Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the
Month of January 2018
Commission
File Number: 333-219678
MICRO FOCUS INTERNATIONAL PLC
(Exact name of registrant as specified in its charter)
The Lawn, 22-30 Old Bath Road
Newbury, Berkshire
RG14 1QN
United Kingdom
+44 (0) 1635-565-459
(Address of principal executive office)
Indicate
by check mark whether this registrant files or will file annual
reports under cover of Form 10-F or Form 40-F.
Form
20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule
101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule
101(b)(7): ☐
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Exhibit No.
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Exhibit Description
|
|
99.1
|
Interim
results for the six months ended 31 Oct 17, dated 08 January 2018
|
8 January 2018
Micro Focus International plc
Interim results for the six months ended 31 October
2017
Micro Focus International plc ("the Company" or “the
Group”, LSE: MCRO.L, NYSE: MFGP), the international software
product group, announces unaudited interim results for the six
months ended 31 October 2017.
On 1 September 2017 the Company announced the completion of the
merger of its wholly owned subsidiary with Seattle SpinCo, Inc.,
which holds the software business segment ("HPE Software") of
Hewlett Packard Enterprise Company ("HPE"), in accordance with the
terms of the previously announced Merger Agreement (the
‘’Transaction’’). Trading results of HPE
Software from completion are included in the results for the six
months ended 31 October 2017 set out below.
The table below shows the reported results for the Group at actual
exchange rates for the six months ended 31 October 2017 together
with constant currency (“CCY”) comparatives except
where stated otherwise:
|
Results at a glance
|
Six months
ended
31 October
2017
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Six months
ended
31 October
2016
|
Growth /(Decline)
%
|
Year
ended
30 April
2017
|
|
Revenue
|
|
|
|
|
|
Reported
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$1,234.5m
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$684.7m
|
80.3%
|
1,380.7m
|
|
|
|
|
|
|
|
Constant Currency *
|
|
|
|
|
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-
Licence
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$327.7m
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$148.1m
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121.3%
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$314.0m
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- Maintenance
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$611.5m
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$363.2m
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68.4%
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$723.8m
|
|
- Subscription
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$162.6m
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$142.7m
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13.9%
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$295.7m
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|
-
Consultancy
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$80.3m
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$29.0m
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176.9%
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$54.1m
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- SaaS
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$52.4m
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-
|
-
|
-
|
|
Total
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$1,234.5m
|
$683.0m
|
80.7%
|
$1,387.6m
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating profit
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|
|
|
|
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Reported
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$220.0m
|
$163.3m
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34.7%
|
$293.4m
|
|
Constant
currency
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$220.0m
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$159.2m
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38.2%
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$280.5m
|
|
|
|
|
|
|
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Pre-tax profit
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|
|
|
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Reported
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$145.7m
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$113.2m
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28.7%
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$196.3m
|
|
Constant
Currency
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$145.7m
|
$108.9m
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33.8%
|
$182.4m
|
|
|
|
|
|
|
|
Adjusted EBITDA *
|
|
|
|
|
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Reported
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$530.1m
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$320.3m
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65.5%
|
$640.9m
|
|
Constant
Currency
|
$530.1m
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$316.1m
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67.7%
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$635.4m
|
|
|
|
|
|
|
|
Earnings per share (“EPS”)
|
|
|
|
|
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Basic
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35.83c
|
39.57c
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(9.5%)
|
68.88c
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|
Diluted
|
34.64c
|
38.12c
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(9.1%)
|
66.51c
|
|
|
|
|
|
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Adjusted
*
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107.44c
|
92.59c
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16.0%
|
181.91c
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|
Adjusted
Diluted *
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103.87c
|
89.20c
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16.4%
|
175.65c
|
|
|
|
|
|
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Dividend per share
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34.60c
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29.73c
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16.4%
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88.06c
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|
|
|
|
|
|
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Net debt *
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$4,151.7m
|
$1,612.6m
|
157.5%
|
$1,410.6m
|
|
Adjusted Net Debt *
|
$4,409.7m
|
$1,612.6m
|
173.5%
|
$1,410.6m
|
Reported revenues in the six months to 31 October 2017 were
$1,234.5m, $549.8m (80.3%) higher than the prior period reported
revenues ($684.7m), with HPE Software contributing $569.8m and
$664.7m coming from existing Micro Focus and SUSE Product
Portfolios (“existing Micro Focus”) (2016: $684.7m), a
decrease of 2.9%.
On a CCY basis existing Micro Focus declined by 2.7% (2016: CCY
$683.0m), with the SUSE Product Portfolio growing by 13.1% to
$164.4m (2016: CCY $145.3m) and the existing Micro Focus Product
Portfolio declining by 7.0% to $500.3m (2016: CCY
$537.7m).
Profit for the period increased by $16.0m to $106.6m (2016:
$90.6m). EBITDA for the period increased by $146.8m to $434.9m
(2016: $288.1m). Adjusted EBITDA* of $530.1m was 67.7% higher than
that delivered in the comparable period at CCY
($316.1m).
Diluted EPS in the period decreased by 9.1% to 34.64 cents (2016:
38.12 cents). Adjusted Diluted EPS* in the period increased by
16.4% to 103.87 cents (2016: 89.20 cents).
Key highlights
●
Completion of the
HPE Software acquisition took place on 1 September 2017. American
Depositary Shares representing 222,166,897 new ordinary shares were
issued to HPE Shareholders, representing 50.1% of the fully diluted
share capital of the Company at completion.
●
Reported
revenue growth of $549.8m (80.3%) driven by:
o
Acquisition of HPE
Software contributed $569.8m;
o
SUSE Product
Portfolio where reported revenues grew by 11.5% and CCY revenues
grew in line with the market for Infrastructure Linux;
o
Offset by
anticipated declines in the existing Micro Focus Product Portfolio
which declined by 6.9%.
o
Total
revenues of $1,234.5m (2016: CCY $683.0m), an increase of
80.7%.
o
Adjusted EBITDA
increased by 67.7% to $530.1m (2016: CCY $316.1m).
●
Adjusted EBITDA
margins decreased to 42.9% (2016: CCY 46.3%), reflecting the lower
margins in the HPE Software business.
●
Exceptional costs
incurred in the period of $104.3m (2016: $41.0m) relate to
integration costs, acquisition costs, pre-acquisition costs,
property costs, severance and legal costs and net finance
costs.
●
Guidance for
medium-term Adjusted Effective Tax Rate (“Adjusted
ETR”) revised to 25% from the previous guidance of 33%. Cash
tax rate expected to be broadly in line with Adjusted Effective Tax
Rate from FY20. Cash tax rate for FY18 and FY19 expected to be
approximately 15%.
●
Net debt and cash
generation in the period:
o
Cash generated from
operations was $267.2m (2016: $201.9m) representing a cash
conversion ratio of 61.9% (2016: 72.3%)
of Adjusted EBITDA less exceptional costs. Impacted by the expected
seasonal year-end increase in working capital balances ($253.0m
versus $110.8m) due to timing of completion of HPE Software
merger.
o
Net debt* at 31
October 2017 was $4,151.7m (30 April 2017: $1,410.6m) increasing
due to the acquisition of HPE Software with acquired bank
borrowings of $2,600.0m, finance lease obligations and external
debt drawn down.
o
Adjusted net debt
of $4,409.7m (30 April 2017: $1,410.6m) taking account of net
closing balance sheet adjustments payable to HPE.
o
Free cash flow* in
the period of $28.5m (2016: $111.0m).
o
Adjusted
Net debt* to pro-forma Adjusted EBITDA for the 12-month period to
31 October 2017 is a multiple of 3.1 times; medium term target
remains 2.7 times.
●
Growth in Adjusted
Diluted EPS of 16.4% to 103.87 cents (2016: 89.20 cents) and 9.1%
decrease in Diluted EPS to 34.64 cents (2016: 38.12
cents).
●
Interim
dividend increased by 16.4% to 34.60 cents per share (2016: 29.73
cents per share) in line with dividend policy of full year dividend
being twice covered by adjusted earnings.
Statutory results
●
Operating
profit of $220.0m (2016: $163.3m, +34.7%)
●
Profit
before tax of $145.7m (2016: $113.2m +28.7%)
●
Basic
earnings per share of 35.83 cents (2016: 39.57 cents) a decrease of
9.5%
*
The definition of Adjusted Revenue, Adjusted EBITDA, Adjusted EPS,
Adjusted Diluted EPS, Net Debt, Adjusted Net Debt, Free Cash Flow,
Constant Currency and Pro-forma are in the “Non IFRS
measures” section of this Interim Statement.
Kevin Loosemore, Executive Chairman of Micro Focus,
commented:
“The
period under review has seen the completion of the combination of
Micro Focus with HPE Software to create one of the world’s
largest pure play software companies. This was a complex
transaction with 12 months between announcement and completion. We
are now fully engaged in the integration of the combined
company.
The
combination with HPE Software has clear business logic to extend
Micro Focus’ market presence in mature infrastructure
software segments:
●
to increase
operational efficiency of the combined Group;
●
to deliver
effective product management focused on customer centered
innovation; and
●
to improve sales
productivity.
Micro
Focus sets out to deliver consistent long-term shareholder returns
in the range of 15% to 20% per annum.
On a
pro-forma basis, the Enlarged Group delivered revenue of $4,226.7m
and Adjusted EBITDA of $1,401.1m at a margin of 33.1% for the 12
months ended 31 October 2017 which is consistent with the plans we
built in summer 2016 when contemplating the merger. Our Adjusted
Net Debt position at 31 October 2017 was $4,409.7m at pro-forma*
Adjusted EBITDA multiple of 3.1 times.
Chris
Hsu, our Chief Executive Officer, has been leading the HPE Software
business since September 2016 and has managed the separation of the
Software business from HPE by creating a standalone company, from a
unit that was a small part of a large organization. Chris began a
shift in HPE Software’s business focus to customer centered
innovation, a performance based culture around delivering on EBITDA
targets and managing the cost base accordingly. As a result, there
has already been a significant improvement in HPE Software’s
Adjusted EBITDA over the year, notwithstanding that the changes
that have been made will take time to be embedded within the
organization and that HPE Software’s revenue for the 12
months ended 31 October 2017 was at the bottom of our guidance
range.
For the
existing Micro Focus business revenue was 2.7% lower in constant
currency and Adjusted EBITDA 4.1% lower as we put operational
improvement plans on hold while working on the completion of the
HPE Software transaction.
The
board is confident that medium-term low single digit revenue
growth, industry leading margins and strong cash conversion will
ensure that Micro Focus can deliver on its strategy. These returns
can be further enhanced by appropriate deployment of capital in
value enhancing acquisitions.
In line
with our twice covered dividend policy and the transition to an
October year end we are paying a dividend of 34.60 cents per
share.
I am
delighted to announce that we are further strengthening our
management team in support of our strategy and the growth of the
business. We have talked to our shareholders in the past year about
how we scale our approach to M&A. I am pleased to announce that
Mike Phillips, having been CFO since 2010, will take on the newly
created role of Director of M&A.
Taking
over from Mike as CFO with immediate effect will be Chris Kennedy,
previously CFO at ARM and easyJet and well known to our
investor base. We are also delighted to announce that Ian Fraser
will join Micro Focus as Chief Human Resources Officer having held
this same role at RELX Group and BHP Billiton.
Both
Chris and Ian bring recent relevant experience in functional terms
and also in dealing with listed businesses of scale in the UK and
US and we welcome them to the team.”
Enquiries:
|
Micro Focus
|
Tel: +44 (0) 1635 565200
|
|
Kevin Loosemore, Executive Chairman
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Chris Hsu, Chief Executive Officer
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Mike Phillips, Chief Financial Officer
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Tim Brill, IR Director
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Powerscourt
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Tel:
+44 (0) 20 7250 1446
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|
Victoria
Palmer-Moore
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|
|
Celine
MacDougall
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|
About Micro Focus
Micro
Focus (LSE: MCRO.L, NYSE: MFGP) is a global enterprise software
Company supporting the technology needs and challenges of the
Global 2000. Our solutions help organizations leverage existing IT
investments, enterprise applications and emerging technologies to
address complex, rapidly evolving business requirements while
protecting corporate information at all times. Our product
portfolios are Micro Focus (which included HPE Software from
completion) and SUSE. Within Micro Focus our solution
portfolios are COBOL Development and Mainframe Solutions, Host
Connectivity, Identity and Access Security, IT Development and
Operations Management Tools, and Collaboration and Networking.
Within HPE Software our solution portfolios are IT Operation
Management, Application Delivery Management, Enterprise Security
Product, Platform, and Information Management Business. With
effect from 1 November 2017 the Micro Focus solution portfolios are
Security, IT Operations Management, Application Delivery
Management, Information Management & Governance and Application
Modernization & Connectivity. For more information, visit:
www.microfocus.com.
SUSE, a pioneer in Open Source software, provides reliable,
interoperable Linux, Software Defined Infrastructure and
Application Delivery platforms that give customers greater control
and flexibility while reducing cost. For more information,
visit: www.suse.com.
Forward-looking statements
Certain
statements in this interim report are forward-looking. Although the
Group believes that the expectations reflected in these
forward-looking statements are reasonable, it can give no assurance
that these expectations will prove to be correct. Because these
statements involve risks and uncertainties, actual results may
differ materially from those expressed or implied by these
forward-looking statements. The Group undertakes no obligation to
update any forward-looking statements whether as a result of new
information, future events or otherwise.
Chief Executive Officer’s Statement
Introduction
I was delighted to be appointed Chief Executive Officer of Micro
Focus International plc with effect from the completion of the
combination with HPE Software on 1 September 2017 and to present
today my first set of interim results covering the six months ended
31 October 2017. These results include six months’ trading of
the existing Micro Focus and SUSE Product Portfolios and two months
of the HPE Software business. We would like to thank our employees
for their continued dedication, commitment and hard work in
delivering the completion of the combination and the financial
results for this period.
I have been asked many times since my appointment as Chief
Executive Officer was announced what was going to change in the
Micro Focus strategy that was put in place by Kevin Loosemore and
his team back in 2011. This strategy and proven operating model has
seen the company grow from revenues of $436.1m and Adjusted EBITDA
of $160.9m in the year ended 30 April 2011 to pro-forma revenues
$4,226.7m and Adjusted EBITDA of $1,401.1m in the 12 months ended
31 October 2017. As I explained at the Capital Markets Day in
September, the Micro Focus strategy is a proven model and will
remain consistent. From the first time Kevin and I discussed
potentially combining the two companies I recognized the benefits
of the Micro Focus operating model. By merging HPE Software
together with Micro Focus, we create a global scale platform that
leverages the Micro Focus proven operating model with a unique
competency in efficiently managing a portfolio of scale assets. Our
scale and proven model both enables us to create value through the
merger and positions us well to benefit from ongoing industry
consolidation. It is this model that allows us to deliver on our
target of 15% to 20% shareholder returns per annum.
We place customers at the center of everything we do - how we
innovate, build, sell and support our products. Our broad and deep
portfolio that spans application development, hybrid infrastructure
management, security, data analytics, information management &
governance, etc., uniquely positions us to help our customers
across their complex, Hybrid IT environments. We remain committed
to delivering the value creation outlined at the announcement of
the transaction, and our lean operating model preserves capital and
maximizes shareholder returns on a sustainable basis.
Our merger combination was the culmination of interactions between
HPE and Micro Focus that started in the middle of 2016 when I was
Chief Operating Officer at HPE considering strategic options for
HPE Software. For context, through the various Hewlett Packard
spins, the Software business went from 3% of total revenues in 2014
prior to the HP-Hewlett Packard Enterprise split to approximately
8% post the HPE Enterprise Services-CSC spin-merge. The HPE
Software business was a small division that did not move the
company’s overall performance and enjoyed the benefits of
having the highest relative operating margins, thus revenue growth
was the predominant focus. It was guided by the parent
company’s strategy and financial goals and often invested in
projects to support the hardware centric business. This changed
upon announcement of the merger on 7 September 2016 when I was
appointed by HPE to lead the Software business. On a pro-forma
basis for the Micro Focus Enlarged Group in the 12 months ended 31
October 2017, the heritage HPE Software represented approximately
68% of Group revenue. The substantial increase in relative scale
and importance required the heritage HPE Software business to
change its focus to delivering shareholder returns based on
improved EBITDA and free cash flow.
Upon appointment by HPE and under its divestment governance, I
started to apply the Micro Focus Four Box model that we learned in
diligence, to prioritize innovation and R&D investments on
projects with clear customer demand. This was a shift in approach
from one that was often driven by pursuing Silicon Valley
challengers or the desires of business unit managers that often did
not result in increased customer demand and often pulled investment
away from our core products. The Micro Focus customer centered
innovation approach guides managers to build products that are more
directly tied to our customer demands and adds innovative
capabilities to our core products they have already invested in,
increasing their ROI and, subsequently, our customer stickiness and
longevity. This approach is more efficient and avoids higher risk,
low probability of return investments. The clarity of being part of
a scale, pure-play software company with a clear, focused strategy
will unlock additional potential as the Micro Focus model is fully
implemented.
Following completion and the issue of HPE’s third quarter
results we provided guidance on the revenue performance for HPE
Software for the year ending 31 October 2017, adjusted for
divestments and currency and before acquisition accounting
adjustments relating to deferred revenue haircut under the Micro
Focus accounting policies. We achieved the low end of the guidance
range of $2,890.0m to $2,960.0m. We were disappointed with sales
execution primarily in our Americas region. The Adjusted EBITDA for
the HPE Software business for this period was $841.7m (before
acquisition accounting adjustments relating to deferred revenue
haircut and application of Micro Focus accounting policies) at a
margin of 29.1% which is an 840 basis point improvement from the
20.7% margin for the 12 months ended 30 April 2016 included in the
announcement of the transaction on 7 September 2016 (revenue:
$3,172.0m, Adjusted EBITDA $658.0m), reinforcing the thesis of the
transaction.
On a pro-forma basis, after taking account of the acquisition
accounting adjustments relating to deferred revenue haircut and
application of Micro Focus accounting policies, the Enlarged Group
delivered revenue of $4,226.7m and Adjusted EBITDA of $1,401.1m for
the 12 months ended 31 October 2017 at a margin of 33.1%. This is
the base level against which we will be judging performance of the
business as we move forward in the 12 months ending 31 October
2018. We will seek to fully implement the Micro Focus operating
model in the Enlarged Group during this year and maintain our aim
to provide investors with long term shareholder returns of between
15% and 20% per annum.
Following completion of the transaction we continued to run the HPE
Software business separately within the Micro Focus Product
Portfolio to avoid disruption through to the end of the fiscal year
ended 31 October 2017. We brought the Enlarged Group together with
effect from 1 November 2017 and from that date we operate two
product portfolios, Micro Focus and SUSE, consistent with how the
Company has operated since 1 May 2015. We have aligned our
financial year end to 31 October and will initially report an
18-month financial period ending 31 October 2018, with interim
results statements for the six month periods to 31 October 2017 and
30 April 2018.
We set out a new four phase plan below for the combination of the
Micro Focus and HPE Software businesses whilst continuing to
deliver sustainable shareholder returns.
|
Financial Year/Period ending
|
31 October 2017
|
31 October 2018
|
31 October 2019
|
31 October 2020
|
|
Phase
|
Assessment
|
Integration
|
Stabilization
|
Growth
|
|
Action
|
● Deliver plans for
FY17
|
● Standardize
systems
|
● Stabilize top
line
|
● Top line
growth
|
|
|
● Detailed review of
combined businesses
|
● Rationalize
properties
|
● Improve
GTM
|
● Click and
repeat!
|
|
|
● Invigorate product
management
|
● New Go to Market
(“GTM”) model
|
● Growth from new
areas
|
|
|
|
|
● Maintain/improve
cash conversion
|
● Improved
profitability
|
|
|
|
|
● Rationalize
underperforming elements
|
● Standardize
systems
|
|
|
|
|
● New market
initiatives
|
● Rationalize legal
entities
|
|
Everything
we do is aimed at helping us deliver our commitment to our
shareholders of consistent Adjusted EBITDA and free cash flow
growth to deliver shareholder returns in the range of 15% to 20%
per annum.
At the
Capital Markets Day in September 2017, I outlined six focused
strategic priorities which are consistent with this four phase
plan. These are:
● Integrate the
companies seamlessly
● Strengthen the
go-to-market engine
● Drive
customer-centred innovation in everything we do
● Capture value from
the deal ($600m Adjusted EBITDA improvement)
● Build a combined
company that employees want to be part of and that customers value
as a strategic partner
● Execute value
creating mergers and acquisitions
I also
disclosed the Enlarged Group Mission Statement:
“We provide our customers with a best-in-class portfolio of
enterprise-grade scalable software with analytics built in. We put
customers at the centre of our innovation and build high quality
products that our customers can rely on and our teams can be proud
of.”
By
focusing on what our customers demand, we help them extend the life
of the investments that they make with us. We prioritise our
innovation and GTM activities around this customer promise which
enables us to deliver more for them with a focused investment
profile. Over time as this model takes hold and we build increased
confidence with our customers, our revenue will stabilise and we
will find additional opportunities to be relevant to our customers.
Delivering on this mission will enable us to sustainably provide
the shareholder returns that are core to our strategy.
Business strategy
The
underlying premise behind our business strategy is that the Group
should consistently and over the long-term deliver shareholder
returns in the range of 15% to 20% per annum. To deliver this
objective the Group has adopted an operational and financial
strategy underpinned by consistent and effective management and
reward systems. This strategy is capable of execution over the
long-term. When considering investment priorities, both organic and
inorganic, we evaluate our options against a set of characteristics
enabling the categorization of our products into one of the
following:
●
New Models –
Products or consumption models (cloud and subscription) that open
new opportunities that could become growth drivers or represent
emerging use cases that we need to be able to embrace;
●
Growth Drivers
– Products with consistent growth performance and market
opportunity to build the future revenue foundations of the
Group;
●
Optimize –
Products with declining revenue performance driven by the market or
execution where the trajectory must be corrected to move back to
the core category or investments focused to optimize long-term
returns; and
●
Core –
Products that have maintained broadly flat revenue performance but
represent the current foundations of the Group and must be
protected and extended.
Within
this overall portfolio we have some products that are growing
significantly and others that are stable or in decline. Our
business model means the way we manage the portfolio is analogous
to a ‘‘fund of funds’’ with the objective
of generating modest revenue growth over the medium-term,
delivering high levels of profitability and strong cash generation
and cash conversion ratio with a balanced portfolio approach. We
will continue to focus investment in growth and core products and
will not dispose of declining products unless we can achieve
greater than the discounted cash flow they would generate in our
ownership. Within the Enlarged Group we have also discovered areas
in the portfolio with similar R&D efforts where a shared set of
technologies and architectures (e.g. data ingestion, visualization,
container platform, APIs) enable more innovation with less
“duplicated” investment further contributing to our
ability to drive higher efficiency without compromising
innovation.
As outlined in the Annual Report for the year ended 30 April 2017,
the combination with HPE Software may delay the return to revenue
growth as the HPE Software products are integrated. We expect HPE
Software’s revenue trend to continue its historical decline
until the transformation has been fully executed and the benefits
take hold. This integration will be delivered by the four-year plan
and the six key strategic priorities that will consolidate and
strengthen the combined business, with the goal of delivering
modest revenue growth in the medium-term as well as underpinning
our margin improvement objectives.
The Enlarged Group is a strong platform and once we achieve our
target cash conversion ratio of 90% to 95% we will generate
significant free cash flows from which we can deliver returns of
value to our shareholders and/or further highly accretive
acquisitions.
Our performance in the period
Following completion of the transaction we have reviewed the
Alternative Performance Measures (“APM”) we use to
track the business and upon which we will provide guidance to the
market. Historically, Micro Focus has used several measures of
EBITDA which have held consistency with measures used over time,
however, at times this may have caused confusion with investors and
analysts. Micro Focus has used Underlying Adjusted EBITDA as the
key performance metric since 2011 for annual corporate bonus
calculation on a constant currency basis. It makes sense for this
to be the measure that is used going forward and is now renamed
“Adjusted EBITDA”. We use this term throughout the
document. Our net leverage target has been a multiple of Facility
EBITDA during this period. With the move to a single APM this
target is equivalent to a multiple of 2.7 times Adjusted
EBITDA.
The Group reported revenues of $1,234.5m (2016: $684.7m) and
Operating Profit of $220.0m (2016: $163.3m). Excluding the HPE
Software reported revenues of $569.8m, existing Micro Focus
delivered $664.7m to reported revenues (2016: $684.7m), a decline
of 2.9% and on a CCY basis this decline was 2.7% (2016: CCY
$683m).
The SUSE Product Portfolio grew reported revenues by 11.5% to
$164.4m (2016: $147.4m), 13.1% on a CCY basis (2016: CCY $145.3m)
in line with the Infrastructure Linux market, whilst the existing
Micro Focus Product Portfolio declined by 6.9% to $500.3m (2016:
$537.3m), 7.0% on a CCY basis (2016: CCY $537.7m).
Adjusted EBITDA was $530.1m (2016: $320.3m) with HPE Software
contributing $226.9m and existing Micro Focus delivering $303.2m.
On a CCY basis the existing Micro Focus delivered a 4.1% decline in
Adjusted EBITDA (2016: CCY $316.1m) as operational improvements
were put on hold pending the completion of the HPE Software
transaction.
Micro Focus Product Portfolio
The Micro Focus Product Portfolio, comprising the HPE Software
business and the existing Micro Focus Product Portfolio, represents
86.7% of total Group revenue in the six-month period to 31 October
2017 (2016: 78.5%). On a pro-forma basis for the Enlarged Group it
contributed 92% of pro-forma revenue in the 12 months ended 31
October 2017.
From within the Micro Focus Product Portfolio we will continue to
manage, for the Group overall, the corporate support functions of
HR, IT, Facilities, Finance, Legal and the Project Management
Office (“PMO”) for acquisitions and integration. In
addition, we manage the delivery of a shared service for other
elements of support to the SUSE portfolio enabling SUSE to directly
control what they need to execute with speed and flexibility whilst
leveraging the larger Group where effective as SUSE builds scale.
Wherever practical the corporate support functions staff are
dedicated to product portfolios, including SUSE, in order to
provide the additional benefit of specialization whilst leveraging
the scale of the shared function.
HPE Software
During the period from merger completion to 31 October 2017 we
operated the HPE Software business separately from the rest of the
Micro Focus Product Portfolio bringing the business together with
effect from 1 November 2017. HPE Software completed its full year
to 31 October 2017 which was the first full financial year since
the announcement of the spin merge with Micro Focus. I was
responsible for the HPE Software business with effect from 7
September 2016 and started to operate the business with a greater
focus on delivery of improved profitability as opposed to targeting
revenue growth.
The HPE Software business contributed revenues of $569.8m, after a
deferred revenue haircut of $25.3m and Adjusted EBITDA of $226.8m.
This revenue and Adjusted EBITDA contribution in the period
reflects the period end weighting of software licence
revenues.
As part of the provisional fair value adjustments relating to the
acquisition accounting, Micro Focus applied its standard bad debt
provisioning policy to the accounts receivable balance dependent on
the aging of the accounts receivables. Prior to these adjustments,
for the full year to 31 October 2017 the HPE Software business
(under US GAAP and HPE legacy accounting policies, adjusted for
divestitures, as derived from HPE Software management accounts) had
revenue of $2,891.3m and Adjusted EBITDA of $841.7m. This revenue
was at the bottom of the range of revenue guidance we gave after
the completion of the transaction. When compared against the
revenues of $3,172.0m and Adjusted EBITDA of $658.0m in the 12
months to 30 April 2016, this performance is an 8.9% reduction in
revenue and 27.9% increase in Adjusted EBITDA, representing an 8.4%
improvement in margin (29.1% v 20.7%).
Taking these provisional acquisition related adjustments into
account pro-forma Revenue was $2,866.0m as a result of the deferred
revenue haircut of $25.3m and pro-forma Adjusted EBITDA was $777.3m
after the deferred revenue haircut, bad debt provision of $35.2m
and incremental audit and insurance costs of $3.8m. At completion
the bad debt provision amounted to $42.7m and by 31 October 2017
this had increased to $49.3m. It is estimated that approximately
$35.2m of this bad debt provision would have arisen in the year to
31 October 2017 as the aging of the accounts receivable balances
increased during the carve out process from HPE.
Existing Micro Focus Product Portfolio
During the six months ended 31 October 2017 within the existing
Micro Focus Product Portfolio operational improvements were put on
hold in anticipation of completion of the transaction. The
combination with HPE Software would present operational
efficiencies that would be counter-productive to long term value
creation to seek within the existing business alone. In the period
reported revenue was $500.3m (2016: CCY $537.7m) a decline of 7.0%
and Adjusted EBITDA of $248.8m (2016: CCY $266.1m) a decline of
6.5%. The decline in revenue was primarily due to weakness in the
Host Connectivity portfolio, particularly in North America, where
there has been a continued impact of the loss of a sales team in
this area in the second half of last year.
With effect from 1 November we combined the existing Micro Focus
Product Portfolio with HPE Software in the Micro Focus product
portfolio with a single Go-to-Market operation.
SUSE Product Portfolio
The SUSE product portfolio represented 13.3% of the total Group
revenue in the six months ended 31 October 2017 (2016: CCY revenue
21.3%) and approximately 8% on a pro-forma basis for the 12 months
ended on that date.
SUSE has continued with the mandate to deliver “sustainable
and profitable revenue growth” and has continued to invest in
the business to support this vision. The six months to 31 October
2017 has seen another period of growth with overall revenues up
13.1% on a CCY basis in line with the infrastructure Linux market.
There have been challenges in the period with sales execution
issues in North America resulting in the replacement of the sales
leadership and management in that region. Growth of 35.5% was
achieved in Asia Pacific & Japan, 11.4% in International,
SUSE’s largest region, and only 8.7% in North
America.
SUSE continues with its growth mandate within the overall group
structure and commands appropriate investment to make the growth
mandate a reality.
Integration Update
The successful completion of the combination of Micro Focus with
HPE Software on 1 September 2017 was described by each of our
advisors at some stage as one of the most complicated transactions
they have worked on. The cross border nature of the Reverse Morris
Trust construct together with the carve out of HPE Software
business created complexity which was compounded by the regulatory
compliance required for dual listing of securities on the LSE and
NYSE on 1 September 2017. However, the team of employees,
consultants and advisors successfully delivered the completion of
the transaction and it was marked by the ringing of the opening
bell on the NYSE. This was followed by the first combined Capital
Markets Day in London and then a sixteen city #DiscovertheNew
customer and partner roadshow to
illustrate the combined product portfolio of the Enlarged
Group.
Leading up to the completion of the transaction the separate
companies were restricted by competition laws as to what
information could be shared on the respective businesses. We
recognized this challenge but also the need for clarity for
customers, partners and employees on the go forward organization
structure. The need for clarity led to working within the
restrictions but managing to plan effectively such that the new
fiscal year could be launched from 1 November.
We brought the Go-to-Market organization of Micro Focus and the
SUSE leadership team together for the Global Sales Kick Off in
early November to launch the new company. This provided the
opportunity to bring together teams from the heritage organization
and re-inforce the clear messaging that had been provided to
customers and partners on the roadshow.
