View from City Road: Reuters faces a cold wind

THERE WAS scarcely a dry eye in the world's financial markets when Reuters Holdings announced it was going to give up one of its great traditions - charging banks for the honour of providing it with financial information. For more than 20 years Reuters has perpetrated the trick of charging both the providers and the receivers of information. But the cold wind of competition has reached Reuters at last.

The statement by Peter Job, Reuters' chief executive, gave an indication of how bad things are. Phrases such as 'low level of new orders', 'measures to fortify our long- term market position', 'services free of charge' and 'decreasing prices' would never have passed the lips of his predecessor, Glen Renfrew. At best Reuters is facing a market correction. At worst its information services side has gone ex-growth.

So what does Reuters do? It says it is taking a long hard look at costs, and has spent a fortune on restructuring. In the first half it spent pounds 15m and will spend a similar amount in the second.

Yet staff levels and structure of employment appear to show little change. The company employs 2,434 administrative staff, a quarter of the total workforce, which suggests a bureaucracy.

It also wants to invest for the future. It has spent more than pounds 60m developing two transaction products, Dealing 2000-2 and Globex, which look like being a disappointment. It has bought a small French software house and says it is looking for more. It has bought the minority holding in Visnews, the television news agency, and is spending more than pounds 10m sorting out that business.

But while Reuters plans for the future, it has one big advantage: pounds 609m cash earning interest of more than pounds 60m a year. In the six months to 30 June this cash was the backbone of Reuters' improved results. Interest income rose 48 per cent when operating profits rose just 4.5 per cent. Overall the pre-tax total was up 10.2 per cent at pounds 187m, with earnings up 11.4 per cent to 30.3p and the dividend up 12.8 per cent to 5.3p.

Analysts are expecting pre-tax profits of pounds 370m for the year. The shares fell 25p to 1126p yesterday, but they are trading on an earnings multiple of nearly 19 times. For a company where growth is hard to see, this is very expensive.