Annual Report • Mar 12, 2014
Annual Report
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Last year we continued to advance our long-term strategy while we also delivered short-term performance. We further shifted our portfolio towards digital and high-growth businesses – all in the service of helping our professional customers make critical decisions with confidence - and delivered on our financial guidance despite continued macroeconomic weakness in Europe.
Wolters Kluwer's revenues increased by 2% in constant currencies and by 1% organically in 2013. Ordinary earnings before interest, tax, and amortization (ordinary EBITA) rose 1% organically to €765 million, with our ordinary EBITA margin stable at 21.5%. Ordinary free cash flow was better than expected at €503 million, up 3% in constant currencies. Importantly, our digital and services subscription revenues rose 4% organically, while total recurring revenues, which account for 75% of the total, were up 2% organically. The U.S. and Asia Pacific drove our growth geographically, while the economic environment in Europe remained challenging.
Investing in leading, high-growth areas such as clinical solutions and tax and accounting software is core to our strategy. Each of our four divisions is investing to expand their market-leading positions in high-growth segments. In total, these leading, high-growth positions represent 44% of our total revenues and were up 7% organically.
This progress sets the stage for our work in 2014. Our 2014 goals are to further sharpen our focus on our leading, high-growth positions, deliver insights and solutions to our customers through product innovation, and drive efficiencies across the group to fund our growth initiatives.
As a company, we have fundamentally transformed over the past decade, from a mainly print publisher to an innovative provider of digital information solutions. As recently as eight years ago, 70% of our revenue came from print. Now, more than 77% comes from digital and services.
We have come a long way, but our work continues and our strategy evolves. Last year was the first year of our 2013-2015 strategic plan 'Realizing Our Growth Potential,' which builds on our past strategies. It has three main elements: expand our leading, high-growth positions; deliver solutions and insights; and drive efficiencies. We took action in each of those areas in 2013.
We continued to drive growth across our business divisions through active capital allocation. We targeted organic investment in market areas where we are strong and see potential for further growth, made strategic acquisitions such as Prosoft, a prominent Brazilian provider of tax and accounting software, and Health Language, a global
leader in healthcare terminology management, and divested non-core activities such as Best Case Solutions and several Legal & Regulatory publishing assets. These actions strengthened our portfolio and position Wolters Kluwer for accelerated growth.
The customers we serve are under greater pressure to work harder, faster, and more efficiently in the face of an ever-growing mountain of data. So we no longer deliver just information, we create sophisticated digital tools that help them navigate the complex layers of data and regulation that define modern business. This innovation has supported 5% organic growth in online and software solutions.
In parallel, we continued to take actions to drive efficiencies across the group. For example, we implemented cost reduction programs that helped support growth initiatives and offset wage inflation and restructuring costs. This focus on efficiency will continue in 2014 and beyond.
A milestone of 2013 was our launch of a new unified brand strategy worldwide. The single Wolters Kluwer brand is centered around our new tagline 'When you have to be right,' which illustrates our commitment to solving customers' challenges and enabling them to make critical decisions with confidence, every single day.
Key to Wolters Kluwer's success is investment in developing innovative products and services to meet society's changing needs, even in challenging macroeconomic times like these. By serving our customers with innovations in important areas such as health, finance, risk, and compliance, we generate long-term value for society and for all our stakeholders.
We support innovation through the consistent investment of 8 to 10% of our revenues in generating new and enhanced products. We innovate both locally and globally and foster creativity among our employees through regional innovation tournaments and our annual Global Innovation Awards, which were held for the third time in 2013. And importantly, we continue to invest in technology tools to provide the right platforms for creating and delivering new solutions to our customers. Across the globe, we are also partnering with our customers to integrate their insights and feedback into our product development process to make sure we get it right.
Nothing could have been achieved last year without the dedication of our people. Their commitment and creative skills are indispensable for developing the high-quality products and services that we deliver to our customers. We strive to create a culture of high performance and accountability and an atmosphere where talent can develop and our employees' diversity is recognized and harnessed as the major strength it is. We are pleased with our strong talent pipeline, developing current employees while also bringing in fresh skills and expertise where needed.
Last year saw several leadership changes. Kevin Entricken was appointed Chief Financial Officer and member of the Executive Board, and Karen Abramson was promoted to become CEO of our Tax & Accounting division. Corinne Saunders joined Wolters Kluwer in a new role, CEO of Emerging & Developing Markets – emphasizing the importance of these dynamic countries to our strategy. After the sudden death of Adri Baan, which saddened us all, Peter Wakkie became Chairman of our Supervisory Board.
Looking back over the past 10 years that I've been CEO, I'm very pleased with the progress we have made to become a truly global, digitally-focused company. It has been an exciting journey and a great achievement for Wolters Kluwer.
I wish to thank all our employees for their unwavering commitment and efforts that supported our progress in 2013. I look forward to continuing our journey in 2014 and beyond.
Nancy McKinstry
CEO and Chairman of the Executive Board
Our customers make critical decisions every day; we help them move forward with confidence.
Wolters Kluwer provides legal, tax, finance, and healthcare professionals the essential information, software, and services they need to make decisions with confidence.
Expand our leading, high-growth positions:
Deliver solutions and insights:
–––––> Products and services that support customers
Drive efficiencies:
| Key Figures and Structure | 2013 |
|---|---|
| Total Annual Revenue 2013 | €3,565 mln |
| Total Ordinary EBITA Margin | 21.5 % |
| Total Employees | 18,329 in FTE |
| Legal & Regulatory | |
| Annual Revenue | €1,447 mln |
| Ordinary EBITA Margin | 21.6 % |
| Employees | 7,067 in FTE |
| Tax & Accounting | |
| Annual Revenue | €965 mln |
| Ordinary EBITA Margin | 26.8 % |
| Employees | 5,689 in FTE |
| Health | |
| Annual Revenue | €775 mln |
| Ordinary EBITA Margin | 22.6 % |
| Employees | 2,735 in FTE |
| Financial & Compliance Services | |
| Annual Revenue | €378 mln |
| Ordinary EBITA Margin | 17.1 % |
| Employees | 2,295 in FTE |
| Global Shared Services | |
| Employees | 318 in FTE |
| Global Platform Organization | |
| Employees | 119 in FTE |
| Corporate Office | |
| Employees | 106 in FTE |
| Key Performance Indicators | 2013 | Target 2013 | 2012 | |
|---|---|---|---|---|
| Ordinary EBITA margin | in % | 21.5 | 21.5 - 22.0 | 21.5 |
| Ordinary free cash flow 1 | in € mln | 525 | ≥ 475 | 509 |
| Return on invested capital | in % | 8.7 | ≥ 8 | 8.7 |
| Diluted ordinary EPS 1 | in € | 1.61 | low single digit growth | 1.57 |
Sustainability is at the core of our business, driving our innovation agenda and improving our customer satisfaction.
We are proud to have many leading experts and highly-engaged professionals among our global workforce.
What we promise and expect from our employees is to let their actions be guided by four simple but powerful principles: make it better, embrace change, engage the customer, and be influential. Our six company values guide our employees in their work: customer focus, innovation, accountability, integrity, value creation, and teamwork.
Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands, and stock-listed on Euronext Amsterdam: WLSNC.AS, stock code 39590, ISIN code NL0000395903; included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program.
Nancy McKinstry CEO and Chairman of the Executive Board American, 1959, Chief Executive Officer and Chairman of the Executive Board since September 2003, and member of the Executive Board since June 2001.
As CEO and Chairman of the Executive Board, Ms. McKinstry is responsible for Corporate Strategy, Division Performance, Technology & Global Shared Services, Business Development, Legal Affairs, Communications, Human Resources, and Sustainability.
Full profiles of the members of the Executive Board are available on www.wolterskluwer.com
Kevin Entricken CFO and Member of the Executive Board American, 1965, Chief Financial Officer and member of the Executive Board since May 2013.
As CFO and member of the Executive Board, Mr. Entricken is responsible for Accounting, Business Analysis & Control, Internal Audit and Internal Controls, Investor Relations, Mergers & Acquisitions, Risk Management, Taxation, and Treasury.
Dutch, 1948, Chairman of the Supervisory Board, member of the Selection and Remuneration Committee, appointed in 2005, current term until 2017.
Len Forman American, 1945, Deputy Chairman of the Supervisory Board, Chairman of the Audit Committee and member of the Selection and Remuneration Committee, appointed in 2005, current term until 2017.
– Former Executive Vice President and Chief Financial Officer of the New York Times Company (U.S.)
Supervisory directorships and
– Member (Non-Executive Director) of the Board and Chairman of the Audit Committee of TechTarget Inc. (U.S.)
French, 1947, member of the Audit Committee, appointed in 2007, current term until 2015.
– Former Executive Vice President, Europe, Japan, Asia Pacific, Latin America, Middle East, and Africa of AstraZeneca Plc.
Barbara Dalibard French, 1958, Chairman of the Selection and Remuneration Committee, appointed in 2009, current term until 2017.
– CEO of SNCF Voyages (France)
Dutch, 1955, member of the Audit Committee, appointed in 2012, current term until 2016.
– CFO and member of the Executive Board of Heineken nv
– Chairman of the Supervisory Board of Royal Theatre Carré
Australian, 1948, member of the Selection and Remuneration Committee, appointed in 2006, current term until 2014.
– Chairman (Non-Executive Director) of the Board of Prime Financial Group Ltd., Pulse Health Ltd. Greencross Ltd., and Affinity Education Group (Australia)
Legal and business professionals worldwide turn to Wolters Kluwer Legal & Regulatory to help them manage complex and fast-changing information, requirements, and processes to ensure compliance, while driving higher effectiveness and productivity. The division provides customers with expert information, workflow solutions, and services in the areas of law, business, and regulatory compliance.
Organization Wolters Kluwer Legal & Regulatory is led by CEO Stacey Caywood.
Lawyers and law firm professionals, Corporate law departments, Compliance professionals, Legal educators, Universities, Libraries, Government agencies.
Kleos, Iter, Navigator, IPSOA, Jurion, LA LEY, Lamy, RBsource, IntelliConnect, MediRegs, LEX, senTRAL, Leggi D'Italia, Jura.
Wolters Kluwer Corporate Legal Services (CLS), part of the Legal & Regulatory division, offers a distinctive, global portfolio of market-leading legal services. It is the go-to expert for corporations and law firms around the globe, pioneering an industry where legal compliance, business, and law intersect. CLS draws on its collective expertise, data, relationships, and scale to support customers in managing their corporate compliance, legal entities, lien portfolios, brands, and legal spend.
Organization Corporate Legal Services is led by Group President and CEO Richard Flynn.
Legal professionals in law firms and corporate legal departments, Trademark and brand professionals, Lending professionals, Small business owners.
CT Corporation, CT Small Business, CT Lien Solutions, Corsearch, TyMetrix.
Wolters Kluwer Tax & Accounting is the leading provider of tax, accounting, and audit information, solutions, and services. The division delivers solutions that integrate deep local knowledge with leading workflow technology solutions, helping professionals worldwide navigate complex regulations and requirements to ensure compliance with accuracy, efficiency, and ease.
Organization Wolters Kluwer Tax & Accounting is led by CEO Karen Abramson.
Accounting firms, Corporate finance, Tax and auditing departments, Government agencies, Universities, Libraries.
CCH, Addison, A3 Software, CorpSystem, ProSystem, Twinfield, Kluwer, Global Integrator, iFirm.
Wolters Kluwer Health is a leading global provider of information, business intelligence and point-of-care solutions for the healthcare industry. Serving more than 150 countries and territories worldwide, Wolters Kluwer Health's customers include professionals, institutions and students in medicine, nursing, allied health, and pharmacy.
Financial & Compliance Services empowers audit, compliance, finance, and risk management professionals to make intelligent and clear-sighted decisions in a rapidly changing, global environment by providing the solutions they need to manage risk and compliance across their business and improve performance and profitability.
Organization Wolters Kluwer Health is led by CEO Bob Becker.
Professionals and students in medicine, nursing, allied health, Medical libraries, Hospitals.
Lippincott Williams & Wilkins, Ovid, ProVation Medical, UpToDate, Medi-Span, Facts & Comparisons, Lexicomp, Pharmacy OneSource, Medknow, Health Language, Medicom.
Organization Wolters Kluwer Financial & Compliance Services is led by CEO Brian Longe.
Risk, compliance, audit, and finance professionals in industries such as banking, securities, insurance, and government, Audit professionals in life sciences, healthcare, transportation, energy, and other sectors.
Wolters Kluwer Financial Services, TeamMate, Summix, ComplianceOne, ARC Logics, GainsKeeper, Wiz, NILS, Teleroute.
Wolters Kluwer has been active in China for almost 30 years, with current presence in each of the key markets. Wolters Kluwer in China provides customers with high-quality information digitally, in a wide range of mobile and online formats, and workflow solutions in the areas of tax, accounting, law, business, finance, compliance, and health. We deliver expert insights, software, and services on a global scale with a strong local presence.
Organization Wolters Kluwer in China is led by CEO Shasha Chang and has offices in Shanghai, Beijing, Chengdu, Guangzhou, and Hong Kong.
Customers Professionals across all markets.
China Law & Reference, China Tax & Accounting Reference, China HR Reference, China Insurance Reference, China Banking Regulation and Compliance, PASS, MCDEX, CDD, China Pharmaceutical Reference.
Mid 2013, Wolters Kluwer appointed Corinne Saunders as CEO for Emerging & Developing Countries. This new role identifies the focus on establishing a long-term presence in key emerging markets, particularly in India, Latin America, Middle East, and Africa, supporting our strategy for increasing our presence in fast-growing geographies.
Global Shared Services provides services to the business units in the areas of technology, sourcing, procurement, legal, finance, and human resources. It supports the company's strategy by raising innovation and effectiveness, and achieving global scale.
Organization Global Shared Services is led by CEO Tom Lesica and supports all our divisions.
Business application and infrastructure solutions, Business process outsourcing, Sourcing & off-shore strategies, HR operations & payroll, legal services, Supplier assurance, Financial operations.
Wolters Kluwer's Global Platform Organization is at the core of cocreating customer-facing solutions with the right user experience. The GPO provides a best-in-class open platform and innovative, differentiating tools that can be incorporated by Wolters Kluwer businesses worldwide into their targeted, segment-specific products and workflows. Partnering with the GPO reduces time-to-market and increases innovation in product development for Wolters Kluwer businesses.
Organization The Global Platform Organization is led by Dennis Cahill, Executive Vice President.
GPO assets are used worldwide in more than 20 business units and include mobile applications, widgets, research tools, and product platforms. GPO's research platform Global Atlas has more than 400,000 active users on products such as Intelliconnect and Kluwer Navigator.
Last year saw us cement our position as a digitally-focused services provider, with each of our four divisions fulfilling our customers' requirements for time-critical answers, insights, and productivity tools.
It was an important year for Wolters Kluwer as we pursued our strategy for 'Realizing Our Growth Potential.' Focused on three main elements - actively expanding our leading, high-growth positions; delivering solutions and insights; and driving efficiencies - that provide a framework for Wolters Kluwer to become a more global, digital, and faster-growing company and, as a result, deliver a richer experience for our customers.
Our customer-focused growth ambition is reflected in the new brand strategy we rolled out in February 2013. With a single Wolters Kluwer brand for all our businesses and a new tagline, 'When you have to be right,' we make crystal clear our commitment to solving customers' challenges and enabling them to make critical decisions with confidence, every day.
We continued to re-shape the business through strategic acquisitions and divestments in each of our divisions, including in emerging markets such as China and Brazil. Such activity is focused on building a strong and diversified portfolio with high-growth potential. Our investment in leading-edge products, including capital expenditure, is expected to remain at approximately 8-10% of revenue in the coming years.
| Key Figures | actual currencies Change in |
constant currencies Change in |
||
|---|---|---|---|---|
| 2013 | 2012* | %) ( |
%) ( |
|
| Business performance – benchmark figures | ||||
| Revenues | 3,565 | 3,597 | (1) | 2 |
| Organic revenue growth (%) | 1 | 1 | ||
| Ordinary EBITA | 765 | 774 | (1) | 2 |
| Ordinary EBITA margin (%) | 21.5 | 21.5 | ||
| Ordinary net income | 467 | 469 | (1) | 2 |
| Diluted ordinary EPS (€) | 1.56 | 1.56 | 0 | 3 |
| Ordinary free cash flow | 503 | 507 | (1) | 3 |
| Diluted ordinary free cash flow per share (€) | 1.68 | 1.69 | 0 | 3 |
| Net debt | 1,988 | 2,086 | (5) | |
| Cash conversion ratio (%) | 95 | 99 | ||
| Return on invested capital (ROIC) (%) | 8.7 | 8.7 | ||
| Ultimo number of FTEs | 18,329 | 18,396 | ||
| IFRS figures | ||||
| Revenues | 3,565 | 3,597 | (1) | |
| Operating profit | 619 | 568 | 9 | |
| Profit for the year | 353 | 333 | 6 | |
| Profit for the year (including discontinued operations) | 346 | 311 | 11 | |
| Diluted EPS (€) (including discontinued operations) | 1.15 | 1.04 | 11 | |
| Net cash from operating activities | 630 | 618 | 2 | |
*2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'
The operational performance from continuing operations in 2013 was characterized by the following:
Group revenues declined 1% to €3,565 million in 2013. Organic revenue growth was 1%, while the net acquisitions and disposals effect added 1% to revenues.
North American revenues (54% of total) grew 2% on an organic basis, slowing from 3% in 2012. Revenues from Europe (39%) declined 2% on an organic basis, improving from a 3% decline in 2012. Asia Pacific and Rest of World grew 5% on an organic basis (2012: 8%).
| Revenue bridge | |
|---|---|
| ---------------- | -- |
| Revenue bridge | % | |
|---|---|---|
| Revenues 2012* | 3,597 | |
| Organic change | 26 | 1 |
| Acquisitions | 64 | 2 |
| Divestments | (27) | (1) |
| Currency impact | (95) | (3) |
| Revenues 2013 | 3,565 | (1) |
U.S. Dollar 2013: average €/\$=1.33 versus 2012: €/\$=1.29.
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'
Across the group, organic growth in subscription and other recurring revenues (75% of total revenues) accelerated to 2% (2012: 1%). Of this, digital and services subscriptions grew 4% organically, more than compensating for the ongoing decline in print subscriptions. Books revenue (9% of total) declined, with legal books offsetting relatively better performance in health and tax books.
Corporate Legal Services (CLS) transactional revenues increased 8% organically, however Financial Services (FS) transactional revenues declined 7% organically (against a tough comparable of 19% organic growth in 2012) due to the downturn in the U.S. mortgage refinancing market.
| Revenues by type | % of total |
2013 | 2012* | ∆ (%) | ∆ CC (%) |
∆ OG (%) |
|---|---|---|---|---|---|---|
| Digital & services subscription | 55 | 1,951 | 1,885 | 4 | 6 | 4 |
| Print subscription | 11 | 399 | 443 | (10) | (8) | (7) |
| Other non-cyclical | 9 | 338 | 342 | (1) | 2 | 2 |
| Total recurring revenues | 75 | 2,688 | 2,670 | 1 | 3 | 2 |
| Books | 9 | 304 | 329 | (8) | (5) | (5) |
| CLS transactional | 5 | 187 | 180 | 4 | 9 | 8 |
| FS transactional | 2 | 67 | 72 | (7) | (5) | (7) |
| Other cyclical | 9 | 319 | 346 | (8) | (8) | (7) |
| Total revenues | 100 | 3,565 | 3,597 | (1) | 2 | 1 |
∆ - % Change; ∆ CC - % Change constant currencies (€/\$ 1.29); ∆ OG – % Organic growth
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'
| Full year | 2013 | 2012* | ∆ (%) | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| (%) | (%) | ||||
| Revenues | |||||
| Digital & service subscription | 680 | 678 | 0 | 2 | 2 |
| Print subscription | 271 | 289 | (6) | (4) | (6) |
| Other non-cyclical | 49 | 51 | (4) | (3) | 0 |
| Total recurring revenues | 1,000 | 1,018 | (2) | 0 | (1) |
| CLS transactional | 187 | 180 | 4 | 9 | 8 |
| Books | 106 | 123 | (14) | (13) | (12) |
| Other cyclical | 154 | 164 | (6) | (5) | (3) |
| Total revenues | 1,447 | 1,485 | (3) | (1) | (1) |
| Operating profit | 311 | 262 | 19 | ||
| Ordinary EBITA | 313 | 327 | (4) | (1) | (2) |
| Ordinary EBITA margin | 21.6% | 22.0% | |||
| Capital expenditure | 48 | 43 | |||
| Ultimo FTEs | 7,263 | 7,623 |
∆ - % Change; ∆ CC - % Change constant currencies (€/\$ 1.29); ∆ OG – % Organic growth
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'
Our Legal & Regulatory division is among the world's largest providers of information solutions and services in the areas of law, business, and compliance, helping legal professionals to achieve greater effectiveness and productivity. In 2013, our European operations managed well in a challenging economic environment while our North America operations delivered good growth.
Divisional revenues declined 1% in constant currencies and 1% on an organic basis. The effect of several disposals on revenues was largely offset by the transfer of certain U.S. publishing assets from Tax & Accounting (revenues €15 million) and small acquisitions during the year. The ordinary EBITA margin contracted by 40 basis points as a result of the revenue decline, wage inflation, dilutive disposals, restructuring costs, investments in growth initiatives, and currency movements. Operating profit increased 19% to €311 million, benefitting from a €47 million net gain on disposals, principally relating to the disposal of Best Case Solutions in May 2013.
Corporate Legal Services, which represents 30% of divisional revenues, achieved 5% organic growth for the year, supported by subscription and transactional revenue growth. CT Corporation enjoyed strong renewals for its legal representation services. CT Lien Solutions UCC and Mortgage search and filing transactions saw further growth, albeit at a slowing pace as commercial lending growth rates declined. Corsearch, expanded its product offering into online brand protection and broadened its international reach with two acquisitions, CitizenHawk and Avantiq. TyMetrix, provider of enterprise legal management software, launched its new user interface. Underlying margin improvement was reinvested in new products and services, including Legal Analytics which provides insights derived from aggregated legal billing and performance data.
Our European Legal & Regulatory operations, which represent 56% of divisional revenues, experienced 3% organic revenue decline, with the rate of decline abating from 6% in 2012. Nearly all countries in the region are still facing revenue headwinds. Digital products held up well, but this was more than offset by structural decline in books and print subscriptions, and cyclical weakness in advertising and other services. Efforts to achieve cost efficiencies and process improvements continued. The unit further advanced its portfolio of digital and workflow solutions. Kleos, our legal practice management software available in eight European countries, launched a tablet version at year-end.
Law & Business, our North American legal information services and software unit, was affected by the significant decline in U.S. law school enrollments. The unit saw positive growth in legal online offerings, driven by solutions such as RBsource for securities lawyers.
Legal & Regulatory
| Full year | 2013 | 2012* | ∆ (%) | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| (%) | (%) | ||||
| Revenues | |||||
| Digital & service subscription | 658 | 640 | 3 | 6 | 4 |
| Print subscription | 60 | 76 | (21) | (21) | (9) |
| Other non-cyclical | 155 | 167 | (7) | (4) | (3) |
| Total recurring revenues | 873 | 883 | (1) | 2 | 1 |
| Books | 48 | 50 | (4) | 0 | 0 |
| Other cyclical | 44 | 48 | (8) | (5) | (2) |
| Total revenues | 965 | 981 | (2) | 1 | 1 |
| Operating profit | 178 | 181 | (2) | ||
| Ordinary EBITA | 259 | 259 | 0 | 3 | 4 |
| Ordinary EBITA margin | 26.8% | 26.4% | |||
| Capital expenditure | 49 | 53 | |||
| Ultimo FTEs | 5,842 | 5,785 | |||
∆ - % Change; ∆ CC - % Change constant currencies (€/\$ 1.29); ∆ OG - % Organic growth
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'
Tax & Accounting is the leading provider of tax, accounting, and audit information, solutions, and services, helping the tax and accountancy profession grapple with ever greater regulatory and compliance complexity. In 2013, we took several important strategic steps, increasing access to new markets and rolling out new cloud-based products.
Wolters Kluwer Tax & Accounting revenues increased 1% in constant currencies and 1% on an organic basis. The effect of Prosoft and other acquisitions on revenues was largely offset by a number of small disposals and the transfer of U.S. publishing assets from Tax & Accounting (revenues €15 million) into our Legal & Regulatory division. The ordinary EBITA margin increased 40 basis points due to product mix and tight cost controls. Operating profit was broadly in line with the prior year.
Tax & Accounting North America, which represents 54% of divisional revenues, achieved 6% organic growth in tax and accounting software subscriptions and transactions. This was partially offset by the expected decline in bank product fees and print subscriptions. Books were aided by a favorable publishing schedule. CCH Axcess, our new cloud-based software solution for CPA firms, has been well received and is helping to drive growth in software among tax preparers. Our online tax research product, CCH IntelliConnect, introduced enhanced functionality and mobile access, and was recently awarded the top rating by CPA Practice Advisor.
Tax & Accounting Europe, which represents 36% of divisional revenues, achieved modest but positive organic growth for the year, despite a still challenged economic environment in this region. Growth in tax and accounting software products in Europe offset on-going structural decline in books and print subscriptions as well as cyclical weakness in training and advertising. Twinfield, which develops cloud-based accounting solutions, achieved double-digit organic growth and is investing to expand geographically.
Tax & Accounting Asia Pacific & rest of world revenues, representing 10% of the divisional revenues, were broadly stable on an organic basis as strong growth in tax and accounting software in Asia Pacific was offset by declines in print formats and training seminars in the region. In the rest of world, Prosoft, the Brazilian tax software provider we acquired in May, is performing well in its first few months as part of the group, growing at a double-digit rate (pro forma).
| Full year | 2013 | 2012* | ∆ (%) | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| (%) | (%) | ||||
| Revenues | |||||
| Digital & service subscription | 442 | 401 | 10 | 15 | 11 |
| Print subscription | 67 | 77 | (13) | (9) | (9) |
| Other non-cyclical | 54 | 50 | 8 | 11 | 12 |
| Total recurring revenues | 563 | 528 | 7 | 11 | 8 |
| Books | 150 | 156 | (4) | 0 | 0 |
| Other cyclical | 62 | 61 | 2 | 6 | 1 |
| Total revenues | 775 | 745 | 4 | 8 | 6 |
| Operating profit | 140 | 136 | 3 | ||
| Ordinary EBITA | 175 | 163 | 7 | 11 | 7 |
| Ordinary EBITA margin | 22.6% | 21.9% | |||
| Capital expenditure | 44 | 39 | |||
| Ultimo FTEs | 2,779 | 2,528 | |||
∆ - % Change; ∆ CC - % Change constant currencies (€/\$ 1.29); ∆ OG - % Organic growth
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'
Our Health division is among the world's largest providers of products that support clinicians from learning to practice, helping to improve the quality, acces, and overall cost of health care. In 2013, we saw further strong growth in Clinical Solutions, which has now become the largest part of the division, and we continued to invest to transform the traditional parts of the business.
Wolters Kluwer Health revenues increased 8% in constant currencies and 6% on an organic basis, following a stronger second half. The ordinary EBITA margin improved by 70 basis points, benefitting from the favorable mix shift towards Clinical Solutions and initiatives to drive operating efficiencies.
Operating profit increased 3% to €140 million, mainly due to mix shift and initiatives to drive efficiencies.
Clinical Solutions, which represents 42% of divisional revenues, achieved organic revenue growth of more than 10%, with strong performances across all businesses. UpToDate, our flagship clinical decision support tool, achieved sustained double-digit revenue growth driven by additional specialities, mobile applications, and global expansion. The clinical drug information unit saw good growth supported by Medi-Span and Lexicomp in North America and Medicom in China. ProVation order sets and documentation software achieved double-digit growth. Health Language, acquired in January 2013, grew revenues at a double-digit rate (pro forma), in line with expectations. Wolters Kluwer Health ranked 3rd overall in the 2013 Best in KLAS awards for all healthcare IT vendors.
Medical Research, which represents 39% of divisional revenues, saw modest organic growth, with positive trends for Ovid, our online medical research platform, and Lippincott Williams & Wilkins online journals partially offset by declines in print journal subscriptions. Ovid expanded its content offering during the year, including exclusive digital access to the New England Journal of Medicine in China. Our open access platform, MedKnow (India), now has over 300 open access journal titles.
Professional & Education, representing 19% of the divisional revenues, achieved slightly positive organic growth for the full year. Market trends for printed books remain weak, especially in allied health professions, but we gained share in the U.S. due to strong performance by our nursing education textbooks. Digital learning solutions, such as PrepU, DocuCare, and Lippincott Nursing Procedures, achieved over 40% revenue growth. Four Lippincott Williams & Wilkins book titles won first prizes at the annual British Medical Association medical book awards.
| Full year | 2013 | 2012* | ∆ (%) | ∆ CC | ∆ OG |
|---|---|---|---|---|---|
| (%) | (%) | ||||
| Revenues | |||||
| Digital & service subscription | 171 | 166 | 3 | 6 | 3 |
| Print subscription | 1 | 1 | 0 | 19 | 19 |
| Other non-cyclical | 80 | 74 | 8 | 12 | 8 |
| Total recurring revenues | 252 | 241 | 5 | 8 | 5 |
| FS transactional | 67 | 72 | (7) | (5) | (7) |
| Other cyclical | 59 | 73 | (19) | (16) | (28) |
| Total revenues | 378 | 386 | (2) | 1 | (4) |
| Operating profit | 30 | 37 | (18) | ||
| Ordinary EBITA | 64 | 73 | (11) | (9) | (12) |
| Ordinary EBITA margin | 17.1% | 18.9% | |||
| Capital expenditure | 7 | 9 | |||
| Ultimo FTEs | 2,339 | 2,358 | |||
∆ - % Change; ∆ CC - % Change constant currencies (€/\$ 1.29); ∆ OG - % Organic growth
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'
Financial & Compliance Services, one of the world's leading providers of audit, compliance, finance, and risk management solutions, plays a critical role in helping professionals deal with regulatory scrutiny and fast-changing compliance requirements. In 2013, the division saw strong growth in its finance and audit businesses but faced a downturn in U.S. mortgage refinancing volumes.
Divisional revenues declined 4% organically, primarily as a result of a market-wide downturn in the U.S. mortgage refinancing market. The ordinary EBITA margin declined as a result of lower revenue, higher restructuring costs, and increased investment in platforms and global infrastructure. Operating profit declined 18%.
Our Finance, Risk & Compliance unit, which represents 43% of divisional revenues, achieved 3% organic growth for the full year.
Delays in the implementation of key regional and global banking regulations slowed trends, although the month of December brought several important new contract wins. In December 2013, Wolters Kluwer Financial Services was ranked 4th in the Chartis Research RiskTech 100 list, scoring high on customer satisfaction. Our Audit business achieved 3%
organic growth, more than absorbing the expected revenue attrition from the Axentis product rationalization announced at the start of the year. Excluding Axentis, the core Audit software product TeamMate achieved 9% organic revenue growth and increased investment in its next generation platform.
Originations & Compliance, which represents 34% of divisional revenues, was impacted by a marketwide downturn in the U.S. mortgage refinancing market which began in the second quarter. As a result, Financial Services (FS) transactional revenues declined 7% organically for the year against double digit growth in the comparable period (2012: +19%).
Conditions for our European Transport Services business, representing 12% of the divisional revenues, remain challenging and restructuring and strategic repositioning were undertaken during the year.
Financial & Compliance Services
| Full year | 2013 | 2012* | ∆ (%) | ∆ CC (%) |
∆ OG (%) |
|---|---|---|---|---|---|
| Operating profit | (40) | (48) | (17) | ||
| Ordinary EBITA | (46) | (48) | (4) | (4) | (4) |
| Capital expenditure | 0 | 0 | |||
| Ultimo FTEs | 106 | 102 | |||
∆ - % Change; ∆ CC - % Change constant currencies (€/\$ 1.29); ∆ OG - % Organic growth
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'
Corporate's operating profit improved by 17% due to lower personnel costs and advisory fees, and release of provisions.
Our Global Shared Services (GSS) division focused on driving service expansion and efficiencies in areas such as technology, sourcing, legal services, and organizational processes. In 2013, GSS delivered savings from sourcing programs and successfully deployed major upgrades to Enterprise Resource Planning systems. GSS supports all Wolters Kluwer divisions in the acceleration of cloud and mobile solutions, introducing innovations and faster processes that make us leaner,
more effective, and reduce costs. Wolters Kluwer has now virtualized the majority of the technology environments, moved several products to cloud based applications, and has adopted agile development processes to speed innovation.
Our excellence in innovation can be seen in the Global Platform Organization (GPO). This global technology unit is accelerating our ability to invest in the mobile applications, cloud-based services, and integrated solutions that our customers increasingly need to help them make critical decisions and increase their productivity. In 2013, the GPO successfully co-created and deployed a large number of mobile applications, widgets, research tools, new products, and major product upgrades, for example the WK eReader which is currently available in the U.S., Germany, Belgium, and Hungary for use on tablets as well as desktop devices.
Non-current assets, mainly consisting of goodwill and publishing rights, decreased to €4,862 million in 2013, mainly as a result of continued amortization, depreciation, and a weaker U.S. dollar, partly offset by acquisitions and capital expenditure. The group's financial investments declined from €110 million to €58 million as a result of €18 million writedown and selected divestments.
Shareholders' equity increased to €1,584 million as profit for the year was partly offset by a weaker U.S. dollar, dividend payments, the share
buy-back, and the re-measurements on defined benefit plans. In 2013, the company executed a share buy-back program of €20 million. The company repurchased 1.2 million of ordinary shares under this program at an average stock price of €16.32. The total weighted average number of shares outstanding during 2013 was 295.7 million (2012: 296.9 million).
Net debt at December 31, 2013, was €1,988 million (2012: €2,086 million), a reduction of €98 million. The net-debt-to-EBITDA ratio was 2.2 at December 31, 2013, improving from 2.4 at year-end 2012, and better than our target of 2.5.
| Balance sheet | 2013 | 2012* | Variance |
|---|---|---|---|
| Non-current assets | 4,862 | 4,977 | (115) |
| (912) | (1,076) | 164 | |
| Working capital | |||
| Total equity | 1,584 | 1,558 | 26 |
| Net debt | 1,988 | 2,086 | (98) |
| Net-debt-to-EBITDA ratio | 2.2 | 2.4 | (0.2) |
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'
In May 2013, Wolters Kluwer exercised the call option at 100% on its perpetual cumulative subordinated bonds (€225 million) and redeemed these bonds in full. On March 21, 2013, Wolters Kluwer issued a ten-year senior Eurobond of €700 million. The bonds have been priced at an issue price of 99.709 per cent and carry an annual coupon of 2.875%.
On January 27, 2014, the company fully redeemed its ten-year senior Eurobond (2003-2014) with a nominal value of €700 million.
Operating working capital amounted to €(707) million, compared to €(768) million in 2012, a decrease of €61 million. Non-operating working capital increased to €(960) million, mainly due to the inclusion of the senior bond (€700 million) under short-term liabilities.
| Working capital | 2013 | 2012* | Variance |
|---|---|---|---|
| Inventories | 104 | 95 | 9 |
| Operating accounts receivable | 1,109 | 1,122 | (13) |
| Deferred income | (1,214) | (1,233) | 19 |
| Trade and other payables | (368) | (383) | 15 |
| Operating current liabilities | (338) | (369) | 31 |
| Operating working capital | (707) | (768) | 61 |
| Cash and cash equivalents | 755 | 328 | 427 |
| Non-operating working capital | (960) | (636) | (324) |
| Total | (912) | (1,076) | 164 |
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'
Financing results amounted to €128 million (2012: €126 million). Financing results included net financing costs of €117 million, the employee benefits financing component of €5 million (2012: €5 million), a €12 million gain on the sale of our minority stake in AccessData, and an €18 million writedown of an investment available-forsale (Symphony Health Solutions).
The effective tax charge on total income for 2013 is 3.3% higher compared to 2012 (24.7%) mainly because of the corporate income tax on the capital gains on divestments of Best Case Solutions and AccessData in the high tax jurisdiction of the U.S., whilst the write-down of the financial asset available–for-sale was non-tax deductible.
In 2013, the benchmark tax rate decreased 9 basis points to 27.6% (2012: 27.7%).
Total profit for the year increased 11% to €346 million (2012: €311 million). Diluted EPS increased 11% to €1.15 per share (2012: €1.04).
Ordinary net income decreased 1% overall and increased 2% in constant currencies. Diluted ordinary EPS was stable at 1.56% (2012: €1.56).
In 2013, the ROIC was 8.7% (2012: 8.7%).
Net cash from operating activities was €630 million, up 2%. As expected, the cash conversion ratio returned to a more normalized level of 95%, compared to the record level seen in 2012 (99%). This reflected a net
working capital outflow related to the timing of payments and slightly higher capital expenditure of €148 million (4.2% of revenues) compared to €144 million in 2012 (4.0% of revenues).
| Cash flow | 2013 | 2012* | ∆ (%) | ∆ CC (%) |
|---|---|---|---|---|
| Net cash from operating activities | 630 | 618 | 2 | 6 |
| Capital expenditure | (148) | (144) | 3 | 6 |
| Ordinary free cash flow | 503 | 507 | (1) | 3 |
| Diluted ordinary free cash flow per share (€) | 1.68 | 1.69 | 0 | 3 |
| Cash conversion ratio (%) | 95 | 99 | ||
∆ - % Change; ∆ CC - % Change constant currencies (€/\$ 1.29)
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'
Total acquisition spending in 2013 was €192 million (2012: €109 million), including deferred and contingent consideration payments of €2 million (2012: €5 million). Acquisition related costs amounted to €6 million in 2013 (2012: €6 million).
Acquisitions completed in 2013 contributed €46 million in revenues and €14 million in ordinary EBITA to 2013 results and had annualized revenues of €65 million and ordinary EBITA of €20 million. The largest acquisitions in 2013 were: Health Language in the Health division and Prosoft in the Tax & Accounting division.
In 2013 and 2012, there were a number of divestments to optimize the portfolio. The main 2013 disposals related to the sale of Best Case Solutions and the minority stake in AccessData in the United States, and a number of smaller disposals in the Netherlands and Denmark. The divestitures support the Group's strategy to focus on areas of more strategic interest. The net cash receipts for the 2013 divestments amounted to €63 million.
In 2011, Wolters Kluwer announced plans to divest its Pharmarelated businesses and recorded these assets in discontinued operations. In September 2013, we completed the sale of certain Pharma-related publishing activities in France. Following this disposal, all assets that were recorded under discontinued operations have now been divested.
The following table summarizes the results from discontinued operations:
| Discontinued operations | 2013 | 2012 |
|---|---|---|
| Revenues | 20 | 70 |
| Expenses | (25) | (82) |
| Operating profit | (5) | (12) |
| Income tax | 2 | 5 |
| Results from operating activities, net of tax | (3) | (7) |
| Impairment | - | (3) |
| Restructuring costs | (3) | (13) |
| Profit/(loss) on sale of discontinued operations | (4) | (1) |
| Income tax on loss on sale of discontinued operations | 3 | 2 |
| Result from discontinued operations | (7) | (22) |
Wolters Kluwer has a progressive dividend policy under which the company expects to increase the dividend per share each year. At the 2014 Annual General Meeting of Shareholders, the company will propose increasing the dividend to €0.70 per share (2012: €0.69), to be paid in cash on May 13, 2014 for ordinary shareholders or on May 20, 2014 for holders of American Depositary Receipts (ADRs). Shareholders can choose to reinvest their Wolters Kluwer 2013 dividends by purchasing further shares through the Dividend Reinvestment Plan (DRIP) to be provided by ABN AMRO Bank N.V.
The company intends to offset the dilution caused by performance share issuance by repurchasing shares up to €25 million in 2014.
Sustainability is at the core of our business, driving our approach to innovation and influencing the solutions we seek for our customers.
It is a powerful driver for innovation and customer satisfaction. Acting sustainably also helps us mitigate long-term risks, and optimizes our efficient use of resources. It drives us to view profitable growth through the lens of social and environmental responsibility – increasing our contribution to society, our customers, and our employees.
In 2013 we have conducted an analysis of our sustainability topics, and their relevance for our stakeholders and the company. This materiality index is available in our 2013 Sustainability Report. Most important topics proved to be: Customer data protection, Access to information, Paper use, Energy and emissions operations, and Diversity and equal opportunities.
One of the most important ways Wolters Kluwer increases efficiency and effectiveness for its customers is by increasing the share of electronic solutions against paper solutions. At the same time it decreases the use of a major natural resource.
In the course of 2013 we further distributed Standards of Engagement for our suppliers. These require suppliers to sign and comply with the Standards of Engagement. The code includes general sustainability standards that Wolters Kluwer requires its suppliers to operate by. It is based on the articles of the United Nations Universal Declaration of Human Rights, the eight core labor standards of the International Labor Organization and United Nations Global Compact, a framework for businesses that aligns operations and strategies with universally accepted principles in the areas of human rights, labor, the environment, and anti-corruption.
We will continue investing in sustainability in 2014, focusing on our four major building blocks:
To meet and anticipate the needs of our customers in today's fastpaced, global business environment, Wolters Kluwer needs to offer exceptional expertise in the complex professional sectors we serve. This makes our people our greatest asset and developing our talent one of our most important strategic priorities. We empower each employee to make the right decisions to get the results we all want. We provide employees at all levels with a learning culture and meaningful opportunities to succeed and make a positive, lasting difference that drives our business forward.
Our successful leadership pipeline program has been expanded to include middle managers, helping to nurture our next generation of leaders. We continue to actively drive talent management efforts across the company. We also ensure that we draw on the full talents of a truly diverse workforce and build an inclusive culture in which everyone has a voice. A new performance management program is helping ensure our employees are stimulated and fully prepared, with close attention to their professional development and to continued innovation and success for Wolters Kluwer.
In 2014, Wolters Kluwer plans further action to sharpen our focus on our leading, high-growth positions, deliver product innovation, and drive efficiencies across the group. We plan to undertake additional restructuring to improve the cost base, particularly
in Europe, while continuing to invest in our leading positions to support organic growth. These actions are expected to contribute to a reduction in group ordinary EBITA margin to within a range of 20.5% to 21.5% in 2014, including total restructuring costs of approximately €25-30 million. We expect low single digit growth in diluted ordinary EPS in constant currencies. The table below provides our 2014 guidance in constant currencies.
| Performance indicators | 2014 Guidance |
|---|---|
| Ordinary EBITA margin | 20.5%-21.5% |
| Ordinary free cash flow | ≥ €475 million |
| Return on invested capital | ≥ 8% |
| Diluted ordinary EPS | Low single-digit growth |
Guidance for ordinary free cash flow, diluted ordinary EPS and additional items is in constant currencies (€/\$ 1.33).
Wolters Kluwer has a progressive dividend policy under which the company expects to increase the dividend per share each year. At the 2014 Annual General Meeting of Shareholders, the company will propose increasing the dividend to
€0.70 per share (2012: €0.69), to be paid in cash on May 13, 2014 for ordinary shareholders or on May 20, 2014 for holders of American Depositary Receipts (ADRs). Shareholders can choose to reinvest their Wolters Kluwer 2013 dividends by purchasing further shares through the
Dividend Reinvestment Plan (DRIP) to be provided by ABN AMRO Bank N.V.
The company intends to offset the dilution caused by performance share issuance by repurchasing shares up to €25 million in 2014.
| Additional information | |
|---|---|
| Ordinary net financing costs1 | Approximately €100 million |
| Benchmark effective tax rate | 27.5%-28.0% |
| Cash conversion ratio | Approximately 95% |
1 In constant currencies (€/\$ 1.33).
Legal & Regulatory: we expect Corporate Legal Services to achieve another year of good organic growth, although momentum in CLS transactional revenues is expected to slow. In our Legal & Regulatory publishing operations, we anticipate organic revenue decline due to the continued economic uncertainty in large parts of Europe, weakness in print formats, and lower U.S. law school enrollments. Continued softness in revenue combined with additional restructuring costs and the effect of last year's dilutive disposals is expected to lead to a lower margin in 2014. As of 2014, certain European Tax & Accounting publishing activities have been transferred to our Legal &
Regulatory publishing operations in order to drive further economies of scale.
Tax & Accounting: we expect our software businesses to achieve good organic growth, partly offset by trends in bank products, print publishing, and cyclical products such as training. We expect to see some margin contraction due to increased restructuring in 2014.
Health: we foresee another strong year for Clinical Solutions. Market conditions for print journals and books are expected to remain soft. The positive effect from the ongoing mix shift towards Clinical Solutions should benefit margins despite continued investment in new digital product development and global expansion.
Financial & Compliance Services: we anticipate positive organic growth in our Finance, Risk & Compliance, and Audit units, although inexact timing around the implementation of banking regulations and an ongoing product rationalisation are likely to result in a more back-end loaded year. This performance is likely to be partially offset near term by continued pressure on transactional revenues.
We were deeply saddened by the unexpected passing away of Adri Baan in April 2013. Adri had been a member of the Supervisory Board since 2002 and was Chairman since 2006. He was very dedicated and made many contributions to the company. We miss him and remember him with great respect.
The Supervisory Board of Wolters Kluwer is responsible for supervising and advising the Executive Board in setting and achieving the company's strategy, targets, and policies. The Supervisory Board is guided by the interests of the company and takes into account the interests of the company's stakeholders.
Despite continuing challenging economic conditions, the company again achieved its financial goals in 2013. In addition, the company made a good start with the execution of the strategy that was announced in February 2013. The Supervisory Board greatly appreciates the efforts of the Executive Board and employees for achieving these results. We look forward to the further successful execution of the strategy, creating value for the shareholders, customers, and employees.
Throughout the year the Supervisory Board again met many managers and employees within the company worldwide. We feel it is important to stay in touch with the talent in the organization and strongly support the efforts around talent management. This is a key area of attention for the Supervisory Board.
The Supervisory Board held seven meetings in 2013. Four meetings were partly held without the members of the Executive Board being present. Four of the current Supervisory Board members (Mr. Wakkie, Mr. Angelici, Mr. Forman, and Mr. Hooft Graafland) attended all meetings. Two members (Ms. Dalibard and Mr. James) attended six of these meetings. In addition to the scheduled meetings and conference calls, the Chairman of the Supervisory Board had regular contact with the Chairman of the Executive Board.
The Executive Board submitted the 2013 financial statements to the Supervisory Board. The Supervisory Board also took notice of the report and the statement by KPMG Accountants nv (as referred to in Article 27, paragraph 3 of the company's Articles of Association), which the Supervisory Board discussed with KPMG. Taking KPMG's report into account, the members of the Supervisory Board signed the 2013 financial statements, pursuant to their statutory obligation under clause 2:101 (2) of the Dutch Civil Code. The Supervisory Board proposes to the shareholders that they adopt these financial statements, at the Annual General Meeting of Shareholders of April 23, 2014, see Financial Statements. The resolutions to release the members of the Executive Board and of the Supervisory Board from liability for their respective duties will be voted on separately at the Annual General Meeting of Shareholders. In line with the progressive dividend policy, it is proposed to distribute a cash dividend of €0.70 per share. Upon approval by the Annual General Meeting of Shareholders, the payments will be made as from May 13, 2014. In 2013 the company resolved to abolish the stock dividend option to end the resulting dilution in the most cost effective and tax efficient manner. The company maintains its progressive dividend policy.
