Earnings Transcript for WTKWY - Q4 Fiscal Year 2021

Operator: Hello and welcome to the Wolters Kluwer Full-Year 2021 Results Webcast and Conference Call. My name is Alex and I'll be your coordinator for today's event. Today's conference is being recorded. Please note for the duration of the call, your lines will be on listen-only. [Operator Instructions] I will now hand over to your host Meg Geldens, Vice President of Investor Relations to begin today's conference. Thank you.

Meg Geldens: Thank you and good morning, good afternoon everyone. Thank you for joining this Wolters Kluwer full-year 2021 results call. Today's earnings release and the slides for this presentation are available for download on the Investors section of our website, wolterskluwer.com. With me today on the call are, Nancy McKinstry, our CEO; and Kevin Entricken, our CFO. We are dialing into this call remotely from various locations around the world. So thank you in advance for your understanding in case we experience any delays or technical issues during this event. In a moment, Nancy and Kevin will discuss the important features of our full-year results. Following their comments, we'll open the call to your questions. Before we start, I'll remind you that some statements we make today may be forward-looking. We caution that these statements are subject to risks and uncertainty and may cause actual results to differ materially from those indicated in the statements. Factors that could affect our future financial results are discussed in Note 2 of today's earnings release. As usual in the presentation today, we will refer to adjusted profits which exclude non-benchmark items, we also referred to growth in constant currencies, which excludes the effect of currency movements. And we refer to organic growth which excludes the effect of both currency and the effect of acquisitions and divestments. Reconciliations to IFRS can be found in Note 3 of today's release. At this time, I would like to hand the call over to our CEO, Nancy McKinstry.

Nancy McKinstry: Thank you, Meg. Hello, everyone and thank you for joining us on this call. Before I start, I would like to acknowledge our employees, customers and other stakeholders for their many contributions to our business last year. I will start by giving you the key highlights of 2021, the final year of our most recent three year strategic plan. Kevin will then take you through the financials in more detail. After that, I'll come back to discuss the divisional developments and our strategy for the coming three year period. I will then finish with an outlook for 2022. So let's start with the key highlights. I'm pleased to report that we had strong results in 2021 with all four divisions seen a good recovery. Organic growth was 6% driven not only by a recovery in non-recurring revenue streams, but also by accelerated momentum in recurring revenues. We saw a significant increase in our adjusted operating profit margin, which reached 25.3% last year, and excluding the effect of currency, we recorded 17% growth in diluted adjusted earnings per share. Adjusted free cash flow reached a new milestone at just over €1 billion, a 15% increase in constant currency. The balance sheet remains very strong and the results led to a marked improvement in our return on invested capital. This past year, we again returned a substantial portion of our free cash flow to shareholders in the form of dividends and share buybacks. We also made significant progress on the ESG front, Expert Solutions grew very well. Despite our employees facing the continued extraordinary challenges due to the pandemic, I'm proud to report that we maintained our employee engagement above the high performing norm, a standard based on leading companies. Last year, we conducted our first Diversity, Equity and Inclusion survey, which has allowed us to set a baseline quantitative belonging score. We also advanced in other important ESG areas, including cybersecurity and various programs that help reduce our carbon emissions. We have set some new ambitions for these areas that I will come back to later. Turning now to Slide 5. Looking back at the past three years, which were marked by uncertainty due to the pandemic, I'm pleased to say the strong recovery in 2021 allowed us to meet or exceed nearly all of our strategic and financial goals that we set three years ago. We grew Expert Solutions from 49% of total revenues in 2018 to 55% of total revenues in 2021 primarily through consistent strong organic growth of these products, the acquisitions of CGE XCM Solutions, eOriginal and Vanguard and the divestment of several non-core assets also helped to enhance our focus on Expert Solutions. We also made progress on enriching several of our information products, adding functionality and automation. We're starting to launch the early results of these efforts to positive customer reaction. A lot of the progress was made on our third goal, which was to drive operational agility. We completed several major infrastructure projects, a modern global HR system, the consolidation of customer facing websites into a single global site, and the implementation of CCH Tagetik as our new corporate financial performance management tool. With these summary remarks, I now will turn the call over to Kevin Entricken, who will provide more insights into our financial performance. After that, of course, I'll return to give you the divisional highlights and the outlook for 2022.

