Wolters Kluwer, a global leader in professional information, software solutions, and services, today releases its full-year 2020 results.
Wolters Kluwer 2020 Full-Year Report
- Revenues €4,603 million, up 1% in constant currencies and up 2% organically.
- Excluding revenues associated with the PPP organic growth would have been 1%.
- Recurring revenues up 4% organically (80% of total revenues); non-recurring down 8% organically.
- Digital & services revenues up 4% organically (91% of total revenues); print down 16% organically.
- COVID-19 mainly impacted print formats, non-recurring revenues, and new sales.
- Adjusted operating profit €1,124 million, up 5% in constant currencies.
- Adjusted operating profit margin up 80 basis points to 24.4%.
- Cost savings allowed us to sustain investments in product development and marketing while bringing forward efficiency initiatives and still delivering a margin improvement.
- Diluted adjusted EPS €3.13, up 7% in constant currencies.
- Adjusted free cash flow €907 million, up 16% in constant currencies.
- Balance sheet remains strong: net-debt-to-EBITDA 1.7x.
- Return on invested capital improved to 12.3%.
- Proposed total dividend 2020: €1.36 per share, up 15%.
- Share buybacks: 2020 buyback of €350 million completed; announcing 2021 buyback of up to €350 million (of which €50 million already completed).
- Outlook 2021: mid-single-digit growth in adjusted diluted EPS in constant currencies.
Full-Year Report of the Executive Board
Nancy McKinstry, CEO and Chairman of the Executive Board, commented: “In so many ways, our employees embraced the challenge of 2020, dedicating themselves to the needs of customers while delivering on our strategic priorities. The pandemic mainly affected our non-recurring and print revenue streams and slowed our new sales activity, but digital recurring revenues performed well. We expect the recovery towards previous growth levels to be gradual and remain confident in our long-term prospects.”
Key figures 2020 - Year ended December 31
|€ million, unless otherwise stated||2020||2019||∆||∆ CC||∆ OG|
|Business performance – benchmark figures|
|Adjusted operating profit||1,124||1,089||+3%||+5%||+5%|
|Adjusted operating profit margin||24.4%||23.6%|
|Adjusted net profit||835||790||+6%||+4%|
|Diluted adjusted EPS||3.13||2.90||+8%||+7%|
|Adjusted free cash flow||907||807||+12%||+16%|
|Return on invested capital (ROIC)||12.3%||11.8%||%|
|IFRS reported results|
|Profit for the year||721||669||+8%|
|Diluted EPS (€)||2.70||2.46||+10%|
|Net cash from operating activities||1,197||1,102||+8%|
Note: ∆ % Change; ∆ CC % Change in constant currencies (€/$ 1.12); ∆ OG % Organic growth. Benchmark figures are performance measures used by management. See Note 3 for a reconciliation from IFRS to benchmark figures.
Full-Year 2021 OutlookDue to the ongoing nature of the COVID-19 pandemic, we currently expect economic activity and spending patterns to be subdued for most of 2021, with a gradual recovery starting in the second half. In the first half of 2021 we face a challenging comparable, partly because we expect lower PPP revenues in 2021. We remain in a strong position to respond to new challenges should they arise. Our specific guidance for 2021 adjusted operating profit margin, adjusted free cash flow, return on invested capital (ROIC), and diluted adjusted EPS is provided below.
Full-Year 2021 Outlook
|Performance indicators||2021 Guidance||2020|
|Adjusted operating profit margin||24.5%-25.0%||24.4%|
|Adjusted free cash flow||€875-€925 million||€907 million|
|Diluted adjusted EPS||Mid-single-digit growth||€3.13|
Note: Guidance for adjusted operating profit margin and ROIC is in reported currencies and assumes an average EUR/USD rate in 2021 of €/$1.21. Guidance for adjusted free cash flow and diluted adjusted EPS is in constant currencies (€/$ 1.14). Guidance reflects share repurchases for up to €350 million in 2021.
If current exchange rates persist, the U.S. dollar rate will have a negative effect on 2021 results reported in euros. In 2020, Wolters Kluwer generated more than 60% of its revenues and adjusted operating profit in North America. As a rule of thumb, based on our 2020 currency profile, each 1 U.S. cent move in the average €/$ exchange rate for the year causes an opposite change of approximately 2 euro cents in diluted adjusted EPS.
