter of 2002 meant that currency
accounted for 1% of the difference between the actual and underlying declines.
 
 
Revenue by type
 
 
Recurring revenue from subscription products, which represented 93% of Reuters
core revenue for the three months to 30 September 2003, was £609 million, down
10.9% on an underlying basis compared to the same period last year. Third
quarter recurring revenue came in a little ahead of guidance following a
slightly better than expected sales performance, with the quarter showing the
lowest level of net cancellations since the first quarter of 2002. While there
has now been an overall reduction in the average rate of net cancellations for
three successive quarters, this improvement has been driven primarily by the US,
with no evidence yet of any improvement in Europe.
 
 
Outright revenue, which represented 3% of Reuters core revenue, was £23 million,
down 30% on an underlying basis compared to the same period last year. While IT
budgets in general remain under pressure, customers are showing some willingness
to invest in projects to attract business from their customers and to improve
compliance. This has led to modest revenue growth in two of Reuters three key
areas of focus - Treasury Solutions and Risk Management. While the third area of
focus - Content Management Systems - saw a revenue decline this quarter compared
to the relatively high levels of activity this time last year, roll out of the
next generation Reuters Market Data System (RMDS) is proceeding according to
plan, with RMDS now being implemented by over half of Reuters largest 25
accounts.
 
Usage revenue was £26 million, down 9% on an underlying basis. Treasury usage
revenues, boosted by volatile currency markets, showed strong underlying growth
of 20%, with particularly encouraging volume increases in Forwards Matching,
where Reuters is the biggest electronic broker, and in euro/dollar spot. The
underlying decline of 31% in Investment Banking usage revenues was driven by
Bridge Trading, which continued to see year-on-year volume decline but saw an
improvement on the previous quarter.
 
Recurring revenue by product
 
 
Premium tier revenue, which includes Reuters 3000 Xtra, Dealing and
BridgeStation, was £185 million in the third quarter, up 7% on an underlying
basis year-on-year and up 2% from the previous quarter.
 
 
The number of premium tier accesses at period end stood at 97,000, up 9% on the
equivalent period last year and 1% since the previous quarter. This growth
continues to be driven by Reuters 3000 Xtra, which saw both net new sales and
installations exceed 3,000 this quarter. To broaden the appeal of Reuters 3000
Xtra to smaller sites, Reuters has also installed 1,500 'thin client' 3000 Xtra
positions worldwide since the launch of this new delivery mechanism in July. The
majority of these are trial installations, to help customers evaluate the
potential to lower their total cost of ownership. Dealing accesses this quarter
saw a similar rate of decline to the previous quarter. The number of mid tier
Reuters Dealing Links (RDL) increased only slightly, reflecting the value of the
premium Dealing desktop in the Treasury market. BridgeStation saw the rate of
decline in accesses slow compared to the previous quarter, as market conditions
improved in the US.
 
 
Premium tier revenue per access increased by 1% on an underlying basis compared
to the previous quarter, driven mainly by the change in product mix, with more
3000 Xtra, slightly fewer Dealing positions and fewer BridgeStations. 3000 Xtra
pricing has remained stable, with the 1% decline since the second quarter mainly
due to large installations attracting volume discounts. Average revenue per
access for Dealing was also stable compared to the previous quarter, with a
small increase in the average revenue per access for premium Dealing offset by
the slightly increased proportion of RDLs. BridgeStation revenue per access also
increased, as the proportion of higher priced versions grew.
 
 
Recurring revenue from 2000/3000 series products in the third quarter was £84
million, down 37% on an underlying basis year-on-year and 13% on the previous
quarter, driven by cancellations and migrations to 3000 Xtra. Reuters has been
working with its customers to develop migration plans for 2000/3000 series
products, and has now set a global target to complete customer migration by end
2005.
 
 
Revenue from mid and low tier products was £67 million, down 12% on an
underlying basis year-on-year and 2% on the previous quarter, with the biggest
loss of accesses continuing to be in the lower priced domestic products.
 
 
Recurring revenue from all other sources such as exchange fees, software
maintenance and datafeed site fees was £273 million, down 9% on an underlying
basis year-on-year.
 
