Earnings Call: H2 2017

Feb 21, 2018

Good morning, and welcome to the Wolters Kluwer 2017 Full Year Results Presentation. Hopefully, you've had a chance to look at our earnings release, and you can find all materials on the website, volterskur dotcom. As usual, we'll start the day with a presentation of the results by Nancy McKinstry, our CEO and Kevin Entrekin, our CFO. After their presentation, there will be an opportunity for you to ask questions. I'll remind everyone that some of the statements we make during today's presentation will be considered forward looking. We caution that actual results may differ materially from what is contemplated in these statements due to risk and uncertainties, which you can find detailed in our annual report. Throughout the presentation, we refer mainly to growth in constant currencies, which excludes the impact of exchange rates movements and organic growth, which also excludes the impact of acquisitions and divestitures. We also refer to adjusted figures, which reported figures in our release today. I would like to hand the floor to Nancy McKinstry. Good morning, everyone. Thank you, Meg. Thank you for joining us this morning in London and on the webcast and conference call. As usual, I will give you some highlights of our results and then hand it over to Kevin, who will talk about the results in more detail. Then I'll come back up and describe the performance of each of our 4 divisions as well as our progress against our strategic initiatives and then finish up with the outlook for 2018. So we delivered solid organic growth of 3% in 2017 with all four divisions achieving organic growth in line with or better than the prior year. Driving that growth were our digital solutions and services, which grew 5% organically. Over 75% of our revenues are subscription based or recurring in nature, and these revenues sustained 4% organic growth. We also had a good year in terms of margin and cash flow. Adjusted operating profit increased 8% and adjusted free cash flow increased 7% in constant currencies. Diluted adjusted earnings per share increased 13% in constant currencies following a strong 4th quarter. Against this backdrop, we are proposing an 8% increase in our total dividends per share. We are also in the second year we just completed the 2nd year of our 3 year share buyback program, which we expanded with the proceeds of recently completed disposals, which led us to buy back shares worth €300,000,000 in 2017. And we are planning a further program in 'eighteen of €400,000,000 Looking ahead to 2018, we expect another year of good organic growth, margin improvement and EPS growth. We remain focused on delivering against our strategic priorities. So I want to just give you a quick update, and then I'll talk a little bit more about that later. We made significant progress on our first strategic priority, which is to expand our global market reach. We continue to invest in global products such as UpToDate, TeamMate and OneSumics. We also acquired Togetic, which is now called CCH Togetic, which is adding a global software solution that's targeted at a growing market segment, which is the office of the CFO. And importantly, we advanced our program of non core disposals. We also made headway on our 2nd strategic priority, which is to increase our focus on expert solutions. These are solutions that combine expert insights and analytics with technologies to improve our customers' decision making and productivity. Around half of our revenues today come from these types of expert solutions. This is where we are investing the vast majority of our capital in order to capture the growth opportunities. And finally, we forged ahead on our 3rd priority, which is to drive efficiencies and engagement across the group. We've realized cost savings from streamlining both front office and back office systems. In addition, we are increasing our efforts to share our technology investments, leveraging our global platform organization. And I'll come back later to give you a couple of examples in these areas. So with those highlights, I'd now like to turn it over to Kevin, who will talk about our financial results in more detail. Thank you, Nancy, and welcome everyone. Let me start with summary figures of our key metrics. Revenues increased 5% in constant currencies to €4,400,000,000 As Nancy said, organic growth was a solid 3%. Adjusted operating profit increased 8% in constant currencies to €1,900,000,000 The adjusted operating profit margin increased 60 basis points to 22.8 percent. Diluted adjusted earnings per share increased 13% in constant currencies to €2.32 This benefited from the reduction of our benchmark tax rate and lower share count. Adjusted free cash flow rose 7% in constant currencies to €746,000,000 The net debt to EBITDA ratio was stable at 1.7 times. And finally, return on invested capital improved 40 basis points to 10.2%. Overall, good performance with our key metrics meeting or exceeding our guidance. Now let's take a look at revenues by division. Our health and tax and accounting divisions achieved good organic growth in line with their prior year and as we expected. Our GRC and Legal and Regulatory both finished the year with improved organic growth which was better than we had expected. Health grew 6% organically, primarily driven by 10% organic growth in clinical solutions. Tax and accounting delivered 4% organic growth driven by continued good performance of our software products including acquisitions mainly Tagetik. Tax and Accounting revenues increased 10% in constant currencies. Governance, risk and compliance achieved 4% organic growth, an improvement from the 3% in the prior year. This improvement was driven by strong 4th quarter performance in legal services transaction and software license sales in financial services. Legal and regulatory saw a 1% organic decline, which is an improvement over the prior year. We saw a better than this was better than expected due to improvements in market conditions. In constant currencies, legal and regulatory revenues were broadly stable as the impact of recent divestments offset the full year inclusion of Enabilon, which we acquired in 2016. Now let's examine revenues by geographic region. All three