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					REUTERS
CAZENOVE MEETING Tuesday, 21 September 2004

REUTERS CAZENOVE MEETING Tuesday, 21 September 2004 [Presentation with slides]

David Grigson: Good afternoon everybody. Thanks, Guy, and thank you to Cazenove for allowing us to attend this conference. You will have to excuse me today as I shall indulge myself. Usually, CFOs get up here and talk about lots of numbers, and I shall not do that. I believe that Reuters was a truly great company in the 1980s and through the first half of the 1990s, and Reuters has the potential to be a truly great company again: a great company because of its great brand, because of its great global franchise, because of its incredibly high and rising barriers to entry, because of the ever-changing nature of the industry which we serve and the opportunities that that throws up for us, and because of its ability to generate a ton of cash. However, I shall not go through each one of those in detail. What I shall talk about is what it is taking to turn Reuters from its current state into a truly great company again, and there are five key thrusts to this under the heading of Transforming Reuters. The first is to focus on our core. Reuters lost its way in the 1990s because it was not sure whether it was an information company or a technology company. We are absolutely clear now what we are: we are an information company that uses technology to deliver the services and products to our customers, and a great deal of cleansing of the portfolio has happened as a result, as I shall show you in a moment.

Another key component, which sounds rather dull and boring but is my back-yard, is to make this company manageable again and to do that we have had to transform fundamentally the back office organisation, and I shall give you a couple of seconds on that as well. A very important piece of what Reuters has done, and we can now proudly say we have achieved this, is to simplify and dramatically improve the product line. I can say we have achieved it because we set out two or three years ago completely to revitalise the product line, and the last product in that revitalisation process was launched last week. We want to become much more service-driven. Products without great service

wrapped around them are valueless. We must have great products wrapped around with great service and we need to ensure that everything that we do focuses on that critical aspect.

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The last part, which always takes the longest because of the technology-based complexity that comes with it, is to transform fundamentally the way in which we build, deliver and operate our products. I shall run through each one of those and explain where we are, where we have got to and how much we still have to do, so that you understand what it takes for Reuters to become a truly great company again where we are, and I hope I can build the confidence that that aspiration is very achievable for us. Let me first focus on the core. Focus on the core As I said, reminding ourselves that we are an information company has set the whole organisation focusing back on what made us a truly great company in the 1980s and the 1990s. To do that, we have had to sell, close or dispose of 81 different business units that were acquired at various times or set up at various times, particularly most of them in the late 1990s. Many of them were technology based and a big one this year was TIBCO where we had a 49% stake which we have sold all the way down to 8% or 9% now. A by-product of that process of rationalisation has been a significant amount of cash inflow, which has put our balance sheet in excellent order to the tune of £426 million this year. As you can see from this slide, there are three major units, joint ventures or partial ownerships which remain. One of those – Factiva – is absolutely core to the concept of Reuters being an information company, because that is what it is: it is a perfect joint venture between two great information companies, Dow Jones on the one hand and Reuters on the other, coming together to deliver a really great product which customers absolutely love. It will, therefore, fit absolutely perfectly with our definition of what Reuters is. As far as the other two – Instinet and Radianz – the intent is clear: The How and the When a little less so. To deliver its strategy, Reuters does not need to be the owner of a

broker. Instinet is that, mainly focused, of course, on over-the-counter trading NASDAQ stocks in the US, and nor do we need to be a telecoms company, which is what Radianz is. Radianz delivers a great service to Reuters and a great service to our customers, but we do not need to own a telecoms company to make use of those services. When Reuters is strong enough for it to become more separate from the Reuters Group, we will move to that position. Therefore, that job is pretty well done, which is why I have given it a little tick in the top right-hand corner of the slide. Transform the back office Transforming the back office is really about making Reuters manageable: better information, better tools, substantially stronger governance but also doing all those things while dramatically improving the efficiency of our corporate centre. As you can see on the

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slide, we have reduced our headcount in the corporate centre by about 500 since 2001 when we set about this in a major way, and we have cut our costs in the centre by a half. I would say that not only has that delivered fairly substantial savings at a time when that has been necessary for us, but it has made Reuters a substantially easier-to-manage company, which is a prerequisite for being truly great.

