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 compliance training and we expect the completion rate for
this online course to rise further by the end of the year. In
addition to IT security, cybersecurity, and data privacy topics,
our new Code of Business Ethics (launched in August 2020) was also
part of this training exercise.
We made further progress on migrating on-premises data centers
to energy-efficient cloud servers, thereby reducing our greenhouse
gas emissions.
Full-Year 2020 Outlook Remains Suspended due to COVID-19
Uncertainty
The COVID-19 pandemic and the measures and restrictions to
control it continue to create challenges for our customers and
uncertainty around economic conditions for everyone. At this time,
our specific 2020 guidance on adjusted operating profit margin,
adjusted free cash flow, return on invested capital (ROIC), and
diluted adjusted EPS remains suspended.
We remain cautious on the fourth quarter, given market
conditions and challenging comparables. We continue to expect
recurring revenues for digital information, software and services
subscriptions to show resilience in the months ahead, but we note
that new sales of subscription products are more difficult in
current market conditions. Recurring revenues from print
subscriptions have seen accelerated decline, which we expect will
continue in the coming quarters. Of our non-recurring revenues3 (FY
2019: 22% of total revenues), sales of new software licenses and
implementation services are seeing delays, while transactional
volumes, training, print books, and other ad hoc revenue products
are likely to remain weak in current conditions. Travel
restrictions and other temporary cost reductions initiated in the
second quarter benefitted margins in the first nine months of the
year. These measures and additional programs and restructuring
planned for the second half are aimed at protecting the full-year
2020 adjusted operating profit margin while sustaining investment
in key products and strategic infrastructure.
If current exchange rates persist, the U.S. dollar rate will
have a negative effect on results reported in euros. In 2019,
Wolters Kluwer generated more than 60% of its revenues and adjusted
operating profit in North America. As a rule of thumb, based on our
2019 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.
Restructuring costs are included in adjusted operating profit.
We now anticipate that restructuring costs will be in the range of
€40-€50 million in 2020 (FY 2019: €26 million). We currently expect
adjusted net financing costs of approximately €70 million in
constant currencies4, 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%-24% for 2020. Capital
expenditure is now expected to be in the range of 5%-6% of total
revenues (FY 2019: 4.9%). Cash repayments of lease liabilities
are expected to be in line with depreciation of right-of-use assets
(FY 2019: €80 million). We currently expect the full-year cash
conversion ratio to be around 95% (FY 2019: 96%).
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.
2020 Outlook by Division
Health: We continue to expect full-year organic
growth to be positive but slower than the 2019 level.
Tax & Accounting: We currently expect
full-year organic growth to be flat to slightly positive due to a
challenging comparable (FY 2019: 6%), difficult new sales
conditions, lower license and implementation services revenues, and
other factors.
Governance, Risk & Compliance: Excluding
revenues associated with the PPP1, we continue to expect revenues
to see organic decline for the full year, due to declines in
transactional volumes, software license and implementation fees,
and other non-recurring revenues.
Legal & Regulatory: We continue to expect
full year organic revenue to decline due to an accelerated decline
in print products (compared to 2019), lower software license fees
and implementation services, and soft trends in training and other
non-recurring revenues.
About Wolters Kluwer
Wolters Kluwer (WKL) is a global leader in professional
information, software solutions, and services for the healthcare;
tax and accounting; governance, risk and compliance; and legal and
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.
Wolters Kluwer reported 2019 annual revenues of €4.6 billion.
The group serves customers in over 180 countries, maintains
operations in over 40 countries, and employs approximately 19,000
people worldwide. The company is headquartered in Alphen aan den
Rijn, the Netherlands.
Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and
are included in the AEX and Euronext 100 indices. Wolters Kluwer
has a sponsored Level 1 American Depositary Receipt (ADR) program.
The ADRs are traded on the over-the-counter market in the U.S.
(WTKWY).
For more information, visit www.wolterskluwer.com, follow us on
LinkedIn, Twitter, Facebook, and YouTube.
Financial Calendar 2021
February 24, 2021 Full-Year
2020 Results
March 10, 2021
Publication of 2020 Annual Report
April 22,
2021
Annual General Meeting of Shareholders
April 26,
2021
Ex-dividend date: 2020 final dividend
April 27,
2021
Record date: 2020 final dividend
May 5,
2021
First-Quarter 2021 Trading Update
May 19,
2021
Payment date: 2020 final dividend ordinary shares
May 26,
2021
Payment date: 2020 final dividend ADRs
August 4,
2021
Half-Year 2021 Results
August 31, 2021
Ex-dividend date: 2021 interim dividend
September 1,
2021 Record date:
2021 interim dividend
September 23, 2021 Payment
date: 2021 interim dividend
September 30, 2021 Payment
date: 2021 interim dividend ADRs
November 3,
2021
Nine-Month 2021 Trading Update
Media
Investors/Analysts
Gerbert van Genderen Stort
Meg Geldens
Global Branding & Communications
Investor Relations
t + 31 (0)172 641 230
t + 31 (0)172 641 407
press@wolterskluwer.com
ir@wolterskluwer.com
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 forwardlooking 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.
Elements of this press release contain or may contain inside
information about Wolters Kluwer within the meaning of Article 7(1)
of the Market Abuse Regulation (596/2014/EU).
Trademarks referenced are owned by Wolters Kluwer N.V. and its
subsidiaries and may be registered in various countries.
1 Throughout this document, “the PPP” refers to the U.S. Small
Business Association’s Paycheck Protection Program established by
the 2020 U.S. Coronavirus Aid, Relief and Economic Security Act
(CARES Act). Wolters Kluwer Compliance Solutions (part of
Governance, Risk & Compliance) adapted its TSoftPlus platform
to support its bank customers in lending under this program.
2 EHS/ORM: environmental, health & safety and operational
risk management.
3 Non-recurring revenues include revenues from transactional
services, software license sales and implementation services,
training, advertising, print books, and other products sold on an
ad hoc basis.
4 Guidance for net financing costs in constant currencies
excludes the impact of exchange rate movements on currency hedging
and intercompany balances.
- 2020.10.30 Wolters Kluwer 2020 Nine-Month Trading Update
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