Wolters Kluwer N.V. (WKL) Earnings Call Transcript & Summary

Dear shareholders, welcome to the Annual General Meeting of Shareholders of Wolters Kluwer N.V. This is a hybrid meeting, and we welcome both shareholders attending in person here in Alphen and those participating remotely. This is my fifth general meeting of shareholders for Wolters Kluwer, but my first as Chair of the Supervisory Board. I am thankful and pleased that I may fulfill this role. During today's meeting, all members of the Supervisory Board and Executive Board are present, with Jeanette Horan joining us virtually from the United States as, unfortunately, she has a short-term inability to travel. Our auditor, Mr. Savert of Deloitte Accountants; and our company's notary, Ms. Leemrijse of law firm, Allen and Overy, are joining us here in Alphen as well. This is hybrid meeting, which means that shareholders can participate, either in person or remotely. Remote participants can ask questions through a dedicated audio connection and can vote during the meeting through an electronic voting platform. This meeting is also being broadcast live via video webcast, and a recording will be made to correctly produce minutes. We appreciate that many shareholders took the opportunity to exercise their voting rights by way of electronic or written proxy. Shareholders participating remotely who wish to ask a question in relation to the items on the agenda can do so by logging into the ABN AMRO e-voting platform and dialing the phone number displayed for this Wolters Kluwer meeting. An operator will ask for your name and the conference ID. [Operator Instructions] If you have more than one question regarding an agenda item, which is being discussed, please post all of your questions when your line has been opened. Similar to the last few years, we will conduct the meeting in English for which we ask your understanding. We kindly request that shareholders who ask questions in the room or via the audio connection do so in English. A live translation into Dutch will not be offered. We have complied with all statutory provisions and the provisions of our Articles of Association for convening this meeting, and therefore, resolutions can be validly adopted at this meeting. As soon as the exact number of shares present or represented is known, I will inform you. Let us now turn to the meeting agenda. I would like to discuss agenda items 2a, b, c and 3a together. To introduce agenda items 2a, b and 3a, I would now like to give the floor to Ms. McKinstry, CEO and Chair of the Executive Board.