geographic regions delivered positive organic growth. Revenues in North America sustained 4% organic growth. Strong performance from legal and regulatory compensated from slightly slower growth in health and governance, risk and compliance. Revenues from Europe grew 2% organically compared to 1% in the prior year. This improvement was driven by our global finance risk and reporting business unit, which is included in the GRC division. Lastly, revenues from Asia, PAC and the rest of the world saw accelerated organic growth of 6% compared to 3% in the prior year. This acceleration was noted in all divisions. Now let's take a look at revenues by type. Recurring revenues, which include subscription and other renewing revenue streams make up 76% of total revenue. This revenue stream continued to grow at a steady organic rate of 4%. Today only 7% of our recurring revenues relate to print subscriptions. The remaining 24% of revenues include print books, transactional services, software license sales and other non recurring revenue streams. Print books declined 3% organically, an improvement on the prior year decline. In legal this was mainly due to U. S. Legal education textbooks. In health we saw stronger international sales. Legal services transaction revenues ended the year up 8% organically, much stronger than they were in 2016. The second half saw strong performance in legal filings in CT and transaction volumes in Enterprise Legal Management. Financial services transaction revenues were flat organically against a double digit growth in 2016. U. S. Mortgage originations declined last year impacting the transactional revenues linked to our mortgage solutions product. Lien solutions transactional fees grew despite a slowdown in commercial lending markets. Other non recurring revenues, which include software licenses, implementation fees posted a 2% organic growth compared to a decline in 2016. This was mainly driven by software sales for our finance risk and reporting solution OneSumx. Now let's turn to profits. Adjusted operating profits increased 8% organically to €1,900,000,000 resulting in a margin of 22.8 percent up 60 basis points compared to the prior year. The improved margin was driven by Health and Governance Risk and Compliance. Health's adjusted operating profit margin increased 50 basis points. The dilutive effect of EME was more than offset by efficiency savings and the ongoing mix shift toward clinical solutions. Governance, risk and compliance achieved a 110 basis point margin improvement, mainly reflecting efficiency savings and the fall through of higher software licensing fees. The adjusted operating profit margin in tax and accounting and legal and regulatory were stable as expected. The underlying margin improvement in tax and accounting was offset by the dilutive effect of TEGATIC. In legal and regulatory, efficiency programs are delivering savings which are funding wage inflation and higher product development and restructuring costs. Now let's turn to the rest of the income statement. Adjusted net financing costs were €109,000,000 in line with our guidance. As indicated in our outlook for 2018 we expect net financing costs to decline to approximately €70,000,000 In April we will be redeeming our €750,000,000 bond carrying a 6.38 percent coupon, which will bring down our borrowing costs. Income from equity invest in investees doubled to $4,000,000 mainly due to improved performance in our Australian publishing affiliate. The benchmark tax rate decreased to 25.9%, reflecting reduced state tax charges and the release of tax liabilities for closed tax years. Now looking forward to 2018 and assessing the impact of the U. S. Tax Cut and Jobs Act, we expect the effective tax rate to be approximately 26% in 2018. While the corporate tax rate was lowered to 21%, some of the deductions that we were making use of have been restricted or eliminated increasing the taxable base. After tax diluted adjusted EPS increased 11% overall and 13% in constant currencies to €2.32 This benefit from the reduction in the weighted average shares outstanding due to our share buyback program. And now let's take a look at reported IFRS figures. IFRS operating profits increased 13% to €869,000,000 This includes capital gains of 60,000,000 euros mainly from the disposal of transport services and certain UK publishing assets. Reported pre tax profit increased 17% to €765,000,000 reflecting lower financing results which includes a capital gain on the sale of a joint venture. And finally, reported net profit increased 37% due to a non cash revaluation of our U. S. Deferred tax position, which was offset by a repatriation tax, both triggered by the new U. S. Tax legislation. These tax items are one off in nature. Now, I'd like to take you through the cash flow. Our cash conversion rate was 97% lower than the prior year, but in line with our guidance and in line with our longer term historical average. The main reason for this was working capital where we had $34,000,000 outflow largely due to a reduction in payables. Depreciation increased to €209,000,000 capital expenditures was €210,000,000 including €13,000,000 in net proceeds from several real estate disposals. Without these real estate disposals, CapEx would have remained at around 5% of revenues. For 2018, we expect CapEx to be between 5% 6% of revenues. Paid financing costs declined to €87,000,000 due to higher interest income on our cash deposits and currency hedging results. Our cash deposits will be used in or rather our cash deposits will be used in a few weeks' time when we redeem our €750,000,000 bond in April. Paid corporate income taxes increased to €156,000,000 The prior year had benefited from favorable timing on tax payments. We are now approaching a more normalized cash tax rate as we have almost fully absorbed our deferred tax assets. We expect a further increase from here in 2018. The net result was an adjusted free cash flow of €746,000,000 up 7% in constant currencies. And now let's have a look at the uses of free cash flow. We paid dividends of €232,000,000 and we deployed €302,000,000 in our cash flow toward share buybacks in 2017. $2,000,000 of this related to the shares repurchases late in 2016 that were settled in 2017. Between