Kevin Entricken: Thank you, Nancy. Let me start with the financial highlights on Slide 7. Full-year 2021 revenues were €4.771 billion, an increase of 6% in constant currencies. Organic revenue growth was 6% marking a clear recovery from the prior-year. Adjusted operating profit was €1.205 billion, an increase of 11% in constant currencies. The adjusted operating profit margin improved by 90 basis points to 25.3%. This increase was driven by operational gearing, lower restructuring costs, a few net positive one-time items, and continued savings on expenses such as travel and events. Diluted adjusted earnings per share increased 17% in constant currencies partly due to the favorable tax rate last year. Adjusted free cash flow was €1,010 million, an increase of 11% overall, and 15% in constant currencies. The strong results lead to a step-up in our return on invested capital and further strengthening of our balance sheet with a net debt-to-EBITDA at 1.4 times. Let's take a look at the divisional revenues on the next slide. All four of our divisions experienced recovery in organic growth compared to the prior-year. Health grew 7% organically compared to 3% in 2020. This was partially driven by the turnaround in print books, and the large journal publishing contract we have added at the start of the year. Tax and accounting delivered 6% organic growth compared to 2% the year before. Across the board, cloud based solutions for corporations, governments and professional accounting firms experienced strong revenue growth in 2021. Governance Risk and Compliance also saw organic growth recovered to 6% compared to 2% in 2020. This performance was partially supported by a rebound in the legal service transactional revenues. Finally, legal and regulatory recorded 3% organic growth recovering from a decline of 2% in the prior-year. This was mainly driven by strong performance in digital solutions. Let's turn to Slide 9, this slide shows our revenues by media format, digital revenues over 80% of the total grew 6% organically. The trend in print revenues improved. Overall print revenues declined 4% compared to the double-digit decline in 2020. The trend in services saw the greatest reversal. Service revenues grew 10% organically marking the strong recovery over the prior-year which saw decline of 7%. Moving on to Slide 10. The chart on the left of this slide shows our recurring revenues which together make up 80% of total revenues. On the right, you see our non-recurring revenues which make up the remaining 20%. Of the recurring revenues, digital and service subscriptions shown in blue makes up 71% of total revenues. You can see that this is an important component of revenues and had a strong finish to the year with organic growth of 8% in the second half. Of the non-recurring revenues on the right, the top light purple line represents the transaction revenues and data services. You can see the clear improvement in the first half of 2021, which came as a result of the rebound in economically sensitive transactional volumes last year. The lowest dark purple line represents other non-recurring revenues, including on-premise software licenses, and implementation fees. You can see that these revenues recovered strongly in the second half. The dash purple line represents the transactional revenues in financial services shown here excluding the PPP program. You can see that excluding PPP, financial service transactional revenues were the least volatile. Finally, the dash green line represents total print book revenues. You can see that books recorded positive growth in the first half, but then declined in the second half down 6%, which was as we had expected. Let's turn to divisional margins on Slide 11. As mentioned earlier, the adjusted operating profit margin increased by 90 basis points to 25.3%. Three divisions saw improved margins while Tax & Accounting posted a margin decline due to the increased investment. Across the board, margin increase was driven by operational gearing, significantly lower restructuring costs, and cost savings related to low levels of title and in person events activity. These factors more than offset increased product development compared to 2020. Restructuring costs were only €6 million compared to €49 million in 2020. Lower restructuring is therefore a major factor in last year's margin increase. We had a few one-time items, the most notable was an €11 million positive one-time benefit related to the amendment of the veterans pension plan. Let's turn to the rest of the income statement on Slide 12. Here there are two important groups to note. Firstly, adjusted net financing costs increased 70% to €78 million. This was mainly due to €15 million net foreign exchange loss related to the translation of Intercompany balances. The impact of this non-cash item was a swing from the prior-year as we had a €24 million net foreign exchange gain in 2020. This item is always difficult to predict as it is calculated based on period imbalances and exchange rates. Secondly, the benchmark tax rate decreased to 21.5% from 23% in the prior-year. This was a result of a one-time release of tax contingencies following the closure of tax audits late last year. We expect the tax rate to return to our normal historic range in 2022, which will have the effect of dampening earnings growth as we indicated in our outlook. Adjusted net profit aftertax was €885 million, up 6% overall and up 15% in constant currencies. Diluted adjusted EPS increased 17% in constant currencies reflected also the reduced shares outstanding as a result of our share buybacks. Now turning to the IFRS income statement on the next slide. Reported operating profit increased 4% to €1,012 million. This improvement was driven by the higher adjusted operating profit, partially offset by a net €33 million impairment acquired intangibles. The impairment relates to Learner's Digest and a few smaller assets, which saw trends deteriorate during the pandemic, needing us to update our internal financial projections. The reported effective tax rate decreased to 21.6% reflecting the one-time release of contingencies mentioned earlier. Now let's turn to cash flow on Slide 14. Most notable here was the increase in full-year cash conversion ratio from 102% in 2020 to 112% in 2021. This was driven by substantially higher working capital inflows. We had €150 million inflows in 2021 compared to €39 million inflows in 2020. This working capital movement reflects the strong organic revenue growth, improve collections on receivables and the reduction in days sales outstanding. CapEx increased slightly to €239 million, broadly stable at 5% in revenues. Cash taxes and cash interest increase, the cash effective restructuring reflects the net decrease in provisions of €33 million compared to a net increase in the prior-year. All in all, adjusted free cash flow was €1,010 million, up 11% overall and up 15% in constant currencies. Now let's turn to the uses of cash on Slide 15. The majority of free cash flow was returned to shareholders in the form of dividend payments of €373 million and share buybacks totaling €410 million. Total acquisition spend was €113 million primarily for the software businesses Vanguard for tax and accounting and license logics, governance risk and compliance. Investments in 2021, brought in €68 million, which related primarily to the divestment of U.S. legal education assets. We ended the year with a decrease in net debt, leaving our balance sheet in good condition for the year end leverage ratio of 1.4x. Now, let me update you on the proposed final 2021 dividend and our share buyback plans for 2022 on Slide 16. In view of the 2021 performance on our strong balance sheet position, we're proposing to increase the total 2021 dividend per share by 15% to €1.57. This will bring final dividend to €1 on €3 per share. This proposal is subject to shareholder approval at the Annual General Meeting in April. We completed the planned 2021 buybacks at €350 and then increased that to €410 million using the proceeds from the U.S. legal education disposal. Today, we're announcing our plan to repurchase up to €600 million and shares in 2022. And that includes repurchases to offset incentive share issuance. Of the €600 million, €50 million has already been completed and we've engaged the third-party to implement a further €120 million starting on Friday and up until May 2, 2022. So to sum this up. Overall, we are very pleased with the results in 2021. We recorded a strong recovery in organic growth to 6% and a 90 basis point increase in margin. This plus a favorable benchmark tax rate, and the lower share count fell to 17% increase in diluted adjusted earnings per share in constant currencies. We delivered a 15% constant currency increase on adjusted free cash flow. We ended the year in a very strong financial position with a net-debt-to-EBITDA ratio of 1.4x. Over 70% of our adjusted free cash flow was returned to our shareholders in the form of dividends and share buybacks. I'd now like to turn the presentation back to Nancy to cover our divisional performance.