In bringing the businesses together with effect from 1 November
2017 we have re-classified the products in the Micro Focus Product
Portfolio into five sub-portfolios and continue to operate SUSE
semi-independently. The sub-portfolios are Security, IT Operations
Management, Application Delivery Management, Information Management
& Governance and Application Modernization &
Connectivity.
Future Architecture Software Transformation (“FAST”)
update
Micro Focus has always believed that as part of its acquisition
strategy operating on a single set of systems and processes is the
most efficient way of operating the business. The challenge of
using its existing systems to scale for the Attachmate Group
(“TAG”) transaction in 2014 resulted in a plan to move
to a more scalable platform. Once it became apparent that the HPE
Software transaction was executable Micro Focus decided to utilize
the FAST platform that was being implemented by HPE Software as the
single platform for the Enlarged Group. We believe that once the
FAST platform is fully implemented and operational that it will
further reinforce enhance our ability to drive value from future
software acquisitions.
FAST had been built on an ambitious timeline with an anticipated
go-live date following completion of the full financial year to 31
October 2017. The decision was taken to go-live in November 2017
for the HPE Software business to accelerate the process of exiting
the remaining dependency on HPE systems for operational execution.
As with all complex systems implementations we knew this would
require issue remediation and ongoing focus until our target
standards of operation stability were achieved. Our current plan is
to transfer the existing Micro Focus business to FAST from November
2018. The go-live process has been more challenging than
anticipated due to issues related to migrated data that have taken
time to resolve. The system is going through its second month end
close and is being monitored closely through this key stage for the
system.
The challenges associated with the carve out of the HPE Software
business and the go-live on FAST have resulted in some delays to
customer and partner invoicing and cash collection in the short
term with an increase in DSO that is anticipated to continue for a
period of time. As at 31 October 2017 HPE Software had DSO of 75
compared to the rest of the Group at 46 DSO resulting in an
Enlarged Group DSO of 65.
Delivering value to shareholders
The board has adopted a very clear plan of value creation. We have
believed for some time that there are significant segments of the
enterprise software market that have matured. The response to this
is consolidation. To be successful in this stage of a market both
operational effectiveness and scale are critical. We believe that
Micro Focus is now well positioned to lead in this
space.
There is a clear customer requirement for a company that can
innovate and extend the life of mature software
assets.
Our priority is to improve the performance of the business in order
to maximize the opportunity to generate modest revenue growth in
the medium-term. At the same time, we have created flexibility to
allow value creation to shareholders through cash distributions or
acquisitions as appropriate. We deliver value to our customers
through customer centered innovation. We will do nothing that will
constrain our ability to achieve organic growth and we are
currently investing significant amounts on activities designed to
deliver value to customers that should provide a foundation to
drive sustainable growth.
The HPE Software transaction is transformational in terms of the
size of the Group from an operating point of view and follows on
from the Attachmate Group transaction in 2014. These transactions
involve the type of transformation that many companies would have
said that they needed to go private to achieve out of the public
eye. The board and management of Micro Focus believe that it is
quite possible to do this on the public market and deliver the
resulting increase in value to existing shareholders.
The HPE Software transaction was also transformational in terms of
market capitalization. The day before the announcement of the
transaction Micro Focus had a market capitalization of
£4,480.7m which had increased to £9,849.1m by completion.
At completion we issued 222.2m new ordinary shares and listed the
same number of American Depositary Shares (ADS) on the New York
Stock Exchange representing the underlying new ordinary shares. As
anticipated there has been a reduction in the number of ADS listed
on NYSE as HPE Shareholders either sold out of the stock or
transferred their investment into the underlying ordinary shares.
As a result of the work done with our brokers Numis Securities,
Micro Focus had marketed extensively to the existing HPE
shareholder base with the flow back of ADS to ordinary shares
occurring without significant volatility in the share price. As at
31 December 2017 there were 148.0m ADS listed on the NYSE, a
reduction of 34.3% compared with the number listed at completion
222.2m.
The board continues to target a modest level of gearing for a
company with the cash generating qualities of Micro Focus with a
target net debt to Adjusted EBITDA multiple of 2.7 times. We are
confident that this level of debt will not reduce our ability to
deliver our strategy, invest in products and/or make appropriate
acquisitions. As the integration of the businesses continues the
board will keep the appropriate level of debt under
review.
In order to complete the acquisition of HPE Software the Company
has extended its revolving credit facility from $375.0m to $500.0m,
refinanced its term loan debt of $1,515.2m with an improved
repayment profile and acquired or raised new term loan debt of
$3,532.5m to complete the transaction and make the Return of
Value.
At 31 October 2017, we had reported net debt of $4,151.7m
representing a net debt to pro-forma Adjusted EBITDA ($1,401.1m) of
3.0 times. Adjusting the net debt for the provisional amounts due
to and due from HPE as part of the agreement of the closing balance
sheet increases the net debt to $4,409.7m at an adjusted net debt
to pro-forma Adjusted EBITDA ($1,401.1m) of 3.1 times.
The board has adopted a dividend policy of being two times covered
by the adjusted earnings of the Group. With the extension of the
year end to 31 October, the company intends to pay two interim
dividends and a final dividend for the 18-month period ended 31
October 2018. Applying this policy to the first interim dividend
results a payment of 34.60 cents (2016: 29.73 cents).
The dividend will be paid in Sterling equivalent to 25.63 pence per
share, based on an exchange rate of £1 = $1.35, the rate
applicable on 5 January, 2018, the date on which the board resolved
to pay the dividend. The dividend will be paid on 9 February 2018
to shareholders on the register as at 19 January 2018.
Board and Management Changes
During the period from 1 May 2017 to the date of this report we
have seen a number of Board and Management changes arising out of
the HPE Software transaction and the strengthening of the
management team of the Enlarged Group.
Silke Scheiber and Darren Roos were appointed as independent
Non-Executive Directors with effect from 15 May 2017 and a further
independent Director, Lawton Fitt, was appointed with effect from
31 October 2017. John Schultz, who is a serving executive of HPE
and is not independent joined the Board with effect from 1
September 2017. These appointments were all confirmed by the Micro
Focus Nomination Committee and were in accordance with the terms of
the Merger Agreement. On 1 September 2017 Stephen Murdoch stepped
down from the Board and took up the role of Chief Operating Officer
for the Enlarged Group.
On 20 December 2017 Micro Focus and HPE announced that they had
decided to amend the terms of the Merger Agreement dated 7
September 2016 in respect of nominated directors. Following the
recent promotion of John Schultz to Chief Legal and Administrative
Officer of HPE, Micro Focus and HPE have agreed that HPE should
nominate an independent non-executive to replace John Schultz on
the Micro Focus Board. This will enable John to focus on his new
responsibilities and enable Micro Focus to increase the mix of
independent directors on the Board. John Schultz stepped down from
the Board with immediate effect on 20 December 2017; a further
announcement will be made when a candidate has been
chosen.
Today we are delighted to announce two new members of the
management team– Chris Kennedy as Chief Financial Officer and
Ian Fraser as Chief Human Resources Officer.
Mike Phillips, our current CFO, is taking on a new and important
role for Micro Focus as Director of M&A. Mike has been an
invaluable member of the Micro Focus leadership team since
September 2010. He played a key role in building the Micro Focus
business model and driving the impressive track record of
results.
We are excited to have Chris joining us. He’s a world class
CFO with FTSE experience. At ARM and previously easyJet he was
responsible for driving detailed operating rigor at
scale.
Ian joins us from RELX Group where he was the Group HR Director and
played a key role in the company’s transformation from a
largely traditional publishing business to a world-leading provider
of information and analytics for professional and business
customers across industries. He will take over from Karen Geary,
who was on our board as a non-executive director and then took on
executive responsibilities to provide HR leadership during a
critical time for our company. I would like to thank Karen for her
commitment during this time of tremendous change.
I am thrilled to welcome Chris and Ian to the company. They both
have deep expertise in their respective areas as well as experience
dealing with listed businesses of scale in the UK and US. They will
be great additions to an already strong management
team.
I am pleased to welcome the new Board and management team members
to Micro Focus.
Outlook
Micro Focus Product Portfolio
The period from announcement to completion of the HPE Software
transaction is the longest of any of the Micro Focus mergers and
acquisitions. This was a period of uncertainty for customers,
partners, investors and employees which came to an end as we
brought the two companies together at the beginning of November. We
have achieved a great deal over the last 12 months and enter the
new financial year with stronger foundations than a year
ago.
We continue to focus on improving the way in which we operate to
maximize the efficiency of the organization.
The Group has undergone huge change in FY16 and FY17 but the one
constant has been clarity of strategy and the associated focus on
aligning operational execution to the delivery of that strategy.
Looking forward to the new FY18 this focus will continue with our
key priorities being:
●
Delivery
of our financial plan;
●
Continuing
to operationalize the FOUR-BOX MODEL to better align resources to
optimize the performance of each sub-portfolio; and
●
Integration
with HPE Software following Completion of the
transaction.
SUSE Product Portfolio
For FY18 SUSE will focus on the successful execution of
SUSE’s mandate for sustainable, profitable revenue growth.
The objective is to grow revenue ahead of growth rates for relevant
markets.
Group Outlook
Our focus continues to be delivering annual returns to investors in
the range of 15% to 20% per annum. We believe we have a strong
operational and financial model that can continue to scale and
provide excellent returns to our shareholders.
We anticipate revenues for the Group for the twelve months ending
31 October 2018 will decline by 2% to 4% when compared to the
pro-forma revenues for the 12 months ended 31 October 2017 of
$4,226.7m. As a result of the change in year-end we anticipate a
shift in Licence revenue towards the new year-end of 31 October
which will lead to second half revenues being higher than those in
the six months to 30 April. We will seek to re-balance this revenue
weighting in future years.
Chris Hsu
Chief Executive Officer
7 January 2018
Financial Review
The following discussion provides an analysis of our results of
operations and should be read in conjunction with
our unaudited consolidated financial statements
included elsewhere in this report.
We include certain non-IFRS financial measures which assist
management in comparing our performance on a consistent basis for
purposes of business decision-making by removing the impact of
certain items that management believes do not directly reflect our
underlying operations. Included in the following discussion is
Adjusted Operating Profit and Adjusted EBITDA, both of which are
non-IFRS financial measures. For additional information on Adjusted
Operating Profit and Adjusted EBITDA see “Non-IFRS
Measures.”
The Group operates two product portfolios (i) Micro Focus and (ii)
SUSE. These are the operating segments and the cash generating
units for the Group.
The
Micro Focus Product Portfolio contains our mature infrastructure
software products that are managed on a portfolio basis akin to a
“fund of funds” investment portfolio. This portfolio is
being managed through the 4 BOX Model underpinned by consistent end
to end processes to make and maintain the software, whilst the
software is sold and supported through a geographic Go-to-Market
(“GTM”) organization. Within the existing Micro Focus
Product Portfolio, products are organised into five sub-portfolios
based on industrial logic. During the period from completion to 31
October 2017 the HPE Software Products have also been managed under
the Micro Focus Product Portfolio with its own set of five
sub-portfolios of product.
SUSE’s
characteristics are different due to the Open Source nature and the
growth profile of its offerings.
The
portfolios have directly controlled costs and then an allocation of
costs of the functions that are managed within the Micro Focus
portfolio and provide services to both portfolios together with
centrally managed support function costs. Set out in the table
below are the profitability metrics for our two product portfolios
including the breakdown of Adjusted Operating Profit and Adjusted
EBITDA for the period:
|
|
Six months ended
31 October 2017
As reported
|
Six
months ended
31
October 2016
CCY
|
Six
months ended
31
October 2016
As
reported
|
|
|
Micro Focus
|
SUSE
|
Group
|
|
|
|
|
|
|
|
|
|
Existing Micro Focus
|
HPE Software
|
Micro Focus Total
|
Micro
Focus
|
SUSE
|
Group
|
Micro
Focus
|
SUSE
|
Group
|
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
|
Segment revenue
|
500.3
|
569.8
|
1,070.1
|
164.4
|
1,234.5
|
537.7
|
145.3
|
683.0
|
537.3
|
147.4
|
684.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directly
managed costs
|
(262.9)
|
(352.8)
|
(615.7)
|
(98.6)
|
(714.3)
|
(278.5)
|
(82.2)
|
(360.7)
|
(277.3)
|
(81.2)
|
(358.5)
|
|
|
Allocation
of centrally managed costs
|
19.8
|
(3.8)
|
16.0
|
(16.0)
|
-
|
12.7
|
(12.7)
|
-
|
12.7
|
(12.7)
|
-
|
|
|
Total Adjusted Operating costs
|
(243.1)
|
(356.6)
|
(599.7)
|
(114.6)
|
(714.3)
|
(265.8)
|
(94.9)
|
(360.7)
|
(264.6)
|
(93.9)
|
(358.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Profit
|
257.2
|
213.2
|
470.4
|
49.8
|
520.2
|
271.9
|
50.4
|
322.3
|
272.7
|
53.5
|
326.2
|
|
|
Adjusted Margin
|
51.4%
|
37.4%
|
44.0%
|
30.3%
|
42.1%
|
50.6%
|
34.7%
|
47.2%
|
50.8%
|
36.3%
|
47.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Profit
|
257.2
|
213.2
|
470.4
|
49.8
|
520.2
|
271.9
|
50.4
|
322.3
|
272.7
|
53.5
|
326.2
|
|
|
Depreciation
of property, plant and equipment
|
4.6
|
10.4
|
15.0
|
1.3
|
16.3
|
4.8
|
0.9
|
5.7
|
4.7
|
1.0
|
5.7
|
|
|
Amortization
of software intangibles
|
1.0
|
1.0
|
2.0
|
0.8
|
2.8
|
0.4
|
-
|
0.4
|
0.5
|
0.1
|
0.6
|
|
|
Foreign
exchange (credit)/debit
|
(9.5)
|
2.3
|
(7.2)
|
2.5
|
(4.7)
|
(7.8)
|
(1.3)
|
(9.1)
|
(8.0)
|
(1.3)
|
(9.3)
|
|
|
Net
capitalization of development costs
|
(4.5)
|
-
|
(4.5)
|
-
|
(4.5)
|
(3.2)
|
-
|
(3.2)
|
(2.9)
|
-
|
(2.9)
|
|
|
Adjusted EBITDA
|
248.8
|
226.9
|
475.7
|
54.4
|
530.1
|
266.1
|
50.0
|
316.1
|
267.0
|
53.3
|
320.3
|
|
|
Adjusted Margin
|
49.7%
|
39.8%
|
44.5%
|
33.1%
|
42.9%
|
49.5%
|
34.4%
|
46.3%
|
49.7%
|
36.2%
|
46.8%
|
|
HPE
Software was acquired on 1 September 2017 and contributed $569.8m
to revenue in the period. HPE Software is reported within the Micro
Focus Product Portfolio for the period under review. With effect
from 1 November the Micro Focus Product Portfolio will be managed
as one with a consolidation of the sub-portfolios into five
sub-portfolios based on industrial logic (as previously
communicated at the Capital Markets Day).
The
table below shows the reported revenue breakdown by type within the
Micro Focus Product Portfolio and SUSE Product Portfolio for the
six months to 31 October 2017, along with reported and CCY revenue
for the six months to 31 October 2016 and the year ended 30 April
2017.
|
|
Six months
ended
31 October
2017
As reported
|
Six
months
ended
31
October
2016
CCY
|
(Decline)/
Growth
|
Six
months
ended
31
October
2016
As
reported
|
Year
ended
30
April
2017
CCY
|
Year
ended
30
April
2017
As
reported
|
|
|
$m
|
$m
|
%
|
$m
|
$m
|
$m
|
|
Existing Micro Focus
Product Portfolio
|
|
|
|
|
|
|
|
Licence
|
122.9
|
148.1
|
(17.0)%
|
146.9
|
314.0
|
308.4
|
|
Maintenance
|
354.1
|
363.2
|
(2.5)%
|
364.2
|
723.8
|
720.7
|
|
Consultancy
|
23.3
|
26.4
|
(11.7)%
|
26.2
|
49.2
|
48.2
|
|
|
500.3
|
537.7
|
(7.0)%
|
537.3
|
1,087.0
|
1,077.3
|
|
HPE Software Product
Portfolio
|
|
|
|
|
|
|
|
Licence
|
204.8
|
-
|
-
|
-
|
-
|
-
|
|
Maintenance
|
257.4
|
-
|
-
|
-
|
-
|
-
|
|
Consultancy
|
55.2
|
-
|
-
|
-
|
-
|
-
|
|
SaaS
|
52.4
|
-
|
-
|
-
|
-
|
-
|
|
|
569.8
|
-
|
-
|
-
|
-
|
-
|
|
Total Micro Focus Product
Portfolio
|
|
|
|
|
|
|
|
Licence
|
327.7
|
148.1
|
121.3%
|
146.9
|
314.0
|
308.4
|
|
Maintenance
|
611.5
|
363.2
|
68.4%
|
364.2
|
723.8
|
720.7
|
|
Consultancy
|
78.5
|
26.4
|
197.3%
|
26.2
|
49.2
|
48.2
|
|
SaaS
|
52.4
|
-
|
-
|
-
|
-
|
-
|
|
|
1,070.1
|
537.7
|
99.0%
|
537.3
|
1,087.0
|
1,077.3
|
|
SUSE Product
Portfolio
|
|
|
|
|
|
|
|
Licence
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Maintenance
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Subscription
|
162.6
|
142.7
|
13.9%
|
144.9
|
295.7
|
298.7
|
|
Consultancy
|
1.8
|
2.6
|
(30.8)%
|
2.5
|
4.9
|
4.7
|
|
|
164.4
|
145.3
|
13.1%
|
147.4
|
300.6
|
303.4
|
|
Total
Revenue
|
|
|
|
|
|
|
|
Licence
|
327.7
|
148.1
|
121.3%
|
146.9
|
314.0
|
308.4
|
|
Maintenance
|
611.5
|
363.2
|
68.4%
|
364.2
|
723.8
|
720.7
|
|
Subscription
|
162.6
|
142.7
|
13.9%
|
144.9
|
295.7
|
298.7
|
|
Consultancy
|
80.3
|
29.0
|
176.9%
|
28.7
|
54.1
|
52.9
|
|
SaaS
|
52.4
|
-
|
-
|
-
|
-
|
-
|
|
|
1,234.5
|
683.0
|
80.7%
|
684.7
|
1,387.6
|
1,380.7
|
We are
not providing renewal rate information for SUSE, existing Micro
Focus or HPE Software within this set of results. Our methodology
is still being refined in order to accommodate data from our
multiple systems. We believe that until renewal information is
provided, following the trends on the maintenance revenue for the
Micro Focus sub-portfolios and subscription revenues for SUSE
provides the best guidance on performance.
Micro Focus Product Portfolio
Revenue for the Micro Focus Product Portfolio grew by 99.0% on a
CCY basis as a result of the inclusion of 2 months of HPE Software.
The contribution of HPE Software to each of the revenue categories
is shown in the table above for the period from completion to 31
October 2017. Without HPE Software, revenue declined by 7.0% on a
CCY basis and the category movements are explained
below.
Licence revenue
Licence revenue for the existing Micro Focus Product Portfolio
declined by 17.0% on a CCY basis. There was year-on-year Licence
revenue growth in Identity Access & Security, Development &
IT Operations Management Tools and Collaboration & Networking
offset by declines in CDMS and, primarily, Host
Connectivity.
Maintenance revenue
Maintenance revenues for the existing Micro Focus Product Portfolio
declined by only 2.5% on a CCY basis. Growth in CDMS was offset by
declines in the other sub-portfolios.
Consultancy revenue
Consultancy revenues for the existing Micro Focus Product Portfolio
declined by 11.7% on a CCY basis as we completed the implementation
of the established Micro Focus policy of focusing only on
consulting business that supports our licence
business.
SUSE Product Portfolio
The SUSE Product Portfolio revenue increased by 13.1% to $164.4m
compared with the CCY revenues for the comparative period of
$145.3m, with the Subscription revenue increasing by 13.9% to
$162.6m (2016: CCY $142.7m).
SUSE – Key Financial Metrics
SUSE provides technical support together with rights to updates,
patches and security fixes for its Open Source solutions on a
subscription basis with revenues being recognized rateably over the
period of the contract. The key metrics are Revenue, Total Contract
Value (“TCV”) and Annual Contract Value
(“ACV”). The ACV represents the value of the first 12
months of each contract reported as TCV.
TCV and ACV
TCV represents the gross billings for the six months ended 31
October 2017 of $151.9m, a decrease of 1.6% from the CCY for the
six months ended 31 October 2016 of $154.3m. The weighted average
contract duration reduced to 28 months in the six months ended 31
October 2017 from 32 months in the six months ended 31 October
2016.
The ‘in period yield’ from TCV to revenue remained
broadly the same at 24.0% in the six months ended 31 October 2017
as it was in the year ended 30 April 2017. ‘In period
yield’ represents the proportion of TCV generated in the
period that can be recognized as Subscription Fee Revenue
(“SFR”) in the same period. Net new subscription TCV
increased by 1.8% year-on-year and renewal subscriptions TCV
decreased by 7.2% year-on-year.
Renewal subscription TCV will always be correlated to available
renewal opportunity pool. As we are seeing a shift of SUSE on
premise workloads to SUSE off premise workloads, expectation is for
the renewal opportunity pool to decline. Another contributor to
declining renewal TCV is SUSE customers consuming required renewal
subscriptions through Independent Hardware Vendors, when the
initial sale was direct or through a value added reseller. This is
further corroborated by the significant increase we had in business
derived through Public Cloud Service Providers as a route to
market. Business through Independent Hardware Vendors also
continues to grow as expected. Net new subscription contracts are derived from sale
of subscriptions to new logo customers and existing customers
expanding footprint of existing product portfolio or subscribing to
new product solutions.
ACV measures the first 12-months duration equivalent of TCV. ACV
grew to $101.6m, an increase of 2.5% from the CCY for FY17 of
$99.1m. ACV removes the impact of multi-year TCV and is a cleaner
KPI on the performance of the business. Where subscription term is
less than 12 months, all of the subscription TCV billing is
included in the ACV measure.
Regional TCV performance
|
|
Six months
ended
31 October
2017
As reported
|
Six
months
ended
31
October
2016
CCY
|
(Decline)/
Growth
|
Six months
ended
31 October
2016
As reported
|
Year
ended
30
April
2017
As
reported
|
|
|
$m
|
$m
|
%
|
$m
|
$m
|
|
North
America
|
56.2
|
57.0
|
(1.4%)
|
57.1
|
117.3
|
|
International
|
69.9
|
75.7
|
(7.7%)
|
75.1
|
175.4
|
|
Asia
Pacific & Japan
|
25.8
|
21.6
|
19.4%
|
21.8
|
46.4
|
|
|
151.9
|
154.3
|
(1.6%)
|
154.0
|
339.1
|
Regional ACV performance
|
|
Six months
ended
31 October
2017
As reported
|
Six
months
ended
31
October
2016
CCY
|
(Decline)/
Growth
|
Six months
ended
31 October
2016
As reported
|
Year
ended
30
April
2017
As
reported
|
|
|
$m
|
$m
|
%
|
$m
|
$m
|
|
North
America
|
42.2
|
38.9
|
8.5%
|
36.2
|
84.2
|
|
International
|
38.7
|
43.5
|
(11.0%)
|
36.3
|
99.7
|
|
Asia
Pacific & Japan
|
20.7
|
16.7
|
24.0%
|
16.3
|
36.2
|
|
|
101.6
|
99.1
|
2.5%
|
88.8
|
220.1
|
North America had below expected performance on TCV but showed
growth in ACV, declining by 1.4% and growing by 8.5% respectively.
Timing of some of the larger enterprise multi-year renewals
together with deferral of some of the larger enterprise deals
contributed to this TCV decline. Most of the slipped opportunities
have subsequently been closed. Strong growth in ACV is influenced
by good growth in shorter duration Public Cloud Service Provider
business.
International had below expected performance in both TCV and ACV
declining by 7.7% and 11.0% respectively. Comparison for
International on TCV and ACV is influenced by a very strong
comparative period, where we had a few very large enterprise
transactions conclude in the prior period.
Asia Pacific & Japan continued to have very strong performance
in TCV and ACV, growing by 19.4% and 24.0% respectively. We
continue to have strong performance in China and some of the other
emerging markets, and continue to win new accounts in some of the
other key markets in the region.
The region continues to get good traction and growing revenue
streams from local OEM relationships and also by leveraging the
global agreements we have in place with key Independent Hardware
Vendors and public cloud service providers.
ACV contribution by route to market
|
|
Six months
ended
31 October
2017
As reported
|
Six
months
ended
31
October
2016
CCY
|
(Decline)/
Growth
|
Six
months
ended
31
October
2016
As
reported
|
Year
ended
30
April
2017
As
reported
|
|
|
$m
|
$m
|
%
|
$m
|
$m
|
|
Direct
|
16.6
|
16.3
|
1.8%
|
14.0
|
47.3
|
|
Indirect
|
41.5
|
39.5
|
5.1%
|
35.1
|
87.1
|
|
Global
Service Partners
|
41.1
|
40.3
|
2.0%
|
36.8
|
80.2
|
|
OEM
(Embedded Systems)
|
2.4
|
3.0
|
(20.0)%
|
2.9
|
5.5
|
|
Total
|
101.6
|
99.1
|
2.5%
|
88.8
|
220.1
|
Direct represents customers
that have a master licence agreement with SUSE and subscribe
directly with SUSE or via authorized fulfillment
partners.
Indirect represents customers
that subscribe via the SUSE Value Added Reseller network and
predominantly through a two tier distribution
model.
Global Service Partners represents primarily Independent Hardware Vendors
who sell SUSE subscriptions alongside the sale of their respective
hardware and subscriptions generated from cloud service
providers.
OEM (Embedded Systems) represents entities that embed SUSE subscriptions
within the sale of their respective specialized appliance
offerings.
We continue to see growth in Direct, Indirect and Global Service
Partners routes to market, growing by 1.8%, 5.1% and 2.0%
respectively.
We also see a trend of customers, who purchased subscriptions at
the outset direct and through Value Added Resellers, subsequently
subscribing through Global Service Partners. We continue to see
strength in the Value Added Reseller network, where we have seen
significant growth in ACV during the period. SUSE is focused on
continuing to invest and strengthen its reach to customers through
its mature extensive value add reseller, independent hardware
vendor and cloud service provider routes to market.
OEM (Embedded Systems) transactions tend to be large, custom,
specialized and binary in nature, and thus year on year
fluctuations in ACV generated are to be expected.
We continued to extend SUSE’s presence and contribution in
key Open Source projects and relevant industry groups both in
support of strengthening our contribution to Open Source innovation
and development efforts as well as in support of our partner and
enterprise customer relationships.
Deferred revenue
We continue to have year on year steady growth in the deferred
revenue balance. At 31 October 2017 SUSE total deferred revenue
balance was $366.1m (31 October 2016: $331.5m), an increase of
$34.6m (10.4%) year-on-year. 75.5% of this increase in deferred
revenue balance is recognizable revenue in the next 12 months and
84.4% recognizable in the next 24 months.
REGIONAL REVENUE
Regional revenue performance for the Group
The
table below shows Micro Focus regional revenue for the six months
to 31 October 2017, six months to 31 October 2016 and the year
ended 30 April 2017:
|
|
Six months
ended
31 October
2017
As reported
|
Six
months
ended
31
October
2016
CCY
|
(Decline)/
Growth
|
Six
months
ended
31
October
2016
As
reported
|
Year
ended
30
April 2017
CCY
|
Year
ended
30
April
2017
As
reported
|
|
|
$m
|
$m
|
%
|
$m
|
$m
|
$m
|
|
Micro Focus Product
Portfolio
|
|
|
|
|
|
|
|
North
America
|
267.9
|
300.2
|
(10.8)%
|
299.8
|
592.8
|
591.4
|
|
International
|
188.2
|
189.0
|
(0.4)%
|
187.7
|
398.7
|
389.7
|
|
Asia
Pacific & Japan
|
44.2
|
48.5
|
(8.9)%
|
49.8
|
95.5
|
96.2
|
|
|
500.3
|
537.7
|
(7.0)%
|
537.3
|
1,087.0
|
1,077.3
|
|
HPE Software Acquisition*
|
569.8
|
-
|
-
|
-
|
-
|
-
|
|
|
1,070.1
|
537.7
|
99.0%
|
537.3
|
1,087.0
|
1,077.3
|
|
SUSE Product
Portfolio
|
|
|
|
|
|
|
|
North
America
|
65.1
|
59.9
|
8.7%
|
59.9
|
121.7
|
121.8
|
|
International
|
76.0
|
68.2
|
11.4%
|
70.0
|
140.3
|
142.8
|
|
Asia
Pacific & Japan
|
23.3
|
17.2
|
35.5%
|
17.5
|
38.6
|
38.8
|
|
|
164.4
|
145.3
|
13.1%
|
147.4
|
300.6
|
303.4
|
|
Total
Revenue
|
|
|
|
|
|
|
|
Existing Micro Focus:
|
|
|
|
|
|
|
|
North
America
|
333.0
|
360.1
|
(7.5)%
|
359.7
|
714.5
|
713.2
|
|
International
|
264.2
|
257.2
|
2.7%
|
257.7
|
539.0
|
532.5
|
|
Asia
Pacific & Japan
|
67.5
|
65.7
|
2.7%
|
67.3
|
134.1
|
135.0
|
|
|
664.7
|
683.0
|
(2.7)%
|
684.7
|
1,387.6
|
1,380.7
|
|
HPE Software acquisition
|
569.8
|
-
|
-
|
-
|
-
|
-
|
|
Total Revenue
|
1,234.5
|
683.0
|
80.7%
|
684.7
|
1,387.6
|
1,380.7
|
* The
HPE Software acquisition has not been split by region here as the
regions were not consistent with the existing Micro Focus regions.
The HPE Software regions split is provided below.