Thank you, Ann. Good morning, everybody. I want to welcome all of you who have joined us here today in Alphen and for those of you who are joining remotely. Today, I'd like to take a look back at some of our key achievements in 2022, covering strategic, financial and ESG performance. Next, I'll talk about the new division that we formed in March, and then finally finish off with the highlights of our first quarter trading update and our outlook for 2023. Looking back at last year, I'm pleased to say it was a very good year for us with positive developments on many fronts. In terms of financial performance, we delivered 6% organic growth and a significant increase in our adjusted operating profit margin. Excluding the favorable effect of the stronger U.S. dollar, we delivered 8% growth in diluted adjusted EPS in constant currencies. Adjusted free cash flow increased 7% in constant currencies, and we delivered a return on invested capital that increased to 15.5%. Our balance sheet remains strong, allowing us to continue to make significant returns to our shareholders. In terms of strategic and ESG achievements, our expert solutions, which are products that deliver both trusted content and workflow automation, grew 9% organically and reached 56% of total revenues last year. We continue to pay great attention to our employees and increase both our engagement and belonging scores. We completed an assessment of our greenhouse gas footprint and submitted our near-term targets to the Science Based Target initiative for validation. Let's look more closely at a few of our key developments last year. It was the first year of our 3-year plan, and our first strategic priority is to accelerate our expert solutions. Our expert solutions grew 9% organically. And of these, our cloud software revenues grew 17% organically. We supported this with a record level of product development spending amounting to 11% of total 2022 revenues. The second pillar of our strategy is to expand our reach. Here, I'd like to mention a couple of notable achievements. Our Health division signed a partnership with Microsoft last year, which allows third parties to build on Microsoft Azure platform and integrate our highly regarded medical content into their solutions. Our Tax & Accounting team expanded its CCH Axcess marketplace, which allows third parties to offer services to our customers who are using this open architecture cloud platform. Our third strategic priority is to evolve our core capabilities. by which we mean enhancing our own operations in areas such as sales and marketing, finance and technology, but also advancing our own ESG performance. We've made early progress on these goals, for example, strengthening centralized functions and improving our climate-related data collection and disclosures last year. Let's take a closer look at our financial performance. Our performance in 2022 extended our track record of delivering incremental improvement in key financial metrics. Fundamentally, this has been achieved through the strategic transformation of our business, which has driven steady improvement in organic growth. This strategic shift in business mix, first towards digital solutions and now towards expert solutions, underpins the steady improvement in both recurring revenues that you can see on this slide. The improved business mix and organic growth profile and the unrelenting efforts by our teams to find efficiencies has helped us drive steady increases in our adjusted operating profit margin over the years, as you can see in the top right chart. And the efficient use of capital has helped deliver steady increases in both diluted adjusted EPS in constant currencies and return on invested capital over the years. These achievements have been managed while paying close attention to important sustainability factors for our business, which I will talk about now. Here, you can see us just a selection of the many ESG measures that we monitor at Wolters Kluwer, so I will highlight just a few. Innovation is critical to sustain value creation for our customers and drives the organic growth of our business. As you can see in the top left chart, we have sustained investment in innovation at high levels and even increased it in 2022. As part of our innovation strategy, we work with our customers to bring advanced technologies to their workflows. For many years now, we've been investing in artificial intelligence, such as machine learning and predictive analytics, and more recently working with large language models such as ChatGPT. As we continue to grow our cloud-based solutions, we are also working with blockchain, AR and VR and other advanced technologies. We believe these technologies will advance our customers' decision-making and productivity. We've also been investing in security, and through a range of ongoing security awareness initiatives led by our global information security team, we have significantly advanced our cybersecurity maturity score last year. For many years now, we have been taking actions to reduce our Scope 1 and Scope 2 admissions. You can see the results of our real estate rationalization program in the bottom right chart. In 2022, the real estate team achieved a 5% underlying reduction in our global office footprint, and there is more to come. Now I'd like to spend a few minutes on a couple of the programs that are advancing our ESG initiatives. The first is around employee belonging and the second is around climate reporting. Belonging measures the extent to which employees believe they can