2010 proved to be a turning point for Wolters Kluwer as the business responded well to the changing global economic conditions. While the financial crisis that began two years ago continues to pressure professionals to manage increasing levels of complexity in their jobs with less resources, it positively reinforces the objective of the company’s strategy, Maximizing Value for Customers. Wolters Kluwer continues to invest to deliver more advanced online, software, and workflow solutions that help customers become more efficient and effective. Market acceptance of this shift towards higher value, electronic solutions can be seen in the company’s 2010 full-year results, with revenue growth of 4%, free cash flow growth of 5%, and an improved ordinary EBITA margin of 20.4%. Importantly, the company’s portfolio has been fundamentally transformed with almost 70% of its revenues generated from online, software, and service offerings.
Trends in Professional Markets
2010 continued to highlight long-term trends that support growth in the markets that Wolters Kluwer serves. Professionals are faced with several dynamic developments in their markets and it is Wolters Kluwer’s mission to support them with tools and services that help them manage processes and drive results effectively.
The amount of regulation and its complexity continues to increase across the globe. The financial services sector is an excellent example of a market undergoing significant change. As an illustration, in 2010, the regulatory experts of Wolters Kluwer’s Financial Services unit reviewed over 40,000 pieces of newly-proposed state and federal legislation relevant to the U.S. banking and mortgage industries. Of the 40,000 pieces of proposed legislation, more than 8,000 have been enacted, a 14% increase over 2009.
Shortage of professionals
A marked shortage of professionals in the tax and accounting and healthcare sectors drives the need for more robust, online and software solutions that improve productivity. For instance, the growing and aging U.S. population foreshadows an increasing shortage of physicians over the next 15 years. Combined with ongoing healthcare reform which introduces new individuals into the healthcare system, this places a premium on productivity solutions that help doctors be more efficient and their treatments be more effective.
Globalization of regulation, markets, and customers
There is an increasing adoption of common standards that favor information providers that can combine global strength with local understanding.
Concrete examples are Sarbanes Oxley, Basel II, and the Dutch Corporate Governance Code that all have established a common framework for regulation in banking, securities, and corporate governance. As these standards emerge, customers are globalizing their operations, providing Wolters Kluwer with new opportunities to leverage its broad global footprint.
Growing presence in emerging markets
Today, 7% of Wolters Kluwer’s revenues come from developing markets, including Central and Eastern Europe.These markets provide increasing growth opportunities as the professional customer base is expanding rapidly, particularly in Asia. With Wolters Kluwer’s presence in China for already more than 25 years, it has a strong foundation to benefit from this growing market. While the amount of regulation and compliance requirements in China is relatively low today, this is likely to change as regulatory frameworks expand to support the rapid growth of the economy. Today, there are approximately 170,000 lawyers in China, with 2 million lawyers estimated to be practicing in 2020, surpassing the number of practicing lawyers in the U.S.
Increased Proliferation of Regulation
For the United Kingdom regulatory environment, companies need quick understanding and interpretation of the implications of the Financial Services Authority (FSA) rules and guidance. During 2010, more than 4,000 pages of changes were made to the FSA Handbook, with fines imposed for non-compliance by the FSA tripling over the prior year. The Wolters Kluwer Financial Services FSA Handbook is an essential, intelligent rules and guidance handbook for financial services firms and individuals to conduct regulated business. In the coming year, the U.K. financial services industry will face the challenge of navigating and preparing for the significant changes in how regulation is structured and delivered.
Resilient Business Model
Wolters Kluwer enjoys the benefit of a resilient portfolio, with the majority of its revenue streams derived from ‘must have’ content and software delivered to professional market segments. With 71% of its revenue being recurring, most of which is renewed annually, there is a solid and reliable foundation from which to grow. In 2010, electronic and service subscriptions grew 7%, while sales trends for products more sensitive to economic conditions, accounting for 19% of the portfolio’s revenue improved throughout 2010, ending the year materially in line with 2009.
Maximizing Customer Value
2010 marked the first year of Wolters Kluwer’s strategy Maximizing Value for Customers. Each element of the strategy is designed to integrate the company’s information and software services into the workflow of customers, and change the boundaries of how information service providers have traditionally been defined.
Throughout this report, several examples of the implementation of the three-year strategy are available. Some highlights include:
1 Deliver value at the point-of-use
Wolters Kluwer’s Clinical Solutions business unit provides evidence-based medical content, workflow-based applications, and services that allow clinicians (doctors, nurses, pharmacists) to efficiently and effectively diagnose and document patient care in hospitals, physicians’ offices, and outpatient surgery centers. The unit’s integrated offerings delivered 16% organic growth in 2010, while establishing themselves as leaders in the key healthcare point-of-care market.
2 Expand solutions across processes, customers, and networks
Wolters Kluwer Tax & Accounting continues to extend its tax and accounting software suite to include productivity tools such as Scan, targeted audit solutions like Knowledge Coach, and workflow solutions such as Portal, which allows professionals to share files safely and securely within their firm and with their clients.
3 Raise innovation and effectiveness through global capabilities
Springboard, the company’s operational excellence program, is changing the way the company works. By simplifying and standardizing the core systems and processes that provide common functions, Springboard helps create an efficient platform for execution and frees up resources to invest in growth opportunities. The company also implemented a new organizational structure at the start of 2010 with four global operating divisions, supported by a global shared services organization.
Innovation at the Point-of-Use
The growing and aging U.S. population will place an additional burden on the current shortage of physicians over the next 15 years. This fact, combined with ongoing healthcare reform which introduces new individuals into the healthcare system, places a premium on productivity solutions that help doctors be more efficient and make their treatments more effective. The American Recovery and Reinvestment Act’s (ARRA) injection of $20 billion in stimulus funding for healthcare IT included incentive payments to healthcare providers who implement and use eligible electronic medical records systems. Wolters Kluwer Health initiated a collaboration with 10 hospitals across the United States – called the Innovation Lab - to improve clinical decision support and, in this process, help to transform the U.S. healthcare industry.
Partnering Leads to Innovation
Inspiration comes from many sources. By creating strong bonds between employees and customers, the company can better respond to the changing needs of its markets. In 2010, Wolters Kluwer initiated one common customer satisfaction metric across its global customer segments. This will enable management to further drive customer focus throughout the organization.
Within the Clinical Solutions business, a concrete example of customer focus is its Innovation Lab where hospitals become the laboratory setting for new product innovation. Customers are excited about the Innovation Lab process as it will help them to provide more cost-effective, quality solutions to their patients and improve their hospital’s economics at the same time.
Dialogue and Transparency
Wolters Kluwer is committed to an ongoing dialogue, not only with its customers but also with its content and technology partners, to deliver innovative and high-quality products and services. Wolters Kluwer takes pride in strong communications with its shareholders, investors, and employees. Further in this report, detailed information on the company’s human resources and investor relations programs is available.