SANFORD BERNSTEIN INVESTOR CONFERENCE by jennyyingdi

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This presentation may be deemed to include forward-looking statements relating to
Reuters within the meaning of Section 27A of the US Securities Act of 1933 and Section
21E of the US Securities Exchange Act of 1934. Certain important factors that could
cause actual results to differ materially from those disclosed in such forward-looking
statements are described in Reuters Annual Report and Form 20-F 2001 under the
heading ‘Risk Factors’. Copies of the Annual Report and Form 20-F are available on
request from Reuters Group PLC, 85 Fleet Street, London EC4P 4AJ.


               SANFORD BERNSTEIN INVESTOR CONFERENCE

                                     5 JUNE 2002



M Nathanson:         My name is Michael Nathanson. I am the European media analyst
              at Sanford Bernstein. On behalf of my firm I want to thank you all for
              coming, and particularly I really want to thank Tom Glocer for coming.
              He’s the Reuters CEO. I’d also like to thank Nancy Bobrowitz from
              Reuters US IR team, which has been extremely helpful as always. Think
              about this: Reuters has been in business for 150 years, through world wars,
              civil wars, depressions, recessions, bubbles. It managed to survive
              without ever having an American CEO until recently. That all changed
              last July when Tom Glocer became Reuters first US-born CEO, and
              Nancy says the first non-journalist CEO in Reuters long history. Well
              Tom’s first year may have felt like 10. During this time he has accelerated
              the business transformation process at Reuters, cutting 1,800 jobs. He’s
              worked on sorting out the future direction of Instinet. He’s acquired and
              integrated assets from the bankrupt Bridge competitor. He’s closed loss-
              making internet divisions, and all in the face of the worst market downturn
              his company has seen in many decades. Reuters is a company in transition
              in an industry that’s currently not growing. It has a new management
              team and a new focus on profitability. During this phase of a life cycle,
              Tom has focused his attention on the cost base, and £155 million in
              savings by 2003. Tom is also directing the roll out of new product
            enhancements, email and instant messaging that should help the
            competitiveness of Reuters core products. Even despite these advances,
            the market has punished Reuters shares. On a 2003 review, this stock is
            trading well below a market multiple, even counting Instinet’s value as
            cash-only. With former bulls running around the world shouting about
            Instinet being ex-growth, we decided to take another look at the stock
            earlier this year, and we upgraded it upon our analysis. In our opinion, the
            stock is discounting long-term growth. We believe investors who’ve got
            the patience and the ability to invest in Reuters now will be pleasantly
            surprised in about two years’ time. I know our next speaker feels the same
            way. His time frame is probably different than mine. So from London, by
            way of New York, here is Reuters CEO Tom Glocer to talk about the
            transformation of Reuters.


T Glocer:   Well thanks, Michael, and good afternoon. Sanford Bernstein’s always
            been noted for being able to spot a value stock, and I certainly think I’m
            sitting on one right now. What I wanted to do is to give you an idea of the
            transformation we have underway at Reuters. Many of you who follow
            the stock have heard me speak about the great assets that Reuters has to
            bring to bear on these markets. We have an unbelievably strong brand.
            Again this year we were voted by Interbrand to be the leading global
            brand among UK companies. We have an amazing network of journalists
            around the world: 2,500 journalists in 230 bureaus reporting the news in
            text, in photos, in video, in graphics. We have global reach. Our sales and
            support teams are all over the world. We have a standards-based open
            technology, and we have customer relationships in every part of the world.
            We have about 630,000 users in 54,000 locations around the world and
            even in a down market those hard assets bring value. And as Michael
            says, I’m not really counting on the 150 year old history to say that
            Reuters will be here for another 150 years, but those core assets have




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significant strength and I believe we’re doing the right things, taking a
long-term view, to grow those assets going forward.


Today what I want to do really is just go through three things:
1) What have we achieved so far?
2) Progress on five key questions that I focus on, and I have my
   management team very focused on. A) Where’s the revenue growth
   going to come from? B) What’s our competitive position in the
   industry? C) What are our operating margins like and how are we
   going to improve them? D) What are we doing to address the Reuters
   portfolio in general? E) What are we doing about Instinet in
   particular?
3) And then finally I thought I’d conclude by giving you some basis,
   some metrics by which you might want to judge the story going
   forward. I’m now coming towards the end of my first year as CEO
   and it’s certainly been a challenging year, a bit more active than I
   thought, but nonetheless, it’s certainly better to start during a period of
   great change than to run into it in the middle of a program. It’s also a
   good time to look back and say: “Well, what have we actually
   achieved in this year?” We’re working harder than we’ve ever
   worked, but in terms of top-line growth we certainly don’t have the
   results yet to show for it. So it thought what I’d do is just take you
   through at least my personal list of where I think we’re making
   progress.


