Good day, and thank you for standing by. Welcome to the Wolters Kluwer Half Year 2023 Results Webcast and Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised, and you are in the queue to ask a question. Please be advised that today's call is being recorded. I would now like to hand over to your host, Meg Geldens, Vice President, Investor Relations, to begin today's conference. Please go ahead.
Thank you, operator. Welcome everyone. Welcome to the Wolters Kluwer first half 2023 results presentation. Today's release and the slides are now available for download on the investor section of our website. On the call with me today are Nancy McKinstry, our CEO, and Kevin Entricken, our CFO. As we have been recently, we're dialing in from various remote locations, so thank you in advance for understanding in case we experience any delays during the event. Nancy and Kevin will shortly discuss the important features of our half-year results. Following their comments, we'll open the call to your questions. Before we start, I'll just remind you that some statements we make today may be forward-looking. We caution that these statements are subject to risk and uncertainty that may cause actual results to differ materially from those indicated in the statements.
Factors that could affect future financial results are discussed in our 2022 annual report and in note two of today's release. As usual, today, we will refer to adjusted profits, which exclude non-benchmark items. We refer to growth in constant currency, which excludes the effect of exchange rate movements, and we refer to organic growth, which excludes both the effect of currency and the effect of acquisitions and disposals. You can find reconciliations and further information in note four of today's release. At this time, I'd like to hand over the call to Nancy McKinstry.
Thank you, Meg. Hello, everyone, thank you for joining us on the call. In keeping with our usual practice, I will start with the highlights of the first half. Kevin will discuss the financial results in detail. After that, I will come back to discuss divisional developments and the progress we've made against our strategic goals, including how we are deploying artificial intelligence. Following this, I will conclude with the outlook for the remainder of the year. Let me start with the highlights on Slide Four. Financially, we delivered healthy organic growth of 6%. The development of our operating margin and cash flow were in line with our expectations for the first half. We are on track to meet our full year guidance.
Diluted adjusted EPS rose 2% in constant currencies, and we were pleased to see return on invested capital reach 15.4%. The share buyback contributed to a slight increase in leverage, but at 1.5x, our balance sheet remains very healthy. In the second half of our current three-year plan, we've taken some bold steps to advance our strategic and ESG goals. Expert solutions now make up 58% of total revenues and grew 7% organically. Within this, cloud-based software grew 15% organically. Product development spending increased compared to a year ago to 11% of total revenues. We formed a new division in March this year, Corporate Performance & ESG, which will help us accelerate our expert solutions and extend our reach into the ESG market and other adjacencies.
Importantly, in the first half, we centralized nearly all of our product development teams into the DXG organization, and we've created a unified branding, communication, and digital marketing team at the center. At the same time, we continue to make progress on key sustainability goals. With those highlights, I'd now like to hand it over to Kevin, who will take you through the financials.
Thank you, Nancy. Let's start with the highlights on Slide Six. First half revenues were EUR 2.725 billion, an increase of 4% in constant currencies. Organic growth was 6%, moderating slightly from 7% growth a year ago, which was as we anticipated. Adjusted operating profit was EUR 711 million, a decrease of 4% in constant currencies. As a result, the margin declined 210 basis points to 26.1%. This was in line with our expectations and reflects an increase in innovative product investments, personnel costs, and related expenses. Diluted adjusted earnings per share increased 2% in constant currencies. This was driven by higher adjusted net profit and a reduction in the diluted weighted average number of shares outstanding.
Adjusted free cash flow was EUR 495 million, a decrease of 2% in constant currencies. Lastly, net debt to EBITDA was 1.5x , slightly higher than a year ago. Let's look at revenues more closely on the next few slides, starting with divisional trends. Slide Seven shows our new five-division structure. The comparative figures are presented on a pro forma basis. Overall, organic growth was 6%, with some variation between divisions. Health grew 6% organically, in line with the prior period. Growth continued to be led by our Clinical Solutions business at 7%, while learning, research, and practice delivered sustained 4% growth. Tax and accounting grew 8% organically, slowing slightly compared to a year ago. This strong performance was again supported by double-digit growth in cloud-based solutions.
Financial and corporate compliance achieved 1% organic growth, compared to 6% a year ago. The division performed well in light of some very challenging comparables for the transactional and other non-recurring revenue streams. Legal and regulatory delivered 4% organic growth, in line with the prior period. Growth was led by digital information solutions, which grew 8% organically. Finally, the new division, Corporate Performance & ESG, grew 10% organically, slowing slightly from a year ago. As in tax and accounting, cloud-based software revenues grew at a double-digit rate. Now let's look at revenues by type on Slide Eight. The chart on the left of this slide shows organic growth of our recurring revenue streams. These make up 82% of total revenue.
