UPDATE: Micro Focus Shares Drop 11% After CFO Quits

24th Jun 2010 09:07

(Re-writes, adds management and analyst comments.) By Lilly Vitorovich Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Micro Focus International PLC (MCRO.LN) shares dropped 12% Thursday following the surprise departure of Chief Financial Officer Nick Bray, who is in talks with several companies--including a strategic competitor to the U.K. software firm--and some disappointment over its cash conversion for the year. Bray's departure, just over a month after Nokia Corp. (NOK) executive Nigel Clifford took the helm as chief, spooked investors and overshadowed the group's solid full year results. Given the nature of the discussions with other parties, Bray offered his resignation as a director of the company, which the board has accepted with immediate effect. He will remain on gardening leave for an "appropriate period" as the board kicks off a search for his replacement, Micro Focus said in a statement. One of the new job opportunities could see Bray and his family move to the U.S., Chairman Kevin Loosemore told Dow Jones Newswires. Micro Focus will be looking externally for a replacement for Bray, who has been with the company for five years, and hopes to have someone in place by the end of the summer, he added. Micro Focus provides software and consultancy services to help clients update legacy IT platforms, a less costly solution than buying new systems, particularly for firms looking to cut costs during the economic downturn. The company bulked up its operations last year by buying U.S.-based Borland Corp. and Compuware Corp.'s (CPWR) testing and automated software quality business, giving the company a footprint in software testing. Piper Jaffray software analysts said the group's "poor cash conversion and CFO exit muddy the story." Stripping out exceptional items, Piper Jaffray estimate cash conversion of 65% for the year, compared with its normally near 100% run rate. At 0748 GMT, Micro Focus shares were down 62 pence, or 12%, at 466 pence, valuing the company at GBP954 million. It was the second biggest faller on the FTSE 250 index, which was down 0.8%. Clifford ruled out any changes to the group's strategy, instead he wants to ramp up its Migration and Modernization offering and Application Management operations. He also wants to improve several operational areas such as exploiting web channels and working more efficiently with partners including Accenture PLC (ACN) and Microsoft Corp. (MSFT) to drive growth. Earnings before interest, tax, depreciation and amortization before exceptional items and stock-based compensation--one of the key figures U.K. analysts track--rose 46% to $173.3 million for the year ended April 30, ahead of market expectations of $169.3 million, on a strong second-half performance and the contribution of acquisitions. That compares with $118.6 million over the same period a year earlier. Micro Focus, which generates around half of its revenue in the U.S., posted a 57% rise in annual revenue to $432.6 million, ahead of expectations of $429 million, helped by last year's two acquisitions. That compares with $274.7 million a year ago. Excluding acquisitions, annual revenue at constant currency--another figure closely watched by the market--was up 5% from a year ago. Net profit rose 21% to $74.4 million in fiscal 2010 from $61.5 million, driven by higher sales and a slightly lower tax bill. Micro Focus said current trading is in line with management expectations, and forecast mid-single digit organic revenue growth for fiscal 2011. It hopes to return to double digit organic revenue growth over the medium term, while maintaining adjusted Ebitda margins at approximately 40%. Micro Focus declared a final dividend of 16.2 cents a share, up 46% from 11.1 cents a year earlier. That take the total for fiscal 2010 to 21.8 cents, up 40% from 15.6 cents a year ago. -By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; [email protected] (END) Dow Jones Newswires June 24, 2010 04:07 ET (08:07 GMT)