A word to the wires: Reuters tells its own financial disaster story

A year into his job as chief executive, Tom Glocer has taken drastic action to reverse a share slide at the information giant. But the City is still shooting the messenger

As Tom Glocer, the chief executive of Reuters, celebrates his first anniversary in the job on Tuesday, he can point to at least one piece of good news during his reign. Brazil, his favourite football team, won the World Cup.

Elsewhere the gloom is setting in. Investors had hoped that he would be the saviour of this grand old British institution and herald a new era of financial success.

But Reuters has the doubtful accolade of being the worst-performing company in the FTSE 100 this year, seeing its shares fall 52 per cent to their lowest level for nine years. A restructuring has failed to turn the juggernaut around and more job cuts look likely following the 2,250 already announced.

The company has come a long way since it began 151 years ago, delivering share information via cable and even pigeon. Now it sends some 30,000 headlines and information on more than a million financial instruments around the world every day, through its Reuters screens and the internet.

Critics, however, say that it has never really grasped the possibilities of the new communications era and is stuck in a 1980s time warp.

Reuters has earned a reputation for honesty through its long history. Recently Mr Glocer laughed off the thought that the group could have indulged in any Enron or WorldCom-style accounting scams, saying "we normalise [the accounts] to make them look as bad as possible".

They certainly will look bad when the company announces its first-half results on Tuesday. Investment bank Goldman Sachs predicts that Reuters will make a loss of £15m for the half year, with falling underlying sales and the prospect of worsening market conditions.

Analyst Anthony de Larrinaga at SG Securities explains the prospects: "Reuters has yet to hit the bottom. The company is servicing a market which is essentially cyclical, and going through a pretty significant setback at the moment," he says.

Its main customers are the financial markets, and to a lesser extent the media. Although the overall economy is steady, these sectors are currently in a severe recession, with many companies cutting costs and staff. "Fewer eyeballs means fewer [Reuters] screens," says Mr de Larrinaga.

But there are concerns that Reuters is not just suffering from a cyclical downturn but has more fundamental problems.

For a start, arch-rival Bloomberg has been doing rather well. Its share of the market for financial institutions, the highest-paying customers, has increased steadily from 20 per cent in 1997 to 38 per cent last year, according to Risk Waters, an independent research firm. Reuters, on the other hand, has edged up from 35 per cent to 39 per cent, although it has bought more through the acquisition of part of Bridge, its former competitor which was in bankruptcy proceedings last year.

"Competition is vicious," says John McConville, editor of "Inside Market Data Reference", a quarterly research publication from Risk Waters. "Bloomberg is now offering extended free trial periods, which, if you think of it, is a form of discounting. Mr Glocer says that is creating pricing pressure by narrowing the gap between Bloomberg's prices and those charged on Reuters' 3000 Xtra [its premium screen product]."

There is fierce competition in all information markets, whether it is from operators like Thomson Financial's Topic screens or the masses of cheap or freely accessible financial and news websites.

Some industry watchers cannot see how Reuters can fight this competition effectively. "What is Reuters' real strategy?" asks Johnathan Barrett, media analyst at stockbroker Teather & Greenwood. "There doesn't appear to be one. There is nothing original about Reuters any more, and its usability is not that great.

"There isn't an obvious strategy to improve the quality of the business. It has found itself in a very competitive environment."

In the face of these challenges, Mr Glocer has tried to cut costs and become more efficient. Pity the poor staff. Not only have 2,250 jobs been cut, more than a tenth of the workforce, but the fall in the share price will affect their pay. All employees have the right to buy a chunk of shares at 550p, but that's no good to them when the current price is much lower.

Many of the job cuts have been at the management level, including Sarah Dunn, head of corporates and media, who was one of Mr Glocer's first appointments when he started the job.

Much of the pain has been in the name of making the large, unwieldy company leaner and meaner – and therefore more able to compete with upstarts on the scene like Bloomberg.

"Bloomberg is a classic case of someone coming into a market place, looking for a competitive edge, being more defined, and coming up with things that are more intuitive and user-friendly," says one former Reuters employee.

"It is not as good [as Reuters] in a lot of areas, but it is being good at promoting itself and capturing imaginations,"

Perhaps Reuters doesn't realise the assets it has in its content division. "The majority of media at some point, whether newspapers or TV, rely heavily on Reuters. It hasn't maximised this to its true potential," adds the ex-employee.

Although customers often grumble about the difficulties they encounter when using Reuters screens, the news service it provides has a good reputation.

The company prides itself on its independent editorial policy. Recently, Mr Glocer told its New York office to remove an American flag flying outside, even though the symbol is almost compulsory in the US since 11 September and he is an American national.

Another problem for Reuters is an issue for many media companies: a blistering hangover from the champagne cele- brations of the technology boom. Reuters set up the "Greenhouse Fund," a venture capital operation that invested in technology companies. It says it has nearly made its money back on the fund, which still has assets that could be sold. But its hopes of floating the division look to have been dashed.

The company's other investments are also getting singed in the technology meltdown. It is a majority shareholder in Tibco Software, which provides technological wizardry to financial institutions, and Instinet, a trading platform for the US Nasdaq market. The latter is suffering from falling revenues due to the reduction in trades on the market, and both the investments are making a loss.

To cap it all, debt-ratings agencies are starting to become bearish on the company, with both Standard & Poor's and Moody's putting Reuters on "negative outlook" – which means they think its financial position could get worse.

So Mr Glocer has more than a few issues to chew over next week as he announces results, celebrates his anniversary and tries to persuade sceptical analysts that he has a strategy to take the company forward.

With all these problems, perhaps he should consider re-employing the homing pigeons. He could do a lot worse.