Micro Focus shares tumble as profits fall off a cliff

Shares in Micro Focus today fell over 20% as the struggling technology company gave investors another hideous update. Again, its problems stem largely from the large 2017 acquisition of Hewlett Packard Enterprise’s (HPE) software business.

Micro Focus posted a decline in full-year profit and sales and announced the departure of its chairman following what it referred to as a “challenging” year.

Operating profit sank 41.2% year on year to $221.7m (£170.9m) for the 12 months to the end of October. Revenue fell 29.6% to $3.35bn after the company blamed Brexit chaos for customers delaying IT purchases. Sales fell 7.3% on a constant currency basis, and core earnings dropped 2.6% to $1.35bn.

Chief executive officer Stephen Murdoch said: “This has been a challenging year for Micro Focus and our overall financial performance fell short of expectations. As a result, we conducted a strategic & operational review, which has identified the additional actions and changes required to deliver on the significant potential within the business.

“Successful execution of these actions, will position Micro Focus to deliver against our goal of consistent and sustained value creation for customers, shareholders and employees.”

Micro Focus also announced that chairman Kevin Loosemore was stepping down, with Greg Lock set to become non-executive chairman with effect from 14 February. Loosemore said that he and the board had decided it was “the right time” for him to leave the company.

Lock has more than 45 years of experience in the software and computer services industry, including 11 as chairman of Computacenter, seven as chairman of Kofax and four years as chairman of SurfControl.

Russ Mould, investment director at AJ Bell, said: “Software firm Micro Focus has disappointed with revenue and core earnings below expectations. The impact of macroeconomic uncertainty is one thing, but potentially more worrying for the company is the reference to customers changing their buying behaviour.

“The market is unlikely to be impressed by an admission of ‘inconsistent execution’ either, implying that to an extent Micro Focus continues to be master of its downfall.

“It’s little wonder executive chairman Kevin Loosemore is stepping down. His departure is particularly significant given he helped build the company into the large global operator it is today.

“It has certainly not all been smooth sailing over that time but the recent problems can be traced back to the multi-billion dollar acquisition of HP Enterprise in 2017. The company has really struggled with the integration of this business and it looks to be firmly in the category of deals which have destroyed rather than created shareholder value.

“There is speculation after last summer’s major profit warning and the resulting strategic review that the company might be up for sale. Loosemore’s departure would seem only to make it more vulnerable to an opportunistic bid.”

Please note I own shares in Micro Focus.

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