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Wednesday 31 July, 2019

Wolters Kluwer N.V.

Wolters Kluwer 2019 Half-Year Report

Wolters Kluwer 2019 Half-Year Report

Wolters Kluwer 2019 Half-Year Report

July 31, 2019 – Wolters Kluwer, a global leader in professional information, software solutions, and services, today releases its half-year 2019 results.

Highlights

  • Full-year outlook reiterated.
  • Revenues €2,204 million, up 4% in constant currencies and up 4% organically.
    • Digital & services revenues up 6% organically (91% of total revenues).
    • Recurring revenues up 5% organically (80% of total revenues).
  • Adjusted operating profit €497 million, up 3% in constant currencies.
    • Adjusted operating profit margin stable at 22.5%.
    • Prior period included €16 million of net positive one-time items.
  • Diluted adjusted EPS €1.28, up 9% in constant currencies.
  • Adjusted free cash flow €300 million, up 7% in constant currencies.
  • Balance sheet remains strong: net-debt-to-EBITDA 1.8x at June 30, 2019.
  • Interim dividend: €0.39 per share.
    • Set at 40% of prior year total dividend.
  • Share buyback: €115 million completed in the year to date through July 29.

Interim Report of the Executive Board

Nancy McKinstry, CEO and Chairman of the Executive Board commented:“We delivered 4% organic growth, a stable adjusted operating profit margin, and an increase in adjusted free cash flow in the first half. Strategically, we are focused on building scale in our expert solutions, enhancing the value of our information products and services, and improving operational agility. We remain excited about delivering innovations that support our customers and are pleased to reiterate our full-year guidance.”

Key Figures – Six Months Ended June 30, 2019
€ million, unless otherwise stated 20192018*Var.Var. CCVar. OG
Business performance – benchmark figures          
Revenues 2,204 2,020 +9% +4% +4%
Adjusted operating profit 497 454 +9% +3% +4%
Adjusted operating profit margin 22.5% 22.5%      
Adjusted net profit 351 299 +17% +6%  
Diluted adjusted EPS 1.28 1.06 +21% +9%  
Adjusted free cash flow 300 263 +14% +7%  
Net debt 2,318 2,198 +5%    
IFRS reported results          
Revenues 2,204 2,020 +9%    
Operating profit 423 527 -20%    
Profit for the period 303 359 -15%    
Diluted EPS (€) 1.11 1.28 -13%    
Net cash from operating activities 436 354 +23%    
Note: Var. % Change; Var. CC % Change in constant currencies (€/$ 1.18); Var. OG % Organic growth. Benchmark adjusted figures are performance measures used by management. See Note 5 for a reconciliation from IFRS to benchmark figures. *2018 restated for IFRS 16. See Note 2 and Appendix 4 for more information on IFRS 16.

Full-Year 2019 Outlook

Our overall guidance for full-year 2019, provided in the table below, is unchanged. We expect to deliver another year of solid organic growth, supported by all four divisions, and an improvement in the full-year adjusted operating profit margin, supported by our Tax & Accounting and Governance, Risk & Compliance (GRC) divisions. We caution that the nine-month 2019 adjusted operating profit margin is expected to decline as the prior year nine-month period included one-time net benefits.

Full-Year 2019 Outlook      
Performance indicators2019 Guidance2018 (Restated for IFRS 16)  
Adjusted operating profit margin 23.0%-23.5% 23.1%  
Adjusted free cash flow €750-€775 million €762 million  
ROIC 10.5%-11.5% 10.6%  
Diluted adjusted EPS Around 10% growth €2.45  
Note: Guidance for adjusted operating profit margin and ROIC are in reported currencies and assume a 2019 average U.S. dollar rate of approximately €/$ 1.14. Guidance for adjusted free cash flow and earnings per share are in constant currencies (€/$ 1.18). Guidance for adjusted EPS includes the estimated effect of the announced up to €250 million share buyback planned for 2019. 2018 comparatives are in reported currencies and restated for IFRS 16.

Our guidance is based on constant exchange rates. In 2018, Wolters Kluwer generated more than 60% of its revenues and adjusted operating profit in North America. As a rule of thumb, based on our 2018 currency profile, each 1 U.S. cent move in the average €/$ exchange rate for the year causes an opposite change of approximately 1.5 euro cents in diluted adjusted EPS.

