Despite Macro Headwinds, Kluwer Posts a Solid 2012


Wolters Kluwer’s revenue growth and margins continue to hold up nicely despite the difficult economic environment in Europe. For the full-year 2012, organic revenue growth was up 1%, but including acquisitions and the effect of currency, it was up 7% to EUR 3.6 billion. Profitability was up slightly, with ordinary EBITA margins of 21.8%, primarily due to the divestiture of the weaker pharma business.

A portion of this segment that Wolters Kluwer intends to divest remains outstanding and is in discontinued operations, but management stated that the sale is progressing. Management presented reasonable 2013 targets given that it expects Europe to remain under pressure. For 2013, management is pointing to flattish EBITA margins, with a range of 21.5% to 22.0% (relative to 2012’s 21.8%), free cash flow in excess of EUR 475 million, and low-single-digit earnings per share growth, implying a range of EUR 1.08 to EUR 1.10.

The company’s recurring revenue stream, the backbone of our wide economic moat assessment, along with growth in other parts of the world should help to mitigate global macroeconomic pressures, particularly in Europe. For 2012, 4% organic growth in North America and 8% organic growth for Asia and the rest of the world were enough to mitigate a 3% decline in Europe. While the secular shift from print media continues to weigh on the top line, a meaningful opportunity for Wolters Kluwer in digital products still exists, which now make up three-fourths of revenue.

By segment, Europe weighed heavily on legal and regulatory (the segment represents 41% of total sales and Europe represents 58% of the segment’s sales), as revenue was up 3%, but fell 2% organically despite solid growth in North America. Margins were up slightly to 22.4% thanks to a mix shift toward higher-margin electronic subscriptions. Tax and accounting (25% of total sales) grew 5%, but just 1% organically, and margins contracted 90 basis points to 26.7% as this segment is more heavily weighted toward print products which are in decline.

The health segment (21% of total sales), up 17% and 5% organically, continues to benefit from steady underlying demand for medical research and journals, a trend that we expect to result in mid-single-digit segment top-line growth for the next few years. Margins were up more than 200 basis points to 21.7% primarily due to the divestiture of the less profitable pharma business. Lastly, financial & compliance services (11% of total sales) was up 16% but 5% organically and margins were down slightly to 18.9% on continued strong demand for risk management products.

From a credit perspective, Wolters Kluwer ended the year with net debt/EBITDA at 2.4 times, down from 3.1 times at the end of 2011, and below its target of 2.5 times, thanks to stronger earnings. The firm announced it would issue a new benchmark size Eurobond to refinance its EUR 225 million perpetual cumulative subordinated bonds.


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