dividends and share repurchases we have returned over 70% of our free cash flow to our shareholders. Cash spending on acquisitions amounted to €316,000,000 the majority of this relates to the acquisition of Togetic in April 2017. Divestitures raised €83,000,000 in proceeds mainly from the sale of Transport Services and certain UK publishing assets. Movement in net debt was also impacted by foreign exchange differences in cash and cash equivalents. In total, our net debt increased from €1,900,000,000 to €2,100,000,000 With EBITDA up 8% our net debt to EBITDA ratio remains stable at 1.7 times. Next, let's talk about return to shareholders starting with dividends. As announced this morning, we are proposing a full year dividend of €0.85 per share, up €0.06 or 8% compared to the prior year. This of course is subject to approval at the Annual General Meeting in April. We also announced our intention to set the interim dividend for 2018 at 40% of prior year's total dividend. This will result in an interim dividend of €0.34 to be paid in September of 'eighteen. This brings forward the timing of our dividend payments and aligns it closer to our seasonal cash flows. With that I'd like to update you on the share buyback program. In 2017 we completed €300,000,000 in share buybacks. This includes €100,000,000 related to the proceeds from the disposal of transport services and certain UK assets helping to mitigate the related earnings dilution. For 2018 currently we intend to repurchase €400,000,000 in shares. This amount includes proceeds from the disposal of Core Search and Swedish assets, which we completed just a few weeks ago. Of this $400,000,000 $50,000,000 has already been completed as of this past Monday. We recently announced an agreement to sell Probation Medical for $180,000,000 Our intention is to use these proceeds for additional share buybacks in 2018 2019 assuming the sale closes as we expect. Now I'd like to summarize before we turn it back to Nancy. We're pleased with these results for 2017. Organic revenue growth was a solid 3% and our adjusted operating profit was up 8% organically. Adjusted free cash flow was up 7% in constant currencies and our return on invested capital increased to 10.2%. Our balance sheet remains very healthy. With that I'd like to turn the floor back to Nancy to give you an update on our strategic priorities and talk about guidance for 2018. I'd like to remind you that our guidance for 2018 is based on our new IFRS 15 standards. There is a note at the end of our press release, note 14, which gives you the impact of that change in accounting. Thank you very much. Thank you, Kevin. So I will now talk about each of our divisions, starting with Health. Health delivered 6% organic growth, in line with prior year and improved its margin to 25 percent. Clinical Solutions had a good year. Organic growth was 10%, which is actually faster than what we produced in 2016. Up to date, our clinical decision support tool delivered another year of double digit growth. Our clinical drug information group delivered robust organic growth. ME, the patient engagement solution we acquired in 2016, delivered high single digit growth on a pro form a basis. We are now bringing together these flagship products so that we are able to offer expert solutions across the continuum of care. Health Learning, Research and Practice grew 1% organically, driven by 5% growth in our digital products, which now account for 66% of the revenues of this unit. Nursing Solutions delivered strong growth, while print subscriptions, advertising and reprints declined. In education and practice markets, digital growth was strong and outweighed the decline in printed books. In continuing medical education, Learner's Digest drove positive organic growth. So now turning to tax and accounting. Tax and accounting revenues increased 4% organically, in line with the prior year as we expected. Growth was again driven by our software products, which grew 6% organically for the year, Including CCH Tagetik, which we acquired in April of last year, total revenues grew 10% in constant currencies. The adjusted operating profit margin was stable for the full year at 27%. We drove underlying improvement, which compensated for the lower margin of CCH Tagetik. In North America, the division sustained good organic growth. Professional tax software grew 5% organically, supported by strong growth in our cloud based solution, CCH Access. Research and Learning saw revenue decline, but I'm encouraged by our customers' reaction to our newly launched research platform, CCH AnswerConnect. Our European tax and accounting group sustained 5% organic growth. We are continuing to invest in and roll out our cloud based collaborative solution in this region. In Asia Pacific and Rest of World, we saw positive organic growth overall as good growth in Asia Pacific was largely offset by continued weakness in Brazil. Last but certainly not least, our newly formed Corporate Performance Solutions unit had a successful 1st year. TeamMate delivered double digit organic growth and successfully launched the new cloud version of the product called Team 8 plus CCH Tagetik also delivered double digit growth year on year in its first 9 months as part of the Wolters Kluwer family. This was driven very much by new customer acquisitions. So now let's turn to our Governance, Risk and Compliance group. Our GRC division delivered organic growth of 4%, an improvement on the 3% recorded in the prior year. The operating profit margin improved significantly due to efficiency savings and the impact of higher license revenues. Legal Services delivered improved organic growth of 4%. Our leading legal representation business, CT, delivered 4% organic growth supported by high single digit growth in M and A related transactions. Enterprise Legal Management delivered good organic growth, driven by improved software license sales as well as higher transaction volumes. Financial Services organic growth improved to 3% from 2% in the prior year. Our Finance Risk and Reporting unit achieved 10% organic growth following a strong Q4 in software license sales for our OneSumics product line. Lean Solutions, which is an entirely transactional business, sustained robust