Wolters Kluwer 2023 Half-Year Report

Wolters Kluwer (EURONEXT: WKL), a global leader in professional information, software solutions and services, today releases its half-year 2023 results.

Highlights

• Guidance for 2023 reiterated.
  • Margin to improve for the full year.
• Revenues €2,725 million, up 4% in constant currencies and up 6% organically.
  • Recurring revenues (82% of total revenues) up 7% organically; non-recurring down 1% organically.
  • Digital & services revenues (94% of total revenues) grew 6% organically.
  • Expert solutions (58% of total revenues) grew 7% organically.
• Adjusted operating profit €711 million, down 4% in constant currencies.
  • Adjusted operating profit margin down 210 basis points to 26.1%, as anticipated.
  • Margin reflects expected increase in personnel costs and investments in innovation.
• Diluted adjusted EPS €2.17, up 6% overall and up 2% in constant currencies.
• Adjusted free cash flow €495 million, down 2% in constant currencies.
• Return on invested capital (ROIC) improved to 15.4%.
• Balance sheet remains strong with net-debt-to-EBITDA of 1.5x.
• Interim dividend €0.72 per share, set at 40% of prior year total dividend.
• On track to complete 2023 share buyback of up to €1 billion.

Interim Report of the Executive Board

Nancy McKinstry, CEO and Chair of the Executive Board, commented: “We delivered 6% organic growth as continued strong momentum in recurring revenues more than offset the anticipated downturn in non-recurring revenue streams. Operating costs and margins developed as expected and we remain confident of delivering a full-year margin improvement. We made important progress towards our strategic goals and are excited about pursuing growth opportunities across the business. Around 50% of our digital revenues are from products that leverage AI and we see generative AI as another powerful tool to drive value for our customers.”

_{∆: % Change; ∆ CC: % Change in constant currencies (€/$ 1.05); ∆ OG: % Organic growth. Benchmark figures are performance measures used by management. ROIC is based on twelve-months rolling figures. See Note 4 for a reconciliation from IFRS to benchmark figures.}

Full-Year 2023 Outlook

We reiterate our group-level guidance for 2023 as shown in the table below. We continue to expect the group-level adjusted operating profit margin to increase in the fourth quarter of 2023 (compared to fourth quarter 2022) leading to a margin improvement for the full year. Divisional guidance (below) has been recast to reflect the new organizational structure.

_{*Guidance for adjusted operating profit margin and ROIC is in reporting currency and assumes an average EUR/USD rate in 2023 of €/$1.09. **Guidance for adjusted free cash flow and diluted adjusted EPS is in constant currencies (€/$ 1.05). Guidance reflects share repurchases of €1 billion in 2023.}

If the current U.S. dollar rate persists, currency will have a slightly negative effect on full-year 2023 results reported in euros. In 2022, Wolters Kluwer generated over 60% of its revenues and adjusted operating profit in North America. As a rule of thumb, based on our 2022 currency profile, each 1 U.S. cent move in the average €/$ exchange rate for the year causes an opposite change of approximately 3 euro cents in diluted adjusted EPS¹.

We include restructuring costs in adjusted operating profit. We continue to expect 2023 restructuring costs to be in the range of €10-€15 million (FY 2022: €6 million). We continue to expect adjusted net financing costs² in constant currencies to be approximately €40 million. We expect the benchmark tax rate on adjusted pre-tax profits to be in the range of 23.0%-24.0% (FY 2022: 22.6%). Capital expenditure is expected to be at the upper end of our normal guidance range of 5.0%-6.0% of total revenues (FY 2022: 5.4%). We expect the full-year 2023 cash conversion ratio to reduce to approximately 100% (FY 2022: 107%).

Our guidance assumes no additional significant change to the scope of operations. We may make further acquisitions or disposals which can be dilutive to margins, earnings, and ROIC in the near term. The impact of discontinuing activities in Russia and Belarus is expected to be immaterial to the group’s consolidated financial results in 2023.

