Micro Focus increases its 2018 interim dividend by 16.4%

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Micro Focus increases its 2018 interim dividend by 16.4%

Micro Focus International 2018 interim results

Key highlights

Completion of the HPE Software acquisition took place on 1 September 2017. American Depositary Shares representing 222,166,897 new ordinary shares were issued to HPE Shareholders, representing 50.1% of the fully diluted share capital of the Company at completion.

Reported revenue growth of $549.8m (80.3%) driven by:

o Acquisition of HPE Software contributed $569.8m;

o SUSE Product Portfolio where reported revenues grew by 11.5% and CCY revenues grew in line with the market for Infrastructure Linux;

o Offset by anticipated declines in the existing Micro Focus Product Portfolio which declined by 6.9%.

On a CCY basis:

o Total revenues of $1,234.5m (2016: CCY $683.0m), an increase of 80.7%.

o Adjusted EBITDA increased by 67.7% to $530.1m (2016: CCY $316.1m).

Adjusted EBITDA margins decreased to 42.9% (2016: CCY 46.3%), reflecting the lower margins in the HPE Software business.

Exceptional costs incurred in the period of $104.3m (2016: $41.0m) relate to integration costs, acquisition costs, pre-acquisition costs, property costs, severance and legal costs and net finance costs.

Guidance for medium-term Adjusted Effective Tax Rate ("Adjusted ETR") revised to 25% from the previous guidance of 33%. Cash tax rate expected to be broadly in line with Adjusted Effective Tax Rate from FY20. Cash tax rate for FY18 and FY19 expected to be approximately 15%.

Net debt and cash generation in the period:

o Cash generated from operations was $267.2m (2016: $201.9m) representing a cash conversion ratio of 61.9% (2016: 72.3%) of Adjusted EBITDA less exceptional costs. Impacted by the expected seasonal year-end increase in working capital balances ($253.0m versus $110.8m) due to timing of completion of HPE Software merger.

o Net debt* at 31 October 2017 was $4,151.7m (30 April 2017: $1,410.6m) increasing due to the acquisition of HPE Software with acquired bank borrowings of $2,600.0m, finance lease obligations and external debt drawn down.

o Adjusted net debt of $4,409.7m (30 April 2017: $1,410.6m) taking account of net closing balance sheet adjustments payable to HPE.

o Free cash flow in the period of $28.5m (2016: $111.0m).

o Adjusted Net debt to pro-forma Adjusted EBITDA for the 12-month period to 31 October 2017 is a multiple of 3.1 times; medium term target remains 2.7 times.

Growth in Adjusted Diluted EPS of 16.4% to 103.87 cents (2016: 89.20 cents) and 9.1% decrease in Diluted EPS to 34.64 cents (2016: 38.12 cents).

Interim dividend increased by 16.4% to 34.60 cents per share (2016: 29.73 cents per share) in line with dividend policy of full year dividend being twice covered by adjusted earnings.

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