single digit organic growth despite the slowdown in the U. S. Commercial lending market. And finally, our compliance solutions group was impacted by the market wide decline in mortgage originations, but drove an increase in recurring revenue from its investment compliance tools product line. So now to finish up with legal and regulatory. Legal and regulatory delivered top line improved top line performance, declining 1% compared to a decline of 2% in the prior year. The division adjusted operating profit margin was stable despite an increase in restructuring cost as we fast tracked a number of initiatives in the final quarter. Across the division, digital revenues grew 4% organically, while print formats declined 7% organically. Legal and Regulatory Information Solutions in Europe saw a continued 2% decline organically, which was in line with the prior year. Across Europe, we've increased our efforts to drive efficiencies. We streamlined marketing and sales and generated cost savings in back office functions. Our U. S. Legal and regulatory unit achieved 2% organic growth, a marked improvement on the trend of recent years. This was driven by good performance in our digital research solutions and workflow tools, which we sell into law firms and corporate legal departments, as well as a strong upturn in legal education. Our Legal and Regulatory Software group delivered high single digit organic growth. Enablon delivered positive organic growth, driven by 20% pro form a growth in recurring revenues for our cloud solutions. Klayos and eFax, our workflow products for law firms and corporate legal departments delivered double digit growth. So now with those highlights, I'd now like to give you an update on our progress against our 3 year strategy. Over the past 2 years, we've been focused on expanding the global market reach of our business. We have made significant investment in key global products where our investments can be leveraged across a worldwide marketplace. So I just wanted to highlight 2 examples. The first is within tax and accounting. We launched TeamMate Plus in February of 2017. This is the cloud based version of our very successful on premise audit product. The cloud version is being targeted at selected new customer segments who might not have been willing to make the investment in the on premise product. As a result of this, we are now attracting and expanding the customer reach that we had with the on premise solution. The second example I'd like to mention is our legal practice management tool called Klayos. Last October, we launched Klayos into Germany after new regulations were introduced that allow attorneys to store data in the cloud. We also made a significant investment to enter the corporate performance management arena with the acquisition of Togetic. We've now brought together Togetic with our TeamMate product line, and we are leveraging this combined offering to expand our market share in the office of the CFO. Helping to reshape our portfolio to make it more focused and global is also our program of non core disposals. We made significant progress in the last 12 months, completing 4 divestments. And we most recently announced an agreement to sell Probation Medical. We also made headway on our 2nd priority, which is to deliver expert solutions. Today, I'd like to talk about 2 of our more established expert solutions that have sizable customer bases and significant revenues. The first is CCH Access. This is our cloud based tax and accounting software for CPA firms, which we launched back in 2013. 5 years since the launch, this product is driving double digit organic growth. Many of our existing customers are now using CCH Axcess, and we've attracted new customers as well. Each year, we innovate and add new features to create a better user experience and to improve the productivity and client collaboration for our customers. 1 of our recent innovations to this tool was to automate the transfer of data from brokerage accounts into the taxpayers' web based organizer. This makes it far easier for our CPA customers to get the information and the documentation that they need from their clients. The second solution that I'd like to highlight is OneSumx, which is in our GRC division. OneSumx is the market leader in integrated regulatory compliance and reporting software for banks. OneSumx helps financial institutions meet their regulatory obligation as well as provide insights into all types of financial risk. The product establishes a single source of data from multiple departments within the bank and as a result creates a trusted source of information. This data is enhanced with our value added content from our in house experts to keep our customers up to date. We were very pleased with the performance of this product line in 2017. We won a number of new customers and the result of that is that this unit grew 10% organically in 2017. So now I'd like to turn to our 3rd priority, which is to drive efficiency and scale economy. Across both front and back office functions, we've been streamlining our operations to work more efficiently. For example, in marketing and sales, we rolled out new tools to increase our sales effectiveness as well as our cross selling performance, and we provided a more rich end to end digital experience for our customers. In the area of technology, we are taking steps to standardize processes, tools and platforms. We believe that this is not only increasing the quality of our products, but also delivering cost savings in terms of product development and maintenance. And finally, we're making progress on integrating our recent acquisitions and setting the stage for continued revenue performance in 2018. So with that, I'd like to now move to the outlook. As Kevin mentioned, the outlook that I'm about to present is based on IFRS 15. Let's start with the divisional outlook. In Health, we expect, again, a good year of organic revenue growth in line with 2017 and a stable adjusted operating profit margin for the full year. We do expect that the first half margin will decline due to the timing of investments. For tax and accounting, we expect improved organic growth and a stable operating profit margin for the full year. Again, we expect margins