InvestorsCorporateJuly 31, 2013

Wolters Kluwer 2013 half-year report

Full-year 2013 guidance reiterated.

Wolters Kluwer, a global leader in professional information services, today released its 2013 half-year results.

Download the 2013 Half-Year Results Report

Highlights

  • Full-year 2013 guidance reiterated.
    • First half revenues up 1% in constant currencies and up 1% organically.
    • Electronic & services subscription revenues (54% of total) up 4% organically.
    • Total recurring revenues (77% of total) up 2% organically.
    • Leading, growing positions (45% of total revenues) all achieving organic growth of 5% or higher.
  • North America and Asia Pacific driving growth; Europe remains challenging.
  • First half ordinary EBITA €334 million; Ordinary EBITA margin 19.2%.
    • Margin reflects investments in growth, impact of disposals, and timing of restructuring.
    • Margin expected to improve as the year progresses.
  • First half ordinary diluted EPS €0.66.
  • Ordinary free cash flow €140 million, up 1% at constant currencies.
  • Net-debt-to-EBITDA of 2.6x, following 100% cash dividend paid in second quarter.
  • €20 million share repurchase program completed as of July 9, 2013.

Interim Report of the Executive Board

Nancy McKinstry, CEO and Chairman of the Executive Board, commented: “Our portfolio continues to strengthen as our leading, growing positions and electronic revenues achieved good organic growth in the first half, helping to more than offset continued weakness in Europe and legacy print products. We sustained investment in growth opportunities and continued efforts to drive efficiencies. We reaffirm our guidance for the full year.”

Key Figures Half-Year 2013 ended June 30

€ million, unless otherwise stated

2013 2012* ∆ CC ∆ OG
Business performance – benchmark figures
Revenue 1,742 1,735 0% +1% +1%
Ordinary EBITA 334 340 -2% 0% -1%
Ordinary EBITA margin (%) 19.2% 19.6%
Ordinary net income 197 201 -2% -1%
Diluted ordinary EPS (€) 0.66 0.67 -2% -1%
Ordinary free cash flow 140 142 -1% +1%
Net debt 2,276 2,258 +1%
IFRS results1
Revenue 1,742 1,735 0%
Operating profit 285 247 +15%
Profit for the period2 164 120 +37%
Diluted EPS (€)2 0.55 0.40 +38%
Net cash from operating activities 199 191 +4%

∆ - % Change; ∆ CC - % Change constant currencies (EUR/USD 1.29); ∆ OG – % Organic growth. Benchmark and IFRS figures are for continuing operations unless otherwise noted.Benchmark (ordinary) figures are performance measures used by management. See Note 2 of the Interim Financial Report for a reconcilation from IFRS to benchmark figures.*2012 restated for IAS 19R ‘Employee benefits’ and early adoption of IFRS 11 ‘Joint arrangements’.1)International Financial Reporting Standards as adopted by the European Union.2)Includes discontinued operations.

Full-Year 2013 outlook

We reiterate our full-year guidance. The ordinary EBITA margin is expected to improve in the second half. The table below provides our guidance for the continuing operations for 2013.

Full-Year 2013 Outlook

Performance indicators 2013 Guidance
Ordinary EBITA margin 21.5-22.0%
Ordinary free cash flow ≥ €475 million
Return on invested capital ≥ 8%
Diluted ordinary EPS Low single-digit growth

Guidance for ordinary free cash flow and diluted ordinary EPS is in constant currencies (EUR/USD 1.29).

Guidance reflects IAS 19R and IFRS 11, the removal of the pension financing credit or charge from ordinary figures, and includes the estimated impact of performance share issuance offset by share repurchases.

Guidance is based on constant exchange rates. Wolters Kluwer generates more than half of its ordinary EBITA in North America. As a rule of thumb, based on our 2012 currency profile, a 1 U.S. cent move in the average EUR/USD exchange rate for the year causes an opposite 1.0 euro-cent change in diluted ordinary EPS.