Nancy McKinstry: Thank you, Kevin. I will start with Health on Slide 19. Health delivered 7% organic growth with both clinical solutions and health learning research and practice posting strong growth. The adjusted operating profit margin increased reflecting operational gearing, cost savings and lower restructuring charges. Clinical solutions delivered 8% organic growth with strong performance in all geographic regions. In clinical decision support the UpToDate suite saw a continued strong growth driven by subscription renewals. Our drug databases delivered high single-digit organic growth, partly reflecting international customer wins and higher usage. Health Learning, Research and Practice delivered 6% organic growth. As we reported throughout last year. This was mainly due to a large ASCO journal publishing contract, which we added. The unit also benefited from the rebound in print book revenues as distributors and book retailers restocked in anticipation of the reopening of medical and nursing schools. Our digital expert solutions for nursing such as Lippincott CoursePoint+, and vSim generated another year of double digit organic growth. Turning now to Slide 20 to talk about Tax & Accounting. Tax & accounting delivered 6% organic growth, with improvements across the board and excellent growth in cloud revenues. The margin eased as we stepped up investment to support growth. Corporate Performance Solutions, which include CCH Tagetik for financial performance management, and TeamMate for internal audit achieved 10% organic growth, driven by strong performances in the cloud based versions of these global software products. Our Professional Tax & Accounting businesses overall recorded 5% organic growth with good momentum in all geographic regions. Around the world software continued to perform well driven by renewals and upgrades for cloud-based software. Our U.S. content business saw improved trends. Moving now to Slide 21, to discuss Governance, Risk & Compliance. GRC delivered 6% organic growth lifted by a recovery in transactional revenues. The adjusted operating profit margin increased mainly reflecting lower restructuring charges and lower provisions. Legal services posted 12% organic growth led by CT Corporation our U.S. registered agent in legal compliance business. CT saw a good momentum in service subscriptions and a strong double-digit rebound in transactional revenues. This performance reflects increase company formations, M&A and other transactional activities in 2021. Financial services revenues declined 1% organically, but rose 3% excluding revenues associated with the U.S. PPP. Our compliance solutions unit was broadly stable on a like-for-like basis and made progress on integrating the acquisition of eOriginal. Lien Solutions saw a recovery in transactional revenues, while finance risk and reporting recorded muted organic growth due to lower professional services. Now let's turn to Slide 22, to finish up with Legal & Regulatory. Legal & regulatory revenues grew 3% organically supported by high single-digit organic growth in digital revenues. The margin increased to 13.6% due mainly to the one-time pension fund amendment that Kevin mentioned, but apart from that the margin also benefited from underlying improvement and lower restructuring costs. EHS/ORM and legal software delivered organic growth of 8% accelerating from 5% growth in 2020. The cloud-based version sustained double-digit organic growth, which more than offset declines in our on-premise license revenues. Information Services recorded 2% organic growth versus a 3% decline in 2020. Here the digital solutions performed very well delivering 7% organic growth, as legal professionals continue to migrate away from print. Now I'd like to update you on our strategic priorities for the next three years. As some of you know, every three years we reassess our strategy and develop a new three year plan that considers market trends, competitive development, technology change and other opportunities and challenges. When we look back at the last three years, we see that our strategy for focusing on experts solutions, deploying advanced technologies and driving agility have served us very well. Our new plan is therefore a refinement and reinforcement of our prior strategy. Our first priority remains to accelerate the development of experts solutions. We will drive further investment here, especially in cloud-based expert solutions. At the same time, we plan to continue to invest in selected digital information products to transform them into more sophisticated expert solutions. Our plan assumes product development spend will be around 10% of revenues over the next three years. Our second priority is to expand our reach. We are seeking to extend the business into higher growth adjacencies along our customer workflows, and to adopt some of our existing products for new customer segments. We will also look to further develop partnerships in ecosystems for our key software platforms. And finally, our third priority is to evolve our core capabilities. We intend to strengthen certain centralized functions, including sales and marketing and technology to drive excellence and scale economies. We also plan to advance our performance and capabilities around ESG with continued high priority given to attracting and retaining a diverse and engaged workforce. I'd now like to illustrate the plan with a few examples. Turning to Slide 24. Many of our experts solutions are software solutions, and nearly all of these software products are available as a cloud-based solution. In the past few years, we have seen a strong shift to cloud among our customers, and we expect this trend to continue even after the pandemic. To capture this opportunity, we intend to drive significant investments in growing these solutions. Over the past three years, our revenues from cloud-based software have nearly doubled, driven by organic growth in selected acquisitions. While all software grew 6% in 2021, cloud-based versions grew 7% organically. In 2021, cloud software accounted for almost a third of our total software revenues, and about 14% of group revenues. Now I'd like to talk about eOriginal which is a good example of our second pillar, which is around expanding our reach. Our GRC division acquired eOriginal at the end of 2020. This allows us to extend our existing business in lending compliance into the fast growing areas of digital closing and digital vaulting. eOriginal enables lenders and their partners to create, store and manage digital assets from close through to the secondary loan market. We have been bringing eOriginal solutions and operations together with our products Expere and Wiz. Together the solutions form an industry leading end-to-end digital lending platform. Expere produces compliant documentation, eOriginal facilitates digital closing and storage, and our Wiz Solution can provide compliance analytics. Together we serve over a 1,000 banks and other types of lenders across multiple categories. From mortgages to consumer loans to equipment finance. In 2021 eOriginal delivered double-digit revenue growth exceeding our expectations. We plan to continue investing in innovative technologies around the lending workflow, and we see great runway for growth moving forward. Now I'd like to dig a little deeper into the third pillar of our strategy which is to evolve our core capabilities. This pillar focuses mainly on internal operations. Starting at the left, we intend to enhance our central functions in order to meet the changing operating requirements that come with the shift to expert solutions. We will more closely integrate our operations to drive scale economies and operational excellence. For example, while we have implemented the salesforce CRM systems company wide, we now intend to leverage its data more consistently. We also want to evolve our capabilities in the area of ESG. Among the many initiatives planned one is to advance our climate reporting. As mentioned in today's release, we are committing to align with the guidelines recommended by the TCFD and to set science based targets. A core part of ESG and so important to our business, we plan to continue to invest in diverse and engage talent to support innovation, and drive long-term growth. In 2021, we started to measure belonging, which captures whether employees believe they can bring their authentic selves to work and be accepted for who they are. By tracking our belonging score, we can now start implementing programs to drive improvement. Now let's turn to the outlook for 2022. Beginning with the overall outlook and our guidance, as indicated in our earnings release. We expect good organic growth in 2022, albeit slowing modestly due to challenging comparables starting in the second quarter of the year. We expect to be able to improve our adjusted operating profit margin to be within a range of 25.5% and 26%. The first half margin is likely to ease slightly, but we expect to see improvement in the second half of 2022. We do expect the tax rate to return to our historical range, which will dampen earnings growth to some extent. We therefore guiding to mid-single-digit growth in diluted adjusted EPS in constant currencies. We expect adjusted free cash flow to increase to be between €1.25 billion to €1.75 billion in constant currencies. The higher tax rate will also limit this year's improvement in return on invested capital. Here we expect to land around 14%. So now I'd like to conclude with a brief summary of the trends we expected each division. Starting with Health. In Health, we currently expect full-year organic growth to slow from 2021 levels, mainly due to the absence of a contract win of the size of the ASCO titles. Adjusted operating profit margin is expected to improve modestly. For Tax & Accounting we currently expect organic growth to improve moderately from 2021 levels and adjusted operating profit margin is also expected to improve. For GRC, we currently expect organic growth to slow from 2021 levels mainly due to our expectation of slower growth in transactional revenues. The adjusted operating profit margin is expected to improve. Finally, in Legal & Regulatory, we currently expect organic growth to be in line with 2021 levels. The adjusted operating profit margin is expected to decline due to the absence of the one-time pension amendment recorded last year. We have seen a good start to this year. And we look forward to implementing our refined strategy to drive good organic growth to make further improvements in our margins and returns and to advance sustainability. So with these remarks, operator, we can now open it for Q&A.