bring their authentic selves to work and be accepted for who they are. We believe this is one of the best measures of diversity for a global business like Wolters Kluwer. Each year, we conduct an employee survey to measure engagement and belonging, and the anonymized results give us insight into how we can attract, retain and develop a high-performing workforce. This is important to us because of the highly competitive talent market that we operate in. In 2022, through the efforts of many, we improved our employee engagement and our belonging scores by 1 point to 77% and 73%, respectively, and we are making efforts to further improve these scores in 2023. In the area of climate reporting, we've also made important progress. We took steps to align with the recommendations of TCFD, which is the Task Force on Climate-related Financial Disclosures. We completed our assessment of our greenhouse gas footprint along the entire value chain, including Scope 3 emissions. And finally, we developed targets and submitted these to the Science Based Targets initiative. So all in all, a very busy year at Wolters Kluwer. Now I'd like to turn to our proposed dividend and share buyback plans. As mentioned, our balance sheet remains strong, and we ended last year with a net debt to EBITDA ratio of 1.3x. This situation allows us to continue investing organically in the business, make selected acquisitions and, at the same time, reward our shareholders. Today, we are recommending a 15% increase in the total dividend per share to EUR 1.81. This will bring the final dividend to EUR 1.18 per share to be paid out this month. We are also returning cash to shareholders via a share buyback plan. Last year, we repurchased a total of EUR 1 billion in shares. And in February of this year, we announced our intention to do the same amount in 2023. So far this year, we've completed nearly 1/3 of this year's EUR 1 billion buyback plan. So now let's take a look at our long-term share price performance. The chart on the left shows in blue, Wolters Kluwer's share price since the end of 2019, compared to the Dutch AEX in orange, the EURO STOXX index in black and the MSCI Europe Commercial & Professional Services sector in red. Over the 3-year period ending December 31, 2022, Wolters Kluwer shares increased 50% in value, substantially outperforming the stock market indices. Granted, in 2022, our shares were down 6%, but this performance, too, was significantly better than the AEX, the EURO STOXX and the MSCI sector. This year, the markets have been quite volatile. As of Monday's closing prices, Wolters Kluwer's shares are up 11% year-to-date, broadly in line with the AEX and the EURO STOXX, but well ahead of the sector index. Now I'd like to talk about the new division that we formed earlier this year. In March, we combined 4 of our global enterprise software businesses into a new division called Corporate Performance & ESG. The new division includes our Corporate Performance unit, CCH Tagetik; our EHS/ORM solution, Enablon; our Finance, Risk & Reporting business, OneSumX; and our internal audit solution, TeamMate. All of these businesses serve global corporations and banks with cloud and on-premise software solutions. All 4 units have leading market positions in their respective areas of expertise. Combining these businesses will allow us to accelerate synergies in the area of product development and go to market. In the near term, growth will be driven by core solutions. But over time, we believe we can meet the growing demand for integrated financial, operational and ESG performance solutions. I'm pleased to say that the execution of this organizational change has gone well, and that we now have all of the leaders in place for the 5 divisions. Despite the macroeconomic challenges that we all face, I'm happy to tell you that the new division and the business as a whole is performing well. So now let me give you some updates on the trading update that we provided last week. We have seen a good start to the year, with trading broadly in line with our expectations. Organic growth was up 6%, supported by recurring revenues that were up 7% organically and expert solutions, which were also up 7% organically. Nonrecurring revenue stream slowed to 2% organic growth against a challenging comparable of 9% a year ago. Adjusted operating profit margins decreased 270 basis points, largely as expected due to personnel increases and personnel -- increases in personnel-related expenses. Adjusted free cash flow decreased 23% in constant currencies, largely as expected and mainly due to the timing of payments. With trading in line with our expectations, we are confident in reiterating our overall guidance that we gave back in February. We continue to expect organic growth in line with 2022 levels. While the first quarter margin decreased, we continue to guide to an increase in the adjusted operating margin for the full year in the range of 26.1% to 26.5%. We maintain our expectation that adjusted free cash flow will be around EUR 1.2 billion in constant currencies. We continue to guide to an increase in return on invested capital of 16.5% to 17%. And finally, we reiterate our guidance for diluted adjusted EPS growth in constant currencies, which we expect to be in high single digits. All in all, a good start to the year with trading broadly as expected, and I'm pleased to reiterate our guidance for 2023. With that, I'd like to turn it back to the chair. Thank you very much for your attention and for your continued support as shareholders.