Restructuring costs are included in adjusted operating profit. We now expect restructuring costs to be at the upper end of our guided range of €10-€20 million in 2019 (2018: €30 million). We expect adjusted net financing costs of approximately €65 million in constant currencies1 including approximately €10 million in IFRS 16 lease interest charges. We expect the benchmark tax rate on adjusted pre-tax profits to be in the range of 24.5%-25.5% for 2019. Capital expenditure is expected to remain in the range of 5%-6% of total revenues (2018: 5.2%, excluding the sale of real estate). Cash repayments of lease liabilities are expected to be in line with depreciation of right-of-use assets. We expect the cash conversion ratio to be between 95%-100% in 2019 (2018: 103% restated for IFRS 16). See Note 5 for the calculation of our cash conversion ratio under IFRS 16. Our guidance assumes no additional significant change to the scope of operations. We may make further acquisitions or disposals which can be dilutive to margins and earnings in the near term.

2019 Outlook by Division

Health: We now expect organic growth to be in line with 2018 or slightly lower. We continue to expect the full-year adjusted operating profit margin to decline, due to the absence of prior year one-time benefits and increased investment in sales & marketing and product development.

Tax & Accounting: We continue to expect organic growth to moderate from 2018 levels due to a challenging comparable. We expect the full-year adjusted operating profit margin to improve on the back of lower restructuring costs and the absence of prior year net one-time charges.

Governance, Risk & Compliance: We expect recurring revenues to show improved organic growth but transactional revenue growth to decelerate as the year progresses. We expect the full-year adjusted operating profit margin to see an improvement due to efficiency initiatives.

Legal & Regulatory: We now expect organic growth to show improvement on 2018. We continue to expect the adjusted operating profit margin to decline due the absence of prior year one-time benefits, increased investment, and the full twelve-month inclusion of eVision.

Our Business and Strategy

Our mission is to empower our professional customers with the information, software solutions and services they need to make critical decisions, achieve successful outcomes, and save time. We support professionals across four customer segments: healthcare; tax and accounting; governance, risk and compliance; and legal and regulatory. All our customers face the challenge of increasing proliferation and complexity of information and the pressure to deliver better outcomes at a lower cost. Many of our customers are looking for mobility, flexibility, intuitive interfaces, and integrated, open architecture technology to support their decision-making. We aim to solve their problems and add value to their workflow with our range of digital solutions and services, which we continuously evolve to meet their changing needs. For more than ten years, we have been re-investing 8%-10% of our revenues in developing new and enhanced products and the supporting technology platforms.

Our fastest growing products are our expert solutions, which combine deep domain knowledge with specialized technology and services to deliver answers, analytics, and improved productivity for our customers. Our business model is primarily based on subscriptions or other recurring revenues (78% of total revenues in 2018), augmented by volume-based transactional, ad hoc, or other non-recurring revenues. Renewal rates for our digital information, software and service subscriptions are high and are one of the key indicators by which we measure our success. We have been evolving our technology towards fewer, globally scalable platforms, with reusable components. We are transitioning our solutions to the cloud and leveraging advanced technologies such as artificial intelligence, natural language processing, and predictive analytics to drive further innovation. We are standardizing tools, streamlining our technology infrastructure (including data centers) and improving our development processes using agile methods. It is our 18,600 employees who drive our achievements and we have been working to ensure we are providing engaging and rewarding careers.

Strategic Priorities 2019-2021

Every three years, we update our strategic priorities and this year we launched our plan for 2019-2021. This plan aims to deliver continued good organic growth and further incremental improvements to our adjusted operating profit margin and return on invested capital (ROIC). We intend to maintain product development at between 8%-10% of total revenues. We expect to fund the modernization of back-office systems by deriving additional cost savings. The strategy is based on organic growth, although we may make further bolt-on acquisitions or non-core disposals to enhance our value and market positions. Acquisitions must fit our strategic direction, strengthen or extend our existing business, be accretive to diluted adjusted EPS in their first full year and, when integrated, deliver a ROIC above our weighted average cost of capital (8%) within three to five years. Our priorities for the next three years are to:

  • Grow Expert Solutions: We will focus on scaling our expert solutions by extending these offerings and broadening their distribution through existing and new channels, including strategic partnerships. We will invest to build or acquire positions in adjacent market segments.
  • Advance Domain Expertise: We intend to continue transforming our information products and services by enriching their domain content with advanced technologies to deliver actionable intelligence and deeper integration into customer workflows. We will invest to enhance the user experience of these products through user-centric design and differentiated interfaces.
  • Drive Operational Agility: We plan to strengthen our global brand, go-to-market and digital marketing capabilities to support organic growth. We will invest to upgrade our back-office systems and IT infrastructure. In the next three years, we expect to complete the modernization of our Human Resources technology to support our efforts to attract and nurture talent.

