Hello, and welcome to the Wolters Kluwer Half Year Results 2020 conference call. My name is Rosie, and I'll be your coordinator for today's event. Please note this conference is being recorded, and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad to register your question at any time. If you require assistance, please press star zero and you'll be connected to an operator. I will now hand you over to Meg Geldens, Head of Investor Relations, to begin today's conference. Thank you.
Thank you, Rosie. Welcome everyone to the Wolters Kluwer Half Year 2020 results call. Today's earnings release and the slides for this presentation are available for download on the investor section of our website, wolterskluwer.com. On the call with me today are Nancy McKinstry, our CEO, and Kevin Entricken, our CFO. Due to COVID-19, we are all dialing into this call remotely from various locations around the world. We thank you in advance for your understanding in case we experience any delays during this event. Nancy and Kevin will shortly discuss the important features of our first half 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 uncertainties that may cause actual results to differ materially from those indicated in these statements. Factors that could affect Wolters Kluwer's future financial results are discussed in Note 3 to the half year earnings release. The COVID-19 pandemic has led to some disruption in our end-user markets and created significant uncertainty in terms of economic conditions around the world. If the situation deteriorates or persists for an extended period of time in key regions or businesses, then the risk of a significant impact on the group's business due to this pandemic will increase. In addition to Note 3, we also refer you to Note 30 of our annual report for details on other risks. As usual, we'll refer today to adjusted profits, which excludes non-benchmark items.
We also refer to growth in constant currencies, which excludes the effect of currency movements, and we refer to organic growth, which excludes both the effect of currency and the effect of acquisitions and disposals. Reconciliations to IFRS numbers and further information can, of course, be found in the notes to the financial statements. At this time, I'm happy to turn the call over to our CEO, Nancy McKinstry.
Thank you, Meg. Hello, everyone, and thank you for joining us on this call. Before I start, I would like to thank all employees of Wolters Kluwer for their enormous efforts and dedication during what has been an unprecedented and challenging time for everyone. Since mid-March, our attention has been on ensuring the safety of our employees, safeguarding the continuity of the business, and providing as much support as we can to our customers during this difficult and disruptive time. Today, with approximately 95% of our employees still working from home, we are monitoring everyone's wellbeing regularly to help steer how we can best assist them. Across all segments, we've been focused on supporting our customers, whether it is by providing access to medical resources or by launching new solutions that help our customers manage COVID-19 challenges.
Underpinning all of this has been a global incident management organization that has been active since the pandemic began and our global IT infrastructure team who has been involved at many levels. Against this backdrop, we are encouraged by how the business performed in the first half. Our first half results speak not only to the quality and resilience that we have built at Wolters Kluwer over many years, but also the agile manner in which the team responded to this crisis on all fronts. If anything, the crisis has reinforced our commitment to our strategic direction. While our financial trajectory has been altered somewhat, we remain very committed to our strategic priorities, growing our Expert Solutions, advancing our information products and services, and driving operational agility.
After a strong first quarter and helped by the rapid rollout of a solution to enable our bank customers to participate in the U.S. Paycheck Protection Program, otherwise known as PPP, we delivered 3% organic growth in the first half. Rapid action on cost containment, a few one-off factors, as well as some underlying improvement, pushed up the first half margin and adjusted operating profit, which in turn drove an increase in diluted adjusted EPS and in adjusted free cash flow. Our balance sheet and liquidity position remains strong, enabling us to continue with dividends and share buybacks. I will now turn the call over to Kevin Entricken, who will cover our financial performance. I will come back to discuss divisional developments and provide you with some examples of how we are progressing on our strategic priorities. Kevin.
Thank you, Nancy. First, let's cover headline figures on slide seven. First half revenues were EUR 2,294 million, an increase of 3% in constant currencies. Organic growth was also 3%. Excluding the revenues associated with the PPP software solution, organic growth would have been 2%. Adjusted operating profit was EUR 577 million, an increase of 14% in constant currencies. The adjusted operating profit margin increased by 270 basis points to 25.2%. This was supported by temporary cost reductions, lower restructuring charges, and one-off factors, which I will come back to in a moment.
Diluted adjusted earnings per share increased 18% in constant currencies. Adjusted free cash flow was EUR 336 million, an increase of 12% overall and 10% in constant currencies. Lastly, the rolling 12-month net debt to EBITDA ratio was 1.5 x. Turning to slide eight, we'll take a look at our four divisions. All four divisions were affected by the COVID-19 crisis, albeit in different ways and to different degrees. Health grew 3% organically, following a slowdown in the second quarter. Tax & Accounting recorded 3% organic growth, also slower in the second quarter, as it faced not only challenging comparables in both Europe and the U.S., but also more difficult conditions for driving new software sales. The division also saw an impact from delays in the U.S. tax filing season.
Governance, Risk & Compliance recorded 6% organic growth due to the rapid deployment of the PPP solution, enabling our bank customers to participate in the U.S. Paycheck Protection Program. Without that product, organic growth would have been 1%. Legal & Regulatory has so far been the most impacted. Organic growth turned negative, declining 2% in the first half, primarily due to an accelerated decline in print formats. Let me provide more color on the developments of revenue by media format on slide nine. Here you see our revenue by media format. I would like to draw your attention to the impact of print on our first half revenues. While print only makes up 7% of total revenues, it fell by EUR 37 million in the first half, shaving nearly 2 percentage points off organic growth rate. Fortunately, the impact on margin is less severe.
