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2020-10-30

Wolters Kluwer 2020 Nine-Month Trading Update

Wolters Kluwer 2020 Nine-Month Trading Update

October 30, 2020 – Wolters Kluwer, a global leader in professional information, software solutions and services, today releases its scheduled 2020 nine-month trading update.

Highlights

  • Nine-month revenues up 3% in constant currencies and up 3% organically.
    • Excluding revenues associated with the PPP1, organic growth would have been 2%.
    • Recurring revenues (81% of total revenues) grew 5% organically; non-recurring revenues were impacted by the effects of the COVID-19 pandemic.
    • Digital & services revenues (92% of total revenues) increased 5% organically; total print revenues declined 15% organically.
  • Nine-month adjusted operating profit up 17% in constant currencies.
    • Margin benefitted from reduced travel and other temporary cost reductions, one-time factors, and underlying improvement.
  • Nine-month adjusted free cash flow up 26% in constant currencies.
    • Free cash flow benefitted from the timing of working capital movements and cash spending.
  • Balance sheet and liquidity remain strong.
    • Net-debt-to-EBITDA ratio 1.5x as of September 30, 2020.
  • Progress on share buyback 2020: €275 million repurchased in the year to date.
    • Mandate signed to repurchase €75 million in the remainder of 2020.
  • Share buyback 2021: mandate signed to repurchase up to €50 million in January and February 2021.
  • Outlook 2020: specific guidance remains suspended.
    • Recurring revenues from digital information, software and service subscriptions holding up well.
    • Print and non-recurring revenue streams expected to be weak in the remainder of the year.

Nancy McKinstry, CEO and Chairman of the Executive Board, commented: “Amidst continuing challenges posed by the COVID-19 pandemic around the world, our teams have remained focused on serving our customers and adding value with enhanced product capabilities and relevant new solutions. Market conditions have been difficult for print and non-recurring formats, but our strategically important digital and services subscription revenues have sustained good growth in the first nine months. While we remain cautious with regard to economic conditions, we continue to be confident in the long term strategic direction of the company.”

Nine Months to September 30, 2020

Revenues increased 2% overall, including a negative effect from exchange rate movements during the first nine months. In constant currencies, revenues increased 3%. The impact of acquisitions broadly offset the impact of disposals in the first nine months of 2020. Organic growth was 3%, or 2% excluding revenues associated with the PPP (9M 2019: 4%).

Recurring revenues (81% of total revenues) grew 5% while non-recurring revenues declined 4% organically. This decline in non-recurring revenues was 8% when excluding revenues associated with the PPP (9M 2019: organic decline of 1%) reflecting the effects of COVID-19 on our software license and implementation sales, transactional volumes, print books, training and other non-recurring revenues. Across the group, print book revenues declined 23% organically (9M 2019: decline of 12%).

Revenues from North America (62% of total revenues) grew 4% organically (9M 2019: 3%). Revenues from Europe (30% of total) saw organic growth slow to 2% (9M 2019: 5%) while Asia Pacific & Rest of World (8% of total) saw organic growth slow to 0% (9M 2019: 6%).

Adjusted operating profit for the first nine months increased 17% in constant currencies. The adjusted operating profit margin increased primarily as a result of temporary reductions in travel and other discretionary costs, the benefit from revenues associated with the PPP, and an additional insurance reimbursement in the third quarter. These factors more than offset increased restructuring costs. Product development spending continued to be near the upper end of our normal range of 8%-10% of revenues (operating expenses and capital expenditures).

Health: Nine-month revenues increased 4% on an organic basis (9M 2019: 3%), led by 7% organic growth in Clinical Solutions (9M 2019: 6%). Learning, Research & Practice recorded 2% organic growth (9M 2019: 0%), largely driven by favorable timing of print book orders. In Clinical Solutions, our clinical decision tools UpToDate and UpToDate Advanced, used by 2.5 million clinicians worldwide, saw strong growth driven by renewals, upsells, and customer wins. Our clinical drug information products sustained robust growth reflecting cross-selling efforts by the integrated sales force. With hospital budgets facing pressure, patient engagement revenues remained weak in the first nine months. In Learning, Research & Practice, a step up in digital content for continuing medical education and a rebound in orders for educational and practice books boosted third quarter revenues. Our medical research platform, Ovid, and digital medical journals recorded good growth, while print journal subscription revenues declined 7% organically.

Tax & Accounting: Nine-month revenues increased 4% organically (9M 2019: 6%). Corporate Performance Solutions (CCH Tagetik and TeamMate) grew 12% organically (9M 2019: 16%), with strong growth in CCH Tagetik cloud subscription revenues tempered by soft trends in implementation services and on-premise software license sales. The North American professional segment recorded modest organic growth, including a positive effect from the deferral of e-filing and bank product revenues into the third quarter due to the postponement of IRS filing deadlines. Professional Tax & Accounting in Europe grew 5% organically, better than expected, despite a challenging comparable (9M 2019: 9%). In Asia Pacific & ROW organic revenue trends remained mixed. In September, the division acquired XCM Solutions, a cloud-based workflow solutions provider for professional tax and accounting firms for €136 million.