 
Revenue by customer segment
 
 
Revenue from Treasury in the third quarter was £252 million, down 9% on an
underlying basis and 7% on an actual basis. Strong recurring revenue growth from
Reuters 3000 Xtra continued to be offset by declines in 2000/3000 series and
domestic information products, reflecting continuing centralisation of Treasury
desks. Sales activity with Treasury customers is currently focused on rolling
out a series of content and functionality enhancements to ensure that Reuters
products remain deeply embedded in the way existing customers do business, and
on expanding Reuters revenue base in areas of market growth such as automated
bank to buy-side trading links, where the ADT product suite is the market
leader.
 
Revenue from Investment Banking in the third quarter was £174 million, down 17%
on an underlying basis and 12% on an actual basis. With the release for general
sale of Reuters Knowledge and Reuters Trader, Reuters sales teams can now offer
customers attractive migration paths from their 2000/3000 series and domestic
products, which were the main sources of revenue decline in this segment this
quarter.
 
 
Revenue from Asset Management in the third quarter was £157 million, down 13% on
an underlying basis and 9% on an actual basis. Revenue increases from Reuters
3000 Xtra, Datascope (the end-of-day pricing service) and Lipper Funds data were
more than offset by declines in legacy 2000/3000 series and domestic products.
Major areas of sales focus in this segment are BarraTM risk analytics, now
integrated into Reuters 3000 Xtra and BridgeStation, Reuters neutral order
routing network and related services and a new version of the Reuters Portfolio
Management System (RPMS) for the private banking and advisory market.
 
Revenue from Corporates and Media in the third quarter was £75 million, down 5%
on an underlying basis and 3% on an actual basis, reflecting a robust revenue
performance by core media products as contract renewals were favourably
influenced by Reuters well-received coverage of the conflict in Iraq.
 
 
Fast Forward progress review
 
 
Reuters continued to make good progress on each of its key Fast Forward
initiatives during the third quarter.
 
 
1. Make Reuters information indispensable
 
 
Reuters maintained its focus on four key aspects of information - content,
analytics, community building and open access.
 
 
This quarter saw further enhancements to Reuters Fixed Income content and
trading capabilities with the addition of JJ Kenny non-taxable Municipal
Securities data and an agreement to distribute JP Morgan's electronic trading
platform (JpeX) to Reuters global client base. Good evidence of content
additions driving new sales came at Deutsche Bank and Scottish Widows, where
there were sales wins for Reuters Research (formerly Multex) products. The
streamlining of the content organisation accelerated, with the introduction of a
single management structure for Editorial and numeric data operations. In
Editorial, the removal of around 20 management positions has been
counter-balanced by the recruitment of over 40 new journalists this year to
produce an increasingly specialised news file to meet customer needs. In numeric
data operations, Reuters announced that it will open a major English-language
content centre in Bangalore, India, in January 2004 to help meet customer demand
for new content while at the same time reducing cost.
 
In analytics, fund managers now have the option to gain easy access to BarraTM,
the leading source of buy-side risk analytics, through their information
workstations. The project to integrate BarraTM analytics into Reuters 3000 Xtra
and BridgeStation was completed on schedule and the new product versions were
released for sale on 30 September.
 
 
Community building activity this quarter focused on Reuters Messaging (RM), with
announcements that Reuters is working with AOL, IBM Lotus and Microsoft to be
the first company to let its customers connect with other instant messaging
services.
 
 
Reuters key competitive advantage of providing open access to market data
continued to build this quarter, with more big customers, notably Bank of
America, Deutsche Bank and Merrill Lynch, signing up for Reuters next generation
market data system, RMDS. There is also increasing customer take-up of the
option to run RMDS on the Linux operating system, which offers customers high
potential for cost savings.
 
 
2. Move to a new business architecture
 
 
Reuters new business architecture is central to its plans to improve customer
service and competitiveness by simplifying the way it operates and realising
economies of scale. Conversations with customers continue to show that they are
receptive to the prospect of a simplified delivery architecture with potential
to help them manage sharply rising market data volumes and lower their total
cost of ownership. Plans remain on track to have the new business architecture
ready to carry new products worldwide in 2004.
 