I'd like to turn to revenues by type on slide 10. This slide shows the trends in revenue by type over the past two and a half years through the first half of 2020. On the left, you'll find recurring subscription-like revenues. On the right, transactional and non-recurring revenues. I won't go into the detail on the green lines, which are print. Suffice to say, print saw an accelerated decline, but it's a relatively small part of revenue. The most important category is recurring digital and service subscription revenues, depicted by the dark gray line. This is the strategic backbone of Wolters Kluwer. It accounted for 71% of group first half revenues. This important recurring revenue stream sustained steady 6% organic growth over the period. The light gray line in the middle represents other recurring revenues.
The downturn here is mainly due to the extension of the U.S. tax filing deadlines, which were moved from the second quarter to the third quarter. As a result, we expect to recognize revenue from e-filing fees and bank products in the third quarter. On the right, the highest solid line is legal service transaction revenues, where we saw a clear dip in the first half after a strong growth in recent years. This is tied to the falloff in M&A volumes and company formations. The lowest solid line mainly represents non-recurring software licenses and implementation fees. The downturn here is evident of the cautious spending patterns of our customers. Many organizations are postponing enterprise software installations until conditions become clearer. This trend may also be a sign of an accelerated shift to the cloud. Now let's turn to adjusted operating profits on slide 11.
As mentioned earlier, adjusted operating profit increased 14% in constant currencies to EUR 577 million. The adjusted operating margin increased by 270 basis points to 25.2%. The margin benefited significantly from temporary cost reductions, but also from a EUR 10 million reduction in restructuring charges and some one-time factors. These factors helped increase margins across all divisions. Health recorded a margin increase of 270 basis points, reflecting the general factors I just mentioned. Tax & Accounting saw the margin increase by 260 basis points, reflecting similar factors, but also improved margins in Corporate Performance Solutions. In Governance, Risk & Compliance, the margin increased by 280 basis points, reflecting not only temporary cost reductions and lower restructuring charges, but also an insurance reimbursement and the benefit from the PPP solution. Finally, Legal & Regulatory recorded a 70-basis point increase despite the revenue decline.
This reflects the temporary cost reductions as well as increased scale in the EHS and ORM software business. I'd like to come back to the nature and timing of cost savings on the next slide 12. During the second quarter, we froze all travel and put a hold on non-critical hiring. We also made some other temporary cost reductions, some of which we expect will start to unwind in coming months. We are now taking additional cost actions which will require upfront investment and restructuring, but which will drive longer-term sustainable savings. These short-term and longer-term responses on costs will help to protect our full year 2020 adjusted operating profit margin. Importantly, though, we are aiming to sustain investment in product development at 8%-10% of revenues, and we intend to continue with key investments in sales and marketing globally. Let's turn to the income statement on slide 13.
Adjusted net financing costs were EUR 25 million, down from the prior period, reflecting exchange rate movements. Our share of profits from equity accounted investees net of tax was EUR 5 million. This was due to the release of a provision related to the May divestiture of our stake in Logical Images. The benchmark tax rate reduced to 23.5%, benefiting from lower interest charges and deduction limitations in the Netherlands, and the favorable impact of tax losses in 2020. Adjusted net profit after tax was EUR 426 million, up 16% in constant currencies. Finally, the diluted weighted average shares outstanding was reduced by 2% as a result of share buybacks. As a result, diluted adjusted EPS increased 18% in constant currencies. Turning to cash flow on slide 14. The first half cash conversion ratio declined to 84% from 90% a year ago.
This was primarily driven by the increased capital expenditure and increased working capital outflows. Capital expenditures increased to EUR 121 million, largely due to higher investments in critical products and systems. Working capital outflows increased to EUR 69 million, reflecting the timing of payments. All in all, despite the lower cash conversion, adjusted free cash flow was EUR 336 million, up 10% in constant currencies, driven by the 14% increase in adjusted operating profit. Turning to slide 15 to summarize how we deployed that free cash flow. EUR 210 million went toward the final 2019 dividend paid to our shareholders in May. Acquisition spend was modest at EUR 26 million. Spending primarily related to CGE Risk Management Solutions, which was acquired by the Legal & Regulatory division's EHS ORM software group.
Cash proceeds from divestitures were EUR 20 million and reflect the divestment of certain Belgian training assets, the sale of certain businesses in Germany, and the sale of stakes in Medicom and Logical Images. We deployed EUR 154 million towards share buybacks in the first half. Overall, this led to a small reduction in net debt, which, combined with an increase in 12-month rolling EBITDA, moved our leverage ratio lower to 1.5 x. Now let's focus a bit more on the dividends and share buybacks on slide 16. At the start of this year, we set the interim dividend at 40% of the prior year total dividend. This means we will pay out EUR 0.47 per share to shareholders in September. Also, at the beginning of the year, we announced plans to spend up to EUR 350 million on share buybacks in 2020. We're making progress.
Through August the fourth, we purchased EUR 175 million worth of shares. We have signed to complete an additional EUR 100 million in the next three months. To sum up our results on slide 17, our results demonstrate the resilience of our recurring digital information, software, and services portfolio, our agile and immediate response to the COVID-19 crisis, and prudence around the balance sheet and liquidity. Despite the COVID-19 challenges, we achieved 3% organic growth, or 2% excluding the revenues associated with the PPP. Immediate action to contain costs and certain one-off factors benefited the adjusted operating margin. We expect some of this will reverse in the second half. Diluted adjusted EPS increased 18% in constant currencies, benefiting from a higher adjusted operating profit, a lower tax rate, and lower share count.
