Wolters Kluwer 2022 Half-Year Report
- Revenues €2,600 million, up 7% in constant currencies and up 7% organically.
- Recurring revenues (81% of total revenues) up 7% organically; non-recurring up 6% organically.
- Digital & services revenues (93% of total revenues) grew 8% organically.
- Expert solutions (56% of total revenues) grew 9% organically.
- Adjusted operating profit €734 million, up 10% in constant currencies.
- Adjusted operating profit margin up 130 basis points to 28.2%
- Margin benefitted from operational gearing and favorable currency mix
- Slower than expected ramp-up in spending and hiring.
- Diluted adjusted EPS €2.04, up 23% overall and up 11% in constant currencies.
- Adjusted free cash flow €497 million, down 4% in constant currencies.
- Cash conversion declined and tax paid increased, as expected.
- Balance sheet remains strong with net-debt-to-EBITDA of 1.3x.
- Interim dividend €0.63 per share, set at 40% of prior year total dividend.
- Share buyback program for 2022 increased to €1 billion of which €356 million completed to date.
- Guidance for 2022 increased.
Half-Year Report of the Executive Board
Nancy McKinstry, CEO and Chair of the Executive Board, commented: “The first half of the year saw strong, better-than-anticipated organic growth which, along with currency movements, benefitted our margins. Growth in expert solutions and strong customer retention was delivered across all divisions. We have upgraded our outlook for the full year and are confident we are well-positioned to address the challenges associated with growing economic and geopolitical headwinds.”
Key figures - Six months ended June 30
|€ million, unless otherwise stated||2022||2021*||∆||∆ CC||∆ OG|
|Business performance - benchmark figures
|Adjusted operating profit||734||613||+20%||+10%||+11%|
|Adjusted operating profit margin||28.2%||26.9%|
|Adjusted net profit||527||437||+21%||+10%|
|Diluted adjusted EPS (€)||2.04||1.66||+23%||+11%|
|Adjusted free cash flow||497||476||+4%||-4%|
|IFRS reported results
|Profit for the period||455||360||+26%|
|Diluted EPS (€)||1.76||1.37||+29%|
|Net cash from operating activities||666||613||+9%|
∆: % Change; ∆ CC: % Change in constant currencies (€/$ 1.18); ∆ OG: % Organic growth. Benchmark figures are performance measures used by management. ROIC is based on twelve-months rolling figures. See Note 4 for a reconciliation from IFRS to benchmark figures.
Full-Year 2022 Outlook
We are increasing our guidance for adjusted operating profit margin and ROIC in reporting currency and for adjusted EPS growth in constant currencies. We reaffirm our outlook for adjusted free cash flow in constant currencies. While first half organic growth was better than expected, we expect organic momentum to slow in the remainder of the year, largely due to challenging comparables. We expect second half margins to reflect increased hiring and investments. Growth in diluted adjusted EPS will be dampened by a return to our historical tax rate. Revenues from Russia, Belarus, and Ukraine (mainly in Governance, Risk & Compliance) represented less than 0.5% of group revenues in 2021 and HY 2022.
Full-year 2022 outlook
|Performance indicators||2022 guidance||Previous 2022 Guidance||2021 Actuals|
|Adjusted operating profit margin*||26.0%-26.5%||25.5%-26.0%||25.3%|
|Adjusted free cash flow||€1,025-€1,075 million||€1,025-€1,075 million||€1,010 million|
|Diluted adjusted EPS growth||Mid-to-high-single-digit||Mid-single-digit||€3.38|
*Guidance for adjusted operating profit margin and ROIC is in reporting currency and assumes an average EUR/USD rate in 2022 of €/$1.07. Guidance for adjusted free cash flow and diluted adjusted EPS is in constant currencies (€/$ 1.18). Guidance reflects share repurchases of €1 billion in 2022.
If current exchange rates persist, the U.S. dollar rate will have a positive effect on 2022 results reported in euros. In 2021, Wolters Kluwer generated more than 60% of its revenues and adjusted operating profit in North America. As a rule of thumb, based on our 2021 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 EPS1. Also, if current rates persist, we expect to incur a (non-cash) foreign exchange loss on intercompany balances at year-end.
We include restructuring costs in adjusted operating profit. We currently expect that restructuring costs will increase to within our normal range of €10-€15 million (FY 2021: €6 million). Due to higher interest rates on cash balances, we now expect adjusted net financing costs2 in constant currencies to be approximately €55 million. We expect the benchmark tax rate on adjusted pre-tax profits to be in the range of 23.0%-24.0% (FY 2021: 21.5%). Capital expenditure is expected to increase but to remain within our normal range of 5.0%-6.0% of total revenues (FY 2021: 5.0%). We continue to expect the full-year cash conversion ratio to be in the range of 100%-105% (FY 2021: 112%).