Thank you for this presentation, Nancy. Jeanette Horan, Chair of the Selection and Remuneration Committee dealing with remuneration matters, who is participating remotely today, will now introduce agenda Item 2c, the advisory vote on remuneration report as included in the 2022 annual report. This agenda item is submitted to you for an advisory vote in accordance with Dutch law. By voting, you can indicate whether in your view the 2022 remuneration report provides a clear and comprehensive overview of all remuneration awarded or due to individual members of the Executive Board and Supervisory Board in the last financial year. The remuneration report can be found on Pages 87 to 108 of the 2022 annual report and is also separately posted on the company's website. I'd also refer you to note 38 of the financial statements, which can be found on Page 201 of the annual report. Jeanette, the floor is yours.

Thank you, Ann. Related to agenda Item 2c, I'd like to provide a brief summary of how the company's performance compared to short-term and long-term incentive targets that determine the remuneration outcomes in 2022. The first slide, please. This slide shows the short-term incentive plan, measures, targets and actual performance for 2022. This cash incentive is linked to 3 financial measures and 3 nonfinancial measures. ESG measures as [indiscernible]. The financial targets were weighted at a combined 90%, while the nonfinancial measures were weighted at 10% in total. Regarding the 3 financial measures, performance for each was ahead of target. For revenues, performance was 1% above target. For adjusted net profit, performance was 4% above target. And for adjusted free cash flow, performance was 2% above target. Regarding the 3 ESG measures, performance was either in line with or ahead of target. For the employee belonging score, performance was at target, which was a 1 point improvement compared to the prior year. For the cybersecurity maturity score, performance was above target, indicating considerable progress in 2022. For the number of on-premise services -- servers decommissioned, performance exceeded target by 5%. In aggregate, the ESG measures resulted in performance 5% ahead of target. Now let's move on to the long-term incentive plan performance on the next slide. As a reminder, the long-term incentive cycle covering the period of 2020 to 2022, which matured at the end of 2022, reflects the remuneration policy in force in 2020. As such, there are 2 performance measures driving the outcome over the performance period, relative TSR and diluted EPS, both weighted equally. With respect to relative TSR performance over the 3-year period, Wolters Kluwer ranked third amongst the TSR peer group companies, as you can see in the chart on the left of the slide. This strong relative performance on total shareholder return resulted in an above-target payout for TSR related shares. With respect to diluted EPS, Wolters Kluwer delivered a compound annual growth rate of 15.9% in constant currencies, which was ahead of the target of 10.8% set 3 years ago. This overperformance resulted in an above-target payout for the EPS-related shares. Further details are provided in the 2022 remuneration report published in March. Before I hand back to the chair, I'd like to preview what you will see for 2023. For the short-term incentive, the Supervisory Board decided to continue with the same measures as 2022, including the 3 ESG measures, as we fill these important KPIs for our company and our strategy, and we want to maintain or improve our performance in these areas. For the long-term incentive for the '21-'23 performance period, there is a change compared to previous years, as this will be the first cycle that reflects the remuneration policy approved by shareholders in 2021. Starting next year, the long-term incentive outcomes will be based on 3 measures: relative total shareholder return and compounded annual growth; and diluted adjusted EPS; and return on invested capital. The prospective 3-year targets for these measures were disclosed in our remuneration report published in March. And with that, I'd like to turn the proceedings back to the chair.

Thank you, Jeanette. The financial statements for the year 2022 have been audited by the independent external auditor, Deloitte, and their opinion can be found on Pages 214 to 223 of the 2022 annual report. I would now like to invite Bas Savert, partner at Deloitte, to give a brief overview of the audit work performed by his firm. Bas, the floor is yours.

Thank you. My name is Bas Savert. I'm a partner at Deloitte Accountants, and I was responsible for the audit of 2022. I will provide a brief overview of the audit, and there are a couple of slides to support this presentation. Let me go to the first one. We finalized our audit, as indicated, on the 21st of February 2023 and issued an unqualified auditor's report, and this report is included in the annual report starting on Page 240. This report covers the audit of the consolidated and the company financial statements for the year ended December 31, 2022. And it also includes our report on the other information included in the annual report, such as the report of the Executive Board. On the next slide, I will address some of the key areas of our audits, such as scope and materiality level. Our materiality was set at EUR 70 million, considering the increased level of profitability. It is based on the percentage of 5.5% of profit before tax, and we allocated lower levels of materiality to the audit of the consolidated components, not exceeding EUR 29.4 million. Furthermore, in selected areas, we reduced our materiality based on qualitative considerations, and you may think of areas such as remuneration and certain disclosures. Based on our audit scope, 79% of revenues and 90% of assets were subject to audit procedures. The most significant components are located in the United States, which is also the reason for us to visit the U.S. component audit team in late 2022. With our other audit teams, we performed mostly remote reviews, and we attended closing calls as well as reporting disclosure -- deliverables and file items. Our key audit matters are described in our auditor's report. Key audit matters are those matters that, in the judgment of us, were most significant to the audit. And for 2022, we reported on internal controls, including IT, revenues and goodwill. As described in our report, the key audit matter on internal control and IT is linked to the diversity of processes and IT platforms throughout the group. This required extra audit efforts to understand relevant internal controls, and we have worked with our local teams and IT auditors to obtain sufficient understanding and perform the necessary, all the procedures. For revenues, we linked our key audit matter to the nonstandard or manual adjustment to revenues and to revenue recognition in accordance with IFRS 15, including disclosures. And we used a mix of audit procedures, including the evaluation of the design and implementation of relevant controls. We tested journal entries, and we performed detailed testing of contracts and other evidence supporting revenue recognition. Our third key audit matter related to goodwill, especially because of the significance of the goodwill to the total balance sheet and because the significant levels of estimates needed to perform the annual impairment test. We were supported by valuation specialists in performing our work on goodwill. Besides these key audit matters, we were also involved in other areas, such as those related to fraud risks, risk of noncompliance and ESG. In assessing the risk of fraud and noncompliance, we involved forensic specialists, and we considered the risk of management override controls, performing specific focus procedures, including inquiries, testing journal entries, reading Board minutes, reviewing speak-up notifications and obtaining representations from management. We also consider the company's analysis of the impact of climate change, as explained by management in the governance section of the strategic report, and we have not been engaged to provide assurance over the accuracy of climate change information. We did, however, discuss and challenge the risk assessment with support of our ESG specialists. In addition to the matters reported in our auditor's report, we also issued a management letter and a year-end report to the management and to the Supervisory Board. These reports cover audit approach, significant risks, internal controls and other observations. The observations included in these reports are for the consideration of management. And in case such observations are considered key audit matters, we have also included relevant information in our auditor's report. Moving to the final slide. We are currently planning our 2023 audit, which will be largely consistent from an approach perspective with 2022. One specific change that we will consider in 2023 relates to the new fifth segment for Corporate Performance & ESG. And with that, I end my presentation. Thank you for your attention.