We include restructuring costs in adjusted operating profit. We currently expect that restructuring costs will be in the range of €10-€15 million in 2021 (FY 2020: €49 million). We expect adjusted net financing costs of approximately €65 million in constant currencies , including approximately €10 million in lease interest charges. We expect the benchmark tax rate on adjusted pre-tax profits to be in the range of 23.0%-24.0% for 2021. Capital expenditure is expected to be within our normal range of 5.0%-6.0% of total revenues (FY 2020: 5.0%). Cash repayments of lease liabilities are expected to be in line with depreciation of right-of-use assets (FY 2020: €73 million). We expect the full-year cash conversion ratio to be in the range of 95%-100% in 2021 (FY 2020: 102%). See Note 3 for the calculation of our cash conversion ratio.
Any guidance we provide 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.
2021 Outlook by Division
Health: We expect full-year organic growth to improve over 2020 levels and the adjusted operating profit margin to be stable year-on-year as temporary cost savings fade.
Tax & Accounting: We expect organic growth to improve moderately from 2020 levels and the adjusted operating profit margin to decline due to the absence of one-time benefits and the fading of temporary cost savings.
Governance, Risk & Compliance: We expect the organic growth rate to be slightly below 2020 levels, as revenues associated with the 2021 PPP1 will likely be lower than in 2020. We expect the adjusted operating profit margin to improve on the back of lower restructuring and provisions.
Legal & Regulatory: We expect the division to return to positive organic growth driven by digital information and software revenues. We expect the adjusted operating profit margin to improve as a result of lower restructuring.
Our Mission, Business Model 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 main customer segments: health; tax & accounting; governance, risk & compliance; and legal & 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. Since 2003, we have been re-investing 8%‑10% of our revenues in developing new and enhanced products and the supporting technology platforms.
Expert solutions, which combine deep domain knowledge with technology to deliver both content and workflow automation to drive improved outcomes and productivity for our customers, accounted for 54% of total revenues in 2020 (FY 2019: 51%) and grew 6% organically including PPP (FY 2019: 7%). Based on revenues, our largest expert solutions are:
- Health: clinical decision support tool UpToDate; clinical drug databases Medi-Span and Lexicomp; and Lippincott nursing solutions for practice and learning.
- Tax & Accounting: corporate performance solutions TeamMate and CCH Tagetik; professional tax and accounting software, including CCH ProSystem fx, CCH Axcess, and PFX Engagement in North America and similar software for professionals across Europe.
- Governance, Risk & Compliance: finance, risk, and regulatory reporting suite OneSumX; banking compliance solutions Compliance One, Expere, and Gainskeeper; and enterprise legal management software Passport and Tymetrix.
- Legal & Regulatory: EHS/ORM  suite Enablon, and our range of workflow solutions for European legal professionals.
Our business model is primarily based on subscriptions and other recurring revenues (80% of total revenues in 2020), augmented by implementation services revenues as well as volume-based transactional 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. In 2020, software products accounted for 41% of total revenues (FY 2019: 39%). Of total software revenues, 28% was from recurring cloud subscription revenues, which grew 19% organically (FY 2019: 24%).
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 the scaled agile framework. Our employees drive our achievements and we have been working to ensure we are providing engaging and rewarding careers.
Strategic Priorities 2019-2021
While the pandemic has diverted us from our original three-year financial plan for 2019-2021, the crisis has reinforced and validated many aspects of our strategy: the evolution towards digital and expert solutions; the transition to cloud-based software platforms, and the investment to upgrade internal systems, infrastructure, and digital marketing capabilities. Our strategic priorities for 2019-2021 are:
- 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. Part of our 2019-2021 strategic plan is to complete the modernization of our Human Resources technology to support our efforts to attract and nurture talent.
Our strategy is focused on organic growth, although we may make further bolt-on acquisitions and non-core disposals to enhance our value and market positions. Acquisitions must fit our strategy, strengthen or extend our existing business, be accretive to diluted adjusted EPS in their first full year and, when integrated, deliver a return on invested capital above our weighted average cost of capital (8%) within three to five years.
