Euro instability hits Micro Focus but profits hold

WEAKNESS in Spain, Italy and Japan put a dent in global IT firm Micro Focus in the first half of its financial year, although performance was not as bad as expected, with higher-margin contracts boosting the company.

Micro Focus, which provides mainframe software for most of the FTSE 100, saw a 5.4 per cent year-on-year sales decline in the six months to the end of October, posting revenues of $207.3m (£128.7m) yesterday. Chief executive Kevin Loosemore attributed the drop to “weak demand in southern Europe... and a softening of business in Japan”.

The environment in Spain and Italy has hit many of the UK’s software institutions in recent months, but there was reason for investors to cheer Micro Focus yesterday.

The FTSE 250 firm’s pre-tax profits rose slightly to $76.4m, better than industry forecasts, as its high-margin maintenance contracts remained steady even as less lucrative consultancy deals saw a significant decline. “We plan to take advantage of this and to accelerate changes in our go to market model in the second half of the year,” Loosemore said. “We expect this to position us more strongly going forward.”

The company, which has long been hailed as a cash cow for investors, increased its interim dividend by 45 per cent to 11.9 cents.

“We believe that further gains are not out of the question given the sharp focus on sales productivity,” Canaccord’s Jonathan Imlah said.