First quarter developments
First-quarter revenues declined 1% overall due to the strength of the Euro against the U.S. Dollar and other currencies. In constant currencies, revenues rose +2%, driven mainly by organic growth which benefitted from a favorable comparison to the prior year (first quarter 2013: -1%). The effect of 2013 acquisitions (mainly Prosoft in Tax & Accounting) was broadly offset by the impact of last year’s divestitures (mainly in Legal & Regulatory). Recurring revenues saw good organic growth in the quarter, despite further decline in print subscriptions. Books, transactional and other non-recurring revenues declined. The first-quarter adjusted operating margin declined compared to a year ago, due to increased restructuring costs, lower transactional revenues as well as the effect of last year’s disposals and currency.
- Legal & Regulatory, Corporate Legal Services (CLS): Achieved positive organic growth, with growth in digital subscriptions partly offset by slower transaction volumes due to decelerating trends in M&A volumes, commercial lending activity and UCC filings compared to a year ago. Legal & Regulatory publishing operations saw organic revenue decline, as expected, in both Europe and North America. While digital revenues grew, this was offset by trends in print subscriptions and books (including U.S. legal education). The divisional adjusted operating margin declined, as expected. As indicated in February 2014, we have transferred certain European tax publishing assets into the Legal & Regulatory division (a net transfer of approximately €33 million revenue in 2014) in order to drive further scale economies. For the full year, we continue to expect Corporate Legal Services to achieve positive organic growth, although momentum in CLS transactional revenues is expected to be slower this year. In our Legal & Regulatory publishing operations, we anticipate organic revenue decline due to continued economic uncertainty in Europe, weakness in print formats, and lower U.S. law school enrollments. Continued softness in revenue combined with higher restructuring, the effect of dilutive disposals and the transfer of tax publishing assets is expected to lead to a lower margin in 2014.
- Tax & Accounting: Saw positive organic growth in the first quarter, with software products (over 60% of divisional revenues) performing well around the world, while other product lines, including print, partly offset this performance. Prosoft in Brazil continues to perform well. The first quarter adjusted operating profit margin declined, as expected, due to planned restructuring initiatives. For the full year, we continue to expect the division’s software businesses to achieve good organic growth, partly offset by trends in other product areas. As before, we anticipate margin contraction due to increased restructuring which will be weighted towards the first half.
- Health: Achieved strong organic growth in the first quarter, benefitting from an easy comparable in the first quarter of 2013. Clinical Solutions achieved double-digit organic growth, with UpToDate, Pharmacy OneSource, Provation, and Health Language driving this performance. Medical Research posted improved organic growth, with growth in digital revenues including online journal advertising outweighing expected print decline. Professional & Education revenues declined in the seasonally small first quarter. For the full year, we continue to expect another strong year for Clinical Solutions. Market conditions for print journals and books are expected to remain weak. 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: First quarter revenues were lower on organic basis due to declines in our Originations and Transport units. Finance, Risk & Compliance saw positive organic growth driven by strong performance from FRSGlobal and FinArch products. In Audit, TeamMate internal audit software had a strong start to the year which more than compensated for the expected revenue attrition from the rationalisation of the Axentis platform. We expect full year results to be back-end loaded, supported by positive organic growth in our Finance, Risk & Compliance and Audit units. First half performance is expected to be impacted by lower mortgage refinancing volumes.
Cash flow, acquisitions, divestitures, and net debt
Cash conversion was broadly stable compared to a year ago. Adjusted free cash flow declined in constant currencies, as expected, due mainly to higher paid financing costs resulting from double coupon payments due to the maturing Eurobond in January 2014. We continue to expect at least €475 million adjusted free cash flow at constant currencies for the full year. Twelve months rolling net-debt-to-EBITDA was 2.2 at the end of the first quarter, stable compared to 2.2 reported for year-end 2013, and better than our target of 2.5.
Subsequent to the first quarter, we announced the completion of our acquisition of the 62% of Datacert (Third Coast Holdings) we did not already own. The event triggered a non-cash book profit of approximately $100 million (approximately €73 million) on Wolters Kluwer’s prior minority investment, subject to accounting adjustments. This is excluded from adjusted results. Including Datacert, net acquisition spending including earnouts for earlier acquisitions and net of cash acquired, was approximately €170 million in the year to date. Following approval at the Annual General Meeting, a dividend of €0.70 per share will be paid in cash on May 13, 2014.
Full-year 2014 outlook
We reaffirm our full-year 2014 guidance. Our 2014 margin guidance includes expected restructuring costs of approximately €25-30 million (2013: €10-15 million) which will fall mainly in the Legal & Regulatory and Tax & Accounting divisions and will be weighted towards the first half.