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Rating Action:

Moody's affirms Wolters Kluwer's Baa1 rating; stable outlook

08 Mar 2021

Madrid, March 08, 2021 -- Moody's Investors Service ("Moody's") has today affirmed Wolters Kluwer N.V.'s ("Wolters Kluwer" or "the company") Baa1 senior unsecured ratings. The outlook is stable.

"The affirmation of the ratings at Baa1 with a stable outlook reflects our view that Wolters Kluwer will continue to deliver strong operating performance and solid credit metrics benefitting from its strong global market positions, its resilient subscription-based business model and its predictable financial policies," says Agustin Alberti, a Moody's Vice President and lead analyst of Wolters Kluwer.

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

Wolters Kluwer's Baa1 rating reflects its good track record of strategy execution translating into consistent organic revenue growth and improving margins. The company's key strategic priorities are focused in three areas: to continue to grow its expert solutions (54% of total revenues); to advance its domain expertise knowledge through sustained investments in digital information products to enhance content and functionality; and to constantly search for operational agility.

The rating agency considers Wolters Kluwers' services and products as strategic for customers as they rely on the company's tools to manage their business operations. In addition, the company's largely digital and recurring subscription-based revenues (80% of total revenues) provide revenue stability and visibility. Its operating performance has remained strong even in challenging macroeconomic environments, showing the resiliency of the business model.

In 2020, the company reported 2% organic revenue growth, with the growth of its expert and cloud based software solutions compensating for the decline in print (9% of total) and transactional revenues (8% of total). Moody's forecasts annual organic revenue growth of around 2% in the next two years on the back of strong demand for its expert solutions, its expansion into adjacent segments and new geographies, and of the integration of high growth businesses that the company acquired in the last 3 years.

Wolters Kluwer reported a 24.4% adjusted operating profit margin in 2020, a significant improvement from the 23.6% margin reported in 2019. For 2021, Moody's forecasts margins in line with management guidance of around 24.5% - 25%, on the back of revenue growth in expert solutions which provide higher margin, and also due to lower restructuring costs.

In 2021, the rating agency expects Wolters Kluwer to report strong credit metrics, such as Moody's-adjusted gross debt/EBITDA of around 2.2x, retained cash flow (RCF)/net debt above 30%, and free cash flow (FCF)/net debt slightly above 20%.

Moody's has also factored into the rating the management's track record in executing a well defined strategy, as well as in achieving its yearly financial targets. The rating also takes into account Wolters Kluwer's consistent and prudent financial policy of less than 2.5x reported net leverage with a balanced approach between shareholders and creditors, translating in leverage levels consistently below their target (1.7x by year end 2020) while at the same time distributing its growing FCF generation through dividends and share buybacks.

The rating also reflects Wolters Kluwer's (1) well-diversified portfolio across businesses and geographies, which translates into stable and predictable operating performance; (2) improving operating margin, as a result of economies of scale and ongoing efficiency measures; (3) track record of satisfactorily delivering new and innovative solutions to its customers; (4) continued prudent financial policy, with its M&A strategy focused on the acquisition of niche product businesses that complement its own product suite; and (5) strong free cash flow generation (after dividends) of around €450-500 million per annum.

The Baa1 rating remains constrained by the company's smaller scale and diversification than that of its competitors and other Baa1-rated issuers; the weaker but improving performance of its Legal & Regulatory division; the potential for M&A transactions that may bring leverage to its target level of around 2.5x; and its high revenue concentration in the US with around 65% of revenues (and a higher proportion of total FCF generation) in US dollars while cash outflows are mainly in euros (dividends, share buybacks and debt is mainly euro-denominated) creating a currency mismatch.

LIQUIDITY

The company has an excellent liquidity profile supported by a cash balance (net of €359 million of bank overdrafts used for cash management purposes) of €364 million, and a fully available €600 million multicurrency revolving credit facility (RCF) due in 2023. The RCF has a 3.5x net debt/EBITDA covenant, but headroom under the covenant is comfortable (1.7x as of year-end 2020). Over the next 18 months, the company will face limited debt maturities of around €100 million, excluding lease liabilities. The next large upcoming debt maturity is the €700 million bond due in 2023.

RATIONALE FOR STABLE OUTLOOK

The stable outlook on the rating reflects Moody's expectation that Wolters Kluwer's operating performance will remain strong, with sustained revenue and operating profit growth, and that it will maintain a disciplined approach towards debt-financed acquisitions so that its financial ratios remain sustainably and comfortably within the parameters for the Baa1 rating category.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward pressure on the rating would require the company to sustain its solid operating performance while maintaining a Gross Debt / EBITDA (as adjusted by Moody's) ratio below 2.0x, a Retained Cash Flow/Net Debt ratio (as defined by Moody's) at or above 25% and a Free Cash Flow / Net Debt ratio in the mid-teens in percentage terms.

Downward pressure on the rating could occur should the company fail to maintain a Gross Debt / EBITDA (as adjusted by Moody's) ratio below 3.0x, if Retained Cash Flow / Net Debt (as defined by Moody's) falls below 20% or Free Cash Flow / Net Debt falls below 10%.

LIST OF AFFECTED RATINGS

..Issuer: Wolters Kluwer N.V.

Affirmations:

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

Outlook Action:

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Wolters Kluwer is a global leader in professional information, software solutions, and services for the health, tax & accounting, governance, risk & compliance, and legal & regulatory sectors. In FY 2020, the company reported revenues of €4.6 billion and adjusted operating profit of €1.1 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Agustin Alberti
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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