Shares in the UK’s Micro Focus tumbled over 30 percent this morning after the IT management services firm announced a “strategic review” of operations and slashed guidance, blaming a “deteriorating macro environment resulting in more conservatism and longer decision making cycles within our customer base.”
Micro Focus had reiterated its full year guidance just last month in a first half earnings report, but admitted that it was continuing to struggle to integrate HPE’s’ software business – bought in 2017 for $8.8 billion – saying “consistency and pace of execution need to continue to improve” as it spent a further $163.2 million on integration.
The company is considering all avenues to deal with the downturn, it said.
The accelerated strategic review announced this morning will see the Micro Focus board “consider a range of strategic, operational and financial alternatives available to the Company” is it looks to “optimise the value of our broad portfolio of products”.
Micro Focus Crisis: July Earnings Showed the Pressure
The company’s software licencing business was down 11 percent in July’s earnings report. Its IT maintenance business was down 2.6 percent, SaaS down 10 percent and consulting down 19 percent. Stockbroker Numis said this reflected “deliberate management re-focusing actions, and combined were a 2.2 percent drag on revenues.”
Micro Focus said today: “The Board has concluded that recent trading means that the Group does not expect to meet the constant currency revenue guidance of minus 4 percent to minus 6 percent, for the full year to 31 October 2019…
“There remains a significant pipeline of business opportunity being pursued but… a highly challenging percentage of this pipeline would need to close prior to year end. As such the board considers it appropriate to revise the guidance range for the year ending 31 October 2019 to minus 6 percent to minus 8 percent.”
The strategic review will “focus on what in addition to execution improvements are required to optimise the value of our broad portfolio of products and it will consider a range of strategic, operational and financial alternatives available to the company.”
Asset sales seem likely. CEO Stephen Murdoch said: “Whilst the review is taking place management will continue to drive previously targeted improvements in business performance and execute the operational initiatives already in place.”
Micro Focus’s clients include BMW, Allianz and Orange. The company reported revenues of $1,657.1 million in H1, down 5.3 percent year-on-year.