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 around 100% in 2021 (FY 2020: 102%). See Note 4 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 organic growth to improve over 2020 levels and the adjusted operating profit margin to be stable year-on-year as temporary cost savings fade and investment rises in the second half.
- Tax & Accounting: We expect organic growth to improve 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 now expect organic growth to improve from 2020 levels, as a rebound in Legal Services transactional revenues is now expected to more than compensate for lower revenues associated with the PPP. We expect the full-year adjusted operating profit margin to improve on the back of lower restructuring and provisions, despite increased investment.
- 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 lower restructuring more than offsets increased investment.
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 55% of total revenues in HY 2021 (FY 2020: 54%) and grew 4% organically. Excluding revenues associated with the PPP, expert solutions grew 6% organically. 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 CCH Tagetik and TeamMate; 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 ComplianceOne, 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 FY 2020 and 81% in HY 2021), 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 HY 2021, software products accounted for 43% of total revenues (FY 2020: 41%) and grew 5% organically. Of total software revenues, 31% related to recurring cloud software revenues, which grew 17% organically in the first half of 2021 (FY 2020: 19%).
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 had an impact on our financial trajectory, it has fully 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 continue to be:
- 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 the first half of 2021, group-wide product development spending (including capital expenditures) remained within our guided range of 8%-10% of total revenues. We continued to develop and enhance our expert solutions, while also investing to transform our digital information products to enhance their content, functionality, and user interfaces, while adding capabilities that leverage artificial intelligence.
We took steps to drive operational agility, leveraging standardized technology platforms and components and transitioning products to the cloud. In the first half of 2021, we successfully migrated our corporate performance management systems to the cloud-based CCH Tagetik solution and completed the consolidation of 280 product websites into a single Wolters Kluwer website.
ESG priorities 
Our strategy aims to deliver high levels of customer satisfaction and impactful products and services, while fostering an engaged, talented, and diverse workforce, and ensuring strong corporate governance, secure systems, and efficient and environmentally-friendly operations. At the start of 2021, we rolled out a new sustainability plan (ENGAGE) to further advance these objectives.
In the first half of 2021, we made progress on a number of environmental, social, and governance (ESG) initiatives. We advanced on programs to reduce our carbon emissions: our real estate rationalization program delivered a 4% organic reduction in our office footprint by closing several smaller offices. Our server migration and data center consolidation program is on track to reduce the number of on-premise servers this year by transitioning applications to the cloud. This migration of customer applications and internal systems from on-premise servers to more energy-efficient cloud platforms results in better capacity utilization and a net reduction in carbon emissions.
In July 2021, we launched our first global, all-employee survey of diversity, equity & inclusion. The results will form the basis for setting new goals to ensure that we have a diverse workforce that reflects the communities in which we live and work.
And on the governance side, we have now incorporated six strategic and verifiable ESG measures and targets into management’s short-term incentive plan. Four of these ESG measures were also linked to our €600 million multi-currency credit facility, creating a sustainability-linked facility approved by twelve syndicate lenders.
Financial policy, capital allocation, net debt and liquidity
Wolters Kluwer uses its cash flow to invest in the business organically and through acquisitions, to maintain optimal leverage, and 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 at times, 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 flow.
Dividend policy and interim dividend 2021
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.
As announced on February 24, 2021, the interim dividend for 2021 was set at 40% of the prior year total dividend. This results in an interim dividend of €0.54 per share, to be distributed on September 23, 2021, to holders of ordinary shares, or September 30, 2021, to holders of Wolters Kluwer ADRs.
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 buyback 2021 and share cancellation 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. The maximum number of shares which may be acquired will not exceed the authorization granted by the General Meeting of Shareholders.
On February 24, 2021, we announced our intention to repurchase shares for up to €350 million during 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.
During the year up until August 3, 2021, we have spent €229 million on share buybacks (3.1 million shares at an average price of €73.41). Included in these amounts was a block trade of 593,276 for €38.6 million on February 25, to partly offset the issuance of incentive shares. See Note 9 for further information on issued share capital.
For the period starting August 5, 2021, up to and including November 1, 2021, we have mandated 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.
As of August 3, 2021, Wolters Kluwer held 7.5 million shares in treasury. A portion of these treasury shares will be retained in order to meet future obligations under share-based incentive plans.
At the 2021 Annual General Meeting of April 22, 2021, shareholders approved a resolution to cancel for capital reduction purposes any or all ordinary shares held in treasury or to be acquired by the company, up to a maximum of 10% of issued share capital. As authorized by shareholders, the Executive Board has determined the number of ordinary shares to be cancelled this year is 5.0 million. Wolters Kluwer intends to cancel these shares in the second half of 2021.
Net debt, leverage, sustainability-linked credit facility, and liquidity position
Net debt at June 30, 2021, was €2,417 million, compared to €2,383 million at December 31, 2020. Included in net debt were €353 million of lease liabilities. The net-debt-to-EBITDA ratio was 1.7x (FY 2020: 1.7x; HY 2020: 1.5x).
On March 30, 2021, we issued a new €500 million, 7-year senior unsecured Eurobond with a coupon of 0.25%. The new bond provides financing at an attractive rate and has extended the company’s debt maturity profile. The proceeds will be used for general corporate purposes.