Our guidance assumes no additional significant change to the scope of operations. We may make further acquisitions or disposals which can be dilutive to margins, earnings, and ROIC in the near term.
2022 Outlook by Division
Health: we continue to expect organic growth to slow from 2021 levels (mainly due to the absence of a contract win of the size of the 2021 ASCO deal) and the adjusted operating profit margin to improve.
Tax & Accounting: we expect organic growth to accelerate from 2021 levels and the adjusted operating profit margin to improve.
Governance, Risk & Compliance: we continue to expect organic growth to slow from 2021 levels, mainly due to an expected decline in transactional revenues in the second half. We expect the adjusted operating profit margin to improve for the full year.
Legal & Regulatory: we now expect organic growth to improve on 2021 levels. We expect the adjusted operating profit margin to decline modestly for the full year due to the absence of a one-off pension amendment recorded in 2021.
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. Every day, 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.
Our expert solutions combine deep domain knowledge with technology to deliver both content and workflow automation to drive improved outcomes and productivity for our customers. Expert solutions, which include our software products and certain advanced information solutions, accounted for 56% of total revenues in the first half of 2022 (FY 2021: 55%) and grew 9% organically. Software revenues accounted for 44% of total revenues (FY 2021: 42%) and grew 9% organically, with cloud software revenues up 20% organically.
Based on revenues, our largest expert solutions by division are:
- Health: global clinical decision support tool UpToDate; clinical drug databases Medi-Span and Lexicomp; and Lippincott nursing solutions for practice and learning.
- Tax & Accounting: global corporate performance solution CCH Tagetik; global corporate internal audit platform TeamMate; professional tax and accounting software, including CCH Axcess and CCH ProSystem fx 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, eOriginal, and Gainskeeper; and enterprise legal management software Passport and TyMetrix.
- Legal & Regulatory: global EHS/ORM3 suite Enablon; legal workflow solutions Kleos and Legisway; and other software tools for European legal professionals.
Our business model is primarily based on subscriptions, software maintenance, and other recurring revenues (80% of total revenues in FY 2021 and 81% in HY 2021), augmented by implementation services and license fees as well as volume-based transactional or other non-recurring revenues. Renewal rates for our recurring digital information, software, and service revenues are high and are one of the key indicators by which we measure our success. Product innovation is a key driver of growth.
More than half of our operating costs relate to our employees, who create, develop, maintain, sell, implement, and support our solutions on behalf of our customers. Our technology architecture is increasingly based on globally scalable platforms that use standardized components. An increasing proportion of our solutions is built cloud-first. Many of our solutions incorporate advanced technologies such as artificial intelligence, natural language processing, robotic process automation, and predictive analytics. Our development teams use customer-centric, contextual design and develop solutions based on the scaled agile framework. Our solutions are sold by our own sales teams or through selected distribution partners.
Strategic priorities 2022-2024
At the start of this year, we rolled out our new three-year strategic plan, which has three strategic priorities:
- Accelerate Expert Solutions: we intend to focus our investments on cloud-based expert solutions while continuing to transform selected digital information products into expert solutions. We will invest to enrich the customer experience of our products by leveraging advanced data analytics.
- Expand Our Reach: we will seek to extend organically into high-growth adjacencies along our customer workflows and adapt our existing products for new customer segments. We plan to further develop partnerships and ecosystems for our key software platforms.
- Evolve Core Capabilities: we intend to enhance our central functions to drive excellence and scale economies, mainly in sales and marketing (go-to-market) and in technology. We plan to advance our environmental, social, and governance (ESG) performance and capabilities and to continue investing in diverse and engaged talent to support innovation and growth.
We expect this strategy to support good organic growth and improved margins and returns over the coming three years. While the strategy remains centered on organic growth, we may make selected 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. We expect that group-wide product development spend will remain at approximately 10% of total revenues in the next three years.
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. Two key strategic ESG goals for the coming three years are to drive an improvement in our belonging score4 and to start aligning our reporting with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
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 Interim Dividend 2022
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 ratio5 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 23, 2022, the interim dividend for 2022 was set at 40% of the prior year total dividend. This results in an interim dividend of €0.63 per share, to be distributed on September 22, 2022, to holders of ordinary shares, or September 29, 2022, 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 2022 Expanded
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.
On February 23, 2022, we announced our intention to repurchase shares for up to €600 million during 2022. Today, we are announcing an increase in this program to €1 billion. 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.