Digital and service subscriptions, shown on the blue line, make up 74% of group revenues and grew 8% organically, in line with the comparable period a year ago. Print subscription and other recurring revenue trends were broadly in line with a year ago. The chart on the right-hand side shows organic growth for our non-recurring revenue streams. Here we saw growth turn negative, as we'd expected. Legal service transaction revenues in our financial and corporate compliance and legal and regulatory divisions declined 4% organically, compared to 3% growth a year ago. Financial services transactional revenues, which are in our finance and corporate compliance division, declined 5% organically. Print book revenues declined 1% organically, compared to 13% growth a year ago.
The last component, other non-recurring revenues, which is primarily software licenses and implementation fees, grew 1% organically, compared to 8% a year ago. Let's turn to margins on Slide Nine. As noted, the adjusted operating profit margin decreased by 210 basis points to 26.1%. This margin decline reflects a rise in personnel costs and personnel-related expenses, such as travel and events, wage inflation, and higher product investments. This rise in cost was as expected and was seen in all five divisions. We continue to expect the full year margin to improve, as indicated in our guidance. Let me explain what is driving our confidence in this guidance on the next slide. As you may recall, in 2021 and in the first half of 2022, we saw a significant margin uplift.
The margin uplift was caused by temporary cost savings that came about during the pandemic. Hiring slowed, travel and events were all but nonexistent during the lockdowns. By the second half of 2022, however, hiring picked up as we began filling open positions. By the second half of 2022, spending on travel, events, and office expenses started to come back. On this slide, you can see the rise in the number of employees as we filled open positions. By the second half of the year, our operating cost base was back to a more normal state. This underlies our confidence in reaching our margin guidance for the full year. Let's turn to the rest of the income statement on Slide 11. Adjusted net financing costs were significantly lower than a year ago at EUR 10 million.
This was due to higher interest income on our cash balances and a EUR 5 million non-cash net foreign exchange gain on the translation of intercompany balances. As a result, adjusted pre-tax profits increased overall and decreased 2% in constant currencies. The benchmark tax rate on adjusted pre-tax profit was also better than a year ago, at 23.3%, due to favorable movements in our deferred tax positions. After tax, adjusted net profit was therefore EUR 537 million, down 2% in constant currencies. Due to the ongoing share buyback program, the weighted average shares outstanding reduced by 4%. As a result, diluted adjusted EPS increased 2% in constant currencies to EUR 2.17. Let's turn to the cash flow on Slide 12.
Adjusted operating cash flow declined 5% in constant currencies, mainly reflecting the development of adjusted operating profit. The cash conversion ratio decreased to 95%. This is due to capital expenditures of EUR 157 million, an increase of 13% in constant currencies. The increase in CapEx reflects the higher level of product development spending compared to a year ago. I'll remind you that we continue to expect cash conversion to be approximately 100% for the full year. interest paid of EUR 18 million was significantly lower than the prior period, while taxes paid were EUR 176 million, in line with the prior period. Summing this up, adjusted free cash flow was EUR 495 million, down 2% in constant currencies. Now, a few comments on how we deployed that cash flow on Slide 13.
Acquisition spending was EUR 56 million. Cash deployed towards dividends was EUR 247 million. This was lower than a year ago because of the timing of the payment of the dividend withholding tax. Last year, we paid this tax in June. This year, we paid the tax just after the half year results in July. Cash deployed for share buybacks totaled EUR 426 million. This was higher than a year ago, because this year, our share repurchase program is more front-end loaded than last year's. As a result, net debt increased just over EUR 200 million compared to year-end 2022, to EUR 2.5 billion. This pushed our leverage ratio up slightly to 1.5x .
This still leaves us with a very strong balance sheet and ample room to pursue our strategic investments and continue delivering returns to shareholders. Let me touch now on interim dividend and update you on the progress with this year's share buyback on Slide 14. As a matter of policy, the interim dividend for 2023 was set at 40% of the prior year total dividend. This means we will pay out EUR 0.72 per share to shareholders in September. As of August 1st, we have completed just over half of this year's share buyback plan of up to EUR 1 billion, having spent EUR 504 million to date. We have now also signed mandates with third parties to execute a further EUR 300 million in the next three months.
Let me sum all this up before I hand it back to Nancy. Moving to Slide 15. We are on track to meet our guidance for the year. Organic growth was 6%, despite challenging comparables for non-recurring revenues. The margin decline was as expected and reflects a return to a more normalized cost base post-pandemic. Diluted adjusted EPS increased 2% in constant currencies, aided by lower interest and a lower share count. Adjusted free cash flow declined slightly in constant currencies, largely reflecting the trend in adjusted operating profit and a decline in cash conversion. Returns on invested capital reached 15.4%. Our balance sheet remains in strong condition, with a net debt to EBITDA of 1.5x . I'll then now hand it back to Nancy to cover divisional developments.
