Full year results 2003: Performance in line with expectations as business stabilizes and improves
Amsterdam (March 8, 2004) - Wolters Kluwer (Euronext Amsterdam: WKL), a leading multinational information services company, reported today its results for the year ended December 31, 2003.
Note to the Editor:
All financial information contained in this press release, unless otherwise indicated, is presented in accordance with new Dutch GAAP principles, which became mandatory as of January 1, 2003.
We will refer to these as new accounting principles (NAP). It is important to note that this is the first time Wolters Kluwer is reporting in New Accounting Principles (NAP) and that all previous press releases and financial communications have been in old accounting principles (OAP), including the preliminary results press release on February 5, 2004 in which the 2003 results were first reported.
Therefore, we have taken care to present our results under both old and new accounting principles to allow for comparisons from previously released information - see annexes.
Performance in line with expectations as business stabilizes and improves.
Highlights for 2003 include:*
- New three-year strategy to invest in growth around leading market positions, restructure the cost base, and reorganize to deliver growth, is firmly in place
- Strong revenue growth in Canada, Italy, CEE and Spain, Tax Compliance, Teleroute, and Health's Professional & Education unit
- Cost savings of 79 million achieved; one-third structural, including an organic reduction of 521 FTEs
- Senior management team strengthened with new appointments in all divisions
- Ordinary net income of 349 million declined 8% in constant currencies (OAP 343 million; declined 12% in constant currencies compared with 26% decline in half year 2003)
- Revenues 3,436 million (OAP 3,352 million); ordinary EBITA 610 million (OAP 601 million) before exceptional items; ordinary EBITA margin 18%
- Net debt reduced 29% from 2.7 billion to 1.9 billion, largely due to successful bond buy back of 1.1 billion and new bond issue of 700 million
- Ordinary EPS 1.18 (OAP EPS 1.16)
- Dividend maintained at 0.55 for 2003
Commenting on the company's results, Nancy McKinstry, Chairman of the Executive Board of Wolters Kluwer, said: "The implementation of our new strategy set out at the end of October is well underway, and we are encouraged by the improved results in the 4th quarter. We are reiterating the outlook we provided on October 30th and the foundation we have put in place provides me confidence in the long-term future of Wolters Kluwer."
million (except as otherwise indicated)
2003 2002 % Change % Change Constant Currencies Revenues 3,436 3,969 (13) (4) Ordinary EBITA 610 763 (20) (10) Ordinary EBITA margin (%) 18 19 EBITA 514 763 EBITA margin (%) 15 19 Ordinary Net Income 349 442 (21) (8) Ordinary EPS (fully diluted) 1.18 1.50 Dividend 0.55 0.55 Free Cash Flow 393 400 Free Cash Flow per share (fully diluted) 1.32 1.36 Average Number of FTEs 19,540 20,284 Comparable GAAP Measures million 2003 2002 Operating Income 114 669 Operating Income margin (%) 3 17 Net Income (69) 382 EPS (0.24) 1.34 EPS (fully diluted) (0.24) 1.30
*Note:
"Ordinary" refers to figures adjusted for exceptional items and where applicable amortization of intangible assets. "Ordinary" figures are non-GAAP compliant financial figures, but are internally regarded as key financial measures. Unless otherwise specifically stated in this Press Release, all financial information is presented in accordance with Dutch GAAP principles (NAP), which became mandatory as of January 1, 2003. To facilitate comparisons with information previously disclosed, figures in old accounting principles (OAP) are given in the annexes. 2002 figures have been restated for changes reflecting some of the non-core businesses moving to divisions.
2003 was a year of change for Wolters Kluwer. The new strategy, announced in October, detailed a three-year plan to invest in growth around leading market positions, to reduce costs through structural improvements, and to reorganize the business to deliver growth. This strategy is firmly in place and tracking according to our expectations. In the 4th quarter of 2003, Wolters Kluwer began to see its business stabilize and improve, particularly in North America.