Financial Policy, Leverage, and Capital Allocation

Wolters Kluwer uses its cash flow to invest in the business organically and through acquisitions, to maintain optimal leverage, and provide returns to shareholders. We regularly assess our financial position and evaluate the appropriate level of debt in view of our expectations for cash flow, investment plans, interest rates, and capital market conditions. While we may temporarily deviate from our leverage target at times, we continue to believe that, in the longer run, a net-debt-to-EBITDA ratio of around 2.5x remains appropriate for our business given the high proportion of recurring revenues and resilient cash flow.

Net debt at June 30, 2019, was €2,318 million and the rolling twelve-month net-debt-to-EBITDA ratio was 1.8x.

Dividend Policy and Interim Dividend

For more than 30 years, Wolters Kluwer has increased or maintained its annual dividend per share in euros (or euro equivalent). In 2007, the company established a progressive dividend policy and, since 2011, all dividends are paid in cash. In 2015, we introduced an interim dividend payment, aligning cash distributions closer to our seasonal cash flow pattern.

Wolters Kluwer remains committed to a progressive dividend policy, under which we aim to increase the dividend per share in euros each year, independent of currency fluctuations. The pay-out ratio2 can vary from year to year. Proposed annual increases in the dividend per share take into account our financial performance, market conditions, and our need for financial ?exibility. The policy takes into consideration the characteristics of our business, our expectations for future cash ?ows, and our plans for organic investment in innovation and productivity, or for acquisitions. We balance these factors with the objective of maintaining a strong balance sheet.

As announced on February 20, 2019, the interim dividend for 2019 was set at 40% of the prior year total dividend, or €0.39 per share. The interim dividend will be distributed on September 19, 2019, to holders of ordinary shares, or September 26, 2019, to holders of Wolters Kluwer ADRs.

Shareholders can choose to reinvest both interim and final dividends by purchasing additional Wolters Kluwer shares through the Dividend Reinvestment Plan (DRIP) administered by ABN AMRO Bank N.V.

Financial Policy, Leverage, and Capital Allocation (Continued)

Share Buyback Program 2019

As a matter of policy since 2012, Wolters Kluwer will offset the dilution caused by our annual incentive share issuance with share repurchases (Anti-Dilution Policy). In addition, from time to time when appropriate, we return capital to shareholders through further share buyback programs. Shares repurchased by the company are added to and held as treasury shares and are either cancelled or held to meet future obligations arising from share-based incentive plans.

On February 20, 2019, we announced our intention to repurchase shares for up to €250 million during 2019, including repurchases to offset incentive share issuance. Assuming global economic conditions do not deteriorate substantially, we believe this level of cash return leaves us with ample headroom to support our dividend plans, to sustain organic investment in innovation and productivity, and to make selective acquisitions. The share repurchases may be suspended, discontinued, or modified at any time.

In the year to date, as of July 29, 2019, we have spent €115 million on share buybacks, of which €84 million was completed in the first six months of 2019. For the period starting August 1, 2019 up until October 30, 2019, we have engaged a third party to execute €75 million in share buybacks on our behalf, within the limits of relevant laws and regulations (in particular Regulation (EU) 596/2014) and the company’s Articles of Association. The maximum number of shares which may be acquired will not exceed the authorization granted by the General Meeting of Shareholders. Repurchased shares are added to and held as treasury shares and will be used for capital reduction purposes or to meet obligations arising from share-based incentive plans.

Cancellation of Ordinary Shares in 2019

At the 2019 Annual General Meeting, shareholders approved a resolution to cancel for capital reduction purposes any or all ordinary shares held in treasury or to be acquired by the company as authorized by shareholders, up to a maximum of 10% of issued share capital on April 18, 2019. As authorized by shareholders, the Executive Board has determined the number of ordinary shares to be cancelled this year is 6.7 million. Wolters Kluwer intends to cancel these shares in the second half of 2019. As of July 29, 2019, Wolters Kluwer held 9.4 million shares in treasury. A portion of these treasury shares will be retained in order to meet future obligations under share-based incentive plans.