Micro Focus Product Portfolio regional revenue
performance
The
Micro Focus Product Portfolio revenue by region and by revenue
stream is shown in the table below:
|
Existing Micro Focus
|
Six months
ended
31 October
2017
As reported
|
Six
months
ended
31
October
2016
CCY
|
(Decline)/
Growth
|
Six
months
ended
31
October 2016
As
reported
|
Year
ended
30
April
2017
CCY
|
Year
ended
30
April
2017
As
reported
|
|
|
$m
|
$m
|
%
|
$m
|
$m
|
$m
|
|
North
America
|
|
|
|
|
|
|
|
Licence
|
55.0
|
80.0
|
(31.3)%
|
80.0
|
157.4
|
157.1
|
|
Maintenance
|
201.0
|
206.2
|
(2.5)%
|
205.8
|
410.1
|
409.2
|
|
Consultancy
|
11.9
|
14.0
|
(15.0)%
|
14.0
|
25.3
|
25.1
|
|
|
267.9
|
300.2
|
(10.8)%
|
299.8
|
592.8
|
591.4
|
|
International
|
|
|
|
|
|
|
|
Licence
|
51.6
|
48.9
|
5.5%
|
47.3
|
119.6
|
114.2
|
|
Maintenance
|
126.2
|
129.0
|
(2.2)%
|
129.5
|
257.8
|
255.0
|
|
Consultancy
|
10.4
|
11.1
|
(6.3)%
|
10.9
|
21.3
|
20.5
|
|
|
188.2
|
189.0
|
(0.4)%
|
187.7
|
398.7
|
389.7
|
|
Asia Pacific &
Japan
|
|
|
|
|
|
|
|
Licence
|
16.3
|
19.2
|
(15.1)%
|
19.6
|
37.0
|
37.1
|
|
Maintenance
|
26.9
|
28.0
|
(3.9)%
|
28.9
|
55.9
|
56.5
|
|
Consultancy
|
1.0
|
1.3
|
(23.1)%
|
1.3
|
2.6
|
2.6
|
|
|
44.2
|
48.5
|
(8.9)%
|
49.8
|
95.5
|
96.2
|
|
Total
|
|
|
|
|
|
|
|
Licence
|
122.9
|
148.1
|
(17.0)%
|
146.9
|
314.0
|
308.4
|
|
Maintenance
|
354.1
|
363.2
|
(2.5)%
|
364.2
|
723.8
|
720.7
|
|
Consultancy
|
23.3
|
26.4
|
(11.7)%
|
26.2
|
49.2
|
48.2
|
|
Existing Micro Focus Total
|
500.3
|
537.7
|
(7.0)%
|
537.3
|
1,087.0
|
1,077.3
|
North America had a disappointing performance in the period with
licence revenue down 31.3% year on year. Growth in IAS,
Collaboration & Networking and ITOM were more than offset by
declines in CDMS and Host Connectivity. The latter continued to be
impacted by the loss of an entire sales team to a competitor in the
second half of 2017 and the subsequent disruption to customer
project engagement and flow. Maintenance revenue declined as
expected and overall revenues were down 10.8%
International’s revenues were broadly flat year over year
with growth in licence more than offsetting the decline in
Maintenance and Consultancy. Licence growth in CDMS, IAS and ITOM
more than offset the decline in IAS and Collaboration and
Networking. Maintenance and Consultancy declines were in line with
expectations.
Asia Pacific & Japan saw an 8.9% revenue decline in the six
months to October 2017. Licence revenues were down in all
portfolios except Collaboration and Networking whilst maintenance
revenues declined in line with expectations.
HPE Software regional revenue performance
|
|
Six months
ended
31 October
2017
As reported
|
|
|
$m
|
|
Americas
|
|
|
Licence
|
119.4
|
|
Maintenance
|
150.9
|
|
Consultancy
|
22.7
|
|
SaaS
|
39.5
|
|
|
332.5
|
|
EMEA
|
|
|
Licence
|
58.6
|
|
Maintenance
|
80.4
|
|
Consultancy
|
24.9
|
|
SaaS
|
9.7
|
|
|
173.6
|
|
Asia Pacific &
Japan
|
|
|
Licence
|
26.8
|
|
Maintenance
|
26.1
|
|
Consultancy
|
7.6
|
|
SaaS
|
3.2
|
|
|
63.7
|
|
Total
|
|
|
Licence
|
204.8
|
|
Maintenance
|
257.4
|
|
Consultancy
|
55.2
|
|
SaaS
|
52.4
|
|
|
569.8
|
The
table above provides the breakdown of the HPE Software revenue
contribution for the period from completion to 31 October 2017.
There is no comparative information for the acquisition and the
delivered revenue in the two months brought the total revenue for
the HPE Software business in the year to 31 October 2017 to the
bottom of the range of guidance we gave after
completion.
On a go forward basis, the Enlarged Group’s revenue regions
will be organized to the Americas (consisting of North America and
Latin America), EMEA, and Asia Pacific and Japan.
SUSE Product Portfolio regional revenue performance
|
|
Six months
ended
31 October
2017
As reported
|
Six
months
ended
31
October
2016
CCY
|
(Decline)/
Growth
|
Six
months
ended
31
October
2016
As
reported
|
Year
ended
30
April
2017
CCY
|
Year
ended
30
April
2017
As
reported
|
|
|
$m
|
$m
|
%
|
$m
|
$m
|
$m
|
|
North
America
|
65.1
|
59.9
|
8.7%
|
59.9
|
121.7
|
121.8
|
|
International
|
76.0
|
68.2
|
11.4%
|
70.0
|
140.3
|
142.8
|
|
Asia
Pacific & Japan
|
23.3
|
17.2
|
35.5%
|
17.5
|
38.6
|
38.8
|
|
Total
|
164.4
|
145.3
|
13.1%
|
147.4
|
300.6
|
303.4
|
North America, International and Asia Pacific & Japan regions
have shown growth on a CCY basis in revenue of 8.7%, 11.4% and
35.5% respectively. Growth in these regions was derived across all
routes to market, coming into the period with a strong deferred
income roll out together with securing new business with large
enterprise accounts directly and through the various alliances and
channel partners.
We are pleased to note that the change to specializing and aligning
the field sales and marketing resources to SUSE in the Asia Pacific
& Japan has continued to result in sustained recurring
profitable revenue growth.
We made changes to the sales leadership in North America in the
June to September timeframe and are rebuilding the sales team
there. This contributed to the lower than expected revenue growth
in North America in the period.
Existing Micro Focus Product Portfolio revenue
performance
Revenue
for the existing Micro Focus products, net of the deferred revenue
haircut, for the period at actual, constant currency exchange rates
and reported comparatives are shown in the table
below:
|
|
Six months
ended
31 October
2017
As reported
|
Six
months
ended
31
October
2016
CCY
|
(Decline)/
Growth
|
Six
months
ended
31
October
2016
As
reported
|
Year
ended
30
April
2017
CCY
|
Year
ended
30
April
2017
As
reported
|
|
|
$m
|
$m
|
%
|
$m
|
$m
|
$m
|
|
CDMS
|
|
|
|
|
|
|
|
Licence
|
43.7
|
52.7
|
(17.1)%
|
52.4
|
108.0
|
106.0
|
|
Maintenance
|
77.7
|
76.0
|
2.2%
|
75.3
|
152.7
|
149.7
|
|
Consultancy
|
4.7
|
5.5
|
(14.5)%
|
5.5
|
9.7
|
9.5
|
|
|
126.1
|
134.2
|
(6.0)%
|
133.2
|
270.4
|
265.2
|
|
Host
Connectivity
|
|
|
|
|
|
|
|
Licence
|
15.1
|
39.2
|
(61.5)%
|
38.9
|
69.8
|
69.2
|
|
Maintenance
|
50.8
|
52.4
|
(3.1)%
|
52.6
|
104.6
|
104.4
|
|
Consultancy
|
0.6
|
0.8
|
(25.0)%
|
0.9
|
2.0
|
1.8
|
|
|
66.5
|
92.4
|
(28.0)%
|
92.4
|
176.4
|
175.4
|
|
Identity, Access &
Security
|
|
|
|
|
|
|
|
Licence
|
23.2
|
20.1
|
15.4%
|
19.8
|
49.7
|
48.6
|
|
Maintenance
|
68.0
|
69.7
|
(2.4)%
|
70.3
|
139.2
|
140.0
|
|
Consultancy
|
9.0
|
10.2
|
(11.8)%
|
10.2
|
18.6
|
18.4
|
|
|
100.2
|
100.0
|
0.2%
|
100.3
|
207.5
|
207.0
|
|
Development & IT
Operations Management Tools
|
|
|
|
|
|
|
|
Licence
|
27.4
|
24.7
|
10.9%
|
24.6
|
56.6
|
55.4
|
|
Maintenance
|
105.0
|
109.5
|
(4.1)%
|
109.4
|
217.4
|
215.9
|
|
Consultancy
|
7.3
|
7.5
|
(2.7)%
|
7.3
|
14.1
|
13.9
|
|
|
139.7
|
141.7
|
(1.4)%
|
141.3
|
288.1
|
285.2
|
|
Collaboration &
Networking
|
|
|
|
|
|
|
|
Licence
|
13.5
|
11.4
|
18.4%
|
11.2
|
29.9
|
29.2
|
|
Maintenance
|
52.6
|
55.6
|
(5.4)%
|
56.6
|
109.9
|
110.7
|
|
Consultancy
|
1.7
|
2.4
|
(29.2)%
|
2.3
|
4.8
|
4.6
|
|
|
67.8
|
69.4
|
(2.3)%
|
70.1
|
144.6
|
144.5
|
|
Total Existing Micro
Focus
|
|
|
|
|
|
|
|
Licence
|
122.9
|
148.1
|
(17.0)%
|
146.9
|
314.0
|
308.4
|
|
Maintenance
|
354.1
|
363.2
|
(2.5)%
|
364.2
|
723.8
|
720.7
|
|
Consultancy
|
23.3
|
26.4
|
(11.7)%
|
26.2
|
49.2
|
48.2
|
|
Total
|
500.3
|
537.7
|
(7.0)%
|
537.3
|
1,087.0
|
1,077.3
|
CDMS revenues were $126.1m; a
decline of 6.0% on a CCY basis compared with the period to 31
October 2016. Maintenance revenues grew by 2.2% but this was more
than offset by the decline in licence revenues, North America saw
the largest decline in licence followed by APJ with growth in
International slightly mitigating these declines. Licence revenues
declined by 17.1% ($9.0m), Maintenance revenues grew by 2.2%
($1.7m) and Consulting revenues declined by 14.5% ($0.8m). CDMS
revenues are typically cyclical to an extent and as such we
continue to see this key area as delivering broadly stable revenues
over the medium to long-term.
Host Connectivity revenues
declined by 28.0% ($25.9m) in the period on a CCY basis. Licence
revenues declined by 61.5% ($24.1m) with all regions impacted but
particularly North America which was mostly as a result of the loss
to a competitor of an entire sales team and management structure in
the second half of FY2017 and the subsequent disruption to customer
project engagement and flow. Maintenance revenues declined
marginally by 3.1% ($1.6m) and there was a decline in Consulting
revenues of 25.0% ($0.2m).
Identity, Access & Security revenues grew by 0.2% ($0.2m) in the period on a
CCY basis. Licence revenues grew by 15.4% with this growth offset
by anticipated declines in Maintenance and Consultancy revenues. We
will continue to drive for growth in this area but expect that this
will take time to be delivered.
Development & IT Operations Management Tools
revenues in the period were $139.7m, a
1.4% decline on a CCY basis. $4.5m of the decline was in
Maintenance revenues which declined by 4.1% in line with
expectations. Licence revenues grew in the period by $2.7m or
10.9%. Consulting revenues declined by 2.7%.
Collaboration & Networking revenues which now include GWAVA were $67.8m, a
decline of 2.3% ($1.6m) on a CCY basis. Licence revenue grew by
18.4% ($2.1m). Maintenance revenue declined by 5.4% ($3.0m) in the
period compared with 13.4% in the prior year.
HPE Software Revenue by product portfolio
Revenue
for the HPE Software Products, prior to the deferred revenue
haircut, at actual exchange rates since the acquisition are shown
in the table below:
|
|
Six months
ended
31 October
2017
|
|
|
$m
|
|
IT Operation
Management
|
|
|
Licence
|
95.6
|
|
Maintenance
|
84.4
|
|
Consultancy
|
31.8
|
|
SaaS
|
1.6
|
|
|
213.4
|
|
Application Delivery
Management
|
|
|
Licence
|
40.3
|
|
Maintenance
|
99.6
|
|
Consultancy
|
7.2
|
|
SaaS
|
16.7
|
|
|
163.8
|
|
Enterprise Security
Product
|
|
|
Licence
|
42.9
|
|
Maintenance
|
46.3
|
|
Consultancy
|
9.3
|
|
SaaS
|
6.0
|
|
|
104.5
|
|
Platform
|
|
|
Licence
|
18.7
|
|
Maintenance
|
10.9
|
|
Consultancy
|
2.9
|
|
SaaS
|
0.1
|
|
|
32.6
|
|
Information Management Business
|
|
|
Licence
|
14.9
|
|
Maintenance
|
30.0
|
|
Consultancy
|
4.6
|
|
SaaS
|
31.3
|
|
|
80.8
|
|
Subtotal HPE
Software
|
|
|
Licence
|
212.4
|
|
Maintenance
|
271.2
|
|
Consultancy
|
55.8
|
|
SaaS
|
55.7
|
|
|
595.1
|
|
Deferred revenue
haircut
|
|
|
Licence
|
(7.6)
|
|
Maintenance
|
(13.8)
|
|
Consultancy
|
(0.6)
|
|
SaaS
|
(3.3)
|
|
|
(25.3)
|
|
Total HPE
Software
|
|
|
Licence
|
204.8
|
|
Maintenance
|
257.4
|
|
Consultancy
|
55.2
|
|
SaaS
|
52.4
|
|
|
569.8
|
|
|
|
The
table above provides the breakdown of HPE Software revenue by
product portfolio for the two months from completion to 31 October
2017. There are no comparatives available for the
period.
On a go
forward basis, the Micro Focus Product Portfolios will be organized
into Security, IT Operations Management, Application Delivery
Management, Information Management and Governance, and Application
Modernization and Connectivity.
Group Operating costs
The operating costs (including exceptional costs of $98.5m) for the
six months ended 31 October 2017 compared with six months to 31
October 2016 and the year ended 30 April 2017 are shown
below:
|
|
Six months
ended
31 October
2017
As reported
|
Six months
ended
31 October
2016
CCY*
|
(Decline)/
Growth
|
Six months
ended
31 October
2016
As reported*
|
Year
ended
30 April
2017
CCY
|
Year
ended
30 April
2017
As reported
|
|
|
$m
|
$m
|
%
|
$m
|
$m
|
$m
|
|
Costs of goods sold
|
273.9
|
123.8
|
121.2%
|
123.4
|
238.9
|
237.2
|
|
Selling and distribution
|
398.6
|
219.4
|
81.7%
|
218.5
|
471.9
|
467.1
|
|
Research and development
|
173.6
|
87.4
|
98.6%
|
86.4
|
183.2
|
180.1
|
|
Administrative expenses
|
168.4
|
93.3
|
80.5%
|
93.1
|
207.6
|
202.9
|
|
|
1,014.5
|
523.9
|
93.6%
|
521.4
|
1,101.6
|
1,087.3
|
*Re-classification of costs for Consolidated Statement of
Comprehensive Income Presentation
As part
of the HPE Software transaction the Company’s shares and ADS
were listed on the London Stock Exchange and New York Stock
Exchange respectively. In the preparation of the Group’s
April 2017 Annual Report and Accounts and as part of the regulatory
filing process in the USA the Group reviewed its consolidated
statement of comprehensive income presentation and decided to
re-classify both amortization of product development costs and
amortization of acquired technology intangibles from research and
development expenses to cost of sales. This presentation complies
with IFRS and, in the view of the Company’s Audit Committee,
provides investors with a consolidated statement of comprehensive
income presentation that is more comparable with other software
companies listed on both markets.
On a
reported basis, total operating costs increased by $493.1m to
$1,014.5m (2016: $521.4m) for the six months ended 31 October 2017.
On a CCY basis total operating costs for the period increased by
$490.6m, or 93.6% to $1,014.5m in the six months ended 31 October
2017 (2016: CCY $523.9m). As described below in the individual cost
categories, the increase is primarily in relation to the
acquisition of HPE Software.
Cost of goods sold
Cost of
sales increased by $150.5m, or 122.0% ($150.1m, or 121.2% on a CCY
basis) to $273.9m in the six months ended 31 October 2017 as
compared to $123.4m in the six months ended 31 October
2016.
On a
reported basis, excluding HPE Software, costs of goods sold in the
year decreased by $8.8m to $114.6m (2016: reported* $123.4m). There
was a decrease in the amortization of purchased intangibles of
$3.0m to $34.0m (2016: reported $37.0m). Cost of sales decreased
primarily due to a reduction in staff related costs of $2.3m and a
reduction in travel costs of $0.5m. Exceptional items are discussed
later in this section.
On a
CCY basis, excluding HPE Software, cost of goods sold for the year
decreased by $9.2m to $114.6m (2017: CCY $123.8m) of which the
exceptional costs were $3.1m (2016: CCY $1.3m). The costs in this
category predominantly relate to our consulting and helpline
support operations, amortization of product development costs and
amortization of acquired technology intangibles. Excluding
exceptional items, amortization of product development costs of
$12.3m (2016: CCY $12.1m) and amortization of acquired technology
intangibles of $34.0m (2016: CCY $37.0m) cost of goods sold
decreased by $8.2m to $65.2m (2016: CCY $73.4m). The decrease is
due primarily to a $2.7m reduction in staff related costs and a
reduction in travel costs of $0.5m.
Selling and distribution costs
Selling
and distribution costs increased by $180.1m, or 82.4% ($179.2m, or
81.7% on a CCY basis) to $398.6m in the six months ended 31 October
2017 as compared to $218.5m in the six months ended 31 October
2016.
On a
reported basis, excluding HPE Software, selling and distribution
costs in the year increased by $8.8m to $227.3m (2016: reported
$218.5m). This increase in selling and distribution costs includes
an increase in exceptional items of $6.6m to $8.6m (2016: reported
$2.0m), and an increase in the amortization of purchased
intangibles of $1.5m to $70.9m (2016: reported $69.4m). Exceptional
items are discussed later in this section.
On a
CCY basis, excluding HPE Software, selling and distribution costs
increased by $7.9m to $227.3m (2016: CCY $219.4m). Excluding the
amortization of purchased trade names and customer relationships
intangible assets of $70.9m (2016: CCY $69.4m), selling and
distribution costs were increased by $6.4m to $156.4m (2016: CCY
$150.0m). Within these costs were exceptional costs of $8.6m (2016:
CCY $2.0m), thus the underlying costs were $147.8m (2016: CCY
$148.0m), a decrease of $0.2m (0.1%) on the prior year on a CCY
basis.
Research and development expenses
Research
and development expenses increased by $87.2m, or 100.9% ($86.2m, or
98.6% on a CCY basis) to $173.6m in the six months ended 31 October
2017 as compared to $86.4m in the six months ended 31 October
2016.
On a reported basis, excluding HPE Software, research and
development expenses in the year increased by $16.9m to $103.3m
(2016: reported $86.4m). This increase in research and development
costs includes an increase in exceptional items of $5.2m to $7.4m
(2016: reported $2.2m). The remaining increase relates to an
increase in staff related costs of $14.2m. Exceptional items are
discussed later in this section.
On a CCY basis, excluding HPE Software, research and development
costs increased by $15.9m to $103.3m (2016: CCY $87.4m). Excluding
exceptional costs of $7.4m (2016: CCY $2.2m), the resultant costs
were $95.9m (2016: CCY $85.2m) an increase of $10.7m (12.6%). The
increase is primarily down to increased staff related costs of
$14.2m. Research and development costs, excluding HPE Software, are
equivalent to approximately 15.5% of revenue (2016: CCY
12.8%).
At 31 October 2017 the net book value of capitalized product
development costs on the consolidated statement of financial
position was $54.1m (2016: $49.1m). The impact of net
capitalization of internal product development costs was $4.5m
(2016: net capitalization $2.9m).
Administrative expenses
Administrative
expenses increased by $75.3m, or 80.9% ($75.1m, or 80.5% on a CCY
basis) to $168.4m in the six months ended 31 October 2017 as
compared to $93.1m in the six months ended 31 October
2016.
On a reported basis, excluding HPE Software, administrative
expenses in the year increased by $18.5m to $111.6m (2016: reported
$93.1m). Exceptional items included in administrative expenses
increased $43.8m to $79.4m (2016: reported $35.6m), share-based
payments increased by $2.8m to $18.3m (2016: reported $15.5m) and
exchange gains increased by $1.9m to $9.0m (2016: reported $7.1m).
Excluding acquisitions in the year, exceptional items, share-based
payments and exchange gains, administrative expenses decreased by
$5.5m to $43.5m (2016: reported $49.0m). The decrease relates
primarily to a reduction in staff related costs of $13.5m.
Exceptional items are discussed later in this section.
On a CCY basis, excluding HPE Software, administrative expenses
increased by $18.3m to $111.6m (2016: CCY $93.3m). Excluding share
based compensation of $18.3m (2016: CCY $15.5m), exceptional costs
of $59.2m (2016: CCY $35.4m) and an exchange gain of $7.1m (2016:
CCY gain of $9.0m), administrative expenses decreased by $10.1m
(19.7%) to $41.2m (2016: CCY $51.3m). The decrease has arisen
mostly from a reduction in staff related costs of
$13.4m.
Share based compensation was $18.3m (2016: $15.5m).
Excluding HPE Software, amortization of intangibles for the year
was $106.5m (2016: reported $106.3m).
Adjusted Operating Costs
Adjusted Operating Costs were $714.3m (2016: CCY $360.7m) an
increase of $353.6m. The increase in Adjusted Operating Costs arose
primarily from the acquisition of HPE Software ($356.6m), offset by
a reduction of $3.0m in the existing Micro Focus
business.
Total Operating costs were $1,014.5m (2016: CCY $523.9m) an
increase of 93.6% ($490.6m).
Exceptional items
Exceptional items in the period were $104.3m (2016: reported
$41.0m) including:
|
|
Six months
ended
31 October 2017
|
Six months
ended
31 October 2016
|
Year
ended
30 April 2017
|
|
|
$m
|
$m
|
$m
|
|
Reported within Operating profit:
|
|
|
|
|
Integration costs
|
20.0
|
13.4
|
27.7
|
|
Acquisition costs
|
25.8
|
1.4
|
2.6
|
|
Pre-acquisition costs
|
43.0
|
19.7
|
58.0
|
|
Property costs
|
(0.1)
|
2.5
|
5.5
|
|
Severance and legal costs
|
9.8
|
4.0
|
3.5
|
|
|
98.5
|
41.0
|
97.3
|
|
Reported within finance costs/income:
|
|
|
|
|
Finance costs incurred in escrow period
|
6.3
|
-
|
-
|
|
Finance income earned in escrow period
|
(0.5)
|
-
|
-
|
|
|
|
|
|
|
|
104.3
|
41.0
|
97.3
|
On a reported basis exceptional items increased by $63.3m, or
154.4% to $104.3m in the period ended 31 October 2017 (2016:
reported $41.0m).
The increase in exceptional items in the six months to 31 October
2017 was as a result of an increase in pre-acquisition costs of
$23.3m relating to the acquisition of HPE Software, an increase in
integration costs of $6.6m in bringing acquired businesses together
with the existing Micro Focus business, an increase in severance
and legal costs of $5.8m (primarily relating to staff reductions in
HPE Software), an increase in acquisition costs of $24.4m, and a
reduction of property provisions of $2.6m.
The pre-acquisition costs relate to the acquisition of HPE Software
which was announced in September 2016 and completed on 1 September
2017. These costs related to accounting, legal and commercial due
diligence work, legal work on the various agreements, professional
advisors’ fees and pre-integration costs relating to
activities in readiness for the HPE Software acquisition across all
functions of the existing Micro Focus business.
Included
within acquisition costs is $7.7m in respect of US excise tax
payable on the award of Long Term Incentives and Additional Share
Grants to four senior employees.
Finance costs incurred in escrow period of $6.3m relates to
interest charges on additional term loan facilities drawn down in
relation to the acquisition, between the date the facilities were
drawn into escrow and the acquisition date of HPE
Software.
Finance income earned in escrow period of $0.6m relates to interest
income earned on additional term loan facilities drawn down in
relation to the acquisition, between the date the facilities were
drawn into escrow and the acquisition date of HPE
Software.
Currency impact
During the six months to 31 October 2017, 62.3% of our revenues
were contracted in US dollars, 20.2% in Euros, 4.5% in Sterling,
2.8% in CAD dollars and 10.2% in other currencies. In comparison,
50.5% of our costs are US dollar denominated, 16.8% in Euros, 9.7%
in Sterling, 1.6% in CAD dollars and 21.4% in other
currencies.
This weighting of revenue and costs means that if the US$: Euro or
US$: CAD exchange rates move during the period, the revenue impact
is greater than the cost impact, whilst if US$: Sterling rate moves
during the period the cost impact exceeds the revenue impact.
Consequently, actual US$ EBITDA can be impacted by significant
movements in US$ to Euro, CAD and Sterling exchange
rates.
The currency movement for the US dollar against Sterling, Euro and
CAD was a strengthening of 2.9% and a weakening of 3.3% and 1.5%
respectively when looking at the average exchange rates in the six
months to 31 October 2017 compared to those in the six months to 31
October 2016.
In order to provide CCY comparatives, we have restated the results
of the Group for the six months ended 31 October 2016 at the same
average exchange rates as those used in reported results for the
six months ended 31 October 2017. Consequently, CCY revenues reduce
to $683.0m from $684.7 reported, a reduction of 0.2%, and CCY
Adjusted EBITDA reduces to $316.1m from $320.3m reported, a
reduction of 1.3%.
Intercompany
loan arrangements within the Group are typically denominated in the
local currency of the overseas affiliate. Consequently, any
movement in the respective local currency and US$ will have an
impact on the converted US$ value of the loans. This foreign
exchange movement is taken to the consolidated statement of
comprehensive income. The Group’s UK Corporation Tax
liability is denominated in Sterling and any movement of the US$:
Sterling rate will give rise to a foreign exchange gain or loss
which is also taken to the consolidated statement of comprehensive
income. The foreign exchange gain for the period is approximately
$4.7m (2016: CCY gain of $9.1m).
Adjusted EBITDA
Adjusted
EBITDA increased by $214.0m to $530.1m (2016: CCY $316.1m) with
$226.9m of the increase coming from HPE Software. The remaining
$12.9m decline in Adjusted EBITDA for the existing Micro Focus
comprised a $4.4m increase from the SUSE Product Portfolio and a
$17.3m decline from the Micro Focus Product Portfolio where
operational efficiencies were put on hold pending the completion of
the HPE Software transaction.
The
table below summarises the Adjusted EBITDA and Adjusted EBITDA
Margin for the Group.
|
|
Six months ended
31 October 2017
As reported
|
Six
months ended
31
October 2016
CCY
|
|
Six
months ended
31
October 2016
As
reported
|
|
|
Existing Micro
Focus
|
HPE
Software
|
Micro
Focus
Total
|
Micro
Focus
Total
|
(Decline)/
Growth
|
Micro
Focus
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
%
|
$m
|
|
Revenue
|
664.7
|
569.8
|
1,234.5
|
683.0
|
80.7%
|
684.7
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
303.2
|
226.9
|
530.1
|
316.1
|
67.7%
|
320.3
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA Margin
|
45.6%
|
39.8%
|
42.9%
|
46.3%
|
(7.3)%
|
46.8%
|
Both
revenue and Adjusted EBITDA in the current period have been reduced
by the fair value deferred revenue haircut of $27.1m (2016: $6.4m)
that was applied as part of the acquisitions. Of this $25.3m
related to the acquisition of HPE Software.
Operating profit and Adjusted Operating Profit
|
|
Six months ended
31 October 2017
As reported
|
Six
months ended
31
October 2016
CCY
|
|
Six
months ended
31
October 2016
As
reported
|
|
|
Existing Micro
Focus
|
HPE
Software
|
Micro
Focus
Total
|
Micro
Focus
Total
|
(Decline)/
Growth
|
Micro
Focus
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
%
|
$m
|
|
Operating profit
|
105.8
|
114.2
|
220.0
|
159.2
|
38.2%
|
163.3
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Profit
|
307.0
|
213.2
|
520.2
|
322.3
|
61.4%
|
326.3
|
|
|
|
|
|
|
|
|
Adjusted
Operating Profit increased $193.9m, or 59.4% to $520.2m in the six
months ended 31 October 2017 as compared to $326.3m in the six
months ended 31 October 2016. On a constant currency basis,
Adjusted Operating Profit increased $197.9m, or 61.4% to $520.2m in
six months ended 31 October 2017 as compared to $322.3m in the six
months ended 31 October 2016.
Micro Focus Product Portfolio - Adjusted Operating Profit and
Adjusted EBITDA
The
table below shows the Adjusted Operating Profit for the portfolio
together with a comparison to 31 October 2016:
|
|
Six months ended
31 October 2017
As reported
|
Six
months ended
31
October 2016
CCY
|
Six
months ended
31
October 2016
As
reported
|
|
|
Existing
Micro
Focus
|
HPE Software
|
Micro
Focus
Total
|
Micro
Focus
Total
|
Micro
Focus
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Segment revenue
|
500.3
|
569.8
|
1,070.1
|
537.7
|
537.3
|
|
Directly
managed costs
|
(262.9)
|
(352.8)
|
(615.7)
|
(278.5)
|
(277.3)
|
|
Allocation
of centrally managed costs to SUSE
|
19.8
|
(3.8)
|
16.0
|
12.7
|
12.7
|
|
Total Adjusted Operating Costs
|
(243.1)
|
(356.6)
|
(599.7)
|
(265.8)
|
(264.6)
|
|
|
|
|
|
|
|
|
Adjusted Operating Profit
|
257.2
|
213.2
|
470.4
|
271.9
|
272.7
|
|
Margin
|
51.4%
|
37.4%
|
44.0%
|
50.6%
|
50.8%
|
The
Micro Focus Product Portfolio Adjusted Operating Profit was $470.4m
in the six months ended 31 October 2017, delivering a margin of
44.0% which compares with the margin in the constant currency
Adjusted Operating Profit for the six months ended 31 October 2016
of 50.6%. The decrease in margin arose mainly due to the effect of
lower margins in the newly acquired HPE Software
business.
The directly managed costs are those costs specifically managed by
the Micro Focus Product Portfolio. All the Group central support
costs are managed by the Micro Focus portfolio group and the
allocation of these costs to SUSE is based on an appropriate
methodology. SUSE directly manages all their own sales, consulting
services and maintenance renewals activities.
The table below shows the reconciliation between Adjusted Operating
Profit and Adjusted EBITDA for the Micro Focus Product
Portfolio:
|
|
Six months
ended
31 October
2017
As reported
|
Six
months
ended
31
October
2016
CCY
|
Six
months
ended
31
October
2016
As
reported
|
|
|
$m
|
$m
|
$m
|
|
Adjusted Operating Profit
|
470.4
|
271.9
|
272.7
|
|
Depreciation
of property, plant and equipment
|
15.0
|
4.8
|
4.7
|
|
Amortization
of software intangibles
|
2.0
|
0.4
|
0.5
|
|
Foreign
exchange credit
|
(7.2)
|
(7.8)
|
(8.0)
|
|
Net
capitalization of development costs
|
(4.5)
|
(3.2)
|
(2.9)
|
|
Adjusted EBITDA
|
475.7
|
266.1
|
267.0
|
The Adjusted EBITDA improved by $209.6m in the period on a CCY
basis primarily due to the acquisition of HPE Software contributing
an increase of $226.9m offset by a reduction of existing Micro
Focus of $17.3m.