First of all, clarity of purpose. Reuters is a complicated company:
geographically diverse, operating in many markets, financial services,
media, corporates, across different product lines, with different types of
revenue sources, and I found it to be particularly important to rally the
18,000 people in the company behind one clear goal of what we’re here to
do, and that is to reshape the business to deliver double-digit earnings



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growth on a sustainable basis. It’s simple, but people get it. You can stop
anyone in Reuters and say: “What’s the corporate top-level financial
goal?” and they know what we’re trying to achieve. Now as Michael said,
the markets haven’t been particularly cooperative, so in October, when I
initially outlined the strategy, we set forth a five-year plan to get there.
We’ll certainly see some good earnings improvement before then, but
what I really care about is how I put Reuters on a footing where it has
sustainable earnings growth and therefore it has a large element of revenue
growth powering it. So we’re looking at a five-year period divided into
about equal phases. In the first phase, we’re calling it “self-help”, we’re
very focused on margin improvement, on getting the right mix of
businesses in the portfolio, and getting our product line in shape. And in
the second phase we’re looking for revenue growth to come on to further
project our earnings growth going forward.


I want to turn now to a couple of specifics that we’ve achieved this year.
One is progress on our business transformation program. For those of you
who don’t follow the stock particularly closely, my predecessor almost
two years ago announced a program to invest about £300 million to
transform the business in a variety of ways, and he was absolutely right.
He didn’t see the slowdown coming but he did sense that Reuters had
under-invested, I think, in a number of areas previously and an extra shot
in the arm was needed to get where we needed to be on internal systems as
well as on our product architecture. When it was originally announced,
Peter Job, my predecessor, promised £150 million of cost-savings this
year, and he was met with some skepticism in the analytical community. I
have to say Reuters has never been known for its ability to really drive out
cost savings and improve margin through a firm attention to the bottom
line. But I’m pleased to tell you that we’re on track to do £185 million this
year, £185 million of cost savings on an apples to apples basis, and
nobody asks me anymore: “Well, do you think you can get cost savings



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out of the Reuters culture? It’s always been a little bit woolly to us.” So I
think it’s progress both on the substance and on the perception point.


We’ve also done a lot of work in terms of melding our product
architecture. We put a lot of money into building a lighter-weight delivery
system, and via our acquisition of Bridge that Michael mentioned, we also
acquired some top-flight technology. What we’re now doing is marrying
the two up into something that we’re calling the mid-tier architecture.
You can think of it, basically, as a lighter weight, lower total cost of
ownership for the client on the desktop to get at richer functionality from
Reuters. So it’s multimedia news content delivered via NewsML, our
XML standard for news, and it’s two-way communication as opposed to
just one-way broadcast of information. That architecture should come
together by the end of the year and we’re planning to launch new products
off of it early next year, and I’ll come to that in a bit.


We’ve also rolled out a new structure and operating model. I tend not to
spend too much time talking about internal organization because I think
it’s something that companies should solve for themselves, but just a little
bit by way of background. Across 150 years Reuters operated as a
geographic model for about 145 of those years. What we’ve done now is
move to what we call customer segments effective at the beginning of this
year. And we have four customer segments: Investment Banking and
Brokerage, which you can view as the sell side; Treasury, which is
essentially foreign exchange and the short end of the money curve: Asset
Management, which has been traditionally an under-penetrated segment
for Reuters; and Corporates and Media which houses our diversification
and growth story outside of financial services. I’m going to talk later a
fair amount about the portfolio, so I won’t talk now too much about how
we’ve worked to establish a clearer relationship between the core and the
portfolio, but it boils down to a pretty simple: Spend your time on the



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units that really count, dispose of the clutter that just gets in the way and
isn’t going to get you anywhere, and have enough assets in there as
starters that can still feed growth going forward. And the three that I’ll
talk about later are Instinet, Tibco, and Radianz . Finally I thought I’d talk
a little bit about the trading conditions, which have been quite difficult.


