Wolters Kluwer Nv

Good day and thank you for standing by. Welcome to the Waters Cluwer Fall Year 2024 results webcast and conference call. My name is Lauren and I will be your coordinator for today's event. Please note for the duration of the call your lines will be on listen only. You will have the opportunity to ask questions at the end of the call. To ask a question press star 1 on your telephone keypad to register your question. At any time if you require assistance at any point please press star 0 and you'll be connected to an operator. Please be advised that today's call is being recorded. I'll now hand you over to your host, Meg Gowden, Vice President, Investor Relations, to begin today's conference. Please go ahead.

Thank you, Lauren. Good morning and welcome to the VultrSchooler full year 2024 results call. Today's earnings release and the accompanying slides are available for download from the investor section of our website, vultrschooler.com. With me on the call today are Nancy McKinstry, our CEO, and Kevin Entrichen, our CFO. Nancy and Kevin will discuss the important aspects of our 2024 results, and we'll take your questions at the end. 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 risk and uncertainty, and that may cause actual results to differ materially from those indicated in the statements. Factors that could affect future financial results are discussed in note two of today's earnings release and in our annual reports. As usual in the presentation today, we will refer to adjusted profits, which exclude non-benchmark items. We also refer to growth in constant currency, which excludes the effect of exchange rate movements. And we refer to organic growth, which excludes both the effect of currency and the effect of acquisitions and divestments. Reconciliations can be found in note three of today's release. At this time, I would like to hand the call over to our CEO, Nancy McKinstry.

Thanks, Meg. Hello, everyone, and thank you for joining the call. I will start with a brief introduction summarizing the highlights of 2024, then hand off to Kevin, who will go through our financial results in more detail. I'll then return and talk about our divisional performance and give you an update on our expert solution strategy, and then finish up with an outlook for 2025. So turning now to the next slide, We delivered another year of 6% organic growth and an improvement in our adjusted operating profit margin. Diluted adjusted earnings per share increased 11% in constant currencies. Adjusted free cash flow increased 9% in constant currencies ahead of our expectation. Return on invested capital increased to 18.1%. With a leverage ratio of 1.6 times, our balance sheet remains very strong. It was another year of significant returns to our shareholders with increased dividends and a €1 billion share buyback. We also made further progress on our strategic objectives. Expert Solutions grew 7% organically and reached 59% of the group's revenues. Recurring cloud software revenues grew 16% organically and now make up 42% of all the software revenues, exceeding our on-premise software revenues for the first time. We sustained product investment at 11% of revenues, launching several new products and introducing GenAI-enabled features to existing platforms. We completed the centralization of core functions, enabling central teams to better support the business in the future. We also advanced our ESG performance. Employee engagement and belonging scores were maintained at high level and employee turnover improved. We reduced our direct admissions, raised our short-term ambitions, and submitted our long-term net zero targets to the science-based target initiative. So all in all, a good year. So with that, I'd like to now turn it over to Kevin to cover the financials.

