£1.7 billion wiped off Micro Focus in profit shock

MORE than £1.7bn was wiped off the value of Micro Focus after the troubled business issued another profit warning.

The British technology group blamed a downturn in sales of its software to clients, including banks and retailers.

The gloomy update sent shares in the company plunging by 32.4pc, or 504p, to 1051.4p.

It is the latest blow to Micro Focus, which has been laid low by teething problems that arose from its £7bn takeover of HP Enterprise’s (HPE) software arm.

Micro Focus had already warned sales would be 4pc to 6pc lower this year, but yesterday it said the drop would now be between 6pc and 8pc.

As shares crashed by nearly a third, Micro Focus bosses said they were launching a major review of the business and that no options would be ruled out.

It prompted speculation that part or even all of the company could be put up for sale.

The turmoil also threw the firm’s prized place on Britain’s FTSE100 into doubt, just days before a reshuffle of the bluechip index is due to take place.

Chief executive Stephen Murdoch said: ‘Following the recent disappointing trading performance, we have determined that it is appropriate to accelerate a strategic review of the group’s operations. Whilst the review is taking place, management will continue to drive previously targeted improvements.’

Micro Focus has been dogged by problems since its disastrous takeover of HPE’s software division in 2017.

The company specialises in wringing profit out of old computer systems it acquires and then sells software and maintenance services to banks and retailers which use them.

But the HPE acquisition was its biggest yet and saw its headcount rise from 4,000 to more than 18,000 as it absorbed a large number of staff based in the US.

It suffered setbacks early on, with Chris Hsu, HPE’s former chief executive, leaving in March 2018 – just six months after he joined Micro Focus.

Kevin Loosemore, Micro Focus’s executive chairman (pictured right), also later admitted the firm had struggled with the cultural differences with HPE and that sales staff had suffered from low morale.

There were problems with computer systems as well when the two companies merged.

Micro Focus blamed its latest woes on ‘weak sales execution’ and tough economic conditions – such as Brexit uncertainty – that had made customers more cautious about doing deals.

The fall in Micro Focus’s share price saw its market capitalisation fall from about £5.3bn on Wednesday to just under £3.8bn.

That put it near the bottom of the FTSE100 and well behind several firms in the FTSE 250 which could be promoted to the top index next week. Analysts at Jefferies slashed the firm’s share price target from 1700p to 1300p.

Russ Mould, investment director at AJ Bell, said: ‘Micro Focus has been struggling for nearly two years with various problems and the pains keep getting worse.

‘Now we’ve got the dreaded phrase “strategic review”, which means it is preparing to make big changes.

‘One could even see Micro Focus put itself up for sale and private equity companies could be interested.’

Ian Forrest, investment research analyst at The Share Centre, added: ‘Many will now be losing faith and wondering what impact all of this may have on future dividend payments.’