Apologies, everyone. I will start with health on Slide 17. Health achieved 6% organic growth, led by Clinical Solutions. The adjusted operating profit margin declined as expected, due to the increase in personnel cost and related expenses, coupled with higher product investment. Clinical Solutions delivered 7% organic growth, with robust high single digit growth for our clinical decision support tool UpToDate, our drug information solutions, and our patient engagement solution, Emmi. Growth was driven by good renewal rates and new customer wins. In June, we acquired Invistics, a provider of AI-enabled drug diversion detection software for hospitals. Learning, research, and practice sustained 4% organic growth, led by Ovid in medical research. Ovid benefited from the inclusion of The New England Journal of Medicine and early success for Ovid Synthesis.
In education and practice, growth moderated, in large part due to print book revenues turning down after rising a year ago. We acquired test preparation provider NurseTim in January and launched a virtual reality learning solution with our partner, Laerdal, for the nursing market. Turning now to the next slide. In tax and accounting, organic growth was 8%, with cloud revenues up 18%. The operating margin decreased as expected, due to an increase in personnel cost and related expenses. Performance was very good across all geographies. North America achieved 9% organic growth, supported by continued strong uptake of our cloud-based suite for professional firms called CCH Axcess. ProSystem fx Engagement, our audit solution, continued to perform well in the U.S. market. Our professional service revenues grew at a more moderate pace, while print revenues in our U.S. publishing unit benefited from a favorable publication schedule.
Europe delivered 7% organic growth, driven by strong renewals of software. Cloud and hybrid cloud solutions delivered double-digit organic growth. Asia Pacific and rest of world revenues grew 7% organically, supported by double-digit organic growth in China. Turning now to Slide 19. Finance and Corporate Compliance, which is now comprised of CT Corporation and Compliance Solutions, including lien, achieved 1% organic growth, despite a downturn in transactional and non-recurring revenue streams compared to a year ago. Operating margin declined as expected, due to the increase in personnel cost and product investments. In legal services, CT, our U.S. registered agent and legal compliance business, grew 1% organically. Here, 7% organic growth in recurring revenues more than offset a decline in transaction revenues due to a downturn in U.S. M&A and IPO activity.
Financial services also grew 1% organically, as 4% organic growth in the unit's recurring revenues helped offset a downturn in transactional and other non-recurring revenues. In total, financial services transactional revenues declined 5%. This includes lien transactions, which were down 2% against a tough comparable, and mortgage-related transaction revenues, which were down 41% amid a market-wide downturn in mortgage originations. Now let's turn to legal and regulatory on Slide 20. Legal and regulatory now includes Enterprise Legal Management, while the Enablon business has been transferred to the new division. Total revenues and profits were impacted by the disposal of the French and Spanish publishing assets last year. On an organic basis, revenues grew 4%. The operating margin declined as expected, due to the increase in personnel cost and related expenditures.
Legal and regulatory information solutions delivered 4% organic growth, driven by digital products, which grew 8% organically. Legal and regulatory software, including Enterprise Legal Management and legal practice management software, posted 4% organic growth. The slowdown from the prior period was largely due to lower non-recurring revenues. Now let's turn to our new division on Slide 21. The new division was formed in March of this year by bringing together our enterprise software businesses, including CCH Tagetik, TeamMate, Enablon, and Finance Risk and Reporting. Corporate Performance and ESG revenues grew 10% organically, with recurring cloud software and on-premise maintenance revenues up 13% organically. The operating margin declined as expected, due to a step up in investments to pursue growth opportunities. Our EHS ORM business, Enablon, grew 18% organically, despite a tough comparable driven by new customer wins.
Across corporate performance, internal audit, and FRR, organic growth was 7%, led by CCH Tagetik Corporate Performance Management Solutions, which posted 16% organic growth. TeamMate, our internal audit solution, posted double-digit organic growth, benefiting from phasing and higher on-premise license fees. FRR revenues were impacted by the conclusion of two implementations in Europe and the exit from Russia and Belarus. Let me turn to the progress we've made against our strategy during the first half of 2023. This is the second year of our current strategic plan. I'm delighted to report we've made some bold steps in the first half of this year. To accelerate expert solutions, we increased our product investment to 11% of group revenues. Expert solutions grew 7% organically, with cloud-based software up 15%.
We made two small bolt-on acquisitions: NurseTim, which strengthens our position in nursing test preparation, and Invistics, which adds to our existing AI-enabled software offering for hospitals with a solution that detects drug diversion. The formation of the new division, Corporate Performance & ESG, will also help accelerate expert solutions and sets us up to expand our reach into the market for ESG data collection, analysis, reporting, and audit solutions. We continued expanding partnerships, for example, LTIMindtree, which is a channel partner for CCH Tagetik, and with Laerdal, where we just launched a virtual reality training solution for nursing. Thirdly, to evolve our core capabilities, we have forged ahead with some significant steps this year. We have further centralized our product development teams, significantly enlarging the DXG product development organization and enabling us to harness the power of this large pool of technology talent.