Ordinary net income for 2003 was down 8% in constant currencies (OAP down 12% in constant currencies) in line with our previously given outlook. Ordinary EBITA margin of 18% was slightly higher than expectations and was driven by improved revenue performance in the 4th quarter in North America and by additional cost efficiencies in all divisions. Cost reductions achieved from the specific savings programs and restructuring initiatives in place in 2003 were 79 million, compared to expectations of 70 million. Approximately one-third of these savings are structural. The remaining cost savings came from one-time reductions in bonuses, travel, profit sharing, and other personnel expenses.
Organic revenues declined by 2%, reflecting challenging economic conditions, underperformance at some operating units, and the lack of major new legislation. Despite these factors, Wolters Kluwer experienced strong growth in Canada, Italy, Central Europe, Scandinavia, Spain, Teleroute, Tax Compliance, and the Professional & Education unit of the Health division.
Nancy McKinstry, who assumed the position of Chairman in September 2003, added: "Our goal for 2004 is to restore top line growth while continuing our work to establish an appropriate cost base for Wolters Kluwer." 2003 Financial Overview Revenues in 2003 decreased to 3,436 million (-4% at constant currencies).
Organic revenue growth declined by -2%. Ordinary EBITA decreased to 610 million (-10% at constant currencies). Ordinary net income was 349 million (-8% at constant currencies). "Fully diluted" ordinary EPS, based on the weighted average number of shares, was 1.18 (2002: 1.50). Operating income decreased to 114 million, net income decreased to -69 million in 2003, and fully diluted EPS was -0.24. In 2003, Wolters Kluwer had a modest acquisition program designed to complement our portfolio and strengthen leading market positions.
Annualized revenue contribution from these acquisitions amounted to 59 million. Two major acquisitions were CEDAM, a leading Italian legal publisher, and TyMetrix, a provider of legal e-billing services in the U.S. The sale of non-core businesses continued in 2003, including the divestment of ISBW of the Netherlands, the public law assets of Kluwer Law International, and the education assets of Aspen Publishers.
Free cash flow remained strong at 393 million (2002: 400 million). Net debt decreased 29% from 2.7 billion in 2002 to 1.9 billion, as a result of significant restructuring of our balance sheet. For 2003, Wolters Kluwer maintained its dividend at 0.55 per share. As in previous years, shareholders may choose between a cash or stock dividend.
2003 Cluster Overview
Legal, Tax & Business Europe
million (except as otherwise indicated)
2003 2002 % Change % Change Constant Currencies Revenues 1,279 1,266 1 3 Ordinary EBITA 209 228 (8) (7) Ordinary EBITA margin (%) 16 18 CAPEX 35 58 FTEs (average) 8,009 7,868
Legal, Tax & Business Europe (LTBE) experienced good performance and organic growth in Italy, Central Europe, Spain, Scandinavia and Teleroute in 2003. Performance in the Netherlands and the UK was disappointing, primarily due to the economic situation, weak advertising and business consulting markets, and stagnant legislative environments. In Belgium, improvements were made with stabilized sales and strong cost savings, driven by restructuring actions.
As of January 1, 2004, LTBE became known as Legal, Tax & Regulatory Europe (LTRE). The focus on growing online products and software tools will continue during 2004. Greater emphasis will be placed on launching new products and using LTRE's European Internet Platform as the standard for all Internet offerings. LTRE will leverage across Europe its success in Italy, where it has combined content, software, and services into new products.
The drive towards a common financial system, "Project Symphony", is on track and, when fully implemented, will provide substantial cost savings. Importantly, LTRE will develop a more aggressive restructuring plan in the Netherlands and complete execution of its plans in Belgium and the UK.
Legal, Tax & Business North America
million (except as otherwise indicated)
2003 2002 % Change % Change Constant Currencies Revenues 1,025 1,229 (17) 0 Ordinary EBITA 267 319 (16) 2 Ordinary EBITA margin (%) 26 26 CAPEX 30 48 FTEs (average) 6,464 6,439
In 2003, Legal, Tax & Business North America was split into two new divisions to reflect its major markets: Corporate & Financial Services (CFS) and Tax, Accounting & Legal (TAL). Good revenue growth was achieved at CCH Legal Information Services, Tax Compliance, and CCH Canada driven by solid sales of new software solutions and market share gains. Aspen's performance stabilized with the correction of systems problems. Aspen's revenue declined by approximately $40 million, after deliberate management action to focus the product line on the legal market, divest non-core product lines, and eliminate aggressive marketing practices that led to higher product return levels.
