Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the
Month of: February 2019
Commission
File Number: 001-38187
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MICRO FOCUS INTERNATIONAL PLC
(Exact name of registrant as specified in its charter)
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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 20-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): ☐
CONTENTS
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Exhibit No.
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Exhibit Description
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99.1
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Unaudited
prelim results for 18 mths to 31 Oct 18, dated 14 February
2019
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14 February 2019
Micro Focus International plc
Unaudited preliminary results for the 18 months ended 31
October 2018
Micro
Focus International plc ("the Company" or "the Group", LSE: MCRO.L,
NYSE: MFGP), the international software product group, announces
unaudited preliminary results for the 18 months ended 31 October
2018.
In order to align financial periods following the
acquisition of the HPE Software business effective 1 September
2017, the Group changed its year end to 31 October 2018 resulting
in an 18 month period of account. Accordingly the results on a
statutory basis are for the 18 month period ended 31 October 2018
with the comparable period being the 12 months to 30 April 2017.
SUSE is treated as a discontinued operation in both periods for
statutory reporting purposes. To aid understanding, results for the
Group are also shown on a pro-forma basis. The
pro-forma* results include the discontinued SUSE business and 12
months of results for the acquired HPE Software business in both
the 12 months ended 31 October 2018 and 2017.
Key highlights:
● Group pro-forma revenue* decline of (5.3)% for the
12 months ended 31 October 2018, versus guidance of (6)% to
(9)%.
● Group pro-forma Adjusted EBITDA* increased by 9.2%
for the 12 months ended 31 October 2018 with an expansion in
Adjusted EBITDA margin of 4.6 percentage points to
37.7%.
● Statutory revenue of $4,754.4m for the 18 months
ended 31 October 2018 (12 months ended 30 April 2017:
$1,077.3m).
● Profit before tax of $34.1m for 18 months ended 31
October 2018 (12 months ended 30 April 2017:
$131.5m).
● Micro Focus Product Portfolio ("MFPP") (i.e.
excluding SUSE) revenue decline for the 12 months ended 31 October
2018 of 7.1% on a pro-forma constant currency basis to $3,684.3m,
with Adjusted EBITDA of $1,413.6m at a margin of
38.4%.
● Strong free cash flow* of $789.7m in the 18 months
ended 31 October 2018, of which $755.4m was generated in the 12
months to 31 October 2018.
● Net debt* of $4,253.5m at 31 October 2018, 2.8
times pro-forma Adjusted EBITDA*.
● $2.535bn SUSE disposal scheduled to complete in
first calendar quarter of 2019; net sale proceeds to be returned to
shareholders, after tax, transaction costs and any required debt
repayment.
● At the date of announcement, the Group has
completed the current $400m share buy-back programme, which today
is extended by up to $110m.
● Third and final dividend per share of 58.33c for
the 18 month accounting period (total dividend per share of 151.26
cents), equivalent to an annualised 100.84 cents (12 months ended
30 April 2017: 88.06 cents), an increase of 14.5%.
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Pro-forma
12 months
ended
31 October 2018
(unaudited)
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Pro-forma
12 months
ended
31 October 2017
(unaudited)
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Total Group (including SUSE)
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Revenue
(constant currency)
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$4,058.0m
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$4,286.8m
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(5.3)%
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Revenue (actual FX rates)
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$4,058.0m
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$4,226.7m
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(4.0)%
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Adjusted EBITDA (actual FX rates)
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$1,529.6m
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$1,401.1m
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9.2%
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Adjusted
EBITDA* margin (actual FX rates)
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37.7%
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33.1%
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+4.6
ppt
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|
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Micro Focus Product portfolio (continuing operations)
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Revenue
(constant currency)
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$3,684.3m
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$3,964.1m
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(7.1)%
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|
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Revenue (actual FX rates)
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$3,684.3m
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$3,906.5m
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(5.7)%
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Adjusted EBITDA* (actual FX rates)
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$1,413.6m
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$1,301.1m
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8.6%
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Adjusted
EBITDA* margin (actual FX rates)
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38.4%
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33.3%
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+5.1 ppt
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Statutory results
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18 months
ended
31 October 2018
(unaudited)
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12 months
ended
31 October 2018
(unaudited)
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12 months
ended
30 April 2017
(audited)
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Revenue
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$4,754.4m
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$3,684.3m
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$1,077.3m
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Operating profit
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$376.8m
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$190.4m
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$227.4m
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Profit/(Loss) before tax
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$34.1m
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$(78.5)m
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$131.5m
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Profit for the period
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$784.1m
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$677.5m
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$157.8m
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Total Group Earnings per share ("EPS"):
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-
Basic EPS
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201.70 cents
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155.77 cents
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68.88 cents
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-
Diluted EPS
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196.17 cents
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151.33 cents
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66.51 cents
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18 Months
ended
31 October 2018
(unaudited)
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12 Months
ended
31 October 2018
(unaudited)
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12 months
ended
30 April 2017
(audited)
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Earnings
per share ("EPS")
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-
Adjusted Basic EPS*
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318.93 cents
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211.66 cents
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181.91 cents
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-
Adjusted Diluted EPS*
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310.19 cents
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205.65 cents
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175.65 cents
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Net
Debt*
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$(4,253.5)m
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$(4,253.5)m
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$(1,410.6)m
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Net
Debt / Adjusted EBITDA ratio*
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2.8x
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2.2x
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Dividend
per share
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151.26 cents
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100.84 cents **
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88.06 cents
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*
The definition and reconciliations of Adjusted EBITDA,
Adjusted Basic EPS, Adjusted Diluted EPS, Net Debt, Free Cash Flow,
Constant Currency ("CCY")
and Pro-forma are in the
"Alternative Performance Measures" section of these financial
statements.
** 18 month dividend annualised
Stephen Murdoch, Chief Executive Officer, commented:
"We report a solid financial performance for our year ended 31
October 2018 with pro-forma Adjusted EBITDA increasing by 9.2% to
$1.5bn and a slowing of pro forma constant currency revenue decline
to 5.3% compared to guidance of a decline of between 6% and
9%.
The Micro Focus operating model delivers substantial cash returns
to shareholders. In the last 18 months, total dividends per share
were 151.26 cents in addition to $400m of share buy-backs. We also
intend to return to shareholders the net proceeds from the sale of
SUSE after tax, transaction costs and any required debt
repayment.
Looking forward, we expect further moderation of revenue decline
and consequently we are guiding constant currency revenue for the
continuing MFPP business for the 12 months to 31 October 2019 to be
between minus 4% to minus 6% compared to a decline of 7.1% for the
12 months ending 31 October 2018. We continue to target a
Net Debt to Adjusted EBITDA multiple of 2.7 times and maintain a
dividend policy that is twice covered by adjusted
earnings.
I am pleased with the financial and operational progress we have
made over recent months as we continue to build a more dynamic
environment where execution is faster, operations simpler and
people more accountable, all of which is focused on delivering
value to customers and shareholders for the
long-term."
Results conference call
A conference call to cover the results for the 18 months ended 31
October 2018 will be held today at 1.30pm GMT. The call will be
accompanied by slides. A live webcast and recording of the
presentation will be available at https://investors.microfocus.com/
during and after the event. For dial in only, access numbers
are as follows:
UK: +44 (0)330 336 9126
US: +1 929-477-0324
Confirmation Code: 6456702
Enquiries:
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Micro Focus
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Tel: +44 (0) 1635 565200
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Kevin Loosemore, Executive Chairman
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Stephen Murdoch, Chief Executive 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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Elly
Williamson
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Celine
MacDougall
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About Micro Focus
Micro Focus (LSE: MCRO.L, NYSE: MFGP) is an enterprise software
Company supporting the technology needs and challenges of customers
globally. Our solutions help organisations leverage existing IT
investments, enterprise applications and emerging technologies to
address complex, rapidly evolving business requirements while
protecting corporate information at all times. We have two product
portfolios: Micro Focus Product Portfolio and SUSE Product
Portfolio. Within the Micro Focus Product Portfolio are the
following product groups: Application Modernisation &
Connectivity, Application Delivery Management, IT Operations
Management, Security, and Information Management & Governance.
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 these preliminary results 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 Report
In the period under review, Micro Focus has become a much larger
company with a broader and more diverse portfolio of products that
is better able to serve our customers' needs, and with the
opportunity to continue to create significant value for our
shareholders over the long-term. The path to our current position
has been a complex and difficult one over the last year as we
worked to integrate the Hewlett Packard Enterprise ("HPE") Software
business. Integrations of this scale are always challenging and
significant programmes of work are still in progress but we believe
the most disruptive issues experienced since completion are now
behind us.
In this review, I cover our performance in the period, reiterate
the key elements of our strategy and business model, explain how we
have addressed the main challenges faced in the integration of the
HPE Software business since completion of the transaction on 1
September 2017, and comment on our outlook for the coming financial
year.
Performance in the Period
The Group reported revenues of $4,754.4m for the 18 months ended 31
October 2018 (12 months ended 30 April 2017: $1,077.3m) and
Operating Profit of $376.8m (12 months ended 30 April 2017:
$227.4m). Our statutory results are covered in more detail in the
Chief Financial Officer's report.
Due to the transformational nature of the HPE Software business
acquisition, and the fact this is an 18 month period under review
compared to the preceding 12 month period, comparative financial
performance is also presented on a pro-forma basis. The
pro-forma results include the discontinued SUSE business and 12
months of results for the acquired HPE Software business in both
the 12 months ended 31 October 2018 and the 12 months ended October
2017.
Pro-forma revenues of $4,058.0m for the 12 months ended 31 October
2018 represent a decline of 5.3% on a pro forma constant currency
basis (2017: $4,286.8m) against management guidance issued in March
2018 of a decline of between 6% and 9%.
Adjusted EBITDA for the Group was $2,059.6m for the 18 months ended
31 October 2018 (12 months ended 30 April 2017: $640.9m). On a
pro-forma basis at actual exchange rates the Group delivered a 9.2%
growth in Adjusted EBITDA to $1,529.6m for the 12 months ended 31
October 2018 (2017: $1,401.1m), reflecting good progress in the
cost management actions related to the integration programme. This
performance translates to a 37.7% Adjusted EBITDA
margin.
Recent operational improvements, evidenced by the stabilisation of
our revenue performance and the continued expansion in our profit
margins, are encouraging signs of early progress. There is a great
deal still to do to build the operational foundations and
flexibility we want as we drive to capture fully the significant
opportunity ahead in both the existing business and the market more
broadly.
Following shareholder and regulatory approvals of the announced
forthcoming sale of SUSE, it is treated as a discontinued operation
in the reported results. As such, the rest of my report focuses on
the continuing operations of the Micro Focus Product Portfolio
("MFPP").
MFPP Revenue (versus pro-forma constant currency
comparatives)
MFPP revenues declined by 7.1% and by 6.9% on an underlying basis,
before the impact of the deferred revenue haircut
adjustment.
|
|
12 months ended 31 October 2018
(unaudited)
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Pro-forma
constant currency % change to
12
months ended 31 October 2017
(unaudited)
|
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Licence
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Maintenance
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SaaS
& other recurring
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Consulting
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Total
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Licence
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Maintenance
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SaaS
& other recurring
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Consulting
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Total
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$m
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$m
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$m
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$m
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$m
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%
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%
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%
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%
|
%
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Product portfolio:
|
|
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AMC*
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183.6
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333.1
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-
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12.1
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528.8
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3.6%
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0.7%
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-
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5.2%
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1.8%
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ADM*
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141.3
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520.3
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98.5
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32.6
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792.7
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(6.9%)
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(3.7%)
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16.6%
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(43.9%)
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(5.0%)
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|
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ITOM*
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248.9
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732.8
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12.4
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155.3
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1,149.4
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(27.3%)
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(3.7%)
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(25.3%)
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(25.1%)
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(13.4%)
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Security
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217.6
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446.0
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35.6
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63.1
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762.3
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(11.4%)
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(1.2%)
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23.6%
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(5.8%)
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(3.9%)
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|
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IM&G*
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87.1
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203.2
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171.6
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24.0
|
485.9
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(3.5%)
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(4.9%)
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(3.6%)
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(34.8%)
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(6.3%)
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Revenue** before haircut
|
878.5
|
2,235.4
|
318.1
|
287.1
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3,719.1
|
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(12.8%)
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(2.7%)
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3.3%
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(24.6%)
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(6.9%)
|
|
|
|
|
|
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|
|
|
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Regional:
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|
|
|
|
|
|
|
|
|
|
|
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Americas
|
409.3
|
1,253.9
|
240.3
|
117.4
|
2,020.9
|
|
(19.6%)
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(4.2%)
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4.2%
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(29.7%)
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(8.8%)
|
|
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EMEA
|
347.5
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755.9
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59.9
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132.8
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1,296.1
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(4.6%)
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(0.9%)
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1.0%
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(18.4%)
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(3.9%)
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|
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Asia
Pacific & Japan
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121.7
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225.6
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17.9
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36.9
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402.1
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(9.0%)
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0.1%
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0.0%
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(27.4%)
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(6.0%)
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Revenue** before haircut
|
878.5
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2,235.4
|
318.1
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287.1
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3,719.1
|
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(12.8%)
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(2.7%)
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3.3%
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(24.6%)
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(6.9%)
|
|
*AMC (Application Modernisation & Connectivity), ADM
(Application Delivery Management), ITOM (IT Operations Management),
and IM&G (Information Management &
Governance).
**The trends discussed in this section are presented before the
impact of the deferred revenue haircut.
Revenue by Stream Performance (versus pro-forma constant currency
comparatives)
As communicated in July 2018, revenue performance in the six months
ended 30 April 2018 was impacted by a number of factors, which
management consider to be largely one-off transitional effects of
the combination with the HPE Software business, rather than
underlying issues with the end market of the product portfolio.
Since identifying these issues, substantial investment has been
made in stabilising the IT platform and the business has
re-structured the go-to-market organisation to better align
customer coverage and improve customer engagement levels. This
re-structuring has been supplemented with additional investment in
better training and enablement and increased hiring of customer
facing sales resources to ensure the function was fully staffed at
year end. Additional actions have focused on driving improved
execution discipline across the Company. As a result, revenue
declined 6.9% year on year (before the impact of the deferred
revenue haircut), which reflects a decline of 5.0% in the second
half of the financial period compared to a decline of 8.7% in the
first half.
In
the 12 months ended 31 October 2018, the four revenue streams
performed as follows:
Licence
revenue declined by 12.8%
in the 12 months ended 31 October 2018 compared with a decline of
18.4% in the six months to 30 April 2018. The rate of revenue
decline decreased in the six months to 31 October 2018 most notably
in the Americas as sales execution
improved.
Maintenance
revenue declined by 2.7%
in the 12 months ended 30 October 2018 compared with a decline of
3.5% in the six months to 30 April 2018. The maintenance revenue
performance also improved in the second half of the year due to the
improvement in maintenance revenue attached to new licence sales
and a catch up on win backs from the first half of year where
system constraints inhibited performance. Renewal rates vary at a
product level but across the portfolio, we continue to see renewal
rates consistent with historic performance.
SaaS and other recurring
revenue grew by 3.3% in
the 12 months ended 31 October 2018 compared with an increase of
8.8% in the six months to 30 April 2018. Second half performance
was driven by actions to rationalise unprofitable operations and
practices and the refocus of resources and investments to
delivering the product enhancements required for long-term success.
Consulting revenue declined by 24.6% in the 12 months ended 31
October 2018. This is a managed decline resulting from the Group's
previously communicated strategy to focus on consulting engagements
which are directly related to the software portfolio rather than
pursuing growth on a standalone basis.
Revenue by Product Group Performance (versus pro-forma constant
currency comparatives)
The
Group has more than 300 products reported under five product
groups. These products are managed at a granular level using
application of the Micro Focus four-box model. The cyclical nature
of the software order cycle means that when considering underlying
revenue trends, year on year growth rates by portfolio are not
always indicative of an underlying trend and will be impacted by
the timing of customer projects. As such, revenue trends at the
sub-portfolio level should be viewed over the longer term and
revenue trends for MFPP overall viewed in a similar fashion to that
of a portfolio of funds.
Application Modernisation & Connectivity ("AMC")
Licence
revenue increased by 3.6% in the 12 months ended 31 October 2018,
driven by continued strong performance in the Enterprise Solutions
product set and the stabilisation of revenue across the rest of the
portfolio
Maintenance
and Consulting revenues grew by 0.7% and 5.2% respectively as the
level of maintenance and consulting support to licence sales
continued to track at historical rates. The consulting strategy in
this portfolio had already been refocused to engagements supporting
our other revenue streams prior to the combination with the HPE
Software business.
Application Delivery Management ("ADM")
Licence revenues declined by 6.9% year on year, with SaaS and
other recurring revenue increasing by 16.6% for the 12 months ended
31 October 2018. Maintenance revenues declined by 3.7% year on
year. Consulting revenues declined by 43.9% driven by
our decision to refocus execution to be in support of consulting
engagements that drive our other revenue streams.
The switch from Licence to SaaS witnessed within the ADM portfolio
is an example of where customers are offered the choice of
commercial consumption model. In the current period more of our
customers elected to buy our software "as a service" compared to
running software under a traditional licence and maintenance model.
This was a combination of new customers or new projects within
existing customers, as well as existing customers moving from
running our software on premise to SaaS. Overall, combined Licence,
Maintenance and SaaS revenue declined by
2.1%.
IT Operations Management ("ITOM")
ITOM
licence revenue declined 27.3% in the 12 months ended 31 October
2018. Year-on-year performance was heavily impacted by sales
execution issues especially in the Americas and by the timing
impact of large customer deals. During the last 12 months,
theportfolio completed a broad based product transition delivering
a completely revamped and highly competitive set of offerings. As a
result, performance in the period is not considered to be a true
reflection of the underlying potential of the product group within
the market in which it operates.
ITOM
Maintenance revenue declined by 3.7% driven primarily by the
decline in licence revenue. Consulting revenues followed trends
with the wider MFPP product group as a result of the actions taken
to refocus in this area.
Security
Licence revenue declined by 11.4% and SaaS and other recurring
revenue grew by 23.6% in the 12 months ended 31 October 2018.
Licence revenue performance is broadly attributable to sales
execution issues in the first half of the year and not as a result
of any switch by customers to alternative delivery models such as
SaaS.
Maintenance revenue declined by 1.2%. Consulting revenues declined
by 5.8%, again driven by our decision to focus our business on
engagements which will drive our other revenue
streams.
Information Management & Governance ("IM&G")
Licence revenue declined by 3.5% and SaaS and other
recurring revenue declined by 3.6% in the 12 months ended 31
October 2018.
Maintenance
revenue declined by 4.9% in the period driven by the overall
product mix within this portfolio. The consulting revenue
decline of 34.8% is the result of the actions taken to refocus in
this area.
Regional performance (versus pro forma constant currency
comparatives)
Within
the 12 months ended 31 October 2018, the regional revenue
performance supports the hypothesis that weak revenue performance
seen in the first half of the financial year was driven in part by
disappointing sales execution rather than an overall change in end
markets in which we operate. Specifically, we have seen certain
products within each sub portfolio growing within one geography or
customer segment, whilst declining in others.
The
Americas region was impacted most significantly by the HPE Software
business transaction with more disruption and higher levels of
attrition than witnessed in the EMEA and Asia Pacific & Japan
regions. As a result, revenue declined by 8.8% year-on-year within
the Americas, compared to 3.9% and 6.0% in EMEA and Asia Pacific
& Japan respectively.
In the last six months, the business has focussed on improving
sales execution particularly in the Americas region, which resulted
in the revenue stabilisation in this region in the second half of
the year.
(For a more detailed review of our financial performance, see the
Chief Financial Officer report).
The Micro Focus Strategy and Business Model
Micro Focus' strategy and business model are designed to deliver
sustained customer value and strong, consistent shareholder returns
over the long-term.
The market dynamics that have driven our strategy and business
model since 2011 have not changed. We continue to believe the
infrastructure software market is fragmented and consolidating.
This belief has been supported by significant M&A elsewhere in
the market during the 18-month period under review. Micro Focus
continues to build the scale and operational efficiency to be a
leader in this consolidation over time. Our unwavering focus on
delivering customer value through effective product management,
coupled with our operational efficiency and consistent, disciplined
capital allocation, make us well placed to succeed.
Our strategy is grounded in more than 40 years' experience
delivering proven, scalable and robust infrastructure software
solutions and we now serve more than 40,000 customers through a
global team of approximately 14,000 employees.
The business environment in which our customers operate is
increasingly competitive and the systems, applications and
infrastructure that underpin their business operations are highly
complex. Customers want and need a partner for the long-term that
is committed to and capable of helping them modernise and protect
their existing technology, adopt innovation and leverage new
business models while maximising the value of and return from
existing investments. Partnership with Micro Focus enables
customers to better exploit new opportunities, deal with changing
operational and legislative requirements, and increasingly
sophisticated cyber threats. From a product portfolio perspective
the foundation of our strategy and business model is direct
engagement with customers to ensure we deliver the products,
solutions and deployment options they need - we call this "customer
centric innovation".
In essence, we bridge the old and the new to deliver innovation
faster at lower risk and are committed to being a consistent,
reliable partner for the long-term.
Applying the Micro Focus Business Model
As the industry continues to consolidate, Micro Focus can draw upon
extensive, relevant experience having completed and successfully
integrated 15 acquisitions in the past decade. The integration of
the HPE Software business has involved additional complexities,
largely because it was a carve-out of a division from a larger
parent, asopposed to the acquisition of a business that had been
operating independently. The HPE Software business was a fully
integrated, albeit small division of HPE that relied upon the
parent company's strategy, business model and central support
functions. As a result, there has been much more work to do on this
integration in the areas of go-to-market, business process
simplification and IT systems, within a broader challenge on
overall style, tone and pace of execution.
Systematic application of the Micro Focus business model is now
driving better clarity of purpose, the alignment of goals and the
creation of a more dynamic environment where execution is faster,
operations simpler and people more accountable.
Product Portfolio
Across the five product portfolios we report against we have more
than 300 products. The execution against our goal of customer
centric innovation has been strong. Customer commitments and
thought leadership have been delivered across the product portfolio
with more than 500 product releases in the year, ranging from small
functional updates through to completely re-architected
solutions and highly innovative new capabilities.
This represents great depth of capability and experience to help
our customers address some of the most complex challenges they
face. To better enable our customers and partners to exploit this
breadth and depth we are re-aligning resources to develop
compelling value propositions across four focus areas - Enterprise
DevOps; Hybrid IT Management; Security, Risk & Governance; and
Predictive Analytics. The strength and competitive differentiation
across these areas is significant and I am excited by what we do
for customers today and the potential we have to do even more in
the future.
Go-to-Market Organisation and Execution Capability
Following completion of the acquisition of the HPE Software
business, a combined go-to-market organisation was implemented and
launched on 1 November 2017. This design and implementation was
overly complex in both structure and processes, and the resulting
lack of clarity and accountability led to significant sales
execution issues, which were compounded by the IT systems
challenges covered later in this report. Both these issues combined
to drive significantly elevated levels of attrition within the
sales organisation.
Correcting organisational design issues and improving execution has
been a key priority of the management team since March. Improvement
measures have focused on the consistent execution of simpler, more
effective sales processes. These have been underpinned by better
alignment and accountability within the sales management teams
through the removal of unnecessary global structures and management
layers.
To improve the quality of customer engagement, we have made
organisational changes to align marketing and product teams much
more tightly and invested in a consistent approach to enablement
globally. In addition, investments were made to re-build an
appropriate account management programme and the capabilities
necessary to support our largest customers. These capabilities were
part of the broader HPE and existing Micro Focus coverage models
prior to completion but were not catered for effectively in the
initial design post completion.
In April 2018, Micro Focus established a new approach to comply
with US federal requirements and to better serve the needs of our
classified and controlled US Federal Government customers. This
involved a strategic partnership where customer engagement and
operations where undertaken by a third party on our behalf.
The hiring engine has been re-engineered and is now functioning
effectively. It is anticipated that the combination of more
empowerment through clarity of accountability, better enablement
and improved hiring and on-boarding will see attrition levels
stabilise further and begin to trend down.
A disciplined sales management process has been established
globally to drive the consistently high levels of sales execution
expected from the organisation and we have strengthened the team at
all levels but notably through the appointment of Jon Hunter as
Chief Revenue Officer. Jon joins us with extremely relevant
experience and a great track record in leading global sales
teams.
There are always improvements to be made in sales execution and
this will remain the key focus for Jon and the sales leadership
team.
IT Systems
At the time of the combination of the Micro Focus and the HPE
Software businesses, we envisaged that we would migrate the
existing Micro Focus business onto a new set of IT systems designed
and implemented by HPE to support the carve out and sale of their
software business. Unfortunately, challenges with these IT systems
have been significant, including issues around data migration,
system configuration and the integration of applications. In the
six months to 30 April 2018 in particular, this impacted our
ability to quote, invoice, and collect cash as well as pay
suppliers, partners and our sales teams.
These systems are now stable and able to support the operations of
the business but still require more manual intervention than we
want. There is significant foundational work underway to address
this, focused on the back office organisation to simplify
operations and processes, increase automation and improve
resilience to drive operational efficiencies. The issues
experienced and the subsequent foundational remediation work
required have slowed our plan to migrate to a single IT
platform.
This is being addressed through a parallel project underway to
build the future, simplified systems architecture for the Group
which upon completion will enable further automation of the
improved processes and deliver the platform for ongoing operational
improvements. Until the completion of that project, the Group
continues to operate on two IT architectures with the attendant
complexity this adds to our business operations and control
environment. To maintain the required control environment, the
Group relies upon automated, semi-automated and manual controls
together with a combination of preventative and detective
controls.
Continuous Improvement of Day to Day Operations
Our business model is focused on delivering targeted, relevant
business outcomes for customers and consistent returns for
shareholders.
The foundation of this is the development of a company-wide culture
of continuous improvement delivering fit-for-purpose operations and
a more dynamic, execution-orientated environment where team members
are empowered and accountable and the overall organisation aligned
to common goals.
In support of this we are making additional investments in the
enablement and development of our team, increasing focus on people
engagement, inclusion and diversity, and developing a more
comprehensive Corporate Social Responsibility
plan.
We remain focused on and fully committed to running our enlarged
operations as effectively and efficiently as possible while driving
our key integration priorities, notably improved IT systems and
back office functions, to completion.
Financial discipline
Our focus on operational rigour and effectiveness is coupled with
robust financial and capital allocation discipline.
The merger of the Micro Focus and HPE Software businesses has
provided a significant opportunity for operational improvements and
cost efficiencies. To date, there has been good progress on cost
reduction as evidenced by the continued expansion in Adjusted
EBITDA margin, with further opportunities ahead.
The ongoing optimisation of our operations is designed to deliver
strong operating margins through the realisation of these cost
efficiencies at pace, balanced with the continued delivery of our
core value proposition of making, selling and supporting
infrastructure software solutions that customers value and rely on.
Effective execution will deliver a platform for further M&A
that targets underperforming assets ready to be improved by the
application of the Micro Focus business model.
Our net debt represents 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 make appropriate acquisitions.
Micro Focus has a strong balance sheet and our lenders are
supportive of our strategy and business model. At 31 October 2018,
we had net debt of $4.25bn representing a net debt to pro-forma
Adjusted EBITDA of 2.8 times. Without the $171.7m of share
buy-backs in the period we would have reached our medium term
target of 2.7 times within 14 months compared with the 24 months
which was anticipated at the time of completion of the HPE Software
business transaction.
The board will keep the appropriate level of debt under review and
Micro Focus will be consistent in its policy of not holding surplus
cash on the balance sheet.
On 29 August 2018, the company announced the start of a share
buy-back programme for an initial tranche of up to $200 million
which was extended on 5 November 2018 to the total value of $400
million (including the initial tranche). Up to and including 13
February 2019 the company had spent $400m and purchased 22,455,121
shares at an average price of £13.82 per share. We are
now extending this buy-back programme into a third tranche of up to
$110m to be executed in the period from today, the 14 February
2019, up until the day before the AGM which takes place on 29 March
2019 when the current buy-back authority approved by shareholders
at the 2017 AGM to make market purchases of up to 65,211,171
ordinary shares will expire.
Value creation - SUSE sale
On 2 July 2018, we announced definitive terms, subject to
shareholder approval, for the sale of SUSE for a total cash
consideration of $2.535bn to EQT. We believe this price represents
a highly attractive enterprise valuation for SUSE at a multiple of
approximately 7.9x revenue and 26.7x Adjusted Operating Profit for
the 12 months to 31 October 2017 and reflects an excellent return
on the investments we have made to support and grow this business
since it was acquired in 2014. In addition to a great value return
for shareholders, we see the purchaser, EQT, as a strong long-term
investor for SUSE.
In line with our capital allocation strategy we intend to return
the net sale proceeds to shareholders after tax, transaction costs
and any required debt repayments have been accounted for. This will
be effected through a Return of Value to be implemented after
completion of the transaction, which is currently anticipated to be
towards the end of the first calendar quarter of 2019.
Board changes
Since the last annual report there has been significant change at
Board level as well as in the business. Silke Scheiber, Darren Roos
and Lawton Fitt joined the Board as Non-executive Directors, all
bringing directly relevant skill sets to support the newly enlarged
company. Karen Slatford, Richard Atkins and Amanda Brown, together
with Executive Chairman Kevin Loosemore, provide continuity and
longer term experience of the business and strategy.