We will do something like 3- 4% revenue growth in this environment,
which is after including the revenues we acquire from Bridge. I think we
may be one of the few companies that go out of our way to clarify that on
an underlying basis, stripping out the effect of acquiring Bridge. Our
revenues are likely to decline by about 4% this year. Now none of us are
pleased about that and in fact the decline is steeper in the second half.
We’re forecasting about a 5- 6% drop in the second half of this year. That
results from two factors – 1) the continuing weak sales environment into
financial services, and 2) there’s a certain lag effect inherent in the
Reuters subscription model. It derives from the time between when we
actually make a sale and it gets installed and we get revenue, and the full-
year effect. So if somebody cancels a service in June, you’ve had half a
year of revenue and next year, unless you replace it, you won’t.


Let me go on to now talk about the five questions quickly. And I’m going
to go through each of them in turn. What are going to be the main revenue
drivers for Reuters going forward? How will we strengthen our
competitive position? How will we grow our operating margins? How
are we approaching the portfolio? How do we approach capital allocation
and investment? And finally, what about Instinet in particular? And I’ll
give you at least a snapshot of views on each of these.


Let’s start with revenue. Here I divide it into essentially two phases: what
we are doing in the near term, and what you can look at for the longer-
term revenue prospects. In the short-term, as I was mentioning earlier,



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revenues are going to remain under pressure. We get about 90% plus of
our revenues from the financial services industry, and so there’s no way
that we’re going to be avoiding the cyclical downturn that were seeing
among our clients. And you don’t have to look farther than the statistics
that get published on the number of jobs being lost in financial services
and the pressure that international banking is under to see why it’s
obviously had a follow-on effect through to Reuters. Specifically on our
revenues, we get about 90% of our revenues from what we call the
recurring business. That’s subscriptions to information products, and
ongoing maintenance charges relating to the sale of outright solutions.
Seven per cent of our revenues comes from solutions, which you can think
of as technology, sophisticated risk-management systems, order
management systems, our approach to straight through processing and the
like. And the final 3% comes from transactional products, in particular
our foreign exchange dealing services. And when I speak about the core
Reuters revenues this obviously excludes Instinet. Transactional revenues
would obviously be much higher with Instinet included. So we’re going
to do about 3-4% revenue increase this year including Bridge, and the lag
effect in our revenues, on an underlying basis, is going to see a decline of
about the same amount this year. The key issue is obviously when will
that actually turn? And when we went about setting our budgets for 2002,
what we did was we looked at our 4th quarter of last year and adopted a
fairly conservative approach. We just assumed that the poor sales we
were seeing in the 4th quarter of last year would extend right through this
entire year. So that’s the way in which we’re going to be able to improve
our margins, even in a lousy year, from 7% which is what they were all
last year, to the 12% that we’re targeting this year. The key question, of
course, is: “When will that sales trend turn, and what are the implications
for 2003?” We’re seeing some encouraging signs in our solutions
business, where we expect to actually see revenue growth this year.
That’s important in and of itself because of the solutions business, as I’ll



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explain later, also has important implications for the changing nature of
Reuters business as a whole. But when we look at the subscription
business, there are some momentary movements up, some good sales, but
it’s too early for me to call a turn, and we haven’t set 2002 on the basis of
a turn in those numbers.


When I look at the longer term, what I see is revenue growth being
powered by five basic drivers. First: the financial markets will improve.
They will get better. It’s never as bad as it looks when you’re at the
bottom, and it was never as good as the froth in 2000 made it look like. I
think a little bit of balance between the two is how we approach it from an
operating point of view. Second: we have opportunities to both defend
and extend and grow our existing business. So for example in Treasury,
which has been viewed as being in a long, cyclical decline even before the
overall decline in financial services, we’ve just launched a product called
Reuters Dealing Link off of the new, internet-based architecture that I was
describing earlier coming out of the business transformation program.
The opportunity there is to segment the client base we have in Treasury so
we have our upper-tier users in the inter-bank market that use Dealing
3000, and now what we’re trying to do is reach out to, let’s say, the
corporate treasurer who does a series of foreign exchange transactions,
maybe two or three during the day, but isn’t an intensive enough user that
needs the full-blown Dealing 3000. Through initiatives I’ll talk about in a
little bit with our 3000 Xtra flagship product, we think we have the
opportunity to defend and then grow our core business.