Operator: Thank you. We will now proceed with the Q&A. [Operator Instructions] Our first question for today comes from Nick Dempsey of Barclays. Nick, your line is now open.

Nick Dempsey: Yes, good morning, guys. I have three questions. First of all, if Experts Solutions were to get up to 75% of group revenues, rather than the 55% you pointed to today, over a few years, do you think that your group organic would naturally be faster at that point than you're expecting for 2022? Or is it possible that the growth in Expert Solutions would slow as customers become more used to that kind of functionality, everyone delivering that kind of thing? So you only end up at kind of the same place as you are in '22, that's the first question. Second question, when you say the operating profit margins will ease in the first half before moving up in the second half, just to clarify that, do you mean easing year-on-year versus first half '21 or do you mean lower than the full-year '21 number you've just delivered? And the third question, I'm going to have a swing at the slightly cheeky Patrick Wellington question, Nancy, you've had good success with your last three years, you're setting out the new one here, taking you through to 2024. Could that be your last three year plan as CEO?

Nancy McKinstry: Okay, great. Yes, we do miss, Patrick those questions. Thanks, Nick. I'll take one and three and then ask Kevin to comment on operating margins. So on the Expert Solutions question, what we expect is as this continues to grow as a percentage of our revenues, it actually should support continued improvement in organic growth and the reason for that is twofold. One, these solutions are used every day throughout the workflow of the customer. So the retention, the usage is high and therefore the retention is high. So that already provides a stronger installed base of clients. Second, which is really what drives the notion of improved organic growth is once we're in the customers office, we then have the opportunity to upsell, and all of these cloud products that we describe they're part of a suite. And so the typical phrase, we use is sort of land and expand, meaning you go in with one component, and then you sell multiple components. And so as long as we keep investing, or to innovate, we should be able to continue to grow, even when Expert Solutions get to be 60%, 65%, you're growing on top of a bigger installed base, so it should support long-term, good expansion in organic growth. On the question of my future, I have no plans at this point to retire, I'm very excited about this next three year plan, as you know, Experts Solutions really provides us not only with a stronger organic growth, but really high quality earnings. And so it's never been a better time for the company, you can see we have a very strong business and so I'm happy to continue as CEO. Kevin, do you want to talk about margin developments over the year?

Kevin Entricken: Absolutely, as you know, Nick, we have guided to the improvement margin for the full-year. But we do expect certainly in the beginning of the year to see margins ease as compared to the prior-year, that really has everything to do with our investment profile or investment plans. We will do some restructuring in the New Year, as we've indicated, and some of that will take place in the first quarter. So that is what is underlined the guidance on margin phasing over the year.

Nick Dempsey: Sorry, Kevin, can I just check? Did you when you say easing versus the prior-year, I guess my question was easing versus full-year '21 or easing versus first half '21 in first half '22?

Kevin Entricken: First half '21.

Nick Dempsey: Okay. Thank you. That's great. Thank you, guys.

Operator: Thank you. Our next question comes from Katherine Tait of Goldman Sachs. Katherine, your line is now open.

Katherine Tait: Hi, everyone. Thanks for taking my questions. You talked a lot about increased investments to support growth across the business. I'm just wondering if you could dig a little bit more into I said, what's constituting this sort of product investment? Is it increased, is this going to be sort of talent based and more sort of software engineers, is it going to be more skewed towards marketing, if you could just sort of unpick a bit more in terms of what that sort of increased level of investment is going into and that'd be super helpful. And then, as you sort of shift into more of these Expert Solutions, I guess, across the board, could you perhaps just give a couple of comments around what you're seeing in the competitive environment here? Are you seeing a continued sort of pace in evolution in your competitor set perhaps just a couple of comments on any sort of latest trends you're seeing from a competitive perspective. And then finally, just on I suppose the health of that market, you're selling into, I knew there were a couple of sort of industry pieces around particularly in the U.S. the sort of, I think hospitals being underwater, kind of following all the COVID pressures. What are you seeing in terms of, I suppose the ability to sell into some of those key clients, and I suppose more importantly, the ability to sort of cross sell and upsell to your point on the growth, particularly in the Health Division. Thanks very much.