We enter the new 2019 fiscal year with new Executive leadership on
the Board; I was appointed CEO in March 2018 and re-joined the
Board at that time. In November 2018 we announced Brian
McArthur-Muscroft as CFO-designate. Brian will formally join the
Board as CFO on 20 February 2019 and Chris Kennedy will step down
from the Board on that date. I would like to thank Chris for his
contribution to the Group during his tenure as CFO and wish him
every success in his new role as CFO at ITV plc. The Group
has assembled a strong management team comprised of leaders from
Micro Focus, the HPE Software business and new hires.
Dividend
During this 18-month transitionary period, we have paid two interim
dividends and propose a final dividend of 58.33 cents, taking total
dividend per share to 151.26 cents for the 18 month period. On an
annualised basis this total dividend is 100.84 cents per share
which is growth of 14.5% on the full year dividend for the year
ended 30 April 2017 of 88.06 cents per share. Notwithstanding
the pattern of dividends during the past 18 month period, the
dividend policy remains unchanged at two times covered by the
adjusted earnings of the company. In future periods, we will return
to our approach of paying a single interim and final dividend for
the financial year.
The dividend will be paid in Sterling equivalent to 45.22 pence per
share, based on an exchange rate of £1 = $1.29, the rate
applicable on 13 February 2019, the date on which the board
resolved to propose the dividend. Subject to approval by
shareholders, the dividend will be paid on 5 April 2019 to
shareholders on the register at 1 March 2019.
Group Outlook
Micro Focus' strategy and business model are designed to deliver
strong and consistent shareholder returns over the long-term. We
are encouraged by progress over recent months and believe we are
getting back on track to focus on our outstanding customer and
partner relationships founded on delivering software that is
essential to mission-critical business processes, and to provide
our investors with consistently strong results going forward. Our
technology, expertise and the commitment to enabling customers to
both embrace innovation and leverage their established IT
investments is a major positive differentiator in the
infrastructure software market.
Today, we are issuing constant currency revenue guidance for
the MFPP continuing business for the 12 months to 31 October 2019
of minus 4% to minus 6% compared to the 12 months ending 31 October
2018. We continue to target a Net Debt to Adjusted EBITDA target of
2.7 times together with a regular dividend twice covered by
adjusted earnings.
Performance in first quarter FY19 (ended 31 January 2019) is in
line with this guidance.
The last 18 month period has been transformational for Micro Focus
and has been, at times, very challenging and disruptive for our
employees. I am proud of their professionalism and hard work and I
am delighted to share the progressive sense of common purpose and
clear direction that is building within the Company as we move
firmly from the one-off transitional effects of the combination
with the HPE Software business, to the running and continuous
improvement of a successful, enlarged operation.
Stephen Murdoch
Chief Executive Officer
13 February 2019
Chief Financial Officer's report
The
Group's statutory financial statements reflect the trading
performance of the continuing operations for the 18 months ended 31
October 2018 compared to the 12 months ended 30 April 2017. Within
the 18 months, the Group has undertaken two corporate development
activities, which have both had a material impact on the Group's
reported results:
|
●
|
On 1 September 2017, the Group acquired the
software business of HPE, which is reported within the Micro Focus
Product Portfolio. The Group aligned the Micro Focus accounting
period end (previously 30 April) to the HPE Software period end of
31 October resulting in an 18-month accounting period to 31 October
2018 for the combined
entity.
|
|
●
|
On 21 August 2018, shareholders voted to approve
the proposed transaction whereby the Group agreed to sell its SUSE
product portfolio. On approval of this vote, the SUSE operating
segment meets the definition of a discontinued operation under IFRS
5, which results in the SUSE performance being excluded from the
individual line items of the income statement and balance sheet.
SUSE is instead included as a single line entitled "profits from
discontinued operations" within the income statement and as an
"asset held for sale" or "liability held for sale" on the balance
sheet. The transaction is expected to complete in the first quarter
of calendar year 2019 and SUSE remains under the control of the
Group until that point.
|
Due
to the significant size of the two transactions, the directors feel
that the Group results are better understood by considering the
comparative results on a pro-forma basis. The table below sets out
the impact the transactions have had on the Group's financial
statements and the additional disclosures which the directors have
elected to make in order to improve the understanding of the
financial statements:
|
|
Statutory
results
|
Alternative Performance Measures
|
|
|
12 months ended
30 April 2017
(audited)
|
18 months ended
31 October 2018
(unaudited)
|
12 months ended
31 October 2018
(unaudited)
|
Pro-forma
12 months ended
31 October 2018
(unaudited)
|
Pro-forma
12
months ended
31 October 2017
(unaudited)
|
|
HPE
Software
|
Excluded
|
14
months post acquisition
|
Included
|
Included
|
Included
|
|
SUSE
|
Restated
and excluded from continuing operations
|
Excluded
from continuing operations
|
Excluded
from continuing operations
|
Included
|
Included
|
|
Purpose
|
Statutory
reporting
|
Annualised performance of continuing operations
|
Year-on-year
performance on a like-for-like basis
|
All narrative within this report focuses on the continuing
operations unless otherwise stated.
This section refers to a number of Alternative Performance
Measures, which are used by the business to supplement those
presented under statutory requirements. For further details
relating to the definition and relevance of such measures, please
refer to the Alternative Performance Measures section of these
financial statements.
Micro Focus International - Statutory Results
The Group has adopted an 18 month accounting period which ended on
31 October 2018. As a result, the comparison to the previously
reported 12 months ended 30 April 2017 presents substantial
period-on-period increases due to the longer period of account in
the current reporting period. In order to aid comparison, this
section also sets out the unaudited financial performance in the 12
months ended 31 October 2018.
The statutory presentation excludes the discontinued SUSE business
from individual line items for each of the reporting periods
presented below. The 18 month period to 31 October 2018 includes 14
months of results for the acquired the HPE Software business. The
results for the 12 months to 31 October 2018 include a full year's
results for the HPE Software business.
● The previous 18 months have been a
transformational period for the business.
● The HPE Software business transaction, SUSE
disposal and change in accounting period have added a level of
complexity to the financial statements.
● The continuing business of the Group generated
revenues of $4,754.4m in the 18 months ended 31 October 2018 of
which $3,684.3m relates to the last 12 months.
● The Group generated a profit before tax of $34.1m
in the 18 months ended 31 October 2018, and a loss of $78.5m within
the last 12 months.
● On an annualised basis, the total dividend is
100.84 cents per share which is growth of 14.5% on the full year
dividend for the year ended 30 April 2017 of 88.06 cents per
share.
|
|
18 months
ended
31 October 2018
(unaudited)
|
12
months
ended
30
April 2017
(audited)
|
|
12 months
ended
31 October 2018
(unaudited)
|
|
Continuing operations
|
$m
|
$m
|
|
$m
|
|
Revenue
|
4,754.4
|
1,077.3
|
|
3,684.3
|
|
Operating profit (before exceptional items)
|
915.0
|
324.7
|
|
630.1
|
|
Exceptional
items (included in operating profit)
|
(538.2)
|
(97.3)
|
|
(439.7)
|
|
Operating profit
|
376.8
|
227.4
|
|
190.4
|
|
Net
finance costs
|
(336.9)
|
(95.8)
|
|
(268.9)
|
|
Exceptional
finance costs
|
(5.8)
|
-
|
|
-
|
|
Profit/(loss) before tax
|
34.1
|
131.6
|
|
(78.5)
|
|
Taxation
|
673.1
|
(7.5)
|
|
700.5
|
|
Profit from continuing operations
|
707.2
|
124.1
|
|
622.0
|
|
Profit
from discontinued operations
|
76.9
|
33.7
|
|
55.5
|
|
Profit for the period
|
784.1
|
157.8
|
|
677.5
|
Revenue
In
the 18 months ended 31 October 2018, the Group generated revenue of
$4,754.4m, which represents an increase of 341.3% on the 12 months
ended 30 April 2017. The increase in trading is driven by the
acquisition of the HPE Software business, which has materially
increased the scale of the operations combined with the longer
period of account.
In
order to fully understand the underlying trading performance of the
continuing operations, the Directors feel revenue is better
considered on a pro-forma constant currency basis between the 12
months ended 31 October 2018 and the 12 months ended 31 October
2017. Revenue performance presented on a pro-forma constant
currency basis can be found later in this report.
For
more detailed revenue splits on a stream, product group and
regional basis, see the Chief Executive Officer section earlier in
this document.
Operating profit
In
the 18 months ended October 2018, the Group generated operating
profit of $376.8m, which represents an increase of 65.7% on the 12
months ended April 2017. On a statutory basis, the operating profit
increased due to the 18-month accounting period combined with the
impact of the HPE Software business transaction in the current
period. The acquisition has been transformational for the business
and has substantially increased the scale of the Group's
operations. In addition, exceptional costs (included within
operating profit) have increased from $97.3m in the 12 months ended
30 April 2017 to $538.2m in the 18 months ended 31 October 2018.
Exceptional costs are considered below.
In
addition, the amortisation of intangible assets increased from
$206.8m in the 12 months ended 30 April 2017, to $903.0m in the 18
months ended 31 October 2018, relating to the amortisation of
customer relationships and technology acquired from HPE, combined
with the impact of the 18 month period of account.
Exceptional items (included within operating profit)
|
|
18 months
ended
31 October 2018
(unaudited)
|
12
months
ended
30
April 2017
(audited)
|
|
12 months
ended
31 October 2018
(unaudited)
|
|
|
$m
|
$m
|
|
$m
|
|
Exceptional items
|
|
|
|
|
|
MF/HPE Software business integration related
|
|
|
|
|
|
System
and IT infrastructure costs
|
114.4
|
-
|
|
114.4
|
|
Integration
costs
|
147.6
|
-
|
|
143.7
|
|
Severance
|
129.1
|
-
|
|
119.9
|
|
Property
costs
|
29.9
|
-
|
|
29.9
|
|
MF/HPE Software business integration related costs
|
421.0
|
-
|
|
407.9
|
|
SUSE
and other divestiture costs
|
21.3
|
-
|
|
21.3
|
|
HPE
Software business acquisition / pre-acquisition costs
|
70.1
|
58.0
|
|
1.3
|
|
Integration
in respect of previous acquisitions
|
17.0
|
27.7
|
|
0.8
|
|
Other
acquisition costs
|
-
|
2.6
|
|
-
|
|
Property
costs relating to previous acquisitions
|
8.2
|
5.5
|
|
8.4
|
|
Severance
costs relating to previous acquisitions
|
0.6
|
3.5
|
|
-
|
|
Total exceptional costs (reported in Operating profit)
|
538.2
|
97.3
|
|
439.7
|
In
the 18 months ended 31 October 2018, exceptional costs totalled
$538.2m with $439.7m incurred in the 12 months ended 31 October
2018. Exceptional costs predominately relate to the integration of
the HPE Software business and the costs incurred in the 18-month
period include:
● System and IT infrastructure costs of $114.4m
principally reflect the cost of implementing and then stabilising
the IT platform acquired with the HPE Software
business;
● Integration costs of $147.6m across a wide range
of projects undertaken to conform, simplify and increase efficiency
across the two businesses;
● Severance costs of $129.1m in relation to ongoing
headcount reductions as we integrate the HPE Software business;
and
● Property costs of $29.9m as the Group began the
process of simplifying the real estate footprint by exiting 27
offices since the completion of the
transaction.
As
communicated previously, we anticipate exceptional charges in
relation to the HPE Software business integration of $960m of which
$421.0m has been incurred to date. The remaining costs will be
incurred over the next two financial years, with approximately
$420m expected to be charged to the income statement in FY19 and
the balance in FY20.
In
addition, as disclosed in July 2018, costs associated with the
disposal of SUSE are expected to total in the region of $72m. In
the 12 months ended 31 October 2018, the Group incurred $20.8m and
the remainder are expected in the year ending 31 October
2019.
Net finance costs
Net
finance costs were $336.9m in the 18 months ended 31 October 2018,
of which $268.9m was incurred in the last 12 months. Finance costs
predominately relate to the associated interest on the new term
loans put in place as part of the transaction to acquire the HPE
Software business. Included within the $268.9m is $46.9m in
relation to the amortisation of facility costs and original
issue discounts which were paid on initiation of the term
loans.
In
the period, the Group's net debt leverage decreased which means the
Group now benefits from a 25 bps improvement in the margin on the
Group's debt terms.
The Group holds interest rate swaps to hedge against the cash flow
risk in the LIBOR rate charged on $2,250.0m of the debt issued by
Seattle Spinco. Inc (the investment company used to acquire the HPE
Software business) 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 receives one month USD LIBOR.
Taxation
The Group's reported tax charge for the 18 months ended 31 October
2018 was a credit of $673.1m (12 months ended 30 April 2017: charge
of $7.5m) primarily due to the one-off impact of US tax
reforms.
Profit from discontinued operations
Profit
from discontinued operations reflects the profits generated from
the SUSE portfolio. In the 18 months ended 31 October 2018, SUSE
generated revenue of $538.2m compared to $303.4m in the 12 months
ended 30 April 2017. Profit before taxation increased to $111.1m
from $64.8m. The period-on-period growth driven by the long period
of account combined with growth in the SUSE business was
approximately 15% per annum.
In
the 12 months ended 31 October 2018, SUSE generated revenue of
$373.7m and profit after tax of $55.5m. The SUSE disposal remains
on track for completion in the first calendar quarter of
2019.
Reconciliation from Statutory results to Alternative Performance
Measures
This section sets out a reconciliation from the
statutory results presented above to Alternative Performance
Measures used by the business to assess operating performance and
liquidity including Adjusted EBITDA, Adjusted Profit before tax and
Adjusted EPS. For further details relating to the definition and
relevance of such measures, please refer to the Alternative
Performance Measures section of these financial
statements. 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.
Adjusted EBITDA
A
reconciliation between Operating Profit and Adjusted EBITDA is
shown below:
|
|
18 months
ended
31 October 2018
(unaudited)
|
12
months
ended
30
April 2017
(audited)
|
12 months
ended
31 October 2018
(unaudited)
|
|
|
$m
|
$m
|
$m
|
|
Operating profit
|
376.8
|
227.4
|
190.4
|
|
Add
back/(deduct):
|
|
|
|
|
Exceptional
items (reported in Operating profit)
|
538.2
|
97.3
|
439.7
|
|
Share-based
compensation charge
|
64.3
|
31.5
|
47.5
|
|
Amortisation
of intangible assets
|
903.0
|
206.8
|
720.0
|
|
Depreciation
of property, plant and equipment
|
88.6
|
9.7
|
73.6
|
|
Product
development intangible costs capitalised
|
(44.4)
|
(27.7)
|
(27.4)
|
|
Foreign
exchange gains
|
(37.3)
|
(2.9)
|
(30.2)
|
|
Continuing Adjusted EBITDA
|
1,889.2
|
542.1
|
1,413.6
|
|
Discontinued
operations Adjusted EBITDA
|
170.4
|
98.8
|
116.0
|
|
Adjusted EBITDA
|
2,059.6
|
640.9
|
1,529.6
|
In
the 12 months ended 31 October 2018, the Group generated Adjusted
EBITDA of $1,529.6m, with $1,413.6m generated by the continuing
operations of the Group. The pro-forma Adjusted EBITDA of the Group
in the 12 months ended 31 October 2017 has been provided later in
this section.
Adjusted Profit before tax
Adjusted Profit before tax is defined as profit before tax
excluding the effects of share-based compensation, the amortisation
of purchased intangible assets, and all exceptional
items.
The following tables are reconciliations from profit before tax for
the period to Adjusted Profit before tax:
|
|
18 months
ended
31 October 2018
(unaudited)
|
12
months
ended
30
April 2017
(audited)
|
12
months
ended
31
October 2018
(unaudited)
|
|
Continuing operations
|
$m
|
$m
|
$m
|
|
Profit
before tax
|
34.1
|
131.5
|
(78.5)
|
|
|
|
|
|
|
Adjusting items:
|
|
|
|
|
Exceptional
items
|
543.9
|
97.3
|
439.7
|
|
Share-based
compensation charge
|
64.3
|
31.5
|
47.5
|
|
Amortisation
of purchased intangibles
|
830.3
|
183.3
|
661.6
|
|
|
1,438.5
|
312.1
|
1,148.8
|
|
Adjusted profit before tax
|
1,472.6
|
443.6
|
1,070.3
|
Adjusted Effective Tax Rate
The tax charge on Adjusted Profit before tax for the 18 months
ended 31 October 2018 was $346.9m (12 months ended 30 April 2017:
$83.5m), which represents an effective tax rate ("ETR") on Adjusted
Profit before tax ("Adjusted ETR") of 23.6% (12 months ended 30
April 2017: 18.8%). The Group's forecast for Adjusted ETR in the
medium-term remains at 25%.
|
Effective
tax rate (continuing operations)
|
18
months ended
31
October 2018
(unaudited)
|
|
12
months ended
30
April 2017
(audited)
|
|
|
Actual
|
Adjusting items
|
Exceptional tax items
|
Adjusted measures
|
|
Actual
|
Adjusting
items
|
Adjusted
Measures
|
|
|
$m
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
|
Profit
before tax
|
34.1
|
1,438.5
|
-
|
1,472.6
|
|
131.6
|
312.0
|
443.6
|
|
Taxation
|
673.1
|
(327.7)
|
(692.3)
|
(346.9)
|
|
(7.5)
|
(76.0)
|
(83.5)
|
|
Profit
after tax
|
707.2
|
1,110.8
|
(692.3)
|
1,125.7
|
|
124.1
|
236.0
|
360.1
|
|
Effective tax
rate
|
(1,973.9)%
|
|
|
23.6%
|
|
5.7%
|
|
18.8%
|
In
computing Adjusted Profit before tax for the 18 months ended 31
October 2018, $1,438.5m of adjusting items have been added back
(see Adjusted Profit before tax section above) and the associated
tax is $327.7m. Exceptional tax items of $692.3m (2017: $nil) shown
above relate to the impact of US tax reforms, comprised of a credit
of $930.6m in respect of the re-measurement of deferred tax
liabilities due to the reduction of the US federal tax rate from
35% to 21% and a transition tax charge of $238.3m payable over
eight years.
The total cash tax paid in the period was $99.5m (12 months ended
30 April 2017 $24.6m) of which $59.9m related to the continuing
operations (12 months ended 30 April 2017: Refund of $6.8m). The
Group's cash tax paid is lower than the reported tax charge due to
the utilisation of US tax attributes in the former HPE Software
business Group and the timing of tax installment
payments.
Earnings per share and Adjusted Earnings per
share
The table below sets out the Earnings per Share ("EPS") on both a
reported and adjusted basis. The Group is also required to present
EPS for both the continuing and discontinued operations but note
that SUSE is still under the ownership of Group until completion of
the transaction (anticipated by the end of the first calendar
quarter 2019) and as such, we focus on total EPS.
|
|
18 months ended
31
October 2018
(unaudited)
|
|
12 months
ended
30 April
2017
(audited)
|
|
12 months ended
31
October 2018
(unaudited)
|
|
|
|
|
|
|
|
|
|
Basic
|
Diluted
|
|
Basic
|
Diluted
|
|
Basic
|
Diluted
|
|
|
Cents
|
Cents
|
|
Cents
|
Cents
|
|
Cents
|
Cents
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
181.91
|
176.92
|
|
54.17
|
52.31
|
|
143.01
|
138.94
|
|
Discontinued
operations
|
19.79
|
19.23
|
|
14.71
|
14.20
|
|
12.76
|
12.39
|
|
Total EPS
|
201.70
|
196.17
|
|
68.88
|
66.51
|
|
155.77
|
151.33
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EPS
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
289.57
|
281.63
|
|
157.11
|
151.70
|
|
192.99
|
187.51
|
|
Discontinued
operations
|
29.36
|
28.56
|
|
24.80
|
23.95
|
|
18.67
|
18.14
|
|
Adjusted EPS
|
318.93
|
310.19
|
|
181.91
|
175.65
|
|
211.66
|
205.65
|
The Adjusted EPS is defined as Basic EPS where the earnings
attributable to ordinary shareholders are adjusted by adding back
exceptional items, share-based compensation charge and the
amortisation of purchased intangibles and the tax attributable
to these charges. These are presented, as management believe they
are important to understanding the impact the underlying trading
performance has on the Group's EPS.
In the 18 months ended 31 October 2018, the Group generated an
Adjusted EPS of 318.9 cents of which 211.7 cents has been generated
in the last 12 months. This compares to 181.9 cents in the 12
months ended 30 April 2017, demonstrating the level of value
accretion already delivered following the acquisition of the HPE
Software business.
Following the anticipated completion of the SUSE transaction, the
Group expects to return the proceeds to shareholders after tax,
transaction costs and any required debt repayment are accounted
for.
Micro Focus International ("MFI") - Pro-forma Alternative
Performance Measures results
The Pro-forma Alternative Performance Measures results include the
discontinued SUSE business and 12 months of results for the
acquired HPE Software business in both the 12 months ended 31
October 2018 and the 12 months ended October 2017. A reconciliation
of the Pro-Forma Alternative Performance Measures results can be
found in the "Alternative Performance Measures" section of these
financial statements.
● MFI pro-forma constant currency
revenue decline of 5.3% between 12 months ended 31 October 2017 and
2018.
● The trajectory of revenue
decline improved in the second six months to 2.7% compared to 8.0%
in the first 6 months of the 12 months to 31 October 2018 on a
pro-forma constant currency basis.
● Continued cost reductions
resulted in a 4.6 ppt expansion in pro-forma Adjusted EBITDA margin
to 37.7%.
|
|
Pro-forma
12 months
ended
31 October 2018
(unaudited)
$m
|
Pro-forma
12
months
ended
31
October 2017
(unaudited)
$m
|
Year on
year
Change
%
|
|
Pro-forma constant currency
|
|
|
|
|
MFPP
Revenue
|
3,684.3
|
3,964.1
|
(7.1%)
|
|
SUSE
Revenue
|
373.7
|
322.7
|
15.8%
|
|
MFI Revenue (Pro-forma constant currency)
|
4,058.0
|
4,286.8
|
(5.3%)
|
|
Impact
of foreign exchange
|
-
|
(60.1)
|
n/a
|
|
MFI Revenue (Pro-forma)
|
4,058.0
|
4,226.7
|
(4.0%)
|
|
|
|
|
|
|
MFPP
Adjusted EBITDA
|
1,413.6
|
1,301.1
|
8.6%
|
|
SUSE
Adjusted EBITDA
|
116.0
|
100.0
|
16.0%
|
|
MFI Adjusted EBITDA (Pro-forma)
|
1,529.6
|
1,401.1
|
9.2%
|
|
MFI Adjusted EBITDA margin (Pro-forma) %
|
37.7%
|
33.1%
|
+4.6ppt
|
All
revenue narrative within the "Pro-forma Alternative Performance
Measures results" section represents pro-forma constant currency as
defined within the Alternative Performance Measures section of this
document. The cost base of the HPE Software business in the 12
months ended 31 October 2017, included allocations from the HPE
Group for central functions such as finance, legal and HR. As a
result, constant currency analysis of the cost base in this period
is not available. As such, all costs are presented at actual rates
of foreign exchange. For future financial reporting, we will
present Adjusted EBITDA on a constant currency basis as presented
in previous financial periods.
MFI Pro-forma revenue
MFI
achieved pro-forma revenue of $4,058.0m in the 12 months ended 31
October 2018, reflecting a year on year decline of 5.3% at constant
currency. This reflects an improving revenue trajectory with
constant currency year on year revenue decline of 8.0% in the first
half of the year and 2.7% in the second half. The year-on-year
foreign exchange impact was 1.3% so the revenue decline was 4.0% at
actual exchange rates.
In
the 12 months ended 31 October 2018, revenue generated within the
Micro Focus Product Portfolio totalled $3,684.3m reflecting a
constant currency decline of 7.1% year-on-year. Again, this shows
an improving revenue trajectory with constant currency year on year
revenue decline of 10.0% in the first half of the year and 4.1% in
the second half. Pro-forma constant currency revenue trends within
the Micro Focus Product Portfolio are discussed later in this
section.
SUSE
generated revenue of $373.7m, which reflects growth of 15.8% on a
constant currency basis.
MFI Pro-forma Adjusted EBITDA
In
the 12 months ended 31 October 2018, Pro-forma MFI Adjusted EBITDA
increased by 9.2% year on year to $1,529.6m, which represents a
pro-forma Adjusted EBITDA margin of 37.7%. The overall driver in
Adjusted EBITDA margin improvement being continued cost reductions
in the Micro Focus Product Portfolio partially offset by a decrease
in margin within the SUSE segment in order to support future
revenue growth for the business.
Micro Focus Product Portfolio
● Pro-forma constant currency
revenue decline of 7.1% year-on-year, with an improved revenue
trajectory of 4.1% in the second half
● Before the impact of the
deferred revenue haircut, revenue declined 6.9% year-on-year, with
second half decline of 5.0%.
● Continued operational
efficiencies delivering cost reduction of 12.8%
year-on-year.
● Pro-forma Adjusted EBITDA
margin increase of 5.1ppt to 38.4% in the 12 months ended 31
October 2018.
|
|
12 months
ended
31October 2018
(unaudited)
$m
|
Pro-forma
12
months ended
31
October 2017
(Unaudited)$m
|
Year-on-year
Change
%
|
|
Pro-forma constant currency revenue
|
|
|
|
|
Licence
|
878.5
|
1,007.3
|
(12.8%)
|
|
Maintenance
|
2,235.4
|
2,297.0
|
(2.7%)
|
|
SaaS
& other recurring
|
318.1
|
307.9
|
3.3%
|
|
Consulting
|
287.1
|
380.6
|
(24.6)%
|
|
Constant currency revenue before haircut
|
3,719.1
|
3,992.8
|
(6.9%)
|
|
Deferred
revenue haircut
|
(34.8)
|
(28.7)
|
21.3%
|
|
Constant currency revenue
|
3,684.3
|
3,964.1
|
(7.1%)
|
|
Foreign
exchange constant currency impact
|
-
|
(57.6)
|
-
|
|
Revenue (at actual FX rates)
|
3,684.3
|
3,906.5
|
(5.7%)
|
|
|
|
|
|
|
Total
costs
|
(2,270.7)
|
(2,605.4)
|
(12.8%)
|
|
Adjusted EBITDA (at actual FX rates)
|
1,413.6
|
1,301.1
|
8.6%
|
|
|
|
|
|
|
Adjusted EBITDA margin %
|
38.4%
|
33.3%
|
+5.1ppt
|
Revenue performance (versus pro-forma constant currency
comparatives)
As
communicated in March 2018, and reiterated at the interim results
in July 2018, revenue performance in the six months ended 30 April
2018 was impacted by a number of factors, which management consider
to be largely one-off transitional effects of the combination with
the HPE software business, rather than underlying issues with the
end markets of the product portfolio. Since identifying these
issues, substantial investment has been made in stabilising the IT
platform and the business has re-invested in the go-to-market
function, hiring customer facing sales representatives to ensure
the function is fully staffed at year end and driven improved
execution discipline across the Company. As a result, revenue
declined 6.9% year-on-year before the impact of the deferred
revenue haircut, which reflects a decline of 5.0% in the second
half of the financial period compared to a decline of 8.7% in the
first half.
For
a detailed review of revenue by product see the Chief Executive
Officer's section of this document.
Adjusted EBITDA performance (versus pro-forma
comparatives)
The
Micro Focus Product Portfolio generated an Adjusted EBITDA of
$1,413.6m in the 12 months ended 31 October 2018, at an Adjusted
EBITDA margin of 38.4%. This represents a 5.1ppt increase in
pro-forma Adjusted EBITDA margin between the periods.
The
ability to drive operational efficiencies within the two businesses
through effective integration was a key thesis for the deal and
remains a key strategic objective of management. Total costs within
the Micro Focus Product Portfolio in the 12 months ended 31 October
2018 were $2,270.7m. This reflects a reduction of $334.7m on the
comparable pro-forma period to 31 October 2017.
The
key drivers for cost reduction between the periods
include:
● Personnel costs, including the removing of
duplicate roles across the two organisations;
● Concerted spend reduction efforts across central
functions;
● A more focused approach to product development
including more rigorous application of the four box
model;
● Efficiencies in the sales and marketing
organisation; and
● Gross Margin improvement in SaaS and other
recurring and Licence revenue streams.
We continue to see opportunities in respect of operational
efficiencies and remain focused on continuous improvement to
deliver growth in Adjusted EBITDA year over year, as demonstrated
consistently historically, through the application of the Micro
Focus Operating Model. The 5.1 ppt increase in pro-forma Adjusted
EBITDA margin to 38.4% reflects an early prioritisation of cost
rationalisation areas which were largely independent of system and
process efficiencies, as well as strong sales execution at the end
of the period. We expect the current financial year to benefit from
the full year impact of savings already realised in FY18, as well
as those arising from our continuous improvement programmes,
although this will be tempered by a focus on stabilisation as we
invest in the information systems and build the operational
platforms which will enable further efficiencies to benefit FY20
and beyond.
