M3A2

YOUR ATTENTION IS DIRECTED TO THE IMPORTANT DISCLOSURES IN APPENDIX A.

Communications

February 14, 2013

Vince Valentini, CFA Ahab Abdou, CFA (Associate) 416 944 7012 416 983 4767 [email protected] [email protected]

Thomson Reuters Corp. (TRI-T, TRI-N) C$30.02 Another Transition Year in 2013 Investment Summary We maintain our HOLD rating on Thomson Reuters (TRI-T) shares, with our 12-month target price intact at C$33.00. Our 2013 forecasts have been lowered subsequent to the restated results for 2012 and management's guidance for 2013. It now looks like another year of virtually no growth in organic revenues and no improvement in profit margins, so we find it difficult to be in a hurry to recommend purchase of the stock. The reduction in our estimates for 2014 has been less significant, as we have assumed a bit more margin lift in 2014 versus 2013, owing to the cost of restructuring being implemented in Q1/13 (about $100 million in severance costs related to the reduction of about 2,500 employees in the Financial & Risk segment). Our target price remains intact, despite the lower forecasts, because we have pushed our valuation horizon to 2014 versus 2013 estimates. It should also be noted that TRI is expected to have over $1.7 billion in cash on its balance sheet subsequent to announced divestitures (there was already about $1.3 billion in cash at year-end), which we do not officially adjust for in our target P/E multiple. A return to positive net sales for the F&R segment, which management now expects in H2/13, could be a catalyst for TRI shares, so we would look to be a buyer of the stock in low-end of its recent $28-$31 trading range in advance of the Q3/13 release (where positive net sales could be disclosed) around the end of October. The Investor Day on March 22 should reinforce to investors that management is on the right long-term

Recommendation: HOLD Unchanged

Risk: LOW

12-Month Target Price: C$33.00 Unchanged

12-Month Total Return: 14.3%

Market Data (C$) Current Price $30.02 52-Wk Range $26.62-$31.22 Mkt Cap (f.d.)($mm) $24,808.5 Dividend per Share $1.30 Dividend Yield 4.3% Avg. Daily Trading Vol. (3mths) 826777

Financial Data (C$) Fiscal Y-E December Shares O/S (f.d.)(mm) 826.4 Float Shares (mm) 371.9 Net Debt/Tot Cap 30.0% Net Debt/EBITDA 1.8x

Estimates (US$) Year 2012R 2013E 2014E 2015E

Sales ($mm) 12,443.0 12,640.3 13,004.8 13,564.6 Sales (old)($mm) -- 13,168.2 13,625.1 -- EBITDA ($mm) 3,310.0 3,368.1 3,590.3 3,832.6 EBITDA (old)($mm) -- 3,571.3 3,729.4 -- EPS (f.d.) 1.89 1.84 2.06 2.28 EPS (f.d.)(old) -- 2.04 2.12 --

EPS (f.d.) Quarterly Estimates (US$) Year 2012R 2013E 2014E 2015E

Q1 0.38 0.37 -- -- Q2 0.48 0.47 -- -- Q3 0.48 0.48 -- -- Q4 0.54 0.53 -- --

Valuations Year 2012R 2013E 2014E 2015E

Est. EV/EBITDA 9.3x 8.8x 8.0x 7.3x Notes: 2012 figures have been re-stated

All figures in US$, unless otherwise specified.

Company Profile

Thomson-Reuters (TRI) is a leading global provider of integrated workflow solutions to business and professional customers. TRI services more than 30 million users in the fields of law, tax, accounting, financial services, scientific research and healthcare.

