VideoFirst came the good news. At the July 26 interim results presentation at his company's swanky new headquarters in London's Canary Wharf, David Grigson, CFO of Reuters, Europe's largest financial news and data company, told shareholders that he would be returning £1 billion ($1.8 billion) following the sale of its electronic brokerage unit Instinet. Meanwhile, his charts and graphs showed positive net sales for every month in the first half of 2005. What's more, underlying recurring revenue — its most closely watched metric — was up 0.4 percent, the first time since 2001 that it hadn't declined. Grigson also highlighted group sales for the six months to June 30, which beat analysts' expectations despite falling from £1.17 billion to £1.14 billion.
Then Grigson and CEO Tom Glocer hit investors with the details of the long-awaited growth strategy, dubbed "Core Plus." Reuters, they said, will have to make hefty investments to try to improve the way business lines are run, to help migrate products and services to internet-based technologies, and to build up businesses in places like China and India. The aim is to turn the steep revenue decline of the past five years into growth rates of between 5 percent and 7 percent by 2008. But Reuters's bottom line will have to take a big hit from another £170 million of restructuring costs, starting in 2006. Profitability will have to wait. Shareholders weren't impressed. "How many times has Reuters promised growth was around the corner?" one investor grumbled to the Financial Times. "Every time, they seem to have some sort of restructuring cost or reorganization cost to fall back on."
Or, as Johnathan Barrett, an analyst at London-based brokerage house Williams de Broë, puts it: "For a business that was just getting back to flat revenue growth, they were asking us to believe that they can get to 5 percent to 7 percent revenue for the long term. That's a big ask."
Reuters's share price tumbled more than 7 percent after the presentation, the biggest decline among FTSE 100 companies that day. Grigson's take? "I wasn't surprised. We all understand how markets react," he says. As the Reuters CFO sees it, the share price decline and the initial negative reactions reflect the market tendency towards "short-termism" that so many CFOs have to contend with. (See "Tell It Like It Is," at the end of this article.)
However, when a company finds itself in Reuters's predicament, the key is how well the executive management communicates its plan for recovery. It's a situation all too familiar to other companies. According to Christopher McKenna, a lecturer in management studies at Oxford University's Said Business School, "Companies that have a long-term strategic problem often need to change their message over the short term. But when that message changes too often, people start to lose patience, and start to lose the original logic of the strategy." And if investors begin to lose the logic, it's likely that CEOs and their management teams have too. Think Carly Fiorina of Hewlett-Packard, or Jürgen Schrempp of DaimlerChrysler — two ex-CEOs whose reputations were sullied by questionable growth strategies.
Same Old Story
As for Reuters, it's a story of a fast-growing star turned to rapidly shrinking burn-out. The company virtually invented the modern foreign exchange market in the 1970s and rode its huge growth through to a public flotation in the early 1980s. Talk then, under CEO Glen Renfrew, was of building a global supermarket for financial institutions, and the company grew further and expanded into other markets through the 1990s under CEO Peter Job. It acquired Instinet, which provided much of its growth in the early part of that decade as share trading in the U.S. boomed. It moved into the Internet through a venture capital arm and by wholesaling news to Websites.
By the summer of 2000, however, the Reuters that Grigson joined was already on its way to becoming a very different company, paying the price for missing the boat in at least two key parts of its business.
The most important was in its core financial data market, which accounts for more than 90 percent of the company's revenue. Having become the dominant player, Reuters had grown fat and complacent, and was seen by many of its customers as arrogant. Bloomberg, started in 1981 by former Salomon Brothers bond trader Michael Bloomberg, was thus able to capture a huge share of the market in little over a decade with a product tailored to sophisticated traders and investors.
Reuters was painfully slow to react and was overtaken by its rival. According to IMD Reference, which tracks the financial market data industry, Reuters's share of overall revenues derived from terminals continued on a downward spiral, slipping from 42 percent in 2001 to 39 percent in 2003, while Bloomberg's increased from 34 percent to 42 percent. Competition also intensified at the low end of the market, notably from Thomson Financial, a division of Thomson, which has captured about 6 percent of the market.
The situation at Reuters went from bad to worse by the time Glocer, a 44-year-old corporate lawyer who rose rapidly through the company's American division, stepped in as CEO in the summer of 2001. "We were a weak company going into a deep recession, and that's a pretty awful place to be," recalls 51-year-old Grigson, who was finance director of U.K. media group Emap before joining Reuters.
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