Effective July 2021, we agreed to a one-year extension of our €600 million multi-currency credit facility. This facility will therefore now mature in 2024 and still includes a further one-year extension option. The relevant terms and conditions remain unchanged. Simultaneously, we executed a sustainability-linked option that was available under this facility, in order to reinforce our ESG ambitions by embedding them into our financing. Four ESG key performance indicators, along with an ESG-linked pricing mechanism, were agreed, making the facility a sustainability-linked credit facility. This facility is currently undrawn. We remain comfortably below the debt covenant on this credit facility.
Our liquidity position remains strong with, as of June 30, 2021, net cash available of €859 million , partly offset by outstanding Euro Commercial Paper (ECP) of €125 million. We currently have no long-term debt maturing between now and 2022.
Half-year 2021 results
Group revenues were €2,280 million, down 1% overall due to the weaker U.S. dollar. Excluding the effect of currency, revenues increased 6%. Excluding also the net effect of acquisitions and divestments, organic revenue growth was 5% (HY 2020: 3%). Excluding revenues associated with the PPP , organic growth would have been 6%.
All main geographic regions reported improved organic growth. Revenues from North America, which accounted for 62% of group revenues, grew 5% organically (HY 2020: 4%). Revenues from Europe, 31% of total revenues, also increased 5% organically (HY 2020: 2%). Revenues from Asia Pacific and Rest of World, 7% of total revenues, grew 3% organically (HY 2020: flat).
Adjusted operating profit was €613 million (HY 2020: €577 million), an increase of 14% in constant currencies. The adjusted operating profit margin increased 170 basis points to 26.9% (HY 2020: 25.2%), largely due to operational gearing, temporary cost savings, and structural cost efficiencies. Temporary cost savings include costs that were reduced in the wake of the pandemic, such as expenses related to travel, in-person events, and promotions. It also includes savings as a result of last year’s slower pace of hiring. Included in adjusted operating profit were restructuring expenses of €2 million (HY 2020: €3 million).
Our share of profits of associates, net of tax, was nil (HY 2020: €5 million). The prior period included a one-time profit related to our 40% interest in Logical Images which was divested on May 15, 2020.
Adjusted net financing costs increased to €42 million (HY 2020: €25 million). Included in adjusted net financing costs was an €11 million net foreign exchange loss (HY 2020: €7 million net foreign exchange gain) mainly related to the translation of intercompany balances.
Adjusted profit before tax was €571 million (HY 2020: €557 million), up 2% overall. Excluding the effect of currency, adjusted profit before tax was up 14%.
The benchmark tax rate on adjusted profit before tax was 23.5% (HY 2020: 23.5%), in line with the prior period. Adjusted net profit was €437 million (HY 2020: €426 million), an increase of 3% overall and 16% in constant currencies. Diluted adjusted EPS was €1.66 (HY 2020: €1.59), up 4% overall and up 19% in constant currencies, reflecting the increase in adjusted net profit and a 2% reduction in the diluted weighted average number of shares outstanding to 262.7 million (HY 2020: 267.6 million).
IFRS reported figures
Reported operating profit increased 4% to €519 million (HY 2020: €500 million), reflecting the increase in adjusted operating profit, a decrease in amortization of acquired intangibles, and the reversal of an impairment of Prosoft (Brazil), partly offset by a €28 million loss on the divestment of Prosoft. The divestment-related loss included a €26 million unrealized foreign exchange loss triggered by the Prosoft transaction, as previously disclosed. See Note 7 for details on the Prosoft transaction.
Reported financing results amounted to a net cost of €43 million (HY 2020: €19 million cost), reflecting net interest cost of €32 million and an €11 million foreign exchange loss, mainly on intercompany balances.
The reported effective tax rate increased to 24.4% (HY 2020: 23.1%) due to the impact of the Prosoft transaction. Total net profit for the first half declined 4% overall to €360 million (HY 2020: €374 million) and diluted earnings per share declined 2% to €1.37 (HY 2020: €1.40).
Adjusted operating cash flow was €659 million (HY 2020: €485 million), up 45% in constant currencies. The cash conversion ratio increased to 107% (HY 2020: 84%) due to a €54 million working capital inflow compared to a €69 million outflow in the first half of 2020, as cash collections on trade receivables improved this year. Adjusted operating cash flow also benefitted from an underlying decline in capital expenditure to €107 million (HY 2020: €121 million).
Cash payments related to leases, including €4 million of lease interest paid, were €38 million (HY 2020: €41 million). Depreciation of physical assets, amortization of internally developed software, and amortization and impairment of right-of-use assets totaled €137 million (HY 2020: €139 million), broadly in line with the prior period.
Net interest paid, excluding lease interest paid, increased to €44 million (HY 2020: €39 million). Income tax paid increased to €127 million (HY 2020: €111 million). The net cash effect of restructuring was an outflow of €20 million (HY 2020: outflow of €6 million).
Consequently, adjusted free cash flow was €476 million (HY 2020: €336 million), up 42% overall and up 54% in constant currencies.
Total acquisition spending, net of cash acquired and including transaction costs, was €99 million (HY 2020: €26 million), primarily relating to the acquisition of Vanguard Software in Tax & Accounting in May 2021.
Dividends paid to shareholders amounted to €233 million (HY 2020: €210 million), comprising the final dividend of financial year 2020. Through June 30, 2021, cash deployed towards the share repurchase program totaled €201 million (HY 2020: €154 million).