  • Legal & Regulatory: We expect our North American operations to see good organic growth in revenues, driven by Corporate Legal Services. However, European legal and regulatory markets are expected to remain challenging. As indicated in February, we expect the divisional margin to contract and to be offset by margin improvement in other divisions.
  • Tax & Accounting: We expect organic growth and margins to be similar to 2012. Growth in software should continue across the division, while trends in print and bank products are expected to remain weak.
  • Health: We anticipate another year of strong growth in Clinical Solutions. Market conditions for print journals and books are expected to remain soft. Margins will reflect investment in new products and global expansion, compensated by the positive effect of the ongoing mix shift towards Clinical Solutions.
  • Financial & Compliance Services: Faces tough comparables in Originations & Compliance, while Audit is expected to see some revenue attrition over the coming 12-18 months as it migrates Axentis customers to TeamMate and other software platforms. We expect good growth in Finance, Risk & Compliance (FRC). Market conditions for our European transport business are expected to remain challenging. We expect divisional organic growth and margin to see improvement in the second half.

Ordinary net finance results are expected to be approximately €130 million in constant currencies, including the temporary negative carry caused by early refinancing of our bonds due in 2014.

The full year benchmark effective tax rate on ordinary income before tax is expected to be broadly in line with the benchmark tax rate of 2012 (27.7%).

The impact of divestitures made in the year to date is expected to be slightly dilutive to earnings in 2013.

Anti-dilution policy with regard to performance shares

Wolters Kluwer has a policy to offset the dilution of its performance share issuance annually via share repurchases. To accomplish this in 2013, the Company has completed share repurchases of €20 million as of July 9, 2013.

Strategy

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.

  • Expand our leading, high growth positions: We are focusing the majority of investment on high growth segments in our portfolio where we have achieved market leadership. These positions, such as Clinical Solutions and Finance, Risk & Compliance, provide global expansion opportunities. In addition, we will continue to drive growth in digital solutions and services across the divisions.
  • Deliver solutions and insights: We will continuously invest in our products and services 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 find more ways to drive efficiencies in areas such as sourcing, technology, real estate, organizational processes, and distribution channels. As in the past, these operational excellence programs will deliver cost savings to support investments and margin expansion, while mitigating cost inflation. In 2013, restructuring costs are expected to be funded by cost savings.

First-half 2013 results

The interim financial statements have not been audited or reviewed.

Financial review

In the first half of 2013, Wolters Kluwer revenues were stable overall at €1,742 million. Excluding the effect of exchange rate movements, revenues rose 1%. On an organic basis, revenues increased 1% in the first half, following 3% organic growth in the second quarter.

Revenues from North America rose 2% organically, while revenues generated in Europe declined 2%. Revenues derived from Asia Pacific and the Rest of World rose 8%.

Benchmark figures

Ordinary EBITA declined 2% to €334 million and the ordinary EBITA margin declined to 19.2% (HY 2012: 19.6%). At constant currencies, ordinary EBITA was stable. On an organic basis, excluding the effect of currency, acquisitions and divestitures, ordinary EBITA declined 1%, principally as a result of investments in growth opportunities, dilutive disposals, and the timing of restructuring charges.

The net acquisitions and divestitures effect was to add €15 million to revenues with no change to ordinary EBITA in the first half. The ordinary EBITA margin of divested operations has been above Group average.

Ordinary net finance results, which include a settlement (related to Lehman Brothers) of €3 million, were €61 million (HY 2012: €62 million). Ordinary net finance costs exclude the employee benefits financing component and exclude results on the sale of investments in equity-accounted investees.

The tax rate on ordinary income before tax increased to 27.7% (HY 2012: 27.4%) due to an increased proportion of profits from higher tax jurisdictions, mainly the United States. Ordinary net income declined 2% overall and 1% in constant currencies. Diluted ordinary EPS was €0.66 (HY 2012: €0.67), declining 1% in constant currencies.