Third: we’re looking for growth coming from our new customer segments.
One of the major reasons why I reorganized the firm to run along
customer segment lines is that I think it’s really important to be able to
understand: What are the user requirements? What’s the workflow? What
is an asset manager? What does a portfolio manager do every day? How



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is that different from a foreign exchange derivatives trader? Capture that
with the front line of Reuters, organized similarly front to back, feed those
requirements to a back end which is similarly organized in product
development and in strategy so it’s focusing on where the larger
opportunities are, and then develop products and go back to market. So
using this new middle tier architecture, which is coming together at the
end of the year, Investment Banking, the segment that’s geared to the sell
side, is coming out with a new product called Reuters Knowledge, which
is aimed at the corporate advisory market. There isn’t really right now a
fit for purpose product. If you’re an M&A professional or in the capital
markets you use a variety of products to get news, to get quotes, graphics,
etc., but there isn’t a product out there that’s been designed to meet the
requirements of the mobile corporate advisory professional. Similarly in
Asset Management the first product out the door of the new segment is a
product aimed at the advisory market. In particular in the UK and in
Switzerland you have a large group of independent advisors sometimes
linked with an institution, sometimes not, and there’s a product
opportunity to deliver to these folks, which is an under-penetrated area for
Reuters.


The fourth area for us is growth outside of financial services. So I would
like to see more of Reuters growth coming outside of the financial services
sector not just for diversification reasons, but because I think there is
higher growth for us to obtain outside of financial services in particular
through an entry strategy to corporates which have a need for the tight
integration of information and technology that Reuters can deliver. We
already have a series of assets addressing these markets, it just hasn’t been
pulled together tightly enough to go after the really larger opportunities.
So just to give you one example, we have a nice little energy business. It
does about $100 million a year, it’s primarily delivering information and
trading room systems to the trading rooms of energy firms but we think



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we can penetrate much deeper into clearance and settlement of energy
transactions, into STP for energy firms and we have a major effort
underway underneath the corporates and media segment to expand our
energy business.


Finally, the fifth driver is the solutions business and I thought I’d spend a
little bit more time just explaining what this is, because it’s a bit
mysterious at times. Reuters has a large technology part of the business
which delivers systems which are used for everything from displaying and
distributing information within a trading room to auto-quoting foreign
exchange rates out of a trading room via a portal to, say, the corporate
treasurers on the buy side who need to get rates and interact with,
essentially, the sellers of foreign exchange to them, the inter-bank market.
The solutions business is really an important leg for Reuters because it’s
both the outgrowth of this tight integration between information and
technology and it’s a growing business for Reuters, and I also think it has
the capability to really expand our business significantly. Number one, it
offers the opportunity to pull through other revenue so when we sell, let’s
say, a risk management system, typically there’s pull through of an
information data feed with it to build, let’s say, a data warehouse which is
needed to make the thing actually work. There are ongoing maintenance
fees which come into our recurring revenue stream and there are also,
increasingly, consulting revenues because we’ve organized ourselves this
year to have about a 500- 600 man consulting force, which is essentially
taking what used to be somewhat of a dead weight cost for Reuters and
turn it into a revenue source for the firm. It also ends up being an
effective way to lead sell because when you actually go in and solve real
work solutions issues for people, it identifies other opportunities in the
wake. For example, a lot of the large sell side firms are looking at what
they are getting back from the huge investments they’ve made in IT
departments. Do they really get a differentiating advantage having 4000-



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5000 programmers on staff, or should they really boil that down to the key
individuals who are building differentiating applications, let’s say, for
their proprietary trading desk, and outsource more of their sort of routine
operations to someone else who has the scale and the expertise to actually
do it? So we’re beginning to see and participate in more of those sort of
relationships with our largest clients. I’m going to skip over the rest of
solutions and try and make up a little time so I leave more time for
questions, but I’m more than happy to go into the pipeline, which is quite
attractive, or specific sales examples.


I thought what I’d do is talk a little bit about competitive position. This
has gotten a lot of attention. In particular it is focused on where Reuters is
versus Bloomberg at the moment and I think there are really three
takeaways here for me. One is it’s important to recognize that the
competition between Reuters and Bloomberg is only at a relatively narrow
part of our product line. It’s our 3,000 Xtra product, and some of our top-
end trading room systems, and the full Bloomberg. The products that you
see outside, Reuters Plus for the US equity markets, certainly our solutions
business, large parts of the rest of the Reuters value chain, don’t go head
to head with Bloomberg. In fact, the whole Bloomberg competition really
is a relatively new thing. Reuters traditionally didn’t compete head to
head with Bloomberg. In fact Reuters didn’t have an analytical or a
historical offering to speak of. It’s really only with 3000 Xtra that we’ve
begun to go head to head, and we’ve actually seen, even this year, quite
good sales of 3000 Xtra.