MFI CASH GENERATION
The Group's Consolidated statement of cash flows can be found later
in this document. The table presented below focuses on those items
which specifically relate to the Group's free cash flow, which is
considered to be a Key Performance Indicator ("KPI") of the
Group.
|
|
18 months ended
31 October 2018
(unaudited)
|
12
months ended
30
April 2017
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
|
|
$m
|
$m
|
$m
|
|
Cash generated from operations before working capital
|
1,711.3
|
616.0
|
1,191.1
|
|
Movement
in working capital
|
(287.0)
|
(51.2)
|
(39.7)
|
|
Cash generated from operations
|
1,424.3
|
564.8
|
1,151.4
|
|
Interest
payments
|
(301.7)
|
(81.2)
|
(219.5)
|
|
Bank
loan costs
|
(101.2)
|
(6.7)
|
(10.8)
|
|
Tax
payments
|
(99.5)
|
(24.6)
|
(79.0)
|
|
Purchase
of intangible assets
|
(92.1)
|
(31.4)
|
(56.5)
|
|
Purchase
of property, plant and equipment
|
(40.1)
|
(11.7)
|
(30.2)
|
|
Free cash flow
|
789.7
|
409.2
|
755.4
|
In the 18 months ended 31 October 2018, the Group generated $789.7m
of free cash flow compared to $409.2m in the 12 months ended 30
April 2017. In the 12 months ended 31 October 2018, the Group
generated $755.4m of free cash flow.
In the last 12 months, the Group's cash generation has been
impacted by the implementation of the new systems within the HPE
Software business.
Between 31 October 2017 and 30 April 2018, the Days Sales
Outstanding ("DSO") increased from 65 days to 94 days as the newly
implemented IT environment caused material disruption within
the order to cash process. In the second half of the year, DSO
remains elevated at 94 days as at 31 October 2018. Resolving the
impact of the system issues remains a key area of focus for the
finance team and new sales orders are now impacted to a much lower
extent by these issues. The impact on DSO is primarily driven by
invoices raised in the period between 1 November 2017 and 30 April
2018, which have required manual invoice remediation before payment
can be made by the customer. The effort of correcting
administrative invoicing errors and resending to customers has
caused an extension in the standard payment cycle. We anticipate
the cash impact to substantially unwind within the 12 months ended
31 October 2019.
In the 12 months ended 31 October 2018, purchases of intangible
assets (relating predominately to software licences) totalled
$56.5m compared to $31.4m in the 12 months ended 30 April 2017. In
addition, purchase of property, plant and equipment increased from
$11.7m to $30.2m over the same period. Capital expenditure on both
tangible and intangible assets is driven by the increase in size
and scale of the combined operations.
The Group's Adjusted cash conversion ratio (defined as cash
generated from operations divided by Adjusted EBITDA less
exceptional items) for the 12 months ended 31 October 2018 was
105.6% compared to 103.9% in the 12 months ended 30 April
2017.
|
|
18 months ended
31 October 2018
(unaudited)
|
12
months ended
30
April 2017
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
|
|
$m
|
$m
|
$m
|
|
Cash generated from operations
|
1,424.3
|
564.8
|
1,151.4
|
|
|
|
|
|
|
Adjusted
EBITDA
|
2,059.7
|
640.9
|
1,529.6
|
|
Less:
exceptional items
|
(538.2)
|
(97.2)
|
(439.7)
|
|
Adjusted EBITDA less exceptional items
|
1,521.5
|
543.7
|
1,089.9
|
|
Adjusted cash conversion ratio
|
93.6%
|
103.9%
|
105.6%
|
The Group delivered a cash conversion rate of 105.6% in the 12
months ended 31 October 2018, despite the elevation in DSO days
noted above. Overall, the Group continues to anticipate adjusted
cash conversion rates of between 95% and 100%.
NET DEBT
As at 31 October 2018, Net Debt was $4,253.5m (30 April 2017:
$1,410.6m). This represents a Net Debt to Pro-forma Adjusted EBITDA
ratio as follows:
|
|
12 months ended
31 October 2018
(unaudited)
|
12
months ended
30
April 2017
(audited)
|
|
|
$m
|
$m
|
|
Adjusted
EBITDA
|
1,529.6
|
640.9
|
|
Net
Debt
|
(4,253.5)
|
(1,410.6)
|
|
Net Debt / Pro-forma Adjusted EBITDA ratio
|
2.8 times
|
2.2
times
|
The
Group's net debt ratio of 2.8 times as at 31 October 2018 is after
the impact of a share buy-back scheme in which $171.7m of shares
were repurchased during the period. This programme was extended to
a total of $400.0m (inclusive of shares already purchased), which
was completed in full by 13 February 2019 and has been further
extended.
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. Excluding the share
buyback undertaken, the Group would have been below the stated 2.7
times target as at 31 October 2018, which is within 14 months of
the deal completing. This compares to the 17 months taken following
the acquisition of TAG and the target date of 24 months set out at
completion of the HPE Software business
transaction.
We
are confident that this level of debt will not reduce our ability
to deliver our strategy, invest in products and make appropriate
acquisitions. The level of interest payments on the term loans
remain at a manageable level relative to the scale of the
Group.
The movements on the Group loans in the 12 months to 31 October
2018 were as follows:
|
|
Term Loan
B-2
|
Term Loan
B-3
|
HPE
Software
Term Loan
|
Euro
Loan
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
At 1 November 2017
|
1,515.2
|
385.0
|
2,600.0
|
547.5
|
5,047.7
|
|
Repayments
|
(11.4)
|
(2.9)
|
(19.5)
|
(4.2)
|
(38.0)
|
|
Foreign
exchange
|
-
|
-
|
-
|
(12.8)
|
(12.8)
|
|
At 31 October 2018
|
1,503.8
|
382.1
|
2,580.5
|
530.5
|
4,996.9
|
In addition to the term loans and cash reserves, the Group has
access to a $500m revolving credit facility, which remains
undrawn.
Consolidated statement of financial position
The
Group's Consolidated statement of financial position is presented
later in this document. A summarised version is presented
below:
|
|
|
|
|
|
|
31 October 2018
(unaudited)
$m
|
30
April 2017
(audited)
$m
|
|
Non-current
assets
|
13,720.5
|
3,995.5
|
|
Current
assets
|
1,917.6
|
442.2
|
|
Current
assets classified as held for sale
|
1,142.5
|
-
|
|
Total assets
|
16,780.6
|
4,437.7
|
|
|
|
|
|
Current
liabilities
|
2,010.4
|
944.7
|
|
Current
liabilities classified as held for sale
|
437.7
|
-
|
|
Non-current
liabilities
|
6,540.5
|
1,879.5
|
|
Total liabilities
|
8,988.6
|
2,824.2
|
|
Net assets
|
7,792.0
|
1,613.5
|
|
|
|
|
|
Total
equity attributable to owners of the parent
|
7,791.0
|
1,612.5
|
|
Non-controlling
interests
|
1.0
|
1.0
|
|
Total equity
|
7,792.0
|
1,613.5
|
The net assets of the Group have increased from $1,613.5m to
$7,792.0m between 30 April 2017 and 31 October 2018. This
increase was driven primarily by the acquisition of the HPE
Software business. The balance sheet acquired with the HPE Software
business can be found later in this document.
In the period, the key movements were as follows:
|
|
●
|
Non-current assets increased to $13,720.5m
primarily due to the recognition of goodwill totalling $4,858.4m
and purchased intangibles totalling $6,539.8m, recognised as a
result of the acquisition of the HPE Software
business;
|
|
|
●
|
Current assets increased from $442.2m to
$1,917.6m, with the Group acquiring $710.7m of trade receivables
with the HPE Software business. Since acquisition, the system
issues set out earlier in this section have resulted in an increase
in DSO days such that trade receivables for the total Group were
$1,047.7m at 31 October
2018.
|
|
|
●
|
Current assets and current liabilities classified
as held for sale reflect primarily the assets and liabilities of
SUSE business segment, which are due to be disposed
of.
|
|
|
●
|
Non-current liabilities increased from $1,879.5m
to $6,540.5m, primarily due to the new term bank loans drawn down
in order to fund the acquisition of the HPE Software
business.
|
|
|
● |
Total equity attributable to the owners of the
parent increased from $1,612.5m to $7,791.0m, driven primarily by
the issue of new share capital on the acquisition of the HPE
Software business. On completion of the acquisition, 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 at that
time. |
Other financial matters
IFRS 15 'Revenue from contracts with customers'
The Group is required to adopt IFRS 15 'Revenue from contracts with
customers' ("IFRS 15") from the transition date of 1 November 2018.
Under the IFRS 15 adoption method chosen by the Group, prior-year
comparatives are not restated to conform to the new policies.
Consequently, the year over year change of revenue and profit in
the year to 31 October 2019 will be impacted by the new policies.
We anticipate IFRS 15 will increase revenue by $25.0m in the 12
months ended 31 October 2019.
US Federal business
In April 2018, Micro Focus established a new partnership to better
serve the needs of our classified and controlled US Federal
Government customers. The accounting treatment of this
contract results in the gross revenue and costs being recognised by
a third party rather than Micro Focus. Micro Focus accounts for the
contract taking a net amount within the income statement resulting
in a year-on-year reduction in both revenue and the associated
costs.
CONTRACTUAL CASH OBLIGATIONS
The following table reflects a summary of obligations and
commitments outstanding as of 31 October 2018:
|
|
Payment due by period
|
|
|
Less than 1 year
|
1-3 years
|
3-5 years
|
After 5 years
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Debt
principal repayment
|
50.3
|
100.7
|
1,528.8
|
3,317.1
|
4,996.9
|
|
Interest
payments on debt
|
227.6
|
448.9
|
309.3
|
96.6
|
1,082.4
|
|
|
277.9
|
549.6
|
1,838.1
|
3,413.7
|
6,079.3
|
|
Finance
Leases
|
13.6
|
13.3
|
1.6
|
-
|
28.5
|
|
Operating
Leases
|
65.8
|
86.4
|
53.3
|
22.5
|
228.0
|
|
|
357.3
|
649.3
|
1,893.0
|
3,436.2
|
6,335.8
|
DIVIDEND
The board has adopted a dividend policy such that the adjusted
profit after tax of the Group twice covers the dividend payment. In
light of the move to an 18-month accounting period there are two
interim dividends and a final dividend in line with this policy.
The directors are declaring a final dividend of 58.33 cents per
share. The total dividend per share in the 18 month period was
151.26 cents. On an annualised basis this total dividend is
100.84 cents per share which is growth of 14.5% on the full year
dividend for the year ended 30 April 2017 of 88.06 cents per
share.
The dividend will be paid in Sterling equivalent to 45.22 pence per
share, based on an exchange rate of £1 = $1.29 being the rate
applicable on 13 February 2019, the date on which the board
resolved to propose the dividend. The dividend will be paid on 5
April 2019 to shareholders on the register at 1 March
2019.
Chris Kennedy
Chief Financial Officer
13 February 2019
ALTERNATIVE PERFORMANCE MEASURES
The
Group uses certain measures to assess the financial performance of
its business. These measures are termed "Alternative Performance
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
Alternative Performance 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 Alternative Performance
Measures, a reconciliation of the Alternative Performance 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 Alternative
Performance Measures as a substitute for, or superior to, the
equivalent measures calculated and presented in accordance with
IFRS.
The Group has reported unaudited results for the 12 months ended 31
October 2018 with a comparative period of the 12 months ended 31
October 2017. This reflects the new year-end for the Group of the
31 October and provides a more meaningful basis on which to discuss
the results of the Group.
ALTERNATIVE PERFORMANCE MEASURES continued
1.
Consolidated statement of comprehensive income
12 months to 31 October 2018 (unaudited)
The 12 months to 31 October 2018 results have been calculated by
taking the six months results to 31 October 2017, after adjusting
for discontinued operations, from the 18 months results to 31
October 2018.
|
|
18 months ended
31 October 2018
|
|
Six months ended
31 October 2017
|
|
12 months ended
31 October 2018
|
|
|
unaudited
|
|
as reported
|
Transfer to
discontinued
operations
|
restated
|
|
unaudited
|
|
|
$'000
|
|
$'000
|
$'000
|
$'000
|
|
$'000
|
|
Revenue
|
4,754,398
|
|
1,234,520
|
(164,440)
|
1,070,080
|
|
3,684,318
|
|
Cost of
sales
|
(1,259,306)
|
|
(273,893)
|
9,864
|
(264,029)
|
|
(995,277)
|
|
Gross profit
|
3,495,092
|
|
960,627
|
(154,576)
|
806,051
|
|
2,689,041
|
|
Selling
and distribution costs
|
(1,670,000)
|
|
(398,638)
|
51,572
|
(347,066)
|
|
(1,322,934)
|
|
Research
and development expenses
|
(659,413)
|
|
(173,639)
|
41,812
|
(131,827)
|
|
(527,586)
|
|
Administrative
expenses
|
(788,855)
|
|
(168,390)
|
27,627
|
(140,763)
|
|
(648,092)
|
|
Operating profit
|
376,824
|
|
219,960
|
(33,565)
|
186,395
|
|
190,429
|
|
|
|
|
|
|
|
|
|
|
Share
of results of associates
|
-
|
|
(438)
|
438
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Finance
costs
|
(350,366)
|
|
(75,487)
|
-
|
(75,487)
|
|
(274,879)
|
|
Finance
income
|
7,654
|
|
1,699
|
-
|
1,699
|
|
5,955
|
|
Net
finance costs
|
(342,712)
|
|
(73,788)
|
-
|
(73,788)
|
|
(268,924)
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax
|
34,112
|
|
145,734
|
(33,127)
|
112,607
|
|
(78,495)
|
|
Taxation
|
673,081
|
|
(39,129)
|
11,688
|
(27,441)
|
|
700,522
|
|
Profit from continuing operations
|
707,193
|
|
106,605
|
(21,439)
|
85,166
|
|
622,027
|
|
Profit
from discontinued operation (attributable to equity shareholders of
the Company)
|
76,940
|
|
-
|
21,439
|
21,439
|
|
55,501
|
|
Profit for the period
|
784,133
|
|
106,605
|
-
|
106,605
|
|
677,528
|
|
|
|
|
|
|
|
|
|
|
Operating profit (before exceptional items)
|
914,980
|
|
318,440
|
(33,565)
|
284,875
|
|
630,105
|
|
Exceptional items
|
(538,156)
|
|
(98,480)
|
-
|
(98,480)
|
|
(439,676)
|
|
Operating profit
|
376,824
|
|
219,960
|
(33,565)
|
186,395
|
|
190,429
|
ALTERNATIVE PERFORMANCE MEASURES continued
1. Consolidated
statement of comprehensive income continued
12 months to 31 October 2017 (unaudited)
The 12 months to 31 October 2017 results have been calculated by
taking the 12 months results to 30 April 2017 less the six months
to 31 October 2016 and adding the six months to 31 October 2017,
after adjusting all periods for discontinued
operations.
|
|
12 months ended 30 April 2017
|
Six months ended 31 October 2016
|
Six months ended 31 October 2017
|
12 months ended
31 October 2017
|
|
|
as reported
|
Transfer to
discontinued
operations
|
restated
|
as reported
|
Transfer to
discontinued
operations
|
restated
|
as reported
|
Transfer to
discontinued
operations
|
restated
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
Revenue
|
1,380,702
|
(303,429)
|
1,077,273
|
684,743
|
(147,432)
|
537,311
|
1,234,520
|
(164,440)
|
1,070,080
|
1,610,042
|
|
Cost of
sales
|
(237,169)
|
20,757
|
(216,412)
|
(123,440)
|
10,258
|
(113,182)
|
(273,893)
|
9,864
|
(264,029)
|
(367,259)
|
|
Gross profit
|
1,143,533
|
(282,672)
|
860,861
|
561,303
|
(137,174)
|
424,129
|
960,627
|
(154,576)
|
806,051
|
1,242,783
|
|
Selling
and distribution costs
|
(467,084)
|
103,951
|
(363,133)
|
(218,528)
|
47,816
|
(170,712)
|
(398,638)
|
51,572
|
(347,066)
|
(539,487)
|
|
Research
and development expenses
|
(180,104)
|
57,280
|
(122,824)
|
(86,390)
|
25,593
|
(60,797)
|
(173,639)
|
41,812
|
(131,827)
|
(193,854)
|
|
Administrative
expenses
|
(202,902)
|
55,390
|
(147,512)
|
(93,099)
|
26,491
|
(66,608)
|
(168,390)
|
27,627
|
(140,763)
|
(221,667)
|
|
Operating profit
|
293,443
|
(66,051)
|
227,392
|
163,286
|
(37,274)
|
126,012
|
219,960
|
(33,565)
|
186,395
|
287,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
of results of associates and gain on dilution of
investment
|
(1,254)
|
1,254
|
-
|
(1,127)
|
1,127
|
-
|
(438)
|
438
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
costs
|
(96,824)
|
-
|
(96,824)
|
(49,455)
|
-
|
(49,455)
|
(75,487)
|
-
|
(75,487)
|
(122,856)
|
|
Finance
income
|
979
|
-
|
979
|
502
|
-
|
502
|
1,699
|
-
|
1,699
|
2,176
|
|
Net
finance costs
|
(95,845)
|
-
|
(95,845)
|
(48,953)
|
-
|
(48,953)
|
(73,788)
|
-
|
(73,788)
|
(120,680)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax
|
196,344
|
(64,797)
|
131,547
|
113,206
|
(36,147)
|
77,059
|
145,734
|
(33,127)
|
112,607
|
167,095
|
|
Taxation
|
(38,541)
|
31,077
|
(7,464)
|
(22,589)
|
16,915
|
(5,674)
|
(39,129)
|
11,688
|
(27,441)
|
(29,231)
|
|
Profit from continuing operations
|
157,803
|
(33,720)
|
124,083
|
90,617
|
(19,232)
|
71,385
|
106,605
|
(21,439)
|
85,166
|
137,864
|
|
Profit
from discontinued operation (attributable to equity shareholders of
the Company)
|
-
|
33,720
|
33,720
|
-
|
19,232
|
19,232
|
-
|
21,439
|
21,439
|
35,927
|
|
Profit for the period
|
157,803
|
-
|
157,803
|
90,617
|
-
|
90,617
|
106,605
|
-
|
106,605
|
173,791
|
ALTERNATIVE
PERFORMANCE MEASURES continued
2. Consolidated statement of cash
flows - 12 months to 31 October 2018 (unaudited)
The 12 months to 31 October 2018, statement of cash flows has been
calculated by taking the six month results to 31 October 2017 from
the cash flow for the 18 months to 31 October 2018.
|
Cash flows from operating activities
|
18 months ended
31 October 2018
(unaudited)
$'000
|
Six months ended
31 October 2017
(unaudited)
$'000
|
12 months ended
31 October 2018
(unaudited)
$'000
|
|
Operating profit
|
489,779
|
219,960
|
269,819
|
|
Research
and development tax credits
|
(2,013)
|
(2,185)
|
172
|
|
Depreciation
|
95,179
|
16,289
|
78,890
|
|
Loss on
disposal of property, plant and equipment
|
4,581
|
427
|
4,154
|
|
Amortisation
of intangible assets
|
943,210
|
198,606
|
744,604
|
|
Share-based
compensation charge
|
72,175
|
18,302
|
53,873
|
|
Foreign
exchange movements
|
(34,505)
|
(4,699)
|
(29,806)
|
|
Provisions
movements
|
142,859
|
73,433
|
69,426
|
|
Cash generated from operations before working capital
|
1,711,265
|
520,133
|
1,191,132
|
|
Changes in working capital:
|
|
|
|
|
Inventories
|
35
|
(216)
|
251
|
|
Trade
and other receivables
|
(408,879)
|
(231,762)
|
(177,117)
|
|
Payables
and other liabilities
|
131,333
|
15,490
|
115,843
|
|
Provision
utilisation
|
(145,012)
|
(55,489)
|
(89,523)
|
|
Deferred
income
|
131,477
|
21,607
|
109,870
|
|
Pension
funding in excess of charge to operating profit
|
4,092
|
3,129
|
963
|
|
Movement in working capital
|
(286,954)
|
(247,241)
|
(39,713)
|
|
Cash generated from operating activities
|
1,424,311
|
272,892
|
1,151,419
|
|
Interest
paid
|
(301,791)
|
(82,341)
|
(219,450)
|
|
Bank
loan costs
|
(101,159)
|
(90,319)
|
(10,840)
|
|
Tax
paid
|
(99,490)
|
(20,472)
|
(79,018)
|
|
Net cash generated from operating activities
|
921,871
|
79,760
|
842,111
|
|
Cash flows from/(used in) investing activities
|
|
|
|
|
Payments
for intangible assets
|
(92,115)
|
(35,650)
|
(56,465)
|
|
Purchase
of property, plant and equipment
|
(40,091)
|
(9,845)
|
(30,246)
|
|
Finance
leases
|
(735)
|
-
|
(735)
|
|
Interest
received
|
9,224
|
1,699
|
7,525
|
|
Payment
for acquisition of subsidiaries
|
(19,260)
|
-
|
(19,260)
|
|
Net
cash acquired with acquisitions
|
321,668
|
320,729
|
939
|
|
Net cash from/(used in) from investing activities
|
178,691
|
276,933
|
(98,242)
|
|
Cash flows (used in)/from financing activities
|
|
|
|
|
Investment
in non-controlling interest
|
(3)
|
-
|
(3)
|
|
Proceeds
from issue of ordinary share capital
|
5,750
|
1,161
|
4,589
|
|
Purchase
of treasury shares
|
(171,710)
|
-
|
(171,710)
|
|
Return
of Value paid to shareholders
|
(500,000)
|
(500,000)
|
-
|
|
Repayment
of working capital in respect of the HPE Software business
acquisition
|
(225,800)
|
-
|
(225,800)
|
|
Repayment
of bank borrowings
|
(252,936)
|
(215,000)
|
(37,936)
|
|
Proceeds
from bank borrowings
|
1,043,815
|
1,043,815
|
-
|
|
Dividends
paid to owners
|
(542,161)
|
(133,889)
|
(408,272)
|
|
Net cash (used in)/ from financing activities
|
(643,045)
|
196,087
|
(839,132)
|
|
Effects
of exchange rate changes
|
15,302
|
26,609
|
(11,307)
|
|
Net increase/(decrease) in cash and cash equivalents
|
472,819
|
579,389
|
(106,570)
|
|
Cash
and cash equivalents at beginning of period
|
150,983
|
150,983
|
730,372
|
|
|
623,802
|
730,372
|
623,802
|
|
Reclassification
to current assets classified as held for sale
|
(2,906)
|
-
|
(2,906)
|
|
Cash and cash equivalents at end of period
|
620,896
|
730,372
|
620,896
|
ALTERNATIVE PERFORMANCE
MEASURES continued
3. Impact of deferred revenue
haircut
The
following table shows the impact of the acquisition accounting
adjustment of deferred revenue haircut (i.e. the unwinding of fair
value adjustment to acquired deferred revenue) on reported
revenues.
|
|
18 months ended
31 October 2018
(unaudited)
|
12
months ended
30
April 2017
(audited)
|
|
|
Micro Focus
|
SUSE
|
Total
|
Micro
Focus
|
SUSE
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
Revenue before deferred revenue haircut
|
4,815,460
|
539,797
|
5,355,257
|
1,084,165
|
306,613
|
1,390,778
|
|
Unwinding
of fair value adjustment to acquired deferred revenue
|
(61,062)
|
(1,637)
|
(62,699)
|
(6,892)
|
(3,184)
|
(10,076)
|
|
Revenue
|
4,754,398
|
538,160
|
5,292,558
|
1,077,273
|
303,429
|
1,380,702
|
|
|
12 months ended
31 October 2018
(unaudited)
|
12
months ended
31
October 2017
(unaudited)
|
|
|
Micro Focus
|
SUSE
|
Total
|
Micro
Focus
|
SUSE
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
Revenue before deferred revenue haircut
|
3,719,094
|
374,534
|
4,093,628
|
1,638,693
|
322,558
|
1,961,251
|
|
Unwinding
of fair value adjustment to acquired deferred revenue
|
(34,776)
|
(814)
|
(35,590)
|
(28,651)
|
(2,121)
|
(30,772)
|
|
Revenue
|
3,684,318
|
373,720
|
4,058,038
|
1,610,042
|
320,437
|
1,930,479
|
4. EBITDA and Adjusted
EBITDA
EBITDA
is defined as net earnings before finance costs, finance income,
taxation, share of results of associates, depreciation of property,
plant and equipment and amortisation 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 amortisation
expense).
The
Group defines Adjusted EBITDA as comprising of EBITDA (as defined
above), adjusted for exceptional items, share-based compensation,
product development intangible cost capitalised and foreign
exchange gains/losses. Adjusted EBITDA is the primary measure used
internally to measure performance and to incentivise 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.
Adjusted EBITDA is a key profit measure used by the Board to assess
the underlying financial performance of the Group. Adjusted EBITDA
is stated before the following items for the following
reasons:
|
|
●
|
Exceptional items, as set out in
note 7, are excluded by virtue of their size, nature or incidence,
in order to show the underlying business performance of the
Group.
|
|
|
●
|
Share-based
payment charges are excluded from the calculation of Adjusted
EBITDA because these represent a non-cash accounting charge for
transactions that could otherwise have been settled in cash or not
be limited to employee compensation. These charges also represent
long-term incentives designed forlong-term employee retention,
rather than reflecting the short-term underlying operations of the
Group's business. The directors acknowledge that there is an
ongoing debate on the add-back of share-based payment charges but
believe that as they are not included in the analysis of segment
performance used by the Chief Operating Decision Maker and their
add-back is consistent with metrics used by a number of other
companies in the technology sector, that this treatment remains
appropriate.
|
ALTERNATIVE PERFORMANCE
MEASURES continued
4. EBITDA and Adjusted
EBITDA continud
|
|
●
|
Charges for the amortisation of
purchased intangibles are excluded from the calculation of Adjusted
EBITDA. This is because these charges are based on judgements about
their value and economic life, are the result of the application of
acquisition accounting rather than core operations, and whilst
revenue recognised in the income statement does benefit from the
underlying intangibles that has been acquired, the amortisation
costs bear no relation to the Group's underlying ongoing
operational performance. In addition, amortisation of acquired
intangibles is not included in the analysis of segment performance
used by the Chief Operating Decision
Maker.
|
|
|
●
|
We exclude foreign exchange
movements from Adjusted EBITDA in order to exclude foreign exchange
volatility when evaluating the underlying performance of the
business.
|
|
|
●
|
We
deduct from EBITDA, actual spend on product development costs
during the period as this reflects the required underlying
expenditure. This is because the capitalisation and subsequent
amortisation of such costs are based on judgements about whether
they meet the capitalisation criteria set out in IAS38 "Intangible
Assets" and on the period of their estimated economic
benefit. In addition, product development costs for the
period are included in the analysis of segment performance used by
the Chief Operating Decision
Maker.
|
The following table is a reconciliation from profit for the period
to EBITDA and Adjusted EBITDA:
|
|
18 months ended
31 October 2018
(unaudited)
|
|
12
months ended
30
April 2017
(audited)
|
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
|
$'000
|
$'000
|
$'000
|
|
Profit for the period
|
707,193
|
76,940
|
784,133
|
|
124,083
|
33,720
|
157,803
|
|
Finance
costs
|
350,366
|
-
|
350,366
|
|
96,824
|
-
|
96,824
|
|
Finance
income
|
(7,654)
|
-
|
(7,654)
|
|
(979)
|
-
|
(979)
|
|
Taxation
|
(673,081)
|
34,206
|
(638,875)
|
|
7,464
|
31,077
|
38,541
|
|
Share
of results of associates
|
-
|
1,809
|
1,809
|
|
-
|
1,254
|
1,254
|
|
Depreciation
of property, plant and equipment
|
88,611
|
6,568
|
95,179
|
|
9,704
|
2,090
|
11,794
|
|
Amortisation
of intangible assets
|
903,008
|
40,202
|
943,210
|
|
206,751
|
29,683
|
236,434
|
|
EBITDA
|
1,368,443
|
159,725
|
1,528,168
|
|
443,847
|
97,824
|
541,671
|
|
Exceptional
items (reported in Operating profit)
|
538,156
|
-
|
538,156
|
|
97,258
|
-
|
97,258
|
|
Share-based
compensation charge
|
64,284
|
7,891
|
72,175
|
|
31,463
|
3,043
|
34,506
|
|
Product
development intangible costs capitalised
|
(44,350)
|
-
|
(44,350)
|
|
(27,664)
|
-
|
(27,664)
|
|
Foreign
exchange (gain)/loss
|
(37,292)
|
2,787
|
(34,505)
|
|
(2,901)
|
(1,989)
|
(4,890)
|
|
Adjusted EBITDA
|
1,889,241
|
170,403
|
2,059,644
|
|
542,003
|
98,878
|
640,881
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
4,754,398
|
538,160
|
5,292,558
|
|
1,077,273
|
303,429
|
1,380,702
|
|
Adjusted EBITDA Margin
|
39.7%
|
31.7%
|
38.9%
|
|
50.3%
|
32.6%
|
46.4%
|
|
|
12 months ended
31 October 2018
(unaudited)
|
|
12
months ended
31
October 2017
(unaudited)
|
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
|
$'000
|
$'000
|
$'000
|
|
Profit for the period
|
622,027
|
55,501
|
677,528
|
|
137,864
|
35,927
|
173,791
|
|
Finance
costs
|
274,879
|
-
|
274,879
|
|
122,856
|
-
|
122,856
|
|
Finance
income
|
(5,955)
|
-
|
(5,955)
|
|
(2,176)
|
-
|
(2,176)
|
|
Taxation
|
(700,522)
|
22,518
|
(678,004)
|
|
29,231
|
25,850
|
55,081
|
|
Share
of results of associates
|
-
|
1,371
|
1,371
|
|
-
|
438
|
438
|
|
Depreciation
of property, plant and equipment
|
73,621
|
5,269
|
78,890
|
|
19,935
|
2,436
|
22,371
|
|
Amortisation
of intangible assets
|
720,008
|
24,596
|
744,604
|
|
285,500
|
30,455
|
315,955
|
|
EBITDA
|
984,058
|
109,255
|
1,093,313
|
|
593,210
|
95,106
|
688,316
|
|
Exceptional
items (reported in Operating profit)
|
439,676
|
-
|
439,676
|
|
154,690
|
-
|
154,690
|
|
Share-based
compensation charge
|
47,503
|
6,370
|
53,873
|
|
34,245
|
3,042
|
37,287
|
|
Product
development intangible costs capitalised
|
(27,488)
|
-
|
(27,488)
|
|
(29,494)
|
-
|
(29,494)
|
|
Foreign
exchange (gain)/loss
|
(30,158)
|
352
|
(29,806)
|
|
(2,054)
|
1,735
|
(319)
|
|
Adjusted EBITDA
|
1,413,591
|
115,977
|
1,529,568
|
|
750,597
|
99,883
|
850,480
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
3,684,318
|
373,720
|
4,058,038
|
|
1,610,042
|
320,437
|
1,930,479
|
|
Adjusted EBITDA Margin
|
38.4%
|
31.0%%
|
37.7%
|
|
46.6%
|
31.2%
|
44.1%
|
ALTERNATIVE PERFORMANCE
MEASURES continued
5. Adjusted Profit before
tax
Adjusted Profit before tax is defined as profit before tax
excluding the effects of share-based compensation, the amortisation
of purchased intangible assets, and all exceptional items. These
items are individually material items that are not considered to be
representative of the performance ofthe Group. 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 an Alternative Performance
Measure.
