# Micro Focus International expects revenues decline of 11% for H1

- Link: https://www.directorstalkinterviews.com/micro-focus-international-expects-revenues-decline-of-11-for-h1/412822807
- Published: 2020-05-19T07:26:47+01:00
- Author: Giles Arbor

**Micro Focus International plc** (LON: MCRO), the global enterprise software group,
today issued a brief trading update for the six months ended 30 April 2020.

Micro Focus expects to report revenue of approximately $1.45bn for the first half,
which represents a decline of approximately 11% on a constant currency basis when
compared to the six months ended 30 April 2019. 

This is consistent with the guidance given at the time of our preliminary results
on 4 February 2020, taking into account the expected disruption to new sales activity
which we highlighted in our COVID-19 update of 18 March 2020.  The Group identified
a slowdown in customer buying behaviour in April 2020 leading to the deferral of
some projects involving new licence and services revenues as well as delays to some
maintenance renewals. The identifiable impact of this is estimated to be at least
2% on revenues in the period.

The impact of this revenue reduction on Adjusted EBITDA (after IFRS 16)* has been
largely mitigated due to the close management of variable and discretionary costs
in addition to a reduction in certain costs as a direct result of COVID-19. As such,
our Adjusted EBITDA margin (after IFRS 16)* of approximately 38% in the period was
towards the upper end of our expectations.

Our cash flow performance was strong and underpinned by effective working capital
management. We ended the period with operating cash balances of $0.63 billion and
net debt (after IFRS 16)* of $4.31bn. The effective working capital management resulted
in adjusted cash conversion well in excess of 100% in the first half of the financial
period.  In addition to this operating cash the Group has drawn down $175 million
of our $500m revolving credit facility as a precautionary measure and placed this
in accessible money market facilities in order to further increase liquidity. In
total, the Group had $1.1 billion of available liquidity as at 30 April 2020.

Micro Focus delivers mission-critical enterprise software to over 40,000 customers.
The majority of our revenues are contractual and recurring in nature and the resilience
this affords can be seen in the company’s ability to generate cash and manage costs
to partly mitigate revenue weakness.

Despite this resilience, the ultimate impact on the global economy remains unknown,
as does the timing and extent to which that impact flows through into customer spending
plans on enterprise software. As a result and similar to many other listed companies,
it is not possible to provide reliable forward guidance in the current environment
and we are withdrawing formal revenue guidance for the current financial year. As
a minimum, we continue to believe it appropriate to be prepared for a level of disruption
to our new sales activity and timing pressure on renewals. As a consequence, we 
are currently evaluating the potential impact on the carrying value of the Group’s
intangible assets and goodwill at this point in time.

The company has reacted quickly to ensure a balanced approach to mitigating the 
immediate risks whilst continuing to make progress on the actions taken as a result
of the Strategic and Operational Review. As such, the investments outlined as part
of that review are broadly continuing as planned. Outside of these investments, 
mitigating actions including a hiring freeze in all but exceptional circumstances,
as well as reductions in all discretionary spending, are now in place. The Group
is prepared to implement further actions in reducing costs, in the event the pandemic
has a prolonged impact on trading performance.

Despite the current uncertainty, the Group’s diversified and recurring revenue base
and our highly cash generative business model represent solid foundations from which
to execute any additional actions required. Additionally, our business continuity
plans have been thoroughly tested and are proving robust.

We have more than 90% of our people working from home and supporting our customers
and partners effectively and we are proud of the commitment and determination of
our teams in making this transition as seamless as possible despite the challenges.
Our primary focus remains the health and safety of our employees and delivering 
for our customers and partners. 

We focus on helping customers navigate the need to build, operate, secure and analyse
the enterprise through the four core pillars of digital transformation: Enterprise
DevOps, Hybrid IT Management, Predictive Analytics and Security, Risk & Governance.
In helping customers to bridge the gap between existing and emerging technologies
our customers are able to balance the need to both run and transform their business
to deliver innovation faster with less risk. 

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.

*Adjusted EBITDA and Net debt are stated after the impact of IFRS 16 which has been
newly adopted from 1 November 2019. As disclosed in our FY19 annual report and accounts,
we currently estimate that IFRS 16 will increase Adjusted EBITDA by between $70.0m
and $80.0m for the 12 months ending 31 October 2020 and net debt by approximately
$240m at 30 April 2020.

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