 
3. Simplify and segment our product line
 
 
Execution of Reuters segmentation strategy has accelerated during the third
quarter, with further steps to simplify the product line by grouping all
information and transaction products into four 'product families' and plans to
reduce the total number of these products to below 50 by the end of Fast
Forward. So far during 2003, 154 products have been made obsolete, including 40
in Q3, and Reuters is on track to remove another 100 products by year end. New
product releases are going according to plan, with Reuters Knowledge and Reuters
Trader now both released for general sale after successful early access customer
trials.
 
 
4. Focus our Solutions business around our products
 
 
Reuters new commercial agreement with TIBCO and the announcement that it intends
to reduce its 49% stake in TIBCO are key elements of the move announced by
Reuters in February to slim down and re-focus its Solutions business. Central to
this new agreement are the exclusive rights Reuters retains to sell Market Data
Systems and Risk Management products for the financial services market.
 
 
5. Reduce and reshape our cost base
 
 
Reuters remains on track to deliver £55 million of net cost savings from Fast
Forward in 2003. While Reuters continues to add staff in key areas of focus such
as client training, front line Editorial and the new development centre in
Bangkok, over 1,000 people have left the company this year.
 
 
6. Reinvigorate culture and behaviour
 
 
Reuters announced in September that it will move the majority of its London
staff to Canary Wharf in 2005, having seen its New York operation become more
cohesive and customer service oriented when it moved into a single office in
Times Square. In addition to the benefits of having most of its people under one
roof, Reuters will generate annual cost savings of £5 million from this move.
 
Reuters prospects
 
As a result of its slightly better than expected performance in the third
quarter, Reuters now expects a full year underlying recurring revenue decline of
11% or slightly better.
 
 
In mid January 2004, after analysing its December sales figures, Reuters will
issue a short statement to give recurring revenue guidance for the first quarter
of 2004.
 
 
With cost savings continuing to outstrip revenue decline, Reuters remains
confident of exceeding its 2002 full year normalised operating margin
(pre-restructuring) of 13.1% in 2003.
 
 
 
Reuters - 2003 quarterly product statistics
 
                        Three months ended        % change versus previous quarter
                              Actual                         Underlying
                     September    June    March     September      June       March
                          2003    2003     2003          2003      2003        2003
------------------      --------  ------   ------      --------    ------     -------
Period end user
accesses (000's)
3000 Xtra/Bridge            80      78       77             2%        2%          2%
Premium
Dealing                     17      17       18            (2%)      (2%)        (2%)
                        --------  ------   ------      --------    ------     -------
Premium Products            97      95       95             1%        1%          1%
2000/3000 Series            77      85       94            (9%)      (9%)        (4%)
Mid & Low Tier             271     278      280            (2%)      (1%)        (7%)
------------------      --------  ------   ------      --------    ------     -------
            Total          445     458      469            (3%)      (2%)        (5%)
------------------      --------  ------   ------      --------    ------     -------
Average user
accesses (000's)
Premium Products            96      95       94             1%        1%          3%
2000/3000 Series            81      90       96            (9%)      (7%)        (7%)
Mid & Low Tier             275     279      291            (2%)      (4%)        (5%)
------------------      --------  ------   ------      --------    ------     -------
            Total          452     464      481            (3%)      (4%)        (4%)
------------------      --------  ------   ------      --------    ------     -------
Recurring revenue
(£m)
Premium Products           185     185      172             2%        1%          -
2000/3000 Series            84      97      106           (13%)     (11%)       (12%)
Mid & Low Tier              67      66       74            (2%)      (4%)        (7%)
                        --------  ------   ------      --------    ------     -------
                           336     348      352            (3%)      (4%)        (5%)
Other recurring revenue    273     283      272            (4%)      (2%)        (4%)
revenue      
------------------      --------  ------   ------      --------    ------     -------
            Total          609     631      624            (3%)      (3%)        (4%)
------------------      --------  ------   ------      --------    ------     -------
Monthly revenue per
access (£)
Premium Products           641     648      610             1%        -          (3%)
2000/3000 Series           346     360      368            (4%)      (4%)        (5%)
Mid & Low Tier              81      79       85             -         -          (1%)
------------------      --------  ------   ------      --------    ------     -------
Average monthly revenue    248     250      244             -         -          (1%)
per access
------------------      --------  ------   ------      --------    ------     -------
 