We've also created a single unified branding, communication, and digital marketing function at the center to support the business globally. We advanced towards key ESG goals, expanding initiatives that support employee engagement and belonging, and executing on programs that further rationalize our real estate and on-premise server footprints. Now, I'd like to make a few comments on AI so that you're aware of the approach that we are taking. For nearly two decades, we have reinvested about 10% of our revenues in new product development and innovation each year. A growing part of this investment has been devoted to embed AI tools into our products. Today, around 50% of our digital revenues are from products that leverage artificial intelligence to some degree. You've heard us talk about CCH iQ, Sepsis Monitor, LegalVIEW BillAnalyzer. These solutions could not exist without AI.
We're also using AI to enhance our solutions, such as UpToDate and CCH AnswerConnect, and we're using AI to empower back office operations that exist within our CT corporate business, as well as in Wolters Kluwer Compliance Solutions. We've been embedding AI tools such as machine learning, natural language processing, predictive analytics, and deep learning into our products. We view generative large language models as another powerful AI tool that can be deployed to the benefit of our customers. We are currently evaluating dozens of use cases across all divisions, some in close collaboration with our customers. Use cases range from adding a human-like conversational interface to our content, to providing tools that support document drafting and summarization. We are also partnering with large tech firms such as Google and Microsoft.
In, in our specific markets, it's critical that we deliver accurate, reliable, and up-to-date answers, and that we follow a careful, responsible process to ensure that technology is deployed with the right guardrails. I believe we are well positioned to deliver for our customers with our rich and proprietary content, our deep domain expertise, our close partnerships with customers, our wealth of technology experience and expertise, and with a robust approach to governance. Now, I'd like us to turn to our outlook. As indicated in today's release, we reiterate our group level guidance for 2023. We continue to expect an improvement in our full year adjusted operating profit margin to be between 26.1% and 26.5%.
We continue to expect adjusted free cash flow to be around EUR 1.2 billion in constant currencies, ROIC to be between 16.5%-17%. Lastly, we continue to expect high single-digit growth in diluted adjusted EPS in constant currencies. Now, let me conclude with an outlook by division on Slide 26. As you can see, this has been recast to reflect our new organizational structure. In health, we continue to expect organic growth to be in line with the prior year and the adjusted operating profit margin to be stable year-on-year. In the tax and accounting division, we expect organic growth to be lower than the prior year, and we expect the adjusted operating profit margin to decline slightly compared to the prior year.
In the finance and corporate compliance division, we expect organic growth to be slightly lower than or in line with the prior year, and the adjusted operating profit margin to improve slightly. In legal and regulatory, we expect organic growth to be in line with prior year, and the adjusted operating profit margin to increase. In the newly formed Corporate Performance & ESG group, we expect organic growth to improve slightly from the prior year, and the adjusted operating profit margin to increase. Thanks very much for your attention. We'll now be happy to take questions. Operator, if you could move to questions, please.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will take our first question. Your first question comes from the line of Nick Dempsey from Barclays. Please go ahead. Your line is open.
Yeah, good morning or good afternoon. At the full year 2022 results, you included in your guidance commentary that you expect group organic revenue growth to be in line with 2022, in other words, 6%. You've not used that exact wording in this release. Are you still happy with 6% for 2023? Second question, just wondering if you could zoom in on the two places in the group where you're predicting a clearly better rate of organic revenue growth in the second half of the year versus the first half. That's Corporate Performance & ESG and Financial?
In a software business will support longer-term growth. We don't see a top up or, you know, a cap on our growth potential. We do want to say that it's, it's incremental by the nature that you, you need to bring your customers along. It will take us a while to move our customers from on-premise software to, to cloud. As a result, you see a gradual improvement in organic growth versus sort of a, a major step up from one year to another. We're confident in the long-term growth prospects of the business, and we're investing very much across the whole portfolio in expert solutions in cloud software. Kevin, do you want to talk about the, the growth questions?
Certainly, Nancy. Nick, we usually do not give specific numeric guidance on organic growth, but we have given you, by division, what we expect to see for the full year. And I think if you work that out from our press release and some of the comments Nancy made a little bit earlier on this call, you know, we do expect some groups to be in line with last year, some groups to be slightly ahead, some groups to be slightly behind. You can kind of work out that overall, for the full year, we do anticipate that organic growth will likely be similar to what we saw in 2022. I think your next question was on two specific divisions. One was the outlook for better performance in Corporate Performance & ESG, and then you also asked about the FCC division.