The growth in adjusted operating profit drove a 10% increase in adjusted free cash flow in constant currencies despite the lower cash conversion. Our financial position remains strong with net debt to EBITDA of 1.5x , and our recent refinancing has improved our liquidity and extended our debt maturity profile. We're delivering shareholder returns with an interim dividend of EUR 0.47 and continue to make progress on our share buyback program. I'd now like to hand the presentation back to Nancy to cover division developments.
Thank you, Kevin. I'll begin with a review of the first half performance of our four divisions, starting with Health. Health achieved 3% organic growth, driven by our Clinical Solutions. The adjusted operating profit margin increased, reflecting temporary cost reductions and lower restructuring charges. Clinical Solutions sustained 7% organic growth despite the challenging market conditions. UpToDate performed strongly, and the UpToDate Advanced Module now has over 1,000 hospitals around the world subscribing. Our drug information business also performed well, benefiting from closer alignment with UpToDate. Learning, Research & Practice saw revenues decline 1% organically. Digital revenue growth of 6% was more than offset by an accelerated decline in print formats. The COVID-19 disruption has had a significant impact on our printed books and journals and also on revenues from advertising and conferences. Increased demand for online education helped drive strong growth in our digital solutions for nursing schools.
Now turning to Tax & Accounting on slide 20. Tax & Accounting recorded 3% organic growth, and the margin increased 260 basis points, mainly by temporary cost reductions, operational gearing, and certain one-off factors. Corporate Performance Solutions, which include CCH Tagetik and TeamMate, saw organic growth slow to 12% against a strong comparable and amidst more challenging conditions for new software sales. In both performance management and internal audit, revenue growth was driven by the cloud-based versions of these products. Our professional Tax & Accounting businesses recorded slower organic growth of 2% in the first half as we faced a tough comparable and a more difficult new sales environment. In North America, the delay in the IRS filing deadlines deferred revenue from e-filing and bank products into the second half. Our U.S. Cloud Suite, CCH Axcess, performed well.
In Europe, organic growth slowed to 5% against exceptional performance in the prior period. Now let's talk about Governance, Risk & Compliance on slide 21. GRC recorded 1% organic growth, excluding the PPP solution mentioned earlier. As elsewhere, the adjusted operating profit margin reflected temporary cost reductions and one-off factors. Legal services posted organic decline of 1%. Our legal representation and compliance business, CT Corporation, achieved positive organic growth in its recurring service subscriptions, but this was more than offset by a sharp downturn in CT's transactional revenues as M&A volumes and related company formations were impacted by COVID-19. Financial services revenues grew 16% organically due to the rapid deployment of our compliance solutions team of a software solution to enable our bank customers to participate in the U.S. Paycheck Protection Program.
Lien Solutions held up well, despite a decline in UCC search and filing transactions, and Finance, Risk & Reporting recorded good organic growth. Let's now cover Legal & Regulatory. Legal & Regulatory revenues declined 2% organically due to an accelerated decline in print formats. In addition, training and other non-recurring revenue streams were weak. The margin increased, reflecting the temporary cost reductions we initiated in March, as well as improved scale in the software business. Our EHS, ORM, and legal software units together saw organic growth slow to 11%. Our recurring cloud-based solutions sustained strong growth, which more than offset revenue declines in non-recurring on-premise license and implementation services. Our legal software unit sustained high single-digit organic growth. Information solutions revenues declined 4% organically due to the accelerated decline in print formats. Both print subscriptions and print book revenues recorded high teens declines.
The digital information products, however, which now account for nearly 70% of the unit's revenues, delivered 6% organic growth. Let me remind you of our strategic priorities. While COVID-19 is impacting our near-term financial performance, we remain committed to the strategic priorities we set out at the start of 2019, and despite the disruption, we are making progress on this strategic plan. Let me recap our strategic priorities. Our first strategic priority is to grow our expert solutions. Expert solutions make up just over half of our revenues today, and our goal continues to be to scale these solutions by extending the offerings and broadening distribution. Our second priority is to advance domain expertise, which means we want to continue transforming our information products and services by enriching their content with advanced technologies to create more value for our customers. Our third priority is to drive operational agility.
We are improving the organization's ability to respond quickly to opportunities and change. We support these objectives with sustained organic investment at 8%-10% of our revenues allocated to the opportunities with the greatest long-term return on investment. We continue to fund our infrastructure investments by driving underlying cost savings. We will continue to evolve our technology towards fewer scalable platforms and to transition our on-premise software solutions into the cloud. Strong organic growth and a few select acquisitions have now nearly doubled our revenues from cloud software over the past three years. Today, cloud accounts for just over a quarter of our software business. Cloud software grew 24% in 2019 and 19% in the first half of 2020. The COVID-19 pandemic appears to be stimulating renewed interest in cloud-based software and collaboration tools as professionals adapt to remote working conditions.
Our Tax & Accounting software business is the most advanced in the journey to the cloud. The CCH Axcess suite was launched six years ago. In Legal & Regulatory, where software is still a relatively small part of the division's revenues, we started to see a shift to the cloud a few years ago with Enablon's EHS ORM cloud platform. In GRC, there are signs that large banks who had been reluctant to move to the cloud are now taking a fresh look at hosted solutions. Let me give you an example to illustrate the benefits of the cloud for our banking customers. About a year ago, GRC's Finance, Risk & Reporting unit launched a SaaS version of its OneSumX regulatory reporting solution, partnering with Microsoft Azure to provide premium and secure hosting to banking clients. We are currently investing to cover more geographies and to extend its capabilities.