The following table is a reconciliation from profit before tax for
the period to Adjusted Profit before tax:
|
|
18 months ended
31 October 2018
(unaudited)
|
|
12
months ended
30
April 2017
(audited)
|
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
|
$'000
|
$'000
|
$'000
|
|
Profit before tax
|
34,112
|
111,146
|
145,258
|
|
131,547
|
64,797
|
196,344
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation charge
|
64,284
|
7,891
|
72,175
|
|
31,463
|
3,043
|
34,506
|
|
Amortisation
of purchased intangibles
|
830,319
|
39,437
|
869,756
|
|
183,283
|
29,578
|
212,861
|
|
Exceptional
items
|
543,929
|
-
|
543,929
|
|
97,258
|
-
|
97,258
|
|
Adjusting items
|
1,438,532
|
47,328
|
1,485,860
|
|
312,004
|
32,621
|
344,625
|
|
|
|
|
|
|
|
|
|
|
Adjusted Profit before tax
|
1,472,644
|
158,474
|
1,631,118
|
|
443,551
|
97,418
|
540,969
|
|
|
12 months ended
31 October 2018
(unaudited)
|
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
|
(Loss)/Profit before tax
|
(78,495)
|
78,019
|
(476)
|
|
|
|
|
|
|
Share-based
compensation charge
|
47,503
|
6,370
|
53,873
|
|
Amortisation
of purchased intangibles
|
661,630
|
24,648
|
686,278
|
|
Exceptional
items
|
439,676
|
-
|
439,676
|
|
Adjusting items
|
1,148,809
|
31,018
|
1,179,827
|
|
|
|
|
|
|
Adjusted Profit before tax
|
1,070,314
|
109,037
|
1,179,351
|
6. Adjusted Effective Tax
Rate
The tax charge on Adjusted Profit before tax for the 18 months
ended 31 October 2018 was $346.9m (12 months ended 30 April 2017:
$83.5m). This represents an Adjusted Effective Tax Rate ("Adjusted
ETR"), calculated as the tax charge on Adjusted Profit divided by
the Adjusted Profit of 23.6% (12 months ended 30 April 2017:
18.8%).
|
Effective
tax rate (continuing operations)
|
18
months ended
31
October 2018
(unaudited)
|
|
12
months ended
30
April 2017
(audited)
|
|
|
Actual
|
Adjusting items
|
Exceptional tax items
|
Adjusted measures
|
|
Actual
|
Adjusting
items
|
Adjusted
Measures
|
|
|
$m
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
|
Profit
before tax
|
34.1
|
1,438.5
|
-
|
1,472.6
|
|
131.6
|
312.0
|
443.6
|
|
Taxation
|
673.1
|
(327.7)
|
(692.3)
|
(346.9)
|
|
(7.5)
|
(76.0)
|
(83.5)
|
|
Profit
after tax
|
707.2
|
1,110.8
|
(692.3)
|
1,125.7
|
|
124.1
|
236.0
|
360.1
|
|
Effective tax
rate
|
(1,973.9)%
|
|
|
23.6%
|
|
5.7%
|
|
18.8%
|
In
computing Adjusted Profit before tax for the 18 months ended 31
October 2018, $1,438.5m of adjusting items have been added back and
the associated tax is $327.7m (see Adjusted Profit before tax
section above). Exceptional tax items of $692.3m (2017: $nil) shown
above relate to the impact of US tax reforms, comprised of a credit
of $930.6m in respect of the re-measurement of deferred tax
liabilities due to the reduction of the US federal tax rate from
35% to 21% and a transition tax charge of $238.3m payable over
eight years.
ALTERNATIVE PERFORMANCE MEASURES continued
7. Adjusted Earnings per Share and
Diluted Adjusted 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 amortisation of purchased intangibles
because they are individually or collectively material items that
are not considered to be representative of the trading performance
of the Group. These are presented as management believe they are
important to understanding the change in the Group's EPS and is
consistent with adjustments as made by our peers.
|
|
18 months ended
31 October 2018
|
12
months ended
30
April2017
|
12 months ended
31 October 2018
|
|
|
(unaudited)
|
(audited)
|
(unaudited)
|
|
CENTS
|
|
|
|
|
|
|
|
|
|
EPS from continuing operations attributable to the ordinary equity
shareholders of the Company
|
|
|
|
|
Basic
EPS - cents
|
181.91
|
54.17
|
143.01
|
|
Diluted
EPS - cents
|
176.92
|
52.31
|
138.94
|
|
Basic
Adjusted EPS - cents
|
289.57
|
157.11
|
192.99
|
|
Diluted
Adjusted EPS - cents
|
281.63
|
151.70
|
187.51
|
|
|
|
|
|
|
EPS from discontinued operation
|
|
|
|
|
Basic
EPS - cents
|
19.79
|
14.71
|
12.76
|
|
Diluted
EPS - cents
|
19.25
|
14.20
|
12.39
|
|
Basic
Adjusted EPS - cents
|
29.36
|
24.80
|
18.67
|
|
Diluted
Adjusted EPS - cents
|
28.56
|
23.95
|
18.14
|
|
|
|
|
|
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
|
|
Basic
EPS - cents
|
201.70
|
68.88
|
155.77
|
|
Diluted
EPS - cents
|
196.17
|
66.51
|
151.33
|
|
Basic
Adjusted EPS - cents
|
318.93
|
181.91
|
211.66
|
|
Diluted
Adjusted EPS - cents
|
310.19
|
175.65
|
205.65
|
|
|
|
|
|
|
PENCE
|
|
|
|
|
|
|
|
|
|
EPS from continuing operations attributable to the ordinary equity
shareholders of the Company
|
|
|
|
|
Basic
EPS - pence
|
136.73
|
41.88
|
106.40
|
|
Diluted
EPS - pence
|
132.98
|
40.44
|
103.37
|
|
Basic
Adjusted EPS - pence
|
217.66
|
121.45
|
143.59
|
|
Diluted
Adjusted EPS - pence
|
211.69
|
117.28
|
139.50
|
|
|
|
|
|
|
EPS from discontinued operation
|
|
|
|
|
Basic
EPS - pence
|
14.88
|
11.37
|
9.49
|
|
Diluted
EPS - pence
|
14.47
|
10.98
|
9.22
|
|
Basic
Adjusted EPS - pence
|
22.07
|
19.18
|
13.89
|
|
Diluted
Adjusted EPS - pence
|
21.46
|
18.52
|
13.50
|
|
|
|
|
|
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
|
|
Basic
EPS - pence
|
151.61
|
53,25
|
115.89
|
|
Diluted
EPS - pence
|
147.45
|
51.42
|
112.59
|
|
Basic
Adjusted EPS - pence
|
239.73
|
140.63
|
157.48
|
|
Diluted
Adjusted EPS - pence
|
233.15
|
135.80
|
153.00
|
ALTERNATIVE PERFORMANCE
MEASURES continued
7.
Adjusted Earnings per Share and Diluted Adjusted Earnings per
Share continued
|
|
18 months
ended
31 October 2018
|
12
months
ended
30
April 2017
|
12 months
ended
31 October 2018
|
|
|
(unaudited)
|
(audited)
|
(unaudited)
|
|
|
$'000
|
$'000
|
$'000
|
|
Profit for the period
|
784,133
|
157,803
|
677,528
|
|
Non-controlling
interests
|
(85)
|
103
|
219
|
|
Earnings attributable to ordinary shareholders
|
784,048
|
157,906
|
677,747
|
|
|
|
|
|
|
From
continuing operations
|
707,108
|
124,186
|
622,246
|
|
From
discontinued operation
|
76,940
|
33,720
|
55,501
|
|
Earnings attributable to ordinary shareholders
|
784,048
|
157,906
|
677,747
|
|
|
|
|
|
|
Adjusting items:
|
|
|
|
|
Exceptional
items
|
543,929
|
97,258
|
439,676
|
|
Share-based
compensation charge
|
72,175
|
34,506
|
53,873
|
|
Amortisation
of purchased intangibles
|
869,756
|
212,861
|
686,278
|
|
|
1,485,860
|
344,625
|
1,179,827
|
|
Tax relating to above adjusting items and exceptional tax credit in
the period
|
(1,030,167)
|
(85,527)
|
(936,614)
|
|
Adjusted earnings attributable to ordinary
shareholders
|
1,239,741
|
417,004
|
920,960
|
|
|
|
|
|
|
From
continuing operations
|
1,125,612
|
360,143
|
839,707
|
|
From
discontinued operation
|
114,129
|
56,861
|
81,253
|
|
Adjusted
earnings attributable to ordinary shareholders
|
1,239,741
|
417,004
|
920,960
|
|
|
|
|
|
|
Weighted average number of shares:
|
Number
|
Number
|
Number
|
|
Basic
|
388,717
|
229,238
|
435,105
|
|
Effect
of dilutive securities - Options
|
10,963
|
8,165
|
12,739
|
|
Diluted
|
399,680
|
237,403
|
447,844
|
|
|
18 months ended 31 October 2018
(unaudited)
|
12
months ended 30 April 2017
(audited)
|
|
|
Continuing operations
|
Discontinued operation
|
Total
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
Adjusting items:
|
|
|
|
|
|
|
|
Exceptional
items
|
543,929
|
-
|
543,929
|
97,258
|
-
|
97,258
|
|
Share-based
compensation charge
|
64,284
|
7,891
|
72,175
|
31,463
|
3,043
|
34,506
|
|
Amortisation
of purchased intangibles
|
830,319
|
39,437
|
869,756
|
183,283
|
29,578
|
212,861
|
|
|
1,438,532
|
47,328
|
1,485,860
|
312,004
|
32,621
|
344,625
|
|
Tax relating to above adjusting items and exceptional tax credit in
the period
|
(1,020,028)
|
(10,139)
|
(1,030,167)
|
(76,048)
|
(9,479)
|
(85,527)
|
|
|
418,504
|
37,189
|
455,693
|
235,956
|
23,142
|
259,098
|
|
|
12 months ended 31 October 2018
(unaudited)
|
|
|
Continuing operation
|
Discontinued operation
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
|
Adjusting items:
|
|
|
|
|
Exceptional
items
|
439,676
|
-
|
439,676
|
|
Share-based
compensation charge
|
47,503
|
6,370
|
53,873
|
|
Amortisation
of purchased intangibles
|
661,630
|
24,648
|
686,278
|
|
|
1,148,809
|
31,018
|
1,179,827
|
|
Tax relating to above adjusting items and exceptional tax credit in
the period
|
(931,348)
|
(5,266)
|
(936,614)
|
|
|
217,461
|
25,752
|
243,213
|
ALTERNATIVE PERFORMANCE MEASURES continued
8. 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.
|
|
18 months ended
31 October 2018
(unaudited)
|
12
months ended
30
April2017
(audited)
|
12 months ended
31 October2018
(unaudited)
|
|
|
$'000
|
$'000
|
$'000
|
|
Cash generated from operating activities
|
1,424,311
|
564,792
|
1,151,419
|
|
Less:
|
|
|
|
|
Interest
payments
|
(301,791)
|
(81,115)
|
(219,450)
|
|
Bank
loan costs
|
(101,159)
|
(6,654)
|
(10,840)
|
|
Tax
payments
|
(99,490)
|
(24,644)
|
(79,018)
|
|
Purchase
of intangible assets
|
(92,115)
|
(31,438)
|
(56,465)
|
|
Purchase
of property, plant and equipment
|
(40,091)
|
(11,727)
|
(30,246)
|
|
Free cash flow
|
789,665
|
409,214
|
755,400
|
9. Net Debt
Net debt is defined as cash and cash equivalents less borrowings
and finance lease obligations.
|
|
31 October 2018
(unaudited)
|
30
April 2017
(audited)
|
|
|
$'000
|
$'000
|
|
Borrowings
|
(4,845,880)
|
(1,561,536)
|
|
Cash
and cash equivalents
|
620,896
|
150,983
|
|
Finance
lease obligations
|
(28,483)
|
-
|
|
Net debt
|
(4,253,467)
|
(1,410,553)
|
10. 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 neutralise foreign
exchange impact and to better illustrate the underlying change in
results from one year to the next, the Group has adopted the
practice of discussing results on an as reported basis and in
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 comparable period at the same average exchange rates
as those used in reported results for the current period. 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, Israeli Shekel and Canadian Dollar. The
exchange rates used are as follows:
|
|
18 months ended
31 October 2018
|
12
monthsended
30
April 2017
|
12 months ended
31 October 2018
|
12
months ended
31
October 2017
|
|
|
Average
|
Closing
|
Average
|
Closing
|
Average
|
Closing
|
Average
|
Closing
|
|
£1
= $
|
1.33
|
1.27
|
1.29
|
1.29
|
1.34
|
1.27
|
1.27
|
1.33
|
|
€1
= $
|
1.18
|
1.14
|
1.09
|
1.09
|
1.18
|
1.14
|
1.11
|
1.16
|
|
C$ =
$
|
0.78
|
0.76
|
0.76
|
0.73
|
0.78
|
0.76
|
0.76
|
0.78
|
|
ILS =
$
|
0.28
|
0.27
|
0.26
|
0.28
|
0.28
|
0.27
|
0.27
|
0.28
|
ALTERNATIVE PERFORMANCE MEASURES continued
11. 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 business acquisition for the 12
months to 31 October 2017, assuming the HPE Software business was
part of the Group for the whole period.
Pro-forma Adjusted EBITDA is defined as Adjusted EBITDA (as defined
above) for the 12 months to 31 October 2017. The HPE Software
business pro-forma revenue and Adjusted EBITDA are under US
GAAP and the HPE Software business legacy accounting policies,
adjusted for divestitures, as derived from the HPE Software
business 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 for the 12 months ended 31 October
2017
|
|
Pro-forma Revenue
(unaudited)
|
|
|
$'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 business - 12 months to 31 October 2017
|
2,866.0
|
|
|
|
|
Pro-forma Revenue for the 12 months to 31 October 2017
|
4,226.7
|
|
Impact
of foreign exchange
|
60.1
|
|
Pro-forma constant currency Revenue for the 12 months to 31 October
2017
|
4,286.8
|
Pro-forma Adjusted EBITDA for the 12 months ended 31 October
2017
|
|
Pro-forma Adjusted EBITDA
(unaudited)
|
|
|
$'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 business - 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%
|
Micro Focus International plc
Consolidated Statement of Comprehensive Income
(unaudited)
For the 18 months ended 31 October 2018
|
|
|
18 months ended
31 October 2018
(unaudited)
|
Restated 1
12
months ended
30
April 2017
(audited)
|
|
Continuing operations
|
|
Before exceptional items
|
Exceptional items(note 7)
|
Total
|
Before
exceptional items
|
Exceptional
items(note 7)
|
Total
|
|
|
Note
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
Revenue
|
6
|
4,754,398
|
-
|
4,754,398
|
1,077,273
|
-
|
1,077,273
|
|
Cost of
sales
|
|
(1,193,898)
|
(65,408)
|
(1,259,306)
|
(213,463)
|
(2,949)
|
(216,412)
|
|
Gross profit
|
|
3,560,500
|
(65,408)
|
3,495,092
|
863,810
|
(2,949)
|
860,861
|
|
Selling
and distribution costs
|
|
(1,630,785)
|
(39,215)
|
(1,670,000)
|
(357,654)
|
(5,479)
|
(363,133)
|
|
Research
and development expenses
|
|
(642,061)
|
(17,352)
|
(659,413)
|
(116,032)
|
(6,792)
|
(122,824)
|
|
Administrative
expenses
|
|
(372,674)
|
(416,181)
|
(788,855)
|
(65,474)
|
(82,038)
|
(147,512)
|
|
Operating profit
|
|
914,980
|
(538,156)
|
376,824
|
324,650
|
(97,258)
|
227,392
|
|
|
|
|
|
|
|
|
|
|
Finance
costs
|
11
|
(344,040)
|
(6,326)
|
(350,366)
|
(96,824)
|
-
|
(96,824)
|
|
Finance
income
|
11
|
7,101
|
553
|
7,654
|
979
|
-
|
979
|
|
Net
finance costs
|
11
|
(336,939)
|
(5,773)
|
(342,712)
|
(95,845)
|
-
|
(95,845)
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) before tax
|
|
578,041
|
(543,929)
|
34,112
|
228,805
|
(97,258)
|
131,547
|
|
Taxation
|
12
|
(125,115)
|
798,196
|
673,081
|
(19,097)
|
11,633
|
(7,464)
|
|
Profit from continuing operations
|
|
452,926
|
254,267
|
707,193
|
209,708
|
(85,625)
|
124,083
|
|
Profit
from discontinued operation (attributable to equity shareholders of
the company)
|
26
|
76,940
|
-
|
76,940
|
33,720
|
-
|
33,720
|
|
Profit/(Loss) for the period
|
|
529,866
|
254,267
|
784,133
|
243,428
|
(85,625)
|
157,803
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Equity
shareholders of the company
|
|
531,781
|
254,267
|
784,048
|
243,531
|
(85,625)
|
157,906
|
|
Non-controlling
interests
|
|
85
|
-
|
85
|
(103)
|
-
|
(103)
|
|
Profit/(Loss) for the period
|
|
529,866
|
254,267
|
784,133
|
243,428
|
(85,625)
|
157,803
|
1 The
comparatives for the 12 months to 30 April 2017 have been restated
to reflect the divestiture of the SUSE business segment (note
26).
The
accompanying notes form part of these financial
statements.
Micro Focus International plc
Consolidated Statement of Comprehensive Income (unaudited) -
continued
For the 18 months ended 31 October 2018
|
|
|
18 months ended 31 October 2018
(unaudited)
|
Restated 112
months ended 30 April 2017
(audited)
|
|
|
|
Before exceptional items
|
Exceptional items(note 7)
|
Total
|
Before
exceptional items
|
Exceptional
items(note 7)
|
Total
|
|
|
Note
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
Profit for the period
|
|
529,866
|
254,267
|
784,133
|
243,428
|
(85,625)
|
157,803
|
|
Other comprehensive income/(expense):
|
|
|
|
|
|
|
|
|
Items that will not be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
Actuarial
loss on pension schemes liabilities
|
21
|
(8,949)
|
-
|
(8,949)
|
(217)
|
-
|
(217)
|
|
Actuarial
(loss)/gain on non-plan pension assets
|
|
(5,258)
|
-
|
(5,258)
|
318
|
-
|
318
|
|
Deferred
tax movement
|
|
3,754
|
-
|
3,754
|
(62)
|
-
|
(62)
|
|
Discontinued operation:
|
|
|
|
|
|
|
|
|
Actuarial
(loss)/gain on pension schemes liabilities
|
21
|
(1,465)
|
-
|
(1,465)
|
619
|
-
|
619
|
|
Actuarial
loss on non-plan pension assets
|
|
(529)
|
-
|
(529)
|
(188)
|
-
|
(188)
|
|
Deferred
tax movement
|
|
527
|
-
|
527
|
(263)
|
-
|
(263)
|
|
Items that may be subsequently reclassified to profit or
loss
|
|
|
|
|
|
|
|
|
Cash
flow hedge movements
|
|
69,968
|
-
|
69,968
|
-
|
-
|
-
|
|
Currency
translation differences - continuing operations
|
|
(29,456)
|
-
|
(29,456)
|
(4,942)
|
-
|
(4,942)
|
|
Currency
translation differences - discontinued operation
|
|
713
|
-
|
713
|
(1,011)
|
-
|
(1,011)
|
|
Other comprehensive income/(expense) for the period
|
|
29,305
|
-
|
29,305
|
(5,746)
|
-
|
(5,746)
|
|
Total comprehensive income/(expense) for the period
|
|
559,171
|
254,267
|
813,438
|
237,682
|
(85,625)
|
152,057
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Equity
shareholders of the company
|
|
559,086
|
254,267
|
813,353
|
237,785
|
(85,625)
|
152,160
|
|
Non-controlling
interests
|
|
85
|
-
|
85
|
(103)
|
-
|
(103)
|
|
Total comprehensive income for the period
|
|
559,171
|
254,267
|
813,438
|
237,682
|
(85,625)
|
152,057
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to the equity shareholders
of the company arises from:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
482,985
|
254,267
|
737,252
|
173,465
|
(85,625)
|
87,840
|
|
Discontinued
operations
|
|
76,186
|
-
|
76,186
|
64,217
|
-
|
64,217
|
|
|
|
559,171
|
254,267
|
813,438
|
237,682
|
(85,625)
|
152,057
|
|
Earnings per share (cents)
|
|
|
|
|
|
|
|
|
From continuing and discontinued operations
|
|
|
|
cents
|
|
|
cents
|
|
-
basic
|
10
|
|
|
201.70
|
|
|
68.88
|
|
-
diluted
|
10
|
|
|
196.17
|
|
|
66.51
|
|
From continuing operations
|
|
|
|
|
|
|
|
|
-
basic
|
10
|
|
|
181.91
|
|
|
54.17
|
|
-
diluted
|
10
|
|
|
176.92
|
|
|
52.31
|
|
Earnings per share (pence)
|
|
|
|
|
|
|
|
|
From continuing and discontinued operations
|
|
|
|
Pence
|
|
|
pence
|
|
-
basic
|
10
|
|
|
151.61
|
|
|
53.25
|
|
-
diluted
|
10
|
|
|
147.45
|
|
|
51.42
|
|
From continuing operations
|
|
|
|
|
|
|
|
|
-
basic
|
10
|
|
|
136.73
|
|
|
41.88
|
|
-
diluted
|
10
|
|
|
132.98
|
|
|
40.44
|
1 The comparatives for the
12 months to 30 April 2017 have been restated to reflect the
divestiture of the SUSE business segment (note
26).
The accompanying notes form part of these financial
statements.
Micro Focus International plc
Consolidated Statement of Financial Position
(unaudited)
|
|
Note
|
31 October 2018
(unaudited)$'000
|
30
April 20171
(audited)$'000
|
|
Non-current assets
|
|
|
|
|
Goodwill
|
13
|
6,805,043
|
2,828,604
|
|
Other
intangible assets
|
14
|
6,629,325
|
1,089,370
|
|
Property,
plant and equipment
|
15
|
144,250
|
40,956
|
|
Investments
in associates
|
|
-
|
11,457
|
|
Derivative
asset
|
19
|
86,381
|
-
|
|
Long-term
pension assets
|
|
16,678
|
22,031
|
|
Other
non-current assets
|
|
38,790
|
3,093
|
|
|
|
13,720,467
|
3,995,511
|
|
Current assets
|
|
|
|
|
Inventories
|
|
204
|
64
|
|
Trade
and other receivables
|
16
|
1,272,033
|
289,509
|
|
Current
tax receivables
|
|
24,504
|
1,637
|
|
Cash
and cash equivalents
|
|
620,896
|
150,983
|
|
|
|
1,917,637
|
442,193
|
|
Assets
classified as held for sale
|
26
|
1,142,451
|
-
|
|
Total
current assets
|
|
3,060,088
|
442,193
|
|
Total assets
|
|
16,780,555
|
4,437,704
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
Trade
and other payables
|
17
|
676,917
|
170,042
|
|
Borrowings
|
18
|
3,702
|
71,184
|
|
Finance
leases
|
|
13,560
|
-
|
|
Provisions
|
20
|
57,411
|
20,142
|
|
Current
tax liabilities
|
|
124,071
|
42,679
|
|
Deferred
income
|
|
1,134,730
|
640,650
|
|
|
|
2,010,391
|
944,697
|
|
Current
liabilities classified as held for sale
|
26
|
437,699
|
-
|
|
|
|
2,448,090
|
944,697
|
|
Non-current liabilities
|
|
|
|
|
Deferred
income
|
|
178,064
|
223,786
|
|
Borrowings
|
18
|
4,842,178
|
1,490,352
|
|
Finance
leases
|
|
14,923
|
-
|
|
Retirement
benefit obligations
|
21
|
110,351
|
30,773
|
|
Long-term
provisions
|
20
|
35,421
|
11,937
|
|
Other
non-current liabilities
|
|
58,011
|
4,191
|
|
Current
tax liabilities
|
|
131,048
|
-
|
|
Deferred
tax liabilities
|
|
1,170,489
|
118,478
|
|
|
|
6,540,485
|
1,879,517
|
|
Total liabilities
|
|
8,988,575
|
2,824,214
|
|
Net assets
|
|
7,791,980
|
1,613,490
|
|
Capital and reserves
|
|
|
|
|
Share
capital
|
22
|
65,798
|
39,700
|
|
Share
premium account
|
|
40,961
|
192,145
|
|
Merger
reserve
|
23
|
3,724,384
|
338,104
|
|
Capital
redemption reserve
|
23
|
666,289
|
163,363
|
|
Hedging
reserve
|
23
|
69,968
|
-
|
|
Retained
earnings
|
|
3,275,243
|
902,183
|
|
Foreign
currency translation deficit
|
|
(51,702)
|
(22,959)
|
|
Total equity attributable to owners of the parent
|
|
7,790,941
|
1,612,536
|
|
Non-controlling interests
|
|
1,039
|
954
|
|
Total equity
|
|
7,791,980
|
1,613,490
|
1 The comparatives for 30
April 2017 have been revised as described in the Basis of
Preparation of the Significant Accounting policies
section
The
accompanying notes form part of these 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 attributable to the parent
|
Non-controlling interests
|
Total
equity
|
|
|
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
|
|
Profit
for the financial year
|
|
-
|
-
|
157,906
|
-
|
-
|
-
|
-
|
157,906
|
(103)
|
157,803
|
|
Other
comprehensive expense for the year
|
|
-
|
-
|
207
|
(5,953)
|
-
|
-
|
-
|
(5,746)
|
-
|
(5,746)
|
|
Total
comprehensive income for the year
|
|
-
|
-
|
158,113
|
(5,953)
|
-
|
-
|
-
|
152,160
|
(103)
|
152,057
|
|
Transactions with owners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
9
|
-
|
-
|
(177,535)
|
-
|
-
|
-
|
-
|
(177,535)
|
-
|
(177,535)
|
|
Treasury
shares purchased
|
|
-
|
-
|
(7,678)
|
-
|
-
|
-
|
-
|
(7,678)
|
-
|
(7,678)
|
|
Share Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
of share capital - share options
|
22
|
127
|
1,852
|
(90)
|
-
|
-
|
-
|
-
|
1,889
|
-
|
1,889
|
|
Movement
in relation to share options
|
|
-
|
-
|
23,952
|
-
|
-
|
-
|
-
|
23,952
|
-
|
23,952
|
|
Current
tax on share options
|
|
-
|
-
|
4,081
|
-
|
-
|
-
|
-
|
4,081
|
-
|
4,081
|
|
Deferred
tax on share options
|
|
-
|
-
|
22,996
|
-
|
-
|
-
|
-
|
22,996
|
-
|
22,996
|
|
Reallocation of merger reserve
|
23
|
-
|
-
|
650,000
|
-
|
-
|
-
|
(650,000)
|
-
|
-
|
-
|
|
Total movements for the year
|
|
127
|
1,852
|
673,839
|
(5,953)
|
-
|
-
|
(650,000)
|
19,865
|
(103)
|
19,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 30 April 2017
|
|
39,700
|
192,145
|
902,183
|
(22,959)
|
163,363
|
-
|
338,104
|
1,612,536
|
954
|
1,613,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 May 2017
|
|
39,700
|
192,145
|
902,183
|
(22,959)
|
163,363
|
-
|
338,104
|
1,612,536
|
954
|
1,613,490
|
|
Profit
for the financial period
|
|
-
|
-
|
784,048
|
-
|
-
|
-
|
-
|
784,048
|
85
|
784,133
|
|
Other
comprehensive income for the period
|
|
-
|
-
|
(11,920)
|
(28,743)
|
-
|
69,968
|
-
|
29,305
|
-
|
29,305
|
|
Total
comprehensive income/(expense) for the period
|
|
-
|
-
|
772,128
|
(28,743)
|
-
|
69,968
|
-
|
813,353
|
85
|
813,438
|
|
Transactions with owners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
9
|
-
|
-
|
(542,161)
|
-
|
-
|
-
|
-
|
(542,161)
|
-
|
(542,161)
|
|
Share options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
of share capital - share options
|
22
|
251
|
5,499
|
(61)
|
-
|
-
|
-
|
-
|
5,689
|
-
|
5,689
|
|
Movement
in relation to share options
|
|
-
|
-
|
78,643
|
-
|
-
|
-
|
-
|
78,643
|
-
|
78,643
|
|
Current
tax on share options
|
|
-
|
-
|
4,145
|
-
|
-
|
-
|
-
|
4,145
|
-
|
4,145
|
|
Deferred
tax on share options
|
|
-
|
-
|
(23,724)
|
-
|
-
|
-
|
-
|
(23,724)
|
-
|
(23,724)
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to acquire HPE Software
|
22
|
28,773
|
-
|
-
|
-
|
-
|
-
|
6,485,397
|
6,514,170
|
-
|
6,514,170
|
|
Share reorganisation and buy-back:
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
of Value - share consolidation
|
22/23
|
(2,926)
|
-
|
-
|
-
|
2,926
|
-
|
-
|
-
|
-
|
-
|
|
Issue
and redemption of B shares
|
22/23
|
-
|
(156,683)
|
(500,000)
|
-
|
500,000
|
-
|
(343,317)
|
(500,000)
|
-
|
(500,000)
|
|
Share
buy-back
|
22
|
-
|
-
|
(171,710)
|
-
|
-
|
-
|
-
|
(171,710)
|
-
|
(171,710)
|
|
Reallocation of merger reserve
|
23
|
-
|
-
|
2,755,800
|
-
|
-
|
-
|
(2,755,800)
|
-
|
-
|
-
|
|
Balance as at 31 October 2018
|
|
65,798
|
40,961
|
3,275,243
|
(51,702)
|
666,289
|
69,968
|
3,724,384
|
7,790,941
|
1,039
|
7,791,980
|
The
accompanying notes form part of these financial
statements.
