Interim / Quarterly Report • Aug 1, 2018
Interim / Quarterly Report
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August 1, 2018 – Wolters Kluwer, a global leader in professional information, software solutions, and services, today releases its half-year 2018 results.
Nancy McKinstry, CEO and Chairman of the Executive Board, commented: "With a sharpened portfolio and in favorable market conditions, we have achieved further improvement in organic growth by continuing to focus on customer-centric innovation and shifting our business mix towards digital and expert solutions. We have delivered further operating efficiencies, enabling us to increase investment in product development, sales & marketing, and technology. We are confident of meeting our full-year outlook."
| Six months ended June 30 | |||||
|---|---|---|---|---|---|
| € million (unless otherwise stated) | 2018 | 2017* | ∆ | ∆ CC | ∆ OG |
| Business performance - benchmark figures | |||||
| Revenues | 2,020 | 2,170 | -7% | +1% | +4% |
| Adjusted operating profit | 451 | 462 | -2% | +8% | +13% |
| Adjusted operating profit margin | 22.3% | 21.3% | |||
| Adjusted net profit | 299 | 293 | +2% | +19% | |
| Diluted adjusted EPS (€) | 1.06 | 1.01 | +5% | +22% | |
| Adjusted free cash flow | 263 | 257 | +2% | +15% | |
| Net debt | 1,957 | 2,257 | -13% | ||
| IFRS results | |||||
| Revenues | 2,020 | 2,170 | -7% | ||
| Operating profit | 524 | 408 | +28% | ||
| Profit for the year | 359 | 272 | +32% | ||
| Diluted EPS (€) | 1.28 | 0.94 | +36% | ||
| Net cash from operating activities | 319 | 342 | -6% |
∆: % Change; ∆ CC: % Change in constant currencies (€/\$ 1.13); ∆ OG: % Organic growth. Benchmark (adjusted) figures are performance measures used by management. See Note 5 for a reconciliation from IFRS to benchmark figures. *2017 has been restated for IFRS 15 (see Note 3 and Appendix 4 of this interim report for details) and to treat customer credits for 'bank product' services as a deduction to revenues and not as a cost of sales.
Our guidance for full-year 2018 is provided in the table below. We expect to deliver solid organic growth and margin improvement. We expect to achieve an increase in diluted adjusted EPS in constant currencies and improvement in return on invested capital (ROIC).
| Performance indicators | 2018 Guidance | 2017 (Under IFRS 15) |
|---|---|---|
| Adjusted operating profit margin | 22.5%-23.0% | 22.2% |
| Adjusted free cash flow | €725-€750 million | €746 million |
| ROIC | 10.0%-10.5% | 9.8% |
| Diluted adjusted EPS | 10%-15% growth | €2.22 |
Guidance for adjusted free cash flow and diluted adjusted EPS is in constant currencies (€/\$ 1.13). Guidance for EPS growth assumes share repurchases of €550 million in 2018. Adjusted operating profit margin and ROIC are in reported currencies and assume an average EUR/USD rate around €/\$ 1.20.
Our guidance reflects the new IFRS 15 accounting standard, which became effective on January 1, 2018. Historical 2017 figures have been restated: please see Note 3 and Appendix 4 of this interim report for details on IFRS 15. Our guidance is based on constant exchange rates. In 2017, Wolters Kluwer generated more than 60% of its revenues and adjusted operating profit in North America. As a rule of thumb, based on our 2017 currency profile, each 1 U.S. cent move in the average €/\$ exchange rate for the year causes an opposite change of approximately two euro cents in diluted adjusted EPS.
Restructuring costs are included in adjusted operating profit. We continue to expect restructuring costs of €15-€25 million in 2018 (2017: €33 million). We expect adjusted net financing costs of approximately €70 million (2017: €109 million), excluding the impact of exchange rate movements on currency hedging and intercompany balances. The decline in net financing costs reflects the redemption of the €750 million, 6.375% senior Eurobond that matured in April 2018. Following further interpretation and clarification of the changes introduced in the U.S. Tax Cuts and Jobs Act, we now expect the benchmark effective tax rate to be in the range of 25%-26% for the full year.
Capital expenditure is expected to be in the range of 5%-6% of total revenues, excluding any real estate disposals (FY 2017: 4.8%, or 5.0% excluding real estate disposals). We anticipate a cash conversion ratio of approximately 100% in 2018. Our guidance assumes no additional significant change to the scope of operations. We may make further disposals which may be dilutive to margins and earnings in the near term.
Health: for the full year, we continue to expect Health to deliver good organic growth, similar to prior year levels, and a stable adjusted operating profit margin.
Tax & Accounting: for the full year, we continue to expect improved organic growth and, including onetime benefits recorded in the first half, we now anticipate a modest increase in the adjusted operating margin for the full year.
Governance, Risk & Compliance: we continue to expect good organic growth and an improved margin for the full year.
Legal & Regulatory: the division faces a challenging comparable in the second half, and as a result, we expect organic revenues to be flat to slightly positive in full year 2018. Including one-time benefits realized in the first half, we continue to expect the full-year margin to be stable for the full year.
We are now in the final year of our current three-year strategic plan 2016-2018. This plan (Growing our Value) prioritizes expanding our market coverage, increasing our focus on expert solutions, and driving further operating efficiencies and employee engagement. Our strategy aims to sustain and, in the long run, further improve our organic growth rate, margins, and returns as we focus on growing value for customers, employees, and shareholders. Our priorities are to:
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.
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.
At June 30, 2018, the net-debt-to-EBITDA ratio, based on rolling twelve-month EBITDA, was 1.7x (HY 2017: 1.9x).
Wolters Kluwer has a progressive dividend policy under which the company aims to increase the dividend per share each year. The annual increase is dependent on our financial performance, market conditions, and our need for financial flexibility. Our dividend policy takes into consideration the nature of our business and our expectations for future cash flow and investment needs.
As announced on February 21, 2018, the interim dividend for 2018 was set at 40% of the prior year total dividend (versus 25% in previous years). This results in an interim dividend of €0.34 per share, to be distributed on September 19, 2018, to holders of ordinary shares, or September 26, 2018, for 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.
Wolters Kluwer has a policy to offset the dilution caused by our annual incentive share issuance with share repurchases.
On February 24, 2016, we announced a three-year share buyback program (2016-2018) which originally envisaged spending up to €200 million in each year on share repurchases, including amounts required to offset incentive share issuance. This buyback program was subsequently expanded to include additional repurchases intended to mitigate dilution caused by non-core divestments made in 2017 and early 2018.
In 2016 and 2017, we completed respectively €200 million and €300 million in share buybacks under this program.
As of July 30, 2018, we have completed a further €300 million of buybacks (6.8 million shares at an average price of €44.42). We now intend to execute €250 million of buybacks in the remainder of 2018, bringing the intended full-year 2018 total to €550 million. For the period starting August 2, 2018, up to and including December 27, 2018, we have engaged third parties to execute such 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. Repurchased shares are added to and held as treasury shares, and will be used for capital reduction purposes or to meet obligations arising from share-based incentive plans.
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.
At the 2018 Annual General Meeting, 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 as authorized by shareholders, up to a maximum of 10% of issued share capital on April 20, 2018. As authorized by shareholders, the Executive Board has determined the number of ordinary shares to be cancelled is 10.6 million. Wolters Kluwer intends to cancel these shares in the second half of 2018. Part of the shares held in treasury will be retained and used to meet future obligations under share-based incentive plans.
Group revenues declined 7% overall to €2,020 million due to the impact of currency movements, most importantly the depreciation of the U.S. dollar against the euro (average EUR/USD 1.21 versus 1.08 in HY 2017). In constant currencies, revenues increased 1%.
Organic growth, which excludes the impact of exchange rate movements and the effect of acquisition and disposals, was 4%. All four divisions delivered positive organic growth in the first half. Had we continued to apply the IAS 18 accounting standard for revenue recognition, organic growth would also have been 4% (an improvement on the 2% recorded in HY 2017 under IAS 18).
Revenues from North America (61% of total revenues) grew 5% organically, with good momentum across all divisions in this region of the world. Revenues from Europe (31% of total revenues) increased 4% organically, mainly benefiting from an improved organic growth rate in Legal & Regulatory. Revenues from Asia Pacific and Rest of World (8% of total revenues) grew 6% organically, principally supported by strong performance in Health.
Adjusted operating profit was €451 million, up 8% in constant currencies, and resulting in a margin of 22.3%. Adjusted operating profit included €16 million (HY 2017: €4 million) of one-time benefits in two divisions and at the Corporate level. Excluding these items, the adjusted operating margin would have increased 40 basis points. The one-time items included a real estate disposal of €6 million in Tax & Accounting, the release of a €6 million provision in Legal & Regulatory, and one-time benefits totaling €4 million at the Corporate level, mainly relating to payroll taxes.
Included in adjusted operating profit were €7 million of restructuring costs (HY 2017: €10 million).
Adjusted net financing costs decreased to €49 million (HY 2017: €55 million), reflecting reduced interest costs following the redemption of our €750 million, 6.375% senior Eurobond. This refinancing benefit was partly offset by net foreign exchange losses of €11 million. As a reminder, adjusted net financing costs are defined as total financing results, excluding the financing component of employee benefits, fair value changes in financial assets, and net book gains or losses on any divestments of non-controlled equityinterests.
Adjusted profit before tax was €402 million (HY 2017: €407 million), down 1% overall but up 12% in constant currencies.
The benchmark effective tax rate on adjusted profit before tax was 25.5% (HY 2017: 27.9%), following further interpretation and clarification of the changes introduced by the U.S. Tax Cuts & Jobs Act. As a result, adjusted net profit increased 2% overall and 19% in constant currencies to €299 million.
Diluted adjusted EPS increased 5% overall and 22% in constant currencies to €1.06 (HY 2017: €1.01), reflecting the increase in adjusted net profit and a 3% reduction in the diluted weighted average number of shares outstanding to 281.5 million.
As of June 30, 2018, the number of issued and outstanding shares was 276.6 million (excluding 13.7 million shares held as treasury shares).