Thank you for that presentation, Bas. We would now like to take questions relating to agenda Items 2a, b, c and 3a. We will start with questions from the room here in Alphen, and then we will turn to any questions of shareholders attending remotely. The operator has opened a queue, [Operator Instructions] Please note that these questions should be about the 2022 annual report, consisting of the report of the Executive Board, the report of the Supervisory Board, the remuneration report and the 2022 financial statements. Are there any questions from shareholders or representatives in the room? Please make use of a microphone and mention your name loud and clear. I do understand that VBDO is present here today, and so I would like to start by asking their questions or having them ask their questions.

Thank you, Ms. Chair. Good morning. My name is [ Lisbeth Hanukkah ]. I'm here, indeed, on behalf of the VBDO, which is the Dutch Association of Investors for Sustainable Development. We've been engaging with you for a couple of years now, and we see improvements clearly. And first of all, we would like to compliment you with this new division on Compliance & ESG. We really think that's at the core of your business where you can make a difference in these areas. So compliments on that big step forward. At this very moment in the agenda, I would like to raise 2 topics, discuss with you 2 topics. First is about labor conditions in the value chain, and the second one is quite a new topic that requires some attention. It's lobbying. So let's start with the labor conditions in the value chain. That is of material topic for Wolters Kluwer, it says in the annual report, Page 39. So indeed, let's look into that. And you have made progress in this area. Clearly, yes, you were making progress, especially focusing on your own employees. At this very moment, we would like to raise more attention on how to -- how is the labor condition in the supply chain, the value chain of Wolters Kluwer. So we're challenging you a bit in that sense to make some next steps in the coming year and report on progress on how you would like to address the labor conditions in the supply chain of Wolters Kluwer. For instance, you could think about child labor, human rights, et cetera. Another topic that we've discussed in the past is living wage, where you have indeed organized a living wage benchmark, and you're living up to that for your own employees. Would it be useful, sensible for you to make progress in that area to expand that benchmark to employees in your value chain? So that's the first question. The next question is on lobbying, which is quite a new topic, and it makes people sometimes feel uncomfortable. But -- especially because of that feeling uncomfortable, it is an important and interesting topic to discuss and to be more open about. Lobbying, what does it do? It tries to influence legislation, and that means not only it influences the company, but it influences society and how we interact with each other. So yes, it's an important topic that requires more being in the light of our discussions. And recently, a report has been published from InfluenceMap that found out that 89%, 8-9, 89% of industry associations do not always lobby in line with the Paris Agreement. That is worrying. If we all agree that the Paris Agreement is something that we really want to work towards to, then how could it happen that some specific associations lobbying for legislation do not adhere to this Paris Agreement? That's worrying. I'm not saying Wolters Kluwer is involved in that, but it's something to keep in mind. There is a risk, and do we have control and insight in the lobbying activities, direct and indirect, from Wolters Kluwer? And if not, then how can we make that more clear and have a focus on obtaining the sustainability objectives of Wolters Kluwer, first, and, secondly, for example, being aligned with the Paris agreement? That's important. So that brings me to the question. Indeed, could you please confirm that the direct and indirect lobby activities are fully aligned with your own material sustainability objectives on the one hand, and on the other hand, on the Paris Agreement? And the second part of the same question is, indeed, would you be willing to publish more details about your lobby activities and objectives and how you relate to the associations relating to it?