Simpler, better products
A simpler and better product line – of all of them, this is the most important. What I am showing you here is the Reuters product range split into four families, three families shown here within financial services and there is a media arm to this business as well. Sales & Trading, Research and Asset Management (which will focus on the buy side), and Enterprise (services or products that we sell that organisations take into themselves and then distribute internally). Dealing 3000 is our strongest, most profitable product, it is the Treasury franchise that we protected so well against the heat that EBS and Bloomberg turned up against us a year or so ago, which has not made the slightest dent into our strength in the franchise here. Indeed, it is interesting that, at the time when the competitive pressure was the most intense, instead of seeing a small, slow decline in the number of Dealing stations on our customers’ desks, subsequent to that event we have seen the first increase in the number of Dealing stations on our customers’ desks for many years. The franchise there is moving rapidly from being an information-based franchise to a much more Dealing and Transaction-based franchise with significant growth in our transactional, or usage, revenues coming from it. 3000Xtra is now a great product competing with its principal, indeed only, premium competitor Bloomberg incredibly effectively all the way around the world. The latest edition of that, we believe, is a substantially better product with ReutersStation, previously BridgeStation, doing exactly the same job in the States. Therefore, the Xtra family was where we really focused our attention first, and we are really beginning to see the benefits from the increased accesses and revenues that have come through from that family over the last couple of years or so. Launched: Reuters Trader The Trader family is where our focus has been more recently, and the reason why Reuters Trader, which is the international version, and then a number of domestic versions focusing on markets such as the UK, Germany, Euronext and so forth, are in red is because I shall talk a little more about them in a second or two. On the other side, the Reuters Knowledge family has come together, really enabled by the purchase of Multex a year or so ago, and it is doing exceptionally well. Reuters

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Knowledge for Investment Management is a great product; Corporate and Investment Banking are coming along nicely behind it. With the Wealth Manager family, which is the private, small client financial advisor market, which over the last couple of years we have allowed to erode a little as we have focused our attention on our premium and mid-tier, we are now ready to rebound into this market with the launch of Reuters Wealth Manager, which was last week and is the final product in this category. Reuters Plus, which is the equivalent, more mature, product in the United States, has grown the number of accesses there this year by some 20,000-odd and the principal competitor to Reuters Plus is Thomson’s ILX. Let me say a little more about two of these which have been most recently launched, the first of which is Reuters Trader. Trader is targeted at sales people and traders who need to be able to see quickly and easily what is moving markets and then act accordingly. It is very straightforward, it is easy to use, very easy to download, it is easy to navigate your way around, there is no training requirement for it – it is that simple. The main challenge for us with Trader is to migrate the remaining 50,000-odd legacy users of old 2000/3000 products onto this product but also to win new business. Where do we intend to win new business from? First, from the oversell position that our competitor has in this marketplace, and we believe there are quite substantial numbers there to be gained, as well as in domestic markets, which I have just talked about, where we have allowed a group of smaller players to nibble away at our market share in the absence of having a complete product line-up, particularly in Europe. The flagship product of this family is Reuters Trader which passed its final and quite rigorous quality reviews at the end of August, and is now being rolled out principally in Europe and is selling very well and very actively. We can see now a clear migration path for a number of our legacy product users who have been waiting for this to happen. The international flagship product sells at about $700. If you want a narrower range in terms of functionality and content, particularly for a domestic market, you will be paying something closer to $250-300, which makes it very competitive in this marketplace. We are disappointed with the speed at which we brought it to market. That is an issue that goes straight to the heart of the operational complexity in this organisation which still needs to be solved. This product ought to have been launched late last year or early this year. The fact that it is late has disappointed our customers and left a number of them frustrated, and it has been a source of frustration to us in the organisation as well. We understand the issue, we understand what we need to do about it, and we have a job of work to fix it.

