Wolters Kluwer First-Quarter 2020 Trading Update
Wolters Kluwer First-Quarter 2020 Trading
Update
May 6, 2020 – Wolters Kluwer, a global leader in professional
information, software solutions, and services, today releases an
update on first-quarter 2020 trading and the impact of
COVID-19.
Highlights
- 2020 guidance suspended due to uncertainty caused by the
impact of COVID-19.
- Recurring revenues (approximately 80% of annual revenues)
expected to show resilience.
- Non-recurring revenues expected to see weaker trends in current
market conditions.
- First-quarter revenues up 3% in constant currencies and up
4% organically.
- Recurring revenues (82%) rose 5% while non-recurring revenues
declined 2% organically.
- Digital & services revenues (93%) grew 5% while print
revenues declined 13% organically.
- First-quarter adjusted operating profit margin increased by
110 basis points.
- First-quarter adjusted free cash flow declined 9% in
constant currencies.
- Strong balance sheet and liquidity position.
- Twelve months’ rolling net-debt-to-EBITDA ratio 1.5x as of
March 31, 2020.
- Cash-on-hand and undrawn credit facility amply cover our
funding needs.
- Final dividend for 2019 approved by shareholders and to be
paid on May 20, 2020.
- 2020 share buyback of up to €350 million
maintained.
- €125 million completed in the year through May 5, 2020.
- Pace of buybacks to be slowed: mandate for €50 million in
buybacks for next three months.
Nancy McKinstry, CEO and Chairman of the Executive Board,
commented: “As we navigate the disruption caused by the spread
of COVID-19, Wolters Kluwer has been focused on the health and
well-being of its employees and on providing solutions and support
to our customers around the world. Our employees have shown
tremendous dedication, ingenuity, and agility and I would like to
thank them for their hard work and commitment. Our first quarter
results saw limited impact from COVID-19, but given current
uncertain market conditions, we feel it is appropriate to suspend
our specific 2020 guidance until we have greater clarity on the
sales environment and on revenue trends. We have initiated plans to
mitigate the impact of COVID-19 with expense reductions, while
protecting jobs and key product and strategic investments. We start
from a strong financial position and are confident we can weather
the economic disruption while focusing on achieving our longer-term
strategic goals.”
First Quarter 2020
Our first quarter 2020 results exhibited minimal impact from
COVID-19 on revenues and costs, as government efforts to contain
the spread of the virus did not yet have much impact on conditions
in our geographies and market segments until late in the quarter.
In the second half of March, we saw an impact on transactional
revenues in Governance Risk & Compliance (GRC) and on other
non-recurring revenue types across all divisions.
First quarter 2020 revenues rose 5% in reporting currency,
benefitting from a 2% favorable effect from currency. Excluding the
impact of exchange rate movements, first quarter revenues increased
3%, reflecting net disposal activity in our Health and Legal &
Regulatory divisions. Organic growth was 4%, broadly in line with
the same period a year ago. Recurring revenues, which made up 82%
of revenues in the first quarter and include subscriptions and
other repeating revenue streams, sustained 5% organic growth.
Non-recurring revenues, which accounted for the remaining 18% of
first quarter revenues, declined 2% for the quarter after a strong
start to the year. Non-recurring revenues were impacted by trends
in transactional volumes in Governance Risk & Compliance (GRC)
and weakness in training, journal advertising and reprints,
software license fees and professional implementation services.
Additionally, printed books (2% of first quarter revenues) recorded
double-digit declines across three of our divisions in the first
quarter.
Health revenues increased 5% in constant currencies and 5% on an
organic basis. Clinical Solutions grew 8% organically in the first
quarter, led by our global clinical decision support tool,
UpToDate. Health Learning, Research & Practice saw positive
organic growth in the quarter with improved momentum in digital
subscription revenues, including nursing solutions for education
and practice, partly offset by a deterioration in print books,
journal advertising and continuing medical education trends. Recent
trading: organic growth was positive but significantly slower in
April, with Clinical Solutions (over 95% recurring) driving
mid-single-digit organic growth and Health Learning, Research &
Practice impacted by declines in print books, advertising, and
other non-recurring revenue streams. In current market conditions,
subscription renewals for digital solutions are likely to hold up
well, while new sales and non-recurring revenues are
challenged.
Tax & Accounting revenues increased 5% in constant
currencies and 5% organically, in line with the same period a year
ago. Corporate Performance Solutions, which includes CCH Tagetik
and TeamMate cloud and on-premise software, grew well, albeit
slower than in the same period in 2019. In Professional Tax &
Accounting, our large North American operations saw moderate
organic growth, in line with a year ago and largely as expected.