Reported operating profit rose 28% to €524 million (HY 2017: €408 million), mainly reflecting €159 million of net book gains on the disposal of certain Swedish assets and Corsearch in January 2018 and the sale of ProVation in March 2018. Reported operating profit also reflects lower amortization of acquired intangibles and lower acquisition-related costs.
Reported financing results amounted to a cost of €49 million (HY 2017: €58 million cost). Reported financing costs include the financing component of employee benefits of €2 million (HY 2017: €3 million). In addition, we recorded a €3 million capital gain on the sale of a non-controlled equity investment and a €1 million net fair value loss on non-controlled equity investments.
The reported effective tax rate increased to 24.3% (HY 2017: 22.3%), due to taxable gains on divestments. As a result, total profit for the period increased 32% to €359 million (HY 2017: €272 million) and diluted earnings per share increased 36% to €1.28 (HY 2017: €0.94).
Adjusted operating cash flow was €448 million (HY 2017: €441 million), an increase of 10% in constant currencies. The cash conversion ratio improved to 99% (HY 2017: 95%).
Net capital expenditure was €88 million (HY 2017: €96 million), or 4.4% of revenues. This amount included a €9 million benefit related to real estate disposals. Excluding these disposals, capital expenditure as a percentage of revenues would have been 4.8%.
Depreciation and amortization of internally developed software and other assets was €95 million (HY 2017: €96 million). Net working capital outflows were €10 million (HY 2017: outflow of €21 million).
Adjusted free cash flow was €263 million (HY 2017: €257 million), up 2% overall and up 15% in constant currencies. Paid financing costs increased to €84 million (HY 2017: €81 million) and included the final coupon on the €750 million senior Eurobond which matured in April 2018. Corporate income taxes paid increased 15% to €124 million, due to taxable gains on divestments and the full utilization of remaining U.S. deferred tax assets during the first half of 2018, as expected.
The net movement in restructuring provisions of €9 million related to cash spending of €12 million and additions of €3 million excluding non-benchmark items.
Dividends paid to shareholders during the first half of 2018 totaled €182 million relating to the 2017 final dividend.
Acquisition spending, net of cash acquired and including acquisition-related costs, was €21 million (HY 2017: €303 million) relating to the acquisition of Firecracker in April 2018 and deferred payments and earnouts on acquisitions made in prior years of €10 million.
Divestiture proceeds, net of cash disposed, were €305 million (HY 2017: €77 million), relating to the disposals of certain Swedish assets, Corsearch, ProVation, and a 10%-equity interest in Medicom.
During the first six months, we settled €260 million of share buybacks.
Net debt at June 30, 2018, was €1,957 million, a reduction of €112 million since December 31, 2017, as a result of free cash flow and disposal proceeds, partly offset by share buybacks and dividends.
The leverage ratio, based on rolling twelve months reported EBITDA, was 1.7x at June 30, 2018 (HY 2017: 1.9x).
All four divisions delivered good organic growth. Tax & Accounting and Legal & Regulatory recorded an improvement in organic growth, in line with expectations. Adjusted operating profit margins increased in all divisions, except Tax & Accounting.
| € million (unless otherwise stated) | 2018 | 2017* | ∆ | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| Revenues | |||||
| Health | 512 | 562 | -9% | +1% | +5% |
| Tax & Accounting | 623 | 611 | +2% | +10% | +6% |
| Governance, Risk & Compliance | 470 | 556 | -15% | -6% | +3% |
| Legal & Regulatory | 415 | 441 | -6% | -3% | +2% |
| Total revenues | 2,020 | 2,170 | -7% | +1% | +4% |
| Adjusted operating profit | |||||
| Health | 130 | 135 | -4% | +7% | +12% |
| Tax & Accounting | 156 | 156 | 0% | +10% | +11% |
| Governance, Risk & Compliance | 137 | 156 | -12% | -1% | +3% |
| Legal & Regulatory | 51 | 42 | +20% | +21% | +44% |
| Corporate | (23) | (27) | -16% | -13% | -13% |
| Total adjusted operating profit | 451 | 462 | -2% | +8% | +13% |
| Adjusted operating profit margin | |||||
| Health | 25.3% | 24.0% | |||
| Tax & Accounting | 25.1% | 25.5% | |||
| Governance, Risk & Compliance | 29.3% | 28.0% | |||
| Legal & Regulatory | 12.2% | 9.6% | |||
| Total adjusted operating profit margin | 22.3% | 21.3% |
∆: % Change; ∆ CC: % Change in constant currencies (€/\$ 1.13); ∆ OG: % Organic growth. *HY 2017 revenues and margin restated for IFRS 15 and to treat customer credits for 'bank product' services as a deduction to revenues and not as a cost of sales.
Recurring revenues, which include subscriptions and other renewing revenue streams, grew 5% organically. Print book revenues decreased 3% on an organic basis, due to declines in Health and Legal & Regulatory. Legal Services (LS) transactional revenues rose 9% organically (HY 2017: 4%), while Financial Services (FS) transactions declined 4% (HY 2017: 2% increase). Other non-recurring revenues, which includes software license and implementation fees, rose 5% organically (IAS 18: HY 2018: 3%; HY 2017: 5% decline) reflecting strong prior year new sales in Governance, Risk & Compliance.
| € million (unless otherwise stated) | 2018 | 2017* | ∆ | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| Digital and service subscription | 1,352 | 1,425 | -5% | +3% | +6% |
| Print subscription | 102 | 116 | -12% | -8% | -6% |
| Other recurring | 145 | 157 | -8% | +3% | +5% |
| Total recurring revenues | 1,599 | 1,698 | -6% | +2% | +5% |
| Print books | 79 | 92 | -13% | -9% | -3% |
| LS transactional | 105 | 125 | -16% | -6% | +9% |
| FS transactional | 48 | 59 | -18% | -9% | -4% |
| Other non-recurring | 189 | 196 | -4% | +2% | +5% |
| Total revenues | 2,020 | 2,170 | -7% | +1% | +4% |
Revenues by Type – Six months ended June 30
∆: % Change; ∆ CC: % Change in constant currencies (€/\$ 1.13); ∆ OG: % Organic growth. Note: Other non-recurring revenues includes license & implementation fees. *2017 restated for IFRS 15 and to treat customer credits for 'bank product' services as a deduction to revenues and not as a cost of sales.
| € million (unless otherwise stated) | 2018 | 2017* | ∆ | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| Revenues | 512 | 562 | -9% | +1% | +5% |
| Adjusted operating profit | 130 | 135 | -4% | +7% | +12% |
| Adjusted operating profit margin | 25.3% | 24.0% | |||
| Operating profit | 186 | 111 | +67% | ||
| Net capital expenditure | 17 | 25 | |||
| Ultimo FTEs | 2,779 | 3,061 |
∆: % Change; ∆ CC: % Change in constant currencies (€/\$ 1.13); ∆ OG: % Organic growth. *2017 restated for IFRS 15.
Wolters Kluwer Health revenues increased 1% in constant currencies, reflecting net disposal activity. In the first half of 2018, we completed the divestment of ProVation Medical and reduced our interest in Medicom to 45%, leading the latter entity to be deconsolidated. We also completed the acquisition of Firecracker in Health Learning, Research & Practice, strengthening our digital offering in medical education. Excluding the impact of currency and the effect of net disposal activity, organic revenue growth was 5%. Adjusted operating profit increased 7% in constant currencies and 12% organically, driven by favorable timing of investments and savings, and the ongoing mix shift towards Clinical Solutions. IFRS operating profit increased 67%, including an €82 million book gain on the sale of ProVation Medical.
Clinical Solutions (53% of divisional revenues) delivered 10% organic growth, driven by continued doubledigit growth for our clinical decision support tool, UpToDate. UpToDate saw strong renewals and added new customers around the world. The core solution is today used by 1.5 million clinicians in more than 185 countries. In the first quarter, we launched UpToDate Advanced, a next-generation module that offers patient-specific, guided pathways. Our clinical drug information group (Medi-Span, Lexicomp, and Facts & Comparisons) achieved high single-digit organic growth. In patient engagement, Emmi experienced a soft first half in new sales and had a large customer renewal delayed to July. We have reorganized our clinical effectiveness units around major customer segments, enabling us to approach the market with a full suite of solutions spanning the continuum of care. In clinical software, performances were mixed, with weakness in Health Language offset by positive momentum in the Sentri7 surveillance system and the POC Advisor clinical intelligence solution for Sepsis.
Health Learning, Research & Practice (47% of divisional revenues) achieved 1% organic growth, following an improvement in the second quarter. Digital revenues posted positive organic growth, while print formats continued to decline. Medical and nursing journal revenues were soft overall on an organic basis, as growth in Ovid digital subscriptions was offset by declines in print subscriptions, advertising, and reprints. Education and practice content saw positive organic growth, as a decline in print books and in continuing medical education was outweighed by double-digit organic growth in our digital learning and practice solutions for nurses.
| € million (unless otherwise stated) | 2018 | 2017* | ∆ | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| Revenues | 623 | 611 | +2% | +10% | +6% |
| Adjusted operating profit | 156 | 156 | 0% | +10% | +11% |
| Adjusted operating profit margin | 25.1% | 25.5% | |||
| Operating profit | 122 | 111 | +10% | ||
| Net capital expenditure | 32 | 29 | |||
| Ultimo FTEs | 6,732 | 6,696 |
∆: % Change; ∆ CC: % Change in constant currencies (€/\$ 1.13); ∆ OG: % Organic growth. *2017 restated for IFRS 15 and to treat customer credits for 'bank product' services as a deduction to revenues and not as a cost of sales.
Wolters Kluwer Tax & Accounting revenues rose 10% in constant currencies, reflecting the acquisition of Tagetik in April 2017 and Adsolut in September 2017. Excluding the impact of currency and the effect of acquisitions, organic growth was 6%. Under IAS 18, organic growth would have been 5%, marking an acceleration on the comparable period (HY 2017: 3%), driven primarily by CCH Tagetik (included in organic growth in the second quarter) and Research & Learning. The adjusted operating profit margin declined to 25.1%, as the dilutive effect of Tagetik and increased investment in cloud solutions were partly offset by a one-time €6 million gain on the sale of real estate. IFRS operating profit increased 10%, reflecting fair value changes in contingent considerations of €9 million in 2017.