Nancy McKinstry: Great, okay. So let's start with the product investment area. It's primarily in people. And it's primarily in technology and sales people, particularly for our Expert Solutions. And so what we've done is we've accelerated some of our product roadmaps, and that obviously requires more technical talent. And then of course, we want to increase our market penetration around the globe. So we've added a lot of sales people, largely outside the U.S. but still for some of our solutions in the U.S. market as well. The second question around the Expert Solutions and the competitive environment, I would say in general, as you know, we see multiple different competitors, depending on the market segment we're talking about, but in general, the landscape has remained remarkably stable. So despite all the obviously the volatility associated with pandemic, from a competitive perspective, we still lead in cloud solutions around the world and we still had very high net promoter scores, which we measure quite rigorously across all of our major products. And that's a good indication of how we see customer satisfaction, we measure not only our own NPS, but also from a relative competitive perspective. So I would say we're in very good shape from market position, and we don't see a lot of changes in how our competitors are behaving. And then on the health market, it's been a volatile situation, depending on what region both in the U.S. you're talking about, but certainly around the world, we see very high renewal rates. So that speaks to the fact that our products are highly valued and used significantly by our clients. And then I would say, on the new selling front, it really depends, for example, in China, when they go into a lockdown mode, you can be locked out of a hospital for up to four to six weeks, and therefore that will delay the sales. Same thing in the U.S., some hospitals are as you point out having financial difficulties, mostly, it's that their staff is so consumed by supporting COVID patients that they just don't have time to talk about new products. So I would say the retention environment very strong, and then new selling varies region by region. And we still expect that to continue in 2022. But we of course, have baked that into our guidance for the Health Division.

Katherine Tait: Perfect, thanks very much.

Operator: Thank you. Our next question comes from Matti Littunen of Bernstein. Matti, your line is now open.

Matti Littunen: Thank you and good afternoon. The first question on disposals, you had a couple in the legal and regulatory segment in the last six months, under your new three year plan, how should we think about disposals going forward? Should we expect this to continue for the next year, the years to come? Or will you perhaps have fewer assets under review? The second question, also the three year plan you mentioned as part of the plan, that there's an initiative to drive revenue through partnerships. So just to get practical feel for what that means. Would this be similar, for example, to the partnership, that UpToDate side with Doximity and does the economics, what would be the contribution margin from these partnerships look like? And then final question on sort of the M&A pipeline. You've previously consistently said that over the past few years that the private valuations for the kinds of businesses that you like acquiring are quite high. Of course, now, the public valuations for these types of businesses have come down, are you seeing any signs yet that something similar is going on in the private markets? Thank you.

Nancy McKinstry: Yes. So I'll take the partnership question. Kevin, do you want to start with the first question around disposals?

Kevin Entricken: Yes, certainly Matti, as you know, we have divested the U.S. legal education business in 2021. That's pretty consistent with what you've seen over the last several years. We do always look at our portfolio with a critical eye each year as part of our planning process. And there are times when an asset might not fit our future strategy. And that's when we started divestiture process. So that process obviously will continue. I think you've probably seen it in our press release, we do have the intention to dispose of some additional assets in Spain and France in Legal & Regulatory business. I expect we will be closing on those in the second half of the year. So do expect us to continue to take a critical eye as we look at the portfolio going forward. That will include select smaller divestments, but also include other smaller bolt-on acquisitions.

Nancy McKinstry: Yes, so just linking that to the last question around the M&A environment. I'll start and then Kevin, feel free to add some comments and then I'll talk about partnerships. So, on M&A environment, we have not seen any change yet in the valuation. We mostly are buying private companies and the valuations have been very, very high. So we remain selective in our activities, strategies very focused on organic growth. So M&A is really bolt-on in nature in sort of an augmentation to the organic plan. That relates a little bit to the partnership question. So why -- how do we think about partnerships and expanding the ecosystems? In some ways partnerships can lead to an acquisition. So if you look at XCM, if you look at eOriginal, those were companies we already had partnerships with. And what that meant was that, we were able to offer our customers a broader portfolio. And that led ultimately to us acquiring both of those businesses. From an ecosystem perspective, which is a bit more the Doximity. And some of the other things we're doing with our cloud suite in Tax & Accounting. There, the notion is that because we have the strong customer base, we provide an opportunity for other software providers to access our customers, and we in it. We provide an integrated customer experience, those do have a revenue, a positive revenue effect. And again, all of that revenue that comes through these kinds of partnerships is very accretive to the margin. So it will again help to add a little bit more on both the top and the bottom-line, but it's mostly about enriching the customer experience. And really again, locking in, sort of the customer in terms of extending what we can provide to them.

Matti Littunen: Very clear. Thank you, Nancy and Kevin.

Operator: Thank you. Our next question comes from Matthew Walker of Credit Suisse. Matthew, your line is now open.

Matthew Walker: Thanks everybody. Just a few questions, please. The first one is how you coping with inflation and hiring in your employee base, your guiding for margin expansion. So what are the offsets to the wage inflation in order to allow you to get the margin expansion? The second question is, you probably have noticed that RELX and Thomson have indicated a sort of permanent, medium-term step up in organic growth because of analytics. There hasn't been a similar commitment yet from Wolters Kluwer. But is that something that we should look out for in future reporting periods? And the last question was on the print in the house. So it says it was like up 52% for the nine months for print books, and then it was only up to 4% unless, I'm making mistakes for the full-year. So what's been happening in print books in health in the fourth quarter? And what's your outlook for print books in health for '22?

Nancy McKinstry: Yes, great. Can you just repeat the question on RELX and TR? I didn't hear quite the full cut out a little bit. One more time, please.

Matthew Walker: Yes, sure. So those companies have indicated that because of the increasing proportion of analytics, within their sales mix, that they are now permanently able to grow at a higher level than they were pre-pandemic. My question was, will we see a similar commitment to do that from bolt-on?