2023 outlook by division (new five-division structure)

Health: we continue to expect organic growth to be in line with the prior year and the adjusted operating profit margin to be stable.

Tax & Accounting: we expect organic growth to be lower than in the prior year (FY 2022: 8% pro forma). The adjusted operating profit margin is expected to decline slightly compared to prior year (FY 2022: 32.6% pro forma).

Financial & Corporate Compliance: we expect organic growth to be slightly lower than or in line with the prior year (FY 2022: 4% pro forma) and the adjusted operating profit margin to improve slightly (FY 2022: 36.7% pro forma).

Legal & Regulatory: we expect organic growth to be in line with prior year (FY 2022: 4% pro forma) and the adjusted operating profit margin to increase for the full year (FY 2022: 14.5% pro forma).

Corporate Performance & ESG: we expect organic growth to improve slightly from the prior year (FY 2022: 12% pro forma) and the adjusted operating profit margin to increase for the full year (FY 2022: 12.4% pro forma).

Progress against 2022-2024 strategy

At the start of 2022, we introduced our 2022-2024 strategic plan, which has three strategic priorities:

• Accelerate Expert Solutions: we are focusing our investments on cloud-based expert solutions while continuing to transform selected digital information products into expert solutions. We are investing to enrich the customer experience of our products by leveraging advanced data analytics.
• Expand Our Reach: we are seeking to extend organically into high-growth adjacencies along our customer workflows and to adapt our existing products for new customer segments. We plan to further develop partnerships and ecosystems for our key software platforms. 
• Evolve Core Capabilities: we are enhancing our central functions to drive excellence and scale economies, mainly in sales and marketing (go-to-market) and in technology. We plan to advance our environmental, social, and governance (ESG) performance and capabilities and to continue investing in diverse and engaged talent to support innovation and growth.

A more detailed discussion of our strategy and business model can be found in our 2022 Annual Report, pages 6-7.

In the first half of 2023, we made important progress on our strategic plans. Expert solutions, which include our software products and certain advanced information solutions, accounted for 58% of total revenues (HY 2022: 56%) and grew 7% organically (HY 2022: 9%). Software revenues accounted for 45% of total revenues (HY 2022: 44%) and grew 7% organically (HY 2022: 9%). Cloud software revenues accounted for 37% of total software revenues and grew 15% (HY 2022: 20%). Today, around 50% of our digital revenues are from products that leverage artificial intelligence (AI) to drive enhanced value for our customers. We are currently experimenting with the new generative AI models, testing dozens of use cases, collaborating with several large customers, and partnering with Microsoft and Google, while at the same time following our responsible AI principles.

We also made progress on extending our reach into high growth adjacencies and geographies. The new Corporate Performance & ESG division, formed in March 2023, sets us on a path to extend our enterprise software solutions into corporate workflows for ESG data collection, analysis, reporting, and auditing. CCH Tagetik signed a channel partnership with LTIMindtree to support further geographic expansion. Health Learning Research & Practice launched vrClinicals for Nursing in partnership with Laerdal Medical and the National League for Nursing.

Last but not least, we have taken several major steps to evolve our core capabilities this year. We made significant progress in centralizing our product development teams, more than doubling the number of FTEs in our global development organization, Digital eXperience Group (DXG). We have created a single unified branding, communications, and digital marketing function to support the business globally. And we continued to advance towards our specific ESG objectives by driving initiatives that enhance employee engagement and belonging and executing on programs that reduce our greenhouse gas emissions.

_{[1] This rule of thumb excludes the impact of exchange rate movements on intercompany balances, which is accounted for in adjusted net financing costs in reported currencies and determined based on period-end spot rates and balances.}

_{[2] Adjusted net financing costs include lease interest charges. Guidance for adjusted net financing costs in constant currencies excludes the impact of exchange rate movements on currency hedging and intercompany balances.}