Tax & Accounting North America (52% of divisional revenues) delivered an acceleration in organic growth driven by the ongoing mix shift towards software products and an improvement at Research & Learning. CCH Axcess, our cloud-based tax software suite, and CCH ProSystem fx Engagement, our integrated audit solution, both performed strongly as we continued to invest in new features. Research & Learning saw strong demand for printed books and training on the topic of the new U.S. Tax Cuts and Jobs Act.
Tax & Accounting Europe (29% of divisional revenues) sustained robust organic growth, with good performances across all countries. In Germany, our online collaboration platform OneClick was enhanced with added functionality and an open interface. Our Italian business began the formal roll-out of its new cloud-based, integrated suite, Genya. In Belgium, we made progress on the integration of Adsolut, a cloud-based collaborative solution for tax advisors and their clients.
Tax & Accounting Asia Pacific & Rest of World (7% of divisional revenues) revenues were broadly in line with the comparable period on an organic basis, as double-digit growth in China and India was offset by weakness in Brazil. In Australia and other developed Asia Pacific markets, growth in digital solutions, such as iFirm and CCH Integrator, outweighed declines in print formats.
Corporate Performance Solutions (12% of divisional revenues) includes TeamMate, our internal audit software platform and CCH Tagetik, our corporate performance management suite. TeamMate recorded single-digit organic growth, as it continued to focus on the roll-out of the cloud version of its internal audit solution. CCH Tagetik delivered double-digit growth in the first six months of the year (pro forma) and stepped up investment in sales and marketing.
| € million (unless otherwise stated) | 2018 | 2017* | ∆ | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| Revenues | 470 | 556 | -15% | -6% | +3% |
| Adjusted operating profit | 137 | 156 | -12% | -1% | +3% |
| Adjusted operating profit margin | 29.3% | 28.0% | |||
| Operating profit | 174 | 185 | -6% | ||
| Net capital expenditure | 25 | 25 | |||
| Ultimo FTEs | 3,972 | 4,399 |
∆: % Change; ∆ CC: % Change in constant currencies (€/\$ 1.13); ∆ OG: % Organic growth. *2017 restated for IFRS 15.
Wolters Kluwer Governance, Risk & Compliance revenues declined 6% in constant currencies, reflecting the divestment of Transport Services in June 2017 and Corsearch in January 2018. Excluding the impact of currency and the effect of net disposal activity, organic revenue growth was 3%. Under IAS 18, organic growth would have been 2%, broadly in line with the comparable period (HY 2017: 2%). The adjusted operating profit margin increased by 130 basis points, driven by operational efficiency initiatives and the divestment of lower margin businesses. IFRS operating profit, which included book gains on the disposals of Corsearch in 2018 and Transport Services in 2017, declined 6%.
Recurring revenues, which accounts for 58% of divisional revenues, grew 2% organically. Transactional revenues increased 9% organically in Legal Services, but declined 4% in Financial Services. Other nonrecurring revenues increased 2%, largely reflecting the prior year's new license sales.
Legal Services (57% of divisional revenues) delivered 5% organic growth. CT, which provides legal representation services to corporations and law firms, achieved good organic growth, supported by robust growth in law firm search and filing transactions. Enterprise Legal Management (ELM), which provides legal spend and matter management software and analytics to corporations and law firms, achieved high single-digit growth, driven by new customer wins (resulting in higher legal invoice volumes), recent product launches, such as LegalVIEW Bill Analyzer, and prior year new license sales.
Financial Services (43% of divisional revenues) saw subdued organic growth, as expected, as growth in recurring software revenues was offset by a decline in Financial Services (FS) transactional revenues. Finance, Risk & Reporting, which provides integrated regulatory and compliance solutions to banks, delivered mid-single-digit organic growth, driven by recurring software maintenance revenues and by revenue recognition of prior year license sales for the OneSumX suite. Lien Solutions, which supports commercial lenders with lien compliance solutions, performed well, as market share gains and expansion into new customer segments (motor vehicle title perfection) more than offset the expected slowdown in its traditional commercial lending segment. Our banking Compliance Solutions unit experienced a doubledigit decline in mortgage origination volumes which outweighed growth in its recurring software revenues.
| € million (unless otherwise stated) | 2018 | 2017* | ∆ | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| Revenues | 415 | 441 | -6% | -3% | +2% |
| Adjusted operating profit | 51 | 42 | +20% | +21% | +44% |
| Adjusted operating profit margin | 12.2% | 9.6% | |||
| Operating profit | 65 | 28 | +134% | ||
| Net capital expenditure | 14 | 17 | |||
| Ultimo FTEs | 4,068 | 4,345 |
∆: % Change; ∆ CC: % Change in constant currencies (€/\$ 1.13); ∆ OG: % Organic growth. *2017 restated for IFRS 15.
Wolters Kluwer Legal & Regulatory revenues declined 3% in constant currencies, reflecting the disposal of certain U.K. and Swedish assets in September 2017 and January 2018, respectively. Excluding the impact of currency and the effect of net disposal activity, organic revenue growth was 2% compared to a decline of 2% in the comparable period. The adjusted operating profit included a one-time benefit of €6 million relating to the release of a legal provision. Excluding one-time items, the adjusted operating profit margin would have improved 100 basis points to 10.6%, driven by portfolio reshaping, ongoing efficiency initiatives, and favorable timing. IFRS operating profit included a book gain on the divestment of the Swedish assets.
Digital revenues (63% of divisional revenues) recorded 5% organic growth, an improvement on the comparable period (HY 2017: 3%). Print formats continued to decline, with the trend in print subscription revenues reflecting a favorable publishing schedule and other timing factors, expected to reverse in the second half.
Legal & Regulatory Information Solutions (91% of divisional revenues) delivered organic revenue growth of 2%. In Europe, organic growth turned positive for the first time in many years, driven primarily by improved trends in digital products. Print formats benefitted from a favorable loose-leaf publication schedule and other timing factors. In July, we launched One Fiscale, the first module of a next-generation legal and tax research platform for Italy. Across Europe, we continued to execute on efficiency programs in editorial and production, technology, sales, marketing, and back-office functions. Legal & Regulatory U.S. also delivered improved organic growth, due to an upturn in print related to a favorable publishing schedule.
Legal & Regulatory Software (9% of divisional revenues), which includes Enablon and our centralized Legal Software unit, generated double-digit organic growth. Enablon, which provides environmental, health and safety compliance and operational risk solutions, recorded double-digit organic growth, driven by recurring revenues for its cloud-based software. Our Legal Software unit also delivered double-digit organic growth, supported by demand for our cloud-based practice management software for law firms (Kleos) and corporate legal departments (Effacts).
Corporate expenses were lower than a year ago, due to €4 million of one-time favorable items, mainly relating to payroll taxes. Underlying costs increased due to a three-year investment program to transform our Human Resources systems and due to costs related to General Data Protection Regulation (GDPR) compliance.
| € million (unless otherwise stated) | 2018 | 2017 | ∆ | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| Adjusted operating profit | (23) | (27) | -16% | -13% | -13% |
| Operating profit | (23) | (27) | -15% | ||
| Net capital expenditure (CAPEX) | 0 | 0 | |||
| Ultimo FTEs | 116 | 116 |
Corporate – Six months ended June 30
∆: % Change; ∆ CC: % Change in constant currencies (€/\$ 1.13); ∆ OG: % Organic growth.
In the 2017 Annual Report, the Company described certain risk categories that could have a material adverse effect on its operations and financial position. Those risk categories are deemed to be incorporated and repeated in this report by reference. In the Company's view, the nature and potential impact of these risk categories on the business are not materially different for the second half of 2018.
The Executive Board is responsible for the preparation of the 2018 Half-Year Report, which includes the Interim Report of the Executive Board and the condensed consolidated interim financial statements for the six months ended June 30, 2018. The condensed consolidated interim financial statements for the six months ended June 30, 2018 are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The responsibility of the Executive Board includes selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
The Interim Report of the Executive Board endeavors to present a fair review of the situation of the business at the balance sheet date and of the state of affairs in the half-year under review. Such an overview contains a selection of some of the main developments in the first six months of the financial year and can never be exhaustive. This Interim Report also contains the current expectations of the Executive Board for the second half of the financial year. With respect to these expectations, reference is made to the disclaimer about forward-looking statements on page 39 of this half-year report. As required by provision 5:25d (2)(c) of the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht) and on the basis of the foregoing, the Executive Board confirms that to its knowledge:
N. McKinstry, CEO and Chairman of the Executive Board K. B. Entricken, CFO and Member of the Executive Board
The content of this Half-Year Report has not been audited or reviewed by an independent external auditor.
