Hit by the raging storm

Reuters, the UK news agency, is suffering its worst losses ever due to the reduced spending of its clients in the financial sector. Can it ever recover?Jon Ashworth considers the question

It was one of the more surreal business encounters. Tom Glocer, chief executive of Reuters, the global news powerhouse, chatting to a homeless man about life on the street. Glocer, the polished New York lawyer, trying to find common ground with one of London's down-and-outs.

The encounter happened in May last year during a 'Seeing is Believing' tour organised by Business in the Community, the charitable organisation. Glocer was among a group of business leaders taken behind the scenes at hostels in the rougher part of Westminster. A self-effacing, compassionate man, Glocer had encouraging words for those struggling to get themselves back on their feet and back into work.

Few of those present would have appreciated the ironies. Glocer, appointed chief executive in July 2001, was in the thick of cutting thousands of jobs at the venerable news and financial services provider. Mass redundancies in the City and on Wall Street had seen a run of cancellations for Reuters trading screens - its main source of business. Competition from comparative newcomers, like Bloomberg and Thomson Financial, was increasingly making Reuters look inflexible and bureaucratic.

In February, Reuters announced a pre-tax loss for 2002 of £493m - the worst in its 153-year history. Two months later, the company said that 2003 first quarter revenues had fallen 12%, with no sign of an upturn. The Reuters share price had fallen more than 70% in a year, yet Glocer's pay package hit £1.7m, including a bonus of £612,000. The unfortunates who shook hands with Glocer during his homelessness visit would have stared open-mouthed had they known. As it is, the anger came from all quarters - employees, fearing for their jobs, and investors, anxiously watching their dwindling portfolios. At the annual meeting in April, nearly a quarter of Reuters shareholders voted against Glocer's pay.

Floated in 1984 at 196p a share, Reuters saw its share price peak at 1,400p around the time of the dot.com peak before going into rapid decline. The shares hit a low this year of 95p.

Bust-ups over boardroom pay are a world removed from Reuters' origins. The company was founded in London in 1851 by Paul Julius Reuter, a German-born immigrant who had used carrier pigeons to fly stock prices between Aachen and Brussels. Using the new Calais-Dover cable, he transmitted stock market quotations between London and Paris.

The global headquarters remains at 85 Fleet Street. Reuters soon became known as a news provider. It made its name with a succession of scoops, including the news, in 1865, that Abraham Lincoln had been assassinated. Reuters expanded with the growth of telegraph and undersea cable, forming bridgeheads in the Far East and South America. By the 1920s, the company was using radio to transmit news around the world.

By the 1960s, Reuters had begun making its name as a provider of information for the financial markets. Its Monitor system, launched in 1973, created an electronic marketplace for foreign exchange. Monitor Dealing, launched in 1981, allowed foreign exchange and bond dealers to receive real-time news and prices and make transactions on the same screen.

Reuters was floated in London and New York in 1984 and continued its breakneck expansion, buying Visnews, later Reuters Television, in the mid-1980s, and launching a range of financial trading products. Glocer's arrival at Reuters was a clear watershed for the company. Only the ninth chief executive of Reuters in 150 years, he was the first American and the first non-journalist to hold the post. His arrival was seen as injecting new life into an institution criticised in the past as introverted and arrogant.

Glocer's appointment coincided with the announcement of 1,100 job losses at Reuters - the crest of a slippery slope, as it turns out. He was soon extolling the merits of something called Fast Forward, an attempt to slim Reuters down to mirror its shrinking market. By the end of 2006, Reuters' workforce is expected to have fallen from 15,900 to about 13,000. By then, Reuters hopes to have achieved annualised savings of £440m.

Fast Forward involves reducing the number of Reuters products from 1,000 to 200 and enhancing the remaining ones. The cost base is being reshaped, redirecting investment into areas such as customer service.

It all sounds uncannily like the Future Size and Shape plan being implemented at British Airways. Like Reuters, BA is trying to scale itself down to fall into line with its declining market. The programme relies on job-cuts, outsourcing of services and a focus on profitable sources of business.

Reuters' products and services fall into three broad categories - information, transaction & interaction and solutions. Along with information, Reuters connects buyers and sellers by providing electronic access to multiple brokers. The 'solutions' side of the business involves selling risk management products to foreign exchange and money market professionals.

Group sales in 2002 came to £3.6bn, of which the bulk came from four business areas: treasury services, investment banking, asset management and corporates & media.

Treasury services - the provision of information and services to foreign exchange and money markets professionals - is the biggest chunk of the business, with 2002 revenues of £1.1bn. This was down 5% on 2001, when revenues grew by 8%.

Investment banking was hit hardest, with sales of £834m down 11% on 2001 on an underlying basis. Banks continued to cut costs by eliminating duplicate services, replacing existing products with lower cost alternatives and reducing headcount.

Asset management generated sales of £709m, down 4% on an underlying basis. New business was hit badly as fund managers cancelled or deferred IT spending plans, or took projects in-house.

Corporates & media embraces the 'old' Reuters of news provision. Revenues fell 7% last year to £315m. The decline was blamed on belt-tightening by clients caught by the slump in advertising. Customers cut back on research and scaled back on installing Reuters products.

Further revenues flowed from Instinet, the electronic broking company in which Reuters holds a 63% stake. Reuters has already reduced its stake in Instinet, netting a £200m profit, and there is speculation that it will sell out completely. The proceeds would help offset the sharp declines across Reuters' business segments. Subscriptions and maintenance fees accounted for 91% of Reuters' revenues last year.

Reuters' story is not an unfamiliar tale of a sprawling leviathan overtaken by market forces. Bloomberg, leaner and hungrier, now rivals Reuters in most of its business areas. Competition is intense, and slicing costs out of the business - as BA is doing - is the only obvious short term response.

Bloomberg claims a City trading screens market share of 42%, compared with 40% for Reuters. Sir Christopher Job, the Reuters chairman, says the company is 'deeply affected by the storm raging in the financial services industry, our main customer'. Tom Glocer has seized on the turmoil as an excuse for slimming Reuters down - 'creating a fast, accountable, service-oriented team'.

Glocer's words tacitly acknowledge all that's wrong with Reuters - lack of focus, overpriced products and poor service. Not for the first time, an apparently unassailable brand has discovered to its cost that nothing lasts forever.

Jon Ashworth is business features editor at The Times.