Micro Focus International plc
Consolidated Statement of Cash Flows (unaudited)
|
|
Note
|
18 months ended
31 October 2018
(unaudited)
$'000
|
12
months ended
30
April 2017
(audited)
$'000
|
|
Cash flows from operating activities
|
|
|
|
|
Cash
generated from operations
|
28
|
1,424,311
|
564,792
|
|
Interest
paid
|
|
(301,791)
|
(81,115)
|
|
Bank
loan costs
|
|
(101,159)
|
(6,654)
|
|
Tax
paid
|
|
(99,490)
|
(24,644)
|
|
Net cash generated from operating activities
|
|
921,871
|
452,379
|
|
Cash flows from investing activities
|
|
|
|
|
Payments
for intangible assets
|
14
|
(92,115)
|
(31,438)
|
|
Purchase of
property, plant and equipment 1
|
15
|
(40,091)
|
(11,727)
|
|
Finance
leases
|
|
(735)
|
-
|
|
Interest
received
|
|
9,224
|
979
|
|
Payment
for acquisition of subsidiaries
|
27
|
(19,260)
|
(299,061)
|
|
Repayment
of bank borrowings on acquisitions
|
|
-
|
(316,650)
|
|
Net
cash acquired with acquisitions
|
27
|
321,668
|
68,173
|
|
Net cash generated/(used in) investing activities
|
|
178,691
|
(589,724)
|
|
Cash
flows from financing activities
|
|
|
|
|
Investment
in non-controlling interest
|
|
(3)
|
(2)
|
|
Proceeds
from issue of ordinary share capital
|
22
|
5,750
|
1,979
|
|
Purchase
of treasury shares
|
22
|
(171,710)
|
(7,678)
|
|
Return
of Value paid to shareholders
|
22
|
(500,000)
|
-
|
|
Repayment
of working capital in respect of HPE Software
acquisition
|
27
|
(225,800)
|
-
|
|
Repayment
of bank borrowings
|
18
|
(252,936)
|
(372,062)
|
|
Proceeds
from bank borrowings
|
18
|
1,043,815
|
180,000
|
|
Dividends
paid to owners
|
9
|
(542,161)
|
(177,535)
|
|
Net
cash generated used in financing activities
|
|
(643,045)
|
(375,298)
|
|
Effects
of exchange rate changes
|
|
15,302
|
(3,552)
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
472,819
|
(516,195)
|
|
Cash
and cash equivalents at beginning of period
|
|
150,983
|
667,178
|
|
|
|
623,802
|
150,983
|
|
Reclassification
to current assets classified as held for sale
|
|
(2,906)
|
-
|
|
Cash and cash equivalents at end of period
|
|
620,896
|
150,983
|
The
accompanying notes form part of these financial
statements.
1 The
principal non-cash transactions in the 18 months ended 31 October
2018 were the issuance of shares as purchase consideration for the
HPE Software acquisition (note 27) and property, plant and
equipment finance lease additions of $12.1m (note
15).
Micro Focus International plc
Notes to the consolidated financial statements
(unaudited)
Summary of significant accounting policies
1. General information
Micro Focus International plc ("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 "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 2018, the Group
had a presence in 49 countries (30 April 2017: 40) worldwide and
employed approximately 14,800 people (30 April 2017:
4,800).
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 ("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 reports 18 month financial statements running from 1
May 2017 to 31 October 2018.
The Group consolidated financial statements were authorised for
issuance by the board of directors on 13 February
2019.
The financial information set out above does not constitute the
company's statutory accounts for the periods ended 31 October 2018
or 30 April 2017. The financial information for 30 April 2017 is
derived from the statutory accounts for 30 April 2017 which have
been delivered to the registrar of companies. The auditor has
reported on the 30 April 2017 accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006. The statutory
accounts for 31 October 2018 will be finalised on the basis of the
financial information presented by the directors in this
preliminary announcement and will be delivered to the registrar of
companies in due course.
2. Significant Accounting policies
A Basis of preparation
The consolidated financial statements of the Company have been
prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board
("IASB") and in conformity with IFRS as adopted by the European
Union (collectively "IFRS"). The consolidated financial
statements have been prepared on a going concern basis under the
historical cost convention. These financial statements have been
prepared for an 18 month period as compared with a prior 12 month
reporting period and therefore are not entirely
comparable.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed below in II, 'Critical
accounting estimates, assumptions and judgements'.
The principal accounting policies adopted by the Group in the
preparation of the consolidated financial statements are set out
below. Other than, as described below, the accounting policies
adopted are consistent with those of the Annual Report and Accounts
for the year ended 30 April 2017, apart from standards,
amendments to or interpretations of published standards adopted
during the period and the restatement of balances in the
Consolidated statement of comprehensive income and related notes
related to assets held for sale and discontinued operations as
described below.
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 these financial
statements.
Notes to the consolidated financial statements
(unaudited) continued
Assets held for sale and discontinued operations
A current asset (or disposal group) is classified as held for sale
if the Group will recover the carrying amount principally through a
sale transaction rather than through continuing use. A current
asset (or disposal group) classified as held for sale is measured
at the lower of its carrying amount and fair value less costs to
sell. If the asset (or disposal group) is acquired as part of a
business combination it is initially measured at fair value less
costs to sell. Assets and liabilities of disposal groups classified
as held for sale are shown separately on the face of the balance
sheet.
The results of discontinued operations are shown as a single amount
on the face of the income statement comprising the post-tax profit
or loss of discontinued operations and the post-tax gain or loss
recognised either on measurement to fair value less costs to sell
or on the disposal of the discontinued operation. The Consolidated
income statement and the Consolidated statement of other
comprehensive income have been restated to present discontinued
operations separately. The related notes for the prior year have
also been restated where applicable. The Consolidated statement of
cash flows has been presented including the discontinued
operation.
Consolidated Statement of Financial Position - Prior period
revision
In the prior period, deferred tax assets ($208.3m) and deferred tax
liabilities ($326.7m) were incorrectly presented on a gross basis
in the consolidated statement of financial position as of 30 April
2017 because jurisdictional offsetting, a requirement under IFRS,
was not applied to these balances. Management has therefore elected
to correct the misstatement and record immaterial adjustments to
revise the consolidated statement of financial position as of 30
April 2017 and related notes to apply jurisdictional offsetting in
respect of deferred tax assets and liabilities and present these on
a net basis where they are expected to be realised as
such.
The impact of the revision is to reduce deferred tax assets,
deferred tax liabilities, non-current assets and non-current
liabilities by $208.3m as compared with the previously reported
amounts. The revision has no impact on profit or cash flows for the
years ended 30 April 2017 and 2016 or net assets as at 30 April
2017.
B Consolidation
The financial statements of the Group comprise the financial
statements of the Company and entities controlled by the Company,
its subsidiaries and the Group's share of its interests in
associates prepared at the consolidated statement of financial
position date.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group has
control over an entity where the Group is exposed to, or has rights
to, variable returns from its involvement within the entity and it
has the power over the entity to effect those returns. The
existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing control.
Control is presumed to exist when the Group owns morethan half of
the voting rights (which does not always equal percentage
ownership) unless it can be demonstrated that ownership does not
constitute control. The results of subsidiaries are consolidated
from the date on which control passes to the Group. The results of
disposed subsidiaries are consolidated up to the date on which
control passes from the Group.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of acquisition
is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date
of exchange, with costs directly attributable to the acquisition
being expensed. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interest. The
excess of the cost of acquisition over the fair value of the
Group's share of the identifiable net assets acquired is recorded
as goodwill.
Where new information is obtained within the "measurement period"
(defined as the earlier of the period until which the Group
receives the information it was seeking about facts and
circumstances that existed as of the acquisition date or learns
that more information is not obtainable, or one year from the
acquisition date) about facts and circumstances that existed as at
the acquisition date and, if known, would have affected the
measurement of the amounts recognised as of that date, the Group
recognises these adjustments to the acquisition balance sheet with
an equivalent offsetting adjustment to goodwill. Where new
information is obtained after this measurement period has closed,
this is reflected in the post-acquisition period.
For partly owned subsidiaries, the allocation of net assets and net
earnings to outside shareholders is shown in the line "Attributable
to non-controlling interests" on the face of the consolidated
statement of comprehensive income and the consolidated statement of
financial position.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Accounting
policies of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the
Group.
At 31 October 2018, the Group had an 81.05% (30 April 2017: 74.7%)
interest in Novell Japan Ltd which gives rise to the minority
interest reported in these financial statements.
Notes to the consolidated financial statements
(unaudited) continued
Associates
An associate is an entity, that is neither a subsidiary or a joint
venture, over whose operating and financial policies the Group
exercises significant influence. Significant influence is presumed
to exist where the Group has between 20% and 50% of the voting
rights, but can also arise where the Group holds less than 20% if
it has the power to be actively involved and influential in policy
decisions affecting the entity.
Associates are accounted for under the equity method, where the
consolidated statement of comprehensive income and the consolidated
statement of financial position includes the Group's share of their
profits and losses and net assets, less any impairment in
value. This involves recording the investment initially at
cost to the Group, which therefore includes any goodwill on
acquisition and then, in subsequent periods, adjusting the carrying
amount of the investment to reflect the Group's share of the
associates' post-acquisition profits and losses, which is
recognised in the consolidated statement of comprehensive income,
and its share of post-acquisition comprehensive income, which is
recognised in the consolidated statement of comprehensive income.
Unrealised gains arising from transactions between the Group and
its associates are eliminated to the extent of the Group's
interests in the associates.
At 31 October 2018 the Group had a 12.5% interest ($9.6m) (2017:
12.5%, $11.5m) investment in Open Invention Network LLC ("OIN").
There are eight (30 April 2017: eight) equal shareholders of OIN,
all holding 12.5% (30 April 2017: 12.5%) 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
investment in associates is part of discontinued operations, which
will be disposed of with the sale of the SUSE business segment and
as such has been transferred to assets held for sale (note
26).
C Revenue recognition
The Group recognises revenues from sales of software Licences
(including Intellectual Property and Patent rights, to end-users,
resellers and Independent Software Vendors ("ISV"), software
maintenance, subscription, Software as a Service ("SaaS"),
technical support, training and professional services, upon firm
evidence of an arrangement, delivery of the software and
determination that collection of a fixed or determinable fee is
reasonably assured. ISV revenue includes fees based on end usage of
ISV applications that have our software embedded in their
applications. When the fees for software upgrades and enhancements,
maintenance, consulting and training are bundled with the Licence
fee, they are unbundled using the Group's objective evidence of the
fair value of the elements represented by the Group's customary
pricing for each element in separate transactions. If evidence of
fair value exists for all undelivered elements and there is no such
evidence of fair valueestablished for delivered elements, revenue
is first allocated to the elements where fair value has been
established and the residual amount is allocated to the delivered
elements. If evidence of fair value for any undelivered element of
the arrangement does not exist, all revenue from the arrangement is
deferred until such time that there is evidence of
delivery.
If the arrangement includes acceptance criteria, revenue is not
recognised until the Group can objectively demonstrate that the
acceptance criteria have been met, or the acceptance period lapses,
whichever is earlier.
The Group recognises Licence revenue derived from sales to
resellers upon delivery to resellers, provided that all other
revenue recognition criteria are met; otherwise revenue is deferred
and recognised upon delivery of the product to the end-user. Where
the Group sells access to a Licence for a specified period of time
and collection of a fixed or determinable fee is reasonably
assured, Licence revenue is recognised upon delivery, except in
instances where future substantive upgrades or similar performance
obligations are committed to. Where these future performance
obligations are specified in the Licence agreement, and fair value
can be attributed to those upgrades, revenuefor the future
performance obligations is deferred and recognised on the basis of
the fair value of the upgrades in relation to the total estimated
sales value of all items covered by the Licence agreement. Where
the future performance obligations are unspecified in the Licence
agreement, revenue is deferred and recognised rateably over the
specified period.
For Subscription revenue where access and performance obligations
are provided evenly over a defined term, the revenue is deferred
and recognised rateably over the specified period.
The Group recognises revenue for SaaS arrangements as the service
is delivered, generally on a straight-line basis, over the
contractual period of performance. In SaaS arrangements, the Group
considers the rights provided to the customer (e.g. whether the
customer has the contractual right to take possession of the
software at any time during the contractual period without
significant penalty, and the feasibility of the customer to operate
or contract with another vendor to operate the software) in
determining whether the arrangement includes the sale of a software
licence. In SaaS arrangements where software licences are sold,
licence revenue is generally recognised according to whether
perpetual or term licences are sold, when all other revenue
recognition criteria are satisfied.
Maintenance revenue is recognised on a straight-line basis over the
term of the contract, which in most cases is one year.
For time and material-based professional services contracts, The
Group recognises revenue as services are rendered and recognises
costs as they are incurred. The Group recognises revenue from
fixed-price professional services contracts as work progresses over
the contract period on a proportional performance basis, as
determined by the percentage of labour costs incurred to date
compared to the total estimated labour costs of a contract.
Estimates of total project costs for fixed-price contracts are
regularly reassessed during the life of a contract. Amounts
collected prior to satisfying the above revenue recognition
criteria are included in deferred income.
Notes to the consolidated financial statements
(unaudited) continued
Rebates paid to partners as part of a contracted programme are
netted against revenue where the rebate paid is based on the
achievement of sales targets made by the partner, unless the
Company receives an identifiable good or service from the partner
that is separable from the sales transaction and for which the
Group can reasonably estimate fair value.
D Cost of sales
Cost of sales includes costs related to the amortisation of product
development costs, amortisation of acquired technology intangibles,
costs of the consulting business and helpline support and royalties
payable to third parties.
E Segment reporting
In accordance with IFRS 8, 'Operating Segments', the Group has
derived the information for its segmental reporting using the
information used by the Chief Operating Decision Maker ("CODM"),
defined as the Executive Committee. The segmental reporting is
consistent with those used in internal management reporting and the
measure used by the Executive Committee is Adjusted EBITDA as set
out in note 5.
F Exceptional items
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. In setting
the policy for exceptional items, judgment is required to determine
what the Group defines as "exceptional". The Group considers an
item to be exceptional in nature if it is material, non-recurring
and does not reflect the underlying performance of the business.
Exceptional items are allocated to the financial statement lines
(for example: cost of sales) in the Consolidated statement of
comprehensive income based on the nature and function of the costs,
for example restructuring costs related to employees are classified
where their original employment costs are recorded.
Management of the Group first evaluates Group strategic projects
such as acquisitions, divestitures and integration activities,
Company tax restructuring and other one-off events such as
restructuring programmes. In determining whether an event or
transaction is exceptional, management of the Group considers
quantitative and qualitative factors such as its expected size,
precedent for similar items and the commercial context for the
particular transaction, while ensuring consistent treatment between
favourable and unfavourable transactions impacting revenue, income
and expense. Examples of transactions which may be considered of an
exceptional nature include major restructuring programmes, cost of
acquisitions or the cost of integrating acquired
businesses.
G Employee benefit costs
a) Pension obligations and long-term pension assets
The Group operates various pension schemes, including both defined
contribution and defined benefit pension plans. A defined
contribution plan is a pension plan under which the Group pays
fixed contributions into a separate entity. The Group has no legal
or constructive obligations to pay further contributions if the
fund does not hold sufficient assets to pay all employees the
benefits relating to employee service in the current and prior
periods. A defined benefit plan is a pension plan that is not a
defined contribution plan.
For defined contribution plans, the Group pays contributions to
publicly or privately administered pension insurance plans on a
mandatory, contractual or voluntary basis. The Group has no further
payment obligations once the contributions have been paid. The
contributions are recognised as an employee benefit expense when
they are due. Prepaid contributions are recognised as an asset to
the extent that a cash refund or a reduction in the future payments
is available.
Typically, defined benefit plans define an amount of pension
benefit that an employee will receive on retirement. This is
usually dependent on one or more factors such as age, years of
service and compensation.
The liability recognised in the consolidated statement of financial
position in respect of defined benefit pension plans is the present
value of the defined benefit obligation at the end of the reporting
period less the fair value of plan assets. Certain long-term
pension assets do not meet the definition of plan assets as they
have not been pledged to the plan and are subject to the creditors
of the Group. Such assets are recorded separately in the
consolidated statement of financialposition as long-term pension
assets. The portion of non-plan assets connected with the SUSE
segment are recorded within current assets classified as held for
sale. The defined benefit obligation is calculated annually by
independent actuaries using the projected unit credit method. The
present value of the defined benefit obligation is determined by
discounting the estimated future cash outflows using interest rates
of high-quality corporate bonds that have terms to mature
approximating to the terms of the related pension
obligation.
Actuarial gains and losses arising from experience adjustments and
changes in actuarial assumptions are charged or credited to equity
in other comprehensive income in the period in which they arise.
Past-service costs are recognised immediately in
income.
The current service cost of the defined benefit plan, recognised in
the consolidated statement of comprehensive income in employee
benefit expense, except where included in the cost of an asset,
reflects the increase in the defined benefit obligation resulting
from employee service in the current year, benefit changes,
curtailments and settlements.
The net interest cost is calculated by applying the discount rate
to the net balance of the defined benefit obligation and the fair
value of plan assets. This cost is included in employee benefit
expense in the consolidated statement of comprehensive
income.
Notes to the consolidated financial statements
(unaudited) continued
Long-term pension assets relate to the reimbursement right under
insurance policies held in the Group 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. These contractual arrangements are
treated as available-for-sale financial assets since there is not
an exact matching of the amount and timing of some or all of the
benefits payable under the defined benefit plan. Gains and losses
on long-term pension assets are charged or credited to equity in
other comprehensive income in the period in which they
arise.
b) Share based compensation
The Group operated various equity-settled, share based compensation
plans during the period.
The fair value of the employee services received in exchange for
the grant of the shares or options is recognised as an expense. The
total amount to be expensed over the vesting period is determined
by reference to the fair value of the shares or options granted.
Non-market vesting conditions are included in assumptions about the
number of options that are expected to become exercisable. Market
vesting conditions are taken into account when determining the fair
value of the options at grant date. At each consolidated statement
of financial position date, the Group revises its estimates of the
number of options that are expected to become exercisable. It
recognises the impact of the revision of original estimates, if
any, in the consolidated statement of comprehensive income, and a
corresponding adjustment to equity over the remaining vesting
period.
The shares are recognised when the options are exercised and the
proceeds received allocated between ordinary shares and share
premium account. Fair value is measured using the Black-Scholes
pricing model. The expected life used in the model has been
adjusted, based on management's best estimate for the effects of
non-transferability, exercise restrictions and behavioural
considerations. The Additional Share Grants have been valued using
the Monte-Carlo simulation pricing model.
When the terms of an equity-settled award are modified, the minimum
expense recognised is the grant date fair-value of the unmodified
award, provided the original terms of the award are met. An
additional expense, measured as at the date of modification, is
recognised for any modification that increases the total fair value
of the share-based payment transaction, or is otherwise beneficial
to the employee.
The social security contributions payable in connection with the
grant of the share options is considered an integral part of the
grant itself, and the charge is treated as a cash-settled
transaction.
c) Employee benefit trust
Transactions, assets and liabilities of the Group sponsored
Employee Benefit Trust are included in the consolidated financial
statements as it is considered to be an intermediate payment
arrangement. In particular, the Trust's purchases of shares in the
Company remain deducted from shareholders' funds until they vest
unconditionally with employees.
H Foreign currency translation
a) Functional and presentation 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.
From 1 November 2017, certain HPE Software entities changed their
functional currency, reflecting changes in their underlying
business model and transactional conditions.
b) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the consolidated statement
of comprehensive income.
c) Group companies
The results and financial position of all the Group entities that
have a functional currency different from the presentation currency
are translated into the presentation currency as
follows:
i)
Assets and liabilities for each consolidated statement of financial
position presented are translated at the closing rate at the date
of that consolidated statement of financial position;
ii)
Income and expenses for each consolidated statement of
comprehensive income item are translated at average exchange rates
(unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates,
in which case income and expenses are translated at the dates of
the transactions); and
iii)
All resulting exchange differences are recognised as a separate
component of equity.
On consolidation, exchange differences arising from the translation
of the net investment in foreign entities are taken to other
comprehensive income.
Notes to the consolidated financial statements
(unaudited) continued
Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate, with the exception for
goodwill arising before 1 May 2004, which is treated as an asset of
the Company and expressed in the Company's functional
currency.
d) Exchange rates
The most important foreign currencies for the Group are Pounds
Sterling, the Euro, Israeli Shekel and Canadian Dollar. The
exchange rates used are as follows:
|
|
18 months
ended
31 October 2018
|
12 months
ended
30 April 2017
|
|
|
Average
|
Closing
|
Average
|
Closing
|
|
£1
= $
|
1.33
|
1.27
|
1.29
|
1.29
|
|
€1
= $
|
1.18
|
1.14
|
1.09
|
1.09
|
|
C$ =
$
|
0.78
|
0.76
|
0.76
|
0.73
|
|
ILS =
$
|
0.28
|
0.27
|
0.26
|
0.28
|
I Intangible assets
a) Goodwill
Goodwill represents the excess of the cost of an acquisition over
the fair value of the net identifiable assets of the acquired
subsidiary at the date of acquisition. Goodwill on acquisitions of
subsidiaries is included in intangible assets. Goodwill is tested
annually for impairment and carried at cost less accumulated
impairment losses. Gains and losses on the disposal of an entity
include the carrying amount of goodwill relating to the entity
sold. Goodwill is allocated to cash-generating units for the
purpose of impairment testing. Each of those cash-generating units
represents the Group's investment in each area of operation by each
primary reporting segment.
Where goodwill has been allocated to a cash-generating unit (CGU)
and part of the operation within that unit is classified as held
for sale, the goodwill associated with the held-for-sale operation
is measured based on the relative values of the held-for-sale
operation and the portion of the cash-generating unit
retained.
b) Computer software
Computer software licences are capitalised on the basis of the
costs incurred to acquire and bring into use the specific software.
These costs are amortised using the straight-line method over their
estimated useful lives of three to five years.
c) Research and development
Research expenditure is recognised as an expense as incurred in the
consolidated statement of comprehensive income in research and
development expenses. Costs incurred on product development
projects relating to the developing of new computer software
programmes and significant enhancement of existing computer
software programmes are recognised as intangible assets when it is
probable that the project will be a success, considering its
commercial and technological feasibility, and costs can be measured
reliably. Only direct costs are capitalised which are the software
development employee costs and third party contractor costs.
Product development costs previously recognised as an expense are
not recognised as an asset in a subsequent period.
Product development costs are amortised from the commencement of
the commercial production of the product on a straight-line basis
over the period of its expected benefit, typically being three
years, and are included in costs of sales in the consolidated
statement of comprehensive income.
d) Intangible assets - arising on business
combinations
Other intangible assets that are acquired by the Group are stated
at cost less accumulated amortisation. Amortisation is charged to
the consolidated statement of comprehensive income on a
straight-line basis over the estimated useful life of each
intangible asset. Intangible assets are amortised from the date
they are available for use. The estimated useful lives will vary
for each category of asset acquired and to date are as
follows:
|
Purchased
software
|
Three
to five years
|
|
Technology
|
Three
to 12 years
|
|
Trade
names
|
Three
to 20 years
|
|
Customer
relationships
|
Two to
15 years
|
|
Lease
contracts
|
Five
and half years
|
Amortisation of purchased software intangibles is included in
administrative expenses, amortisation of purchased technology
intangibles is included in cost of sales and amortisation of
acquired purchased trade names, customer relationships and lease
contracts intangibles are included in selling and distribution
costs in the Consolidated statement of comprehensive
income.
Notes to the consolidated financial statements
(unaudited) continued
J Property, plant and equipment
All property, plant and equipment is stated at historical cost less
accumulated depreciation and impairment. Historical cost includes
expenditure that is directly attributable to the acquisition of the
items. Subsequent costs are included in the asset's carrying amount
or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance expenditures are
charged to the consolidated statement of comprehensive income
during the financial year in which they are incurred. Depreciation
is calculated using the straight-line method to write off the cost
of each asset to its residual value over its estimated useful life
as follows:
|
Buildings
|
30
years
|
|
Leasehold
improvements
|
Three
to 10 years
|
|
Fixtures
and fittings
|
Two to
seven years
|
|
Computer
equipment
|
One to
five years
|
Freehold land is not depreciated. The assets' residual values and
useful lives are reviewed, and adjusted if appropriate, at each
consolidated statement of financial position date. An asset's
carrying amount is written down immediately to its recoverable
amount if the asset's carrying amount is greater than its estimated
recoverable amount. Gains and losses on disposals are determined by
comparing the disposal proceeds with the carrying amount and are
included in the consolidated statement of comprehensive
income.
Property held for sale is measured at the lower of its carrying
amount or estimated fair value less costs to sell.
K Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment. Assets that
are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for
the amount by which theasset's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an
asset's fair value less costs of disposal and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows being
cash-generating units. Any non-financial assets other than goodwill
which have suffered impairment are reviewed for possible reversal
of the impairment at each reporting date. Assets that are subject
to amortisation and depreciation are also reviewed for any possible
impairment at each reporting date.
L Inventories
Inventories are stated at the lower of cost and net realisable
value. The cost of finished goods comprises software for resale and
packaging materials. Net realisable value is the estimated selling
price in the ordinary course of business, less applicable variable
selling expenses.
When work has been performed and the revenue is not yet recognised,
the direct costs of third party contractors and staff will be
treated as work in progress where the probability of invoicing and
evidence of collectability can be demonstrated.
M Trade receivables
Trade receivables are initially recognised at fair value and
subsequently measured at amortised cost less provisions for
impairment. A provision for impairment of trade receivables is
established when there is objective evidence that the Group will
not be able to collect all amounts due according to the original
terms of receivables. The amount of the provision is the difference
between the asset's carrying amount and the present value of
estimated future cash flows, discounted at the effective interest
rate. The amount of the provision is recognised in the consolidated
statement of comprehensive income.
N Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at
call with banks, other short-term highly liquid investments with
original maturities of three months or less, and bank overdrafts.
Bank overdrafts are shown within borrowings in current liabilities
on the consolidated statement of financial position.
O Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Subsequent to initial recognition,
interest bearing borrowings are stated at amortised cost with any
difference between cost and redemption value being recognised in
the consolidated statement of comprehensive income over the period
of borrowing on an effective interest basis.
P Finance and operating leases
A lease is classified at the inception date as a finance lease or
an operating lease. A lease that transfers substantially all the
risks and rewards incidental to ownership to the Group is
classified as a finance lease.
Finance leases are capitalised at the commencement of the
lease at the inception date fair value of the leased property or,
if lower, at the present value of the minimum lease payments. Lease
payments are apportioned between finance charges and reduction of
the lease liability so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance charges are
recognised in finance costs in the statement of profit or
loss.
Notes to the consolidated financial statements
(unaudited) continued
A leased asset is depreciated over the useful life of the asset.
However, if there is no reasonable certainty that the Group will
obtain ownership by the end of the lease term, the asset is
depreciated over the shorter of the estimated useful life of the
asset and the lease term.
An operating lease is a lease other than a finance lease. Operating
lease payments are recognised as an operating expense in the
statement of profit or loss on a straight-line basis over the lease
term.
Q Taxation
Current and deferred tax are recognised in the consolidated
statement of comprehensive income, except when the tax relates to
items charged or credited directly to equity, in which case the tax
is also dealt with directly in equity.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
consolidated financial statements. Deferred tax liabilities are not
recognised if they arise from the initial recognition of goodwill.
However, if the deferred income tax arises from initial recognition
of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither
accounting nor taxable profit nor loss, it is not accounted for.
Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by the consolidated
statement of financial position date and are expected to apply when
the related deferred income tax asset is realised or the deferred
income tax liability is settled. Deferred income tax assets are
recognised to the extent that it is probable that future taxable
profit will be available against which the temporary differences
can be utilised.
Deferred income tax is provided on temporary differences arising on
investments in subsidiaries, except where the timing of the
reversal of the temporary difference is controlled by the Group and
it is probable that the temporary difference will not reverse in
the foreseeable future.
Deferred tax assets and liabilities are offset where there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Current tax is recognised based on the amounts expected to be paid
or recovered under the tax rates and laws that have been enacted or
substantively enacted at the consolidated statement of financial
position date.
R Ordinary shares, share premium and dividend
distribution
Incremental costs directly attributable to the issue of new shares
or options are shown in equity as a deduction, net of tax, from the
proceeds. Dividend distributions to the Company's shareholders are
recognised as a liability in the Group's financial statements in
the period in which the dividends are approved by the Company's
shareholders. Interim dividends are recognised when they are
paid.
S Derivative financial instruments and hedge
accounting
Financial assets and liabilities are recognised in the Group's
consolidated statement of financial position when the Group becomes
a party to the contractual provision of the instrument. Trade
receivables are non-interest bearing and are stated at their fair
value less the amount of any appropriate provision for
irrecoverable amounts. Trade payables are non-interest bearing and
are stated at their fair value. Derivative financial instruments
are only used for economic hedging purposes and not as speculative
investments.
The Group uses derivative financial instruments, such as interest
rate swaps, to hedge its interest rate risks. Such derivative
financial instruments are initially recognised at fair
value on the date on which the contract is entered into and are
subsequently re-measured at fair value. Derivatives are carried as
financial assets when the fair value is positive and as financial
liabilities when the fair value is negative.
Hedge accounting is permitted under certain circumstances provided
the following criteria are met:
At inception of the hedge, the documentation must include the risk
management objective and strategy for undertaking the hedge,
identification of the hedging instrument, the hedged item, the
nature of the risk being hedged and how the entity will assess the
hedging instrument's effectiveness. Such hedges are expected to be
highly effective in achieving offsetting changes in cash flows and
are assessed on an ongoing basis to determine the level of
effectiveness.
The measurement of effectiveness determines the accounting
treatment. For effective results, changes in the fair value of the
hedging instrument should be recognised in other
comprehensive income in the hedging reserve, while any material
ineffectiveness should be recognised in the statement of
comprehensive income. If either prospective or retrospective
testing is not satisfactorily completed, all fair value movements
on the hedging instrument should be recorded in the statement of
comprehensive income.
Hedge accounting is ceased prospectively if the instrument expires
or is sold, terminated or exercised; the hedge criteria are no
longer met; the forecast transaction is no longer expected to
occur; or the entity revokes the hedge designation.
Notes to the consolidated financial statements
(unaudited) continued
T Provisions
Provisions for onerous leases, restructuring costs and legal claims
are recognised when the Group has a present legal or constructive
obligation as a result of past events; it is probable that an
outflow of resources will be required to settle the obligation; and
the amount has been reliably estimated. Provisions are not
recognised for future operating losses.
Where there are a number of similar obligations, the likelihood
that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be
small.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of
money and the risks specific to the obligation. The increase in the
provision due to the passage of time is recognised as an interest
expense.
U Adoption of new and revised International Financial Reporting
Standards
The accounting policies adopted in these consolidated financial
statements are consistent with those of the annual financial
statements for the year ended 30 April 2017, with the exception of
the following standards, amendments to or interpretations of
published standards adopted during the period:
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
clarifications. Please
refer to below for a more detailed assessment to-date on
implementing this standard.
|
|
-
|
|
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 loss model that replaces the current incurred loss
impairment model.
|
|
-
|
|
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, subject to EU
endorsement. 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
and earlier application is permitted if the entity is adopting IFRS
15 'Revenue from contracts with customers' at the same time,
subject to EU endorsement.
|
|
-
|
|
Annual
improvements 2014-2016 include amendments to IFRS 1, 'First-time
adoption of IFRS', IFRS 12, 'Disclosure of interests in other
entities' 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,
subject to EU endorsement.
|
|
-
|
|
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, subject to EU
endorsement.
|
|
-
|
|
Clarifications
to IFRS 15 'Revenue from Contracts with Customers' are effective on
periods beginning on or after 1 January 2018, subject to EU
endorsement. These amendments comprise clarifications of the
guidance on identifying performance obligations, accounting for
licences of intellectual property and the principal versus agent
assessment (gross versus net revenue
presentation).
|
Notes to the consolidated financial statements
(unaudited) continued
|
-
|
|
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 recognise and measure its current or deferred tax
asset or liability applying the requirements in 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.
|
|
-
|
|
Annual
Improvements 2017 includes amendments to IFRS 3, 'Business
combinations', IFRS 11 'Joint arrangements' and IAS 12 Income taxes
applies for periods beginning on or after 1 January 2019, subject
to EU endorsement.
|
|
-
|
|
Amendments
to IAS 28 Investments in Associates and Joint Ventures - 'Long-term
Interests in Associates and Joint Ventures', clarifies that IFRS 9
'Financial instruments' applies, including its impairment
requirements to long-term interests in an associate or joint
venture that form part of the net investment in the associate or
joint venture but to which the equity method is not applied',
subject to EU endorsement.
|
|
-
|
|
Amendments
to IAS 19 'Employee Benefits' clarify that on a plan amendment,
curtailment or settlement of a defined benefit plan, entities must
use updated actuarial assumptions to determine its current service
cost and net interest for the period; and the effect of the asset
ceiling is disregarded when calculating the gain or loss on any
settlement of the plan and is dealt with separately in other
comprehensive income, effective 1 January 2019, subject to EU
endorsement.
|
|
-
|
|
Amendments
to References to the Conceptual Framework in IFRS Standards -
Amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS
34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and
SIC-32 to update those pronouncements with regard to the revised
the Conceptual Framework, effective 1 January 2020, subject to EU
endorsement.
|
For IFRIC 22 and 23, it is too early to determine how significant
the effect on reported results and financial position will be. The
impact of IFRS 15, IFRS 9 and IFRS 16 are 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. This standard is mandatory
for financial years commencing on or after 1 January
2018, which is effective for Micro Focus on 1 November 2018.
Micro Focus will adopt the standard using the modified
retrospective approach which means that the cumulative impact of
the adoption will be recognised in retained earnings as
of 1 November 2018 and that comparatives will not be
restated.
IFRS 15 replaces guidance in IAS 18 and IAS 11. This standard
establishes a new principle-based model of recognising revenue from
customer contracts. It introduces a five-step model that requires
revenue to be recognised when control over goods and services are
transferred to the customer. Additionally, there is a requirement
in the new standard to capitalise certain incremental contract
costs. The guidance also requires disclosures regarding the
nature, amount, timing and uncertainty of revenue
and cash flows arising from contracts with customers.
Set out below are the three primary areas of difference and a table
setting out the approximate impacts of each of these
differences:
Cost of Obtaining Customer Contracts
The Group has considered the impact of IFRS 15 on the recognition
of software sales commission costs, which meet the definition of
incremental costs of obtaining a contract under IFRS 15. The Group
will apply a practical expedient to expense the sales commission's
costs as incurred where the expected amortisation period is one
year or less. An asset will be recognised for the software
sales commissions, which will typically be amortised across the
contract length, or customer life where the practical expedient
cannot be applied. The customer life has been assessed as 6
years in the SUSE business and 5 years in the rest of the
Group.
The Group will only be capitalising commissions paid for
uncompleted contracts at 1 November 2018 and amortising those
balances in FY19 compared to capitalising all relevant commissions
in future periods. By taking this practical expedient there will be
a benefit to profit before tax and EBITDA in the year ended 31
October 2019 as the capitalisation of commissions will be greater
than the amortisation and consequently the overall commission costs
will initially be reduced under IFRS 15 compared to existing
accounting policies where sales commissions are expensed as
incurred.
Notes to the consolidated financial statements
(unaudited) continued
Impact of IFRS 15 'Revenue
from contracts with customers' continued
Rebillable Expenses
The Group will report expenses that are recharged to customers,
such as travel and accommodation, as Service revenue. Under
existing accounting policies, these were presented as an offsetting
entry within cost of sales.
Consideration Payable to a customer
Certain payments to customers are required to be presented
differently where a defined benefit is received or where the payee
acts as agent rather than principal. The Group has considered the
impact of such payments including rebates. The Group will continue
to account for consideration payable to a customer as a reduction
of the transaction price and therefore revenue. However, an
adjustment will be recorded as the timing of the considerations
payable over the contract term will be accounted for as variable
consideration at the outset of the contract. Where the payment is
for a distinct good or service, then the Group will account for the
purchase in the same way as it does for purchases from other
suppliers in the normal course of business. Certain marketing
costs, which were previously presented as an offsetting entry
within revenue, will now be presented as a Selling and Distribution
cost.
Presentation
Under the new IFRS 15 based policies, the Group will no longer
report items as deferred revenue and accrued revenue. Instead, we
will present these as either a contract liability or contract
asset. Rights to consideration from customers are only presented as
accounts receivable if the rights are unconditional.
Summary of quantitative impacts
Under the IFRS 15 adoption method chosen by the Group, prior period
comparatives are not restated to conform to the new policies.
Consequently, the period-over-period change of revenue and profit
in the year to 31 October 2019 will be impacted by the new
policies.
We have set out below the estimated impacts on the Group of the
three primary areas described above, including the adjustment to
retained earnings expected to be recorded on the transition date of
1 November 2018, which will result in a corresponding $71m asset
being recorded on the balance sheet:
|
|
Increase / (decrease) in opening Retained Earnings on 1 November
2018
|
|
Estimated increase / (decrease) in
Revenuein FY19
|
Estimated increase / (decrease) in Operating Expensesin
FY19
|
Estimated increase / (decrease) in
Profit before tax and EBITDA
in FY19
|
|
|
$m
|
|
$m
|
$m
|
$m
|
|
Cost of
obtaining customer contracts
|
66
|
|
-
|
(20)
|
20
|
|
Rebillable
Expenses
|
-
|
|
2
|
2
|
-
|
|
Consideration
payable to a customer
|
5
|
|
23
|
23
|
-
|
|
|
71
|
|
25
|
5
|
20
|
IFRS 9 'Financial Instruments'
IFRS 9 replaces the provisions of IAS 39 that relate to the
recognition, classification and measurement of financial assets and
financial liabilities, derecognition of financial instruments,
impairment of financial assets and hedge accounting. IFRS 9 also
amends certain other standards covering financial instruments such
as IAS 1 Presentation of Financial Statements.
IFRS 9 is effective for accounting periods beginning on or after 1
January 2018 and will be adopted by the Group with effect from 1
November 2018.
The Group anticipates that the classification and measurement basis
for its financial assets will be largely unchanged by the adoption
of IFRS 9.
There will be no impact on the Group's accounting for financial
liabilities, as the new requirements only affect the accounting for
financial liabilities that are designated at fair value through
profit or loss and the Group does not have any such liabilities.
The derecognition rules have been transferred from IAS 39 Financial
Instruments: Recognition and Measurement and have not been
changed.
Under the new hedge accounting rules as a general rule, more hedge
relationships might be eligible for hedge accounting, as the
standard introduces a more principles-based approach. The Group has
confirmed that its current hedge relationships will qualify as
continuing hedges upon the adoption of IFRS 9.
Notes to the consolidated financial statements
(unaudited) continued
IFRS 9 'Financial Instruments' continued
The main impact of adopting IFRS 9 will arise from the application
of the expected credit loss model, which requires the recognition
of impairment provisions based on expected credit losses (ECL)
rather than only incurred credit losses as is the case under the
current standard, IAS 39. The new impairment requirements will
apply to the consolidated Group's financial assets classified at
amortised cost, particularly to its trade receivables. The Group
has elected to apply the practical expedient allowed under IFRS 9
to recognise the full amount of credit losses that would be
expected to be incurred over the full recovery period of trade
receivables. Based on the assessments undertaken to date, the Group
does not expect a material increase in the loss allowance for trade
debtors at 1 November 2018.
The Group will apply IFRS 9 retrospectively, with any adjustments
arising from the new impairment rules recognised in opening equity.
Under this approach, comparatives will not be
restated.
IFRS 16 'Leases'
In January 2016, the IASB published IFRS 16 - Leases, which will
replace IAS 17 - Leases. IFRS 16 introduces a new definition of a
lease, with a single lessee accounting model eliminating the
previous distinction between operating leases and finance leases.
Under IFRS 16, lessees will be required to account for all leases
in a similar manner to the current finance lease accounting
recognising lease assets and liabilities on the statement of
financial position. Lessor accounting remains similar to current
practice. The standard will affect primarily the accounting for the
Group's operating leases.
IFRS 16 applies to annual reporting periods beginning on or after 1
January 2019. Micro Focus will not early adopt IFRS 16, and
therefore the new standard will be effective from 1 November
2019.
The Group is still in the process of assessing what adjustments are
necessary, including which transition option the Group will apply.
It is therefore not yet possible to determine the amount of
right-of-use assets and lease liabilities that will have to be
recognised on adoption of the new standard and how this may affect
the Group's profit or loss and classification of cash flows going
forward. Certain non-GAAP measures disclosed by the Group are
expected to be impacted by IFRS 16.
3. Critical accounting estimates, assumptions and
judgements
In preparing these consolidated financial statements, the Group has
made its best estimates and judgements of certain amounts included
in the financial statements, giving due consideration to
materiality. The Group regularly reviews these estimates and
updates them as required. Actual results could differ from these
estimates. Unless otherwise indicated, the Group does not believe
that there is significant risk of a material change to the carrying
value of assets and liabilities within the next financial year
related to the accounting estimates and assumptions described
below. The Group considers the following to be a description of the
most significant estimates, which require the Group to make
subjective and complex judgements, and matters that are inherently
uncertain.
Critical accounting estimates and assumptions
A Potential impairment of goodwill and other intangible
assets
Each period, or whenever there are changes in circumstances
indicating that the carrying amounts may not be recoverable, the
Group carries out impairment tests of goodwill and other assets
which require estimates to be made of the of the value in use of
its CGU's. These value in use calculations are dependent on
estimates of future cash flows, long-term growth rates and
appropriate discount rates to be applied to future cash flows.
Further details on these estimates and sensitivity of the carrying
value of goodwill to the discount rate in particular are provided
in note 13.
B Provision for bad debt
The bad debt provision has historically been estimated based on the
ageing of each debtor and on any changes in the circumstances of
the individual receivable. The historic level of the provision has
been very low given the high number of recurring customers and
credit control policies with less than $2m of debtors written off
as uncollectable in the two previous periods prior to 30 April
2017. However, as discussed in the Chief Financial Officer's report
in the Annual Report, the newly implemented IT environment in this
period caused a material disruption within the order to cash
process for the acquired HPE Software business, particularly
impacting invoices raised between 1 November 2017 and 30 April
2018, which has significantly elevated debtor ageing with DSO days
increased to 94 at 31 October 2018.
Notes to the consolidated financial statements
(unaudited) continued
The system issue and subsequent cash collection has since been a
key focus for the finance team and it has been found that the
primary risk of bad debt is not believed to be related to specific
customer credit risks or inappropriate billing, but instead to the
administrative burden of invoice remediation needed by the Group
before invoices can be resent to customers and payment made by the
customer. This burden is high due to the volume of invoices
impacted that require administrative changes. The related bad debt
provision has been increased to $41.9m as a result of these
circumstances at period end against total trade receivables of
$1,089.6m. The provision is equivalent to the assumption that only
the largest 15% of invoices by value aged > 90 days are expected
to be collected and this reflects that a high volume of invoices
were impacted. Given the number of invoices impacted, it is
reasonably foreseeable that the volume of invoices actually
collected will be different to 15% and given that a collection rate
of 15% is relatively low, it is more foreseeable that there is
greater upside than downside. Were only the largest 10% of invoices
by value aged > 90 days collected then the provision recognised
would need to be increased by $17m. However if the largest 20% of
invoices by value aged > 90 days were collected then the
provision would be reduced by $10m and collection of the largest
30% would reduce the provision by $23m.
Critical accounting judgements
C Business combinations
When making acquisitions, the Group has to make judgements and best
estimates about the fair value allocation of the purchase price.
Where acquisitions are significant, appropriate advice is sought
from professional advisors before making such allocations,
otherwise valuations are done by management using consistent
methodology with those used on prior period
acquisitions.
Key judgements upon the acquisition of the HPE Software business
were required in the assumptions used to underpin the valuation of
acquired intangibles, particularly Customer Relationships ($4.48bn)
and Technology ($1.81bn).
There was also judgement used in identifying who the accounting
acquirer was in the acquisition of the HPE Software business, 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 the 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. locationof
headquarters of the combined entity and entity name). The
conclusion of this assessment is that the Company is the accounting
acquirer of the HPE Software business, and the acquisition
accounting is set out in the notes to the Consolidated Financial
Statements (note 27).
D Revenue recognition
The key areas of judgement in respect of recognising revenue are
the timing of recognition and how the different elements of bundled
contracts are identified, for example between licence and
maintenance revenues.
E Exceptional Item classification
The Group classifies items as exceptional in line with accounting
policy F. The classification of these items as an exceptional is a
matter of judgement. This judgement is made by management after
evaluating each item deemed to be exceptional against the criteria
set out within the defined accounting policy.
F Provision for Income Taxes
The Group is subject to income taxes in numerous jurisdictions.
Significant judgement is required in determining the worldwide
provision for income taxes including structuring activities
undertaken by the Group and the application of complex transfer
pricing rules. The Group recognises liabilities for anticipated
settlement of tax issues based on judgements of whether additional
taxes will be due. Significant issues may take several periods to
resolve. In making judgments on the probability and amount of any
tax charge, management takes into account:
● Status of the unresolved
matter;
● Strength of technical argument and clarity of
legislation;
● External advice;
● Resolution process, past experience and precedents
set with the particular taxing authority;
● Agreements previously reached in other
jurisdictions on comparable issues; and
● Statute of limitations.
The key judgments in the period were related to the internal
transfer of certain Group companies and whether this would create
an additional tax charge through non-compliance with specific
operational and transactional restrictions arising from US tax
legislation and their application to the acquisition of the HPE
Software business. Based on their assessment the directors
have concluded that no tax provisions are required with regards to
these matters.
The ultimate tax liability may differ from the amount provided
depending on interpretations of tax law, settlement negotiations or
changes in legislation. Where the final tax outcome of these
matters is different from the amounts that were initially recorded,
such differences will impact the income tax and deferred tax
provisions in the period in which such determination is
made.
Notes to the consolidated financial statements
(unaudited) continued
4. Financial risk factors
The Group's multi-national operations expose it to a variety of
financial risks that include the effects of changes in credit risk,
foreign currency risk, interest rate risk and liquidity risk. Risk
management is carried out by a central treasury department under
policies approved by the board of directors. Group treasury
identifies and evaluates financial risks alongside the Group's
operating units. The board provides written principles for risk
management together with specific policies covering areas such as
foreign currency risk, interest rate risk, credit risk and
liquidity risk, use of derivative financial instruments and
non-derivative financial instruments as appropriate, and investment
of excess funds.
A Credit risk
Financial instruments which potentially expose the Group to a
concentration of credit risk consist primarily of cash and cash
equivalents and accounts receivable. Cash equivalents are deposited
with high-credit quality financial institutions. The Group provides
credit to customers in the normal course of business. Collateral is
not required for those receivables, but on-going credit evaluations
of customers' financial conditions are performed. The Group
maintains a provision for impairment based upon the expected
collectability of accounts receivable. The Group sells products and
services to a wide range of customers around the world and
therefore believes there is no material concentration of credit
risk.
B Foreign currency risk
The Group operates internationally and is exposed to foreign
exchange risk arising from various currency exposures, primarily
with respect to the Euro, UK Pound Sterling, Israeli Shekel and the
Canadian Dollar. Foreign exchange risk arises from future
commercial transactions, recognised assets and liabilities and net
investments in foreign operations. Foreign exchange risk arises
when future commercial transactions, recognised assets and
liabilities are denominated in a currency that is not the entity's
functional currency.
There were no foreign currency hedging transactions in place at 31
October 2018 and 30 April 2017. The Group has certain investments
in foreign operations, whose net assets are exposed to foreign
currency translation risk.
C Interest rate risk
The Group's income and cash generated from operations are
substantially independent of changes in market interest rates. The
Group's interest rate risk arises from short-term and long-term
borrowings. Borrowings issued at variable rates expose the Group to
cash flow interest rate risk. The Group currently uses four
interest rate swaps to manage its cash flow interest rate risk
arising from expected increases in the LIBOR interest
rate.
D Liquidity risk
Central treasury carries out cash flow forecasting for the Group to
ensure that it has sufficient cash to meet operational requirements
and to allow the repayment of the bank facility. Surplus cash in
the operating units over and above what is required for working
capital needs is transferred to Group treasury. These funds are
used to repay bank borrowings or invested in interest bearing
current accounts, time deposits or money market deposits of the
appropriate maturity period determined by consolidated cash
forecasts.
Trade payables arise in the normal course of business and are all
current. Onerous lease provisions are expected to mature between
less than 12 months and eight years.
At 31 October 2018 gross borrowings of $4,996.9m (30 April 2017:
$1,595.2m) related to our senior secured debt facilities (see note
18). $50.3m (30 April 2017: $83.8m) is current of which $nil
(30 April 2017: $80.0m) is the revolving credit facility. The
borrowings disclosed in the balance sheet are net of pre-paid
facility costs.
Notes to the consolidated financial statements
(unaudited) continued
5. Segmental reporting
In accordance with IFRS 8, "Operating Segments", the Group has
derived the information for its segmental reporting using the
information used by the Chief Operating Decision Maker for the
purposes of resource allocation and assessment of segment
performance. The Chief Operating Decision Maker ("CODM") is defined
as the Executive Committee, which has changed its composition
during the period.
For the six months to 31 October 2017, the Executive Committee
consisted of the Executive Chairman, Chief Executive Officers of
Micro Focus and SUSE, Chief Financial Officer and the Chief
Operating Officer.
For the six months to 30 April 2018, the Executive Committee
consisted of the Executive Chairman, the Chief Executive Officer,
the Chief Executive Officer of SUSE and the Chief Financial
Officer.
On 2 July 2018, the Group then announced the proposed sale of SUSE
(note 26), one of the Group's two historical operating segments,
approved by the shareholders on 21 August 2018. As a result, for
management purposes, following the agreement to disposal of the
SUSE business, the Group is organised into a single reporting
segment comprising the Micro Focus Product Portfolio. Consistent
with this the Chief Executive Officer of SUSE, Nils Brauckmann,
stepped down from the Board on 11 July 2018 to concentrate on the
sale. As such, the CODM from 11 July 2018 consisted of the
Executive Chairman, the Chief Executive Officer and the Chief
Financial Officer.
The Group's segment under IFRS 8 is:
Micro Focus Product Portfolio - 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-Marketorganisation. The
products within the existing Micro Focus Product Portfolio are
grouped together into five sub-portfolios based on industrial logic
and management of the Micro Focus sub-portfolios: Application
Modernisation & Connectivity, Application Delivery Management,
IT Operations Management, Security and Information Management &
Governance.
The segmental reporting is consistent with that used in internal
management reporting and the profit measure used by the Executive
Committee is Adjusted EBITDA.
The internal management reporting that the Executive Committee
receives includes a pool of centrally managed costs, which are
allocated between Micro Focus and the SUSE business based on
identifiable segment specific costs with the remainder allocated
based on other criteria including revenue and
headcount.
|
|
|
18 months ended
31 October 2018
|
Restated1
12
months ended
30
April 2017
|
|
|
Note
|
$'000
|
$'000
|
|
Revenue before deferred revenue haircut
|
|
4,815,460
|
1,084,165
|
|
Deferred
revenue haircut
|
|
(61,062)
|
(6,892)
|
|
Segment revenue
|
|
4,754,398
|
1,077,273
|
|
Directly
managed costs
|
|
(2,997,545)
|
(564,072)
|
|
Allocation
of centrally managed costs
|
|
52,730
|
26,196
|
|
Total segment costs
|
|
(2,944,815)
|
(537,876)
|
|
Adjusted
Operating Profit
|
|
1,809,583
|
539,397
|
|
Exceptional
items
|
7
|
(538,156)
|
(97,258)
|
|
Share
based compensation charge
|
8
|
(64,284)
|
(31,463)
|
|
Amortisation
of purchased intangibles
|
|
(830,319)
|
(183,284)
|
|
Operating profit
|
|
376,824
|
227,392
|
|
Net
finance costs
|
11
|
(342,712)
|
(95,845)
|
|
Profit before tax
|
|
34,112
|
131,547
|
|
|
|
|
|
|
Reconciliation to Adjusted EBITDA:
|
|
|
|
|
Profit before tax
|
|
34,112
|
131,547
|
|
Finance
costs
|
11
|
350,366
|
96,824
|
|
Finance
income
|
11
|
(7,654)
|
(979)
|
|
Depreciation of property, plant and equipment
|
15
|
88,611
|
9,704
|
|
Amortisation of intangible assets
|
14
|
903,008
|
206,751
|
|
Exceptional items (reported in Operating profit)
|
7
|
538,156
|
97,258
|
|
Share-based compensation charge
|
8
|
64,284
|
31,463
|
|
Product development intangible costs capitalised
|
14
|
(44,350)
|
(27,664)
|
|
Foreign
exchange credit
|
|
(37,292)
|
(2,901)
|
|
Adjusted EBITDA
|
|
1,889,241
|
542,003
|
1 The comparatives for the
12 months to 30 April 2017 have been restated to reflect the
divestiture of the SUSE business segment (note
26)
Notes to the consolidated financial statements
(unaudited) continued
6. Analysis of revenue by product
Set out below is an
analysis of revenue recognised between the principal product
portfolios for the 18 months ended 31 October 2018 with
comparatives:
18 months ended 31 October 2018:
|
|
Licence
$'000
|
Maintenance
$'000
|
Subscription
$'000
|
Consulting
$'000
|
SaaS
$'000
|
Total
$'000
|
|
|
|
|
|
|
|
|
|
Micro Focus Product Portfolio (continuing operations):
|
|
|
|
|
|
|
|
Application
Modernisation & Connectivity
|
256,256
|
497,632
|
-
|
17,941
|
-
|
771,829
|
|
Application
Delivery Management
|
185,460
|
646,711
|
-
|
41,639
|
114,145
|
987,955
|
|
IT
Operations Management
|
363,150
|
869,891
|
-
|
192,772
|
15,055
|
1,440,868
|
|
Security
|
291,603
|
580,228
|
-
|
81,429
|
41,614
|
994,874
|
|
Information
Management & Governance
|
117,227
|
267,133
|
-
|
32,521
|
203,053
|
619,934
|
|
Subtotal
|
1,213,696
|
2,861,595
|
-
|
366,302
|
373,867
|
4,815,460
|
|
Deferred
revenue haircut
|
(7,592)
|
(42,657)
|
-
|
(2,046)
|
(8,767)
|
(61,062)
|
|
Total Revenue
|
1,206,104
|
2,818,938
|
-
|
364,256
|
365,100
|
4,754,398
|
|
|
|
|
|
|
|
|
12 months ended 30 April 2017 (restated1):
|
|
Licence
$'000
|
Maintenance
$'000
|
Subscription
$'000
|
Consulting
$'000
|
SaaS
$'000
|
Total
$'000
|
|
|
|
|
|
|
|
|
|
Micro
Focus Product Portfolio (continuing operations):
|
|
|
|
|
|
|
|
CDMS
|
105,962
|
149,668
|
-
|
9,530
|
-
|
265,160
|
|
Host
Connectivity
|
69,158
|
104,912
|
-
|
1,857
|
-
|
175,927
|
|
Identity,
Access & Security
|
48,635
|
141,298
|
-
|
18,354
|
-
|
208,287
|
|
Development
& IT Operations Management Tools
|
55,464
|
219,604
|
-
|
13,860
|
-
|
288,928
|
|
Collaboration
& Networking
|
29,175
|
112,079
|
-
|
4,609
|
-
|
145,863
|
|
Subtotal
|
308,394
|
727,561
|
-
|
48,210
|
-
|
1,084,165
|
|
Deferred
revenue haircut
|
-
|
(6,892)
|
-
|
-
|
-
|
(6,892)
|
|
Total
Revenue
|
308,394
|
720,669
|
-
|
48,210
|
-
|
1,077,273
|
|
|
|
|
|
|
|
|
1 The comparatives for the
12 months to 30 April 2017 have been restated to reflect the
divestiture of the SUSE business segment (note
26)
Notes to the consolidated financial statements
(unaudited) continued
7.
Exceptional items
|
|
18 months ended
31 October 2018
|
12
months ended
30
April 2017
|
|
Reported within Operating profit:
|
$'000
|
$'000
|
|
Integration
costs
|
278,995
|
27,696
|
|
Pre-acquisition
costs
|
43,025
|
58,004
|
|
Acquisition
costs
|
27,116
|
2,597
|
|
Property
related costs
|
38,014
|
5,525
|
|
Severance
and legal costsDivestiture costs
|
129,743
21,263
|
3,436
-
|
|
|
538,156
|
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
|
-
|
|
|
|
|
|
Exceptional costs before tax
|
543,929
|
97,258
|
|
|
|
|
|
Tax:
|
|
|
|
Tax
effect of exceptional items
|
(105,911)
|
(11,633)
|
|
Tax
exceptional item
|
(692,285)
|
-
|
|
|
(798,196)
|
(11,633)
|
|
|
|
|
|
Exceptional (income)/costs after tax
|
(254,267)
|
85,625
|
Integration costs
Integration
costs of $279.0m for the 18 months ended 31 October 2018 (12 months
to 30 April 2017: $27.7m) arose mainly from the work being done in
integrating Serena, GWAVA and the HPE Software business
organisation into the Micro Focus Product Portfolio. Other
activities include system integration costs.