Let me start with a summary on slide six. Full year 2024 revenues were 5,916,000,000 euros, an increase of 6% in constant currencies. Organic revenue growth was 6% in line with the prior year. Adjusted operating profit was €1.6 billion, an increase of 8% in constant currencies. The adjusted operating profit margin increased 70 basis points to 27.1%, reflecting underlying improvements and a few other factors I'll come back to. Diluted adjusted earnings per share increased 11% in constant currencies. Adjusted free cash flow was €1,276,000,000, an increase of 9% in constant currencies and ahead of our expectations. We ended the year with a net debt to EBITDA ratio of 1.6 times. Return on invested capital increased to 18.1%. Let's look at revenues by division on the next slide. This grew 6% organically in line with the prior year. Health performance was supported by sustained 7% organic growth in digital subscription revenues. Tax and accounting delivered 7% organic growth, slightly slower than the prior year as expected. This performance was driven by double-digit growth in our cloud solutions in North America and Europe. Financial and corporate compliance delivered 5% organic growth compared to 2% in the prior year. Recurring revenues sustained good organic growth while FCC transactional revenues returned to growth. Legal and regulatory grew 5% organically, an improvement on the prior year. This performance was driven by 7% growth in the division's digital information solutions. Finally, corporate performance and ESG grew 5% organically, which was below the prior year and lower than we had expected. This reflects an unexpected decline in the on-premise software licenses at CCH Tagedec in December. Our customers are more frequently demanding SaaS solutions. Let's turn to slide eight to review revenues by type. The chart on the left shows recurring revenues, which make up 82% of group revenues. The most important revenue stream is digital and services subscriptions. This is represented by the blue line on the chart on the left. These made up 75% of group revenues and sustained 8% organic growth. Other recurring revenues are only 5% of group revenues. These include repeating filing fees in tax and accounting and grew 7% organically for the year. The chart on the right shows non-recurring revenue streams, which exhibited mixed trends. I'll focus on the two most significant components. Financial and corporate compliance or FCC transactional revenues returned to growth, increasing 5% organically for the full year. This compares to a decline of 6% in 2023 when M&A and lending activities were at a low point due to higher interest rates. On the other hand, other non-recurring revenues indicated by the dark red line turned downward in the second half of the year. This category is comprised of on-premise license fees and implementation services, which can be hard to predict and lumpy. This revenue stream makes up 8% of group revenues and declined 4% organically compared to the most modest growth of the prior year. Now let's turn to divisional margins on slide nine. As mentioned earlier, the adjusted operating profit margin increased 70 basis points to 27.1%, which was above our guided range. As indicated in today's release, adjusted operating profit included 27 million euro one-time non-cash pension amendment gain. This contributed approximately 50 basis points to the margin. Excluding this pension gain, our margin would have been within our guidance range. Adjusted operating profit also included restructuring expenses of 28 million euros, a significant increase on the prior year as we accelerated several efficiency initiatives. Furthermore, we had an increase in write-offs in 2024, mainly related to the divestment of our continuing medical education unit and sunsetting of products announced earlier in the year. Let's turn to the rest of the income statement on slide 10. Adjusted net finance costs increased to 62 million euros. This reflects the lower interest income on lower average cast balances and the higher coupon interest on refinance debt. In addition, adjusted financing costs include 9 million net foreign exchange loss, mainly related to the translation of intercompany balances. The prior year included a 7 million euro net foreign exchange gain. As a result, adjusted operating profit before tax increased 7% in constant currencies. The benchmark effective tax rate increased to 23.1%. This was due to unfavorable movements in our deferred tax positions, limitations on finance cost deductibility, and the negative impact of Pillar 2 global minimum tax. Adjusted net profit was 1,185,000,000 euros up 7% in constant currencies. Diluted adjusted EPS was €4.97, an increase of 11% in constant currencies. This reflects the increase in adjusted net profit and a 3% reduction in the weighted average shares outstanding. Let's turn to cash flow on slide 11. Adjusted operating cash flow increased 10% in constant currencies, which was higher than expected, reflecting the growth in adjusted operating profit. Networking capital inflows were 82 million euros, largely as expected. Capital expenditures were 313 million euros, a slight decrease on the prior year and lower than expected due to timing of investments. CapEx as a percentage of revenue was 5.3%. In 2025, we expect this ratio to rise, but remain within our guided range of 5% to 6% of revenues. Cash conversion was 102%. For 2025, we expect cash conversion to move toward our historic norm of 95% to 100%. Net interest paid, excluding lease interest paid, increased to €34 million. This reflects the higher coupon interest paid and lower interest income on cash balances. Cash taxes decreased to €318 million. All in all, adjusted free cash flow was €1,276,000,000, an increase of 9% in constant currencies. Now let's turn to the uses of cash on slide 12. Acquisition spending was €342 million, higher than in the prior year. This primarily relates to the acquisition by our tax and accounting division of the Isabella Group Accounting Solutions completed in September of 2024. Dividends paid totaled 521 million euros, an increase of 12%. Cash deployed toward the share buyback amounted to 1 billion euros, the same as in 2023. In total, we ended the year with a 522 million euro increase in net debt and a modest increase in our net debt to EBITDA ratio to 1.6 times. We're in a strong financial position and have ample room to pursue our strategic investments while continuing to deliver cash returns to shareholders. Now let's turn to our proposed final dividend for 2024 and our share buyback plans for 2025. We're proposing an increase to the total 2024 dividend per share by 12% to €2.33 per share. This would bring the final dividend to €1.50 per share, subject to shareholder approval at the annual general meeting in May. As indicated in our release, we are today announcing our intention to repurchase up to €1 billion in shares in 2025. Of this amount, 100 million euros has already been repurchased in January and February. Starting this Friday through to the beginning of May, we have a third-party mandate in place to repurchase shares of 155 million euros. Now, let me sum everything up on the next slide. We delivered organic growth of 6%. The adjusted operating margin increased to 27.1%. Diluted adjusted EPS increased 11% in constant currencies. Return on invested capital increased to 18.1%. Adjusted free cash flow increased to approximately 1.3 billion euros. We remain in a strong financial position with net debt to EBITDA ratio of 1.6 times. You may have noted in the release, we have updated our approach to leverage to reflect actual practice. As we execute on our strategic plans, we will aim to keep leverage in a range of 1.5 to 2.5 times. We may temporarily deviate from this range, but our high portion of recurring revenues and resilient cash flow give us the ability to rapidly return to this range. I would now like to turn the call back over to Nancy.

