Micro Focus's first half blemished by drop in licence revenue

LONDON (Reuters) - Britain's Micro Focus International MCRO.L reported a higher-than-expected 11% decline in licence revenue in its first half on Tuesday, overshadowing progress in squeezing more profit from the legacy software it provides to companies.

FILE PHOTO: Signs and flags are seen outside the offices of Micro Focus after they and Hewlett Packard Enterprise Co announced that Hewlett Packard Enterprise Co will spin off and merge its non-core software assets with Britain's Micro Focus International in a deal worth $8.8 billion, in Newbury, Britain, September 8, 2016. REUTERS/Eddie Keogh

The company reported a 5.3% fall in revenue to $1.657 billion (£1.32 billion), which it said was in line with its expectations, and reiterated its guidance for revenue to decline by between 4% and 6% for the year.

Shares in the group, which have risen 50% since Jan. 1, were trading down 2.5% at 2,044 pence at 0732 GMT.

Analysts at Citi said the results were broadly in line with expectations, with weaker licensing offset by better underlying maintenance performance.

Micro Focus said the revenue decline in its security products was higher than expected because it had significant attrition in its sales force in the previous year and it had changed its product portfolio.

It said it had made improvements that would take time to flow through to its pipeline and revenue.

The company however said it had made steady progress on its financial targets, including improving its core earnings margin. It rose 2.8 percentage points in the period to 40%, resulting in a 1.8% rise in earnings to $662.3 million.

Micro Focus maintains and upgrades the legacy software systems that underpin big businesses like banks and airlines, with a focus on improving the profitability of long-term contracts rather than growing the top line.

Its track record in making acquisitions was blemished when it struggled to integrate $8.8 billion of assets bought from Hewlett-Packard in 2017.

Chief Executive Stephen Murdoch said the company had continued to make progress on integrating the HPE Software business in the period, and as a result could reiterate its full-year guidance.

Reporting by Paul Sandle; editing by Kate Holton and Jan Harvey