The functioning of the Supervisory board and the Executive Board and the performance of the individual members of both Boards were discussed without the members of the Executive Board being present. The composition of the Supervisory Board, the Audit Committee, and the Selection and Remuneration Committee, was also discussed in the absence of the Executive Board. In preparation of these discussions, the members of the Supervisory Board provided feedback about the performance of the Supervisory Board through a written assessment. The outcome of this evaluation was discussed in a meeting without the Executive Board members being present.
Overall, the outcome of the questionnaires on the functioning of the Supervisory Board and its Committees was positive. The Supervisory Board was very positive about the role and organization, agenda setting, productivity, and member qualification. This includes the teamwork within the Supervisory Board and the collaboration with the Executive Board. Although the interactions with management are transparent and the Supervisory Board receives adequate information, several suggestions were given by some of the members to even further improve the information flows and means to monitor the performance. The Supervisory Board also discussed how to optimize the process for selection of new Supervisory Board members. These recommendations were followed up in the course of 2013.
The Supervisory Board extensively discussed and reviewed the strategy that was announced in February 2013. The strategy focuses on accelerating the company's organic revenue growth and improving returns through three priorities:
During the year, the Executive Board kept the Supervisory Board closely informed about the execution of the strategy. This included a presentation on the operational excellence initiatives within the company that were taken in order to drive efficiencies.
The divisional CEOs were invited to present the strategy and Business Development Plans of their divisions to the Supervisory Board. This enabled the Supervisory Board to get a good view on the opportunities and challenges for each of the divisions, and to support the Executive Board in making the right strategic choices for each of the divisions.
During the working visit in Belgium, the Supervisory Board had the opportunity to learn in more detail about several of the businesses operating in Belgium by means of presentations that were given by the various management teams. This included the Legal & Regulatory Business, the Tax & Accounting business, the Finance, Risk and Compliance business, and the Transport Services business.
The Supervisory Board was also informed about the innovation activities within Wolters Kluwer. 2013 was the third year in which Wolters Kluwer rewarded promising new initiatives via the Innovation Awards. Furthermore, the Executive Vice President of Wolters Kluwer's Global Platform Organization gave a presentation on advanced technologies in which he also showed how the technology is being used for innovation within Wolters Kluwer. Innovation is an important element of the execution of the strategy. Customers benefit from high-quality products and services developed due to Wolters Kluwer's innovation activities. The Supervisory Board strongly supports these initiatives and will keep monitoring the developments.
The Supervisory Board was updated on the company's branding strategy. We are supportive of the actions that are taken to strengthen the Wolters Kluwer brand as well as the new tagline 'When you have to be right,' as it exemplifies the important role Wolters Kluwer's products and services play in the work life of its customers.
The Supervisory Board discussed (potential) acquisitions and divestments with the Executive Board. The Executive Board informed the Supervisory Board about all pending acquisition activity, including smaller acquisitions for which no formal Supervisory Board approval is required. The Supervisory Board also discussed the performance and positive value creation of previously made acquisitions. Acquisitions are an important contributor to the transformation of the company's portfolio towards higher-value electronic products and to geographic expansion.
Early in 2013, the acquisition of Health Language, Inc. was completed. This acquisition had been approved by the Supervisory Board and signed in 2012. In 2013, the Supervisory Board approved the acquisition of Prosoft Tecnologia S.A., a leading provider of tax and accounting software based in Sao Paolo, Brazil. The acquisition aligns with Wolters Kluwer's strategy to expand its leading, high-growth positions, as global tax and accounting software is one of these areas. In line with standard practice at Wolters Kluwer, management of Wolters Kluwer's Tax & Accounting Division attended a Supervisory Board meeting to explain and discuss the acquisition. This enabled the Supervisory Board to thoroughly asses the acquisition of Prosoft and to directly question the managers of the responsible management team.
Divestments are an important part of the execution of the strategy, since they are a means to rebalance the company's portfolio and to free up capital to invest in high-growth segments of the business. In 2013, the Supervisory Board approved the divestment of Best Case Solutions (U.S.). In addition, the Supervisory Board was kept informed about the sale of the Pharma business in France and the non-core publishing assets in the Netherlands.
The Supervisory Board was kept informed about developments with respect to corporate governance. An overview of the company's corporate governance can be found in Corporate Governance.
We were informed about sustainability and the main goals and achievements in 2013. Wolters Kluwer was once again included in the Dow Jones Sustainability Index, received a bronze class sustainability award by RobecoSAM early 2014, participated in the Carbon Disclosure Project, and was ranked 34 in the Corporate Knights Global 100 Index of most sustainable companies. We are supportive of the goals related to sustainability, including the efforts around reducing print and using responsible paper, and the efforts around supplier principles. For more information, see the 2013 Sustainability Report.
The Supervisory Board and Audit Committee discussed risk management at various occasions and were also informed about the general and financial risks of the business and about the results of an assessment of internal risk management and control systems. The Audit Committee and Supervisory Board discussed the continuing actions the company takes to further improve the internal risk management and controls systems. For more information, see Risk Management.
The Selection and Remuneration Committee and Supervisory Board discussed talent management and succession planning within Wolters Kluwer. This included an overview of the outcome of the division and functional talent reviews and the enterprise talent review. In addition, we were informed during each of the Supervisory Board meetings about recent changes within relevant positions in the company. The Supervisory Board also met with various executives and managers during presentations and the working visit. We consider it an important part of our responsibilities to carefully monitor talent development and succession planning within the company.
In accordance with the policy to offset dilution of the performance shares issuance via share repurchases, the company completed share repurchases of €20 million in the first half of 2013, which was approved by the Supervisory Board.
The Supervisory Board also approved the €700 million Eurobond with a maturity of ten years and a coupon rate of 2.875%, which was announced on March 14, 2013. The net proceeds of the issue of the bonds were used to redeem the € 225 million Perpetual Cumulative Subordinated Bonds, in addition to general corporate purposes including refinancing of existing debt. The Supervisory Board carefully monitors the financing of the company including the available headroom.
The Supervisory Board closely monitored the net-debt-to-EBITDA ratio, which improved from 2.4 per year-end 2012, to 2.2 per year-end 2013, again outperforming the target of 2.5.
Other financial subjects that we discussed were the budget, the financial outlook, the achievement of financial targets, use of free cash flow, the outcome of the annual impairment test, and annual and interim financial results.
The Supervisory Board was well informed about Investor Relations. Updates were given during several meetings. These updates included share price developments, communication with shareholders, analysts research, and the investor seminars from Corporate Legal Services and the Health Division. We also carefully reviewed and approved the press releases regarding the full-year and half-year results, and the quarterly trading updates.
The Audit Committee met four times in 2013, during the preparation of the full-year and half-year results, and during the preparation of the interim trading updates after the first and third quarter. The Audit Committee currently consists of Mr. Forman (Chairman), Mr. Angelici, and Mr. Hooft Graafland. All current members of the Committee attended all of the meetings. The meetings of the Audit Committee were held in the presence of the Executive Board members, the external auditor, the internal auditor, and other corporate staff members. In line with the Dutch Corporate Governance Code, the Audit Committee meets once a year with the external auditors without members of the Executive Board being present. After every meeting, the Chairman of the Committee reports back to the full Supervisory Board. Among the main items discussed during the Audit Committee meetings were the financial results of the company, IFRSs, pensions, tax planning, impairment testing, the treasury policy, the financing of the company, hedging, the quarterly reports and full-year report of KPMG, the auditor independence policy, and internal risk management and control systems including IT systems. A status update on internal audit and internal controls is a standing item on the Audit Committee's agenda.
At the Annual General Meeting of Shareholders of April 24, 2013, KPMG was reappointed as auditor for a maximum period of three years, following a thorough assessment that took place at the end of 2012. The Supervisory Board has the discretion to put the appointment of the external auditor on the agenda of the General Meeting of Shareholders before the lapse of this three-year period. The Audit Committee has reviewed the proposed audit scope and approach, the audit fees, the independence of the external auditor, and the non-audit services provided by the external auditor. The Auditor Independence Policy is published on the company's website www.wolterskluwer.com. Wolters Kluwer's current auditor, KPMG, has a policy of rotating its partners every seven years.
According to the new Dutch Law on Auditor Independence, the company is required to change its external audit firm every eight years, starting January 1, 2016. Following this new law, it was decided to rotate the auditor as of the audit over the financial reporting year 2015. The Audit Committee was closely involved in the process of selecting a new audit firm. The Audit Committee met with the potential new audit firms early 2014. Criteria that were taken into consideration as part of the selection process were the quality of the audit teams including their lead partners, international experience, presence in the main jurisdictions where Wolters Kluwer operates, industry experience, and fees. After thorough discussions, it was resolved to propose to the Annual General Meeting of Shareholders that will be held on April 23, 2014, to appoint Deloitte Nederland B.V. as new auditor.
The Selection and Remuneration Committee met four times in 2013 and had one scheduled conference call. Due to the fact that Mr. Wakkie was appointed as Chairman of the Supervisory Board after the passing away of Mr. Baan, he stepped down as Chairman of the Committee. He was succeeded as Committee Chairman by Ms. Dalibard. Mr. Wakkie remained on the Selection and Remuneration Committee as a member. The Committee currently consists of Ms. Dalibard (Chairman), Mr. Forman, Mr. James, and Mr. Wakkie. Three of the members of the Committee attended all meetings and the scheduled conference call. Mr. James missed one meeting. After every meeting, the Chairman of the Committee reports back to the full Supervisory Board. The resolutions regarding appointments and remuneration were subsequently taken in the full Supervisory Board, based on recommendations from the Committee.
The Committee has discussed the remuneration policy for the Executive Board, including the base salary, new conditional awards of performance shares under the Long-Term Incentive Plan, and targets for the Short-Term Incentive Plan. The Committee engaged an outside compensation advisor to provide recommendations and information on market practices for compensation structure and levels. For 2013, the Supervisory Board resolved, based on a recommendation from the Selection and Remuneration Committee, to increase the base salary of the Executive Board members by 3%. For 2014 it was resolved to increase the base salary by 2.5%. For more information about the remuneration policy of the Executive Board, see Remuneration Report and note 34 of the Consolidated Financial Statements.
In May 2013, Mr. B.L.J.M. Beerkens resigned from the Executive Board to pursue career opportunities outside of Wolters Kluwer. He was succeeded as CFO by Mr. K.B. Entricken. Mr. Entricken was appointed as member of the Executive Board, based on a nomination from the Supervisory Board, at the Annual General Meeting of Shareholders of April 24, 2013.
The appointment and nomination of Mr. Entricken took place after a thorough selection process. Six out of the seven Supervisory Board members held interviews with Mr. Entricken. The Supervisory Board is pleased that the successor of Mr. Beerkens could be found within the company. This is a proof of the successful implementation of the talent management efforts within Wolters Kluwer. For more information about Mr. Entricken see Profile Management & Organization.
We were deeply saddened by the unexpected passing away of our Chairman Adri Baan in April 2013.
The Supervisory Board resolved to appoint Mr. Wakkie as new Chairman. Mr. Forman succeeded Mr. Wakkie as Vice-Chairman.
In 2013, the second term of Mr. Wakkie and Mr. Forman expired. The first term of Ms. Dalibard expired in 2013 as well. Mr. Wakkie, Mr. Forman, and Ms. Dalibard were all reappointed at the Annual General Meeting of Shareholders that was held on April 24, 2013.
In 2014, the second term of Mr. James will expire. Mr. James is not available for reappointment. The Supervisory Board wishes to express its great appreciation to Mr. James for his contribution to the company and the Supervisory Board over the last eight years.
The Supervisory Board has actively searched for a new member. We are very pleased that Ms. Rima Qureshi is prepared to accept a seat on the Supervisory Board. The Supervisory Board used an external Executive Search firm in order to be able to compare various candidates and select the best candidate. Ms. Qureshi had meetings with Mr. Wakkie, Mr. Forman, Ms. Dalibard, and Ms. McKinstry. Ms. Qureshi has broad international management experience including deep operating experience in transforming technology-based companies. At the Annual General Meeting of
Shareholders that will be held on April 23, 2014, we will propose to appoint Ms. Qureshi as new Supervisory Board member.
The Supervisory Board is searching for another candidate to bring back the number of Board members to seven again. For the time being the number of Supervisory Board members is six. The composition of the Supervisory Board is in line with the profile as it relates to expertise, nationality, and age. According to the Dutch law that became effective as of January 1, 2013, a proper composition of the Supervisory Board means that at least 30% of the members should be female. Assuming that Ms. Qureshi will indeed be appointed at the Annual General Meeting of Shareholders on April 23, 2014, two out of the six Supervisory Board Members (33.3%) will be female, which is in line with the new Dutch law.
All Supervisory Board members comply with the best practice provision of the Dutch Corporate Governance Code regarding the maximum number of supervisory board memberships at Dutch listed companies. All members have sufficient time available for their Wolters Kluwer Supervisory Board membership. This follows from the high attendance rate at scheduled meetings of the Supervisory Board and at the Committee meetings, the availability for ad hoc calls, the quick response time on written questions, and the fact that the members attend the meetings well prepared and actively participate in the discussions.
For more information on each Supervisory Board member in accordance with the Dutch Corporate Governance Code, see Profile Supervisory Board. All members of the Supervisory Board are independent from the company within the meaning of Best Practice Provision III.2.2 of the Dutch Corporate Governance Code.
Finally, the Supervisory Board would like to take this opportunity to thank the Executive Board and all employees worldwide for their highly appreciated efforts in the past year.
P.N. Wakkie, Chairman L.P. Forman, Deputy Chairman B.F.J. Angelici B.M. Dalibard D.R. Hooft Graafland S.B. James
During the Annual General Meeting of Shareholders of April 21, 2004, the remuneration policy for members of the Executive Board was adopted and the Long-Term Incentive Plan approved. Amendments to the remuneration policy and the Long-Term Incentive Plan were approved during the Annual General Meeting of Shareholders of April 20, 2007. The Supervisory Board proposed to the Annual General Meeting of Shareholders that was held on April 27, 2011, to amend the Long-Term Incentive Plan, which proposal was accepted. In line with new Dutch legislation, the execution of the remuneration policy will be put on the agenda for discussion as separate agenda item at the Annual General Meeting of Shareholders of April 23, 2014.
The goals of Executive Board remuneration are to align individual and company performance, strengthen long-term commitment to the company, and attract and retain the best executive management talent.
The remuneration of Executive Board members is based on surveys and analyses by internationally recognized firms specializing in executive compensation. Because Wolters Kluwer is a global organization, remuneration is benchmarked individually against surveys from European and U.S. companies, taking into consideration geographic locations where Executive Board members might be recruited to and where new members might be recruited from in the future.
Remuneration for the Executive Board consists of three elements: a base salary, a Short-Term Incentive Plan (STIP) on which a cash bonus can be earned, and a Long-Term Incentive Plan (LTIP) on which performance shares can be earned. The base salary of individual Executive Board members is determined annually by the Supervisory Board, based on recommendations from its Selection and Remuneration Committee. Both the short-term and long-term incentives vary according to performance. The Supervisory Board resolves annually which targets are set for the STIP. Variable elements of the remuneration package make up the largest portion of the Executive Board's total compensation, reflecting the philosophy that senior executive compensation is linked to shareholder value and performance. Because the LTIP is based on the performance over a three-year period, the remuneration policy contributes to the long-term objectives of the company. The STIP targets largely reflect the key performance indicators that the company reports about in its periodical results. These indicators are an important measure of the success of the execution of the company's strategy. As such, the remuneration is directly linked to performance and the strategy.
Ms. McKinstry and Mr. Entricken participate in the defined contribution pension plan of Wolters Kluwer United States.
In line with the Dutch Corporate Governance Code, the Selection and Remuneration Committee and Supervisory Board made scenario analyses when they determined the level and structure of the Executive Board's remuneration. These analyses included all elements of remuneration, including potential LTIP and STIP payouts, under various scenarios. The Committee has also discussed to which extent the variable remuneration might expose the company to risks, taking into consideration the overall risk profile of the company, as described in Risk Management. The
Committee reached the conclusion that the remuneration policy provides management with good incentives to create long-term value for the shareholders, without increasing the overall risk profile of the company.
In line with the Corporate Governance Code, as a policy, future appointments of Executive Board members will take place for a period of four years. As such, the proposed appointment of Mr. K.B. Entricken at the Annual General Meeting of Shareholders of April 24, 2013, took place for an initial period of four years. The existing contract of Ms. McKinstry, who was appointed before the introduction of the first Dutch Corporate Governance Code and has an employment contract for an indefinite period of time, will be honored. Periods of notice vary between 45 days and 180 days. With respect to future Executive Board appointments, the company will, as a policy, comply with the Best Practice Provision of the Dutch Corporate Governance Code regarding the maximum severance remuneration in the event of dismissal. In line with this Best Practice Provision, the contract with Mr. K.B. Entricken contains a severance payment of one year's salary. However, the company will honor the existing contract with Ms. McKinstry who was appointed before the introduction of the first Dutch Corporate Governance Code.
The employment contracts of the Executive Board members contain stipulations with respect to a change of control of the company. According to these stipulations, in case of a change of control, the Executive Board members will receive 100% of the number of conditional rights on shares awarded to them with respect to pending Long-Term Incentive Plans of which the performance period has not yet ended. In addition, they will receive cash compensation if their employment agreement would end following a change of control.
Fixed and variable compensation and other considerations for members of the Executive Board in 2013 are detailed in note 34 of the Consolidated Financial Statements.
In 2013, the base salary of Ms. McKinstry increased by 3%. Mr. Entricken's salary increased by 30% as of May 1, 2013, due to his appointment as CFO and member of the Executive Board. For 2014, the Supervisory Board decided to increase the base salary of the members of the Executive Board with 2.5%.
The Wolters Kluwer STIP grants Executive Board members a cash bonus if specific targets are met. The Supervisory Board determines the targets on an annual basis. Payment of the STIP bonus for each Executive Board member only takes place after verification by the external auditor of the Financial Statements of the company, including the financial performance indicators on which the financial STIP targets are based.
The STIP bonus for performance in 2013 (pay-out in 2014) for the members of the Executive Board was based on the achievement of targets with respect to free cash flow (33.3%), ordinary net income (33.3%), revenue performance (28.3%), and a sustainability related target, revenues from electronic products as a percentage of total revenues (5%). The Supervisory Board selected this target because electronic products reduce paper consumption and increase productivity which contributes to an improved sustainability performance for Wolters Kluwer and its customers. Consistent with the changes to the remuneration policy approved at the 2007 Annual General Meeting of Shareholders, the pay-out percentages to be earned based on performance were determined for each of the Executive Board members through individual benchmarking. The achieved percentages, earned in 2013 and payable in March 2014, will be 142.03% for Ms. McKinstry and 112.06% for Mr. Entricken (the absolute pay-out pro-rated as of his appointment as CFO and member of the Executive Board). The chart on the following page shows performance against target of each of the STIP measures in 2013.
Since these bonuses are related to 2013 performance, the amounts are included in the total remuneration costs for 2013 as shown in note 34 of the Consolidated Financial Statements.
Mr. Beerkens, the former CFO, left Wolters Kluwer in May 2013. The Supervisory Board greatly appreciated his activities in 2013, including the fact that he stayed at Wolters Kluwer until the 2013 Annual General Meeting of Shareholders, which was longer than required according to his notice period, and the highly professional way in which he transitioned his responsibilities to Mr. Entricken. Mr. Beerkens was therefore awarded with a pro-rated bonus for his contributions in 2013, as also shown in note 34 of the Consolidated Financial Statements.
For 2014, the Supervisory Board has approved the same target pay-out percentages for Executive Board members as for 2013: 125% of the base salary for the CEO and 95% of the base salary for the CFO. The maximum achievable pay-outs will be 175% for the CEO and 145% for the CFO. These amounts would only be payable if the actual performance exceeds 110% of target. There is no pay-out for results below 90% of target.
For 2014, the Supervisory Board has approved the same measures as for 2013, however with a different weighing: revenue performance (33.3%), ordinary net income (33.3%), free cash flow (28.3%), and revenues from electronic products as a percentage of total revenues (5%).
The Long-Term Incentive Plan (LTIP) aligns the organization and its management with the strategic goals of the company, thus rewarding the creation of shareholder value. The plan uses performance shares and at the beginning of a threeyear period a conditional award of shares is established. The total number of shares that the Executive Board members will actually receive at the end of the three-year performance period depends on the achievement of predetermined performance conditions.
Until 2011, rewards were fully based on Wolters Kluwer's Total Shareholder Return (TSR) in relation to a group of peer companies (TSR ranking). TSR is calculated as the share price appreciation over a three-year period including dividend reinvestment. By using a three-year performance period, there is a clear relation between remuneration and long-term value creation.
At the Annual General Meeting of Shareholders of April 27, 2011, the proposal to add diluted earnings per share (EPS) as second performance measure for the Executive Board LTIP 2011-13 and future plans was approved. According to this amendment, for 50% of the value of the shares conditionally awarded at the beginning of a three-year performance period, the pay-out at the end of the performance period will depend on targets based on EPS performance (EPS Related Shares). For the other 50% of the value of the shares conditionally awarded at the beginning of a three-year performance period, the pay-out at the end of the performance period will continue to depend on targets based on TSR in relation to a group of peer companies (TSR Related Shares). For calculation purposes the definition of diluted EPS as disclosed in
the Annual Reports of Wolters Kluwer will be used, the definition of which is similar to basic earnings per share (the profit or loss attributable to the ordinary shareholders of the company, divided by the weighted average number of ordinary shares outstanding during the period), except that the weighted average number of ordinary shares is adjusted for the effects of all dilutive potential ordinary shares. Adding EPS as performance measure for LTIP will lead to a stronger alignment between the successful execution of the strategy to generate shareholder value and management compensation.
In 2013, the TSR peer group consisted of the following companies: Arnoldo Mondadori, Axel Springer, Daily Mail & General, Dun & Bradstreet, Grupo PRISA, John Wiley & Sons, Lagardère, McGraw-Hill, Pearson, Reed Elsevier, T&F Informa, Thomson Reuters, Trinity Mirror, United Business Media, and McClatchy. This peer group is consistent with the peer group at the launch of the plan in 2004, with the exception of companies that have been replaced because their shares are no longer publicly traded. The Supervisory Board has established a secondary tier of peer group companies that can be used to substitute any of the current peer group companies should they delist during the term of the performance period. This secondary tier of companies includes Aegis Group, Gannet Co, Supermedia, and Yell Group. In case of delisting of a peer group company due to a takeover, the Supervisory Board can resolve to replace that peer group company either by the acquiring company, or by one of the secondary tier companies.
The Executive Board can earn 0-150% of the number of conditionally awarded TSR Related Shares at the end of the three-year performance period depending on Wolters Kluwer's TSR performance compared to the peer group (TSR Ranking). The company's external auditor, appointed by the Supervisory Board, verifies the TSR Ranking.
As approved in the 2007 Annual General Meeting of Shareholders, there will be no pay-out for the Executive Board with respect to TSR Related Shares if Wolters Kluwer ends below the eighth position in the TSR Ranking, 150% for first or second position, 125% for third or fourth position, 100% for fifth or sixth position, and 75% pay-out for seventh or eighth position. These incentive zones are in line with best practice recommendations for the governance of long-term incentive plans.
For the three-year performance period 2010-12, Wolters Kluwer has reached the eighth position in the TSR Ranking. As a result, in February of 2013, Ms. McKinstry and Mr. Beerkens received 75% of the number of conditional rights on shares that were awarded to them in 2010.
For the three-year performance period 2011-13, Wolters Kluwer has reached the eighth position in the TSR Ranking. As a result, in 2014, Ms. McKinstry will receive 75% of the number of conditional rights on TSR Related Shares that were awarded to her in 2011.
At the time the conditional awards of shares for the 2011-2013 performance periods were made, Mr. Entricken was CFO of the Health Division and as such on the senior management LTIP scheme. The targets set for senior management in 2011 were different than those for the Executive Board members. They were fully based on TSR performance (no EPS target) with different performance incentive zones. According to the 2011-13 senior management LTIP, the eighth position that Wolters Kluwer reached in the 2011-2013 performance period, leads to a pay-out of 100% of the number of conditional rights on shares that were awarded in 2011. As such, in 2014, Mr. Entricken will receive 100% of the number of conditional rights on shares that were awarded to him in 2011. It is noted in this respect that starting with the 2012-2014 performance plan, the senior management LTIP has been aligned with the Executive Board LTIP by adding an EPS target and applying the same pay-out schedule for TSR Related Shares as the Executive Board.
With respect to the EPS Related Shares (2011-13, 2012-14, 2013-15, and future plans) the Executive Board members can earn 0-150% of the number of conditionally awarded EPS Related Shares, depending on Wolters Kluwer's EPS performance over the three-year performance period. At the end of the three-year performance period, the Executive Board members will receive 100% of the number of conditionally awarded EPS Related Shares if the performance over the three-year period is on target. There will be no pay-out if the performance over the three-year period is less than 50% of the target. In case of overachievement of the target, the Executive Board members can earn up to a maximum of 150% of the conditionally awarded shares. The Supervisory Board will determine the exact targets for the EPS Related Shares for each three-year performance period. The targets will be based on the EPS performance in constant currencies, to exclude benefits or disadvantages based on currency effects over which the Executive Board has no control. Pay-out of the performance shares at the end of the three-year performance period will only take place after verification by the external auditor of the EPS performance over the three-year performance period.
The EPS target that was set for the 2011-13 performance period was based on a Compound Annual Growth Rate (CAGR) for EPS of 5.1%. The company outperformed the target. Due to the outperformance, Ms. McKinstry will receive 150% of the number of conditional rights on EPS Related Shares that were awarded in 2011.
The conditional share awards for the Executive Board members are determined by the comparable market information from European and U.S. companies. The actual number of conditional rights on shares awarded over the performance periods 2012-14 and 2013-15 can be found in note 34 of the Consolidated Financial Statements.
As explained above, shares are conditionally awarded at the beginning of a three-year performance period. The 2007 Annual General Meeting of Shareholders also approved the proposal to determine awards of conditional rights on shares for the Executive Board on a fixed percentage of base salary determined by individual benchmarking. For the 2014-16 performance period, these percentages are similar to the 2013-2015 plan, determined to be 285% for the CEO, and 175% for the CFO. These percentages are determined through an annual benchmarking process.
The number of shares conditionally awarded at the start of the performance period is computed by dividing the amount, as calculated above, by the fair value of a conditionally awarded share at the start of the performance period. The actual amount granted can vary from year to year, depending upon benchmark salary reviews. Because the fair value of TSR Related Shares can be different from the fair value of EPS Related Shares, the number of conditionally awarded TSR Related Shares can deviate from the number of conditionally awarded EPS Related Shares.
Senior management remuneration consists of a base salary, STIP, and LTIP. The senior management STIP is based on the achievement of specific objective targets that are linked to creating value for shareholders, such as revenue performance and free cash flow. As of 2012, the LTIP targets and pay-out schedule of senior management have been equated with the LTIP targets and pay-out schedule of the Executive Board.
Alphen aan den Rijn, February 18, 2014
B.M. Dalibard, Chairman L.P. Forman S.B. James P.N. Wakkie
When You Have to Be Right Our tagline, 'When you have to be right,' expresses the value Wolters Kluwer brings to all its stakeholders. Wolters Kluwer employees live this value proposition every day.
In February 2014, hundreds of employees all over the world joined webinar sessions to explore the Wolters Kluwer brand values and how the brand manifests itself in local markets. In addition, a group of Wolters Kluwer leaders participated in
a multi-day chat session to explore the brand values related to the business cases in this report, illustrating what Wolters Kluwer does.
President & CEO, CCH Tax & Accounting U.S.
Andrew Lang EVP & Global CIO
Corinne Saunders CEO Emerging & Developing Countries
Jason Marx President & CEO, CCH Small Firm Services, Tax & Accounting U.S.
Christian Cella Director, Business Development Brazil
VP Business Analysis & Control
Analyst Corporate Strategy joined Wolters Kluwer as part of the "Future Leaders Summer Internship Program"
Digital Communications Manager acted as the moderator of the online chat session that took place from February 10 to February 17, 2014
Audit workflow tools used to be available for the BIG 4 players only, as they had the means to develop, maintain, and keep these software tools up to date to the latest legislation. Sole practitioners carried out their audits with 'pen and paper' (and a little Excel help as well).
Coming from a BIG 4 firm myself, I was very impressed with the CCH Audit Automation product, which took this Workflow Tool to a whole new level from what I was used to. The software captures the audit flow from 'client acceptance' to 'final sign off'; provides interlinking with other Wolters Kluwer products; is always adjusted to the latest legislation and is accessible by multiple auditors working on the same client at the same time.
Several of my former colleagues agreed with me that Audit Automation has leveled the field and took away the competitive advantage BIG 4 firms had in this area. Some of them even started their own firms and use Audit Automation daily.
I hear stories almost every day where technology helps our tax professionals . . . from forms, to calcs, to workflow solutions. Tax compliance is complex, rapidly changing, and different in each jurisdiction. Our tax professionals rely on our compliance engines and software platforms to make sure they get forms and calculations right. In today's fastpaced and unforgiving tax environment they just could not do it profitably any other way.
At the intersection of digitized content, sophisticated business rules, automated workflow, ubiquitous cloud access, and advanced mobility solutions, Wolters Kluwer can offer the opportunity for professionals to access a wealth of cumulative and always-current knowledge in an easy-to-use fashion.
In Brazil, the State Tax Authority launched a new program SPED to digitalize all tax filings with thousands of fields to be checked before submission. We are the only player in the market having launched a set of products able to automatize all the calculations and we help our customers to provide the right files in a very complex environment.
All of the professionals that we serve across our markets need to be right to serve their clients/ patients, etc. It is expected and needed in our space. Professionals come to us because they know us to be thorough and accurate. As our world continues to become more complex, this value proposition to our customers is critical.
Fundamentally, the products and services we provide add value to our customers by simplifying their workflow and increasing their efficiency. Whether it is expert editorial content or cuttingedge software, we pride ourselves in providing solutions that tackle the pain points of our customers. Our high level of customer engagement together with our deep-seated curiosity constantly drives us to develop better products and services for the professionals we serve.
One of the connections between technology and subject matter expertise is that the technology can serve as an enabler of that subject expertise in new ways. In many industries, including Tax, Legal, Healthcare, and Financial Services, technology is already in use to provide deeper access to research and expertise through search tools or Business Intelligence tools; perhaps more will occur through customer-centric portals and apps that provide more personalized engagement with the end customer. I suspect the ones that truly take hold will allow the professional in any of these industries to engage with their own customer in their own way.
We have a unique positioning to help customers, selecting the right, relevant, and accurate content combining new technologies and our subject matter expertise. Today we can interact digitally with our customers to understand their needs and select the right piece of actionable information they look for.
We are leveraging communication technologies such as social media platforms and moderated online customer focus group forums to help us in having interactive conversations with our customers. This use of technology can help build tighter connections with our customers, and enrich our product offerings. We make it a priority to anticipate what's next – what the next generation of solution needs will be so they're available when the need is present.
Accessibility of our products will be the key. Customers want to be able to check their information at all times. As technology will change
customers' demands towards better, faster, and easier devices, we will need to make sure our products are easily accessible on these new devices as well.
I agree that in many ways accessibility is the key, and I think that goes far beyond platforms and devices. To me, those are relevant tools; accessibility really means access to the right answer no matter how the professional is trying to find it. So, when you are in a tax application and content is served up, or with our UpToDate application in health, these are all the epitome of "accessible."
In addition to accessibility, it is also important that we focus on making our products easy to use. Professionals want to quickly get the answers they require to improve their practice. Therefore, it's crucial that we provide our customers with the most intuitive solutions tailored to their needs.
Because information everywhere continues to proliferate, customers need Wolters Kluwer to help them identify the most relevant information and package it in the right way that will improve their efficiency and productivity. Technology is the enabler and customers will expect to be able to use our products on the very latest devices, but they also rely on us to steer them to the right and most relevant content, and to help them keep being efficient.
In many countries around the globe, a developed economy is still evolving – legal structure, revenue structure (tax), acceptable healthcare – Wolters Kluwer has the opportunity to expand upon our expertise from developed markets and be early entrants in some of these growth economies. It is a fascinating time to serve professionals.
We are a global company that operates in an increasingly global and diverse society. The work we do to serve our customers is in many ways tied to the work they must do to manage these issues and comply with a myriad of regulations. I believe it was Michael Porter that said 'when business focuses on solving a problem it makes a profit, which lets that solution grow.'
I agree. Wolters Kluwer is in an excellent position to leverage our existing best-in-class technologies to bring new products to professionals across the globe.
We are a global company with global capabilities and we work hand-in-hand with local experts on the ground who understand exactly what our customers face wherever they are in the world. This gives us a great balance between developing global tools & solutions which have scale and reach – and using these to enable local access to the precisely -tailored information our customers need.
As developing nations all over the world continue to industrialize and digitalize, their growing middle classes are gaining increasing economic power and seeking access to better healthcare and education. Wolters Kluwer is perfectly positioned to support governments and institutions to capitalize on these trends by making it easier for professionals to learn and deliver services in a cost-effective and precise way.
Tax regulations and controls will become more and more sophisticated and collaborations between companies and their advisors will be necessary to provide the right information to the tax authority while automating tasks and eliminating manual work.
As a recent college graduate, I joined Wolters Kluwer because I was drawn by the opportunity to learn from a company with over 175 years of experience serving professionals, and I was looking to begin my career in an innovative environment. Working at Wolters Kluwer has been an excellent experience because the organization constantly challenges its employees to solve customers' problems in new and better ways. By constantly embracing technological innovation and developing best-in-class solutions, Wolters Kluwer will continue to attract smart thinkers for the future.
I recently joined Wolters Kluwer (September 2013), and hence I have a number of colleagues from previous companies asking about life at Wolters Kluwer. One of the key messages I share is the collaborative, innovative, and empowered environment that I've experienced. Having spent my entire career as an IT professional and IT manager, one of the key motivators for IT professionals is the ability to feed their curiosity, to "ever learn" and solve challenges that are valued by customers. Having Deep-Seated Curiosity as one of the pillars for our company reflects the commitment to innovation that helps drive our success now and into the future.
My experience may be a bit unique in that I was actually a former customer of Wolters Kluwer before joining the organization. I was what politely could be called a vocal customer, and was able to get to know the leadership team in the Financial & Compliance Services organization. Then, as now, the approach was one that sought to understand, to collaborate, and to minimize compliance and operational risk for the customer.
If you really want to attract smart thinkers from outside we need to start involving more people from the outside – making them part of the innovation process, bringing in customers like Jason to collaborate with us and improve our solutions.
We need to find a balance between subject matter expertise and other types of talent – people who demonstrate customer-centricity, who have a solid business focus in sales or marketing for example. We need to find innovators from different backgrounds to expand our external thinking and bring to our attentions the future trends we should being preparing for.
We have moved quickly from a traditional publishing house to a software company. This combination of strong expertise with innovation and technology should be leveraged and accelerated to attract new subject matter experts, technologically savvy to create the new product generation while innovating also in our go-tomarket capabilities.
Companies in Brazil are required to submit highly complex electronic files to the Tax Authority that generate a high risk of fines. We have developed two products (Auditor and Analisador) that make thousands of cross checks and allow the customers to detect all the mistakes in the tax returns before submission and deliver the right information to the state.
Accuracy is critical in the solutions and products that we provide for our customers. There are significant business implications for our tax professionals if there are material errors in the tax forms or in the calculations used to support the small and medium-sized businesses (SMB). Our tax compliance engines provide the intelligence to deliver specific compliance forms and tax calculations based on the information provided by the tax professional, and some guide the professional through the process to make sure that they have asked all the right questions based on the SMB or tax payer's circumstances.
ProVation is another example of a product we offer that vastly improves documentation/ compliance workflows. ProVation minimizes the amount of time physicians spend on documentation and allows them to spend more time practicing medicine. "Immediately after a procedure is complete, ProVation MD will automatically generate billing codes, personalized letters for referring physicians, patient instructions, quality registry submissions, data reports, and more." (www.provationmedical.com/provation-md/) Intuitive solutions like ProVation and the other products mentioned above increase the efficiency of customers and enable them to become more successful professionals.
It's crucial we keep listening to our customers and acting on their feedback, ensuring we have a robust closed loop process – regularly monitor feedback, conducting focus groups and regular customer satisfaction surveys that give us an enterprise-wide view (across all divisions and geographies). We need to understand what the brand means to them and how we can keep living up to that promise.
Customers are a key part of our development cycle. Starting from mapping together their workflow to identify pain points and therefore product opportunities, we therefore need to include them closely in the development process to define product interface, usability, and functionalities before launching into the market.
Constant engagement with professionals in the markets we serve is a crucial component of our business success. It is therefore necessary that we understand the ins and outs of our customers' workflows so we can constantly deliver solutions that resolve their pain points and add value.
Our best ideas come from deep engagement with our customers, understanding what they need to be successful with their own customers and in growing their own practice. In that sense, engagement may well become more personal at a customer level, with a focus on more personalized solutions and interactions and an understanding of their unique business challenges.
I am honored in that I get to see and speak with our customers frequently. What becomes quickly apparent is that we are CR I T ICAL to their client deliverables. If something unfortunate happens and our cloud solutions have a service disruption, our customers literally can't work. The positive side comes as they come to us at the beginning stage of a transformation in their business. Our customers want our perspective on workflow best practices.
Meeting with and speaking with customers is one of the best parts of what we do. Being relatively new to the tax & accounting industry, I remain fascinated by the workflow of our customer and how they run their business. That inquiry allows us to really understand their problems and provide solutions.
Our Small Professional team recently con ducted several days of independently moderated focus group sessions which allowed us to monitor the conversation and really listen to customers' feedback, both good and bad.
Improving healthcare by staying abreast of the changing needs and challenges of medical professionals, using technology and insight.
Dr. Diane Homan, Vice President of Clinical Innovation and Chief Medical Information Officer at Rush-Copley Medical Center: "I vividly remember the day in October 2009 when a man was admitted to my hospital with tuberculosis (TB). Our tests identified a very specific and rare form of the TB bacterium that we'd only seen once before in the county, two years earlier."
That December, two more men with the same strain of TB were admitted to Rush-Copley, in the Illinois town of Aurora. Staff were puzzled, until they made a crucial discovery. "We have a transient community, with lots of people coming here from Mexico. So we always have a rate of TB, but with a common genotype. This type was uncommon," says Dr. Homan. "Our manager of infection prevention looked at the information and said: 'They're all coming from one specific homeless shelter in Aurora.'"
It was the start of a life-saving fight, demanding human perseverance and an innovative use of technology, including Wolters Kluwer's clinical knowledge systems.
You might well think that TB has been wiped out. Well, it has not. It is second only to HIV/AIDS as the greatest killer worldwide due to a single infectious agent. Over 95% of TB deaths occur in low and middle-income countries. That doesn't mean it stays there: TB-infected migrants carry the disease with them. Once the disease had been detected in Aurora, it was vital to prevent it from spreading further. "We realized we needed to further screen the community. People could be exposed in other ways, like volunteering at a shelter or through contacts in the community where homeless people tend to congregate, like the local library or bars," says Dr. Homan.
Rush-Copley launched a massive screening program that initially evaluated more than 800 people. As a result, 312 latent cases and 45 active cases were identified and treatment administered.
With the aid of Wolters Kluwer's ProVation Order Sets and UpToDate, Dr. Homan's team devised a truly innovative solution. ProVation Order Sets delivers evidence-based treatment protocols integrated with UpToDate, a best-in-class, physician-authored clinical decision support resource.
"Homeless people may not have frequent check-ups, but they do show up in emergency departments. We embedded tuberculosis screening as a required element of screening in numerous order sets," the doctor says. It was embedded into staff workflow so that even hyper-busy emergency room doctors and nurses couldn't forget to check for TB when patients came in with a cough, fever, or night sweats.
"If you just rely on emergency room staff remembering to screen, it's much more sporadic. You're less likely to identify those with latent phase TB. More patients will evolve into the advanced active phase of the disease, which is more expensive to treat and increases the risk to the patient and the community," says Dr. Adam Lokeh, Vice President of Clinical Development & Informatics at Wolters Kluwer Health.
"The major problem was that patients with tuberculosis don't need to stay in the hospital – nor can they go back into the community. The Kane County Health Department wouldn't let us discharge the patients, because they had no known address to be discharged to. They were concerned about exposing others in our community," Dr. Homan says.
If we had all these patients in the hospital at the same time it would be a disaster. We worked with them to secure accommodation for this population of patients. It took months," she adds.
Such persistence ensured a 97.4% completion rate for the treatment of active tuberculosis, an abnormally high rate. Because of the side effects of the medication, many sufferers – especially transient, hardto-track groups – don't complete their course of treatment.
UpToDate® is an evidence-based, physician-authored clinical decision support resource. It is relied upon by more than 700,000 clinicians in 158 countries and almost 90% of academic medical centers in the U.S. Over 30 research studies show widespread use of UpToDate is associated with improved patient care and hospital performance, including reduced length of stay, adverse complications, and mortality.
"One of the reasons for the success of treating active phases was that we provided them with housing during this time, as well as observed medication administration on a daily basis, provided through nurses from Kane County Health Department," says Dr. Homan.
"We don't improve health in communities by what we do while they're in hospital. It's about what we do in the community," says Dr. Lokeh, who combines his role at Wolters Kluwer with part-time work in a children's hospital trauma department. This enables him to remain abreast of the changing needs and challenges of the medical professionals that Wolters Kluwer serves.
"We're not going to be able to completely rid the world of tuberculosis; we'll only be able to manage the outbreaks," he says. "Rush-Copley did that so successfully because they were able to use the technology they had, the information they had, and the cooperation of the community, to deal with this critical issue before it got much larger."
Diane D. Homan, MD is Rush-Copley's Vice President of Clinical Innovation and Chief Medical Information Officer. Her overall responsibilities include professional management of clinical, administrative, and operational units including oversight of Quality, Medical Staff Office, and Care Management. She has been on the faculty of Rush University Medical Center since 1984 and practices Family Medicine.
The 550 physicians and 2,000 clinical and professional staff members at Rush-Copley Medical Center, Aurora, IL, are committed to providing advanced medicine and extraordinary care to the greater Fox Valley community. Rush-Copley is proud to be accredited by The Joint Commission, a U.S. national organization assisting healthcare organizations to continuously provide safe, high-quality care, treatment, and services.
ADAM LOKEH, MD is Vice President of Clinical Development & Informatics, Clinical Solutions at Wolters Kluwer Health. He leads the design, development, engineering, and interoperability of multiple clinical decision support software products. Adam is a board-certified plastic surgeon, specialized in reconstructive, hand, microvascular, and aesthetic surgery at Twin Cities Plastic Surgery and at Children's Hospitals and Clinics of Minnesota.
Technology fundamentally changed business models in the content industry. In this always-on world of content creation, what is the role of the 300-year-old concept of copyright, protecting IP, and trademarks?
In December 2013, Wolters Kluwer partnered with Google and the John Adams Institute to explore the increasingly complex issue of ownership of intellectual property and copyright at an expert panel in Amsterdam. Global experts Paul Goldstein and James Boyle, together with Bernt Hugenholtz, took the stage to share and discuss their perspectives. Paul Goldstein is Professor of Law at Stanford Law School and a globally recognized expert on intellectual property law. James Boyle is Professor of Law and co-founder of the Center for the Study of the Public Domain at Duke Law School and columnist for the Financial Times. Bernt Hugenholtz is Professor of Intellectual Property Law and Director of the Institute for Information Law at the University of Amsterdam. Wolters Kluwer is a worldwide leading provider of insights into copyright regulations.
"Technology has revolutionized the music industry," says Shamal Ranasinghe. "First fans went from buying CDs to downloading and sharing MP3 files, mostly for free. Then Apple launched iTunes and a new digital music industry was born. Now, downloads are falling rapidly as streaming services like Spotify soar in popularity."
As founder of multi-million dollar business Topspin, a direct-to-fan marketing, management, and distribution platform that helps artists market music directly to their fans, Ranasinghe has seen one of the biggest sectors of digital content – music – fundamentally transformed by technology.
"The challenge for gatekeepers and artists is to keep up with the technology consumers are using. They need to adapt quickly – or risk losing market share," says Ranasinghe.
That's echoed by Professor Paul Goldstein, professor in copyright law at Stanford University. "When gramophone records appeared in the early 20th century, sheet music publishers sued – but soon realized their sales were going up. Similar protests met the arrival of radio, TV, video recorders, yet each time the pie that producers could share grew." The internet has transformed the way we consume and share content, and given rise to so-called 'Generation C' – people who care deeply about creation, curation, connection, and community. Social interactions give Gen C its sense of self: constantly connected, they 'are' what they share, like, comment, or retweet.
Gen C doesn't feel the urge to own content – not even stuff they have created themselves. On the contrary, they actively want others to freely share and re-use their posts, films, photos, mash-ups, or memes. And they're just as interested in curating as creating.
Ranasinghe is one of them. He sleeps with his smartphone next to his bed. He uses Twitter or Facebook to share content he finds noteworthy, educational, inspiring, or amusing, and has his own blog for longer-form reflections on topics such as art or music. "I like to consume media, then share, endorse, and advocate things," he says.
He built Topspin into a business used by over 80,000 musicians, comedians, labels, managers, and film makers and is now working on his newest start-up, Fluence, an app connecting artists and other creators to influencers in their fields.
He sees a clear trend: "With new technologies, the typical cycle is denial – incumbents say the new technology will never work – and then acceptance. With Topspin, there was a lot of resistance to the notion of going directly to fans. But now it's become a standard. All the people who had issues with it are now adopting it widely."
Yet in a world where copying and communal creation are common currency, where does that leave copyright and protection of trademarks?
Many say copyright is in crisis. "The social legitimacy of the model is in peril. I'm worried that one day, copyright will just be voted out of parliament," Wolters Kluwer author Bernt Hugenholtz told the Amsterdam event.
Copyright's origins are generally traced to 1710, when Britain's Statute of Anne gave authors an exclusive right to control the reproduction and distribution of their books for a prescribed period of years. Fast-forward three centuries, and copyright law still does just that, but with some modifications. Now, for example, it includes the exclusive right to perform, display, or make adaptations of a work. But the basic right to stop other people using your content is unchanged.
Last year, Wolters Kluwer acquired CitizenHawk, a provider of online brand protection and global domain recovery solutions. As part of the Corporate Legal Services portfolio and marketed under the Corsearch brand, CitizenHawk's services include helping identify and recover cybersquatted domains, and countering threats such as typosquatting – a form of cybersquatting that relies on errors internet users make when inputting a website address into a browser.
