Micro Focus reinstates dividend on strong cash generation

British software firm Micro Focus International has reinstated its dividend, despite a near $3bn impairment charge pushing it deep into the red.

The firm, which is one year into a three-year turnaround plan, said revenues from continuing operations in the year to 31 October 2020 were $3.0bn, a 10.4% decline on the previous year. However, the rate of decline moderated through the year, from 11% in the first half to 9% in the second.

Adjusted core earnings were $1.2bn compared to $1.4bn a year previously. Micro Focus said the margin of 39.1% was towards the upper end of expectations.

But the operating loss came in at $2.66bn, a 1,300% plunge on 2019’s profit of $221.7m, following a $2.8bn goodwill impairment charge.

Micro Focus said the one-off charge related to "changes in the group’s trading performance and overall environment when compared to the original projections production at the time of the HPE Software acquisition". It sad this impairment charge does not impact the group’s cash generation in the period, which has remained strong.

Cash generated from operating activities was $1.1bn, in line with 2019’s figure.

Micro Focus said: "Given the group’s continued the strong cash performance, the board has elected to reinstate the dividend and recommend a final dividend of 15.5 cents per share." No final dividend was paid in 2019.

Stephen Murdoch, chief executive, said: "We are now 12 months into our three-year turnaround plan and while there remains a great deal to do, we have made solid progress in delivery of our key strategic objectives and improvements in operational effectiveness."

Looking ahead, he added: "The majority of our revenues are contracted and recurring in nature, and management is targeting initiatives to increase this mix. The resilience this high level of recurring revenue affords can be seen in the company’s ability to generate cash and manage costs as required, even within a challenging macro environment.

"The second half of the 2020 full year saw a sequential improvement in revenue performance, and we have continued this momentum into the first quarter of the 2021 full year."