Governance, Risk & Compliance (GRC): Nine-month revenues grew 4% organically (9M 2019: 3%), with recurring revenues posting sustained organic growth of 3%. Excluding transactional revenues associated with the PPP, organic growth would have been 1%, due to a decline in GRC transactional revenue of 6%. Legal Services recorded organic decline of 1% (9M 2019: organic growth of 5%), due to a decline in Legal Services transactional revenues as a result of lower demand for search, retrieval and filing. Within Legal Services, Enterprise Legal Management Solutions posted slightly positive organic growth. Financial Services organic revenue increased 11% (9M 2019: 2%). Excluding the PPP solution, Financial Services organic growth would have been 3%. Within Financial Services, Finance, Risk & Reporting posted positive, albeit slower single-digit organic growth, while Lien Solutions recorded organic revenue decline due to reduced economic activity in the U.S.

Legal & Regulatory: Nine-month revenues declined 2% organically (9M 2019: organic growth of 2%). EHS/ORM2 and Legal Software achieved 7% organic growth against a challenging comparable in the prior year (9M 2019: 20%). In these software businesses, cloud-based subscription revenues sustained strong double-digit organic growth, while sales of software licenses and related implementation services declined. In Legal & Regulatory Information Solutions, organic revenue declined 3%, due to double-digit declines in print products and training services. Digital information solutions recorded good organic growth of 5% through the nine months. In September, the Legal & Regulatory division completed the divestment of ComplyTrack, a regulatory compliance solution for healthcare facilities.

Corporate costs declined 10% in constant currencies in the first nine months, due to reduced travel and other discretionary costs, and an additional insurance reimbursement in the third quarter.

Cash Flow and Net Debt

Nine-month operating cash flow increased 21% in constant currencies, reflecting the increase in adjusted operating profit combined with reduced working capital outflows. Cash financing costs and cash tax paid increased. Adjusted free cash flow increased 26% in constant currencies, benefitting from the timing of cash spending against restructuring provisions.

Total net dividends paid to shareholders amounted to €316 million in the first nine months, including the interim dividend paid in September. Total acquisition spending, net of cash acquired and including transaction costs, was €173 million in the first nine months, primarily relating to the acquisition of XCM Solutions for €136 million on September 16, 2020. Divestiture proceeds, net of cash disposed and transaction costs, were €41 million and relate to several small divestments made in the first half of 2020 and the sale of ComplyTrack on September 6, 2020. The 2020 divestments all relate to the Legal & Regulatory division.

In the first nine months, €237 million in cashflow was deployed towards the share repurchase program.

As of September 30, 2020 net debt stood at €2,274 million (year-end 2019: €2,199 million). Twelve months’ rolling net-debt-to-EBITDA was 1.5x compared to 1.6x at year-end 2019.

Share Buyback Programs

On February 26, 2020, we announced our intention to repurchase shares for up to €350 million during 2020, including repurchases to offset incentive share issuance. In the year to date, as of October 28, 2020, we have completed €275 million (4.1 million ordinary shares; average price €67.82) of this 2020 program. We have now granted a mandate to a third-party to execute up to €75 million in share buybacks on our behalf in the remainder of this year (the period starting November 2, 2020, up to and including December 29, 2020).

Looking ahead, we have also now signed a further third-party mandate to execute up to €50 million in share buybacks early next year (in the period starting January 4, 2021, up to and including February 22, 2021).

Both mandates are governed by the limits of relevant laws and regulations (in particular Regulation (EU) 596/2014) and Wolters Kluwer’s Articles of Association. Repurchased shares are added to and held as treasury shares and are either cancelled or held to meet future obligations arising from share-based incentive plans. We remain committed to our anti-dilution policy which aims to offset the dilution caused by our annual incentive share issuance with share repurchases.

At the end of the third quarter 2020, we cancelled 5.5 million shares held in treasury, as approved by shareholders at the AGM in April 2020. Following this cancellation, the number of issued ordinary shares was 267,516,153. Of this, 264.0 million shares were outstanding and 3.5 million shares were held in treasury as of September 30, 2020.

Environmental, Social & Governance (ESG)

We continue to pay close attention to social and other non-financial matters. Throughout the past seven months, when approximately 95% of employees have been working from home, employee welfare and engagement levels have been regularly monitored through stepped up communication and pulse checks.

As of mid October, 96% of employees had completed our annual mandatory com...

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