Shares in software company Micro Focus (MCRO) plunged 15.6% to 340p after it scrapped its dividend to help protect it from the fallout of the coronavirus pandemic.
In an update, Micro Focus said that while there has been no material impact on the business to date, the ultimate impact on the global economy is unknown.
It has therefore it has decided to no longer recommend a final dividend for the year to 31 October 2019, saving $196m in cash.
AXING DIVIDEND COULD SAVE $575M
Numis analyst Will Wallis estimated that the move could save Micro Focus $575m if there are no dividend payments to the end of its 2021 financial year.
Wallis said, ‘The board views the current capital structure as appropriate, and we interpret today's move as protecting against the tail risk of dilution in a severe downside scenario.’
In its statement the company said that as a minimum, it’s prepared for a level of disruption to new sales activity, ‘even though the majority of our revenues are contractual and recurring in nature.’
Micro Focus also said it will approach the next 12 months with a ‘reduced risk appetite and heightened sense of caution’.
It added that it will consider paying a second interim dividend ‘once there is some visibility on the effects of the COVID-19 on the company's business.’
STILL STRUGGLING WITH 2017 ACQUISITION
It comes as the business is still struggling to digest its 2017 blockbuster acquisition of Hewlett Packard Enterprises (HPE).
Last month it reported full year revenue down 7.3% to $3.3bn, as well as lower profit, and flagged difficulties in integrating HPE, which sparked a strategic review of the business.
It also abandoned plans to sell off parts of the business and return cash to shareholders.
The company had cash on hand in excess of $600m at 29 February this year.