Micro Focus International plc Trading Update and Management Change (0714I)

TIDMMCRO

RNS Number : 0714I

Micro Focus International plc

19 March 2018

19 March 2018

Micro Focus International plc

Trading Update and Management Change

The Board of Micro Focus International plc ("Micro Focus" or "the Group", LSE: MCRO.L, NYSE: MFGP), the international software product group, is today issuing a trading update for the twelve months ending 31 October 2018.

Since the interim results on 8 January 2018, the rate of year-on-year revenue decline has been greater than anticipated and accordingly the Group is issuing revised constant currency revenue guidance for the twelve months ending 31 October 2018 of minus 6% to minus 9% compared to the proforma 12 months ending 31 October 2017. This updates revenue guidance of minus 2% to minus 4% provided at the interim results on 8 January 2018. The impact of this on adjusted EBITDA margin percentage for the period is expected to be mitigated by the progress made in the cost reduction programme which is currently tracking ahead of schedule. The Board expects for the Group's net debt position at 31 October 2018 to be broadly in line with market expectations.

Chris Hsu has submitted his resignation in order to spend more time with his family and pursue another opportunity. He will step down immediately as the CEO of the company. Stephen Murdoch, currently Micro Focus COO, becomes CEO and rejoins the Board with immediate effect.

The recent revenue performance is primarily due to lower than expected licence income and is a result of a number of factors, which management believe to be largely one-off transitional effects of the combination with HPE software, rather than underlying issues with the end market or the product portfolios. These factors include:

1. Issues relating to our new IT system implementation, which have impacted the efficiency of our sales teams, our ability to transact with partners and our cash collection;

   2.   Higher attrition of sales personnel due to both integration and system related issues; 

3. Disruption of ex Hewlett Packard Enterprise global customer accounts as a result of the demerger of Hewlett Packard Enterprise; and

   4.   Continued sales execution issues particularly in North America. 

Management has identified additional actions to address each of these points, including further investment in additional field sales reps, a renewed focus on top global accounts, and continuing to strengthen the sales management team in North America.

The impact of the system issues is now under better control as we are seeing improvements in stability, throughput and accuracy. The November 2018 timing of the second phase (of moving heritage Micro Focus systems to the new IT system) is under review.

As a consequence of the factors set out above, for the six-month period ending 30 April 2018 the Group expects revenues to decline on a constant currency basis at minus 9% to minus 12% compared with the proforma comparable prior period and DSOs to remain at a temporarily elevated level.

As a result of better progress on the cost reduction program than anticipated, management believe that, at the midpoint of the revenue guidance range, the cost reductions will enable the company to achieve Adjusted EBITDA margin percentage of approximately 37% in the 12 months to 31 October 2018

Despite the integration challenges, the Board believes that the fundamental thesis of the HPE software acquisition remains intact. Micro Focus' strategy, dividend policy, leverage target, and Return of Value approach remain unchanged.

Kevin Loosemore, Executive Chairman of Micro Focus International commented: "We remain confident in Micro Focus' strategy whilst recognising that operational issues have led to a disappointing short term performance and outlook. We believe that Micro Focus is well positioned to help our customers with the increasing pace of change across their Hybrid IT environments and to deliver customer centred innovation."

"I would like to thank Chris Hsu for his leadership, tireless energy and enthusiasm over the past 15 months and wish him well in his new venture. Chris was instrumental in achieving the carve out of the HPE Software business in order that it be merged with Micro Focus. He has led a repositioning of the HPE Software portfolio to the needs of today's market and put in place a plan to increase our effective product investment as we integrate the companies. I look forward to working with Stephen to address the current performance issues and fulfil Micro Focus' potential."

An analyst conference call will be at 8.30am this morning. Details are as follows:

 
 UK Toll-Free Number       0808 109 0700 
 Standard International 
  Access                   [phone] 
 
 Password:                 Micro Focus 
 

Enquiries:

   Micro Focus                                                        Tel: [phone] 

Kevin Loosemore, Executive Chairman

Stephen Murdoch, CEO

Tim Brill, IR Director

   Powerscourt                                                      Tel: [phone] 

Victoria Palmer-Moore

Elly Williamson

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 organizations 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 Micro Focus (which included HPE Software from completion) and SUSE. Within Micro Focus our solution portfolios are COBOL Development and Mainframe Solutions, Host Connectivity, Identity and Access Security, IT Development and Operations Management Tools, and Collaboration and Networking. Within HPE Software our solution portfolios are IT Operation Management, Application Delivery Management, Enterprise Security Product, Platform, and Information Management Business. With effect from 1 November 2017 the Micro Focus solution portfolios are Security, IT Operations Management, Application Delivery Management, Information Management & Governance and Application Modernization & Connectivity. For more information, visit: www.microfocus.com. SUSE, a pioneer in Open Source software, provides reliable, interoperable Linux, Software Defined Infrastructure and Application Delivery platforms that give customers greater control and flexibility while reducing cost. For more information, visit: www.suse.com.

This information is provided by RNS

The company news service from the London Stock Exchange

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March 19, 2018 03:01 ET (07:01 GMT)