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Launched: Reuters Wealth Manager Moving on to Wealth Manager, the private wealth management and advisory product in the market, we announced last week that we have launched this next generation product particularly for the European private banking sector, and we have called it Reuters Wealth Manager. Again, it is an easy to use product, it is designed to help wealth managers and financial advisors serve their clients. For example, it includes access to mutual fund data and a screening capability which comes from Lipper, which is our fund performance intelligence unit, and it helps clients to find exactly the right fund for their clients, to make the recommendations they need to make. It has two main sales objectives and the campaign is really starting now. The first is to provide a migration path for our other legacy products, particularly in this instance Reuters Market Monitor, where we have lost a number of accesses as the product has become less competitive over the last year and a half or so and, secondly, to win new business. We expect that around 60% of this product’s sales over the next year or so, as it rolls out successfully, will come from migration and the balance will come from new business. It has been pre-sold a little through the summer and, to date, we have already pre-sold over 2,500 accesses with one particularly large customer, Credit Suisse, buying 1,800, and we have great hopes for this product. The good news in this instance was that this product was delivered absolutely on time and on schedule, so we learned some of the lessons from Trader and made sure in this instance that we did not repeat our mistakes and delay this product as well. Under the heading of Reuters Product Simplification, we can give this a tick. We will not be launching any more new products over the next year or so. We will absolutely be improving the products that are out there, adding new capabilities, adding new functionality, adding new content and any other services which we perceive that our customers will use and will pay for, but we will not be launching any new products. That job is done. It has taken us a few months more than we hoped but we have arrived there, and that is a very important milestone for us to have reached. Improve customer service It is a milestone which is almost a prerequisite for the achievement of our fourth objective here, which is to improve our service. The chart on the top of this slide

demonstrates how our internal but very thorough customer satisfaction scoring system has improved over the last year. We measured it for the first time extensively in the first half of 2003 and, as you can see, on a score from zero to 100 across a whole different number of criteria including the product itself, its functionality, its ease of use, from account management right the way through to training, how easy it is to install, how good is the

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support behind that when things go wrong and so forth, we scored 66.9 points. On its own it really does not tell you anything other than we would seek to improve on that. The other question we ask every single person who filled in our survey is not, “whom do you rate best in class?” but “how would you score the best in class, if it is not us?”. The difference between the best in class scorer and us was 10 points at that stage. As you can see, through our own efforts investing in people, in training and in support systems that lie behind providing great service, being able to get the calls answered and the problems fixed quickly, we have pushed that overall score up from 66.9 to 71 in a year, and the gap has reduced to a little over half of what it was a year ago. That is encouraging progress and it is progress without, throughout that period, having had the complete product range in place. We have these data on a customer by customer basis, particularly for our larger customers, and we have them on a product by product basis and, if you get underneath this and see what our newest, next generation products rolled out over the last 12 months or so are scoring relative to the best in class, we are right up there. The differences are minimal and in some areas where we have previously been behind, we have absolutely caught up. When I say “minimal”, I mean down to a point or two, which is very encouraging, as it demonstrates to us that once we can roll out our new generation products and once we can migrate existing users, this is a score that will naturally close against that competitor. Our competitor’s significant competitive advantage over Reuters goes away, which, again, is a critical milestone for us. Transforming the way in which we build, deliver and operate. All these things are fine but, if we cannot drive and make Reuters a scalable business that gets new services and capabilities out to customers substantially quicker, we will have invested a great deal of time, hard work and effort in getting it only really from average to mediocre which is not our aspiration. Our challenge here is to do a number of significant things. We want to reduce the number of platforms: there are too many and the more platforms you have, the more support and technology people you need behind to support them. We need to shut down outdated, often bespoke distribution networks. The world has gone IP and Reuters needs to go IP as well. The good news here is that, by the middle of next year, every one of our products, including some of the older, more mature ones, will be completely IP-enabled, which will enable us to make use of the next generation distance-insensitive (in terms of pricing at least) networks that are out there to get our products delivered more quickly, more reliably, certainly less expensively and with huge cost of ownership opportunities to offer to our customers as well. Our mission in this space is ruthlessly to simplify and streamline our infrastructure, our systems and our processes.