Unaudited Condensed Consolidated Interim Financial Statements for the six months ended June 30, 2018, and 2017
Unaudited Condensed Consolidated Interim Statement of Profit or Loss Unaudited Condensed Consolidated Interim Statement of Comprehensive Income Unaudited Condensed Consolidated Interim Statement of Cash Flows Unaudited Condensed Consolidated Interim Statement of Financial Position Unaudited Condensed Consolidated Interim Statement of the Changes in Total Equity Notes to the Unaudited Condensed Consolidated Interim Financial Statements
| (in millions of euros, unless otherwise stated) | Note | Six months ended June 30 | |
|---|---|---|---|
| 2018 | 2017 | ||
| Restated* | |||
| Revenues | 6 | 2,020 | 2,170 |
| Cost of sales | 611 | 659 | |
| Gross profit | 1,409 | 1,511 | |
| Sales costs | 367 | 403 | |
| General and administrative costs | 675 | 740 | |
| Total operating expenses | 1,042 | 1,143 | |
| Other operating income and (expense) | 157 | 40 | |
| Operating profit | 524 | 408 | |
| Financing results | (49) | (58) | |
| Share of profit of equity-accounted investees, net of tax | 0 | 0 | |
| Profit before tax | 475 | 350 | |
| Income tax expense | (116) | (78) | |
| Profit for the period | 359 | 272 | |
| Attributable to: | |||
| ▪ Owners of the Company |
359 | 272 | |
| ▪ Non-controlling interests |
0 | 0 | |
| Profit for the period | 359 | 272 | |
| Earnings per share (EPS) (€) | |||
| Basic EPS | 1.29 | 0.95 | |
| Diluted EPS | 1.28 | 0.94 |
* 2017 has been restated for IFRS 15; see Note 3 for further details.
| (in millions of euros) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Restated* | ||
| Comprehensive income: | ||
| Profit for the period | 359 | 272 |
| Other comprehensive income: | ||
| Items that are or may be reclassified subsequently to the statement of profit or loss: |
||
| Net gains/(losses) on hedges of net investments and exchange | ||
| differences on translation of foreign operations | 67 | (224) |
| Gains/(losses) on cash flow hedges | 6 | 6 |
| Items that will not be reclassified to the statement of profit or loss: |
||
| Remeasurements on defined benefit plans | 6 | 4 |
| Income tax on other comprehensive income | (2) | (1) |
| Other comprehensive income for the period, net of tax | 77 | (215) |
| Total comprehensive income for the period | 436 | 57 |
| Attributable to: | ||
| ▪ Owners of the Company |
436 | 57 |
| ▪ Non-controlling interests |
0 | 0 |
| Total | 436 | 57 |
* 2017 has been restated for IFRS 15; see Note 3 for further details.
| (in millions of euros) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Restated* | ||
| Cash flows from operating activities | ||
| Profit for the period | 359 | 272 |
| Adjustments for: | ||
| Financing results | 49 | 58 |
| Share of profit of equity-accounted investees, net of tax | 0 | 0 |
| Income tax expense | 116 | 78 |
| Amortization, impairments, and depreciation | 179 | 190 |
| Additions to provisions | 4 | 7 |
| Fair value changes to contingent considerations | 0 | 9 |
| Book (profit)/loss on divestments of operations | (163) | (56) |
| Share-based payments | 10 | 10 |
| Autonomous movements in working capital | (10) | (21) |
| Paid financing costs | (84) | (81) |
| Paid corporate income tax | (124) | (108) |
| Appropriation of provisions for restructuring | (12) | (15) |
| Other | (5) | (1) |
| Net cash from operating activities | 319 | 342 |
| Cash flows from investing activities | ||
| Capital expenditure Acquisition spending, net of cash acquired |
(88) (19) |
(96) (300) |
| Receipt from divestments, net of cash disposed | 305 | 77 |
| Dividends received | 1 | 1 |
| Net cash from/(used in) investing activities | 199 | (318) |
| Cash flows from financing activities | ||
| Repayment of loans | (753) | (16) |
| Proceeds from new loans | 0 | 497 |
| Drawings from facility Collateral received/(paid) |
40 0 |
- (2) |
| Repurchased shares | (260) | (136) |
| Dividends paid | (182) | (172) |
| Net cash from/(used in) financing activities | (1,155) | 171 |
| Net cash flow | (637) | 195 |
| Cash and cash equivalents less bank overdrafts at January 1 | 751 | 389 |
| Exchange differences on cash and cash equivalents and bank overdrafts | (1) | (52) |
| 750 | 337 | |
| Cash and cash equivalents less bank overdrafts at June 30 | 113 | 532 |
| Add: Bank overdrafts used for cash management purposes at June 30 | 541 | 477 |
| Cash and cash equivalents at June 30 in the Statement of Financial | ||
| Position | 654 | 1,009 |
| (in millions of euros) | Note | June 30, 2018 | December 31, 2017 | June 30, 2017 | |||
|---|---|---|---|---|---|---|---|
| Restated* | Restated* | ||||||
| Goodwill and intangible assets | 5,639 | 5,581 | 6,103 | ||||
| Property, plant, and equipment | 88 | 101 | 107 | ||||
| Investments in equity-accounted | |||||||
| investees | 13 | 11 | 8 | ||||
| Financial assets | 29 | 16 | 27 | ||||
| Non-current contract assets | 9 | 30 | 30 | 25 | |||
| Deferred tax assets | 95 | 93 | 86 | ||||
| Total non-current assets | 5,894 | 5,832 | 6,356 | ||||
| Inventories | 72 | 95 | 110 | ||||
| Contract assets | 9 | 65 | 92 | 80 | |||
| Trade and other receivables | 1,013 | 1,182 | 1,054 | ||||
| Income tax receivable | 28 | 9 | 38 | ||||
| Cash and cash equivalents | 654 | 1,020 | 1,009 | ||||
| Assets classified as held for sale | 8 | - | 248 | - | |||
| Total current assets | 1,832 | 2,646 | 2,291 | ||||
| Deferred income | 9 | 1,483 | 1,486 | 1,489 | |||
| Other contract liabilities | 9 | 37 | 41 | 42 | |||
| Trade and other payables | 273 | 335 | 333 | ||||
| Income tax payable | 18 | 12 | 8 | ||||
| Short-term provisions | 13 | 22 | 17 | ||||
| Borrowings and bank overdrafts | 10 | 581 | 288 | 480 | |||
| Short-term bond | 10 | - | 750 | 750 | |||
| Other current liabilities | 447 | 618 | 446 | ||||
| Liabilities classified as held for sale | 8 | - | 81 | - | |||
| Total current liabilities | 2,852 | 3,633 | 3,565 | ||||
| Working capital | (1,020) | (987) | (1,274) | ||||
| Capital employed | 4,874 | 4,845 | 5,082 | ||||
| Long-term debt | 10 | 2,043 | 2,040 | 2,049 | |||
| Deferred and other tax liabilities | 444 | 421 | 491 | ||||
| Employee benefits | 149 | 150 | 181 | ||||
| Provisions | 3 | 2 | 2 | ||||
| Total non-current liabilities | 2,639 | 2,613 | 2,723 | ||||
| Issued share capital | 35 | 35 | 36 | ||||
| Share premium reserve | 87 | 87 | 87 | ||||
| Other reserves | 2,112 | 2,106 | 2,231 | ||||
| Equity attributable to the owners of | |||||||
| the Company | 2,234 | 2,228 | 2,354 | ||||
| Non-controlling interests | 1 | 4 | 5 | ||||
| Total equity | 2,235 | 2,232 | 2,359 | ||||
| Total financing | 4,874 | 4,845 | 5,082 |
* 2017 has been restated for IFRS 15; see Note 3 for further details.
| (in millions of euros) | Note | 2018 | ||
|---|---|---|---|---|
| Equity attributable to the owners of the Company |
Non controlling interests |
Total equity | ||
| Balance at December 31, 2017, as presented | 2,321 | 4 | 2,325 | |
| Change of accounting policy (IFRS 15) | 3 | (93) | - | (93) |
| Restated balance at December 31, 2017 | 2,228 | 4 | 2,232 | |
| Change of accounting policy (IFRS 9) | 3 | (9) | - | (9) |
| Restated equity balance at January 1 | 2,219 | 4 | 2,223 | |
| Total comprehensive income for the period | 436 | 0 | 436 | |
| Share-based payments | 10 | - | 10 | |
| Final cash dividend 2017 | (181) | (1) | (182) | |
| Repurchased shares | (250) | - | (250) | |
| Other movements | 0 | (2) | (2) | |
| Balance at June 30 | 2,234 | 1 | 2,235 |
| (in millions of euros) | Note | 2017 | ||
|---|---|---|---|---|
| Equity attributable to the owners of the Company |
Non controlling interests |
Total equity Restated |
||
| Balance at January 1, as presented | 2,621 | 5 | 2,626 | |
| Change of accounting policy (IFRS 15) | 3 | (62) | - | (62) |
| Restated balance at January 1 | 2,559 | 5 | 2,564 | |
| Total comprehensive income for the period | 57 | 0 | 57 | |
| Share-based payments | 10 | - | 10 | |
| Final cash dividend 2016 | (172) | - | (172) | |
| Repurchased shares | (100) | - | (100) | |
| Other movements | 0 | - | 0 | |
| Balance at June 30 | 2,354 | 5 | 2,359 |
Wolters Kluwer N.V. ('the Company') with its subsidiaries (together referred to as 'the group', and individually as group entities) is a global leader in professional information, software solutions and services for the health, tax and accounting, finance, risk and compliance, and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services.
These unaudited condensed consolidated interim financial statements ('interim financial statements') for the six months ended June 30, 2018, comprise the group and the group's interests in associates and joint arrangements.
These interim financial statements have been prepared in accordance with International Accounting Standards (IAS) 34 Interim Financial Reporting, as adopted by the European Union. As such, the financial statements do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to get an understanding of the changes in the group's financial position and performance since the last annual consolidated financial statements for the year ended December 31, 2017.
The interim financial statements for the six months period ended June 30, 2018, have been abridged from Wolters Kluwer's 2017 Financial Statements. These interim financial statements have not been audited or reviewed by the external auditor. The interim financial statements were authorized for issue by the Executive Board and Supervisory Board on July 31, 2018.
The accounting policies applied in these interim financial statements are the same as those applied in 2017 Financial Statements, apart from the effect of two new accounting standards which became effective as of January 1, 2018:
Note 3 explains the impact of the adoption of IFRS 9 and IFRS 15 on the group's interim financial statements.
A number of new standards and amendments are not yet effective for the year ended December 31, 2018, and have not been early adopted in these interim financial statements.
IFRS 16 is the new standard on lease accounting and will result in recognition of almost all operating leases in the balance sheet with the recognition of an asset (the right to use the leased item) and a financial liability (a liability of the future discounted lease payments). A practical expedient is applicable for short-term and low-value leases.
IFRS 16 will be effective on January 1, 2019. The group has assessed this new standard and developed new accounting policies. Furthermore, the group is implementing a tool for its lease accounting and is still in the stage of data gathering and analysis. The group expects that this new standard has no material impact on net profit. However, IFRS 16 will result in presentation changes in the statement of profit or loss and the statement of financial position. The group has not yet decided which transition approach will be used for this standard. There are no other significant developments from what was disclosed in the 2017 Financial Statements.
The preparation of the interim financial statements requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income, and expenses.