Pre-acquisition costs
The
pre-acquisition costs of $43.0m for the 18 months ended 31 October
2018 (12 months to 30 April 2017: $58.0m) relate to the evaluation
of the acquisition of the HPE Software business, which was
announced in October 2016 and was completed on 1 October 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 business acquisition across all functions of the
existing Micro Focus business.
Acquisition costs
The
acquisition costs of $27.1m for the 18 months ended 31 October 2018
include external costs in completing the acquisition of the HPE
Software business in October 2017, (including $7.7m in respect of
US excise tax payable on the award of long-term Incentives and
Additional Share Grants to four senior employees) and costs
relating to the acquisition of COBOL-IT SAS (12 months to 30 April
2017: $2.6m related to the acquisitions of Serena in May 2016 and
GWAVA in October 2016). The external costs mostly relate to due
diligence work, legal work on the acquisition agreements and
professional advisors on the transaction.
Property related costs
Property
related costs of $38.0m for the 18 months ended 31 October 2018 (12
months to 30 April 2017: $5.5m) relate mainly to the assessment and
reassessment of leases on empty or sublet properties held by the
Group, in particular in North America, and the cost of site
consolidations.
Severance and legal costs
Severance
and legal costs of $129.7m for the 18 months ended 31 October 2018
(12 months to 30 April 2017: $3.4m) relate mostly to termination
costs for employees after acquisition relating to the integration
of the HPE Software business organisation into the Micro Focus
Product Portfolio. The costs for the 12 months ended 30 April 2017
related to termination costs for senior Serena executives after
acquisition.
Notes to the consolidated financial statements
(unaudited) continued
7.
Exceptional items continued
Divestiture costs
Divestiture
costs of $21.3m for the 18 months ended 31 October 2018 (12 months
to 30 April 2017: nil) relate mostly to fees paid to professional
advisors relating to the SUSE divestiture, due to be completed in
the first quarter of 2019 (note 26).
Finance income and finance costs
Finance
costs of $6.3m (12 months to 30 April 2017: $nil) and finance
income of $0.6m (12 months to 30 April 2017: $nil) for the 18
months ended 31 October 2018 relate to interest (charged and
gained) on additional term loan facilities drawn down in relation
to the acquisition of the HPE Software business, between the date
the facilities were drawn into escrow and the acquisition
date.
Tax
The
tax effect of exceptional items is a credit to the income statement
of $798.2m for the 18 months ended 31 October 2018 (12 months to 30
April 2017: $11.6m). The exceptional tax credit of $692.3m (2017:
$nil) in the 18 months ended 31 October 2018 relates to the impact
of US tax reforms, comprised of a credit of $930.6m in respect of
the re-measurement of deferred tax liabilities and a transition tax
charge of $238.3m payable over eight years.
8.
Share-based payments
|
|
18 months ended
31 October 2018
|
Restated1
12 months ended
30 April2017
|
|
|
$'000
|
$'000
|
|
Share based compensation - IFRS 2 charge
|
70,921
|
20,798
|
|
Employer taxes
|
(6,637)
|
10,665
|
|
|
64,284
|
31,463
|
1 The comparatives for the
12 months to 30 April 2017 have been restated to reflect the
divestiture of the SUSE business segment (note
26)
As at 31 October 2018, accumulated employer taxes of $20.6m (2017:
$17.0m) is included in trade and other payables and $0.5m (2017:
$1.2m) is included in other non-current liabilities.
9.
Dividends
|
|
18 months ended
31 October 2018
|
12 months ended
30 April 2017
|
|
Equity - ordinary
|
$'000
|
$'000
|
|
Final paid 58.33 cents (2017: 49.74 cents) per ordinary
share
|
133,889
|
111,023
|
|
First Interim paid 34.60 cents (2017: 29.73 cents) per ordinary
share
|
156,243
|
66,512
|
|
Second Interim paid 58.33 cents (2017: nil cents) per ordinary
share
|
252,029
|
-
|
|
|
542,161
|
177,535
|
The directors announce a final dividend of 58.33 cents per
share payable on 5 April 2019 to shareholders who are registered at
1 March 2019. This final dividend, amounting to $249.0m has not
been recognised as a liability as at 31 October 2018.
Notes to the consolidated financial statements
(unaudited) continued
10. Earnings per
share
The calculation of the basic earnings per share has been based on
the earnings attributable to owners of the parent and the weighted
average number of shares for each period.
Reconciliation of the earnings and weighted average number of
shares:
|
|
18 months ended
31 October 2018
|
Restated1
12 months ended
30 April2017
|
|
Earnings ($'000)
|
|
|
|
Profit for the period from continuing operations
|
707,108
|
124,186
|
|
Profit for the period from discontinued operations
|
76,940
|
33,720
|
|
Profit for the period
|
784,048
|
157,906
|
|
|
|
|
|
Number of shares ('000)
|
|
|
|
Weighted average number of shares
|
388,717
|
229,238
|
|
Dilutive effects of shares
|
10,963
|
8,165
|
|
|
399,680
|
237,403
|
|
|
|
|
|
Earnings per share
|
|
|
|
Basic earnings per share (cents)
|
|
|
|
Continuing operations
|
181.91
|
54.17
|
|
Discontinued operation
|
19.79
|
14.71
|
|
|
201.70
|
68.88
|
|
|
|
|
|
Diluted earnings per share (cents)
|
|
|
|
Continuing operations
|
176.92
|
52.31
|
|
Discontinued operation
|
19.25
|
14.20
|
|
|
196.17
|
66.51
|
|
|
|
|
|
Basic earnings per share (pence)
|
|
|
|
Continuing operations
|
136.73
|
41.88
|
|
Discontinued operation
|
14.78
|
11.37
|
|
|
151.61
|
53.25
|
|
|
|
|
|
Diluted earnings per share (pence)
|
|
|
|
Continuing operations
|
132.98
|
40.44
|
|
Discontinued operations
|
14.47
|
10.98
|
|
|
147.45
|
51.42
|
|
|
|
|
|
Earnings attributable to ordinary shareholders
|
|
|
|
From continuing operations
|
707,193
|
124,083
|
|
Excluding non-controlling interests
|
(85)
|
103
|
|
Profit for the period from continuing operations
|
707,108
|
124,186
|
|
From discontinued operation
|
76,940
|
33,720
|
|
|
784,048
|
157,906
|
|
|
|
|
|
Average exchange rate
|
$1.33 / £1
|
$1.29 / £1
|
1 The comparatives for the
12 months to 30 April 2017 have been restated to reflect the
divestiture of the SUSE business segment (note
26)
The
weighted average number of shares excludes treasury shares that do
not have dividend rights. The basic weighted average number of
shares has increased from 229 million to 388 million, primarily due
to the effect of the issue of shares to acquire the HPE software
business during the period.
Notes to the consolidated financial statements
(unaudited) continued
11. Finance income
and finance costs
|
|
18 months ended
31 October 2018
|
12 months ended
30 April 2017
|
|
|
$'000
|
$'000
|
|
Finance costs
|
|
|
|
Interest on bank borrowings
|
276,530
|
81,157
|
|
Commitment fees
|
3,294
|
796
|
|
Amortisation of facility costs and original issue
discounts
|
60,377
|
14,219
|
|
Finance costs on bank borrowings
|
340,201
|
96,712
|
|
Net interest expense on retirement obligations (note
21)
|
2,823
|
565
|
|
Finance lease expense
|
2,690
|
-
|
|
Interest rate swaps: cash flow hedges, transfer from
equity
|
3,399
|
-
|
|
Other
|
1,253
|
87
|
|
Total
|
350,366
|
96,824
|
|
|
|
|
|
Finance income
|
|
|
|
Bank interest
|
3,593
|
438
|
|
Interest on non-plan pension assets (note 21)
|
633
|
404
|
|
Other
|
3,428
|
137
|
|
Total
|
7,654
|
979
|
|
|
|
|
|
Net finance cost
|
342,712
|
95,845
|
|
|
|
|
|
Included within exceptional items (note 7)
|
|
|
|
Finance costs incurred in escrow period
|
6,326
|
-
|
|
Finance income earned in escrow period
|
(553)
|
-
|
|
|
5,773
|
-
|
12.
Taxation
The Group's reported tax charge for the 18 months ended 31 October
2018 was a credit of $673.1m (12 months ended 30 April 2017: charge
of $7.5m) primarily due to the one-off impact of US tax reforms.
The tax charge is lower than the standard rate of corporation
tax in the UK of 19.00% (12 months ended 30 April 2017: 19.92%).
The differences are explained below:
|
|
18 months
ended
31 October 2018
|
Restated1
12 months ended
30 April 2017
|
|
|
$'000
|
$'000
|
|
Profit before taxation
|
34,112
|
131,547
|
|
|
|
|
|
Tax at UK corporation tax rate 19.00% (2017: 19.92%)
|
6,481
|
26,005
|
|
Effects of:
|
|
|
|
Tax rates other than the UK standard rate
|
17,778
|
571
|
|
Intra-group financing
|
(20,654)
|
(15,636)
|
|
Innovation tax credit benefits
|
(21,374)
|
(9,834)
|
|
US foreign inclusion income
|
39,053
|
394
|
|
US transition tax
|
238,270
|
-
|
|
Share options
|
10,236
|
-
|
|
Movement in deferred tax not recognised
|
7,306
|
200
|
|
Effect of change in tax rates
|
(931,865)
|
(1,291)
|
|
Expenses not deductible and other permanent
differences
|
(4,800)
|
9,802
|
|
|
(659,569)
|
10,211
|
|
|
|
|
|
Adjustments to tax in respect of previous periods:
|
|
|
|
Current tax
|
(14,725)
|
1,698
|
|
Deferred tax
|
1,213
|
(4,445)
|
|
|
(13,512)
|
(2,747)
|
|
|
|
|
|
Total tax (credit)/charge
|
(673,081)
|
7,464
|
1 The comparatives for the
12 months to 30 April 2017 have been restated to reflect the
divestiture of the SUSE business segment (note
26)
Notes to the consolidated financial statements
(unaudited) continued
12.
Taxation continued
Tax rates other than the UK standard rate includes provisions for
uncertain tax positions relating to the risk of challenge from tax
authorities to the geographic allocation of profits across the
Group. The increase in the period reflects the increased size of
the Group following the HPE Software business acquisition and the
impact of the OECD's continuing Base Erosion and Profit Shifting
project.
The Group continues to benefit from the UK's Patent Box regime, US
R&D tax credits and other innovation-based tax credits offered
by certain jurisdictions, the benefit for the 18 months ended 31
October 2018 being $21.4m (12 months ended 30 April 2017: $9.8m).
The Group realised benefits in relation to intra-group financing of
$20.7m for the 18 months ended 31 October 2018 (12 months ended 30
April 2017: $15.6.m). The benefits mostly relate to arrangements
put in place to facilitate the acquisitions of the HPE Software
business, TAG and Serena.
US foreign inclusion income includes non-US amounts deemed
repatriated to, and therefore taxable in, the US in the current
period.
US tax reforms result in a net one-off credit to the income
statement in the period of $692.3m being a credit of $930.6m in
respect of the re-measurement of deferred tax liabilities due
to the reduction of the US federal tax rate from 35% to
21% and a transition tax charge of $238.3m payable over eight
years.
The Group recognised a net overall charge in respect of share
options due to deferred tax credits arising on options held at the
balance sheet date being lower than the current tax charge because
of the terms of the options.
The Group realised a net credit in relation to the true-up of prior
period, current and deferred tax estimates of $13.5m for the 18
months ended 31 October 2018 (12 months ended 30 April 2017:
$2.7m). Within the current tax true up is a credit of $11.2m in
respect of items within the income tax reserve, which are no longer
considered probable to arise.
The Group's tax charge is subject to various factors, many of which
are outside the control of the Group, including changes in local
tax legislation, and specifically US tax reform, the OECD's Base
Erosion and Profit Shifting project and the consequences of Brexit.
The European Commission has issued preliminary findings and opened
a state aid investigation into the UK's 'Financing Company Partial
Exemption' legislation. Similar to other UK based international
companies Micro Focus may be affected by the final outcome of this
investigation and is monitoring developments. If the preliminary
findings of the European Commission's investigation into the UK
legislation are upheld, Micro Focus has calculated that the maximum
potential tax liability would be $57.8m. Based on its current
assessment Micro Focus believes that no provision is required in
respect of this issue.
For the 18 months ended 31 October 2018, a deferred tax debit of
$23.7m (12 months ended 30 April 2017: $23.0m credit) and current
tax credit of $4.1m (12 months ended 30 April 2017: $4.1m credit)
have been recognised in equity in relation to share options. A
current tax debit of $16.4m (12 months ended 30 April 2017: $0.0m)
has been recognised in the hedging reserve. In addition, a deferred
tax credit of $4.3m (12 months ended 30 April 2017: $0.3m debit)
has been recognised in the consolidated statement of comprehensive
income in relation to defined benefit pension schemes.
13.
Goodwill
|
|
|
31 October 2018
|
30
April 2017
|
|
Cost and Net book value
|
Note
|
$'000
|
$'000
|
|
1
May
|
|
2,828,604
|
2,436,168
|
|
Acquisitions
|
27
|
4,863,962
|
392,436
|
|
Reclassification
to assets held for sale
|
26
|
(887,523)
|
-
|
|
|
|
6,805,043
|
2,828,604
|
|
|
|
|
|
|
A segment-level summary of the goodwill allocation is presented
below:
|
|
|
|
|
Micro Focus
|
|
6,805,043
|
1,969,038
|
|
SUSE
|
|
-
|
859,566
|
|
|
|
6,805,043
|
2,828,604
|
Goodwill acquired through business combinations has been allocated
to a cash generating unit ("CGU") for the purpose of impairment
testing.
The goodwill arising on the acquisition of the HPE Software
business of $4,858.4m (note 27) and COBOL-IT, SAS ("COBOL-IT")
$5.6m (note 27) have been allocated to the Micro Focus CGU as this
is consistent with the segment reporting that used in internal
management reporting. Of the additions to goodwill, there is no
amount expected to be deductible for tax purposes.
Notes to the consolidated financial statements
(unaudited) continued
13.
Goodwill continued
Impairment Test
Impairment of goodwill is tested annually, or more frequently where
there is indication of impairment. An impairment test is a
comparison of the carrying value of the assets of the CGU with
their recoverable amount. Where the recoverable amount is less than
the carrying value, an impairment results.
The annual impairment test has historically been carried out at 30
April. Going forward, starting with this period end, the annual
test has been moved to 31 October to align with the new
period-end.
During the period as a result of the proposed divestiture of SUSE,
$859.6m of goodwill historically allocated to the SUSE CGU has been
reclassified within assets held for sale (note 26). The SUSE
goodwill was subject to impairment test both at the point it was
initially recorded as an asset held for sale and again at period
end. At both dates on a fair value less costs to sell basis, based
on the agreed cash consideration of $2.535 billion, no impairment
was identified. As a result of the proposed Atalla disposal (which
completed post period end, note 26), $27.9m of goodwill was also
reclassified within assets held for sale from the Micro Focus CGU.
No impairment was identified.
The recoverable amount of the Micro Focus CGU is determined based
on its Value In Use ("VIU"). The VIU includes estimates about the
future financial performance of the CGU and is based on 5-year
projections and then a terminal value calculation. It utilises
discounted board approved forecasts for 2019 and 2020 with the
following three years alsoreflecting management's expectation of
the medium and long-term growth prospects which have been applied
based upon the expected operating performance of the CGU and growth
prospects in the CGU's market. The cash flow projections and inputs
combine past performance with adjustments as appropriate where the
directors believe that past performance and rates are not
indicative of future performance and rates.
Key assumptions
Key assumptions in the VIU are considered to be the discount rate
and long-term growth rate. These have been assessed taking into
consideration the current economic climate and the resulting impact
on expected growth and discount rates.
The long-term growth rate and discount rate used in the VIU
calculation are:
|
|
2018
|
2017
|
|
Long-term
growth rate
|
1.0%
|
1.0%
|
|
Pre-tax
discount rate
|
9.7%
|
11.4%
|
The directors have considered reasonably possible changes in the
key assumptions that could have an adverse impact, taking into
consideration that the Group is insulated from some significant
adverse impacts by its geographical spread and that the Group's
cost base is flexible and could quickly respond to market
changes.
The directors have assessed that a reasonably possible change in
the discount rate is 2.0% (2017: 2.0%) and this would cause the
carrying value of the Micro Focus CGU to exceed its recoverable
amount. An increase in the discount rate of 1.3% to 11.0% would
reduce the amount by which the recoverable amount exceeds its
carrying value from $2.2 billion to $nil. The directors have also
assessed that there is not a reasonably possible change in the
long-term growth rate that would result in an
impairment.
No impairment charge resulted from the goodwill tests for
impairment in the 18 months ended 31 October 2018 (30 April 2017:
no impairment).
Notes to the consolidated financial statements
(unaudited) continued
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
|
-
|
-
|
95,245
|
22,111
|
210,744
|
-
|
328,100
|
|
Additions
|
3,162
|
27,664
|
-
|
-
|
-
|
-
|
30,826
|
|
Additions
- external consultants
|
-
|
612
|
-
|
-
|
-
|
-
|
612
|
|
Amortisation
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
|
|
|
|
|
|
|
|
|
|
|
Continuing operations :
|
|
|
|
|
|
|
|
|
Acquisition
- HPE Software business (note 27)
|
72,825
|
-
|
1,809,000
|
163,000
|
4,480,000
|
15,000
|
6,539,825
|
|
Acquisition
- COBOL-IT (note 27)
|
-
|
-
|
1,537
|
154
|
12,317
|
-
|
14,008
|
|
Acquisition
- Covertix (note 27)
|
2,490
|
-
|
-
|
-
|
-
|
-
|
2,490
|
|
Additions
|
46,812
|
44,350
|
-
|
-
|
-
|
-
|
91,162
|
|
Additions
- external consultants
|
-
|
953
|
-
|
-
|
-
|
-
|
953
|
|
Amortisation
charge for the period
|
(30,682)
|
(42,007)
|
(280,478)
|
(26,724)
|
(519,935)
|
(3,182)
|
(903,008)
|
|
Exchange
adjustments
|
409
|
(20)
|
-
|
-
|
-
|
-
|
389
|
|
|
|
|
|
|
|
|
|
|
Discontinued operation:
|
|
|
|
|
|
|
|
|
Amortisation
charge for the period
|
(765)
|
-
|
(13,425)
|
(9,118)
|
(16,894)
|
-
|
(40,202)
|
|
Reclassification
to current assets classified as held for sale (note
26)
|
(3,699)
|
-
|
(12,950)
|
(109,306)
|
(39,707)
|
-
|
(165,662)
|
|
|
|
|
|
|
|
|
|
|
At 31 October 2018
|
91,055
|
52,403
|
1,679,615
|
218,778
|
4,575,656
|
11,818
|
6,629,325
|
|
|
|
|
|
|
|
|
|
Intangible assets, with the exception of purchased software and
internally generated product development costs, relate to
identifiable assets purchased as part of the Group's business
combinations. Intangible assets are amortised on a straight-line
basis over their expected useful economic life (note
2).
Expenditure totalling $91.2m (12 months to 30 April 2017: $31.4m)
was made in the 18 months ended 31 October 2018, including $45.3m
in respect of development costs and $46.8m of purchased software.
The acquisitions of the HPE Software business, COBOL-IT and
Covertix in the 18 months ended 31 October 2018 gave rise to an
addition of $6,556.3m to purchased intangibles (note 27). The
acquisitions of Serena, GWAVA and OpenATTIC in the year ended 30
April 2017 gave rise to an addition of $328.1m to purchased
intangibles.
Of the $45.3m of additions to product development costs, $44.4m
(2017: $27.7m) relates to internal product development costs and
$0.9m (2017: $0.6m) to external consultants' product development
costs.
At 31 October 2018, the unamortised lives of technology assets were
in the range of two to 10 years, customer relationships in the
range of one to 10 years and trade names in the range of 10 to 20
years.
Notes to the consolidated financial statements
(unaudited) continued
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
|
-
|
1,068
|
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)
|
|
Depreciation
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
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
Acquisitions
- HPE Software business (note 27)
|
-
|
56,568
|
79,473
|
24,077
|
160,118
|
|
Acquisitions
- COBOL-IT (note 27)
|
-
|
-
|
52
|
-
|
52
|
|
Additions
|
-
|
10,444
|
33,286
|
6,408
|
50,138
|
|
Disposals
|
-
|
(3,412)
|
(247)
|
(900)
|
(4,559)
|
|
Depreciation
charge for the period
|
(479)
|
(26,271)
|
(50,725)
|
(11,136)
|
(88,611)
|
|
Exchange
adjustments
|
36
|
(2,255)
|
(1,799)
|
229
|
(3,789)
|
|
|
|
|
|
|
|
|
Discontinued operation:
|
|
|
|
|
|
|
Additions
|
-
|
20
|
2,018
|
29
|
2,067
|
|
Disposals
|
-
|
-
|
(19)
|
(4)
|
(23)
|
|
Depreciation
charge for the period
|
-
|
(2,695)
|
(2,612)
|
(1,261)
|
(6,568)
|
|
Exchange
adjustments
|
-
|
94
|
157
|
4
|
255
|
|
Reclassification
to current assets classified as held for sale (note
26)
|
-
|
(2,120)
|
(3,455)
|
(211)
|
(5,786)
|
|
|
|
|
|
|
|
|
At 31 October 2018
|
12,069
|
44,891
|
66,681
|
20,609
|
144,250
|
16. Trade and
other receivables
|
|
31 October 2018
|
30
April 2017
|
|
|
$'000
|
$'000
|
|
Trade
receivables
|
1,089,589
|
266,225
|
|
Less:
provision for impairment of trade receivables
|
(41,860)
|
(2,599)
|
|
Trade
receivables net
|
1,047,729
|
263,626
|
|
Prepayments
|
59,966
|
23,239
|
|
Other
receivables
|
79,062
|
1,534
|
|
Accrued
income
|
85,276
|
1,110
|
|
Total
|
1,272,033
|
289,509
|
At 31 October 2018 and 30 April 2017, the carrying amount
approximates to the fair value. The trade receivables of $1,089.6m
at 31 October 2018 is net of $21.5m provision for impairment of
trade receivables in the opening balance of the acquired HPE
Software business.
Notes to the consolidated financial statements
(unaudited) continued
17. Trade and
other payables - current
|
|
31 October 2018
|
30
April 2017
|
|
|
$'000
|
$'000
|
|
Trade
payables
|
46,096
|
16,891
|
|
Tax and
social security
|
46,525
|
3,032
|
|
Accruals
|
584,296
|
150,119
|
|
Total
|
676,917
|
170,042
|
At 31 October 2018 and 30 April 2017, the carrying amount
approximates to the fair value. Accruals include vacation,
payroll and employee taxes ($147.0m), commission and employee
bonuses ($162.7m), integration expenses ($44.5m) and consulting and
audit fees ($30.3m).
18.
Borrowings
|
|
31 October 2018
|
30
April 2017
|
|
|
$'000
|
$'000
|
|
Bank
loans secured
|
4,996,913
|
1,595,188
|
|
Unamortised
prepaid facility arrangement fees and original issue
discounts
|
(151,033)
|
(33,652)
|
|
|
4,845,880
|
1,561,536
|
|
|
31 October 2018
|
30
April 2017
|
|
|
Bank loan secured
|
Unamortised
prepaid facility
arrangement fees
and original issue
discounts
|
Total
|
Bank
loan secured
|
Unamortised
prepaid
facility
arrangement
fees
and
original issue
discounts
|
Total
|
|
Reported within:
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
Current
liabilities
|
50,347
|
(46,645)
|
3,702
|
83,788
|
(12,604)
|
71,184
|
|
Non-current
liabilities
|
4,946,566
|
(104,388)
|
4,842,178
|
1,511,400
|
(21,048)
|
1,490,352
|
|
|
4,996,913
|
(151,033)
|
4,845,880
|
1,595,188
|
(33,652)
|
1,561,536
|
The following Facilities were drawn as at 31 October
2018:
● The $1,503.8m senior secured term loan B-2 issued
by MA FinanceCo LLC is priced at LIBOR plus 2.25% (subject to a
LIBOR floor of 0.00%);
● The $2,580.5m senior secured seven-year term loan
B issued by Seattle SpinCo. Inc. is priced at LIBOR plus 2.50%
(subject to a LIBOR floor of 0.00%) with an original issue discount
of 0.25%;
● The $382.1m senior secured seven-year term loan
B-3 issued by MA FinanceCo LLC is priced at LIBOR plus 2.50%
(subject to a LIBOR floor of 0.00%) with an original issue discount
of 0.25%; and
● The €466.5m (equivalent to $530.5m) senior
secured seven-year term loan B issued by MA FinanceCo LLC is priced
at EURIBOR plus 2.75% (subject to a EURIBOR floor of 0.00%) with an
original issue discount of 0.25%.
The following Facilities were undrawn as at 31 October
2018:
● A senior secured revolving credit facility of
$500.0m, ("Revolving Facility"), with an interest rate of 3.25%
above LIBOR on amounts drawn (and 0.375% on amounts undrawn)
thereunder (subject to a LIBOR floor of 0.00%).
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 2018, $nil of the Revolving Facility was drawn together
with $4,996.9m of Term Loans giving gross debt of $4,996.9m 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 2018, no covenant test is
applicable.
Notes
to the consolidated financial statements
(unaudited) continued
18.
Borrowings continued
The movements on the Group loans in the period were as
follows:
|
|
Term Loan B-2
|
TermLoan B
|
Term Loan C
|
Term Loan B-3
|
Seattle Spinco Term Loan
|
Euro Term Loan B
|
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
|
|
Draw downs
|
-
|
-
|
-
|
385,000
|
-
|
523,815
|
135,000
|
1,043,815
|
|
Repayments
|
(11,364)
|
-
|
-
|
(2,888)
|
(19,500)
|
(4,184)
|
(215,000)
|
(252,936)
|
|
Foreign exchange
|
-
|
-
|
-
|
-
|
-
|
10,846
|
-
|
10,846
|
|
At 31 October 2018
|
1,503,824
|
-
|
-
|
382,112
|
2,580,500
|
530,477
|
-
|
4,996,913
|
Borrowings are stated after deducting unamortised prepaid facility
fees and original issue discounts. Facility arrangement costs and
original issue discounts are amortised between three and six years.
The fair value of borrowings equals their carrying
amount.
19. 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 2018
|
30
April 2017
|
|
|
$'000
|
$'000
|
|
Derivative
financial instruments-non-current asset - interest rate
swaps
|
86,381
|
-
|
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 are derived from forward interest rates based on yield
curves observable at the balance sheet date together with the
contractual interest rates.
There were no transfers of assets or liabilities between levels of
the fair value hierarchy during the period.
20.
Provisions
|
|
31 October 2018
|
30
April 2017
|
|
|
$'000
|
$'000
|
|
Onerous
leases and dilapidations
|
35,105
|
16,243
|
|
Restructuring
and integration
|
50,689
|
12,132
|
|
Legal
|
7,038
|
3,220
|
|
Other
|
-
|
484
|
|
|
92,832
|
32,079
|
|
|
|
|
|
Current
|
57,411
|
20,142
|
|
Non-current
|
35,421
|
11,937
|
|
|
92,832
|
32,079
|
Notes to the consolidated financial statements (unaudited)
continued
20.
Provisions continued
|
|
Onerous Leases and dilapidations
|
Restructuring
|
Legal
|
Other
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
At 1 May 2017
|
16,243
|
12,132
|
3,220
|
484
|
32,079
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
Acquisitions
- HPE Software business (note 27)
|
11,321
|
21,398
|
36,446
|
-
|
69,165
|
|
Additional
provision in the period
|
17,723
|
133,421
|
1,392
|
-
|
152,536
|
|
Released
|
(3,890)
|
(3,678)
|
(4,733)
|
(416)
|
(12,717)
|
|
Utilisation
of provision
|
(5,590)
|
(110,062)
|
(29,263)
|
(97)
|
(145,012)
|
|
Exchange
adjustments
|
(702)
|
(2,522)
|
(24)
|
29
|
(3,219)
|
|
|
|
|
|
|
|
|
Discontinued operation:
|
|
|
|
|
|
|
Additional
provision in the period
|
2,835
|
205
|
-
|
-
|
3,040
|
|
Reclassification
of current assets classified as held for sale (note
26)
|
(2,835)
|
(205)
|
-
|
-
|
(3,040)
|
|
At 31 October 2018
|
35,105
|
50,689
|
7,038
|
-
|
92,832
|
|
|
|
|
|
|
|
|
Current
|
11,219
|
39,154
|
7,038
|
-
|
57,411
|
|
Non-current
|
23,886
|
11,535
|
-
|
-
|
35,421
|
|
Total
|
35,105
|
50,689
|
7,038
|
-
|
92,832
|
|
|
Onerous
Leases and dilapidations
|
Restructuring
|
Legal
|
Other
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
At 1
May 2016
|
18,176
|
3,523
|
1,920
|
1,280
|
24,899
|
|
Additional
provision in the period
|
4,584
|
48,498
|
98
|
501
|
53,681
|
|
Acquisitions
(note 27)
|
-
|
1,201
|
2,844
|
-
|
4,045
|
|
Utilisation
of provision
|
(5,527)
|
(37,712)
|
(120)
|
(117)
|
(43,476)
|
|
Released
|
(857)
|
(2,886)
|
(1,492)
|
(1,180)
|
(6,415)
|
|
Exchange
adjustments
|
(133)
|
(492)
|
(30)
|
-
|
(655)
|
|
At 30
April 2017
|
16,243
|
12,132
|
3,220
|
484
|
32,079
|
|
|
|
|
|
|
|
|
Current
|
4,406
|
12,132
|
3,220
|
384
|
20,142
|
|
Non-current
|
11,837
|
-
|
-
|
100
|
11,937
|
|
Total
|
16,243
|
12,132
|
3,220
|
484
|
32,079
|
Onerous leases and dilapidations provisions
The onerous lease and dilapidations provision relates to leased
Group properties and this position is expected to be fully utilised
within eight years. The provision was increased by $29.0m in the 18
months ended 31 October 2018, due to the acquisition of the HPE
Software business ($11.3m) and relating to legal obligations to
restore leased properties at the end of the lease period and a
reassessment of sites across North America, United Kingdom, Israel
and Australia ($17.7m). Provisions of $3.9m were released following
the renegotiation/exit of leases of two North American
properties.