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Why? Because complexity is expensive. It hampers our efforts to deliver great service and it slows us down, hence the delays in the launch of Trader, as I mentioned earlier. What will it mean for Reuters? What does this mean that we have to do? The ultimate challenge for us is to be great at something which Reuters has not been as good at as it should have been for a while, which is to become great at execution. What are the tools that will enable us to do that? The most important one, which is on the top of the slide (and you may think it is rather “motherhood and apple pie”), is to become an organisation that drives all the way through the organisation the ability to make decisions around value and value base. I used to be CFO of another media company and, just looking through the list of all the media companies that have been presenting over the last couple of days, this is not an issue that many of them would really think about too much, because many of them get it consensually in the way they operate their businesses today. The reason for that is because they do not have a shared cost base on anything like the same size and scale that we have. different parts of the business. They operate within their product silos across the

Eighty-five percent of Reuters costs are shared across

virtually all the products that you have there. Therefore, the question always is, how do you tweak the model in one part to make it optimal, without being able to understand completely what is the relationship between adding a new customer onto the end of the line in some obscure part of the world relative to the cost of delivering to that customer, relative to the implications in serving that customer, right through to the implications in terms of product design and everything else? How do you connect all those parts together, so that you can deeply understand what you need to do to make this business function optimally? We have spent a great deal of time – some 18 months – we have invested the time of almost 300 people in various ways to develop something that we call Profitability Insight, which will help us right the way up and down the organisation to make these value-based decisions. It is a genuine revolution in our company and it will make an enormous difference to the way in which we work. By the middle of next year, all our products will be IP-enabled, allowing us to take full advantage of those distance-insensitive networks, which will not only deliver total cost of ownership advantages and cost reductions to our customers, but also cost reductions to us. By using off-shoring opportunities, such as the ones that we have opened up in Bangkok and more recently in Bangalore, we are changing and re-engineering many of the processes in Reuters which have become somewhat entrenched in the sense that this is the way we have always done it and that is the way we will always continue to do it. By shifting

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those operations to that part of the world, you can totally rethink what you are doing, how you are doing it and why you are doing it and completely re-engineer to the point where there is cost efficiency but, much more importantly, there are significant quality advantages, which our customers appreciate, as well as productivity ones. We talk a great deal about cultural change in Reuters and it is a very hard thing to measure. Perhaps one of the best illustrations of how Reuters has changed is our ability to adapt ourselves to be more like the companies that we have acquired, rather than drowning them in the Reuters complexity. I cite three examples of ADT, Multex and Bridge, which have all brought expertise in product delivery that is fundamentally changing the way we work. Reuters is becoming more like them, rather than they become more like us, and you see that in products such as the Reuters Knowledge family which is built on the Multex approach and the Multex platform with a lot of Multex content built into it as well. It is being scaled up by being part of Reuters and it’s being turned into a global product rather than a more regional one, with the great advantages that that brings. Reuters also has some extraordinarily talented people, but a talent that was in scarce supply a few years ago was the ability to recognise when new thinking brought in from the outside was necessary to drive us forward. One interesting statistic: of our top 70 managers in the organisation, there is a natural layer at which that lands, 30 have come into the organisation in the last three years. The latest is a man who joins us on Monday of next week called Andrew Hausman, who was previously at Bloomberg and who was the executive responsible for Foreign Exchange including the relationship with EBS. He also built Bloomberg’s fixed income trading engine and he is joining Reuters next week to help to build and develop further our own next generation transactional capabilities. Therefore, if we get this right, this will be the effect. A speeded up company that is able to deliver simpler, faster and better products and services, and to add to those as necessary. The Holy Grail for this organisation, and the Holy Grail for an organisation with a shared cost model such as ours, is the ultimate scale economy. It is a truly scalable

business model which can be brought to bear on a global basis and, once you apply that to those advantages that I have listed on my very first slide, I genuinely believe that Reuters can and will be a great company again. With that indulgence on a slightly different theme than you might usually hear from me, I shall stop talking and throw it open to questions.

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Question & Answer Session

Question: How is morale at Reuters after Tom’s comments reported in the press last week? David Grigson: This was what you saw in The Independent and perhaps in one or two other newspapers as well. For those who might not have seen it, there was an article which was, not unusually on these occasions, selective. I have forgotten the headline but it read something like “Tom Glocer or Chief Executive beats up on his people” – something along those lines. They referred to a comment from an internal memo that Tom had put out on our thing we call the Daily Briefing, which is a web-based service to which we all have access, in which he pointed to a number of features of the progress that we are making and he talked about a number of things that I have mentioned here. He also