Thank you, Kevin, very much. I'd now like to go to the divisional performance review, beginning with health. Health delivered another year of 6% organic growth led by clinical solutions. The adjusted operating margin improved slightly as the positive effects of operational gearing and mixed shift towards clinical solution was partially offset by one-time write-offs. Clinical solutions delivered 7% organic growth driven by good renewals for up-to-date our clinical decision support tools and our drug databases. Our patient engagement solution performed well. In 2024, we unveiled up-to-date enterprise, which introduced a data analytics dashboard for healthcare organizations and added access to our up-to-date AI labs, GenAI functionality. Learning, research, and practice delivered 4% organic growth In medical research, organic growth slowed to 3% against a challenging comparable, which had benefited from new revenues related to the New England Journal of Medicine contract, which was won in late 2022. In learning and practice, organic growth improved to 6%, led by continued strong growth in our nursing education solutions. Lippincott Ready for NCLEX, a digital solution which we launched in May to help nursing students pass the NCLEX exam, signed its first customers. So now let's turn to tax and accounting on slide 17. Tax and accounting delivered 7% organic growth with strong performance in North America and Europe. The margin increased by 50 basis points, driven by operational gearing and cost efficiencies. North America revenues grew 8% organically, supported by 20% growth in cloud software. Our CCH Access Cloud Suite benefited from customers adopting additional modules and migrating from on-premise to cloud. Outsource professional services grew at a double-digit rate, while our publishing unit sustained low single-digit organic growth. Last year, GenAI-enabled features were introduced across several products, including conversational search and virtual assistance. Our European business grew 7% organically, with strong performance across all seven countries. As in North America, the European business also saw double-digit organic growth in cloud software. The integration of the business that we acquired from the Isabel Group last September is proceeding to plan. Asia Pacific and rest of world revenues were up 1% organically, with growth in Australia, New Zealand and India partially offset by weakness in China. Now let's move to the financial and corporate compliance division. This division achieved 5% organic growth with recurring revenues up 6% and a return to growth in non-recurring transactional revenues. The margin increased by 90 basis points, reflecting operational gearing and cost efficiencies. Legal services delivered 7% organic growth versus 2% in the prior year. CT corporations' transactional revenues increased 8% organically compared to a decline of 9% in the prior year. CT generated 10 million euros in revenues from the beneficial ownership reporting solution, which we launched last year to support our customers with compliance with the Corporate Transparency Act. Financial services grew 3% organically, supported by 4% organic growth in recurring revenues. With interest rates still at elevated levels, mortgage-related transactions and lien search and filing volumes remain subdued. Now moving to slide 19 for legal and regulatory. In legal and regulatory, organic growth was 5%. driven by strong growth in digital information solutions. The margin reached 18.6%, partially due to the one-time pension gain mentioned earlier. Excluding the pension gain, the margin improved by 130 basis points, reflecting operational gearing, mixed shift, and cost efficiencies. legal and regulatory information solutions grew 5% organically, driven by digital information solutions, which grew 7% organically. Last year, we introduced GenAI features to our US legal research solution, Vital Law, and we launched a beta version of GenAI-enabled features in our InView legal product in the Netherlands. Legal regulatory software posted 6% organic growth, Growth in ELM solutions reflects continued growth in transactional revenues linked to U.S. legal spend volumes. Now let's turn to corporate performance and ESG on the next slide. In corporate performance and ESG, organic growth was 5%. Recurring revenues rose 12% organically, but this was largely offset by a decline in license revenues at CCH Tagedic, where new customers are increasingly choosing SaaS subscriptions. The margin declined, reflecting the decline in license revenues combined with increased product investment. EHS and ESG, this is the Enablon suite, which grew 15% organically with double-digit growth across all regions globally. Enablon's recurring cloud software revenues grew 21%, while non-recurring revenues were supported by strong professional services. Our corporate tax and internal audit businesses delivered robust organic growth driven by double-digit growth in recurring cloud software. Organic growth for CCH Tagedic was flat as 18% growth in cloud software was offset by an unexpected decline in licenses in the month of December. As recurring revenues build, this business will become more predictable Overall new sales at Tagedic were strong, adding over 200 customers in 2024 and upgrading more than 40 customers to CCH Tagedic's new intelligent platform. Our finance risk and reporting unit posted positive organic growth driven by recurring software revenues and services. Now I'd like to talk about our strategy for the next three years. Our plan for the next three years marks a further evolution of our strategy. We will be putting a greater emphasis on a few aspects. Scale our expert solutions. We plan to focus more on driving market penetration of cloud-based expert solutions and leveraging our data and content to create insights for customers. Accelerate growth. We plan to step up our pursuit of attractive high growth adjacencies with a build, buy, or partner approach. We intend to accelerate innovation, which enhances customer productivities and outcomes while furthering developing partnerships to extend our market reach. Evolve capabilities. We will put more emphasis on enhancing our go-to-market capabilities and sales effectiveness. We will adopt new technologies to drive operational efficiencies and create a great place to work and deliver best-in-class ESG performance. Now I want to spend a couple of minutes to talk about our performance for cloud software. Cloud software has been an important driver of growth in the last few years, and we plan to put even greater emphasis on the cloud in the coming three years. In 2024, for the first time at the group level, cloud software revenues overtook our on-premise software revenues. Cloud software has been growing at a compound annual growth rate of 18% in constant currencies and now accounts for 42% of our total software revenues. During this period, on-premise software has been broadly stable. In tax and accounting, which accounts for about half of all of our software revenues, we've been migrating customers from on-premise to cloud for many years now. In financing corporate compliance, which accounts for 23% of total software, the adoption of cloud is slower, as banks tend to prefer on-premise or private cloud solutions. In CP and ESG, which accounts for 18% of total software, it is not a case of migration, but rather the new customers we are signing are choosing cloud-based solutions with recurring revenue models, typically on a three-year contract. CP and ESG is almost 60% cloud-based software and 70% recurring. As recurring cloud software builds, this division's growth will accelerate and the division will become more profitable. Another priority for the group over the next three years is to accelerate the pace of innovation while keeping product development spend at about 11% of revenues. So turning to the next slide, we wanted to highlight a couple of examples of some innovations that occurred in 2024 that involved embedding GenAI into our platforms. The first example is our BOI platform. We were first to market to launch an end-to-end digital BOI reporting solution to support our customers with compliance with the Corporate Transparency Act. The team built this solution during 2023 in 75 days and launched it at the start of 2024. The platform has won numerous awards and continues to be adopted by our US corporate customers. CCH2GEDX CSRD reporting tool is another great example. This was launched about two years ago now, and it was further enhanced in 2024 to include the ability to calculate scope three admissions. This is an add-on module out of 174 customers, 95 of them are in Europe, and they need to comply with the mandatory CSRD reporting framework. Not only does the module help the customer collect the ESG data and put it into the required standards, but they can also analyze their performance against ESG targets and see how it interrelates to financial and operational performance. Before I turn to the outlook, I just wanted to say a few words about a new addition to Walter's Clore. Earlier this month, the Finance and Corporate Compliance Division announced an agreement to acquire registered agent solutions called RASI. for approximately $415 million. Similar to our legal services group, RASI provides registered agent services and a full range of other compliance solutions such as business formation and business licensing. In 2024, Razzie generated approximately $52 million of revenue, and it has a track record of profitability. We have long admired this business, and it fits very well with our CT Corporation business and helps us expand our presence in small and medium-sized companies. So now let's turn to the outlook. We expect to achieve full year organic growth in line with the prior year. Organic growth is expected to be more modest in the first two quarters due to challenging comparables in health and tax and accounting. The adjusted operating margin is expected to see an improvement in 2025. We expect adjusted free cash flow to be broadly stable with cash conversion returning to historical ranges of 95 to 100%. we expect return on invested capital to be between 18% and 19%. And reflecting a higher financing cost and tax rate, we expect diluted adjusted EPS to be mid-single-digit growth in constant currencies. So now let me conclude with an outlook by division. Our guidance for organic growth by division is based on a pro forma view that reflects the transfer of finance risk and reporting to the financial and corporate compliance division. In tax and accounting and legal and regulatory, we expect organic growth to be in line with prior year. In health, we expect organic growth to be slightly below prior year with the first half challenging comparables across the division. In finance and corporate compliance, we expect full year organic growth to be slightly below the prior year. In corporate performance and ESG, we expect organic growth to be above the prior year, reflecting higher growth for CCH to get it. As previously noted, we expect overall group organic growth to be in line with 2024, with margin improvement mainly driven by health and corporate compliance and ESG. So now some final words. As you may have seen the announcement this morning, after 22 years as CEO, I've decided to retire in February 2026. It's been an honor to lead Walters Clore through its transformation and to have built such a strong foundation that is well positioned for future growth and innovation. I'm delighted that we will be nominating Stacey Kaywood as my successor. She has a proven track record of running two of our largest divisions, restoring legal and regulatory division to growth and taking the health division to the next level of innovation around our leading medical content. Stacey was closely involved in the updating of our three-year plan that we've announced today, and I have full confidence that the company will be in excellent hands under her leadership. Stacey and I will work closely over the coming year to ensure an orderly transition. So I just want to say thank you to all of you for the many years we've been together. So now we'll turn to the operator for Q&A.