In 2020, group-wide product development spend was just over 9% of total revenues. While we continued to develop our expert solutions, we also invested to transform our digital information products, such as our medical research platform Ovid and our legal research solutions, to enhance their content, functionality and user interfaces, and to add capabilities that leverage artificial intelligence.
In 2020, we acquired three software companies with whom we had long-standing partnerships: CGE, XCM Solutions, and eOriginal. We were also active with divestments: last year, we sold eight assets and businesses that no longer fit our long-term strategic goals, helping us achieve increased focus on expert solutions.
We took steps to drive operational agility, moving further towards standardized technology platforms and components and transitioning products to the cloud. In 2020, we completed the final phase of our HR systems modernization and made progress on upgrading other back-office infrastructure.
Our strategy aims to achieve high levels of customer satisfaction and an engaged, talented and diverse workforce, to maintain strong corporate governance and secure systems, and to drive efficient operations that meet environmentally-sound practices.
Wolters Kluwer has not been immune to the effects of the COVID-19 pandemic. The situation required an agile response from our organization. Increased efforts were made to safeguard employees, support customers, and to ensure business continuity. Since mid-March 2020, approximately 95% of Wolters Kluwer employees have been working from home. We are planning for a gradual and partial return to our offices in the second half of 2021, when and where circumstances allow. Significant investment was made in innovation and new content in 2020 to support customers in navigating through the crisis: for example, our Health division expanded its COVID-19 content, tools and resources to support healthcare providers and medical researchers. In our Tax & Accounting division, CCH Tagetik rolled out new products to allow corporate finance teams to rapidly perform the scenario analyses necessitated by the pandemic. Our Compliance Solutions group (in GRC) was one of the first providers to deliver software capable of supporting banks in lending under the U.S. PPP program. And in Legal & Regulatory, Enablon introduced COVID-19 modules for its EHS/ORM platform enabling users to better manage workplace health risks posed by the virus. This innovation and agility over the past year helped mitigate the challenges posed by the pandemic which were most visible in our print and non-recurring revenues and our new sales intake.
Financial Policy, Capital Allocation, Net Debt, and Liquidity
Wolters Kluwer uses its free cash flow to invest in the business organically and through acquisitions, to maintain optimal leverage, and to 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, 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 flows.
Dividend Policy and Proposed Final Dividend 2020
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 payout ratio 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 ﬂexibility. The policy takes into consideration the characteristics of our business, our expectations for future cash ﬂows, 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.
At the 2021 Annual General Meeting of Shareholders, we will propose a final dividend of €0.89, which would result in a total dividend over the 2020 financial year of €1.36, an increase of 15%. The dividend will be paid in cash. 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.
Share Buybacks 2020 and 2021
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 share buyback programs. Shares repurchased by the company are added to and held as treasury shares and are either cancelled or utilized to meet future obligations arising from share-based incentive plans.
During 2020, we spent €350 million on share buybacks, comprising 5.1 million shares at an average price of €68.41. During the year, 0.9 million treasury shares were released in respect of share-based incentive plans, leading to a net repurchase of 4.2 million shares.
Today, we are announcing our intention to spend up to €350 million on share repurchases during 2021, including repurchases to offset incentive share issuance. Of this, €50 million has already been completed in the period from January 4, 2021, up to and including February 22, 2021.
Assuming global economic conditions do not deteriorate substantially, we believe this level of share buybacks leaves us with ample headroom to support our dividend plans, to sustain organic investment, and to make selective acquisitions. The share repurchases may be suspended, discontinued, or modified at any time.
For the period February 26, 2021, up to and including May 3, 2021, we have engaged a third party to execute €70 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 future obligations arising from share-based incentive plans.
Net Debt, Leverage, and Liquidity Position
Net debt at December 31, 2020, was €2,383 million, compared to €2,199 million at December 31, 2019. Included in net debt were €348 million of lease liabilities. The net-debt-to-EBITDA ratio was 1.7x (FY 2019: 1.6x).
Our liquidity position remains strong with, as of December 31, 2020, net cash available of €364 million , partly offset by outstanding Euro Commercial Paper of €100 million. During 2020, we issued a new €500 million 10-year senior unsecured Eurobond (coupon 0.75%) and signed a new €600 million 3-year multi-currency credit facility (undrawn as of today). This new facility will mature in 2023 and includes two one-year extension options. We remain comfortably below the leverage ratio covenant in our credit facility.