In preparing these interim financial statements, the significant judgments made by management in applying the group's accounting policies and the key sources of estimation and uncertainty were the same as those applied to the 2017 Financial Statements (reference is made to Note 3 'Accounting Estimates and Judgments' of the 2017 Consolidated Financial Statements), except for the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers on January 1, 2018.
Due to the adoption of IFRS 9 Financial Instruments, the group will determine its loss allowance for financial assets by making assumptions and using judgment about the risk of default and expected loss rates, using the group's past history, existing market conditions as well as forward-looking information at the end of each reporting period. Furthermore, as a result of the adoption of IFRS 15 Revenue from Contracts with Customers, we make judgments on the characteristics of a performance obligation, (un)bundling of multi-element arrangements, the fair value of a performance obligation, variable considerations such as provisions for returns, determination whether the revenue should be recognized over time or at a point in time, and the product and contract life.
Reference is also made to Note 27 'Financial Risk Management' of the 2017 Financial Statements, which outlines Wolters Kluwer's exposure to a variety of risks, including market risk, currency risk, interest rate risk, liquidity risk, and credit risk. These risks have not substantially changed since the issuance of our 2017 Annual Report.
Estimates and judgments are being continuously evaluated and are based on past experience and other factors, including expectations of future events believed to be reasonable under the circumstances. Actual results may differ from those estimates and current risk judgments.
The interim financial statements are presented in euro, which is the company's functional and presentation currency. Unless otherwise indicated, the financial information in these interim financial statements is in euro and has been rounded to the nearest million.
| Exchange rates to the euro | 2018 | 2017 |
|---|---|---|
| U.S. dollar (at June 30) | 1.17 | 1.12 |
| U.S. dollar (average six months) | 1.21 | 1.08 |
| U.S. dollar (at December 31) | 1.20 |
Where necessary, certain non-material reclassifications have been made to the prior year financial information and the notes thereto to conform to the current year presentation.
Summarized impact of the adoption of IFRS 9 and IFRS 15 on the financial statements IFRS 9 was adopted on January 1, 2018, without restating comparative information. Therefore, the reclassifications and the adjustments arising from IFRS 9 are reflected in the opening equity in the Statement of Financial Position at January 1, 2018.
IFRS 15 was retrospectively adopted on January 1, 2018, with the use of certain practical expedients (being disclosed in Note 1 to the 2017 Financial Statements), whereby the prior year's financial statements have been restated. Not applying the practical expedients would have led to a larger effect of revenue deferral and increased capitalized costs in the opening statement of financial position.
The adjustments and reclassifications arising from the new standard are therefore reflected in the adjusted Statement of Financial Position at January 1, 2017.
The following table presents the financial statement line items impacted by IFRS 15 and IFRS 9.
| (in millions of euros) Impacted accounts only |
Dec. 31, 2016 reported |
IFRS 15 | Jan. 1, 2017 restated |
Dec. 31, 2017 reported |
IFRS 15 | Dec. 31, 2017 restated |
IFRS 9 | Jan. 1, 2018 restated |
|---|---|---|---|---|---|---|---|---|
| Non-current assets | ||||||||
| Financial assets | 30 | - | 30 | 16 | - | 16 | - | 16 |
| Non-current contract assets | - | 25 | 25 | - | 30 | 30 | - | 30 |
| Current assets | ||||||||
| Contract assets | 53 | 29 | 82 | 69 | 23 | 92 | (2) | 90 |
| Trade and other receivables | 1,322 | (64) | 1,258 | 1,243 | (61) | 1,182 | (9) | 1,173 |
| Current liabilities | ||||||||
| Deferred income | 1,555 | 34 | 1,589 | 1,412 | 74 | 1,486 | - | 1,486 |
| Other contract liabilities | - | 44 | 44 | - | 41 | 41 | - | 41 |
| Non-current liabilities Deferred and other tax |
||||||||
| liabilities | 505 | (26) | 479 | 451 | (30) | 421 | (2) | 419 |
| Equity Equity attributable to the |
||||||||
| owners of the Company | 2,621 | (62) | 2,559 | 2,321 | (93) | 2,228 | (9) | 2,219 |
The impact of IFRS 15 on the group's retained earnings in total equity as at January 1, 2017, is as follows:
| (in millions of euros) | ||
|---|---|---|
| Equity attributable to owners of the Company as at December 31, 2016 – IAS 18 | 2,621 | |
| Recognition of asset for cost to obtain a contract | (i) | 25 |
| Recognition of asset for cost to fulfil a contract | (i) | 1 |
| Restatement of contract assets for uninvoiced sales | (ii) | 28 |
| Restatement of contract liabilities | (ii) | (142) |
| Impact on deferred tax | 26 | |
| Adjustment to retained earnings from adoption of IFRS 15, net of tax | (62) | |
| Equity attributable to owners of the Company as at January 1, 2017 – IFRS 15 | 2,559 |
Cost to obtain a contract and to fulfil a contract were previously expensed when incurred. However, sales commission plans which meet the criteria of incremental cost to obtain a contract are now capitalized and amortized over the longer of the contract term or product life period. Incurred cost to fulfil contracts are now, if directly associated with our effort to execute the contract, capitalized and amortized over the related revenue recognition period.
The change in uninvoiced sales (contract assets) and deferred income (contract liabilities) is the cumulative change due to deferral of license revenues, (un)bundling multiple element arrangements, and allocation of discounts. Revenue from licenses for certain license/maintenance business will no longer be recognized immediately in the statement of profit or loss, but recognized as a right to access license over the term of the underlying contract, or product life.
A few presentation changes have been made whereby the group now discloses contract assets and contract liabilities separately. The provision for returns has been reclassified from trade receivables to contract liabilities. For contracts whereby neither party has performed, we presented trade receivables and deferred income balances on a net basis instead of a gross basis. This netting reclassification had an effect of €108 million on the opening balance sheet at January 1, 2017. Furthermore, we changed the recognition and presentation of a few contractual arrangements whereby the group is considered to act as an agent instead of a prinicipal. This change had no effect on the operating profit but resulted in a decrease in revenues and corresponding cost of sales or sales costs.
| (in millions of euros) | June 30, 2017 reported |
IFRS 15 | June 30, 2017 restated |
Dec. 31, 2017 reported |
IFRS 15 | Dec. 31, 2017 restated |
|---|---|---|---|---|---|---|
| Revenues | 2,162 | 8 | 2,170 | 4,422 | (54) | 4,368 |
| Cost of sales | 660 | (1) | 659 | 1,335 | (4) | 1,331 |
| Gross profit | 1,502 | 9 | 1,511 | 3,087 | (50) | 3,037 |
| Sales costs | 406 | (3) | 403 | 818 | (11) | 807 |
| General and administrative costs | 740 | - | 740 | 1,447 | - | 1,447 |
| Total operating expenses | 1,146 | (3) | 1,143 | 2,265 | (11) | 2,254 |
| Other operating income and (expense) | 40 | - | 40 | 47 | - | 47 |
| Operating profit | 396 | 12 | 408 | 869 | (39) | 830 |
| Financing results Share of profit of equity-accounted |
(58) | - | (58) | (108) | - | (108) |
| investees, net of tax | 0 | - | 0 | 4 | - | 4 |
| Profit before tax | 338 | 12 | 350 | 765 | (39) | 726 |
| Income tax expense | (72) | (6) | (78) | (94) | 5 | (89) |
| Profit for the period | 266 | 6 | 272 | 671 | (34) | 637 |
| Attributable to: | ||||||
| Owners of the Company | 266 | 6 | 272 | 670 | (34) | 636 |
| Non-controlling interests | 0 | - | 0 | 1 | - | 1 |
| Profit for the period | 266 | 6 | 272 | 671 | (34) | 637 |
| Earnings per share (EPS) (€) | ||||||
| Basic EPS | 0.93 | 0.02 | 0.95 | 2.35 | (0.12) | 2.23 |
| Diluted EPS | 0.92 | 0.02 | 0.94 | 2.33 | (0.12) | 2.21 |
* 2017 revenue, operating expenses, and margin have been restated to treat customer credits for 'bank product' services as a deduction to revenues and not cost of sales.
The impact of IFRS 15 in the first half of 2017 differs from the second half of 2017, due to the deferred recognition of license sales at the end of the year. The first half of 2017 includes the impact of IFRS 15 adjustments for deferred income resulting from sales prior to 2017, in so far as it relates to open contracts with customers. The tax adjustment in the second half of 2017 includes the release of the IFRS 15 adjustments related deferred tax liabilities following the U.S. tax reform enacting a lower U.S. federal income tax rate at year-end 2017.
IFRS 9 includes revised guidance on the (de)recognition, classification and measurement of financial assets and financial liabilities, impairment of financial assets, and hedge accounting.
The group has assessed which business models apply to the financial instruments and has classified these into the appropriate IFRS 9 categories. At transition date, January 1, 2018, there were no significant classification and measurement adjustments. Currently, the financial assets and liabilities are either classified as fair value through profit or loss or at amortized cost (see Note 10 Net Debt in this report).
The impact of the new accounting methodology for determining the impairment provision for trade receivables and contract assets resulted in an increase of the provision for receivables and univoiced sales. The adjustment of €9 million, net of tax, is reported in the group's total equity at January 1, 2018.
The outstanding foreign currency forwards and interest rate swaps used for cash flow hedges and net investment hedges as at December 31, 2017, will continue to qualify as hedges under IFRS 9 resulting in no significant change in accounting. The group's risk management strategy and hedge documentation have been reviewed and aligned with the requirements of IFRS 9 before year-end 2017. For foreign currency forwards used for hedging, the group designates as a hedge instrument only the change in the value of the spot component of a forward contract (and not the forward element). The differential between the contracted forward rate and the market spot rate, defined as forward points, was recognized in the statement of profit or loss under IAS 39. Under IFRS 9, the company will recognize these changes in forward points in the hedging reserve within total equity. This change has been applied prospectively, as of January 1, 2018, and amounts to a loss of €2 million as per June 30, 2018.