Thank you. As a reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. You will be advised when to ask your question. Our first question today comes from George Webb from Morgan Stanley. George, please go ahead.

Hi, morning, Meg and Kevin. Congrats on your retirement for next year. Nancy, I guess, we may well be speaking a few more times before then. In terms of a few questions, please. So firstly, on CP&E, the 5% growth for 2024, you mentioned that accelerated decline in license revenue in December. Can you talk about how you've been structuring revenue break-even points on subscription and cloud contracts for Progetic compared to license and maintenance? And also, I guess, your confidence in bringing overall CP&E growth maybe this year back into a high single digit or maybe even low double digit growth range. Second question, more qualitative one, so it's a clinical solution. Can you just talk a little bit about how you think about the market penetration or growth runway you have both in the US there and internationally? And then finally, just a smaller question on the new BLI platform in SNCC. Given the flux in US policy there potentially this year, what sort of assumptions are you making on revenues in 2025 in the growth guidance for SNCC? Thank you.

Okay. Thank you, George. So I'll work backwards, if that's all right, in terms of your questions, starting with BOI. So as you note, it is a changing landscape in terms of legislation that's challenged the constitutionality of the Corporate Transparency Act. But where we sit today is that there's been some new state rulings that have backed the constitutionality. So FinCEN, which is the governing body for CTA, has announced a new filing deadline, which is March 21 of 2025. And so we've already seen transaction volumes increase a little bit over the last few weeks, still well below 2024 levels, but customers are complying, customers are continuing to buy. So while there's still some possibility that they might extend the filing deadline, into 2026 or reduce some of the reporting for smaller corporate entities. We still expect at this point that the CTA will remain, and we still expect that our customers, particularly the vast majority of the customers we serve, our larger entities will be complying. So if you look at what we expect for this year, we got a $10 million boost in 2024. We don't expect that level of incremental revenue, but we do expect a bit more than we delivered last year, in part because about 50% of what we sold last year is subscription in nature. So now on clinical solutions, we continue to still have runway revenue. in the US, we're about 60% penetrated in US hospitals and healthcare organizations, but there is always room to add more services to our platform. We also, obviously as hospitals increase their staff, that is also an opportunity for us to recognize additional revenues. Outside the US, it varies, of course, by geography, but we have still a lot of room outside the US in terms of growth, particularly outside of Western Europe and North America into South America and some of the Asian and Middle Eastern markets. And then finally, on CP and ESG, I'm not sure I fully understood your question, but I think what you're talking about is what's the crossover between on-premise and and SaaS. So we are now growing SaaS. It's been growing between 18 and 20%. Cloud now represents 60% of the divisional revenues. And so we are reaching that point where license revenues will become less of a sort of anchor on the division as that part of the business is really moving to cloud. So you should expect better growth performance. That's what we've guided in CP and ESG as we fully expect that the cloud growth will continue. So the market remains attractive for Tagedic. We continue to add new modules, get upselling as well as new logos.