to decline in the first half due to the timing of investments. GRC should deliver good organic revenue growth and an improved operating margin for the full year. In Legal and Regulatory, we expect organic revenue to be broadly flat in 2018. Margins are expected to be in line with 2017 levels as we will use cost savings to fund wage inflation as well as to support investments in new products. So now let's take a look at the overall guidance for Wolters Kluwer for 'eighteen. We expect our full year adjusted operating profit margin to be between 22.5% 23%. We expect our adjusted free cash flow to be between €725,000,000 €750,000,000 in constant currencies. We expect ROIC to be between 10% 10.5%. And finally, we expect diluted adjusted or diluted EPS to grow between 10% 15% in constant currencies. So all in all, we are well positioned to achieve our goals for 2018, and we remain confident in our growth prospects. So thank you very much, and we will now move to Q and A. Yes, Sami, you want to start? Thank you, Nancy. Good morning, everyone. It's Sami at Exane. Three questions to start with, please. First, can you elaborate on what is driving the acceleration in organic revenue growth in the tax division? Has it to do with the tax reform in the U. S. Or more with your specific investments in Germany, Teammate Plus and so on? Secondly, the Legal Education business has reverted to growth last year. Is that due to one off restocking returns improving? Or is there a more sustainable return to growth you foresee in that segment? And lastly, Financial Services transactions, hard to forecast. What is included in your guidance for 2018 in that respect, please? Okay. So what's the first question, what's driving the better performance of organic growth in Tax and Accounting? It's really coming from kind of 2 primary areas. The first is we continue to get good growth in our software businesses around the globe. So they continue to produce 5%, 6% organic growth consistently. A lot of that has to do with the investments we're making in our cloud solutions. They are growing significantly faster, again, around the globe. Second thing is, of course, the creation of our Corporate Performance Solutions Group teammate, which had historically been growing more in sort of the high single digits, is now moving into double digit growth, again, very much driven by our focus on expanding our sales force around the globe as well as the introduction of TeamMate Plus, which is the SaaS solution. That in combination with Tagetik, which not while not yet organic in obviously in 2017, that we will have some months of organic performance from TEGETIC in 'eighteen, those two units again growing double digits. So it's both the software growth in combination with the corporate performance management group. On legal education, none of the performance related at all to distribution in legal and it was really driven by 2 things. 1 is market conditions are improving. More students are taking the LSAT for the first time after many years, as you know, of decline and more students are ultimately attending law school. That in combination with our we have a digital product called Connected Casebook, which we bundle in with the printed product, and that's been doing very well and helping again to support the performance there. And finally, we had a decent front list, which, of course, always matters. So this, it's a relatively small part of our business. I wouldn't expect that the rate of growth will continue perhaps at the same level it did in 'seventeen. But clearly, the market is getting better, which is good news. And then finally, on Financial Services, as you pointed out, it's probably one of our more difficult parts of the business to forecast because it relates to mortgage largely to mortgage lending and most of the predictions around mortgage lending that are done by industry experts have proven over many years to not be very accurate. So we are assuming no recovery in the mortgage lending business. As you all know, interest rates, as they continue to rise, that dampens, in particular, this part of the business. But again, it's not a very big part of the overall Walter's core results. Yes, Nick. Yes. It's Nick Dempsey from Barclays. So just a kind of follow-up on Legal in terms of the outlook. Will Enablon are you expecting Enablon to accelerate the overall Enablon growth, not just the Cloud, overall Enablon to accelerate inside your flattish organic growth guidance for 2018 in Legal? And then the group margins, if you take the midpoint of your margin guidance and do it like for like, you're guiding to around 50 bps of increase year on year. You've got 3 divisions flattish, 1 going up. So that kind of implies that the one, the GRC is going up a lot. Is any of that related to an unwind from IFRS 15, as in you start to get some help on the margin in the different way that you account for your contracts there? Okay. I'll let Kevin take the second one. On Enablon, we do expect a step up in performance on the top line. Part of that is, if you remember, we've been mostly selling the SaaS version of Enablon. And so we're now in year in 2018, we'll be sort of year 3. So you're getting the benefit of all the contracts we sold in the prior 2 years that come into the fully recognized in the 'eighteen time period. So that is a big contributor to the improved outlook for legal and regulatory in combination with still good digital growth overall. We are well positioned in all of the markets with strong digital products. So the digital growth plus the contribution from Enablon are the 2 big factors. Good. And with regard to the margin, I do think that the efficiency programs that we've been running around the organization are having a significant positive impact particularly in GRC. If you recall, we said last year that they did a restructuring effort that improved their margins this year by 110 basis points. We'll see that carry forward into the future there. With regard to IFRS 15, if you take a look at the table at the back of the press release, you'll notice that the impact is rather minimum on IFRS 15 on revenues and on our margins. So it will not have any kind of material impact on margin. Yes, please. It's Zim Whittaker from