In the year to date, through August 2, 2022, we have repurchased €356 million in shares (3.8 million shares at an average price of €92.89). Included in these amounts was a block trade of 522,954 shares purchased for €46.1 million on February 24, 2022, to offset the issuance of incentive shares. See Note 10 for further information on issued share capital.
For the period starting August 4, 2022, up to and including October 31, 2022, we have mandated third parties to execute €400 million in share buybacks on our behalf while for the period starting November 3, 2022, up to and including December 28, 2022, we have mandated another third party to execute €244 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.
Share Cancellation 2022
At the 2022 Annual General Meeting of April 21, 2022, 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 of August 2, 2022, Wolters Kluwer held 7.5 million shares in treasury. 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 2022. The remaining treasury shares will be retained in order to meet future obligations under share-based incentive plans.
Net Debt, Leverage, Sustainability-Linked Credit Facility, and Liquidity Position
Net debt on June 30, 2022, was €2,203 million, compared to €2,131 million on December 31, 2021. The net-debt-to-EBITDA ratio was 1.3x (FY 2021: 1.4x; HY 2021: 1.7x).
Our multi-currency credit facility remains fully undrawn. Effective July 2022, we agreed to the final one-year extension of this €600 million multi-currency credit facility, such that the facility will now mature in 2025. The facility is sustainability-linked, with pricing tied to four ESG key performance indicators.
Our liquidity position remains strong with, as of June 30, 2022, net cash available of €1,019 million6 , partly offset by outstanding Euro Commercial Paper (ECP) of €100 million.
Half-Year 2022 Results
Group revenues were €2,600 million, up 14% overall benefitting from the appreciation of the U.S. dollar against the euro. Excluding the effect of exchange rate movements, revenues increased 7% in constant currencies. Excluding also the net effect of acquisitions and divestments, organic revenue growth was 7% (HY 2021: 5%).
Revenues from North America accounted for 64% of total group revenues and grew 7% organically (HY 2021: 5%). Revenues from Europe, 29% of total revenues, grew 6% organically (HY 2021: 5%). Revenues from Asia Pacific and Rest of World, 7% of total revenues, grew 11% organically (HY 2021: 3%).
Adjusted operating profit was €734 million (HY 2021: €613 million), an increase of 10% in constant currencies. The adjusted operating profit margin increased 130 basis points to 28.2% (HY 2021: 26.9%). The increase in adjusted operating profit margin mainly reflects strong operational gearing and favorable currency mix. Margins were higher than expected due to a slower than expected post-COVID ramp-up in spending (such as travel) and hiring. Product development (including CAPEX) increased to 10% of revenues (HY 2021: 9%).
Included in adjusted operating profit were restructuring expenses of €3 million (HY 2021: €2 million).
Adjusted net financing costs were stable at €42 million (HY 2021: €42 million). Included in adjusted net financing costs was a €13 million net foreign exchange loss (HY 2021: €11 million net foreign exchange loss) due to the translation of intercompany balances. Interest income on cash balances increased.
Adjusted profit before tax was €692 million (HY 2021: €571 million), up 21% overall and up 11% in constant currencies.
The benchmark tax rate on adjusted profit before tax increased to 23.8% (HY 2021: 23.5%), due to a change in our deferred tax position. Adjusted net profit was €527 million (HY 2021: €437 million), an increase of 21% overall and 10% in constant currencies.
Diluted adjusted EPS was €2.04 (HY 2021: €1.66), up 23% overall and up 11% in constant currencies, reflecting the increase in adjusted net profit and a 1.7% reduction in the diluted weighted average number of shares outstanding to 258.2 million (HY 2021: 262.7 million).
IFRS Reported Figures
Reported operating profit increased 23% to €640 million (HY 2021: €519 million). The increase reflects the increase in adjusted operating profit and lower divestment-related losses, partly offset by an impairment of certain Health assets.
Reported financing results amounted to a net cost of €43 million (HY 2021: €43 million cost).
The reported effective tax rate decreased to 23.7% (HY 2021: 24.4%); the prior period reflected a divestment-related loss that was not tax-deductible.
Net profit for the first half increased 26% overall to €455 million (HY 2021: €360 million) and diluted earnings per share increased 29% to €1.76 (HY 2021: €1.37).
Adjusted operating cash flow was €703 million (HY 2021: €659 million), down 1% in constant currencies. The cash conversion ratio decreased to 96% (HY 2021: 108%) due to lower working capital inflows and higher capital expenditure compared to the prior period, as expected. Capital expenditures were €139 million (HY 2021: €107 million), representing 5.4% of revenues (HY 2021: 4.7%).
