Wolters Kluwer N.V.

Good morning everyone and welcome to the Wolters Kluwer Half Year 2019 Results Call. Today's results release and the slides for this presentation are available for download from the Investors section of our website, Wolters Kluwer.com.

With me today are Nancy McKinstry, our CEO and Kevin Entricken, our CFO. Nancy and Kevin will shortly discuss the key features of our first half results.

Following their comments, we will open the call to your questions. Before we get started, let me just remind you that some statements we make today may be forward looking.

We caution that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Factors that could affect our future results are discussed in our 2018 Annual Report.

This year, we began reporting under the IFRS 16 lease accounting standards, financials for 2018 have been restated for IRFS 16. You can find more detail in note three of the release.

On today's call, we will refer to adjusted profits, which exclude non-benchmark items. We also refer to growth in constant currencies, which excludes the effect of currency movements, and we refer to organic growth, which excludes both the effect of currency and the effect of acquisitions and disposals.

Reconciliations to IFRS numbers and further information can be found in the notes to the financial statements. With that, I'd like to hand over to our CEO Nancy McKinstry

Thank you, Meg and good morning. In keeping with our usual practice, I will start by giving you the key takeaways from the first half, and then turn it over to Kevin, who will take you through the financials in more detail.

After that I'll come back and discuss divisional developments and give you a brief update on our strategic progress. So, let me start with the key highlights.

We kicked off our three-year strategic plan, earlier this year and are now executing against our key priorities, growing our expert solutions, advancing our information products and services and driving operational agility. We're in the early stages of this plan, but I'm pleased to say we've had a good first half, and I am confident in reiterating our full year guidance.

We delivered 4% percent organic growth, a stable adjusted operating profit margin and a good increase in diluted adjusted EPS and adjusted free cash flow, even when the favorable effect of currency is removed. Our balance sheet remains strong, we are in a good position to deliver shareholder returns while continuing to invest in our business.

Our strategy provides us with significant opportunities to increase our value to customers, and our first half results demonstrate that we are off to a good start with our three year plan. I will now turn it over to Kevin, who will take you through the financials.

Thank you, Nancy. First, let's cover the headline figures on slide six.

First half revenues were €2.204 billion, an increase of 9% overall and 4% in constant currencies. On an organic basis, revenue growth was also 4%.

Adjusted operating profit was €497 million, an increase of 9% overall, and 3% in constant currencies. The adjusted operating profit margin was stable at 22.5%, a little better than we had expected.

Diluted adjusted earnings per share increased 9% in constant currencies, adjusted free cash flow was €300 million, an increase of 14% overall and 7% in constant currencies. And lastly, the rolling 12-month net debt-to-EBITDA ratio was 1.8 times in line with the position at year-end.

All in all, a good start to the year, especially given some of the challenges we faced. Holding the margin was a challenge, as we had to overcome €16 million of one-time benefits recorded in the prior period.

We also faced tough comparables in our printed book businesses. Finally, the service interruption we experienced in May, tested the entire organization.

But we commend our team for their rapid incident response, and we're grateful to our customers for their patience and support. Now, let's take a brief look at the divisions.

All four divisions posted good organic growth. Health grew 4% organically, a modest slowdown from a year ago.

Growth was driven by Clinical Solutions which delivered organic growth of 7% led by UpToDate. Tax & Accounting recorded 6% organic growth, driven by robust growth in software for the Professional segment and 20% organic growth in our Corporate Performance Solutions unit.

Governance risk and compliance improved 4% organic growth, driven by a pick-up in recurring revenues and a sustained better than expected trend in transactional revenues. Last, but not least Legal & Regulatory delivered 2% organic growth, in line with the prior period.

This was in fact a little bit better than we had expected. Now let's turn to revenues by type on slide eight.

Recurring revenues accounted for 80% of total first half revenues and grew 5% organically, in line with a year ago. Non-recurring revenue trends were mixed, print book revenues declined 6% organically.

This was a deterioration on the prior period, which had seen a 3% decline. All three divisions where we produce printed books faced a challenging comparable.

GRC transaction revenues, including both Legal Services and Financial Services were overall up 4% organically. On the Legal Services side where most of the transactional activity is, growth remains quite buoyant at 8% organically.