Some of the group's businesses are impacted by seasonal patterns. Revenues of Wolters Kluwer's tax and regulatory businesses are strongest in the fourth and first quarters, in line with statutory (tax) filing requirements. The cash flow is typically strongest in the fourth quarter as calendar-year subscription renewals are received. However, as part of IFRS 15, the revenue recognition does not always follow the pattern of cash flows since the revenue for certain license contracts will be deferred.
Wherever used in these interim financial statements, the term 'adjusted' refers to figures adjusted for non-benchmark items and, where applicable, amortization and impairment of goodwill and publishing rights. Adjusted figures are non-IFRS compliant financial figures, but are internally regarded as key performance indicators to measure the underlying performance of the business. These figures are presented as additional information and do not replace the information in the consolidated interim statement of profit or loss and in the consolidated interim statement of cash flows. The term 'Restated' refers to changes as a result of the new accounting policies.
Reconciliation between operating profit and adjusted operating profit
| (in millions of euros) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Restated* | ||
| Operating profit | 524 | 408 |
| Amortization of publishing rights and impairments | 84 | 94 |
| Non-benchmark items in operating profit | (157) | (40) |
| Adjusted operating profit | 451 | 462 |
* 2017 has been restated for IFRS 15.
| (in millions of euros) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Total financing results | (49) | (58) |
| Non-benchmark items in total financing results | 0 | 3 |
| Adjusted net financing costs | (49) | (55) |
| (in millions of euros) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Restated* | ||
| Profit for the period attributable to the owners of the | ||
| Company (A) | 359 | 272 |
| Amortization of publishing rights and impairments | 84 | 94 |
| Tax on amortization and impairments of publishing rights and | ||
| goodwill | (27) | (33) |
| Non-benchmark items, net of tax | (117) | (40) |
| Adjusted net profit (B) | 299 | 293 |
| (in millions of euros) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Included in 'other operating income and (expense)': | ||
| Divestment related results | 159 | 52 |
| (Additions to)/releases of acquisition integration provisions | 0 | 0 |
| Acquisition related costs | (2) | (3) |
| Fair value changes to contingent acquisition payments | 0 | (9) |
| Total non-benchmark income/(costs) in operating profit | 157 | 40 |
| Included in total financing results: | ||
| Employee benefits financing component | (2) | (3) |
| Fair value changes financial assets through profit or loss | (1) | - |
| Result on divestment of financial assets | 3 | - |
| Divestment result of equity-accounted investees | 0 | 0 |
| Total non-benchmark income/(costs) in total financing results | 0 | (3) |
| Total non-benchmark items before tax | 157 | 37 |
| Tax on non-benchmark items | (40) | 3 |
| Non-benchmark items, net of tax | 117 | 40 |
Reconciliation between net cash from operating activities and adjusted free cash flow
| (in millions of euros) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Net cash from operating activities | 319 | 342 |
| Capital expenditure | (88) | (96) |
| Acquisition related costs | 2 | 3 |
| Paid divestment expenses | 3 | 4 |
| Dividends received | 1 | 1 |
| Tax on internal restructuring | - | 5 |
| Net tax benefit on divested assets, consolidation of platform | ||
| technology, and repatriation tax | 26 | (2) |
| Adjusted free cash flow (C) | 263 | 257 |
| (in euros, unless otherwise stated) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Restated* | ||
| Total number of ordinary shares outstanding at June 301) | 276.6 | 285.5 |
| Weighted average number of ordinary shares outstanding (D)1) | 279.4 | 286.8 |
| Diluted weighted average number of ordinary shares (E)1) | 281.5 | 289.4 |
| Adjusted EPS (B/D) | 1.07 | 1.02 |
| Diluted adjusted EPS (minimum of adjusted EPS and [B/E]) | 1.06 | 1.01 |
| Diluted adjusted EPS in constant currencies | 1.19 | 0.98 |
| Adjusted free cash flow per share (C/D) | 0.94 | 0.89 |
| Diluted adjusted free cash flow per share (minimum of adjusted | ||
| free cash flow per share and [C/E]) | 0.93 | 0.89 |
1) In millions of shares
| (in millions of euros, unless otherwise stated) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Restated* | ||
| Income tax expense | 116 | 78 |
| Tax benefit on amortization of publishing rights and impairments | 27 | 33 |
| Tax benefit on non-benchmark items | (40) | 3 |
| Tax on adjusted profit before tax (F) | 103 | 114 |
| Adjusted net profit (B) | 299 | 293 |
| Adjustment for non-controlling interests | 0 | 0 |
| Adjusted profit before tax (G) | 402 | 407 |
| Benchmark tax rate (F/G) (%) | 25.5 | 27.9 |
* 2017 has been restated for IFRS 15.
| (in millions of euros, unless otherwise stated) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Restated* | ||
| Adjusted operating profit (H) | 451 | 462 |
| Amortization and impairment of other intangible assets | 82 | 81 |
| Depreciation of property, plant, and equipment | 13 | 15 |
| Adjusted EBITDA | 546 | 558 |
| Autonomous movements in working capital | (10) | (21) |
| Capital expenditure | (88) | (96) |
| Adjusted operating cash flow (I) | 448 | 441 |
| Cash conversion ratio (I/H) (%) | 99 | 95 |
| (in millions of euros) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Restated* | ||
| Revenues | ||
| Health | 512 | 562 |
| Tax & Accounting | 623 | 611 |
| Governance, Risk & Compliance | 470 | 556 |
| Legal & Regulatory | 415 | 441 |
| Total revenues | 2,020 | 2,170 |
| Operating profit | ||
| Health | 186 | 111 |
| Tax & Accounting | 122 | 111 |
| Governance, Risk & Compliance | 174 | 185 |
| Legal & Regulatory | 65 | 28 |
| Corporate | (23) | (27) |
| Total operating profit | 524 | 408 |
* 2017 has been restated for IFRS 15.
The group disaggregates revenues by media format and by revenue type as part of the management information discussed by the Executive Board. Reference is made to Appendix 2 and 3 of this report.
Earnings per share (EPS)
| (in millions of euros, unless otherwise stated) | Six months ended June 30 | |||
|---|---|---|---|---|
| 2018 | 2017 | |||
| Restated* | ||||
| Profit for the period attributable to the owners of the Company (A) |
359 | 272 | ||
| Weighted average number of shares In millions of shares |
||||
| Outstanding ordinary shares at January 1 | 290.3 | 301.9 | ||
| Effect of repurchased shares | (10.9) | (15.1) | ||
| Weighted average number of shares (D) for the period | 279.4 | 286.8 | ||
| Basic EPS (A/D) (€) | 1.29 | 0.95 | ||
| Diluted weighted average number of shares | ||||
| Weighted average number of shares for the period (D) | 279.4 | 286.8 | ||
| Long-Term Incentive Plan | 2.1 | 2.6 | ||
| Diluted weighted average number of shares (E) for the period | 281.5 | 289.4 | ||
| Diluted EPS (minimum of basic EPS and [A/E]) (€) | 1.28 | 0.94 |
* 2017 has been restated for IFRS 15.
Total acquisition spending in first half of 2018 was €19 million (HY 2017: €300 million) and included the acquisition of Firecracker, deferred and contingent acquisition payments, and acquisition-related costs.
On March 5, 2018, Wolters Kluwer Health acquired 100% of the shares of Firecracker Inc., an adaptive learning, assessment, and study-planning solution used by more than 20 percent of U.S. medical students. Firecracker has become part of the Health Learning, Research & Practice group, which produces high quality medical education and practice content under the Lippincott imprint. Firecracker has 16 employees and is headquartered in Boston, Massachusetts. Revenues are recurring in nature and derived from the U.S. market.
Deferred and contingent acquisition payments were €10 million (HY 2017: €6 million) and acquisitionrelated costs were €2 million (HY 2017: €3 million).
| Acquisitions | |||
|---|---|---|---|
| (in millions of euros) | Six months ended June 30 | ||
| 2018 | 2017 | ||
| Consideration payable in cash | 9 | 297 | |
| Deferred and contingent acquisition payments | 1 | 0 | |
| Total consideration | 10 | 297 | |
| Non-current assets | 16 | 190 | |
| Current assets | 1 | 34 | |
| Current liabilities | (3) | (29) | |
| Non-current liabilities | 0 | (12) | |
| Deferred tax liability | (4) | (42) | |
| Fair value of net identifiable assets/(liabilities) | 10 | 141 | |
| Goodwill on acquisitions | 0 | 156 | |
| Cash effect of the acquisitions: | |||
| Consideration payable in cash | 9 | 297 | |
| Cash acquired | 0 | (3) | |
| Deferred and contingent acquisition payments paid | 10 | 6 | |
| Acquisition spending, net of cash acquired | 19 | 300 |
The fair value of the identifiable assets and liabilities of some acquisitions could only be determined provisionally and will be subject to change based on the outcome of the purchase price allocation which will be completed within 12 months from the acquisition date.
The goodwill recognized for the acquisitions represents a payment in anticipation of the future economic benefits to be derived by Wolters Kluwer as a result of the acquisition. These future economic benefits relate to revenue opportunities (such as cross-selling) or cost efficiencies (such as sharing of infrastructure).
In the first half of 2018, the group recognized fair value changes in the statement of profit or loss for the amount of €0 million (HY 2017: €9 million) for acquisitions from previous years.
The group completed three significant divestments in the first half of 2018, which were classified as an asset held for sale at year-end 2017.
On January 4, 2018, Wolters Kluwer Legal & Regulatory completed the divestment of certain Swedish assets to Karnov Group, as originally announced on October 25, 2017. The consideration of the transaction, after purchase price adjustments for working capital and net debt, was SEK 611 million (€62 million) in cash and a deferred consideration of SEK 131 million (€13 million). The rationale for the divestment was to further sharpen our focus on core markets where the Legal & Regulatory division is best positioned for long-term growth. The Swedish assets sold included legal and regulatory information, in print and digital formats, as well as printing and distribution services. The business lines had revenues of €22 million in 2017 and employed approximately 70 people.
