Micro Focus To Return £83m To Shareholders

Published in Company Comment on 16 August 2012

The company's transition is progressing as expected.

Micro Focus (LSE: MCRO) announced the return of £83 million, or 50p per share, to shareholders in this morning's interim management statement. Additionally, the company reported revenue and profitability was in line with expectations as the company continues reshaping its operating model.

Despite a tough comparison quarter last year due to a large one-time contract, Micro Focus's management maintains its guidance for revenue this year to be relatively flat (+1% to -3%) from last year after backing out currency movements. Earnings before interest, taxes and depreciation and amortisation (EBITDA) margin guidance was also maintained at 37%-42%.

Micro Focus continues to transition its business to a more focused and profitable one, but that means short-term revenue stagnation as contracts that supported revenue but not profits are cut. Last year the company reported a rebound in license sales -- its main source of profits -- and enhancements to its product offerings. However, these improvements aren't expected to show up until the latter part of this fiscal year at the earliest, so shareholders will have to wait to see evidence that the new plan is working.

Complicated cash return

Until then, management is keeping the shareholder base happy with capital returns.

Similar to a transaction the company did earlier this year, it plans to return 50p per share to shareholders through a relatively complicated B/C share scheme. Essentially, shareholders decide whether they'd like to receive payment in the form of dividend (C shares) or share buyback (B shares). Then these non-tradable shares are issued and instantaneously redeemed. Then the outstanding tradable shares will be subject to a split, which reduces their number so as to leave the share price relatively unaffected.

A lot of moving parts, but in the end Micro Focus will be returning 50p per share to shareholders. It will be funding this at least partially through its existing debt facility.

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> Nate does not own any shares mentioned above.

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