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November 30, 1998

SALES DROP AT MICRO FOCUS, CEO RESIGNS

By CBR Staff Writer

Micro Focus Group Plc, the London, UK and Mountain View, California-based Cobol software tools company, has suffered a sharp decline in its core software revenues and chief executive Martin Walters has resigned. Walters, who will become a non- executive director, is to be replaced immediately by Gary Greenfield, the former chief executive of Intersolv Inc, the software and services company acquired by Micro Focus in September for $530m. Micro Focus’ second quarter results, which were pre-announced at the start of November, showed net losses of $42.3m against profits last time of $7.7m and total revenues declined by 4.6% to $87.2m. Excluding a pre-tax charge of $49m relating to the Intersolv deal, Micro Focus earned $1.1m or $0.04 per American depositary share, roughly in line with the earlier profits warning. The warning produced a 40% decline in Micro Focus’ stock price, and the shares have still to recover any of that ground. The major problems, according to the company, center around a sharp decline in the higher margin product revenues, down 17% year on year to $43m. Previously Micro Focus had cited poor demand for its year 2000 related products, particularly in North America. Expanding on this theme, the company now says that its Year 2000 products failed to address a customer shift towards the latter stages of their remediation processes, leaving Micro Focus short of any appropriate products to sell. Chief financial officer Rick Van Hoesen, said the US market had shifted from the find and fix phases of Y2K remediation to the test and verify stages far more quickly that Micro Focus had anticipated. Although the company now says it has added these products to its line up during November and doesn’t anticipate a recurrence of this problem. Additionally, the company saw only a modest 1% increase in services revenues to $19m following an equally poor quarterly performance from newly acquired Intersolv. Van Hoesen said Intersolv had failed to close some substantial Y2K services deals. Maintenance climbed 20% to $25m and outside of North America, business was extremely buoyant, said Van Hoesen. Newly appointed Gary Greenfield also tried to remain positive in his first statement as CEO saying “This is an exciting time for Micro Focus,” although he conceded that North American revenues had been below expectations and were the prime reason for the company’s troubles. Greenfield joined Intersolv in 1987 as vice president of marketing, graduating to chief operating officer in 1992 and finally to CEO in 1996.

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