The trend toward global brands and online commerce has created a need for both traditional trademark clearance and protection solutions and online brand protection as criminals and opportunists look to exploit these companies going abroad.
Recent research by Forrester, eMarketer, and Millward Brown:
So is that an outdated mechanism fit only for abolition? Not according to Goldstein.
"Copyright occupies a part of our lives as consumers in a more direct way than ever before," he states. Goldstein says we need copyright to battle the time squeeze we all feel these days. "The scarcest resource we have is time. No-one has time to sort through everything on the internet, to figure out what will be most attractive to us. We rely on intermediaries such as publishers, movie producers, record labels, to screen, produce, and distribute products that will appeal to people. They won't do that without copyright."
The internet makes copyright more necessary than ever, Goldstein believes. "If information were truly free, people would be inundated with information overload, with chaos."
Paul Goldstein is a Professor of Law at Stanford University and a globally recognized expert on intellectual property law. In addition to his academic work, Paul is frequently consulted by law firms and has worked on several ground-breaking copyright cases, including Universal v. Sony (the "Betamax" case) and West v. Mead Data Central (the "Star Pagination" case). He has a seventeen-year relationship with Wolters Kluwer Law & Business as the author of Goldstein on Copyright, a definitive source for courts and practitioners on fundamental issues of copyright law. He is one of the many industry-leading luminaries partnering with Wolters Kluwer's legal and regulatory experts to provide the insight needed to interpret and successfully navigate today's complex rules and regulations. Paul is also a published author of fiction and his novel, Havana Requiem, was awarded the Harper Lee Prize for Legal Fiction.
Shamal Ranasinghe, representing the perspective of Gen C, is a media entrepreneur with 18 years' experience helping creators connect with their existing fans and promote themselves to new fans. He recently founded the startup, Fluence: an app connecting artists and other creators to influencers in their fields. Fluence is a new attention marketplace where Influencers, Curators, and Experts can give the rest of the world a means to promote directly to them. Shamal is also co-founder of Topspin, a direct-to-fan marketing, management, and distribution platform. Find him on Twitter as @shamalman or on his blog madrespect.com.
A drain on society or a vital stimulant for economic growth? Views on immigration are divided. Wolters Kluwer is promoting knowledge of local laws as a powerful force for successful social cohesion. Serious
Commit-
Immigration is a hot political and social issue across Europe, especially as the economic crisis in many countries puts pressure on jobs and public resources. Spain has suffered one of its sharpest downturns in decades. Although now showing tentative signs of recovery, unemployment remains at over 26%.
Given these economic woes, it is all the more impressive that Spain's rapid growth in immigration over the last decade hasn't been more socially divisive. In this time, the country's foreign-born population has increased dramatically, from less than 4% of the total population to almost 14%. And yet the country is recognized as having one of the best records in Europe for successfully integrating its immigrant communities.
How has this been done? A pioneering initiative by the Wolters Kluwer Foundation has played an important role. A program called 'Conoce tus leyes' (Know Your Law), started by Wolters Kluwer together with the Regional Government of Madrid recognized a fundamental factor that helps communities live and work together successfully: understanding the law.
Pablo Gómez-Tavira, General Director of Immigration for the Regional Government of Madrid says the city's immigrant population has risen faster than that of many other European cities over the last decade, making the smooth integration of different communities a particular challenge.
Encouraging a common understanding of the law can play a key role, he says, especially when dealing with citizens of 166 different nationalities. "Many people who move to Spain from abroad ignore Spanish culture, our customs, and legal system. With so many coming to Madrid in such a short time, we face a great number of people who need to know their legal rights and obligations. Wolters Kluwer has played an outstanding role in helping us achieve that."
The program is the first in Spain – and Europe – to help immigrant communities better understand the laws of their adopted country: teaching them the fundamentals of Spanish Law, their main rights and duties, and how they are regulated by the Spanish legal rules. It also helps them find work and settle into the community, teaching local social skills, tips for tackling job interviews, and some introductory language training.
Completing the program helps participants gain a certificate of settlement in Spain and, ultimately, the proof of social integration they need to be granted nationality. Not surprisingly, this makes it a hot ticket for thousands of immigrants every year, with participation accelerating sharply. Since it began in 2009, no fewer than 28,500 people have completed the course, with 13,000 in 2013 alone.
Rosalina Díaz Valcárel, president of the Wolters Kluwer Foundation, explains how it all started.
"When we began the project, a quarter of Madrid's four million population were immigrants. We thought their integration would be much easier if they had a better knowledge of their legal rights and obligations. We strongly believe that co-existence of different cultures is much easier when both immigrants and native communities are familiar with common legal rules. Spanish people are already very accepting of immigration, but most of all when they feel immigrants are 'playing by the same rules' as Spanish people."
The success of 'Know Your Law' has prompted the Regional Government of Madrid to share its experience with other municipalities. Pablo Gómez-Tavira has recommended it be adopted to ease immigrant integration elsewhere in Spain, and has even presented it in Brussels with a view to extending it to other European countries. "The contribution of Wolters Kluwer has been essential," he says. "It would have been impossible to carry out this program without them and we are extremely grateful for their support."
As Rosalina says, "Our stakeholders now see us differently – not only as a provider of legal solutions, but as a partner for actions related to corporate social responsibility."
Wolters Kluwer used its close relationships with law firms and the legal departments of big companies to set up this inclusive and inspiring program. Working with the Autonomous Community of Madrid and the Madrid Bar Association, Rosalina and her team asked the lawyers for their help in teaching classes to immigrants for free. The response has been remarkable, with lawyers
from over 30 firms in Madrid willing to give up part of their free time to advise and share their knowledge.
Wolters Kluwer also used its network of expert authors to create a book for the course students, and teaching materials for the lawyers. The result has made a tangible difference to the community.
One of the first students to complete the program, Philippines-born Eleanor Diana de León, has since become one of its most passionate supporters and a shining example of successful integration.
Eleanor emigrated from the Philippines to Spain with her husband 22 years ago, aiming to start a new life in Madrid. The couple initially planned to find domestic work together, but the reality of settling into the Spanish capital was harder than they expected. The couple could not find work together and struggled with the language.
"If you settle in a new country where you really want to build your home, it gives you a different perspective on life, including how you try to integrate into the culture you find yourself in," says Eleanor, recalling the early days of her struggle to settle into Madrid life.
"It was hard at first, particularly with the language, but now we plan to stay in Spain. We may go back to the Philippines when we retire, but that's still a long way off. This is now our home," says Eleanor, who works as a sales rep with a surgical stainless steel cookware company. Her husband has also settled well, working in the restaurant sector.
Many things have helped Eleanor build her new life – including the church, charities, and other members of the Philippine community – but the 'Know Your Law' course played a vital practical role that in many ways helped to change her life. The value of helping immigrants better understand their adopted country had a profound influence on Eleanor and ever since she has devoted time to helping other foreign-born people adapt to life in Spain.
After completing the course, Eleanor wanted to pass on her knowledge to friends and neighbors. Since then, she has taken responsibility for helping her community's integration even further, by becoming the local head of AFIMA, the association of Philippines immigrants in Madrid. "Once you know something, it's better to share," she says.
175-year old start-up Wolters Kluwer organizes multiple initiatives to stimulate the understanding of technology. A software company with a strong history of subject matter expertise attracts smart thinkers.
Ali Hashemi, an Artificial Intelligence expert, has worked with several Wolters Kluwer teams. In 2013, he was engaged in deploying cognitive computing for European Law. He shares his perspective on the cognitive computing revolution, and what will be next.
Ali Hashemi: "We're in the middle of a cognitive computing revolution. This is in contrast to what we had in the past decade: the digital revolution. And prior to that was the print revolution that took a few thousand years. We're increasingly going to see a lot of artificial intelligence technologies deployed across the whole spectrum of computing solutions.
Cognitive computing is a relatively new term. It's been popularized since IBM's Watson had success on Jeopardy! and it really captures the fact that computers can now do a lot of things that we thought were only in the purview of humans. Computers can now understand aspects and think, more importantly, in similar ways to humans. And so we can engage with computers on a cognitive level."
Wolters Kluwer is an attractive partner for companies and employer of choice for individuals that want to deploy the latest technologies. They are driven by curiosity on how to apply these new ways of thinking to the work of professionals.
Ali: "When we think of what professionals are doing, for example a lawyer or a doctor, this means that the cognitive computing and artificial intelligence technologies will allow us to address a lot of the problems that came about as a result of the digital revolution. One of the unseen consequences was that we have way more information than most people know what to do with. We have a deluge of information and what these technologies will allow us to do is to find that needle in the haystack. Find that relevant bit of information which helps you solve the problem at hand."
According to Ali, we can look at the three different revolutions that have occurred in humans interacting with knowledge: print, digital, and cognitive computing from a concrete use case that a lawyer might deal with: copyright infringement.
If the lawyer has a client who is embroiled in some sort of lawsuit about copyright infringement, in the print revolution they would need to know what books contain material about this, they would find that book, open it, look inside the book, find the relevant sections, maybe manually copy out, write notes, highlight, photocopy, etcetera. Then they would build the requisite knowledge that helps them solve the problem.
"In the digital revolution, once you've made all these print materials digitized, the lawyers now work on a computer, and we had entered what I would call the 'dumb search era.' A lawyer would go in and type in 'infringement' into a computer, a dumb search takes the exact string, that exact word, and matches it into all the content it has at its disposal, and serves it up to the lawyer. The downside of this is that you could get a lot of irrelevant information, and this is what gives rise to that deluge, that giant haystack," sees Ali.
As an artificial intelligence expert, Ali is intrigued by the next steps in the evolution of the information and knowledge industries, "when we get to the cognitive computing revolution, the one that we're at the cusp of, a lot of the artificial intelligence technologies will allow us to actually engage with the lawyer at the cognitive level. That means that the computer will now know what the lawyer is thinking about."
"If we're talking about someone who is in the Netherlands and is being accused of copyright infringement in the U.S., it would know that there are treaties governing what goes on in that; it knows that the Netherlands is part of the European Union. It can draw on all of this knowledge to sort the content and provide answers that will allow the lawyer to do what they need to do."
One of the projects Ali has been working on in the past year with Wolters Kluwer's Vincent Henderson, based in France, and Christian
Global Innovation Award Stimulating innovation and engaging all employees in innovation is an integral part of Wolters Kluwer's global strategy. On February 12, the 2014 Wolters Kluwer Global Innovation Awards were launched. The Awards program includes tournaments, giving all employees an opportunity to enter and vote for innovation proposals from around the world.
The winners in 2013 were selected from 700 submissions:
The outcome of the 2014 Global Innovation Awards will be announced in July this year.
An example of innovation and the hand-in-hand technology development of our global organization and the business units is Zeteo Swipe. Legal & Regulatory Sweden teamed up with the Global Platform Organization to deploy mobile access for their Zeteo product. Zeteo provides access to over 300 different legal publications available on Zeteo on-the-go, the Swedish online search platform. The e-book library contains 250 titles. Zeteo Swipe runs on the local Swedish publishing platform using the online service architecture and Global Platform Organization's mobile framework.
Wolters Kluwer organizes several technology and innovation events throughout the year such as its Annual Technology Conference that took place simultaneously in Minneapolis, U.S. and Amsterdam, the Netherlands, in July 2013. Over 300 people had the opportunity to learn and share ideas with their peers and other industry experts on the latest thinking in cloud computing, big data, mobility, and social media.
Our technology staff is also actively contributing to the annual user conferences around the globe, where our customers hear about our new product developments.
Companies – especially financial institutions – need to provide increasing volumes of hard evidence to prove to regulators they're playing by the changing and ever-more complex rules.
"The Chinese market has undergone a major change over the past 20 years," says Wantao Yang, partner at Zhong Lun Law Firm, specialized in regulation for banking and financial services. "The financial system used to be based mainly on savings deposits and trading, so regulation and risk compliance was relatively simple. But now there's an abundance of products for investors to choose from: and that brings different risks in need of regulation."
So, as China prepares to step onto the world stage as one of the most strategically important financial players, its government is raising the bar on financial regulation – and fast. While it continues to open its doors to foreign investors, regulatory requirements for financial service firms doing business in the country are increasingly stringent.
"China had many more reporting requirements in the past, but they were less sophisticated," says Michael Thomas, Regional Director North Asia at Wolters Kluwer Financial Services. "This is starting to change now."
ZHONG LUN and CONFUCIUS The name of the law firm, 中伦 (Zhong Lun), means "to keep in compliance with ethical principles." The term "中伦" first appeared in the Analects of Confucius. The founders of the firm chose "中伦" as the name, signifying their commitment to comply fully with the letter and spirit of the laws, rules, and ethical principles that govern the firm. Zhong Lun Law Firm is headquartered in Beijing and has offices in Shanghai, Shenzhen, Guangzhou, Wuhan, Chengdu, Hong Kong, Tokyo, London, and New York. The firm has now over 700 professionals, and is consistently chosen as legal service partner by clients who require comprehensive services in an increasingly complex legal environment across the vast geographic area of China.
Michael Thomas Regional Director North Asia, Wolters Kluwer Financial Services
At present, it's a fragmented regulatory environment with an abundance of authorities. The main financial supervisors include the China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission. All are designed to regulate different sub-sectors.
But as financial markets evolve and products become more complex, boundaries between the regulators are blurring. "This leads to overlapping regulations, or even conflicting standards, which leads to markets 'shopping around' regulators," says Yang.
Last October, the government announced the creation of an overarching 'super-regulator,' led by the central bank, to coordinate financial supervision and bolster regulation in the financial sector. The superregulator is expected to reduce these conflicts through better coordination.
One of the hottest issues is anti-money laundering (AML). Tackling fraud and corruption has been high on the agenda of China´s present leadership since it took office in 2012, and AML regulation is a key element of its policy.
A steady stream of AML regulations has been launched since 2007, when China became a member of the Financial Action Task Force, an international money laundering and terrorism financing watchdog. As soon as they were published, they became freely available to criminals and terrorists who were quick to find ways to bypass them, long before financial institutions were able to implement them.
In recent years, the pace of change around anti-money laundering and terrorist financing regulation has been faster than ever before. In 2012, the People's Bank of China, the central bank, issued new AML rules for financial institutions as part of its risk assessment for money
Wantao Yang, partner at Zhong Lun Law Firm: "Going through this process of building deep knowledge and understanding is key to enabling markets to work efficiently. It will eventually benefit the health of the entire financial system. It's like playing a game of chess. When two players have dramatically different levels, the game will be challenging and frustrating for both. But when they play at a similar high level, they can make subtle moves, which will lead to a sophisticated and ultimately highly enjoyable game."
'My word is my bond' used to be enough in the compliance world. Those days are over. That is difficult enough in the developed world. But in emerging countries like China, whose economies are growing strongly and financial markets are developing at breakneck speed, the challenges are breathtaking. In October 2013, Wolters Kluwer launched its anti-money laundering solution for financial institutions operating in China. The system can help institutions detect and report suspicious activity in order to comply with guidelines administered by regulatory authorities governing China and the Asia Pacific region.
Yong Zhao Professional Services Manager, Wolters Kluwer Financial Services
Kevin Fang R&D Manager, Wolters Kluwer Financial Services
laundering and terrorist financing. The move followed watchdog groups' claims that trillions of dollars had been laundered over the past decade.
More legislation bringing more detailed compliance requirements is expected in 2014. The latest guidelines require financial institutions to conduct a thorough risk-weighting assessment of all their clients. Financial institutions must rate those risks based on their client's location and the nature of their businesses, including their levels of transparency. They must submit this data to the People's Bank of China by December 2015.
"That will be no mean feat," says Thomas. "These institutions possess some of the largest client bases in the world. The amount of data they have to manage is enormous. And the solutions currently being used in China are lagging international standards."
As China's regulatory requirements tighten, it is facing a pressing problem: a lack of knowledge. "China is suffering from a brain drain," says Thomas. "The banking sector is overflowing with workers, but there's a severe shortage of international expertise and experienced staff."
With more and more complex products rapidly entering the Chinese market, finance professionals are struggling to keep pace with developments and regulations. Whereas developed markets have typically seen a gradual introduction over a long period of time, China's regulators, financial institutions, lawyers, and investors all need to understand the mechanisms quickly. But grasping these complex products and putting the right regulating regimes in place is a process – and processes take time.
Wolters Kluwer aims to help its customers in China increase their knowledge levels. "Those customers range from major global banks to foreign banks with small operations in the country," says Yong Zhao, Professional Services Manager at Wolters Kluwer Financial Services. "It's especially challenging for those smaller banks to understand all the requirements from regulators, as they often lack the resources or experience. We provide training, help them understand regulatory requirements, and offer solutions that address their needs," he explains.
"Our strength is that we are able to respond quickly to the changes in regulatory requirements," says Kevin Fang, R&D Manager at Wolters Kluwer Financial Services. "We also closely listen to our customers' needs, incorporating their feedback into our constantly evolving products."
New product features, process improvements, and ideas on trends in the industry – customers have an ongoing
Development Partners started in January 2012 as a small group of about 20 customers and has now grown to 90. They join Wolters Kluwer's CCH Canada for off-site meetings of one or two days, virtual meetings, and also take part in questionnaires. They work on specific exercises to help us develop product ideas that best meet their needs. The TaxprepConnect product has been developed based on the input from this large group of customers that are all part of Public Practice firms. Members are accountants from large nationals to small office professionals. These customers assisted us in developing the product idea, finessing it. They also endorsed us when we presented the idea to the Canadian Revenue
Agency for approval. It is really quite exciting for a software developer to have such an excellent and strong customer group supporting them from idea creation to execution.
CCH was founded as Commerce Clearing House in 1913, the year the U.S. federal income tax was created. CCH became part of Wolters Kluwer in 1996. Wolters Kluwer prides itself on the strong history of CCH and customers benefit from the rich insights and expertise that the products and services bring today and in the future.
A survey among the Development Partners gives insight in what our customer engagements means for them.
1 Janet Foster Partner, Collins Barrow, Carleton Place, Ontario
2 Debra Dowdell Director of Operations, Trowbridge Professional Corporation, Toronto, Ontario
3 Michael Merpaw Partner, Collins Barrow, Ottawa, Ontario
4 Todd Trowbridge Partner, Trowbridge Professional Corporation, Toronto, Ontario
5 Richard Schaak Managing Partner, Collins Barrow, Sudbury, Ontario
6 Darren J. Buma Partner, KWB, Edmonton, Alberta 7 Dan Chun President, Dan Chun Inc., Kelowna, British Columbia
8 Justin VanDyk Senior Accountant, BVVL Chartered Accountants, Lethbridge, Alberta
9 Dino Micacchi Partner, Micacchi Warnick & Company, Woodstock, Ontario
10 Brett Martin Associate/IT Manager, Collins Barrow, Red Deer, Alberta
11 Ray Desjardins Proprietor, Desjardins & Company Chartered Accountants, St. Paul, Alberta 12 Shmuli Wenger Director of IT, Collins Barrow, Montreal, Québec
13 Olivier Beauregard Fiscalist, Hardy Normand et associés, Anjou, Québec
14 Charles Landreville CPA, Gatineau, Québec
15 Eric Bachand Associé, fiscaliste, Lefaivre Labrèche Gagné, Saint-Constant, Québec
16 Richard Taschereau CPA, Propriétaire, Plessisville, Québec
17 François Gosselin Président, Gestion Franco Inc., Québec, Québec
Customers of Navigator reviewed product features early in the development stage, contributing with insights on the new version of the legal portal.
Key influencers from the U.S. legal community form the Insight Leadership Council to exchange expertise to better understand the needs, predict trends, and solve information and workflow problems for legal practitioners.
Customers and employees of Wolters Kluwer Law & Business joined forces at a panel to come up with market-leading ideas.
Wolters Kluwer's CCH User Conference brought together hundreds of customers to discuss new products and services and trends in the tax and accounting profession. Accountants in the Netherlands gathered at the Twinfield User Conference, focused on the latest software developments.
At the Global Platform Organization User Conference, a customer-panel commented on the opportunities of technology innovation in products and services.
Wolters Kluwer Health's 200-strong Customer Advisory Board met in Chicago to share best practices and discuss the future of IT solutions in healthcare and how Wolters Kluwer can meet those needs.
Prosoft in Brazil, held 15 focus group meetings with customers over the past year.
Nearly 100 CT Corporation hCue users attended the annual 'Productivity Sessions' User Conference in Nashville in November.
[Feb 14, 2014 11:11 PM] To be involved in helping our main software provider create a product that helps our office be more efficient and effective.
[Feb 12, 2014 5:05 PM] To have a voice in new products developed for our profession as well as have insight into future software development for our industry.
[Feb 12, 2014 4:33 PM] We use CCH products almost exclusively and are therefore very interested in having input into future product development.
I am a big believer that creative technology solutions can allow us to re-think how we do our work and in the process help to improve operational efficiencies. Being able to be a part of the development process is both exciting and productive.
[Feb 12, 2014 3:53 PM] Prior to being invited, I would try to submit a few items, sort of a 'wish list' after tax season. I found the development team would include most of these in the next version. This always impressed me. But probably the biggest attraction was the opportunity to participate in
exciting new products and enhancements that make life easier for public accountants.
[Feb 11, 2014 8:16 PM ] My main reason for joining Wolters Kluwer's CCH Development Partners group was to have first-hand input in software development that directly affects our business. Far too often we receive surveys from software companies asking for our input and ratings on products – and we have no idea how this information is being used or if it is even being valued. As a member of this group I know that my comments/suggestions are being taken seriously by the management and executive team and that my input is valued as a member of this team.
[Feb 11, 2014 2:21 PM] I have been associated with the Development team before this group was set up and met some of the people in Sherbrooke. I found them to be excited about their work and about helping people.
[Feb 10, 2014 1:08 PM] CCH has always shown a strong commitment to listening to its customers and designing new applications based on our requirements. When Philippe asked if I would be interested in joining the group I felt it was a way for me to repay CCH for the top notch service they have provided our firm over the years.
I have been a Taxprep user since the mideighties and I've always had a great working relationship with the Taxprep / CCH management team. Management and support have always responded quickly to
any questions or suggestions with respect to Taxprep and related projects. I've beta tested many CCH products over the years and, when I was invited to join the Development Partners Group, it seemed to be a natural fit for me.
I felt it would be beneficial to both of us as a partnership. We can let you know firsthand of our issues and frustrations and at the same time be able to help you develop the programs and create new ones by testing for you on our files and giving feedback from our firm on a real world scenario. It was well worth it when I look back.
products that meet out requirements.
[Feb 10, 2014 2:48 PM] To be on the lookout for innovations and to influence Wolters Kluwer, so it addresses our needs.
[Feb 9, 2014 6:27 PM] To contribute to the development of high performance products for which I have a lot of interest.
Seeing our suggestions come to life was so exciting. CCH was able to put our ideas into a product and make them even better than we imagined.
Being able to review and contribute to the design improvement of new products.
Being able to obtain enhancements to existing products and development of new products that are practical and useful to our firm.
Collaborating with likeminded firms and becoming a more integrated with our primary software partner.
Having prior knowledge of new software and understanding how the software could impact the firm.
The primary benefit is to help direct the development efforts into areas that will produce technologies that truly solve problems that we live with day-to-day. As a customer, it's very exciting to know that someone is listening to our problems and wanting to help as opposed to the
more traditional model of building something that they think we want.
It's tough to select one. It really helps to know that the iSolutions team has a great skill level and interest in improving life for tax practitioners. I really get the impression that CCH is always looking for improvement and really listening to their users. I pick up great ideas and hopefully contribute a couple, too.
My number one benefit to me as a member is having software being developed that can increase my profitability and efficiency in addition to being able to provide top notch services to my client base.
I get to work with people who care about what they do and help them create something that benefits others.
As a member of the Development Partners group, it gives me a chance to meet face to face with the leading thinkers in the Canadian accounting industry. I firmly believe that I get far more than I give as a member. After every meeting I come back to my office re-energized and with more new ideas about how to make our office more efficient and a better place to work.
I feel this group allows me insight and input into the planning process at CCH and allows me to be on the leading edge of tax services I can offer to my clients. My membership gives me an opportunity to be a leader in my profession when it comes to taxation and office management practice.
I have the relationship with the product managers and developers to be able to communicate freely and tell them my thoughts.
Provide input for the development of products that will be useful to us.
My reasons for becoming a member of the group have been fulfilled, but the no. 1 advantage is that I am among the firsts to experience my new Wolters Kluwer tools.
To be on the lookout for all of the new products and interact with people who are all there to try improve their performance and their way of doing things.
TaxprepConnect is a new CCH product developed through the Development Partners Group. What do you believe will be the advantages of deploying this product within your organization? How will it functionally change your practice?
We're excited to see the efficiencies that can be part of our processing with TaxprepConnect as part of our system.
The advantages of deploying this product will include a more efficient method of obtaining client specific information from the Canada Revenue Agency (CRA), having that information readily available in Taxprep for either comparing it to data already in existence or for adding missing data to Taxprep. It will change our practice in that our staff will now be able to make comparisons of tax slip data, carry forward data for all clients versus just those clients where we believe errors or omissions exist.
Massive time savings are expected through the use of this product as it continues to develop and expand capabilities. This should allow us to eventually have an additional check on the tax returns we prepare as well as easily import information that the client may not have provided allowing us to increase the level of client service.
This software will save our clients from costly penalties and interest if they have forgotten or lost information needed to complete their tax returns.
We were asking our staff to do all of this manually in the past. It was very time consuming and error prone. This will allow us to efficiently produce a better quality product for our customers and avoid errors that are costly to correct, and embarrassing in our client relationship.
I love this product. Capital gains history is one of the most confusing areas to create for new clients and this really simplifies the procedure. Historically we had all Notice of Assessments arrive at our office to be checked and forwarded to client. TaxprepConnect allows easy import and has freed up admin staff.
TaxprepConnect is a feature of Wolters Kluwer's Taxprep product. We have been involved with the testing and feedback from the very beginning. This product will be deployed, this tax season, across our entire organization and will ensure that our Taxprep file is accurate and up to date with very little input from staff. Even in limited testing we have found errors, both on the governments part and ours, and have been able to correct these errors with very little work. Clients may not see the benefit of this product first hand but I know they would be pleased to know that every year we confirm our numbers with the government with a push of a button!
I find that one of the gaps in most business is that of sharing knowledge and we are a knowledge-based industry. In order to capture the intellectual capital of our firm, there needs to be a source for someone to go to for information even if it's just the starting point. It can create a more collaborative environment when people feel, that what they do matters.
I believe that TaxprepConnect will allow us to prepare better tax returns for our clients as it will double-check our files to ensure that we are using the most up to date information available about our client's tax situation.
TaxprepConnect allows me to be proactive as opposed to reactive in tax return preparation. We used to spend a great deal of time correcting inaccurate tax carry forward information – either our errors or CRA's errors. TaxprepConnect allows us to work with the most current up to date information automatically, without having to go seek it out in various places. Although Taxprep Connect was only available a few weeks last year, we still saw a significant reduction in the amount of assessment variances due to incorrect data input or carry-forward.
It will save us tremendous amount of time by being able to get the information without having to call or connect separately to the government web site.
The advantages: Time saving, minimizes typing errors during data input and adjustment requests.
Using Taxprep Connect translates into better efficiency of our internal resources and greatly simplifies the preparation of our clients' personal tax returns.
14 Char les Landrevill e Taxprep Connect is somewhat of an addition to CCH Scan. We have not used this product, because CCH Scan was providing us with enough self-confidence.
15 E r ic Bachand It allows us to quickly have reliable information.
16 Richard Taschereau This product allows us to work more rapidly by incorporating generally reliable and up to date information into the client's file. It prevents us from having to make long researches manually on government websites. In addition, the download of provincial slips allows us to reduce time spent on verifying files.
17 François Gosseli n Gain in productivity and especially in accuracy with regards to data entry. This product reduces the review time of many data items that are extracted directly, therefore a reduction in potential omissions.
The group is a diverse selection of our peers. It is an excellent opportunity to discuss best practices with a group that is willing and anxious to share.
It's a group of sharp, dedicated professionals who are part of the Group. Everyone contributes their time and experience to help create better products.
Being part of the Development Partners Group has allowed us to build close relationships with CCH Canada's senior people and given the size of our national cooperative we believe that our voice, our wishes are being heard and actioned by CCH senior management. It has also allowed us to network with other firms and share best practices.
We regularly share ideas and thoughts with other members of the group and learn about the challenges that other firms face to know that we are not alone in our issues.
We get to see how other firms use software differently than we do. This gives us insight into possible process improvements.
There is comfort in knowing that others are challenged with the same problems, and that someone is working on solutions. Additionally, there has been a great amount of technology and process best practices that are outside the realm of Wolters Kluwer that have also been
shared among the client members of the group.
I learn something in every session and have had great feedback from other members of the group. My firm has made a few changes from experiences passed on by group members. Even some of the proposed projects have given us ideas that have improved my firm's processes.
Being a part of the Group has been a very rewarding experience. Not only with providing personal input but with the connections I have established. Being able to talk to other accountants across the country has been invaluable, and I'm sure all in the group would agree. We bounce best practices off each other, learn, and provide a network of professionals in which we can go to with troubles and difficulties encountered – being able to find a solution that will work as it is likely another member of the group has encountered similar difficulties.
I see people who care about what they do and that what they do matters. I see people explore ideas and begin to create things. I see energy in the room every time we meet. It is a small group but these are the right people to have.
––> see my answer on page 106
I go into the Development Partners Group meetings with my own priorities and opinions relating to developments I would like to see. Listening to the input of the
other partners brings out so many ideas I had never thought of and helps me to re-arrange my own priorities.
The communication within the group is great. We are invited to participate in meetings and development projects. We also get to hear how the other development team members are using the software and their issues as well.
No direct advantage except for knowing that the problems we encounter are the same elsewhere.
It allows us to know what our strength and weaknesses are as an office.
As a professional working alone, this group opens unknown horizons, therefore I acquire new knowledge.
I feel like we now have an inside voice at CCH. I feel respected and appreciated by the CCH team. We have never had this opportunity with any other software provider so we are thrilled to be a part of the group.
Being part of the Development Partners Group definitely helps me have a deeper, higher regard for the work and organization of Wolters Kluwer. I have been so impressed by the professionalism of the internal team. They have such a dedication and commitment to high level quality products and to making sure the products are designed for the needs of their clients. It's been a pleasure to work with them.
The Development Partners Group has made a significant influence on my opinion of Wolters Kluwer as being a very responsive partner to our business, genuinely caring about us as clients; that you have our firm's best interest at heart in making us more efficient and innovative in how we deliver services to our clients.
Greatly augments our very important partnership with CCH by giving us a much more open relationship and advance view of products soon to come as well as provide input on new concepts.
I think that the company is very innovative and this initiative has confirmed to us that CCH is the software of choice for accounting firms in Canada.
It is clear to me that this is a customer focused company. Years ago I told our sales representative that I needed a solution partner, not a software company. Wolters Kluwer is clearly positioning itself as that solutions partner.
The Development Partners Group enhances my view of CCH's commitment to advancing tax research and preparation. While I always appreciated that someone seemed to be listening to past suggestions, I had no idea how proactive the iSolutions team was in searching out new solutions. This is a great way to gather input from users.
Being a Development Partners Group with Wolters Kluwer has greatly influenced my opinion of the company! All of it being positive! Knowing the executives and the product managers first hand and seeing the commitment to me through software and efficiencies has shown me that Wolters Kluwer genuinely cares about their customers and they will stop at nothing to provide me with the best software to help grow my business.
It shows that Wolters Kluwer cares enough to understand the needs of the people they work with. It is not a push down system, it is collaboration.
I have always believed that CCH is the industry leader in accounting software /systems. The Development Partners Group is proof of CCH's commitment to maintain this leadership.
If anything, the group reinforces the already positive opinion I had of Wolters Kluwer. I've always considered Taxprep to be the most accurate, professional and efficient tax preparation product available. What is new, however, is that I'm starting to appreciate that CCH / Taxprep is about much more than tax preparation – it's about the entire planning, management and preparation process. Notwithstanding the branding around the name "Taxprep", this group has made me recognize that Wolters Kluwer's vision goes far beyond the "Prep" in Taxprep.
Definitely positive. The team from CCH is great from Doug, Philippe, Erik and the rest of the group.
13 Olivier Beauregard Positively. They respond to our needs.
This confirms that Wolters Kluwer is a business that goes over and beyond mass market products to offer very specialized products that, in my opinion, do not exist anywhere else.
in millions of euros, unless otherwise stated
| 2013 | 2012* | |
|---|---|---|
| Continuing operations | ||
| Revenues Note 5 | 3,565 | 3,597 |
| Cost of sales | 1,143 | 1,170 |
| Gross Profit Note 5 | 2,422 | 2,427 |
| Sales costs Note 9 | 674 | 680 |
| General and administrative costs Note 10 | 1,168 | 1,165 |
| Total operating expenses Note 5 | 1,842 | 1,845 |
| Other operating income and (expense) Note 11 | 39 | (14) |
| Operating profit Note 5 | 619 | 568 |
| Financing results Note 14 | (128) | (126) |
| Share of profit of equity-accounted investees, net of tax Note 19 | (1) | 0 |
| Profit before tax | 490 | 442 |
| Income tax expense Note 15 | (137) | (109) |
| Profit for the year from continuing operations | 353 | 333 |
| Discontinued operations | ||
| Profit/(loss) from discontinued operations, net of tax Note 7 | (7) | (22) |
| Profit for the year | 346 | 311 |
| Attributable to: | ||
| – Owners of the Company | 345 | 312 |
| – Non-controlling interests Note 16 | 1 | (1) |
| Profit for the year | 346 | 311 |
| Earnings per share (EPS) (€) Note 6 | ||
| Basic EPS from continuing operations | 1.19 | 1.13 |
| Basic EPS from discontinued operations | (0.02) | (0.08) |
| Basic EPS | 1.17 | 1.05 |
| Diluted EPS from continuing operations | 1.17 | 1.11 |
| Diluted EPS from discontinued operations | (0.02) | (0.07) |
| Diluted EPS | 1.15 | 1.04 |
| 2013 | 2012* | ||
|---|---|---|---|
| Comprehensive income: | |||
| Profit for the year | 346 | 311 | |
| Other comprehensive income: | |||
| Items that are or may be reclassified subsequently to the statement | |||
| of income: | |||
| Exchange differences on translation of foreign operations | (156) | (48) | |
| Exchange differences on translation of equity-accounted investees | 0 | (1) | |
| Reclassification of foreign exchange differences on loss of control Note 8 | 1 | - | |
| Net gains/(losses) on hedges of net investments in foreign operations | 8 | (6) | |
| Effective portion of changes in fair value of cash flow hedges | (17) | (49) | |
| Net change in fair value of cash flow hedges reclassified to statement of income Note 14 | 38 | 24 | |
| Items that will not be reclassified to the statement of income: | |||
| Remeasurements on defined benefit plans Note 28 | 32 | (29) | |
| Income tax on other comprehensive income Note 21 | (13) | 9 | |
| Other comprehensive income/(loss) for the year, net of tax | (107) | (100) | |
| Total comprehensive income for the year | 239 | 211 | |
| Attributable to: | |||
| – Owners of the Company | 241 | 210 | |
| – Non-controlling interests | (2) | 1 | |
| Total | 239 | 211 | |
in millions of euros
| 2013 | 2012* | ||||
|---|---|---|---|---|---|
| Cash flows from operating activities | |||||
| Profit for the year from continuing operations | 353 | 333 | |||
| Adjustments for: | |||||
| Financing results Note 14 | 128 | 126 | |||
| Share of profit of equity-accounted investees, net of tax Note 19 | 1 | 0 | |||
| Income tax expense Note 15 | 137 | 109 | |||
| Amortization, impairments, and depreciation Note 13 | 317 | 312 | |||
| Additions to provisions | 23 | 22 | |||
| Share-based payments Note 31 | 14 | 15 | |||
| Book (profit)/loss on divestments of operations Note 8 | (58) | (9) | |||
| Fair value changes contingent considerations Note 11 | (4) | - | |||
| Autonomous movements in working capital | (22) | 16 | |||
| Paid financing costs | (115) | (120) | |||
| Paid corporate income tax Note 21 | (99) | (110) | |||
| Appropriation of provisions for restructuring Note 29 | (33) | (55) | |||
| Other | (12) | (21) | |||
| Net cash from operating activities | 630 | 618 | |||
| Cash flows from investing activities | |||||
| Capital expenditure | (148) | (144) | |||
| Disposal of discontinued operations, net of cash disposed of Note 7 | (10) | 6 | |||
| Acquisition spending, net of cash acquired Note 8 | (192) | (109) | |||
| Receipts from divestments, net of tax Note 8 | 63 | 6 | |||
| Dividends received Note 19 | 2 | 2 | |||
| Cash from settlement of derivatives | 6 | (18) | |||
| Net cash used in investing activities | (279) | (257) | |||
| Cash flows from financing activities | |||||
| Repayment of loans | (378) | (176) | |||
| Proceeds from new loans | 708 | 0 | |||
| Repurchased shares Note 30 | (27) | (133) | |||
| Dividends paid | (204) | (92) | |||
| Net cash from/(used) in financing activities | 99 | (401) | |||
| Net cash from/(used) in continuing operations | 450 | (40) | |||
| Net cash used in discontinued operations Note 7 | (3) | (28) | |||
| Net cash flow from/(used) in continuing and discontinued operations | 447 | (68) | |||
| Cash and cash equivalents less bank overdrafts at January 1 | 215 | 282 | |||
| Exchange differences on cash and cash equivalents and bank overdrafts | (19) | 1 | |||
| 196 | 283 | ||||
| Cash and cash equivalents less bank overdrafts at December 31 Note 24 | 643 | 215 | |||
| Add: Bank overdrafts at December 31 Note 26 | 112 | 113 | |||
| Cash and cash equivalents at December 31 Note 24 | 755 | 328 | |||
*2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'.
in millions of euros, at December 31
| 2013 | 2012* | ||||
|---|---|---|---|---|---|
| Non-current assets | |||||
| Goodwill and intangible assets Note 17 | 4,592 | 4,651 | |||
| Property, plant, and equipment Note 18 | 124 | 138 | |||
| Investments in equity-accounted investees Note 19 | 31 | 61 | |||
| Financial assets Note 20 | 27 | 49 | |||
| Deferred tax assets Note 21 | 88 | 78 | |||
| Total non-current assets | 4,862 | 4,977 | |||
| Current assets | |||||
| Inventories Note 22 | 104 | 95 | |||
| Trade and other receivables Note 23 | 1,110 | 1,122 | |||
| Income tax receivable Note 21 | 33 | 34 | |||
| Cash and cash equivalents Note 24 | 755 | 328 | |||
| Total current assets | 2,002 | 1,579 | |||
| Current liabilities | |||||
| Deferred income | 1,214 | 1,233 | |||
| Trade and other payables | 368 | 383 | |||
| Income tax payable Note 21 | 38 | 32 | |||
| Short-term provisions Note 29 | 33 | 58 | |||
| Borrowings and bank overdrafts Note 26 | 117 | 267 | |||
| Short-term bonds Note 26 | 700 | 225 | |||
| Other current liabilities Note 25 | 444 | 457 | |||
| Total current liabilities | 2,914 | 2,655 | |||
| Working capital | (912) | (1,076) | |||
| Capital employed | 3,950 | 3,901 | |||
| Non-current liabilities | |||||
| Long-term debt: | |||||
| Bonds | 1,479 | 1,482 | |||
| Private placements | 384 | 421 | |||
| Other long-term loans | 46 | 15 | |||
| Total long-term debt Note 26 | 1,909 | 1,918 | |||
| Deferred tax liabilities Note 21 | 321 | 252 | |||
| Employee benefits Note 28 | 126 | 169 | |||
| Provisions Note 29 | 10 | 4 | |||
| Total non-current liabilities | 2,366 | 2,343 | |||
| Equity | |||||
| Issued share capital Note 30 | 36 | 36 | |||
| Share premium reserve | 87 | 87 | |||
| Legal reserves | (318) | (225) | |||
| Other reserves | 1,759 | 1,640 | |||
| Equity attributable to the owners of the Company | 1,564 | 1,538 | |||
| Non-controlling interests Note 16 | 20 | 20 | |||
| Total equity | 1,584 | 1,558 | |||
| Total financing | 3,950 | 3,901 |
*2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'.
| Legal reserves | Other reserves | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Issued share capital | Share premium reserve | Legal reserve participations | Hedge reserve | Translation reserve | Treasury shares | Retained earnings | Shareholders' equity | Non-controlling interests | Total equity | ||
| Balance at January 1, 2012, as previously reported |
36 | 88 | 38 | (67) | (120) | (65) | 1,630 | 1,540 | 21 | 1,561 | |
| Impact of changes in accounting policies |
|||||||||||
| (IAS 19R and IFRS 11) | 2 | 2 | 2 | ||||||||
| Restated balance at January 1, 2012 |
36 | 88 | 38 | (67) | (120) | (65) | 1,632 | 1,542 | 21 | 1,563 | |
| Total comprehensive income/ (loss) for the year 2012, restated |
(31) | (51) | 292 | 210 | 1 | 211 | |||||
| Transactions with owners of the Company, recognized directly in equity: |
|||||||||||
| Share-based payments | 15 | 15 | 15 | ||||||||
| Tax on share-based payments | (4) | (4) | (4) | ||||||||
| Release LTIP shares | 5 | (5) | 0 | 0 | |||||||
| Cash dividend 2011 | (90) | (90) | (2) | (92) | |||||||
| Stock dividend 2011 Repurchased shares |
0 | (1) | 110 (135) |
(109) | 0 (135) |
0 (135) |
|||||
| Other movements | 6 | (6) | 0 | 0 | |||||||
| Balance at | |||||||||||
| December 31, 2012 | 36 | 87 | 44 | (98) | (171) | (85) | 1,725 | 1,538 | 20 | 1,558 | |
| Total comprehensive income/ (loss) for the year 2013 |
29 | (152) | 364 | 241 | (2) | 239 | |||||
| Transactions with owners of the Company, recognized |
|||||||||||
| directly in equity: | |||||||||||
| Share-based payments | 14 | 14 | 14 | ||||||||
| Tax on share-based payments | (3) | (3) | (3) | ||||||||
| Release LTIP shares | 17 | (17) | 0 | 0 | |||||||
| Cash dividend 2012 | (204) | (204) | 0 | (204) | |||||||
| Repurchased shares | (20) | (4) | (24) | (24) | |||||||
| Other movements | 30 | (28) | 2 | 2 | 4 | ||||||
| Balance at December 31, 2013 |
36 | 87 | 74 | (69) | (323) | (88) | 1,847 | 1,564 | 20 | 1,584 |
| Notes to the Consolidated |
|---|
| Financial Statements |
General and basis of preparation
Wolters Kluwer nv ('the Company') with its subsidiaries (together 'the Group') is a market-leading global information services company. Professionals in the areas of legal, business, tax, accounting, finance, audit, risk, compliance, and healthcare rely on Wolters Kluwer's leading information tools and software solutions to manage their business efficiently, deliver results to their clients, and succeed in an ever more dynamic world.
The Group maintains operations across Europe, North America, Asia Pacific, and Latin America. The Company is headquartered in Alphen aan den Rijn, the Netherlands. The Company's ordinary shares are quoted on the Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations, prevailing per December 31, 2013, as endorsed for use in the European Union by the European Commission.
These financial statements were authorized for issue by the Executive Board and Supervisory Board on February 18, 2014.
The consolidated financial statements of the Company at and for the year ended December 31, 2013, comprise the Company and its subsidiaries (together referred to as the 'Group' and individually as 'Group entities') and the Group's interest in associates and jointly controlled entities. The significant accounting policies applied in the preparation of these consolidated financial statements are set out in Note 2. These policies have been consistently applied
by the group entities.
A list of participations has been filed with the Chamber of Commerce in The Hague, the Netherlands and is available from the Company upon request.
In conformity with article 402, Book 2 of the Dutch Civil Code, a condensed statement of income is included in the separate financial statements of Wolters Kluwer nv.
The consolidated financial statements have been prepared under historical cost except for the following material items in the statement of financial position:
The consolidated financial statements are presented in euro, which is the Company's functional and presentation currency. Unless otherwise indicated the financial information in these financial statements is in euro and has been rounded to the nearest million.
Use of estimates and judgments The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of policies and reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expense. The estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Judgments made by management in the application of IFRS that have significant
effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 3.
Where necessary, certain reclassifications have been made to the prior year financial information and the notes thereto to conform to the current year presentation and to improve insights.
Effect of presentation changes
Acquisition integration costs (2012: €13 million), acquisition related costs (2012: €6 million), divestment related results (2012: €(4) million), and Springboard costs (2012: (€1) million), formerly presented as part of 'General and administrative costs' and 'Result on divestments of operations', have been grouped and reclassified to 'Other operating income and expense' in the consolidated statement of income. Prior year comparatives have been reclassified to reflect this presentation change.
IFRS 5 'Non-current assets held for sale and discontinued operations' defines a component of an entity as a part of the entity that comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.
A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, represents a separate major line of business, and is part of a single coordinated overall plan to dispose of a separate major line of business.
When an operation is classified as discontinued, the comparative statements of income and cash flows are re-presented as if the operation had been discontinued from the start of the comparative period.
Except for the changes below, the Group has consistently applied the accounting policies set out in Note 2 to all periods presented in these consolidated financial statements.
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of January 1, 2013.
IAS 1 – Presentation of financial statements (2011 amendment)
As a result of the amendments to IAS 1, the Group has modified the presentation of items of other comprehensive income in its consolidated statement of comprehensive income. Items that would be reclassified to the statement of income in the future are presented seperately from those that would not. Comparative information has been re-presented accordingly.
IAS 19 – Employee benefits (2011) IAS 19 Revised ('IAS 19R') 'Employee benefits' (amended 2011) was adopted by the Group on January 1, 2013. The 2012 results were restated retrospectively. The main changes are:
IAS 19R requires past service costs to be recognized in the statement of income in the period of a plan amendment. Under the former standard the portion of past service costs related to unvested benefits was deferred and amortized over the remaining average vesting period.
The employee benefits financing component will be presented as part of financing results, rather than within operating profit as reported in previous years.
The Group's benchmark figures will exclude the net employee benefits financing component to better reflect the operating pension expenses related to the Group's pension and post-retirement plans. The impact of the IAS 19R changes as described above results in an increase in the Group's equity by €2 million at January 1, 2012 (December 31, 2012: €1 million), and a decrease of the profit for the year by €10 million for 2012. The Company considers this impact not material for supplemental disclosure.
IFRS 7 – Offsetting Financial Assets and Financial Liabilities (amendment)
The amendment to IFRS 7 requires disclosing information about rights of offset and related arrangements for financial instruments under an enforceable master netting agreement or similar agreement. The adoption of the amendment to IFRS 7 did not have any impact on the consolidated financial statements.