reminded us that a number of our products came out late, we have had some service outages over the summer and earlier months which are unacceptable, because a service outage means that a customer is not getting a service as and when they would want it. We are not unique in that respect but our objective is to bring those problems down to zero. In the context of the note to anybody who read it internally, it was absolutely fine. He has made those points numerous times before. There was an event in June where the whole company came together to address a number of issues but also to ensure that everyone of us was becoming increasingly familiar with what everybody else was doing around us, in which Tom made exactly that presentation, sometimes in person and sometimes in video, to every single person in the company. Therefore, internally it is no news there. He also delivered the message that he is going to hold people accountable for getting these things right, for getting them fixed. I believe that we should all, both internally and externally, take some comfort for that and it also illustrates to my mind a fundamentally different and very much more confident Reuters management in being able to address these sort of issues head-on, honestly with their staff without worrying about whether or not it will have some horrible backlash. Of course, the media can be selective about what they say. Is it a symptom of a morale problem? Absolutely not. There are parts of the organisation who anticipate and see that the consequences of doing the job that we have to do here might lead them to losing their jobs.

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As an example, once we have IP-enabled every product and have moved it onto the right network, we can reduce the number of data centres in Reuters from something close to around 250 down to around 10 or 12 – I am not bothered what the final number is, but a substantial reduction. They understand that and they know, therefore, that, at some point over the next two or three years as that migration happens, those data centres and, therefore, their jobs, will be closed down. Maintaining the morale of those people is not easy, you need to put in the right retention bonuses and to be honest with them, and there are any number of other examples where jobs are being scaled back in one part of the company and perhaps being built up in other parts as well such as in Bangalore. Maintaining morale through that is not easy. One of the things that we do every year is run a very thorough employee survey and we plotted morale. What is interesting is that the last time we ran it, which was earlier in the year, even though the job was not done in terms of job reductions, many of the things on which you judge morale were beginning to turn up the other way. Honesty of the

management, a clear understanding of where we are going, why we are doing it, what it is for and what the benefits will be at the end of it are the key drivers of that, and Reuters people get it; they are really motivated to make it happen which we should be encouraged by.

Question: What are the objectives that you want to achieve at the end of all this programme? What does it mean for top line growth, what does it mean about margin, what does it mean for return on capital employed? David Grigson: I find it very difficult to talk about each of those without packaging them together as a combination. The opportunity for growth in this business, I believe, is substantial. I can support that because we have just come to the end of an annual planning cycle in which the business owners in Reuters have come forward with their own plans as to what they would like to do in their own particular parts of the business. If I added up the total amount of revenue that was being promised in those plans (and we all know how business plans are put together: there is an element of discount that has to be included) and they are looked at over the next three years (as we do it on a three-year basis), if we invested in every single one of those and we delivered behind it, you see good, healthy top line growth, something in low double figures by that point. The problem with that is that this company does not, and cannot, have the capacity to do all those things, nor should it choose to at a time when it is working very hard to transform the way in which it does what it does now. As a consequence of doing them if we

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had chosen to, we would have seen fairly substantial margin deterioration, because the investment required to do it would have had that effect. Therefore, the challenge for us in the organisation currently is to know how to balance the foot on the accelerator which nudges our top line forward sensibly and in a way which is consistent with the other foot and what it is doing, which is to put it on the brake and fix the things that I have been talking about. It is our belief that within that three-year timeframe we can achieve the objectives we have set out, which is to see our margin in the 17-20% range. We plan to see reasonably healthy top line growth at the same time and one will be an enabler of the other. To deliver healthy top line growth requires some level of investment, which has some level of impact on that margin. Therefore, in our view those things are achievable together. We could drive the margin higher and see our revenue growth slow down. We could drive the margin lower and see our revenue growth increase. The good news in that message is that there is

opportunity in our marketplace that we foresee. The challenge for us is to deliver it optimally in terms of everything we are trying to do in building the scalable business model that I have talked about as well as the right combination achievable within all the constraints that we have around our organisation of revenue growth and margin. Question: Do you look at Return on Capital? David Grigson: We do look at that. Reuters is not a capital-intensive