Cash payments related to leases, including lease interest paid, were €39 million (HY 2021: €38 million). Depreciation of physical assets, amortization and impairment of internally developed software, and depreciation of right-of-use assets totaled €143 million (HY 2021: €137 million), broadly in line with the prior period.
Net interest paid, excluding lease interest paid, was €42 million, broadly in line with the prior period (HY 2021: €44 million).
Income tax paid increased to €175 million (HY 2021: €127 million), as expected. The net cash outflow related to restructuring was lower than a year ago at €4 million (HY 2021: outflow of €20 million). Consequently, adjusted free cash flow was €497 million (HY 2021: €476 million), up 4% overall but down 4% in constant currencies.
Total acquisition spending, net of cash acquired and including transaction costs, was €71 million (HY 2021: €99 million), primarily relating to the acquisition of IDS in Governance, Risk & Compliance on April 8, 2022. Dividends paid to shareholders amounted to €264 million (HY 2021: €233 million), representing the final dividend of financial year 2021. Through June 30, 2022, cash deployed towards the 2022 share repurchase program totaled €302 million (HY 2021: €201 million).
Advancing our ESG performance and capabilities is core to our strategy. We are focused on delivering high levels of customer satisfaction and innovative, impactful solutions and services; we are nurturing an engaged, talented, and diverse workforce; we are supporting strong ethics, compliance and governance, investing in highly secure systems, and striving to reduce our carbon footprint.
In the first half of 2022, we made progress in several areas. We further expanded initiatives designed to attract and retain talent amid tightened global markets for technology and other skilled professionals. To drive recruitment, we expanded talent acquisition capabilities and invested in partnerships and tools to enlarge candidate sourcing, be more visible, and increase our diversity outreach. To support both recruitment and retention, we expanded our career development work and other initiatives designed to support continued high levels of employee engagement and improve belonging.
In February 2022, we committed to aligning our practices and reporting to the recommendations of the Task Force on Climate-related Disclosures (TCFD) and to setting science-based targets. With regard to this commitment, we have this year made improvements to our existing procedures for scope 1 and scope 2 data collection in order to expand coverage and establish a more accurate baseline. With external advisors, we have developed a roadmap to implement the TCFD recommendations and have made progress on identifying and assessing material scope 3 emissions categories.
In the meantime, we continue to drive forward existing programs that reduce our emissions: in the first half, our real estate rationalization program delivered a further 3% organic reduction in office footprint (m2) around the world, following a 7% organic reduction in 2021. Our cloud migration and on-premise server decommissioning program is making steady progress: as of June 30, 2022, the number of on-premise servers decommissioned this year exceeds 450 as we migrate customers and applications to more energy-efficient cloud infrastructure.
 This rule of thumb excludes the impact of exchange rate movements on intercompany balances, which is accounted for in adjusted net financing costs in reported currencies and determined based on period-end spot rates and balances.
 Adjusted net financing costs include lease interest charges. Guidance for adjusted net financing costs in constant currencies excludes the impact of exchange rate movements on currency hedging and intercompany balances.
|August 30, 2022||Ex-dividend date: 2022 interim dividend|
|August 31, 2022||Record date: 2022 interim dividend|
|September 22, 2022||Payment date: 2022 interim dividend ordinary shares|
|September 29, 2022||Payment date: 2022 interim dividend ADRs|
|November 2, 2022||Nine-month 2022 Trading Update|
|February 22, 2023||Full-year 2022 results|
|March 8, 2023||Publication of 2022 Annual Report and ESG Data Overview|
About Wolters Kluwer
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.
Forward-looking statements and other important legal information
This report contains forward-looking statements. These statements may be identified by words such as “expect”, “should”, “could”, “shall” and similar expressions. Wolters Kluwer cautions that such forward-looking statements are qualified by certain risks and uncertainties that could cause actual results and events to differ materially from what is contemplated by the forward-looking statements. Factors which could cause actual results to differ from these forward-looking statements may include, without limitation, general economic conditions; conditions in the markets in which Wolters Kluwer is engaged; behavior of customers, suppliers, and competitors; technological developments; the implementation and execution of new ICT systems or outsourcing; and legal, tax, and regulatory rules affecting Wolters Kluwer’s businesses, as well as risks related to mergers, acquisitions, and divestments. In addition, financial risks such as currency movements, interest rate fluctuations, liquidity, and credit risks could influence future results. The foregoing list of factors should not be construed as exhaustive. Wolters Kluwer disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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This press release contains information which is to be made publicly available under Regulation (EU) 596/2014.