Full-Year 2020 Results
Group revenues were €4,603 million, in line with the prior year. Revenues increased 1% in constant currencies, including the net effect of divestments and acquisitions which reduced revenues by 1%. Removing both the effect of currency and net divestments, organic growth was 2% (FY 2019: 4%). Excluding revenues associated with the PPP1, organic growth would have been 1%, the slowdown reflecting the impact of COVID-19 on our business in 2020.
All geographic regions experienced weaker growth as a result of the pandemic. Revenues from North America, which accounted for 61% of group revenues, grew 2% organically (FY 2019: 4%). Revenues from Europe, 31% of total revenues, increased 2% organically (FY 2019: 5%). Revenues from Asia Pacific and Rest of World, 8% of total revenues, declined 4% on an organic basis (FY 2019: organic growth 5%).
Adjusted operating profit was €1,124 million (FY 2019: €1,089 million), an increase of 5% in constant currencies. The adjusted operating profit margin increased 80 basis points to 24.4% (FY 2019: 23.6%), including the benefit of a one-time insurance reimbursement of €12 million and a margin on the revenues associated with the PPP1. During 2020, significant cost savings of a temporary nature were possible as a result of a freeze on travel and in-person events and reductions in promotional expenses. We also achieved more sustainable, structural savings from on-going efficiency programs in 2020. These cost savings and one-off benefits allowed us to fully sustain our investments in product development, technology infrastructure, and digital marketing. We were also able to bring forward certain restructuring initiatives. Included in adjusted operating profit were restructuring expenses of €49 million (FY 2019: €26 million) and increased provisions for returns and bad debt.
Our share of profits of associates, net of tax, was €6 million (FY 2019: €3 million), mainly due to a one-time higher result related to our 40% interest in Logical Images which was divested on May 15, 2020.
Adjusted net financing costs declined to €46 million (FY 2019: €58 million) largely due to a €24 million net foreign exchange gain on the translation of intercompany balances. Partly offsetting this was lower interest income on U.S. cash balances.
Adjusted profit before tax was €1,084 million (FY 2019: €1,034 million), up 4% in constant currencies. The benchmark tax rate on adjusted profit before tax reduced to 23.0% (FY 2019: 23.6%), reflecting favorable tax effects from financing results, prior year adjustments, and tax losses.
Adjusted net profit was €835 million (FY 2019: €790 million), an increase of 4% in constant currencies.
Diluted adjusted EPS was €3.13 (FY 2019: €2.90), up 7% in constant currencies, reflecting the increase in adjusted net profit and a 2% reduction in the diluted weighted average number of shares outstanding to 266.6 million (FY 2019: 272.2 million).
IFRS Reported Figures
Reported operating profit increased 7% to €972 million (FY 2019: €908 million), reflecting the increase in adjusted operating profit combined with an absence of impairment charges on acquired identifiable intangible assets. Reported financing results amounted to a net cost of €41 million (FY 2019: €53 million), reflecting adjusted net financing cost of €46 million and a €7 million net gain on disposals of equity-accounted associates and financial assets (FY 2019: €9 million).
The reported effective tax rate increased to 23.1% (FY 2019: 22.0%), owing largely to the taxable capital gains made on 2020 disposals, while the prior year was favorably impacted by tax exempted divestments and the conclusion of tax audits. Total profit for the year increased 8% to €721 million (FY 2019: €669 million) and diluted earnings per share increased 10% to €2.70 (FY 2019: €2.46).
Adjusted operating cash flow was €1,145 million (FY 2019: €1,049 million), up 13% in constant currencies. The cash conversion ratio increased to 102% (FY 2019: 96%), primarily due to an inflow of working capital compared to an outflow in the prior year.
Depreciation of property, plant, and equipment and amortization and impairment of internally developed software was €223 million, in line with the prior year (FY 2019: €220 million). Depreciation and impairment of right-of-use assets were €75 million (FY 2019: €73 million). Net capital expenditure increased to €231 million (FY 2019: €226 million), stable at 5.0% of revenues (FY 2019: 4.9%). Cash payments related to leases, including €11 million of lease interest paid, increased to €85 million (FY 2019: €80 million). Favorable timing of collections resulted in a €39 million cash inflow on working capital (FY 2019: €27 million outflow).