Certainly, in Corporate Performance & ESG, we're very excited about this group. We saw very good growth in the first half of the year, and we do expect that trend to continue into the second half of the year. When Nancy and I sit down with the management team and looking at the sales pipeline, we're very encouraged by developments here. I will remind you that typically, the second half is a stronger performance in that group for things like software implementation and new license fees. Clearly, you know, very optimistic about the outlook there. With the FCC group, what we have said in our guidance is we expect organic growth could be slightly lower or in line with the prior year.
We do see very good performance in the recurring nature part of that portfolio, but I'll remind you, FCC does have more transactional revenues than other parts of the group, and we saw a little bit of weakness in those transactional revenues in the first half, largely due to mortgage volumes and new legal formation. That would be our outlook for the FCC group. Hopefully, that helps you get a bit of a view on our confidence in the guidance going forward.
Nick, just real quick, to just add on what Kevin said, is in FCC, the transaction, comparables help a lot, right? In terms of the second half, comps being a little more favorable than the first half. That's why we have confidence in our guidance in that particular division.
Thank you.
Thank you. We will take our next question. Your next question comes from the line of Adam Berlin from UBS. Please go ahead. Your line is open.
Yeah. Hi, good afternoon. It's Adam Berlin from UBS. I want to ask a couple of questions about. Since we start thinking about 2024, I understand it's a bit early, but if you can give us a little bit of help thinking about our numbers for next year, it would be helpful. My first question is, what, what needs to go right next year to accelerate the group growth to 7%? Is it just if, if, if the transactional headwinds are less and everything else kind of goes along at the same rate, we kind of will tick up towards that 7% level or, or do other things need to happen for, for us to see that progress?
The second question is, now that we've kind of stabilized the cost base for all those COVID one-off effects that you talked about in the presentation, are we gonna go back to a kind of 20-30 bits a year margin progress, assuming that the top line does what we expect it to do?
Yeah, Adam, thank you for your questions. You know, we don't give longer-term, you know, growth or margin guidance. You know, when we come out with our full year results in February of 2024, we'll of course, give you the guidance against the metrics that we use. What I can say is that, you know, the key things that we would point to that speak to the health of the franchise of Wolters Kluwer. One is the recurring revenue that continues to increase as a percentage. It's 82% of our totals, and that's up 7% through the half year. Similarly, expert solutions, which is where we're investing, that is also up 7%. That's, you know, that's where the capital is going.
We are confident that as we continue to, you know, grow the business in the future, that you'll continue to see progress on organic growth. What the rate is for 2024, you know, you'll have to wait till February to hear more about that. We are confident in the, as I say, in the prospects of the business. The other thing that really we talk a lot about, and that's really what starts to happen in the second half, is it really becomes all about the next year. We focus a lot of attention on retention. A lot of attention on making sure all the new sales come in in the second half, because, of course, new sales don't affect the current year all that much, but they certainly affect the next year.
That's what we do as an operating team, and as Kevin mentioned, we feel positive about the pipelines, very positive about the retention rates that we're seeing and the strong, you know, Net Promoter Scores that we have on our products, which again, speaks well to our positioning. The, you know, same thing on, on margins. Kevin, I don't know if you wanna talk a bit about that. You are seeing that the cost base is sort of stabilizing or getting back to sort of the pre-COVID volatility that we saw, and, but we are committed to continuing to improve our margin as well.
Yeah, Adam, I do think that, looking at our guidance that we've given you today, we do expect the full year margins will improve. We've given you a range of 26.1%-26.5%, so margin improvement is incorporated into our thinking. As you mentioned, our cost base is coming back to normal now, now that we've fully emerged from the pandemic. In the second half of last year, we were really getting back to that normal state. The comparable year-on-year in the second half is gonna be a little bit more forgiving on the cost base side. That does give us confidence that we will deliver that margin improvement guidance that we've given you today.
Okay, thanks very much.
Thank you. We will take our next question. Your next question comes from the line of Matthew Walker from Credit Suisse. Please go ahead. Your line is open.
Thanks a lot for taking the question. Hope you can, hope you can hear me. The first question was on generative AI. The question is: you know, when do you think you'll have identifiable, identifiable products out there ready for clients to use? Will they be kind of deployed, like, in legal across the whole division, or will it be very sort of piecemeal, so one for CCH, you know, one for CT Corp, that kind of, that kind of thing? Do you expect to price those up separately, so they'll be incremental to revenue growth? The second one was on CapEx, and you pointed towards the upper end of the 5%-6% range, and so is that a change? Do we need to sort of start putting in close to 6% for the future? Thank you.
