July 24, 2008 / 7:28 AM / 12 years ago

UPDATE 2-Misys remains upbeat on banking revenues

(Adds CEO comments, further reaction)

By Paul Sandle

LONDON, July 24 (Reuters) - British health and banking software group Misys Plc MSY.L said sales to banking clients were holding up well despite the credit crunch, after it posted a 37 percent rise in full-year operating profit on Thursday.

Chief Executive Mike Lawrie said 62 percent of its banking revenues came from markets, such as Africa, Asia and the Middle East, that had been little impacted by the credit crisis, and he predicted they would remain resilient.

“In banking, we are comfortable that the performance turned in this year (of 5 percent revenue growth) is sustainable going forward,” he told reporters in a conference call.

The group, which design software for hospitals as well as banks, said like-for-like operating profit for the year to May 31 rose to 81 million pounds ($161.8 million) from 59 million pounds the previous year.

Adjusted earnings per share from continuing operations were 12.6 pence, ahead of a mean consensus forecast of 11.7p, while total revenues rose 6 percent to 492 million pounds, in line with forecasts.

Shares in the company gave up early gains and were flat at 164 pence at 1001 GMT, despite analysts welcoming the positive outlook on banking revenues.

“The outlook statement is rock solid and reaffirms that the credit crisis has not impacted demand as many had feared and that, given the good progress to date, the management is revising upward its guidance for growth in the second phase of the company’s turnaround,” Seymour Pierce analyst Derek Brown said in a note.

Lawrie said Misys was “pretty much on track” with its turnaround plan, which had seen the sale of non-core operations, including two healthcare businesses, and costs taken out of the business.

In the next phase, which will take around two years, he is aiming to grow revenues by 5-8 percent, up from the 2-4 percent target set last year, and seek a further 1-2 percentage point improvement in margins.

“As we enter phase two, it is all about building a sustainable platform for growth,” he said.

In healthcare, revenues from continuing operations were up 2 percent and the proposed merger with Allscripts Healthcare Solutions (MDRX.O), announced in March, was on track, he said.

“The merger of Misys Healthcare and Allscripts will help us leverage the leading products that Allscripts provides,” he said.

The company’s Treasury and Capital Market division, which serves more than half of Fortune’s global top 50 corporations, performed particularly strongly, with revenues up 13 percent, he said.

“For the first time in years, we have new customers in Treasury and Capital markets,” he said.

SHIFT TO SERVICES

However, some analysts sounded a note of caution on the drop in cashflow from operations to 26 million pounds from 55 million, reflecting a greater proportion of service revenue in the mix.

“The key to these results is the cashflow statement, which is poor and this we think largely due to the shift towards growth in services,” Landsbanki analyst Kevin Ashton said in a research note.

Finance Director Jim Malone said the reduction in cash flow was down to the pattern of sales and deferred invoicing terms in the group’s contracts.

“We are shifting towards tremendous growth in services,” he said, which was impacting on cash flow as customers paid when services were rendered. “We always want more cash,” he said.

Misys is paying a final dividend of 4.95 pence per share, taking the total payout for the year to 7.91 pence, an increase of 5 percent. (Reporting by Paul Sandle; Additional reporting by Myles Neligan; Editing by Quentin Bryar)

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