On January 6, 2018, Wolters Kluwer Governance, Risk and Compliance (GRC) completed the divestment of Corsearch to Audax Private Equity, as originally announced on October 23, 2017, for €113 million in cash, after purchase price adjustments for working capital and net debt. The industry in which Corsearch operates is evolving from providing traditional trademark clearance and protection services to delivering end-to-end digital solutions for brand management and marketing professionals. Although this presented new opportunities for Corsearch, Wolters Kluwer GRC decided to focus its investment on developing its core regulatory compliance and risk management software and services for corporations, financial institutions, and law firms. The business had revenues of €53 million in 2017 and had approximately 200 employees.
On March 9, 2018, Wolters Kluwer Health completed the divestment of ProVation Medical, its procedure documentation and order set management software business, to Clearlake Capital Group, L.P. for \$172 million (€140 million) in cash, after purchase price adjustments for working capital and net debt. The divestment reflects the division's increasing focus on supporting healthcare providers in delivering improved patient outcomes by offering a broad and cohesive suite of products, from healthcare learning and research, to advanced clinical decision support, terminology management and patient engagement. This broad-based, multispecialty and integrated range of solutions can most effectively help healthcare providers in improving outcomes and reducing variability in care. The ProVation business had revenues of €69 million in 2017 and had approximately 200 employees.
Finally, at the end of March 2018, Wolters Kluwer Health reduced its equity-shareholding in Chengdu Medicom Medical Information Systems Co., Ltd (China) from 55% to 45%. As a result, the group no longer has a controlling interest and Medicom China has been deconsolidated and treated as an equityaccounted investee starting in April 2018. The Medicom China business had revenues of €8 million in 2017 and approximately 200 employees.
| Divestment-related results | |||
|---|---|---|---|
| -- | ---------------------------- | -- | -- |
| (in millions of euros) | Six months ended June 30 | |
|---|---|---|
| 2018 | 2017 | |
| Divestments of operations: | ||
| Consideration receivable in cash | 316 | 83 |
| Fair value of equity interest retained | 2 | - |
| Deferred consideration receivable | 13 | - |
| Consideration receivable | 331 | 83 |
| Non-current assets | 0 | 25 |
| Current assets (including assets held for sale) | 235 | 16 |
| Current liabilities (including liabilities held for sale) | (65) | (14) |
| Deferred tax liability | 0 | 0 |
| Non-controlling interest | (2) | 0 |
| Net identifiable assets and liabilities | 168 | 27 |
| Reclassification of foreign exchange gain/(loss) on loss of | ||
| control, recognized in other comprehensive income | - | 0 |
| Book profit/(loss) on divestments of operations | 163 | 56 |
| Restructuring of stranded costs following divestment | (1) | - |
| Divestment expenses | (3) | (4) |
| Divestment related results, included in other operating | ||
| income and (expense) | 159 | 52 |
| Divestments of equity-accounted investees and financial assets: | ||
| Consideration receivable in cash | 3 | 0 |
| Carrying value of equity-accounted investees and financial assets | 0 | 0 |
| Divestment related results included in financing results | 3 | 0 |
| Cash effect of divestments: | ||
| Consideration receivable in cash | 319 | 83 |
| Cash included in divested operations | (14) | (6) |
| Receipts from divestments, net of cash disposed of | 305 | 77 |
| (in millions of euros) | June 30, | December | June 30, |
|---|---|---|---|
| 2018 | 31, 2017 | 2017 | |
| Contract assets: | |||
| Uninvoiced sales | 65 | 90 | 79 |
| Cost to obtain a contract | 30 | 30 | 25 |
| Cost to fulfil a contract | 0 | 2 | 1 |
| Total contract assets | 95 | 122 | 105 |
| Receivables: | |||
| Trade receivables | 855 | 1,010 | 857 |
| Impairment provision | (63) | (56) | (51) |
| Trade receivables, net of provision for | 792 | 954 | 806 |
| impairment | |||
| Contract liabilities: | |||
| Deferred income | 1,483 | 1,486 | 1,489 |
| Provision for refunds | 37 | 41 | 42 |
| Total contract liabilities | 1,520 | 1,527 | 1,531 |
In the six months ended June 30, 2018, the group recorded €8 million (2017: €11 million) as an expense due to impairment on financial assets, entirely due to credit risks on trade receivables and contract assets. The majority of the contract costs are non-current in nature.
| (in millions of euros, unless otherwise stated) | June 30, | December 31, | June 30, |
|---|---|---|---|
| 2018 | 2017 | 2017 | |
| Gross debt | |||
| Bonds* | 1,627 | 1,627 | 1,626 |
| Private placements* | 404 | 396 | 409 |
| Other long-term loans* | 9 | 12 | 8 |
| Deferred and contingent acquisition payments** | 3 | 2 | 6 |
| Derivative financial instruments** | - | 3 | - |
| Total long-term debt | 2,043 | 2,040 | 2,049 |
| Borrowings and bank overdrafts* | 581 | 288 | 480 |
| Bonds* | - | 750 | 750 |
| Deferred and contingent acquisition payments** | 2 | 12 | 14 |
| Derivative financial instruments** | 7 | 0 | - |
| Total short-term debt | 590 | 1,050 | 1,244 |
| Total gross debt | 2,633 | 3,090 | 3,293 |
| Minus: | |||
| Cash and cash equivalents* | (654) | (1,020) | (1,009) |
| Deferred divestment consideration receivable | (12) | - | - |
| Derivative financial instruments: | |||
| Non-current receivable** | (10) | 0 | (11) |
| Current receivable** | - | (1) | (16) |
| Net debt | 1,957 | 2,069 | 2,257 |
| Net-debt-to-EBITDA ratio (on a rolling basis)*** | 1.7 | 1.8 | 1.9 |
* These financial liabilities are measured at amortized cost. ** These financial liabilities are measured at fair value through profit or loss.
*** The 2017 comparatives for this ratio have been restated for IFRS 15.
The group used excess cash balances to redeem the €750 million, 6.375% senior Eurobond which matured on April 10, 2018.
In the reporting period, Wolters Kluwer repurchased 6.0 million ordinary shares for a total consideration of €264 million (average share price of €43.71), of which €4 million was settled in July. A total of 1.3 million shares were repurchased to offset the dilution caused by our annual incentive share issuance.
We now intend to execute up to €550 million in share buybacks in 2018, including proceeds from the sale of ProVation intended to mitigate the EPS dilution related to that.
The repurchased shares are added to and held as treasury shares, which totalled 13.7 million at June 30, 2018.
A final dividend of €0.65 per share was approved at the Annual General Meeting of Shareholders in April 2018 and was paid in the second quarter. The final dividend brings the total dividend over the 2017 financial year to €0.85 per share, an increase of 8% compared to the 2016 dividend. For 2018, the interim dividend will be set at 40% of the prior year's total dividend, equivalent to €0.34 per share.
In the first six months of 2018, treasury shares were used for the vesting of Long-Term Incentive Plan (LTIP) shares; no new shares were issued. The LTIP 2015-17 vested on December 31, 2017. Total Shareholder Return (TSR) ranked second relative to the peer group of 15 companies, resulting in a pay-out of 150% of the conditional base number of shares awarded to the Executive Board and Senior Management. The EPS-condition based shares resulted in a pay-out of 150%. A total of 1,303,741 shares were released on February 22, 2018.
Under the 2018-20 LTIP grant, 604,134 shares were conditionally awarded to the Executive Board and other senior managers in the first six months of 2018. In the first six months of 2018, 77,099 shares were forfeited under the long-term incentive plans.
The 2017 dividend of €0.85 per share amounting to €238 million (2016 dividend: €227 million) was fully distributed in cash. This 2017 dividend was paid in two parts, an interim dividend of €57 million in the second half of 2017 and a final dividend of €181 million in the first half of 2018.
At June 30, 2018, Ms. McKinstry held 354,638 shares (December 31, 2017: 292,014 shares) in the Company. Mr. Entricken held 36,636 shares (December 31, 2017: 34,636 shares).
One of the Supervisory Board members, Mr. Noteboom, held 4,865 shares in the company (December 31, 2017: 4,865 shares).
There were no major related parties transactions entered into during the six months period ended June 30, 2018.
Subsequent events were evaluated up to July 31, 2018, which is the date the condensed consolidated interim financial statements were authorized for issue by the Executive Board and Supervisory Board. There are no events to report.
| (€ million, unless otherwise stated) | Change: | ||||
|---|---|---|---|---|---|
| 2018 | 2017* | Organic | Acquisition/ Divestment |
Currency | |
| Health | |||||
| Revenues | 512 | 562 | 28 | (21) | (57) |
| Adjusted operating profit | 130 | 135 | 15 | (5) | (15) |
| Adjusted operating profit margin | 25.3% | 24.0% | |||
| Tax & Accounting | |||||
| Revenues | 623 | 611 | 38 | 22 | (48) |
| Adjusted operating profit | 156 | 156 | 16 | (1) | (15) |
| Adjusted operating profit margin | 25.1% | 25.5% | |||
| Governance, Risk & Compliance | |||||
| Revenues | 470 | 556 | 14 | (48) | (52) |
| Adjusted operating profit | 137 | 156 | 5 | (6) | (18) |
| Adjusted operating profit margin | 29.3% | 28.0% | |||
| Legal & Regulatory | |||||
| Revenues | 415 | 441 | 10 | (25) | (11) |
| Adjusted operating profit | 51 | 42 | 16 | (7) | (0) |
| Adjusted operating profit margin | 12.2% | 9.6% | |||
| Corporate | |||||
| Adjusted operating profit | (23) | (27) | 3 | 0 | 1 |
| Wolters Kluwer | |||||
| Revenues | 2,020 | 2,170 | 90 | (72) | (168) |
| Adjusted operating profit | 451 | 462 | 55 | (19) | (47) |
| Adjusted operating profit margin | 22.3% | 21.3% |
Note: (1) Acquisition/divestment column includes the contribution from 2018 and 2017 acquisitions before these became organic (12 months from their acquisition date), the impact of 2018 and 2017 divestments, and the effect of asset transfers between divisions, if any. *2017 restated for IFRS 15 and to treat customer credits for 'bank product' services as a deduction to revenues and not as a cost of sales.