Thanks, Matthew. I'll take generative AI. Then Kevin can talk about CapEx. We already have a Gen AI application in the marketplace in China, you know, which is in the legal market. We have this product called Bold, and we've already deployed some Gen AI tools with that product. What we are doing, just so you know how we're approaching this, right? Again, we've been using AI for a long time. You know, every division is deploying some use cases, very close collaboration with customers, because at the end of the day, you know, you have to solve some kind of customer problem.
In some cases, as we are working through the, the, the process, which is our normal innovation process, we decide to deploy a different kind of AI, maybe, you know, NLP or predictive analytics. Sometimes we believe that the Gen AI tool will work best. You should fully expect that products are rolling out over the course of 2023 and 2024 that have elements of Gen AI incorporated into those products. We will do it case by case, whether it supports, you know, the retention processes that we have, so no necessarily incremental revenue, but supports a price increase, for example. There may be some products, like we have some pure AI products today, that obviously create brand new revenue streams.
We're confident in the process that has been driving innovation at the company, and we're just, you know, viewing Gen AI as another opportunity for us. But again, we have to do it in close co-collaboration with customers, because ultimately they're only gonna spend more money if they believe they're solving a specific problem that they have. Kevin, do you want to talk about CapEx?
Yes. With regard to CapEx, Matthew, we've guided you to the upper end of our range of 5%-6%. That has everything to do with product development. Most of our CapEx is development of technology tools. As we mentioned, you know, the first half of the year, we spent 11% of our revenues on product development. That's both CapEx and OpEx. That's a little bit higher than what we typically guide to at 10%. I wouldn't read into this that there's a step change in our investment. I still think long term, you know, the 10% is the right place, and CapEx between 5% and 6% is the right place. For this year, based on what is on the drawing board right now, some exciting, innovative ideas, that's what we're guiding you to.
Okay, that's very clear. Thank you.
Thank you. We will take our next question. The next question comes from the line of Silvia Cuneo from Deutsche Bank. Please go ahead, your line is open.
Thanks. Good afternoon, everyone. I have a couple of questions left. The first one is on the new segment. Can you please talk about the potential future progress and, and opportunity to improve margins in Corporate Performance & ESG? Is this going to remain an area of investment in the short term? Can the segment progressively improve margins towards the group level over time, or perhaps are there structural differences to keep in mind? Secondly, can you talk about trends in subscription renewals and new customer wins? I think it sounded positive in U.S. Clinical Solutions, and just wanted to ask if you had any more color to share on these or other segments. Thank you.
Okay. I'll talk about customer trends, and then Kevin Entricken can talk about margin developments in the Corporate Performance & ESG division. In general, you know, retention remains very high across the group. It's something that, again, we have invested a lot in terms of continuous improvements in our products, adding lots of new pieces of functionality, including all the things we talked about with artificial intelligence. That supports both, you know, the higher renewals as well as supports price increases that we typically take year on year. We're very pleased with our renewal developments across the board.
What we are seeing, which again bodes well for the future of the business, is that as we transform from digital information into expert solutions, our retention rates rise from sort of mid to high 80%s of retention into the 90%s. If you look, for example, at digital information in legal and regulatory, what you would see is retention rates above 90%. Again, it proves that these investments we're making to transform the, the, the content businesses into expert solutions is working. Very pleased with the retention developments. New wins, you know, we continue to win new logos across the board. Obviously, in places like our cloud products and in the new division, we're winning lots of new logos because these markets are faster, growing markets.
What we do is we have this, this strategy called land and expand, what we do is as we win a new customer, we also focus on upselling the customer with additional modules. Almost all of our software products and our expert solutions are module in nature. We, we tend to not just win a new customer, but then continue that sales process. If you look at our pipelines, they remain strong, and that gives us, again, confidence that we will deliver on our guidance for the full year. Kevin, do you want to talk about margin developments?
Certainly. In the Corporate Performance & ESG group, you know, our new division there, we're very excited about the growth prospects, right now the margins reflect investment mode. We are investing in innovative products and enhancements in that group. As mentioned earlier, we are also seeing, you know, a step up in personnel, mostly in product development personnel, and some division setup costs in the first half, do expect the margins to improve. In fact, in our guidance for the full year, we do expect the new divisions margins to improve over the prior year. If you think about the longer term for these businesses, these are software businesses. You know, CCH, Enablon, TeamMate, our FRR business are all, you know, global software businesses.
Software businesses, as a rule, when they get to scale, do tend to have margins higher than the group average. For, you know, the time being, we are in investment mode, but we do anticipate margins will improve gradually as we mature those products.
Yeah, and I would also just say in that division, you know, we've just launched a couple of new products in 2023 around ESG and reporting, both CCH as an ESG and sustainability solution in the market, and TeamMate just launched just very recently an ESG solution. So we are investing to, to drive, you know, our market-leading position in, in sort of the ESG part of what we're doing, which is why we brought these businesses together and formed the new division. So we're very excited about, you know, the capabilities that we have. We're really well-positioned in the market to help clients with all of the aspects of data collection, reporting, and audit in, in the ESG realm.