Net interest paid, excluding lease interest paid, increased to €54 million (FY 2019: €46 million). Corporate income tax paid increased to €221 million (FY 2019: €195 million). The effect of restructuring was a net increase in provisions of €20 million (compared to a net decrease of €6 million in FY 2019) as net additions to restructuring provisions of €37 million were partly offset by cash appropriations of €17 million.
As a result, adjusted free cash flow was €907 million (FY 2019: €807 million), up 12% overall and up 16% in constant currencies.
Total acquisition spending, net of cash acquired and including €11 million in transaction costs, was €406 million (FY 2019: €35 million), primarily relating to the acquisitions of eOriginal in Governance, Risk & Compliance (€235 million), XCM Solutions in Tax & Accounting (€140 million), and CGE in Legal & Regulatory (€20 million). On a pro-forma basis, these acquisitions generated revenues of €58 million in 2020, of which €13 million was consolidated in 2020. Earnouts and deferred payments on acquisitions completed in prior years amounted to €6 million (FY 2019: €1 million).
Divestment proceeds, net of cash disposed and transaction costs, were €48 million (FY 2019: €39 million) and related to the divestment of certain Belgian training assets, selected German assets, the healthcare compliance solution ComplyTrack, GRC’s flood determination services, French legal notices business, and our stakes in Medicom in China and Logical Images in the U.S. Up to their divestment dates, the divested assets generated total revenues of €34 million in 2020. See Note 6 for more details.
Dividends paid to shareholders amounted to €334 million (FY 2019: €280 million), while share repurchases totaled €350 million (FY 2019: €350 million).
ESG Highlights 2020
In 2020, employee engagement saw a significant increase to 84% (FY 2019: 77%), placing our score more than 10 percentage points above the norm for high-performing companies. Throughout the year, we conducted regular employee surveys to monitor well-being and learn what was needed to support employees working from home. The increased engagement was attributable to a focus on health and well-being, an increase in internal communications, and the provision of virtual collaboration tools to all employees globally.
During 2020, we accelerated a number of multi-year programs that will help reduce carbon emissions in coming years. This included our real estate rationalization program, which delivered a 7% organic reduction in our office footprint by closing smaller offices, and our data center consolidation program, which decommissioned 11 data centers while transitioning applications to the cloud. The migration of products and internal systems from on-premise servers to more energy-efficient cloud platforms results in a net reduction in carbon emissions.
 Throughout this document, PPP refers to the U.S. Small Business Association (SBA) Paycheck Protection Program established by the 2020 U.S. CARES Act. Wolters Kluwer Compliance Solutions (part of Governance, Risk & Compliance) supported its bank customers in lending under this program. A new tranche of the U.S. PPP program was launched by the SBA in January 2021.
 Guidance for adjusted net financing costs in constant currencies excludes the impact of exchange rate movements on currency hedging and intercompany balances.
 Throughout this document, EHS/ORM refers to environmental, health & safety and operational risk management.
 Dividend payout ratio: dividend per share divided by adjusted earnings per share.
 Net cash available consists of cash and cash equivalents of €723 million less overdrafts used for cash management purposes of €359 million.
 Environmental, social and governance data is not assured.
|March 10, 2021||Publication of Annual Report|
|April 22, 2021||Annual General Meeting of Shareholders|
|April 26, 2021||Ex-dividend date: 2020 final dividend|
|April 27, 2021||Record date: 2020 final dividend|
|May 5, 2021||First-Quarter 2021 Trading Update|
|May 19, 2021||Payment date: 2020 final dividend ordinary shares|
|May 26, 2021||Payment date: 2020 final dividend ADRs|
|August 4, 2021||Half-Year 2021 Results|
|August 31, 2021||Ex-dividend date: 2021 interim dividend|
|September 1, 2021||Record date: 2021 interim dividend|
|September 23, 2021||Payment date: 2021 interim dividend ordinary shares|
|October 1, 2021||Payment date: 2020 interim dividend ADRs|
|October 30, 2021||Nine-Month 2021 Trading Update|
|February 23, 2022||Full-Year 2021 Results|
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.