The Group early adopted IFRS 10, 11, and 12 and the consequential amendments to IAS 27 and 28 to align with the effective date of January 1, 2013.
IFRS 10 – Consolidated Financial Statements
IFRS 10 introduces a new control model that focuses on whether the Group has power over an investee, exposure of rights to variable returns from its involvement with the investee, and ability to use its power to affect those returns.
In accordance with the transitional provisions of IFRS 10, the Group reassessed the control conclusion for its investees at January 1, 2013, and concluded that the change did not have any impact on the consolidated financial statements.
IFRS 11 – Joint Arrangements (2011)
Under IFRS 11, the Group's interests in joint ventures will be equity-accounted. Adoption of IFRS 11 resulted in a decrease of Group's revenues (€6 million) and operating profit (€2 million) for the full year 2012. There is no full year 2012 impact on equity and net profit. The Company considers this impact not material for supplemental disclosure.
IFRS 12 – Disclosure of Interests in Other Entities IFRS 12 contains disclosure requirements for interests in subsidiaries and equity-accounted investees. The adoption of this standard did not have any significant impact on the disclosures in the consolidated financial statements.
IFRS 13 – Fair Value Measurement IFRS 13 established a single framework for measuring fair value and making disclosures about fair value measurements. In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value measurements guidance prospectively and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no impact on the measurement of the Group's assets and liabilities.
Summary of impact of accounting and presentation changes The following tables summarize the impact of the changes on the Consolidated statement of income, Consolidated statement of comprehensive income, Consolidated statement of cash flows, Consolidated statement of financial position, earnings per share, and benchmark numbers. The impact relates solely to IAS 19 Revised (amended 2011) and IFRS 11.
Presented below are the reconciliations for the 2012 results between the results published previously in the Annual Report 2012 and the restated amounts, in millions of euros unless otherwise stated.
| Consolidated statement of income | 2012 Reported | IAS 19R Employee Benefits |
Arrangements IFRS 11 Joint |
sentation changes Effect of pre |
2012 Restated |
|---|---|---|---|---|---|
| Restated full year-ended December 31, 2012 | |||||
| Revenues | 3,603 | - | (6) | - | 3,597 |
| Cost of sales | 1,171 | - | (1) | - | 1,170 |
| Gross profit | 2,432 | 0 | (5) | - | 2,427 |
| Sales costs | 682 | - | (2) | - | 680 |
| General and administrative costs | 1,175 | 9 | (1) | (18) | 1,165 |
| Total operating expenses | 1,857 | 9 | (3) | (18) | 1,845 |
| Result on divestments of operations | (4) | - | - | 4 | 0 |
| Other operating income and (expense) | - | - | - | (14) | (14) |
| Operating profit | 579 | (9) | (2) | - | 568 |
| Financing results | (121) | (5) | - | - | (126) |
| Share of profit of equity-accounted investees, net of tax | (1) | - | 1 | - | 0 |
| Profit before tax | 457 | (14) | (1) | - | 442 |
| Income tax expense | (114) | 4 | 1 | - | (109) |
| Profit for the year from continuing operations | 343 | (10) | 0 | - | 333 |
| Profit for the year from discontinued operations, net of tax | (22) | - | - | - | (22) |
| Profit for the year | 321 | (10) | 0 | - | 311 |
| Wolters Kluwer | Notes to the Consolidated Financial Statements | 101 |
|---|---|---|
| Joint Arrangements | |||||
|---|---|---|---|---|---|
| 2012 Reported | Employee Benefits IAS 19R |
IFRS 11 | 2012 Restated | ||
| Affected items in consolidated statement of | |||||
| comprehensive income | |||||
| Restated full-year ended December 31, 2012 | |||||
| Profit for the year | 321 | (10) | 0 | 311 | |
| Other comprehensive income: | |||||
| Actuarial gains/(losses) on defined benefit plans | (41) | 12 | - | (29) | |
| Income tax on other comprehensive income | 12 | (3) | - | 9 | |
| Attributable to: | |||||
| Owners of the Company | 211 | (1) | 0 | 210 | |
| Condensed consolidated statement of cash flows | |||||
| Restated full-year ended December 31, 2012 | |||||
| Net cash from operating activities | 619 | 0 | (1) | 618 | |
| Net cash used in investing activities | (258) | 0 | 1 | (257) | |
| Net cash used in financing activities | (401) | - | - | (401) | |
| Net cash used in discontinued operations | (28) | - | - | (28) | |
| Net cash used in continuing and discontinued operations | (68) | 0 | 0 | (68) | |
| Affected items in consolidated statement of | |||||
| financial position | |||||
| Restated, at December 31, 2012 | |||||
| Investments in equity-accounted investees | 59 | - | 2 | 61 | |
| Trade and other receivables | 1,124 | - | (2) | 1,122 | |
| Deferred tax liabilities | 251 | 1 | - | 252 | |
| Employee benefits | 171 | (2) | - | 169 | |
| Equity attributable to owners of the Company | 1,537 | 1 | 0 | 1,538 | |
| Earnings per share (in €) | |||||
| Restated full-year ended December 31, 2012 | |||||
| Basic EPS from continuing operations | 1.16 | (0.03) | - | 1.13 | |
| Basic EPS from discontinued operations | (0.08) | 0 | - | (0.08) | |
| Basic EPS | 1.08 | (0.03) | - | 1.05 | |
| Diluted EPS from continuing operations | 1.14 | (0.03) | - | 1.11 | |
| Diluted EPS from discontinued operations Diluted EPS |
(0.07) 1.07 |
0 (0.03) |
- - |
(0.07) 1.04 |
|
| Benchmark numbers | 2012 Reported | Employee Benefits IAS 19R |
Joint Arrangements IFRS 11 |
2012 Restated | |
|---|---|---|---|---|---|
| Restated full-year ended December 31, 2012 | |||||
| Revenues | 3,603 | - | (6) | 3,597 | |
| Ordinary EBITA | 785 | (9) | (2) | 774 | |
| Ordinary EBITA margin (in %) | 21.8 | (0.2) | (0.1) | 21.5 | |
| Ordinary net income | 476 | (7) | - | 469 | |
| Diluted ordinary EPS (€) | 1.58 | (0.02) | - | 1.56 | |
| Ordinary free cash flow | 507 | 0 | - | 507 | |
| Benchmark tax rate (in %) | 27.8 | 27.7 | |||
| Net debt | 2,086 | - | - | 2,086 | |
| Net-debt-to-EBITDA ratio | 2.4 | 0 | 0 | 2.4 | |
| Return on invested capital (in %) | 8.8 | (0.1) | 0.0 | 8.7 |
| Effect of forthcoming accounting standards A number of new standards |
||||
|---|---|---|---|---|
| and amendments are not yet effective for the year ended December 31, 2013, and have not been adopted earlier in preparing these consolidated finan - |
||||
| cial statements. The new standards and amendments effective from January 1, 2014, are not expected |
||||
| to have a significant impact on state - ment of comprehensive income, statement of changes in total equity, |
||||
| statement of financial position, or disclosures. |
Note 2 Significant Accounting Policies
Except for the changes explained in Note 1, the Group has consistently applied the following significant accounting policies to all periods presented in these consolidated financial statements.
Subsidiaries are all entities (including special purpose entities) controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Equity-accounted investees comprise interests in associates and joint ventures. Associates are those entities in which the Group has significant influence but not control over the financial and operating policies, generally accompanying a shareholding of between 20% and 50% of the voting rights. A joint venture is an arrangement in which the Group has joined control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the equity method of accounting and are initially recognized at cost, which includes transaction costs. Associates are recognized from the date on which the Group has significant influence, and recognition ceases the date the Group has no significant influence over an associate. The Group's investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. Joint ventures are recognized from the date that joint control commences, and recognition ceases the date the Group has no longer joint control over a joint venture.
When an interest in an associate is increased to a controlling interest, the equity interest previously held which qualified as an associate is treated as if it were disposed of and reacquired at fair value on the acquisition date. Accordingly, it is remeasured to its acquisition date fair value, and any resulting gain or loss compared to its carrying amount is recognized in profit or loss. Any amount that has previously been recognized in other comprehensive income, and that would be reclassified to profit or loss following a disposal, is similarly reclassified to profit or loss.
On loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss.
If the Group retains any equity interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently the remaining interest is accounted for as an equity-accounted investee or as available-forsale financial asset depending on the level of influence retained.
Intra-group balances and transactions, and income and expenses, and any unrealized gains and losses arising from transactions between Group companies are eliminated in preparing the consolidated financial statements. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Unrealized gains arising from transactions between the Group and its equity-accounted investees and joint ventures are eliminated to the extent of the Group's interest in the equity-accounted investees and joint ventures.
Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the Group entities operate (the functional currency). The consolidated financial statements are presented in euros, which is the Group's presentation currency.
Foreign currency transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss, except when deferred in equity as qualifying cash flow hedges to the extent that the hedge is effective, qualifying net investment hedges in foreign operations to the extent the hedge is effective, and available-for-sale equity investments (except for impairment), in which case foreign currency differences that have been recognized in other comprehensive income are reclassified to statement of income.
Non-monetary assets and liabilities in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the transaction date. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the functional currency at foreign exchange rates prevailing at the dates the fair value was determined.
The assets and liabilities of Group companies, including goodwill and fair value adjustments arising from consolidation, are translated to euros at foreign exchange rates prevailing at the end of the reporting period. Income and expenses of Group companies are translated to euros at exchange rates at the dates
of the transactions. All resulting exchange differences are recognized in the currency translation reserve as a separate component of equity.
When a foreign Group company is disposed of, exchange differences that were recorded in equity prior to the sale are reclassified through profit or loss as part of the gain or loss on disposal.
operations Net investment in foreign operations includes equity financing and long-term intercompany loans for which settlement is neither planned nor likely to occur in the foreseeable future. Exchange rate differences arising from the translation of the net investment in foreign
Net investment in foreign
operations, and of related hedges, are taken to the currency translation reserve in shareholders' equity.
| U.S. Dollar (at December 31) 1.38 1.32 U.S. Dollar (average) 1.33 1.29 |
Main currency exchange rates to the euro |
2013 | 2012 | |||
|---|---|---|---|---|---|---|
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.
The Group measures goodwill at the acquisition date as the fair value of the consideration transferred, plus the recognized amount of any non-controlling interests in the acquiree, plus, if the business is achieved in stages, the fair value of the existing equity interest in the acquiree, and less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase is recognized immediately in profit or loss.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.
Cost related to acquisitions, other than those associated with the cost of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.
Any contingent consideration payable (like earn-out arrangements) is recognized at fair value at the acquisition date.
Non-controlling interests Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognized as a result of those transactions. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary.
Changes in the Group's interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Principles for the determination and presentation of results
Revenues represent the revenues billed to third parties net of value-added tax and discounts. Shipping and handling fees billed to customers are included in revenues.
Revenues related to subscriptions are recognized over the period in which the items are dispatched and/or made available online, when the items involved are similar in value over time. Subscription income received or receivable in advance of the delivery of services or publications is included in deferred income.
License fees paid for the use of a Company's software product and/or service are recognized in accordance with the substance of the agreement. Normally this is on a straight-line basis. In case of a transfer of rights, which permits the licensee to exploit those rights freely and the Company as a licensor has no remaining obligations to perform subsequent to delivery, is recognized at the time of the sale.
Related implementation fees are normally recognized as revenues by reference to the stage of completion of the implementation.
If the Group acts as an agent, whereby the Group sells goods or services on behalf of a principal,
Revenue from the sale of goods is recognized upon shipment and transfer of the significant risks and rewards of ownership to the customer, provided that the ultimate collectability and final acceptance by the customer is reasonably assured. Revenue from the sale of goods is recognized net of estimated returns for which the Group has recognized a provision based on previous experience and other relevant factors.
If returns on a product category exceed a threshold it is assumed that the transfer of the ownership of the product has only occurred upon receipt of payment from the customer.
Revenue from the sale of services is recognized on a straight-line basis over the specified period, unless there is evidence that some other method better represents the stage of completion of the service at the end of the reporting period.
Combination of goods and services
Revenues of products that consist of a combination of goods and services are recognized based on the fair value and the recognition policy of the individual components.
Cost of sales comprises directly attributable costs of goods and services sold.
For digital products and services these costs comprise of (data-) maintenance, hosting, royalties, product support, personnel cost, subcontracted work, training, and other costs incurred to support and maintain digital based products, applications, and services.
For print products these costs comprise of cost for paper, printing and binding, royalties, personnel cost, subcontracted work, and other incurred costs.
General and administrative costs
General and administrative costs include costs that are neither directly attributable to cost of sales nor to sales costs (sales and marketing activities). This includes costs such as product development cost, ICT-cost, general overhead, and amortization of publishing rights and impairments of goodwill and publishing rights.
Other operating income and expense relate to items which are different in its nature or frequency from operating items. They include results on divestments (including direct attributable divestment costs), additions to provisions for restructuring of stranded costs following divestments, acquisitions costs, additions to acquisition integration provisions, subsequent fair value changes on contingent considerations, and other.
Financing results comprise of interest payable/receivable on loans and borrowings for the period calculated using the effective interest rate method, interest receivable on funds invested, dividend income on available-for-sale investments, gain or loss on the sale of financial assets classified as available-for-sale, impairments of financial assets (other than receivables), financing income or costs resulting from defined benefit plans, foreign exchange gains and losses on financial assets and liabilities, and gains and losses on hedging instruments that are recognized in profit or loss.
Any gain or loss from disposal of discontinued operations, together with the results of these operations until the date of disposal is reported separately as discontinued operations. The financial information of discontinued operations is excluded from the respective captions in the consolidated statements of income and cash flows and the related notes and is reported separately.
Share-based payments
The Group's Long-Term Incentive Plan (LTIP) qualifies as an equity-settled share-based payments transaction. The fair value of shares awarded is recognized as an expense with a corresponding increase in equity. The fair value is measured at the grant date and spread over the period during which the employees become unconditionally entitled to the shares. The amount recognized as an expense is adjusted for the actual forfeitures due to participants' resignation before the vesting date.
Total Shareholder Return ('TSR') condition The fair value of the shares based
on the TSR performance condition, a market condition under IFRS 2, is measured using a Monte Carlo simulation model, taking into account the terms and conditions upon which the shares were awarded.
Earnings Per Share
('EPS') condition
The fair value of the shares based on the non-market performance EPS condition is equal to the opening share price of the Wolters Kluwer shares in the year at the grant date, adjusted by the present value of the future dividend payments during the three years' performance period.
The amount recognized as an expense in a year is adjusted to reflect the number of shares awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service and non-market conditions at the vesting date.
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. All operating segments are regularly reviewed by the Group's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available.
is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Board.
Segment results reported to the Executive Board include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly of corporate assets and liabilities, corporate office expenses, and income tax assets and liabilities. Operating segments that do not meet the quantitative thresholds and that have similar economic characteristics have been aggregated into a single operating segment.
Principles underlying the statement of cash flows
Cash flows from operating activities are calculated by the indirect method, by adjusting the consolidated profit for the year from continuing operations for items and expenses that are not cash flows and for autonomous movements in consolidated working capital (excluding impact from acquisitions and foreign currency differences). Cash payments to employees and suppliers are all recognized as cash flow from operating activities. Cash flows from operating activities also include paid financing costs of operating activities, income taxes paid on all activities, acquisition and divestment related costs, and spending on restructuring provisions.
Cash flows from investing activities are those arising from net capital expenditure, from the acquisition and sale of subsidiaries and business activities. Net acquisition spending excludes acquisition related costs which are included in cash flows from operating activities. Cash and cash equivalents available at the time of acquisition or sale are deducted from the related payments or proceeds.
Net capital expenditure is the balance of purchases of property, plant, and equipment less book value of disposals and expenditure on other intangible assets less book value of disposals.
Dividends received relate to dividends received from equity-accounted investees and investments availablefor-sale.
Cash receipts and payments from derivative financial instruments are classified in the same manner as the cash flows of the hedged items. The Group has primarily used derivatives for the purpose of hedging its net investments in the United States. As a result, cash receipts and payments from settlement from derivatives are classified under cash flows from investing activities.
Cash flows from financing activities
The cash flows from financing activities comprise the cash receipts and payments from issued and repurchased shares, dividends paid, and debt instruments. Cash flows from short-term financing are also included.
Dividends paid relate to dividends paid to the owners of the Company and the owners of non-controlling interests.
Bank overdrafts repayable on demand are included as cash and cash equivalents in the statement of cash flows to the extent that they form an integral part of the Group's cash management. However, in the statement of financial position, the bank overdrafts are presented separately as the offsetting criteria are not met.
Cash flows from discontinued operations comprise the cash receipts and payments from discontinued operations, presented as operating activities, investing activities, and financing activities.
Principles of valuation and presentation of assets and liabilities
Goodwill, acquired publishing rights, and other intangible assets
Goodwill recognized for acquisitions represents the consideration made by the Group in anticipation of the future economic benefits from assets that are not capable of being individually identified and separately recognized. This includes, amongst others, expected synergies, skilled workforce, new customers expected to be attracted who generate revenue streams in the future, revenues generated by future completely new versions of software, and the possibility to have an immediate significant presence in the markets through an existing customer base, that can be levered by Wolters Kluwer for other products and services.
Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is carried at cost less any accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity that is sold.
Goodwill acquired in a business combination is not amortized. Instead, the goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
Acquired publishing rights Publishing rights acquired through business combinations consist of:
Technology: databases, software, product technology;
Trademarks and titles: trademarks, imprints, product titles, copyrights;
The fair value of the acquired publishing rights is computed at the time of the acquisition applying usually one of the following methods:
Publishing rights are stated at cost less accumulated amortization and any impairment losses and are amortized over their estimated useful economic life, generally applying the straight-line method. The useful life of the publishing rights is deemed finite, reflecting management's assessment of the life of the assets, usually supported by outside valuation experts, and taking into account the impact of technological change and changes in the marketplace. If, and to the extent that, publishing rights are considered to be impaired in value, this is immediately charged to profit or loss as impairment.
The estimated useful life for publishing rights is 5 to 20 years.
Other intangible assets mainly relate to purchased and self-constructed information systems and software that is valued at cost less accumulated amortization and any impairment losses. Capitalized
software is amortized using the straight-line method over the economic life of the software. If, and to the extent that, other intangible assets are considered to be impaired in value, this is immediately recognized in profit or loss as impairment.
An intangible asset arising from development or the development phase of an internal project is recognized if, and only if, the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale and comply with the following other requirements: the intention to complete the development project; the ability to sell or use the product; demonstration of how the product will yield probable future economic benefits; the availability of adequate technical, financial, and other resources to complete the project; and the ability to reliably measure the expenditure attributable to the project.
Subsequent expenditure on capitalized intangible assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
The estimated useful life for other intangible assets is 3 to 10 years.
Property, plant, and equipment, consisting of land and buildings, and other assets such as machinery and equipment, office equipment and vehicles, is valued at cost less accumulated depreciation and any impairment losses. Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful life of each part of an item of property, plant, and equipment. Land is not depreciated.
The estimated useful life for buildings is 20 to 30 years, and for other assets 3 to 10 years.
The carrying amounts of the Group's non-current assets other than deferred tax assets are reviewed at the end of each reporting period to determine whether there is any
indication of impairment. If such indication exists, the asset's recoverable amount is estimated. Irrespective of whether there is any indication of impairment, the Group also: (1) tests goodwill and publishing rights acquired in a business combination for impairment annually; and (2) tests an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount.
An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in profit or loss immediately. The recoverable amount of an asset or cash-generating unit is the greater of its fair value less cost to sell and its value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or Cash Generating Unit (CGU). For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to an operating segment ceiling test, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.
The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, the Group shall estimate the recoverable amount of that asset. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortization, if no impairment loss had been recognized.
Financial instruments Financial instruments comprise of:
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risk and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability. The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired.
The Group initially recognizes financial assets and liabilities on the date that they are originated. All other financial assets and liabilities are recognized initially on the trade date, which is the date that the Group becomes a party to the contractual provision of the instrument.
Non-derivative financial assets
a) Loans and receivables Loans and receivables comprise trade and other receivables, and non-current other receivables.
The Group considers evidence of impairment of loans and receivables at both a specific and collective level. All individually significant receivables are assessed for specific impairment. All individually significant loans and receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and receivables that are not individually significant are collectively assessed for impairment by grouping together loans and receivables with similar risk characteristics.
In assessing collective impairment the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management's judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested historical trends. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. When an event occurring after the impairment was recognized causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
b) Available-for-sale financial assets Available-for-sale financial assets comprise only non-current investments.
Available-for-sale financial assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, available-for-sale financial assets are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognized in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to profit or loss. When the fair value cannot be reliably
determined, the available-for-sale financial assets are valued at cost. Dividends and other gains related to available-for-sale investments are recognized as financing income in the statement of income.
Impairment losses on availablefor-sale financial assets are recognized by reclassifying accumulated fair value changes in other comprehensive income to profit or loss. The amount reclassified is the difference between the acquisition cost and the current fair value, less any impairment loss previously recognized in profit or loss.
The Group initially recognizes non-derivative financial liabilities at fair value less any direct attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost with any difference between cost and redemption value being recognized in profit or loss over the period of the borrowings, using the effective interest method.
Non-derivative financial liabilities comprise long-term debt (such as bond loans and other loans from credit institutions), trade and other payables, borrowings and bank overdrafts, and other current liabilities (excluding derivative financial instruments).
The Group holds derivative financial instruments to hedge risk exposures. If a hedging relationship is terminated and the derivative financial instrument is not sold, future changes in its fair value are recognized in profit or loss.
Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of the fair value of recognized assets or liabilities or firm commitments (fair value hedge); (2) hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge); or (3) hedges of a net investment in a foreign operation (net investment hedge).
The fair value of derivative financial instruments is classified as a non-current asset or long-term debt if the remaining maturity of the derivative financial instrument is more than 12 months and as a current asset or liability if the remaining maturity of the derivative financial instrument is less than 12 months after the end of the reporting period.
The effective part of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in equity. The gain or loss relating to the ineffective part is recognized in profit or loss within financing income or costs. Amounts accumulated in equity are reclassified to profit or loss in the same periods the hedged item affects the statement of income. The gain or loss relating to the effective part of derivative financial instruments is recognized in profit or loss within the line where the result from the hedged transaction is recognized.
When a hedging instrument matures or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the hedged transaction is ultimately recognized in profit or loss. When a hedged transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is reclassified from equity to profit or loss.
Fair value changes of derivative financial instruments that are used to hedge the net investment in foreign operations, which are determined to be an effective hedge, are recognized directly in shareholders' equity in the translation reserve. The ineffective part is recognized in profit or loss within financing income or costs. Gains and losses accumulated in
equity are included in profit or loss when the foreign operation is disposed of.
Derivatives that do not qualify for hedge accounting Certain derivatives do not qualify for hedge accounting. Changes in the fair value of any derivative financial instruments that do not qualify for hedge accounting are recognized in profit or loss within financing income or costs.
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. Immediately before classification as held for sale, the assets, or components of the disposal group, are re-measured in accordance with the Group's accounting policies. Thereafter generally the assets, or disposal group, are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is first allocated to goodwill, and then generally to the remaining assets and liabilities on a pro rata basis. Impairment losses on initial classification as held for sale and subsequent gains and losses on re-measurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss. Intangible assets and property, plant, and equipment once classified as held for sale are not amortized or depreciated.
Inventories are valued at the lower of cost and net realizable value. The cost of inventories comprises all cost of purchase and other cost incurred in bringing the inventories to their present location and condition. Cost is determined using the first-infirst-out principle. Inventories also include internally developed commercial software products. The cost price of internally produced goods comprises the manufacturing and publishing costs. Trade goods purchased from third parties are valued at the purchase price.
Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to complete the sale.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts are shown within Borrowings and bank overdrafts in Current liabilities.
Deferred income represents the part of the amount invoiced to customers that has not yet met the criteria for revenue recognition and thus still has to be earned as revenues by means of the delivery of goods and services in the future. Deferred income is recognized at its nominal value.
Income tax on the result for the year comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to business combinations and/or items directly recognized in equity or other comprehensive income.
Current tax is the expected tax payable or tax receivable on the taxable income for the year, using the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period, and any adjustment to tax payable or tax receivable in respect of previous years.
The Group recognizes deferred tax liabilities for all taxable temporary differences between the carrying amounts of assets or liabilities in the balance sheet for financial reporting purposes and their tax base for taxation purposes.
Deferred tax liabilities are not recognized for temporary differences arising on:
– the initial recognition of an asset or liability in a transaction, which is not a business combination and that at the time of the transaction, affects neither accounting profit nor taxable profit.
A deferred tax asset is recognized for deductible temporary differences and for the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profits will be available against which these can be utilized. Deferred tax assets are reviewed at the end of each reporting period and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
As of January 1, 2010, tax losses from previous acquisitions and recognized subsequent to the implementation of IFRS 3 (Revised) 'Business Combinations' are recognized in profit or loss instead of as an adjustment to goodwill.
Deferred tax assets and liabilities are measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the end of the reporting period. The effect of changes in tax rates on the deferred taxation is recognized in profit or loss if, and to the extent that, this provision was originally formed as a charge to profit or loss.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
In determining the amount of current and deferred tax the Company takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Company believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law
and prior experience. The assessment relies on estimates and assumptions and may involve series of judgments about future events. New information may become available that causes the Company to change its judgment regarding the adequacy of existing tax liabilities. Such changes to tax liabilities will impact the tax expenses in the statement of income in the period that such a determination is made.
The Group has arranged pension schemes in various countries for most of its employees in accordance with the legal requirements, customs, and the local situation of the countries involved. These pension schemes are partly managed by the Group itself and partly entrusted to external entities, such as industry pension funds, company pension funds, and insurance companies. In addition, the Group also provides certain employees with other benefits upon retirement. These benefits include contributions towards medical health plans in the United States, where the employer refunds part of the insurance premium for retirees, or, in the case of uninsured schemes, bears the medical expenses while deducting the participants' contributions.
Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in profit or loss in the period during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or reduction in future payment is available.
The Group's net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount, and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the
calculation results in a potential asset for the Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contribution to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability/asset, which comprise actuarial gains and losses, the return on plan assets (excluding interest), and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Group determines the net interest expense/ income on the net defined benefit liability/asset for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability/ asset, taking into account any changes in the net defined benefit liability/ asset during the period resulting from contributions and benefit payments. Net interest expense and other expense, like fund administration costs, related to defined benefit plans are recognized in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in the defined benefits that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs. A curtailment occurs when an entity significantly reduces the number of employees covered by a plan. A curtailment may arise from an isolated event, such as disposal or restructuring, discontinuance of an operation or termination, or suspension of a plan. Amendments to the terms of a defined benefit plan will be considered plan amendments and will be fully accounted for as past service costs.
Long-term service benefits The Group's net obligation in respect of long-term service benefits, such as jubilee benefits, is the amount of future benefits that employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method and is discounted to its present value, and the fair value of any related assets is deducted.
The discount rate is the yield rate at the end of the reporting period on high-quality corporate bonds that have maturity dates approximating the terms of the Group's obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary.
The Group recognizes all remeasurement gains and losses arising from defined benefit plans immediately in the period in which they occur in other comprehensive income. All expenses related to defined benefit plans are presented in the statement of income.
Termination benefits Termination benefits are recognized as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as result of an offer made to encourage voluntary redundancy.
Short-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under the shortterm cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
A provision is recognized when: (1) the Group has a present legal or constructive obligation as a result of a past event; (2) it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation; and (3) the amount of the obligation can be reliably estimated.
The provision for restructuring relates to provisions for integration of activities, including acquisitions, and other substantial changes of the organizational structure and onerous contracts. A provision for restructuring is recognized only when the aforementioned general recognition criteria are met.
A constructive obligation to restructure arises only when the Group has a detailed formal plan for the restructuring and has raised a valid expectation to those affected that it will carry out restructuring by starting to implement that plan or announcing its main features to those affected by it.
A provision for onerous contracts is recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected costs of terminating the contract and the expected net cost of continuing with the contract.
The short-term commitments relating to expected spending due within one year are presented under other current liabilities.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax effects.
Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the Company's option, and any dividends are discretionary.
as equity is repurchased (treasury shares), the amount of the consideration paid, including directly attributable costs, is recognized as a change in equity. Dividends are recognized as a liability upon being declared.
Non-controlling interests are the portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the Group. Losses applicable to the non-controlling interest in a subsidiary are allocated to the non-controlling interest even if this causes the non-controlling interest to have a debit balance.
The Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit and loss attributable to ordinary shareholders of the Company, by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held ('treasury shares'). Diluted earnings per share is determined by adjusting the profit and loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares, for the effects of all dilutive potential ordinary shares which comprise share options and LTIP-shares granted.
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of policies and reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expense. Actual results may differ from those estimates, and may result in material adjustments in the next financial year(s).
Policies that are critical for the presentation of the financial position and financial performance of the Group and that require estimates and judgments are summarized below.
Revenue recognition requires estimates and judgments as far as it relates to estimating expected returns from customers and non-renewed orders. The Group recognizes a provision for these delivered goods or rendered services based on historical rates. If these rates exceed a certain threshold, revenue is recognized only upon receipt of the payment or the order. Revenue of a combination of goods and services is recognized based on estimates of the fair value of the individual components.
Wolters Kluwer has material defined benefit pension plans in the Netherlands, U.S., and U.K., and material post-retirement medical plans in the U.S.
The net assets and liabilities of these plans are presented in the balance sheet of the Group. The costs related to these pension plans and post-retirement medical plans are included in profit or loss.
The assets and liabilities as well as the costs are based upon actuarial and economic assumptions. The main economic assumptions are:
For actuarial assumptions the Group uses generally accepted mortality rates (longevity risk). The withdrawal rates and retirement rates are based upon statistics provided by the relevant entities based on past experiences.
Software development costs are capitalized if, and only if, the Group can demonstrate the technical feasibility of completing the software project so that it will be available for use or sale and if the entity can demonstrate that the project complies with the following requirements: the intention to complete the development project; the ability to sell or use the end-product; demonstration of how the end-product will yield probable future economic benefits; the availability of adequate technical, financial and other resources to complete the project; and the ability to reliably measure the expenditure attributable to the project (timing of technological developments, technological obsolescence, and competitive pressures).
Capitalized software is amortized using the straight-line method over the economic life of the software, between 3 and 10 years. Capitalization of software is dependent on several assumptions as indicated above. While management has procedures in place to control the software development process, there is uncertainty with regard to the outcome of the development process.
The useful life has to be determined for assets such as publishing rights, other intangible assets, and property, plant, and equipment. The useful lives are estimated based upon best practice within the Group and in line with common market practice. The Group reviews the useful lives of its assets annually.
Valuation and impairment testing intangibles
Upon acquisition, the values of intangible assets acquired are estimated, applying the methodologies as set out under the accounting policies. These calculations are usually performed by the management of the acquiring entity in close cooperation with an external consulting firm. These calculations require estimates like future cash flows, useful life, churn rate, and rate of return. The estimates are based upon best practice within the Group and the methodology applied is in line with normal market practice.
IAS 36 requires goodwill to be carried at cost with impairment reviews both annually and when there are indications that the carrying value of the goodwill may not be recoverable. The impairment reviews require estimates of a discount rate, future cash flows, and a perpetual growth rate. These estimates are made by management that manages the business with which the goodwill is associated. The future cash flows are based on Business Development Plans, prepared by management and approved by the Executive Board of the Group and cover a five years period.
The fair value of the assets, liabilities, and contingent liabilities of an acquired entity should be measured within 12 months from the acquisition date. For some acquisitions, provisional fair values have been included in the balance sheet and final valuation of the identifiable tangible assets is still pending, but will be completed within the 12 months' timeframe. Actual valuation of these assets, liabilities, and contingent liabilities may differ from the provisional valuation.
When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events (earn-out), the Group includes initial recognition at fair value of that adjustment in the cost of the combination at the acquisition date if the adjustment is probable and can be measured reliably. The measurement will usually be based on estimates of future results of the business combination. Subsequent changes to the fair value are recognized in profit or loss.
Accounting for income taxes Corporate taxation is calculated on the basis of income before taxation, taking into account the local tax rates and regulations. For each operating entity, the current income tax expense is calculated and differences between the accounting and tax base are determined, resulting in deferred tax assets or liabilities. These calculations might deviate from the final tax assessments, which will be received in future periods.
A deferred tax asset is recognized for the carry-forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized. Management assesses the probability that taxable profit will be available against which the unused tax losses or unused tax credits can be utilized.
For legal and judicial proceedings and claims against the Company and its operating entities, a liability is accrued only if an adverse outcome is probable and the amount of the loss can be reasonably estimated. If one of these conditions is not met, the proceeding or claim is disclosed as contingent liability, if material. The actual outcome of a proceeding or claim may differ from the estimated liability, and consequently may affect the actual result. The prediction of the outcome and the assessment of a possible loss by management are based on management's judgments and estimates. Management usually consults lawyers and other specialists for support.
| Wolters Kluwer | Annual Report 2013 | 114 | ||
|---|---|---|---|---|
| ---------------- | -------------------- | -- | -- | ----- |
Benchmark figures refer to ordinary figures which means that figures are adjusted for non-benchmark items and, where applicable, amortization and impairment of goodwill and publishing rights. Ordinary figures are non-IFRS compliant financial figures, but are internally regarded as key
performance indicators to measure the underlying performance of the business from continuing operations. These figures are presented as additional information and do not replace the information in the statements of income and cash flows. All figures are from continuing operations, unless stated otherwise.
Reconciliation of benchmark figures The 2012 comparatives in the below mentioned reconciliations of benchmark numbers are restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'.
| Benchmark figures | 2013 | 2012 | Change in actual %) currencies ( |
%) currencies ( Change in constant |
|---|---|---|---|---|
| Revenues | 3,565 | 3,597 | (1) | 2 |
| Organic revenue growth (%) | 1 | 1 | ||
| Ordinary EBITA | 765 | 774 | (1) | 2 |
| Ordinary EBITA margin (%) | 21.5 | 21.5 | ||
| Ordinary net income | 467 | 469 | (1) | 2 |
| Ordinary net financing costs | (117) | (121) | (4) | 3 |
| Ordinary free cash flow | 503 | 507 | (1) | 3 |
| Cash conversion ratio (%) | 95 | 99 | ||
| Return on invested capital (ROIC) (%) | 8.7 | 8.7 | ||
| Net debt | 1,988 | 2,086 | (5) | |
| Net-debt-to-EBITDA ratio | 2.2 | 2.4 | ||
| Diluted ordinary EPS (€) | 1.56 | 1.56 | 0 | |
| Diluted ordinary EPS in constant currencies (€) | 1.61 | 1.57 | 3 | |
| Diluted ordinary free cash flow per share (€) | 1.68 | 1.69 | 0 | 3 |
| 2013 | 2012 | |
|---|---|---|
| Reconciliation between operating profit, EBITA, and ordinary EBITA | ||
| Operating profit | 619 | 568 |
| Amortization of publishing rights and impairments Note 13 | 185 | 192 |
| EBITA | 804 | 760 |
| Exclude non-benchmark costs in operating profit: | ||
| Divestment related results Note 8 | (47) | (4) |
| Additions to acquisition integration provisions Note 29 | 6 | 12 |
| Acquisition related costs Note 8 | 6 | 6 |
| Fair value changes contingent considerations Note 27 | (4) | - |
| Ordinary EBITA | 765 | 774 |
| Reconciliation between total financing results and ordinary net financing costs | ||
| Total financing results Note 14 | (128) | (126) |
| Exclude non-benchmark costs in total financing results: | ||
| Divestment related results on equity-accounted investees Note 8 | (12) | - |
| Write-down of investments available-for-sale Note 20 | 18 | - |
| Financing component employee benefits Note 28 Ordinary net financing costs |
5 (117) |
5 (121) |
| Return on invested capital (ROIC) | ||
| Ordinary EBITA | 765 | 774 |
| Allocated tax | (211) | (214) |
| Net operating profit after allocated tax (NOPAT) | 554 | 560 |
| Average invested capital | 6,394 | 6,403 |
| Wolters Kluwer Annual Report 2013 |
116 | |
|---|---|---|
| 2013 | 2012 | |
| Reconciliation between profit for the year and ordinary net income | ||
| Profit for the year from continuing operations attributable to the owners of | ||
| the Company (A) | 352 | 334 |
| Amortization of publishing rights and impairments | ||
| (adjusted for non-controlling interests) Tax on amortization and impairments of publishing rights and goodwill |
183 | 188 |
| (adjusted for non-controlling interests) | (62) | (65) |
| Non-benchmark costs, net of tax | (6) | 12 |
| Ordinary net income (B) | 467 | 469 |
| Reconciliation between net cash from operating activities and | ||
| ordinary free cash flow | ||
| Net cash from operating activities | 630 | 618 |
| Capital expenditure | (148) | (144) |
| Acquisition related costs Note 8 | 6 | 6 |
| Paid divestment expenses | 3 | 1 |
| Dividends received Note 19 | 2 | 2 |
| Appropriation of Springboard provisions, net of tax | 10 | 24 |
| Ordinary free cash flow (C) | 503 | 507 |
| Per share information (in €) | ||
| Total number of shares outstanding at December 31 (in millions of shares) | 295.3 | 295.3 |
| Weighted average number of shares (D) (in millions of shares) Note 6 | 295.7 | 296.9 |
| Diluted weighted average number of shares (E) (in millions of shares) Note 6 | 299.5 | 300.7 |
| Ordinary EPS (B/D) | 1.58 | 1.58 |
| Diluted ordinary EPS (minimum of ordinary EPS and [B/E]) | 1.56 | 1.56 |
| Diluted ordinary EPS in constant currencies | 1.61 | 1.57 |
| Basic EPS (A/D) | 1.19 | 1.13 |
| Diluted EPS (minimum of basic EPS and [A/E]) | 1.17 | 1.11 |
| Ordinary free cash flow per share (C/D) | 1.70 | 1.71 |
| Diluted ordinary free cash flow per share | ||
| (minimum of ordinary free cash flow per share and [C/E]) | 1.68 | 1.69 |
| Wolters Kluwer | Notes to the Consolidated Financial Statements | |
|---|---|---|
| Wolters Kluwer Notes to the Consolidated Financial Statements |
117 | |
|---|---|---|
| 2013 | 2012 | |
| Summary of non-benchmark costs | ||
| Included in operating profit: | ||
| Other operating income and (expense) Note 11 | 39 | (14) |
| Included in total financing results: | ||
| Other financing income/(costs) Note 14 | (11) | (5) |
| Total non-benchmark costs | 28 | (19) |
| Benchmark tax rate | ||
| Income tax expense Note 15 | 137 | 109 |
| Tax benefit on amortization of publishing rights and impairments | 63 | 66 |
| Tax benefit on non-benchmark costs | (22) | 7 |
| Tax on ordinary income (F) | 178 | 182 |
| Ordinary net income (B) | 467 | 469 |
| Adjustment for non-controlling interests | 2 | 2 |
| Ordinary income before tax (G) | 647 | 653 |
| Benchmark tax rate (F/G) (%) | 27.6 | 27.7 |
| Calculation of cash conversion ratio | ||
| Ordinary EBITA (H) | 765 | 774 |
| Amortization and impairment of other intangible assets Note 17 | 101 | 87 |
| Depreciation of property, plant, and equipment Note 18 | 31 | 33 |
| Ordinary EBITDA | 897 | 894 |
| Autonomous movements in working capital | (22) | 16 |
| Capital expenditure | (148) | (144) |
| Ordinary cash flow from operations (I) | 727 | 766 |
| Cash conversion ratio (I/H) (%) | 95 | 99 |
Non-benchmark costs relate to expenses arising from circumstances or transactions that, given their size or nature, are clearly distinct from the ordinary activities of the Group and are excluded from the benchmark figures.
Acquisition integration costs are those one-time non-recurring cost incurred by the Group to integrate activities acquired by business combination and have been included in other operating income and expense in the consolidated statement of income.
Acquisition related costs are one-time non-recurring cost incurred by the Group resulting from acquisition activities. The acquisition related costs are directly attributable to acquisitions, such as legal fees, broker's cost, and audit fees, and have been included in other operating income and expense in the consolidated statement of income.
The Springboard restructuring provided the next wave of operational excellence at Wolters Kluwer by simplifying and standardizing the core systems and processes used to develop, sell, and support products and services globally and has been successfully completed in 2011.
All Springboard program initiatives were initiated before the end of 2011. After 2011, no costs have been incurred under this program.
Divestment related results are event-driven gains and losses incurred by the Group from the sale of activities (subsidiaries and business operations). These results also include related divestment expenses and restructuring of stranded costs and have been included in other operating income and expense in the consolidated statement of income.
Fair value changes of contingent considerations Results from changes in fair value of contingent considerations are not considered to be part of the ordinary activities of the group and have been included in other operating income and expense in the consolidated statement of income.
Non-benchmark costs in financing results
Financing component employee benefits
Financing component employee benefits relates to net interest results on the net defined benefit liability/ asset of the Group's defined benefit pension plans and other employee benefit plans.
Impairment of investments available-for-sale Impairment loss on availablefor-sale investments is calculated based on fair value calculations. An impairment loss is recognized when the change in fair value is considered to be significant and prolonged.
Divestments related results on equity-accounted investees When equity accounting for equity-accounted investees ceases, the Group calculates the gain or loss as the difference between the sum of the fair value of proceeds, the fair value of retained investment, and any amount reclassified from other comprehensive income less the carrying amount of the investment at the date on which significant influence or joint control is lost.
| 2012* | 3,597 | 1,170 | 2,427 | 680 | 1,165 | 1,845 | (14) | 568 | 192 | 14 | 774 | 120 | 4,264 | 144 | 18,396 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| operation s tinuing Total con |
2013 | 3,565 | 1,143 | 2,422 | 674 | 1,168 | 1,842 | 39 | 619 | 185 | (39) | 765 | 131 | 4,193 | 148 | 18,329 | |
| 2012* | - | - | 0 | - | 48 | 48 | - | (48) | - | - | (48) | 0 | - | 0 | 102 | ||
| Corporat e |
2013 | - | - | 0 | - | 46 | 46 | 6 | (40) | - | (6) | (46) | 0 | - | 0 | 106 | |
| 2012* | 386 | 126 | 260 | 92 | 129 | 221 | (2) | 37 | 34 | 2 | 73 | 9 | 583 | 9 | 2,358 | ||
| Services Complian ce & Financial |
2013 | 378 | 121 | 257 | 88 | 136 | 224 | (3) | 30 | 31 | 3 | 64 | 9 | 569 | 7 | 2,339 | |
| 2012* | 745 | 260 | 485 | 149 | 199 | 348 | (1) | 136 | 26 | 1 | 163 | 30 | 1,061 | 39 | 2,528 | ||
| Health | 2013 | 775 | 255 | 520 | 164 | 212 | 376 | (4) | 140 | 31 | 4 | 175 | 33 | 1,091 | 44 | 2,779 | |
| 2012* | 981 | 311 | 670 | 190 | 298 | 488 | (1) | 181 | 77 | 1 | 259 | 35 | 1,330 | 53 | 5,785 | ||
| ounting Tax & Acc |
2013 | 965 | 296 | 669 | 179 | 306 | 485 | (6) | 178 | 75 | 6 | 259 | 41 | 1,294 | 49 | 5,842 | |
| 2012* | 1,485 | 473 | 1,012 | 249 | 491 | 740 | (10) | 262 | 55 | 10 | 327 | 46 | 1,290 | 43 | 7,623 | ||
| y Regulator Legal & |
2013 | 1,447 | 471 | 976 | 243 | 468 | 711 | 46 | 311 | 48 | (46) | 313 | 48 | 1,239 | 48 | 7,263 | |
| Segment reporting by division | Revenues third parties | Cost of sales | Gross profit | Sales costs | ministrative costs General and ad |
Total operating expenses | Other operating income and (expense) | Operating profit | Amortization of publishing rights and impairments | Non-benchmark costs in operating profit | Ordinary EBITA | Depreciation and amortization of other intangible assets | Goodwill and publishing rights at December 31 | Capital expenditure | Ultimo number of FTEs | * 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'. 2013 includes the effect of the internal transfer of certain publishing assets in the U.S. from Tax & Accounting to Legal & Regulatory. |
|
| The four global operating divisions are based on strategic customer seg ments: Legal & Regulatory, Tax & |
limited and therefore not presented separately and have been eliminated. Costs and capital expenditure incurred |
considered to be segment liabilities but rather are primarily managed by the central treasury and tax function. |
|---|---|---|
| Accounting, Health, and Financial & Compliance Services. This segment information by division is based on |
on behalf of the segments by Global Shared Services/Global Platform Organization and associated FTEs |
Working capital is not managed at operating segment level but at coun try/regional level. |
| the Group's management and internal reporting structure. The Executive Board reviews the financial perfor mance of its segments and the allo |
are allocated. Third parties revenues reported to the Executive Board are measured in a manner consistent with that in the statement of income. |
|
| cation of resources based on revenues and ordinary EBITA. Internal deliveries between the divisions are conducted |
There are no major customers with a revenue stream that exceeds 10% or more of the Group's total |
|
| on an at arm's length basis with terms comparable to transactions with third parties. These revenues are |
revenues. Non-current liabilities, including interest-bearing liabilities, are not |
| 2013 | 2012* | ||||
|---|---|---|---|---|---|
| % | % | ||||
| Revenues were generated in the following regions: | |||||
| The Netherlands | 167 | 5 | 186 | 5 | |
| Europe (excluding the Netherlands) | 1,220 | 34 | 1,251 | 35 | |
| North America | 1,924 | 54 | 1,932 | 54 | |
| Asia Pacific | 207 | 6 | 195 | 5 | |
| Rest of the world | 47 | 1 | 33 | 1 | |
| Total | 3,565 | 100 | 3,597 | 100 | |
| Total non-current assets per region: | |||||
| Europe | 1,745 | 36 | 1,790 | 36 | |
| North America | 2,964 | 61 | 3,101 | 62 | |
| Asia Pacific | 74 | 1 | 86 | 2 | |
| Rest of the world | 79 | 2 | 0 | 0 | |
| Total | 4,862 | 100 | 4,977 | 100 | |
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'.
| Note 6 Earnings per Share | |||
|---|---|---|---|
| Basic earnings per share | |||
| The calculation of basic earn | |||
| ings per share at December 31, 2013, | |||
| was based on the profit for the year | |||
| of €345 million (2012: €312 million) | |||
| attributable to the ordinary equity | |||
| holders of the Company, and a | |||
| weighted average number of ordinary | |||
| shares outstanding of 295.7 million | |||
| (2012: 296.9 million), calculated | |||
| as follows: |
| Profit for the year attributable to the owners of the Company | 2013 | 2012* |
|---|---|---|
| From continuing operations (A) | 352 | 334 |
| From discontinued operations (B) | (7) | (22) |
| Profit for the year attributable to the owners of the Company (C) | 345 | 312 |
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'.
| Weighted average number of shares in millions of shares |
2013 | 2012* |
|---|---|---|
| Outstanding ordinary shares at January 1 Note 30 | 301.9 | 301.7 |
| Effect of stock dividend | - | 0.2 |
| Effect of issued shares | - | - |
| Effect of repurchased shares | (6.2) | (5.0) |
| Weighted average number of shares (D) | 295.7 | 296.9 |
| Basic EPS from continuing operations (€) (A/D) | 1.19 | 1.13 |
| Basic EPS from discontinued operations (€) (B/D) | (0.02) | (0.08) |
| Basic EPS (€) (C/D) | 1.17 | 1.05 |
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'.
| Diluted earnings per share | |||
|---|---|---|---|
| The calculation of diluted earn | |||
| ings per share at December 31, 2013, | |||
| was based on the profit for the year | |||
| of €345 million (2012: €312 million) | |||
| attributable to the ordinary equity | |||
| holders of the Company, and a diluted | |||
| weighted average number of ordinary | |||
| shares outstanding of 299.5 million | |||
| (2012: 300.7 million), after adjustment | |||
| for the effects of all dilutive potential | |||
| ordinary shares, calculated as follows: |
| Diluted weighted average number of shares (E) in millions of shares |
2013 | 2012* |
|---|---|---|
| Weighted average number of shares (D) | 295.7 | 296.9 |
| Long-Term Incentive Plan | 3.8 | 3.8 |
| Diluted weighted average number of shares (E) | 299.5 | 300.7 |
| Diluted EPS from continuing operations (€) | ||
| (minimum of basic EPS and [A/E]) | 1.17 | 1.11 |
| Diluted EPS from discontinued operations (€) | ||
| (minimum of basic EPS and [B/E]) | (0.02) | (0.07) |
| Diluted EPS (€) (minimum of basic EPS and [C/E]) | 1.15 | 1.04 |
* 2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'.
| Note 7 Discontinued Operations and Assets Held for Sale |
including these activities sold, had been treated as assets held for sale and had been included in |
discontinued operations have now been divested. The following table summarizes |
|---|---|---|
| Discontinued operations | discontinued operations. The French | the results of the Pharma business |
| In September 2013, Wolters | assets were part of the Legal & | included in the consolidated statement |
| Kluwer completed the sale of its | Regulatory portfolio and encompassed | of income as discontinued operations |
| French pharma-related publishing | healthcare magazines and journals | for 2013 and 2012. |
| activities (Santé). The divestment | for pharmacists, veterinarians, den | |
| of Santé was part of the broader | tists, nurses and physicians, as well as | |
| Pharma divestment program originally | related trade show and training | |
| announced in July 2011. Since that | activities. Following this disposal, | |
| time, the pharma-related assets, | all assets that were recorded under |
| Results from discontinued operations | 2013 | 2012 |
|---|---|---|
| Revenues | 20 | 70 |
| Expenses | (25) | (82) |
| Operating profit | (5) | (12) |
| Income tax | 2 | 5 |
| Results from operating activities, net of tax | (3) | (7) |
| Impairment | - | (3) |
| Restructuring costs | (3) | (13) |
| Profit/(loss) on sale of discontinued operations, net of tax | (1) | 1 |
| Profit/(loss) from discontinued operations | (7) | (22) |
The loss for the year from discontinued operations is fully attributable to the owners of the Company.
| Assets/liabilities held for sale related to discontinued operations | 2013 | 2012 |
|---|---|---|
| Assets held for sale | - | 0 |
| Liabilities held for sale | - | 0 |
| Cash flows from discontinued operations | 2013 | 2012 |
|---|---|---|
| Net cash used in operating activities | (3) | (28) |
| Net cash used in discontinued operations | (3) | (28) |
| Effect of disposal of discontinued operations on the financial posi tion of the Group |
||
| The following table summarizes the consideration received, the result from the sale of discontinued opera |
||
| tions, and the cash proceeds on the sale of Santé in 2013 and Healthcare Analytics in 2012. |
| Discontinued operations disposed of during the year | 2013 | 2012 | |
|---|---|---|---|
| Consideration receivable in cash | - | - | |
| Investments available-for-sale | - | 33 | |
| Working capital to be settled | - | 3 | |
| Total consideration receivable | 0 | 36 | |
| Non-current assets | 0 | 34 | |
| Current assets | 5 | 45 | |
| Current liabilities | (5) | (41) | |
| Deferred tax liabilities | 0 | (9) | |
| Net identifiable assets and liabilities | 0 | 29 | |
| Costs incurred | (4) | (8) | |
| Profit/(loss) on sale of discontinued operations, before tax | (4) | (1) | |
| Income tax discontinued operations | 3 | 2 | |
| Profit/(loss) on sale of discontinued operations, net of tax | (1) | 1 | |
| Cash effect of disposal: | |||
| Consideration received in cash | 0 | 0 | |
| Cash and cash equivalents disposed of | (10) | (4) | |
| Settlement of non-current divestment receivable | - | 8 | |
| Working capital settlement | - | 2 | |
| Net cash flow from disposal of discontinued operations | (10) | 6 |
In 2013, the following significant acquisitions were completed:
On January 4, 2013, Wolters Kluwer acquired 100% of the shares of Health Language, Inc., a leader in medical terminology management. The acquisition is part of Wolters Kluwer Health's strategy to enhance its leadership position in the rapidly growing point-of-care market. Health Language provides customers with access to a comprehensive set of evidence-based disease and drug information knowledge platforms and software solutions; its products and services are highly complementary to those of Wolters Kluwer Clinical Solutions. Health Language is headquartered in Denver, Colorado, U.S.A., and has approximately 85 employees. The purchase price consideration, net of cash acquired, was €84 million. The entity has annualized revenues of approximately €23 million.