Very clear. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one and one on your telephone. We will take our next question. The question comes from the line of Lisa Yang from Goldman Sachs. Please go ahead. Your line is open.
Hi, thanks for taking my question. There was a question earlier about, you know, giving more color about divisions, which is accelerating in terms of organic growth. My question would be the opposite. It looks like you're talking about a slowdown, slightly lower growth in tax and accounting and health in H2 versus H1 based on the guide. I think Tax and Accounting was still at 8%, getting to steady historic growth for the full year and similarly in health, you at 6% in H1. It looks like you're gonna be more back to 5%. What, what's driving that potential slowdown? That's the first question. Secondly, is on the margin. I think you laid out pretty clearly how the cost base has normalized.
Just wondering what you mean by you expect your core level of adjusted margin to increase? Q4, what does that mean for Q3? Do you think your Q3 margin will still be down year-on-year, and it's only in Q4 that you're going to see the improvement? Because based on what you said, looks like the cost base has already normalized. Just wondering if you can clarify that. The third question is on AI. Is it fair to assume that with generative AI, because you've been investing in AI and technology for a long period of time, that's gonna just, you know, help you with retention and pricing rather than being a big game changer in terms of revenue and margin? Is that the way to think about it?
On the other hand, you know, do you see any potential risk, especially when it comes to, you know, how do you protect your, your IP and how much of that is, is proprietary? Like, I don't know if you can maybe elaborate on, on, on the risk part as well. Thank you.
Okay. Thanks, Lisa. I, I will take the AI, AI question and just talk about tax and accounting and health on the growth side, and then, Kevin, if you can handle margin questions in the second half. Let's start with AI. You know, as I mentioned in my remarks, you know, today, 50% of our digital revenues are, you know. Those products that make up that 50% include some form of AI. You know, we have some products that are purely AI, and then we have others that use different kinds of AI to provide value to customers. We are well positioned in the AI world. It, it runs the gamut in terms of what it does for us, right?
Again, the whole focus we have on innovation is around what's the customer's pain point and then how to solve it, and we solve it through a combination of our deep domain expertise and technology. So why we are confident in our ability to navigate this next wave of Gen AI, is that it's really. You can't do it with just technology, right? You really need the deep domain expertise, you need the proprietary data and content. You know, think about our customers. They make incredibly important decisions that have very large, you know, implications if they don't get it right. The nature that, you know, kind of our whole value proposition is, you know, you can be assured that if you use our products, you will be right, and you will have a positive impact.
AI is just, you know, Gen AI is just another tool for that. So on the risk side, that, that you mentioned, you know, we are only deploying Gen AI against our proprietary data sets. We are, we are not using the World Wide Web, kind of, applications. As a result of that, we don't have hallucinations. You know, we really can be confident that, that, you know, the quality and the accuracy is there. That, that allows us to protect our IP. It allows us to mitigate any risks from a customer perspective. We continue to, to, deploy this, and, and we feel confident.
We see it much more as an opportunity to continue to add value with clients than we see, and, you know, the risk to any part of the business. Just very quick on TAA, you know, the growth slows a little bit, but all around the transactional part of what we do in tax, we had a very robust tax outsourcing business in 2022, and we, you know, we expected that that wouldn't continue fully in 2023. That is what is driving the delta in the growth for tax 2022 to 2023, but again, a very impressive rate of growth regardless. In health, it's really just rounding between, you know, the numbers.
There's nothing fundamental going on in the health business remains, you know, attractive market for us. Kevin, do you wanna talk about margin developments in the second half?
Yeah, certainly, Lisa. With regard to margin development in the second half, we are guiding to the improvement for the full year, although I think most of that improvement you'll start to see come the fourth quarter. For the nine months, I expect the margin will still be down year-on-year compared to the prior year, because, as you know, we were ramping up hiring in the second half, and we're probably closer to more of a complete, you know, personnel component as we exited the year last year. I expect most of that margin improvement based on the comparables to come in the fourth quarter of the year.
Very clear. Thank you.
Thank you. We will take our next question. The question comes from the line of Tom Singlehurst from Citi. Please go ahead. Your line is open.
Good afternoon. It's Tom here from Citi. Thank you very much for taking the question. The first one, I really apologize for being boring on this margin point, I just wanted to double, triple-check because, you know, last year, you're absolutely right. First half, super high margin, it was something like 200 basis points up from the previous year, which speaks to that sort of low investment, that unwinds in the first half of this year. Then you talk about the investment and, y ou know, 2 points, actually. One is, at the nine months last year, you were up 50 basis points. In the fourth quarter, you were up 80 in terms of margin. I mean, that suggests that the fourth quarter margin was improving, I suppose, last year.