SUSE
Product Portfolio Adjusted Operating Profit and Adjusted
EBITDA
The table below
shows the Adjusted Operating Profit for the SUSE Product Portfolio
and compares it against the CCY and as reported numbers for the six
months to 31 October 2016:
|
|
Six months
ended
31 October
2017
As reported
|
Six
months
ended
31
October
2016
CCY
|
Six
months
ended
31
October
2016
As
reported
|
|
|
$m
|
$m
|
$m
|
|
Revenue
|
164.4
|
145.3
|
147.4
|
|
Directly
managed costs
|
(98.6)
|
(82.2)
|
(81.2)
|
|
Allocation
of centrally managed costs from Micro Focus
|
(16.0)
|
(12.7)
|
(12.7)
|
|
Total Adjusted Operating Costs
|
(114.6)
|
(94.9)
|
(93.9)
|
|
|
|
|
|
|
Adjusted Operating Profit
|
49.8
|
50.4
|
53.5
|
|
Margin
|
30.3%
|
34.7%
|
36.3%
|
The
SUSE Product Portfolio Adjusted Operating Profit was $49.8m in the
six months ended 31 October 2017 at a profit margin of 30.3%.
Compared to the constant currency Adjusted Operating Profit for the
six months ended 31 October 2016, this is a decrease of $0.6m
(1.2%) and a profit margin decrease of 4.4%.
We
have seen an increase in directly managed costs in the SUSE Product
Portfolio that is consistent with the investment being made to
deliver the SUSE growth charter.
The table below shows the reconciliation between Adjusted Operating
Profit and Adjusted EBITDA for SUSE:
|
|
Six months
ended
31 October
2017
As reported
|
Six
months
ended
31
October
2016
CCY
|
Six
months
ended
31
October
2016
As
reported
|
|
|
$m
|
$m
|
$m
|
|
Adjusted Operating Profit
|
49.8
|
50.4
|
53.5
|
|
Depreciation
of property, plant and equipment
|
1.3
|
0.9
|
1.0
|
|
Amortization
of software intangibles
|
0.8
|
-
|
0.1
|
|
Foreign
exchange (credit)/debit
|
2.5
|
(1.3)
|
(1.3)
|
|
Net
capitalization of development costs
|
-
|
-
|
-
|
|
Adjusted EBITDA
|
54.4
|
50.0
|
53.3
|
The Adjusted EBITDA improved by $4.4m in the year on a CCY basis
primarily due to impact of foreign exchange in the
period.
Group share of results of associates
Share
of results of associates increased by $0.7m, or 63.6%, to a loss of
$0.4m in the six months ended 31 October 2017 as compared to a loss
of $1.1m in the six months ended 31 October 2016.
Net finance costs
Net
finance costs were $73.8m (2016: $49.0m) including;
●
loan
interest and commitment fees of $59.5m (2016: $41.6m);
●
the
amortization of $13.4m of prepaid facility arrangement, original
issue discounts and facility fees incurred on the Group’s
loan facilities (2016: $7.3m);
●
finance
lease interest $1.2m (2016: $nil);
●
interest
rate swaps, cash flow hedge, transfer from equity $0.5m (2016:
$nil);
●
interest
on pension liability $0.6m (2016: $0.3m); and
●
other
interest costs of $0.3m (2016: $0.3m), offset by
●
$1.7m
(2016: $0.5m) of interest received.
Net
finance costs have increased by $24.8m primarily due to loan
interest and commitment fees ($17.9m) and the amortization of
prepaid facility arrangements, original issue discounts and
facility fees ($6.1m) as a result of the increase in Group
borrowings resulting from the acquisition of HPE
Software.
Profit before tax
Profit
before tax was $145.7m (2016: reported $113.2m).
Adjusted profit before tax
Adjusted
profit before tax was $451.8m (2016: reported
$276.2m):
Taxation
The
tax charge for the period was $39.1m (2016: $22.6m) with the
Group’s effective tax rate (“ETR”) being 26.8%
(2016: 20.0%). The tax charge on adjusted profit before tax for the
period was $132.7m (2016: $64.1m), which represents an effective
tax rate on adjusted profit before tax (“Adjusted ETR”)
of 29.4% (2016: 23.2%) as set out below:
|
|
Six months ended
31 October 2017
(actual)
(unaudited)
|
|
Six
months ended
31
October 2016
(actual)
(unaudited)
|
|
Year
ended
30
April 2017
(actual)
(audited)
|
|
|
|
Actual
|
Adjusts
|
Adjusted
Measures
|
|
Actual
|
Adjusts
|
Adjusted
Measures
|
|
Actual
|
Adjusts
|
Adjusted
Measures
|
|
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
|
Profit
before tax
|
145.7
|
306.1
|
451.8
|
|
113.2
|
163.0
|
276.2
|
|
196.3
|
344.7
|
541.0
|
|
Taxation
|
(39.1)
|
(93.6)
|
(132.7)
|
|
(22.6)
|
(41.5)
|
(64.1)
|
|
(38.5)
|
(85.5)
|
(124.0)
|
|
Profit
after tax
|
106.6
|
212.5
|
319.1
|
|
90.6
|
121.5
|
212.1
|
|
157.8
|
259.2
|
417.0
|
|
Effective
tax rate
|
26.8%
|
|
29.4%
|
|
20.0%
|
|
23.2%
|
|
19.6%
|
|
22.9%
|
In
computing adjusted profit before tax, $306.1m of adjustments have
been made in respect of which the associated tax is $93.6m. The
Adjusted ETR for the six-month period ended 31 October 2017 of
29.4% is higher than 2016 (23.2%) due to the inclusion of HPE
Software profits, which are subject to tax at a higher rate than
existing Micro Focus profits, and restrictions on the deductibility
of interest expenses under new UK tax rules.
The
Group is forecasting an Adjusted ETR in the medium-term for the
Enlarged Group, based on an initial estimate of the impact of
recently enacted, complex US tax reforms (see further detail
below), of 25%. The cash tax rate on “Cash Profits”
(Adjusted EBITDA less exceptional items, capital expenditure and
interest) is expected to be significantly lower than the Adjusted
ETR in FY18 and FY19 (c.15% cash tax rate) due to the utilization
of US tax attributes in the HPE Software Group and to be broadly
aligned with the Adjusted ETR from FY20 onwards. These rates are
significantly lower than previous medium-term guidance of 33%
(Adjusted ETR) and 30% (cash tax rate).
The
forecast Adjusted ETR is subject to various factors
including:
●
Further assessment
of, and the issue of guidance by the US authorities in relation to,
the detail of the recently enacted US tax reforms;
●
Other changes in
tax legislation in the main jurisdictions in which the Group
operates;
●
The geographical
mix of profits;
●
The risk of
challenge from tax authorities to the allocation of profits across
the Group in response to the OECD's Base Erosion and Profit
Shifting project;
●
Investigations and
proposals of the European Commission;
●
The tax
consequences arising from the UK's exit from the European Union;
and
●
The resolution of
open issues with tax authorities.
The
Group’s cash taxes paid in the period were $20.5m (2016:
$18.2m), which represents a cash tax rate on “Cash
Profits” of 6.6%. The low cash tax rate for the period is due
to the utilization of favorable US tax attributes in the HPE
Software group, the fact that no cash was repatriated from HPE
Software foreign subsidiaries to the US in the period, and
short-term benefits relating to the timing of instalment
payments.
The
forecast cash tax rate, when compared to the Adjusted ETR, is
likely to fluctuate significantly year-on-year due to various
factors, including the following:
●
As a general
matter, temporary differences often result in substantial shifts of
cash tax payments from one period to another;
●
In particular, the
rate at which recognized deferred tax assets (brought forward tax
losses and credits) are utilized is likely to vary significantly
year-on-year;
●
The final tax
liability for a particular territory and year can often vary
significantly from the estimates on which instalment payments have
been made, resulting in under and over payments; and
●
The timing of the
settlement of open issues with tax authorities is uncertain and can
lead to significant one-off increases in the cash tax
rate.
Tax
liabilities are recognized when it is considered probable that
there will be a future outflow of funds to a taxing authority. Tax
provisions are based on management’s interpretation of
country specific tax law and are measured using the single best
estimate of likely outcome approach. Management uses in-house tax
experts, professional advisors and previous experience when
assessing tax risks. Within current tax liabilities is $54.1m
(2016: $29.6m) in respect of provisions for uncertain tax
positions, the majority of which relates to the risk of challenge
from tax authorities to the geographic allocation of profits across
the Group. The Group does not anticipate that there will be any
material reversal of these provisions in the next 12 months. Due to
the uncertainty associated with such tax items, it is possible that
at a future date, on conclusion of open tax matters, the final
outcome may vary significantly.
As a
consequence of the HPE Software transaction, the Group is subject
to potentially significant restrictions relating to tax issues that
could limit the Group’s ability to undertake certain
corporate actions (such as the issuance of Micro Focus shares or
Micro Focus ADSs or the undertaking of a merger or consolidation)
that otherwise could be advantageous to the Group. The Group
is obliged to indemnify HPE for tax liabilities relating to the
separation of HPE Software from HPE if such liabilities are
triggered by actions taken by the Group. The Group has robust
procedures in place, including ongoing consultation with its tax
advisors, to ensure no such triggering actions are
taken.
On 22
December 2017, the US President signed the Tax Cuts and Jobs Act,
which provides for significant and wide-ranging changes to the
taxation of corporations. The reforms are complex, and it will take
some time to assess the implications thoroughly, but broadly the
implications are: a) a reduction in the Federal tax rate from 35%
to 21%, with various measures to broaden the tax base including
restrictions on interest deductibility and other anti-avoidance
measures; and b) the introduction of an exemption for foreign
dividends (currently such dividends are taxed at the US federal
rate, with credit granted for foreign taxes suffered). In return
for the latter benefit, a one-off transition tax (which can be
spread over 8 years) is payable in respect of cumulative retained
earnings of foreign subsidiaries at a rate of 15.5% for earnings
represented by cash or cash equivalents and 8.0% for the balance of
such earnings.
These
US tax reforms will give rise to significant consequences, both
immediately in terms of one-off impacts relating to the transition
tax and the measurement of deferred tax assets and liabilities and
going forward in terms of the Group’s Adjusted ETR and cash
tax rate. An initial review and estimate has been undertaken, which
will be updated over the coming weeks and months as the Group works
through the detail of these complex changes with its advisors and
guidance is issued by the US authorities. Based on the
Group’s initial estimate, the transition tax and
re-measurement of deferred tax balances are estimated to give rise
to a one-off credit to the income statement in the period to 30
April 2018 of $600m to $700m.
Going
forwards, in the medium-term, the reforms are estimated to reduce
the Group’s Adjusted ETR to 25%. The cash tax rate (including
transition tax payments) is expected to be significantly lower than
the Adjusted ETR in FY18 and FY19 (c.15% cash tax rate) due to the
utilization of US tax attributes in the HPE Software group and to
be broadly aligned with the Adjusted ETR from FY20 onwards. Due to
being spread over 8 years, transition tax payments, do not have a
significant impact on the cash tax rate.
Profit after tax
Profit after tax increased by 17.7% to $106.6m (2016: $90.6m
reported).
Liquidity and Capital Resources
Our
principal ongoing uses of cash are to meet working capital
requirements to fund debt obligations and to finance our capital
expenditures and acquisitions.
Capital structure of the Group
As at
31 October 2017 the market capitalization of the Group was
£11,510.0m (30 April 2017: £5,944.0m), equivalent to
$14,965.6m (30 April 2017: $7,667.8m) at an exchange rate of $1.30
to £1 (30 April 2017: $1.29 to £1). The net debt of the
Group was $4,151.7m (30 April 2017: $1,410.6m), all denominated in
US$, resulting in an Enterprise Value of $19,117.3m (30 April 2017:
$9,078.4m). The board believes that this capital structure is
appropriate for the Group’s requirements.
Cash flow and net debt
The
Group’s cash generated from operations was $267.2m (2016:
$201.9m). This represented a cash conversion ratio when compared to
Adjusted EBITDA less exceptional items of 61.9% (2016:
72.3%).
|
|
Six months ended
31 October 2017
$m
|
Six
months ended
31
October 2016*
$m
|
|
Cash
generated from operations
|
267.2
|
201.9
|
|
|
|
|
|
Adjusted
EBITDA
|
530.1
|
320.3
|
|
Less:
Exceptional items
|
(98.5)
|
(41.0)
|
|
|
431.6
|
279.3
|
|
Cash
conversion ratio
|
61.9%
|
72.3%
|
*Adjusted
EBITDA has been redefined in the period (see Non-IFRS measures
section). The comparatives have been restated
accordingly.
Cash
generated from operations increased by $65.3m in the six months
ended 31 October 2017 despite a significant increase of $142.2m
($253.0m versus $110.8m) in the net working capital outflow in the
cash flow due to the timing of the Transaction. We have
standardized the calculation of Days Sales Outstanding
(“DSO”) on the Micro Focus methodology. HPE Software
experienced an increase in DSO arising from the separation into new
entities setting up new vendor arrangement with customers and
through the transfer of former inter-company relationships into
standard commercial arrangements. As a result, at 31 October 2017
HPE Software had 75 DSO compared with 46 DSO for existing Micro
Focus. The increased DSO also indicates increased aging of accounts
receivable balances and this results, under the Micro Focus
accounting policies, in a higher level of bad debt provision for
HPE Software.
As at 31 October 2017 the net
debt of the Group was $4,151.7m (30 April 2017: $1,410.6m)
comprising gross borrowings of $5,047.7m (30 April 2017:
$1,595.2m), plus finance lease obligations of $32.9m (30 April
2017: $nil), less cash balances of $730.4m (30 April 2017: $151.0m)
and pre-paid loan arrangements fees of $198.5m (30 April 2017:
$33.6m).
The most significant cash flows during the period
were;
●
The Return of Value
to shareholders of $500.0m;
●
The net drawdown of
bank borrowings of $828.8m, primarily related to the HPE Software
acquisition;
●
Net working capital
outflow of $253m;
●
The payment of the
final dividend for the year ended 30 April 2017 of
$133.9m;
●
Interest paid of
$82.3m;
●
Bank loan costs
payments of $90.3m;
●
Corporate tax
payments of $20.5m;
●
Payments for
intangible assets of $35.6m and
●
Payments for
tangible assets of $9.8m, offset by
●
Cash acquired with
the acquisition of HPE Software of $320.7m.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements, aside from those
outlined in the contractual cash obligations paragraph below, that
have, or are reasonably likely to have, a current or future
material effect on the Group’s financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures
or capital resources.
Contractual Commitments
The Company announced on 21 April 2017 the successful syndication
of the new credit facilities (the “New Facilities”) on
behalf of both MA FinanceCo, LLC, a wholly owned subsidiary of
Micro Focus, and Seattle SpinCo. Inc, the subsidiary that holds HPE
Software which merged with a wholly owned subsidiary of Micro Focus
at Completion.
The New
Facilities comprise a $500.0m Revolving Credit Facility at LIBOR
plus 3.50% (subject to a LIBOR floor of 0.00%) placed with a number
of financial institutions, $2,600m term loan B issued by Seattle
SpinCo, Inc, $385m term loan B issued by MA FinanceCo LLC, and Euro
470.0m (valued at $547.5m as at 31 October 2017) issued by MA
FinanceCo LLC.
New Facilities dawn as at 30 April 2017:
●
In relation to the
existing senior secured term loans issued by MA FinanceCo, LLC the
lenders in the Term Loan C of $412.5m due November 2019 were
offered a cashless roll of their investment into the existing Term
Loan B, becoming Term Loan B-2, due November 2021 and this loan was
re-priced to LIBOR plus 2.50% (subject to a LIBOR floor of 0.00%)
and as a result of the cashless rollover increased in size from
$1,102.7m to $1,515.2m, effective from 28 April 2017.
During the current period to 31 October 2017 the following New
Facilities were drawn down:
HPE Software Facilities:
●
The new $2,600.0m
senior secured seven-year term loan B issued by Seattle SpinCo.
Inc. is priced at LIBOR plus 2.75% (subject to a LIBOR floor of
0.00%) with an original issue discount of 0.25%;
Micro Focus Facilities:
●
The new $385.0m
senior secured seven-year term loan B issued by MA FinanceCo LLC is
also priced at LIBOR plus 2.75% (subject to a LIBOR floor of 0.00%)
with an original issue discount of 0.25%; and
●
The new Euro 470.0m
(equivalent to $547.5m as at 31 October 2017) senior secured
seven-year term loan B issued by MA FinanceCo LLC is priced at
EURIBOR plus 3.00% (subject to a EURIBOR floor of 0.00%) with an
original issue discount of 0.25%.
As part of the HPE Software transaction, the New Facilities were
used to:
i.
Fund
the pre-Completion cash payment by Seattle SpinCo. Inc. to HPE of
$2,500.0m (subject to certain adjustments in limited
circumstances);
ii.
Fund
the Return of Value to Micro Focus' existing Shareholders of
$500.0m; and
iii.
Pay
transaction costs relating to the acquisition of HPE
Software.
The balance will be used for general corporate and working capital
purposes.
The only financial covenant attaching to these facilities relates
to the Revolving Facility, which is subject to an aggregate net
leverage covenant only in circumstances where more than 35% of the
Revolving Facility is outstanding at a fiscal quarter
end.
At 31 October 2017, $nil of the Revolving Facility was drawn
together with $5,047.7m Term Loan B-2 giving gross debt of
$5,047.7m drawn.
As a covenant test is only applicable when the Revolving Facility
is drawn down by 35% or more, and $nil of Revolving Facility was
drawn at 31 October 2017, no covenant test is
applicable.
Interest rate swaps
The
Group entered into interest rate swaps in the six months to 31
October 2017, to hedge against the cash flow risk in the LIBOR rate
charged on $2,250.0m of the debt issued by Seattle Spinco, Inc from
19 October 2017 to 30 September 2022. Under the terms of the
interest rate swaps, the Group pays a fixed rate of 1.94% and
receive 1 month USD LIBOR.
Contractual cash obligations
The
following table reflects a summary of obligations and commitments
outstanding as of 31 October 2017:
|
|
Payment due by period
|
|
|
Less than
1 year
|
1-3
years
|
3-5
Years
|
After
5 years
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Contractual cash obligations:
|
|
|
|
|
|
|
Long-term
debt
|
37.9
|
101.0
|
1,544.2
|
3,364.7
|
5,047.8
|
|
Finance
leases
|
14.3
|
16.8
|
1.4
|
-
|
32.5
|
|
Operating
leases
|
80.6
|
130.0
|
101.1
|
39.5
|
351.2
|
|
Interest
payments
|
194.4
|
383.7
|
323.5
|
213.1
|
1,114.7
|
|
Total
|
327.2
|
631.5
|
1,970.2
|
3,617.3
|
6,546.2
|
The interest payments within the above table are presented based on
the prevailing one-month LIBOR and foreign exchange rates as of 31
October 2017.
Dividend
The board had adopted a dividend policy such that it is two times
covered by the adjusted earnings of the Group. In light of the move
to an 18 months accounting period there will be two interim
dividends and a final dividend in line with this policy. The
directors are declaring an interim dividend of 34.60 cents per
share (31 October 2016: interim dividend 29.73 cents per share),
which represents a payout ratio of approximately 33.3% of the
Adjusted Profit after tax for the six-month period of $451.8m and a
16.4% increase on the 31 October 2016 interim dividend. The board
anticipates that the weighting of the next interim dividend and the
final dividend will be in line with our usual phasing of
approximately 1:2, based on the 12-month period ending 31 October
2018.
The dividend will be paid in Sterling equivalent to 25.63 pence per
share, based on an exchange rate of £1 = $1.35 being the rate
applicable on 5 January 2018, the date on which the board resolved
to propose the dividend. The dividend will be paid on 9 February
2018 to shareholders on the register at 19 January
2018.
Group
risk factors
As with all businesses, the Group is affected by certain risks, not
wholly within our control, which could have a material impact on
the Group’s long-term performance and cause actual results to
differ materially from forecast and historic results.
The
principal risks and uncertainties facing the Group have not changed
from those set out in the Annual Report and Accounts
2017:
●
Business strategy
and change management;
●
IT systems and
information;
●
Legal and
regulatory compliance;
●
Macro-economic
environment (including Brexit).
As
outlined in the Annual Report and Accounts 2017, following the
completion of the HPE Software transaction, the potential post
completion risks and uncertainties outlined in the Annual Report
related to the transaction are now included in our principal risk
management processes.
Mike Phillips
Chief Financial Officer
7
January 2018
Going concern
The
directors, having made enquiries, consider that the Group has
adequate resources to continue in operational existence for the
foreseeable future and therefore it is appropriate to maintain the
going concern basis in preparing the condensed consolidated interim
financial statements.
Related party transactions
The
Group has taken advantage of the exemption available under IAS 24,
“Related Party Disclosures”, not to disclose details of
transactions with its subsidiary undertakings.
Directors’ responsibilities
The
directors confirm that, to the best of their
knowledge:
●
the condensed set
of financial statements has been prepared in accordance with IAS 34
“Interim Financial Reporting”;
●
the interim
management report includes a fair review of the information
required by:
a)
DTR 4.2.7R of the
Disclosure Guidance and Transparency Rules , being an indication of
important events that have occurred during the first six months of
the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year;
and
b)
DTR 4.2.8R of the
Disclosure Guidance and Transparency Rules, being related party
transactions that have taken place in the first six months of the
current financial year and that have materially affected the
financial position or performance of the entity during that period;
and any changes in the related party transactions described in the
last annual report that could do so.
The
current executive directors of the Company are Kevin Loosemore,
Chris Hsu, Nils Brauckmann, and Mike Phillips.
The
current non-executive directors of the Company, all of whom are
independent are Karen Slatford, Richard Atkins, Amanda Brown,
Darren Roos, Silke Scheiber and Lawton Fitt.
Biographies
for each director are included on the Company’s website:
www.microfocus.com.
By
order of the board,
|
Chris Hsu
|
Mike Phillips
|
|
Chief Executive Officer
|
Chief Financial Officer
|
7 January 2018
Non-IFRS measures
The
Group uses certain measures to assess the financial performance of
its business. Certain of these measures are termed “non-IFRS
measures” because they exclude amounts that are included in,
or include amounts that are excluded from, the most directly
comparable measure calculated and presented in accordance with
IFRS, or are calculated using financial measures that are not
calculated in accordance with IFRS.
The
Group uses such measures to measure operating performance and
liquidity in presentations to the Board and as a basis for
strategic planning and forecasting, as well as monitoring certain
aspects of its operating cash flow and liquidity. The Group
believes that these and similar measures are used widely by certain
investors, securities analysts and other interested parties as
supplemental measures of performance and liquidity.
The
non-IFRS measures may not be comparable to other similarly titled
measures used by other companies and have limitations as analytical
tools and should not be considered in isolation or as a substitute
for analysis of the Group’s operating results as reported
under IFRS.
An
explanation of the relevance of each of the non-IFRS measures, a
reconciliation of the non-IFRS measures to the most directly
comparable measures calculated and presented in accordance with
IFRS and a discussion of their limitations is set out below. The
Group does not regard these non-IFRS measures as a substitute for,
or superior to, the equivalent measures calculated and presented in
accordance with IFRS.
Impact of Deferred Revenue Haircut
The
following table shows the impact of the acquisition accounting
adjustment of deferred revenue haircut on reported
revenues.
|
|
6 months ended
31 October 2017
(unaudited)
|
6
months ended
31
October 2016
(unaudited)
|
|
|
Existing Micro Focus
|
HPE Software
|
Total
Micro Focus
|
SUSE
|
Total
|
Total
Micro
Focus
|
SUSE
|
Total
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
Reported Revenue
|
500,338
|
569,742
|
1,070,080
|
164,440
|
1,234,520
|
537,311
|
147,432
|
684,743
|
|
Unwinding
of fair value adjustment to acquired deferred revenue
|
948
|
25,329
|
26,277
|
823
|
27,100
|
4,518
|
1,886
|
6,404
|
|
Reported Revenue excluding deferred revenue haircut
|
501,286
|
595,071
|
1,096,357
|
165,263
|
1,261,620
|
541,829
|
149,318
|
691,147
|
EBITDA and Adjusted EBITDA
EBITDA
is defined as net earnings before finance costs, finance income,
share of results of associates, taxation, depreciation of property,
plant and equipment, and amortization of intangible assets. The
Group presents EBITDA because it is widely used by securities
analysts, investors and other interested parties to evaluate the
profitability of companies. EBITDA eliminates potential differences
in performance caused by variations in capital structures
(affecting net finance costs), tax positions (such as the
availability of net operating losses against which to relieve
taxable profits), the cost and age of tangible assets (affecting
relative depreciation expense) and the extent to which intangible
assets are identifiable (affecting relative amortization
expense).
During
the period the Group has redefined its Adjusted EBITDA definition
and this is now the only Adjusted EBITDA measure presented in the
Group results. The new “Adjusted EBITDA” definition was
previously reported as “Underlying Adjusted
EBITDA”.
Adjusted
EBITDA is comprised of EBITDA (as defined above), adjusted for
exceptional items (integration costs, acquisition costs,
pre-acquisition costs, property costs, severance costs, royalty
provision release, impairment of intangible assets, and impairment
of prepayments), share based compensation, amortization and
impairment of development costs, foreign exchange gains/losses and
net capitalization/amortization of development costs.
These
items are excluded from Adjusted EBITDA because they are
individually or collectively material items that are not considered
to be representative of the trading performance of the Group.
Management believes that Adjusted EBITDA should, therefore be made
available to securities analysts, investors and other interested
parties to assist in their assessment of the trading performance of
our business. Adjusted EBITDA is the primary measure used
internally to measure performance and to incentivize and reward
employees.
Adjusted
EBITDA Margin refers to each measure defined above as a percentage
of actual revenue recorded in accordance with IFRS for the
period.
EBITDA
and Adjusted EBITDA have limitations as analytical tools. Some of
these limitations are:
●
they do not reflect
the Group’s cash expenditures or future requirements for
capital expenditure or contractual commitments;
●
they do not reflect
changes in, or cash requirements for, the Group’s working
capital needs;
●
they do not reflect
the significant interest expense, or the cash requirements
necessary to service interest or principal payments, on the
Group’s debt;
●
they are not
adjusted for all non-cash income or expense items that are
reflected in the Group’s statements of cash
flows;
●
the further
adjustments made in calculating Adjusted EBITDA are those that
management consider are not representative of the underlying
operations of the Group and therefore are subjective in nature;
and
●
although
depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in
the future, and EBITDA and Adjusted EBITDA do not reflect any cash
requirements for such replacements.
The
following table is a reconciliation from profit for the period to
EBITDA and Adjusted EBITDA:
|
|
Six months ended
31 October 2017
(unaudited)
|
Six
months ended
31
October 2016
(unaudited)
|
|
|
$’000
|
$’000
|
|
Profit for the period
|
106,605
|
90,617
|
|
Finance
costs
|
75,487
|
49,455
|
|
Finance
income
|
(1,699)
|
(502)
|
|
Taxation
|
39,129
|
22,589
|
|
Share
of results of associates
|
438
|
1,127
|
|
Depreciation
of property, plant and equipment
|
16,289
|
5,712
|
|
Amortization
of intangible assets
|
198,606
|
119,085
|
|
EBITDA
|
434,855
|
288,083
|
|
Exceptional
items (reported in Operating profit)
|
98,480
|
41,048
|
|
Share-based
compensation charge
|
18,302
|
15,521
|
|
Amortization
of and impairment of product development costs
|
(12,375)
|
(12,117)
|
|
Foreign
exchange gain
|
(4,699)
|
(9,270)
|
|
Net
capitalization of product development costs
|
(4,503)
|
(2,931)
|
|
Adjusted EBITDA
|
530,060
|
320,334
|
|
|
|
|
|
Revenue
|
1,234,520
|
684,743
|
|
Adjusted EBITDA Margin
|
42.9%
|
46.8%
|
Exceptional
items are those significant items which are separately disclosed by
virtue of their size, nature or incidence to enable a full
understanding of the Group’s financial performance. These
items are collectively totaled and identified as “exceptional
items” (note 7).
Adjusted Operating Profit
Adjusted
Operating Profit is defined as operating profit before share-based
compensation, the amortization of purchased intangible assets, and
exceptional items. Adjusted Operating Profit is also the measure
used by the Executive Committee to assess the trading performance
of our business and is therefore the measure of segment profit that
the Group presents under IFRS. Adjusted Operating Profit is also
presented on a consolidated basis because management believes it is
important to consider our profitability on a basis consistent with
that of our operating segments. When presented on a consolidated
basis, Adjusted Operating Profit is a non-IFRS
measure.
The
following table is a reconciliation from operating profit for the
period excluding exceptional items to Adjusted Operating
Profit:
|
|
Six months ended
31 October 2017
(unaudited)
|
Six
months ended
31
October 2016
(unaudited)
|
|
|
$’000
|
$’000
|
|
Operating profit
|
219,960
|
163,286
|
|
Exceptional
items (reported in Operating profit)
|
98,480
|
41,048
|
|
Share-based
compensation charge
|
18,302
|
15,521
|
|
Amortization
of purchased intangible assets
|
183,478
|
106,394
|
|
Adjusted Operating Profit
|
520,220
|
326,249
|
Exceptional
items are those significant items which are separately disclosed by
virtue of their size, nature or incidence to enable a full
understanding of the Group’s financial performance. These
items are collectively totaled and identified as “exceptional
items”.
Adjusted Operating Costs
Adjusted
Operating costs is defined as operating costs before share-based
compensation, the amortization of purchased intangible assets, and
exceptional items. As described above Adjusted Operating Profit is
also the measure used by the Executive Committee to assess the
trading performance of our business and Adjusted Operating Cost is
therefore the measure of segment costs that the Group presents
under IFRS. Adjusted Operating Costs is also presented on a
consolidated basis because management believes it is important to
consider our costs on a basis consistent with that of our operating
segments. When presented on a consolidated basis, Adjusted
Operating Costs is a non-IFRS measure. The following table is
a reconciliation from Cost of sales, Selling and distribution,
Research and development, and Administrative expenses to Adjusted
Operating Costs.
|
|
Six months ended
31 October 2017
(unaudited)
|
Six
months ended
31
October 2016
(unaudited)
|
|
|
$’000
|
$’000
|
|
Cost of
sales
|
273,893
|
123,440
|
|
Selling
and distribution costs
|
398,638
|
218,528
|
|
Research
and development expenses
|
173,639
|
86,390
|
|
Administrative
expenses
|
168,390
|
93,099
|
|
Total Operating Costs
|
1,014,560
|
521,457
|
|
Less:
|
|
|
|
Exceptional
items (reported in Operating profit)
|
(98,480)
|
(41,048)
|
|
Share-based
compensation charge
|
(18,302)
|
(15,521)
|
|
Amortization
of purchased intangibles
|
(183,478)
|
(106,394)
|
|
Adjusted Operating Costs
|
714,300
|
358,494
|
Exceptional
items are those significant items which are separately disclosed by
virtue of their size, nature or incidence to enable a full
understanding of the Group’s financial performance. These
items are collectively totaled and identified as “exceptional
items”.
Adjusted Profit before tax
Adjusted
Profit before tax is defined as profit before tax excluding the
effects of share-based compensation, the amortization of purchased
intangible assets, and all exceptional items. Adjusted Profit
before tax is only presented on a consolidated basis because
management believes it is important to the understanding of the
Group’s effective tax rate. When presented on a consolidated
basis, Adjusted Profit before tax is a non-IFRS
measure.