Thanks very much, Nancy.

Thank you. Our next question today comes from Adam Berlin from UBS. Adam, please go ahead.

Yeah, hi, good morning, Nancy and the team. A few questions from me. Maybe a big picture one first. If we assume a stable regulatory environment, I know we don't know what that's going to be like, but just assume the existing regulations stay in place globally, where do you see the opportunities for further product launches and where should we be excited about and what opportunities do you see? The second question, again, on CP and ESG, obviously it sounds like the business has been impacted by the poor performance of the on-premise version of the Takedic software. Do you have any thoughts about removing that on-premise version, just going to a fully cloud version? And if you did that, of course it would have a negative one-off impact, but then what kind of growth rate could the CP and ESG segment deliver if you didn't have that kind of problem going forward. And then maybe finally on FNCC, sorry, sorry, ask those two first.

No, no, no, go ahead, Adam, finish, and then I'll jump in.

Yeah, I just, in the last answer, you started to explain your thoughts around FNCC and why, and your thoughts around the CTA, but could you just talk a little bit more detail about why you're guiding for a slowdown in FNCC? That was quite the surprise for me this morning. I thought, you know, generally a more robust transactional environment, the CTA revenues, et cetera, you'd have guided for at least similar growth in FNCC next year. So if you can explain your thinking about that, that would be helpful.

OK, so the regulatory environment remains, you know, ever changing, not just in North America, but elsewhere in the world. There were four major developments on the regulatory front that affect Walters Clore that represented. sort of, I would say, tailwinds for us, positives. One is CTA, and I'll come back on that. Obviously, that's been moving around a little bit over the last six or seven months. Basel IV, which does remain in effect, that affects our FRR business, again, much more of a European customer footprint. Pillar two, where while there's some potential that it gets dialed back in the U.S., you know, still an important up to now, you know, an important consideration in in the European realm. And then there's just some general concerns. regulatory reform going on in parts of the banking world that's not as big as Basel IV, but some additional regulatory items in mortgage and some of the other places. So those And you have the CSRD. So that would be yet another one, which again, it began, everybody's had to comply as we have as Walters Chlor starting this year. So those are all in flight and we have products in market. We're driving revenues against all of those. But as you can see, there can be either in changes in the mandatory compliance deadline or changes in how that works. But in general, I would say Walters Kloer benefits from change. We help our clients navigate change and we help them ensure flawless and efficient compliance with any rule of regulation. So, you know, you do have these fits and starts as you can read from the newspaper, but in general changes is a positive development for us. And then on license and cloud in CP and ESG, in fact, to your point, to your question, in 2025, we stopped offering a licensed version of Tagedic in North America. If you look at the competitive landscape in North America, we were one of the only ones that still offered that as an option. So that we discontinued this year. So we're only selling cloud in the US. We plan that same strategy in Europe in 2026. to again, really by then, most of the customers are selecting cloud. So we can do that without hurting relationships with customers. And then Asia will follow after that because Asia often on-premises really around data privacy and some of the other issues specific to those markets. So that's the plan that will continue. Again, the business is becoming more and more a cloud software business, but we have a staged sort of process for that. And then on FCC, The guidance is underpinned by two facts. One is we did get 10 million of incremental revenue in BOI in 2024, and we don't expect that level of incremental revenue in 2025. And yes, while transactions have rebound, they went from a minus nine in 23 to a positive eight in 24. We don't expect... that level of increase, particularly on things that are related to lien and mortgage volumes, because interest rates are unlikely to go down in the way that many people may be expected in 2024. So that's, hopefully that covered your questions.

Can I just come back on CPMHG just to understand how you've explained it with these. So does that mean in 2025, you don't get kind of the full benefit of just being a digital provider because you've still got kind of a negative headwind from not selling the on-premise that you may have previously sold. But by 2026, we should see kind of a better growth, a really strong outcome for the to-get-it business because it's now just going to be selling the cloud and you won't have that kind of headwind. Just can you talk a little bit more through how we see it in a couple of years and the numbers? Yeah.

Yeah, so our North American business is smaller. So not offering the on-premise option is not gonna be the big determinant of the results for CP and ESG. We do expect better growth performance, and it's really because we expect that cloud will become even more dominant as the choice among our customers, not just obviously in North America where that's the only option, but also in Europe. So you should expect better performance in 2025. And then by 2026, the whole split between the two versions becomes not as much of an issue. We will always have an installed base of on-premise customers and we get maintenance on that, but it becomes more of a stable kind of revenue stream.

Thanks very much.

Thank you. Our next question today comes from Nick Dempsey from Barclays. Nick, please go ahead.

Yeah, good morning. I don't think I've ever said this before, but congratulations, Nancy, on your tenure. That's been a remarkable achievement. Just to move into some detailed questions. So you've delivered 5.8% organic revenue growth for two years in a row. I guess your guidance points somewhere in that bracket for 25. So big picture, is this where Walters Kluwer tops out on growth? Or are there clear reasons beyond that why you can get that accelerating again? Second question, just on health. You flagged for 2024 that medical research was held back by that tough comparable effect. That's washed out now, I guess, looking into 25. So therefore, for you to guide to the same or slightly lower for health in some side, what else in that division is getting worse to offset what should be a small positive for medical research? And just last question on margins. It's having seen a one-off benefit in 24, you're then showing good improvement again in 25. Is it possible to keep on improving at your previous rate from that higher level when we look beyond 25?