business. It has applied capital, in my view, sensibly over the last two or three years to acquire presence and capability in the form of Bridge to plug a pretty significant weakness in Reuters global coverage which was the United States, where we are now substantially stronger. The point that I should have made but omitted to make earlier was that to demonstrate just how powerful a complete product line can be in our business, we reached the stage we have reached globally now in the US about a year ago thanks to the Bridge acquisition. What we have been doing with that, and much of the improvement in our US business, which has been driving forward very aggressively and very successfully this year, is not only because the market has been stronger there, but also because the Reuters salesforce has the right products to sell and since it knows it can satisfy the needs of every single person it comes across in that market, you have a much greater chance of securing the new business that is out there and protecting your existing franchise against competitors than you had before. Therefore, Bridge was an opportunity. Multex was more of a content play where we applied the cost of capital at that time, which reflected the fact that with the share price at only a little over £1, the best use of that

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capital in the event that we did not spend it on Multex was to return it to our shareholders. We used a 27% after tax return on capital as the yardstick we had to climb over for that and, more recently, we would expect that number to come down. So Reuters is not a capital intensive business, it is a cash generative business that does not see the need to apply that cash to reinvest to build what it has. It has assets on its balance sheet which it does not see as staying there for ever and, therefore, it has a bias probably, as we look ahead over the next two or three years, to returning cash to shareholders rather than reinvesting it in the business.

Question: If you were to meet with the same business managers and tell them, “we have a fantastic range of products, you are not going to run them on capex at the bare minimum maintenance level”, and if you were to collect feedback in terms of targets for the next three years and put a reasonable discount on that, what kind of figure would you get in terms of growth for the business? Ultimately, you come down to market share and

penetration of the existing market, I guess. David Grigson: If I understand the question correctly (and if I go down the wrong avenue just correct me and bring me back again), there is within the Reuters portfolio of products the services that we have there, and particularly the next generation of transactional capabilities, which are being built increasingly as capabilities into those products, which is where we expect to see a disproportionate amount of revenue growth coming from. To put it simply, this is the shift that is taking place, the fundamental demand of our marketplace that lends itself strongly to Reuters own competitive advantage that people do not want purely to have access to dumb information on terminals that they cannot do anything with other than read from and, if they want to go and transact, they have to find somewhere else to go and do it, people are looking to do that through the same screen. Therefore, if they see a price that they like at which they want to buy or sell, they can click on it and they can find the route to best execution through that. We call this the shift from being aggregated to data to being aggregated to liquidity. Within that mix, the capabilities that we are talking about building out are adding new revenue-generating opportunities all the time. This is already very strong in the Treasury space, which is our heartland. We’re building those capabilities into both equities and fixed income as well as, at the same time, strengthening the content composition of those products, because ultimately it is the content that drives liquidity. You must have both, you cannot shift from one to the other. You can shift from one, strengthening it all the time, and the other will come as a consequence. If all we do is that, and maintain the sort of pressure that we are maintaining on getting the

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organisation into the shape we want, the sort of growth rates we talked about in April this year in this very room are in the high single digits of 5%-6%-7% within a three-year timeframe. Let me remind you of one thing which I believe demonstrates that that is not a particularly aspirational goal but a pretty achievable one. My understanding is that the

market has a consensus of roughly flat revenue growth for Reuters next year. Within that, there is one factor which disguises the fact that this is a business that will be growing next year. Through much of the 1990s, if you wanted a Reuters product on your desk you had to buy from Reuters a layer of infrastructure called a market data system in order to support that. Often what comes with that is a datafeed that feeds that market data system that then separately feeds the desktops on your desk. That is the way Reuters sell products. It is expensive because, by the time you add up all of that cost and you apportion it across each product on the desk and call that the total cost of ownership for each product, often that can show up a number which is more expensive than the competitors’ products which do not require that infrastructure, by the time you have factored in all of the costs - not just what you pay Reuters, but the IT specialist and everybody else to maintain it. Reuters have built up what we now recognise, and have recognised for some time, an oversold position of these systems out on people’s desks. Therefore, one of the reasons why we are addressing as our principal concern the premium products in our mix, and particularly putting into the mix a hosted version of those products (rather than just deployed versions) where we take all that heavy lifting onto our own backs, is we are now able to replace those expensive ways of looking at Reuters products with substantially cheaper ones. What goes away as a consequence is a bit of a once-off revenue stream but, more importantly, a 15% per annum maintenance charge and other datafeed costs that go with it. We estimate that, this year, that represents about a 3% revenue loss on last year, and it will represent roughly a 3% revenue loss next year before in 2006 we begin to get closer to the right sort of equilibrium in terms of having these systems in companies who should have them, because they can get real value out of them, and not in customers who cannot. Therefore, if we are flat next year, taking the 3% away, the rest of the business, which is a small proportion of our revenue, is growing at 3%. So if we eliminate this as an issue by the time we get to 2006 without anything changing, the business is growing 3%. Get this product range really working for us, get that shift away from being just information-based and desktop-based towards something that is more enterprise-based and more liquidity-based, and you can start to see where the layers of extra 2%, 3%, 4% or 5% revenue will come from by the time you get into 2006 and 2007. From where we are today, therefore, this year’s number being minus whatever – 5%, 6% or 7%, whatever the market