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path to recovery, but we do not expect a sustained rally for TRI shares until we get disclosure of an actual turn in net sales. All signs point to 2014 being a better year for the company, but that is still a long way off in our view, and the organic revenue growth that is expected in 2014 (we estimate 2% for the F&R segment) is unlikely to lead to big positive operating leverage (management used to cite 3-4% revenue growth being needed to offset fixed cost inflation, and we still believe that 2% or higher is required even with the improved cost transparency). We recommend patience on this arguably late cycle name, and if we are entering the early stages of a global economic recovery, then we suspect there are better stocks for investors to own. Fourth Quarter Review A slight improvement in the revenue trend for F&R was offset by sluggish revenues in the Legal and Tax segments, so that there was no growth in overall organic revenues (in line with our estimate, but many analysts had expected positive revenue growth). The margins were better-than- expected in Q4, but note that the profit variance versus our estimates was very small when we adjust for the $50 million in restructuring costs that we had expected in the quarter. The company now expects to incur $100 million of severance/restructuring costs in Q1/13 (more on this below). • Adjusted EPS was $0.60 versus our estimate of $0.54 and consensus

of $0.55. • Total EBITDA was $948 million (+11% year over year) versus our

estimate of $884 million and consensus of $943 million (we had assumed $50 million in severance/restructuring costs).

• Organic revenue growth (pre-FX impacts) was 0% versus our estimate of 0% and versus -1% in Q3/12.

• Financial & Risk (F&R) segment: Organic revenue growth was - 1% versus our estimate of -2%, and operating profit increased 4% to $324 million versus our estimate of $263 million ($313 million expected) before our restructuring cost assumption, and note that most of the year-over-year increase in EBIT related to $44 million in restructuring costs last year that did not recur). Transaction revenues were down 1% year over year on an organic basis (not as bad as we had expected, given the weak FX volumes in Q4), and the flow- through of negative net sales from the past few quarters continued to drag down subscription-based revenues (-1%). The employment trends that we cited in our note dated February 6 were evident in the results, as revenues in the Americas were up 6% year over year, while EMEA was down 3% and Asia was also down 3% (owing to weakness in Japan). The good news/bad news here is that the U.S. market is improving, but U.S. strength alone seems unlikely to push total F&R revenue growth back into positive territory.

• Legal: Organic revenue growth was sluggish at 1% in Q4 versus our estimate of 2% and versus 1% achieved in Q3. Operating profit,

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however, increased by an impressive 5% to $257 million versus our estimate of $242 million.

• Tax & Accounting: Despite timing issues that negatively affected Q3 results, organic revenue growth was only 1% in Q4 versus our estimate of 7% and versus 3% in Q3. Operating income fell 4% year over year to $103 million versus our estimate of $108 million.

• Operating income for the IP/Science segment was in line with our estimate, while the loss in Corporate/Other was a touch worse than we expected (see Exhibit 1 for figures).

Exhibit 1. Thomson Reuters Corp. Q4/12 Results ($ mm)

Q4/12A Q4/12E Q4/11A Q3/12A

Segmented Revenue: Financial & Risk Trading $830 $795 $869 $816 Investors $601 $594 $606 $604 Marketplaces $320 $338 $290 $303 Governance, Risk & Compliance $61 $58 $50 $55

Total Financial & Risk $1,812 $1,784 $1,815 $1,778 Legal $861 $857 $843 $830 Tax & Accounting $351 $340 $341 $262 Intellectual Property & Science $250 $236 $225 $219 Corporate & Other (includes Media) $87 $88 $87 $79 Eliminations ($3) ($3) ($3) ($3) Total Operating Revenue $3,358 $3,302 $3,308 $3,165

Total EBITDA $948 $884 $852 $864

Segmented Underlying Operating Profit: Financial & Risk $324 $263 $312 $283 Legal $257 $242 $244 $256 Tax & Accounting $103 $108 $110 $34 Intellectual Property & Science $66 $66 $64 $55 Corporate & Other (includes Media) ($92) ($83) ($84) ($43) Total Underlying Operating Profit $658 $595 $646 $585 Integration Costs (inc TPls and Core Pls)1 $0 $0 $64 $0 Total Operating Profit $658 $595 $582 $585

Underlying Operating Profit Margins Financial & Risk 17.9% 14.7% 17.2% 15.9% Legal 29.8% 28.2% 28.9% 30.8% Tax & Accounting 29.3% 31.8% 32.3% 13.0% Intellectual Property & Science 26.4% 27.8% 28.4% 25.1% Total Underlying Operating Profit Margins 19.6% 18.0% 19.5% 18.5%

Adjusted EPS $0.60 $0.54 $0.54 $0.54

1) For Q4'12 we had assumed $50mm in restructuring, but expected these charges would be included in continuing operations