Okay. Well, thank you, Nick, for your kind words and the others as well. But I think, Kevin, why don't you start on those three questions and then I'll add to your comments. The first one being the top line growth question.

Yeah. Top line growth, you know, we've given you some of our thoughts on organic growth approximately in line with what we did in 2024. But I would actually draw your attention to the slide where we break out the different components of growth. And where we are investing is in a recurring revenue, the expert solutions. And you do see that, you know, that line of business does grow at a superior rate. So 8% growth pretty consistently over the last several years. So as we see mix shift change in our product lines within the group, I do see that Longer term, there is the potential for improvement there. Health, I would say we do see the business steady as it goes right now. I think that our delivery on organic growth around the 6% range, that's around the level that we would guide you to for the 2025 period, that level, maybe slightly less. But I do think that the clinical solution side of the business, as it gets bigger and bigger and bigger, it's hard to grow you know, at rates that we may have grown in the prior year. But all in all, we're very confident in that business and the outlook for the future. Finally, on margin, we do see opportunity to improve that margin. Part of it is, again, the mixed shift in revenue. You know, our software businesses, when they get to maturity, typically have higher margins. But I'll also remind you that You know, there's a lot of efficiency work that goes on at Walters Kluwer. We're looking to improve many different areas of the back office, and we do see some opportunities to improve margin based on those types of programs.

Yeah, I would just add on that, just Nick, on the last point Kevin made. We are working with some of the new Gen AI technologies on some efficiencies across the enterprise, and we are seeing some good results in both software development and in content creation. So that is another source of savings. As you know, we always have savings ambitions every year, but I think that that could give us a bit more of a step up in what we typically can deliver. Now, that will come over more than just a year. It takes a while to get all of that operational, but that gives me confidence that we have room to continue to expand the margin on top of just what you get from the mixed shift towards expert solutions.

Thanks.

Thank you. Our next question today comes from Silvia Camillo from Deutsche Bank. Silvia, please go ahead.

Thanks. Good morning, everyone, and congratulations to Nancy on an exceptional career. A couple of questions from my side. First, you talked about the introduction of Zen AI-enabled features across several platforms. Could you provide some color to help us quantify the impact on customer adoption or pricing or, for example, are you seeing benefits in renewal rates for products that embed GNI versus others? And then the second question, on capital expenditure as a percentage of revenue that has decreased in 2024. You mentioned timing of investment of being a factor, but could you elaborate more on potentially other drivers behind this trend? Is this reduction related at all to shift towards more OPEX heavy investments perhaps, such as those associated with NAI product development or anything else to flag? Thank you.

Okay, I'll talk about Gen AI and then Kevin, if you would talk about the CapEx. So it's still, I would say, early days specifically on the monetization of Gen AI features and functionalities, and we span the range of those kinds of opportunities. So In many products, it's the normal kind of enhancements that we're doing to support retention and to support our price increases. So you do see that monetization, but it's kind of embedded in the overall renewal activities that we do. In other areas, we are able to get an incremental, so think of it more like an upsell on top of the core product. That's very true when what you're doing is is building a piece of workflow or a piece of software that is generating, you know, improvement in the productivity of the client. And then in other cases, it's just a product that's completely based on maybe not just all gen AI, but AI in general. We have a number of products that are completely AI oriented. And so, of course, that's a brand new revenue stream. So it really varies. I would say it's still not, just as it relates to Gen AI, still not easy to say, okay, over the medium term, what is the total revenue opportunity? Because it varies very much by the customer segment and by the market, etc.,

With regard to CapEx spending, indeed, we did see a slight decline. It's about 5.3% of revenue in 2024. I do expect that will increase in 2025, but I think we mentioned in our price release, I still believe it will be between 5% and 6%. of revenue. The slowdown you saw in 2024 has everything to do with the timing of when projects start and when they are completed. We did finish a couple of larger projects in 2024, one of them being in legal software, another of them being in the CT business in FCC. So as new projects start to ramp up, I do expect that we will see a slight increase in that percentage of revenue. CapEx is a percentage of revenue in 2025.

Right, thank you.

Thank you. Our next question today comes from Sami Kassab from BNP Paribas. Sami, please go ahead.

Thank you very much and congratulations, Nancy, on your unique track record in creating so much value over the many years you've been at the helm. Bravo. I have three questions still. First one, can you discuss the competitive landscape within the U.S. tax segment in the light of Thomson Reuters increasing its outlook for this division in the light of interest, perhaps more aggressively going after tax professionals? Can you share a few thoughts on how you see the competitive landscape moving there? does your health guidance include some impact from the newly announced NIH funding cuts? And how would you see that impact the business, in particular within the medical genres? And lastly, can you please give us one or two examples of how your internal rollout of GNI tools help improve labor productivity? To put some color on what's going on there, please. Thank you very much, Nancy.

