First quarter developments
First quarter revenues declined 8% in reporting currency, reflecting a 10% impact from currency due to the depreciation of the U.S. dollar against the Euro (average €/$ 1.23 in 1Q 2018 vs. €/$ 1.07 in 1Q 2017). Excluding the effect of currency, revenues increased 2%, with organic growth of 4% partly offset by the effect of net disposal activity. Subscription and other recurring revenues grew 5% organically. The first-quarter adjusted operating profit margin increased slightly compared to a year ago. Increased investment in product development, the inclusion of Tagetik (acquired April 2017), and the effect of exchange rate movements were offset by the benefits of efficiency programs.
Under IFRS 15, certain revenues and costs are recognized more evenly throughout the year and over the life of the related contracts. The accounting standard has minimal impact on group revenues and profits and has no impact on adjusted free cash flow. Had we continued to apply the IAS 18 standard, organic growth would have been 4% and the adjusted operating profit margin would have declined slightly in the first quarter.
- Health achieved mid-single-digit organic growth, as expected, and improved its adjusted operating profit margin. Clinical Solutions delivered double-digit organic growth and commenced the launch of UpToDate Advanced, a next-generation decision tool that provides guided, patient-specific pathways. Health Learning, Research & Practice revenues declined on an organic basis, primarily due to a fall in print book revenues following higher-than-expected returns. In the first quarter, we reduced our interest in Medicom China from 55% to 45%. As a result, Medicom (2017 revenues €8 million) will now be deconsolidated and treated as an equity-accounted investee starting in April 2018. For the full year, we continue to expect Health to deliver good organic growth, similar to prior year levels, and a stable adjusted operating profit margin. We now expect the first half adjusted operating profit margin to improve (previously expected decline) due to the timing of investments and savings.
- Tax & Accounting recorded mid-single-digit organic growth, as expected. The adjusted operating profit margin declined, as expected, due to the inclusion of Tagetik and due to increased investment in product development. Across the division, software solutions for professionals and corporates saw sustained high single-digit organic growth. Print formats, bank products and other services showed improvement compared to a year ago. For the full year, we continue to expect improved organic growth and a stable adjusted operating profit margin. We continue to expect the first half adjusted operating profit margin to decline due to the timing of investments.
- Governance, Risk & Compliance revenues decreased by 18% overall due to recent disposal activity and the impact of currency. Organic growth was 3% in the quarter. Recurring revenues saw modest organic growth. Legal Services transactional revenues were strong in the quarter, while Financial Services transactional revenues declined as expected. Other non-recurring revenues, which include software license and implementation fees, posted high single-digit organic growth, benefitting from 2017 sales performance. For the full year, we continue to expect good organic growth and a higher adjusted operating profit margin driven by operating efficiencies and portfolio reshaping.
- Legal & Regulatory revenues declined 7% overall due to recent disposals and the impact of currency. On an organic basis, the division recorded low single-digit organic growth, reflecting portfolio changes, accelerated organic growth at Enablon (included in organic since mid-2017), and a favorable comparison base. The division faces more challenging comparables in the second half, and as a result, we continue to expect the full year to see flat underlying revenue and a stable adjusted operating profit margin.
Cash flow and net debt
First quarter cash conversion benefitted from favorable timing of working capital movements. Adjusted free cash flow declined 3% in constant currencies, reflecting higher cash tax and financing costs paid. First quarter net acquisition spending, net of cash acquired and including costs, was €12 million, mainly associated with earnouts and the acquisition of Firecracker by the Health division. Disposal proceeds amounted to €299 million, including deal expenses and net of cash disposed. The divestments included Corsearch, certain Swedish assets, ProVation, and a portion of our interest in Medicom.
As of March 31, 2018, net debt was €1.7 billion and net-debt-to-twelve-months-rolling-EBITDA ratio was 1.4x. In April, we used our cash balances to redeem the €750 million, 6.375% Eurobond which matured on April 10, 2018.
Dividends and share buybacks
At the Annual General Meeting in April, shareholders approved a total dividend of €0.85. As a result, the final dividend will be €0.65 per share, to be paid on May 17, 2018 (ADRs: May 24, 2018). As announced in February, starting in 2018, the interim dividend will be set at 40% of the prior year total dividend (previously 25%).
As of March 31, 2018, the number of shares outstanding was 279.7 million. In the year to date, up to and including May 7, 2018, Wolters Kluwer has repurchased 4.7 million ordinary shares for a total consideration of €200 million. For the period starting May 10, 2018, up to and including July 30, 2018, we have engaged a third party to execute share buybacks for a maximum of €100 million on our behalf, within the limits of relevant laws and regulations (in particular Regulation (EU) 596/2014) and Wolters Kluwer’s Articles of Association. Our intention remains to execute up to €400 million of share buybacks in 2018, including the proceeds from the disposal of Corsearch and certain Swedish assets. In addition, we also intend to deploy the proceeds from the sale of ProVation (completed March 9, 2018) towards additional share repurchases of €150 million in 2018 and 2019. Share repurchases will be used for capital reduction purposes or to meet obligations arising from share-based incentive plans.
Full-year 2018 outlook
We reaffirm our full-year 2018 guidance. We expect to deliver solid organic growth and margin improvement for the full-year. We expect to achieve an increase in full-year diluted adjusted EPS in constant currencies and improvement in return on invested capital (ROIC). The first half adjusted operating profit margin is now expected to be broadly stable in reporting currency, reflecting the phasing of investments and savings.