The messenger is sick of getting shot

Jason Nissé asks if the financial information giant can come back from the dead in the City by stripping back to its core

The title of the session at the World Economic Forum in Davos, Switzerland, two weeks ago was "Media & Terrorism: Changing the Ground Rules". But Tom Glocer's contribution was less illuminating than the comments he made to an American journalist a few minutes later.

The embattled Reuters chief executive gave strong hints about the future shape and strategy of the troubled company, and next week he will hope to produce a road map showing how Reuters will escape the greatest crisis in its 152-year history.

The company is famous for revealing the whole story of horrific events around the world. And Tuesday's full- year results announcement will continue the tradition.

Reuters, which has just hired the Queen's former press secretary to help it communicate with the markets, found 2002 to be truly an annus horribilis. Competition from the likes of Bloomberg and Thomson Financial was exacerbated by a recession in Reuters' key markets of the City and Wall Street, where around 30,000 jobs have been lost in the last couple of years.

To add insult to injury, a massive contract with Merrill Lynch, the giant American broker, was lost and the value of Reuters' investment in two former star companies, Instinet and Tibco, collapsed. The group's pre-tax profits are expected to fall from £304m last year to maybe as low as £65m. After restructuring charges of more than £200m, goodwill writeoffs and other provisions, this could turn into a loss of maybe £500m. The dividend is expected to be cut. And so are up to 1,000 jobs, bringing the cuts in the 18 months since Glocer took the helm to more than 3,000. Reuters shares, which have lost 90 per cent of their value in three years, are at an all-time low.

But for seasoned Reuters watchers, little of this will be news. The hot scoop will come from what Glocer says about the company he wants Reuters to be, and what he is going to do to create it.

In his Davos interview, Glocer made a telling statement. "The truth is, we're in for a longer period of boring, fundamental restructuring. What you are going to see ... is a much more focused Reu- ters that isn't at all ashamed to say we are first and foremost an information company."

This might not seem such a startling statement. After all, Reuters was founded by Paul Julius Reuter in 1851 to transmit stock market prices over the new Calais-Dover cable, and grew from its tiny London office into the largest and most famous news vendor in the world. Its skills in financial information were behind its massive growth in the 1970s and 1980s, culminating in its flotation 15 years ago. And every chief executive until Glocer has been a journalist by background (Glocer is a lawyer).

But more recently, Reuters decided it was not only in the business of collating and delivering information; it believed it could also build dealing systems for banks and write software for traders. It was as if British Airways thought flying aircraft was not enough – it had to manufacture them as well.

Some of these investments – notably Tibco, the software group, and Instinet, the electronic trading business – were seen as the saviours of Reuters a few years ago.

At the height of the technology boom, these two operations alone were worth more than $20bn (£12bn). Now Reuters' Tibco holding is worth just $400m and its controlling stake in Instinet is priced at $850m. And following poor figures from Instinet last week, broker UBS Warburg warned: "We remain sceptical about the long-term viability of the Instinet business model." In other words, this stake could be worth nothing.

Before Glocer took the helm, Reuters appeared to see itself as a large-scale incubator for good technology investments. It set up the Greenhouse Fund under the guidance of the then finance director Rob Rowley to back promising ventures in financial and information technology. Glocer has spent the past 18 months getting rid of many of these investments, and on Tuesday he should finally put this venture to rest.

As Patrick Wellington, who follows Reuters at broker Schroder Salomon Smith Barney, puts it: "Reuters [is] retrenching from some part of its technology services ambitions. This shift should produce greater clarity and focus in the group."

Some analysts are expecting Reuters to sell out of Tibco and Instinet. Indeed Tibco's chief executive, Vivek Ranadive, appeared to be trying to force Reuters' hand last week by saying that he wanted it to cut its 42 per cent stake. However, Glocer, who used to work in mergers and acquisitions when he practised law, is not about to get out of these businesses at any cost. He will wait for values to recover.

So what can Glocer tell the markets to give them hope that the bad times are over at Reuters? He won't be able to point to any good figures: 2003 could be as bad as 2002 in sales terms and the company's market share in financial information could hit an all-time low of under 32 per cent.

"Management's priority is to stabilise the core Reuters business model to support a realistic, sustainable margin," argues Paul Sullivan of Merrill Lynch. "It faces an uphill battle to rebuild confidence."

Glocer's job is to say Reuters is fighting back. He will need to show that the job losses are cutting away the bureaucracy that has stymied the company for too long, but at the same time keep the cost cutters away from the editorial side, which is the custodian of the Reuters brand.

He could even start the fightback. Many feel that Reuters can take advantage of the post-Enron clampdown on conflicts of interest within investment banks by starting its own research service. It would be a bold move, maybe too bold for some critics.

Glocer's task on Tuesday is not to "change the ground rules". He needs to restate the ground rules, to rebuild the foundations.

Reuters enjoyed nearly 150 years of growth before its recent problems. It shouldn't forget how that was achieved.