Okay. Thank you. And thanks for the kind words. So on the competitive landscape in tax, if you look at our primary competitors, Thomson Reuters, they did have a faster growth rate than we did. But when you sort of peel back the onion, what you see is that the outperformance was in their transactional part of their tax business and in Brazil and a few of the non-North American markets where we we don't operate. So if you look at the core, the professional tax market, you know, we still continue to grow, you know, at or above the rates. And that is largely due to the fact that we still have the only full cloud suite in North America, which is our CCH access platform. And we're still adding modules, et cetera. So I would say competitively, You know, from a product perspective, we are more than holding our own. And, you know, we see where they're getting their growth is either in places where we don't operate or in the transactional part where they have a bigger footprint. So we feel good about our tax position, basically, and that continues to be an outstanding source of innovation for the group. And then on NIH funding, as you, I'm sure, all read, it's still very unclear what is going to happen in terms of the funding. So we have not yet seen any kind of impact on our business. Were, you know, all of the things that could happen come to fruition in terms of dramatic changes in how they do the funding? You know, a big part of this is what's direct, what's indirect, as well as just the absolute level of funding. So depending on how it all ends, if it did have an impact, it would be really on our on the academic institutions. So the large, you know, medical academic institutions that get the funding and it might impact the library budgets, but not all of these institutions fund the library budgets out of indirect. So it's very, I would say varies very much to customer and year to date, you know, we have not, seen a big impact. You certainly hear from our customers that they're just very unclear what's going to happen. So from that standpoint, we definitely have dialogue with our customers, but no impact as of yet. And then on GenAI inside, Two examples, we've been rolling out GitHub, which is a Microsoft product in our software development group for about a year now, working, you know, kind of running pilots. And we are seeing, you know, a good productivity benefits, particularly at sort of the mid manager level. So that is allowing us less around, frankly, cost savings internally, but more about allowing us to do more throughput in terms of innovation. And where the savings will come will be largely from some of our connected service partners. You know, we have a large augmented staff. And so we would expect those costs to decline over time as the productivity benefits, you across the enterprise. And then the second place where we're very positive is in customer support. We've seen material savings in the support function as we roll out virtual assistants, which we've had for a while, but Gen AI is really allowing us to step it up. And so that is bringing us savings. And then in many other support functions, we have similar examples, but I would say those two are are quite tangible, those two areas are quite tangible at this point.

Thank you very much.

Thank you. Our next question comes from Robert Fink from Kepner Shrewsbury. Robert, please go ahead.

Yeah, thank you. I have a follow-up question about CCH2GEDIC. I think your remarks about on-premises license revenues declining and also the strong growth in cloud are clear. I think there's still some more color that I think could be gained. Could you give us a feeling for the conversion of previously on-premises customers at CCH2Z to the cloud? So essentially, I would like to understand, yeah, do you lose many of these on-premises customers or are you actually successfully cross-selling them to the cloud? Maybe you could give like a rough split of of what level of cloud growth is actually driven by migrations from previously on-premise customers, and what level of growth is actually driven by new customers that didn't previously use CCH static. And then my second question would be about legal software. I think it grew 6% organically in the year, and the whole division of legal and regulatory grew 5%. And then there's also some support from transactional revenues at software. So, yeah, intuitively, I would say that the software growth in legal could be improved, right? So what are you seeing in legal software? And what matters are you taking to accelerate growth further?

Okay. So on to GEDIC, it's not a migration program. development. In tax and accounting, it is migration. We're migrating on-prem to cloud and we get some new clients as well in tax, but it's more migrate and then upsell. That's more the strategy on the tax side. In CP and ESG, it's really a story around or it's a result around new logos. So customers ultimately can decide whether they want to buy on-premise or they want to buy SaaS. Sometimes we think they're going to buy SaaS or on-premise all the way up until you're literally closing the deal, and then they change their mind for whatever reason. And so in that way, the migration of cloud is not really going to occur to the same extent in CP and ESG. It's really about the mix of new sales. than in comparison to tax. And keep in mind, most of our contracts are three to five years. So, you know, will there'll be some clients that are on premise today in a few years time, move to the cloud potentially. But again, it's more of a new logo kind of business. And then legal software, I will remind you that it's still a relatively smaller part of legal and regulatory. It's only 23% of divisional revenues. So we do expect on the Cleos and Legisway product line that that will, I think, increase its organic growth a little bit. Our ELM business is a more stable software business, more mature. So that will probably continue to grow in sort of that mid single digits. So you will see some more scaling in the business. That's obviously the aspiration. But more on the Cleos and Legisway side than perhaps on the ELM side.

Okay, very clear. Thank you.

Thank you. Our next question comes from Simon Runberg from ING Bank. Simon, please go ahead.

Thanks for taking my questions. Firstly, your strategic plan for the coming three years, you explicitly mentioned selective acquisitions that will play a role next to organic growth and product innovation. You already announced the RACI acquisition earlier this month, already putting 2025 acquisition spend above 2024. So can we expect to see increasing M&A activity going forward and this playing a bigger role? Also, given that you're still well below your target average of two and a half. And then also on the Gen AI, I'm just curious to hear what the initial customer feedback is on the products that you've launched, Gen AI products that you've launched, the legal and regulatory, particularly for vital law. And then maybe the last one about the RASI acquisition. So it seems to give you more of an in with small and middle market companies. So is that a strategy that you also want to employ for other products or other divisions as well? So going more after smaller sized businesses to grow the potential market. Thanks.

Yeah. So Kevin, why don't you tackle the acquisition question and then I'll cover the Gen AI and the RASI.