The cloud version offers the same functionality as the on-premise software product, but brings many additional benefits to the customer. First of all, it relieves customers from having to maintain and host the IT infrastructure. Wolters Kluwer handles the installation, hosting, and fine-tuning of the system for the customer. This reduces the overall cost of ownership. The SaaS version also brings automatic access to our unique Wolters Kluwer regulatory update service, produced by our in-house regulatory experts. Our first customer was BNG Bank of the Netherlands, and since then, we have signed five other financial service customers, including notably two quite large banks for the cloud solution. It is still early days, but we are excited about this promising innovation. Now turning to slide 26, I want to make a few comments about sustainability.
As we continue to drive forward with our strategic priorities, we are also continuing to pay close attention to our performance on environmental, social, and governance matters. We are currently launching a new code of business ethics to reinforce a culture of integrity and openness. This new code will form part of our annual mandatory compliance training for all employees globally. This year, we also strengthened our Green is Green program, which aims to support our office managers and employees to adopt environmentally sound practices. The work we are doing here will lay the foundation for setting environmental targets for future years. Now, let me wrap up with a few words on the outlook for the remainder of this year. Turning now to slide 28. As you know, the COVID-19 pandemic continues to create challenges for our customers and economic uncertainty.
Until we have greater clarity on the outlook, our specific 2020 guidance remains suspended. We expect recurring revenues for Digital Information software and services subscriptions to show resilience. We note that new sales of subscription products have been difficult in the current market conditions. We expect that as we saw in the second quarter, transactional and other non-recurring revenue streams will remain weak. We expect full-year revenues in Health to show positive but slower organic growth, but revenues in the other three divisions, excluding PPP revenues in GRC, to decline or to be broadly stable. Our response on the cost side is aimed at protecting the full-year adjusted operating margin while sustaining investment in key products and strategic infrastructure. We are in a strong financial position, and we remain confident in our strategic direction and the company's long-term prospects.
With that, we are now happy to take questions, so I'll turn it back to our operator.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, you can press star two. You will be advised when to go ahead. Our first question comes from the line of Patrick Wellington from Morgan Stanley. Please go ahead.
Hello, everybody. A couple of questions. Firstly, on the Tax & Accounting division, you look for broadly flat revenues, but actually, if one looks at the components of the Tax & Accounting division, you should be getting a benefit from e-filings growth in the second half, and also the CCH Tagetik businesses and TeamMate still doing well.
A little bit conservative, do you think, in your concept of broadly flat for the year? Secondly, I think you mentioned in the context of the EHS and ORM software that you're beginning to see a bit of scaling up of the margins or improvement in the margins as the business scales up. Can you take a step back and give us a sense of the margin potential in those sorts of businesses? We've seen a similar thing in CCH Tagetik as well, I think. My third question is simply about the print revenues.
How do you regard this trend, Nancy? Obviously, you're seeing an accelerated decline this year. What happens when we, if you like, get back to normal conditions? Will print rebound, or will you see that turn into digital growth? What is your feeling about this accelerated decline of print revenues? Arguably, it should raise the overall growth of the group going forward. Thank you.
Yeah. Why don't I take the print revenue question and the EHS margins, and then maybe Kevin, you can talk about tax. If that works for everybody. On print, I don't see a rebound. I think if you look at the whole trajectory right over many years as we've been doing the transformation, print kind of declined in sort of the low single-digit levels. After the global financial crisis, that declined accelerated to sort of -8 to -10, and now you see an even more dramatic rate of decline. I believe that print will not rebound, with maybe the exception of textbooks. We still see in the education market that students historically have preferred the textbook with some e components wrapped around. That's what we see in some areas of medicine and legal textbooks.
In general, I would say that it might decline a little less, but it's not going to rebound, in my opinion. It's because customers get used to working in a different way, and as you know, Patrick, most of our customers also have the e solution as well. That allows them to have access to the information and the functionality that they need. On the margin question, just to remind everybody, when we first bought Enablon and eVision, the margins were quite low. The whole premise was that we can scale these businesses more quickly under our ownership. That is in fact coming to fruition. What you see is the margins kind of at some point step up. It jumps a curve.
It sort of gradually improves. Then at some level of scaling on the revenue side, you get a step-up in the margins. We've seen that with CCH Tagetik already, that the step-up is getting, not at a fully mature software business, but clearly CCH Tagetik is getting into the margin levels that sort of start with a two. EHS is not there yet because we're investing a lot as we are integrating the various components we bought. As you know, in that market in particular, it's still very much a land grab.
We are investing to build out the installed base, but EHS will get there over time. We're quite happy with where we are, our leadership in that segment. Again, that's an area you're going to see us continue to invest in. With that, Kevin, do you want to talk about tax and our view of the next six months?
Certainly. In the first six months of the year, we saw organic growth come down in Tax division to 3% from 6% the year before. We do expect to see a shift in the recognition of e-filing and bank product revenues from the second quarter to the third quarter. What we are seeing in general, though, across the Tax & Accounting division, our retention rates are holding up quite well, but we are seeing conservatism in spending on behalf of our customers. They're saying, "Yes, I'm going to renew, but don't talk to me about that new thing today. Come back another day when we see a little bit more clarity." We still see good growth in our CCH Tagetik and our TeamMate business and corporate performance solutions, although slightly lower than a year ago. Similar to new sales, a number of customers are delaying software implementation.