On May 20, 2013, Wolters Kluwer acquired 100% of the shares of Prosoft Tecnologia S.A., a leading provider of tax and accounting software based in Sao Paolo, Brazil. The acquisition aligns with Wolters Kluwer's strategy to expand its leading, high growth positions. Prosoft is one of the largest tax and accounting software solutions providers in Brazil, with 250 employees, and serving all 27 states. The purchase price consideration was €85 million. The entity has annualized revenues of approximately €28 million.
Next to the two above acquisitions, the Company closed other acquisition transactions, which include:
On April 2, 2013, Wolters Kluwer acquired certain assets of iSentry, a U.K.-based provider of secure electronic data storage, delivery and e-signature solutions. iSentry is part of the Financial & Compliance Services division. The purchase price consideration was €15 million.
On June 5, 2013, Corporate Legal Services (CLS) acquired 100% of the shares of Avantiq, a provider of multi-national trademark research services. This acquisition bolsters CLS's global portfolio of trademark and brand clearance and protection solutions under the Corsearch brand and also extends its European expertise and presence. The purchase price consideration was €9 million.
On September 9, 2013, CLS also acquired CitizenHawk, Inc., a premier provider of SaaS solutions and services specializing in online brand protection and global domain recovery. This acquisition allows Corsearch to offer its customers a greater range of online brand protection services under the Corsearch brand. Citizen-Hawk, based in Aliso Viejo, California, serves more than 250 blue-chip brands. The purchase price consideration was €13 million.
Total acquisition spending in 2013 was €192 million (2012: €109 million) including deferred and contingent consideration payments of €2 million (2012: €5 million). Acquisition related costs (Note 11) amounted to €6 million in 2013 (2012: €6 million).
The goodwill recorded in connection with the 2013 acquisitions represents future economic benefits specific to Wolters Kluwer arising from assets that do not qualify for separate recognition as intangible assets. This includes, amongst others, expected synergies, skilled workforce, new customers expected to be attracted who generate revenue streams in the future, revenues generated by future completely new versions of software, and the possibility to have an immediate significant presence in the markets through an existing customer base, that can be levered by WK for other products and services.
The goodwill recognized in 2013 included an amount of €7 million (2012: nil) that is deductible for income tax purposes.
The following tables provide information in aggregate for all business combinations in 2013.
| Acquisitions | 2013 | 2012 | ||
|---|---|---|---|---|
| Carrying amount | adjustments Fair value |
Recognized values |
Recognized values |
|
| Consideration payable in cash | 202 | 115 | ||
| Fair value of previously held equity-accounted investee Note 19 | 3 | - | ||
| Non-controlling interests | 3 | - | ||
| Deferred and contingent considerations: | ||||
| Non-current | 15 | 11 | ||
| Current | 18 | 3 | ||
| Total consideration | 241 | 129 | ||
| Intangible assets | 2 | 167 | 169 | 99 |
| Other non-current assets | 2 | 2 | 3 | |
| Trade and other receivables | 8 | 8 | 12 | |
| Other current assets | 14 | 14 | 12 | |
| Deferred income | (9) | (9) | (4) | |
| Other current liabilities | (8) | (8) | (10) | |
| Deferred tax liability | 4 | (57) | (53) | (18) |
| Fair value of net identifiable assets and liabilities | 13 | 110 | 123 | 94 |
| Goodwill on acquisitions Note 17 | 118 | 35 | ||
| Cash effect of acquisitions: | ||||
| Consideration payable in cash | 202 | 115 | ||
| Cash acquired | (12) | (11) | ||
| Deferred and contingent considerations paid | 2 | 5 | ||
| Acquisition spending, net of cash acquired | 192 | 109 |
Wolters Kluwer Notes to the Consolidated Financial Statements 127
| Contribution of acquisitions | Profit for the year | |||
|---|---|---|---|---|
| Revenues | Ordinary EBITA | |||
| Totals excluding the impact of 2013 acquisitions | 3,519 | 751 | 344 | |
| Contribution of 2013 acquisitions | 46 | 14 | 2 | |
| Totals for the year 2013 | 3,565 | 765 | 346 | |
| Pro-forma contribution of 2013 acquisitions for the period | ||||
| January 1, 2013, up to acquisition date | 19 | 6 | (1) | |
| Pro-forma totals for the year 2013 | 3,584 | 771 | 345 | |
The above (unaudited) pro-forma information does not purport to represent what the actual results would have been had the acquisitions actually been concluded on January 1, 2013, nor is the information necessar ily indicative for future results of the acquired operations. In determining the contributions by the acquisitions, management has assumed that the fair value adjustments that arose on the date of the acquisition would have been the same as if acquisition had occurred on January 1, 2013.
The acquisitions completed in 2013 resulted in a maximum undis counted contingent consideration of €30 million, which mainly relates to Prosoft (€25 million). The fair value of the Prosoft contingent consider ation at December 31, 2013, amounts to €23 million (of which €12 million is classified as short-term).
The fair value of the identifiable assets and liabilities of certain acquisitions could only be determined provisionally and will be subject to change based on the outcome of the purchase price allocation in 2014. The acquisition accounting will be revised if new information, obtained within one year from acquisition date about facts and circumstances that existed at the acquisition date, identifies adjustments to the above amounts, or for any additional provisions that existed at the acquisi tion date. Subsequent changes
in purchase price accounting for 2012 acquisitions were not material.
Divestments related results on operations and equity-accounted investees
In 2013 and 2012, there were a number of divestments of operations to optimize the portfolio. In 2013, the other operating income and expense included a total book gain of €47 million (2012: €4 million) on divestment related results. The main 2013 disposals related to the sale of Best Case Solutions and the minority stake in AccessData in the United States, and a number of smaller disposals in the Netherlands and Denmark. A restructuring provision of €9 million related to committed programs to eliminate stranded costs associated with the divested business in the Netherlands was formed.
The divestments support the Group's strategy to focus on areas of more strategic interest. The 2012 comparatives included the sale of certain activities in the Netherlands with an associated restructuring provision of €5 million for its stranded costs.
| Wolters Kluwer | Annual Report 2013 | 128 | |||
|---|---|---|---|---|---|
| ---------------- | -------------------- | -- | -- | -- | ----- |
| Divestment related results on operations and equity-accounted investees | 2013 | 2012 | |
|---|---|---|---|
| Divestments of operations: | |||
| Consideration receivable in cash | 59 | 6 | |
| Consideration receivable in assets | - | 2 | |
| Consideration receivable | 59 | 8 | |
| Non-current assets | 15 | 3 | |
| Current assets | 2 | 3 | |
| Current liabilities | (11) | (5) | |
| Provision for restructuring commitments | (2) | - | |
| Deferred tax liability | (1) | (2) | |
| Non-controlling interests | (1) | - | |
| Net identifiable assets and liabilities | 2 | (1) | |
| Reclassification of foreign exchange gain/(loss) on loss of control, recognized in other | |||
| comprehensive income | 1 | - | |
| Book profit/(loss) on divestments of operations | 58 | 9 | |
| Divestment expenses | (3) | (1) | |
| Curtailment gain on employee benefits | 1 | 1 | |
| Restructuring of stranded costs following divestments | (9) | (5) | |
| Divestment related results included in other operating income and (expense) Note 11 | 47 | 4 | |
| Divestments of equity-accounted investees: Consideration receivable in cash |
35 | - | |
| Carrying value of equity-accounted investees | (23) | - | |
| Divestment related results included in total financing results Note 14 | 12 | - | |
| Cash effect of divestments: | |||
| Consideration receivable in cash | 94 | 6 | |
| Paid corporate income tax Note 21 | (31) | - | |
| Receipts from divestments, net of tax | 63 | 6 | |
Wolters Kluwer Notes to the Consolidated Financial Statements 129
| Note 9 Sales Costs | ||
|---|---|---|
| Sales costs | 2013 | 2012 |
| Marketing and promotion costs | 195 | 195 |
| Sales costs | 386 | 394 |
| Customer support costs | 81 | 78 |
| Changes in bad debt provisions | 12 | 13 |
| Total | 674 | 680 |
| Sales costs relate to direct internal personnel expenses and direct external costs incurred for marketing and sales |
||||
|---|---|---|---|---|
| activities. The sales costs decreased | ||||
| mainly due to favorable effects of | ||||
| currency partly offset by higher costs | ||||
| as result of acquisitions and continuing | ||||
| focus on increasing the strength of | ||||
| the sales force. | ||||
Note 10 General and Administrative Costs
| General and administrative costs | 2013 | 2012* |
|---|---|---|
| Publishing and editorial costs | 247 | 229 |
| General and administrative operating expenses | 736 | 744 |
| Amortization of publishing rights and impairments Note 13 | 185 | 192 |
| Total | 1,168 | 1,165 |
* 2012 restated for presentation change of certain cost items from General and Administrative costs to Other operating income and expense (Note 1).
General and administrative costs were impacted by investments in product development, and the net impact of acquisitions/divestments offset by the favorable effects of foreign currency exchange, lower amortization of intangible assets, and cost containment programs.
| Other operating income and (expense) | 2013 | 2012 |
|---|---|---|
| Divestment related results Note 8 | 47 | 4 |
| Additions to acquisition integration provisions Note 29 | (6) | (13) |
| Acquisition related costs Note 8 | (6) | (6) |
| Release Springboard provisions | - | 1 |
| Fair value changes contingent considerations Note 27 | 4 | - |
| Total other operating income and (expense) | 39 | (14) |
| Personnel expenses | 2013 | 2012 |
|---|---|---|
| Salaries and wages | 1,166 | 1,149 |
| Social security charges | 158 | 151 |
| Costs of defined contribution plans | 46 | 51 |
| Expenses related to defined benefit plans Note 28 | 9 | 5 |
| Equity-settled share-based payment transactions Note 31 | 14 | 15 |
| Total | 1,393 | 1,371 |
| Employees | ||
| Headcount at December 31 | 19,054 | 19,095 |
| In full-time equivalents at December 31 | 18,329 | 18,396 |
| In full-time equivalents average per annum* | 19,508 | 19,207 |
* Average full-time equivalents per annum include temporary help and contractors, whereas headcount and its full-time equivalent only relate to staff on the payroll of the Group.
Favorable effects of foreign currency exchange and savings in personnel expenses from cost containment programs were offset by an increase in personnel expenses resulting from annual merit increases, and the net impact of 2013 and 2012 acquisitions and divestments.
| Amortization, impairments, and depreciation | 2013 | 2012 |
|---|---|---|
| Amortization of publishing rights Note 17 | 185 | 192 |
| Impairments of goodwill and publishing rights Note 17 | - | - |
| Total amortization of publishing rights and impairments | 185 | 192 |
| Amortization of other intangible assets Note 17 | 100 | 87 |
| Impairments of other intangible assets Note 17 | 1 | 0 |
| Depreciation of property, plant, and equipment Note 18 | 31 | 33 |
| Total | 317 | 312 |
| Financing results | 2013 | 2012 |
|---|---|---|
| Financing income | ||
| Interest income on short-term bank deposits | 3 | 4 |
| Derivatives - foreign exchange contracts | 0 | 2 |
| Other financing income* | 7 | 3 |
| Total financing income | 10 | 9 |
| Financing cost | ||
| Interest expense: | ||
| Bank borrowings and overdrafts | 0 | (3) |
| Bonds and private placements | (123) | (119) |
| Other financing expense | (6) | (3) |
| Net foreign exchange gains/(losses) | 8 | (2) |
| Derivatives - foreign exchange contracts | (1) | 0 |
| Amortization of debt instruments | (3) | (2) |
| Items in hedge relationships: | ||
| Interest rate swaps | (2) | (1) |
| Foreign exchange gains/(losses) on loans subject to cash flow hedge | 38 | 24 |
| Net change in fair value of cash flow hedges reclassified from | ||
| other comprehensive income | (38) | (24) |
| Ineffective portion of hedging | 0 | 0 |
| Total financing costs | (127) | (130) |
| Net financing results | (117) | (121) |
| Other financing income/(costs): | ||
| Divestment related results on equity-accounted investees Note 8 | 12 | - |
| Write-down of investments available-for-sale Note 20 | (18) | - |
| Financing component employee benefits Note 28 | (5) | (5) |
| Total financing results | (128) | (126) |
*Other financing income includes a settlement of €5 million from Lehman Brothers (2012: €2 million).
Wolters Kluwer Notes to the Consolidated Financial Statements 133
| Recognized in statement of income | 2013 | 2012 |
|---|---|---|
| Current tax expense | 146 | 126 |
| Adjustments previous years | (8) | (8) |
| Benefit previously unrecognized tax losses | (1) | (1) |
| Deferred tax expense: | ||
| Origination and reversal of temporary differences Note 21 | 0 | (8) |
| Taxation on income in statement of income Note 21 | 137 | 109 |
| Reconciliation of the effective tax rate | 2013 | 2012 | ||
|---|---|---|---|---|
| % | % | |||
| Profit before tax | 490 | 442 | ||
| Normative income tax expense | 33 | 159 | 33 | 145 |
| Tax effect of: | ||||
| Intra-group financing activities | (9) | (42) | (9) | (39) |
| Tax exemption on results on divestments of operations | 2 | 9 | 0 | (1) |
| Non-deductible costs and other items | 2 | 11 | 1 | 4 |
| Taxation on income in statement of income | 28 | 137 | 25 | 109 |
| The normative income tax expense has been computed as the weighted average rate of the jurisdictions |
|||||
|---|---|---|---|---|---|
| where the Group operates. | |||||
| The effective tax percentage increased in 2013 compared to 2012 mainly due to tax charges on capital |
|||||
| gains on divestments of AccessData and Best Case Solutions in the United States. |
|||||
The Group's shares in significant consolidated subsidiaries that were not fully owned at December 31 are:
| Ownership in % | 2013 | 2012 | |
|---|---|---|---|
| Akadémiai (Budapest, Hungary) | 74 | 74 | |
| Wolters Kluwer Russia Publishing Holding bv (Amsterdam, Netherlands) | 55 | 55 | |
| CCH Prosystems India Private Limited, (Bangalore, India) | - | 60 | |
| Access Matrix Technologies Private Ltd. (Bangalore, India) | 60 | 30 | |
| Medicom (Chengdu, China) | 55 | 55 | |
Access Matrix Technologies was accounted for as an equity-accounted investee. In April 2013, the equity-interest was increased to 60%, and consequently since the date control has been acquired, consolidated for 100%, with a simultaneous recognition of 40% non-controlling interests.
| Non-controlling interests | 2013 | 2012 |
|---|---|---|
| Position at January 1 | 20 | 21 |
| Acquisitions through business combinations Note 8 | 3 | - |
| Dividends received | 0 | (2) |
| Share of profit in non-controlling interests, net of tax | 1 | (1) |
| Divestment Note 8 | (1) | - |
| Foreign exchange differences and other movements | (3) | 2 |
| Position at December 31 | 20 | 20 |
Non-controlling interests of consolidated participations in the profit for the year of the Group in 2013 totaled €1 million (2012: €(1) million). Non-controlling interests in the equity of consolidated participations, totaling €20 million (2012: €20 million), are based on third-party shareholding in the underlying shareholders' equity of the subsidiaries. In September 2013, the Company sold its 60% equity-interest in CCH Prosystems India Private Limited resulting in a book loss of €4 million.
Wolters Kluwer Notes to the Consolidated Financial Statements 135
| Summary financial information based on 100% ownership | 2013 | 2012 | |
|---|---|---|---|
| Revenues | 57 | 50 | |
| Ordinary EBITA | 5 | 7 | |
| Net profit | 2 | (2) | |
| Total assets | 77 | 74 | |
| Total liabilities | 35 | 25 | |
| Total equity | 42 | 49 | |
| Total gross external debt | 0 | - | |
| Total cash and cash equivalents | 19 | 18 | |
The Group's proportionate share of each line item in the financial statements of the non-controlling interests does not materially differ from the consolidated financial statements.
| Intangible assets | publishing rights | Other intangible | ||||
|---|---|---|---|---|---|---|
| Goodwill | Acquired | assets | 2013 | 2012 | ||
| Position at January 1 | ||||||
| Purchase value | 3,088 | 2,440 | 875 | 6,403 | 6,308 | |
| Accumulated amortization and impairments | (29) | (1,235) | (488) | (1,752) | (1,579) | |
| Book value at January 1 | 3,059 | 1,205 | 387 | 4,651 | 4,729 | |
| Movements | ||||||
| Investments | - | - | 128 | 128 | 117 | |
| Acquisitions through business combinations Note 8 | 118 | 167 | 2 | 287 | 134 | |
| Divestments of operations Note 8 | (8) | (5) | (2) | (15) | (1) | |
| Disposals of assets | 0 | 0 | (1) | |||
| Net expenditures | 110 | 162 | 128 | 400 | 249 | |
| Amortization Note 13 | - | (185) | (100) | (285) | (279) | |
| Impairments Note 13 | - | - | (1) | (1) | 0 | |
| Reclassifications | (5) | 4 | - | (1) | 3 | |
| Exchange differences and other movements | (114) | (43) | (15) | (172) | (51) | |
| Total movements | (9) | (62) | 12 | (59) | (78) | |
| Position at December 31 | ||||||
| Purchase value | 3,079 | 2,420 | 950 | 6,449 | 6,403 | |
| Accumulated amortization and impairments | (29) | (1,277) | (551) | (1,857) | (1,752) | |
| Book value at December 31 | 3,050 | 1,143 | 399 | 4,592 | 4,651 | |
Publishing rights acquired through business combinations mainly consist of customer relationships (subscriber accounts), technology (databases, software, and product technology), trademarks, and titles.
Other intangible assets mainly relate to purchased and self-constructed information systems and software, of which €76 million
(2012: €72 million) relates to product development.
Reclassifications include the additionally recognized publishing rights and related deferred tax liabilities from the final outcome of the purchase price allocation of prior year acquisitions.
| Carrying amounts of goodwill and acquired publishing rights per global operating division |
Goodwill | publishing rights Acquired |
2013 | 2012 | |
|---|---|---|---|---|---|
| Legal & Regulatory | 983 | 256 | 1,239 | 1,290 | |
| Tax & Accounting | 939 | 355 | 1,294 | 1,330 | |
| Health | 800 | 291 | 1,091 | 1,061 | |
| Financial & Compliance Services | 328 | 241 | 569 | 583 | |
| Total | 3,050 | 1,143 | 4,193 | 4,264 | |
The Group reviews at the end of each reporting period whether there is an indication that any of the CGUs that contain goodwill and publishing rights may be impaired. Furthermore, the Group carries out an annual impairment test by comparing the carrying amount of the CGU to which the goodwill and publishing rights belong, net of related deferred taxes, to the recoverable amount of the CGU.
In 2013, the Company combined three of its CGUs for annual goodwill impairment testing into one CGU, due to far-reaching integration activities, which will result in completely merged entities. The recoverable amount is determined based on a calculation of its value-in-use. The value-in-use was
determined by discounting the future cash flows to be generated from the continuing use of the CGUs. These valuations are based on not observable market data. The value-in-use calculations in 2013 were determined in a manner consistent with 2012. The cash flow projections are based on actual operating results and Business Development Plans, as approved by the Executive Board.
The annual impairment test carried out in 2013 showed that the recoverable amount for all groups of CGUs for goodwill impairment testing exceeded the carrying amounts.
| Goodwill: impairment sensitivity per major CGU | points | Allowed change in base | |||
|---|---|---|---|---|---|
| Applied revenue growth rate |
Decline in growth | discount rate Increase in |
ordinary EBITA Decrease in margin |
Allocated goodwill at December 31, 2013 |
|
| Legal & Regulatory North America | 1.0% | >300 | >300 | >300 | 135 |
| Legal & Regulatory Europe South | 2.1% | 210 | 175 | 230 | 232 |
| Corporate Legal Services | 2.0% | >300 | >300 | >300 | 362 |
| Tax & Accounting Americas and Asia Pacific | 2.0% | >300 | >300 | >300 | 595 |
| Tax & Accounting Europe | 1.8% | >300 | >300 | >300 | 344 |
| Medical Research | 2.0% | >300 | >300 | >300 | 260 |
| Professional & Education | 2.0% | >300 | >300 | >300 | 135 |
| Clinical Solutions | 2.0% | >300 | >300 | >300 | 405 |
| Financial & Compliance Services | 2.0% | >300 | >300 | >300 | 310 |
| Other CGUs | 1.9% | 272 | |||
| Total | 1.9% | 3,050 |
| Key assumptions used in | The estimated pre-tax cash flows |
|---|---|
| discounting cash flows | are discounted to their present value |
| The period over which the Group | using a pre-tax weighted average cost |
| estimates its cash flow projections is | of capital (WACC) between 8.7% |
| five years. After five years cash flow | and 10.9% (2012: between 8.7% and |
| projections are extrapolated using an | 10.9%). |
| appropriate perpetual growth rate that is consistent with the long-term average market growth rate. The weighted average growth rate is 1.9% (2012: 2.0%). |
In determining the WACC the Group used the following assumptions: |
| Assumptions WACC | 2013 | 2012 |
|---|---|---|
| Risk free rate (in %) | 3.7 | 3.9 |
| Market risk premium (in %) | 6.0 | 5.0 |
| Tax rate (in %) | 25.0 | 25.0 |
| Re-levered beta | 0.81 | 0.81 |
| The risk free-rate is based on the long-term yield on Dutch government bonds with a maturity of 30 years. |
In addition to the WACC and the perpetual growth rate the following key assumptions were used in |
Sensitivity analysis The impairment testing also includes an assessment if a reasonably |
||||
|---|---|---|---|---|---|---|
| Management is of the opinion that the | the projections: | possible change in a key assumption | ||||
| yield on Dutch government bonds with | – Revenue growth: based on actual | would cause the carrying amount to | ||||
| 30-years maturity is a better approxi | experience, an analysis of | exceed the recoverable amount. The | ||||
| mation of the risk free rate in 2013 and | market growth and the expected | outcome was that there was no need | ||||
| 2012. The risk free rate on Dutch gov | development of market share; | for impairment. | ||||
| ernment bonds is currently low. Man | and | Contrary to last year, there were | ||||
| agement therefore considers a 'floor' | – Ordinary EBITA-margin develop | no CGUs at risk. | ||||
| for the risk free rate to be appropriate | ment: based on actual experience | |||||
| and included therefore a higher debt | and management's long-term | |||||
| premium, by including a mark-up of | projections; ordinary EBITA | |||||
| 1.0% resulting in a 3.7% (2012: 3.9%) | is deemed to be the best approx | |||||
| risk free rate, and a higher market risk | imation for estimating future | |||||
| premium of 6% (2012: 5%). | cash flows. | |||||
| Note 18 Property, Plant, and Equipment |
||||||
| Property, plant, and equipment | Land and buildings | Other fixed assets | ||||
| 2013 | 2012 | |||||
| Position at January 1 | ||||||
| Purchase value | 131 | 414 | 545 | 532 | ||
| Accumulated depreciation | (61) | (346) | (407) | (390) | ||
| Book value at January 1 | 70 | 68 | 138 | 142 | ||
| Movements | ||||||
| Investments | 1 | 20 | 21 | 28 | ||
| Acquisitions through business combinations | - | 2 | 2 | 1 | ||
| Divestment of operations | - | 0 | 0 | 2 | ||
| Disposals of assets | 0 | (1) | (1) | 0 | ||
| Net expenditures | 1 | 21 | 22 | 31 | ||
| Depreciation Note 13 | (4) | (27) | (31) | (33) | ||
| Exchange differences and other movements | (2) | (3) | (5) | (2) | ||
| Total movements | (5) | (9) | (14) | (4) | ||
| Position at December 31 | ||||||
| Purchase value | 125 | 366 | 491 | 545 | ||
| Accumulated depreciation Book value at December 31 |
(60) 65 |
(307) 59 |
(367) 124 |
(407) 138 |
| Investments in equity-accounted investees | 2013 | 2012 |
|---|---|---|
| Position at January 1, as previously reported | 59 | 65 |
| Impact of changes in accounting policies (IFRS 11) | 2 | 2 |
| Restated position at January 1 | 61 | 67 |
| Acquisitions through business combinations | - | 2 |
| Divestments | (23) | (2) |
| Dividends received | (2) | (2) |
| Share of profit in equity-accounted investees, net of tax | (1) | 0 |
| Change in control Note 8 | (3) | (2) |
| Foreign exchange differences and other movements | (1) | (2) |
| Position at December 31 | 31 | 61 |
In March 2013, Wolters Kluwer completed the divestiture of its 25% equity interest in AccessData. This sale sharpened CLS' focus on its core business. The book gain on this sale of €12 million is recognized in other financing income/costs (Note 8 and Note 14).
Equity-accounted investees includes one joint venture, Ipsoa-Francis Lefebvre in Italy, with a carrying value of €2 million (2012: €2 million).
| Summary financial information on equity-accounted investees (at 100%) and the Group's weighted proportionate share |
Total equity- accounted investees |
Group's share | |||
|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | ||
| Total assets | 62 | 96 | 22 | 30 | |
| Total liabilities | 54 | 74 | 20 | 22 | |
| Total equity | 8 | 22 | 2 | 8 | |
| Revenues | 112 | 167 | 42 | 56 | |
| Net profit/(loss) for the year | 2 | (3) | (1) | 0 | |
| Financial assets | 2013 | 2012 |
|---|---|---|
| Investments available-for-sale | 16 | 36 |
| Other receivables | 11 | 11 |
| Derivative financial instruments Note 26 | - | 2 |
| Total | 27 | 49 |
| Investments available-for-sale mainly |
|---|
| relate to a 7.7% (2012: 19.44%) |
| equity interest obtained as part of the |
| completed sale of the pharma-related |
| Healthcare Analytics business in |
| May 2012. This investment has been |
| written-down by €18 million in 2013 |
| (Note 27). |
| Investments available-for-sale | 2013 | 2012 |
|---|---|---|
| Position at January 1 | 36 | 1 |
| Change in control | - | 2 |
| Write-down through profit or loss Note 14 | (18) | - |
| Acquisitions | - | 33 |
| Foreign exchange differences and other movements | (2) | 0 |
| Position at December 31 | 16 | 36 |
| Deferred tax assets and liabilities | |||||
|---|---|---|---|---|---|
| ------------------------------------- | -- | -- | -- | -- | -- |
| Assets | Liabilities | 2013 | 2012 | ||
|---|---|---|---|---|---|
| Intangible assets | 36 | (449) | (413) | (398) | |
| Property, plant, and equipment | 4 | (32) | (28) | (36) | |
| Employee benefits | 49 | (1) | 48 | 72 | |
| Interest carry-forward | 98 | - | 98 | 132 | |
| Tax value of loss carry-forwards recognized | 48 | - | 48 | 35 | |
| Other items | 101 | (87) | 14 | 21 | |
| Deferred tax assets/(liabilities) | 336 | (569) | (233) | (174) | |
| Set off of tax | (248) | 248 | 0 | 0 | |
| Net deferred tax assets/(liabilities) | 88 | (321) | (233) | (174) | |
| The actual realization of the deferred |
|---|
| tax assets depends on the generation |
| of future taxable income during the |
| periods in which the temporary differ |
| ences become deductible. Based on |
| projected future taxable income and |
| available strategies, the Group con |
| siders the future realization of these |
| deferred tax assets more likely than |
| not. |
| Movement in temporary differences, 2013 | Balance at January 1 | Acquisitions/disposals | Recognized in statement of income (Note 15) |
Discontinued operations | Recognized in equity | Exchange rate differences and other movements |
Balance at December 31 |
|---|---|---|---|---|---|---|---|
| Intangible assets | (398) | (55) | 22 | - | - | 18 | (413) |
| Property, plant, and equipment | (36) | - | 6 | - | - | 2 | (28) |
| Employee benefits | 72 | - | (7) | - | (13) | (4) | 48 |
| Interest carry-forwards | 132 | - | (30) | - | - | (4) | 98 |
| Tax value of loss carry-forwards recognized | 35 | - | 15 | - | - | (2) | 48 |
| Other items | 21 | 4 | (6) | - | (3) | (2) | 14 |
| Total | (174) | (51) | 0 | 0 | (16) | 8 | (233) |
| Movement in temporary differences, 2012 | Balance at January 1, restated |
Acquisitions/disposals | Recognized in statement of income (Note 15) |
Discontinued operations | Recognized in equity | Exchange rate differences and other movements |
Balance at December 31 |
|---|---|---|---|---|---|---|---|
| Intangible assets | (390) | (31) | 17 | 3 | - | 3 | (398) |
| Property, plant, and equipment | (51) | - | 15 | - | - | 0 | (36) |
| Employee benefits | 62 | - | 1 | - | 9 | 0 | 72 |
| Interest carry-forwards | 146 | - | (14) | - | - | 0 | 132 |
| Tax value of loss carry-forwards recognized | 30 | - | 5 | - | - | 0 | 35 |
| Other items | 30 | 12 | (16) | - | (4) | (1) | 21 |
| Total | (173) | (19) | 8 | 3 | 5 | 2 | (174) |
The 2013 movement in deferred tax liabilities from acquisitions/disposals of €51 million (2012: €19 million) included €52 million with regard to acquisitions/disposals made in 2013 (2012: €16 million) and €(1) million (2012: €3 million) that related to the final outcome of the purchase price allocation of prior year acquisitions.
Annual Report 2013 Wolters Kluwer 144
| Movements in overall tax position | 2013 | 2012 |
|---|---|---|
| Position at January 1 Tax receivable |
34 | 29 |
| Tax payable | (32) | (26) |
| Deferred tax assets | 78 | 80 |
| Deferred tax liabilities | (252) | (253) |
| Overall tax position | (172) | (170) |
| Movements | ||
| Total income tax expense Note 15 | (137) | (109) |
| Deferred tax on acquisitions/disposals | (51) | (19) |
| Deferred tax on items recognized immediately in equity | (3) | (4) |
| Deferred tax on items recognized immediately in other comprehensive income | (13) | 9 |
| Paid corporate income tax | 99 | 110 |
| Paid corporate income tax on results on divestments Note 8 | 31 | 0 |
| Transfer to assets held for sale/liabilities to held for sale | - | 9 |
| Exchange differences and other movements | 8 | 2 |
| Total movements | (66) | (2) |
| Position at December 31 | ||
| Tax receivable | 33 | 34 |
| Tax payable | (38) | (32) |
| Deferred tax assets | 88 | 78 |
| Deferred tax liabilities | (321) | (252) |
| Overall tax position | (238) | (172) |
| Unrecognized tax losses The Group has not recognized deferred tax assets that relate to |
As part of the divestment of pharma-related business the Group is investigating certain tax strategies. |
||
|---|---|---|---|
| unused tax losses amounting to €93 million (2012: €77 million), as it is not probable that future taxable |
Given the uncertainties around these strategies any potential tax impact has not yet been recognized. |
||
| profit will be available against which the Group can utilize the benefits. Of these unused tax losses 38% (2012: 42%) expires within the next 5 years, |
|||
| 20% (2012: 17%) expires after 5 years, and 42% (2012: 41%) carries forward indefinitely. |
|||
| Deferred tax on items recognized immediately in other comprehensive income and immediately in equity |
2013 | 2012 | ||||
|---|---|---|---|---|---|---|
| Amount before tax |
Tax | Amount net of tax |
Amount before tax |
Tax | Amount net of tax |
|
| Exchange differences on translation of foreign operations | ||||||
| and net investment hedges | (146) | - | (146) | (55) | 0 | (55) |
| Gains/(losses) on cash flow hedges | 21 | - | 21 | (25) | 0 | (25) |
| Remeasurement gains/(losses) on defined benefit plans Total tax in other comprehensive income |
32 (93) |
(13) (13) |
19 (106) |
(29) (109) |
9 9 |
(20) (100) |
| Share-based payments | 14 | (3) | 11 | 15 | (4) | 11 |
| Total tax in equity | 14 | (3) | 11 | 15 | (4) | 11 |
| Note 22 Inventories | ||||||
| Inventories | 2013 | 2012 | ||||
| Raw materials | 2 | 3 | ||||
| Work in progress | 35 | 30 | ||||
| Finished products and trade goods | 67 | 62 | ||||
| Total | 104 | 95 | ||||
| At December 31, 2013, the provision for obsolescence deducted from the |
||||||
| inventory carrying values amounted |
to €34 million (2012: €35 million). In 2013, an amount of €7 million was recognized as an expense for the change in the provision for obsolescence (2012: €7 million) and is presented as part of cost of sales in the statement of income.
Annual Report 2013 Wolters Kluwer 146
| Trade and other receivables | 2013 | 2012 |
|---|---|---|
| Trade receivables | 964 | 989 |
| Prepayments | 114 | 110 |
| Derivative financial instruments Note 26 | 1 | - |
| Other receivables | 31 | 23 |
| Total | 1,110 | 1,122 |
| Trade receivables are shown net of impairment losses amounting to €65 million (2012: €73 million). |
The fair value of the receivables approximates the carrying amount. Impairment losses on trade receivables |
|
|---|---|---|
| are presented as part of sales costs in the statement of income. |
| Cash and cash equivalents | 2013 | 2012 |
|---|---|---|
| Deposits | 462 | 82 |
| Cash and bank balances | 293 | 246 |
| Total in the statement of financial position Note 26 | 755 | 328 |
| Less: Bank overdraft used for cash management purposes Note 26 | 112 | 113 |
| Total in the statement of cash flows | 643 | 215 |
| An amount of €19 million (2012: | ||
|---|---|---|
| €18 million) relates to cash and cash | ||
| equivalent balances of entities | ||
| that the Group does not fully own | ||
| (Note 16). | ||
Wolters Kluwer Notes to the Consolidated Financial Statements 147
| Other current liabilities | 2013 | 2012 | ||||||
|---|---|---|---|---|---|---|---|---|
| Salaries, holiday allowances | 152 | 163 | ||||||
| Social security premiums and other taxation | 53 | 58 | ||||||
| Pension-related payables | 8 | 9 | ||||||
| Royalties payable | 66 | 71 | ||||||
| Derivative financial instruments Note 26 | 0 | 1 | ||||||
| Interest payable | 88 | 82 | ||||||
| Deferred and contingent acquisition payments Note 26 | 18 | 5 | ||||||
| Other liabilities and accruals | 59 | 68 | ||||||
| Total | 444 | 457 | ||||||
| Note 26 Long-term debt Long-term debt |
Effective interest | Nominal interest | commitments 1-5 | commitments >5 | ||||
| Nominal value | rate (in %) | rate (in %) | Repayment years |
Repayment years |
2013 | 2012 | ||
| Bonds 2003-2014 | €700 | 5.240 | 5.125 | - | - | - | 699 | |
| Bonds 2008-2018 | €750 | 6.472 | 6.375 | 747 | - | 747 | 747 | |
| Bonds 2008-2028 | €36 | 6.812 | 6.748 | - | 36 | 36 | 36 | |
| Bonds 2013-2023 | €700 | 2.950 | 2.875 | - | 696 | 696 | - | |
| Private placement 2008-2038 | ¥20,000 | 3.330 | 3.330 | - | 137 | 137 | 175 | |
| Private placement 2010-2020 | €250 | 4.425 | 4.200 | - | 247 | 247 | 246 | |
| Deferred and contingent acquisition payments | 23 | - | 23 | 14 | ||||
| Other long-term loans | 7 | - | 7 | 1 | ||||
| Total long-term loans | 777 | 1,116 | 1,893 | 1,918 | ||||
| Derivative financial instruments | - | 16 | 16 | 0 | ||||
| Total long-term debt | 777 | 1,132 | 1,909 | 1,918 |
| Net debt | 2013 | 2012 |
|---|---|---|
| Total long-term debt | 1,909 | 1,918 |
| Borrowings and bank overdrafts | ||
| Multi-currency roll-over credit facility | - | 38 |
| Other bilateral U.S. Dollar bank loans | - | 114 |
| Other short-term loans | 5 | 2 |
| Bank overdrafts Note 24 | 112 | 113 |
| Total borrowings and bank overdrafts | 117 | 267 |
| Short-term bonds | 700 | 225 |
| Deferred and contingent acquisition payments Note 25 | 18 | 5 |
| Derivative financial instruments Note 25 | 0 | 1 |
| Total short-term debt | 835 | 498 |
| Gross debt | 2,744 | 2,416 |
| Minus: | ||
| Cash and cash equivalents Note 24 | (755) | (328) |
| Derivative financial instruments: | ||
| Non-current receivable Note 20 | - | (2) |
| Current receivable Note 23 | (1) | - |
| Net debt | 1,988 | 2,086 |
| The nominal interest rates on the bonds are fixed until redemption. The interest rate on the multi-currency roll-over credit facility and other bilateral bank loans is variable. |
Loan maturity The following amounts of gross debt at December 31, 2013, are due within and after five years: |
|
|---|---|---|
| Gross debt | 2013 | |
| 2015 | 28 | |
| 2016 | 2 | |
| 2017 | 0 | |
| 2018 | 747 | |
| Due after 2018 | 1,132 | |
| Long-term debt | 1,909 | |
| Short-term debt (2014)* | 835 | |
| Total | 2,744 | |
* 2014 includes the senior Eurobond with a nominal value of €700 million, maturing in January 2014.
Wolters Kluwer has senior bonds outstanding for an amount of €2,179 million as at December 31, 2013 (2012: €1,482 million).
On November 19, 2003, Wolters Kluwer issued a ten-year senior Eurobond with a nominal value of €700 million, maturing in January 2014. The coupon on the bonds is 5.125% with an issue price of 99.618 per cent.
On April 2, 2008, Wolters Kluwer issued a ten-year senior Eurobond of €750 million. The bonds have been priced at an issue price of 99.654 per cent and carry an annual coupon of 6.375%.
On August 28, 2008, Wolters Kluwer issued a twenty-year senior Eurobond of €36 million. The bonds have been priced at an issue price of 100 per cent and carry an annual coupon of 6.748%.
On March 21, 2013, Wolters Kluwer issued a ten-year senior Eurobond of €700 million. The bonds have been priced at an issue price of 99.709 per cent and carry an annual coupon of 2.875%.
On February 26, 2008, Wolters Kluwer entered into four bilateral private loan agreements for a total amount of ¥20 billion (carrying value at December 31, 2013: €137 million; at December 31, 2012: €175 million) with a maturity of 30 years. The loans denominated in Japanese yen were swapped to euro. The value of the credit contingency adjusted collateral for this cross-currency interest rate swap is €0 million (2012: €0 million) at December 31, 2013. In January 2014, a collateral amount of €1 million was deposited.
On July 28, 2010, Wolters Kluwer entered into a bilateral private loan agreement of €250 million (carrying value at December 31, 2013: €247 million; at December 31, 2012: €246 million) with a maturity of 10 years. The receipt of the cash proceeds took place in December 2010. The private loan has been priced at an issue price of 98.567 per cent and carries an annual coupon of 4.20%.
Perpetual cumulative subordinated bonds
In May 2013, Wolters Kluwer exercised the call option at 100% on its perpetual cumulative subordinated bonds €225 million and redeemed these bonds in full.
In July 2010, Wolters Kluwer signed a €600 million multi-currency roll-over credit facility with a five year maturity in 2015. The credit facility is for general corporate purposes. At December 31, 2013, no amounts were drawn (at December 31, 2012: €38 million or \$50 million). The multi-currency roll-over facility is subject to customary conditions, including a financial credit covenant. The credit facility covenant is defined as that the consolidated net senior borrowings (excluding fully subordinated debt) to ordinary EBITDA shall not exceed 3.5. In 2013, the Group is comfortably within the thresholds stipulated in the financial covenants of the credit facility.
Other bilateral bank loans
In 2013, Wolters Kluwer renewed for \$100 million a bilateral bank loan (undrawn at December 31, 2013; December 31, 2012: €114 million) with a one year maturity. This loan is used for general corporate purposes.
There were no defaults or breaches on the loans and borrowings during 2013 and 2012.
Note 27 Financial Risk Management
The Group's activities are exposed to a variety of financial risks including market, liquidity, and credit risk. Financial risk identification and management is carried out by the central treasury department (Corporate Treasury), whereby the treasury operations are conducted within a framework of policies and guidelines (Treasury Policy), which have been approved by the Executive Board/CFO and Audit Committee. The Treasury Policy may change on an annual basis in light of market circumstances and market volatility, and is based on a number of assumptions concerning future events, subject to uncertainties and risks that are outside the Group's control. A Treasury Committee, comprised of the Vice President Corporate Accounting, Controller Corporate Office, Vice President Corporate Treasurer, and representatives of the Corporate Treasury and Back-Office, meets quarterly to review treasury activities and compliance with the Treasury Policy and reports directly to the Executive Board/CFO and the Audit Committee. The Treasury Back-Office reports deviations directly to the CFO and the Vice President Corporate Treasurer.
The Internal Audit Department reviews the Corporate Treasury Department on financial risk management controls and procedures of Corporate Treasury, both according to a fixed schedule and on an ad-hoc basis. Furthermore, the external auditor performs quarterly interim procedures on the transactions and hedging compliance as part of the annual audit. Corporate Treasury reports on a quarterly basis to the Audit Committee about its hedging status.
The Group's funding activities are carried out by Corporate Treasury, using a mixture of long-term capital market instruments and committed credit facilities. A variety of instruments is used to ensure optimal financial flexibility and capital efficiency. The borrowings, together with cash generated from operations, are lent or contributed as equity to the operating companies. The Group
targets a net-debt-to-EBITDA ratio of approximately 2.5; however, the Group could temporarily deviate from this relative indebtedness ratio. At December 31, 2013, the net-debt-to-EBITDA ratio improved to 2.2 (2012: 2.4) below our Company target.