The
following table is a reconciliation from profit before tax for the
year to Adjusted Profit before Tax:
|
|
Six months ended
31 October 2017
(unaudited)
|
Six
months ended
31
October 2016
(unaudited)
|
|
|
$’000
|
$’000
|
|
Profit before tax
|
145,734
|
113,206
|
|
Share-based
compensation charge
|
18,302
|
15,521
|
|
Amortization
of purchased intangibles
|
183,478
|
106,394
|
|
Exceptional
items
|
104,253
|
41,048
|
|
Adjusted Profit before tax
|
451,767
|
276,169
|
Adjusted Earnings per Share and Adjusted Diluted Earnings per
Share
The
Adjusted Earnings per Share (“EPS”) is defined as Basic
EPS where the earnings attributable to ordinary shareholders are
adjusted by adding back all exceptional items, share-based
compensation charge and the amortization of purchased intangibles.
These are presented as management believe they are important to
understanding the change in the Group’s EPS.
|
|
Six months ended
31 October 2017
(unaudited)
|
Six
months ended
31
October 2016
(unaudited)
|
|
|
Total
earnings
|
Weighted average number of shares
|
Per share amount
|
Per share amount
|
Total
earnings
|
Weighted
average number of shares
|
Per
share amount
|
Per
share amount
|
|
|
$’000
|
‘000
|
cents
|
pence
|
$’000
|
‘000
|
cents
|
pence
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
Profit
after tax
|
106,605
|
|
|
|
90,617
|
|
|
|
|
Non-controlling
interests
|
(304)
|
|
|
|
21
|
|
|
|
|
Earnings
attributable to ordinary shareholders
|
106,301
|
296,698
|
35.83
|
27.50
|
90,638
|
229,067
|
39.57
|
29.49
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
Options
|
|
10,207
|
|
|
|
8,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
Earnings
attributable to ordinary shareholders
|
106,301
|
306,905
|
34.64
|
26.58
|
90,638
|
237,756
|
38.12
|
28.41
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
106,301
|
296,698
|
35.83
|
27.50
|
90,638
|
229,067
|
39.57
|
29,49
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
items:
|
|
|
|
|
|
|
|
|
|
Exceptional
items
|
104,253
|
|
|
|
41,048
|
|
|
|
|
Share-based
compensation charge
|
18,302
|
|
|
|
15,521
|
|
|
|
|
Amortization
of purchased intangibles
|
183,478
|
|
|
|
106,394
|
|
|
|
|
Adjusted
items
|
306,033
|
|
|
|
162,963
|
|
|
|
|
Tax
relating to above items
|
(93,554)
|
|
|
|
(41,513)
|
|
|
|
|
Adjusted Basic EPS
|
318,780
|
296,698
|
107.44
|
82.46
|
212,088
|
229,067
|
92.59
|
69.00
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
106,301
|
306,905
|
34.64
|
26.58
|
90,638
|
237,756
|
38.12
|
28.41
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
items
|
306,033
|
|
|
|
162,963
|
|
|
|
|
Tax
relating to above items
|
(93,554)
|
|
|
|
(41,513)
|
|
|
|
|
Adjusted Diluted EPS
|
318,780
|
306,905
|
103.87
|
79.72
|
212,088
|
237,756
|
89.20
|
66.48
|
|
|
|
|
|
|
|
|
|
|
Net Debt and Adjusted Net Debt
Net
debt is defined as cash and cash equivalents less net borrowings
and finance lease obligations. Adjusted Net Debt takes into account
the provisional amounts due to and due from HPE in respect of the
closing balance sheet and net working capital position. These are
presented as management believe they are important to understanding
the change in the Group’s debt position.
|
|
31 October 2017
|
31
October 2016
|
30
April 2017
|
|
|
$’000
|
$’000
|
$’000
|
|
Borrowings
|
(4,849,216)
|
(1,735,529)
|
(1,561,536)
|
|
Cash
and cash equivalents
|
730,372
|
122,970
|
150,983
|
|
Finance
lease obligations
|
(32,894)
|
-
|
-
|
|
Net debt
|
(4,151,738)
|
(1,612,559)
|
(1,410,553)
|
|
Net
cash and net working capital adjustment
|
(289,000)
|
-
|
-
|
|
Amounts
due from HPE
|
103,231
|
-
|
-
|
|
Amounts
due to HPE
|
(72,168)
|
-
|
-
|
|
Adjusted Net Debt
|
(4,409,675)
|
(1,612,559)
|
(1,410,553)
|
Free Cash Flow
Free
cash flow is defined as cash generated from operations less
interest payments and loan costs, tax, purchase of intangible
assets and purchase of property, plant and equipment. This is
presented as management believe it is important to understanding
the Group’s cash flow.
|
|
31 October 2017
|
31
October 2016
|
30
April 2017
|
|
|
$’000
|
$’000
|
$’000
|
|
Cash generated from operations
|
267,153
|
201,910
|
564,792
|
|
Less:
|
|
|
|
|
Interest
payments
|
(82,341)
|
(42,879)
|
(81,115)
|
|
Bank
loan costs
|
(90,319)
|
(5,864)
|
(6,654)
|
|
Tax
payments
|
(20,472)
|
(18,183)
|
(24,644)
|
|
Purchase
of intangible assets
|
(35,650)
|
(17,571)
|
(31,438)
|
|
Purchase
of property, plant and equipment
|
(9,845)
|
(6,454)
|
(11,727)
|
|
Free cash flow
|
28,526
|
110,959
|
409,214
|
Constant Currency
The
Group’s reporting currency is the U.S. dollar, however, the
Group’s significant international operations give rise to
fluctuations in foreign exchange rates. To neutralize foreign
exchange impact and to better illustrate the underlying change in
revenue and profit from one year to the next, the Group has adopted
the practice of discussing results in both reportable currency
(local currency results translated into US dollars at the
prevailing foreign exchange rate) and constant
currency.
The
Group uses US dollar-based constant currency models to measure
performance. These are calculated by restating the results of the
Group for the six months ended 31 October 2016 at the same average
exchange rates as those used in reported results for the six months
ended 31 October 2017. This gives a US-dollar denominated income
statement which excludes any variances attributable to foreign
exchange rate movements.
The
most important foreign currencies for the Group are: Pounds
Sterling, the Euro and Japanese Yen. The exchange rates used are as
follows:
|
|
6 months
ended
31 October 2017
|
6
months
ended
31
October 2016
|
Year
ended
30
April 2017
|
|
|
Average
|
Closing
|
Average
|
Closing
|
Average
|
Closing
|
|
£1
= $
|
1.30
|
1.33
|
1.35
|
1.22
|
1.29
|
1.29
|
|
€1
= $
|
1.14
|
1.16
|
1.12
|
1.10
|
1.09
|
1.09
|
|
100 Yen
= $
|
0.90
|
0.88
|
0.96
|
0.95
|
0.93
|
0.90
|
Pro-forma Revenue and Pro-forma Adjusted EBITDA
Pro-forma
Revenue is defined as the revenue for the existing Micro Focus
Group and the HPE Software acquisition for the 12 months to 31
October 2017. Pro-forma Adjusted EBITDA is defined as Adjusted
EBITDA (as defined above) for the 12 months to 31 October 2017. The
HPE Software pro-forma revenue and Adjusted EBITDA are under US GAAP and HPE legacy accounting policies,
adjusted for divestitures, as derived from HPE Software management
accounts. The Group has provided pro-forma revenue and
pro-forma Adjusted EBITDA as it provides guidance on the size of
the Enlarged Group going forwards.
Pro-forma Revenue
|
|
Pro-forma Revenue
|
|
|
$’m
|
|
Existing Micro Focus:
|
|
|
Reported
revenue for the 12 months ended 30 April 2017
|
1,380.7
|
|
Reported
revenue for the 6 months ended 31 October 2016
|
(684.7)
|
|
Revenue
for the 6 months ended 30 April 2017
|
696.0
|
|
Reported
revenue for the 6 months ended 31 October 2017
|
664.7
|
|
Pro-forma revenue 12 months ended 31 October 2017
|
1,360.7
|
|
|
|
|
HPE Software – 12 months to 31 October 2017
|
2,866.0
|
|
|
|
|
Pro-forma Revenue for the 12 months to October 2017
|
4,226.7
|
Pro-forma Adjusted EBITDA
|
|
Pro-forma Adjusted EBITDA
|
|
|
$’m
|
|
Existing Micro Focus:
|
|
|
Adjusted
EBITDA for the 12 months ended 30 April 2017
|
640.9
|
|
Adjusted
EBITDA for the 6 months ended 31 October 2016
|
(320.3)
|
|
Adjusted
EBITDA for the 6 months ended 30 April 2017
|
320.6
|
|
Adjusted
EBITDA for the 6 months ended 31 October 2017
|
303.2
|
|
Pro-forma Adjusted EBITDA 12 months ended 31 October
2017
|
623.8
|
|
|
|
|
HPE Software – 12 months to 31 October 2017
|
777.3
|
|
|
|
|
Pro-forma Adjusted EBITDA for the 12 months to 31 October
2017
|
1,401.1
|
|
|
|
|
Adjusted EBITDA Margin
|
33.1%
|
|
|
|
|
Adjusted Net Debt
|
4,409.7
|
|
Pro-forma Adjusted EBITDA multiple
|
3.1 times
|
Micro Focus International plc
Consolidated statement of comprehensive income
(unaudited)
For the six months ended 31 October 2017
|
|
|
Six months ended
31 October 2017
(unaudited)
|
Six
months ended
31
October 2016*
(unaudited)
|
Year
ended
30
April 2017
(audited)
|
|
|
Note
|
Before exceptional items
|
Exceptional items
(note 7)
|
Total
|
Before
exceptional items
|
Exceptional
items
(note
7)
|
Total
|
Total
|
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
Revenue
|
5,6
|
1,234,520
|
-
|
1,234,520
|
684,743
|
-
|
684,743
|
1,380,702
|
|
Cost of
sales comprising:
|
|
|
|
|
|
|
|
|
|
Cost of
sales (excluding amortization of product development costs and
acquired technology intangibles)
|
|
(195,291)
|
(3,126)
|
(198,417)
|
(73,031)
|
(1,265)
|
(74,296)
|
(145,673)
|
|
-
Amortization of product development costs
|
14
|
(12,375)
|
-
|
(12,375)
|
(12,117)
|
-
|
(12,117)
|
(22,398)
|
|
-
Amortization of acquired technology intangibles
|
14
|
(63,101)
|
-
|
(63,101)
|
(37,027)
|
-
|
(37,027)
|
(69,098)
|
|
Cost of
sales
|
|
(270,767)
|
(3,126)
|
(273,893)
|
(122,175)
|
(1,265)
|
(123,440)
|
(237,169)
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
963,753
|
(3,126)
|
960,627
|
562,568
|
(1,265)
|
561,303
|
1,143,533
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and distribution costs
|
|
(390,085)
|
(8,553)
|
(398,638)
|
(216,526)
|
(2,002)
|
(218,528)
|
(467,084)
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses comprising:
|
|
|
|
|
|
|
|
|
|
-
Expenditure incurred in the period
|
|
(183,115)
|
(7,402)
|
(190,517)
|
(99,263)
|
(2,175)
|
(101,438)
|
(207,768)
|
|
-
Capitalization of product development costs
|
14
|
16,878
|
-
|
16,878
|
15,048
|
-
|
15,048
|
27,664
|
|
Research
and development expenses
|
|
(166,237)
|
(7,402)
|
(173,639)
|
(84,215)
|
(2,175)
|
(86,390)
|
(180,104)
|
|
|
|
|
|
|
|
|
|
|
|
Administrative
expenses
|
|
(88,991)
|
(79,399)
|
(168,390)
|
(57,493)
|
(35,606)
|
(93,099)
|
(202,902)
|
|
Operating profit
|
|
318,440
|
(98,480)
|
219,960
|
204,334
|
(41,048)
|
163,286
|
293,443
|
|
|
|
|
|
|
|
|
|
|
|
Share
of results of associates
|
16
|
(438)
|
-
|
(438)
|
(1,127)
|
-
|
(1,127)
|
(1,254)
|
|
|
|
|
|
|
|
|
|
|
|
Finance
costs
|
11
|
(69,161)
|
(6,326)
|
(75,487)
|
(49,455)
|
-
|
(49,455)
|
(96,824)
|
|
Finance
income
|
11
|
1,146
|
553
|
1,699
|
502
|
-
|
502
|
979
|
|
Net
finance costs
|
11
|
(68,015)
|
(5,773)
|
(73,788)
|
(48,953)
|
-
|
(48,953)
|
(95,845)
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax
|
|
249,987
|
(104,253)
|
145,734
|
154,254
|
(41,048)
|
113,206
|
196,344
|
|
Taxation
|
12
|
(64,659)
|
25,530
|
(39,129)
|
(28,140)
|
5,551
|
(22,589)
|
(38,541)
|
|
Profit for the period
|
|
185,328
|
(78,723)
|
106,605
|
126,114
|
(35,497)
|
90,617
|
157,803
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
Equity
shareholders of the parent
|
|
185,024
|
(78,723)
|
106,301
|
126,135
|
(35,497)
|
90,638
|
157,906
|
|
Non-controlling
interests
|
|
304
|
-
|
304
|
(21)
|
-
|
(21)
|
(103)
|
|
Profit for the period
|
|
185,328
|
(78,723)
|
106,605
|
126,114
|
(35,497)
|
90,617
|
157,803
|
*In the year ended
30 April 2017, the Company reviewed its consolidated statement of
comprehensive income presentation and decided to re-classify both
amortization of product development costs and amortization of
acquired technology intangibles from research and development
expenses to cost of sales. The six months ended 31 October 2016
comparative includes this reclassification (see accounting policies
note 2).
Micro Focus International plc
Consolidated statement of comprehensive income
(unaudited)
For the six months ended 31 October 2017
|
|
|
Six months ended
31 October 2017
(unaudited)
|
Six
months ended
31
October 2016*
(unaudited)
|
Year
ended
30
April 2017
(audited)
|
|
|
Note
|
Before exceptional items
|
Exceptional items
(note 7)
|
Total
|
Before
exceptional items
|
Exceptional
items
(note
7)
|
Total
|
Total
|
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
Profit for the period
|
|
185,328
|
(78,723)
|
106,605
|
126,114
|
(35,497)
|
90,617
|
157,803
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Items that will not be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
|
Actuarial
gain/(loss) on pension schemes liabilities
|
22
|
6,859
|
-
|
6,859
|
(3,521)
|
-
|
(3,521)
|
402
|
|
Actuarial
(loss)/gain on non-plan pension assets
|
22
|
(350)
|
-
|
(350)
|
2,482
|
-
|
2,482
|
130
|
|
Deferred
tax movement
|
|
(655)
|
-
|
(655)
|
326
|
-
|
326
|
(325)
|
|
Items that may be subsequently reclassified to profit or
loss
|
|
|
|
|
|
|
|
|
|
Cash
flow hedge movements
|
24
|
1,763
|
-
|
1,763
|
-
|
-
|
-
|
-
|
|
Currency
translation differences
|
|
2,742
|
-
|
2,742
|
(5,708)
|
-
|
(5,708)
|
(5,953)
|
|
Other comprehensive income/(expense) for the period
|
|
10,359
|
-
|
10,359
|
(6,421)
|
-
|
(6,421)
|
(5,746)
|
|
Total comprehensive income for the period
|
|
195,687
|
(78,723)
|
116,964
|
119,693
|
(35,497)
|
84,196
|
152,057
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
Equity
shareholders of the parent
|
|
195,383
|
(78,723)
|
116,660
|
119,714
|
(35,497)
|
84,217
|
152,160
|
|
Non-controlling
interests
|
|
304
|
-
|
304
|
(21)
|
-
|
(21)
|
(103)
|
|
Total comprehensive income for the period
|
|
195,687
|
(78,723)
|
116,964
|
119,693
|
(35,497)
|
84,196
|
152,057
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share expressed in cents per share
|
|
|
|
cents
|
|
|
cents
|
cents
|
|
-
basic
|
10
|
|
|
35.83
|
|
|
39.57
|
68.88
|
|
-
diluted
|
10
|
|
|
34.64
|
|
|
38.12
|
66.51
|
|
Earnings
per share expressed in pence per share
|
|
|
|
pence
|
|
|
pence
|
pence
|
|
-
basic
|
10
|
|
|
27.50
|
|
|
29.49
|
53.25
|
|
-
diluted
|
10
|
|
|
26.58
|
|
|
28.41
|
51.42
|
|
|
The
accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
Micro
Focus International plc
Consolidated statement of financial position
(unaudited)
|
|
Note
|
31 October 2017
(unaudited)
$’000
|
31
October 2016
(unaudited)
$’000
|
30
April 2017
(audited)
$’000
|
|
Non-current assets
|
|
|
|
|
|
Goodwill
|
13
|
7,934,076
|
2,827,825
|
2,828,604
|
|
Other
intangible assets
|
14
|
7,199,606
|
1,186,184
|
1,089,370
|
|
Property,
plant and equipment
|
15
|
200,326
|
40,537
|
40,956
|
|
Investments
in associates
|
16
|
11,019
|
11,584
|
11,457
|
|
Derivative
asset
|
20
|
1,307
|
-
|
-
|
|
Long
term pension assets
|
22
|
23,650
|
24,120
|
22,031
|
|
Other
non-current assets
|
|
45,348
|
3,230
|
3,093
|
|
Deferred
tax assets
|
|
209,992
|
208,230
|
208,253
|
|
|
|
15,625,324
|
4,301,710
|
4,203,764
|
|
Current assets
|
|
|
|
|
|
Inventories
|
|
465
|
63
|
64
|
|
Trade
and other receivables
|
17
|
1,251,582
|
277,958
|
289,509
|
|
Current
tax receivables
|
|
-
|
3,432
|
1,637
|
|
Cash
and cash equivalents
|
|
730,372
|
122,970
|
150,983
|
|
Assets
classified as held for sale
|
|
-
|
888
|
-
|
|
|
|
1,982,419
|
405,311
|
442,193
|
|
Total assets
|
|
17,607,743
|
4,707,021
|
4,645,957
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Trade
and other payables
|
18
|
934,749
|
151,163
|
170,042
|
|
Borrowings
|
19
|
17,727
|
294,192
|
71,184
|
|
Finance
leases
|
|
14,481
|
-
|
-
|
|
Provisions
|
21
|
55,678
|
15,420
|
20,142
|
|
Current
tax liabilities
|
|
102,709
|
29,583
|
42,679
|
|
Deferred
income
|
|
1,312,635
|
582,412
|
640,650
|
|
|
|
2,437,979
|
1,072,770
|
944,697
|
|
Non-current liabilities
|
|
|
|
|
|
Deferred
income
|
|
335,463
|
204,342
|
223,786
|
|
Borrowings
|
19
|
4,831,489
|
1,441,337
|
1,490,352
|
|
Finance
leases
|
|
18,413
|
-
|
-
|
|
Retirement
benefit obligations
|
22
|
97,647
|
34,599
|
30,773
|
|
Long-term
provisions
|
21
|
26,666
|
11,729
|
11,937
|
|
Other
non-current liabilities
|
|
67,586
|
11,021
|
4,191
|
|
Deferred
tax liabilities
|
|
2,166,639
|
349,464
|
326,731
|
|
|
|
7,543,903
|
2,052,492
|
2,087,770
|
|
Total liabilities
|
|
9,981,882
|
3,125,262
|
3,032,467
|
|
Net assets
|
|
7,625,861
|
1,581,759
|
1,613,490
|
|
Capital and reserves
|
|
|
|
|
|
Share
capital
|
23
|
65,590
|
39,650
|
39,700
|
|
Share
premium account
|
|
36,422
|
190,727
|
192,145
|
|
Merger
reserve
|
24
|
5,780,184
|
988,104
|
338,104
|
|
Capital
redemption reserve
|
24
|
666,289
|
163,363
|
163,363
|
|
Hedging
reserve
|
|
1,089
|
-
|
-
|
|
Retained
earnings
|
|
1,095,246
|
221,593
|
902,183
|
|
Foreign
currency translation deficit
|
|
(20,217)
|
(22,714)
|
(22,959)
|
|
Total equity attributable to owners of the parent
|
|
7,624,603
|
1,580,723
|
1,612,536
|
|
Non-controlling interests
|
25
|
1,258
|
1,036
|
954
|
|
Total equity
|
|
7,625,861
|
1,581,759
|
1,613,490
|
The accompanying
notes are an integral part of these Unaudited Consolidated
Financial Statements.
Micro
Focus International plc
Consolidated statement of changes in equity
(unaudited)
|
|
|
Share capital
|
Share premium account
|
Retained
earnings/
(deficit)
|
Foreign currency translation reserve/ (deficit)
|
Capital redemption reserves
|
Hedging reserve
|
Merger reserve
|
Equity / (deficit) attributable to the parent
|
Non-controlling interests
|
Total
equity / (deficit)
|
|
|
Note
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
Balance as at 1 May 2016
|
|
39,573
|
190,293
|
228,344
|
(17,006)
|
163,363
|
-
|
988,104
|
1,592,671
|
1,057
|
1,593,728
|
|
Currency
translation differences
|
|
-
|
-
|
-
|
(5,708)
|
-
|
-
|
-
|
(5,708)
|
-
|
(5,708)
|
|
Profit
for the period
|
|
-
|
-
|
90,638
|
-
|
-
|
-
|
-
|
90,638
|
(21)
|
90,617
|
|
Re-measurement
on defined
benefit
pension schemes
|
22
|
-
|
-
|
(3,521)
|
-
|
-
|
-
|
-
|
(3,521)
|
-
|
(3,521)
|
|
Re-measurement
on long-term
pension
assets
|
22
|
-
|
-
|
2,482
|
-
|
-
|
-
|
-
|
2,482
|
-
|
2,482
|
|
Deferred
tax movement pensions
|
|
-
|
-
|
326
|
-
|
-
|
-
|
-
|
326
|
-
|
326
|
|
Total comprehensive income
|
|
-
|
-
|
89,925
|
(5,708)
|
-
|
-
|
-
|
84,217
|
(21)
|
84,196
|
|
Transactions with owners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
9
|
-
|
-
|
(111,023)
|
-
|
-
|
-
|
-
|
(111,023)
|
-
|
(111,023)
|
|
Movement
in relation to share options
|
|
77
|
434
|
11,266
|
-
|
-
|
-
|
-
|
11,777
|
-
|
11,777
|
|
Deferred
tax on share options
|
|
-
|
-
|
3,081
|
-
|
-
|
-
|
-
|
3,081
|
-
|
3,081
|
|
Balance as at 31 October 2016
|
|
39,650
|
190,727
|
221,593
|
(22,714)
|
163,363
|
-
|
988,104
|
1,580,723
|
1,036
|
1,581,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 May 2017
|
|
39,700
|
192,145
|
902,183
|
(22,959)
|
163,363
|
-
|
338,104
|
1,612,536
|
954
|
1,613,490
|
|
Currency
translation differences
|
|
-
|
-
|
-
|
2,742
|
-
|
-
|
-
|
2,742
|
-
|
2,742
|
|
Profit
for the period
|
|
-
|
-
|
106,301
|
-
|
-
|
-
|
-
|
106,301
|
304
|
106,605
|
|
Re-measurement
on defined benefit pension schemes
|
22
|
-
|
-
|
6,859
|
-
|
-
|
-
|
-
|
6,859
|
-
|
6,859
|
|
Re-measurement
on long-term pension assets
|
22
|
-
|
-
|
(350)
|
-
|
-
|
-
|
-
|
(350)
|
-
|
(350)
|
|
Deferred
tax movement pensions
|
|
-
|
-
|
19
|
-
|
-
|
-
|
-
|
19
|
-
|
19
|
|
Deferred
tax movement on hedging
|
24
|
-
|
-
|
-
|
-
|
-
|
(674)
|
-
|
(674)
|
-
|
(674)
|
|
Cash
flow hedge movement
|
24
|
-
|
-
|
-
|
-
|
-
|
1,763
|
-
|
1,763
|
-
|
1,763
|
|
Total comprehensive income
|
|
-
|
-
|
112,829
|
2,742
|
-
|
1,089
|
-
|
116,660
|
304
|
116,964
|
|
Transactions with owners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
9
|
-
|
-
|
(133,889)
|
-
|
-
|
-
|
-
|
(133,889)
|
-
|
(133,889)
|
|
Share
options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement
in relation to share options
|
23
|
43
|
960
|
15,015
|
-
|
-
|
-
|
-
|
16,018
|
-
|
16,018
|
|
Corporation
tax on share options
|
|
-
|
-
|
931
|
-
|
-
|
-
|
-
|
931
|
-
|
931
|
|
Deferred
tax on share options
|
|
-
|
-
|
(1,823)
|
-
|
-
|
-
|
-
|
(1,823)
|
-
|
(1,823)
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to acquire HPE Software
|
23,24
|
28,773
|
-
|
-
|
-
|
|
-
|
6,485,397
|
6,514,170
|
-
|
6,514,170
|
|
Share reorganization and buy-back:
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
of Value – share consolidation
|
23,24
|
(2,926)
|
-
|
-
|
-
|
2,926
|
-
|
-
|
-
|
-
|
-
|
|
Issue
and redemption of B shares
|
23,24
|
-
|
(156,683)
|
(500,000)
|
-
|
500,000
|
-
|
(343,317)
|
(500,000)
|
-
|
(500,000)
|
|
Reallocation
of merger reserve
|
24
|
-
|
-
|
700,000
|
-
|
-
|
-
|
(700,000)
|
-
|
-
|
-
|
|
Balance as at 31 October 2017
|
|
65,590
|
36,422
|
1,095,246
|
(20,217)
|
666,289
|
1,089
|
5,780,184
|
7,624,603
|
1,258
|
7,625,861
|
The accompanying
notes are an integral part of these Unaudited Consolidated
Financial Statements.
Micro
Focus International plc
Consolidated statement of cash flows (unaudited)
|
|
Note
|
Six months
ended
31 October 2017
$’000
|
Six
months
ended
31
October 2016
$’000
|
Year
ended
30
April 2017
$’000
|
|
Cash flows from operating activities
|
|
|
|
|
|
Net
profit for the period
|
|
106,605
|
90,617
|
157,803
|
|
Adjustments for:
|
|
|
|
|
|
Net
interest
|
11
|
73,788
|
48,953
|
95,845
|
|
Taxation
|
12
|
39,129
|
22,589
|
38,541
|
|
Share
of results of associates
|
16
|
438
|
1,127
|
1,254
|
|
Operating profit
|
|
219,960
|
163,286
|
293,443
|
|
Research
and development tax credits
|
|
(2,185)
|
(936)
|
(2,998)
|
|
Depreciation
|
15
|
16,289
|
5,712
|
11,794
|
|
Loss on
disposal of property, plant and equipment
|
|
427
|
484
|
520
|
|
Amortization
of intangibles
|
14
|
198,606
|
119,085
|
236,434
|
|
Share-based
compensation
|
8
|
18,302
|
15,521
|
34,506
|
|
Exchange
movements
|
|
(4,699)
|
(9,270)
|
(4,890)
|
|
Provisions
movements
|
21
|
73,433
|
18,788
|
47,266
|
|
Changes in working capital:
|
|
|
|
|
|
Inventories
|
|
(216)
|
30
|
29
|
|
Trade
and other receivables
|
|
(231,762)
|
21,073
|
10,224
|
|
Payables
and other liabilities
|
|
15,490
|
(50,118)
|
(33,252)
|
|
Provision
utilization
|
21
|
(55,489)
|
(18,581)
|
(43,476)
|
|
Deferred
income
|
|
15,868
|
(62,308)
|
15,375
|
|
Pension
funding in excess of charge to operating profit
|
|
3,129
|
(856)
|
(183)
|
|
Cash generated from operations
|
|
267,153
|
201,910
|
564,792
|
|
Interest
paid
|
|
(82,341)
|
(42,879)
|
(81,115)
|
|
Bank
loan costs
|
|
(90,319)
|
(5,864)
|
(6,654)
|
|
Tax
paid
|
|
(20,472)
|
(18,183)
|
(24,644)
|
|
Net cash generated from operating activities
|
|
74,021
|
134,984
|
452,379
|
|
Cash flows from investing activities
|
|
|
|
|
|
Payments
for intangible assets
|
14
|
(35,650)
|
(17,571)
|
(31,438)
|
|
Purchase of
property, plant and equipment
|
15
|
(9,845)
|
(6,454)
|
(11,727)
|
|
Interest
received
|
|
1,699
|
502
|
979
|
|
Payment
for acquisition of subsidiaries
|
28
|
-
|
(293,797)
|
(299,061)
|
|
Repayment
of bank borrowings on acquisitions
|
28
|
-
|
(316,650)
|
(316,650)
|
|
Net
cash acquired with acquisitions
|
28
|
320,729
|
68,173
|
68,173
|
|
Net cash generated from/(used in) investing activities
|
|
276,933
|
(565,797)
|
(589,724)
|
|
Cash
flows from financing activities
|
|
|
|
|
|
Investment
in non-controlling interest
|
|
-
|
-
|
(2)
|
|
Proceeds
from issue of ordinary share capital
|
|
1,161
|
467
|
1,979
|
|
Purchase
of treasury shares
|
|
-
|
-
|
(7,678)
|
|
Return
of value paid to shareholders
|
27
|
(500,000)
|
-
|
-
|
|
Repayment
of bank borrowings
|
19
|
(215,000)
|
(126,375)
|
(372,062)
|
|
Proceeds
from bank borrowings
|
19
|
1,043,815
|
115,000
|
180,000
|
|
Dividends
paid to owners
|
9
|
(133,889)
|
(111,023)
|
(177,535)
|
|
Net
cash generated from/(used in) financing activities
|
|
196,087
|
(121,931)
|
(375,298)
|
|
Effects
of exchange rate changes
|
|
32,348
|
8,536
|
(3,552)
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
579,389
|
(544,208)
|
(516,195)
|
|
Cash
and cash equivalents at beginning of period
|
|
150,983
|
667,178
|
667,178
|
|
Cash and cash equivalents at end of period
|
|
730,372
|
122,970
|
150,983
|
The accompanying
notes are an integral part of these Unaudited Consolidated
Financial Statements.
The principal
non-cash transaction in the six months ended 31 October 2017 was
the issuance of shares as purchase consideration for the HPE
Software acquisition (note 28).
Micro
Focus International plc
Notes to the consolidated interim financial statements
(unaudited)
1. General
information
Micro
Focus International plc (“the Company”) is a public
limited Company incorporated and domiciled in the UK. The address
of its registered office is, The Lawn, 22-30 Old Bath Road,
Newbury, RG14 1QN, UK.
Micro
Focus International plc and its subsidiaries (together “the
Group”) provide innovative software to clients around the
world enabling them to dramatically improve the business value of
their enterprise applications. As at 31 October 2017, the Group has
a presence in 49 countries worldwide and employs approximately
16,100 people.