Okay. Thank you for your questions. Nancy, would you like to answer?

Thank you very much. Thank you also for your questions. So first, on the labor topic, particularly within the value chain, we are currently carrying out a double materiality assessment in 2023, which is required as part of the CSRD. And as part of that assessment, of course, labor conditions is an element that we are looking at. So it's too early at this moment to report on those findings. We will plan to report on our double materiality assessment in the 2023 annual report. But what I can say is that, in the past, we didn't consider labor conditions to be a high-risk topic for Wolters Kluwer, in part, because if you look at what we do, it's highly professional expertise-driven roles across the globe, and these roles tend to be paid at high salary levels. And so we do not anticipate that coming out of the double materiality assessment that we will find anything among either our own employees and our suppliers as well. But clearly, again, it's early to fully come back on that given that we're still in the process of the assessment. So we will plan to report on that when the assessment is done in this year's annual report. And then as it relates to lobbying, we tend, as an organization, to join very specific industry associations. So things like the Institute of Internal Auditors, the Healthcare Information Management System Society, very specific to the kinds of customers that we're serving, and we have those engagements across all of Wolters Kluwer. The element financially of how this works is we pay membership dues, and then the society itself may choose to lobby on -- in part on the entire association, right? So it's not directly related to Wolters Kluwer. In the end, if you look at all of the dues that we pay for these societies, it's immaterial to the cost structure of Wolters Kluwer. Again, as part of our double materiality assessment, we're going to look at your question, which is how many of these associations are involved in supporting the Paris Agreement. We don't know the answer to that question right now, but we will, of course, report on that. But if you look at the total spending, it's immaterial. So thank you.

Thank you. You mentioned you had 4 questions. I don't know if they're on these 4 agenda items at hand. Are they on the current agenda items? Or will they come later in the meeting?

Well, there are 4 questions, so I thought that's a long range, indeed. So I want to cut them in 2. So I might come back later on the agenda. Thank you very much.

Yes. Okay. All right.

And thank you for this response, and looking forward to your double materiality and the lessons we are going to learn from that, in these 2 areas. It's really exciting to learn more about that. Thank you very much.

Thank you. Are there any other questions from the room? Are there any questions on Items 2a, b, c and 3a from shareholders participating remotely? Oh, I'm sorry. Please, there's another question in the room.

My name is Robert Vreeken of We Connect You Public Affairs & Investor Relations. I'm very pleased with the splendid results of this wonderful company. We are facing a few minor problems in the world, such as China, Russia, Ukraine. You have wonderful spearheaded tax law and your medical division, but it's time now for medical leadership because we have an enormous problem with obesity, and people -- and lack of exercise, lack of drinking water, enormous problems with climate and migration. And I feel that it's important that we look at -- and there's -- you already make a good step with our ESG division. But I'm worried about the accessibility of medical -- your medical division, medical things and medical leadership. China, at the moment, is leading worldwide in 26 of the 24 scientific fields, and that worries me because there's a tendency in China to dominate the whole world, and they're making an enormous progress. I wonder what your view is on those developments, because they are major things: climate, China, Russia. Another thing which worries us is that more than 40% of the countries are now less democratic, and they are growing. And what -- let me see. And an important thing is, at the moment, that to produce 1 kilo of meat, you need to have 25 kilograms of animal feed, which is not very sufficient. So we see a number of tendencies and all these blended orders of all the publications of Wolters Kluwer can keep this in mind to make this a better world because if we don't do it now, then we are late. So I'm looking forward to hear your view on these topics.

Thank you for your views. Nancy?