Source: Company Reports and TD Securities Estimates

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2013 Outlook • Dividend: The dividend was increased as per the annual tradition,

but only by 1.6% versus Street expectations of 3-5%. • The profit guidance for 2013 was a bit below expectations (low

single-digit revenue growth was in line), with 26-27% EBITDA margins (coming into the quarter we had 27.1%, and our EBITDA estimate was almost $50 million below consensus for 2013) and 16.5- 17.5% EBIT margins (we had 18.3%). FCF guidance of $1.7 billion- $1.8 billion compared with our prior estimate of $1.85 billion. The lower margin expectations for 2013 seem to stem from accounting changes (for pension costs and joint ventures), and when one compares the 2013 outlook with restated figures for 2012 (see Exhibit 2) the year-over-year changes expected look respectable. However, accounting changes that effectively reduced 2012 EBITDA by $94 million, and 2012 EPS by $0.12, were a surprise to us and we suspect they were a surprise to many analysts. It should also be noted that recent divestitures (notably the Corporate segment within F&R) are having a dilutive impact to the tune of $0.11 in EPS and $116 million in FCF. The net result should be a reduction in consensus estimates for 2013, even if the year-over-year trend lines look no worse than expected.

• Net Sales in F&R: Net sales remained negative in Q4/12 and January 2013, but management provided guidance (somewhat out of character) that net sales were expected to be positive in H2/13 after being negative in H1/13. Some of the factors cited for this confidence in improved sales included: 1) improved customer satisfaction metrics; 2) improved retention of existing customers; and 3) the favourable reaction to the newest version of Eikon (called Eikon 3.0). If management can deliver on this target, F&R revenue growth should be able to return to positive territory in 2014, especially when one factors in the typical annual rate increase in January, 2014.

• 2013 F&R Revenues: Given the negative net sales throughout 2012, management expects the rate of decline in F&R organic revenues to be worse in 2013 than it was in 2012. The pace of negative net sales was worse in H1/12 than it was in H1/11, before showing slight improvements in H2/12 versus H2/11. Add in the expectation for continued declines in net sales in H1/13, and management concludes that reported revenue growth for the full year in 2013 could be worse than the -1% posted in 2012.

• Restructuring: As noted earlier, TRI expects to book a ~$100 million charge for severance/restructuring within the F&R segment in Q1/13. This relates to the reduction of about 2,500 employees, and related cost savings throughout 2013 should largely offset the $100 million hit to EBITDA. The net flow through cost savings in 2014 could be partially offset by reinvestment in marketing and product development initiatives.

• Divestitures: Management expects $400 million-$500 million in after-tax proceeds in 2013 from the businesses that have already been

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slated for disposal. The company now has better transparency into the underlying profit contribution from each sub-segment, which could lead the way to more asset disposals in the future. Nothing large was hinted at.

Bottom-Line: Management is signaling that 2014 could be a better year as long as there is a bit of co-operation from the macro environment. It claims that the company has a better handle on its variable costs than it did a year ago, and its new product and service initiatives in the F&R segment are leading to much better competitive traction. We have no reason to disagree with management, but 2014 might still look a long way off to investors, and a return to only slight organic revenue growth in 2014 might not lead to any exciting operating leverage at the EBITDA line. The outlook for 2013 is flattish owing to: 1) negative net sales in the past few quarters; 2) severance costs; 3) dilution from divestitures; and 4) accounting changes.

Exhibit 2. TD Securities Forecast Metrics versus TRI Guidance ($ mm, except %'s)

2012 Re-stated 1 2013 Outlook 2013 TDSI Est Revenue Growth (excluding FX) 3% "low single digits" 1.6%

EBITDA Margin 26.6% 26% to 27% 26.6%

Underlying Operating Profit Margin 17.7% 16.5% to 17.5% 17.2%

(excluding integration costs)

Reported Free Cash Flow $1,737 $1,700 - $1,800 $1,740

-% Growth 8.4% -2% to +6% 0.2%

(1) Revenue, EBITDA and Underlying Profit Margin re-stated to reflect recent accounting amendments & ongoing businesses

Source: Company Reports and TD Securities Estimates.