The second point is: what are the actual data? This slide attempts to show
the results of a market share survey which is done by the only independent
entity that tracks market share in our industry, a company called Waters.
It follows the market data industry, and what it showed was that in 2001 -
the most recent year they had data available - both Reuters and Bloomberg



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grew at the expense of the competition. Each grew by about 5-6%, and
this is market share based on revenue. The gap would be much higher if it
were based on just positions because Reuters occupies the space all the
way down the price curve. So the second point is that there is competition
with Bloomberg head to head, certainly in down markets, but last year
Reuters was certainly holding its own, and I think it’s better than some of
the anecdotal evidence I’ve seen written up in sell side reports. Now
having said all of this, Bloomberg’s obviously grown a lot faster over the
past five years, and so we’re not just sitting on our hands about it, and
specifically around 3,000 Xtra we have a campaign on to really put in the
focused resources we need to improve the product. So some of it is just
really basic execution blocking and tackling. No rocket science here.
One: get people upgraded to the most recent software release. It’s a really
simple thing, but when we’ve done it in various countries we’ve seen a
significant increase in our customer satisfaction ratings. Two: make sure
that our users get a customized desktop. One of the strengths of Reuters is
actually the configurability of the technology. One of the weaknesses is
that it tends to create complexity. So a common user complaint is: “I
know you’ve got the information. You’ve got a tremendous system, but
it’s hard to use. I want a simple menu.” So what we’re doing to attack
that is to make the user interface easier to use, provide more menu-driven
applications. We’re going for personalization at the front end, so we are
dedicating more resource to actually personalize the front end because if,
like in the 3,000 Xtra I have on my desk in London, you have it
personalized to your workflow, it does what you want it to do and it’s
much simpler to use. And finally, we’re adding a lot more training
resource as well so we’ve got people out in the field with our customers
training them on the product, which is something that I don’t think Reuters
has done well enough, and is all part of an initiative that I launched which
goes by the sort of straightforward name of “Great Service”, but aims at
significantly increasing the service that Reuters delivers to its clients.



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The last element under 3,000 Xtra is to make it a more competitive
product. We’re going to be launching collaboration tools and trading
tools. We’ve had an initiative going for about a year with Microsoft to
take plain vanilla instant messaging from the chat instant messaging
world, make it performant, make it reliable, secure, and deliver it to
financial services companies. We’ve got advanced beta testing going with
about 25 of our largest clients who are embedding messaging into the
technology they use and we’re beginning to see some real advantage
already from those beta tests. The other thing we’re going to be doing is
to incorporate trading tools coming to us from Instinet


On the operating margins side, I think the highlight is we’re going to take
the margins from 7-12% this year, and there is room for further growth.
Our ultimate target at the end of our five-year plan is to get margins up
into the 17-20% range. This is not going to be an easy thing to do. It
certainly won’t happen on cost savings alone, so this won’t happen until
we see a resurgence of revenue growth, but we are very focused on margin
improvement, even in a very difficult trading year like this.


I talked a little bit about the portfolio. The plan very much is to focus on
the big things that count and dispose of small investments that tend to just
distract management. We’ve actually disposed quietly of quite a number
of smaller investments we had accumulated. We’re working down
through our venture capital investments that we made through the Reuters
Greenhouse Fund that generated significant strategic value for us, but at
this point are more of a distraction than a benefit. I’ll just talk briefly
about TIBCO and Radianz. TIBCO just essentially pre-announced its
second quarter. They’re facing similar conditions that we are in financial
services. TIBCO is the leading provider of enterprise application tools
and has about 37% of the market. Last year their revenues grew by I think



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about 27%, and their operating profit doubled. This year at the first
quarter they put out revenues at the low end of the range, but continued
their work on improving their margins. In the second quarter some of the
revenues look like they’re falling over into the third or fourth quarter, so
they’re facing similar conditions that we do, but the underlying technology
is absolutely at the heart of a Reuters solution story. So the enterprise
application integration tools, business process management tools, are a
way of essentially using a flow chart to define a process rather than getting
down into the nitty-gritty software tools and letting the software do the
heavy lifting. We’ve had our first sale of business product process
management tools, and they were only launched a couple of weeks ago
when I was out in San Francisco with TIBCO. I think the price has been
beaten down for TIBCO as a company but their fundamental technology
remains excellent, and they have a market leadership position, and in
particular, they have strong synergies with us in the financial services
industry.


