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Wednesday 22 June 2022

Micro Focus H1: strategic progress but financials still catching up

Micro Focus logoMicro Focus had three strategic objectives at the start of H1: its transition to a product centric business to better define and focus on the right market opportunities, delivering the offerings customers need to innovate suitably packaged and with the right consumption models (including SaaS), and capturing the efficiencies enabled by its enterprise-wide platform. As it reported for the period to 30 April 2022 there was progress on objectives although it was taking time to show in terms of overall financial performance, contributing to a double digit fall in the share price when trading started.

Summing H1 up, CEO Stephen Murdoch commented that the company had “improved free cash flow, reduced leverage, and made progress against the strategic objectives” and did so “against an increasingly volatile market backdrop with customer demand to date remaining robust, demonstrating the mission critical nature of our solutions." 

The company reported revenue of $1.3bn, a 6.8% decline on a cc basis, excluding the Digital Safe sale, and an 11.0% decline on a reported basis (including Digital Safe). Adjusted EBITDA was $449m vs. $510.7m reflecting the reduction in revenue, partially offset by a cost reduction programme. At $35m, operating profit moved into positive territory aided by profits from the Digital Safe disposal, and cash generation increased to $485m from $468m.

There were positives in terms of operational progress, from stabilised or improved customer attrition rates across a number of key portfolios, to continued strong growth in mainframe modernisation which should be further boosted following the launch this month of the AWS offering. CyberRes has already established itself as high performing segment, and its capabilities were extended with the acquisition of Debricked which operates in a business critical area – helping organisations secure their software supply chain. 

There were also continued improvements across all product portfolios as Micro Focus released major product launches, including new SaaS offerings. Reassuringly, SaaS revenue increased 8.7% and Micro Focus now expects it to accelerate to double digit growth over the medium term. Volatility was evident in some areas - licence sales were disappointing for example. One of the challenges is that Micro Focus’ growth portfolios are not able scale to fully offset the volatility of its more mature portfolios. Work to correct this continues. As we’ve noted previously, Micro Focus is at a point of inflection but has made progress in terms of direction and imperatives (see here).

Posted by: Angela Eager at 09:52

Tags: results   software  

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