Notes to the consolidated financial statements
(unaudited) continued
20.
Provisions continued
Restructuring provisions
Restructuring provisions relate to severance resulting from
headcount reductions. The majority of provisions are expected to be
fully utilised within 12 months. At the 30 April 2017, this also
included $4.6m of provisions for integration activities undertaken
in readiness for the HPE Software business acquisition across all
functions of the existing business. These were utilised in the
period. Restructuring costs are reported within exceptional costs
(note 7).
Legal provisions
Legal provisions include the directors' best estimate of the likely
outflow of economic benefits associated with ongoing legal
matters.
Other provisions
Releases of other provisions during the 18 months ended 31 October
2018 relate to future fees no longer considered likely to be
incurred.
21. Retirement
benefit obligations
|
|
31 October 2018
|
30
April 2017
|
|
|
$'000
|
$'000
|
|
Retirement
benefit obligations
|
(110,351)
|
(30,773)
|
As of 31 October 2018, there are 30 (30 April 2017: 4 in Germany,
one of which provides benefits solely for SUSE employees) defined
benefit plans in 10 countries around the world. Some of the plans
are final salary pension plans, which provide benefits tomembers 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 administrators 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 othertypes 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. The Group sponsors 13 plans that are open to new
members, all of which are termination or retirement indemnity plans
or statutory plans providing a one-time benefit at termination,
retirement or death or disability. As a result of the acquisition
of the HPE Software business, the Group participates in
multi-employer defined benefit plans in Switzerland and Japan.
These plans are accounted for as defined benefit
plans.
During the 18 months ended 31 October 2018, a pension scheme
arrangement in Switzerland was identified as requiring
reclassification from a defined contribution scheme to a defined
benefit scheme. During the year ended 30 April 2017, a pension
scheme arrangement in Germany was identified as requiring
reclassification under German law from a defined contribution
scheme to a defined benefit scheme. Reclassifications of $2.1m for
the 18 months ended 31 October 2018 ($3.0m for the year ended 30
April 2017) were recorded against the net defined benefit
obligation and other comprehensive income.
For the 18 months ended 31 October 2018, excluding actuarial gains
and losses, $10.2m (12 months to 30 April 2017: $1.2m) is
included in the consolidated statement of comprehensive income in
respect of the defined benefit pension arrangements being a current
service charge of $7.4m(12 months to 30 April 2017: $0.6m) and
a net finance charge of $2.8m (12 months to 30 April
2017: $0.6m).
Notes to the consolidated financial statements
(unaudited) continued
21. Retirement
benefit obligations continued
The weighted average key assumptions used for the pension schemes
as at 31 October 2018 were the rate of increase in final
pensionable salary 2.61% (30 April 2017: 2.00%), rate of increase
in pension payments 1.99% (30 April 2017: 2.00%), a discount rate
of 1.92% (30 April 2017: 1.95%) and an inflation rate of 1.89% (30
April 2017: 2.00%). The mortality assumptions for the pension
schemes are set based on actuarial advice in accordance with
published statistics and experience in the territory.
|
|
31 October 2018
|
30
April 2017
|
|
|
Funded
|
Unfunded
|
Total
|
Funded
|
|
|
$'000
|
$'000
|
$'000
|
$'000
|
|
Present
value of obligations
|
213,305
|
7,903
|
221,208
|
36,480
|
|
Fair
value of plan assets
|
(110,857)
|
-
|
(110,857)
|
(5,707)
|
|
|
102,448
|
7,903
|
110,351
|
30,773
|
The defined benefit obligation has moved as follows:
|
|
31
October 2018
|
|
30
April 2017
|
|
|
|
|
Defined benefit obligations
|
Scheme assets
|
Retirement benefit obligations
|
|
Defined
benefit obligations
|
Scheme
assets
|
Retirement
benefit obligations
|
|
|
|
$'000
|
$'000
|
$'000
|
|
$'000
|
$'000
|
$'000
|
|
|
At May 1
|
36,480
|
(5,707)
|
30,773
|
|
37,524
|
(5,855)
|
31,669
|
|
|
Acquisition
of the HPE Software business
|
181,455
|
(110,010)
|
71,445
|
|
-
|
-
|
-
|
|
|
Reclassification
to assets held for sale
|
(9,125)
|
3,595
|
(5,530)
|
|
|
|
|
|
|
Current
service cost
|
12,895
|
-
|
12,895
|
|
625
|
-
|
625
|
|
|
Past
service credit
|
(5,489)
|
-
|
(5,489)
|
|
|
|
|
|
|
Benefits
paid
|
(9,603)
|
9,406
|
(197)
|
|
(197)
|
87
|
(110)
|
|
|
Contributions
by plan participants
|
2,547
|
(2,313)
|
234
|
|
-
|
(114)
|
(114)
|
|
|
Contributions
by employer
|
-
|
(4,012)
|
(4,012)
|
|
-
|
-
|
-
|
|
|
Interest
cost/(income)
|
5,253
|
(2,430)
|
2,823
|
|
660
|
(95)
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Remeasurements
- actuarial (gains)/losses:
|
|
|
|
|
|
|
|
|
|
- Demographic
|
(332)
|
-
|
(332)
|
|
-
|
-
|
-
|
|
|
- Financial
|
11,104
|
-
|
11,104
|
|
(2,821)
|
-
|
(2,821)
|
|
|
- Experience
|
(1,858)
|
-
|
(1,858)
|
|
(568)
|
-
|
(568)
|
|
|
- Actuarial
return on assets excluding amounts included in interest
income
|
-
|
(621)
|
(621)
|
|
-
|
(9)
|
(9)
|
|
|
Reclassification
from defined contribution scheme to defined benefit
scheme
|
5,472
|
(3,351)
|
2,121
|
|
2,996
|
-
|
2,996
|
|
|
|
14,386
|
(3,972)
|
10,414
|
|
(393)
|
(9)
|
(402)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency exchange changes
|
(7,591)
|
4,586
|
(3,005)
|
|
(1,739)
|
279
|
(1,460)
|
|
|
At 31 October / 30 April
|
221,208
|
(110,857)
|
110,351
|
|
36,480
|
(5,707)
|
30,773
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the consolidated financial statements
(unaudited) continued
22. Share capital
Ordinary shares at 10 pence each as at 31 October 2018 (30 April
2017: 10 pence each)
|
|
31 October 2018
|
|
30
April 2017
|
|
|
Shares
|
$'000
|
|
Shares
|
$'000
|
|
Issued and fully paid
|
|
|
|
|
|
|
At 1
May
|
229,674,479
|
39,700
|
|
228,706,210
|
39,573
|
|
Shares
issued to satisfy option awards
|
1,894,673
|
251
|
|
968,269
|
127
|
|
Share
reorganisation
|
(16,935,536)
|
(2,926)
|
|
-
|
-
|
|
Shares
issued relating to acquisition of the HPE Software business (note
27)
|
222,166,897
|
28,773
|
|
-
|
-
|
|
At 31 October / 30 April
|
436,800,513
|
65,798
|
|
229,674,479
|
39,700
|
"B" shares at 168 pence each
|
|
31 October 2018
|
|
30
April 2017
|
|
|
Shares
|
$'000
|
|
Shares
|
$'000
|
|
Issued and fully paid
|
|
|
|
|
|
|
At 1
May
|
-
|
-
|
|
-
|
-
|
|
Issue
of B shares
|
229,799,802
|
500,000
|
|
-
|
-
|
|
Redemption
of B shares
|
(229,799,802)
|
(500,000)
|
|
-
|
-
|
|
At 31 October / 30 April
|
-
|
-
|
|
-
|
-
|
Share issuances during the 18 months to 31 October
2018
In
the 18 months to 31 October 2018, 1,894,673 ordinary shares of
10 pence each (12 months to 30 April 2017: 968,269 ordinary shares
of 10 pence) were issued by the Company to settle exercised share
options. The gross consideration received in the 18 months to 31
October 2018 was $5.8m (12 months to 30 April 2017:
$2.0m). 222,166,897 ordinary shares of 10 pence each were
issued by the Company as consideration for the acquisition of the
HPE Software business (note 27).
In
relation to the return of value to shareholders (note 23), 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.
At
31 October 2018 9,858,205 treasury shares were held (30 April 2017:
nil) such that the number of ordinary share with voting rights was
426,942,308 (30 April 2017: 229,674,479) and the number of listed
shares at 31 October 2018 was 436,800,513 (30 April 2017:
229,674,479).
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 2018 was
18,156,060 (2017: 8,607,889).
Share buy-back
On 29 August 2018, the company announced the start of a share
buy-back programme for an initial tranche of up to $200 million
which was extended on 5 November 2018 to the total value of $400
million (including the initial tranche). Up to and including 13
February 2019 the company had spent $400m and purchased 22,455,121
shares at an average price of £13.82 per share. We are
now extending this buy-back programme into a third tranche of up to
$110m to be executed in the period from today, the 14 February
2019, up until the day before the AGM which takes place on 29 March
2019 when the current buy-back authority approved by shareholders
at the 2017 AGM to make market purchases of up to 65,211,171
ordinary shares will expire.
In addition to purchasing ordinary shares on the London Stock
Exchange Citi acquired American Depository Receipts representing
ordinary shares ("ADRs") listed on the New York Stock Exchange
which it cancelled for the underlying shares and then sold such
shares to the Company.
As at 31 October 2018, 9,858,205 ordinary shares have been bought
back at a total cost of $171.7m, including expenses of $0.5m.
8,567,659 ordinary shares were bought on the London Stock Exchange
and 1,290,546 ADRs were purchased on the New York Stock
Exchange.
Notes to the consolidated financial statements
(unaudited) continued
23. Other reserves
|
|
Capital
redemption
reserve
|
Merger
reserve
|
Hedging
reserve
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
$'000
|
|
|
|
|
|
|
|
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 (note 19) 3
|
-
|
-
|
86,381
|
86,381
|
|
Deferred tax movement on hedging 3
|
-
|
-
|
(16,413)
|
(16,413)
|
|
Acquisition of HPE Software business 4
|
-
|
6,485,397
|
-
|
6,485,397
|
|
Reallocation of merger reserve 1
|
-
|
(2,755,800)
|
-
|
(2,755,800)
|
|
As at 31 October 2018
|
666,289
|
3,724,384
|
69,968
|
4,460,641
|
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 The Attachmate
Group ("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 the HPE Software
business to a wholly owned subsidiary in exchange for an
intercompany receivable. An amount of $2,755.8m has been
transferred from the merger reserve to retained earnings (30 April
2017: $650.0m). Of the $2,755.8m merger reserve transfer in
the period, $408.2m of the intercompany loan has been settled in
the period and the remaining $2,347.6m is expected to be settled in
qualifying consideration during the year to 31 October 2019 (year
to 30 April 2017: $650.0m). 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. 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 penny, resulting in a transfer of
$2.9m to the capital redemption reserve.
3 $70.0m was recognised in
the hedging reserve in relation to hedging transactions entered
into in the 18 months ended 31 October 2018.
4 On 1 September 2017 the
acquisition of the HPE Software business was completed (note 27).
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 the HPE Software business 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 the HPE Software business and
the aggregate nominal value of the shares issued).
Notes to the consolidated financial statements
(unaudited) continued
24. Related party
transactions
The Group's related parties are its subsidiary undertakings, key
management personnel and post-employment benefit
plans.
Subsidiaries
Transactions between the Company and its subsidiaries have been
eliminated on consolidation.
Key management personnel
There are no loans between the Group and the key management
personnel.
Transactions with other related parties.
The following transactions occurred with other related
parties:
Contributions made to pension plans by the Group on behalf of
employees.
Sales and purchases of goods and services between related parties
are not considered material.
25. Contingent
liabilities
The Company and several of its subsidiaries are, from time to time,
parties to legal proceedings and claims which arise in the ordinary
course of business. The directors do not anticipate that the
outcome of these proceedings, actions and claims, either
individually or in aggregate, will have a material adverse effect
upon the Group's financial position.
Shareholder litigation
Micro Focus International plc and certain current and former
directors and officers are involved in two class action lawsuits in
which plaintiffs are seeking damages for alleged violations of the
Securities Act of 1933 and the Exchange Act of 1934.
Plaintiffs allege false and misleading statements or omissions in
offering documents issued in connection with the Hewlett Packard
Enterprise software business merger and issuance of Micro Focus
American Depository Shares ("ADS") as merger consideration, and
other purportedly false and misleading statements. No liability has
been recognised in either case as these are still very early in
proceedings and it is too early to estimate whether there will
be any financial impact
26. Discontinued
operations and assets classified as held for sale
Discontinued operation - SUSE business segment
On 2 July 2018, the Group announced the proposed sale of the SUSE
business segment to Blitz 18-679 GmbH, a newly incorporated
indirectly wholly-owned subsidiary of EQTVIII SCSp which is advised
by EQT Partners. The total cash consideration of $2.535 billion is
on a cash and debt free basis and subject to normalisation of
working capital.
On 21 August 2018, Shareholders voted to approve the proposed
transaction whereby the Company has agreed to sell its SUSE
business segment to Marcel Bidco GmbH, a newly incorporated,
wholly-owned subsidiary of EQTVIII SCSp, for a total cash
consideration of approximately $2.535bn, subject to customary
closing adjustments. Following this vote, all applicable
antitrust,competition, merger control and governmental clearances
have been obtained. Completion of the transaction is now only
conditional upon completing the carve-out of the SUSE business
segment from the rest of the Micro Focus Group (and certain related
matters) and it is currently anticipated that this will be
satisfied such that the transaction will complete in the first
calendar quarter of 2019. As set out in the circular to
shareholders in advance of the vote, net sale proceeds after tax,
transaction costs and customary closing adjustments are estimated
to be $2.06bn and these funds will be used to make a required debt
repayment in accordance with the Credit Agreement. It is intended
that the balance will be returned to shareholders ("Return of
Value"). A circular to shareholders in respect of the Return
of Value will be despatched in due course.
Due to the proposed sale and subsequent shareholder approval, the
SUSE business segment has been treated as discontinued in these
financial statements.
The SUSE Business, a pioneer in Open Source software, develops,
markets and supports an enterprise grade Linux operating system,
Open Source software-defined infrastructure and application
delivery solutions that give enterprises greater control and
flexibility over their IT systems.
Notes to the consolidated financial statements
(unaudited) continued
26. Discontinued operation and
assets classified as held for sale continued
Micro Focus believes the disposal consideration represents a highly
attractive enterprise valuation for the SUSE business at
approximately 7.9x revenue and 26.7x Adjusted Operating Profit of
the SUSE Business for the twelve months ended 31 October 2017.
Micro Focus believes EQT provides a strong long-term investor for
the SUSE Business and allows Micro Focus to continue to focus upon
its longstanding and consistent strategy of delivering value to
customers and shareholders through effective management of
infrastructure software assets in an increasingly consolidating
sector.
Discontinued operation - Financial performance
|
|
18 months ended 31 October 2018
|
12
months ended 30 April 2017
|
|
|
$'000
|
$'000
|
|
Revenue
|
538,160
|
303,429
|
|
Operating
costs
|
(427,014)
|
(238,632)
|
|
Profit before taxation
|
111,146
|
64,797
|
|
Taxation
|
(34,206)
|
(31,077)
|
|
Profit for the period from discontinued operations
|
76,940
|
33,720
|
Discontinued operation - Cash flow
The cash flow statement shows amounts related to the discontinued
operations:
|
|
18 months ended 31 October 2018
|
12
months ended 30 April 2017
|
|
|
$'000
|
$'000
|
|
Net
cash inflows from operating activities
|
136,058
|
70,411
|
|
Net
cash outflows from investing activities
|
(2,512)
|
(7,430)
|
|
Net
cash flows from financing activities
|
-
|
-
|
Net Assets classified as held for sale
|
|
31 October 2018
|
|
Reported in:
|
Currentassets
|
Current liabilities
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
|
SUSE
|
1,114,264
|
(427,236)
|
687,028
|
|
Atalla
|
28,187
|
(10,463)
|
17,724
|
|
|
1,142,451
|
(437,699)
|
704,752
|
The net asset assets held for sale relating to the disposals of
SUSE and Atalla are detailed in the tables below. These include
non-current assets and non-current liabilities that are shown as
current assets and liabilities in the Consolidated statement of
financial position.
Notes to the consolidated financial statements
(unaudited) continued
26. Discontinued operation and
assets classified as held for sale continued
A.
SUSE
The assets and liabilities relating to SUSE have been presented as
held for sale following the shareholder approval on 21 August 2018.
Costs to sell have been included in trade and other
payables.
|
|
Note
|
31 October 2018
|
|
|
|
$'000
|
|
Non-current assets
|
|
|
|
Goodwill
|
13
|
859,566
|
|
Other
Intangible assets
|
14
|
165,662
|
|
Property,
plant and equipment
|
15
|
5,786
|
|
Investment
in associates
|
|
9,648
|
|
Deferred
tax assets
|
|
1,586
|
|
Long-term
pension assets
|
21
|
1,543
|
|
Other
non-current assets
|
|
2,020
|
|
|
|
1,045,811
|
|
Current assets
|
|
|
|
Trade
and other receivables
|
|
65,547
|
|
Cash
and cash equivalents
|
|
2,906
|
|
|
|
68,453
|
|
Total assets held for sale
|
|
1,114,264
|
|
|
|
|
|
Current liabilities
|
|
|
|
Trade
and other payables
|
|
(37,833)
|
|
Provisions
|
20
|
(664)
|
|
Current
tax liabilities
|
|
(1,156)
|
|
Deferred
income
|
|
(218,349)
|
|
|
|
(258,002)
|
|
Non-current liabilities
|
|
|
|
Deferred
income
|
|
(160,791)
|
|
Retirement
benefit obligations
|
21
|
(5,530)
|
|
Long-term
provisions
|
20
|
(2,376)
|
|
Other
non-current liabilities
|
|
(537)
|
|
|
|
(169,234)
|
|
Total liabilities held for sale
|
|
(427,236)
|
|
Net assets classified as held for sale
|
|
687,028
|
B.
Atalla
On 18 May 2018 the Company entered into an agreement with Utimaco
Inc. ("Utimaco"), under which Utimaco would acquire Atalla for $20
million in cash. The deal was subject to regulatory approval by the
Committee on Foreign Investment in the United States ("CFUIS").
CFIUS placed the deal into investigation in September and final
approval was received 10 October 2018. The deal closed on 5
November 2018 and Utimaco acquired the Atalla HSM product line, the
Enterprise Security Manger ("ESKM") product line, and related
supporting assets, including applicable patents and other
IP.
The assets and liabilities relating to the Atalla business included
in the Financial Statements at 31 October 2018 amount to
$17.7m.
|
|
|
31 October 2018
|
|
|
|
$'000
|
|
Goodwill
|
13
|
27,957
|
|
Property,
plant and equipment
|
15
|
230
|
|
Non-current assets
|
|
28,187
|
|
|
|
|
|
Deferred
income
|
|
(10,463)
|
|
Current Liabilities
|
|
(10,463)
|
|
|
|
|
|
Net assets classified as held for sale
|
|
17,724
|
Notes to the consolidated financial statements
(unaudited) continued
27. Business
combinations
1 Acquisition
of the HPE Software business
On
1 September 2017, the Company completed the acquisition of HPE's
software business ("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. The fair value of the
ordinary shares issued was based on the listed share price of the
Company as of 31 August 2017 of $6.5 billion. The costs of
acquiring the HPE Software business of $70.1m are included in
exceptional items (note 7) and include costs relating to due
diligence work, legal work on the acquisition agreement and
professional advisors on the transaction.
This
acquisition 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 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 the HPE Software business, as the resulting
shareholdings were not definitive to identify the entity which
obtains control in the Transaction. The Group considered the other
factors laid down in IFRS, such as the composition of the governing
bodyof 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 and, entity
name). The conclusion of this assessment is that the Company is the
accounting acquirer of the HPE Software business, and the
acquisition accounting, as set out below, has been performed on
this basis.
Details of the net assets acquired and goodwill are as
follows:
|
|
Carrying
valueat acquisition
|
Fair
value Adjustments
|
Fair
value
|
|
|
$'000
|
$'000
|
$'000
|
|
Intangible assets
(note 14) 1
|
72,825
|
6,467,000
|
6,539,825
|
|
Property, plant and
equipment (note 15)
|
160,118
|
-
|
160,118
|
|
Other
non-current assets
|
41,929
|
-
|
41,929
|
|
Inventories
|
185
|
-
|
185
|
|
Trade
and other receivables
|
710,679
|
-
|
710,679
|
|
Current
tax recoverable
|
496
|
-
|
496
|
|
Cash
and cash equivalents
|
320,729
|
-
|
320,729
|
|
Trade
and other payables
|
(686,855)
|
1,616
|
(685,239)
|
|
Current
tax liabilities
|
(9,942)
|
-
|
(9,942)
|
|
Borrowings
|
(2,547,604)
|
-
|
(2,547,604)
|
|
Short-term
provisions
|
(30,182)
|
-
|
(30,182)
|
|
Short-term deferred
income 2
|
(701,169)
|
58,004
|
(643,165)
|
|
Long-term deferred
income 2
|
(116,858)
|
8,652
|
(108,206)
|
|
Long-term
provisions (note 20)
|
(38,983)
|
-
|
(38,983)
|
|
Retirement benefit
obligations (note 21)
|
(71,445)
|
-
|
(71,445)
|
|
Other
non-current liabilities
|
(52,421)
|
12,145
|
(40,276)
|
|
Deferred tax
liabilities 3
|
450,252
|
(2,403,705)
|
(1,953,453)
|
|
Net
(liabilities)/assets
|
(2,487,916)
|
4,143,712
|
1,655,796
|
|
Goodwill (note
13)
|
-
|
|
4,858,374
|
|
Consideration
|
|
|
6,514,170
|
|
|
|
|
|
|
Consideration
satisfied by :
|
|
|
|
|
Shares
|
|
|
6,514,170
|
The Group has used acquisition accounting for the purchase and the
goodwill arising on consolidation of $4,858.4m has been
capitalised. The Group made a repayment of working capital in
respect of the HPE Software business acquisition of $225.8m in the
period.
Notes to the consolidated financial statements
(unaudited) continued
27. Business
combinations continued
Trade and other receivables are net of a provision for impairment
of trade receivables of $21.5m.
A fair value review has been carried out on the assets and
liabilities of the acquired business, resulting in the
identification of intangible assets.
The fair value adjustments include:
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 the
HPE Software business;
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 purchased intangible assets acquired as part of the acquisition
can be analysed as follows (note 14):
|
|
Fair value
|
|
|
$'000
|
|
Technology
|
1,809,000
|
|
Customer
relationships
|
4,480,000
|
|
Trade
names
|
163,000
|
|
Leases
|
15,000
|
|
|
6,467,000
|
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.
As
a consequence of the HPE Software business 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 the HPE Software business
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.
The
impact of the results of the HPE Software business acquisition has
not been separately disclosed in these Financial Statements as it
is not practical to do so as it has been integrated into the Micro
Focus Product Portfolio segment.
2
Acquisition of COBOL-IT, SAS
On
1 December 2017, the Group completed on the acquisition of COBOL-IT
SAS ("COBOL-IT"). COBOL-IT is in the business of designing, editing
and commercialisation of software, IT devices and related
services.
Consideration
of $16.7m 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 presented
the full IFRS 3 "Business Combinations" disclosures as this
acquisition is not material to the Group.
A
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 was finalised in the 12
month period following completion, which ended on 30 November 2018.
Goodwill of $5.6m (note 13), deferred tax liabilities of $3.9m and
purchased intangibles of $14.0m (Note 14) (Purchased Technology
$1.5m, Customer relationships $12.3m and Trade names $0.2m) and
cash of $1.0m were recorded as a result of the COBOL-IT acquisition
and no adjustments were identified.
Notes to the consolidated financial statements
(unaudited) continued
3
Acquisition of Covertix
On 15 May 2018, the Group entered into an Asset Purchase Agreement
("the agreement") to acquire certain assets of Covertix, an Israeli
company that had entered voluntary liquidation in April 2018.
Covertix used their patented solutions to develop and sell security
products that offered control and protection of confidential files
when shared with both internal and external parties. Prior to
entering liquidation Covertix had offices in Israel and the US,
with partners in the Netherlands and Singapore.
Under the agreement, the Group paid $2.5 million in cash to acquire
certain equipment, patents, licence rights under certain
agreements, and seven employees all involved in R&D activities.
The purchase completed on 26 July 2018.
Under IFRS 3, the Covertix Ltd. acquisition is considered to be a
business combination, however due to the immaterial amount of the
transaction, the assets acquired have been recorded at cost and are
being amortised over their useful lives within the ledgers of the
acquiring entities. The Company did not create a new subsidiary for
Covertix and no goodwill has been recorded.
28. Cash Flow Statement
|
|
Note
|
18 months
ended
31 October 2018
$'000
|
Restated1
12 months
ended
30 April 2017
$'000
|
|
Cash flows from operating activities
|
|
|
|
|
Profit
from continuing operations
|
|
707,193
|
124,083
|
|
Profit
from discontinued operation
|
|
76,940
|
33,720
|
|
Profit for the period
|
|
784,133
|
157,803
|
|
Adjustments for:
|
|
|
|
|
Net
interest
|
11
|
342,712
|
95,845
|
|
Taxation
|
12
|
(638,875)
|
38,541
|
|
Share
of results of associates
|
|
1,809
|
1,254
|
|
Operating profit
|
|
489,779
|
293,443
|
|
Research
and development tax credits
|
|
(2,013)
|
(2,998)
|
|
Depreciation
|
15
|
95,179
|
11,794
|
|
Loss on
disposal of property, plant and equipment
|
|
4,581
|
520
|
|
Amortisation
of intangible assets
|
14
|
943,210
|
236,434
|
|
Share-based
compensation charge
|
8
|
72,175
|
34,506
|
|
Exchange
movements
|
|
(34,505)
|
(4,890)
|
|
Provisions
movements
|
20
|
142,859
|
47,266
|
|
Changes in working capital:
|
|
|
|
|
Inventories
|
|
35
|
29
|
|
Trade
and other receivables
|
|
(408,879)
|
10,224
|
|
Payables
and other liabilities
|
|
131,333
|
(33,252)
|
|
Provision
utilisation
|
20
|
(145,012)
|
(43,476)
|
|
Deferred
income
|
|
131,477
|
15,375
|
|
Pension
funding in excess of charge to operating profit
|
|
4,092
|
(183)
|
|
Cash generated from operations
|
|
1,424,311
|
564,792
|
1 The comparatives for the
12 months to 30 April 2017 have been restated to reflect the
divestiture of the SUSE business segment (note
26)
Notes to the consolidated financial statements
(unaudited) continued
29. Post balance sheet
events
Atalla
On 18 May 2018 the Company entered into an agreement with Utimaco
Inc. ("Utimaco"), under which Utimaco would acquire the Atalla
product lines for $20 million in cash. The deal was subject to
regulatory approval by the Committee on Foreign Investment in the
United States ("CFUIS"). CFIUS placed the deal into investigation
in September and final approval was received 10 October 2018. The
deal closed on 5 November 2018 and Utimaco acquired the Atalla HSM
product line, the Enterprise Security Manger ("ESKM") product line,
and related supporting assets, including applicable patents and
other IP.
Share Buy-back
On 29 August 2018, the company announced the start of a share
buy-back programme for an initial tranche of up to $200m which was
extended on 5 November 2018 to the total value of $400m (including
the initial tranche). Up to and including 13 February 2019 the
company had spent $400m and purchased 22,455,121 shares at an
average price of £13.82 per share. We are now extending
this buy-back programme into a third tranche of up to $110m to be
executed in the period from today, the 14 February 2019, up until
the day before the AGM which takes place on 29 March 2019 when the
current buy-back authority approved by shareholders at the 2017 AGM
to make market purchases of up to 65,211,171 ordinary shares will
expire.
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:
14 February 2019
Micro
Focus International plc
|
|
By:
|
/s/
Chris Kennedy
|
|
|
Name:
|
Chris
Kennedy
|
|
|
Title:
|
Chief
Financial Officer
|