I’ll spend a moment on Radianz. Radianz is a joint venture that Reuters
created with a company called Equant, a pure IP networking provider.
This could be a really significant asset for Reuters in the coming years.
Basically what we did was take the very large private communications
network that we had, the network that reached all 54,000 of those
customer locations, and contributed it into the joint venture. Equant put in
its backbone networks and its people and cash, and together it’s achieving
the following things. For Reuters it’s transforming us from a proprietary
broadcast network to a two-way, IP-based standards network much faster
than we’d be able to migrate on our own, and that’s important to be able to
run two-way information, trading and collaboration rather than just one-
way broadcasts of information. In terms of Radianz as a business itself,
it’s really building significant value. Its only real competitor was Global
Crossing, and Global Crossing’s problems have accelerated the customer



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push into Radianz. So in addition to running Reuters operations, Radianz
has been ramping up its sales to third parties. Citibank runs applications
over them, JPMorgan Chase, New York Stock Exchange, Island, and
they’ve got a really good pipeline of third parties. The attraction is - it’s a
bit like the cable industry - it’s the last mile that counts. So if you want to
reach the Deutsche Bank office in Buenos Aires, for whatever reason in
this environment, there’s a Reuters coms link that goes there, and that’s
now a Radianz pipe. So if you’re another provider, and you don’t want to
invest to actually have an inefficient second pipe or third pipe going, you
ride the common backbone of Radianz. That will ultimately significantly
lower Reuters delivery costs and build a very attractive business. The
financials of Radianz are that we’ve been investing in the last couple of
years in Radianz. It has about $150 million in cash on the balance sheet.
It has no debt, unlike most of its Telco brethren, and it should turn
EBITDA positive in the second half of the year. So it’s a real exciting
story for us.


I want to turn to Instinet now. I have a feeling that may be somewhat of a
interesting topic for you. The story at Instinet, from my point of view, is
not a lot different from the story of what I’m trying to do in the other parts
of Reuters, which is: “Give me a plan, make it simple and straightforward,
give me somebody I can hold accountable, and let me know how I can
measure it.” So at Instinet this translated into a relatively straightforward
six-point plan. 1) What’s the right management for Instinet to have going
forward? 2) How are we going to defend and grow the Nasdaq liquidity,
in particular on the sell side in the face of competition from the new ECNs
in the market? 3) How are we going to reduce the Instinet cost base to
make it competitive and to return it to strong profitability? 4) What are
the new products that Instinet can put out to its really core buy-side user
base? 5) What is the role of Instinet in the industry consolidation which is
certain to follow? And finally 6) Howare we going to make Instinet work



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much more closely with Reuters for the mutual benefit of both companies?
I thought what I’d do is just pick out a couple of these items and then talk
about the Reuters and Instinet relationship. On the defense and growth of
the Nasdaq liquidity pool, a lot of attention was directed at this towards
the end of last year and the beginning of this year. Instinet’s liquidity pool
declined to about a 10% share of the market towards the end of last year,
and the liquidity pool is not only important in its own right. It’s quite
important to make sure that, in the core Instinet offering to the buy side,
when an institution’s trying to move a large block, it finds the other side of
the transaction. So I can’t tell you exactly what the minimum level of
liquidity is, but it is important for Instinet to maintain the overall liquidity.
That’s what, in turn, helps it achieve such great trading execution
efficiency when it actually goes about its agency brokerage business. So
through the effort that were undertaken in the first quarter of this year: the
speed up of technology, the segmentation of the products, and the
significant price rebating, Instinet’s market share went up to about 12.3%
in April and in May it was running at around the 13.5-14% range. So we
think it has not only put a line under the trend, which was going the wrong
way, but actually re-grown market share to surpass the other ECNs in the
market. Now obviously one of the ways we got there was significant
rebating on the sell side pricing, and to re-establish profitability in the
Instinet business, Instinet undertook a very significant round of cost
cutting. They announced publicly that they will do $120 million of cost
saving this year, they’re very well on their way to do that. I think they’ll
be able to comfortably surpass the $120 million, and that should put them
in a profit position in the second half of the year.