Our European Professional Tax & Accounting business, as
expected, recorded slower organic growth due to a challenging
comparable. Trends in Asia Pacific and Rest of World (ROW)
improved. Recent trading: organic growth was weak in April, due to
lower new sales and software licenses. We expect U.S. recurring
e-filing revenues to spread into the third quarter following the
extension of IRS filing deadlines to July. Market conditions for
new sales of subscription products and for non-recurring categories
such as training, software licenses, and implementation services
are proving challenging.
Governance, Risk & Compliance (GRC) revenues increased 4% in
constant currencies and 4% organically, in line with the same
period a year ago. Legal Services organic growth decelerated
compared to a year ago as robust momentum in recurring revenues was
accompanied by weaker trends in transactional revenues. Legal
Services transactional volumes declined sharply in the last two
weeks of March. Financial Services organic growth improved for all
main units and across both recurring and transactional revenues in
the first quarter. Our Finance, Risk & Reporting software
business achieved good growth, albeit slower than a year ago.
Recent trading: Transactional revenues declined year-on-year in
April, but this was temporarily mitigated by the rapid launch of a
dedicated solution to help our U.S. lending customers participate
in the Small Business Administration’s COVID-19 paycheck protection
program. In current market conditions, we expect recurring revenues
(approximately 60% of divisional total) to hold up well, but
non-recurring revenue streams to decline.
Legal & Regulatory revenues declined 1% in constant
currencies and 1% organically in the first quarter. EHS/ORM
Solutions and Legal Software recorded double-digit organic growth
in the quarter, although slower than in the same period a year ago.
Legal & Regulatory Information Solutions (83% of divisional
revenues) posted 3% organic revenue decline in the quarter due to a
deterioration in print subscription trends and weakness in
non-recurring business, including training and printed books.
Digital information solutions sustained good organic growth in both
the U.S and Europe. Recent trading: organic revenue trends weakened
in April, mainly due to non-recurring revenues including books and
training. In current market conditions, we expect recurring revenue
to hold up well supported by strong usage of digital solutions,
while non-recurring revenues are expected to decline.
Cash Flow, Balance Sheet and Liquidity
First-quarter adjusted EBITDA increased in constant currencies.
The cash conversion ratio declined, largely as expected, due to
increased working capital outflows and net capital expenditure in
the quarter. As a result, adjusted free cash flow declined in
constant currencies. Cash taxes and financing costs increased
modestly compared to the same period a year ago. Net cash spend on
acquisitions was €25 million, primarily related to the acquisition
of CGE Risk Management in February 2020. Net disposal proceeds were
€10 million in the quarter and mainly related to the sale of
certain Belgian training assets in January 2020 which were
classified as held for sale at year-end 2019. A total of €87
million was deployed towards share repurchases during the quarter
and, as of March 31, 2020, the number of issued ordinary shares
outstanding (excluding 6.8 million shares held in treasury) was
266.2 million.
Net debt stood at €2,142 million on March 31, 2020, compared to
€2,199 million at December 31, 2019. Our balance sheet remains
strong, with net-debt-to-EBITDA, based on rolling twelve months’
EBITDA, reduced to 1.5x at the end of March 2020, compared to 1.6x
at year-end 2019.
Our liquidity position is very solid with, as of the end of
March 31, 2020, net cash available of €298 million (€953 million of
cash and cash equivalents less bank overdrafts used for cash
management purposes of €505 million and outstanding Euro commercial
paper of €150 million). In addition to this net cash position, we
have access to an as-of-yet undrawn multi-currency credit facility
of €600 million, which we expect to renegotiate and extend before
its maturity date in July 2021. Apart from a €250 million private
loan agreement maturing in December 2020, we have no other
long-term debt maturing in 2020. After payment during the second
quarter of approximately €210 million in relation to the proposed
final dividend for 2019, we expect to remain comfortably below the
debt covenant on our credit facility.
Full-Year 2020 Outlook Suspended due to COVID-19
Uncertainty
Following a good start to the year and prior to the global
spread of COVID-19, we were aiming to deliver another year of solid
organic growth and improvement in adjusted operating profit margin,
adjusted free cash flow, return on invested capital (ROIC), and
diluted adjusted EPS in 2020. However, the impact of unprecedented
measures put in place to contain the spread of COVID-19 have
created significant uncertainty and challenges for the coming
quarters and we therefore suspend our specific 2020 guidance until
we have greater clarity on selling conditions and revenue
trends.
We expect renewal rates for existing digital and services
subscriptions and other recurring revenue products to show
resilience, but we note that new sales of subscription products are
more difficult in current market conditions. Sales of new software
licenses and implementation services are likely to be postponed
while transactional volumes, training, books and other
non-recurring revenue products1 are likely to be weak in current
conditions.