 
Reuters product statistics - period to 30 September 2003
 
      
                                            Nine months             Three months
                                                  ended                    ended
                                           30 September             30 September
                                                   2003                     2003
                                               % change                 % change
                                             underlying               underlying
                                           vs September             vs Quarter 3
                                                   2002                     2002
---------------------             -------    ----------  -------     -----------
Period end user accesses (000's)
3000 Xtra/Bridge Premium             80            13%      80              13%
Dealing                              17            (5%)     17              (5%)
                                  -------    ----------  -------     -----------
Premium Products                     97             9%      97               9%
2000/3000 Series                     77           (29%)     77             (29%)
Mid & Low Tier                      271           (13%)    271             (13%)
---------------------             -------    ----------  -------     -----------
Total                               445           (13%)    445             (13%)
---------------------             -------    ----------  -------     -----------
Average user accesses (000's)
Premium Products                     95            10%      96              11%
2000/3000 Series                     88           (28%)     81             (27%)
Mid & Low Tier                      286           (17%)    275             (16%)
---------------------             -------    ----------  -------     -----------
Total                               469           (15%)    452             (14%)
---------------------             -------    ----------  -------     -----------
Recurring revenue (£m)
Premium Products                    542             9%     185               7%
2000/3000 Series                    287           (34%)     84             (37%)
Mid & Low Tier                      207           (10%)     67             (12%)
                                  -------    ----------  -------     -----------
                                  1,036           (11%)    336             (12%)
Other recurring revenue             828           (10%)    273              (9%)
---------------------             -------    ----------  -------     -----------
Total                             1,864           (10%)    609             (11%)
---------------------             -------    ----------  -------     -----------
Monthly revenue per access (£)
Premium Products                    632            (1%)    641              (3%)
2000/3000 Series                    364            (9%)    346             (14%)
Mid & Low Tier                       81             8%      81               5%
---------------------             -------    ----------  -------     -----------
Average monthly revenue per         245             5%     248               2%
access     
---------------------             -------    ----------  -------     -----------
 
 
Reuters Group
Revenue analysis - three months to 30 September 2003
 
                                    Three months to
                                       30 September            % Change
                                    2003       2002         Actual    Underlying
                                      £m         £m
---------------------          ---------  ---------  -------------     ---------
Recurring                          225        247             (9%)         (11%)
Outright                            11         11              -            (3%)
Usage                               16         13             17%           20%
---------------------          ---------  ---------  -------------     ---------
Treasury                           252        271             (7%)          (9%)
---------------------          ---------  ---------  -------------     ---------
Recurring                          158        172             (9%)         (15%)
Outright                             8         10            (25%)         (29%)
Usage                                8         14            (38%)         (31%)
---------------------          ---------  ---------  -------------     ---------
Investment Banking &               174        196            (12%)         (17%)
Brokerage                      ---------  ---------  -------------     ---------
---------------------
Recurring                          153        161             (6%)         (10%)
Outright                             4          9            (54%)         (56%)
Usage                                -          1            (76%)         (59%)
---------------------          ---------  ---------  -------------     ---------
Asset Management                   157        171             (9%)         (13%)
---------------------          ---------  ---------  -------------     ---------
Recurring                           73         74              -            (2%)
Outright                             -          1              -             -
Usage                                2          3            (41%)         (39%)
---------------------          ---------  ---------  -------------     ---------
Corporates and Media                75         78             (3%)          (5%)
---------------------          ---------  ---------  -------------     ---------
Recurring                          609        654             (7%)         (11%)
Outright                            23         31            (26%)         (30%)
Usage                               26         31            (16%)          (9%)
---------------------          ---------  ---------  -------------     ---------
Reuters                            658        716             (8%)         (12%)
Instinet                           132        141             (6%)          (2%)
---------------------          ---------  ---------  -------------     ---------
                                   790        857             (8%)         (10%)
Share of joint ventures             25         28            (12%)          (3%)
revenue
Intra-group revenue                 (1)        (2)           (25%)         (26%)
---------------------          ---------  ---------  -------------     ---------
Gross revenue                      814        883             (8%)         (10%)
Less share of joint ventures       (25)       (28)           (12%)          (3%)
revenue                     
---------------------          ---------  ---------  -------------     ---------
Group revenue                      789        855             (8%)         (10%)
---------------------          ---------  ---------  -------------     ---------
 