Despite economic challenges, the Financial Services business (which includes market leader Bankers Systems, Inc.) grew its recurring revenue and software customer base, invested significantly in new product development, and entered into an agreement to provide a large national bank with an integrated banking compliance solution (Expere). CFS also successfully acquired Atchley Systems, Inc., which expands its reach into the increasingly important area of anti-money laundering. Corporate Legal Services (which includes the CCH Legal Information Systems business) gained market share in the representation business, providing a strong foundation for 2004.
In addition, demand for corporate and UCC services improved in the 4th quarter, as the number of business formations and financing transactions increased. In the Tax, Accounting & Legal (TAL) division, the integration of CCH Publishing, CCH Tax Compliance and Aspen was begun. In the tax market, Tax Compliance continues to gain market share by offering new software solutions to its customers. In the research market, CCH's position was strengthened with the launch of an enhanced version of TRN (Tax Research Network), our leading tax Internet product. The legal group, composed of CCH legal products and Aspen, renewed their focus on the legal segment by streamlining its product lines and launching new integrated libraries.
In both divisions, significant cost savings were achieved resulting in operating margin levels of 26% for the full year. In 2004, the CFS and TAL divisions will move to shared services for select HR, finance, and technology functions as part of ongoing efforts to reduce the cost base. Other efforts will include consolidating technology platforms and real estate holdings.
Legal, Tax & Business Asia Pacific
million (except as otherwise indicated)
2003 2002 % Change % Change Constant Currencies Revenues 67 65 3 5 Ordinary EBITA 10 9 11 11 Ordinary EBITA margin (%) 15 14 CAPEX 2 2 FTEs (average) 621 601
Revenues in Legal, Tax & Business Asia Pacific increased by 3% overall. CCH Asia's revenue growth was adversely affected by the SARS outbreak in the 1st quarter, however, cost saving measures improved profitability. A strong turnaround during the second half of the year was the result of substantial improvements at Diskcovery/Ringtail, our legal software business. Beginning in 2004, results for Legal, Tax & Business Asia Pacific will be reported as part of the newly formed TAL division.
Health
million(except as otherwise indicated)
2003 2002 % Change % Change Constant Currencies Revenues 663 793 (16) (1) Ordinary EBITA 103 130 (21) (5) Ordinary EBITA margin (%) 16 16 CAPEX 20 21 FTEs (average) 2,351 2,366
2003 saw continued implementation of the Health division reorganization plan. Today, the four market facing business units have an exclusive focus on the health market following the successful divestiture of Kluwer Academic Publishers. The revitalization of the core publishing program is achieving positive results, as evidenced by good organic growth in the Professional & Educational business unit. Ovid's on-line revenues continue to grow through a combination of increased market penetration, particularly among international customers, and usage growth.
Facts & Comparisons - the source for drug information by pharmacists - was successfully combined with the Medi-Span electronic platform. A significant journal publishing contract was signed with the American College of Obstetrics and Gynecology. In addition, Health launched a new journal, Nursing Made Incredibly Easy.
While significant strides were made in 2003, performance fell short of expectations due to pressures on the journal business, flat library budgets, the weak advertising market (7% of revenues) and the bankruptcy of one of our larger European distributors.
In 2004, Health will continue to expand its core publishing content, to drive OVID on-line growth, and to pursue opportunities in the pharmaceutical and clinical tools markets. Development of products that combine Health's broad database of proprietary content with technology aimed at improving medical results and reducing errors is central to this division's growth strategy. In addition, Health will work with the other divisions in North America to reduce costs by developing shared services for selective functions.