We have prepared cost reduction plans for various revenue growth
scenarios in 2020 aiming to protect margins while sustaining key
product and strategic investments. We are closely monitoring
fast-changing market conditions and will adapt our response as
needed. Like many companies, in mid-March, we transitioned over 95%
of Wolters Kluwer’s 19,000 employees to a global work-from-home
status, with only minimal disruption to date on business continuity
and productivity.
Across all divisions, we have been supporting customers with
information and solutions to support their workflow and
decision-making in these challenging times. We have introduced
dedicated COVID-19 resources for healthcare, tax, legal and
compliance professionals and we have developed software solutions
to enable lenders to participate in the U.S. SBA paycheck
protection program and to help companies manage health and safety
risks specific to COVID-19.
Share Buyback 2020
On February 26, 2020, we announced our intention to repurchase
up to €350 million in shares during 2020. In the year to date, we
have completed share repurchases of €125 million (1.9 million
ordinary shares at an average share price of €65.08).
As previously stated, share repurchases may be suspended,
discontinued, or modified at any time. In the interest of prudence
given the current uncertainty around COVID-19, we intend to slow
the rate of share repurchases in the coming months. For the period
starting May 7, 2020, up to and including August 3, 2020, we have
engaged a third party to execute €50 million in share buybacks on
our behalf, within the limits of relevant laws and regulations (in
particular Regulation (EU) 596/2014) and Wolters Kluwer’s Articles
of Association. Share repurchases will be used for capital
reduction purposes and to meet obligations arising from share-based
incentive plans.
About Wolters Kluwer
Wolters Kluwer (WKL) is a global leader in professional
information, software solutions, and services for the healthcare;
tax and accounting; governance, risk and compliance; and legal and
regulatory sectors. We help our customers make critical decisions
every day by providing expert solutions that combine deep domain
knowledge with specialized technology and services.
Wolters Kluwer reported 2019 annual revenues of €4.6 billion.
The group serves customers in over 180 countries, maintains
operations in over 40 countries, and employs approximately 19,000
people worldwide. The company is headquartered in Alphen aan den
Rijn, the Netherlands.
Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and
are included in the AEX and Euronext 100 indices. Wolters Kluwer
has a sponsored Level 1 American Depositary Receipt (ADR) program.
The ADRs are traded on the over-the-counter market in the U.S.
(WTKWY).
For more information, visit www.wolterskluwer.com, follow us on
Twitter, Facebook, LinkedIn, and YouTube.
Financial Calendar May 20, 2020
Payment date: 2019 final dividend ordinary sharesMay 27, 2020
Payment date: 2019 final dividend ADRsAugust 5, 2020
Half-Year 2020 ResultsSeptember
1, 2020 Ex-dividend date: 2020
interim dividendSeptember 2, 2020
Record date: 2020 interim
dividendSeptember 24, 2020 Payment date:
2020 interim dividendOctober 1, 2020
Payment date: 2020 interim dividend ADRsOctober
30, 2020 Nine-Month 2020
Trading Update
Media
Investors/AnalystsAnnemarije
Dérogée-Pikaar
Meg GeldensGlobal
Branding & Communications
Investor Relationst + 31 (0)172 641 470
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407 press@wolterskluwer.com
ir@wolterskluwer.com
Forward-looking Statements and Other Important Legal
Information
This report contains forward-looking statements. These
statements may be identified by words such as “expect”, “should”,
“could”, “shall” and similar expressions. Wolters Kluwer cautions
that such forward-looking statements are qualified by certain risks
and uncertainties that could cause actual results and events to
differ materially from what is contemplated by the forward-looking
statements. Factors which could cause actual results to differ from
these forward-looking statements may include, without limitation,
general economic conditions, including the expected impact of the
COVID-19 pandemic on Wolters Kluwer, its customers and suppliers;
conditions in the markets in which Wolters Kluwer is engaged;
behavior of customers, suppliers, and competitors; technological
developments; the implementation and execution of new ICT systems
or outsourcing; and legal, tax, and regulatory rules affecting
Wolters Kluwer’s businesses, as well as risks related to mergers,
acquisitions, and divestments. In addition, financial risks such as
currency movements, interest rate fluctuations, liquidity, and
credit risks could influence future results. The foregoing list of
factors should not be construed as exhaustive. Wolters Kluwer
disclaims any intention or obligation to publicly update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise.
Elements of this press release contain or may contain inside
information about Wolters Kluwer within the meaning of Article 7(1)
of the Market Abuse Regulation (596/2014/EU).
Trademarks referenced are owned by Wolters Kluwer N.V. and its
subsidiaries and may be registered in various countries.
1 Non-recurring revenues includes revenues from transactional
services, software license sales and implementation services,
training, advertising, print books, and other products not sold on
a subscription basis.
- 2020.05.06 Wolters Kluwer First-Quarter 2020 Trading
Update
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