Micro Focus ups divi but is cautious on revenue growth

Legacy software specialist Micro Software delivered full year results in line with guidance, with licence fee growth offsetting a foreseen decline in maintenance revenues.

Revenue in the year to the end of April was virtually unchanged at $434.8m from $436.1m a year earlier. Currency movements helped here, as last year's revenue would have been $442.5m on a constant currency (CC) basis.

Also on a CC basis, licence revenues rose 5.3% to $176.6m from $167.7m the year before, but maintenance revenue eased 3.1% to $230.9m from $238.2m a year earlier and this trend is expected to continue in the current year; consulting revenue tumbled by 25.4% to $27.3m from $36.6m, but this division has returned to profitability, the company said.

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Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose 13.3% to $179.8m from $158.7m the year before, or $161.0m on a CC basis.

Panmure Gordon, a long time fan of the stock, had forecast revenue of $435m and EBITDA of $176.7m.

Profit before tax rose 30.4%, or 27.2% on a CC basis, to $149.3m from $114.5m a year earlier.

Adjusted diluted earnings per share (EPS) jumped 32.3% from 53.81 cents last year to 71.22 cents this, paving the way for a 44.4% increase in the final dividend to 23.4 cents from 16.2 cents the previous year. That takes the full year divi up to 31.6 cents, up 35% from the previous year's pay-out of 23.4 cents. The board now intends to pay out half of pre-exceptional post-tax earnings in dividends.

Net debt at the end of the reporting period had shot up to $113.2m from $12.7m at the end of April 2011, following $253.1m of cash outflows (2011: $92.3m) relating to the share buy-back programme of $62.5m (2011: $42m), purchase of head office $14.7m, payment of dividends of $46.3m (2011: $50.3m) and the company's 45p a share "return of value" to shareholders which cost the company $129.6m.

The ratio of net debt to adjusted EBITDA rose to 0.6 from 0.1 the year before. The board is targeting a net debt to adjusted EBITDA multiple of about 1.5 times and expects to reach that level in the course of the next 24 months.

"This is a modest level of gearing for a company with the cash generating qualities of Micro Focus and will provide options to give further returns to shareholders. We are confident that this level of debt will not reduce our ability to deliver growth, invest in products and / or make appropriate acquisitions," said Kevin Loosemore, Executive Chairman of Micro Focus.

Loosemore sounded pleased to have seen the back of the financial year just ended, a period which saw what he termed "opportunistic approaches" from private equity groups and the group's Chief Executive, Nigel Clifford, abandon ship after just 11 months in charge.

Having issued a profit warning the year before, fiscal 2011/12 was one of stabilisation for the group, Loosemore said. Looking to the current year, Loosemore said: "Our strategy (and pure mathematics) dictates that we will see some decline in maintenance and consultancy revenues and a decline in niche revenues in the year. These will be offset to some extent by growth in licence revenues."

"In addition we expect to see continued uncertainty in the Eurozone. As a result we anticipate that our overall revenues will be in the range of +1% to -3% on those reported in the year ended 30 April 2012 on a CC basis. We anticipate that the quality of revenue will improve year on year and the group will exit the year positioned for growth in the year ending 30 April 2014," Loosemore added.

JH