Micro Focus Group Plc has announced mid-term pre-tax profits of UKP7m, up 190% on the same period last year on revenue of UKP23m, up 57% on last time. Revenue from the direct sales packaged product business significantly exceeded plan and sales momentum and growth of orders is reported to be increasing; OEM business accelerated in the first half so that much of the planned profit contribution from this business for the year has already been made – but it was the OEM side that caused all the company’s mid-decade woes when a small army of personal computer manufacturers went bust owing Micro Focus substantial sums for Cobol. Micro Focus continued to generate cash – mainly in US dollars – and completed the half year with a net cash position of UKP14.9m, $27.7m – an increase of UKP1.4m, $5m. The relatively smaller increase, when expressed in sterling, arises from most of the group’s cash being generated in US dollars – the sterling-dollar rate has swung from $1.68 to $1.86 between the two balance sheet dates. The cash was generated while paying out UKP900,000, $1.7m on capital equipment, and taking on an extra 43 staff as planned. The group has no plans for this cash other than leaving it to grow interest. The direct business, representing 63% of sales, continued to grow and increase its profitability. Micro Focus feels that it is becoming increasingly familiar to both large corporate users and to independent software vendors in all its areas of operation. In its OEM business, which represented 30% of revenue, Micro Focus claims that most computer manufacturers now have contracts for Cobol/2. The board said that this, as well as uncertainty in the commercial market for Unix as the various interest groups sort themselves out, has contributed to a pause in new orders in the first half. Plans are said to be well underway for the introduction of complementary programming tools for use with the Cobol/2 compiler on most of its OEM customers’ machines and these should have a positive effect on its OEM busines in all territories in the second half. Micro Focus’s majority owned services subsidiary, Softwright Systems Ltd, which represented 7% of sales, has been suffering a difficult market along with other software houses. Its response has been to re-organise to focus on its main business activities, and to consolidate its four business units into a single location. In February, the group formed an executive committee chaired by founder Brian Reynolds, and including the presidents of operating divisions, to co-ordinate the direct and OEM businesses represented by the divisions and facilitate strategy for onward development of products and markets. Since July 31, the board has decided to simplify the organisation – the result being that the group’s two product divisions, Packaged Product Division and Computer Industry Division, now have a worldwide marketing mandate. Also in this time, Colin West, deputy chairman, has resigned from full time employment with Micro Focus, although he will continue to consult. No replacement is being sought and chairman Paul O’Grady will take on his responsibilities. The board is confident of prospects, saying that direct sales business is well ahead of schedule, now twice the size of the OEM business and not as susceptible to computer industry recession. In the second half the group plans to replenish OEM contracts, but says that this involves a risk should there be a further downturn. If the dollar continues weak, this will adversely affect profits and cash balances for the second half when expressed in sterling. The services business is expected to continue to face tough trading conditions in the UK for the next six months and continue at a breakeven level. The group is confident, however, that it will meet the financial goals it set for the year. Micro Focus has no plans for a flotation in the US yet, but acknowledges the importance of the US, which generates 50% of its revenue and where it feels that it is better understood than in the UK.
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