The services and the fees that we recognize around those services, we are seeing delays in those, and we expect that will continue into the second half. Each of these trends is where we see total organic growth for the year in Tax really coming in as flat compared to last year. Obviously, we'll update you if things change, but right now that is the view we have.
Okay. It's a 0+ rather than 0- would be the estimate?
Yep. Broadly flat, as you said.
Yep. Okay.
I would also mention, Patrick, just to remind you, Europe had an exceptional year in 2019, given some of the regulatory changes that we were able to rapidly deploy some solutions against. Even though we're still getting good growth out of Europe, it's not going to be at the same level it was in 2019.
Okay. Typically conservative. Thank you very much.
The next question comes from the line of Sami Kassab from Exane. Please go ahead.
Yes. Thank you. Good afternoon, everyone. I have two questions. One is back on print in H2. Do you expect the rate of decline in print to slow down or not? I heard your answer to Patrick's question, Nancy. We also had Thomson Reuters guiding for a slowdown in their global print decline. There seems to have been issues with the lockdowns that prevented shipments. Would it be fair to expect the decline in print to improve in the second half of the year? Secondly, when it comes to Legal & Regulatory, it has declined in H1. You're expecting a decline for the full year. Are you seeing the rate of decline worsen in H2? Will it be worse than minus two? Thank you.
Patrick's question was sort of do I think print's going to rebound kind of post-COVID? I just think this is we've all seen the movie before, if I can use that expression, right? I just think this is a factor that's allowing customers to rethink how they work. I don't think print is going to somehow rebound to pre-COVID rates of decline. I think we're at a new step-down. If your question is more first half versus second half now, I will remind you, we do a lot more business in the second half of any year, in the print book world. You may see the rate of decline get a little bit better, but that's only due to sort of seasonal patterns and comparables, not due to, I think, somehow it's going to rebound magically.
Some of the disruption in the distribution channels are getting resolved. Again, you'll see some benefit from that. We're talking relatively, I think, modest levels of benefit on the print side. Again, it might improve modestly because of these factors, but it's not suddenly where customers are going to wake up and order a lot of new printed products in our view. Kevin, do you want to add anything on that before I talk about Legal & Regulatory?
No, I would agree, Nancy, that I do think we're seeing a new step down in print. However, it is becoming smaller and smaller.
Yeah
less and less of a drag on overall organic growth.
Yeah. It is still, however, a contributing factor in Legal & Regulatory. They still have more print than any other part of the portfolio, and that is very much reflected in their results. What you see is the software business still growing nicely. Even though it slowed its growth, it's still at double digits. The important thing I would highlight in Legal & Regulatory is that the information part of the business, which is the lion's share of the division revenues at slightly over 80%. You did see that our digital solutions grew mid-single digit organic growth, which was very good to see, and again, reflects all of the investments we've been making in the digital products. Unfortunately, print decline accelerating did kind of weigh on those other two growth areas. What we anticipate is that the second half will look a lot like the first half, Sami.
You should sort of assume that rate of decline continues, because these trends are going to continue, and it's largely a subscription business. I think that's a safe assumption you can make.
Thank you very much, Nancy.
The next question comes from the line of Katherine Tait from Goldman Sachs. Please go ahead.
Good afternoon, everyone. Three questions from me. Firstly, you talked about the second half being impacted by slowing new business trends, which makes sense completely. I'm curious about the sort of potential lower levels of renewals and sort of the subscription value of some of your products in the second half and potentially going into the first half of 2021 as well. Can you give us a sense of what proportion of your subscription products are contracted on a sort of per seat or per user basis, and how you're sort of seeing the health of your end customers from that perspective evolving, and whether or not you see any risks there, or if you think that that's actually relatively robust and not something to be concerned about at the moment.
In Clinical Solutions, I think you made a comment in the presentation that the patient engagement and software results have been a bit mixed. Just curious to understand that a little bit more. Is that a sort of issue with the product? Is it sort of COVID-19 disruption? Just some help unpicking that would be very helpful. Finally on capital allocation, you've clearly sort of reiterated your sort of support on the dividend and buyback. Are you seeing any sort of opportunity in terms of M&A? Has that sort of outlook or pipeline changed for you? Interested to see any evolution in your thinking there. Thank you.
Great. Okay. Kevin, do you want to start with capital allocation and then I'll talk about Emmi, and then I'll start on the renewal question, and you can augment what I say?
Sure. Okay. Absolutely. With regard to capital allocation, Katherine, you did see a strong cash flow in the first half. That, along with the predictability on renewal rates, gave us the confidence to continue with our share buyback program and to continue with the interim dividend. With regard to M&A, we are always looking for ways to strengthen the portfolio. We are keeping our eyes open. I say, if you look in the last two years, our M&A has been a bit of a step down from years prior. We do still look at things that are in the pipeline, but at this stage of the game, I don't have insight into what will come up on the market. Right now, we are still seeing a bit of a modest pipeline, but we will continue to look for opportunities as they come along.
On Emmi, what we meant with mixed performance there is, Emmi did decline in the first half, and that's largely because of the new sales environment. What Emmi is it's a patient engagement product that helps patients do the necessary work that they need to do on their end in order to have better outcomes. What we saw in the first half is, of course, most of the hospitals in the U.S. were dealing with the pandemic-related patients, elective surgeries were canceled, and just getting anybody's attention, as you might imagine, was very difficult. The product is well regarded. It's really about getting customers to pay attention and invest in this area. Some hospitals are very much on board with patient engagement as a vehicle to create better outcomes. Other hospitals don't have this necessarily as a priority.