On 1
September 2017, Micro focus International plc successfully
completed the merger of its wholly owned subsidiary with Seattle
SpinCo, Inc., which holds the software business segment ("HPE
Software") of Hewlett Packard Enterprise Company
("HPE").
The
Company is listed on the London Stock Exchange and its American
Depositary Shares are listed on the New York Stock
Exchange.
Micro
Focus has changed its financial year end from 30 April to 31
October and will report eighteen-month financial statements running
from 1 May 2017 to 31 October 2018. In addition to these interim
financial statements, Micro Focus will report interim results for
the six months and 12 months to 30 April 2018 and results for the
eighteen-month period to 31 October 2018. Additional information
will be included in the 2018 Annual Report to aid year-on-year
comparisons.
These
unaudited consolidated interim financial statements were authorized
for issuance by the board of directors on 7 January
2018.
These
condensed consolidated interim financial statements do not comprise
statutory accounts within the meaning of section 434 of the
Companies Act 2006. Statutory accounts for the year ended 30 April
2017 were approved by the Board of directors on 11 July 2017 and
delivered to the Registrar of Companies. The report of the auditor
on those accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement under Section
498 of the Companies Act 2006.
These
condensed interim consolidated financial statements have been
reviewed, not audited.
2. Basis of preparation
These condensed consolidated interim financial statements for the
six months ended 31 October 2017 have been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34, “Interim Financial
Reporting”. The condensed consolidated interim financial
statements should be read in conjunction with the Annual Report and
Accounts for the year ended 30 April 2017, which have been prepared
in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board
(“IASB”) and in conformity with International Financial
Reporting Standards as adopted by the European Union (collectively
‘’IFRS’’).
Re-classification of costs for Consolidated Statement of
Comprehensive Income Presentation
As part
of the completion of the HPE Software transaction, the
Company’s shares and ADS were listed on the LSE and NYSE
respectively. In the preparation of the Group’s April 2017
Annual Report and Accounts and as part of the regulatory filing
process in the USA the Group reviewed its consolidated statement of
comprehensive income presentation and decided to re-classify both
amortization of product development costs and amortization of
acquired technology intangibles from research and development
expenses to cost of sales. This presentation complies with IFRS
and, in the view of the Company’s Audit Committee, provides
investors with a consolidated statement of comprehensive income
presentation that is more comparable with other software companies
listed on both markets. The six months ended 31 October 2016
comparative has also been re-classified and additional detail is
provided on the face of the consolidated statement of comprehensive
income in the period.
3.
Accounting policies
Other than as described below and income tax expense which is
recognized using an estimate of the weighted average effective
annual income tax rate for the full year; the accounting policies
adopted are consistent with those of the Annual Report and Accounts
for the year ended 30 April 2017, as described in those financial
statements.
(a)
The following
standards, interpretations and amendments to existing standards are
now effective and have been adopted by the
Group:
●
Amendments to IAS
7, ‘Statement of cash flows’ on disclosure initiative
are effective on periods beginning on or after 1 January 2017 (not
yet endorsed by the EU). This amendment introduces an additional
disclosure that will enable users of financial statements to
evaluate changes in liabilities arising from financing activities
and is part of the IASB’s Disclosure Initiative, which
continues to explore how financial statement disclosure can be
improved.
●
Amendments to IAS
12, 'Income taxes' on recognition of deferred tax assets for
unrealized losses are effective on periods beginning on or after 1
January 2017 (not yet endorsed by the EU). These amendments clarify
how to account for deferred tax assets originated from unrealized
loss in debt instruments measured at fair value.
The
disclosure requirements of Amendments to IAS 7 ‘Statement of
cash flows’ have been included in the consolidated interim
financial statements. The Amendments to IAS 12 ‘Income
taxes’ do not have a material impact to the consolidated
interim financial statements.
(b)
The following
standards, interpretations and amendments to existing standards are
not yet effective and have not been adopted early by the
Group:
●
IFRS 15
‘Revenue from contracts with customers’ establishes the
principles that an entity shall apply to report useful information
to users of financial statements about the nature, amount, timing,
and uncertainty of revenue and cash flows arising from a contract
with a customer. Application of the standard is mandatory for
annual reporting periods starting from 1 January 2018 onwards.
Earlier application is permitted. The standard replaces IAS 18
‘Revenue’ and IAS 11 ‘Construction
contracts’ and related interpretations.
●
IFRS 9
‘Financial instruments’. This standard replaces the
guidance in IAS 39 and applies to periods beginning on or after 1
January 2018. It includes requirements on the classification and
measurement of financial assets and liabilities; it also includes
an expected credit losses model that replaces the current incurred
loss impairment model.
●
Amendment to IFRS
15, ‘Revenue from contracts with customers’. These
amendments comprise guidance on performance obligations, accounting
for licences of intellectual property and the principal versus
agent assessment on periods beginning on or after 1 January 2018
(not yet endorsed by the EU).
●
Amendments to IFRS
2, ‘Share based payments’ on clarifying how to account
for certain types of share based payment transactions are effective
on periods beginning on or after 1 January 2018 (not yet endorsed
by the EU). These amendments clarify the measurement basis for
cash-settled share-based payments and the accounting for
modifications that change an award from cash-settled to
equity-settled. It also introduces an exception to the principles
in IFRS 2 that will require an award to be treated as if it was
wholly equity-settled, where an employer is obliged to withhold an
amount for the employee’s tax obligation associated with a
share based payment and pay that amount to the tax
authority.
●
IFRS 16,
‘Leases’ addresses the definition of a lease,
recognition and measurement of leases and establishes principles
for reporting useful information to users of financial statements
about the leasing activities of both lessees and lessors. A key
change arising from IFRS 16 is that most operating leases will be
accounted for on balance sheet for lessees. The standard replaces
IAS 17 ‘Leases', and related interpretations. The standard is
effective for annual periods beginning on or after 1 January 2019
(not yet endorsed by the EU) and earlier application is permitted
if the entity is adopting IFRS 15 'Revenue from contracts with
customers' at the same time.
●
Annual improvements
2014–2016, relating to amendments to IFRS 1,
‘First-time adoption of IFRS’ and IAS 28,
’Investments in associates and joint ventures’
regarding measuring an associate or joint venture at fair value
applies for periods beginning on or after 1 January 2018 (not yet
endorsed by the EU).
●
IFRIC 22,
‘Foreign currency transactions and advance
consideration’ addresses foreign currency transactions or
parts of transactions where there is consideration that is
denominated or priced in a foreign currency. The interpretation
provides guidance for when a single payment/receipt is made as well
as for situations where multiple payments/receipts are made,
effective for annual periods beginning on or after 1 January 2018
(not yet endorsed by the EU).
●
IFRIC 23,
‘Uncertainty over Income Tax Treatments’ clarifies how
to apply the recognition and measurement requirements in IAS 12
when there is uncertainty over income tax treatments. In such a
circumstance, an entity shall recognize and measure its current or
deferred tax asset or liability applying IAS 12 based on taxable
profit (tax loss), tax bases, unused tax losses, unused tax
credits, and tax rates determined applying this interpretation.
This interpretation is effective for annual periods beginning on or
after 1 January 2019, subject to EU endorsement.
For
IFRS 9, IFRS 16, IFRIC 22 and IFRIC 23, it is too early to
determine how significant the effect on reported results and
financial position will be. For IFRS 9 and IFRS 16, the Group is in
the process of assessing the impact that the application of these
standards will have on the Group’s financial statements. The
impact of IFRS 15 is discussed below. The impact of the other
standards, amendments and interpretations listed above will not
have a material impact on the consolidated financial
statements.
Impact of IFRS 15 ‘Revenue from contracts with
customers’
On 28
May 2014, the IASB issued IFRS 15 ‘Revenue from Contracts
with Customers’. The new revenue recognition standard will be
effective for the Group starting 1 November 2018, following the
announcement of the new year-end date. We do not plan to adopt IFRS
15 early. The standard permits two possible transition methods for
the adoption of the new guidance:
●
Retrospectively to
each prior reporting period presented in accordance with IAS 8
“Accounting Policies, Changes in Accounting Estimates and
Errors”, or
●
Retrospectively
with the cumulative effect of initially applying the standard
recognized on the date of the initial application (cumulative
catch-up approach).
We
currently plan to adopt the new standard using the cumulative
catch-up approach. We are in the process of assessing the impact,
developing our future IFRS 15 revenue recognition policies and
adjusting the relevant business processes to adopt these new
policies. We have established a project across Micro Focus’
business to review the impacts of IFRS 15 and as part of this
effort, the most notable difference to date is in relation to
certain incremental costs of obtaining a contract. IFRS 15 requires
the capitalization and amortization of certain in-scope sales
commissions and third party costs over the estimated customer life.
An evaluation study is underway to determine the potential impact
on the consolidated financial statements in the year of adoption.
There will be no impact to cash flows.
IFRS 15
may also change the way we allocate a transaction price to
individual performance obligations which can impact the
classification and timing of revenues. Further analysis of the
requirements is currently being undertaken to understand the
possible impact, if any.
In
addition to the effects on our consolidated statement of
comprehensive income, we expect changes to our consolidated
statement of financial position (in particular due to the
recognition of contract assets/contract liabilities, the
differentiation between contract assets and trade receivables, the
capitalization and amortization of costs of obtaining a contract
and an impact in retained earnings from the initial adoption of
IFRS 15) and changes to the quantitative and qualitative disclosure
included.
We will
continue to assess all of the impacts that the application of IFRS
15 will have on our consolidated financial statements in the period
of initial application, which will also significantly depend on our
business and Go-to-Market strategy in the 18- month period ended 31
October 2018. The impacts, if material, will be disclosed in the
next Interim Statements at 30 April 2018, including statements on
if and how we apply any of the practical expedients available in
the standard.
4. Functional currency
The
presentation currency of the Group is US dollars. Items included in
the financial statements of each of the Group’s entities are
measured in the functional currency of each entity. The Group uses
the local currency as the functional currency, except for two
entities based in Ireland (Novell Ireland Software Limited and
Novell Ireland Real Estate Limited), the parent company, and the
HPE Software entities, where the functional currency is the US
dollar. Certain HPE Software entities moved to local functional
currencies from 1 November 2017, reflecting changes in their
underlying business model and transactional
conditions.
5. Segmental reporting
In accordance with IFRS 8, “Operating Segments”, the
Group has derived the information for its operating segments using
the information used by the Chief Operating Decision Maker for the
purposes of resource allocation and assessment of segment
performance.
For the six months to 31 October 2017, the Chief Operating Decision
Maker (CODM) for existing Micro Focus and SUSE is defined as the
Executive Committee, which consists of the Executive Chairman,
Chief Financial Officer, Chief Operating Officer, Chief Executive
Officers of Micro Focus and SUSE. The CODM for HPE Software in the
2-month post acquisition period to 31 October 2017 is Chris
Hsu.
On a go-forward basis the CODM for the combined group will be the
Operating Committee consisting of the Chief Executive Officer, the
Chief Financial Officer, the Chief Operating Officer, the Chief
Human Resources Officer and the Head of Strategy, Operations &
Pricing. The Group’s reportable segments under IFRS 8 are as
follows:
Micro Focus – The Micro Focus product portfolio
segment contains mature infrastructure software products that are
managed on a portfolio basis akin to a “fund of funds”
investment portfolio. This portfolio is managed with a single
product group that makes and maintains the software, whilst the
software is sold and supported through a geographic Go-to-Market
organization. The products within the existing Micro Focus Product
Portfolio are grouped together into ten sub-portfolios based on
industrial logic and management of the Micro Focus sub-portfolios:
CDMS, Host Connectivity, IAS, Development & ITOM and
Collaboration & Network and the newly acquired HPE Software
sub-portfolios: IP Operation Management, Application Delivery
Management, Enterprise Security Product, Platform and Information
Management Business.
SUSE – The characteristics of the SUSE product
portfolio segment are different from the Micro Focus product
portfolio due to the Open Source nature of its offerings and the
growth profile of those offerings. SUSE provides and supports
enterprise-grade Linux and Open Source Software Defined
Infrastructure and Application Delivery solutions. The SUSE product
portfolio comprises: SUSE Linux Enterprise Server and Extensions,
SUSE OpenStack Cloud, SUSE Enterprise Storage, SUSE Container as a
Service Platform SUSE Manager, and SUSE Linux Enterprise Desktop
and Workstation Extension.
Operating
segments are consistent with those used in internal management
reporting and the profit measure used by the Executive Committee is
the Adjusted Operating Profit. Centrally managed costs are
allocated between the Micro Focus and SUSE segments based on
identifiable segment specific costs with the remainder allocated
based on other criteria including revenue and
headcount.
Operating
segments for the six months ended 31 October 2017:
|
|
|
Micro Focus
|
SUSE
|
Total
|
|
|
|
Note
|
Existing
Micro
Focus
|
HPE Software
|
Total
Micro
Focus
|
|
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
|
Revenue before deferred revenue haircut
|
|
501,286
|
595,071
|
1,096,357
|
165,263
|
1,261,620
|
|
|
Deferred
revenue haircut
|
|
(948)
|
(25,329)
|
(26,277)
|
(823)
|
(27,100)
|
|
|
Segment revenue
|
|
500,338
|
569,742
|
1,070,080
|
164,440
|
1,234,520
|
|
|
Directly
managed costs
|
|
(262,936)
|
(352,750)
|
(615,686)
|
(98,614)
|
(714,300)
|
|
|
Allocation
of centrally managed costs
|
|
19,751
|
(3,800)
|
15,951
|
(15,951)
|
-
|
|
|
Total segment costs
|
|
(243,185)
|
(356,550)
|
(599,735)
|
(114,565)
|
(714,300)
|
|
|
Adjusted Operating Profit
|
|
257,153
|
213,192
|
470,345
|
49,875
|
520,220
|
|
|
Exceptional
items
|
7
|
|
|
|
|
(98,480)
|
|
|
Share
based compensation charge
|
8
|
|
|
|
|
(18,302)
|
|
|
Amortization
of purchased intangibles
|
14
|
|
|
|
|
(183,478)
|
|
|
Operating profit
|
|
|
|
|
|
219,960
|
|
|
Share
of results of associates
|
16
|
|
|
|
|
(438)
|
|
|
Net
finance costs
|
11
|
|
|
|
|
(73,788)
|
|
|
Profit before tax
|
|
|
|
|
|
145,734
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Profit
|
|
257,153
|
213,192
|
470,345
|
49,875
|
520,220
|
|
|
Depreciation of property, plant and equipment
|
15
|
4,605
|
10,385
|
14,990
|
1,299
|
16,289
|
|
|
Amortization of purchased software intangibles
|
14
|
994
|
942
|
1,936
|
817
|
2,753
|
|
|
Foreign
exchange (credit)/debit
|
|
(9,511)
|
2,331
|
(7,180)
|
2,481
|
(4,699)
|
|
|
Net
capitalization of product development costs
|
14
|
(4,503)
|
-
|
(4,503)
|
-
|
(4,503)
|
|
|
Adjusted EBITDA
|
|
248,738
|
226,850
|
475,588
|
54,472
|
530,060
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
17,607,743
|
|
|
Total liabilities
|
|
|
|
|
|
(9,981,882)
|
|
Operating
segments for the six months ended 31 October 2016:
|
|
|
Micro
Focus
|
SUSE
|
Total
|
|
|
Note
|
Existing
Micro
Focus
|
HPE
Software
|
Micro
Focus
Total
|
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
Revenue
before deferred revenue haircut
|
|
541,829
|
-
|
541,829
|
149,318
|
691,147
|
|
Deferred
revenue haircut
|
|
(4,518)
|
-
|
(4,518)
|
(1,886)
|
(6,404)
|
|
Segment
revenue
|
|
537,311
|
-
|
537,311
|
147,432
|
684,743
|
|
Directly
managed costs
|
|
(277,297)
|
-
|
(277,297)
|
(81,197)
|
(358,494)
|
|
Allocation
of centrally managed costs
|
|
12,651
|
-
|
12,651
|
(12,651)
|
-
|
|
Total
segment costs
|
|
(264,646)
|
-
|
(264,646)
|
(93,848)
|
(358,494)
|
|
Adjusted
Operating Profit
|
|
272,665
|
-
|
272,665
|
53,584
|
326,249
|
|
Exceptional
items
|
7
|
|
|
|
|
(41,048)
|
|
Share
based compensation charge
|
8
|
|
|
|
|
(15,521)
|
|
Amortization
of purchased intangibles
|
14
|
|
|
|
|
(106,394)
|
|
Operating
profit
|
|
|
|
|
|
163,286
|
|
Share
of results of associates
|
16
|
|
|
|
|
(1,127)
|
|
Net
finance costs
|
11
|
|
|
|
|
(48,953)
|
|
Profit
before tax
|
|
|
|
|
|
113,206
|
|
|
|
|
|
|
|
|
|
Adjusted
Operating Profit
|
|
272,665
|
-
|
272,665
|
53,584
|
326,249
|
|
Depreciation of property, plant and equipment
|
15
|
4,759
|
-
|
4,759
|
953
|
5,712
|
|
Amortization of purchased software intangibles
|
14
|
529
|
-
|
529
|
45
|
574
|
|
Foreign
exchange credit
|
|
(7,981)
|
-
|
(7,981)
|
(1,289)
|
(9,270)
|
|
Net
capitalization of product development costs
|
14
|
(2,931)
|
-
|
(2,931)
|
-
|
(2,931)
|
|
Adjusted
EBITDA
|
|
267,041
|
-
|
267,041
|
53,293
|
320,334
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
4,707,021
|
|
Total
liabilities
|
|
|
|
|
|
3,125,262
|
No measure of total assets and total liabilities for each
reportable segment has been reported as such amounts are not
regularly provided to the Chief Operating Decision
Maker.
Notes to the consolidated interim financial statements
(unaudited)
6. Analysis of revenue by product
Set out below is an analysis of revenue recognized between the
principal product portfolios for the six months ended 31 October
2017 and six months ended 31 October 2016:
|
Six months ended 31 October 2017:
|
Licence
$’000
|
Maintenance
$’000
|
Subscription
$’000
|
Consulting
$’000
|
SaaS
$’000
|
Total
$’000
|
|
Existing Micro Focus:
|
|
|
|
|
|
|
|
CDMS
|
43,534
|
77,753
|
-
|
4,771
|
-
|
126,058
|
|
Host
Connectivity
|
15,116
|
50,879
|
-
|
539
|
-
|
66,534
|
|
Identity,
Access & Security
|
23,153
|
68,164
|
-
|
9,041
|
-
|
100,358
|
|
Development
& IT Operations Management Tools
|
27,534
|
105,391
|
-
|
7,290
|
-
|
140,215
|
|
Collaboration
& Networking
|
13,523
|
52,895
|
-
|
1,703
|
-
|
68,121
|
|
Subtotal existing Micro Focus
|
122,860
|
355,082
|
-
|
23,344
|
-
|
501,286
|
|
Deferred
revenue haircut
|
-
|
(948)
|
-
|
-
|
-
|
(948)
|
|
Total existing Micro Focus
|
122,860
|
354,134
|
-
|
23,344
|
-
|
500,338
|
|
|
|
|
|
|
|
|
|
HPE Software Acquisition:
|
|
|
|
|
|
|
|
IT
Operation Management
|
95,717
|
84,345
|
-
|
31,835
|
1,582
|
213,479
|
|
Application
Delivery Management
|
40,278
|
99,619
|
-
|
7,229
|
16,667
|
163,793
|
|
Enterprise
Security Product
|
42,897
|
46,294
|
-
|
9,287
|
5,981
|
104,459
|
|
Platform
|
18,655
|
10,905
|
-
|
2,909
|
95
|
32,564
|
|
Information
Management Business
|
14,866
|
30,002
|
-
|
4,562
|
31,346
|
80,776
|
|
Subtotal HPE Software Acquisition
|
212,413
|
271,165
|
-
|
55,822
|
55,671
|
595,071
|
|
Deferred
revenue haircut
|
(7,592)
|
(13,751)
|
-
|
(682)
|
(3,304)
|
(25,329)
|
|
Total HPE Software Acquisition
|
204,821
|
257,414
|
-
|
55,140
|
52,367
|
569,742
|
|
|
|
|
|
|
|
|
|
Total Micro Focus Product Portfolio
|
327,681
|
611,548
|
-
|
78,484
|
52,367
|
1,070,080
|
|
|
|
|
|
|
|
|
|
SUSE Product Portfolio
|
-
|
-
|
163,455
|
1,808
|
-
|
165,263
|
|
Deferred
revenue haircut
|
-
|
-
|
(823)
|
-
|
-
|
(823)
|
|
Total SUSE Product Portfolio
|
-
|
-
|
162,632
|
1,808
|
-
|
164,440
|
|
|
|
|
|
|
|
|
|
Total
|
327,681
|
611,548
|
162,632
|
80,292
|
52,367
|
1,234,520
|
|
|
|
|
|
|
|
|
|
Six
months ended 31 October 2016:
|
|
|
|
|
|
|
|
Micro
Focus Product Portfolio:
|
|
|
|
|
|
|
|
CDMS
|
52,447
|
75,320
|
-
|
5,433
|
-
|
133,200
|
|
Host
Connectivity
|
38,898
|
52,998
|
-
|
935
|
-
|
92,831
|
|
Identity,
Access & Security
|
19,845
|
71,078
|
-
|
10,211
|
-
|
101,134
|
|
Development
& IT Operations Management Tools
|
24,509
|
111,974
|
-
|
7,336
|
-
|
143,819
|
|
Collaboration
& Networking
|
11,174
|
57,379
|
-
|
2,292
|
-
|
70,845
|
|
Total
Micro Focus Product Portfolio
|
146,873
|
368,749
|
-
|
26,207
|
-
|
541,829
|
|
Deferred
revenue haircut
|
-
|
(4,518)
|
-
|
-
|
-
|
(4,518)
|
|
Total
Micro Focus Product Portfolio
|
146,873
|
364,231
|
-
|
26,207
|
-
|
537,311
|
|
|
|
|
|
|
|
|
|
SUSE
Product Portfolio
|
-
|
-
|
146,811
|
2,507
|
-
|
149,318
|
|
Deferred
revenue haircut
|
-
|
-
|
(1,886)
|
-
|
-
|
(1,886)
|
|
Total
SUSE Product Portfolio
|
-
|
-
|
144,925
|
2,507
|
-
|
147,432
|
|
|
|
|
|
|
|
|
|
Total
|
146,873
|
364,231
|
144,925
|
28,714
|
-
|
684,743
|
Notes to the consolidated interim financial statements
(unaudited)
7. Exceptional items
|
|
Six months
ended
31 October 2017
|
Six
months
ended
31
October 2016
|
Year
ended
30
April 2017
|
|
Reported within Operating profit:
|
$’000
|
$’000
|
$’000
|
|
Integration
costs
|
20,029
|
13,432
|
27,696
|
|
Pre-acquisition
costs
|
43,025
|
19,669
|
58,004
|
|
Acquisition
costs
|
25,820
|
1,468
|
2,597
|
|
Property
related (release)/ costs
|
(196)
|
2,521
|
5,525
|
|
Severance
and legal costs
|
9,802
|
3,958
|
3,436
|
|
|
98,480
|
41,048
|
97,258
|
|
|
|
|
|
|
Reported within finance costs:
|
|
|
|
|
Finance
costs incurred in escrow period (note 11)
|
6,326
|
-
|
-
|
|
Reported within finance income:
|
|
|
|
|
Finance
income earned in escrow period (note 11)
|
(553)
|
-
|
-
|
|
|
5,773
|
-
|
-
|
|
|
|
|
|
|
Total exceptional costs
|
104,253
|
41,048
|
97,258
|
Integration costs of $20.0m for the six months ended 31 October
2017 (2016: $13.4m) arose from the work being done in integrating
Serena, GWAVA and HPE Software organizations into the Micro Focus
Product Portfolio. Other activities include; development of a new
Group intranet and website and system integration
costs.
The pre-acquisition costs of $43.0m for the six months ended 31
October 2017 (2016: $19.7m) relate to the evaluation of the
acquisition of HPE Software (note 28), which was announced in
September 2016 and was completed on 1 September 2017. The costs
relate to due diligence work, legal work on the acquisition
agreements, professional advisors on the transaction and
pre-integration costs relating to activities in readiness for the
HPE Software acquisition across all functions of the existing Micro
Focus business.
The acquisition costs of $25.8m for the six months ended 31 October
2017 include external costs in evaluating and completing the
acquisition of HPE Software in August 2017 and includes
$7.7m in respect of US excise tax payable on the award of Long Term
Incentives and Additional Share Grants to four senior employees
arising as a result of the HPE Software acquisition (2016: $1.5m related to the acquisitions of Serena
in May 2016 and GWAVA in September 2016). The external costs mostly
relate to due diligence work, legal work on the acquisition
agreements and professional advisors on the
transaction.
The net release to exceptional items of $0.2m in relation to
property related items for the six months ended 31 October 2017
(2016: cost of $2.5m) mainly relates to the release of a provision
of $1.0m following the renegotiation of a lease in North
America.
Severance and legal costs of $9.8m for the six months ended 31
October 2017 (2016: $4.0m) relate mostly to termination costs for
HPE Software employees after acquisition. 2016 costs relate to
termination costs for senior Serena executives after
acquisition.
Finance costs incurred in escrow period of $6.3m relates to
interest charges on additional term loan facilities drawn down in
relation to the acquisition between the date the facilities were
drawn into escrow and the acquisition date of HPE
Software.
Finance income earned in escrow period of $0.6m relates to interest
income earned on additional term loan facilities drawn down in
relation to the acquisition between the date the facilities were
drawn into escrow and the acquisition date of HPE
Software.
The estimated total tax effect of exceptional items is a credit to
the income statement of $25.5m for the six months ended 31 October
2017 (2016: $5.6m).
8.
Share-based payments
The
share-based compensation charge for the six months ended 31 October
2017 was $18.3m (2016: $15.5m) including $3.0m (2016: $4.3m)
relating to employer taxes. As at 31 October 2017, accumulated
employer taxes of $18.9m (2016: $7.6m) is included in trade and
other payables and $1.0m ($5.2m) is included in other non-current
liabilities.
9.
Dividends
A dividend of $134.0m was paid during the six months ended 31
October 2017 of 58.33 cents per
share (2016: $111.0m or 49.74 cents per share).
The directors announce an interim dividend of 34.60
cents per share (2016: 29.73 cents per
share) payable on 9 February
2018 to shareholders who are registered at 19 January 2018. This interim dividend, amounting to
$150.6m (2016: $66.5m) has not
been recognized as a liability as at 31 October
2017.
Notes to the consolidated interim financial statements
(unaudited)
10. Earnings per share
The calculation of
the basic earnings per share has been based on the earnings
attributable to owners of the parent and the weighted average
number of shares for each period.
|
|
Six months ended 31 October 2017
|
Six
months ended 31 October 2016
|
|
|
Total earnings
|
Weighted
average
number
of shares
|
Per share amount
|
Per share amount
|
Total
earnings
|
Weighted average number
of shares
|
Per share amount
|
Per share amount
|
|
|
$’000
|
‘000
|
Cents
|
Pence
|
$’000
|
‘000
|
Cents
|
Pence
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
Earnings attributable to ordinary shareholders 1
|
106,301
|
296,698
|
35.83
|
27.50
|
90,638
|
229,067
|
39.57
|
29.49
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
Options
|
|
10,207
|
|
|
|
8,689
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
Earnings attributable to ordinary shareholders
|
106,301
|
306,905
|
34.64
|
26.58
|
90,638
|
237,756
|
38.12
|
28.41
|
|
|
|
|
|
|
|
|
|
|
1
Earnings attributable to ordinary
shareholders is the profit for the six months ended 31 October 2017
of $106.6m (2016: $90.6m),
excluding amounts attributable to non-controlling interests of
$0.3m (2016: $nil).
The
weighted average number of shares excludes treasury shares that do
not have dividend rights. Earnings per share, expressed in pence,
has used the average exchange rate for the six months ended 31
October 2017 of $1.30 to £1 (2016: $1.34 to
£1).
11. Finance income and finance costs
|
|
Six months
ended
31 October 2017
|
Six months
ended
31 October 2016
|
|
|
$’000
|
$’000
|
|
Finance costs
|
|
|
|
Interest
on bank borrowings
|
59,540
|
41,627
|
|
Amortization
of facility costs and original issue discounts
|
13,448
|
7,302
|
|
Finance costs on bank borrowings
|
72,988
|
48,929
|
|
Net
interest expense on retirement obligations (note 22)
|
579
|
262
|
|
Finance
lease expense
|
1,161
|
-
|
|
Interest
rate swaps: cash flow hedges, transfer from equity
|
456
|
-
|
|
Other
|
303
|
264
|
|
Total
|
75,487
|
49,455
|
|
|
|
|
|
Finance income
|
|
|
|
Bank
interest
|
1,030
|
315
|
|
Interest
on non-plan pension assets (note 22)
|
231
|
187
|
|
Other
|
438
|
-
|
|
Total
|
1,699
|
502
|
|
|
|
|
|
Net finance cost
|
73,788
|
48,953
|
|
|
|
|
|
Included within exceptional items (note 7)
|
|
|
|
Finance
costs incurred in escrow period
|
6,326
|
-
|
|
Finance
income earned in escrow period
|
(553)
|
-
|
|
|
5,773
|
-
|
Notes to the consolidated interim financial statements
(unaudited)
12. Taxation
The
tax charge for the six months ended 31 October 2017 was $39.1m
(2016: $22.6m) with the Group’s effective tax rate
(“ETR”) being 26.8% (2016: 20.0%).
The Group’s
ETR for the six months ended 31 October 2017 (26.8%) is higher than
the previous year (20.0%) mainly due to the inclusion of HPE
Software results, which are subject to tax at a higher rate than
the existing Micro Focus group entities and restrictions to the
deductibility of interest expenses under new UK tax
rules.
The Group continues
to benefit from the UK’s Patent Box regime. Benefits during
the six months ended 31 October 2017 were $5.5m (2016: $4.3m). The
Group realized benefits in relation to intra-Group financing in the
six months ended 31 October 2017 of $4.6m (2016:
$8.4m).
The Group’s
cash taxes paid in the period were $20.5m, compared to $18.2m in
the six months ended 31 October 2016.
13. Goodwill
|
|
31 October 2017
|
31
October 2016
|
30
April 2017
|
|
Cost and Net book value
|
$’000
|
$’000
|
$’000
|
|
1
May
|
2,828,604
|
2,436,168
|
2,436,168
|
|
Acquisition
(note 28)
|
5,105,472
|
391,657
|
392,436
|
|
|
7,934,076
|
2,827,825
|
2,828,604
|
|
|
|
|
|
|
A segment-level summary of the goodwill allocation is presented
below:
|
|
|
|
|
Micro Focus
|
7,074,510
|
1,968,259
|
1,969,038
|
|
SUSE
|
859,566
|
859,566
|
859,566
|
|
|
7,934,076
|
2,827,825
|
2,828,604
|
The
additions to goodwill in the six months ended 31 October 2017
relate to the acquisition of HPE Software of $5,105.5m (note 28).
Of the additions to goodwill, there is no amount that is expected
to be deductible for tax purposes.