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Exhibit 3. Thomson Reuters Corp.: Segmented Forecast ($ mm)

2012A2 2013E 2014E 2015E

Segmented Revenues: Financial & Risk Trading $2,624.0 $2,479.6 $2,485.8 $2,535.5 Investors $2,195.0 $2,098.8 $2,119.8 $2,204.6 Marketplaces $1,764.0 $1,899.0 $1,994.0 $2,103.7 Governance, Risk & Compliance $219.0 $241.9 $254.0 $265.4

Total Financial & Risk $6,802.0 $6,719.4 $6,853.6 $7,109.2 Legal $3,266.0 $3,339.7 $3,456.6 $3,629.5 Tax & Accounting $1,161.0 $1,219.1 $1,273.9 $1,344.0 Intellectual Property & Science $894.0 $1,036.5 $1,088.3 $1,142.7 Corporate & Other (includes Media) $331.0 $337.6 $344.4 $351.3 Eliminations ($11.0) ($12.0) ($12.0) ($12.0) Total Operating Revenue $12,443.0 $12,640.3 $13,004.8 $13,564.6

Total EBITDA $3,310.0 $3,368.1 $3,590.3 $3,832.6

Segmented Underlying Operating Profit: Financial & Risk $1,082.0 $1,014.1 $1,172.4 $1,309.3 Legal $967.0 $965.9 $1,011.5 $1,069.5 Tax & Accounting $238.0 $247.8 $263.8 $280.4 Intellectual Property & Science $235.0 $268.8 $288.0 $306.4 Corporate & Other (includes Media) ($317.0) ($326.3) ($339.5) ($353.1) Total Underlying Operating Profit $2,205.0 $2,170.3 $2,396.3 $2,612.4 Integration Costs $0.0 $0.0 $0.0 $0.0 Total Operating Profit $2,205.0 $2,170.3 $2,396.3 $2,612.4

Underlying Operating Profit Margins Financial & Risk 15.9% 15.1% 17.1% 18.4% Legal 29.6% 28.9% 29.3% 29.5% Tax & Accounting 20.5% 20.3% 20.7% 20.9% Intellectual Property & Science 26.3% 25.9% 26.5% 26.8% Total Underlying Operating Profit Margins 17.7% 17.2% 18.4% 19.3%

EPS $1.89 $1.84 $2.06 $2.28 EPS (post-amortization) $1.14 $1.09 $1.30 $1.51

Free Cash Flow 1 $1,737.0 $1,740.4 $1,890.5 $2,065.7 Free Cash Flow per Share $2.09 $2.11 $2.29 $2.50

1. Cash Flow from Operations less capex, other investing and preferred dividends. 2. Revenue, EBITDA, Underlying Profit Margin, and EPS have been re-stated to reflect recent accounting amendments, and ongoing businesses

Source: Company Reports and TD Securities Estimates.

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Justification of Target Price We are using 16.0x 2014E EPS (equates to 8.7x 2014E EBITDA) to get a target value of C$33 (using a U.S. dollar/Canadian dollar FX rate of $1.00). The 16.0x multiple is at the low-end of the pre-RTR normalized historic trading range of 16x-24x cash EPS and we note that the adoption of recent IFRS accounting conventions has lowered EPS relative to the former GAAP reporting convention. Key Risks to Target Price 1) changes in the Canadian dollar versus the U.S. dollar, because our Canadian dollar target price assumes translation of U.S. dollar earnings at a rate of U.S. dollar/Canadian dollar $1.00; 2) inability to stabilize market share in the financial services sector; 3) a cyclical downturn in financial markets; 4) a downturn in employment in the U.S. legal sector; 5) dilutive acquisitions; 6) as with all companies where voting control is not in the market, the controlling shareholder (the Thomson family controls 53% of the common shares) and minority shareholders may not agree on issues that could affect the value of shares held by the minority; and 7) as an income vehicle for some investors, higher interest rates would reduce the attractiveness of the company's dividend. Investment Conclusion We continue to believe that the stock is undervalued versus its long-term growth potential, but see no need for investors to rush into the name at his time. We reiterate our HOLD rating.

