Wolters Kluwer 2016 Half-Year Report

Wolters Kluwer 2016 Half-Year Report
GlobeNewswire
2016-07-29

 

ALPHEN AAN DEN RIJN, Netherlands, July 29, 2016 (GLOBE NEWSWIRE) 
Wolters Kluwer, a global leader in professional information services,
today released its 2016 half-year results.

Highlights


   Full-year outlook reiterated, with guidance for adjusted free cash flow
     raised.
   Revenues up 2% in constant currencies and up 3% organically.
      Digital & services revenues grew 5% organically (86% of total
        revenues).
      Recurring revenues grew 4% organically (78% of total).
      All main geographic regions delivered positive organic growth.
   Adjusted operating profit margin improved to 20.0%, helped by lower
     restructuring charges.
   Diluted adjusted EPS [Eur]0.88, up 6% in constant currencies.
   Adjusted free cash flow [Eur]229 million, up 34% in constant currencies.
   Net-debt-to-EBITDA 1.7x compared to 2.1x a year ago.
   Interim dividend of [Eur]0.19 cash per share to be paid in September.







                  Interim Report of the Executive Board




Nancy McKinstry, CEO and Chairman of the Executive Board, commented:"We
were pleased with our first half results. We achieved 3% organic growth
and improved our operating margins and cash flow. Better performance in
Europe helped us overcome a challenging comparable in the U.S. and
slower growth in Asia Pacific and Rest of World. We are continuing to
see a positive response from customers to the innovative expert
solutions we are bringing to the market. I am confident in our full
year outlook."

Key Figures 2016 Half-Year:


  Six months ended June 30                                                                                              
  (in millions of euros, unless otherwise stated)                 2016          2015           D        D CC        D OG
  Business performance - benchmark figures                                                                              
  Revenues                                                       2,042         2,015         +1%         +2%         +3%
  Adjusted operating profit                                        408           391         +4%         +5%         +4%
  Adjusted operating margin                                      20.0%         19.4%                                    
  Adjusted net profit                                              260           235        +10%         +5%            
  Diluted adjusted EPS ([Eur])                                    0.88          0.79        +12%         +6%            
  Adjusted free cash flow                                          229           170        +35%        +34%            
  Net debt                                                       1,814         2,069        -12%                        
  IFRS results                                                                                                          
  Revenues                                                       2,042         2,015         +1%                        
  Operating profit                                                 317           281        +13%                        
  Profit for the period                                            199           162        +23%                        
  Diluted EPS ([Eur])                                             0.67          0.55        +23%                        
  Net cash from operating activities                               326           267        +22%                        
  D: % Change D CC: % Change constant currencies (EUR/USD 1.11) D OG: % Organic growth. Benchmark (adjusted) figures  
   are performance measures used by management. See Note 5 for a reconciliation from IFRS to benchmark figures. IFRS:   
   International Financial Reporting Standards as adopted by the European Union.                                        



Full-Year 2016 Outlook

Our full-year 2016 outlook is unchanged, except that we have raised our
guidance range for adjusted free cash flow by [Eur]50 million. We
expect to deliver margin improvement and to grow diluted adjusted EPS
at a mid-single-digit rate in constant currencies this year. Our
guidance for full-year 2016 is provided in the table below.


  2016 Outlook                                                                                                          
  Performance indicators                                          2016 guidance                                         
  Adjusted operating profit margin                                21.5%-22.0%                                           
  Adjusted free cash flow                                         [Eur]650-[Eur]675 million                             
  Return on invested capital                                      > 9%                                                  
  Diluted adjusted EPS                                            Mid-single-digit growth                               
  Guidance for adjusted free cash flow and diluted adjusted EPS is in constant currencies (EUR/USD 1.11). Guidance for  
   EPS growth assumes the announced share repurchases are equally spread over 2016-2018. Adjusted operating profit      
   margin and ROIC are in reported currency.                                                                            



Our guidance is based on constant exchange rates. In 2015, Wolters
Kluwer generated more than half of its revenues and adjusted operating
profit in North America. As a rule of thumb, based on our 2015 currency
profile, a 1 U.S. cent move in the average EUR/USD exchange rate for
the year causes an opposite change of approximately one and a half
euro-cents in diluted adjusted EPS.