We continue to expect, moderation in transactional growth in the second half. Other non-recurring revenues increased 3% organically, driven by strong software license sales and implementations at CCH Tagetik in Tax & Accounting and at Enablon in Legal and Regulatory.

Now, let's turn to adjusted operating profits. As mentioned earlier, adjusted operating profits increased 3% in constant currencies to €497 million.

The adjusted operating margin was stable at 22.5% or, if we exclude the net positive one-time items recorded in the prior year, the margin would have increased by 80 basis points. In Health, we recorded a margin decline due to increased restructuring, and investments in product development.

In Tax & Accounting, the margin increased 310 basis points reflecting efficiency savings and operational gearing in Governance, Risk and Compliance, the margin was stable at 29.3%. Underlying efficiency savings were absorbed by increased investments.

In Legal and Regulatory, the margin declined as expected due to the absence of prior period one-time benefits, the dilutive effect of acquisitions and due to increased investments in product development. Now, let's turn to the rest of the income statement.

Adjusted net financing costs were €31 million, down from the prior period. The decrease reflects lower interest cost, following the redemption in April of last year of a large Eurobond with a coupon of 6.375.

The benchmark tax rate reduced to nearly a point to 24.7% benefiting from tax credits and prior year adjustments. Adjusted net profit, after tax was €351 million, up 6% in constant currencies.

Finally, the diluted weighted average shares outstanding was reduced by 3% due to share buyback programs. As a result, diluted adjusted EPS increased 9% in constant currencies.

Turning to cash flows on slide 11. As you can see from slide 11, our first half cash conversion ratio declined to 90% from 99% a year ago.

This was primarily driven by a €46 million working capital outflow, and was as we expected, given that we had a strong inflow in the fourth quarter of last year. Capital expenditures increased to €100 million.

This was largely due to the absence of a one-time cash benefit, related to real estate sales a year ago. CapEx was in line with depreciation also €100 million.

Note the new line items, related to IFRS16. We now have depreciation of right-of-use assets, and repayments of lease liabilities, which broadly offset each other.

Paid financing costs declined substantially to €34 million. The comparable period had included the final coupon payment on the Eurobond that matured last year.

And cash taxes paid decreased to €112 million. All in all, adjusted free cash flow was €300 million, an increase of 7% in constant currencies.

And now, a few comments on how we deploy that cash; as you can see, on slide 12, €174 million went toward the final 2018 dividend paid to shareholders in May. Acquisition spending was €34 million, this mainly related to CLM Matrix, a contract life cycle management tool, which has become part of GRC's, ELM unit.

Cash proceeds from divestitures was €32 million and reflects some small disposals, mainly our 40% stake in an Austrian education business. We spent €84 million on share buybacks in the first half.

We recorded a modest increase in net debt due to additional lease liabilities, related to new office facilities in New York City. A few words on the interim dividend and progress on our share buyback program.

At the start of this year, we set the interim dividend at 40% of the prior year total dividend. This means we'll pay out €0.39 per share to shareholders in September.

Also, at the beginning of the year, we announced plans to spend up to €250 million on share buybacks in 2019, including the shares repurchases, we do as a rule to offset incentive share issue. So far, this year, through July 29, we've spent €115 million leaving up to €135 million to go in the remaining five months of the year.

To sum it up, we're very pleased to report 4% organic growth for the first half, and stable adjusted operating profit margins, overcoming the one-time benefits of a year ago. Diluted adjusted EPS increased 9% in constant currencies, benefiting from lower finance costs, a lower tax rate and a lower share count.

Despite lower cash conversion, which we expected, we delivered 7% increase in adjusted free cash flow in constant currencies. Our financial position remained strong, with net debt-to-EBITDA of 1.8 times.

We're delivering shareholder returns, with an interim dividend of €0.39 and through progress on our share buyback. Now, I'd like to hand it back to Nancy to cover divisional developments.

Thank you, Kevin. I'll begin with a review of the first half performance of our four divisions.

So, let's start with Health, health achieved 4% organic growth, driven by our Clinical Solutions Group. The adjusted operating profit margin declined due to an increase in restructuring and investments which was in line with our expectations for the year.