Nancy McKinstry: Okay, thank you for the repetition. So Kevin, why don't you start with the last question, first around the developments of print products in health. And I'll cover the other two.

Kevin Entricken: Certainly, we did see a rebound in our print business as compared to the prior year. And I think that has everything to do Matthew with the fact that 2020 was just a really very down year for print in general, and all of our businesses health included. So the beginning of the year, we did see, a bit of a bounce back on it easy comparable. Not adjusted itself in the fourth quarter, which is one of our largest print selling seasons, as you know. So print going forward, while we did see better growth in 2021, overall, down 4%. Prior to that print had been declining in the upper single-digits. And I would imagine, that trend will likely continue into the future. That said print now is a small part of our business less than 10%. So that overall decline has less and less of drag on the blog results.

Nancy McKinstry: Thanks Kevin. So then on the hiring and inflation side and Kevin feel free to chime in as well is that, we continue to see wage inflation increase and the whole process of hiring, it's a very tight labor market. So of course, the cost of people is increasing around the world. So the offsets as those have come in, the offsets really come in two flavors. First, as you know, we've always tried to cover wage inflation through pricing. So that effort continues and because we've our -- have been investing in our products and we have high net promoter scores. We are able to, in most cases, reflect the increased labor costs in our pricing. Very importantly though, however, is we find additional cost savings throughout the business. We have consistently every year. We have operational excellence programs that that come through. And then I would say finally, Kevin, there are some one-off stating's around travel and some other things that certainly have come into play because of the pandemic. Just very importantly to comment is just and if you think about the long-term. Again, the focus as we move to expert solutions is some of the products are still subscale, like meaning that they haven't yet reached kind of maturity. And so as these products continue to mature and penetration grows, you will also see higher margins. So the support of the margin comes not only on the cost side, but also from the revenue scaling, particularly around expert solutions. Kevin, I don't know if you want to add anything more on inflation or how we are covering it.

Kevin Entricken: No worry, I would echo that we are seeing inflation play a part, particularly in wage inflation. That's really where we see the impact of inflation, not so much on raw materials at Wolters Kluwer. So yes, we are being aggressive in our hiring practices to get the right people in to fill open positions, and we'll continue to do that. As you all know that usually, we try to cover our wage inflation with our price increases, and we'll continue on that tact going forward.

Nancy McKinstry: Great. And then on the competitive landscape, I would say it's for us, you use the word analytics for us, we use the word expert solutions because we have analytics throughout all of our products, even the content products. And so with expert solutions, again, we fully expect that as they become a larger and larger part of our overall revenues that it will support stronger growth. And you can see, of course, from even 2019 that the growth in 2021 was higher. So I think that's a good indication of where the business is headed, is again supported very much by the expert solutions strategy.

Matthew Walker: Okay. And a follow-up for Kevin, please. In terms of the margin for '21. Did you take any provisions in '21 because you did take a large provision in '20? So was there any kind of provisions taken in '21?.

Kevin Entricken: Well, in '20, I think the provision you're talking about is some of our restructuring provisions that we did actually execute on that in '21. Other provisions we took in '20, nothing to the extent that you saw in '20, we did as we always do update legal provisions and other things that are required. But we do not have a significant step up in restructuring. In fact, we've mentioned that we would probably return to a more normalized level of restructuring in 2022.

Matthew Walker: Okay, thanks a lot.

Operator: Thank you. Our next question comes from Sarah Simon of Berenberg. Sarah, your line is now open.

Sarah Simon: Hi, I have just a couple of questions. First one was on the ASCO contract. Can you give us any idea of how much that benefited growth health in 2021? The second one was on Slide 24, so you've talked about the growth of Cloud was obviously very strong. What should we think about as cloud obviously some of that is people shifting from on-premise software revenue. So how should we think about the kind of direction of travel for that 48% that you're essentially kind of moving away from? And then finally, just to clarify the Spain and France assets, you said you're going to close in the second half? Will their contribution be in the divisional growth numbers for legal for fiscal '22? Thanks.

Nancy McKinstry: Okay, so Kevin, do you want to talk about legal and regulatory disposals and the effect on the P&L and then also the ASCO whatever we want to clarify there? Yes.

Kevin Entricken: With regard to Spain and France, we do have a agreement to divest although we do have to go through a antitrust evaluation with this particular deal, we do expect that process to continue through the first half. And yes, while we still haven't closed on the sale yet, we do expect those results to be in the first half results, we do expect to closing on that business in the second half. With regard to ASCO, it was a notable contract for the Health Division in 2021, approximately $25 million in revenues. So as far as the organic growth, obviously, it was flattered by that ASCO contract. That is part of our thinking about the guidance we've given you with the Health Division moving forward, we do expect the organic growth to come down a bit because of that. I think just below 200 basis points of growth is what you saw in '21, related to that ASCO contract. So Sarah, hope that helps you get your head around that.

Nancy McKinstry: And then on the cloud, what yes, so Sarah on the cloud question, what you would see across the board today is that most new customers are selecting cloud. So all of our most of our software, you can buy it either on-premise or cloud. And today, most are selecting cloud now as you know, because it is a subscription versus a one-time on-premise deal. You see the effect building over time on the SaaS product line. So there is some migration. But there's also a lot of new logos that were adding. So I think we are well positioned to continue to see strong growth in cloud in the medium-term, because of both the new logos and some migration. And again, the thing that's really important to understand is what we see is when customers move, everything again is sold as meaning there's modules that customers take in the on-premise world, customers also would add modules to the -- to what they already had. But in the cloud world, what we see is that they are adding more modules. So we're getting a step up in the up selling opportunity once we get customers into the cloud. So we do want to migrate on-prem customers to cloud because we cannot sell them. But as we add new logos, we're seeing that the purchase value is higher as we add customers into the cloud Suite. And again, why is that? It's because the customer experience is enhanced, they get more productivity from these tools in the cloud than they typically would get in an on-premise world. So hopefully that gave you some color.

