Wolters Kluwer Unveils Strategy
To Restructure, Pursue Growth
By CHARLES GOLDSMITH
Staff Reporter of THE WALL STREET JOURNAL
LONDON -- Wolters Kluwer NV, the huge international publishing concern, has developed a reputation for stodginess. It's not just that its specialty is tax and legal texts. It also largely shunned the Internet even as rivals, such as Reed Elsevier NV, successfully moved many of their products online, making them must-haves in research libraries.
Now, the company is counting on Nancy McKinstry, a 44-year-old former management consultant from the U.S., to rev it up.
Ms. McKinstry took over as chairman and chief executive last month and Thursday delivered a long-awaited blueprint for the company's future. The plan calls for investment of €800 million ($934 million) over the next three years, largely in the company's core tax, legal and health-care publishing sectors. In the U.S., Wolters Kluwer is perhaps best known for its CCH tax compliance products and Aspen Publishers, which provides legal, business and health-care information.
The investment will be coupled with 1,600 job cuts, or 8% of the work force, and cost savings of €240 million by 2007, Ms. McKinstry said. Wolters aims to boost operating margins to between 19% and 20% by 2007, from an expected 14% next year.
In August, the company reported first-half net profit of €120 million, down 38% from a year earlier, while revenue slumped 16% to €1.61 billion.
Pledging a "deep sense of urgency" from Wolters's management, Ms. Mc-Kinstry said the plan aimed to strengthen the company's positions in its strongest areas, while moving away from a recent strategy of boosting revenue through acquisitions. "In many cases, we have market positions and brands that are well over 100 years old," she told analysts, "and we must capitalize on the strength of those assets."
But not everyone was impressed. Some analysts questioned whether the changes would be enough to help Wolters catch the competition in a fiercely competitive global business dominated by just a few players that have already gone through their painful restructurings. Professional publishing has been hard hit in recent years by the downturn in the financial-services industries.
"It is a little bit underwhelming," said media analyst Patrick Kirby of Deutsche Bank, adding that the margin target and that for revenue growth, of 3% to 4% by 2007, were disappointingly unambitious.
While other professional publishers invested heavily in bringing their products to the Internet over the past few years, Wolters has continued to rely on loose-leaf and CD-ROM versions of many of its products, which have suffered high cancellation rates. In a recent report, investment bank UBS says that both Reed Elsevier and Canada's Thomson Corp. have spent 10% of their legal units' sales on new products, compared with just 4% at Wolters. Reed, for its part, invested more than £750 million ($1.27 billion or €1.09 billion) on the Internet over the past few years, which has helped make its Elsevier science unit an online powerhouse at research libraries.
Wolters's shares initially soared 8% on the announcement, but later settled back to close up 2.7% at €13.12 on the Euronext exchange in Amsterdam. Analysts said the initial rise partly reflected the company's decision to keep this year's dividend unchanged at 55 European cents.
For investors, Wolters's strategy statement had been long awaited. The company in recent years has relied on a series of small acquisitions to boost sales, as revenue growth from its ongoing businesses has slumped since hitting a peak of 5.5% back in 1998.
Yet Wolters continues to walk a fine line when it comes to the Internet. While emphasizing a commitment to online migration, Ms. McKinstry said that many customers continue to prefer print versions of Wolters's products, so the company must maintain a cautious balance. Of the €800 million in new spending, slightly more than one-third will be on electronic products. Wolters now gets 30% of its revenue from electronic products and services, and the new plan aims to boost that to 45% by 2007, which Ms. McKinstry described as "quite a big transformation for us."
Wolters said there would be some divestments in noncore areas in both North America and Europe, but declined to name the units involved until sales are complete.
Ms. McKinstry has been a member of Wolters's executive board since mid-1991, and was formerly CEO of its North American legal, tax and business unit. A graduate of the University of Rhode Island and Columbia University's business school, she previously held management positions at consultancy Booz Allen & Hamilton Inc. and at the New England Telephone Co., now part of Verizon Communications Inc.