Liberum. Two questions. First of all, just sort of thinking about the sort of revenues from medium to longer term perspective. You've got a similar policy to your peers in terms of disposing of low growth assets, making on acquisitions, sort of and sort of, all things being equal, that by logic should lead to an acceleration of organic revenue growth. Would it be fair to assume that sort of within a 2 to 3 year period, you would expect your 3% organic revenue growth to step up to the 4% level. And again, that's with all other things being equal. The second thing, just in terms of your margins, sort of and again come back on some of the points before, the sort of flattish margins that you've got within 3 of your divisions seems to have driven more by investments. Again, from a sort of medium term perspective, should we expect that to be the sort of policy that you sort of follow moving on, I. E. That essentially we shouldn't assume assume much margin growth in those divisions, again, all things being equal, over the medium term? Yes. Good question. So we don't give long term guidance around growth. But what I can tell you is what are the factors that drive growth momentum in a subscription business like Wolters Kluwer. The first is the performance of the digital business. Digital products and services are now almost 90% of our total revenues. So and those have been growing sort of 4% to 6%, depending on which division you're talking about. And that is a consistently strong contributor to the overall growth. That's factor number 1. Conversely, print is now a little bit more than 10%, still going to decline, but it's not having the impact that it had years ago when it was a larger percentage of the revenue. Second thing is that we are scaling some of our software businesses, particularly some of the more recently acquired businesses. So two things occur there. They contribute a disproportionate amount of the growth to the business. And secondly, they will also begin to contribute more on the margin side, where today most of those recently acquired business are dilutive to the margin of their respective units. So it's really the combination of the digital products and all the investments we're making organically in the business. We continue to reinvest 8% to 10% in driving a lot of new products. So it's that organic investment around the digital products, pushing them more and more into the global arena, coupled with some of the more newly acquired businesses getting to scale. That is what will underpin the momentum on growth. And then on margins, it's we certainly would expect that as we continue to see the mix shift, again, to digital and we continue to get stronger top line growth, the margins will come along and continue to improve. We are in some divisions making a trade off to invest a little bit more in some of the newer solutions that we have, add some more salespeople, etcetera. But I think in the broad, if you look at Wolters Kluwer overall, we have been demonstrating improved operating margins over the last couple of years, and you should certainly expect that in the future. Yes, please. It's Catherine Tait from Goldman Sachs. Just a question on the CapEx guidance of 5% to 6%. If I look over 2017 at the CapEx by division, we saw health down a little bit, tax and accounting broadly flat, GRC up a little bit, legal and regulatory down a little bit. I mean, if I'm thinking into 2018, can you talk about the sort of way that you're thinking about CapEx by division and the sort of relative investments that you're making? I would say we do expect somewhere between that 5% to 6% in 2018. One thing I'll point out in 2017, we did sell a couple of owned real estate buildings and the proceeds from that are offsetting some of the CapEx. So particularly in tax and accounting, if I pulled out those real estate divestments and in legal and regulatory, you would see a modest increase in the CapEx. On the health CapEx, it's really just a matter of timing on some of our investment priorities. So I do think that the 5% to 6% for 2018 is a reasonable place for you to think about CapEx going forward. Yes, Chris. Chris Collett from Deutsche. Just a couple of questions. One was on health and within the Learning Research and Practice. The growth rate there is still a little bit subdued, and I think in the hope over time that, that should pick up and for the time when sort of inevitably, almost the growth from Clinical Solutions perhaps starts to come down a little bit. So just wondering about what is what's happening there? Why the growth is staying so subdued? And you said within it that Learner's Digest was positive, but which sounds like it wasn't sort of particularly growing well. So just wondering what were the drivers there? Flipping over to talk about the lean solutions given reference to slowdown in commercial lending activity in the U. S. So should we expect to slow somewhat? And then just lastly was just to clarify the proceeds from probation when it is sold, are those proceeds then going to be on top of the 400,000,000 dollars buyback into 2018 and then some more in 2019? Yes. Do you want to take that one first and then we'll come back? Sure. On the probation sale we have signed an agreement to divest probation. We do expect that to close in late Q1 perhaps Q2. With those proceeds we would expect to do an additional share buyback above the 400,000,000 that we've discussed this morning. So assuming that sale closes as we expect, we do expect to use that to offset any dilution, the proceeds to offset dilution. So on learning research and practice, we continue to believe in the medium term that the growth rate of this unit will progress, and that's partially because of the mix between digital and print. Today, 66% is digital. So we still have some weighting of the print, both on print subscriptions and books that dampen the overall growth. So as that transformation continues, we should see progression there. What occurred in particular in 2017, which took us from a 2% growth rate to a 1% was really the impact on advertising and reprints. Advertising was well below what the market expected. Now we did a little bit better than the market, but still a negative number. And that had a even though it's