That's one question, and, and therefore, why, you know, why is the phasing still skewed to the fourth quarter this year when you'd expect it to be in the third quarter?
Secondly, in, in absolute euro and euro cents, I, I think I'm right in saying that the, the implication is that your overall cost base will be down year-on-year, sort of 2H on 2H, in order to make the margin. I suppose that might just be currency, in which case, just maybe, maybe confirm that. I, I am just really interested in, in just understanding how that mechanic happened, given we know, because you said there was a 40 basis point or so tailwind from currency last year, which doesn't seem to be unwinding in any material way. That was the first question. Second, on cash flow, you have delivered slightly below the 100% cash conversion, and maybe that's the answer.
You know, essentially, as far as I can tell, in absolute terms, sort of full year profit is roughly 2x 1H profit, yet we're looking for the cash flow to comfortably more than double. What are the, what are the moving parts there? Thank you.
Kevin, do you wanna-
Yeah, absolutely.
Yeah.
On the margin, Yeah, on the margin question, Tom, it really does have to do with the comparables. The improvement we expect in the second half of the year has to do with the fact that we were more fully staffed back in 2022, where we had much more open positions in the first half of 2022. The comparables just work out in such a way that we do expect to see a better margin performance in the second half of this year, and as I mentioned a little bit earlier, likely see a lot of that margin improvement in the fourth quarter. With regard to the cash flow, you know, we are guiding to a 100% cash conversion. You know, we are a very cash-generative company, and we do have a good line of sight on that.
You know, we're monitoring our collection metrics as a matter of course, through the year. You know, we do expect to convert, you know, just about all of our operating profit into cash next year or at the end of this year at about 100%.
Thank you.
Thank you. Once again, if you wish to ask a question, please press star one and one on your telephone. We will take our next question. The question goes from the line of Konrad Zomer from ABN AMRO ODDO BHF. Please go ahead. Your line is open.
Hi, good afternoon. Thanks for taking my questions. Just one, please, on the recruitment of personnel, because it's obviously one of the key reasons why margins were down as much as they were down in the first half. The number of job openings has come down from about 1,000 to about 500. Can you share with us what sort of jobs were filled with those 500 people? Were they mainly sales and marketing or technological experts, or I don't know, people that focus on AI?
Given that the growth rate of the company overall is at a historically high level, would you not expect the number of people to keep going up in proportion to that higher level of revenues, i.e., I understand the whole COVID impact from last year, but it seems fair to assume that the growth in personnel will ultimately catch up with the, its growth in revenues.
Yeah. Maybe I can start, and Kevin can chime in. We had, you know, significant open positions in 2022. Really a combination of two things, right? One was that during COVID, during the peak of COVID, you know, was difficult to recruit. There was a lot of uncertainty, so that slowed quite a bit. We faced a very robust labor market where it was both our turnover rate increased, and it was difficult to fill positions. We did a couple of early retirement programs, which were what were planned, but we had a bit higher uptake of people wanting to take those than we had expected.
We had the Russia-Ukraine situation, where we had a series of IT partners that had quite a big footprint in Ukraine, and so we had to shift a lot working with them. As part of that shift, we also decided to move some of that into our own employee base. All of that came together, right, really in 2022, where we had, you know, just a number of open positions, mostly in tech and sales and product management. That's where the bulk of the hiring has been. We've are really pleased that we've been able to fill and manage all these things I just talked about successfully. We're well down to only, I think, about 500 open positions, most of which are replacements. We see turnover rates come down well.
We see a stabilization of labor costs, you know, happening in 2023. We're well-positioned now with the right mix of people in the right geographies where we need them to be. You know, we'll continue to fill, you know, the open heads, but it's really we're well into sort of what I would call a quite stable situation. Back to your question on, you know, should you expect personnel to grow with the growth rate of the company? You know, of course, there'll be some growth, but given that most of what we're hiring is tech talent, you know, what we see is that we are getting increasing productivity benefits in our tech organizations.
That comes from both the scale effect as we bring these units together, it comes from the reuse of the technology tools, and of course, technology costs typically go down over time. Just for example, the 10%-11% that we invest in product enhancements and new products, we get more for that 11% today than we would have gotten 10 years ago. That means that the rate of hiring is not gonna be totally correlated with the, the growth rate of the company, but we clearly will see some job growth as we continue to expand organic growth. Hopefully that answered your question.
Yeah, absolutely. Thanks very much.
There seems to be no further questions at this time. Nancy, do you have any closing remarks?
We just wanna say thank you very much for attending and wish you a good rest of your day or evening.
This concludes today's conference call. Thank you for participating. You may now disconnect.