TIDMMCRO
RNS Number : 6467F
Micro Focus International plc
18 November 2020
18 November 2020
Micro Focus International plc
Trading Statement
Overview
The Board of Micro Focus International plc ("Micro Focus" or
"the Group", LSE: MCRO.L, NYSE: MFGP), the global enterprise
software group, today issues a trading update for the 12 months
ended 31 October 2020 ("FY20").
Micro Focus expects to report:
-- Revenue of approximately $3.0bn for FY20, which is in line
with management expectations. This represents a decline of
approximately 10% on a constant currency ("CCY") basis when
compared to FY19.
-- Adjusted EBITDA margin* of approximately 39% for FY20 which
was towards the upper end of management expectations, following the
execution of operational improvement and cost initiatives.
-- Cash of $0.7bn and Net debt* of $4.2bn as at the 31 October
2020, with a continuation of strong cash generation and working
capital management achieved in the first half of FY20.
Stephen Murdoch commented: "We are in extraordinary times as a
result of COVID-19 and I must take this opportunity to express my
sincere thanks to our employees for how they have adapted to the
challenges presented and ensured we stay focused on delivering for
our customers.
We are now nine months into our three year turnaround plan for
the Group and whilst there remains a great deal to do I am pleased
with progress in both overall operational effectiveness and in the
delivery of our key strategic objectives. Cash generation and
working capital management remain strong, the investments we've
made are showing encouraging early results and we continue to see a
clear, ongoing customer need for our solutions and approach to
digital transformation.
I am confident we are making the changes and building the
foundations necessary to continue to make progress in the delivery
of our plan."
Financial Performance
In light of COVID-19 and the current macro-economic environment,
the Board has provided additional information in this announcement
to compare the trajectory of the core revenue streams of the
business in the second half of FY20 with those delivered in the
first half of FY20.
Y-o-Y revenue trajectory (on a CCY H1 FY20 H2 FY20 FY20 versus
basis) versus versus FY19
H1 FY19 H2 FY19
Licence (21)% (17)% (19)%
--------- --------- ------------
Maintenance (7)% (5)% (6)%
--------- --------- ------------
SaaS (12)% (11)% (12)%
--------- --------- ------------
Consulting (15)% (10)% (12)%
--------- --------- ------------
Total revenue trajectory (11)% (9)% (10)%
--------- --------- ------------
In the second half of FY20, revenue declined by approximately 9%
versus the second half of FY19 representing an improvement in the
revenue trajectory of 2 percentage points compared to the first
half of the financial year. Set against the context of continued
challenging market conditions, this performance is encouraging and
combined with improvement in the underlying operational metrics
gives management confidence that the actions being taken are
beginning to improve the overall revenue trends.
Licence revenue declines moderated by approximately 4 percentage
points, driven by more consistent execution. Within this, IT
Operations Management ("ITOM"), Application Delivery Management
("ADM") and Information Management and Governance ("IM&G") all
improved in the second half but Security and Application
Modernisation and Connectivity ("AMC") did not. Period to period
volatility is not unusual in AMC driven by the timing of large
scale modernisation projects and this is an example of that
dynamic. In Security, the second half had a challenging compare and
the full year performance does show rates of decline
moderating.
Maintenance revenue declines moderated by approximately 2
percentage points. Within this, Security and IM&G delivered
good improvement, AMC was broadly consistent but trends in ITOM and
ADM remain below Management's expectations. We are continuing to
redirect resources and execute operational plans to deliver
sustained improvements in overall performance in this revenue
stream.
SaaS and other recurring revenue declines moderated slightly and
we saw encouraging growth in our Security portfolio. We are
confident the actions being taken will better position this revenue
stream for growth in the medium term as targeted.
Consulting revenue trajectory also improved and this revenue
stream is now expected to be broadly stable.
Profitability and Cash
The Group's Adjusted EBITDA margin* of approximately 39% in the
12 months ended 31 October 2020 was towards the upper end of our
expectations. The Group has continued to balance targeted
investment in Go-to-Market and Product Groups against the ongoing
management of discretionary costs and operational improvement
initiatives.
The Group's cash flow performance was strong and underpinned by
effective working capital management. The Group ended the period
with cash balances of approximately $0.7bn billion and net debt* of
approximately $4.2bn, reducing by approximately $0.4bn from 31
October 2019, excluding the impact of IFRS16.
In total, the Group had $1.1 billion of available liquidity as
at 31 October 2020 and, following the successful refinancing, the
next facility maturity date is June 2024.
The macro-economic environment remains uncertain and the
potential long- term impact this has on the Group continues to be
evaluated by the Board. As a result, the decision in respect of the
Group's final dividend remains under review, as does the carrying
value of goodwill and intangible assets. We will provide a further
update as part of our full year results.
Progress on business transformation plan
The Group is now nine months into the three year turnaround plan
and has made solid progress in the strategic focus areas of
transforming our go-to-market model, delivering more complete and
focused solutions by product area and simplifying core
operations.
In go-to-market, changes and new recruitment to the leadership
team, supported by training programmes and new tools, are beginning
to deliver improved execution discipline which over time will
deliver better predictability and performance across the key
operational metrics.
Progress in Security and Vertica has been encouraging. In
Security, new leadership talent has been added, new SaaS offerings
have been delivered, and a technology focused acquisition has been
completed to add key new capabilities. In Vertica, the transition
to subscription is now underway supported by product enhancements
and the refocus of the sales organisation.
The Group is executing multiple programmes to deliver improved
operational efficiency and agility. Key within this is the project
to migrate to one set of core IT systems. The challenges presented
by COVID-19 have required this project to be transitioned from a
highly intensive, onsite mode of working to a fully remote
operating model. Despite these challenges the project is on track
to be able to move a significant number of employees onto the new
infrastructure during the first quarter of FY21 with the rest of
the team moving later in FY21.
There remains a great deal to do, but overall, the progress made
provides a stronger foundation from which to build and provides
increased confidence in our ability to execute the remainder of our
3 year plan.
*Adjusted EBITDA and Net debt are stated after the impact of
IFRS 16 which has been newly adopted from 1 November 2019. IFRS 16
increased Adjusted EBITDA by approximately $75m for the 12 months
ended 31 October 2020 and net debt by approximately $230m at 31
October 2020.
This announcement contains information that was previously
Inside Information, as that term is defined in the Market Abuse
Regulation (Regulation (EU) No 596/2014 of the European Parliament
and of the Council of 16 April 2014) and successor UK
legislation.
Enquiries:
Micro Focus Tel: +44 (0)1635 32646
Stephen Murdoch, CEO Investors@microfocus.com
Brian McArthur-Muscroft, CFO
Ben Donnelly, Head of Investor Relations
Brunswick Tel: +44 (0) 20 7404 5959
Sarah West MicroFocus@brunswickgroup.com
Jonathan Glass
Notes to Editors:
About Micro Focus
Micro Focus (LSE: MCRO.L, NYSE: MFGP) is a global enterprise
software company supporting the technology needs and challenges of
the Global 2000. Our solutions help organisations leverage existing
IT investments, enterprise applications and emerging technologies
to address complex, rapidly evolving business requirements while
protecting corporate information at all times. Our product
portfolios are Security, IT Operations Management, Application
Delivery Management, Information Management & Governance and
Application Modernisation & Connectivity. For more information,
visit: www.microfocus.com
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END
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