Certainly. The acquisitions that we've done most recently, RASI and the the accounting software from the Isabella Group. Both of those acquisitions tightly fit with our strategy and tightly fit with businesses that we run and know very well. So particularly in the software business and tax and accounting, it's pre-accounting, post-accounting software that help uh accountants be more productive so we do that now in our tax and accounting business so this is a a great addition or a great compliment uh same thing with razi i mean we know the registered agent ct business quite well it's a business we've been in for you know over 100 years and it's something that i think that um you know compliments is going at the mid market and the lower end of the market what i would guide you to with our acquisition strategy going forward is we certainly are looking to build out you know our core positions within the business we often look at things from a organic development point of view but sometimes an acquisition is a speed to market as you heard nancy say you know we're looking to build buy or partner and that strategy remains consistent going forward Obviously, you know, we do have a strong balance sheet, so we can put that to work if we find the right acquisition. So expect our strategy and acquisitions not to change. It'll be, you know, things that will complement our business or build up close adjacencies.

And then on GenAI in legal U.S., I would say customer adoption has been going well. You know, again, what do we do, right? We work in what we call small language models, right, where we work only with our proprietary content. And so we have very high accuracy rates. And so what customers like is more the conversational content. aspect of their search and and more the ability to create workflow products so if you look at vital law not only does it allow them to do you know kind of searching we've always had natural language but it is more conversational it creates work product so it gives them sort of a checklist of What did they do? And it can turn it into a document, a Word document that they can actually put in their files or send to their client. So it's helping us turn some of our legal content platforms into expert solutions. In other markets, like I would say up to date, for example, customers really like it, but they are more, I would say, interested. they pay more attention to making sure it's 100% accurate, which we do. So even though we work in these small language models, and so we only work with our proprietary content, we still put editorial resources on top of that, not just in health, but in legal. So we have a very strong track record with our customers around the accuracy. So I think adoption varies a lot by different segments. But in general, the customers have been really delighted by the products we're rolling out.

Perfect. Thank you.

And then Razzy, just real quick, I'll echo what Kevin said. You know, we serve mid and small market today, both at CT Corporation and really across the enterprise. But Razzy, as I mentioned in my remarks, it's a company we've admired for many years. And so it just adds share to our current portfolio. And so we're very happy about that.

Thank you. Our final question today comes from Henk Flotboom from The Idea. Henk, please go ahead.

Yeah, thanks for taking my questions. Nancy, I remember the day that you took the helm at Wolterstube when I still had hair. In the meantime, I'm a grumpy old man. But at least you gave me very little to be grumpy about. As an old man, I take a step back and try to keep everything comprehensible for myself. Nancy, we see a pushback on things like ESG, CSRD, CSDDD, and DDY, both in the US and in Europe. How is that going to affect your business? Because, well, you set up a separate division a few years ago, which incorporates the ESG phenomenon. It is relatively small, but... Yeah, all these abbreviations included a lot of reporting, which is very much in the heart of where you are active. Is this going to influence the growth of this type of business? And is it going to affect, for example, the amount of capex you're throwing at it? How do you look at it? Thank you.

Yeah, so we still, you know, obviously we hear the same things that you've heard about, you know, the market commentary around some of the reporting requirements. But we believe, based on our customer input, based on all of the work that we do in the market, that the focus on ESG is here to stay. The CSRD is here to stay. Now, whether they pare back some of the reporting requirements that may happen, whether some of the post CSRD, the other acronyms that you rattled off, maybe they don't happen exactly in the timeframe. But when you talk to customers, keep in mind our customer base is largely multinational industrial companies. They have been committed to, you know, ESG for a very long time, and they've already made it operational, right? So a lot of what we do, it's not just complying with the regulatory part, but it's very much operational software. Like the core of Tagedic is compliance. financial uh reporting and consolidation and it helps them understand what's going on in their businesses so it's we use it kevin uses it in in walters core our finance people use it what the esg it's a module on top of that that allows them to ease extracting the data for esg which is usually very dispersed across anybody's enterprise and it allows them to get that data relatively easy and then helps them report on it. Reporting is a part of it, but the core of what we do is really this financial and operational insights and analytics that we provide. Then don't forget on the Enablon side, the core of that business is health and safety. and operational risk, which is still hugely in demand, not only by oil and gas companies, but again, pharma companies, anybody who's dealing with a disperse workforce that's manufacturing and operating kind of in this heavy industry. So those things around health and safety are not gonna change. So think about for us, ESG, is really an add-on to the core of what we're doing. And we had very good growth in those modules, both at Enablon and Togetic last year. So I think the market is still very robust. It's just that maybe some of the dialogue in the public domain has dialed back a bit.

Okay, that's very clear. Thank you. And well, I guess we'll speak again in half a year's time. If not, then all the best, Nancy, and thanks for all your work.

Thank you very much, Hans. So back to you, Meg. Yeah, I think we're going to conclude.

Yeah, I think that was the last. So the operator, I believe. Yes, exactly. So. Yeah, that was it. So, Nancy, do you have any closing remarks?

No, I would just like to say thank you very much for joining us today. We're excited about the future of Walters Clore. And thank you all for your very kind remarks. I'm really excited about my successor, Stacey Kaywood. She is a very proven Walters Clore leader. And, you know, you will see me again over the course of 2025 as we handle all the transition. So thank you very much.

This concludes today's call. Thank you for joining everyone. You may now disconnect your lines.