Exhibit 4. TD Securities Publishing Comparables (last updated: February 13, 2013) Current Market

Ticker Price High Low Capitalization 2011A 2012A/E 2013E 2011A 2012A/E 2013E 2011A 2012A/E 2013E

PUBLISHING Thomson Reuters Corp. TRI-T $30.02 $31.22 $26.62 $24,808.5 9.5x 9.3x 8.8x 15.3x 15.9x 16.3x 15.7x 14.3x 14.3x

International

McGraw Hill (in USD) MHP $44.33 $58.62 $42.02 $12,323.7 6.9x 6.9x 6.0x 15.5x 12.9x 12.8x 11.9x 9.9x 10.2x

Moody's (in USD) MCO $46.79 $55.58 $33.86 $10,448.2 11.3x 9.3x 8.0x 18.7x 15.6x 13.9x 13.3x 14.0x 13.9x

FactSet (in USD) FDS $93.92 $109.20 $85.38 $4,158.7 14.5x 12.6x 11.8x 26.0x 20.6x 19.4x 23.3x 20.3x 18.1x Pearson (in GBP) PSON £12.16 £13.02 £11.03 £9,736.5 10.0x 9.6x 9.0x 14.4x 14.4x 13.8x 13.0x 12.9x 12.2x Reed Elsevier (in GBP) REL £6.95 £7.15 £4.66 £15,616.3 10.6x 9.7x 9.1x 14.8x 13.9x 13.3x 16.7x 13.7x 12.6x Wolters Kluwer (in EUR) WKL 15.26 15.89 11.39 4,524.01 9.6x 7.5x 7.1x 10.4x 9.8x 9.5x 11.5x 10.4x 9.1x Average 10.5x 9.3x 8.5x 16.6x 14.5x 13.8x 14.9x 13.5x 12.7x

P/FCFP/EEV/EBITDA52-Week

Source: TD Securities estimates and U.S. comparable company estimates provided by Canadian and U.S. Brokerages.

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Exhibit 5. Thomson Reuters Valuations ($ mm, except per-share amounts) 2012A 2013E 2014E 2015E

TRI Capitalization

Fully Diluted Shares O/S (year end estimates) 826.4 826.4 826.4 826.4

Share Price - Current $30.02 $30.02 $30.02 $30.02

Share Price - 12-Month Target $33.00 $33.00 $33.00

Equity Capitalization - Current 24,809.9 24,809.9 24,809.9 24,809.9

Equity Capitalization - Target 27,272.7 27,272.7 27,272.7

Fully Diluted Debt (Net Cash), Including Pref Shares 5,870.0 4,754.0 3,991.6 3,110.4

Capitalization - Current 30,679.9 29,563.9 28,801.5 27,920.3

Capitalization - Target 32,026.7 31,264.3 30,383.1

Enterprise Value - Current 30,679.9 29,563.9 28,801.5 27,920.3

Enterprise Value - Target 32,026.7 31,264.3 30,383.1

TRI EBITDA 3,310.0 3,368.1 3,590.3 3,832.6

Enterprise Value/EBITDA Valuation

EV/EBITDA Multiple $30.02 - Current 9.3x 8.8x 8.0x 7.3x

$33.00 - 12 Month Target 9.5x 8.7x 7.9x

TRI EPS $1.89 $1.84 $2.06 $2.28

P/E Valuation

P/E Multiple $30.02 - Current 15.9x 16.3x 14.6x 13.1x

$33.00 - 12 Month Target 17.9x 16.0x 14.4x

TRI Free Cash Flow per Share $2.09 $2.11 $2.29 $2.50

P/FCF Valuation

P/FCF Multiple $30.02 - Current 14.3x 14.3x 13.1x 12.0x

$33.00 - 12 Month Target 15.7x 14.4x 13.2x

Note: We are converting the TRI share price to US$ at an exchange rate of $1.00; our 12 month target price is C$33.00 Source: Company Reports and TD Securities Estimates.

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APPENDIX A. IMPORTANT DISCLOSURES Company Ticker Disclosures Thomson Reuters Corp. TRI-T, TRI-N 9 1. TD Securities Inc., TD Securities (USA) LLC or an affiliated company has

managed or co-managed a public offering of securities within the last 12 months with respect to the subject company.

2. TD Securities Inc., TD Securities (USA) LLC or an affiliated company has received compensation for investment banking services within the last 12 months with respect to the subject company.

