Shares in software group Micro Focus International more than halved after the firm put out a warning over sales and its chief executive resigned.
The double whammy of bad news came as the FTSE 100 group said that annual revenues were falling at a faster rate than previously expected after being confronted by lower licensing income.
Micro Focus sealed a £6.8billion takeover of Hewlett Packard Enterprise’s software business in September and difficulties integrating it mean that annual revenues are now expected to fall by 6-9 per cent rather than 2-4 per cent that had been estimated previously.
Integration problems: Micro Focus sealed a £6.8bn takeover of Hewlett Packard Enterprise’s software business in September.
The group, whose customers include American Express and AIG, also announced that chief executive Chris Hsu was quitting to ‘pursue another opportunity’, just six months after taking the role.
He will be replaced by chief operating officer Stephen Murdoch, who will take up the position immediately.
Executive chairman Kevin Loosemore said: ‘Clearly we have let people down with this execution and we have to rebuild that trust.’
He added: ‘We remain confident in Micro Focus’ strategy whilst recognising that operational issues have led to a disappointing short-term performance and outlook.
‘We believe that Micro Focus is well positioned to help our customers with the increasing pace of change across their Hybrid IT environments and to deliver customer centred innovation.’
Micro Focus, which specialises in extending the life of clients’ older systems, said its sales teams had taken a hit as it grapples with the introduction of a new IT system, while former customer accounts of Hewlett Packard Enterprise were disrupted by its merger with the firm’s software arm.
However, it said its cost savings drive was ahead of schedule and net debt was expected to be in line with expectations.
Shares in Micro Focus have fallen more than 64 per cent since the start of the year when the firm warned that its half-year results would miss expectations.
The group has already taken steps to shore up its fortunes by recruiting ex ARM Holdings and easyJet executive Chris Kennedy joining as chief financial officer.
Graham Spooner, investment research analyst at The Share Centre, said that in addition to revising down its guidance for the year, investors should expect falls of between nine to 12 per cent in the first six months of this year.
‘The speed of this change has unsurprisingly spooked the market, this was despite management stating that there are a number of what they believe to be one-off factors to blame for the poor showing,’ he said.
‘These include a disappointing performance from the HPE software assets and problems with the implementation of a new IT system. Investors should note that the group’s management will now be addressing the problems resulting in further investment.
Longstanding client: American Express is among Micro Focus’ customers
‘Today’s news follows a disappointing January update and it’s more than likely that investors will now be raising questions over how the group is run and particularly the success of the Hewlett Packard acquisition and their ability to integrate it successfully.
‘As a result, we have taken the decision to put our current ‘buy’ recommendation of Micro Focus International under review.’
Micro Focus in January reported a 29 per cent increase in pre-tax profits to $145.7million in the first half compared to the previous year and an 80.3 per cent jump in revenue to $1.23bn.
However, these numbers were a bit below some analysts’ expectations. Micro Focus’ shares fell 56 per cent to 823p in morning trading, the biggest drop since May 2005.