Network and Service Interruption May 2019

On May 6, 2019, our IT team determined that ransomware was impacting a portion of our environment and, to protect our systems and customers’ data, we took offline a range of applications and platforms. Service to nearly all applications and platforms was restored systematically by May 13, 2019. A third-party cybersecurity firm, CrowdStrike, completed an extensive forensic investigation of the incident. Their findings, which were reported to us earlier this month, confirmed that there was no evidence of data exfiltration from our network related to the ransomware attack and that all infected devices were remediated or decommissioned by Wolters Kluwer. Certain business activity, mainly in our Governance, Risk & Compliance and Tax & Accounting divisions, was interrupted for a short period. The financial impact on group results in the first half of 2019 was not material. Protecting the interests of our customers, employees, shareholders and the company is our top priority. We will continue to invest in technology and programs designed to keep our data and systems secure.

Half-Year 2019 Results

Benchmark Figures

Group revenues rose 9% overall to €2,204 million, benefitting from currency movements, mainly the stronger U.S. dollar which averaged €/$ 1.13 in the first half of 2019 (HY 2018: €/$ 1.21). In constant currencies, revenues increased by 4%. Excluding both the impact of exchange rate movements and the effect of acquisitions and disposals, organic growth was 4% (HY 2018: 4%).

Revenues from North America (61% of total revenues) grew 3% organically (HY 2018: 5%), with slower momentum in the Health and Tax & Accounting divisions. Revenues from Europe (31% of total revenues) saw organic growth improve to 6% (HY 2018: 4%), driven by stronger growth in our European Tax & Accounting and Legal & Regulatory businesses. Revenues from Asia Pacific and Rest of World (8% of total revenues) saw organic growth decelerate to 3% (HY 2018: 6%), mainly due to the Health division.

Adjusted operating profit was €497 million, up 3% in constant currencies. The adjusted operating profit margin was stable at 22.5% (HY 2018: 22.5%). Excluding €16 million of net positive one-time items recorded in the first half of 2018, the adjusted operating margin would have increased by 80 basis points. These net positive one-time items were within Tax & Accounting, Legal & Regulatory, and Corporate.

Restructuring costs increased to €13 million (HY 2018: €7 million). The restructuring relates to ongoing and new efficiency initiatives, including organizational changes. For the full year, we continue to expect restructuring expenses to be in the range of €10-20 million and below prior year spend (FY 2018: €30 million).

Adjusted net financing costs3 decreased to €31 million (HY 2018: €52 million). The decrease reflects lower interest costs following the redemption in April 2018 of our €750 million, 6.375% senior Eurobond.

Adjusted profit before tax was €466 million (HY 2018: €402 million), up 16% overall and up 6% in constant currencies. The benchmark tax rate on adjusted profit before tax was 24.7% (HY 2018: 25.5%) due to a favorable impact from tax credits and prior year adjustments.

Adjusted net profit was €351 million (HY 2018: €299 million), an increase of 6% in constant currencies.

Diluted adjusted EPS was €1.28 (HY 2018: €1.06), up 9% in constant currencies. The increase reflects the increase in adjusted net profit and a 3% reduction in the diluted weighted average number of shares outstanding to 273.3 million (HY 2018: 281.5 million) as a result of our share buyback program.

IFRS Reported Figures

Reported operating profit declined 20% to €423 million (HY 2018: €527 million) due to the absence of disposal gains (HY 2018: €159 million) at the operating level, partly mitigated by an €11 million decline in amortization of acquired intangible assets. Reported financing results totaled a net cost of €24 million and included a €9 million net book gain mainly related to the sale of our 40% interest in an Austrian information business. The reported effective tax rate declined to 24.0% (HY 2018: 24.3%); the comparable period was impacted by taxable disposal gains. Total reported profit for the period declined 15% to €303 million (HY 2018: €359 million) and diluted earnings per share declined 13% to €1.11 (HY 2018: €1.28).

Cash Flow

Adjusted operating cash flow was €447 million, in line with the prior period (HY 2018: €448 million) and down 5% in constant currencies. Cash conversion declined to 90% (HY 2018: 99%), as expected. The decline in cash conversion was mainly due to working capital outflows in the first half following strong inflows in 4Q 2018. In addition, net capital expenditure increased to €100 million (HY 2018: €88 million) largely because the prior period had included a €9 million one-time benefit related to the sale of real estate. Most of our capital expenditure relates to the development of new and enhanced products and technology platforms. Cash repayment of lease liabilities, including lease interest paid, were €39 million (HY 2018: €38 million). Depreciation was €135 million (HY 2018: €129 million) and included €35 million related to the depreciation of right-of-use assets (HY 2018: €34 million).

