Micro Focus reported losses of $2.9 billion for full-year 2020 on revenues of $3 billion — a 1,300% crash on 2019’s profit of $221.7 million amid a whopping $2.6 billion impairment– but the company traded higher today on improved free cash flow and as EPS beat estimates.
The UK-based software and IT management services firm continues to feel the pain of its misguided 2018 acquisition of HPE’s software business for $8.8 billion; writing off $2.8 billion in 2020 as an impairment charge “driven by changes in the Group’s trading performance and overall environment when compared to the original projections produced at the time of the HPE Software acquisition” it said in an earnings statement.
Overall revenues were down 10%. On a more positive note, the company reported “strong customer demand for mainframe application modernisation solutions” (one of its strong suits) but added that “timing of project initiation impacted performance”; no doubt as customers delayed such chunky projects amid a nearer-term focus on operational resilience in the wake of Covid-19s impact on digital-centric projects.
CEO Stephen Murdoch said: “We are now 12 months into our three-year turnaround plan and whilst there remains a great deal to do, we have made solid progress in delivery of our key strategic objectives.”
The assets acquired in 2018 came amid a major divestment programme by HP as it split into two, with the printer and PC business retaining the HP name and HPE left as a pure-play infrastructure hardware vendor.
A subsequent project to integrate the HPE assets resulted in severe acquisition indigestion, with Micro Focus still working to complete its more-expensive-than-planned migration to a common IT systems stack. That process cost it an exceptional charge of $184.5 million. The first stage of IT platform migration is now complete it said, with phase two of the migration due to complete later this calendar year. Micro Focus vowed on an earnings call to “restructure [its] approach to customer coverage and offering development”. It continues to be cash-generative, reporting $1.05 billion before working capital and reinstating its dividend as a result.