Sarah Simon: Yes, that's helpful. So just in terms of the on-premise revenues, do you think we can work on the basis those revenues gradually decline?

Nancy McKinstry: Yes, over time, yes. Right, we have maintenance, but we're not selling lots of new logos. Of course, it varies by product, but over time yes you should expect that.

Sarah Simon: Okay, cool. Thanks.

Operator: Thank you. Our next question comes from Tom Singlehurst of Citigroup. Tom, your line is now open.

Thomas Singlehurst: Thanks very much. Yes, it's Tom here from Citi. A couple of questions if it's okay. First one on the cash returns. I mean, the buyback stepping up to another level. I know you were asked earlier on. But I think I might have missed the answer. But I'm just trying to work out whether that means that there's going to be less sort of bolt-on M&A activity or whether you can do both buybacks and M&A and then once again, apologize because I'm sure you answered it, but I missed it for whatever reason. But did you comment on the multiple profile of smaller bolt-on deals, I mean, some of those transactions that we've seen in public markets have been happening absolutely, sort of eye popping multiple. So I'm interested to see whether you're seeing the same thing amongst the sort of targets that you're looking at. And then the other question was on visibility on health? Obviously, the step-up in growth is very encouraging. Is that partly a follow through from ASCO or is that can you just clarify what the moving parts are, that gives you that sort of confidence at this early stage in the year to talk about accelerating growth? That'd be wonderful. Thank you.

Nancy McKinstry: Yes, just to clarify, I'll start with health. And then Kevin, if you could take the cash and the multiple question, but we're not suggesting that health will accelerate growth in 2022. Just to be clear, our guidance is that the growth will slow modestly, right because of that ASCO deal, right. And the restocking of the books, products that we expect that print books will kind of return to normal. So the underlying good growth in UpToDate and in drugs and in our nursing solutions, [indiscernible] and Ovid which is our online, digital product, and health, all of those trends again are positive. But the step-up you saw on the growth side in 2022 was partially favored by this big ASCO deal plus the restocking of the books. Kevin, do you want to yes talk about cash?

Kevin Entricken: Certainly, yes, Tom you are right, with the good cash conversion and the strong free cash flow in 2021, that does give us the confidence to step up the share buyback to €600 million in 2022. And that program is already underway. We've already finished about €50 million, and we'll do another €120 million over the next couple months. With regard to future M&A, we still have a very strong balance sheet. So I would say that even though we are stepping up the share buyback, we are proposing an increased dividend by 15%. That does leave us room to do the bolt-on acquisitions that helps support the strategy going forward. So quite comfortable there. As Nancy mentioned before, multiples indeed are very handsome right now, particularly for the attractive assets that we will be looking for, those assets that are growing very well. And as you know, we're always looking to make sure that we meet our financial criteria on any M&A which is EPS accretive in the first year and covering our weighted average cost of capital in years three to five. So I expect we will continue to see those valuations be strong. But when we look at our strategy, organic growth is the preferred method. But acquisitions do have a part in building out that strategy. So I do expect that we will continue to evaluate businesses as we move forward.

Thomas Singlehurst: That's clear. Apologies of the brain freeze on which division is meant to be accelerating on of that. Thank you very much.

Nancy McKinstry: Yes, no worries.

Operator: Thank you. Our next question comes from Henk Slotboom of The Idea-Driven Equities Analyses Company. Henk, your line is now open.

Henk Slotboom: Thanks, good afternoon. Thanks for taking my questions. I've got two left. Nancy, I'm aware that print is an increasingly smaller part of your portfolio. I have one of your predecessors told me the difference between nice to have and need to have. When thus print become of a size that it is no longer needed to have and that you could review your presence in that area? And then perhaps another one, I think for Kevin. Kevin, there was quite a difference between the restructuring -- the level of restructuring costs in 2020 and 2021. Now, you may have said last year, exactly how the €49 million broke down over the various division, but I couldn't find it in my notes. So apologies for that. But could you perhaps remind me how the €49 million was allocated over the various divisions? Those were my questions, thank you.

Nancy McKinstry: Sure. So I'll start with print. Let's divide print into print subscriptions and printed books. First, I want to remind everybody that everything we produce in print, we also produce in the online form. So many customers on the print subscription side, they have both they have prints, printed products, and they have the exact same content online. They use the products in different ways. And so on the subscription side, it's become really what I would describe as the luxury product, meaning that the customers who can afford to have both formats continue to do that. So we will, we continue to produce print subscriptions, very cost efficiently. So, we'll do that as long as long as customers want. And then at some point, it's only available online. So I would expect over the longer-term, print subscriptions really do get smaller and smaller than even where they sit today. Printed books is a different, little bit of a different case. And it's mostly in the textbook arena, a lot of our printed books are in health and medicine and nursing, and even some kind of textbooks on the legal and regulatory side. So I think they'll be able for books for quite some time in printed format. And again, we will continue to offer that as it makes sense from a market perspective. Kevin, do you want to cover anything?

Kevin Entricken: Sure. Thanks for that. On restructuring, yes, we did have a larger impacting restructuring in 2020 and recruited in 2021, and executed some of those plans in 2021. Out of the €49 million, we did see restructuring in each of the divisions really across the board. Probably a little bit heavier weighted to legal and regulatory and GRC in the execution 2021. But each of our divisions did execute on a number of restructuring plans.

Henk Slotboom: There was no clear bias for one of the divisions?

Kevin Entricken: A little bit more in legal and regulatory, a little bit more in GRC. But yes, in Health, Tax & Accounting also had restructuring efforts.

Henk Slotboom: Okay, thank you very much. Have a nice day.

Nancy McKinstry: Yes, likewise.

Operator: Thank you. Our next question comes from Sami Kassab of BNP Paribas. Sami, your line is now open.