Restructuring costs, which are included in adjusted operating profit,
are expected to start returning to normal levels: we expect these costs
to be around [Eur]15-[Eur]25 million in 2016 (2015: [Eur]46 million).
We expect adjusted net financing costs of approximately [Eur]105
million, excluding the impact of exchange rate movements on currency
hedging and intercompany balances. We expect the benchmark effective
tax rate to be in the range of 27%-28% in 2016. We expect a cash
conversion ratio of approximately 95%, with capital expenditure rising
to around 5% of total revenue.

Our guidance assumes no significant additional change in the scope of
operations. We may make further disposals which could be dilutive to
margins and earnings in the near term.

2016 Outlook by Division

Health: we expect another year of good organic revenue growth, similar
to 2015, supported by robust organic growth in Clinical Solutions and a
gradually improving trend in Health Learning, Research & Practice.
Margins are expected to improve slightly even as we continue to invest
to drive organic growth.

Tax & Accounting: we expect full-year underlying revenue growth to
slightly improve on 2015 levels, driven by continued mix shift towards
software solutions. Margins are expected to be maintained for the full
year, despite higher investment.

Governance, Risk & Compliance: we continue to expect positive but
slower organic growth in the full year, given demanding comparables for
transactional and non-recurring license and implementation fees.
Full-year margins are expected to improve slightly.

Legal & Regulatory: we expect full-year organic revenue decline to be
similar to 2015, with print and services trends expected to deteriorate
in the third and fourth quarter. Margins are expected to improve due
mainly to lower restructuring costs. Efficiency savings are expected to
fund wage inflation and increased product investment.

Strategic Priorities 2016-2018

In February 2016, we announced our strategic priorities for the next
three years (2016-2018). Our plan is to build on the strategic
direction we have been following in the past three years, by expanding
our market coverage, increasing our focus on expert solutions, and
continuing to drive efficiencies. Our 2016-2018 strategic plan aims to
sustain and, in the long run, further improve our organic growth rate,
margins and returns as we continue to focus on growing value for
customers, employees and shareholders. Our strategic priorities for the
next three years are:


   Expand market coverage: We will continue to allocate the majority of our
     capital towards leading growth businesses and digital products, and
     extend into market adjacencies and new geographies where we see the best
     potential for growth and competitive advantage. Expanding our market
     reach will also entail allocating funds to broaden our sales and
     marketing coverage in certain global markets. We intend to support this
     organic growth strategy with value-enhancing acquisitions whilst
     continuing our program of small non-core disposals.
   Deliver expert solutions: Our plan calls for increased focus on expert
     solutions that combine deep domain knowledge with specialized technology
     and services to deliver expert answers, analytics and productivity for
     our customers. To support digital growth across all divisions, we intend
     to accelerate our ongoing shift to global platforms and to cloud-based
     integrated solutions that offer mobile access. Our plan is to also expand
     our use of new media channels and to create an all-round, rich digital
     experience for our customers. Investment in new and enhanced products
     will be sustained in the range of 8-10% of total revenues in coming
     years.
   Drive efficiencies and engagement: We intend to continue driving scale
     economies while improving the quality of our offerings and agility of our
     organization. These operating efficiencies will help fund investment and
     wage inflation, and support a rising operating margin over the long term.
     Through increased standardization of processes and technology planning,
     and by focusing on fewer, global platforms and software applications, we
     expect to free up capital to reinvest in product innovation. Supporting
     this effort are several initiatives to foster employee engagement.




Leverage Target and Financial Policy

Wolters Kluwer uses its cash flow to invest in the business organically
or through acquisitions, to maintain optimal leverage, and 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.

As of June 30, 2016, our net-debt-to-EBITDA ratio was 1.7x, below our
target of 2.5x. While we may temporarily deviate from our leverage
target at times, 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 flow.