3. TD Securities Inc., TD Securities (USA) LLC or an affiliated company expects to receive compensation for investment banking services within the next three months with respect to the subject company.

4. TD Securities Inc. or TD Securities (USA) LLC has provided investment banking services within the last 12 months with respect to the subject company.

5. A long position in the securities of the subject company is held by the research analyst, by a member of the research analyst’s household, or in an account over which the research analyst has discretion or control.

6. A short position in the securities of the subject company is held by the research analyst, by a member of the research analyst’s household, or in an account over which the research analyst has discretion or control.

7. A long position in the derivative securities of the subject company is held by the research analyst, by a member of the research analyst’s household, or in an account over which the research analyst has discretion or control.

8. A short position in the derivative securities of the subject company is held by the research analyst, by a member of the research analyst’s household, or in an account over which the research analyst has discretion or control.

9. TD Securities Inc. and/or an affiliated company is a market maker, or is associated with the specialist that makes a market, in the securities of the subject company.

10. TD Securities Inc. and/or affiliated companies own 1% or more of the equity securities of the subject company.

11. A partner, director or officer of TD Securities Inc. or TD Securities (USA) LLC, or a research analyst involved in the preparation of this report has, during the preceding 12 months, provided services to the subject company for remuneration.

12. Subordinate voting shares. 13. Restricted voting shares. 14. Non-voting shares. 15. Variable voting shares. 16. Limited voting shares.

Additional Important Disclosures Thomson Corp. - John M. Thompson , Director of The Thomson Corp., is a member of the board of directors of The Toronto-Dominion Bank. TD Securities Inc. is a wholly owned subsidiary of The Toronto-Dominion Bank.

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Price Close Changes Price Relative to S&P/TSX Consumer Discretionary

Vince Valentini

Recommendations A LB: Action List Buy; SPB: Speculative Buy; BUY: Buy; HLD: Hold; TND: Tender; RDC: Reduce

Notes IC: Initiated Coverage CC: Ceased Coverage A C: Analyst Change SC:Coverage Suspended R: Reor g anization

1: 5/4/10; ALB, $50.00 tgt 2: 10/28/10; ALB, $51.00 tgt 3: 2/10/11; ALB, $52.00 tgt 4: 4/28/11; ALB, $50.00 tgt 5: 7/28/11; ALB, $45.00 tgt 6: 11/1/11; ALB, $43.00 tgt 7: 2/9/12; BUY, $33.00 tgt 8: 5/1/12; BUY, $35.00 tgt 9: 7/31/12; BUY, $34.00 tgt 10: 11/2/12; HLD, $31.00 tgt

Research Ratings Action List BUY: The stock’s total return is expected to exceed a

minimum of 15%, on a risk-adjusted basis, over the next 12 months and it is a top pick in the Analyst’s sector.

BUY: The stock’s total return is expected to exceed a minimum of 15%, on a risk-adjusted basis, over the next 12 months.

SPECULATIVE BUY: The stock's total return is expected to exceed 30% over the next 12 months; however, there is material event risk associated with the investment that could result in significant loss.

HOLD: The stock’s total return is expected to be between 0% and 15%, on a risk-adjusted basis, over the next 12 months.

TENDER: Investors are advised to tender their shares to a specific offer for the company's securities or to support a proposed combination reflecting our view that a superior offer is not forthcoming.

REDUCE: The stock’s total return is expected to be negative over the next 12 months.

Overall Risk Rating in order of increasing risk: Low (6.5% of coverage universe), Medium (32.4%), High (50.0%), Speculative (11.1%)

Distribution of Research Ratings

^ Percentage of subject companies under each rating category—BUY (covering Action List BUY, BUY and Spec. BUY ratings), HOLD and REDUCE (covering TENDER and REDUCE ratings).

* Percentage of subject companies within each of the three categories (BUY, HOLD and REDUCE) for which TD Securities Inc. has provided investment banking services within the last 12 months.

Current as of February 5, 2013

Investment Banking Services Provided*

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60%

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80%

BUY HOLD REDUCE

Distribution of Research Ratings^

HOLD 42%

REDUCE 4%

BUY 54%

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