Notes to the consolidated interim financial statements
(unaudited)
14. Other intangible assets
|
|
|
|
Purchased
intangibles
|
|
|
|
Purchased
software
|
Product
Development costs
|
Technology
|
Trade
names
|
Customer
relationships
|
Lease
contracts
|
Total
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
Net book value
|
|
|
|
|
|
|
|
|
At 1
May 2016
|
1,967
|
43,249
|
149,784
|
194,656
|
576,899
|
-
|
966,555
|
|
Acquisitions
|
79
|
-
|
90,175
|
22,111
|
210,744
|
-
|
323,109
|
|
Additions
|
2,226
|
15,048
|
-
|
-
|
-
|
-
|
17,274
|
|
Additions
– external consultants
|
-
|
297
|
-
|
-
|
-
|
-
|
297
|
|
Charge
for the period
|
(574)
|
(12,117)
|
(37,027)
|
(5,501)
|
(63,866)
|
-
|
(119,085)
|
|
Exchange
adjustments
|
(1,966)
|
-
|
-
|
-
|
-
|
-
|
(1,966)
|
|
At 31 October 2016
|
1,732
|
46,477
|
202,932
|
211,266
|
723,777
|
-
|
1,186,184
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
At 1
May 2016
|
1,967
|
43,249
|
149,784
|
194,656
|
576,899
|
-
|
966,555
|
|
Acquisitions
|
-
|
-
|
95,245
|
22,111
|
210,744
|
-
|
328,100
|
|
Additions
|
3,162
|
27,664
|
-
|
-
|
-
|
-
|
30,826
|
|
Additions
– external consultants
|
-
|
612
|
-
|
-
|
-
|
-
|
612
|
|
Charge
for the year
|
(1,175)
|
(22,398)
|
(69,098)
|
(15,995)
|
(127,768)
|
-
|
(236,434)
|
|
Exchange
adjustments
|
(289)
|
-
|
-
|
-
|
-
|
-
|
(289)
|
|
At 30 April 2017
|
3,665
|
49,127
|
175,931
|
200,772
|
659,875
|
-
|
1,089,370
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
At 1 May 2017
|
3,665
|
49,127
|
175,931
|
200,772
|
659,875
|
-
|
1,089,370
|
|
Acquisition (note 28)
|
72,825
|
-
|
1,775,000
|
188,000
|
4,222,000
|
15,000
|
6,272,825
|
|
Additions
|
18,266
|
16,878
|
-
|
-
|
-
|
-
|
35,144
|
|
Additions – external consultants
|
-
|
506
|
-
|
-
|
-
|
-
|
506
|
|
Charge for the period
|
(2,753)
|
(12,375)
|
(63,101)
|
(10,109)
|
(109,820)
|
(448)
|
(198,606)
|
|
Exchange adjustments
|
433
|
(66)
|
-
|
-
|
-
|
-
|
367
|
|
At 31 October 2017
|
92,436
|
54,070
|
1,887,830
|
378,663
|
4,772,055
|
14,552
|
7,199,606
|
|
|
|
|
|
|
|
|
|
Expenditure
totaling $35.7m (2016: $17.6m) was made in the six months ended 31
October 2017, including $17.4m in respect of development costs and
$18.3m of purchased software. The acquisition of HPE Software gave
rise to the addition of $6,272.8m to purchased intangibles (note
28).
Of the
$17.4m of additions to development costs in the six months ended 31
October 2017 (2016: $15.3m), $16.9m (2016: $15.0m) relates to
internal development costs and $0.5m (2016: $0.3m) to external
consultants’ development costs.
At 31
October 2017, the unamortized lives of technology assets were in
the range of three to 15 years, customer relationships in the range
of two to 15 years and trade names in the range of three to 20
years.
Amortization
for the six months ended 31 October 2017 of $75.5m is included in
cost of sales (2016: $49.1m), $119.9m (2016: $69.4m) is included in
selling and distribution costs, and $3.2m (2016: $0.6m) is included
in administrative expenses in the consolidated statement of
comprehensive income.
Notes to the consolidated interim financial statements
(unaudited)
15. Property, plant and equipment
|
|
Freehold
land
|
Leasehold
|
Computer
|
Fixtures
|
|
|
|
and
buildings
|
improvements
|
equipment
|
and
fittings
|
Total
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
Net book value
|
|
|
|
|
|
|
At 1
May 2016
|
13,612
|
14,604
|
8,714
|
3,937
|
40,867
|
|
Acquisitions
|
-
|
1,057
|
770
|
295
|
2,122
|
|
Additions
|
18
|
2,329
|
3,926
|
181
|
6,454
|
|
Disposals
|
-
|
(286)
|
(79)
|
(119)
|
(484)
|
|
Charge
for the period
|
(182)
|
(2,060)
|
(2,919)
|
(551)
|
(5,712)
|
|
Exchange
adjustments
|
(2,057)
|
(209)
|
(366)
|
(78)
|
(2,710)
|
|
At 31 October 2016
|
11,391
|
15,435
|
10,046
|
3,665
|
40,537
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
At 1
May 2016
|
13,612
|
14,604
|
8,714
|
3,937
|
40,867
|
|
Acquisitions
|
-
|
1,068
|
759
|
295
|
2,122
|
|
Additions
|
75
|
3,536
|
7,739
|
377
|
11,727
|
|
Reclassified
from assets held for sale
|
888
|
-
|
-
|
-
|
888
|
|
Disposals
|
-
|
(371)
|
(29)
|
(120)
|
(520)
|
|
Charge
for the year
|
(454)
|
(4,170)
|
(6,132)
|
(1,038)
|
(11,794)
|
|
Exchange
adjustments
|
(1,609)
|
(149)
|
(499)
|
(77)
|
(2,334)
|
|
At 30 April 2017
|
12,512
|
14,518
|
10,552
|
3,374
|
40,956
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
At 1 May 2017
|
12,512
|
14,518
|
10,552
|
3,374
|
40,956
|
|
Acquisitions (note 28)
|
20,044
|
41,041
|
80,775
|
23,804
|
165,664
|
|
Additions
|
206
|
966
|
6,287
|
2,386
|
9,845
|
|
Disposals
|
-
|
(176)
|
(20)
|
(231)
|
(427)
|
|
Charge for the period
|
(296)
|
(3,648)
|
(10,296)
|
(2,049)
|
(16,289)
|
|
Exchange adjustments
|
229
|
247
|
40
|
61
|
577
|
|
At 31 October 2017
|
32,695
|
52,948
|
87,338
|
27,345
|
200,326
|
16. Investments in associates
Open
Invention Network LLC (“OIN”), a strategic partnership
for the Group, licences its global defensive patent pool in
exchange for a pledge of non-aggression which encourages freedom of
action in Linux and the sharing of new ideas and inventions. There
are no significant restrictions on the ability of associated
undertakings to transfer funds to the parent. There are no
contingent liabilities to the Group’s interest in
associates.
At 31
October 2017 the Group had a 12.5% interest ($11.0m) (30 April 2017
12.5%, $12.7m) investment in OIN. There are 8 (2016: 7) equal
shareholders of OIN, all holding 12.5% (2016: 14.3%) interest, and
each shareholder has one board member and one alternative board
member. The Group exercises significant influence over OIN’s
operation and therefore accounts for its investment in OIN as an
associate.
The
Group uses the equity method of accounting for its interest in
associates. The following table shows the aggregate movement in the
Group’s investment in associates:
|
|
$’000
|
|
At 1
May 2016
|
12,711
|
|
Share
of post-tax loss of associates
|
(1,127)
|
|
At 31 October 2016
|
11,584
|
|
|
|
|
At 1
May 2016
|
12,711
|
|
|
|
|
Gain on
dilution of investment
|
966
|
|
Share
of post-tax loss of associates
|
(2,220)
|
|
|
(1,254)
|
|
|
|
|
At 30 April 2017
|
11,457
|
|
|
|
|
At 1 May 2017
|
11,457
|
|
Share
of post-tax loss of associates
|
(438)
|
|
At 31 October 2017
|
11,019
|
Details
of the Group’s principal associates are provided
below.
|
Company name
|
Country of incorporation and principal place of
business
|
Proportion held
|
Principal activities
|
|
Open
Invention Network LLC
|
USA
|
12.5%
|
Sale
and support of software
|
The
accounting year end date of the associate consolidated within the
Group’s financial statements is 31 December, and we obtain
its results on a quarterly basis. The Group records an adjustment
within the consolidated financial statements to align the reporting
period of the associate and the Group. The assets, liabilities, and
equity of the Group’s associate as at 30 September and the
revenue and loss of the Group’s associate for the six months
ended 30 September with the corresponding adjustment to align the
reporting period was as follows:
|
|
30 September 2017
|
30
September 2016
|
31
March
2017
|
|
|
$’000
|
$’000
|
$’000
|
|
Non-current
assets
|
39,201
|
39,879
|
43,649
|
|
Current
assets
|
51,044
|
61,684
|
50,137
|
|
Current
liabilities
|
(695)
|
(541)
|
(604)
|
|
Non-current
liabilities
|
(656)
|
(367)
|
(527)
|
|
Equity
|
88,894
|
100,655
|
(92,655)
|
|
|
30 September 2017
|
30
September 2016
|
31
March
2017
|
|
|
$’000
|
$’000
|
$’000
|
|
Revenue
|
-
|
-
|
-
|
|
Net
loss
|
(3,760)
|
(8,217)
|
16,212
|
|
|
2017
|
2016
|
|
|
$’000
|
$’000
|
|
Loss
attributable to the Group for the six months ended 30
September
|
(470)
|
(1,027)
|
|
Adjustment
on estimated October result attributable to the Group
|
32
|
(100)
|
|
Loss
attributable to the Group for the six months ended 31
October
|
(438)
|
(1,127)
|
17. Trade and other receivables
|
|
31 October 2017
|
31
October 2016
|
30
April 2017
|
|
|
$’000
|
$’000
|
$’000
|
|
Trade
receivables
|
1,057,150
|
257,486
|
266,225
|
|
Less:
provision for impairment of trade receivables
|
(51,318)
|
(3,768)
|
(2,599)
|
|
Trade
receivables net
|
1,005,832
|
253,718
|
263,626
|
|
Prepayments
|
51,733
|
21,353
|
23,239
|
|
Other
receivables
|
193,175
|
2,436
|
1,534
|
|
Accrued
income
|
842
|
451
|
1,110
|
|
Total
|
1,251,582
|
277,958
|
289,509
|
At 31
October 2017, 31 October 2016 and 30 April 2017, the carrying
amount approximates to the fair value.
18. Trade and other payables – current
|
|
31 October 2017
$’000
|
31
October 2016
$’000
|
30
April 2017
$’000
|
|
Trade
payables
|
89,143
|
14,301
|
16,891
|
|
Tax and
social security
|
95,018
|
9,250
|
3,032
|
|
Accruals
|
750,588
|
127,612
|
150,119
|
|
Total
|
934,749
|
151,163
|
170,042
|
At 31
October 2017, 31 October 2016 and 30 April 2017, the carrying
amount approximates to the fair value.
Accruals
include estimates of amounts payable to HPE Software, employee
taxes on share-based payments, vacation and payroll accruals
including bonuses and commissions.
Notes to the consolidated interim financial statements
(unaudited)
19. Borrowings
|
|
31 October 2017
|
31
October 2016
|
30
April 2017
|
|
|
$’000
|
$’000
|
$’000
|
|
Bank
loans secured
|
5,047,692
|
1,775,875
|
1,595,188
|
|
Unamortized
prepaid facility arrangement fees and original issue
discounts
|
(198,476)
|
(40,346)
|
(33,652)
|
|
|
4,849,216
|
1,735,529
|
1,561,536
|
|
|
31 October 2017
|
31
October 2016
|
30
April 2017
|
|
|
Bank loan secured
|
Unamortized prepaid facility arrangement fees and original issue
discounts
|
Total
|
Bank
loan secured
|
Unamortized
prepaid facility arrangement fees and original issue
discounts
|
Total
|
Bank
loan secured
|
Unamortized
prepaid facility arrangement fees and original issue
discounts
|
Total
|
|
Reported within:
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
Current
liabilities
|
37,858
|
(20,131)
|
17,727
|
307,750
|
(13,558)
|
294,192
|
83,788
|
(12,604)
|
71,184
|
|
Non-current
liabilities
|
5,009,834
|
(178,345)
|
4,831,489
|
1,468,125
|
(26,788)
|
1,441,337
|
1,511,400
|
(21,048)
|
1,490,352
|
|
|
5,047,692
|
(198,476)
|
4,849,216
|
1,775,875
|
(40,346)
|
1,735,529
|
1,595,188
|
(33,652)
|
1,561,536
|
The
Company announced on 21 April 2017 the successful syndication of
the new credit facilities (the “New Facilities”) on
behalf of both MA FinanceCo, LLC, a wholly owned subsidiary of
Micro Focus, and Seattle SpinCo. Inc, the subsidiary that holds HPE
Software which merged with a wholly owned subsidiary of Micro Focus
at Completion.
The New
Facilities comprise a $500.0m Revolving Credit Facility at LIBOR
plus 3.50% (subject to a LIBOR floor of 0.00%) placed with a number
of financial institutions, $2,600m term loan B issued by Seattle
SpinCo. Inc, $385m term loan B issued by MA FinanceCo LLC, and Eur
470.0m (valued at $547.5m as at 31 October 2017) issued by MA
FinanceCo LLC.
New
Facilities drawn as at 30 April 2017:
●
In relation to the
existing senior secured term loans issued by MA FinanceCo, LLC the
lenders in the Term Loan C of $412.5m due November 2019 were
offered a cashless roll of their investment into the existing Term
Loan B, becoming Term Loan B-2, due November 2021 and this loan was
re-priced to LIBOR plus 2.50% (subject to a LIBOR floor of 0.00%)
and as a result of the cashless rollover increased in size from
$1,102.7m to $1,515.2m, effective from 28 April 2017.
During
the current period to 31 October 2017 the following New Facilities
were drawn down:
HPE
Software Facilities:
●
The new $2,600.0m
senior secured seven-year term loan B issued by Seattle SpinCo.
Inc. is priced at LIBOR plus 2.75% (subject to a LIBOR floor of
0.00%) with an original issue discount of 0.25%;
Micro
Focus Facilities:
●
The new $385.0m
senior secured seven-year term loan B issued by MA FinanceCo LLC is
also priced at LIBOR plus 2.75% (subject to a LIBOR floor of 0.00%)
with an original issue discount of 0.25%; and
●
The new Euro 470.0m
(equivalent to $547.5m) senior secured seven-year term loan B
issued by MA FinanceCo LLC is priced at EURIBOR plus 3.00% (subject
to a EURIBOR floor of 0.00%) with an original issue discount of
0.25%.
As part
of the HPE Software transaction, the New Facilities were used
to:
●
Fund the
pre-Completion cash payment by Seattle SpinCo. Inc. to HPE of
$2,500.0m (subject to certain adjustments in limited
circumstances);
●
Fund the Return of
Value to Micro Focus' existing Shareholders of $500.0m;
and
●
Pay transaction
costs relating to the acquisition of HPE Software.
The
balance will be used for general corporate and working capital
purposes.
The
only financial covenant attaching to these facilities relates to
the Revolving Facility, which is subject to an aggregate net
leverage covenant only in circumstances where more than 35% of the
Revolving Facility is outstanding at a fiscal quarter
end.
At 31
October 2017, $nil of the Revolving Facility was drawn together
with $5,047.7 of Term Loans giving gross debt of $5,047.7m
drawn.
As a
covenant test is only applicable when the Revolving Facility is
drawn down by 35% or more, and $nil of Revolving Facility was drawn
at 31 October 2017, no covenant test is applicable.
The
movements on the Group loans in the period were as
follows:
|
|
Term Loan B-2
|
Term
Loan B
|
Term
Loan C
|
Term
Loan B-3
|
HPE Software Term
Loan
|
Euro
Loan
|
Revolving Facility
|
Total
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
At 1
May 2016
|
-
|
1,112,250
|
450,000
|
-
|
-
|
-
|
225,000
|
1,787,250
|
|
Repayments
|
-
|
(9,562)
|
(37,500)
|
-
|
-
|
-
|
(325,000)
|
(372,062)
|
|
Draw
downs
|
-
|
-
|
-
|
-
|
-
|
-
|
180,000
|
180,000
|
|
Transfer
|
1,515,188
|
(1,102,688)
|
(412,500)
|
-
|
-
|
-
|
-
|
-
|
|
At 30 April 2017
|
1,515,188
|
-
|
-
|
-
|
-
|
-
|
80,000
|
1,595,188
|
|
Acquisitions
|
-
|
-
|
-
|
-
|
2,600,000
|
-
|
-
|
2,600,000
|
|
Repayments
|
-
|
-
|
-
|
-
|
-
|
-
|
(215,000)
|
(215,000)
|
|
Draw downs
|
-
|
-
|
-
|
385,000
|
-
|
523,815
|
135,000
|
1,043,815
|
|
Foreign exchange
|
|
-
|
-
|
-
|
-
|
23,689
|
-
|
23,689
|
|
At 31 October 2017
|
1,515,188
|
-
|
-
|
385,000
|
2,600,000
|
547,504
|
-
|
5,047,692
|
Borrowings
are stated after deducting unamortized prepaid facility fees and
original issue discounts. Facility arrangement costs and original
issue discounts are amortized between three and six years. The fair
value of borrowings equals their carrying amount.
Maturity of borrowings
The
maturity profile of the anticipated future cash flows including
interest in relation to the Group’s borrowings on an
undiscounted basis which, therefore, differs from both the carrying
value and fair value, is as follows:
As at 31 October 2017:
|
|
Term
Loan B-2
|
Term
Loan B-3
|
HPE Software
Term Loan
|
Euro
Loan
|
Revolving Facility
|
Total
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
Within one year
|
68,675
|
18,424
|
124,421
|
20,728
|
-
|
232,248
|
|
In one to two years
|
71,925
|
19,241
|
129,937
|
21,941
|
-
|
243,044
|
|
In two to three years
|
71,505
|
19,127
|
129,168
|
21,819
|
-
|
241,619
|
|
In three to four years
|
70,777
|
18,929
|
127,834
|
21,608
|
-
|
239,148
|
|
In four to five years
|
1,461,548
|
18,774
|
126,783
|
21,441
|
-
|
1,628,546
|
|
In more than five years
|
-
|
390,865
|
2,639,609
|
547,338
|
-
|
3,577,812
|
|
|
1,744,430
|
485,360
|
3,277,752
|
654,875
|
-
|
6,162,417
|
|
Unamortized prepaid facility arrangement fees and original issue
discounts
|
(66,387)
|
(12,257)
|
(84,469)
|
(16,690)
|
(18,673)
|
(198,476)
|
|
At 31 October 2017
|
1,678,043
|
473,103
|
3,193,283
|
638,185
|
(18,673)
|
5,963,941
|
As at
30 April 2017:
|
|
Term
Loan B
|
Revolving Facility
|
Total
|
|
|
$’000
|
$’000
|
$’000
|
|
Within one year
|
60,168
|
80,000
|
140,168
|
|
In one to two years
|
71,181
|
-
|
71,181
|
|
In two to three years
|
70,769
|
-
|
70,769
|
|
In three to four years
|
70,053
|
-
|
70,053
|
|
In four to five years
|
1,497,867
|
-
|
1,497,867
|
|
In more than five years
|
-
|
-
|
-
|
|
|
1,770,038
|
80,000
|
1,850,038
|
|
Unamortized
prepaid facility arrangement fees and original issue
discounts
|
(29,059)
|
(4,593)
|
(33,652)
|
|
At 30 April 2017
|
1,740,979
|
75,407
|
1,816,386
|
Assets pledged as collateral
As part
of the new facilities above that became available on 28 April 2017,
the assets pledged as collateral was changed. An all assets
security has been granted in the US and England & Wales by
certain members of the Micro Focus Group organized in such
jurisdictions, including security over intellectual property rights
and shareholdings of such members of the Micro Focus
Group.
20. Financial instruments- Fair value measurement
For
trade and other receivables, cash and cash equivalents, trade and
other payables, obligations under finance leases and provisions,
fair values approximate to book values due to the short maturity
periods of these financial instruments. For trade and other
receivables, allowances are made within book value for credit
risk.
|
|
31 October 2017
|
31
October 2016
|
30
April 2017
|
|
|
$’000
|
$’000
|
$’000
|
|
Derivative
financial instruments-non-current asset
|
1,307
|
-
|
-
|
|
|
|
|
|
Derivative
financial instruments measured at fair value, are classified as
level 2 in the fair value measurement hierarchy, as they have been
determined using significant inputs based on observable market
data. The fair values of interest rate derivatives have been
derived from forward interest rates based on yield curves
observable at the balance sheet date together with the contractual
interest rates.
The
derivative financial instruments relate to hedging transactions
entered into in the period ended 31 October 2017 (note
24).
There
were no transfers of assets or liabilities between levels of the
fair value hierarchy during the period.
21. Provisions
|
|
31 October 2017
|
31
October 2016
|
30
April 2017
|
|
|
$’000
|
$’000
|
$’000
|
|
Onerous
leases and dilapidations
|
24,932
|
16,687
|
16,243
|
|
Restructuring and
integration
|
53,771
|
7,340
|
12,132
|
|
Legal
|
3,541
|
3,022
|
3,220
|
|
Other
|
100
|
100
|
484
|
|
Total
|
82,344
|
27,149
|
32,079
|
|
|
|
|
|
|
Current
|
55,678
|
15,420
|
20,142
|
|
Non-current
|
26,666
|
11,729
|
11,937
|
|
Total
|
82,344
|
27,149
|
32,079
|
Notes to the consolidated interim financial statements
(unaudited)
21. Provisions (continued)
|
|
Onerous leases and dilapidations
|
Restructuring and integration
|
Legal
|
Other
|
Total
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
At 1
May 2017
|
16,243
|
12,132
|
3,220
|
484
|
32,079
|
|
Acquisitions - HPE
Software (note 28)
|
11,321
|
21,398
|
-
|
-
|
32,719
|
|
Additional
provision in the period
|
547
|
74,202
|
809
|
-
|
75,558
|
|
Released
|
(1,006)
|
(325)
|
(410)
|
(384)
|
(2,125)
|
|
Utilization of
provision
|
(2,255)
|
(53,162)
|
(72)
|
-
|
(55,489)
|
|
Exchange
adjustments
|
82
|
(474)
|
(6)
|
-
|
(398)
|
|
At 31 October 2017
|
24,932
|
53,771
|
3,541
|
100
|
82,344
|
|
|
|
|
|
|
|
|
Current
|
3,338
|
48,799
|
3,541
|
-
|
55,678
|
|
Non-current
|
21,594
|
4,972
|
-
|
100
|
26,666
|
|
Total
|
24,932
|
53,771
|
3,541
|
100
|
82,344
|
|
|
Onerous
leases and dilapidations
|
Restructuring
and
integration
|
Legal
|
Other
|
Total
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
At 1
May 2016
|
18,176
|
3,523
|
1,920
|
1,280
|
24,899
|
|
Acquisitions
– Serena
|
-
|
1,201
|
1,344
|
-
|
2,545
|
|
Additional
provision in the period
|
2,128
|
20,358
|
-
|
-
|
22,486
|
|
Released
|
(344)
|
(2,077)
|
(97)
|
(1,180)
|
(3,698)
|
|
Utilization of
provision
|
(3,151)
|
(15,311)
|
(119)
|
-
|
(18,581)
|
|
Exchange
adjustments
|
(122)
|
(354)
|
(26)
|
-
|
(502)
|
|
At
31 October 2016
|
16,687
|
7,340
|
3,022
|
100
|
27,149
|
|
|
|
|
|
|
|
|
Current
|
5,120
|
7,278
|
3,022
|
-
|
15,420
|
|
Non-current
|
11,567
|
62
|
-
|
100
|
11,729
|
|
Total
|
16,687
|
7,340
|
3,022
|
100
|
27,149
|
The onerous lease
and dilapidations provision relates to leased Group properties and
this position is expected to be fully utilized within nine years.
The provision was increased by $11.9m in the six months ended 31
October 2017, mostly due to the acquisition of HPE Software
relating to legal obligations to restore leased properties at the
end of the lease period. A provision of $1.0m was released
following the renegotiation of the lease of a North American
property.
Restructuring and
integration provisions relate to activities undertaken in readiness
for bringing together the Micro Focus and HPE Software organization
into one organization across all functions of the existing business
and provisions for severance resulting from headcount reductions in
the HPE Software business. The majority of provisions are expected
to be fully utilized within 12 months.
Legal provisions
include management’s best estimate of the likely outflow of
economic benefits associated with ongoing legal
matters.
Releases of other
provisions during the period ended 31 October 2017 relate to future
fees no longer considered likely to be incurred.
Notes to the consolidated interim financial statements
(unaudited)
22. Pension commitments
|
|
31 October 2017
|
31
October 2016
|
30
April 2017
|
|
|
$’000
|
$’000
|
$’000
|
|
Within Non-current assets :
|
|
|
|
|
Long
term pension assets
|
23,650
(97,647)
|
24,120
|
22,031
|
|
Within Non-current liabilities:
|
|
|
|
|
Retirement
benefit obligations
|
(97,647)
|
(34,599)
|
(30,773)
|
The acquisition of the HPE Software on 1 September 2017 added 34
defined benefit plans primarily in France, Germany and Switzerland.
After the acquisition there are 37 (October 2016: three, April
2017: four) defined benefit plans in ten countries around the
world. Some of the plans are final salary pension plans, which
provide benefits to members in the form of a guaranteed level of
pension payable for life in the case of retirement, disability and
death. The level of benefits provided depends not only on the final
salary but also on member’s length of service, social
security ceiling and other factors. Final pension entitlements are
calculated by local actuaries in the applicable country. They also
complete calculations for cases of death in service and disability.
Other plans include termination or retirement indemnity plans or
other types of statutory plans that provide a one-time benefit at
termination. Where required by local or statutory requirements,
some of the schemes are governed by an independent Board of
Trustees that is responsible for the investment strategies with
regard to the assets of the funds, however, other schemes are
administered locally with the assistance of local pension experts.
Not all of our plans are closed for new membership.
Long-term pension assets
Long-term
pension assets relate to the reimbursement right under insurance
policies held by the Company with guaranteed interest rates that do
not meet the definition of a qualifying insurance policy as they
have not been pledged to the plan and are subject to the creditors
of the Group. Such reimbursement rights assets are recorded in the
consolidated statement of financial position as long-term pension
assets. Fair value of the reimbursement right asset is deemed to be
the present value of the related obligation because the right to
reimbursement under the insurance policies exactly matches the
amount and timing of some or all of the benefits payable under the
defined benefit plan. All non-plan assets are held in
Germany.
The
movement on the long-term pension asset is as follows:
|
|
31 October 2017
|
31
October 2016
|
30
April 2017
|
|
|
$’000
|
$’000
|
$’000
|
|
As at 1
May
|
22,031
|
22,272
|
22,272
|
|
Return
on non-plan assets (note 11)
|
231
|
187
|
404
|
|
Benefits
paid
|
(58)
|
(44)
|
(110)
|
|
Contributions
|
235
|
-
|
442
|
|
Included within other comprehensive income:
|
|
|
|
|
-
Actuarial (loss)/gain on non-plan assets
|
(350)
|
2,482
|
(2,134)
|
|
-
Reclassification
from defined contribution scheme to defined benefit
scheme
|
-
|
-
|
2,264
|
|
|
(350)
|
2,482
|
130
|
|
|
|
|
|
|
Foreign
currency exchange gain/(loss)
|
1,561
|
(777)
|
(1,107)
|
|
|
23,650
|
24,120
|
22,031
|
Retirement benefit obligations
For the six months ended 31 October 2017, $2.5m (2016:
$0.7m) is included in the consolidated statement of comprehensive
income in respect of the defined benefit pension arrangements being
a current service charge of $1.9m (2016: $0.4m) and a net finance
charge of $0.6m (2016:
$0.3m).
The
contributions for the year ended 31 October 2018 are expected to be
broadly in line with the current year.
The
weighted average key assumptions used for the pension schemes
were:
|
|
31 October 2017
$’000
|
31
October 2016
$’000
|
30
April 2017
$’000
|
|
Rate of
increase in final pensionable salary
|
2.27%
|
2.60%
|
2.00%
|
|
Rate of
increase in pension payments
|
1.81%
|
2.00%
|
2.00%
|
|
Discount
rate
|
1.99%
|
1.30%
|
1.95%
|
|
Inflation
|
2.00%
|
2.00%
|
2.00%
|
Notes to the consolidated interim financial statements
(unaudited)
22. Pension commitments (continued)
The
mortality assumptions for the pension schemes are set based on
actuarial advice in accordance with published statistics and
experience in the territory.