We anticipate that it will continue to be a tough year for Emmi in the sense that, again, getting attention by people in the hospital environments is tough. For many hospitals, the COVID-19-situation has created financial hardships. Of course, adding new things into the mix is more difficult. We believe patient engagement is still a very good segment for us to be in over the long term, and we just see this as a bit of a speed bump now, given the conditions overall. To your question about renewals, we see broadly that renewals are holding up nicely. We have invested a lot in our products over the last years, and we see usage at very high levels, which is always a precursor or an indicator of the level of renewal. Usage is good.
The quality and the Net Promoter Score of our products are high. We anticipate that renewals will hold up nicely. Most of our pricing, there is always some volume discounts that we do, right? The range of use, when it's based on the number of users, it's always within a range. A client would have to really step down in terms of the number of users to fall into a new band. There could be some of that, but we don't see that having a real impact on the overall level of renewals. We fully expect that some customers may ask for price concessions or other kinds of things, but we are ready to deal with those situations across the business.
Again, we would say that we see the renewal environment being a resilient environment, given the quality of the products and given, again, all the investments that we've made over the last five or six years.
Perfect. Thanks very much.
The next question comes from the line of Matthew Walker from Credit Suisse. Please go ahead.
Thanks a lot. Good afternoon. Hope everyone can hear me. I've got three questions. The first is, if there's a new sort of package from the U.S. government, do you think there could be another bout of PPP for the second half of the year? That's the first question. Second question is just to pick up on Patrick's thing about tax. It does look like flat guidance for the full year implies quite a big negative number for the second half of the year. Thomson just reported they've talked about a 3% benefit from the IRS filings, which would be sort of 1.5% benefit on an H2 basis. Are you losing market share in tax?
Because I really can't understand, even though new sales are getting harder, I really can't understand why the second half is sort of like -2%, -3%, compared to a first half up and a Q2 slightly up. That's the second question. You mentioned that some of the margin benefit from H1 will go away in H2, but you didn't say all of it. Could you just sort of walk us through the puts and takes for the full year margin? I understand you're sort of pointing towards flat margin for the full year, but it was a big boost. Maybe you could sort of quantify what's happening on the travel and hiring savings, because you've sort of given us what restructuring might be and also what the insurance might be. Thanks a lot.
Okay. Thanks, Matthew. Kevin, I will take the PPP and the market share question, if you could again do the help with the math on the tax H1 to H2, talk about the margins. On PPP, we don't anticipate the kind of magnitude of the program that was rolled out initially in response to COVID-19. In fact, there was a fair amount of funds that were actually didn't end up getting lent out, so there's still money left in the first PPP program. If you look at the sheer volume of lending that will go on to use that money anything else that might come. The team right now, you never know, the team right now does not believe that it is a material level for us.
Of course, we're ready to help customers if that were to change. On tax, I can say with a good level of assurance that we're absolutely not losing market share. As I think you know, we are leaders in the professional segment of the market. Thomson Reuters leads in the corporate segment. In the professional market, we've been still the only provider with a full cloud suite with CCH Axcess. That's been out now six years. We continue to add new customers. That continues to do well. What we're seeing, however, with all of that said, is still the market remains very cautious right now in terms of adding new components to the products that they have. Again, renewals doing very well, still adding clients on CCH Axcess, but overall, customers being cautious about new spending.
Kevin, maybe with that comment, you want to describe a little bit more H1 to H2 on tax?
Yeah, I would remind everybody in our tax business, our big selling season is in the second half. Accounting firms renew their software typically beginning early fourth quarter. That's where our big selling season is. As I mentioned earlier, that's where we are seeing some pressure. Our clients or customers are renewing their products. They are very reluctant to go into any new spending areas right now. I also mentioned that we are seeing a bit of delays and slowdowns in implementation of software. That will impact our Corporate Performance Solutions business in the second half, undoubtedly. That is why we are giving you a view of broadly flat in the tax business. Clearly, a slowdown that we see on the horizon in the second half of the year.
Again, the European comparable from 2019 is also something that's not.
Is very challenging.
that level is Yeah, exactly.
A third question, Matthew, that you had was on the margin. I will stress that in the first half of the year, there were a couple of factors that really flattered that margin. Number one, we didn't really spend anything on restructuring in the first half compared to a spend of EUR 13 million in the first half last year. That obviously contributed. We did receive an insurance reimbursement in the first half of the year that obviously would not be a continuing item going forward. Due to COVID, we have literally stopped travel. We have been working from home since mid-March. Our travel and entertainment line item on the P&L is very meager. We do expect that in the second half, we will open up a bit, and we will start to travel.
Particularly, we want to get our salespeople back out in front of customers and our product development team as well. We do expect those expenses to come back. We do expect to open up the hiring as we move forward, particularly in sales and marketing and in technology. Expect our personnel expenses will be higher in the second half of the year.
We also had. Yeah, go ahead. Sorry, Kevin.
Finally, importantly, in the second half of the year, we are announcing today that we do expect to step up in our restructuring expenses compared to the first half. Last year in total, we spent EUR 26 million on restructuring. We are now saying that we expect to spend anywhere from EUR 25 million-EUR 35 million in restructuring. Those will be investments that we will make in the second half of the year to protect margins in 2020, but also to go into 2021 and the future with a stronger organization, a more agile organization. That's the reason why we're giving you the indications that these restructuring programs are designed to protect margins in 2020 and to improve going forward.