Yes. Thank you very much. So one of the things that we strive to do in our health business is focus very much on distributing evidence-based guidelines and medicine. And if you look historically, it would take 10 years often for a new medical development to emerge and for that medical practice to get into the care system around the world. And so one of our goals is to shorten the time frame between a new way to approach a disease and the implementation in terms of patient care. UpToDate has been a tremendous vehicle for shortening that time frame. We have a lot of evidence to demonstrate that those customers who use UpToDate get better results in terms of mortality and morbidity. And that is a major platform for us to continue to push the kind of -- the goals around evidence-based medicine around the world, so places like China, Russia, et cetera. So that's number one. Number two is that we make our medical information available in parts of the world through the UN that can't necessarily afford to buy our products, so that we ensure that we try to get wide distribution of these developments. So in our Health division, we actually distribute our products in 190 countries around the world, and that's a big focus for us is to continue that process of driving good outcomes or better outcomes for patient care. And that's how we feel we can have a difference in the world.

And China?

Yes, China is a relatively small part of our revenues today. We operate in all of the verticals: health, legal, tax, financial services, ESG. And our customers are all, again, professionals that are working in those businesses. And again, our goals are very similar: to promote the delivery of evidence-based care to promote better productivity and better outcomes. And so we've been growing our business in China, yes, because they are growing their professional class of -- classes within that region of the world.

But what's your -- China is striving to be the worldwide leader in everything. And what's the opinion, the view of Wolters Kluwer, of the Board, both Boards, on China? Because we missed Russia and Ukraine, and that should never happen again, in my opinion.

Yes. So for Wolters Kluwer, 65% of our revenues roughly, or over 60%, come from the U.S. So the U.S. will continue to be a very important region for us over the medium term. Second is Europe, again, a very important region in the world. We serve our products across Wolters Kluwer are embedded in both North America and in Europe. The rest of the world is less as -- in terms of its contribution to revenues and profits. China, India, Brazil, we see our important growth markets, so we have a specific organization that focuses on those 3 countries. And we're working to, again, distribute our global expert solutions. We believe that our products have a positive impact in the markets that we operate in terms of, again, driving better outcomes, driving our customers to make better decisions and helping them with their productivity, and that remains true for China as well.

Probably -- thank you for your feedback. Probably, you know Erik Scherder. And Erik Scherder is someone who is very worried about obesity in The Netherlands, but also worldwide because people do not exercise enough, and they don't have proper food. And there's a huge problem, because in about 10 years' time, 50% of the Dutch population has too much weight. And the same applies, of course, for the U.S. How can you make that a spearhead in your activities?

Yes. So we produce information and software across all the medical specialty areas, obesity being an area that's served generally through primary care physicians, but other specialties within medicine. And we, again, part of our mission is to make sure that all the new developments, new drug therapies, all of that is well distributed, that information to our customers, and that they begin to use that information in practice. So I think we have another question coming from others, so maybe we can move off this topic, and you can go back later in the program.

Okay. Thank you. We appreciate your views.

I believe we have -- we do have a question on the phone, if there's nobody else in the room.

That's if -- I'm just going to check because I was going to look more carefully at this time.

If there isn't anyone in the room, then we do have Mr. Van den Hudding from the VEB. He's put his hand up.

Mr. Van den Hudding, your line is open.

Eric van den Hudding on behalf of the VEB. Dear Chairwoman, first underscore that [indiscernible] complain. As I reflect on the decade, organic growth has accelerated and operating margin has expanded, resulting in shareholder return of well over 20% per year. I do have few questions on the business, 4 to be specific. As investors are likely well aware, the Legal & Regulatory is the smallest operating segment in terms of revenue and has by far the lowest adjusted operating margins. As such, Legal & Regulatory accounts for an estimated 7% to 8% of Wolters Kluwer's enterprise value. A number of explanations have been provided, the fragmented nature of legal information markets in Europe, its print heaviness, restructuring costs and investments in product development, sales and marketing. While the level of print of Regulatory -- of Legal & Regulatory has come down from 40% in 2014 to 17% today, the adjusted operating margin has not improved over that period. At the H1 2022 results, Legal & Regulatory had a margin of 15.6%, yet ended the year lower at 13.5% due to onetime items related to pension. So my question is, were it not for the aforementioned onetime items, what's the adjusted operating margin for Legal & Regulatory climb towards that 16% like at H1? And when we will see the structural improvement to become visible?

