Wolters Kluwer 2011 full-year results: Improved operating performance

Results highlight portfolio resilience and steady improvement in operating performance despite macro-economic uncertainty.

Wolters Kluwer, a market-leading global information services company focused on professionals, today released its 2011 full-year results which highlight portfolio resilience and steady improvement in operating performance despite macro-economic uncertainty. The company also announced its intention to execute a share buy-back program of up to €100 million in 2012.

NOTE: The information in this press release is based on continuing operations and growth rates cited are at constant currencies, unless stated otherwise.

Highlights

• Revenues up 4% (1% organic) fueled by 8% growth in electronic and services revenues.
• Electronic and services revenues now represent 71% of total revenues.
• Springboard run rate savings reach €191 million in 2011.
• Ordinary EBITA up 4% (2% organic) supported by growth in electronic products and Springboard savings, resulting in an ordinary EBITA margin of 21.7% 
• Profit for the year including discontinued operations decreased to €118 million largely due to an impairment charge of €112 million.
• Diluted ordinary EPS up 3% to €1.47.
• Solid ordinary free cash flow of €443 million.
• Results in line with financial guidance.

_{∆ - % Change; ∆ CC - % Change constant currencies (EUR/USD 1.33); ∆ OG – % Organic growth}

Looking forward

• Management expects continuous improvement in operating performance in 2012, despite uncertain market conditions.
• Announced intention to execute a share buy-back of up to €100 million in 2012.
• Proposed dividend increase to €0.68 per share in line with progressive dividend policy.

Nancy McKinstry, CEO and Chairman of the Executive Board, commented on the full-year performance: “I am encouraged by the progress that we have made in 2011. The company delivered steady improvements in operating performance. The fundamentals of our business are attractive, with strong global market positions, a high proportion of recurring revenues, and a growing portfolio of online and software solutions. Our strategy to drive growth through innovation and global expansion continues to improve the quality of our business and strengthen our financial results. Our strategic decisions in 2011 have positioned the company well for 2012 and our confidence in the business enables us to propose a €0.68 per share dividend.”

_{∆ - % Change; ∆ CC - % Change constant currencies (EUR/USD 1.33); ∆ OG – % Organic growth}

Revenues from continuing operations grew 4% in constant currencies to €3,354 million. Organic growth was 1%, improving over the prior year despite challenging economic conditions, especially in Europe. By geographic region, North America grew 3% organically and Europe declined 2%.

Online, software and services revenues grew 8% and now represent 71% of total revenues. Print revenues declined 5%.

Ordinary EBITA increased 4% in constant currencies to €728 million (2% organic). The company improved profitability through the continued shift towards higher margin electronic solutions, diligent cost management, and the impact of the Springboard operational excellence program. Ordinary EBITA excludes €131 million of exceptional charges related to Springboard and acquisitions.

The Springboard program, which is designed to drive operational efficiency, reached run rate cost savings of €191 million. The full run rate cost savings target of €205-210 million is expected to be achieved in 2012. As indicated in the third-quarter trading update, a €104 million exceptional charge was taken in 2011 to complete the final phase of this program.

_{1) In 2008 constant currencies (EUR/USD 1.37)}

Net finance costs were €118 million (2010: €129 million), supported by currency benefits. The effective tax rate on ordinary income before tax increased to 26.8%, higher than the expected 26%, as the mix of profits shifted to higher tax regions such as the United States.

Diluted ordinary EPS increased 3% to €1.47. In constant currencies (EUR/USD 1.33), diluted ordinary EPS was €1.51, at the upper end of the guidance range of €1.46-1.51. Diluted ordinary EPS including discontinued operations was €1.52 in constant currencies, in line with guidance of €1.50-€1.55.

Operating profit, which includes amortization of goodwill and exceptional items, declined to €436 million, and profit for the year to €242 million, largely due to the increase in exceptional costs relating to the Springboard program.

Cash flow

The cash conversion rate increased to 98% (2010: 96%) due to working capital improvements. Ordinary free cash flow was €443 million, up 1% at constant currencies, despite an increase in corporate income tax paid.

Net debt

Net debt increased to €2,168 million (2010: €2,035 million) due to acquisition spending, cash dividends and share buy-backs, partly offset by solid cash flow from operating activities. As a result, the net-debt-to-EBITDA ratio increased to 3.1. This ratio includes the exceptional expenses of the Springboard program of €104 million. Excluding the exceptional expenses of the Springboard program, the net-debt-to-EBITDA ratio was 2.7 in 2011 (2010: 2.5). With Springboard now finalized, the company expects net-debt-to-EBITDA to reduce to 2.5 over the medium term.

Dividend and share buy-back

In accordance with its progressive dividend policy, at the 2012 Annual General Meeting of Shareholders, Wolters Kluwer will propose a dividend distribution of €0.68 per share, a 1.5% increase over last year, to be paid on May 15, 2012. On May 11, 2012, the stock dividend conversion rate will be set on the basis of the volume weighted average share price of Wolters Kluwer during the period from May 7 up to and including May 11, 2012.

In 2011, the company successfully executed a share buy-back program of €100 million with a total of 7.2 million of ordinary shares purchased at an average stock price of €13.88. The total number of shares outstanding as of 31 December 2011 was 296.6 million.

While solid cash flow performance continues to support the company’s objective to invest for long-term growth, it also presents an opportunity to provide additional shareholder returns. As such, the company announced its intention to execute a new share buy-back program of up to €100 million in 2012.

Discontinued operations

In July 2011, Wolters Kluwer announced the planned divestment of its pharma business and took an impairment charge on the value of the related assets. Profit for the year, including the results of discontinued operations, was €118 million (further details are provided on page 24). In December 2011, this divestment was partially completed with the sale of Marketing & Publishing Services (MPS). Disposal of the remaining assets is in process. Revenues and ordinary EBITA of the discontinued operations are shown below.

_{∆ - % Change; ∆ CC - % Change constant currencies (EUR/USD 1.33); ∆ OG – % Organic growth}

2012 outlook

The 2011 results demonstrate the resiliency of the company’s portfolio. While market conditions remain uncertain in 2012, the business model is fundamentally sound with strong global market positions, a resilient portfolio with a high proportion of recurring revenues (74% of total revenues), growing online and software revenues, and strong cash generation. These factors are expected to support improving results.

Market conditions for 2012 are expected to resemble those of the second half of 2011, with the U.S. and Asia driving growth and Europe facing macro-economic challenges. The company expects subscriptions to remain resilient, underpinned by improving retention rates from the adoption of software and workflow solutions. Transactional revenues are expected to grow, but remain sensitive to underlying volume growth and market conditions.

The table below highlights key points of guidance for the continuing operations in 2012.

_{1) In constant currencies (EUR/USD 1.39). 2) Assumes a limited contribution from the 2012 share buy-back.}

Net financing costs are expected to be approximately €125 million in 2012. The effective tax rate on ordinary income before tax is expected to be approximately 27.5% in 2012.

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