Mergers and acquisitions help boost Micro Focus earnings

Software product group Micro Focus International announced its unaudited interim results for the six months to 31 October on Wednesday, with revenues of $684.7m, 14.2% higher than the prior year's constant currency figures.

The FTSE 100 firm said underlying adjusted EBITDA was $320.3m, 20.9% higher at constant currencies, and adjusted diluted earnings per share increased by 20.5% to 89.20 cents.

Pro-forma constant currency revenues increased 1.2% to $684.7m in the period, slightly ahead of the guidance range for the full year.

The board confirmed that the acquisition of Serena Group completed on 2 May, and so trading results of Serena were included in the interim figures.

It also noted that in September it announced it had agreed with Hewlett Packard Enterprises to merge with the software business assets of by way of merger.

The transaction is expected to complete in the third quarter of the calendar year 2017, though exceptional pre-acquisition costs were incurred in the period and further exceptional costs will be incurred for the remainder of the FY17 and to completion in FY18.

Cash generated from operations was $201.9m, up from $162.7m, and represented 69.3% of adjusted EBITDA less exceptional costs.

Net debt at 31 October was $1,612.6m, wider than the $1,078.0m figure at the end of April but down from $1,625.0m following the completion of the Serena acquisition on 2 May.

Free cash flow during the period was $111.0m, up from $40.3m, and net debt to facility EBITDA for the 12 month period to 31 October was a multiple of 2.6 times, decreasing to 2.4 times on a pro-forma basis including the acquisition of Serena.

The board’s medium term target remained 2.5 times.

It proposed an interim dividend increase of 75.5% to 29.73 cents per share, up from 16.94 cents per share last year, in line with its dividend policy of the full year dividend being twice covered by adjusted earnings.

"The board is delighted with our progress,” said executive chairman Kevin Loosemore.

“Our focus on delivering to our customers by making detailed product by product decisions and investments has resulted in the business achieving modest like-for-like revenue growth.

“Our investments have resulted in strong growth in SUSE and a reduced rate of decline in the Micro Focus portfolio.”

Loosemore said while it was a good start to the year and the firm completed two acquisitions, the board was maintaining its revenue guidance for FY17 being in the range minus 2% to zero% on FY16 on a CCY basis, pro-forma for the acquisition of Serena.

“Mergers and acquisitions continue to be a key component of our strategy.

“The key strategic announcement in the period was the HPE Software transaction which is on target to complete in the third quarter of calendar year 2017.”

He described that as a complex transaction that will transform the group in a similar way to the Attachmate transaction in 2014, while providing the opportunity for enhanced shareholder returns over the medium-term.

“The acquisition of Serena completed at the beginning of the period together with a number of small acquisitions across the business comprising GWAVA, openATTIC on 1 November and the OpenStack IaaS and Cloud Foundry Paas talent and technology assets from HPE which was announced on 30 November and is currently expected to close in the first quarter of calendar year 2017.

“We are delighted to announce that our interim dividend is increasing to 29.73 cents from 16.94 cents in line with our twice covered dividend policy.”