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“Solid performance” is a frequently occurring phrase in the current set of financial results and it duly cropped up in the interim results from Micro Focus. Describing last year as a period of stabilisation, chief executive Kevin Loosemore said the current year was all about channels to market, marketing effectiveness and sales execution. Its self-assessment is that some aspects of the business are working but there is “significant room for improvement”.
Areas of progress indicated in the pre-close update (see Micro Focus squeezing out EBITDA improvements) were confirmed for the six months to October 31. Although revenue was down 5.4% to $207.3m (or minus 2.1% constant currency), it was in line with market expectations and company guidance of -3% to +1%. License and maintenance revenue were the same as last year and again in line with market expectations, which indicates stability and something to grow from. Plans to reduce the low margin consultancy side of the business are running faster than expected. These changes, combined with ongoing cost management, resulted in PBT of $76.4m, a 0.8% improvement as reported but 2.6% up on a constant currency basis. Adjusted EBITDA was one of its strongest metrics as this was up 3.4% reported, 5.3% constant currency, and ahead of market expectations.
Where it did not do so well was sales productivity across all regions. It also needs to change the way it launches products. Performance in North America was poor (down 10% cc) as a result of changes to the operation, international was up 0.6% (cc), Asia-Pac grew 16% (cc), largely due to a one off deal.
Looking to H2, it expects maintenance revenues will be better than expected with the yoy decline closer to 1% than the original guidance of down 2.3, and adjusted EBITA to be better due to faster progress in taking down consultancy. Combined with economic headwinds the net result is that it expects H2 revenues to be similar to H1 and full year revenues to be down 2% to 4% instead of the previously expected +1% to -3% (cc). However, it is bumping underlying adjusted EBITDA up from 37% to 42%, to 40% to 45%.
The half time report card is that management does have a handle on the business but progress is slow – due to a combination of its own execution issues which it should be able to address and market headwinds that it cannot do anything about.
