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Micro Focus International plc

Micro Focus International plc Solid financial performance with pro-forma Adjusted EBITDA increasing by 9.2%

Micro Focus International plc (LON: MCRO, NYSE: MFGP), the international software product group, announced unaudited preliminary results for the 18 months ended 31 October 2018.

In order to align financial periods following the acquisition of the HPE Software business effective 1 September 2017, the Group changed its year end to 31 October 2018 resulting in an 18 month period of account. Accordingly the results on a statutory basis are for the 18 month period ended 31 October 2018 with the comparable period being the 12 months to 30 April 2017. SUSE is treated as a discontinued operation in both periods for statutory reporting purposes. To aid understanding, results for the Group are also shown on a pro-forma basis. The pro-forma* results include the discontinued SUSE business and 12 months of results for the acquired HPE Software business in both the 12 months ended 31 October 2018 and 2017.

Key highlights:

·      Group pro-forma revenue* decline of (5.3)% for the 12 months ended 31 October 2018, versus guidance of (6)% to (9)%.

·      Group pro-forma Adjusted EBITDA* increased by 9.2% for the 12 months ended 31 October 2018 with an expansion in Adjusted EBITDA margin of 4.6 percentage points to 37.7%.

·      Statutory revenue of $4,754.4m for the 18 months ended 31 October 2018 (12 months ended 30 April 2017: $1,077.3m).

·      Profit before tax of $34.1m for 18 months ended 31 October 2018 (12 months ended 30 April 2017: $131.5m).

·      Micro Focus Product Portfolio (“MFPP”) (i.e. excluding SUSE) revenue decline for the 12 months ended 31 October 2018 of 7.1% on a pro-forma constant currency basis to $3,684.3m, with Adjusted EBITDA of $1,413.6m at a margin of 38.4%.

·      Strong free cash flow* of $789.7m in the 18 months ended 31 October 2018, of which $755.4m was generated in the 12 months to 31 October 2018.

·      Net debt* of $4,253.5m at 31 October 2018, 2.8 times pro-forma Adjusted EBITDA*.

·      $2.535bn SUSE disposal scheduled to complete in first calendar quarter of 2019; net sale proceeds to be returned to shareholders, after tax, transaction costs and any required debt repayment.

·      At the date of announcement, the Group has completed the current $400m share buy-back programme, which today is extended by up to $110m.

·      Third and final dividend per share of 58.33c for the 18 month accounting period (total dividend per share of 151.26 cents), equivalent to an annualised 100.84 cents (12 months ended 30 April 2017: 88.06 cents), an increase of 14.5%.   

Pro-forma
12 months
ended
31 October 2018
(unaudited)

Pro-forma
12 months
ended
31 October 2017
(unaudited)

Total Group (including SUSE)

Revenue (constant currency)

$4,058.0m

$4,286.8m

(5.3)%

Revenue (actual FX rates)

$4,058.0m

$4,226.7m

(4.0)%

Adjusted EBITDA (actual FX rates)

$1,529.6m

$1,401.1m

9.2%

Adjusted EBITDA* margin (actual FX rates)

37.7%

33.1%

+4.6 ppt

Micro Focus Product portfolio (continuing operations)

Revenue (constant currency)

$3,684.3m

$3,964.1m

(7.1)%

Revenue (actual FX rates)

$3,684.3m

$3,906.5m

(5.7)%

Adjusted EBITDA* (actual FX rates)

$1,413.6m

$1,301.1m

8.6%

Adjusted EBITDA* margin (actual FX rates)

38.4%

33.3%

+5.1 ppt

Statutory results

18 months
ended
31 October 2018
(unaudited)

12 months
ended
31 October 2018
(unaudited)

12 months
ended
30 April 2017
(audited)

Revenue

$4,754.4m

$3,684.3m

$1,077.3m

Operating profit

$376.8m

$190.4m

$227.4m

Profit/(Loss) before tax

$34.1m

$(78.5)m

$131.5m

Profit for the period

$784.1m

$677.5m

$157.8m

Total Group Earnings per share (“EPS”):

–       Basic EPS

201.70 cents

155.77 cents

68.88 cents

–       Diluted EPS

196.17 cents

151.33 cents

66.51 cents

 

18 Months
ended
31 October 2018
(unaudited)

12 Months
ended
31 October 2018
(unaudited)

12 months
ended
30 April 2017
(audited)

Earnings per share (“EPS”)

–       Adjusted Basic EPS*

318.93 cents

  211.66 cents

  181.91 cents

–       Adjusted Diluted EPS*

310.19 cents

205.65 cents

175.65 cents

Net Debt*

$(4,253.5)m

$(4,253.5)m

$(1,410.6)m

Net Debt / Adjusted EBITDA ratio*

2.8x

2.2x

Dividend per share

151.26 cents

100.84 cents **

88.06 cents

 

* The definition and reconciliations of Adjusted EBITDA, Adjusted Basic EPS, Adjusted Diluted EPS, Net Debt, Free Cash Flow, Constant Currency (“CCY”) and Pro-forma are in the “Alternative Performance Measures” section of these financial statements.

** 18 month dividend annualised

Stephen Murdoch, Chief Executive Officer Micro Focus, commented:

“We report a solid financial performance for our year ended 31 October 2018 with pro-forma Adjusted EBITDA increasing by 9.2% to $1.5bn and a slowing of pro forma constant currency revenue decline to 5.3% compared to guidance of a decline of between 6% and 9%.

The Micro Focus operating model delivers substantial cash returns to shareholders. In the last 18 months, total dividends per share were 151.26 cents in addition to $400m of share buy-backs. We also intend to return to shareholders the net proceeds from the sale of SUSE after tax, transaction costs and any required debt repayment.

Looking forward, we expect further moderation of revenue decline and consequently we are guiding constant currency revenue for the continuing MFPP business for the 12 months to 31 October 2019 to be between minus 4% to minus 6% compared to a decline of 7.1% for the 12 months ending 31 October 2018. We continue to target a Net Debt to Adjusted EBITDA multiple of 2.7 times and maintain a dividend policy that is twice covered by adjusted earnings.

I am pleased with the financial and operational progress we have made over recent months as we continue to build a more dynamic environment where execution is faster, operations simpler and people more accountable, all of which is focused on delivering value to customers and shareholders for the long-term.”