Clinical Solutions delivered 7% organic growth with UpToDate, still the fastest growing product line. You may recall, last year we combined UpToDate drug information and patient engagement, and this year the combined sales force has been focused on cross-selling the entire product portfolio.

Our sales team is adapting to the change, and we've seen some early success in upselling the Lexicomp drug solution. We also sustained our efforts on the international front.

UpToDate drove double-digit growth in Europe, India and China. Learning Research & Practice recorded flat organic growth, digital revenue growth of 4% was to a large extent offset by print decline, particularly in books.

We stepped up our efforts to transform our medical and nursing content assets, with productivity tools and workflow enhancements. Turning to Tax & Accounting on slide 17.

Tax & Accounting delivered 6% organic growth, supported by strong performance in software. The adjusted operating profit margin, increase of 310 basis points reflects efficiency savings and operational gearing.

Corporate Performance Solutions grew 20% organically, driven by demand from existing and new customers for our cloud-based performance management software CCH Tagetik, and our internal audit platform TeamMate. Our professional tax and accounting businesses, taken together, grew 4% organically driven by 7% growth in software.

North America saw a moderation in trend, largely as expected. We faced a tough challenging comparable, last year, as you know, we had the best-selling book on the U.S.

Tax Cuts and Job Act. This year, we experienced a decline in print books.

Europe recorded strong organic growth of 9% with good performance across all seven European countries. In Italy, we did particularly well due to a new invoicing tool, providing a revenue lift in 2019.

Asia-Pacific and Rest of World saw growth in China, more than offset by softness in other parts of Asia-Pacific and in Brazil. Our Governance, Risk & Compliance division achieved 4% organic growth.

The adjusted operating profit margin was stable, as efficiency savings were offset by increased investments. Legal Services grew 4% organically.

CT a legal leader in legal representation services saw an acceleration in organic growth, driven by recurring service revenues. CLM Matrix, which provides contract life cycle management software was acquired by our Enterprise Legal Management unit.

Financial services achieved 2% organic growth, reflecting improved momentum in recurring maintenance revenues for our banking software. Finance Risk & Reporting recorded high single-digit growth, reflecting new customer wins.

Compliance Solutions also saw improved recurring revenue growth, but transactional revenues remained soft. So, finally let's turn to Legal & Regulatory.

Legal & Regulatory delivered 2% organic growth. This was in line with a year ago, and slightly better than expected.

The adjusted operating profit margin declined, reflecting prior period one-time benefits, acquisitions and increased investments. Legal & Regulatory Information Solutions delivered 1% organic growth, a modest deceleration due to timing factors and a challenging comparable in legal education books.

We've redoubled our efforts to transform our legal information products by applying technology to automate workflows. Our Legal & Regulatory software group delivered 17% organic growth.

Global EHS software provider Enablon performed strongly, booking higher on-premise software license sales on top of ongoing double-digit growth in cloud subscription revenues. eVision, the recently acquired operational risk-management tool recorded strong revenue growth.

Now, let me remind you of our strategic priorities for the coming three years. Our three-year strategic plan is focused on organic growth, which we will support by sustaining product investments of 8% to 10% of our revenues.

We also aim to deliver further improvements to our margin, and return on invested capital. Our first strategic priority is to grow our Expert Solutions.

Expert Solutions make up just over half of our revenues today and our goal is to scale these solutions by extending the offerings and broadening distribution. Our second priority is to advance domain expertise.

This means, we want to continue transforming our information products and services by enriching their content with advanced technologies, so that we can offer our customers more actionable intelligence and automated workflows, and our third priority is to drive operational agility. We want to improve the organization's ability to respond quickly to opportunities and change.

This covers many functions, from branding and marketing, to Human Resources, technology and infrastructure. Let me give you two examples of initiatives that we rolled out in the first half of this year that support our strategy.

The first is an example of how we're driving growth in our Expert Solutions; an important group of expert solutions are our clinical effectiveness tools in health. This includes UpToDate, drug information and patient engagement.

In addition to cross-selling the full portfolio of solutions, we've also started creating new enhancements that support healthcare for specific situations and across the continuum of care. As an example, we recently launched an opioid toolkit, which bundles together our clinical effectiveness tools to help providers.

The toolkit includes several new features, dedicated to pain management and safe prescribing to guide physicians and patients to a healthy path for pain management. The other initiative I'd like to cover supports our objective of improving operational agility by upgrading our back office systems.