| (€ million, unless otherwise stated) | 2018 | 2017* | ∆ | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| Digital | 1,560 | 1,661 | -6% | +2% | +6% |
| Services | 241 | 262 | -8% | +2% | +3% |
| 219 | 247 | -11% | -6% | -2% | |
| Total revenues | 2,020 | 2,170 | -7% | +1% | +4% |
∆: % Change; ∆ CC: % Change in constant currencies (€/\$ 1.13); ∆ OG: % Organic growth. Services includes legal representation, consulting, training, events, and other services. *2017 restated for IFRS 15 and to treat customer credits for 'bank product' services as a deduction to revenues and not as a cost of sales.
| (€ million, unless otherwise stated) | 2018 | 2017* | ∆ | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| Health | |||||
| Digital and service subscription | 384 | 405 | -5% | +5% | +8% |
| Print subscription | 24 | 29 | -17% | -7% | -7% |
| Other recurring | 43 | 50 | -13% | -2% | +2% |
| Total recurring revenues | 451 | 484 | -7% | +4% | +6% |
| Print books | 27 | 31 | -13% | -6% | -6% |
| Other non-recurring | 34 | 47 | -26% | -19% | +5% |
| Total Health | 512 | 562 | -9% | +1% | +5% |
| Tax & Accounting | |||||
| Digital and service subscription | 455 | 447 | +2% | +9% | +7% |
| Print subscription | 13 | 15 | -13% | -9% | -9% |
| Other recurring | 81 | 87 | -6% | +5% | +5% |
| Total recurring revenues | 549 | 549 | 0% | +8% | +6% |
| Print books | 12 | 11 | +12% | +23% | +23% |
| Other non-recurring | 62 | 51 | +20% | +26% | +3% |
| Total Tax & Accounting | 623 | 611 | +2% | +10% | +6% |
| Governance, Risk & Compliance | |||||
| Digital and service subscription | 273 | 323 | -15% | -6% | +2% |
| Print subscription | 0 | 0 | 0% | 0% | 0% |
| Total recurring revenues | 273 | 323 | -15% | -6% | +2% |
| LS transactional | 105 | 125 | -16% | -6% | +9% |
| FS transactional | 48 | 59 | -18% | -9% | -4% |
| Other non-recurring | 44 | 49 | -12% | -6% | +2% |
| Total Governance, Risk & Compliance | 470 | 556 | -15% | -6% | +3% |
| Legal & Regulatory | |||||
| Digital and service subscription | 240 | 250 | -4% | -1% | +4% |
| Print subscription | 65 | 72 | -10% | -8% | -5% |
| Other recurring | 21 | 20 | 0% | +2% | +11% |
| Total recurring revenues | 326 | 342 | -5% | -3% | +3% |
| Print books | 40 | 50 | -19% | -17% | -7% |
| Other non-recurring | 49 | 49 | 0% | +5% | +9% |
| Total Legal & Regulatory | 415 | 441 | -6% | -3% | +2% |
| Total Wolters Kluwer | |||||
| Digital and service subscription | 1,352 | 1,425 | -5% | +3% | +6% |
| Print subscription | 102 | 116 | -12% | -8% | -6% |
| Other recurring | 145 | 157 | -8% | +3% | +5% |
| Total recurring revenues | 1,599 | 1,698 | -6% | +2% | +5% |
| Print books | 79 | 92 | -13% | -9% | -3% |
| LS transactional | 105 | 125 | -16% | -6% | +9% |
| FS transactional | 48 | 59 | -18% | -9% | -4% |
| Other non-recurring | 189 | 196 | -4% | +2% | +5% |
| Total Wolters Kluwer | 2,020 | 2,170 | -7% | +1% | +4% |
∆: % Change; ∆ CC: % Change in constant currencies (€/\$ 1.13); ∆ OG: % Organic growth. Note: Other non-recurring revenues include license & implementation fees. *2017 restated for IFRS 15 and to treat customer credits for 'bank product' services as a deduction to revenues and not as a cost of sales.
Wolters Kluwer adopted IFRS 15 using the retrospective method with the use of certain practical expedients, of which the exemption not to restate completed contracts is the most notable. IFRS 15 has an impact on the recognition of incremental costs to obtain a contract. These costs, arising from sales commissions schemes, will be partly capitalized and amortized, whereas these were previously expensed when incurred. IFRS 15 had no impact on adjusted free cash flow.
| Adjusted income statement | HY 2017 | IFRS 15 | HY 2017 | FY 2017 | IFRS 15 | FY 2017 |
|---|---|---|---|---|---|---|
| (€ million, unless otherwise stated) | Reported* Restatement | Restated | Reported Restatement | Restated | ||
| Revenues | 2,162 | 8 | 2,170 | 4,422 | (54) | 4,368 |
| Cost of sales | (660) | 1 | (659) | (1,335) | 4 | (1,331) |
| Adjusted operating expenses | (1,052) | 3 | (1,049) | (2,078) | 11 | (2,067) |
| Adjusted operating profit | 450 | 12 | 462 | 1,009 | (39) | 970 |
| Adjusted operating profit margin | 20.8% | 21.3% | 22.8% | 22.2% | ||
| Adjusted net financing costs | (55) | - | (55) | (109) | - | (109) |
| Equity-accounted investees, net of tax | 0 | - | 0 | 4 | - | 4 |
| Adjusted profit before tax | 395 | 12 | 407 | 904 | (39) | 865 |
| Tax on adjusted profit | (108) | (6) | (114) | (235) | 10 | (225) |
| Effective benchmark tax rate | 27.3% | 27.9% | 25.9% | 25.9% | ||
| Non-controlling interests | - | - | - | (1) | - | (1) |
| Adjusted net profit | 287 | 6 | 293 | 668 | (29) | 639 |
| Diluted weighted average shares (million) | 289.4 | 289.4 | 287.7 | 287.7 | ||
| Diluted adjusted EPS (€) | €0.99 | €0.02 | €1.01 | €2.32 | (€0.10) | €2.22 |
| Adjusted free cash flow | HY 2017 | IFRS 15 | HY 2017 | FY 2017 | IFRS 15 | FY 2017 |
|---|---|---|---|---|---|---|
| (€ million, unless otherwise stated) | Reported* Restatement | Restated | Reported Restatement | Restated | ||
| Adjusted operating profit | 450 | 12 | 462 | 1,009 | (39) | 970 |
| Depreciation and amortization of other intangibles |
96 | - | 96 | 209 | - | 209 |
| Adjusted EBITDA | 546 | 12 | 558 | 1,218 | (39) | 1,179 |
| Capital expenditure | (96) | - | (96) | (210) | - | (210) |
| Autonomous movements in working capital | (9) | (12) | (21) | (34) | 39 | 5 |
| Adjusted operating cash flow | 441 | 0 | 441 | 974 | 0 | 974 |
| Cash conversion ratio | 98% | 95% | 97% | 100% | ||
| Paid financing costs | (81) | - | (81) | (87) | - | (87) |
| Paid corporate income tax | (108) | - | (108) | (156) | - | (156) |
| Net change in restructuring provision | (8) | - | (8) | (6) | - | (6) |
| Additional pension contributions and other | 13 | - | 13 | 21 | - | 21 |
| Adjusted free cash flow | 257 | 0 | 257 | 746 | 0 | 746 |
*HY 2017 revenue, operating expenses, and margin restated to treat customer credits for 'bank product' services as a deduction to revenues and not a cost of sales.
| Divisions | HY 2017 | IFRS 15 | HY 2017 | FY 2017 | IFRS 15 | FY 2017 |
|---|---|---|---|---|---|---|
| (€ million, unless otherwise stated) | Reported* Restatement | Restated | Reported Restatement | Restated | ||
| Health | 562 | 0 | 562 | 1,168 | (2) | 1,166 |
| Tax & Accounting | 601 | 10 | 611 | 1,257 | (23) | 1,234 |
| Governance, Risk & Compliance | 557 | (1) | 556 | 1,080 | (26) | 1,054 |
| Legal & Regulatory | 442 | (1) | 441 | 917 | (3) | 914 |
| Total revenues | 2,162 | 8 | 2,170 | 4,422 | (54) | 4,368 |
| Health | 133 | 2 | 135 | 293 | 4 | 297 |
| Tax & Accounting | 146 | 10 | 156 | 339 | (19) | 320 |
| Governance, Risk & Compliance | 156 | 0 | 156 | 319 | (24) | 295 |
| Legal & Regulatory | 42 | 0 | 42 | 110 | 0 | 110 |
| Corporate | (27) | - | (27) | (52) | - | (52) |
| Adjusted operating profit | 450 | 12 | 462 | 1,009 | (39) | 970 |
| Health | 23.7% | 24.0% | 25.0% | 25.5% | ||
| Tax & Accounting | 24.2% | 25.5% | 27.0% | 25.9% | ||
| Governance, Risk & Compliance | 28.0% | 28.0% | 29.5% | 28.0% | ||
| Legal & Regulatory | 9.5% | 9.6% | 12.0% | 12.0% | ||
| Adjusted operating profit margin | 20.8% | 21.3% | 22.8% | 22.2% |
*HY 2017 revenue, operating expenses, and margin restated to treat customer credits for 'bank product' services as a deduction to revenues and not a cost of sales.
Wolters Kluwer (WKL) is a global leader in professional information, software solutions, and services for the health, tax & accounting, finance, risk & compliance, and legal 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 2017 annual revenues of €4.4 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 about our products and organization, visit www.wolterskluwer.com and follow us on Twitter, Facebook, LinkedIn, and YouTube.
| August 27, 2018 | Ex-dividend date: 2018 interim dividend |
|---|---|
| August 28, 2018 | Record date: 2018 interim dividend |
| September 19, 2018 | Payment date: 2018 interim dividend |
| September 26, 2018 | Payment date: 2018 interim dividend ADRs |
| October 31, 2018 | Nine-Month 2018 Trading Update |
| February 20, 2019 | Full-Year 2018 Results |
| Media | Investors/Analysts |
|---|---|
| Annemarije Dérogée-Pikaar | Meg Geldens |
| Corporate Communications | Investor Relations |
| t + 31 (0)172 641 470 | t + 31 (0)172 641 407 |
| [email protected] | [email protected] |
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.
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).
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