 
 
Reuters Group
Revenue analysis - nine months to 30 September 2003
 
                           Nine months to                              Year to
                             30 September         % Change         31 December
                            2003     2002    Actual    Underlying         2002
                             £m       £m                                    £m
--------------------      -------   ------   -------      --------   -----------
Recurring                   686      760       (10%)          (9%)       1,000
Outright                     32       47       (29%)         (32%)          80
Usage                        47       41        12%           21%           54
--------------------      -------   ------   -------      --------   -----------
Treasury                    765      848       (10%)          (9%)       1,134
--------------------      -------   ------   -------      --------   -----------
Recurring                   492      551       (11%)         (14%)         726
Outright                     22       31       (34%)         (36%)          49
Usage                        22       48       (51%)         (41%)          59
--------------------      -------   ------   -------      --------   -----------
Investment Banking &        536      630       (15%)         (17%)         834
Brokerage      
--------------------      -------   ------   -------      --------   -----------
Recurring                   465      513       (10%)         (11%)         674
Outright                     12       22       (44%)         (47%)          32
Usage                         1        3       (76%)         (55%)           3
--------------------      -------   ------   -------      --------   -----------
Asset Management            478      538       (11%)         (12%)         709
--------------------      -------   ------   -------      --------   -----------
Recurring                   221      235        (6%)          (5%)         307
Outright                      -        2         -             -             2
Usage                         7        5        47%           32%            6
--------------------      -------   ------   -------      --------   -----------
Corporates and Media        228      242        (5%)          (6%)         315
--------------------      -------   ------   -------      --------   -----------
Recurring                 1,864    2,059       (10%)         (10%)       2,707
Outright                     66      102       (35%)         (39%)         163
Usage                        77       97       (20%)         (10%)         122
--------------------      -------   ------   -------      --------   -----------
Reuters                   2,007    2,258       (11%)         (12%)       2,992
Instinet                    407      442        (8%)          (1%)         592
--------------------      -------   ------   -------      --------   -----------
                          2,414    2,700       (11%)         (10%)       3,584
Share of joint ventures      75       79        (4%)           6%          107
revenue
Intra-group revenue          (5)      (7)       25%           24%           (9)
--------------------      -------   ------   -------      --------   -----------
Gross revenue             2,484    2,772       (10%)          (9%)       3,682
Less share of joint  
ventures revenue            (75)     (79)       (4%)           6%         (107)
--------------------      -------   ------   -------      --------   -----------
Group revenue             2,409    2,693       (11%)         (10%)       3,575
--------------------      -------   ------   -------      --------   -----------
 
 
Reconciliation of Instinet revenue for the three months to 30 September 2003 and
the nine months to 30 September 2003
 
 
The following is a reconciliation of the unaudited revenue for three months to
30 September 2003 and nine months to 30 September 2003 under US GAAP as released
by Instinet on 22 October 2003, to the numbers that are reported for Instinet
under UK GAAP.
 
 
 
                                             Three months to     Nine months to
                                                30 September       30 September
                                                        2003               2003
----------------------                         -------------       -------------
Per Instinet results - US GAAP (US$m)                  272                 798
Adjustments to UK GAAP
- Soft dollar commission                               (55)               (154)
- Interest                                              (3)                 (8)
- Investments                                            1                  20
----------------------                         -------------       -------------
Instinet results - UK GAAP (US$m)                      215                 656
----------------------                         -------------       -------------
Instinet results - UK GAAP (£m)                        132                 407
----------------------                         -------------       -------------
 
 
An exchange rate of US$1.61 has been used, being the average for both the three
months, and the nine months, to 30 September 2003.
 
 
Explanation of adjustments
 
 
A significant part of the adjustment from US GAAP to UK GAAP relates to soft
dollar activities, primarily relating to the purchase of third party research
products, as well as payments made as part of Instinet's commission recapture
services. Under US GAAP, Instinet reports its transaction fee revenue from these
businesses on a gross basis. Under UK GAAP these revenues and costs are not
grossed up but are netted against each other.
 
 
Other revenue adjustments include interest income and movements in the value of
investments held at the balance sheet date including mark-to-market gains and
losses and impairments as well as realised gains and losses on disposals, all of
which are not included as revenue under UK GAAP.