As we mentioned in February, as part of our three-year plan, we intend to complete a total modernization of our HR technology. This is a major global system upgrade, comprised of three core software applications that you see depicted on this slide.

Our HR team successfully rolled out the first two components of this cloud-based technology suite, last month, which includes PeopleDoc and Workday. The final step, the harmonization around a single payroll provider will be completed later this year.

This project will deliver long-term efficiencies and a return on investment. We can now offer all employees and job candidates a contemporary experience when they engage with HR, which in turn improves our ongoing efforts to attract and nurture talent.

So, now let me turn to our outlook; in Health, we now expect organic growth to be in line with 2018 or slightly lower. We continue to expect a decline in adjusted operating profit margins due to increased investment and the absence of prior year one-time benefits.

For Tax & Accounting, we continue to expect organic growth to moderate from 2018 due to a challenging comparable. We expect the full year adjusted operating margin to improve due to the absence of prior-year net one-time charges and lower restructuring costs.

In Governance, Risk & Compliance, we expect recurring revenues to show improved organic growth, but transactional revenues to decelerate as the year progresses. We expect the adjusted operating margin to see an improvement due to efficiency initiatives.

And finally in Legal & Regulatory, we now expect organic growth to show an improvement on 2018. We continue to expect the adjusted operating margin to decline due to the absence of prior year one-time benefits, increased investments and a full 12-month inclusion of eVision.

We reiterate our guidance for the group as a whole. We continue to expect the adjusted operating margin to be between 23% and 23.5%.

We expect adjusted free cash flow to be between €750 million and €775 million in constant currencies. And we expect return on invested capital between 10.5% and 11.5%.

And finally, we expect around 10% growth, and diluted adjusted earnings per share in constant currencies. In conclusion, we are on track to achieve our 2019 goals and remain confident in delivering another year of solid growth.

Thank you all for joining us and for your attention, and I will now hand it back to the operator to open the call for questions.

I have three questions, first one you mentioned in your statement that you expect the margin to decline at the nine-month stage on a year-on-year basis. Does that mean, it will be difficult now to achieve the top end of your margin guidance range for the full year, given that would imply quite a big jump up year-on-year in Q4 margin.

Second question, just a housekeeping one on corporate costs. They were up €5 million year-on-year in the first half, should we think about doubling that increase for the full year or are there some notable timing issues in there.

And third one, on health. So should we now be thinking the 7% organic is more or less the fastest rate of growth that Clinical Solutions can achieve with the current portfolio, as update is bigger and more mature, and so, do you have plans or acquisitions in this area to get that organic growth rate up over time?

Thank you, Nick, I'll ask Kevin to cover the first two, and I'll come back on Health.

Certainly. Nick, in the nine-month outlook, we've given you on margin, I'll remind you that we did have further one-time benefits in the third quarter of last year that will be certainly difficult to overcome.

That will be a comparable issue. But I will say we are confident in our full year outlook and our full-year improvement in margin, so please do refer to our guidance on that one.

With regard to corporate costs, last year, we did have a one-time benefit on payroll taxes that certainly reduced costs in the prior year. That's why you see the increase in costs in the first half.

I would not necessarily call that a run rate, that prior year item was about €4 million, so that occurred in the first half of last year. So, I would expect corporate costs to even out in the second half.

And then on Health, I think as you recall Nick, we have been sharing with all of you, that we fully expected that the UpToDate growth would slow from the double-digit level to the single-digit level because the unit's gotten large, and that is in fact what you see in the first half results. However, we're still very bullish overall on both UpToDate as a unit, but more importantly the whole Clinical Solutions area.

So, for UpToDate specifically, growth will continue to be supported by really two major initiatives, one is international expansion. International continues to offer us good opportunities for growth, and then the second is new products, as you may recall we launched UpToDate Advanced, which is growing very nicely, still off a small base.

But now that we can roll the product out in Europe and rest of world, we continue to see that as a good growth opportunity. I think very importantly, overall in the Clinical Solutions area this reorganization of the sales force towards customer segments now allows our entire sales team to sell the full product portfolio.

So, for the growth of the unit overall, a lot of that will come from the - kind of up-selling or cross-selling of the installed base of customers with new solutions.

