In an update ahead of its half year results, UK based IT company Micro Focus International plc (LSE: MCRO) upped its full year profit guidance considerably this morning, following a ‘strong close’ to the first half of the financial year. The revise guidance anticipates total revenues of approximately $195 million compared to the previous year’s revenues of $135.6 million.
As a result group earnings are expected to be ahead of previous expectations at approximately $75m representing a margin of approximately 38%.
Micro Focus is currently integrating its businesses following a fairly intense period of consolidation in which it has acquired several companies. During the previous financial year Micro Focus acquired NetManage, Liant and Relativity, in the current financial year the company also made two further acquisitions adding Borland Software Corporation and the Compuware Testing/ASQ business.
In today’s pre-close statement, Micro Focus said “first half revenue growth in the group’s base business was approximately 9%, as compared to the same period last year”. The ‘base business’ includes 2008/09 acquisitions but not the more recent 2009/10 additions, furthermore Micro Focus expects to report directly comparable revenue growth in the region of 5%.
According to Micro Focus, the Borland and Compuware acquisitions have been “integrated rapidly as planned and performed ahead of expectations”. The company stated that twelve month run rate revenue contributions for the two businesses is now expected to be ahead of previous guidance by approximately $10m, at $160m.
The group also materially updated the combined EBITDA margin expectations for these acquired businesses, anticipating 30% for the first full year of ownership compared to previous guidance of 15%. This is as a result of improved revenue expectations and larger and accelerated reductions in cost.
Additionally Micro Focus said that cash generation remains strong and net debt reduction is ahead of schedule with a US$16m repayment in October. Net debt at the end of the first half was approximately US$104m.
Micro Focus non-executive chairman, Kevin Loosemore commented: "Micro Focus has delivered continued growth in its business over the first half year with a strong progression in the second quarter performance, as compared to the first quarter of the year. In addition, the Borland and Compuware integrations are ahead of schedule ... We are encouraged by the continued margin progression and, in particular, relating to the recent acquisitions. We enter the second half confident in the Group's ability to deliver superior shareholder returns."
Primarily the company updates legacy software for customers such as Tesco and other blue-chip companies.