Wolters Kluwer is a leading global information services and publishing company and is quoted on the Euronext Amsterdam. Employing around 19,500 staff worldwide, Wolters Kluwer operates in 33 countries across Europe, North America and Asia Pacific and reported revenues of €3.4 billion in 2007. We talk to George Dessing about the company’s refinancing activities in 2008.
Vice President, Corporate Treasurer
George Dessing is Vice President, Corporate Treasurer of Wolters Kluwer, a leading global information services and publishing company. In this position, George is responsible for global treasury and risk management activities at Wolters Kluwer in support of the company’s business strategy.
Prior to joining Wolters Kluwer in 1997, George held varying positions in Nethold Finance, part of the FilmNet Group, in the Netherlands and Belgium.
George has an undergraduate degree from the HES HEAO in The Hague, and holds a Master’s of Science in Business Economics from the University of Tilburg. He is also a board member of the Dutch Association of Corporate Treasurers (DACT).
Firstly, please can you give me an overview of Wolters Kluwer’s corporate strategy?
Wolters Kluwer is a global information provider and publishing company focusing on professionals, including tax and accounting executives, attorneys, physicians and nurses, as well as bankers and financial executives.
We are focusing on a long-term strategy of profitable growth with a strong customer focus. Wolters Kluwer is going for a very structured migration from print to electronic, with a focus on higher margin electronic media. When we started this programme in 2003, roughly 30% of our products were electronic, which includes online products as well as DVDs and CDs. Today 50% of our total revenues come from electronic products and this is growing.
Within our markets, we hold leading positions with premium brands and the fundamentals of our business are strong and predictable – that’s quite an asset these days. We are well positioned for long-term profitable growth. Our first focus is always on organic growth but we also look for strategic investments in our business, including bolt-on acquisitions. When Nancy McKinstry, CEO, and Boudewijn Beerkens, CFO, started in 2003, the organisation was trading at -2% organic growth. In 2007 we reached 4% organic growth, which is a great turnaround for the company.
What are the main areas of focus for the treasury?
The corporate treasury’s role is to ensure liquidity. How could a treasurer say anything else these days? It is also the treasury’s role to manage financial risk (which we define as currency, interest, liquidity and credit risk) within a defined internal control framework and to service our global bank relationship management.
We focus on the external and internal financing of the group and we also have a strong focus on financial stakeholder relationship, including debt investors and rating agencies. Wolters Kluwer is rated as a solid BBB+, stable outlook, at S&P. Our current goal is to ensure that we understand what is actually driving our business, and to create some value adds within a wider team of multi-disciplined financial professionals. Personally I am also involved in Wolters Kluwer hazard risk management, such as liability and property risks.
What was the purpose of your refinancing activities in 2008?
Our refinancing activity in 2008 was all baked into our overall strategy at Wolters Kluwer, of accelerating profitable growth. And I think we can clearly showcase that with our funding plan last year. We actually did three rounds of refinancing, all on the longer end of the curve:
At the beginning of the year we had a private 30-year loan of ¥20 billion (around €126m), which we swapped to euro with an attractive cost of funds of around 6%.
Then we issued a 10-year bond in April 2008, when the credit crunch was really starting, with a cost of funds of 6.4%, raising €750m.
Finally we had an opportunistic 20-year bond in August 2008, with a cost of funds of 6.75%, raising €36m.
Overall this was over €900m of refinancing, so what we can conclude is that we have a very solid balance sheet, we have increased headroom – we have a liquidity headroom target of €500m or more – and we are pretty comfortable with that.
On the back of that, we publicly said that as an organisation we would like to have a leverage target of 2.5 times net debt to EBITDA, whereby we can temporarily deviate from that target with a recovery period of 12-18 months.
We have hit the wires quite a number of times recently regarding acquisitions we’ve made. We have bought some attractive assets such as UpToDate in the US within our Health division; Addison, a German company, in our Legal, Tax & Regulatory Europe division, and IntelliTax, another US organisation, in the Tax, Accounting & Legal division. This has been funded by the financing we did on the long end of the curve.
Did you see the difficult market conditions as an obstacle?
Our mentality is that we don’t want to sit on our hands and wait for the market to turn in our favour. We want to go to the market when we want to, not when there is a desperate need for cash. That’s absolutely the situation that we wanted to avoid.
At the end of the day we had a successful trade: we came out with a 10 year loan, which was six times oversubscribed. Within a couple of hours we had orders of over €3 billion. The feedback we are getting from investors is that they like the Wolters Kluwer name, the solidness of the business and the stable cash flow, so I think there are some great factors that gave investors enough confidence to step in.
Would you think twice about further refinancing given the recent deterioration in the markets?
Wolters Kluwer has noted the deterioration of the economic climate, that’s for sure. However, the resilience of our portfolio with regard to subscription based income is approximately 70%, with solid and stable retention rates and a solid balance sheet and liquidity profile.
