First quarter developments
First quarter revenues increased 9% in reporting currency, partly reflecting a favorable 5% impact from currency due to the strength of the U.S. dollar against the euro. Excluding the effect of exchange rate movements, revenues increased 4% in constant currencies, driven by organic growth of 4%. The effect of 2018 disposals (in Health) on the quarter’s revenues broadly offset the effect of 2018 acquisitions (mainly in Legal & Regulatory). Subscriptions and other recurring revenues grew 5% organically. The first-quarter adjusted operating profit margin increased compared to a year ago, driven by the Tax & Accounting division.
- Health: revenues declined 1% in constant currencies as a result of the divestment of ProVation Medical (March 9, 2018) and the deconsolidation of Medicom (effective April 1, 2018). Revenues increased 5% organically, driven by solid organic growth in Clinical Solutions, despite a challenging comparable, and improved organic growth in Health Learning, Research & Practice. For the full year, we continue to expect organic growth to be in line with 2018 and the adjusted operating profit margin to decline year on year due to the absence of last year’s one-time benefits and due to increased investment in sales & marketing.
- Tax & Accounting: revenues increased 5% in constant currencies, reflecting organic growth of 5%. Growth was driven by software solutions for professionals and corporates, while content-oriented products and services were weaker compared to a year ago. For the full year, we continue to expect organic growth to moderate from 2018 levels and the adjusted operating profit margin to improve on the back of lower restructuring costs and the absence of prior year net one-time charges.
- Governance, Risk & Compliance: revenues increased 4% in constant currencies, reflecting organic growth of 4%. Recurring revenues picked up momentum, while trends in transactional and other non-recurring revenues were mixed. For the full year, we continue to expect recurring revenues to show improved organic growth and transactional revenue trends to moderate. We continue to expect the full year adjusted operating profit margin to improve due to efficiency initiatives.
- Legal & Regulatory: revenues increased 7% in constant currencies, reflecting the acquisitions of eVision (October 30, 2018) and Legisway (September 28, 2018). Organic growth was 3% in the quarter, driven by the division’s software solutions, including Enablon. For the full year, we continue to expect organic growth to be in line with 2018. We expect the adjusted operating profit margin to decline due to an absence of prior year one-time benefits, higher investments, and the full twelve-month inclusion of eVision.
Cash flow and net debt
First quarter cash conversion declined, as expected, compared to a year ago due to net working capital outflows, the comparable period having benefitted from a working capital inflow due to favorable timing of payments. As a result, adjusted free cash flow also declined in the quarter. Cash taxes and financing costs were broadly stable compared to a year ago. Net acquisition spending in the quarter was €1 million. Net disposal proceeds amounted to €13 million in the quarter and were related to the sale of certain Swedish publishing assets in January 2018.
Net debt stood at €2,191 million on March 31, 2019, a modest reduction compared to €2,249 million at December 31, 2018. (Under IFRS 16, year-end net debt is restated to include lease liabilities, now recognized as financial debt). Net-debt-to-EBITDA, based on rolling twelve months’ EBITDA, was 1.7x. (Under IFRS 16, depreciation of right-of-use assets is added back to derive EBITDA).
As of March 31, 2019, the number of issued ordinary shares outstanding (excluding 7.9 million shares held in treasury) was 271.8 million.
At the Annual General Meeting on April 18, 2019, shareholders approved a 2018 total dividend of €0.98. As a result, the 2018 final dividend will be €0.64 per share, to be paid on May 16, 2019 (ADRs: May 23, 2019). As previously indicated, the 2019 interim dividend will again be set at 40% of the prior year total dividend. This will result in an interim payment of €0.39 per share, to be paid on September 19, 2019 (ADRs: September 26, 2019).
We made progress on the share buyback program of up to €250 million which we previously announced for 2019. In 2019, up to and including May 6, we have completed repurchases of €40 million (667,766 ordinary shares at an average share price of €59.89). For the period starting May 9, 2019, up to and including July 29, 2019, we have now engaged a third party to execute a maximum of €75 million in share buybacks on our behalf, within the limits of relevant laws and regulations (in particular Regulation (EU) 596/2014) and Wolters Kluwer’s Articles of Association. Share repurchases will be used for capital reduction purposes and to meet obligations arising from share-based incentive plans.
On May 2, 2019, we signed and completed the sale of our 40% interest in Austrian information services business, MANZ’sche Verlags- und Universitätsbuchhandlung GmbH, for €17 million in cash. The transaction will have an immaterial impact on adjusted earnings and will result in a (non-taxable) net capital gain of €7 million. Proceeds will be used for general corporate purposes.
On May 7, 2019, Wolters Kluwer Governance, Risk & Compliance acquired 100% of the shares of CLM Matrix, a fast-growing provider of contract lifecycle management software, for $35 million, excluding a deferred contingent consideration of up to $7 million. CLM Matrix will become part of GRC’s ELM Solutions unit, a market leader in legal spend and matter management software. The acquisition will enable GRC to offer a more comprehensive suite of solutions to address the growing needs of corporate legal operations. CLM Matrix had 2018 revenues of $3 million (un-audited) and currently has around 20 full-time-equivalent employees. The transaction is expected to have an immaterial impact on adjusted EPS in the first full year and to generate a return on investment above our weighted average cost of capital (8%) within 3 to 5 years.
On May 7, 2019, we established a Euro Commercial Paper (ECP) program, under which the company may issue unsecured, short-term debt (ECP notes) for a maximum of €1.0 billion. The program provides flexible funding for short-term cash needs at attractive rates.
Full-year 2019 outlook
Our guidance for full-year 2019 is reaffirmed. We expect to deliver another year of solid organic growth, supported by all four divisions, and an improvement in adjusted operating profit margin, supported by Tax & Accounting and Governance, Risk & Compliance. Due to the phasing of revenues and costs and the effect of one-time items recorded in the second quarter of 2018, the first half 2019 adjusted operating profit margin is expected to decline modestly.