The last thing I wanted to touch on in Instinet is really the relationship
between Instinet and Reuters because I think it’s indicative of how I, at
least, look at the Reuters portfolio as a whole, and the particular
relationship between Reuters and Instinet. I don’t think it’s good enough



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to just run a portfolio of assets like a conglomerate. Each unit should
contribute to the strength of the other units. So the key issue is what are
the synergistic benefits that can be obtained by having Instinet as part of
the Reuters Group? It has largely been operated quite independently for
most of the 15 years it has been within the Reuters Group. We’re now
taking the trading tools that we acquired from Bridge and we’re
imbedding them in the Reuters information terminals, say 3,000 Xtra, and
we’re creating connectivity to the Instinet liquidity pool. From the
Reuters Group point of view, this will help us give 3,000 Xtra greater
competitive value, so it’s not just an information and an analysis terminal,
but built right in you’ll be able to right mouse click on a stock quote and
pull up a trade ticket. From the Instinet point of view, all of the additional
real estate,which will now be able to access Instinet, should drive
additional order flow into Instinet. We’re not just sitting back and saying
we hope it’ll come. We’ve buttressed it with a couple of things: one, a
preferential soft dollar arrangement so that, for the first time, Reuters
products will be soft dollared on a preferential basis by Instinet to anyone
else’s services. Right now Reuters only soft dollars about 5% of our total
products through Instinet. For a company like Bridge it’s more like 50%
plus, so there’s significant room there, so that’s quite helpful in a market
where many of your institutions would prefer not to pay for their services.
It’ll also be a key way of attacking the Asset Management segment which,
as I mentioned earlier, is an area of growth for us. And the other thing
we’re doing in the technology is we’re just setting Instinet as the default
location for so-called “non-care” orders. You know, if you have 100 or
500 shares and you just want a fast and efficient institution, which Instinet
is always able to do, and you don’t actually care about directing it to a
specific broker, it’ll automatically default into Instinet. But unlike our
competitor, we actually will give the user the ability to change the
defaults. So if you want to set the default at Sanford Bernstein, for
example, which might be a very good thing to do, you can go right in and



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            very easily just pull down a list and put in another broker. But we’re
            confident that enough people actually won’t do that. Instinet actually is a
            very efficient trading venue, and the combination of that and the soft
            dollaring should drive more order flow to Instinet.


            QUESTIONS AND ANSWERS


M Nathanson:        Let me start with the first question. It would seem rather
            straightforward that if we’re in search of low-cost, sell side liquidity,
            ECNs supply a very good amount of sell side liquidity at a very low cost.
            I know historically you talked about two years ago or so about potentially
            merging with an ECN, namely Island. I wonder at this point if Instinet
            merged with an ECN, what you think would be the technological,
            regulatory or financial barriers to doing that? It seems very logical.


T Glocer:   This is the sneaky way to ask the M&A question! I had up on the slide
            Instinet’s role in industry consolidation, and obviously there’s been a lot
            of speculation in particular about whether Instinet would merge with
            Island. I’ll try and address this generically, because we, for good reason,
            have a no comment policy about the specifics of any one acquisition. The
            first thing I’d just say is Instinet is very well placed to participate in
            consolidation, and I expect there will be significant consolidation on the
            ECN side of the market because it’s not sustainable. You have a whole
            bunch of venture capital-backed ventures like Archipelago, now merged
            with Redibook, like Market XT, like Brute and Island itself, and no one’s
            making enough money on the sell side alone, and they’re only addressing
            the sell side. Instinet has the premier position to the buy side as well,
            reaching something like 95% of the top 500 buy side firms. It has
            international operations to drive order flow into the US and to trade in
            international operations, and it has a clearing and settlement business. So
            it is an attractive merger partner for any of the pure-play, sell-side ECNs.



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              To try and answer Michael’s question, that creates the potential for an
              interesting complementarity. So one could see a possibility where you
              would direct the sell side, the sort of cheap and cheerful “I just want a
              quick execution and I don’t care that much about complicated, say,
              portfolio-rebalancing tools” through to lower cost, lighter weight, ECN-
              like technology, and reserve the more flexible, higher-end value-add
              Instinet technology for serving upper-tier accesses, and that is already the
              way Instinet has begun to move on its own, by segmenting its client base
              and, for example, rolling out a trading portal for simpler, quicker
              executions, and rolling out something they call Newport for higher-end
              applications. But that could be accelerated if there were the right
              combination.