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says it is – to next year’s “flattish”, to the following year’s “all the way up to high single digit” growth is not an unachievable objective, without us having to do a great deal of new stuff to make it happen. Does that answer your question?

Question: You say it is not unachievable to achieve high single digit growth? David Grigson: I said that it is not beyond the capacity of this business to achieve those sorts of growth numbers within that sort of range, medium term. It is not inconceivable given that next year we are starting from the 3% level. The question was, do you need to do more to be able to build that sort of revenue growth? Where we are today, with a fair wind, it will enable us to get there. Three years and more because it will take us another 18 months or so to get the oversold position out of the organisation in our market data and datafeed business. By the time that is out, we are sitting there looking at a business which is already growing at the rates which are half-way there. In our view, the

market has 2%-4% growth within that and that is a narrow definition of the information space that we are in now. With the usage revenues that come with that as we move towards being more providers of access to liquidity rather than just data and information, add to that the new opportunities: Reuters Wealth Manager will go out there and get 40% of its revenue from new customers, if Trader is going to get a portion of new revenue once it has succeeded in migrating its existing legacy base across, if we are successful at attacking our principal competitors in the premium space oversold position, those things add up to something which is in that 5%-plus growth rate. Question: Have you been saying that before? David Grigson: We sat in this room in April, our friends in Cazenove will tell us, and we talked about the market being 2% to 4% but our aspiration being above that. So there is no fundamental shift. What I am doing here is just adding the components and saying do not start from a zero flat, because that is where you are in 2005 in what appears to be a reasonable market, and it sounds a little beyond your means to get to somewhere above the 2% to 4%, say 5% or above which is high single digits, or higher single digits. If you start from the 3% number, it begins to look a little more achievable.

Question: Is the loss of Enterprise revenue margin dilutive? David Grigson: Yes, if all things stay the same and much of this revenue would lower our margin. Of course, all things are not the same because a great deal of effort is going into fixing many of the things which keep our margins below the range of 17-

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20% anyway.

Therefore, there are a number of mitigating factors that have the

consequence of helping to lift our margin in overall terms, despite the fact that that revenue loss on its own would take margin with it.

Question: Can you give us an update on net sales of terminals? What has the trend been over the last three or four months, and can you give us some colour by geography as well please? David Grigson: I would rather not, because we run into the trap on these occasions of picking on individual months, which do not tell you very much. Our business runs to a quarterly cycle just because of the way our contracts are written and the way that people can either add or subtract services. This is why we update the market on a quarterly cycle, and our next quarterly update is in the middle of October, so that is the best time to do it. I would say that not necessarily in October but certainly in the next three or four months, we would expect to see, at least in the sales numbers if not yet in the revenue numbers, some of the benefits coming through of having the complete product line. There are

customers out there who have been waiting for their migration opportunity. We have seen some real examples of new sales of some of these products, and we ought to be able to see that begin to have an effect, which is certainly one of the things we will be looking for internally. Question: Can you just remind me, did you make it through the zero line where additions were greater than cancellations? David Grigson: This again gets into dangerous territory, because we did that in May for the first month and because it was the first month in three years, it felt like a bit of a breakthrough moment. Internally, we knew absolutely that by the time we had June and by the time you average the quarter, which is the way we do it, we would be back into negative territory, which is what we showed you when we produced our interim results in July. Therefore, any single month is open to misinterpretation and the summer is really the funniest time of all, because Europe shuts down and there are any number of other factors. Interpreting the data on any single month can guide you to slightly the wrong place. Suffice to say that there have been no fundamental changes against our own expectations and against the guidance that we provided in July, although, as always, September is a more important month as a quarter end month than the interim months that precede it, so we wait to see.