Yeah. The only thing I would add is keep in mind, in the first half, you have the margin benefit from PPP. That won't recur again in the second half, and even if the program, as I talked about, the program is not likely to be anywhere near the level it was in the first half.
Okay. Thank you, Nancy. Thank you, Kevin.
The next question comes from the line of Matti Littunen from Bernstein. Please go ahead.
Hello. Good afternoon. A question on EHS ORM software. You mentioned that non-recurring revenues declined due to sort of on-site transactional revenues being disrupted. Was this due to an investment slowdown in the customer industries, or was there some contribution from travel restrictions due to COVID-19 on on-site visits? The second one, just a follow-up on the M&A pipeline. You previously said that the prices for private companies in the target industries have been too high to fit your acquisition criteria. Do you expect any change to this based on what you're seeing currently in the market during the crisis? Thank you.
Kevin, do you want to start with that, and then I'll take EHS?
Sure. I will agree with you that we have seen valuations are quite high in the market right now, particularly in areas that are very attractive. So far, we have not seen prices come down. I think many companies that don't have to sell probably would not drop their price and probably would hold on and not sell in this particular economic environment. Nonetheless, we continue to be active and look in the market. Clearly, if we can find something that fits our strategic direction and fits our financial criteria. Just as a reminder, we want all of our acquisitions to be EPS accretive in the first year, and we want to make sure they cover our weighted average cost of capital in years three to five at a minimum.
We will work diligently to make sure that if we see the right opportunities, that we're also disciplined from a financial point of view.
On EHS, what we saw, and this is kind of a trend we had been seeing, but I do believe that the COVID-19 situation has accelerated the focus of customers on cloud solutions. The mix between cloud and on-premise in EHS has been shifting towards cloud for the last couple of years, but now it's accelerating towards cloud. The non-recurring on-premise license sales in the first half were less than the SaaS solutions. Implementations, to your point, there were some disruptions with implementations, but a lot of that can be done remotely, so that was not a major factor. Of course, as new sales slow, implementation services also slow, right? They're related to each other. We do serve in this space, the oil and gas industry, and certainly with, in the beginning of the year, with oil prices being hard hit.
We did see some pausing among some of our customers, but that now seems to be abating and we seem to be making traction on the sales side. I think one of the things that I saw that I think both Kevin Entricken and I were encouraged by is, these are really big contracts, right? Multi-million dollar, multi-year contracts. It's always been the situation pre-COVID that sales reps had to be out front and center, physically there. These are lengthy contracts, a lot of in-person activity. We have been able to close sizable deals in this space from mid-March to now without the reps, without the sales team and the legal teams being front and center. That does show me that clients are adapting to this new way of selling for large contracts.
We've always done a lot of virtual selling, but for big deals, it's generally required some level of in-person activity, and we are seeing that people are adapting to buying in a completely virtual way.
Very helpful. Thank you, Nancy and Kevin.
The next question comes from the line of Sarah Simon from Berenberg. Please go ahead.
Yes. Hi. My interesting questions have actually been asked, just a couple of small ones. Kevin, can you quantify the size of the insurance refund, just so we can sort of work out the impacts on the margin? The delay in the IRS filing revenues, what kind of magnitude should we be thinking about there in terms of the impact on growth? Thanks.
Kevin, you want to take both of those?
Yeah. Starting off with the insurance reimbursement, it's approximately EUR 9 million in the first half of the year. I do not expect that there will be an additional material amount in the second half of the year.
Good.
e-file fees, Kevin, in tax?
E-file fees, I would imagine, we will see those fees come up in the third quarter, but they were modest compared to the overall revenue in Tax & Accounting. There will be some bump, but again, I still believe the guiding you to broadly flat for the full year for Tax & Accounting is the right place to be based on what we see right now.
Great. Thanks.
Still the vast majority of the filing got done before April 15th, and then the deadline, it went from April 15th to July 15th, right. There was definitely a long tail there, but still, many customers filed before July.
Okay. Got it. Thanks.
The next question comes from the line of Nick Dempsey from Barclays. Please go ahead. Hello, Nick Dempsey , your line is now open. Please go ahead with your question.
Yeah. It's Nick Dempsey here. Can you hear me?
Yep. Hi, Nick.
Yeah. Sorry, I don't know how that happened. Yeah. Just one question less. You have a proud record of improving your operating profit margins every year since 2014. Rough stability before that for a few years. When you look at 2021, you've got a tough comp from some of the discretionary savings you're making, could have some drags on growth from disruption to new subscription sales in the middle of 2020. You'll get help from fruits of restructuring in 2020 for sure. Do you think balancing all that out, that you might be able to continue to step that margin up in 2021?
Kevin.
Sure. I would say, Nick-
comment on that?
You're right. We have had success at improving margins and organic growth over the last several years. Clearly, the disruption of COVID-19 is not welcome, but then again, I do think that our teams around the world have been very agile in responding to them and very thoughtful about what we can do going forward to protect the margins in 2020 and to continue to have a good development of margins. Obviously, right now, we're not going to be giving you any guidance on 2021. We'll have more to say about that as we present full-year results in February. Our goal has always been to improve and deliver value to our shareholders. The ways we do that are always looking to strive to improve organic growth and modest margin improvement.