Dividend Policy and 2016 Interim Dividend

Wolters Kluwer has a progressive dividend policy under which the
company aims to increase the dividend per share each year. We are
committed to increasing the total dividend per share each year, with
the annual increase dependent on our financial performance, market
conditions, and our need for financial flexibility.

As announced on February 24, 2016, the interim dividend for 2016 was
set at 25% of the prior year's total dividend, or [Eur]0.19 per
ordinary share. This interim dividend will be distributed on September
14, 2016.

Dividend dates for 2016 are provided on page 30. Shareholders can
choose to reinvest both interim and final dividends by purchasing
additional Wolters Kluwer shares through the Dividend Reinvestment Plan
(DRIP) provided by ABN AMRO Bank NV.

Anti-Dilution Policy and Share Buyback Program

Wolters Kluwer has a policy to offset the dilution caused by our annual
performance share issuance with share repurchases.

In February 2016, we announced our intention to buy back shares for up
to [Eur]600 million over the three year period 2016-2018, including
anti-dilution repurchases. Assuming global economic conditions do not
deteriorate substantially, we believe this level of cash return leaves
us with ample headroom for investment in the business, including
acquisitions.

In the year to date, we repurchased 2.0 million ordinary shares for a
total consideration of [Eur]70 million (average price [Eur]34.52), of
which [Eur]3 million was settled in July, as part of this buyback
program. The repurchased shares are added to and held as treasury
shares. It remains our intention to buy back up to [Eur]600 million in
shares in the period 2016-2018, spread evenly over the three years.

Half-Year 2016 Results

Benchmark Figures

Group revenues increased 1% overall and 2% in constant currencies to
[Eur]2,042 million. Organic revenue growth, which excludes both the
impact of exchange rate movements and the effect of acquisitions and
divestitures, was 3%, an improvement on the comparable period (HY 2015:
2%). Disposals made in 2015 and first half 2016 outweighed the effect
of acquisitions on revenues.

By geographic market, North American revenues (61% of total) increased
4% organically (HY 2015: 5%), slowing as expected due to challenging
comparables in Governance, Risk & Compliance. Europe (31% of total)
grew 1% on an organic basis (HY 2015: 2% decline), improving in Legal &
Regulatory, Tax & Accounting and Governance, Risk & Compliance.
Revenues from Asia Pacific and Rest of World (8% of total) grew 2%
organically (HY 2015: 6%) with varying trends by market.

Adjusted operating profit increased 4% overall and 5% in constant
currencies to [Eur]408 million. The adjusted operating margin increased
60 basis points to 20.0% (HY 2015: 19.4%), driven primarily by lower
restructuring costs compared to the first half of 2015. Efficiency
savings, operational gearing and the effect of loss-making disposals
were largely balanced by increased investment in revenue growth.
Restructuring costs were [Eur]8 million compared to [Eur]22 million in
the comparable period. Approximately half of restructuring costs were
in the Legal & Regulatory division. We continue to guide to
restructuring expenses between [Eur]15 million and [Eur]25 million for
the full year 2016.

Adjusted net financing costs reduced to [Eur]51 million (HY 2015:
[Eur]67 million), with foreign exchange losses of [Eur]1 million (HY
2015: [Eur]16 million) recorded in the period. As a reminder, adjusted
net financing costs exclude the financing component of employee
benefits, results of investments available-for-sale, and book
gains/losses on equity-accounted investees.

Adjusted profit before tax was [Eur]357 million (HY 2015: [Eur]324
million), an increase of 6% in constant currencies. The benchmark
effective tax rate on adjusted profit before tax was 27.2% (HY 2015:
27.5%).

Diluted adjusted EPS was [Eur]0.88, up 12% overall and up 6% in
constant currencies.

IFRS Reported Figures

Reported operating profit increased 13% to [Eur]317 million (HY 2015:
[Eur]281 million), reflecting the increase in adjusted operating profit
and lower amortization of acquired intangibles.