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Question: The consolidation that Tom spoke about, without giving us numbers, could you give some sort of feel as to how that is flowing through? David Grigson: It flows through at two levels. The banking consolidations which we read about in the Press, particularly JP Morgan/Bank One as an example, flow through, or at least we became aware fairly early on that there would be a knock-on effect to the number of Reuters products that are on people’s desks as a consequence of headcount take-out. We had some guidance way back in the spring as to what we expected that to be and when we expected to be notified, depending on when the deal was completed. We

expect to see that come through in this quarter. That is all factored into our thinking and it is a sum of money which probably adds up to something in the region of about $4 million a year – in that sort of range. However, many of the bank consolidations we read about, such as Banco Santander/Abbey, will make no difference to our business at all, as we expect that there will be very little fall-out and where there is fall-out it will not necessarily be people who have Reuters products. There is the other effect, which is the consolidation that you do not read about in the Financial Times, which are the consolidations in the little banks in Italy or the Landesbanks in Germany or obscure banks in other parts of the world who are busy consolidating, but do not make their way onto the headlines in the daily press. That is where we have seen the effect of consolidation really hurt most, particularly in the European market, and where it is not yet confirmed that these two banks will join, but any kind of expectation that those banks will join certainly has a dampening effect on the market generally around those particular businesses. Therefore, it is hard to put a precise number on it but it is a factor in our business, and not one which will go away. However, taking next year as the opportunity to make the point, if we grow our business 3%, putting aside the correction of the oversold position, there is growth out there in the big, wide world that allows us to do that.

Question: You have renewed all your range of products to the level of the best in class but the fact is that you are in the position of trying to dislodge the best in class. What is the proposition that you have to dislodge somebody who has had super service, good products for many years? Are you doing that on price? David Grigson: First, eliminate that best in class competitive advantage or key competitive advantage at the premium end, and we are only talking about the premium end in the context of where the service has been a differentiator. To make a point about service, we measure ourselves against the best because we aspire to be the best, but we are the second best. Wherever else you go down that list of how our customers rate

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Thomson, Moneyline Telerate or any other players, they come way behind us. Therefore, for the majority of competitor standoffs we come out ahead. The second issue is to make sure that the product itself has the right functionality addressing the individual users’ needs. That they are getting the training they need to use it. Make it accessible, then play to our strengths. At that point you are neutral in front of the users eyes. What are our strengths in comparison to Bloomberg? Our strength is that we offer our products in a way that allows the customers to add a great deal of their own proprietary content and information to make it a more usable product for their people than a Bloomberg. This then allows them to use the data that they are getting to funnel into tens of thousands mission-critical applications across the world that drive their proprietary trading, drive their risk management and drive any number of their critical systems. It also allows them access to the network because our technology opens itself to that access, so that they can access their own counterparties, so the sell-side or buy-side or whatever, through us as an independent neutral distribution channel. Therefore, talk to them not just about a product at a price which does certain things, but talk to them instead at a strategic level about how Reuters can offer them a broader range of services that meet absolutely what their own strategic aspirations and objectives are across a whole different boundary of activities and then ensure that they value those enterprise capabilities fairly and properly. You help them to do that by understanding just how important it is to them and then, and this is the part that goes to the price point, shift some of the value that they are currently paying for their desktop into that enterprise, consequently lowering the price of the average desktop and increasing the value that they pay for the enterprise part, so that our revenue stays broadly the same. Then you have a price advantage to go along with all those other either advantages or certainly neutral comparisons. It is the combination of those things that makes the Reuters proposition that much more powerful. Those are the deals that we have done with Goldman Sachs, with Merrill recently. Those are exactly the deals that we have done and where we have done them and have been rolling them out, we have seen a reasonably significant shift – given that they are relatively new – and displacement of the other person’s services onto Reuters, because they see the cost advantage and because they can see many other advantages as well. [ends]

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