M Nathanson You mentioned you’re sitting on a value stock. If true, is Reuters going to
              repurchase its shares at these prices? If not, why not? And then how
              much will you raise through the sale of non-core assets? It’s a question I
              get a lot. Will you buy back shares?


T Glocer:     We’ve obviously done that a couple of times in the past, so we’re not shy
              about doing it. Right now I don’t think the price makes it an incredibly
              attractive thing to do, but given the way the dynamics of the industry are
              shaping up, I’m making no apology about not going more heavily into
              debt to buy back shares. I think financially it would be prudent on a recap
              basis, but operationally I really like having the flexibility now to do things
              like, for example, the Bridge acquisition we did last year. Bridge was all
              set to go to a competitor called Sungard which was then going to have a
              very good entry strategy into the front office. And because we keep a
              decent amount of cash as well as borrowing capacity, Reuters was able to
              move in at the last moment and, for $400 million plus, snatch the very
              valuable Bridge assets. That sort of flexibility, when I’m going through
              the early stages of a transformation program, I don’t want to foreswear. In



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            terms of what can we generate from asset disposals, there certainly is the
            opportunity to do that. Perversely, the largest units, which would be the
            ones that would generate the most in terms of cash proceeds, are actually
            the more strategically important ones. So I wouldn’t be a seller of
            TIBCO, both as to where it is in the cycle and because of the importance
            of the technology in Reuters solutions. Similarly in Instinet, the strategy is
            more one of strengthening Instinet and working on the linkages between
            the two. Other assets in the group could certainly raise several hundred
            million dollars, but we’re not specifically focused on it as a cash-raising
            exercise. At the moment it is more one of how we achieve the clarity of
            which assets are going to actually drive growth and get the distractions out
            of the way.


M Nathanson:       These questions are probably from our Sanford Bernstein
            technology person. When will you have instant messaging?: Why do you
            support several old products? Are you seeing pricing pressure, and what
            discounts are you giving clients?


T Glocer:   September is the answer to instant messaging for full commercial release.
            It would be sooner, but we’re waiting on the latest drop of the underlying
            Microsoft server technology.


            We have lots of products, and one of the things we’re doing, actually, in
            terms of our margin improvement story is “end-of-lifing” older products,
            pushing them into 3000 Xtra, and in particular some of the newer products
            that are coming on stream. So among the products that we’re obsoleting,
            let’s say, in the foreign exchange world are Dealing 2001 and Dealing
            2002 in favor of Dealing 3000 and Reuters Dealing Link. So that very
            much is core of the strategy.




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              The third question was on pricing pressure. Reuters has had a formal
              program of discounting for a long time. So if you were a major Reuters
              global account, spending in the $50-100 million range a year, you enjoy a
              discount which encourages that sort of scale offering. We are seeing quite
              a lot of competition out there at the moment. In terms of actual pricing
              pressure, it hasn’t been as significant to date, but I think it’ll continue to be
              a factor in the market.


M Nathanson Currently the solutions business is currently 7% of your revenues.
              What’s the target for three to five years, and who’s in charge of
              development of this business, and what about the consulting force that
              you’ve had? Where’s Reuters consultancy?


T Glocer:     Well I’d like to see that business double, certainly, over this timeframe.
              To give you some sense of whether that’s achievable, the week before last
              I was reviewing the Reuters operation in France, where we’ve had a major
              push on in the solutions space, and they’ve just announced a whole series
              of new client contracts. And in France the solutions business is 12%, as
              opposed to 7% of the overall business, and it’s been growing at 10% plus
              a year. So I think it’s the harbinger of how I’d expect to see it roll out.
              There’s nothing unique about Reuters France other than they have a very
              good, high-level solutions team, and we’ve put a lot of focus and resources
              on trying to test the market to see how can we actually get that to grow.


              Consulting revenue is up something like 50% year on year, albeit off a
              relatively small base. Basically it’s a very good story. We’re not going to
              have a consulting force like Accenture or KPMG. I’m less interested in
              consulting for the sake of consulting as a business. I’m more interested in
              it as essentially a paid, pre-sales force. So our consulting force is basically
              a for-pay way to actually apply Reuters information and Reuters
              technology.



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M Nathanson I just want to thank you, Tom, for your time. And thank you, Nancy. And
             thank you for your questions.




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