still a relatively small amount, it had a dampening effect on the overall growth rate. But the core content business and now more and more of these solutions that we're building in nursing and medicine are in fact continuing to drive good growth. And then in lean, again, a fully transactional revenue business. So as always a bit difficult to fully project out what it looks like. But what we're assuming in 2018 is that we'll have a growing business. It may not grow quite as fast as it did in 'seventeen, but still positive contribution on growth. And that's in part because in that particular business, it's not just driven by lending. There's also you have these different kinds of UCC products where you have to refile. So there's some installed base of business that you will get year on year in addition to the fact that we're entering a new asset type. So there's some new product development going on there, and we expect some contribution from that. Okay. Yes, sure. It's Matthew from Credit Suisse. A few questions, please. The first is, you've done around 3.3%, 3.4% organic growth in '17. The definition of solid growth, does that mean roughly similar number for 'eighteen? 2nd question related to that. You've probably done a little bit better than on organic growth this year than expected. I remember you were somewhat concerned around transaction levels in the Q4, having to close transactions. Is there any pull forward from 'eighteen into 'seventeen in terms of transactions that we should be concerned about when we're looking at 2018? And last question is UpToDate. You invested a lot behind UpToDate. Can you update us on the situation versus IBM Watson? And do we expect another double digit growth rate from up to date due to globalization, etcetera, in 'eighteen? Okay. You want to take the first one and I'll talk about Sure. On the organic growth, when we say solid organic growth, it's not a rounded up to a 3, it's a solid 3 and slightly above that. So that's why we're characterizing solid organic growth. And if you look at there was no pull forwards in the Q4, the Q4 was very much characterized by a stronger transactional revenues associated in the legal business, some stronger transactional revenues associated in the legal business, also a good books selling season. So that is what drove some good growth at the end of the year. And we also sold some large contracts in some of our software businesses. If you look at our up to date business, again, double digit performance in 2017. Now that, as we have said a couple of times, right, this is getting to be a sizable business. It's over 50% of the total division's revenues. So we should fully expect that the rate of growth will come down at some point. However, we remain very well positioned in the marketplace. And what's really exciting for us is that with the addition of Emmy, we now have a very strong decision support product line, both up to date plus all of our drug businesses, which have consistently delivered solid single digit organic growth levels in combination now with Emmy. So the future of this area for us is that we're bringing those products together and we can go into a hospital and show them how we can add value across the continuum of care. And that really helps them save money and improve the outcome. So we're really optimistic about this business as it continues to grow. The other thing that's interesting in that market relative to, say, a Watson solution is that the products that we're offering are very proven. So we have a lot of statistics, a lot of third party studies that have been done on our products that prove the that if you use these products, you will get better outcomes or better cost performance. More and more, we're investing in what we call next generation up to date, which is called up to date advance. That next step is actually bringing in patient specific information from the electronic medical record to again get even more precise in how you diagnose the patient. And the goal behind that is to reduce the variability of care. And that really is if you look at what drives a lot of the cost problems in healthcare, it's that 2 doctors looking at the same patient may come up with totally different tests, totally different approaches and that actually drives a lot of costs. So the next version of UpToDate is really focused on narrowing that variability of care. So we are well positioned. Watson is kind of focused on other things. We don't see it as really being a competitive threat to the core business of what we're doing in Health. Sorry, long answer. Sorry, Patrick, you can ask. It's Patrick Wellington at Morgan Stanley. Actually, I've got a clutch of questions. Kevin, the net debt to EBITDA is 1.7 times. Your target is 2.5 times. Are you going to do anything about that? Or should we kick the can down the road again this year? Secondly, on legal and regulatory, you talked about improved market conditions. We haven't had improved market conditions in legal and regulatory for years. So what exactly are you referring to there? And the 3rd question on the sort of detailed side is you've sold Pravation and CoreSearch. They're both quite growthy businesses. Can you explain why you did that? And are there any other growthy businesses you're planning to sell? And then some more strategic questions, I think. The I think already Matthew was kind of looking for an upgrade in your organic revenue growth, but you're over 3%. And if you look at your legal business and the health and learning practice business, that is about onethree of your revenues. The digital element is about 60%, 65% in each, which would kind of imply you're going to get a tick up in that third of revenues. So, is that what's going to drive you to the next single integer on organic growth? And then on the margin side, it strikes me you've got a perfectly good business with some really good products, and you've got a margin for the group, which is 23% or something. Whereas you look at your peers and I know they have not adjusted for IFRS 15, but Thomson Reuters does 28. RELX in the relevant businesses does about 31. Informa in its data businesses, which aren't that great, does about 33. So aren't you miles behind the pack? Doesn't this mean we've