So, on the Tax & Accounting business, if you exclude the one-time item of last year, it seems that profit growth was about 18% in the first half. I don't think we've seen that sort of operating leverage in the past.

So, can you explain what's changed? Maybe, there was some phasing of seasonality or is this the sort of operating leverage that we should now expect for that division.

Still sticking to Tax & Accounting secondly European growth was 9% in the first half - you called out Italy - can you perhaps quantify the impact of Italy in this 9% growth? And then maybe a last one for Kevin.

In the past, share buyback has been fairly balanced between H1 and H2. This year, you've been relatively quiet in H1 you've kept the full year number, but I'm just curious why there is a balance towards the second half of this year?

Thank you.

I'll take the first two and then Kevin, you want to talk about share buyback. So, on the margin.

What you see in the Tax & Accounting portfolio is as - two things are happening. One, right, as we grow software, which has been a big part of this portfolio for a while, you see that those products have higher margins than our information products.

So, you're seeing that natural operational gearing take place in Tax & Accounting and that's supporting the improvement. You're also seeing the scaling of particularly of Tagetik and you will see the same thing with Enablon in the Legal & Regulatory unit when we brought these product lines, they were at relatively low margins and as we've been scaling them, the margins start to reflect higher levels, and so that is clearly contributing within Tax & Accounting.

On the European question, we were really pleased to see the 9% organic growth in Europe. We got a very nice contribution from the new rule in Italy around e-invoicing.

So, I would estimate, in general, software has been growing sort of 6% to 7% So you would sort of imagine that 1% to 2% of the 9% is coming from this new change in Italy. But again, good performance that the team delivered, there and Kevin, share buyback?

Yes. Adrien, on the share buyback, do remember we began the share buyback at the end of February when we announced it with the full-year results.

So, for the last five months, we've purchased approximately 115 million shares. For the next five months bringing us through December, it will be about 135 million shares.

So, it is relatively balanced in the two periods that we're operating in here now, so we're looking forward to completing that program.

My first question is on the cash conversion in the first half, you just explained that it was a little bit below last year's level, because of the working capital outflow, but can you maybe explain what that working capital outflow entailed, and what we can expect for the second half. My second question is on the leverage ratio 1.8x, a very decent number and there is quite a gap between the current leverage ratio in your targeted 2.5 times.

Is it fair to assume that the difference can be given back to shareholders through another share buyback? And my last question is on the Governance, Risk & Compliance division.

In your statement, you changed the wording in your guidance just a little bit, particularly, on transactional revenues where you expect growth to decelerate, that can still be the same as what you used to moderate, but maybe you can explain a little bit if we should read something into that difference? Thank you.

I'll cover that last question because it's the easiest, and then turn it to Kevin. You should read nothing into that statement, whatsoever.

We still expect the moderation, we just used a different word and we will - they had a good first half, but we do anticipate that we will see a moderation or deceleration as the year progresses in the transactional volumes at GRC. Kevin?

With regard to cash conversion, Konrad, it really is timing related, I'll remind you last year in the fourth quarter, we had a very strong inflow of working capital and a little bit slower in the first quarter of this year, so, that is really what is behind the cash conversion of 90%. For the outlook for the full year, we certainly think the guidance that we've reiterated today is certainly achievable.

I'll remind you, our guidance also includes cash conversion to be between 95% and 100% and that's where I think we will land for the full year. With regard to the leverage, yes indeed, we are below our target at 1.8 times, net debt-to-EBITDA.

We're in the middle of a share buyback program now, which we expect to complete by December of this year, and I'm sure we'll have more to say on what to expect in the future when we come out with full-year results, next February.

Just as a quick follow-up. And I know that the first question was on the same topic.

You expect the operating profit margin to decline in the first nine months, and I tried to find the one-time net benefits in the nine-month period last year but, I don't think you ever gave the number for the third quarter. Can you, maybe share with us what the size of the one-time net benefit was in the first nine months last year?

Thank you.

Konrad, I don't have that off the top of my head, but I can tell you for the full year, it was €23 million and for the first half it was €16 million. But I do think a lot of that did land in the third quarter.

Did or did not, sorry?

Did.

