1) In constant currencies (EUR/USD 1.33).
Outlook by Division
- Legal & Regulatory: We expect Corporate Legal Services to achieve another year of good organic growth, although momentum in CLS transactional revenues is expected to slow. In our Legal & Regulatory publishing operations, we anticipate organic revenue decline due to the continued economic uncertainty in large parts of Europe, weakness in print formats, and lower U.S. law school enrollments. Continued softness in revenue combined with additional restructuring costs and the effect of last year’s dilutive disposals is expected to lead to a lower margin in 2014. From 2014, certain European Tax & Accounting publishing activities have been transferred to our Legal & Regulatory publishing operations in order to drive further economies of scale.
- Tax & Accounting: We expect our software businesses to achieve good organic growth, partly offset by trends in bank products, print publishing, and cyclical products such as training. We expect to see some margin contraction due to increased restructuring in 2014.
- Health: We foresee another strong year for Clinical Solutions. Market conditions for print journals and books are expected to remain soft. The positive effect from the ongoing mix shift towards Clinical Solutions should benefit margins despite continued investment in new digital product development and global expansion.
- Financial & Compliance Services: We anticipate positive organic growth in our Finance, Risk & Compliance and Audit units, although the inexact timing around the implementation of banking regulations and an ongoing product rationalisation are likely to result in a more back-end loaded year. This performance is likely to be partially offset near term by continued pressure on transactional revenues.
Wolters Kluwer provides legal, tax, accounting, health and financial compliance professionals the essential information, software and services they need to make decisions with confidence. Our strategy focuses on accelerating our organic revenue growth and improving returns. In 2014, we are taking further actions along the three pillars of our strategy:
- Expand our leading, high growth positions: We are focusing the majority of our investment on high growth segments in our portfolio where we have achieved market leadership. These positions, which include Corporate Legal Services, Tax & Accounting software, Clinical Solutions, Finance, Risk & Compliance, and Audit, provide global expansion opportunities. In addition, we will continue to drive growth in digital solutions and services across all divisions.
- Deliver solutions and insights: We continuously invest in our products and services in order to deliver the tailored solutions and insights our professional customers need in order to make critical decisions and increase their productivity. We are investing in mobile applications, cloud-based services and integrated solutions. Product investment, including capital expenditure, is expected to remain approximately 8-10% of revenues in the coming years.
- Drive efficiencies: We will continue to drive efficiencies in areas such as sourcing, technology, real estate, organizational processes, and distribution channels. These operational excellence programs will deliver cost savings to support investments and margin expansion, while mitigating cost inflation.
Dividend Policy and 2013 Dividend
Wolters Kluwer has a progressive dividend policy under which the Company expects to increase the dividend per share each year. At the 2014 Annual General Meeting of Shareholders, the Company will propose increasing the dividend to €0.70 per share (2012: €0.69), to be paid in cash on May 13, 2014 for ordinary shareholders or on May 20, 2014 for holders of American Depository Receipts (ADRs). Shareholders can choose to reinvest their Wolters Kluwer 2013 dividends by purchasing further shares through the Dividend Reinvestment Plan (DRIP) to be provided by ABN AMRO Bank NV.
Wolters Kluwer intends to offset the dilution caused by performance share issuance by repurchasing shares up to €25 million in 2014.
Full-Year 2013 Results
Group revenues and ordinary EBITA declined 1%, respectively, to €3,565 million and €765 million. In constant currencies, both revenues and ordinary EBITA increased 2%. Organic revenue growth was 1%, while the net acquisitions and disposals effect added 1% to revenues.
North American revenues (54% of total) grew 2% on an organic basis, slowing from 3% in 2012. Revenues from Europe (39%) declined 2% on an organic basis, improving from a 3% decline in 2012. Asia Pacific and Rest of World grew 5% on an organic basis (2012: 8%).
The ordinary EBITA margin was stable at 21.5%, following a margin increase in the second half of the year. Efficiency savings achieved in the year were absorbed by wage inflation, restructuring, investment in growth initiatives, dilutive disposals, and the effect of currency movements.
Ordinary net financing costs, excluding the employee benefits financing component, disposal gains on equity-accounted investees, and a write-down of financial assets available-for-sale, were €117 million, down from €121 million in 2012. Included in ordinary net financing costs was a €5 million settlement received in relation to a legal claim.
Ordinary profit before tax was €647 million, down 1% overall and up 3% in constant currencies. The effective tax rate on ordinary profits before tax was 27.6%, broadly in line with the prior year (2012: 27.7%), as guided.
Ordinary diluted EPS was €1.56, up 3% in constant currencies and in line with guidance.
IFRS Reported Figures
Operating profit increased 9% to €619 million, benefitting from a €47 million gain on disposals, mainly relating to the sale of Best Case Solutions.
Financing results amounted to €128 million (2012: €126 million). Financing results included net financing costs of €117 million, the employee benefits financing component of €5 million (2012: €5 million), a
€12 million gain on the sale of our minority stake in AccessData and an €18 million write-down of an investment available-for-sale (Symphony Health Solutions).
Profit before tax from continuing operations increased 11% to €490 million (2012: €442 million) due to the increase in operating profits. The effective tax rate increased to 28.0% (2012: 24.7%) as a result of higher taxable income in the U.S. relating to the disposal gains. Profit for the year from continuing operations increased 6% to €353 million.
Discontinued operations generated a net loss of €7 million in 2013. Following the sale of our French Pharma-related publishing assets in September 2013, all assets that were recorded under discontinued operations in 2013 have now been completely divested.
Total profit for the year increased 11% to €346 million (2012: €311 million). Diluted EPS increased 11% to €1.15 per share (2012: €1.04).
Ordinary cash flow from operations was €727 million (2012: €766 million), down 5% overall and down 2% in constant currencies. As expected, the cash conversion ratio returned to a more normalized level of 95%, compared to the record level seen in 2012 (99%). This reflected a net working capital outflow related to the timing of payments and slightly higher capital expenditure of €148 million (4.2% of revenues) compared to €144 million in 2012 (4.0% of revenues).
Ordinary free cash flow was €503 million, down 1% overall and up 3% in constant currencies. This was better than expected mainly due to favorable timing of tax payments.
Cash use of Springboard provisions reduced to €10 million, net of tax (2012: €24 million). Acquisition spending, net of cash acquired, was €192 million, including €2 million related to earn-outs on past acquisitions. The majority of this relates to two acquisitions: Health Language, a medical terminology solutions provider acquired in January 2013, and now part of our Clinical Solutions unit, and Prosoft, a Brazilian tax and accounting software company, acquired in May 2013 and now part of our Tax & Accounting division. Both companies are performing well and in line with our expectations.
Cash proceeds from disposals, net of tax, were €63 million, and included Best Case Solutions, Access Data, and a number of smaller disposals in the Netherlands and Denmark. The divestment of our discontinued operations, comprising Pharma-related publishing assets in France, was also completed in 2013.
Cash dividend payments totalled €204 million, increasing from €92 million in 2012 following our announcement last year to move to an all cash dividend. We completed a €20 million share repurchase program during the year. The total number of shares outstanding at 31 December 2013 was 295.3 million.
Net Debt and Leverage
Net debt at December 31, 2013 was €1,988 million, a reduction of 5% (€98 million) from €2,086 million at year-end 2012. The net-debt-to-EBITDA ratio was 2.2 as of December 31, 2013, improving from 2.4 at year-end 2012, and better than our target level of 2.5.