IFRS reported figures

Operating profit, which includes amortization of acquired publishing rights, as well as non-recurring or exceptional items, increased 15% to €285 million. Operating profit benefitted from a €50 million net gain on divestment of operations, principally relating to the disposal of Best Case Solutions in May 2013.

Net finance results were €51 million (HY 2012: €64 million), benefitting from a €12 million gain on the disposal of the minority investment in AccessData in March 2013. Net finance results includes employee benefits financing costs of €2 million and a €3 million settlement received in the first half related to Lehman Brothers.

The total effective tax rate increased to 29.3% (HY 2012: 24.3%) mainly due to higher taxable income in the U.S. resulting from capital gains on divestments. Profit for the period from continuing operations increased 20% to €166 million, driven principally by the disposal gains.

Discontinued operations recorded a loss of €2 million in the first half, compared to €19 million in the comparable period. Profit for the period including discontinued operations, rose 37% to €164 million (HY 2012: €121 million) and diluted EPS increased 38% to €0.55 (HY 2012: €0.40), largely as a result of the gains on divestments and lower losses on discontinued operations.

Cash flow

Ordinary cash flow from operations was €282 million (HY 2012: €313 million), a reduction of 8% in constant currencies. Cash conversion (CAR) was 85% compared to 92% a year ago, due to higher working capital outflows of €46 million (HY 2012: €18 million outflow) as a result of the timing of payments. Capital expenditures increased 4% at constant currencies to €70 million (HY 2012: €67 million) and represented 4% of revenues.

Ordinary free cash flow was broadly stable at €140 million (HY 2012: €142 million) as the effect of lower cash conversion was compensated for by lower cash spend on restructuring and lower cash taxes compared to first half 2012.

Acquisition spending in first half 2013 was €170 million (HY 2012: €7 million) including earn-out payments for acquisitions made in prior years. The main acquisitions in first half 2013 were Health Language in the U.S. and Prosoft in Brazil. Receipts from divestments, net of tax paid, were €75 million (HY 2012: €4 million). Divestitures during the first half of 2013 included Best Case Solutions and the minority interest in AccessData.

Following the decision announced in February 2013 to abolish the stock dividend, total cash dividend payments more than doubled to €205 million (HY 2012: €90 million). Share repurchases totalled €14 million in the first half. As of July 9, 2013, the share buy-back program of €20 million was completed.

Balance sheet and net debt

Net debt at June 30, 2013, was €2,276 million compared to €2,086 million at December 31, 2012, reflecting net use of cash during the period as a result of higher acquisition spend. The leverage ratio net-debt-to-EBITDA (12 month rolling basis) was 2.6x as of June 30, 2013, compared to 3.0x at June 30, 2012 and 2.4x at December 31, 2012. Our target net-debt-to-EBITDA ratio remains 2.5x, and we expect this leverage ratio to reach or be better than our target by year-end 2013.

In March 2013, Wolters Kluwer issued a new €700 million Eurobond with coupon rate of 2.875%. Part of the funds raised were used to redeem the perpetual cumulative subordinated bonds of €225 million (6.875%) in May. The remaining net proceeds of the bond will be used to refinance part of our €700 million 2014 senior bonds (5.125%) and for general corporate purposes.

Read the full  2013 Half-Year Results Report

About Wolters kluwer

Wolters Kluwer (WKL) is a global leader in professional information, software solutions, and services for the health, tax & accounting, governance, risk & compliance, and legal & 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.

About Wolters kluwer

Wolters Kluwer (WKL) is a global leader in professional information, software solutions, and services for the health, tax & accounting, governance, risk & compliance, and legal & 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.

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.
Contacts
Annemarije Dérogée-Pikaar
Annemarije Dérogée - Pikaar
Director, Corporate Affairs & Communications
Global Branding & Communications
Meg Geldens
Meg Geldens
Vice President, Investor Relations
Investor Relations