A couple of questions. Firstly on the malware incident, you obviously play it down in the statement, but can you say a little bit about whether there was - or whether there has been any continuing effect on sales progress where the sales teams were slowed down in their ability to demonstrate product and stuff like that, and whether there's been any customer reaction whether we should expect any further effect.

Secondly, I think you once described your margins in Tax & Accounting when they're in the sort of mid-20s as being world-class, but now it would appear that the margins in Tax & Accounting going up. If we convey that to the group, as you move towards Expert systems, do you think we're going to see the general trend in the margin of the Group rising or do you think some people argue that as a more software-driven business, it has a negative effect on margin?

So, it's a general margin direction question. And then thirdly, just to give Kevin a hard time on leverage, I think we've gone through the last three year plan Kevin, without you getting remotely near the leverage target.

Do you think we'll get through the next three-year plan without you getting remotely near the leverage target, despite your buyback?

I'll start with the first two. On the malware situation, just a couple of points to reiterate, one is that, when our IT team detected the ransomware, they took our systems offline to protect our customer and employee data.

Most of the systems around the world were brought back online pretty quickly. So, the systems that had a longer outage period were largely in the U.S.

and largely focused on some product lines in GRC and Tax. There was no data breach or ex-filtration of that, and obviously the virus has been completely cleansed from our system.

So, that's sort of the facts. So, to your question, what we clearly want to make sure in the press release you picked up is that, the impact on our financial results in the first half was not material.

Obviously, it's too early to tell, the next six-month period. But what I would say is that our sales teams and our units, again, particularly, in the TAA and the GRC arena we've been out, done a lot of outreach to customers to make sure that we answer all the questions.

We continue to renew our products; we continue to sell new lines. And so, again too early to tell, but we have a great deal of confidence in reiterating our full year guidance.

On the tax margin question or just broadly with Expert Solutions. When we said that the tax margins were world-class, what we meant was, it was that they were better than anybody else's in the industry, that remains true today.

And what you should see is that we - the Expert Solution portfolio is about 50% of our revenues today. Now, not all of those solutions are at scale.

So, these are software businesses that obviously, as you grow the top line, the margin improves. And so, what you should expect is that more than - slightly more than 50% of our revenues grows as a percentage, you should expect that they will support expansion in the operating margin.

We continue to invest in those product lines, but again, the nature of the cost base is such that as you grow the top line, you do get a lift on the margin. And then the last thing, because I know there's been some things written about this.

The last thing that's really important for you folks to understand is we tell the market that we invest 8% to 10% of our revenues back in product development, both new and enhanced products, still true that's been true for years. But, if you looked under kind of the hood, and looked product line by product line, what you would see is that the higher growth product lines, which are in fact these Expert Solutions, they are getting more than the 8% to 10%.

So, if you compare the investments there to other software companies, you would see that we are investing at an appropriate level, to continue the growth.

And Patrick, with regard to the leverage target, we set the target at 2.5 times, given the recurring nature of our business, and the predictability of our cash flow, but I will remind you that is a target. We can deviate from that from time-to-time.

Obviously, I'm probably more comfortable being slightly below than slightly above. But, as far as what to expect in the future, we'll have more to say on that, when we get to full year.

Tom here from Citi. Thank you very much for taking the question.

Just a couple if that's okay. The first one on Health, and in particular UpToDate, obviously it's one of the sort of stand-out sort of performance.

I was just sort of interested whether you could give us some extra detail on retention rates and churn. I suppose, sort of how do you anticipate the growth rate would stay a bit more elevated, partly because of some sort of big contract wins like sort of the Veterans Health Administration in the U.S.

So, if you could just give a bit of detail on sort of aggregate customer numbers and sort of churn rates, just so we can get to the 7% and why that slowed down a little bit sort of year-on-year, that would be very useful. And then second question was on transactional revenues, just wondering whether you could give us a bit more detail on the various moving parts, and especially in financial services if sort of the interest rate cycle is sort of I suppose more skewed to the rate cuts rather than rate increases.

That would be wonderful. Thank you very much.

I'll take the Health question then ask Kevin to talk about transactional revenues in GRC. So, with UpToDate, continues to be the fastest growing product line within the Clinical Solutions area.