Thank you for your question. The audio is a little bit hard to hear. I guess, I'm going to refer that to Kevin. Were you able to hear the question?

I was. And yes, I do understand that the performance in Legal & Regulatory's margin is below some of the other divisions, and you have touched on a number of the reasons for that. It is still our most print-centric division, yet print will be declining. I would imagine that decline will continue. We are investing in digitization. We are investing in new products, particularly in software and workflow tools. So I do expect that, over time, and with the absence of onetime items, we will see improvement in that margin in Legal & Regulatory. I'm not quite sure it will necessarily come to the same levels of some of the other divisions, just because in Legal & Regulatory we do operate over a number of different geographies all across Europe, unlike some of the other divisions. But we do see opportunities for improvement in both organic growth and in margin, and you have seen progress in that in the last several years.

Yes. And if I look at the minutes of April 2021 AGM, I noticed that Mrs. McKinstry said that over the medium term, high teens adjusted operating margins are achievable. So just what is your definition of medium term? And what should -- what type of time period should we think about?

I would say 3 to 5 years is generally how we see the medium term. And what you should see within the Legal & Regulatory portfolio is that our digital information products last year grew 6% organically. So as we are able to accelerate the growth in Legal & Regulatory, that again helps on the contribution level. We are making a substantial amount of investment in our software products within the Legal & Regulatory division. So they today are subscale and, therefore, not at the margin level that they will achieve when they scale. So the mission for Legal & Regulatory, as it relates to improving their margin, is really around continuing the good growth in digital information and scaling the software businesses. And that is one of the reasons why when we formed the new fifth division, we brought in our Enterprise Legal Management business, which was part of our GRC division, into Legal & Regulatory. So we now have all of our legal software businesses together, and we believe that, that will help with the scaling.

Okay. My second question, as you're probably well aware, generated IE or ChatGDP (sic) [ ChatGPT ] is having a negative impact on U.S. listed Chat. Now obviously, your offerings on consumer base are not in any way the same as Chat's. But shares of Wolters Kluwer did decline on the news when they came out. I was just wondering if and where, in terms of your business segments, you feel most vulnerable for generative IE in general or ChatGPT, specifically.

Yes. We use artificial intelligence technologies across a wide range of Wolters Kluwer products, and we have been doing that for probably a decade now. So ChatGPT is what they -- which is part of these large language models called generative AI. We do believe there are opportunities for us to use that technology both internally for process efficiency. And for some of our customer-based products, we've been experimenting with these large language models for a couple of years now. So more to come. But we see ChatGPT is just another tool in the sort of broad bucket of AI tools that we have, which would include things like natural language processing, machine learning, predictive analytics. So we are already using a lot of that today. And so we just -- again, we see this more as an opportunity than as a risk to the Wolters Kluwer business. Our products are highly sophisticated. Our customers use them in their daily work. And therefore, they really provide substantial value. And we believe, again, with the deployment of additional AI kinds of tools, it will just increase in value.

Okay. Then my third question, your largest expense of EUR 2.3 billion is personnel costs. Now recently, you reported, of course, the adjusted operating margin declined by 270 basis points in the first quarter, reflecting, among others, an increase in personnel costs. Now Wolters Kluwer has a very significant proportion of revenues tied to annual or, in fact, multi-year subscription contracts. So I was just wondering, in practice, how does that work in terms of passing on higher costs, such as personnel costs, in order to restore these operating margins?

Just quickly for the order of the meeting, can you let us know how many questions you have for this agenda item and whether it might be possible to bundle them to make the flow of the meeting as efficient as possible?

Yes, sure. I don't know if I -- I think I mentioned I had 4. So I have 4 questions. So this is the third in terms of my questions, and I have 1 more on the leverage ratio.

Okay. If you want to ask them both at the same time, that would be great. And then most likely, Kevin can answer.