Reported financing results amounted to a cost of [Eur]54 million (HY
2015: [Eur]69 million cost), and included adjusted net financing cost
of [Eur]51 million and the financing component of employee benefits of
[Eur]3 million. Profit before tax increased 24% to [Eur]263 million (HY
2015: [Eur]212 million).

The reported effective tax rate increased to 24.4% (HY 2015: 23.4%),
due mainly to an increased proportion of profits from countries with
higher tax rates. Total profit for the six month period increased 23%
to [Eur]199 million (HY 2015: [Eur]162 million) and diluted earnings
per share increased 23% to [Eur]0.67 (HY 2015: [Eur]0.55).

Cash Flow

Adjusted operating cash flow was [Eur]366 million (HY 2015: [Eur]340
million), up 8% overall and up 8% in constant currencies. This reflects
a cash conversion ratio of 90% (HY 2015: 87%). Working capital outflows
in the first half were reduced. Capital expenditure amounted to
[Eur]101 million (5% of revenues) reflecting investment in product
development, particularly in Tax & Accounting and Governance, Risk &
Compliance. We continue to expect capital expenditure to be 5% of total
revenues for the full year.

Adjusted free cash flow was [Eur]229 million, up 34% in constant
currencies, reflecting the increase in adjusted operating cash flow and
lower taxes paid. Paid financing costs amounted to [Eur]81 million (HY
2015: [Eur]82 million) and corporate income taxes paid were [Eur]60
million (HY 2015: [Eur]68 million). The net reduction in restructuring
provisions of [Eur]8 million reflects cash spent on efficiency
programs.

Dividends paid to shareholders totaled [Eur]167 million in relation to
the final dividend over 2015. This compares to [Eur]211 million in the
first half of 2015, which represented the total dividend over the 2014
financial year. The 2016 interim dividend (approximately [Eur]56
million) will be paid in September 2016.

First half 2016 acquisition spending, net of cash acquired, was [Eur]30
million (HY 2015: [Eur]38 million), including [Eur]3 million related to
earn-outs on past acquisitions. Acquisition spending relates mainly to
the acquisitions of Triad Professional Services in Governance, Risk &
Compliance (February 2016), PrepU adaptive learning technology in
Health (April 2016), and CPE Link in Tax & Accounting (June 2016).

Cash spent on share repurchases amounted to [Eur]67 million in the
first half, with a further [Eur]3 million settled in July.

Balance Sheet, Net Debt and Leverage

Net debt was [Eur]1,814 million as of June 30, 2016, compared to
[Eur]1,788 million at December 31, 2015 and [Eur]2,069 million as of
June 30, 2015. The twelve month rolling net-debt-to-EBITDA ratio was
1.7x at the end of June 2016 compared to 2.1x a year ago.

About Wolters Kluwer

Wolters Kluwer is a global leader in professional information services
and solutions for professionals in the areas of health, tax &
accounting, finance, risk & compliance, and legal. 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 2015 annual revenues of [Eur]4.2 billion. The
group serves customers in over 180 countries, maintains operations in
over 40 countries, and employs over 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 about our products and organization, visit
www.wolterskluwer.com and follow us on Twitter, Facebook, LinkedIn, and
YouTube.


  Financial Calendar                                                           
  August 29, 2016           Ex-dividend date: 2016 interim dividend            
  August 30, 2016           Record date: 2016 interim dividend                 
  September 14, 2016        Payment date: 2016 interim dividend ordinary shares
  September 21, 2016        Payment date: 2016 interim dividend ADRs           
  November 2, 2016          Nine-Month 2016 Trading Update                     
  February 22, 2017         Full-Year 2016 Results                             
                                                                               
  Media                     Investors/Analysts                                 
  Annemarije Pikaar         Meg Geldens                                        
  Corporate Communications  Investor Relations                                 
  t + 31 (0)172 641 470     t + 31 (0)172 641 407                              
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Forward-looking Statements and Other Important Legal InformationThis
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.

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).