The net
liability included in the consolidated statement of financial
position arising from obligations in respect of defined benefit
schemes is as follows:
|
|
31 October
2017
|
31
October 2016
|
30
April 2017
|
|
|
Germany
|
France
|
Switzerland
|
Rest of World
|
Total
|
Germany
|
Germany
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
Present
value of defined benefit obligation
|
159,865
|
9,159
|
21,330
|
23,797
|
214,151
|
40,120
|
36,480
|
|
Fair
value of plan assets
|
(84,035)
|
(2,066)
|
(16,490)
|
(13,913)
|
(116,504)
|
(5,521)
|
(5,707)
|
|
|
75,830
|
7,093
|
4,840
|
9,884
|
97,647
|
34,599
|
30,773
|
The retirement benefit obligation has moved as
follows:
|
|
31 October 2017
|
31
October 2016
|
30
April 2017
|
|
|
Defined benefit obligations
|
Scheme assets
|
Retirement benefit obligations
|
Defined
benefit obligations
|
Scheme
assets
|
Retirement
benefit obligations
|
Defined
benefit obligations
|
Scheme
assets
|
Retirement
benefit obligations
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
$’000
|
|
At 1
May
|
36,480
|
(5,707)
|
30,773
|
37,524
|
(5,855)
|
31,669
|
37,524
|
(5,855)
|
31,669
|
|
HPE
Software acquisition
|
181,456
|
(110,011)
|
71,445
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Current
service cost
|
1,929
|
-
|
1,929
|
424
|
-
|
424
|
625
|
-
|
625
|
|
Benefits
paid
|
(989)
|
940
|
(49)
|
(145)
|
43
|
(102)
|
(197)
|
87
|
(110)
|
|
Contributions
by plan participants
|
1,826
|
(1,826)
|
-
|
-
|
(13)
|
(13)
|
-
|
(114)
|
(114)
|
|
Contribution
by employer
|
-
|
(743)
|
(743)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Interest
cost/(income) (note11)
|
941
|
(362)
|
579
|
311
|
(49)
|
262
|
660
|
(95)
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Re-measurements
- actuarial losses:
|
|
|
|
|
|
|
|
|
|
|
- Demographic
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
- Financial
|
(1,058)
|
-
|
(1,058)
|
3,521
|
-
|
3,521
|
(2,821)
|
-
|
(2,821)
|
|
- Experience
|
(4,505)
|
-
|
(4,505)
|
(117)
|
-
|
(117)
|
(568)
|
-
|
(568)
|
|
Actuarial
return on assets excluding amounts included in interest
income
|
-
|
(1,296)
|
(1,296)
|
-
|
117
|
117
|
-
|
(9)
|
(9)
|
|
Reclassification
from defined contribution scheme to defined benefit
scheme
|
-
|
-
|
-
|
-
|
-
|
-
|
2,996
|
-
|
2,996
|
|
|
(5,563)
|
(1,296)
|
(6,859)
|
3,404
|
117
|
3,521
|
(393)
|
(9)
|
(402)
|
|
Foreign
currency exchange changes
|
(1,929)
|
2,501
|
572
|
(1,398)
|
236
|
(1,162)
|
(1,739)
|
279
|
(1,460)
|
|
|
214,151
|
(116,504)
|
97,647
|
40,120
|
(5,521)
|
34,599
|
36,480
|
(5,707)
|
30,773
|
Notes to the consolidated interim financial statements
(unaudited)
23. Share capital
Ordinary
shares at 10 pence each as at 31 October 2017 (2016: 10 pence
each)
|
|
31 October 2017
|
|
31
October 2016
|
|
30
April 2017
|
|
|
Shares
|
$’000
|
|
Shares
|
$’000
|
|
Shares
|
$’000
|
|
Issued and fully paid
|
|
|
|
|
|
|
|
|
|
At 1
May
|
229,674,479
|
39,700
|
|
228,706,210
|
39,573
|
|
228,706,210
|
39,573
|
|
Shares
issued to satisfy option awards
|
331,418
|
43
|
|
584,289
|
77
|
|
968,269
|
127
|
|
Share
reorganization
|
(16,935,536)
|
(2,926)
|
|
-
|
-
|
|
-
|
-
|
|
Shares
issued relating to acquisition of HPE Software (note
28)
|
222,166,897
|
28,773
|
|
-
|
-
|
|
-
|
-
|
|
|
435,237,258
|
65,590
|
|
229,290,499
|
39,650
|
|
229,674,479
|
39,700
|
“B” shares at 168 pence each
|
|
31 October 2017
|
|
31
October 2016
|
|
30
April 2017
|
|
|
Shares
|
$’000
|
|
Shares
|
$’000
|
|
Shares
|
$’000
|
|
Issued and fully paid
|
|
|
|
|
|
|
|
|
|
At May
1
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
Issue
of B shares
|
229,799,802
|
500,000
|
|
-
|
-
|
|
-
|
-
|
|
Redemption
of B shares
|
(229,799,802)
|
(500,000)
|
|
-
|
-
|
|
-
|
-
|
|
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
Share issuances during the six months to 31 October
2017
331,418 ordinary shares of 10 pence each
(2016: 584,289 ordinary shares of 10 pence) were issued by the
Company to settle exercised share options. The gross consideration
received was $1.2m (2016:
$0.5m). 222,166,897 ordinary
shares of 10 pence each
were issued by the Company as consideration for the acquisition of
HPE Software (note 28).
In relation to the
return of value to shareholders (note 24), on 31 August 2017
229,799,802 “B” shares were issued at 168 pence each,
resulting in a total $500.0m being credited to the “B”
share liability account. Subsequently and on the same date,
229,799,802 “B” shares were redeemed at 168 pence each
and an amount of $500.0m was debited from the “B share
liability account.
The voting rights
and number of listed shares at 31 October 2017 were 435,237,258 (2016:
229,290,499).
Potential issues of shares
Certain employees
hold options to subscribe for shares in the Company at prices
ranging from nil pence to 1,875.58 pence under the following share
option schemes approved by shareholders in 2005 and 2006: The
Long-Term Incentive Plan 2005, the Additional Share Grants, the
Sharesave Plan 2006 and the Employee Stock Purchase Plan
2006.
The number of
shares subject to options at 31 October 2017 was 17,724,174 (2016:
9,271,150).
Notes to the consolidated interim financial statements
(unaudited)
24. Other reserves
|
|
Capital redemption reserve
|
Merger
reserve
|
Hedging reserve
|
Total
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
|
As at 1 May 2016 and 31 October 2016
|
163,363
|
988,104
|
-
|
1,151,467
|
|
|
|
|
|
|
|
As at 1
May 2016
|
163,363
|
988,104
|
-
|
1,151,467
|
|
Reallocation
of merger reserve 1
|
-
|
(650,000)
|
-
|
(650,000)
|
|
As at 30 April 2017
|
163,363
|
338,104
|
-
|
501,467
|
|
|
|
|
|
|
|
As at 1
May 2017
|
163,363
|
338,104
|
-
|
501,467
|
|
Return
of Value- share consolidation 2
|
2,926
|
-
|
-
|
2,926
|
|
Return
of Value- issue and redemption of B shares 2
|
500,000
|
(343,317)
|
-
|
156,683
|
|
Hedge
accounting 3
|
-
|
-
|
1,763
|
1,763
|
|
Deferred
tax movement on hedging
|
|
|
(674)
|
(674)
|
|
Acquisition
of HPE Software 4
|
-
|
6,485,397
|
-
|
6,485,397
|
|
Reallocation
of merger reserve 1
|
-
|
(700,000)
|
-
|
(700,000)
|
|
As at 31 October 2017
|
666,289
|
5,780,184
|
1,089
|
6,447,562
|
1 The
Company has transferred an amount from the merger reserve to
retained earnings pursuant to the UK company law. The parent
company previously transferred the investment in TAG to a wholly
owned subsidiary for an intercompany receivable in the amount of
$1,373m. During the period the parent company also transferred the
investment in HPE Software to a wholly owned subsidiary in exchange
for an intercompany receivable. An amount of $700.0m has been
transferred from the merger reserve to retained earnings (2016:
$180.0m) as this amount of the intercompany receivable is expected
to be settled within a reasonable period of time. It therefore
meets the definition of qualifying consideration and is available
for dividend distribution to the parent company’s
shareholders.
2 On 31 August 2017 a
Return of Value was made to shareholders amounting to $500.0m (note
27). The Return of Value was effected through an issue and
redemption of B shares, and resulted in a $500.0m increase in the
capital redemption reserve, a $343.3m reduction in the merger
reserve and a $156.7m reduction in share premium. The return of
value was accompanied by a 0.9263 share consolidation and the share
consolidation resulted in the issue of D deferred shares which were
subsequently bought back for 1 pence, resulting in a transfer of
$2.9m to the capital redemption reserve.
3 $1.1m was recognised in
the hedging reserve in relation to hedging transactions entered
into in the six months ended 31 October 2017.
4 On 1 September 2017 the
acquisition of HPE Software was completed (note 28). As a result of
this a merger reserve was created of $6,485.4m. The acquisition was
structured by way of equity consideration; this transaction fell
within the provisions of section 612 of the Companies Act 2006
(merger relief) such that no share premium was recorded in respect
of the shares issued. The parent company chose to record its
investment in HPE Software at fair value and therefore recorded a
merger reserve equal to the value of the share premium which would
have been recorded had section 612 of the Companies Act 2006 not
been applicable (i.e. equal to the difference between the fair
value of HPE Software and the aggregate nominal value of the shares
issued).
25. Non-controlling interest
|
|
$’000
|
|
At
1 May 2016
|
1,057
|
|
Share
of loss after tax
|
(21)
|
|
At 31 October 2016
|
1,036
|
|
|
|
|
At
1 May 2016
|
1,057
|
|
Share
of loss after tax
|
(103)
|
|
At 30 April 2017
|
954
|
|
Share of profit after tax
|
304
|
|
At 31 October 2017
|
1,258
|
Non-controlling
interests relate to the companies detailed below:
|
Company name
|
Country of incorporation and principal place of
business
|
31 October
2017
Proportion
held
|
31
October
2016
Proportion
held
|
30 April
2017
Proportion
held
|
|
Novell
Japan Ltd
|
Japan
|
74.7%
|
71.5%
|
74.7%
|
On the
20 November 2017 the proportion held by the Group in Novell Japan
Ltd increased to 77.9%.
Notes to the consolidated interim financial statements
(unaudited)
26. Related party transactions
The
Group’s related parties are its subsidiary undertakings and
Executive Committee members. The Group has taken advantage of the
exemption available under IAS 24, “Related Party
Disclosures”, not to disclose details of transactions with
its subsidiary undertakings.
Key management compensation
|
|
6 months ended
31 October
2017
|
6
months ended
31
October
2016
|
Year
ended
30
April
2017
|
|
|
$’000
|
$’000
|
$’000
|
|
Short-term
employee benefits
|
9,997
|
4,749
|
8,051
|
|
Share-based
payments
|
9,271
|
6,326
|
9,391
|
|
|
19,268
|
11,075
|
17,442
|
The key
management figures above include the executive management team and
directors. There are no post-employment benefits.
27.
Return of Value to shareholders
On 31 August 2017 a
Return of Value was made to shareholders amounting to $500.0m
(£386.1m) in cash (168 pence per existing Ordinary Share held
at the Record Time of 6.00pm on 31 August 2017.The Return of Value
was effected through an issue and redemption of B shares, and was
accompanied by a 0.9263 share consolidation to maintain broad
comparability of the share price and return per share of the
ordinary shares before and after the creation of the B
Shares.
As at
31 October 2017 this was the Group’s 5th Return of Value to
shareholders and this brings the total amount returned to
shareholders since 25 March 2011 through share buy-backs, Returns
of Value and ordinary dividends to £1,255.0m which represents
197.63% of the Market Capitalization at that time.
Notes to the consolidated interim financial statements
(unaudited)
28. Business combinations
Summary of acquisitions for the year ended 30 April 2017 and the
six months ended 31 October 2017:
|
|
|
|
|
|
Consideration
|
|
|
Carrying
value at acquisition
|
Fair
value adjustments
|
Hindsight
adjustments
|
Goodwill
|
|
Shares
|
Cash
|
Payable
|
Total
|
|
|
$’000
|
$’000
|
$’000
|
$’000
|
|
$’000
|
$’000
|
$’000
|
$’000
|
|
Acquisitions in the year ended 30 April 2017:
|
|
|
|
|
|
|
|
|
|
|
Serena
Software Inc.
|
147,260
|
(249,306)
|
-
|
379,669
|
|
-
|
277,623
|
-
|
277,623
|
|
GWAVA
Inc.
|
618
|
3,062
|
-
|
12,767
|
|
-
|
16,447
|
-
|
16,447
|
|
OpenATTIC
|
-
|
4,991
|
-
|
-
|
|
-
|
4,991
|
-
|
4,991
|
|
OpenStack
|
-
|
-
|
-
|
-
|
|
-
|
-
|
-
|
-
|
|
|
147,878
|
(241,253)
|
-
|
392,436
|
|
-
|
299,061
|
-
|
299,061
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions in the six months ended 31 October 2017:
|
|
|
|
|
|
|
|
|
|
|
HPE
Software (provisional)
|
(2,277,193)
|
3,974,891
|
-
|
5,105,472
|
|
6,514,170
|
-
|
289,000
|
6,803,170
|
Acquisitions
in the six months ended 31 October 2017:
1.
Acquisition of HPE Software
On 1
September 2017 the Company completed the acquisition of HPE's
software business segment ("HPE Software") by way of merger with a
wholly owned subsidiary of HPE incorporated to hold the business of
HPE Software in accordance with the terms of the previously
announced Merger agreement ("Completion"). Accordingly, on
Admission, American Depositary Shares representing 222,166,897
Consideration Shares were issued to HPE Shareholders, representing
50.1% of the fully diluted share capital of the Company. This has
created a global infrastructure software business with pro-forma
revenues in the 12 months to 30 April 2017 of approximately $4.4
billion and Underlying Adjusted EBITDA of approximately $1.4
billion making it the seventh largest pure play software company in
the world and a leading technology stock on the LSE.
There
was judgement used in identifying who the accounting acquirer was
in the acquisition of HPE Software, as the resulting shareholdings
were not definitive to identify the entity which obtains control in
the Transaction. As such, the Group considered the other
factors laid down in IFRS, such as the composition of the governing
body of the combined entity, composition of senior management of
the combined entity, the entity that issued equity interest,
terms of exchange of equity interests, the entity which initiated
the combination, relative size of each entity, the existence of a
large minority voting interest in the combined entity and other
factors (e.g. location of headquarters of the combined entity,
entity name). The conclusion of this assessment is that the Company
is the accounting acquirer of HPE Software, and the acquisition
accounting as set out below have been performed on this
basis.
Details
of the net assets acquired and goodwill are as
follows:
|
|
Carrying
value
at
acquisition
|
Fair
value
Adjustments
(Provisional)
|
Fair
value
(Provisional)
|
|
|
$’000
|
$’000
|
$’000
|
|
Intangible
assets1
|
72,825
|
6,200,000
|
6,272,825
|
|
Property, plant and
equipment
|
165,664
|
-
|
165,664
|
|
Other
non-current assets
|
41,929
|
-
|
41,929
|
|
Deferred tax
assets
|
428,624
|
(423,663)
|
4,961
|
|
Inventories
|
185
|
-
|
185
|
|
Trade
and other receivables
|
726,149
|
-
|
726,149
|
|
Current
tax recoverable
|
736
|
-
|
736
|
|
Cash
and cash equivalents
|
320,729
|
-
|
320,729
|
|
Trade
and other payables
|
(468,850)
|
1,616
|
(467,234)
|
|
Current
tax liabilities
|
(9,942)
|
-
|
(9,942)
|
|
Borrowings
|
(2,568,270)
|
-
|
(2,568,270)
|
|
Short-term
provisions
|
(16,425)
|
-
|
(16,425)
|
|
Short-term deferred
income 2
|
(707,688)
|
58,004
|
(649,684)
|
|
Long-term deferred
income 2
|
(121,617)
|
8,652
|
(112,965)
|
|
Long-term
provisions
|
(16,294)
|
-
|
(16,294)
|
|
Retirement benefit
obligations
|
(71,445)
|
-
|
(71,445)
|
|
Other
non-current liabilities
|
(53,503)
|
12,145
|
(41,358)
|
|
Deferred tax
liabilities 3
|
-
|
(1,881,863)
|
(1,881,863)
|
|
Net
(liabilities)/assets
|
(2,277,193)
|
3,974,891
|
1,697,698
|
|
Goodwill (note
13)
|
-
|
|
5,105,472
|
|
Consideration
|
|
|
6,803,170
|
|
|
|
|
|
|
Consideration
satisfied by :
|
|
|
|
|
Shares
|
|
|
6,514,170
|
|
Cash
payable net of pensions and other balance sheet adjustments
(provisional)
|
|
|
289,000
|
|
|
|
|
6,803,170
|
Trade
and other receivables are net of a bad debt provision of
$42.8m.
A
provisional fair value review was carried out on the assets and
liabilities of the acquired business, resulting in the
identification of intangible assets. The fair value review will be
finalized in the 12-month hindsight period following completion
which ends on 31 August 2018.
The
fair value adjustments relate to:
1 Purchased intangible assets have been valued based
on a market participant point of view and the fair value has been
based on various characteristics of the product lines and
intangible assets of HPE Software;
2 Deferred income has been valued taking account of the
remaining performance obligations;
3 A deferred tax liability has been established relating to
the purchase of intangibles.
The
provisional purchased intangible assets acquired as part of the
acquisition can be analyzed as follows (note 13):
|
|
Fair
value
|
|
|
$’000
|
|
Technology
|
1,775,000
|
|
Customer
relationships
|
4,222,000
|
|
Trade
names
|
188,000
|
|
Leases
|
15,000
|
|
|
6,200,000
|
The value of the
goodwill represents the value of the assembled workforce at the
time of the acquisition with specific knowledge and technical
skills. It also represents the prospective future economic benefits
that are expected to accrue from enhancing the portfolio of
products available to the Company’s existing customer base
with those of the acquired business.
The Group has used
acquisition accounting for the purchase and the goodwill arising on
consolidation of $5,105.5m has been capitalized.
From the date of
acquisition 1 September 2017 to 31 October 2017, the acquisition
contributed $569.8m to revenue, after adjusting for the deferred
revenue haircut (note 2) and $132.7m to profit for the
period.
The estimated
results of HPE Software if it had been made at the beginning of the
accounting period 1 May 2017 to 31 October 2017 would have been as
follows:
|
Pro-forma
|
$m
|
|
Revenue
|
1,464.5
|
|
Profit
for the period
|
331.8
|
The
estimated results of the Group if the acquisition had been made at
the beginning of the accounting year 1 May 2017 to 31 October 2017
would have been as follows:
|
Pro-forma
|
$m
|
|
Revenue
|
2,129.2
|
|
Profit
for the period
|
305.7
|
The
above figures are based on information provided to Micro Focus by
HPE Software and the results since acquisition.
Acquisitions
in the six months ended 31 October 2016 and the year ended 30 April
2017
1.
Acquisition of Serena Software Inc.
On 2
May 2016, the Group acquired the entire share capital of Spartacus
Acquisition Holdings Corp. the holding company of Serena Software
Inc. (“Serena”) and its subsidiaries for $277.6m,
payable in cash at completion. The Group then repaid the
outstanding Serena bank borrowings of $316.7m as at 2 May 2016,
making the total cash outflow for the Group of $528.5m, net of cash
acquired of $65.8m. The transaction costs for the Serena
acquisition were $0.9m ($0.5m was incurred in the year ended 30
April 2016).
The
acquisition is highly consistent with the Group’s established
acquisition strategy and focus on the efficient management of
mature infrastructure software products.
Serena
is a leading provider of enterprise software focused on providing
Application Lifecycle Management products for both mainframe and
distributed systems. Whilst Serena is headquartered in San Mateo,
California the operations are effectively managed from offices in
Hillsboro, Oregon and St. Albans in the United Kingdom. It operates
in a further 10 countries. The Serena Group’s customers are
typically highly regulated large enterprises, across a variety of
sectors including banking, insurance, telco, manufacturing and
retail, healthcare and government.
Serena
was integrated into the Micro Focus Product Portfolio and the
revenues reported in the Development and IT Operations Management
Tools sub-portfolio.
The
transaction was funded through the Group’s existing cash
resources together with additional debt and equity finance arranged
through Barclays, HSBC, the Royal Bank of Scotland and Numis
Securities. On the 2 May 2016, the Group’s existing revolving
credit facility was extended from $225m to $375m and the Group
raised approximately £158.2m (approximately $225.7m) through a
Placing underwritten by Numis Securities incurring $3.0m of costs
associated with the Placing in March 2016.
A fair
value review was carried out and finalized on the assets and
liabilities of the acquired business, resulting in the
identification of intangible assets.
Details
of the net assets acquired and goodwill are as
follows:
|
|
Carrying
value at acquisition
|
Fair
value adjustments
|
Fair
value
|
|
|
$’000
|
$’000
|
$’000
|
|
Goodwill
|
462,400
|
(462,400)
|
-
|
|
Intangible assets - purchased 1
|
-
|
317,700
|
317,700
|
|
Intangible assets -
other
|
79
|
-
|
79
|
|
Property, plant and
equipment
|
1,927
|
-
|
1,927
|
|
Other
non-current assets
|
167
|
-
|
167
|
|
Deferred tax
asset
|
15,347
|
-
|
15,347
|
|
Trade
and other receivables
|
27,362
|
-
|
27,362
|
|
Cash
and cash equivalent
|
65,784
|
-
|
65,784
|
|
Borrowings –
short-term
|
(27,712)
|
-
|
(27,712)
|
|
Trade
and other payables
|
(11,766)
|
-
|
(11,766)
|
|
Provisions –
short-term
|
(4,045)
|
-
|
(4,045)
|
|
Current
tax liabilities
|
(3,173)
|
-
|
(3,173)
|
|
Deferred income – short-term
2
|
(72,217)
|
3,761
|
(68,456)
|
|
Deferred income – long-term
2
|
(14,853)
|
798
|
(14,055)
|
|
Borrowings –
long-term
|
(288,938)
|
-
|
(288,938)
|
|
Other
non-current liabilities
|
(717)
|
-
|
(717)
|
|
Deferred tax liabilities 3
|
(2,385)
|
(109,165)
|
(111,550)
|
|
Net
assets /(liabilities)
|
147,260
|
(249,306)
|
(102,046)
|
|
Goodwill
|
|
|
379,669
|
|
Consideration
|
|
|
277,623
|
|
|
|
|
|
|
Consideration
satisfied by :
|
|
|
|
|
Cash
|
|
|
277,623
|
The
fair value adjustments relate to:
1 Purchased intangible assets have been valued based on a
market participant point of view and the fair value has been based
on various characteristics of the product lines and intangible
assets of Serena;
2 Deferred income has been valued taking account of the
remaining performance obligations; and
3 A deferred tax liability has been established relating to
the purchase of intangibles.
The
purchased intangible assets acquired as part of the acquisition can
be analyzed as follows (note 13):
|
|
Fair value
|
|
|
$’000
|
|
Technology
|
86,100
|
|
Customer
relationships
|
210,200
|
|
Trade
names
|
21,400
|
|
|
317,700
|
The
value of the goodwill represents the value of the assembled
workforce at the time of the acquisition with specific knowledge
and technical skills. It also represents the prospective future
economic benefits that are expected to accrue from enhancing the
portfolio of products available to the Company’s existing
customer base with those of the acquired business.
The
Group has used acquisition accounting for the purchase and the
goodwill arising on consolidation of $379.7m has been
capitalized.
2.
Acquisition of GWAVA Inc.
On 30
September 2016, the Group acquired the entire share capital of
GWAVA Inc. (“GWAVA”) and its subsidiaries for $16.4m,
payable in cash at completion. The transaction costs for the GWAVA
acquisition were $1.5m.
The
acquisition is highly consistent with the Group’s established
acquisition strategy and focus on the efficient management of
mature infrastructure software products.
GWAVA
is a leading company in email security and enterprise information
archiving (“EIA”). GWAVA has approximately 90
employees, based in the US, Canada and Germany. More than a million
users across 60 countries rely on its products in over 3,000
customer organizations, supported by GWAVA’s global team,
with a further 1,000 GWAVA business partners collaborating closely
to ensure successful customer solutions. In addition to
GWAVA’s award winning EIA product Retain, GWAVA has a full
suite of products to protect, optimize, secure and ensure
compliance for customers running Micro Focus
GroupWise.
A
finalized fair value review was carried out on the assets and
liabilities of the acquired business, resulting in the
identification of intangible assets.
Details
of the net assets acquired and goodwill are as
follows:
|
|
Carrying
value at acquisition
|
Fair
value adjustments
|
Fair
value
|
|
|
$’000
|
$’000
|
$’000
|
|
Intangible assets - purchased 1
|
-
|
5,330
|
5,330
|
|
Intangible assets - other 2
|
1,180
|
(1,180)
|
-
|
|
Property, plant and
equipment
|
195
|
-
|
195
|
|
Trade
and other receivables
|
3,096
|
-
|
3,096
|
|
Cash
and cash equivalent
|
2,389
|
-
|
2,389
|
|
Trade
and other payables
|
(1,331)
|
-
|
(1,331)
|
|
Deferred income – short-term
3
|
(4,094)
|
324
|
(3,770)
|
|
Deferred income
– long-term
|
(817)
|
-
|
(817)
|
|
Deferred tax liabilities 4
|
-
|
(1,412)
|
(1,412)
|
|
Net
assets
|
618
|
3,062
|
3,680
|
|
Goodwill
|
|
|
12,767
|
|
Consideration
|
|
|
16,447
|
|
|
|
|
|
|
Consideration
satisfied by :
|
|
|
|
|
Cash
|
|
|
16,447
|
The
fair value adjustments relate to:
1
Purchased
intangible assets have been valued based on a market participant
point of view and the fair value has been based on various
characteristics of the product lines and intangible assets of GWAVA
Inc.;
2
Other intangible
assets relating to historic IP has been written down to
nil;
3
Deferred income has
been valued taking account of the remaining performance
obligations; and
4
A deferred tax
liability has been established relating to the purchase of
intangibles.
The
purchased intangible assets acquired as part of the acquisition can
be analyzed as follows (note 13):
|
|
Fair value
|
|
|
$’000
|
|
Technology
|
4,075
|
|
Customer
relationships
|
544
|
|
Trade
names
|
711
|
|
|
5,330
|
The
value of the goodwill represents the value of the assembled
workforce at the time of the acquisition with specific knowledge
and technical skills. It also represents the prospective future
economic benefits that are expected to accrue from enhancing the
portfolio of products available to the Company’s existing
customer base with those of the acquired business.
The
Group has used acquisition accounting for the purchase and the
goodwill arising on consolidation of $12.8m has been
capitalized.
3.
Acquisition of OpenATTIC
On 1
November 2016 the Group acquired the OpenATTIC storage management
technology and engineering talent from the company it-novum GmbH
for a cash consideration of 4.7m Euros ($5.0m). The OpenATTIC
technology aligns perfectly with our strategy to provide open
source, software defined infrastructure solutions for the
enterprise and will strengthen SUSE Enterprise Storage solution by
adding enterprise grade storage management capabilities to the
portfolio. The transaction costs for the OpenATTIC acquisition were
$1.2m.
A
finalized fair value review was carried out on the assets and
liabilities of the acquired business, resulting in the
identification of intangible assets.
Details
of the net assets acquired and goodwill are as
follows:
|
|
Carrying
value at acquisition
|
Fair
value adjustments
|
Fair
value
|
|
|
$’000
|
$’000
|
$’000
|
|
Intangible assets
– purchased technology
|
-
|
4,991
|
4,991
|
|
Net
assets
|
-
|
4,991
|
4,991
|
|
Goodwill
|
|
|
-
|
|
Consideration
|
|
|
4,991
|
|
|
|
|
|
|
Consideration
satisfied by :
|
|
|
|
|
Cash
|
|
|
4,991
|
4.
Acquisition of OpenStack
In the
year ended 30 April 2017, the Group acquired purchased technology
and talent from HPE for $nil consideration that will expand
SUSE’s OpenStack Infrastructure-as-a-Service
(“IaaS”) solution and accelerate SUSE’s entry
into the growing Cloud Foundry Platform-as-a-Service
(“PaaS”) market, subject to regulatory
clearances.
The
acquired OpenStack technology assets were integrated into SUSE
OpenStack Cloud and the acquired Cloud Foundry and PaaS assets
enables SUSE to bring to market a certified, enterprise-ready SUSE
Cloud Foundry PaaS solution for all customers and partners in the
SUSE ecosystem. Additionally, SUSE has increased engagement with
the Cloud Foundry Foundation, becoming a platinum member and taking
a seat on the Cloud Foundry Foundation Board.
As part
of the transaction, HPE has named SUSE as its preferred open source
partner for Linux, OpenStack IaaS and Cloud Foundry PaaS.
HPE’s choice of SUSE as their preferred open source partner
further cements SUSE’s reputation for delivering
high-quality, enterprise-grade open source solutions and
services.
29. Post balance sheet events
1
Acquisition
of COBOL-IT, SAS
On 1
December 2017, the Group completed on the acquisition of COBOL-IT,
SAS. COBOL-IT, SAS is in the business of designing, editing and
commercialization of software, IT devices and related services;
technical support, training, consulting, and more generally any
related missions; modification, migration and adaptation of IT
systems from a technical environment to another; and advisory in IT
system, and in particular strategy, management, commercial
development, partnership or strategic alliances in IT
sector.
Consideration
consists of completion payment of Euro 11.3m, retention amounts of
Euro 2.7m payable at a later date, working capital adjustments and
net cash adjustments. The Group has not yet presented the full IFRS
3 “Business Combinations” disclosures as the initial
accounting for the business combination is incomplete at the time
these interim financial statements were authorised for
issue.
On 22
December 2017 the US President signed the Tax Cuts and Jobs Act,
which provides for significant and wide-ranging changes to the
taxation of corporations. The reforms are complex, and it will take
some time to assess the implications thoroughly, but broadly the
implications are: a) a reduction in the Federal tax rate from 35%
to 21%, with various measures to broaden the tax base including
restrictions on interest deductibility and other anti-avoidance
measures; and b) the introduction of an exemption for foreign
dividends (currently such dividends are taxed at the US federal
rate, with credit granted for foreign taxes suffered). In return
for the latter benefit, a one-off transition tax (which can be
spread over 8 years) is payable in respect of cumulative retained
earnings of foreign subsidiaries at a rate of 15.5% for earnings
represented by cash or cash equivalents and 8.0% for the balance of
such earnings.
INDEPENDENT REVIEW REPORT TO MICRO FOCUS INTERNATIONAL
PLC
Conclusion
We have
been engaged by the company to review the condensed set of
financial statements in the half-yearly financial report for the
six months ended 31 October 2017 which comprises consolidated
statement of comprehensive income, consolidated statement of
financial position, consolidated statement of changes in equity,
consolidated statement of cash flow and the related explanatory
notes.
Based
on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended 31 October
2017 is not prepared, in all material respects, in accordance with
IAS 34 Interim Financial
Reporting and the Disclosure Guidance and Transparency Rules
(“the DTR”) of the UK’s Financial Conduct
Authority (“the UK FCA”).
Scope of review
We
conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by
the Auditing Practices Board for use in the UK. A review of interim
financial information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other
information contained in the half-yearly financial report and
consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit
opinion.
Directors’ responsibilities
The
half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half-yearly financial report in accordance with the
DTR of the UK FCA.
As
disclosed in note 2, the annual financial statements of the group
are prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board
(“IASB”) and in conformity with International Financial
Reporting Standards as adopted by the European Union
(“EU”) (collectively “IFRS”). The directors
are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in
accordance with IAS 34.
Our responsibility
Our
responsibility is to express to the company a conclusion on the
condensed set of financial statements in the half-yearly financial
report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This
report is made solely to the company in accordance with the terms
of our engagement to assist the company in meeting the requirements
of the DTR of the UK FCA. Our review has been undertaken so that we
might state to the company those matters we are required to state
to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Tudor Aw
for and on behalf of KPMG LLP
Chartered Accountants
15
Canada Square, London, E14 5GL
7
January 2018
1
NTD: The Company must promptly file
current reports on Form 6-K furnishing any of the following
information:
●
material non-public
information that was made public under English law;
●
information that
was filed with and made public by on the London Stock Exchange on
which the Company’s securities are listed; and
●
information that
was distributed or required to be distributed to security
holders.
Examples
of information or events required to be filed on Form 6-K include:
changes in business; changes in management or control; acquisitions
or dispositions of assets; bankruptcy or receivership; changes in
certifying accountants; the financial condition and results of
operations; material legal proceedings; changes in securities or in
the security for registered securities; defaults upon senior
securities; material increases or decreases in the amount
outstanding of securities or indebtedness; the results of the
submission of matters to a vote of security holders; transactions
with directors, officers or principal security holders; the
granting of options or payment of other compensation to directors
or officers; and any other information which the Company deems of
material importance to security holders. See also “Micro
Focus - Now You Are Public Memorandum” dated April 20, 2017
for more information.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereto duly authorized.
Date:
08 January 2018
Micro
Focus International plc
|
|
By:
|
/s/
Mike Phillips
|
|
|
Name:
|
Mike
Phillips
|
|
|
Title:
|
Chief
Financial Officer
|