Sami Kassab: Thank you. And good afternoon, everyone. I have three questions, please. The first one, can you discuss what your guidance assumes in terms of transactional revenues? And in particular, do you see legal services transaction revenue was declining in your guidance? Or do you think it can grow from the high base of '21? Secondly, Nancy, can you please comment on the Q4 trends in new sales growth? In Thomson and CONAF, were quite bullish on how they exited the year '21 in terms of new sales growth? Did you see the year -- the momentum accelerate in Q4? And lastly, I think you reported 5.6% organic revenue growth in '21. You got it for a modest slowdown, as I think your comments, just said, Nancy. So do we think that '22 may be rounded up to a 5% organic revenue growth or more like 4%? Thank you.

Nancy McKinstry: Yes, so Kevin, do you want to cover the -- how we're looking at the transaction part of GRC? And then I'll take the other two? Yes.

Kevin Entricken: Certainly. Sami, 2021 was an exceptional year on transactional revenues, particularly in legal services. Some of that is a bounce back effects from the weaker results in 2020. But frankly, 20% growth in legal service transactions, don't expect to repeat that in 2022. We do expect that to come down. As you know, that is the hardest part of our revenue to predict going forward. However, when we think about transaction revenues in 2022, we do still expect modest growth in both legal services and financial services, but certainly not at the levels we saw in '21.

Sami Kassab: Thank you, Kevin.

Nancy McKinstry: And then on the new sales, yes. So Sami on the new sales question. We clearly saw new sales build throughout 2021, fourth quarter was strong. We came into this year with a very strong portfolio value, which is as you know, in a recurring model, a very important metric for us. So we feel good about the new sales activity. And so, that is supporting growth in 2022. And then on, as you know, we don't give guidance specifically on revenue growth. So I can't give you a number. But I think if you look through the divisional guidance, I think that you can kind of come up with your own estimate really by recognizing that there was a one-off in health from the ASCO titles and recognizing what Kevin just said that transactional revenues had a spectacular year in GRC last year. So I think, if you sort of normalize for that, and then look at the good underlying growth of the other product lines. You can sort of figure out the number. But I would say, we feel good about where we are, in terms of starting 2022, yes.

Sami Kassab: May I please place a follow-up then?

Nancy McKinstry: Yes.

Sami Kassab: Within GRC, the compliance solution, and the financial risk in regulatory reporting businesses had growth, if at all, what's going on there? And what's the guidance, assuming for '22. Do we think that growth can accelerate, excluding the PPT based effects and so on the underlying in the line? Do we think that within FRR, and the compliance solution business growth can pick up? Or do we see perhaps flat growth, as you know, going forward?

Nancy McKinstry: Yes, so I'll talk. Again, we don't get into the specifics around the numbers at that for revenue growth. But let me just talk about what's going on in the business. So in compliance solutions, we had PPP. In '20, we had a bit in 2021. So you have to the program's now stopped so that that has to come out of the numbers. But we do have good underlying growth across the portfolio, and the original will become organic into the numbers in 2022. And that's a very nice growth asset for us. On the FRR side, what we saw in 2021 is good new customer acquisitions and good upselling. But professional services was way down, because we still could not get into some of their offices in 2021, like also what happened in 2020. And so that, that muted the professional services. So the way you should think about FRR is professional service softness, sort of offset new sales growth. And keep in mind, again, these are largely SaaS contracts. So it's really about the bill -- the revenue building in '22 and '23. So hopefully, that gave you color, but not specific numbers.

Sami Kassab: Thank you very much, Nancy. Thank you, Kevin.

Operator: Thank you. Our last question for today comes from Rajesh Kumar of HSBC. Rajesh, your line is now open.

Rajesh Kumar: Hi, good afternoon. One question, if I may. When you say you guide to margin expansion, quite a lot of your revenue must be accruing based on the contracts you've run last year. What level of inflation? Are you factoring in when thinking of that guidance? And is margin expansion harder, fixed target for you then staff churn? So are you -- would you be okay to miss the target? If inflation was higher than what you had budgeted? But do the right thing for the business instead longer-term?

Nancy McKinstry: Yes, I'll start and then Kevin, maybe you add some specifics. First, we always do as best for the business in the long-term, regardless of the near in targets. So that goes without saying, but I think specifically on the margin, we understand the moving parts very well at Wolters Kluwer. And so we, some things are going to be higher in terms of labor costs, but then there's offsets elsewhere in the P&L. So we feel like we have a very solid and confidence in the guidance that we've given on the margin side. We obviously, even though it is a recurring business, we took a hard look in 2021, anticipating inflation. So that was certainly factored into how we went about price increases that again flow into 2022. So, I would say we have a high degree of confidence in our guidance, and it certainly does reflect some insights into what we would anticipate inflation looking like. Now Kevin, if you want to add anything?

Kevin Entricken: I would echo that, Nancy. We're very thoughtful and we provide you guidance at the beginning of the year. So I would say, the 25.5% to 26% margin guidance, we do expect is the reasonable guidance to deliver. Yes, as you know, a lot of our business is subscription based. So we do have a high degree of confidence of what the revenue outlook can be for those subscription revenues. That also trickles down into our thoughts around guidance. So I would echo Nancy's comments.

Rajesh Kumar: So what level of inflation are you factoring in? The one we are seeing currently, or one that fed thought we would have this year last year?

Kevin Entricken: I don't know. Specifically, I guess I don't know that it would be appropriate for us to give specifics on that. But we have factored in at higher level of wage inflation, when we prepared guidance for you this year.

Nancy McKinstry: Yes.

Rajesh Kumar: Really. Thank you very much.

Operator: Thank you. We have no further questions for today. I'll hand back to Nancy for any closing remarks.

Nancy McKinstry: Yes, just want to thank you again for joining us today. And if you have any additional questions, feel free to reach out to Kevin and I through Meg. And have a good rest of your morning and afternoon. Thank you.

Operator: Thank you for joining today's call. You may now disconnect.