Corporate income tax paid reduced to €112 million (HY 2018: €124 million). The decline reflects tax paid on disposal gains in HY 2018. Paid financing costs, excluding lease interest paid, declined substantially to €34 million (HY 2018: €84 million); the prior period included the final coupon payment on the 6.375% senior Eurobond redeemed in April 2018. Net cash use of restructuring provisions amounted to €6 million (HY 2018: €9 million cash outflow), reflecting restructuring additions of €5 million and appropriations of €11 million. As a result of lower cash interest and tax, adjusted free cash flow increased 7% in constant currencies and 14% overall to €300 million (HY 2018: €263 million).

Dividends paid to shareholders during the first half of 2019 amounted to €174 million (HY 2018: €182 million) in respect of the 2018 final dividend. Total acquisition spending, net of cash acquired and including costs, was €34 million (HY 2018: €21 million) primarily relating to the acquisition of CLM Matrix for €31 million by our Governance, Risk & Compliance division. Deferred payments on prior year deals, including earnouts, amounted to €0 million (HY 2018: €10 million). Divestment proceeds, net of cash disposed, were €32 million (HY 2018: €305 million) and relate to the sale of our 40% stake in an Austrian information business and other small assets.

A total of €84 million (HY 2018: €260 million) of free cash flow was spent on repurchasing shares in the first half. We made further progress in July: year to date, €115 million has been deployed towards this year’s share buyback program of up to €250 million.

Net Debt and Leverage

Net debt at June 30, 2019, was €2,318 million, compared to €2,249 million at December 31, 2018. Under IFRS 16, net debt now includes short-term and long-term lease liabilities of €336 million (€255 million as of December 31, 2018). The modest increase in net debt reflects additional lease liabilities in relation to new office facilities in New York, NY.

The rolling twelve-month net-debt-to-EBITDA ratio was 1.8x (year-end 2018: 1.8x).

About Wolters Kluwer

Wolters Kluwer (WKL) is a global leader in professional information, software solutions, and services for the healthcare; tax and accounting; governance, risk and compliance; and legal and regulatory sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services.

Wolters Kluwer reported 2018 annual revenues of €4.3 billion. The group serves customers in over 180 countries, maintains operations in over 40 countries, and employs approximately 18,600 people worldwide. The company is headquartered in Alphen aan den Rijn, the Netherlands.

Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt (ADR) program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

For more information, visit www.wolterskluwer.com, follow us on LinkedIn, Twitter, Facebook and YouTube.

Financial Calendar  
August 27, 2019 Ex-dividend date: 2019 interim dividend
August 28, 2019 Record date: 2019 interim dividend
September 19, 2019 Payment date: 2019 interim dividend
September 26, 2019 Payment date: 2019 interim dividend ADRs
November 1, 2019 Nine-Month 2019 Trading Update
February 26, 2020 Full-Year 2019 Results
March 11, 2020 Publication of 2019 Annual Report


MediaInvestors/Analysts
Annemarije Dérogée-Pikaar Meg Geldens
Global Branding & Communications Investor Relations
t + 31 (0)172 641 470 t + 31 (0)172 641 407
[email protected][email protected]

Forward-looking Statements and Other Important Legal Information

This report contains forward-looking statements. These statements may be identified by words such as “expect”, “should”, “could”, “shall” and similar expressions. Wolters Kluwer cautions that such forward-looking statements are qualified by certain risks and uncertainties that could cause actual results and events to differ materially from what is contemplated by the forward-looking statements. Factors which could cause actual results to differ from these forward-looking statements may include, without limitation, general economic conditions; conditions in the markets in which Wolters Kluwer is engaged; behavior of customers, suppliers, and competitors; technological developments; the implementation and execution of new ICT systems or outsourcing; and legal, tax, and regulatory rules affecting Wolters Kluwer’s businesses, as well as risks related to mergers, acquisitions, and divestments. In addition, financial risks such as currency movements, interest rate fluctuations, liquidity, and credit risks could influence future results. The foregoing list of factors should not be construed as exhaustive. Wolters Kluwer disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Elements of this press release contain or may contain inside information about Wolters Kluwer within the meaning of Article 7(1) of the Market Abuse Regulation (596/2014/EU).

Trademarks referenced are owned by Wolters Kluwer N.V. and its subsidiaries and may be registered in various countries.


 

1 Guidance for net financing costs in constant currencies excludes the impact of exchange rate movements on currency hedging and intercompany balances.
2 Pay-out ratio: dividend per share divided by adjusted earnings per share.
3 Adjusted net financing costs are defined as total financing results, excluding the financing component of employee benefits, fair value changes in certain financial assets, and net book gains or losses on any divestments of non-controlled equity-interests.

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