Education
million (except as otherwise indicated)
2003 2002 % Change % Change Constant Currencies Revenues 302 313 (3) (2) Ordinary EBITA 54 56 (3) (2) Ordinary EBITA margin (%) 18 18 CAPEX 6 11 FTEs (average) 1,481 1,486
In Education, management was strengthened by new appointments across the business. Revenue was below expectations due to reduced government funding, but significant cost savings measures allowed the division to maintain its margins. Overall, market share positions remained stable.
In 2004, with new operating management in place and more focus on marketing and sales, Education is well positioned to take advantage of the expected introduction of new curriculum in its core markets. Our strategy is focused on investing to reinforce and maintain the company's number one position in the textbook market by developing innovative products to meet the needs of the new curriculum. In addition, Education will expand market share by creating mixed media solutions and pursuing growth in adjacent markets, such as the Moorehouse Black business in the UK. Education also will continue to make reductions in its cost base, focusing on efficiencies from shared back office services.
Non-core
million (except as otherwise indicated)
2003 2002 Revenues 100 303 Ordinary EBITA 10 58 Ordinary EBITA margin (%) 10 19 CAPEX 1 4 FTEs (average) 525 1,432 Non-core full year 2003 figures impacted by the divestments of non-core activities (predominantly Kluwer Academic Publishers).
The sale of non-core businesses continued in 2003 including the divestment of ISBW in the Netherlands, the public law assets of Kluwer Law International, and the education assets of Aspen Publishers. Beginning in 2004, Wolters Kluwer will no longer account separately for non-core activities.
These will be included in the financial results of the relevant divisions. Corporate The EBITA of the Corporate office was -43 million (2002: -37 million). Organization and management Nancy McKinstry assumed the position of Chairman of Wolters Kluwer on September 1, 2003, succeeding former Chairman Rob Pieterse, who retired at the end of August 2003.
As of May 1, 2003, Boudewijn Beerkens, CFO, was appointed as a member of the Executive Board.
As of January 1, 2004, the cluster structure within Wolters Kluwer was changed to a divisional structure, with its operations organized into five divisions focused on key market segments.
The divisions are: Health; Corporate & Financial Services; Tax, Accounting & Legal; Legal, Tax & Regulatory Europe; and Education. Notes to Editors A presentation on Wolters Kluwer's 2003 Full Year Results will be webcast on Monday, March 8 at 15:00 CET. To register for this webcast, please visit www.wolterskluwer.com.
2003 Financial Reporting In the 2003 annual accounts, Wolters Kluwer has adopted Dutch accounting guidelines RJ 270, RJ 271 and RJ 160 for the period January 1, 2003 to December 31, 2003. These accounting changes bring Wolters Kluwer's accounting principles closer to International Financial Reporting Standards (IFRS) and are referred to as New Accounting. Unless otherwise specifically stated in this Press Release, all financial information is presented in accordance with new accounting principles.
Forward-looking statement
This announcement might contain forward-looking statements, which may be identified by words such as "expect", "should", "could", "shall" and similar expressions. These statements are subject to risks and uncertainties, and actual results and events could differ materially from what is expected presently. Factors leading thereto may include without limitation general economic conditions, conditions in the capital markets, conditions in the markets in which Wolters Kluwer is engaged, behavior of customers, suppliers and competitors, technological developments, as well as legal and regulatory rules affecting Wolters Kluwer's businesses.
Wolters Kluwer
Wolters Kluwer (www.wolterskluwer.com) is a leading multinational publisher and information services company. The company's core markets are spread across the health, tax, accounting, corporate/financial, legal/regulatory and education sectors.
Wolters Kluwer has 2003 annual revenues of 3.4 billion, employs approximately 19,500 people worldwide and maintains operations across Europe, North America and Asia Pacific. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. Its depositary receipts of shares are quoted on the Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.
2004 Calendar Publication of Annual Report April 6, 2004 Annual Meeting of Shareholders April 21, 2004 Investor/Analyst Day (CFS Division) April 27, 2004 Q1 2004 Results May 13, 2004 HY 2004 Results August 10, 2004 Q3 2004 Results November 17, 2004
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