Yeah. I would also point you, Nick, to the mix shift. The Expert Solutions which continue to grow well above the group average, have, in general, higher margins than core digital information products. Now, again, some of those products are not yet at scale, but as we are scaling them and the mix is shifting towards them, that gives you an inherent benefit on margin. That's going to be there no matter what, right?
That's great. Thank you, guys.
We have a final question, and this comes from the line of Rajesh Kumar from HSBC. Please go ahead.
Hi, good afternoon. If you look at slide number 12, in temporary cost reductions, you have highlighted virtualized, postponed, or canceled internal and external meetings, conferences, training. Whereas you're also looking at some of the structural cost reductions in travel from second half onwards, why don't you consider virtualization of these activities as a structural change, but a temporary one?
Yeah.
Yeah, please.
Sorry.
Please.
Yeah. A couple things, right? Which is, just to be clear, is that, as Kevin mentioned, nobody's traveling at the company. We are not going to conferences ourselves, we are not hosting in-person conferences with customers or training in person, et cetera. All of that is halted. Now, in terms of what we do for customers, so when we talk about the cost side, we're talking about our own behavior inside the company, right? If we talk about the customer-facing things that we're doing, we've always done a lot of virtual training, even virtual installs, and implementation. That continues. The conferences, we work with medical societies to run some of their conferences. We have moved that to virtual activities. It's still early days. We have had a number of successful activities, but as you might expect, the business model can be different than the in-person.
I think in terms of the virtual conference business, it's still early days to figure out how much of that can permanently get moved from in-person. I think on the training side, there's always been a lot of virtual training, so that will continue. I would say on the customer-facing side, we have the capabilities, and we've been rolling that out in partnership with our customers. Again, it's not completely clear to us how much of the revenues of the prior business model get transferred over. We're being quite cautious, I think, on just how that might develop.
Understood. Okay. That's reasonably clear. In terms of the longer-term sustainable cost actions you talk about on the slide, I'm talking about a blue sky scenario, not a guidance for second half or 2021. From the pandemic, what have you learned in terms of the cost savings you could achieve structurally? Are we talking about 50, 60 basis point opportunity here or more like 300-500 basis point opportunity?
Kevin, do you want to tackle that one?
Yeah, I think on that, if you look at what we've been doing over the last several years, we've really been constantly restructuring. In fact, I mentioned that last year we spent EUR 26 million on restructuring. I believe in the years prior to that, the balance has been about the same. Restructuring that we'll be doing now, the investment will be between EUR 25 and EUR 35, but we do believe that there are structural cost savings that are achievable out there. We have not quantified them, but they have been part of the margin improvement story over the last several years. Now, we will constantly look at our portfolio, as technology evolves, as we go into new markets and new product lines. Our cost base will adjust and will change.
We will be aggressive with the appropriate restructuring, and you should expect the investment this year will yield results as we have in the last several years.
Understood. I've got two more. One is a follow-up on earlier question on the subscription revenues. What portion of the subscription revenue is volume linked, i.e., you can see some variance in that as you see increased level of churn or employment reduction at your customers? The final one is just in terms of the growth story, when you look at the post-pandemic world, I know we are not in the post-pandemic world yet, but what are the new opportunities you see in terms of revenues or segments where you should be investing more capital or deploying more capital?
Yeah. Why don't I take the last question, and then Kevin, maybe you can comment, just again, reminding how the subscription model works and how the volume components work. On the last question, great question, right? We've obviously stepped back and said, "What are the possible silver linings that come out of this crisis?" I think what you're going to see, which is very similar to what we saw coming out of the global financial crisis, is that the trends in the market accelerate, right? The trends that we're seeing that offer us opportunities that accelerate are really cloud, right? The example I used in the presentation, large banking clients who historically were not moving to the cloud. Everybody recognizes that being in the cloud is helpful to virtual work. We expect that cloud migration will accelerate.
We are well-positioned across the board with having solutions that are in the market and relatively mature from a product perspective. We plan to continue to invest in cloud products and in the go-to-market. That is an area that we clearly see as an opportunity. I think the second area is around collaboration tools. Again, we have a number of solutions in the market, but that's an area, again, that we will be investing even more than we do today because we see that as a growth opportunity. Kevin, do you want to talk about renewals?
Sure
or subscription models and how that works? Yeah.
On the subscription models, in several cases, we do sell a subscription based on the number of professionals in a law firm or an accounting firm. It's based on band. A law firm that has 10 to 25 professionals would pay one price. A law firm that employs 50 to 100 professionals would pay a different price. We don't necessarily expect that you would see a real change in those levels. That being said, if you had a law firm that employed 75 professionals and significantly downsized due to the COVID situation and now only employed 30 professionals, yes, that would be a step down in that total subscription offering. Other areas such as in our Health business, our UpToDate business, we have 25 different specialties, the number of doctors increases with the increase in those specialties.
We've seen that trend over a number of years. I can't imagine you'd see a hospital say, "We're no longer doing oncology in our practice, and we want a discount for that." I don't necessarily expect that we would see a real step back there. I actually would say that the demand for healthcare is even greater, and that's one of the areas where we really sell value with our products, is to help our professionals keep up with that demand and that complexity. A major step back in the number of tax and accounting or healthcare professionals would certainly impact us, but I don't necessarily see that happening going forward.
Thank you very much.
Okay. We have reached the end of the Q&A section of this conference, so I will hand back to Nancy for any concluding remarks.
Yeah. We just thank you again for joining us and very much appreciate all the questions and wish you all continued good health and safety over the next many months till we see you again. Thank you.
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