All treasury activities - in particular the use of derivative financial instruments - are subject to the principle of risk minimization and are transacted by specialist treasury personnel. For this reason, financial transactions and risk positions are managed in a central treasury management and payment system. The Group does not purchase or hold derivative financial instruments for speculative purposes. The Group's risk profile is defined and reviewed regularly. Although economic environment has become more challenging as a consequence of the turbulence on financial markets, the exposure to financial risks for the Company has not significantly changed, nor the approach to these risks.
Market risk is the risk that changes in market prices such as foreign exchange rates and interest rates will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
The Group has identified transaction and translation risks as the main currency risks. The transaction risk exposure within individual Wolters Kluwer entities is considered to be relatively immaterial. The prices that Wolters Kluwer charges its customers for products and services are mainly denominated in the customers' local currencies. Given the nature of the business, almost all related cost are also incurred in those local currencies. Derivative financial instruments to hedge transaction risks are therefore not frequently used.
Translation risk is the risk that exchange rate gains or losses arise from translating the statement of income, balance sheet, and statement of cash flows of foreign subsidiaries to the Group's presentation currency (the euro) for consolidation purposes.
It is the Group's practice that material currency translation exposures are partially hedged by Corporate Treasury. Currency exposures which impact the consolidated balance sheet and statement of income by 10% or more are considered material. The translation exposure on the statement of cash flows is (partly) mitigated by matching cash in- and outflows in the same currency. The Group's main translation risk is its exposure to the U.S. Dollar. The following table details the Group's sensitivity on the Group's financials to a 1% weakening of the U.S. Dollar against the euro.
| Approximate impact of 1% decline of the U.S. Dollar against the euro | 2013 | 2012 |
|---|---|---|
| Revenues | (20) | (19) |
| Ordinary EBITA | (6) | (5) |
| Operating profit | (5) | (4) |
| Ordinary net income | (4) | (4) |
| Profit for the year | (3) | (3) |
| Shareholders' equity at December 31 | (23) | (21) |
| Ordinary free cash flow | (4) | (4) |
In order to hedge its net investment in the United States (defined as total investment in both equity and long-term receivables from the U.S. operations), the Group had U.S. Dollar forward contracts outstanding for a total notional amount of €254 million (\$350 million) at December 31, 2013. The Group had U.S. Dollar debt
outstanding for a total notional
amount of €267 million (\$368 million) at December 31, 2013 (2012: €308 million or \$406 million). The U.S. Dollar debt includes a notional amount of €254 million (\$350 million) forward contracts which create a U.S. Dollar balance sheet cover with a future settlement date (positive carrying value of €1 million at December 31, 2013, see Note 26). The
balance sheet cover is defined as the U.S. Dollar forward contracts and U.S. Dollar debt outstanding divided by its net investment in U.S. Dollar. The U.S. Dollar balance sheet cover is 10% (2012: 12%).
A part of the net financing results was swapped into U.S. Dollar through the use of derivative financial instruments (2013: \$90 million).
Of the total net financing results in 2013, 58% (2012: 50%) was payable in U.S. Dollars and resulting currency results have been recognized in profit or loss. Based on the percentage of 58% for net financing results
payable in U.S. Dollar, the following sensitivity analysis can be made. An instantaneous 1% decline of the U.S. Dollar against the euro from its exchange rate at December 31, 2013, with all other variables held
constant, would result in a decrease of approximately €0.7 million of the net financing results (2012: approximately €0.6 million).
| Currency risk | 2013 | 2012 |
|---|---|---|
| U.S. Dollar balance sheet cover (%) | 10% | 12% |
| Percentage (%) of total net financing results payable in U.S. Dollar | 58% | 50% |
| Approximate impact on net financing results of a 1% decline of the U.S Dollar | ||
| against the euro (in millions) | 0.7 | 0.6 |
Interest rate risk The Group is exposed to interest rate risk, mainly with regard to the euro and the U.S. Dollar. The Group aims to mitigate the impact on its results and cash flow of interest rate movements, both by arranging fixed or variable rate funding and by possible use of derivative financial instruments. Currently the Group's interest rate position (excluding cash and cash equivalents) is fully fixed rather than floating; of the total interest portfolio (excluding cash and cash equivalents) approximately 0% per year-end 2013 (2012: 6%) was variable rate and 100% (2012: 94%) carried a fixed rate.
Assuming the same mix of variable and fixed interest rate instruments, an instantaneous increase of interest rates of 1% compared to the rates on December 31, 2013, with all other variables held constant, would result in an increase of approximately €0 million of the net financing results (2012: approximately €1 million).
| Interest rate risk | 2013 2012 |
|---|---|
| Percentage of fixed/variable interest rate in gross debt | 100% /0% 94% /6% |
| Approximate impact on net financing results of a 1% instantaneous | |
| increase in interest rates | 0 (1) |
| Liquidity risk | availability to committed borrowing | and receivable derivative financial |
|---|---|---|
| Liquidity risk is the risk that the | capacity. In order to reduce liquidity | instruments, minus other short-term |
| Group will encounter difficulty in meet | risk, the Group has established | loans, deferred (short-term) acqui |
| ing the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to manage |
the following minimum requirements: – Repayment of long-term debt should be spread evenly over time; – Acquiring of funding to start at least |
sition payments, (current payable) derivative financial instruments, and bank overdrafts). |
| liquidity is to ensure, as far as possible, | one year in advance of all maturing | Per December 31, 2013, the Group |
| that it will have sufficient liquidity to | debt or alternative committed fund | has access to the unused part of the |
| meet its liabilities when they are due. | ing should be in place; and | committed credit facilities of €673 mil |
The Group actively manages liquidity risk by maintaining sufficient cash and cash equivalents, and the
committed credit facilities of €673 million in total (2012: €562 million) and has cash and cash equivalents of €755 million, (receivable) derivative
| financial instruments of €1 million, minus other short-term loans, deferred (short-term) acquisition payments, |
In early 2014, the Company will redeem the €700 million bond which effectively will reduce the headroom |
Exposure to liquidity risk The following are the remaining contractual maturities of financial |
||||||
|---|---|---|---|---|---|---|---|---|
| bank overdrafts and (current payable) derivative financial instruments of |
by the same amount. | liabilities at the reporting date. The amounts for the non-derivative finan |
||||||
| in total €135 million. The headroom | cial instruments are gross and undis | |||||||
| was €1,294 million at year-end 2013 (2012: €771 million). No property has |
counted, and include estimated inter est payments and exclude the impact |
|||||||
| been collateralized or in any other way | of netting agreements. | |||||||
| secured under debt contracts. | ||||||||
| Contractual maturities 2013 | ||||||||
| Carrying amount | Contractual cash flows |
Less than 1 year | 1–2 years | 2–5 years | More than 5 years | |||
| Non-derivative financial liabilities | ||||||||
| Bonds | ||||||||
| Bonds 2003-2014 | 700 | 736 | 736 | - | - | - | ||
| Bonds 2008-2018 | 747 | 989 | 48 | 48 | 893 | - | ||
| Bonds 2008-2028 | 36 | 72 | 2 | 2 | 7 | 61 | ||
| Bonds 2013-2023 | 696 | 901 | 20 | 20 | 60 | 801 | ||
| Private Placements | ||||||||
| Private placement 2008-2038 | 137 | 251 | 5 | 5 | 14 | 227 | ||
| Private placement 2010-2020 | 247 | 324 | 11 | 11 | 32 | 270 | ||
| Deferred and contingent acquisition payments | 41 | 41 | 18 | 21 | 2 | - | ||
| Other long-term loans | 7 | 7 | - | 7 | - | - | ||
| Borrowings and bank overdrafts | 117 | 117 | 117 | - | - | - | ||
| Trade and other payables | 368 | 368 | 368 | - | - | - | ||
| Total | 3,096 | 3,806 | 1,325 | 114 | 1,008 | 1,359 | ||
| Derivative financial liabilities (Receipts) |
(255) | (255) | - | - | - | |||
| Payments | 254 | 254 | - | - | - | |||
| Foreign exchange derivatives | (1) | (1) | (1) | - | - | - | ||
| (Receipts) | (251) | (5) | (5) | (14) | (227) | |||
| Payments | 313 | 8 | 8 | 23 | 274 | |||
| Cross-currency interest rate swaps | 16 | 62 | 3 | 3 | 9 | 47 | ||
| Total | 15 | 61 | 2 | 3 | 9 | 47 |
Wolters Kluwer Notes to the Consolidated Financial Statements 153
| Contractual maturities 2012 | Carrying amount | Contractual cash flows |
Less than 1 year | 1–2 years | 2–5 years | More than 5 years | |
|---|---|---|---|---|---|---|---|
| Non-derivative financial liabilities | |||||||
| Bonds | |||||||
| Bonds 2003-2014 | 699 | 772 | 36 | 736 | - | - | |
| Bonds 2008-2018 | 747 | 1,037 | 48 | 48 | 143 | 798 | |
| Bonds 2008-2028 | 36 | 75 | 2 | 2 | 7 | 64 | |
| Perpetual cumulative subordinated bonds | 225 | 240 | 240 | - | - | - | |
| Private Placements | |||||||
| Private placement 2008-2038 | 175 | 326 | 6 | 6 | 18 | 296 | |
| Private placement 2010-2020 | 246 | 334 | 11 | 11 | 32 | 280 | |
| Deferred and contingent acquisition payments | 19 | 19 | 5 | 2 | 12 | - | |
| Other long-term loans | 1 | 1 | - | 1 | - | - | |
| Borrowings and bank overdrafts | 267 | 269 | 269 | - | - | - | |
| Trade and other payables | 383 | 383 | 383 | - | - | - | |
| Total | 2,798 | 3,456 | 1,000 | 806 | 212 | 1,438 | |
| Derivative financial liabilities | |||||||
| (Receipts) | (151) | (151) | - | - | - | ||
| Payments | 152 | 152 | - | - | - | ||
| Foreign exchange derivatives | 1 | 1 | 1 | - | - | - | |
| (Receipts) Payments |
(326) 321 |
(6) 8 |
(6) 8 |
(18) 23 |
(296) 282 |
||
| Cross-currency interest rate swaps | (2) | (5) | 2 | 2 | 5 | (14) | |
| Total | (1) | (4) | 3 | 2 | 5 | (14) | |
The net out- and inflows disclosed in the table represent the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes. The disclosure shows net cash flow amounts for derivatives that are net cash-settled and net cash inflow and outflow amounts for derivatives that have simultaneous cash settlement.
Credit risk represents the loss that would be recognized if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers and investments in debt securities.
The carrying amount of financial assets represents the maximum credit exposure and amounts to €1,769 million (2012: €1,389 million).
Financial instruments and excess cash at financial institutions
The Group is exposed to credit risks due to its use of derivatives and because of excess cash deposited at banks.
It is the Group's practice to conclude financial transactions under ISDA (International Swap Dealers Association) master agreements. Cash is invested and financial transactions are concluded only with financial institutions with strong credit ratings (at least a credit rating of A-/A3). Furthermore, credit limits per counterparty are in place and are monitored periodically. At December 31, 2013, there were no material credit risk concentrations outstanding while the average weighted credit rating of counterparties was A+ (2012: A+). The aim is to spread transactions among counterparties. No credit limits were exceeded during the reporting period and management does not expect any losses from non-performance by these counterparties on current outstanding contracts.
| Trade receivables The Group has a natural expo sure to credit risk in its operational |
The aging analysis of trade receivables that are past due, but not impaired, is as follows: |
|||
|---|---|---|---|---|
| business. This exposure of the Group's operating companies to credit risk is inherently limited, as there is no |
||||
| customer who represents more than 1% of the Group's revenues and a substantial part of the transactions is prepaid by customers. The Group's |
||||
| operating companies actively monitor the solvency of their key accounts. Trade receivables include |
||||
| an amount of €381 million (2012: €348 million) past due, but not impaired. |
||||
| Aging analysis of trade receivables | 2013 | 2012 |
|---|---|---|
| Past due up to 30 days | 163 | 141 |
| Past due between 30 and 90 days | 98 | 93 |
| Past due over 90 days | 120 | 114 |
| Total past due, not impaired | 381 | 348 |
| The net charge of changes to bad | |||
|---|---|---|---|
| debt provision in the statement of | |||
| income is €12 million (2012: €13 mil | |||
| lion) (Note 9). | |||
| The financial assets that are | |||
| neither past due nor impaired have | |||
| sound credit worthiness. | |||
| Fair value of financial instruments | ||||||||
|---|---|---|---|---|---|---|---|---|
| The following table shows the | ||||||||
| carrying amounts and fair values of | ||||||||
| financial assets and financial liabilities, | ||||||||
| including their levels in the fair value | ||||||||
| hierarchy. | ||||||||
| Fair value of financial instruments | 2013 | 2012 | ||||||
| Carrying value | Fair value | Level 1 | Level 2 | Level 3 | Carrying value | Fair value | ||
| Non-derivative financial instruments: | ||||||||
| Other receivables (non-current)* | 11 | 11 | 11 | 11 | ||||
| Investments available-for-sale | 16 | 16 | 16 | 36 | 36 | |||
| Trade receivables* | 957 | 957 | 989 | 989 | ||||
| Other receivables (current)* | 29 | 29 | 23 | 23 | ||||
| Cash and cash equivalents* | 755 | 755 | 328 | 328 | ||||
| Total non-derivative financial assets | 1,768 | 1,768 | 16 | 1,387 | 1,387 | |||
| Bonds 2003-2014 (in €) | 700 | 697 | 697 | 699 | 730 | |||
| Bonds 2008-2018 (in €) | 747 | 891 | 891 | 747 | 925 | |||
| Bonds 2008-2028 (in €) | 36 | 48 | 48 | 36 | 50 | |||
| Bonds 2013-2023 (in €) | 696 | 693 | 693 | - | - | |||
| Private placement 2008-2038 (in ¥) | 137 | 125 | 125 | 175 | 152 | |||
| Private placement 2010-2020 (in €) | 247 | 275 | 275 | 246 | 283 | |||
| Perpetual cumulative subordinated bonds (in €) | - | - | 225 | 232 | ||||
| Deferred and contingent acquisition payments | 41 | 41 | 41 | 19 | 19 | |||
| Other long-term loans* | 7 | 7 | 1 | 1 | ||||
| Borrowings and bank overdrafts* | 117 | 117 | 267 | 267 | ||||
| Trade and other payables* | 368 | 368 | 383 | 383 | ||||
| Total non-derivative financial liabilities | 3,096 | 3,262 | 2,281 | 448 | 41 | 2,798 | 3,042 | |
| Derivative financial instruments: | ||||||||
| Non-current receivable | - | - | 2 | 2 | ||||
| Current receivable | 1 | 1 | 1 | - | - | |||
| Non-current payable | (16) | (16) | (16) | - | - | |||
| Current payable | 0 | 0 | 0 | (1) | (1) | |||
| Total derivative financial instruments | (15) | (15) | (15) | 1 | 1 |
* Fair value approximates the carrying amount
predominantly the discounted cash
The fair value has been determined by the Group based on market data and appropriate valuation methods/quotes. Valuation methods include: – Level 1: reference to quoted prices (unadjusted) in active markets for similar assets and liabilities; – Level 2: inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and – Level 3: inputs for the asset or liability that are not based on observable market data. The valuation method can be based on discounted cash flow analysis, or other instruments that are substantially identical. Compared to 2012 there have been no changes in the assessment of fair value hierarchy categorization regarding individual financial instruments. The level 3 fair value movements in non-derivatives financial liabilities are as follows:
| Balance at January 1 19 12 Arising from business combinations Note 8 33 14 |
|
|---|---|
| Fair value changes deferred and contingent acquisition payments Note 11 (4) - |
|
| Unwinding of discount 1 - |
|
| Settlements (2) (5) |
|
| Exchange rate differences and other (6) (2) |
|
| Balance at December 31 41 19 |
|
| Level 3 financial liabilities comprise of deferred and contingent acquisition payments relating to numerous |
flow analysis method resulting in a range of enterprise values. In addition, the Company considered recent |
Deferred and contingent acquisition payments The fair value of the deferred |
|---|---|---|
| acquisitions. The Group has re-as sessed the fair values of the various earn-out arrangements outstanding |
capital transactions. The Company applied long-term growth rates of 2% and 3% which considers expecta |
and contingent acquisition payment balance amounts to €41 million (2012: €19 million). |
| at year-end 2013 and recognized fair value changes in the statement of income for the amount of €4 million |
tions of long-term inflation and the position of the company. The WACC used in the analysis was 15%, |
|
| for acquisitions stemming from previ ous years (2012: nil). |
with 15% weighting on debt financing and 85% on equity financing. The valuation of Symphony Health |
|
| The financial asset available | Solutions as at December 31, 2013, | |
| for-sale has been measured against fair value. The Company used |
after the write-down of €18 million in 2013, falls within the range of valua |
tion outcomes.
A summary of deferred and contingent considerations as at December 31, 2013 can be presented as follows:
| December 31, 2013 |
|---|
| 18 |
| 23 |
| 41 |
| 64 |
The contingent considerations are based on a discounted cash flow model, which considers the present value of expected payments, using a risk-adjusted discount rate. The expected payment is determined by considering possible EBITA or revenue scenarios, the amount to be paid under each scenario, and the probability of each scenario. The estimated fair value could potentially increase (decrease) if annual growth rates and/ or EBITA margins are higher (lower).
At year-end the outstanding derivative financial instruments qualify for hedge accounting under IFRS. To apply for hedge accounting requires the hedge to be highly effective. In 2013, the result recorded in profit or loss as a result of ineffectiveness of hedging is: cash flow hedge, €0 million (2012: €0 million) and net investment hedge, €0 million (2012: €0 million).
A sensitivity analysis on the derivative financial instruments portfolio yields the following results assuming an instantaneous 1% decline of the U.S. Dollar and Japanese yen against the euro from their levels at December 31, 2013, and an instantaneous 1% increase of the U.S. Dollar, Japanese yen, and euro interest rates respectively.
| Sensitivity in millions of euros |
|||||||
|---|---|---|---|---|---|---|---|
| Hedged risk | Amount | Type instrument | Exchange rate movement |
Interest rate movement |
|||
| Fair value hedge | Fair value fluctuations due to movements in the applicable market benchmark interest rates |
- | Interest rate swaps |
- | - | ||
| Cash flow hedge | Changes in ¥ floating interest payments and ¥ exchange rates |
¥20,000 | Cross-currency interest rate swaps |
(1) | 0 | ||
| Net investment hedge |
Changes of the U.S. Dollar net investments due to fluctuations of U.S. Dollar exchange rates |
\$350 | Forward contracts |
2 | 0 |
| For the effective part of the hedge, the sensitivity of the hedging instrument (derivative) is offset by the sensitivity |
method. The results of these effec tiveness tests all satisfied the effec tiveness criterion (between 80% and |
||
|---|---|---|---|
| of the hedged item (for instance, the net investment in a foreign opera tion). The hedge effectiveness is |
125%) as defined in IAS 39. | ||
| measured at the inception, reporting, and maturity dates of the hedged item by using the U.S. Dollar-offset |
|||
| Employee benefits | 2013 | 2012* |
|---|---|---|
| Pensions and post-employment plans | 111 | 155 |
| Other (post-) employment obligations | 15 | 14 |
| Total | 126 | 169 |
| * 2012 restated for IAS 19R 'Employee benefits' |
| Provision for pensions and post-employment plans The provisions for pensions and |
Pension plans The Group has its main defined benefit plans in The Netherlands, |
Post-employment plans Post-employment plans consist of the post-retirement (medical) benefits |
|---|---|---|
| post-employment plans relate to | United States, United Kingdom, | plan in the United States, Canada, and |
| defined benefit plans. | Belgium, Canada, and Australia. The largest plan is the Wolters Kluwer Nederland pension plan, with both defined benefit and defined contribution schemes. Other major defined benefit plans are based in the |
in Italy. These post-employment plans have no plan assets and are un-funded. The main post-employment plan is the post-retirement plan in the U.S. |
| United States and the U.K. |
| Characteristics of main plans | Netherlands | United States | United Kingdom |
|---|---|---|---|
| Pension plans: | |||
| Type of benefits | Pensions | Pensions | Pensions |
| Type of plan | Career average | Final salary | Final salary |
| Status of plan | Open | Frozen | Frozen |
| Status of plan funding | Funded | Funded | Funded |
| Post-employment plans: | |||
| Type of benefits | - | Post- retirement medical plan |
- |
| Type of plan | - | Annual premium | - |
| Status of plan | - | Open | - |
| Status of plan funding | - | Unfunded | - |
The defined benefit plans in the U.S., U.K, and the Netherlands are self-administered plans with plan assets being held independently of the Group.
A closed plan means that no new members can join the pension plans; however, current participants in the plan can still accrue for future service benefits.
If a plan is frozen, the plan is closed to both new entrants and future service benefits accruals, so the plan will have a service cost of zero.
Actuarial assumptions for pensions and post-employment plans The following weighted average principal actuarial assumptions were used to determine the net periodic pension expense and post-retirement plans' expense for the year under review and defined benefit obligations at the end of the reporting period.
| Assumptions in % |
2013 | 2012 |
|---|---|---|
| Pension plans | ||
| Discount rate to discount the net obligations/assets at year-end | 3.7 | 3.5 |
| Discount rate for net periodic pension expense 3.5 5.1 |
||
| Expected rate of salary increase for net periodic pension expense 2.5 3.2 |
||
| Post-employment plans | ||
| Discount rate used to discount the obligations at year-end | 4.3 | 3.4 |
| Discount rate for net periodic pension expense | 3.4 | 4.4 |
| Medical cost trend rate | 3.0 | 3.0 |
| The discount rate is determined using the 'Rate:Link' method, which is based on a selection on the entire |
Mortality assumptions for the most important countries are based on the following post-retirement mortality |
|---|---|
| corporate bond universe, according to | tables: |
| Bloomberg. Those selected bonds are high-quality corporate bonds, with at least ratings 'AA' or higher. Minima |
– The Netherlands: AG projection table 2012-2062 (2012: 2012-2062); – U.S.: 2013 Pension Protection Act |
| are also applied to the total amount outstanding per bond. The corporate bonds selected in this manner form |
('PPA') Treasury Table, being the cur rent standard mortality table (2012: PPA 2012); and |
| the universe upon which the yield curve determining the discount rate is based. The bonds are divided into nine |
– U.K.: SAPS (year of Birth) CMI 2011 projections with a 1.25% long-term improvement rate (2012: SAPS (year |
| different 'baskets'. A weighted average maturity and yield are determined for each of the baskets, yielding nine |
of Birth) - CMI projections with a 1.25% long-term improvement rate). |
| points of data that are used as the | The current longevities under |
| basis for the curve. | lying the value of the defined benefit |
| The average increase in salaries is based on the non-closed pension |
obligations at the reporting date were as follows: |
| plans. Assumptions regarding future mortality experience are set based on actuarial advice and mortality tables |
|
| generally accepted in the applicable countries. |
| Longevity in years (2013) |
The Netherlands | United States | United Kingdom |
|---|---|---|---|
| Longevity at age of 65 for current participants aged 45 now | |||
| Male | 23.8 | 20.6 | 24.2 |
| Female | 25.2 | 21.9 | 26.9 |
| Longevity at age 65 for current pensioners | |||
| Male | 22.1 | 19.1 | 22.5 |
| Female | 24.3 | 21.0 | 24.9 |
Given the nature of the defined benefit obligations in Belgium, Italy, and Australia, with no annuity payments paid from the plan, but instead lump sum benefit payments at retirement date, the impact of changing longevity after the retirement age on the plan liabilities is expected to be limited in these countries.
Wolters Kluwer Notes to the Consolidated Financial Statements 161
| Plan liabilities and assets | 2013 | 2012* | 2013 | 2012* | |
|---|---|---|---|---|---|
| Defined benefit pension plans |
Post-employment plans |
||||
| Plan liabilities | |||||
| Fair value at January 1 | 1,162 | 948 | 61 | 67 | |
| Employer service cost | 7 | 5 | 2 | 2 | |
| Interest expense on the defined benefit obligations | 39 | 46 | 2 | 3 | |
| Administration costs and taxes | 1 | 1 | - | - | |
| Benefits paid by fund | (46) | (59) | (4) | (4) | |
| Remeasurement (gains)/losses | (44) | 223 | (1) | (5) | |
| Acquisition of new plans | - | - | 0 | - | |
| Contributions by plan participants | 3 | 4 | - | - | |
| Plan amendments and curtailments | (2) | (4) | - | - | |
| Exchange rate differences | (12) | (2) | (2) | (2) | |
| Fair value at December 31 | 1,108 | 1,162 | 58 | 61 | |
| Plan assets | |||||
| Fair value at January 1 | 1,123 | 1,022 | 0 | 0 | |
| Interest income on plan assets | 38 | 52 | - | - | |
| Return on plan assets greater/(less) than discount rate | (8) | 83 | - | - | |
| Benefits paid by fund | (46) | (59) | (4) | (4) | |
| Contributions by the employer | 16 | 21 | 4 | 4 | |
| Contributions by plan participants | 3 | 4 | - | - | |
| Exchange rate differences | (11) | 0 | 0 | 0 | |
| Fair value at December 31 | 1,115 | 1,123 | 0 | 0 | |
| Funded status | |||||
| Unfunded/(funded) status at December 31 | (7) | 39 | 58 | 61 | |
| Effect of asset ceiling (irrecoverable surplus) | 60 | 55 | - | - | |
| Net liability at December 31 | 53 | 94 | 58 | 61 | |
| Pension cost | |||||
| Employer service cost | 7 | 5 | 2 | 2 | |
| Past service costs curtailment | (2) | (1) | - | - | |
| Past service costs plan amendments | 0 | (3) | - | - | |
| Interest expense on defined benefit obligations and irrecoverable surplus | 41 | 54 | 2 | 3 | |
| Interest (income) on plan assets | (38) | (52) | - | - | |
| Administration costs and taxes | 1 | 1 | - | - | |
| Total pension costs | 9 | 4 | 4 | 5 | |
| of which included in: | |||||
| Personnel expenses Note 12 | 7 | 3 | 2 | 2 | |
| Divestment related results Note 8 | (1) | (1) | - | - | |
| Other financing income/(costs) Note 14 | 3 | 2 | 2 | 3 |
* 2012 restated for IAS 19R 'Employee benefits'
| The Group's employer contributions to be paid to the defined benefit pension plans in 2014 are estimated at €17 mil lion (2013: €16 million). |
Remeasurements The pre-tax cumulative amount of remeasurement gains/losses recog nized in the statement of comprehen |
||
|---|---|---|---|
| Benefits paid by the fund decreased from 2012 to 2013 mainly |
sive income is as follows: | ||
| due to a 2012 lump sum distribution with a total value of about €9 million offered to deferred vested participants |
|||
| in the U.S. pension plan. | |||
| The 2013 asset ceiling of €60 million (2012: €55 million) relates mainly to the defined benefit pension |
|||
| schemes in the Netherlands and, to a lesser extent, in the U.K. In these defined benefit plans the over-funding |
|||
| of the defined benefit plans cannot likely be recovered, based on the current terms of the plans, through refunds or reductions in future contri |
|||
| butions. |
| Remeasurements | 2013 | 2012* |
|---|---|---|
| Position at January 1 | (155) | (126) |
| Recognized in other comprehensive income | 32 | (29) |
| Cumulative amount at December 31 | (123) | (155) |
| Remeasurement gains/(losses) for the year | ||
| Remeasurement gains/(losses) due to experience on defined benefit obligations | 6 | 18 |
| Remeasurement gains/(losses) due to demographic assumptions in defined benefit | ||
| obligations | 5 | (2) |
| Remeasurement gains/(losses) due to financial assumption changes in defined benefit | ||
| obligations | 34 | (234) |
| Remeasurement gains/(losses) on defined benefit obligations | 45 | (218) |
| Return on plan asset greater/(less) than discount rate | (8) | 83 |
| Change in asset ceiling other than interest | (5) | 106 |
| Recognized in other comprehensive income | 32 | (29) |
| * 2012 restated for IAS 19R 'Employee benefits' |
| Experience adjustments are defined as adjustments resulting from changes like changes in plan populations, |
Financial assumptions changes relate to differences between the current and previous actuarial assump |
Funded status The funded status of the defined benefit pension plans for the years |
|---|---|---|
| data corrections, and differences in | tions like changes in discount rate, | 2013-2012 and the related experience |
| cash flows. | indexation, and future salary and | gains and losses over the years is as |
| Demographic assumptions | benefit levels. | follows: |
| changes relate to differences between | The actual return on plan assets | |
| the current and previous actuarial | for the year ended December 31, | |
| assumptions in mortality tables, rate | 2013, amounted to a gain of | |
| of employee turnover, disability, | €30 million (2012: gain of €135 mil | |
| and early retirement. | lion). |
| Funded status | 2013 | 2012* |
|---|---|---|
| Present value of defined benefit pension obligations | (1,108) | (1,162) |
| Fair value of plan assets | 1,115 | 1,123 |
| Funded/(unfunded) status | 7 | (39) |
| * 2012 restated for IAS 19R 'Employee benefits' |
As at December 31, 2013, three plans have a net asset status before asset ceiling (the Netherlands, U.K., and Australia), except for the defined benefit plans in the U.S., Belgium, and Canada. The plans in the Netherlands and the U.K. have an asset ceiling (December 31, 2012: the Netherlands and U.K.).
The (un-)funded status of the defined benefit pension plans in 2013 was mainly affected by higher interest rates resulting in lower defined benefit obligations whilst the investment portfolio remained relatively stable.
Funding of the various plans is based on local legislation and separate actuarial valuations for which the assumptions differ from the assumptions used under IAS 19R. The funding requirements are based on each pension fund's actuarial measurement framework set out in the funding policies of the individual plans. In the Netherlands there is no formal funding requirement by the employer. In the United States there are minimum contribution requirements. If the U.S.
pension plan would fall below key funding thresholds, the Group needs to improve the funding levels in order to avoid restrictions on the ability to pay some accelerated benefit forms, such as lump sums. The trustees of the U.K. plan are required to act in the best interest of the plan's participants. The Group and the trustees finalized the latest triennial valuation 2011 for funding purposes. As part of the pharma-business sale in the U.K., a part of the sales proceeds were reapportioned under law to the U.K. pension fund resulting in an additional 2012 funding of €5 million recognized as part of net cash used in operating activities from discontinued operations. In 2014, the U.K. funding will be reassessed based on new triennial valuation.
Risk management of main plans in the Group The pension and post-employment plans expose the Group to actuarial risks, such as longevity risks, interest rate risks, investments (market) risks, and currency risks.
The Group has restructured employee benefit plans in the past by moving existing and newly hired employees to defined contribution plans or by freezing the plans (either no future service benefit accruals and/or no new participants entering into the plan). These redesigns reduce or cancel future benefit accruals in the plans and consequently reduce the pace of liability growth.
The Group also reviews periodically its financing and investments policies (liability driven investments) and its liability management (lump sum offerings).
The Group funds the U.S. post-retirement Medicare obligations on a pay-as-you-go basis and as result these plans do not have plan assets. If health care costs in the future increase more than anticipated, the actuarially determined liability and as a result the related other post-retirement benefit plan expense could increase along with future cash outlays.
| Sensitivity of actuarial assumptions The sensitivity for a 1% change |
||||
|---|---|---|---|---|
| in the discount rate, a 0.5% change in inflation, and a 0.5% change in pen sion increase rate is as follows for the |
||||
| defined benefit pension plans: | ||||
| Sensitivity pension plans | Gross service cost | |||
| Defined benefit obligations |
||||
| 2013 Baseline | 9 | 1,108 | ||
| Change compared to baseline: | ||||
| Discount rate (by -1%) | 3 | 198 | ||
| Discount rate (by +1%) | (2) | (155) | ||
| Inflation increase rate (by -0.5%) | (1) | (37) | ||
| Inflation increase rate (by +0.5%) | 1 | 40 | ||
| Pension increase rate (by -0.5%) | 0 | (31) | ||
| Pension increase rate (by +0.5%) | 0 | 33 | ||
| Pension rate increase is only applicable | Gross service cost represents the | |||
| for the plan in the Netherlands; | annual accrual of liability due | |||
| the other plans have no future pension | to another year of service, excluding | |||
| increase rate entitlements and are | any interest or offsetting employee | |||
| not sensitive for mortality table | contributions, and therefore differ | |||
| changes as these plans are lump sum | from the current service cost, included | |||
| entitlements. | in the calculation of the pension | |||
| The Group's sensitivity for salary | cost. |
changes is limited as only the Dutch pension plan is an open plan. The Dutch pension plan is also sensitive for changes in the mortality tables. The plans in U.S., U.K., and Canada are frozen.
The sensitivity for a 1% change in the discount rate is as follows for
the post-retirement plans:
| Sensitivity post-retirement plans | Gross service cost | Defined benefit obligations |
|---|---|---|
| 2013 Baseline | 2 | 58 |
| Change compared to baseline: | ||
| Discount rate (by -1%) | 0 | 7 |
| Discount rate (by +1%) | 0 | (6) |
The actual medical cost trend rate in the United States exceeds the applied medical cost trend rate which is capped at 3% (2012: 3%) according to the plan rules. Duration The liability weighted duration for the defined benefit plans is as follows: Due to the higher discount rates at December 31, 2013, the duration of the liabilities decreased for the majority of the plans compared to 2012. Duration is an indicator of the pension liabilities sensitivity for changes in interest rates. Investment mix The actual proportion of plan assets held as equities and bonds as at December 31, in percentages is as follows: Plan assets do not include any financial instruments issued by the Group; nor do they include any property or other assets used by the Group. Pension plans: The Netherlands 16 18 U.K. 19 19 U.S. 13 15 Post-employment plans: U.S. 11 12 Estimated liability weighted duration (number of years) at December 31 Duration 2013 Duration 2012 Equity 31 29 Bonds 61 64 Other 8 7 Total 100 100 Proportion of plan assets in % 2013 2012
| Restructuring | Acquisition integration |
Springboard | 2013 | 2012 | ||
|---|---|---|---|---|---|---|
| Position at January 1 | 0 | 1 | 3 | 4 | 22 | |
| Add: short-term commitments | 26 | 6 | 26 | 58 | 60 | |
| Total at January 1 | 26 | 7 | 29 | 62 | 82 | |
| Movements Additions for restructuring of stranded costs following divestments |
9 | - | - | 9 | 5 | |
| Additions to acquisition integrationNote 11 | - | 6 | - | 6 | 13 | |
| Release Springboard provisions | - | - | - | 0 | (1) | |
| Additions for restructuring existing businesses | 8 | - | - | 8 | 5 | |
| Additions for restructuring costs following discontinued operations | 3 | - | - | 3 | 13 | |
| Total additions | 20 | 6 | 0 | 26 | 35 | |
| Appropriation of provisions for restructuring | (12) | (7) | (14) | (33) | (55) | |
| Disposal of discontinued operations | (10) | - | - | (10) | - | |
| Divestments of operations | (2) | - | - | (2) | 0 | |
| Exchange differences and other movements | 0 | 0 | 0 | 0 | 0 | |
| Total movements | (4) | (1) | (14) | (19) | (20) | |
| Total at December 31 | 22 | 6 | 15 | 43 | 62 | |
| Less: short-term commitments | (19) | (5) | (9) | (33) | (58) | |
| Position at December 31 | 3 | 1 | 6 | 10 | 4 | |
The majority of the provisions relates to severance programs, restructurings, and onerous contracts and will be settled within the next twelve months (€33 million). The remaining long-term part of the provisions (€10 million) is expected to be settled in 2015.
The acquisition integration provision relates to non-recurring expenses to be incurred for the integration of the acquired activities by business combinations and mainly consists of expected redundancy payments, IT migration costs, and onerous contracts.
The restructuring provision mainly relates to expected redundancy payments, and to a lesser extent, onerous contracts. The 2013 additions mainly related to the divestments of the Pharma-business in France, and the divestment in the Netherlands.
The Springboard provision relates to the remaining commitments to be incurred to complete the final phase of the Springboard program and mainly consists of expected personnel-related restructuring payments, and onerous contracts. There were no restructuring costs related to Springboard since the completion of this operational excellence program at the end of 2011.
The authorized capital amounts to €143.04 million, consisting of €71.52 million in ordinary shares (nominal value of €0.12 per ordinary share) and €71.52 million in preference shares. There are no preference shares issued.
The issued share capital consists of ordinary shares. The number of issued ordinary shares was 301.9 million ordinary shares per December 31, 2013, unchanged compared to 2012. The Company holds 6.6 million of shares in treasury at December 31, 2013 (2012: 6.6 million), which have not been cancelled; the movements in treasury shares are due to the €20 million share buy-back program in 2013 (1.2 million shares), which was offset by the use of treasury shares for the vesting of the 2010-12 LTIP plan (1.1 million shares). At December 31, 2013, the net number of ordinary shares outstanding is 295.3 million (2012: 295.3 million).
Legal reserve participations contain appropriations of profits of group companies, which are allocated to a legal reserve based on statutory and/ or legal requirements. This reserve is not available for distribution.
Translation reserve contains exchange rate differences arising from the translation of the net investment in foreign operations. When a foreign operation is sold, exchange differences that were recorded in equity prior to the sale are reclassified from equity to profit or loss as part of the gain or loss on divestment. This reserve is not available for distribution and, consequently, considered to be legal reserves.
Hedge reserve relates to the effective portion of the change in fair value of the hedging instrument used for cash flow hedging and net investment hedging purposes. This reserve is not available for distribution and, consequently, considered to be legal reserves.
Treasury shares are recorded at cost, representing the market price on the acquisition date. This reserve is not available for distribution. Treasury shares are deducted from Retained earnings.
The Company has announced that it will offset the dilution of its performance share issuance annually via share repurchases.
In 2013, the Company executed a share buy-back program of €20 million (2012: €135 million). The Company repurchased 1.2 million (2012: 10.1 million) of ordinary shares under this program at an average stock price of €16.32 (2012: €13.45). The Company paid a dividend withholding
tax of €4 million in 2013. Furthermore, in 2013, the Company paid €3 million related to the settlement of the share buy-back program of 2012.
Pursuant to Article 29 of the Articles of Association, and with the approval of the Supervisory Board, a proposal will be submitted to the Annual General Meeting of Shareholders to make a distribution of €0.70 per share in cash on May 13, 2014 (cash dividend over financial year 2012: €0.69 per share).
The Company has a progressive dividend policy under which the Company expects to increase the dividend per share each year.
The share premium reserve, the retained earnings, and undistributed profit for the year are available for dividend distribution.
For a reconciliation of average number of shares and earnings per share, see Note 6.
| Number of shares in thousands |
2013 | 2012 | 2013 | 2012 | 2013 | 2012 |
|---|---|---|---|---|---|---|
| ordinary shares Number of |
treasury shares Number of |
Total number of ordinary shares outstanding |
||||
| At January 1 | 301,897 | 301,661 | (6,559) | (5,102) 295,338 | 296,559 | |
| Stock dividend | - | 236 | - | 8,210 | - | 8,446 |
| Repurchased shares | - | - | (1,226) (10,070) | (1,226) (10,070) | ||
| Long-Term Incentive Plan | - | - | 1,142 | 403 | 1,142 | 403 |
| At December 31 | 301,897 | 301,897 | (6,643) | (6,559) 295,254 | 295,338 |
option to purchase preference shares to the Wolters Kluwer Preference Shares Foundation (Stichting Preferente Aandelen Wolters Kluwer). The dividend on these shares would equal a normal market rate of return, based on a weighted average of interest rates applied by the European Central Bank. Therefore, the fair value of the option is deemed to be zero.
Shareholder's equity movement schedule
For the equity movement schedule reference is made to Note 40 in the separate financial statements of the Company.
Long-Term Incentive Plan
Executive Board members and senior executives are awarded shares under the equity-settled Long-Term Incentive Plan (LTIP). In 2011, an additional performance condition based on diluted Earnings per Share (EPS) at constant currencies for the LTIP awards was made to the Executive Board, in addition to the existing performance condition based on the Total Shareholder Return (TSR). This change only related to the conditional LTIP awards granted to the Executive Board made in 2011 and future years.
Starting the LTIP grant 2011-13 to the Executive Board, the LTIP awards depend partially on the TSR performance (50% of the value of the conditionally awarded rights on shares) and partially on the EPS performance (50% of the value of the conditionally awarded rights on shares).
As of 2012, the LTIP awards for senior executives also depend partially on the TSR performance (50% of the conditionally awarded rights on shares) and partially on the EPS performance (50% of the conditionally awarded rights on shares). The TSR based LTIP 2012-14 awards for senior executives are based on the same payout schedules as the Executive Board.
The performance period of the LTIP is three years at the beginning of which a base number of shares (norm pay-out) are conditionally awarded to each beneficiary.
In 2013, €14 million has been recognized within personnel expenses in profit or loss (2012: €15 million) related to the total cost of the LTIP grants 2011-13, 2012-14, and 2013-15 (Note 12).
Conditional awarded TSR based LTIP-shares
For the conditional TSR awards that were awarded up to and including 2013 (including LTIP 2010-12, 2011- 13, 2012-14, and 2013-15) the payout of shares after three years fully depends on the Group's TSR relative to a pre-defined group of 15 peer companies. Vesting of these conditional grants is subject to the non-market condition that the participant stays with the Group until the plan's maturity. The expense of the TSR based LTIP is recognized ratably in profit or loss over the performance period.
Actual awards at the end of the performance period will range anywhere from 0% to 150% of the norm pay-out. There will be no pay-out for the Executive Board and senior executives if Wolters Kluwer ends below the eighth position in the TSR ranking, 150% for first or second position, 125% for third or fourth position, 100% for fifth or sixth position, and 75% pay-out for seventh or eighth position.
| LTIP 2013-15 and 2012-14 TSR shares – key assumptions |
Executive Board | |
|---|---|---|
| and Senior Executives |
||
| LTIP 2013-15 |
LTIP 2012-14 |
|
| Fair value at grant date | 9.81 | 8.92 |
| Share price at grant date | 15.48 | 13.36 |
| Expected volatility | 22% | 25% |
| Expected life | 3 years | 3 years |
| Expected dividends | 1.4% | 1.5% |
| Risk free interest rate | 0.13% | 0.79% |
| Conditional awarded EPS based | The fair value of each LTIP 2013-15 | |
|---|---|---|
| LTIP-shares | EPS performance share granted to | |
| The amount recognized as an | the Executive Board and senior execu | |
| expense in a year is adjusted to reflect | tives is estimated at €13.38 (LTIP 2012- | |
| the number of shares awards for which the related service and non-mar |
14 EPS performance share: €11.31). | |
| ket performance conditions are | LTIP 2010-12 | |
| expected to be met, such that the | The LTIP 2010-12 vested on December | |
| amount ultimately recognized as an | 31, 2012. On Total Shareholder Return | |
| expense is based on the number of | (TSR) Wolters Kluwer ranked eight | |
| awards that meet the related service | relative to its peer group of 15 compa | |
| and non-market conditions at the | nies, resulting in a pay-out of 75% of | |
| vesting date. | the conditional base number of shares | |
| For the EPS related shares, there | awarded to the Executive Board and in | |
| will be no pay-out if the performance | a pay-out of 100% of the conditional | |
| over three years is less than 50% of | base number of shares awarded to | |
| the target. In case of overachievement | senior executives. | |
| of the target, the Executive Board | The shares were released on | |
| members and senior executives can earn | February 21, 2013. The volume | |
| up to a maximum of 150% of the | weighted average price of the shares of | |
| conditionally awarded shares. See for | Wolters Kluwer nv was €15.23 on | |
| more details --> Remuneration Report. | February 23, 2013. | |
| LTIP 2010-12 number of shares |
Outstanding at January 1, 2012 |
Forfeitures | number of shares Deduction on conditional %) (25 |
Pay-out/ vested December 31, shares 2012 |
thousands of euros vested shares in equivalent of Euro value |
|---|---|---|---|---|---|
| Executive Board | 422,204 | (71,542) | (87,665) | 262,997 | 4,006 |
| Senior Executives | 930,584 | (51,833) | - | 878,751 | 13,383 |
| Total | 1,352,788 | (123,375) | (87,665) | 1,141,748 | 17,389 |
| LTIP 2011-13 | The volume weighted average price for | |
|---|---|---|
| The LTIP 2011-13 vested on December 31, 2013. On Total Share |
the shares released will be based on | |
| holder Return (TSR) Wolters Kluwer | the average exchange prices traded at the Euronext Amsterdam nv on Feb |
|
| ranked eight relative to its peer group | ruary 20, 2014, the first day follow | |
| of 15 companies, resulting in a pay-out | ing the Company's publication of its | |
| of 75% of the conditional base number | annual results. | |
| of shares awarded to the Executive | The number of shares outstand | |
| Board and in a pay-out of 100% of the conditional base number of shares |
ing, corrected for the expected perfor mance of the respective grants, is as |
|
| awarded to senior executives. The | follows: | |
| shares will be released on February 20, |
| LTIP 2011-13 number of shares |
|||
|---|---|---|---|
| Total | EPS-condition | TSR-condition | |
| Total grant | 1,430,187 | 171,163 | 1,259,024 |
| Forfeited in previous years | (220,055) | (29,845) | (190,210) |
| Shares outstanding at January 1, 2013 | 1,210,132 | 141,318 | 1,068,814 |
| Forfeited during year | (167,377) | (37,861) | (129,516) |
| Effect of 150% vesting based on EPS ranking Executive Board | 51,729 | 51,729 | - |
| Effect of 25% non-vesting based on TSR ranking Executive Board | (30,687) | - | (30,687) |
| Vested at December 31, 2013 | 1,063,797 | 155,186 | 908,611 |
2014.
| LTIP 2012-14 Base numbers of shares at 100% pay-out |
Total | EPS-condition | TSR-condition |
|---|---|---|---|
| Conditionally awarded grant 2012 | 1,729,795 | 836,343 | 893,452 |
| Forfeited in previous years | (147,629) | (45,832) | (101,797) |
| Shares outstanding at January 1, 2013 | 1,582,166 | 790,511 | 791,655 |
| Forfeited in 2013 | (217,377) | (48,138) | (169,239) |
| Outstanding at December 31, 2013 | 1,364,789 | 742,373 | 622,416 |
| LTIP 2013-15 | ||
|---|---|---|
| LTIP 2013-15 | ||
| Base numbers of shares at 100% pay-out | ||
| Total | TSR-condition EPS-condition |
|
| Conditionally awarded grant 2013 1,659,206 |
802,691 856,515 |
|
| Forfeited in 2013 (59,958) |
(29,979) (29,979) |
|
| 1,599,248 Outstanding at December 31, 2013 |
772,712 826,536 |
|
| Overall overview of outstanding per formance shares: LTIP 2013-15 and LTIP |
||
| 2012-14 | ||
| LTIP 2013-15 and 2012-14 | ||
| Base numbers of shares at 100% pay-out | ||
| LTIP 2013-15 | LTIP 2012-14 | |
| Total | ||
| Conditionally awarded grant 2012 | 1,729,795 1,729,795 |
|
| Forfeited in previous years | (147,629) (147,629) |
|
| Shares outstanding at January 1, 2013 | 1,582,166 1,582,166 |
|
| Conditionally awarded grant 2013 1,659,206 |
- 1,659,206 |
|
| Forfeited in 2013 (59,958) |
(217,377) (277,335) |
|
| Outstanding at December 31, 2013 1,599,248 |
1,364,789 2,964,037 |
|
| Fair value summary of conditio nally awarded shares per LTIP grant |
|||||||||
|---|---|---|---|---|---|---|---|---|---|
| The fair value of each conditio nally awarded share under the running LTIP grants, as determined by an out side consulting firm, for the Executive |
|||||||||
| Board and for the senior executives of | |||||||||
| the Group is summarized as follows: | |||||||||
| Fair value of conditionally awarded shares | |||||||||
| under each LTIP-grant based on TSR and EPS | |||||||||
| vesting conditions | |||||||||
| Executive Board | Senior Executives | ||||||||
| Fair value (€) | Vesting (in %) | Fair value (€) | Vesting (in %) | ||||||
| EPS-condition: | |||||||||
| LTIP 2013-15 | 13.38 | 13.38 | - | ||||||
| LTIP 2012-14 | 11.31 | 11.31 | - | ||||||
| LTIP 2011-13 | 14.38 | 150 | - | - | |||||
| TSR-condition: | |||||||||
| LTIP 2013-15 | 9.81 | 9.81 | |||||||
| LTIP 2012-14 | 8.92 | 8.92 | |||||||
| LTIP 2011-13 | 12.12 | 75 | 14.67 | 100 | |||||
| LTIP 2010-12 | 11.08 | 75 | 13.46 | 100 | |||||
| LTIP 2009-11 | 9.13 | 0 | 11.27 | 50 | |||||
The fair value of a conditionally awarded share under the LTIP 2013-15 increased compared to previous year, mainly as a result of the higher share price of Wolters Kluwer at January 1, 2013, compared to January 1, 2012.