But, as we've been indicating, as that product line in and of itself grows to be quite substantial, in terms of absolute revenues, we fully expected the growth to moderate and that's what you're seeing in the first half. In terms of customer retention, it remains very high.

One of the things we do is we measure our net promoter scores for all of our products and what you see there is UpToDate has world-class net promoter scores. So, customers are happy with the product.

What you also did note is we did have a couple of larger wins last year, in the first half. As you know, the VA in the U.S., and we didn't duplicate those larger wins in the first half of 2019, but overall the product line is healthy, good customer satisfaction, good renewal rates.

We continue to see international grow; it didn't grow quite as high as we expected in the first half. But, if you take a long-term view, we've - we see that as a growth area for that particular line.

And again, the goal that we have for the group overall is not just getting growth from the innovation that's going on, but really the cross-selling, now that our sales team can sell UpToDate, our drug information products and Emmi which is patient engagement.

And Tom, on transactional revenues, we actually did see them hold up a little bit better than we had thought actually. In our Legal Services business, transaction revenues were growing at 8% compared to 9% last year, saw a bit of a slowdown.

We actually thought the slowdown would have been a little bit more than that. In the Financial Services, we did see a 3% decline.

The mortgage transactions are down as they were last year...

Hi, Nancy and Kevin, can you hear me?

Yes

We can hear you.

Okay, brilliant. Thanks a lot.

Yes, had a number of questions please. The first thing was on the free cash flow.

The interest charge - the cash interest charge, it looks like it was down year-on-year. Can you Can you just give us a feel for what cash interest charge will be for the full year?

The second thing is on the legal - the legal margin and also on the tax margin. Would you see those deltas versus last year, as being replicable for the full year or would you expect the legal margin decline to actually be less bad in the full year?

And would you expect the tax out performance, in terms of margin to be less pronounced in the full year. And then finally, in the past you've talked a little bit about cloud solutions in Tax and implied that you've got the only cloud solution in tax, doing a better work on Thomson, it feels like they do have some cloud solutions, but maybe not quite of the same type as you.

So, could you just sort of nail that jelly to the wall please, for us.

Yes. So, why don't I start there and then ask Kevin to talk about margins and free cash flow.

So, in the U.S. tax market we are still the only professional provider of cloud solutions, not just in tax, but document management, practice management, you know a whole suite of solutions.

What you see is some of our competitors might have a component, so they might have a practice management, cloud solution, but they don't yet have tax, and tax is the core product for an accountant. So, we still I think this will be our fifth or sixth year, where we are the leader in the marketplace.

We're obviously getting good growth in our cloud solutions around the world. The same is true in Europe, where we are in many countries, the only player with a cloud solution.

Now, we fully expect that our customers will - sorry our competitors will catch up, but we remain confident in our ability to grow the tax business, and continue to gain share because we are enhancing our cloud solutions every day and we are also bringing out new capabilities. So, we feel very comfortable with our relative position, not just in the U.S., but around the world.

And Matthew with regard to cash flow, the reason for the financing cash out and the improvement over the prior year has to do with the Eurobond that we repaid last April. So, that was a meaningful step down in our finance - not only interested in the finance paid.

Over the balance of the year, I would expect that maybe that finance charge from the first half increases modestly or slightly in the second half, but nothing terribly material. With regard to margin in Legal & Tax, I will say that on the legal side of the business, obviously, the prior year one-time benefits certainly did present a tough comparable in the first half.

In the second half in legal, I would say that, we may do some restructuring. We've guided to restructuring of between $10 million and $20 million this year, for the full year.

A lot of that will be done in legal, so I'll give that to you to think on. With regard to the tax and accounting margin, as Nancy has said, the growth in that margin really comes from operational gearing as we invest more and grow our software businesses and our Expert solutions.

So that is the operational gearing - showing up in results. We've also had some efficiency programs, as you know throughout the company, and those efficiency programs are also contributing to margin performance.

On the income tax, again in the cash flow that went down, whereas in the P&L it went up. Can you just basically guide us for the full year on what you expect for cash income tax payments?

Cash income tax payments are benefiting from some credits and prior year adjustments. I would say that we haven't really guided specifically on that line, but I don't think it's going to be materially different.

Roughly another €112 million for the full year?

Right now, I would say that...

