Micro Focus International plc Interim Results for the Half Year to 31 October 2006

Business Wire, Dec 11, 2006

Solid Operational Progress with Increase in Profitability

LONDON -- Micro Focus International plc ("Micro Focus", "the Company" or "the Group", LSE: MCRO) announces interim results for the half year to 31 October 2006.

Key financial highlights

* Turnover up 8% to US$79.0m (2005: US$72.9m)

* Operating profit before exceptional items* up 55% to US$30.4m (2005: US$19.6m)

* EBITDA** before exceptional items* up 53% to US$31.3m (2005: US$20.5m)

* Profit before tax up 143% to US$31.4m (2005: US$12.9m)

* Basic earnings per share 12.03 cents (2005: 4.66 cents)

* Net cash balance as at 31 October 2006, US$68.1m (31 October 2005: US$38.6m)

* Interim dividend increased 50% to 3 cents per share (2005: 2 cents per share)

* Operating profit US$30.0m (2005: US$13.7m)

* EBITDA** US$30.9m (2005: US$14.6m)

* Exceptional items are detailed in note 5












** EBITDA is reconciled to operating profit in note 5












*** Earnings per share are detailed in note 4
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Online video interviews with Chief Executive Stephen Kelly and Chief Financial Officer Nick Bray can be viewed free at www.microfocus.com and www.cantos.com.

About Micro Focus

Micro Focus provides innovative software that helps companies to dramatically improve the business value of their enterprise applications. Micro Focus Enterprise Application Modernisation software enables customers' business applications to respond rapidly to market changes and embrace modern architectures with reduced cost and risk.

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Chief Financial Officer's review

Turnover for the half year ended 31 October 2006 increased to US$79.0m (2005: US$72.9m).

Turnover for the half year by geographic region was as follows:

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Whilst revenue growth was achieved across all areas, as compared to the prior half year period to 31 October 2005, growth was primarily driven from our European operations, notably our smaller territories in Benelux, France and Italy along with our distributor channel. Our UK and North America operations produced results below the performance levels expected from geographic territories with such a high concentration of resource, existing customers and market potential. However, it should be noted that during the six month period to 31 October 2005, the North American operation closed a license fee deal for US$3.0m.

Similarly, it is encouraging to see the improvement in our Rest of the World operations, highlighted by a weak third quarter in the prior year to 30 April 2006.

Turnover for the half year by category was as follows:

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It can be seen that the increase in total revenues for the half year related to the improvement in both licence and maintenance revenues. Licence fees increased by US$2.5m or 7.1% to US$37.7m for the half year ended 31 October 2006 (2005: US$35.2m). Encouragingly, the growth in licence fee revenues was achieved by an increased volume of lower value orders. A number of large contracts remain in our pipeline although by their very nature, they are unpredictable

Maintenance revenues increased by US$3.7m or 10.5% to US$39.1m for the half year ended 31 October 2006 (2005: US$35.4m).

Maintenance revenues are recognised evenly over the life of each contract, which is typically twelve months. As such, the profit and loss recognition of maintenance revenue lags the initial licence fee sale. Thus, it was encouraging to see the increase in maintenance revenues following the disappointing licence fee performance in the second half of the year to 30 April 2006. Whilst the solid first half year of licence fees is encouraging, the major factors driving growth in the six months to 31 October 2006 are as follows:

* An improvement in the renewal rate of existing customers.

* Modest annual price increases to existing customers.

* A focus on closing "contracts in negotiation" and the introduction of an automatic renewal process for our customers.

Consulting revenues showed a modest decline against the comparative first half year but represent only a minor proportion of total revenues.

Costs

It has been pleasing to see the reduction in costs following the restructuring of the business announced on 6 April 2006. A firm control of expenses has been established and will be maintained on an ongoing basis. The cost reduction programme was designed to improve overall returns while maintaining the fabric of the business.

Cost of sales for the half year ended 31 October 2006 reduced by 12.9% to US$8.1m (2005: US$9.3m). The costs in this category predominantly relate to our consulting and helpline support operations. Costs within the consulting organisation have been reduced and its performance has improved substantially.

Selling and distribution costs reduced to $19.9m for the half year ended 31 October 2006 (2005: US$24.4m). Headcount levels are broadly consistent year on year and the reduction reflects lower travel and entertainment, marketing expense and commission payments.

Research and development expenses for the half year were broadly consistent at US$10.8m (2005: US$11.2m).