Wolters Kluwer Notes to the Consolidated Financial Statements 173
| Note 32 Related Party Transactions The Company has a related party |
The Group has one joint venture accounted for under the equity method in the consolidated financial |
||
|---|---|---|---|
| relationship with its subsidiaries (Wolters Kluwer nv has filed a list of the subsidiaries at the Trade Register in |
statements of the Group. The revenues of this joint venture on a 100% basis amount to €12 million (2012: €13 mil |
||
| The Hague), equity-accounted inves tees, joint venture, the pension funds, and members of the Supervisory Board and the Executive Board. Related party |
lion). | ||
| transactions are conducted on an at arm's length basis with terms compa rable to transactions with third parties. |
|||
| For transactions with key management reference is made to Note 34 Remu neration of the Executive Board and |
|||
| Supervisory Board. |
| Joint venture transactions | 2013 | 2012 |
|---|---|---|
| Sales of goods and services bought from joint venture | 9 | 8 |
| Services provided to joint venture | (3) | (3) |
| Net amounts payable at December 31 | 3 | 2 |
The Group has no significant transactions or outstanding balances with its equity-accounted investees other than its equity-interest holdings.
The Group leases a number of offices under operating leases. The leases typically run for a period of 3-10 years, with an option to renew the lease. Lease payments are increased to reflect market rentals. None of the leases include contingent rentals.
At December 31, 2013, annual commitments under rental and operational lease agreements amounted to €58 million (2012: €61 million). The average term of these commitments is approximately 3.4 years (2012: 4.0 years).
Non-cancelable operating lease rentals are payable as follows:
| Less than one year 12 19 |
|
|---|---|
| Between one and five years 38 40 |
|
| More than five years 17 29 |
Some of the leased property is sublet by the Group. Sublease payments of €3 million (2012: €5 million) are expected to be received during the following financial year. The Group has recognized a provision of €1 million related to these subleases (2012: €2 million).
The Group has immaterial outstanding finance lease arrangements at December 31, 2013 and 2012.
At December 31, 2013, the Group has outstanding guarantees regarding royalty payments to societies during the coming years of €5 million (2012: €5 million).
The Group has issued formal guarantees for bank credit facilities for a total amount of €153 million (2012: €127 million) on behalf of a number of its foreign subsidiaries. At December 31, 2013, €5 million of these credit facilities had been utilized (2012: €42 million). At December 31, 2013, other bank guarantees had been issued at the request of the Company or its subsidiaries for a total amount of €9 million (2012: €8 million). These guarantees mainly relate to rent for real estate. In addition, parental performance guarantees to third parties have been issued for €11 million (2012: €11 million).
The Company has issued a guarantee on behalf of one of its foreign subsidiaries for an amount of €9 million (2012: €9 million).
The Group is involved in legal and judicial proceedings and claims in the ordinary course of business. Liabilities and contingencies in connection with these matters are periodically assessed based upon the latest information available, usually with the assistance of lawyers and other specialists.
A liability is accrued only if an adverse outcome is probable and the amount of the loss can be reasonably estimated. If one of these conditions is not met, the proceeding or claim is disclosed as contingent liability,
if material. The actual outcome of a proceeding or claim may differ from the estimated liability, and consequently may affect the financial performance and position of the Group.
| Note 34 Remuneration of the Executive Board and Supervisory Board |
||
|---|---|---|
| For details on the Group's remune ration policy, see --> Remuneration |
||
| Report. | ||
| Remuneration costs under IFRS, on accrual and cost basis |
||
| The table below provides the accoun ting costs of the total compensation of the Executive Board recognized in |
profit or loss:
| In thousands of euros | Salary | STIP | tion pension plan Defined contribu |
Social security | Other benefits | Share-based pay ments (LTIP) 2 |
Tax gross-up | 2013 | 2012 |
|---|---|---|---|---|---|---|---|---|---|
| N. McKinstry, Chairman1, 3 | 860 | 918 | 605 | 17 | 243 | 3,509 | (121) | 6,031 | 6,278 |
| K.B. Entricken4 | 310 | 352 | - | 13 | 384 | 453 | 112 | 1,624 | - |
| B.J.L.M. Beerkens5 | 224 | 250 | 58 | 3 | 15 | (1,089) | 526 | (13) | 2,570 |
| J.J. Lynch, Jr.6 | - | - | - | - | 11 | - | (116) | (105) | (1,069) |
| Total | 1,394 | 1,520 | 663 | 33 | 653 | 2,873 | 401 | 7,537 | 7,779 |
1 In 2013, Ms. McKinstry's salary is \$1,226,040 (€1,074,597), of which 20% has been deferred to pension (\$245,208, equivalent to €184,630). The 2013 bonus is calculated on a U.S. Dollar denominated equivalent of total salary as: \$1,226,040 x 142.03% (equivalent to €1,311,108) of which 30% (€393,333; 2012: 30%, equivalent to €394,685) has been deferred to pension. In addition, 30% of the pay-out of the vested LTIP shares under grant 2011-2013 will be deferred to pension in 2014.
2 LTIP share-based payments are based on IFRS accounting policies and therefore do not reflect the actual pay-out or value of performance shares released upon vesting. The LTIP-EPS based grant 2011-13 costs are based on a performance of 150%.
3 The 2013 tax gross-up decreased compared to 2012 due to U.S. tax authority's assessment of tax equalization returns for prior years which will result in refunds for the Company in 2014. The decrease in tax gross-up is partly offset by the ending of the 30%-wage tax ruling for
Ms. McKinstry as of July 1, 2013. 4 Mr. Entricken's compensation represents the remuneration costs incurred since his appointment as of May 1, 2013. The share-based payments costs reflect also the costs incurred for shares held prior to Mr. Entricken's appointment as member of the Executive Board.
5 The remuneration of Mr.Beerkens represents the remuneration until the date of resignation, April 30, 2013. In addition, Mr. Beerkens received a pro-rated bonus of €250,000 over 2013 in 2013.The conditionally awarded shares to Mr. Beerkens under the LTIP grant 2012-14 forfeited, resulting in a reversal of running LTIP costs recognized over the past years till the moment of resignation in the statement of income. The Company paid an additional wage tax of €511,000 in 2013, based on a preliminary tax assessment for excessive payments, which the Company is disputing; this onetime charge is included under the tax gross-up caption.
6 The remuneration of Mr. Lynch, Jr. represents the remuneration until the date of resignation in 2012 and the settlement of prior year's tax equalization returns after his resignation date. As Mr. Lynch terminated his contract before year-end, there was no bonus pay-out in 2012. In addition, all conditionally awarded shares to Mr. Lynch forfeited, resulting in a reversal of running LTIP costs recognized over the past years till the moment of resignation in the statement of income.
Social security costs paid by the Company in a year related to social security costs due on shares that were released under LTIP and are included in the remuneration. The tax gross-up relates to tax expense that was paid by the Company in 2013 relating to tax equalization for salary and other benefits per the contracts.
The bonuses as presented above are short-term bonuses and relate to the performance year 2012, which are paid out in 2013.
The table below provides the 2013 remuneration of the members of the Executive Board that has actually been paid in 2013:
| In thousands of euros | Salary | STIP | tion pension plan Defined contribu |
Social security | Other benefits | Share-based pay ments (LTIP) |
Tax gross-up | 2013 | 2012 |
|---|---|---|---|---|---|---|---|---|---|
| N. McKinstry, Chairman1, 5 | 860 | 921 | 1,481 | 17 | 243 | 2,041 | 473 | 6,036 | 3,172 |
| K.B. Entricken2 | 310 | - | - | 13 | 384 | - | 112 | 819 | - |
| B.J.L.M. Beerkens3 | 224 | 947 | 58 | 3 | 15 | 1,090 | 526 | 2,863 | 1,420 |
| J.J. Lynch, Jr.4 | - | - | - | - | 11 | - | (116) | (105) | 955 |
| Total | 1,394 | 1,868 | 1,539 | 33 | 653 | 3,131 | 995 | 9,613 | 5,547 |
| 1 In 2013, Ms. McKinstry's salary is \$1,226,040 (€1,074,597), of which 20% has been deferred to pension (\$245,208, equivalent to €184,630). The 2012 bonus, paid out in 2013, is calculated on a U.S. Dollar denominated equivalent of total salary as: \$1,190,330 x 142.03% (equivalent to €1,315,616) of which 30% (€394,685) had been deferred to pension. In addition, 30% (€874,680) of the total value of the vested LTIP shares under grant 2010-12 (€2,915,600) was deferred to pension in 2013. |
|||||||||
| 2 Mr. Entricken's remuneration represents the remuneration costs incurred since his appointment as of May 1, 2013. 3 The remuneration of Mr. Beerkens represents the remuneration until the date of resignation, April 30, 2013. Furthermore, the Company paid an additional wage tax of €511,000 in 2013, based on a preliminary tax assessment for excessive payments, which the Company is disputing; this one-time charge is included under the tax gross-up caption. In addition to the 2012 STIP bonus paid out in 2013, Mr. Beerkens received |
|||||||||
| 5 | a pro-rated bonus of €250,000 over 2013 in 2013. 4 The remuneration of Mr. Lynch, Jr. represents the remuneration until the date of resignation in 2012 and the settlement of prior year's tax equalizations returns after his resignation date. The 2013 tax gross-up decreased compared to 2012 due to finalization of tax equalization returns for prior years which resulted in refunds |
||||||||
| for the company in 2013. The decrease in tax gross-up is partly offset by the ending of the 30%-wage tax ruling for Ms. McKinstry as of July 1, 2013, resulting in higher tax equalization costs for the Company. |
In 2013 and 2012, the Company recognized a crisis tax levy of 16% on the 2013 respectively 2012 Dutch fiscal wage tax base. The 2013 and 2012 crisis tax is government mandated. The 2013 crisis tax levy is due in 2014, and will be calculated over the 2013 fiscal tax base for individual taxable incomes over €150,000. The Dutch crisis tax levy is not considered to be a remuneration element for the Executive Board.
The crises tax levy due for the Executive Board totals €1.0 million (2012: €0.4 million) and can be specified as follows:
| in thousands of euros | 2013 | 2012 |
|---|---|---|
| N. McKinstry, Chairman | 585 | 283 |
| K.B. Entricken | 40 | - |
| Former Executive Board Member: | ||
| B.J.L.M. Beerkens | 336 | 159 |
| Total | 961 | 442 |
| LTIP 2010-12 vesting and pay-out The LTIP 2010-12 vested on December 31, 2012. On Total Sharehol der Return (TSR) Wolters Kluwer ran ked eight relative to its peer group of 15 companies, resulting in a pay-out of |
The volume weighted average price €15.23 on February 23, 2013 (2012: €14.03). |
of the shares of Wolters Kluwer nv was | ||||||
|---|---|---|---|---|---|---|---|---|
| 75% of the conditional base number of | ||||||||
| shares awarded to the Executive Board members. |
||||||||
| LTIP 2010-12 | ||||||||
| number of shares | Outstanding at January 1, 2012 |
number of shares | Pay-out/vested | in thousands of | ||||
| Forfeitures | Deduction on conditional %) |
shares | December 31, | vested shares equivalent of Cash value |
||||
| (25 | 2012 | euros | ||||||
| N. McKinstry, Chairman | 255,250 | - | (63,812) | 191,438 | 2,916 | |||
| B.L.J.M. Beerkens | 95,412 | - | (23,853) | 71,559 | 1,090 | |||
| J.J. Lynch, Jr.1 | 71,542 | (71,542) | - | 0 | 0 | |||
| Total | 422,204 | (71,542) | (87,665) | 262,997 | 4,006 | |||
1 Mr. J.J. Lynch, Jr. resigned as member of the Executive Board in 2012. As a result, the conditionally awarded shares to Mr. Lynch forfeited, resulting in a reversal of running LTIP costs recognized over the past years till the moment of resignation in the statement of income.
Mr. Entricken's award under LTIP 2010- 12 was under the Senior Management pay-out schedule conditions and amounted to 10,000 shares. These shares vested at 100% with a cash value equivalent amounting to €152,235 at the release date, February 23, 2013.
| LTIP 2011-13 | ||||
|---|---|---|---|---|
| The LTIP 2011-13 vested on | ||||
| December 31, 2013. On Total Share | ||||
| holder Return (TSR) Wolters Kluwer | ||||
| ranked eight relative to its peer group | ||||
| of 15 companies, resulting in a pay-out | ||||
| of 75% of the conditional base number | ||||
| of shares awarded to the Executive | ||||
| Board members. The EPS LTIP 2011-13 | ||||
| grant ended at 150% of target. |
| LTIP 2011-13 number of shares |
Outstanding at January 1, 2013 |
Forfeitures | number of TSR Deduction on conditional shares |
number of EPS %) conditional Additional shares (50 |
Pay-out/vested December 31, 2013 |
|---|---|---|---|---|---|
| N. McKinstry, Chairman | 226,205 | - | (30,687) | 51,729 | 247,247 |
| B.L.J.M. Beerkens1 | 82,782 | (82,782) | - | - | - |
| Subtotal | 308,987 | (82,782) | (30,687) | 51,729 | 247,247 |
| K.B. Entricken2 | 9,000 | - | - | - | 9,000 |
| Total | 317,987 | (82,782) | (30,687) | 51,729 | 256,247 |
1 Mr. Beerkens resigned as member of the Executive Board in May 2013. As a result, the conditionally awarded shares to Mr. Beerkens forfeited, resulting in a reversal of running LTIP costs recognized over the past years till the moment of resignation in the statement of income. 2 Mr. Entricken held LTIP-awards before he joined as a member of the Executive Board in May 2013. These awards were granted under the Senior Management Scheme, with a different pay-out schedule.
Vesting LTIP 2011-13 shares will be released on February 20, 2014. The volume weighted average price for the shares released will be based on the average exchange prices traded at the Euronext Amsterdam nv on February 20, 2014, the first day following the Company's publication of its annual results.
| LTIP 2013-15 and LTIP 2012-14 | |||
|---|---|---|---|
| The Executive Board members | |||
| have been conditionally awarded | |||
| the following conditional number of | |||
| shares based on a 100% pay-out, sub | |||
| ject to the conditions of the LTIP for | |||
| 2013-15 and 2012-14, as described in | |||
| Remuneration Report. | |||
| LTIP 2013-15 and 2012-14 | |||||
|---|---|---|---|---|---|
| Conditionally awarded TSR based shares |
Conditionally awarded EPS based shares |
Conditionally awarded TSR based shares |
Conditionally awarded EPS based shares |
awarded shares conditionally Total |
|
| base numbers of shares at | LTIP 2013-15 | LTIP 2013-15 | LTIP 2012-14 | LTIP 2012-14 | December 31, 2013 |
| 100% pay-out | |||||
| N. McKinstry, Chairman | 158,345 | 116,096 | 163,384 | 128,858 | 566,683 |
| K.B. Entricken | 43,383 | 31,807 | 5,500 | 5,500 | 86,190 |
| Total | 201,728 | 147,903 | 168,884 | 134,358 | 652,873 |
There were no shares awarded to Mr. Beerkens under the LTIP 2013-2015 grants.
All outstanding conditionally awarded shares to Mr. Beerkens forfeited as result of his resignation in May, 2013.
| LTIP 2012-14 number of shares |
Outstanding at | Outstanding at | ||||
|---|---|---|---|---|---|---|
| January 1, 2013 | Forfeitures | December 31, 2013 |
||||
| B.L.J.M. Beerkens: | ||||||
| TRS shares | 61,036 | (61,036) | - | |||
| EPS shares | 48,138 | (48,138) | - | |||
| Total | 109,174 | (109,174) | - | |||
| Fair value of conditionally awarded shares under each LTIP-grant |
of awarded TSR Fair value (€) shares |
Vesting (in %) | of awarded EPS Fair value (€) |
shares | Vesting (in %) | |
|---|---|---|---|---|---|---|
| LTIP 2013-15 | 9.81 | - | 13.38 | - | ||
| LTIP 2012-14 | 8.92 | - | 11.31 | - | ||
| LTIP 2011-13 | 12.12 | 75 | 14.38 | 150 | ||
| LTIP 2010-12 | 11.08 | 75 | ||||
| LTIP 2009-11 | 9.13 | 0 | ||||
| The plans have a performance period of three years. |
Shares Owned by Executive Board Members At December 31, 2013, the |
|---|---|
| Executive Board jointly held 123,350 shares (2012: 183,100 shares), of which 123,350 shares (2012: 123,350 shares) were held by Ms. McKinstry. In 2012, a number of 59,750 shares were held by Mr. Beerkens, who left the Company on May 1, 2013. |
|
| Mr. Beerkens owned perpetual bonds issued by the Company for a nominal value of €158,000 at the end of 2012. These perpetual bonds were fully redeemed by Wolters Kluwer in 2013 (Note 26). Mr. Entricken has no shares in the |
|
| Company at December 31, 2013. |
| Remuneration of Supervisory Board members |
||||
|---|---|---|---|---|
| in thousands of euros | ||||
| Remuneration Selection and Member of Committee |
Member of Audit Committee |
Remuneration 2013 |
Remuneration 2012 |
|
| A. Baan, Chairman1 | • | • | 25 | 74 |
| P.N. Wakkie, Deputy Chairman2 | • | 66 | 64 | |
| B.F.J. Angelici | • | 59 | 59 | |
| B.M. Dalibard | • | 56 | 52 | |
| L.P. Forman | • | • | 69 | 67 |
| D.R. Hooft Graafland3 | • | 59 | 39 | |
| S.B. James | • | 57 | 57 | |
| H. Scheffers4 | • | - | 21 | |
| Total | 391 | 433 |
1, 2 Per April 2013, Mr. Wakkie, Deputy Chairman, took over the duties of Mr. Baan who passed away in 2013. The Supervisory Board appointed Mr. Wakkie as new Chairman and Mr. Forman as new Deputy Chairman.
3 Mr. Hooft Graafland became a member of the Supervisory Board and Audit Committee as per April 2012.
4 Mr. Scheffers resigned as per April 2012 as a member of the Audit Committee and the Supervisory Board. Mr. Forman succeeded him as of that date as Chairman of the Audit Committee.
Shares Owned by Supervisory Board Members The Supervisory Board members do not own shares in Wolters Kluwer.
In January 2014, Wolters Kluwer signed a €200 million revolving credit facility maturing in June 2014. The short-term credit facility is subject to customary conditions. In addition, the Company fully redeemed its ten-year senior Eurobond (2003–2014) with a nominal value of €700 million on January 27, 2014.
| Statement of Income of Wolters Kluwer nv in millions of euros |
2013 | 2012* | ||
|---|---|---|---|---|
| Results from subsidiaries, net of tax Note 37 | 377 | 345 | ||
| Other income, net of tax | (32) | (33) | ||
| Profit for the year | 345 | 312 | ||
| Balance Sheet of Wolters Kluwer nv | ||||
| in millions of euros and before appropriation of results, | ||||
| at December 31 | ||||
| Non-current assets | ||||
| Intangible assets | 2 | 2 | ||
| Financial assets Note 37 | 4,153 | 4,046 | ||
| Total non-current assets | 4,155 | 4,048 | ||
| Accounts receivable Note 38 | 595 | 637 | ||
| Cash and cash equivalents | 470 | 86 | ||
| Total current assets | 1,065 | 723 | ||
| Short-term bonds Note 26 | 700 | 225 | ||
| Current liabilities Note 39 | 982 | 1,018 | ||
| Total current liabilities | 1,682 | 1,243 | ||
| Working capital | (617) | (520) | ||
| Capital employed | 3,538 | 3,528 | ||
| Non-current liabilities | ||||
| Long-term debt: | ||||
| Bonds Note 26 | 1,479 | 1,482 | ||
| Private placements Note 26 | 384 | 421 | ||
| Derivative financial instruments Note 26 | 16 | 0 | ||
| Total long-term debt | 1,879 | 1,903 | ||
| Long-term debt to subsidiaries | 63 | 67 | ||
| Deferred tax liabilities | 32 | 19 | ||
| Employee benefits | 0 | 1 | ||
| Total non-current liabilities | 1,974 | 1,990 | ||
| Issued share capital | 36 | 36 | ||
| Share premium reserve | 87 | 87 | ||
| Legal reserves | (318) | (225) | ||
| Other reserves | 1,414 | 1,328 | ||
| Profit for the year | 345 | 312 | ||
| Shareholders' equity Note 40 | 1,564 | 1,538 | ||
| Total financing | 3,538 | 3,528 |
* 2012 restated for IAS 19R 'Employee benefits'.
Note 36 Significant Accounting Policies
As provided in section 402 of the Netherlands Civil Code, Book 2, the statement of income of Wolters Kluwer nv includes only the aftertax results of subsidiaries and other income after tax, as Wolters Kluwer nv's figures are included in the consolidated financial statements. Unless otherwise indicated, the numbers in these financial statements are in millions of euros.
Accounting policies The financial statements of Wolters Kluwer nv are prepared in accordance with the Netherlands Civil Code, Book 2, Title 9, with the application of the regulations of section 362.8 allowing the use of the same accounting policies as applied for the consolidated financial statements. These accounting policies are described in the Notes to the Consolidated Financial Statements. Subsidiaries are valued using the equity method, applying the IFRS accounting policies endorsed by the European Union.
Any related party transactions between subsidiaries, associates, investments, and with members of the Supervisory Board and the Executive Board and the (ultimate) parent company Wolters Kluwer nv are conducted on an at arm's length basis with terms comparable to transactions with third parties.
For the following disclosures reference is made to the notes to the consolidated financial statements:
| Note 37 Financial Assets | ||
|---|---|---|
| Financial assets | 2013 | 2012 |
| Equity value of subsidiaries | 1,982 | 1,740 |
| Long-term receivables from subsidiaries | 2,171 | 2,304 |
| Derivative financial instruments | - | 2 |
| Total | 4,153 | 4,046 |
| Equity value of subsidiaries | 2013 | 2012 |
|---|---|---|
| Position at January 1, as previously reported | 1,474 | |
| Impact of changes in accounting policies (IAS 19R) | 2 | |
| Restated at January 1 | 1,740 | 1,476 |
| Results from subsidiaries, net of tax | 377 | 345 |
| Exchange differences | (146) | (57) |
| Dividend payments | (7) | - |
| Remeasurement gains/(losses) on defined benefit plans, net of tax | 18 | (24) |
| Position at December 31 | 1,982 | 1,740 |
| Long-term receivables from subsidiaries | 2013 | 2012 |
|---|---|---|
| Position at January 1 | 2,304 | 2,461 |
| New receivables | - | - |
| Redemptions | (132) | (155) |
| Foreign exchange differences | (1) | (2) |
| Position at December 31 | 2,171 | 2,304 |
| Accounts receivable | 2013 | 2012 |
|---|---|---|
| Receivables from subsidiaries | 581 | 621 |
| Derivative financial instruments | 1 | - |
| Current tax receivable | 10 | 16 |
| Other receivables | 3 | 0 |
| Total | 595 | 637 |
| Current liabilities | 2013 | 2012 |
|---|---|---|
| Debts to subsidiaries | 768 | 684 |
| Multi-currency roll-over credit facility | - | 38 |
| Other bilateral U.S. Dollar bank loans | - | 76 |
| Bank overdrafts | 102 | 105 |
| Derivative financial instruments | 0 | 1 |
| Interest payable | 88 | 82 |
| Other liabilities | 24 | 32 |
| Total | 982 | 1,018 |
| Legal reserves | Other reserves | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Retained earnings | ||||||||||
| Issued share capital |
Share premium reserve |
participations Legal reserve |
Hedge reserve | Translation reserve |
Treasury shares | Undistributed profit |
Shareholders' equity |
|||
| Balance at January 1, 2013 | 36 | 87 | 44 | (98) | (171) | (85) | 1,413 | 312 | 1,538 | |
| Items that are or may be reclassified to | ||||||||||
| the statement of income: | ||||||||||
| Exchange differences on translation foreign operations |
(153) | (153) | ||||||||
| Exchange differences on translation of equity-accounted investees |
0 | |||||||||
| Reclassification of foreign exchange | ||||||||||
| differences on loss of control | 1 | 1 | ||||||||
| Net gains/(losses) on hedges of net | ||||||||||
| investments in foreign operations | 8 | 8 | ||||||||
| Effective portion of changes in fair | ||||||||||
| value of cash flow hedges | (17) | (17) | ||||||||
| Net change in fair value of cash flow | ||||||||||
| hedges reclassified to statement of income |
38 | 38 | ||||||||
| Items that will not be reclassified to | ||||||||||
| the statement of income: | ||||||||||
| Remeasurements on defined benefit plans |
32 | 32 | ||||||||
| Income tax on other comprehensive income |
(13) | (13) | ||||||||
| Other comprehensive income/(loss) | ||||||||||
| for the year, net of tax | 0 | 0 | 0 | 29 | (152) | 0 | 19 | 0 | (104) | |
| Profit for the year | 345 | 345 | ||||||||
| Total comprehensive income/(loss) | ||||||||||
| for the year | 0 | 0 | 0 | 29 | (152) | 0 | 19 | 345 | 241 | |
| Appropriation of profit previous year | 312 | (312) | 0 | |||||||
| Share-based payments | 14 | 14 | ||||||||
| Tax on share-based payments | (3) | (3) | ||||||||
| Release LTIP shares | 17 | (17) | 0 | |||||||
| Cash dividend 2012 | (204) | (204) | ||||||||
| Repurchased shares | (20) | (4) | (24) | |||||||
| Other movements | 30 | (28) | 2 | |||||||
| Balance at December 31, 2013 | 36 | 87 | 74 | (69) | (323) | (88) | 1,502 | 345 | 1,564 |
| Legal reserves | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Retained earnings | |||||||||||
| Share premium | participations Legal reserve |
Hedge reserve | Treasury shares | Undistributed | Shareholders' | ||||||
| Issued share capital |
reserve | Translation reserve |
profit | equity | |||||||
| Balance at January 1, 2012, as | |||||||||||
| previously reported | 36 | 88 | 38 | (67) | (120) | (65) | 1,510 | 120 | 1,540 | ||
| Impact of changes in accounting | |||||||||||
| policies (IAS 19R) | 2 | 2 | |||||||||
| Restated balance at January 1, 2012 | 36 | 88 | 38 | (67) | (120) | (65) | 1,512 | 120 | 1,542 | ||
| Items that are or may be reclassified to | |||||||||||
| the statement of income: Exchange differences on translation |
|||||||||||
| foreign operations | (50) | (50) | |||||||||
| Exchange differences on translation | |||||||||||
| of equity-accounted investees | (1) | (1) | |||||||||
| Reclassification of foreign exchange | |||||||||||
| differences on loss of control | - | 0 | |||||||||
| Net gains/(losses) on hedges of net | |||||||||||
| investments in foreign operations | (6) | (6) | |||||||||
| Effective portion of changes in fair | |||||||||||
| value of cash flow hedges | (49) | (49) | |||||||||
| Net change in fair value of cash flow | |||||||||||
| hedges reclassified to statement of | |||||||||||
| income | 24 | 24 | |||||||||
| Items that will not be reclassified to | |||||||||||
| the statement of income: | |||||||||||
| Remeasurements on defined benefit | |||||||||||
| plans | (29) | (29) | |||||||||
| Income tax on other comprehensive | |||||||||||
| income Other comprehensive income/(loss) |
0 | 9 | 9 | ||||||||
| for the year, net of tax, restated | 0 | 0 | 0 | (31) | (51) | 0 | (20) | 0 | (102) | ||
| Profit for the year | 312 | 312 | |||||||||
| Total comprehensive income/(loss) | |||||||||||
| for the year | 0 | 0 | 0 | (31) | (51) | 0 | (20) | 312 | 210 | ||
| Appropriation of profit previous year | 120 | (120) | 0 | ||||||||
| Share-based payments | 15 | 15 | |||||||||
| Tax on share-based payments | (4) | (4) | |||||||||
| Release LTIP shares | 5 | (5) | 0 | ||||||||
| Cash dividend 2011 | (90) | (90) | |||||||||
| Stock dividend 2011 | 0 | (1) | 110 | (109) | 0 | ||||||
| Repurchased shares | (135) | (135) | |||||||||
| Other movements | 6 | (6) | 0 | ||||||||
| Balance at December 31, 2012 | 36 | 87 | 44 | (98) | (171) | (85) | 1,413 | 312 | 1,538 | ||
| The legal reserves and treasury | |||||||||||
| dividend distribution to the owners | shares reserve are not available for |
of the Company.
| Note 41 Audit Fees | ||||
|---|---|---|---|---|
| With reference to Section | ||||
| 2:382a(1) and (2) of the Netherlands | ||||
| Civil Code, the following fees for the | ||||
| financial year have been charged by | ||||
| KPMG Accountants N.V. to the Com | ||||
| pany, its subsidiaries, and other conso | ||||
| lidated entities: | ||||
| KPMG Accountants N.V. | Other KPMG member firms and affiliates |
Total KPMG | ||
| Audit fees 2013 | ||||
| in millions of euros | ||||
| Statutory audit of annual accounts | 2.6 | 0.9 | 3.5 | |
| Other assurance services | 0.1 | 0.1 | 0.2 | |
| Tax advisory services | - | 1.2 | 1.2 | |
| Other non-audit services | - | 0.2 | 0.2 | |
| Total | 2.7 | 2.4 | 5.1 | |
| Audit fees 2012 | ||||
| in millions of euros | ||||
| Statutory audit of annual accounts | 2.5 | 0.9 | 3.4 | |
| Other assurance services | 0.2 | 0.1 | 0.3 | |
| Tax advisory services | - | 1.1 | 1.1 | |
| Other non-audit services | - | 0.2 | 0.2 | |
| Total | 2.7 | 2.3 | 5.0 | |
| Note 42 Commitments and Contin | ||
|---|---|---|
| gent Liabilities |
Pursuant to section 403 of the Netherlands Civil Code, Book 2, the Company has assumed joint and several liabilities for the debts arising out of the legal acts of a number of subsidiaries in the Netherlands. The relevant declarations have been filed with and are open for inspection at the Trade Register for the district in which the legal entity respective to the liability has its registered office.
The Company has issued formal guarantees for bank credit facilities for a total amount of €153 million (2012: €127 million) on behalf of a number of its foreign subsidiaries. At December 31, 2013, €5 million of these credit facilities had been utilized (2012: €42 million). In addition, parental performance guarantees to third parties have been issued for €11 million (2012: €11 million).
The Company has issued a guarantee on behalf of one of its foreign subsidiaries for an amount of €9 million (2012: €9 million).
The Company forms part of a Dutch fiscal entity and pursuant to standard conditions has assumed joint and several liabilities for the tax liabilities of the fiscal entity.
| Interests |
|---|
| A list of subsidiaries and affiliated companies, prepared in accordance with the relevant legal requirements (Netherlands Civil Code, Book 2, Part 9, Sections 379 and 414) is filed at the offices of Chamber of Commerce of The Hague, the Netherlands. |
| Alphen aan den Rijn, February 18, 2014 |
| Executive Board N. McKinstry, CEO and Chairman of |
| the Executive Board K.B. Entricken, CFO and Member of the Executive Board |
| Supervisory Board |
Note 43 Details of Participating
P.N. Wakkie, Chairman B.F.J. Angelici B.M. Dalibard L.P. Forman D.R. Hooft Graafland S.B. James
We have audited the accompanying financial statements 2013 of Wolters Kluwer nv, Alphen aan den Rijn. The financial statements include the consolidated financial statements and the company financial statements. The consolidated financial statements comprise the consolidated statement of financial position as at December 31, 2013, the consolidated statements of income, comprehensive income, changes in total equity and cash flows for the year then ended, and notes, comprising a summary of the significant accounting policies and other explanatory information. The company financial statements comprise the company balance sheet as at December 31, 2013, the company statement of income for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information.
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the Report of the Executive Board, the Corporate Governance and Risk Management paragraphs and the statements of the Executive Board in accordance with Part 9 of Book 2 of the Netherlands Civil Code. Furthermore, management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements give a true and fair view of the financial position of Wolters Kluwer nv as at December 31, 2013, and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code.
In our opinion, the company financial statements give a true and fair view of the financial position of Wolters Kluwer nv as at December 31, 2013, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code.
Report on other legal and regulatory requirements Pursuant to the legal requirements under Section 2:393 sub 5 at e and f of the Netherlands Civil Code, we have no deficiencies to report as a result of our examination whether the Report of the Executive Board, the Corporate Governance and Risk Management paragraphs and the statements of the Executive Board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2:392 sub 1 at b - h has been annexed. Further, we report that the Report of the Executive Board, the Corporate Governance and Risk Management paragraphs and the statements of the Executive Board, to the extent we can assess, is consistent with the financial statements as required by Section 2:391 sub 4 of the Netherlands Civil Code.
Amstelveen, February 18, 2014
KPMG Accountants N.V. T. van der Heijden
From the profit as it appears from the annual accounts adopted by the General Meeting a dividend shall be distributed on the preference shares, whose percentage – calculated on the paid up part of the nominal amount is equal to that of the average of the interest rate on Basis Refinancing Transactions (Refi interest of the European Central Bank) – weighted according to the number of days over which this rate of interest applies during the financial year over which the dividend was paid, increased by a debit interest rate to be determined by the large Dutch banks and also increased by a margin determined by the Executive Board and approved by the Supervisory Board of one percentage point (1%) minimum and four percentage points (4%) maximum. The dividend on the last-mentioned preference shares shall be calculated on an annual basis on the paid-up part of the nominal amount. If in any financial year the distribution referred to in the first full sentence cannot be made or can only be made in part because the profits are not sufficient, the deficiency shall be distributed from the distributable part of the Company's equity. No further dividend shall be distributed on the preference shares.
Subsequently such allocations to reserves shall be made as the Executive Board shall determine, subject to the approval of the Supervisory Board.
Any balance remaining after that shall be distributed at the disposal of the General Meeting of Shareholders.
Distribution of profit shall be made after adoption of the annual accounts showing that it is permitted.
If a loss is suffered for any year that loss shall be transferred to a new account for set-off against future profits and for that year no dividend shall be distributed. On the proposal of the Executive Board that has been approved by the Supervisory Board, the General Meeting of Shareholders may resolve, however, to wipe off such a loss by writing it off on a reserve that need not be maintained according to the law.
On the proposal of the Executive Board that has been approved by the Supervisory Board, the General Meeting of Shareholders may resolve that a distribution of dividend on ordinary shares shall be made entirely or partially not in money but in ordinary shares in the capital of the Company.
On the proposal of the Executive Board that has been approved by the Supervisory Board, the General Meeting of Shareholders may resolve on distributions in money or in the manner as referred to in Paragraph 1 to holders of ordinary shares against one or more reserves that need not be maintained under the law.
| Proposed cash distribution in millions of euros |
2013 | 2012 |
|---|---|---|
| Proposed cash distribution | 207 | 204 |
Pursuant to Article 30 of the Articles of Association, and with the approval of the Supervisory Board, a proposal will be submitted to the Annual General Meeting of Shareholders to make a distribution of €0.70 per share in cash on May 13, 2014.
In January 2014, Wolters Kluwer signed a €200 million revolving credit facility maturing in June 2014. The short-term credit facility is subject to customary conditions. In addition, the Company fully redeemed its ten-year senior Eurobond (2003–2014) with a nominal value of €700 million on January 27, 2014.
| See footnotes for additional explanation | 2013* | 2012* | 2011* | 2010* | 2009 | |
|---|---|---|---|---|---|---|
| Revenues | 3,565 | 3,597 | 3,354 | 3,308 | 3,425 | |
| Operating profit Profit for the year from continuing operations, attributable |
619 | 568 | 428 | 498 | 234 | |
| to owners of the Company | 352 | 334 | 244 | 297 | ||
| Profit for the year, attributable to owners of the Company | 345 | 312 | 120 | 288 | 118 | |
| Ordinary EBITDA | 897 | 894 | 834 | 817 | 783 | |
| Ordinary EBITA | 765 | 774 | 728 | 716 | 682 | |
| Ordinary net financing costs | (117) | (121) | (118) | (129) | (119) | |
| Ordinary net income | 467 | 469 | 444 | 436 | 427 | |
| Ordinary free cash flow | 503 | 507 | 443 | 446 | 424 | |
| (Proposed) Dividend/cash distribution | 207 | 204 | 202 | 200 | 193 | |
| Acquisition spending | 192 | 109 | 299 | 251 | 54 | |
| Capital expenditure | 148 | 144 | 143 | 138 | 123 | |
| Amortization of other intangible assets and depreciation | ||||||
| property, plant, and equipment | 132 | 120 | 106 | 101 | 101 | |
| Amortization of publishing rights and impairments | 185 | 192 | 161 | 147 | 368 | |
| Shareholders' equity | 1,564 | 1,538 | 1,540 | 1,612 | 1,334 | |
| Guarantee equity | 1,584 | 1,783 | 1,786 | 1,856 | 1,580 | |
| Net debt | 1,988 | 2,086 | 2,168 | 2,035 | 2,007 | |
| Capital employed | 3,950 | 3,901 | 4,174 | 4,177 | 3,655 | |
| Total assets | 6,864 | 6,556 | 6,691 | 6,557 | 6,053 | |
| Ratios | ||||||
| As % of revenues: | ||||||
| Operating profit | 17.4 | 15.8 | 12.8 | 15.0 | 6.8 | |
| Profit for the year from continuing operations, attributable | ||||||
| to owners of the Company | 9.9 | 9.3 | 7.3 | 9.0 | 3.4 | |
| Ordinary EBITDA | 25.2 | 24.8 | 24.9 | 24.7 | 22.9 | |
| Ordinary EBITA | 21.5 | 21.5 | 21.7 | 21.6 | 19.9 | |
| Ordinary net income | 13.1 | 13.1 | 13.2 | 13.2 | 12.5 | |
| ROIC (%) | 8.7 | 8.7 | 8.9 | 8.9 | 8.5 | |
| Dividend proposal in % of ordinary net income | 44.3 | 43.4 | 45.4 | 45.9 | 45.1 | |
| Pay-out in % of profit for the year, attributable to owners | ||||||
| of the Company | 59.9 | 65.3 | 167.5 | 69.5 | 163.4 | |
| Cash conversion ratio (%) | 95 | 99 | 98 | 96 | 96 | |
| Net interest coverage | 6.5 | 6.4 | 6.2 | 5.6 | 5.7 | |
| Net debt to EBITDA | 2.2 | 2.4 | 3.1 | 2.7 | 2.9 | |
| Net gearing | 1.3 | 1.4 | 1.4 | 1.3 | 1.5 | |
| Shareholders' equity/capital employed | 0.40 | 0.39 | 0.37 | 0.39 | 0.36 | |
| Guarantee equity to total assets | 0.23 | 0.27 | 0.27 | 0.28 | 0.26 | |
| 2013* | 2012* | 2011* | 2010* | 2009 | ||
|---|---|---|---|---|---|---|
| Information per share (€) | ||||||
| On the basis of fully diluted: | ||||||
| Diluted EPS from continuing operations | 1.17 | 1.11 | 0.81 | 0.99 | ||
| Diluted EPS from discontinued operations | (0.02) | (0.07) | (0.41) | (0.03) | ||
| Diluted earnings per share | 1.15 | 1.04 | 0.40 | 0.96 | 0.40 | |
| Diluted ordinary EPS from continuing operations | 1.56 | 1.56 | 1.47 | 1.45 | 1.45 | |
| Diluted ordinary EPS from discontinued operations | (0.01) | (0.02) | 0.01 | 0.03 | ||
| Diluted ordinary earnings per share for the Group | 1.55 | 1.54 | 1.48 | 1.48 | 1.45 | |
| Diluted ordinary free cash flow per share | 1.68 | 1.69 | 1.47 | 1.49 | 1.44 | |
| Weighted average number of shares, diluted (millions) | 299.5 | 300.7 | 301.5 | 300.3 | 293.8 | |
| Ordinary EPS from continuing operations | 1.58 | 1.58 | 1.49 | 1.47 | ||
| Ordinary EPS from discontinued operations | (0.01) | (0.02) | 0.01 | 0.03 | ||
| Ordinary earnings per share for the Group | 1.57 | 1.56 | 1.50 | 1.50 | 1.47 | |
| Basic EPS from continuing operations | 1.19 | 1.13 | 0.82 | 1.00 | ||
| Basic EPS from discontinued operations | (0.02) | (0.08) | (0.42) | (0.03) | ||
| Basic earnings per share | 1.17 | 1.05 | 0.40 | 0.97 | 0.41 | |
| Ordinary free cash flow per share | 1.70 | 1.71 | 1.48 | 1.51 | 1.46 | |
| (Proposed) Dividend/cash distribution per share | 0.70 | 0.69 | 0.68 | 0.67 | 0.66 | |
| Weighted average number of shares issued (millions) | 295.7 | 296.9 | 298.4 | 296.4 | 290.1 | |
| Stock exchange | ||||||
| Highest quotation | 21.01 | 15.76 | 17.93 | 16.80 | 16.26 | |
| Lowest quotation | 14.41 | 11.39 | 11.49 | 14.42 | 11.25 | |
| Quotation at December 31 | 20.75 | 15.48 | 13.36 | 16.40 | 15.30 | |
| Average daily trading volume Wolters Kluwer on Euronext | 856 | 972 | 1,047 | 1,071 | 1,327 | |
| Amsterdam nv, number of shares (thousands of shares) | ||||||
| Employees | ||||||
| Headcount at December 31 | 19,054 | 19,095 | 18,721 | 18,319 | 19,341 | |
| In full-time equivalents at December 31 | 18,329 | 18,396 | 17,979 | 17,363 | 18,207 | |
| In full-time equivalents average per annum | 19,508 | 19,207 | 18,806 | 18,225 | 19,957 |
* The years 2011 to 2013 are based on figures for continuing operations; 2010 figures are represented for discontinued operations
* The year 2012 has been represented for the early adoption of IFRS 11 'Joint arrangements' and IAS 19 Revised 'Employee Benefits'.
The Executive Board and the Supervisory Board are responsible for the corporate governance structure of the company. An outline of the broad corporate governance structure will be provided in this chapter. Wolters Kluwer complies with all Principles and Best Practice Provisions of the Dutch Corporate Governance Code (the Code), unless stipulated otherwise in this chapter. Potential material future corporate developments might justify deviances from the Code at the moment of occurrence. The Code is available on www.commissiecorporategovernance.nl.
The Executive Board is responsible for achieving the company's aims, the strategy and associated risk profile, the development of results, and corporate social responsibility/sustainability issues that are relevant to the company. The members of the Executive Board are appointed by the General Meeting of Shareholders. The full procedure of appointment and dismissal of members of the Executive Board is explained in article 15 of the company's Articles of Association. The Executive Board currently consists of Ms. N. McKinstry (CEO and Chairman of the Executive Board) and Mr. K.B. Entricken (CFO and member of the Executive Board). Mr. Entricken was appointed at the Annual General Meeting of Shareholders of April 24, 2013, as new member of the Executive Board. The remuneration of the members of the Executive Board is determined by the Supervisory Board, based on the advice of the Selection and Remuneration Committee. In line with the Code, the remuneration policy, and the Long-Term Incentive Plan (LTIP) for the Executive Board were adopted and approved by the Annual General Meeting of Shareholders in 2004. In connection with a number of changes to the remuneration policy and to the LTIP, these subjects were submitted to the Annual General Meeting of Shareholders again in 2007. The Annual General Meeting of Shareholders adopted and approved the amendments. The Annual General Meeting of Shareholders held on April 27, 2011, approved the proposal to change the LTIP of the Executive Board. As a result hereof, Diluted Earnings per Share has been added as a second performance measure to the Executive Board LTIP 2011–13 and future plans, in addition to Relative Total Shareholder Return. In line with new legislation, the execution of the remuneration policy will be put on the agenda for discussion as separate agenda item at the Annual General Meeting of Shareholders of April 23, 2014.
Under the LTIP, Executive Board members can earn ordinary shares after a period of three years from the date of the conditional award of shares. Earning of the ordinary shares is subject to clear and objective three-year performance criteria established in advance. After earning ordinary shares, the Executive Board members are not
In line with Best Practice Provision II.1.1 of the Code, as a policy, future appointments of Executive Board members will take place for a period of four years. Mr. Entricken has therefore been appointed for an initial period of four years during the Annual General Meeting of Shareholders on April 24, 2013. The existing contract with Ms. McKinstry, who was appointed before the introduction of the first Dutch Corporate Governance Code and has an employment contract for an indefinite period of time, will be honored.
The company recognizes a change in market practice with respect to severance arrangements. With respect to future Executive Board appointments, the company will, as a policy, comply with Best Practice Provision II.2.8 of the Code regarding the maximum severance remuneration in the event of dismissal. In line with this Best Practice Provision, the contract with Mr. K.B. Entricken contains a severance payment of one year's salary. However, the company will honor the existing contract with Ms. McKinstry who was appointed before the introduction of the first Dutch Corporate Governance Code.