got masses of margin growth room, he says in a leading question, for the next few years? Okay. Why don't we divide and conquer? Kevin, you want to answer the net debt to EBITDA? Sure. Net debt to EBITDA was stable at point seven times. Indeed we've said our target is 2.5 times. We are comfortable with that target because of the predictable nature of our revenues and our cash flow. We've also said that we will deviate from that target and I'm happy to be slightly below that target and that's where we are today. And then on legal and regulatory in terms of improved market conditions, we are seeing improved conditions. And what we mean by that is, as you will recall over the many years that, that business has been in decline, retention rates have always held up well, right? It's really been a question of can we get our customers to buy and spend new money. And what we saw in 2017 was some progression around our new selling productivity, coupled with good performance in the U. S, which is a combination of they've been doing a lot of innovation in the U. S. And that's been well received by customers. So I think we're gaining some new monies in the U. S. Market plus the legal ed business that I commented on earlier. So both in Europe and North America, we're seeing overall some better new sales market conditions. And then on probation, core search, each one is a different scenario. But with probation, you're right to point out, it is a growth business. But as we have made changes in where we're investing in health and with the acquisitions, particularly of EME and some other product lines, our focus is squarely in the provider space, really helping healthcare providers deliver good quality care at a reasonable price. And so what probation does is really in revenue cycle management, right? So probation is around documenting procedures and making sure you're getting reimbursed in the appropriate way. So it's really not in the same world as the clinical focus that we have. So it made sense at this time to find a better home for it where they can some parties that want to build out in revenue cycle management. That's not a space that we have interest in. And then core search, kind of a different scenario. Core search, the market is shifting very much from sort of traditional trademark registrations and searching to more and more digital brand management. We didn't have a big portfolio there, so we were going to have to invest more capital and we believe there's better places to put our capital. So again, an appropriate time to find a different home for that. So we did do a number, I think as we've talked in the past, we are always evaluating our portfolio. We do that as part of our annual planning cycle. So you should always expect some amount of change in the portfolio. I will say 2017, we did a number of disposals. I don't think you should expect that level of activity in 2018. And then margins, I think that we clearly, as we talked with Matthew's question, we clearly believe that as revenue growth continues to improve, we will be able to expand margins. Now again, we are trading off in some cases additional investments where we need to, but we fully expect that our margins will be able to expand as revenue growth strengthens. Yes. And legal? Yes. Those businesses, I think you've characterized them well, Patrick, which is it's really the mix. The mix is still the issue in both those businesses. So while they're in sort of the 60% to 65% level of digital. Digital in both cases is growing well. So that's not the issue. We continue to invest in having strong products in the marketplace. It's continuing to manage the decline of print. And in some cases, like in HLRP, we do have some elements that are very transactional that are more difficult to forecast. But as the mix continues to shift digital, you should expect and we expect that growth will come with that. Other questions? Yes, Chris? Can I just ask one follow-up question? It was just on across the different parts of the subscription business, where if you saw any changes in the retention and renewal rates. I think you referenced earlier that the growth has really been driven more by new sales, but just wondering if you're also seeing an improvement in retention. Yes. I would say, in general, our retention rates have always been high. And so in the software kinds of businesses or these expert solutions, normally our retention rates are 90% or above. So there, the focus for us is on driving new innovation, so we can go out to customers and grab more share of wallet. It's more difficult to actually get customers to switch. Now that is one thing that's quite interesting if you look at TeamMate Plus, you look at CCH Access is because we've been first to market with our SaaS solutions. We are in fact, even with those high retention rates, able to add some new clients. But it's largely the strategy is largely around drive innovation, get the cross selling and drive wallet share. In the core content businesses, there, I would say, we are improving year on year the retention rates as we drive better digital products into the marketplace. But really, you measure those in sort of decimal points, right? I mean, this is, again, overall, the retention rates are pretty high. So our focus has really been around innovation, cross selling, driving wallet share. That is clearly the how we're getting better growth in the portfolio. Anything else from the floor? Otherwise, Meg, I thank you. We're coming to the end of the questions here. I just want to throw in a question from Tom Singlehurst at Citi. This is probably more for Kevin. Why given revenue is expected to grow, margins expected to go up and interest costs coming down, do you expect free cash flow to be at best flat in constant currencies? That's largely to do with our cash tax payments. I expect in 2018 we will wind down our deferred tax asset related to interest carry forward. So moving on from there I do expect that the cash tax will be higher in 2018 perhaps a little bit higher beyond that but I think we're getting to a more normalized level. I think we can wrap it up. Any other questions though before? Okay, great. Thank you all very much. There's coffee and goodies outside, so help yourself.