So at this moment in time we don’t have an imminent need to go to the market. Our headroom is above our target, and we have no refinancing risk up to 2011. But we are always open to opportunistic funding if it will bring a value add for the business and support our growth.
What approach do you take to risk management?
First of all I would like to say that Wolters Kluwer is well balanced by the nature of our subscription based model and stable cash flows. We also have a well diversified customer base and local cash flows, despite the globalisation within our projects.
We focus on four areas of risk: currency, interest, liquidity and credit risks. Looking at currency risk first, we have seen the move in EUR/USD which is a key currency for Wolters Kluwer because over 50% of our revenues come out of the US. However, most of our currency risk is in the form of translation risk rather than transaction risk.
The transaction risk exposure within Wolters Kluwer is considered to be immaterial. The prices that our businesses charge their customers for products and services are mainly denominated in the local currency of the customer. The costs incurred by our businesses are also incurred in those local currencies.
Translation risk is the risk that exchange rate gains or losses arise from translating the income statement, balance sheet and cash flow statement of foreign subsidiaries to Wolters Kluwer’s reporting currency (the euro) for consolidation purposes. That’s being well covered and we have strict policies on that.
The same applies to interest rate risk. We have a policy that we want to have at least two-thirds of our interest portfolio set at a fixed rate, aligned to the stable business of the organisation. In terms of liquidity risk, as I mentioned earlier our policy is to have a minimum headroom of €500m.
The last area is credit risk, ie counterparty risk. Focusing specifically on the counterparty risk associated with financial institutions, we tackle this in three ways:
First of all we have set a minimum credit rating of our financial institution counterparties: A (S&P) and A2 (Moody’s).
Secondly we use ISDA (International Swaps and Derivatives Association) master agreements, and that provides a significant additional level of comfort.
Finally we try to spread our deals or trades across different financial institutions.
Of course, we watch the wires and if a financial institution falls between the cracks we adjust our positions directly.
Is that something you have had to do?
Yes, absolutely. It’s not nice to do this because we aim to have long-term relationships with our key financial stakeholders, but we are pretty open about our policy with our counterparties. I think it’s fair to say that nowadays it’s a common theme that you can discuss. Our counterparties are aware of the fact that we have such policies and they are open minded to it and relaxed about it. At the end of the day, they would probably do the same at their end.
Is the crisis having any impact in the areas of staff recruitment and development?
My experience within my team and with my own development within the organisation is that the organisation views employees – or talent, in the broadest sense of the word – as one of the main assets the company has. In our talent management programme, we aim to develop, validate and train talent which is critical for the organisation currently, and also try to fulfil future needs.
Zooming in on treasury, what I can say for my team and myself is as you can imagine, the current environment is more demanding. When I speak to my peers at other corporations, everyone is getting attention from the board and the CFO and there is a great opportunity for all treasurers to showcase their value add and focus on cash. At the end of the day that’s the cornerstone of our business and our future growth.
What approach do you take to managing talent in the area of finance specifically?
In 2005, Wolters Kluwer established a global talent management programme for all different disciplines. In addition, in 2007 our CFO initiated a dedicated project for financial employees, which we call the FUTURE project. This programme aims to create a certain climate for talent management and it focuses on the recruitment, development and retention of important finance talent across the company. I am one of the global project owners in this project and I am currently rolling the programme out for the whole treasury department.
The project focuses on eight relevant competencies, which are represented as a pyramid. Financial expertise is one of the cornerstones, together with business analysis and support, and operational excellence and results. When you move up the pyramid, you come to entrepreneurship, communication and influence, change agent and finally business partner, which is the ultimate goal for the organisation as well as for the individual.
Within this competency model we first of all try to make a framework for assessment, feedback and development plans for our finance employees. Secondly, we try to share some sort of common language across the global finance community – the pyramid is a framework which makes that easier. This programme aims to fulfil a critical role in the execution of our business strategy, because the ultimate goal is to be a business partner – both now and in the future, as our business migrates to electronic content and services.
In practical terms what does the programme mean to employees?
At the end of the day, we have a couple of ambitious young people here who want to get somewhere in the future, and this programme is an ideal language for discussing the opportunities that we can provide them.
We have to be fair – you can’t focus on all eight of the competencies. With one of my employees, in practice we just picked out two of these areas, and we said we’re going to focus on developing those critical elements in 2009. So actually you’re writing a sort of development plan to bring the employee and also probably yourself to the next level and you’re using this framework to put it into practice.
Since our CFO initiated the programme in 2007 we carried out some assessments and we are now going to the second phase, with talent review meetings in smaller and bigger groups, on a regional and global level. The programme also supports managers with examples of development plans, webinars and guidelines that give you tips and tricks for the discussions. So we’ve done the hard work and now we have to grab the value add out of the project, which is really to develop our employees.
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