Micro Focus Preliminary 2020 Results Announced

Micro Focus International plc has announced its preliminary results for the year ended 31 October 2020 ("FY20").

In Summary:

· Micro Focus has completed the first year of a three-year turnaround plan and has made solid progress in the key objectives of evolving our business model and improving operational effectiveness.

· Revenue decline moderated during the year from 11% reported in the first half of the year to 9% in the second half, with revenues of $3.0bn, a decline of approximately 10% at both actual and constant exchange rates. This is in line with expectations and starting to reflect the progress in the turnaround plan

· Adjusted EBITDA1 of $1.2bn (FY19: $1.4bn) at an Adjusted EBITDA margin of 39.1% (FY19: 40.7%), towards the upper end of expectations, driven by tight operational cost control and several cost reduction programmes. These also contributed to the funding of planned investments in key opportunity areas.

· The Group has successfully completed the first stage of IT systems migration in January 2021 with a significant number of employees now operating on the new IT platform. The remaining teams will be transitioned later in FY21.

· The Group recorded an exceptional charge related to goodwill impairment of $2,799m in the period driven by changes in the Group's trading performance and overall environment when compared to the original projections produced at the time of the HPE Software acquisition. This impairment charge does not impact the Group's cash generation in the period which has remained strong.

· Cash generated from operating activities of $1.1bn in FY20 (FY19: $1.1bn).

· Adjusted cash conversion improvement of 17.3ppts to 112.6% in FY20 resulting in Free Cash Flow of $0.5bn (FY19 $0.6bn)

· Successful refinancing of $1.4bn Term Loan in May 2020 means the Group now has no term loan maturities until June 2024.

· Given the Group's continued strong cash performance, the Board has elected to reinstate the dividend and recommend a final dividend of 15.5 cents per share (FY19: nil).

You can read the full transcript of the results presentation hosted by CEO, Stephen Murdoch or you can watch the full webcast

A couple of highlights.

“In Security, we're pleased with progress made and the investments have progressed as planned. The delivery of innovation within the product portfolio has been strong, and customer engagement and market recognition of this are now improving. Operationally, there has been good progress in each sub-portfolio, maintenance revenue performance improved, and key SaaS offerings returned to growth in the second half of the year. We remain confident that this business will be a growth portfolio for the group within the next 18 months.

Finally IM&G. Key within this portfolio are the investments in Vertica and the repositioning of Digital Safe as a cloud-based solution. In Vertica, we've repositioned the portfolio to drive growth, specifically in SaaS and subscription. And the work in Digital Safe will complete this year such that we can reposition it for growth in the future.

In summary, good progress in Security and IM&G, consistency in AMC and work to do in both ITOM and ADM.”

Institutional investors and commentators seem pleased with the results, given confidence that Micro Focus is rebuilding and that the three year turn-around plan is on course. Consequently over the last few weeks the share price has recovered somewhat from the earlier nadir to now be around 500p per share. Still a long way back to the highs of 3 years ago.

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