So, the first one sales and marketing investment as a percentage of revenues have been trending down in recent years, at the group level. Do you expect this to continue or would you see higher investments in sales and marketing of the share of revenues as we seem to be seeing in the Health division this year?

Secondly, looking into the upcoming renewal period, have you decided to moderate your pricing inflation for the products, which have been most impacted by the cyber-attack, or is there no change at all in your pricing strategy on the back of the cyber-attack? And lastly, tax had a very strong performance indeed, but North America slowed down.

How do you see this segment developing going forward, especially in the Research and Learning segment, please, Nancy, thank you.

So, I'll take the last two. Kevin, if you could start with the marketing and sales investment question.

Certainly. Sami, if I look long-term into the past.

If I look at sales and marketing, it's averaged between 18% to 19% of revenues, pretty consistently that can fluctuate from year-to-year. But I would imagine that we would still be around that rate going forward as we do invest in sales and marketing efforts internationally, in many of our business.

I do think we also are investing in e-marketing and other programs. So, I do think that level will continue going forward.

And then on renewals and pricing, we don't anticipate a change in our pricing policies or actions. Again, I want to remind you that the malware affected only some product lines and just for a few days.

So, we price our products to value, particularly some of our solutions in Tax & Accounting are really unique and highly valued products by our customers. So we don't, as I say, anticipate any change there.

On the slowdown in North America that was mostly due to the one-time benefit that we got from that the Tax Reform in 2018. So, we saw books do very well in research and learning, and that obviously moderates in this year.

So, I would focus your attention in North America around the software product lines, which continue to grow very nicely and represent the vast majority of the revenue in North America.

Just trying to understand the structure of organic growth coming from Clinical Solutions. How much of the growth is coming from cross-selling versus selling into new customers, and just a broad ballpark split or an idea - qualitative idea could be helpful.

The second one is, when you are rolling out UpToDate in Europe or if you plan to roll it out in other geography, how easy is it to use the same kind of information from the U.S. and apply it in the new markets, or do you have to reconfigure the product a lot for each of these countries?

So, first of all, UpToDate, the core product has been available around the world for many, many years. So, we have over 1.5 million clinicians using it.

It operates in 150 to 180 countries. So, that's been, as I say quite well established.

What we have pointed out is that relative - we've always we've always been growing really nicely outside of the U.S., and in the U.S. and what we see now is that we have even greater opportunity to get good growth in UpToDate, the core outside the U.S.

and we saw that in the first half where we had double-digit growth in Europe, India, China. What I was referring to is, we've launched last year UpToDate Advanced, which is kind of a next generation version of certain components of UpToDate and that is sold as an up-sell to the core UpToDate product.

We launched that in the U.S., and in certain markets outside the U.S., but we will now be extending in Europe going forward. So UpToDate Advanced now, you should expect that we'll be selling that around the world.

So, that's how it works, and UpToDate is only available in English language. You can search in, I think 10 languages, but the content that you - or the data that you get back will be in English.

The exception to that is in China, where we've made the investment to launch UpToDate in both English and Mandarin that occurred, three years or four years ago now, and we continue to build our business in China for UpToDate. If you look at just the general question on how we grow, and how cross-selling is going; we really just cross-sold the sales reps - or put them in the position to cross-sell the whole product portfolio in Clinical Solutions, beginning January of this year.

So, where people are acclimating, we are seeing, as we noted some good up-selling around Lexicomp, but I would say it's early days. So, we continue to gain new customers to the core UpToDate product, both inside the U.S.

and outside the U.S., so there's still customers to grow, and then once we get the customer obviously, the goal is to cross-sell the whole portfolio.

If you were to characterize or if that growth if I look at your customers, which are your existing customer; what proportion of your existing customers could take more products or more modules out of this product?

Yes. So UpToDate is the - Yes, so UpToDate is the fastest growing product within Clinical Solutions.

It's also the most highly penetrated product, both in the U.S. and outside the U.S.

So, a lot of the cross-selling is selling our drug information and our patient engagement products to the core UpToDate team or the UpToDate customer base. But, even with that in North America, we still have new customers that we win for the core of UpToDate.

There's still some room for market share growth. There's more room for - Yes, obviously more room for market share growth outside the U.S., but still in the U.S., there is some room.