Ms. McKinstry temporarily deviated from the recommendation in Best Practice Provision II.1.8 to hold a maximum of two supervisory board memberships of listed companies. She reduced the number of her supervisory board memberships from three to two in the first half of 2013, bringing the number in line with the recommendation of this Best Practice Provision. The company benefits from the knowledge and experience that Ms. McKinstry acquires in these positions.
Wolters Kluwer has a strict Code of Conduct on Insider Trading. The Executive Board members are only allowed to trade in Wolters Kluwer securities during open periods of a maximum of four weeks after publication of the full-year results and the half-year results respectively, and of a maximum of two weeks after publication of the trading updates of the first and the third quarter. There are also restrictions on trading in securities of peer group companies.
Wolters Kluwer has implemented internal risk management and control systems which are embedded in the operations of the businesses to identify significant risks to which the company is exposed and enable the effective management of those risks. Our internal risk management and control systems are in line with the amended Dutch Corporate Governance Code and the COSO (Committee of Sponsoring Organizations of the Treadway Commission) framework. The aim of the systems is to provide a reasonable level of assurance on the reliability of financial reporting. These systems can never provide absolute assurance regarding the achievement of the company's objectives or the reliability of the financial reporting, or entirely prevent material errors, losses, fraud, and violation of applicable laws and/or regulations.
For a detailed description of the risks and the internal risk management and control systems, reference is made to Risk Management.
The Executive Board is committed to corporate social responsibility/sustainability. A sustainability report is published every year. In addition, a separate section of the company's website is dedicated to sustainability. Our sustainability strategy continues to be directed by four major building blocks:
The company was once again listed in the Dow Jones Sustainability Index in 2013, received a bronze class sustainability award by RobecoSAM, and participated in the Carbon Disclosure Project. Furthermore, the company was ranked 34 in the Global Knights 100 Index of most sustainable companies. For more information, reference is made to the Sustainability Report.
Wolters Kluwer has a two-tier board structure. The Executive Board members are responsible for the day-to-day operations of the company. The role of the Supervisory Board is to supervise the policies of the Executive Board and the general affairs of the company and its enterprise, taking into account the relevant interests of the company's stakeholders, and to advise the Executive Board. The Supervisory Board also has due regard for corporate social responsibility/sustainability issues which may be relevant to Wolters Kluwer. The By-Laws of the Supervisory Board include a list of Executive Board resolutions that have to be approved by the Supervisory Board. These resolutions include the operational and financial aims of the company, the strategy designed to achieve those aims, resolutions in which there are conflicts of interest with Executive Board members that are of significant interest for the company or the Executive Board member, acquisitions or divestments of which the value is at least equal to one percent of the consolidated revenues of the company, the issuance of new shares or granting of rights to subscribe for shares, the issue of bonds or other external financing of which the value exceeds 2.5% of annual consolidated revenues, and a proposal to amend the Articles of Association. The By-Laws of the Supervisory Board can be found on the company website www.wolterskluwer.com.
The General Meeting of Shareholders appoints the members of the Supervisory Board. The full procedure of appointment and dismissal of members of the Supervisory Board is explained in article 21 of the company's Articles of Association. The Supervisory Board currently consists of Mr. P.N. Wakkie (Chairman), Mr. L.P. Forman (Deputy Chairman), Mr. B.F.J. Angelici, Ms. B.M. Dalibard, Mr. D.R. Hooft Graafland, and Mr. S.B. James. At present, all Supervisory Board members are independent from the company. In 2013, as a result of the passing away of Mr. A. Baan, the Supervisory Board elected Mr. Wakkie as Chairman of the Supervisory Board. Mr. Forman was elected Deputy Chairman of the Supervisory Board. Both elections took place in accordance with the Articles of Association and clause 3.1 of the Supervisory Board By-Laws. In 2014, the second term of Mr. James will expire. Mr. James is not available for reappointment. At the General Meeting of Shareholders that will be held on April 23, 2014, the Supervisory Board will propose to appoint Ms. R. Qureshi as new member of the Supervisory Board.
The number of supervisory board memberships of all Supervisory Board members is limited to such extent that the proper performance of their duties is assured. None of the Supervisory Board members is a member of more than five supervisory boards of Dutch listed companies, with any chairmanships counting as two memberships. The Supervisory Board recognizes the importance of diversity. Elements of diversity include nationality, gender, age, and expertise. In its current composition, the Supervisory Board to a large extent reflects these various elements. More specifically, the current composition of the Supervisory Board comprises expertise within the broad information industry as well as specific market segments in which the company operates, such as healthcare, and reflects the international nature of the company. The composition of the Supervisory Board is in line with the profile as it relates to expertise, nationality, and age. According to the Dutch law that became effective as of January 1, 2013, a proper composition of the Supervisory Board means that at least 30% of the members should
be female. Assuming that Ms. Qureshi will indeed be appointed at the Annual General Meeting of Shareholders on April 23, 2014, two out of the six Supervisory Board members (33.3%) will be female, which is in line with the new Dutch law.
Wolters Kluwer considers it important that the Supervisory Board members are well-informed about the business and operations of the company. Towards this end, operating managers, including divisional CEOs, hold presentations to the Supervisory Board with respect to their businesses on a regular basis. These presentations can relate to the operations in general and to business development. In addition, the company facilitates visits to business units and individual meetings with staff and line managers.
The Annual General Meeting of Shareholders shall determine the remuneration of the Supervisory Board members. The remuneration shall not depend on the results of the company. The Supervisory Board members do not receive shares or stock options by way of remuneration, nor shall they be granted loans. The members are bound by the same Code of Conduct on Insider Trading as the Executive Board members. At present, none of the Supervisory Board members owns any securities in Wolters Kluwer.
As part of its responsibilities, the Audit Committee focuses on the operation of internal risk management and control systems, and on the role and functioning of the internal audit department and external auditors. The Audit Committee consists of at least three people. Currently, the Audit Committee consists of Mr. L.P. Forman (Chairman), Mr. B.F.J. Angelici, and Mr. D.R. Hooft Graafland. In line with the Code, the Terms of Reference of the Audit Committee determine that at least one member of the Audit Committee shall be a financial expert. In the current composition, both Mr. Forman and Mr. Hooft Graafland are financial experts.
The Supervisory Board also has installed a Selection and Remuneration Committee. Because appointments and remuneration are often closely related, the Supervisory Board sees no advantages in two separate committees. Installing two separate committees consisting of the same members would only increase the administrative burden. The Chairman of the Supervisory Board will not be the Chairman of the Selection and Remuneration Committee. The Selection and Remuneration Committee currently consists of Ms. Dalibard (Chairman), Mr. P.N. Wakkie, Mr. L.P. Forman, and Mr. S.B. James. Ms. Dalibard became Chairman of the Selection and Remuneration Committee when Mr. Wakkie was appointed Chairman of the Supervisory Board in 2013. The Selection and Remuneration Committee shall in any event be responsible for drafting policies associated with remuneration within the company and for a proposal to the Supervisory Board regarding the specific remuneration of individual Executive Board members. The Selection and Remuneration Committee is also responsible for drawing up selection criteria and appointment procedures for Supervisory Board members and Executive Board members. Furthermore, the Selection and Remuneration Committee monitors the succession planning at the company.
At least once a year, a General Meeting of Shareholders will be held. The agenda of the Annual General Meeting of Shareholders shall in each case contain the report of the Executive Board, the execution of the dividend policy, the adoption of the financial statements, the report of the Supervisory Board, and the proposal to distribute dividends or other distributions. Resolutions to release the members of the Executive and Supervisory Boards from liability for their respective duties shall be voted on separately. Shareholders who alone or jointly represent at least half a percent (0.5%) of the issued capital of Wolters Kluwer shall have the right to request the Executive Board or Supervisory Board to put items on the agenda of the Annual General Meeting of Shareholders.
In 2013, Wolters Kluwer again took active steps to try to reach the highest possible percentage of shares present or represented at the Annual General Meeting of Shareholders. These steps included making standard proxy forms and voting instruction forms available online, enabling shareholders to give voting instructions electronically prior to the meeting, and actively contacting larger shareholders with the question whether they intended to vote during the Annual General Meeting of Shareholders. As a result, approximately 68% of the issued capital of the company was present or represented at the Annual General Meeting of Shareholders in 2013.
A resolution to amend the Articles of Association may only be passed at the proposal of the Executive Board subject to the approval of the Supervisory Board. An amendment of the Articles of Association was approved at the Annual General Meeting of Shareholders of April 24, 2013. The amendments were mainly of a technical nature.
The Articles of Association of the company determine that shares shall be issued at the proposal of the Executive Board and by virtue of a resolution of the General Meeting of Shareholders, subject to designation of the Executive Board by the General Meeting of Shareholders. At the Annual General Meeting of Shareholders of April 24, 2013, the Executive Board
has been granted the authority for a period of 18 months to issue new shares, with exclusion of pre-emptive rights, subject to approval of the Supervisory Board. The authorization is limited to a maximum of 10% of the issued capital on the date of the meeting, to be increased by a further 10% of the issued capital on that date in the case the issuance is effectuated in connection with, or on the occasion of, a merger or acquisition.
Acquisition of own shares may only be effected if the General Meeting of Shareholders has authorized the Executive Board for the purpose, and while respecting the restrictions imposed by the Articles of Associations of the company. At the Annual General Meeting of Shareholders of April 24, 2013, the authorization to acquire own shares has been granted to the Executive Board for a period of 18 months. The authorization is limited to a maximum of 10% of the issued capital on the date of the meeting.
The Executive Board is responsible for the quality and completeness of publicly disclosed financial reports. The Supervisory Board shall see to it that this responsibility is fulfilled.
The external auditor is appointed by the General Meeting of Shareholders. The current external auditor was appointed at the Annual General Meeting of Shareholders of April 24, 2013 for a period of three years, whereby the Supervisory Board also has the discretion to put the appointment of the external auditor on the agenda of the General Meeting of Shareholders before the lapse of this three-year period, if so warranted or if new legislation so requires. The Supervisory Board will propose to the Annual General Meeting of Shareholders of April 23, 2014, to appoint Deloitte Nederland B.V. as the external auditor of the company, in relation to the audit of the financial reporting years 2015 up to and including 2018. The proposal to appoint a new auditor follows the new Dutch law according to which the company is required to rotate its external audit firm every eight years. The proposal to appoint Deloitte is based on the positive outcome of an extensive selection procedure organized by the company. Wolters Kluwer's current audit firm, KPMG Accountants nv will remain in place until the audit of the financial reporting year 2014 has been concluded. The Executive Board and the Audit Committee shall report their dealings with the external auditor to the Supervisory Board on an annual basis. The external auditor may be questioned by the General Meeting of Shareholders in relation to his auditor's opinion on the financial statements. The external auditor shall attend and be entitled to address the General Meeting of Shareholders for this purpose. The company has a policy on auditor independence in place, which is available on the company's website www.wolterskluwer.com.
The internal auditor operates under the responsibility of the Executive Board. The external auditor and the Audit Committee are involved in drawing up the work schedule of the internal auditor. The work schedule is based on an overall risk assessment within the company. The findings of the internal auditor and follow-up actions will be presented to the external auditor and the Audit Committee.
Wolters Kluwer and the Wolters Kluwer Preference Shares Foundation (the Foundation) have concluded an agreement based on which preference shares can be taken by the Foundation. This option on preference shares is at present a measure that could be considered as a potential protection at Wolters Kluwer against exercising influence by a third party on the policy of the company without the consent of the Executive Board and Supervisory Board, including events that could threaten the continuity, independence, identity, or coherence between the activities of the company. The Foundation is entitled to exercise the option on preference shares in such a way that the number of preference shares taken will be no more than 100% of the number of issued and outstanding ordinary shares at the time of exercise. Among others by the exercise of the option on the preference shares by the Foundation, the Executive Board and the Supervisory Board will have the possibility to determine their position with respect to, for example, a party making a bid on the shares of Wolters Kluwer and its plans, or with respect to a third party that otherwise wishes to exercise decisive influence, and enables the Boards to examine and implement alternatives. All members of the Board of the Foundation are independent of the company.
According to the Dutch Act on financial supervision (Wet op het financieel toezicht), shareholders with an interest of 3% or more of the issued capital were required to notify their interest with the Authority Financial Markets. Until December 31, 2013, the following shareholders notified an interest/voting rights of 3% or more in the company: UBS AG has a 3.95% interest (disclosed on July 1, 2013); The Bank of New York Mellon Corporation has a 5.22% interest (disclosed on November 15, 2013); Capital Group International Inc./Capital Research and Management Company had a 4.97% interest (voting rights) (disclosed on August 7, 2013); Deutsche Bank had a 4.68% interest (disclosed on April 26, 2012); Bestinver Gestion SGIIC S.A. had a 5.02% interest (disclosed on May 24, 2011); Silchester International Investors LLP had a 10.04% interest (disclosed on July 27, 2011), of which 4.98% via its affiliate Silchester International Investors International Value Equity Trust (disclosed on November 21, 2013); The Income Fund of America had a 3.73% interest (disclosed on July 1, 2013). After December 31, 2013, the following AFM notifications
were made: Silchester International Investors LLP filed a notification of an interest of 9.99% on January 14, 2014, Capital Group International Inc./Capital Research and Management company filed a notification of an interest of 2.74% on February 7, 2014, and the Income Fund of America filed a notification of an interest of 2.68% on February 6, 2014.
The employment contracts of the Executive Board members and a small group of senior executives contain stipulations with respect to a change of control of the company. According to these stipulations, in case of a change of control, the relevant persons will receive 100% of the number of conditional rights on shares awarded to them with respect to pending Long-Term Incentive Plans of which the performance period has not yet been ended. In addition, they can receive cash compensation if their employment agreement would end following a change of control.
The information specified in both clause 10 of the Takeover Directive and the Decree, which came into force on December 31, 2006 (Decree Clause 10 Take-over Directive), can be found in this chapter and in Facts for Investors.
The information and documents specified in clause 5:25f of the Act on financial supervision can be found on the company website, www.wolterskluwer.com, where all material press releases of the company issued in 2013 can be found in the section News & Facts.
This chapter also contains information and the statements pursuant to the Decree of December 23, 2004, to determine additional regulations regarding the content of the Annual Report, as amended most recently with effect as of January 1, 2010, including the relevant information from the Decree Clause 10 Take-over Directive.
The ultimate parent company of the Wolters Kluwer group is Wolters Kluwer nv. In 2002, Wolters Kluwer nv abolished the voluntary application of the structure regime (structuurregeling). As a consequence, the structure regime became applicable to Wolters Kluwer Nederland bv, which is the parent company of the Dutch operating subsidiaries. Wolters Kluwer International
This section provides an overview of Wolters Kluwer's approach to risk management, the main risks inherent in the business, and its actions to mitigate these risks.
The Executive Board is responsible for risk management and internal controls within Wolters Kluwer. The company has implemented internal risk management and control systems, which are embedded in the operations of the businesses, to identify significant risks to which the company is exposed and enable the effective management of those risks. Our internal risk management and control systems, are in line with the amended Dutch Corporate Governance Code and the COSO (Committee of Sponsoring Organizations of the Treadway Commission) framework. The aim of the systems is to provide a reasonable level of assurance on the reliability of financial reporting. These systems, however, can never provide absolute assurance regarding the achievement of the company's objectives or the reliability of the financial reporting, or entirely prevent material errors, losses, fraud, and violation of applicable laws and/or regulations.
– Post-employment
Financial & Reporting Risks
Wolters Kluwer broadly classifies risks into the following categories: strategic, operational, legal and compliance, and financial and reporting. There may be risks that are not known yet or the company has not yet fully assessed and therefore, currently considered as not significant but could have a material impact on the company's performance at a later stage. It is also possible that there may be existing risks that do not have a significant impact on the business but could in the future develop into a material exposure for the company and have a significant adverse impact on Wolters Kluwer business. Wolters Kluwer risk management and internal control systems have been designed to identify and respond to risks in a timely manner. However, full assurance cannot be achieved.
– Treasury
benefits – Tax
Wolters Kluwer internal risk management and control systems include the following activities which are embedded in the operations of the businesses:
Mergers & Acquisitions Manual, Divestment Manual, Whistleblower Policy, Global IT Security Policy, Treasury Policy, Internal Control Framework;
Wolters Kluwer's risk management and control systems are subject to continuous review and improvements to ensure that they are sufficiently robust in responding to changes in its risk profile and remain aligned with the company's business strategy.
The following risk overview outlines the main risks the company has assessed up to the date of this Annual Report. It is not the intention to provide an exhaustive description of all possible risks. Nor are the risk factors themselves stated in any order of importance.
| Wolters Kluwer Annual Report 2013 |
201 |
|---|---|
| Risk description and impact | Mitigation |
| Strategic Risks | |
| Products The company serves many of its customers by means of annual subscription-based products and |
The company mitigates these risks by maintaining continuous interaction with its customers |
| services which represent approximately two-thirds of the company's revenues. The inability to maintain the ongoing high renewal rates of these subscriptions |
through renewal programs, conferences, and advisory boards. Most of the markets the company serves are relatively stable with a strong and constant need for |
| and contracts could adversely impact the future of the company's business. |
up-to-date information, workflow software solutions and services, particularly in the rapidly evolving fields of regulation and compliance. Besides a number of key product launches, the company further expanded |
| its offerings of innovative electronic solutions and services. During the year, a new single brand strategy for Wolters Kluwer was introduced to reinforce our |
|
| customer-focused growth ambition. Along with a new tagline, 'When you have to be right,' this reflects our commitment to solving customers' challenges and enabling them to make critical daily decisions with |
|
| confidence. | |
| Competition Wolters Kluwer faces competitive challenges from existing and new competitors. |
The company mitigates these risks through continuous development of new innovative products and |
| providing customers with state-of-the-art technological solutions. In 2013, the company sustained investment in new and enhanced product development, even in challenging macroeconomic times. |
|
| Economy and markets Global and regional economic conditions may |
Despite continued economic challenges |
| especially have a negative effect on several cyclical products which include training activities, advertising, |
in Europe, we made further progress on shifting our portfolio towards digital and high-growth businesses. |
| certain book programs, and lending and corporate formation-related transactions. These activities represent approximately 25% of the company's |
We have also increased the percentage of our recurring revenues to reduce exposure to the economic cycle. As we continue to invest to globalize the business, we have |
| consolidated revenues. The impact of these conditions on the overall portfolio will depend on the severity of the economic slowdown, the countries affected, and |
seen a significant shift in our revenues geographically and continue to pursue faster growing geographies. In high-growth economies such as China and India, which |
| potential government responses. | are important for Wolters Kluwer's growth strategy, the company works closely together with local business partners, supported by local management to ensure |
| successful expansion in these countries. During the year, we continued to re-shape the business through strategic acquisitions and divestitures in each of our divisions, |
|
| including in emerging markets such as China and Brazil. All of this activity is focused on building a strong and diversified portfolio with high-growth potential. |
|
Risk description and impact Mitigation
Risks with respect to acquisitions primarily relate to the integration of the acquisitions, changing economic circumstances, competitive dynamics, retaining key personnel, and the ability to realize expected synergies.
Execution of the company's strategy is also supported by divestment of non-core activities. The ability to successfully divest operations can depend on economic and market circumstances, competitive dynamics, contractual obligations, retention of key personnel, the buyer's ability to realize synergies, and other factors. The depressed global economy could lead the company to postpone transactions that cannot be concluded at reasonable terms and conditions.
When acquiring new businesses, Wolters Kluwer carries out a comprehensive due diligence process using internal and external expertise. Besides indemnities and warranties, the company also assesses whether the risks can be mitigated through deal structures, such as earn-out agreements, to retain management and to assure alignment between the purchase price and the performance of the acquired company. The company has strict strategic and financial criteria for acquiring new businesses and is very selective in where and how to invest. Generally, acquisitions are expected to be accretive to ordinary earnings per share in year one and cover their weighted average cost of capital within three to five years. An acquisition integration plan is agreed to by the Executive Board prior to completing an acquisition. Such plans are actively monitored after completion.
To mitigate risks related to material divestments, the company usually carries out a vendor due diligence and engages external experts for due diligence and execution of the transaction.
| Wolters Kluwer | Annual Report 2013 | 203 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Risk description and impact | Mitigation | |||||||||
| Operational Risks | ||||||||||
| Technological developments | ||||||||||
| Implementing new technology-related | A roadmap for consolidation and simplification | |||||||||
| initiatives for delivering Wolters Kluwer's products | of IT infrastructure and for implementing more service | |||||||||
| and services is inherently complex and is subjected | capabilities to support customers in the cloud has | |||||||||
| to many execution risks during the development and | already been set. In 2013, the roadmap was refined | |||||||||
| implementation phases. | to support the company's portfolio and innovation | |||||||||
| Our businesses could also be adversely | needs. The strategy will guide vendor rationalization, | |||||||||
| affected by our dependency on third parties for | preferred financial and legal partnerships, and de-risk the | |||||||||
| delivering outsourced and offshored data center services, | vendor portfolio. In addition, the company has refined | |||||||||
| software development, and maintenance activities, | the strategy for IT back office operations to ensure | |||||||||
| including back office transactions processing. | more effective management of all the ERP (Enterprise | |||||||||
| Resource Planning) systems. The company strives to | ||||||||||
| and infrastructure. | continuously improve and streamline its IT environment | |||||||||
| To manage execution risks by third parties, risk | ||||||||||
| transfer and performance management are governed | ||||||||||
| by detailed operating and service agreements with | ||||||||||
| outside providers. Additionally, oversight boards and | ||||||||||
| program management teams monitor the progress | ||||||||||
| and performance of vendors during the term of these | ||||||||||
| agreements. | ||||||||||
| Information security | ||||||||||
| Like all companies, Wolters Kluwer is exposed | The business units have identified critical | |||||||||
| to IT security threats which could compromise our system availability, data, and information. |
applications which could have significant impact on business continuity and have developed continuity |
|||||||||
| plans, including IT disaster recovery plans, for the | ||||||||||
| main operations to minimize the impact of those risks. | ||||||||||
| Potential scenarios and threats are considered when the | ||||||||||
| business units review the appropriateness and adequacy | ||||||||||
| of incident responses and continuity plans. | ||||||||||
| IT General Controls (ITGCs) form an integral | ||||||||||
| part of Wolters Kluwer Internal Control Framework | ||||||||||
| and are fully aligned with the Global IT Security Policy | ||||||||||
| requirements. Controls over data and security programs | ||||||||||
| are tested regularly to ensure that personal data is | ||||||||||
| protected and that there is compliance with relevant | ||||||||||
| legislation and regulatory requirements. | ||||||||||
| Wolters Kluwer | Risk Management | 204 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Risk description and impact | Mitigation | ||||||||
| retain the appropriate level of talent. | People and organization | The company may not be able to attract and | The company ensures its ability to attract the appropriate level of talent through a combination |
||||||
| of competitive rewards, including market-based remuneration, pay for performance with short-term and long-term incentives aligned with individual and |
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| company achievements, and benefits benchmarked against local markets. The company mitigates the loss of personnel through formal talent management programs that incorporate succession planning, company |
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| sponsored learning programs, tuition refund at external universities, and consistently applied performance appraisal systems. A Talent Management Program is |
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| in place which includes an overview of high potential managers within various layers of the organization. In 2013, the leadership programs were expanded |
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| to include middle management. Retention is also stimulated through offering opportunities for growth within the company through job posting programs and internal slating programs. HR executives also monitor |
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| employee turnover across different categories very closely, including performing structured exit interviews and identification of key drivers for leaving. HR and the |
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| and fast action where needed. | business managers work together to take appropriate | ||||||||
| Wolters Kluwer Annual Report 2013 |
205 |
|---|---|
| Risk description and impact | Mitigation |
| Legal & Compliance Risks | |
| Compliance The company can be exposed to non |
Compliance is part of the internal control |
| compliance with laws, regulations, or internal policies. | framework of the company, for example through |
| Non-compliance could potentially lead to fines, | the Letters of Representation and internal audits. |
| restrictions to carry out certain activities, third party | Furthermore, several training programs are currently in |
| claims, and loss of reputation. | place to create awareness about these subjects among employees, which will be further extended. |
| Intellectual property | |
| Intellectual property rights could be challenged, | Wolters Kluwer actively protects its |
| limited, invalidated, circumvented, or infringed. | intellectual property rights, which is important to |
| Technological developments make it increasingly difficult to protect intellectual property rights. Changes in |
safeguard its portfolio of information, software, and services. The company relies on trademark, copyright, |
| legislation could have an impact on the ability to protect | patent, and other intellectual property laws to establish |
| intellectual property rights. | and protect its proprietary rights to these products and |
| services. We closely monitor legislative developments | |
| with respect to intellectual property rights. | |
| Third party claims | |
| The company may be exposed to claims by third | Wolters Kluwer manages and transfers these |
| parties relating to products, services (including software | risks by striving to produce high quality products, |
| or SaaS offerings), or informational content provided or published by the company. Such claims may be based |
services, and content, and by including customary and appropriate disclaimers and limitations of liability in its |
| on legal theories such as alleged negligence, product | contracts. |
| liability, breach of contract, or infringement of third party | Further, the company expects its employees |
| intellectual property rights. | to strictly comply with intellectual property laws and |
| regulations. The company's insurance program may | |
| cover certain types of claims exposures. | |
| The company manages a range of insurable risks by arranging for insurance coverage for first party |
|
| and third party liability exposures. In addition to its | |
| global insurance program, the company also protects | |
| against more localized risks, such as automotive and | |
| workers compensation, by way of local insurance cover. | |
| To mitigate specifically against property | |
| damage and business interruption risks, the company | |
| has implemented a centralized worldwide risk control | |
| program. Accompanied by insurers and collaborating with business continuity management, company risk |
|
| managers perform regular loss control visits to key | |
| operating company and supplier locations and work with | |
| our operating companies to cost effectively implement | |
| recommendations for continued improvement. | |
| Wolters Kluwer | Risk Management | 206 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Risk description and impact | Mitigation | |||||||||
| Financial & Reporting Risks | ||||||||||
| Treasury risks | Fluctuations in exchange and interest rates | It is the company's goal to mitigate the | ||||||||
| affect Wolters Kluwer's results. | effects of currency and interest rate movements on net | |||||||||
| income, equity, and cash flow. Whenever possible, the | ||||||||||
| Company tries to do this by creating natural hedges, by | ||||||||||
| matching the currency profile of income and expenses | ||||||||||
| and of assets and liabilities. When natural hedges are | ||||||||||
| not present, Wolters Kluwer strives to realize the same | ||||||||||
| effect with the aid of derivative financial instruments. | ||||||||||
| For this purpose, hedging ranges have been identified | ||||||||||
| and policies and governance are in place, including | ||||||||||
| authorization procedures and limits. The company only | ||||||||||
| purchases or holds derivative financial instruments | ||||||||||
| with the aim of mitigating risks and most of these | ||||||||||
| instruments qualify for hedge accounting as defined | ||||||||||
| in IAS 39. The company does not purchase or hold | ||||||||||
| derivative financial instruments for speculative purposes. | ||||||||||
| In line with IFRS requirements, detailed information on financial risks and policies is provided in note 27 of the |
||||||||||
| Consolidated Financial Statements. Treasury policies on | ||||||||||
| market (currency and interest), liquidity, and credit risk | ||||||||||
| are reviewed by the Audit Committee, with quarterly | ||||||||||
| reporting by the Treasury Committee to the Audit | ||||||||||
| Committee on the status of these financial risks. | ||||||||||
| Post-employment benefits | ||||||||||
| The company faces risks relating to additional funding required for its defined benefit plans, namely |
closing some of the defined benefit plans to future | The company has mitigated these risks by | ||||||||
| the pension and post-retirement medical plans in the | accruals, such as the pension plans in the United States | |||||||||
| United States and the pension plans in the Netherlands, | and the United Kingdom, or by changing the plan, such | |||||||||
| the United Kingdom, Canada, Australia, and Belgium. | as moving to an average salary instead of final salary | |||||||||
| These plans are affected by the annual developments on | benefit, and limiting the yearly increase of pension | |||||||||
| the international financial markets and may be further | entitlements in the Netherlands. To reduce the plan | |||||||||
| affected by future developments on these markets. | volatility of the U.S. pension plan, the company had | |||||||||
| already removed a number of participants from the U.S. | ||||||||||
| plan through a lump-sum pension buy-out program. | ||||||||||
| Furthermore, the company engages independent | ||||||||||
| advisors to perform asset liability management studies | ||||||||||
| regularly and advise on the investment strategies for the | ||||||||||
| various pension funds. The net periodic defined benefit | ||||||||||
| plan costs are based on annual actuarial calculations. | ||||||||||
| Tax | ||||||||||
| Changes in corporate tax rates and tax | Most of these taxes are transactional and | |||||||||
| laws could adversely affect the company's overall tax | employee-related and are levied from the legal entities | |||||||||
| liabilities. | in these jurisdictions. | |||||||||
| Wolters Kluwer maintains a liability for certain | ||||||||||
| contingencies in line with IFRS accounting standards. The | ||||||||||
| adequacy of this liability is judged on a continuous basis | ||||||||||
| in consultation with external advisors. Reference is made | ||||||||||
| to note 21 of the Consolidated Financial Statements for |
additional information about tax and related risks.
| Wolters Kluwer | Annual Report 2013 | 207 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Risk description and impact | Mitigation | ||||||||||
| financial reporting may be susceptible to unintentional | Financial reporting The processes and systems supporting the |
maintaining an Internal Control Framework for financial | The company mitigates these risks by | ||||||||
| misstatements or manipulation. | reporting which is described in the preceding section. In companies and senior corporate staff members provide |
addition, senior executives in the divisional and operating | |||||||||
| signed Letters of Representation quarterly. Independent internal audits are also carried out to ensure compliance with policies and procedures and ensure that existing controls provide adequate protection against actual |
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| risks. | |||||||||||
| Sensitivity analysis Fluctuations in exchange, discount, interest, and tax rates affect Wolters Kluwer's results. |
|||||||||||
| sensitivity to a change in certain assumptions for Wolters Kluwer's ordinary EBITA and diluted ordinary EPS: |
The following information illustrates the | ||||||||||
| Potential Impact | Ordinary EBITA (€ millions) |
Diluted ordinary EPS (€ cents) |
|||||||||
| 1% decline of the U.S. dollar against the euro | (6) | (1.3) | |||||||||
| 1% decrease in discount rate in determining the gross service costs for our pension plans | (3) | (0.6) | |||||||||
| 1% increase in interest rate assuming same mix of variable and fixed | n.a. | 0 | |||||||||
| 1% increase in the benchmark tax rate on ordinary net income | n.a. | (0.2) | |||||||||
The Executive Board is responsible for the preparation of the financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code. The financial statements consist of the consolidated financial statements and the company's financial statements. The responsibility of the Executive Board includes selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
The Executive Board is also responsible for the preparation of the Report of the Executive Board that is included in the 2013 Annual Report. The Annual Report is prepared in accordance with Part 9 of Book 2 of the Netherlands Civil Code. In the Annual Report, the Executive Board endeavours to present a fair review of the situation of the business at balance sheet date and of the state of affairs in the year under review. Such an overview contains a selection of some of the main developments in the financial year and can never be exhaustive.
The company has identified the main risks it faces, including financial reporting risks. These risks can be found in Risk Management. In line with the Dutch Corporate Governance Code and the Dutch Act on financial supervision (Wet op het financieel toezicht), the company has not provided an exhaustive list of all possible risks. Furthermore, developments that are currently unknown to the Executive Board or considered to be unlikely may change the future risk profile of the company.
As explained in Risk Management, the company must have internal risk management and control systems that are suitable for the company. The design of the company's internal risk management and control systems has been described in Risk Management. The objective of these systems is to manage, rather than eliminate, the risk of failure to achieve business objectives and the risk of material errors to the financial reporting. Accordingly, these systems can only provide reasonable, but not absolute, assurance against material losses or material errors.
As required by provision II.1.5 of the Dutch Corporate Governance Code and section 5:25c(2)(c) of the Dutch Act on financial supervision (Wet op het financieel toezicht) and on the basis of the foregoing and the explanations contained in Risk Management, the Executive Board confirms that to its knowledge:
situation at the balance sheet date, the course of affairs during the financial year of the company, and undertakings included in the consolidation taken as a whole, together with a description of the principal risks that the company faces.
Alphen aan den Rijn, February 18, 2014
N. McKinstry, CEO and Chairman of the Executive Board K.B. Entricken, CFO and member of the Executive Board
The Board of the Wolters Kluwer Preference Shares Foundation met twice in 2013. The matters discussed included the full-year 2012 results of Wolters Kluwer, the half-year 2013 results, the execution of the strategy, the financing of the company, acquisitions and divestments, developments in the market, and the general course of events at Wolters Kluwer. A representative of the Executive Board of the company and corporate staff attended the meetings in order to give the Board of the Foundation information about the developments within Wolters Kluwer.
The Board of the Foundation also followed developments of the company outside of Board meetings, among others through receipt by the Board members of press releases. As a result, the Board of the Foundation has a good view on the course of events at Wolters Kluwer. The Board of the Foundation also closely monitored the developments with respect to corporate governance and relevant Dutch legislation, and discussed that topic during the meetings. Furthermore, the financing of the Foundation and the composition of the Board of the Foundation were discussed. All members of the Board of the Foundation are independent of the company. The Foundation acquired no preference shares during the year under review.
Wolters Kluwer and the Foundation have concluded an agreement based on which preference shares can be taken by the Foundation. This option on preference shares is at present a measure that could be considered as a potential protection at Wolters Kluwer against exercising influence by a third party on the policy of the company without the consent of the Executive Board and Supervisory Board, including events that could threaten the continuity, independence, identity, or coherence between the activities of the company. The Foundation is entitled to exercise the option on preference shares in such a way that the number of preference shares taken will be no more than 100% of the number of issued and outstanding ordinary shares at the time of exercise. Among others by the exercise of the option on the preference shares by the Foundation, the Executive Board and the Supervisory Board will have the possibility to determine their position with respect to, for example, a party making a bid on the shares of Wolters Kluwer and its plans, or with respect to a third party that otherwise wishes to exercise decisive influence, and enables the Boards to examine and implement alternatives.
Both Mr. Bouw and Mr. Voogd retired by rotation in 2013 and were reappointed. The Foundation is a legal entity that is independent from the Company as stipulated in clause 5:71 (1) sub c of the Act on financial supervision (Wet op het financieel toezicht).
Board of Wolters Kluwer Preference Shares Foundation R.P. Voogd, Chairman R.W.J.M. Bonnier P. Bouw H.G. Bouwman J.H.M. Lindenbergh
| Wolters Kluwer | 210 |
|---|---|
| ---------------- | ----- |
Dialogue with capital markets Wolters Kluwer is committed to a high degree of transparency in its financial reporting and strives to be open with its shareholders and the wider investment community. The company manages a comprehensive communications program for investors, including the Annual General Meeting of Shareholders in April and many other events throughout the year. In 2013, activities for shareholders and other investors included a full presentation by management of halfyear and full-year results; participation in a number of investor conferences; two investor seminars focused on, respectively, our Corporate Legal Services business and our Health division; as well as regular office and roadshow meetings with potential and existing shareholders and sell-side analysts covering the company. Further detailed information is provided on the Investors section of our website www.wolterskluwer.com/ investors. This includes financial reports, investor presentations, announcements, and a financial calendar. Presentations hosted by the company are webcast live on our website. Wolters Kluwer is strict in its compliance with applicable rules and regulations on fair disclosure to shareholders. Presentations are posted on the company's website at the same time they are made available to analysts and shareholders. In adherence with fair disclosure rules, meetings and presentations do not take place during 'closed periods' before the publication of annual and quarterly financial information. The company does not assess, comment upon, or correct, other than factually, any analyst report or valuation prior to publication. The company is committed to helping investors and analysts become better acquainted with Wolters Kluwer and its management, as well as to maintaining a long-term relationship of trust with the investment community at large. Dividend policy Wolters Kluwer has a progressive dividend policy under which the company aims to increase its dividend per share each year. At the 2014 Annual General Meeting of Shareholders, Wolters Kluwer will propose a dividend distribution of €0.70 per share, an increase of 1.4% over the prior year, to be paid on May 13, 2014. Dividend per share (€)
2005 0.55 2009 0.66 2007 0.64 2011 0.68 2006 0.58 2010 0.67 2008 0.65 2012 0.69 2013 Proposed 0.70
Note: dividend is paid in May of the following year.
Anti-dilution policy
Investor Relations policy
In 2012, Wolters Kluwer adopted an anti-dilution policy under which it intends to offset the dilution caused by the issuance of performance shares via share repurchases.
| Wolters Kluwer | Annual Report 2013 | 212 | ||||||
|---|---|---|---|---|---|---|---|---|
| Trading volume and venues | Capital stock | Market capitalization | ||||||
| The NYSE Euronext Amsterdam | The ordinary shares have a | On the basis of issued ordinary | ||||||
| exchange is the primary trading | nominal value of €0.12. The number | shares (excluding own shares | ||||||
| venue for the shares. Alternative | of ordinary shares outstanding on | held by the company), the market | ||||||
| trading venues include Chi-X Europe, Turquoise, and several others. The |
December 31, 2013, was 301.9 million (December 31, 2012: 301.9 million). |
capitalization as of December 31, 2013, was €6.3 billion (2012: €4.7 billion). |
||||||
| average daily trading volume on NYSE | The diluted weighted average number | |||||||
| Euronext was 856,269 shares during | of ordinary shares used to compute the | |||||||
| 2013 (source: Euronext). | diluted per share figures was 299.5 | |||||||
| million in 2013 (2012: 300.7 million). | ||||||||
| Key share data | 2013 | 2012* | ||||||
| in euros, unless otherwise indicated | ||||||||
| Ordinary earnings per share, continuing operations | 1.58 | 1.58 | ||||||
| Diluted ordinary earnings per share, continuing operations | 1.56 | 1.56 | ||||||
| Diluted earnings per share from continuing operations | 1.17 | 1.11 | ||||||
| Diluted earnings per share from discontinued operations | (0.02) | (0.07) | ||||||
| Diluted earnings per share | 1.15 | 1.04 | ||||||
| Proposed dividend / cash distribution per share | 0.70 | 0.69 | ||||||
| Weighted average number of shares issued (millions of shares) | 295.7 | 296.9 | ||||||
| Diluted weighted average number of shares (millions of shares) | 299.5 | 300.7 | ||||||
| Highest quotation | 21.01 | 15.76 | ||||||
| Lowest quotation | 14.41 | 11.39 | ||||||
| Quotation at December 31 | 20.75 | 15.48 | ||||||
| Average daily volume on NYSE Euronext Amsterdam (thousands of shares) | 856 | 972 | ||||||
| *2012 restated for IAS 19R 'Employee benefits' and early adoption of IFRS 11 'Joint arrangements'. | ||||||||
| Indices | ||||||||
| Wolters Kluwer shares are included in several equity indices. Its weight in |
||||||||
| selected indices is shown below. | ||||||||
| Index | Weight in % | |||||||
| AEX | 2.12 | |||||||
| STOXX Europe 600 Media | 3.54 | |||||||
| EURO STOXX Media | 6.62 | |||||||
| EURO STOXX Select Dividend 30 | 3.43 | |||||||
| Source: Euronext, STOXX. As of January 31, 2014 | ||||||||
| Wolters Kluwer | Facts for Investors | 213 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| by geography | Institutional shareholders Institutional investors hold |
by retail investors and broker dealers. Institutional ownership is spread across many countries, |
|||||||||
| estimated 92% (2012: 91%) of the shares in Wolters Kluwer, with the remaining 8% of shares held |
with approximately 45% of | institutional ownership in the United Kingdom and 17% in the United States. |
|||||||||
| (in %) | Estimated institutional shareholders by geography | ||||||||||
| 45 | 17 | 9 | 8 6 |
4 3 |
3 3 2 |
||||||
| United Kingdom United States |
France Switzerland |
Norway Other |
|||||||||
| Spain Germany |
Rest of Europe Netherlands |
||||||||||
| Source: Nasdaq OMX Corporate Advisory Services, December 31, 2013 | |||||||||||
| Major shareholders | November 13, 2012 (effective July 1, | The Corporate Governance Act of | of 5% are as follows: | As of February 18, 2014, shareholders who have disclosed holdings in excess |
Credit ratings | Wolters Kluwer debt is rated by | Standard & Poor's (S&P) and Moody's | ||||
| threshold of 3% for the disclosure of capital interests and/or voting rights |
2013) introduced a new lower minimum | – The Bank of New York Mellon | – Silchester International Investors LLP: 9.99% (disclosed on January 14, 2014); |
7, 2013, S&P affirmed its BBB+ long term and A-2 short-term ratings, and |
Investor Services (Moody's). On March | ||||||
| in a listed company. Shareholders who have made such disclosures can be found on the website of the |
Netherlands Authority for the Financial | November 15, 2013); (disclosed on May 24, 2011). |
Corporation: 5.22% (disclosed on – Bestinver Gestion SGIIC S.A.: 5.02% |
to 'Stable'. | upgraded its outlook to 'Stable'. On its Baa1 rating and revised its outlook |
September 12, 2013, Moody's affirmed | |||||
| Markets www.afm.nl. | |||||||||||
| Agency | Long-Term | Short-Term | Outlook | ||||||||
| Moody's, September 12, 2013 Standard & Poor's, March 7, 2013 |
Baa1 BBB+ |
A-2 | Stable Stable |
||||||||
Bonds As of December 31, 2013, Wolters Kluwer has the following senior bonds outstanding:
| Type | Term | Amount | Listing | Code | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 5.125% senior bonds | 2003/2014 | €700 million | Amsterdam/Luxembourg | ISIN XS0181273342 | ||||||||
| 6.375% senior bonds | 2008/2018 | €750 million | Luxembourg | ISIN XS0357251726 | ||||||||
| 6.748% senior bonds | 2008/2028 | €36 million | Luxembourg | |||||||||
| 4.20% senior bonds | 2010/2020 | €250 million | Frankfurt | ISIN XS0384322656 ISIN XS0522820801 |
||||||||
| 2.875% senior bonds | 2013/2023 | €700 million | Luxembourg | ISIN XS0907301260 | ||||||||
| Financial calendar | ||||||||||||
| April 23, 2014 | Annual General Meeting of Shareholders | |||||||||||
| April 25, 2014 | Ex-dividend date | |||||||||||
| April 29, 2014 | Dividend record date | |||||||||||
| May 7, 2014 | First-Quarter 2014 Trading Update | |||||||||||
| May 13, 2014 | Dividend payment date (ordinary shares) | |||||||||||
| May 20, 2014 | ADR dividend payment date | |||||||||||
| July 30, 2014 | Half-Year 2014 Results | |||||||||||
| November 5, 2014 | Third-Quarter 2014 Trading Update | |||||||||||
| February 18, 2015 | Full-Year 2014 Results | |||||||||||
We recognize that our most valuable assets are the employees working for us across 40 countries. They create the products and services that deliver on our commitment to empower professionals with the confidence to make critical decisions every day.
Our HR strategy focuses on attracting, developing, and retaining the most talented and productive employees. Our priority is to create a culture of people who strive towards high performance and accountability, while valuing innovation and continued learning. Our employees are software developers, content editors, and experts in a wide range of professional fields. Innovation is a key to our success, and one of the values that we encourage in our employees. We help them realize their potential and fulfill their ambitions while making a difference for our customers.
Across the business we are committed to a high-performance learning culture, where employees are encouraged to continuously improve their skills and contributions, resulting in a rewarding work life and improved outcomes for the business. We support professional growth and advancement at all levels and provide the framework and tools to do so.
Performance management and reviews are embedded across the company. They are important instruments that help us appreciate our employees' contributions and identify and reward our most talented, high-performing people. Employee mobility is a key objective and we actively and continuously work on moving talented employees into new and challenging roles that allow them to grow their career and add value to the organization. These ongoing efforts are further supported by an annual enterprise review where senior leaders assess high-potential employees in order to identify and develop our next generation of business leaders.
Wolters Kluwer's commitment to learning and strategically developing leadership has also led to the set-up of specific development programs for leaders at different levels of the organization and at different points in their career. Focused on the development of nextgeneration young leaders, we are also partnering with distinguished universities on a Future Leaders Summer Intern Program which gives graduate level and rising senior undergraduate students a meaningful work experience, mentorship, and expert guidance from skilled professionals across Wolters Kluwer.
Find out more about HR and our job openings at www.wolterskluwer.com/Careers
Wolters Kluwer is committed to solve customers' challenges and enabling them to make critical decisions with confidence, every day. These decisions impact people's lives and the use of natural resources. Since our services enable professionals to have a positive impact, and thereby add value to the communities they work in, sustainability is core to our business. We aim to develop high-quality solutions for our customers, enhancing their positive impact on society.
Sustainability is an integral part of what we do. We strongly believe that sustainability makes business sense and we ensure that sustainability guides our business decisions and actions. Our innovation driven strategy is built around the Triple-P concept, balancing the interests of People, Planet, and Profit.
Planet: Wolters Kluwer minimizes its environmental footprint by operating within the planetary boundaries. By doing so, we aim to preserve the opportunities of future generations.
Profit: Wolters Kluwer develops innovative new products and services that meet relevant societal demands. By doing so, we guarantee current customer satisfaction, future added value to society, and long term financial results.
People: Wolters Kluwer engages with all business-relevant stakeholders, in order to maximize our social handshake and stay aligned with changing demands, concerns, and dependencies.
For a full overview of our sustainability activities please see the 2013 Sustainability Report.
Wolters Kluwer n.v. Zuidpoolsingel 2 P.O. Box 1030 2400 BA Alphen aan den Rijn The Netherlands
[email protected] www.wolterskluwer.com www.facebook.com/wolterskluwer www.twitter.com/wolters_kluwer
Chamber of Commerce Trade Registry No. 33.202.517
Vice President, Caroline Wouters +31 172 641 421 [email protected]
Vice President, Meg Geldens +31 172 641 407 [email protected]
Company Secretary Senior Vice President, Maarten Thompson + 31 172 641 450 companysecretary@wolterskluwer. com
Sustainability [email protected]
Corporate Human Resources Senior Vice President, Kathy Baker
Accounting & Control Senior Vice President, Sander van Dam
Operational Excellence Senior Vice President, Andres Sadler
– North America: Senior Vice President, Elizabeth Satin – Europe, Rest of World: Vice President, Pieter Roeloffs – Greater China: Vice President, Zhou Huang
This Annual 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 forwardlooking 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.
The Annual Report is available on a variety of screen sizes and mobile devices via our responsive report website, as a PDF, and a limited edition print version.
Wolters Kluwer also issued a 2013 Sustainability Report, available online and as PDF.
Taco Anema
Design & layout Mevis & van Deursen
Printing & binding TUIJTEL
This annual report is printed on Cycle offset, FSC® SCS-COC-000973 certified. Wolters Kluwer believes that it has a responsibility to contribute to the sustainable use of resources.
The printed edition of the 2013 Annual Report is a climate-neutral print production .
Wolters Kluwer received external recognition for its Annual Reports over 2012, 2011, and 2010:
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